Commercial Real Estate Investing From A-Z Steffany Boldrini

What is the current state of the real estate market and is there a recession coming up? What are some investment strategies for healthy investments? Jeremy Roll, president of Roll Investment Group, shares his knowledge.
Read this entire interview here: https://tinyurl.com/ykutphd6

What do you think is the state of the market now? What's on your mind in terms of the economy and your investments?

On the economic side, one of two dominoes has fallen that is going to impact investors in general: 1) interest rates spiked up which caused a lot of other domino effects and a huge adjustment in prices. When there's a 20 or 30% price adjustment in the stock market, everybody calls it a crash. I've not heard anybody call it a crash but that's factually what's happened here on the real estate prices. Some assets have gone down more, and some have gone down a little less, but on average is 15 to 30%. And I think that's domino number one. 2) The domino that I am still waiting for is a recession that I think is a very high probability based on macro data. And then when you get that, you would typically have a stock market crash. Unfortunately, this time around, there's a direct correlation between the length and an inversion of the yield curve, and how long that goes for, which is at a record right now. If you were to chart it out, which I've seen and I've done, it implies a 45 to 50% stock market crash, which even when I say that I can't picture it, but that's what theoretically should be happening, taking history and applying it to today in terms of the length of inversion.

I'm bracing for a very major second domino to fall and not a lot of people are talking about. A lot of people are talking about interest rate cuts, I'm expecting at least one and possibly two before the end of the year. But I think what a lot of people tend to forget is that the reason why they cut rates is because there is a recession or a recession is about to happen and the economy is doing bad. It's not just randomly happening.

We had some interesting data today. They released the CPI data, it was -0.1 month over month and it was at 3.0% over a year, that's the regular CPI. The core CPI was at about 0.1%, I think 3.4 but it's trending down. There's a very high probability that it's going to continue to trend down because 43% of the CPI is comprised of what they call the owners’ equivalent rent, which is a highly likely 18-to-24-month lag indicator of rents. The CPI number has been overinflated for a long time.

How many deals do you have right now under your belt? And how are they doing?
I'm highly diversified because I have been doing it full-time for so many years. I'm currently in over 60 active LLCs, and I've been in over 150 to 200+ over the past 22 years. They're all different because some of them are from the 2000 era and some of them are from last year, or even this year. One thing that I think was very important is I didn't invest in any floating rate bridge loan deals, which was very difficult to not do because in 2020 to 2023, let's say, literally 90%+ of anything I got was that. If you wanted to invest in anything, it almost always had to be that, but it didn't match with my bucket, which I typically look for a 10-year fixed rate loan long term because I'm looking for predictable cash flow. I sidestep that so I'm not dealing with any of that, thankfully, although a lot of people are and I feel horrible about what's going on right now.

Jeremy Roll
jroll@rollinvestments.com

Today we celebrate our 200th episode of the Commercial Real Estate Investing From A-Z podcast, I will share some of my most recent learnings and observations, some are in mindset, some are related to real estate investing.
Read this entire interview here: https://tinyurl.com/2vy2tnhz

Real Estate

Every single deal has multiple problems you will have to overcome, a friend of mine that has been building multi family projects in California for several years told me that for each problem you must "block and tackle”, and I have never heard anyone say that there was an “easy” deal, especially in development. In fact, they say “if there was ever an easy deal, they all happened before I started my career, we were only left with the difficult ones”.

Another thing I learned is that buying a portfolio of properties for a discount is a fantastic way to invest. You not only get a discount on them, but you can turn around and sell a couple of them individually for a higher price and keep the other properties. As far as the car washes, I got 3 of them, and a self storage facility, and I got a discount on everything because I bought a portfolio, plus I negotiated a price reduction. And today, 3.5 years later, with the sale of that 1 car wash, I could have paid the entire mortgage for the 3 car washes and would have had money left.

I have also been working on partnerships with people that know their field very well but don’t have cash to invest, for example employees working at commercial real estate firms that are very good at what they do and haven’t thought about doing their own thing, or incredibly driven individuals. Say, you have 5 partners that are very capable, each working on a deal, yes your slice of the pie is smaller, but you now have 5 properties that you’re working on with very capable people. Regarding partnerships, you must do your due diligence on them, for me, it works to get to know them over time, see how they act and react to certain hurdles, see their integrity, and then I will partner up with them after I know them for a while.

Mindset

You may already know this first one and that is “Readers are leaders” indeed, I try observe what common traits highly successful people have, a lot of them did read a lot in their childhood, some of them started reading in their adult years, but what they have in common is that they do read a lot. The reason that this makes sense is because we can read one book and, no matter how amazing it was, we forget most of what we read. However, when we have “reading” as a regular thing in our lives, a lot of the messages of these books are very similar, they’re just written in different ways, and it’s through repetition that this information begins to stay with you for the long run.

Another trait that I have observed from some very successful people is that they experienced different extremes in their lives, wether they experienced poverty, or lived in a country that had a lot of problems, or even if they were born with a silver spoon but their parents made sure that in the summer time, they’d spend half of the time working at a farm doing hard labor, and the other half with the time they’d spend at one of their parent’s friends companies doing an internship. The common trait was that they had seen the good life and the bad life and that made them very driven. They are also very curious people and good listeners.

Earlier this year I realized I was becoming very negative with all that I was learning about what is happening to our country, I was not sure if this is how it has always been and we now just have more access to this information, or was it indeed getting worse. I have my personal opinions on that, but I decided to delete social...

How to overcome the largest problems and issues in land development? What are some tips in creative financing, collaborative problem-solving, and long-term planning for infrastructure development? We continue the interview with Pike Oliver and Michael Stockstill, authors of Transforming the Irvine Ranch book.
Read the entire interview here: https://tinyurl.com/y8dvzpbf
Buy the Transforming the Irvine Ranch book here: https://www.amazon.com/Transforming-Irvine-Ranch-William-American/dp/103212783X

What are some of the largest problems you have worked on? How did you overcome them?
Michael: Let me start with transportation in the late 70s. For various factors, Orange County was not getting its fair share of state or federal transportation money and there just was not enough money to build the level of infrastructure that was needed. There was a change in law, allowing Santa Clara County to impose its own sales tax and use it for transportation. The Irvine company took the lead in gathering people in the county, and other jobs, primarily other big businesses. People were suspect that a developer would be asking that they raise their taxes for the good of everybody and so a coalition was put together, I worked on that for probably 8 years. The citizens in Orange County were pretty conservative and we put it on the ballot "Let's raise the sales tax by a penny for transportation" That got beat very badly. We regrouped. We came back a second time and finally a third time. After a change in state law, we got 55% to make that happen but that was an 8-year effort to make that happen and it took an awful lot of time. The Irvine Company was the leader, both behind the scenes and publicly in making that happen.
Pike: We would survey people in the community at least twice a year. One of the things I've always been fascinated by what came back was that two things would make a difference in the community’s acceptance of continued growth: 1) adequate roadways and 2) adequate good schools; so, the company put a big focus on that.

How did you tackle the water quality issue which is a major issue that came in at the end of things?
Pike: It was an issue that came up with a little area called Crystal Cove, at the end of the whole effort. The approach the company took is the same approach it always took which is to find the experts, get them involved, tell them to work out a solution that will be acceptable to the people whose primary mission in life is water quality, and figure out how it can be done and still allow the company to achieve its goals.

Michael: In the 30-40 years that this has been done, the specialized attorneys, the consultants, the engineers, when El Toro was an issue, people that understood jet noise, there was just an army of people that worked for the Irvine company on a consulting basis that helped to make this happen. The bill has to be in the hundreds of millions of dollars over time for those people to give their expertise and, as Pike said, that was a real big part of dealing with bureaucrats, with regulators. Once you're willing to speak their language and try to meet them halfway and have facts to deal with, that makes a big difference. The Irvine company was rarely confrontational. It rarely raised its voice, if you will, and it could look long-term and say, "We can solve this, it may take some time, but let's put the resources to it."

Pike Oliver
pike@urbanexus.com

Michael Stockstill
stockstill49@gmail.com

www.thebigplanbook.com

How did Mr. Donald Bren buy, manage, and expanded the company that made him the wealthiest real estate investor in the world?
Read the entire interview here: https://tinyurl.com/46m22v7b

Buy the Transforming the Irvine Ranch book here: https://www.amazon.com/Transforming-Irvine-Ranch-William-American/dp/103212783X

You both participated in writing a book called Transforming the Irvine Ranch which one of the heiresses, Joan Irvine, also participated in, how did you get to write a book and what was the reasoning behind it?
Michael: We've always loved history when we were together at the Irvine company. We looked around and asked questions about the background of the company, we read the book, and we talked to other people who had lived it. Fast forward 40 years after talking about it many times, Pike called me one day and said, "Why don't we write that book." Ray Watson had written six chapters, and he gave a 500-page oral history. And with that as a base, we set out to write the book and had a great time doing it.
I would love to understand how Mr. Bren got himself into the Irvine company from your perspective.
Michael: Donald Bren had an interest in planned communities as a young man and as a builder. He started his own building company in his late 20s. He was 31 years old when he and some partners purchased 11,000 acres of what is now Mission Viejo, which is south of the Irvine Ranch. Bren was very interested in whole communities and design. Unfortunately, that was a bridge too far. Bren sold out after 3 years and eventually, Mission Viejo was bought by Philip Morris, they had deep pockets. He kept his eye on the Irvine Ranch, and built houses on the ranch. And in 1976, it became apparent that the ranch was going to go up for sale. Bren rounded up $100 million, and was prepared to join the bidding and it very quickly exceeded that. He was invited into the winning group, which was headed by Al Taubman from Detroit and included Joan Irvine. And in 1977, Bren owned 35% of the Irvine Company. But he did not have control and the other owners rallied around Al Taubman. And Taubman for the next five years became the real force in terms of decision making at the ranch.
What shapes Mr. Bren’s focus is an incredibly broad bandwidth of perspective, as compared to most people involved in real estate. For example, he will spend quite a bit of time looking at a site plan and making sure that the houses next to each other do not allow people to look in the other person's house. Then, he can look at the entire ranch to figure out the purpose and intent, and begin to think about how to implement open space and habitat preserves that amount to over 50,000 acres. There are very few people that can work across that dimension of detail.

The other element of this was Brent surrounded himself by very energetic people. They were well paid, they were motivated, and when things needed to be done, the usual response was: "We'll figure out how to get it done, and tell us the resources you need to make that happen." The Irvine company never had a lobbyist in Washington DC, we ended up hiring somebody there and it made a tremendous difference in some of the issues that we had to deal with at the time. Bren was very willing to spend resources, he was not a spendthrift, there were budgets but it was a huge property, it was a huge job.
 

Pike Oliver
pike@urbanexus.com
Michael Stockstill
stockstill49@gmail.com
www.thebigplanbook.com

How to find and assemble large projects? What are the real estate market trends? Victor Menasce, an author, real estate developer, and host of the Real Estate Espresso Podcast, shares his knowledge.
Read this entire interview here: https://tinyurl.com/nut4m6b8
You have many projects right now, one in particular is huge. How did you get it? How did you put it together? And what are some of the good, bad and the ugly so far?

Every single one of our significant projects has landed in our lap. Somebody says, "I've got this deal. I don't know what to do with it. Can you help?" This was a huge property on the edge of Colorado Springs, it's 77 million square feet, and the perimeter is about seven miles.

Someone approached us who got it under contract, he didn't have the money to put it together, and had negotiated a reasonable price of 10,000 an acre, about 23 cents a square foot. If you look at agricultural land anywhere across the United States, it will vary between 3 to 10,000 an acre, depending on where it's located. If you're growing weed on it, it's maybe towards the higher end of that spectrum. I typically talk about the entitlement multiplier that comes with land because it's just dirt, why is this dirt worth more than that? It's because of what you can do with it. An agricultural land, 3 to 10,000 an acre, if it's entitled for development, and maybe you can put a subdivision on, it might be a couple of 100,000 an acre. If you can put a 40-story building on it might be several million an acre, but it's all still the same dirt. If we can transform this from agricultural land into the growth path for the city of Colorado Springs, we can probably create a reasonable multiplayer value.

We took over the contract, renegotiated it, and got it re-signed with us. We negotiated a fairly lengthy closing period, which included the entitlement. It had some timelines associated with it, so the sooner the entitlement or the expiration. We did not meet the entitlement timelines that we were originally expecting, based on conversations with both the county and the city of Colorado Springs, that this is something that would be pretty quick. It has turned out to not be quick, but it's still an amazing project.

Where is the market today? Are the deals better? Is it time to buy?

I would say that it's better in the sense that there's less insanity than there was because I think we would all acknowledge that many of the valuations that we witnessed in 2021, 2022, and parts of 2023 made no sense at all. I think reality is setting in for many of those and that's going to create distress for a number of them. If you think about folks who would have started a project, maybe a value-add project in 2021 with certain interest rate assumptions, assumptions about rent growth, etc, they find themselves in a very different world today, probably with no path to get into permanent financing without writing a massive check. And initially, they were probably thinking they were going to get a significant cash-out to refinance, but it's going the other way.

I think the lenders are still in a mode of "extend and pretend", bridge lenders in particular. The forecast flood of deals is a trickle, not a flood yet, I think it's coming but a lot of lenders don't want to recognize distress on their books. We are starting to see valuations become more reasonable. We are evaluating deals daily and looking at two projects that are significant opportunities for office-to-residential conversions at a decent price.

Victor...

How is self-storage doing today? What are the benefits of joining a mastermind? Scott Meyers, founder and CEO of Self Storage Investing , shares his knowledge with us.
Read this entire interview here: https://tinyurl.com/rt4pvac2
You have been doing self-storage for 20 years, how is self-storage doing today?
We're bullish on storage. It doesn't matter what the economy's doing, because our asset classes are largely unaffected by what's happening when things are good, people buy more stuff and there's a need for storage so we do well. When there's a contraction in the economy and people are losing their jobs or businesses, it is going a little slower. They have to put their inventory in storage, or they sublease their office or whatever their business looks like and we benefit from that, as well. We are heading into a time that we've been preparing for years, which is kind of the intersection of all that. Interest rates are a little higher and the cost of capital is higher but we are seeing a contraction in the market, which is causing people to downsize businesses.

I heard this morning that in Austin, Texas 20% of the workforce is unemployed right now. Some of these companies are laying their people off. But there is a pullback right now, and the jobless rate is a little higher than even what the government statistics would show because we're seeing it and feeling it in the marketplace.

Do you think self-storage is being overbuilt in places?
You can't say that the industry is overbuilt. If everybody's rates all across the country, were going down and everybody was at 50% occupancy, maybe, but I don't think that we would ever get to that standpoint. There are lots of safeguards in our industry and we do know what it takes to do our homework and understand as developers, what makes this successful self-storage development project. With today's very difficult capital markets: appraisers, lenders, and private equity partners, they are not just throwing money at us, assuming it's going to win, they are forcing and they want to see our feasibility studies and the demand studies that we're doing in the marketplace to understand what a deal looks like before they're going to grant us a loan or loan us our limited partners that are going to come alongside of us or the hedge funds and invest with us. We shouldn't be coming forward if we didn't have that, and we really wouldn't get it anyway.

What are some things that you have seen happen at your mastermind?
A lot of the things that we've seen are things that we've built in an environment in which all the good things that we see in a mastermind can occur and some of that is true. As we take a step back, we recognize that following the Napoleon Hills model, which is when like-minded people come together and operate at a certain level, good things happen. They share best business practices, they can do business together and so from the beginning, that's the way we designed it. And we see other masterminds out there where they'll just accept anybody into the group, as long as they can write a check. We have an interview process, and it's an exclusive group that we've put into place in the mastermind.
Scott Meyers
www.selfstorageinvesting.com