#209 - Most Investors Ask the Wrong Questions. Here's What the Smart Ones Ask. | Jacob Vanderslice

1
00:00:00,130 --> 00:00:02,483
Growth doesn't matter if you're not more
profitable.

2
00:00:02,483 --> 00:00:07,109
You could grow and have a bigger asset
base and your fixed costs grew faster,

3
00:00:07,109 --> 00:00:09,362
maybe your variable costs grew faster too.

4
00:00:09,362 --> 00:00:11,976
And before you know it, you've got more
assets and you're making less money.

5
00:00:33,218 --> 00:00:35,540
All right, you all. Hey, welcome back for
what I know is going to

6
00:00:35,540 --> 00:00:37,781
be another very interesting conversation.

7
00:00:37,781 --> 00:00:42,254
When you get somebody on the opposite side
of the microphone and camera

8
00:00:42,254 --> 00:00:44,226
for me that's as refined as this guy,

9
00:00:44,226 --> 00:00:45,627
we just talked about, I was like,

10
00:00:45,627 --> 00:00:47,048
man, you got good hair going on,

11
00:00:47,048 --> 00:00:49,419
and I don't have he said he's got perfect
eyesight.

12
00:00:49,419 --> 00:00:52,712
I don't have it. So today might be the
perfect yin and yang.

13
00:00:52,712 --> 00:00:55,894
~ but I'm pumped today to have on Jacob
Vanderslice.

14
00:00:55,894 --> 00:01:01,238
What a name. ~ he's the principal and
investor relations at Van West Partners.

15
00:01:01,830 --> 00:01:04,292
~ Jacob spent his career helping
entrepreneurs,

16
00:01:04,292 --> 00:01:07,515
investors, and business owners navigate
capital,

17
00:01:07,515 --> 00:01:10,437
relationships, and long term wealth
creation.

18
00:01:10,437 --> 00:01:13,940
Through his work in private real estate
investing and investors' relations,

19
00:01:13,940 --> 00:01:18,034
he's had a front row seat to what
separates successful founders from those

20
00:01:18,034 --> 00:01:19,405
who struggle to gain traction.

21
00:01:19,405 --> 00:01:21,807
So today we'll discuss entrepreneurship,

22
00:01:21,807 --> 00:01:25,250
leadership, investing, risk, trust,

23
00:01:25,250 --> 00:01:27,972
and the lessons that come from evaluating
opportunities

24
00:01:27,972 --> 00:01:29,994
and building relationships at a high
level.

25
00:01:30,690 --> 00:01:34,163
Jacob, welcome to the show and your work
is cut out for you with that introduction

26
00:01:34,163 --> 00:01:35,163
now.

27
00:01:34,710 --> 00:01:36,976
That's right. We shot the breeze for a few
minutes,

28
00:01:36,976 --> 00:01:39,564
~ and I'm excited for the conversation.

29
00:01:40,222 --> 00:01:42,333
Absolutely. Yeah, man. Yeah, it's gonna be
great.

30
00:01:42,333 --> 00:01:44,743
The conversation. We're gonna come out of
this knowing how to make

31
00:01:44,743 --> 00:01:46,844
a hundred million dollars. Whether we do
it or not,

32
00:01:46,844 --> 00:01:51,465
just pay attention, you all. And I think ~
when I say that hundred million,

33
00:01:51,465 --> 00:01:52,795
whether it's a million, ten million,

34
00:01:52,795 --> 00:01:55,866
a hundred million, I think what's gonna
come from the conversation today

35
00:01:55,866 --> 00:01:57,507
is what we've probably learned from the
losses,

36
00:01:57,507 --> 00:02:00,428
from the struggle, from when things didn't
go well,

37
00:02:00,428 --> 00:02:02,578
and then all of a sudden you stick with
something long enough and

38
00:02:02,578 --> 00:02:05,009
you develop an expertise and then you can
share that with others.

39
00:02:05,009 --> 00:02:07,880
And so ~ I'm I'm pumped about where we go
with this.

40
00:02:07,880 --> 00:02:09,430
But so you've spent years

41
00:02:10,316 --> 00:02:14,867
Evaluating entrepreneurs. So we're here in
this space on an entrepreneurial podcast,

42
00:02:14,867 --> 00:02:17,508
but not just entrepreneurs, but and
investment opportunities.

43
00:02:17,508 --> 00:02:23,100
So what's something that investors are
actually looking

44
00:02:23,100 --> 00:02:26,540
for that founders rarely realize that
matters?

45
00:02:26,540 --> 00:02:29,411
So this combination between
entrepreneurship and investors.

46
00:02:29,411 --> 00:02:33,823
So is there something that sticks out to
you now with all this expertise that
you've

47
00:02:33,823 --> 00:02:39,074
developed that investors are typically
looking for that as entrepreneurs for

48
00:02:39,352 --> 00:02:41,814
for some bad reason it's not even in the
forefront of our mind

49
00:02:41,814 --> 00:02:42,814
and it's so important.

50
00:02:43,798 --> 00:02:47,100
Yeah. Sometimes investors don't know what
they're looking for and you kind

51
00:02:47,100 --> 00:02:50,062
of have to help guide them on the right
questions to ask.

52
00:02:50,062 --> 00:02:55,826
And I think way too often investors ask
sponsors to tell them about their track

53
00:02:55,826 --> 00:02:59,739
record. And when you tell when you tell
the story by your track record,

54
00:02:59,739 --> 00:03:03,561
you've got a pitch deck and you've got all
these crazy IRRs and multiples that

55
00:03:03,561 --> 00:03:06,153
you put up back in twenty twenty one and
early twenty twenty two.

56
00:03:06,153 --> 00:03:07,874
Well, everybody was doing that.

57
00:03:08,510 --> 00:03:11,711
And I think what investors need to ask
more about is tell me about your failures,

58
00:03:11,711 --> 00:03:13,012
which you alluded to a moment ago.

59
00:03:13,012 --> 00:03:17,184
Tell me what went wrong. And instead of
telling me the story of how I

60
00:03:17,184 --> 00:03:18,694
can make a great return with you,

61
00:03:18,694 --> 00:03:21,595
tell me the story of how I can lose my
money with you.

62
00:03:21,595 --> 00:03:23,936
What series of events have has to happen,

63
00:03:23,936 --> 00:03:27,178
whether it's a debt insurity issue or a
market fundamental softening,

64
00:03:27,178 --> 00:03:29,629
an expansion in cap rates, you know,

65
00:03:29,629 --> 00:03:33,260
if you if you pull the lever over here and
turn the dial over there,

66
00:03:33,260 --> 00:03:37,442
what scenario has to take place for me to
experience a loss of capital?

67
00:03:38,142 --> 00:03:39,995
And what is the likelihood of that
happening?

68
00:03:39,995 --> 00:03:41,426
~ I think that's a question

69
00:03:42,797 --> 00:03:47,004
Why is that so important for for that
question and answer to be able to be
given?

70
00:03:47,832 --> 00:03:48,832
Think

71
00:03:48,262 --> 00:03:50,924
now, I mean, investing one on one,

72
00:03:50,924 --> 00:03:54,687
right, is always don't lose. ~ but I think
downside protection

73
00:03:54,687 --> 00:03:57,739
in this new environment we've been in for
a couple of years is more important than

74
00:03:57,739 --> 00:04:00,450
ever. And investors have learned the hard
way,

75
00:04:00,450 --> 00:04:03,992
I think, in a lot of deals that they've
been exposed to with ~ equity wipes,

76
00:04:03,992 --> 00:04:08,356
unplanned capital calls, distributions
that were coming in reliably that have
since

77
00:04:08,356 --> 00:04:11,658
ceased. They've I I think learned just by
getting burned,

78
00:04:11,658 --> 00:04:13,779
to start asking some of those harder
questions.

79
00:04:13,779 --> 00:04:17,452
And I think people still believe that real
estate is a good

80
00:04:17,632 --> 00:04:19,464
diversification component to your
portfolio.

81
00:04:19,464 --> 00:04:22,247
It's a hard asset. It eventually produces
cash flow if it doesn't already.

82
00:04:22,247 --> 00:04:24,618
~ but there's been a lot of pain in real
estate.

83
00:04:24,618 --> 00:04:29,022
And ~ I think people are more concerned
lately about not losing than they

84
00:04:29,022 --> 00:04:32,865
are winning. And those are questions that
weren't getting asked back

85
00:04:32,865 --> 00:04:34,376
in the easy days of twenty twenty one.

86
00:04:35,650 --> 00:04:37,931
And it's it's so important too because as
an investor,

87
00:04:37,931 --> 00:04:43,415
what we know is inevitably a lot of times
plans and proformas don't work

88
00:04:43,415 --> 00:04:44,806
out the exact way they're meant to.

89
00:04:44,806 --> 00:04:47,998
We'd love for them to, but something
changes or something happens.

90
00:04:47,998 --> 00:04:48,998
I I

91
00:04:48,334 --> 00:04:49,334
I would

92
00:04:48,535 --> 00:04:50,719
argue they never do. Sorry to cut you off.

93
00:04:50,902 --> 00:04:52,603
Yeah. That's good. And I I'd like to say
it,

94
00:04:52,603 --> 00:04:53,633
but some people are like, you know,

95
00:04:53,633 --> 00:04:56,925
I've never had a business plan that's
worked out the exact way in

96
00:04:56,925 --> 00:04:58,585
the exact years with the right revenue,

97
00:04:58,585 --> 00:05:00,086
the right return. I never have.

98
00:05:00,086 --> 00:05:03,607
And it's getting even more difficult now
because things are changing so fast.

99
00:05:03,607 --> 00:05:08,230
But the question is, is it important to
know that you're dealing with somebody

100
00:05:08,230 --> 00:05:09,310
who knows how to handle it?

101
00:05:11,372 --> 00:05:13,103
Yeah. And within how to handle it,

102
00:05:13,103 --> 00:05:15,736
protecting the downside. ~ you know,

103
00:05:15,736 --> 00:05:17,564
with your leverage, with your assumptions.

104
00:05:17,564 --> 00:05:20,910
what you don't want to do is put together
a model that tells an investor,

105
00:05:20,910 --> 00:05:25,074
if everything goes perfectly, and best
possible case scenario,

106
00:05:25,074 --> 00:05:28,046
you're gonna make a fifteen IRR and a two
multiple.

107
00:05:28,046 --> 00:05:30,768
you wanna anchor expectations with
conservative assumptions,

108
00:05:30,768 --> 00:05:32,260
whatever your business is, right?

109
00:05:32,260 --> 00:05:33,801
You'd be buying operating companies,

110
00:05:33,801 --> 00:05:38,565
buying apartment buildings. you want to
anchor expectations with assumptions that

111
00:05:38,565 --> 00:05:39,636
are reasonable and achievable.

112
00:05:40,326 --> 00:05:44,560
And unfortunately in this environment I
think forward looking assumptions have
never

113
00:05:44,560 --> 00:05:47,762
been more opaque and more difficult to
solve too,

114
00:05:47,762 --> 00:05:49,804
given the level of uncertainty we have on
the streets.

115
00:05:51,128 --> 00:05:53,431
So the importance is the person that
you're been in business with.

116
00:05:53,431 --> 00:05:55,164
It's always been the most important thing,

117
00:05:55,164 --> 00:05:56,706
but when money's easy to make,

118
00:05:56,706 --> 00:05:59,060
it seems like you can fall into things
that work out.

119
00:05:59,894 --> 00:06:02,244
Yeah, ~ going back to like investor
questions.

120
00:06:02,244 --> 00:06:04,046
I mean, asking about downsize important,

121
00:06:04,046 --> 00:06:07,075
but I think ~ people need to spend a lot
more time getting to know

122
00:06:07,075 --> 00:06:09,758
the management team and like who's in the
back office,

123
00:06:09,758 --> 00:06:12,560
who's making decisions. ~ because to your
point,

124
00:06:12,560 --> 00:06:14,300
when things soften or they don't go well,

125
00:06:14,300 --> 00:06:19,143
you're relying on that management team to
execute and protect your capital.

126
00:06:19,143 --> 00:06:24,965
And ~ too often investors focus on the
deal and and less so the shop.

127
00:06:24,965 --> 00:06:26,376
I think it should be the opposite.

128
00:06:27,404 --> 00:06:28,795
I agree with you. I agree with you.

129
00:06:28,795 --> 00:06:32,497
So what do pitch decks look like now?

130
00:06:32,497 --> 00:06:36,289
And so for people that are, let's say they
haven't been a traditional investor,

131
00:06:36,289 --> 00:06:38,420
but they've been in a job for twenty or
thirty years,

132
00:06:38,420 --> 00:06:40,581
they have a good retirement investment
account,

133
00:06:40,581 --> 00:06:43,703
they think they want to diversify and they
listen here and they're listening

134
00:06:43,703 --> 00:06:47,845
to somebody who's learned a lot and has
some understanding and knowledge about
real

135
00:06:47,845 --> 00:06:49,786
estate investments and storage facilities.

136
00:06:49,786 --> 00:06:53,728
What do you think? ~ for those people,

137
00:06:53,728 --> 00:06:56,530
when we say pitch deck, what's that mean?

138
00:06:56,822 --> 00:06:59,310
And then w when you explain what that
means,

139
00:06:59,310 --> 00:07:03,353
what do they look like now in two thousand
twenty six versus what they looked like

140
00:07:03,353 --> 00:07:04,353
in two thousand twenty one?

141
00:07:05,486 --> 00:07:09,830
Well, our pitch decks look less crappy
than they did in twenty twenty one.

142
00:07:09,830 --> 00:07:15,134
So we got that going. ~ but I would say
pitch deck one on one is get the

143
00:07:15,275 --> 00:07:18,297
ask out of the way on page one or two.

144
00:07:18,297 --> 00:07:21,160
What are you asking for? What is the
opportunity?

145
00:07:21,160 --> 00:07:25,133
~ it's I'm not I'm not saying that I've
developed the ability to make

146
00:07:25,133 --> 00:07:28,086
the perfect pitch deck. they get less and
less bad every year.

147
00:07:28,086 --> 00:07:32,620
~ but I see so many decks from other shops
and different opportunities we look at.

148
00:07:33,108 --> 00:07:37,160
And too often the details and the ask is
buried in the middle of the file.

149
00:07:37,160 --> 00:07:39,581
~ get it out of the way early.

150
00:07:39,581 --> 00:07:42,652
what are the economics? What are the
return targets?

151
00:07:42,652 --> 00:07:44,583
What's the ask? What's the equity ask?

152
00:07:44,583 --> 00:07:46,274
You know, what do you want from me?

153
00:07:46,274 --> 00:07:48,555
Because a lot of folks will just stop
reading after page,

154
00:07:48,555 --> 00:07:51,526
you know, two or three if they can't get
the answer quickly.

155
00:07:51,526 --> 00:07:54,547
~ and then I think more so in this
environment,

156
00:07:54,547 --> 00:07:57,958
~ we used to show just kind of a return
target,

157
00:07:57,958 --> 00:08:00,369
right? Whatever it might be, 17 IRR,

158
00:08:00,369 --> 00:08:01,570
2x multiple.

159
00:08:02,258 --> 00:08:06,021
~ in the last year or two, we've showed a
variety of return scenarios.

160
00:08:06,021 --> 00:08:09,564
~ reasonable downside, base case and
upside.

161
00:08:09,564 --> 00:08:13,087
I think that's really helpful for
investors to kind of see how you view,

162
00:08:13,087 --> 00:08:15,679
you know, not not necessarily a loss of
capital,

163
00:08:15,679 --> 00:08:18,191
but if we miss our miss our projections,

164
00:08:18,191 --> 00:08:19,552
the market softens a little bit,

165
00:08:19,552 --> 00:08:22,534
a pretty bad day means you make an eight
or a nine.

166
00:08:22,534 --> 00:08:24,706
A base case day you make a fifteen.

167
00:08:24,706 --> 00:08:27,058
And if we execute better on our business
plan than we expect,

168
00:08:27,058 --> 00:08:28,719
maybe we get some market tailwinds,

169
00:08:28,719 --> 00:08:30,521
we're gonna get we're targeting a
seventeen.

170
00:08:30,521 --> 00:08:31,842
So I think ~

171
00:08:32,491 --> 00:08:35,764
Reasonable downside, base, and upside
scenarios is important and getting that

172
00:08:35,764 --> 00:08:37,184
ask out of the way in the front page.

173
00:08:37,184 --> 00:08:39,265
And the pitch deck is purely just,

174
00:08:39,265 --> 00:08:40,767
you know, who you are and what you want,

175
00:08:40,767 --> 00:08:42,347
you know, what's the opportunity.

176
00:08:42,347 --> 00:08:46,431
And ~ the art and the science is crafting
it in a way where it's long enough

177
00:08:46,431 --> 00:08:49,673
to be comprehensive and give the
information to the audience they want to
see,

178
00:08:49,673 --> 00:08:51,924
~ but without being overly detailed.

179
00:08:53,548 --> 00:08:55,759
Yeah, so there's a question. You know how
when you get the gurus,

180
00:08:55,759 --> 00:08:57,590
Warren Buffett's one of them, Ray Dalio,

181
00:08:57,590 --> 00:09:00,562
they're they're all in this investment
world and they have these definitive

182
00:09:00,562 --> 00:09:02,873
statements, and you don't know if they're
ever completely true,

183
00:09:02,873 --> 00:09:06,005
because there's probably context that's
been developed for hundreds

184
00:09:06,005 --> 00:09:07,365
and hundreds of hours on their teams.

185
00:09:07,365 --> 00:09:11,518
But Warren Buffett, what we know in from
what he said is he buys companies

186
00:09:11,518 --> 00:09:14,189
on one page. Whether that's true or not,

187
00:09:14,189 --> 00:09:17,651
I don't know. However, if it's true,

188
00:09:17,651 --> 00:09:19,012
let's just say it's two pages.

189
00:09:19,012 --> 00:09:22,454
If you buy company on companies on two
pages,

190
00:09:22,454 --> 00:09:23,454
then why can't a

191
00:09:23,394 --> 00:09:24,897
Pitch deck be one or two pages.

192
00:09:26,254 --> 00:09:28,895
That's a good point. I wish I had a
productive response to that.

193
00:09:28,895 --> 00:09:32,557
~ we do occasionally do one pagers just
for like a teaser.

194
00:09:32,557 --> 00:09:37,841
~ but the full file, like they want to see
generally investors wanna see like

195
00:09:37,841 --> 00:09:40,482
a a market study. What are the supply
ratios?

196
00:09:40,482 --> 00:09:43,504
~ screenshots of the financial model,

197
00:09:43,504 --> 00:09:47,046
~ rent comps, competitive facilities.

198
00:09:47,046 --> 00:09:49,887
And you can't fit that all on one page.

199
00:09:49,887 --> 00:09:52,529
~ but to your point, one page,

200
00:09:52,529 --> 00:09:54,680
you could put the return targets why you
like it.

201
00:09:55,276 --> 00:09:57,060
You know, buying it below replacement
costs,

202
00:09:57,060 --> 00:09:58,873
conservative underwriting projections,

203
00:09:58,873 --> 00:10:02,050
~ high exit cap rates still driving a good
return.

204
00:10:02,050 --> 00:10:04,364
That might be enough for people to sink
their teeth into and,

205
00:10:04,364 --> 00:10:05,364
you know, schedule a call.

206
00:10:05,814 --> 00:10:09,306
Yeah, if that's if that one page is
truthful and honest and it's

207
00:10:09,306 --> 00:10:12,287
a true representation on what the you
know,

208
00:10:12,287 --> 00:10:14,158
what the sponsor believes it's gonna be,

209
00:10:14,158 --> 00:10:19,361
you could probably cut through the vast
majority of the answers.

210
00:10:19,361 --> 00:10:20,782
Cause then all that should happen is,

211
00:10:20,782 --> 00:10:23,704
hey, if I make this happen, do you want in
on the deal?

212
00:10:23,704 --> 00:10:27,716
And if someone would say yes, then we can
dig into the details,

213
00:10:27,716 --> 00:10:29,747
but the details then shouldn't be a sales
pitch.

214
00:10:29,747 --> 00:10:32,528
It just it should be the explanation on
what the one page was.

215
00:10:32,528 --> 00:10:35,512
Yeah. So I don't know. I haven't

216
00:10:33,038 --> 00:10:34,038
Information.

217
00:10:35,854 --> 00:10:37,314
I haven't been in too many those
environments,

218
00:10:37,314 --> 00:10:40,135
but me, when I invest in things,

219
00:10:40,135 --> 00:10:41,596
that's how I'm processing it now.

220
00:10:41,596 --> 00:10:43,196
I want speed, I want efficiency.

221
00:10:43,196 --> 00:10:46,897
Cause what I'm asking myself in the
documents that are before me,

222
00:10:46,897 --> 00:10:49,518
the person that prepared these for me,

223
00:10:49,518 --> 00:10:53,419
are they knowledgeable? Do they know what
they're talking about?

224
00:10:53,419 --> 00:10:55,300
Did they alter the data? Is it true?

225
00:10:55,300 --> 00:10:57,421
So I'm evaluating the human in the person.

226
00:10:57,421 --> 00:11:01,482
Cause I now can go out and find what we're
doing with AI now.

227
00:11:01,482 --> 00:11:02,482
You

228
00:11:01,910 --> 00:11:03,522
I can find a lot of this information,

229
00:11:03,522 --> 00:11:05,374
even if I don't have expertise in that
field.

230
00:11:05,374 --> 00:11:07,936
I can find ninety percent of it to ask the
right questions.

231
00:11:07,936 --> 00:11:09,224
Right.

232
00:11:08,204 --> 00:11:09,204
Yep.

233
00:11:09,895 --> 00:11:13,837
Yeah, we're we're getting our models ~ and
and decks run through AI.

234
00:11:13,837 --> 00:11:16,829
And I think that's spurring a lot more
detailed conversations than we used

235
00:11:16,829 --> 00:11:21,122
to have used to have. ~ we're we're in a
couple kind of capital raising groups

236
00:11:21,242 --> 00:11:24,504
and their leadership teams have have
taught their investors to leverage

237
00:11:24,504 --> 00:11:28,726
AI to analyze PPMs and LSC agreements and
financial models.

238
00:11:28,726 --> 00:11:33,990
And ~ it's remarkable ~ the value add
that's out there and we're only just
beginning

239
00:11:33,990 --> 00:11:34,990
to use it.

240
00:11:35,030 --> 00:11:37,112
Absolutely. Like from my perspective,

241
00:11:37,112 --> 00:11:40,962
when I'm in the position of representing a
client in a real estate deal,

242
00:11:40,962 --> 00:11:44,358
a transaction, sometimes I look at
investments I'm not involved in.

243
00:11:44,358 --> 00:11:50,924
~ a lot of times I can go out and get the
information now to formulate

244
00:11:50,924 --> 00:11:55,388
the right questions. Right. And so I
appreciate now if I'm representing clients
that

245
00:11:55,388 --> 00:11:58,530
clients bring these things to me that
they've garnered or learned through

246
00:11:58,530 --> 00:12:00,992
AI because what I've always learned in
this environment,

247
00:12:00,992 --> 00:12:02,804
give me the objections, give them all to
me.

248
00:12:03,320 --> 00:12:06,232
Give me all the questions, because I know
when we leave the meeting,

249
00:12:06,232 --> 00:12:08,784
you're going to be honest with yourself
about what the objections were.

250
00:12:08,784 --> 00:12:10,195
And if I'm not there to overcome it,

251
00:12:10,195 --> 00:12:11,326
to deal with it, to address it,

252
00:12:11,326 --> 00:12:12,597
I'm probably going to lose the deal.

253
00:12:12,597 --> 00:12:16,010
So I a lot of people I hear they're
frustrated that their clients

254
00:12:16,010 --> 00:12:19,573
are questioning them. If you're not
prepared at a level of expertise that

255
00:12:19,573 --> 00:12:22,265
you can handle any question that comes
your way and you don't want

256
00:12:22,265 --> 00:12:23,896
a more informed client, you shouldn't be
in the business.

257
00:12:24,832 --> 00:12:28,674
Agreed. And there's there's plenty of us
out there that are like that.

258
00:12:28,674 --> 00:12:30,620
Yeah. So these days. Yeah.

259
00:12:31,066 --> 00:12:32,066
So

260
00:12:31,326 --> 00:12:35,719
what took you in the real estate
investment space from operating a thousand

261
00:12:35,719 --> 00:12:40,823
fix and flips to then enter into the
storage space?

262
00:12:40,823 --> 00:12:45,346
Tell us that progression. Because and I
asked this because the first time

263
00:12:45,346 --> 00:12:48,258
I ever flipped a property, a single family
residential and then some small

264
00:12:48,258 --> 00:12:51,260
multifamilies, I thought it was the
amazing thing in the world.

265
00:12:51,260 --> 00:12:54,042
And I was looking at cash flow and I was
evaluating the deals with

266
00:12:54,042 --> 00:12:57,125
my very limited perspective. But now
looking back,

267
00:12:57,125 --> 00:12:58,996
I would never do those again.

268
00:13:00,450 --> 00:13:04,411
Yeah. So and I I think we have similar
reasons for kind of moving on and

269
00:13:04,431 --> 00:13:07,072
~ to to expand on on that further.

270
00:13:07,072 --> 00:13:09,462
~ we we obviously did a lot of these,

271
00:13:09,462 --> 00:13:11,613
right? Over and over again. I think one
eighteen,

272
00:13:11,613 --> 00:13:13,354
eighteen, maybe twenty-four month period,

273
00:13:13,354 --> 00:13:15,054
we did almost four hundred deals.

274
00:13:15,054 --> 00:13:21,186
And, you know, I'm a slow learner and and
over time we started concluding that this

275
00:13:21,186 --> 00:13:23,256
is a business that creates cash,

276
00:13:23,256 --> 00:13:26,097
but it's not necessarily creating wealth.

277
00:13:26,097 --> 00:13:29,548
And the reason it's not creating wealth is
because it's it's

278
00:13:29,738 --> 00:13:33,421
overly transactional, right? It's an e
it's an eat what you kill strategy.

279
00:13:33,421 --> 00:13:34,801
It's buy it, you make it better,

280
00:13:34,801 --> 00:13:37,523
you sell it, you pay ordinary income tax.

281
00:13:37,523 --> 00:13:40,125
And if you don't do it again, you don't
make any money.

282
00:13:40,125 --> 00:13:43,347
So it's just kind of this this hamster
wheel of buying and selling.

283
00:13:43,347 --> 00:13:46,740
And, you know, in retrospect, I wish we
would have held on to a lot more than

284
00:13:46,740 --> 00:13:49,191
we had the discipline to. We still have a
rental portfolio,

285
00:13:49,191 --> 00:13:54,495
but it'd be a different story had we had
the forward looking thought process

286
00:13:54,495 --> 00:13:56,216
to like, let's let's take half of these
and,

287
00:13:56,216 --> 00:13:58,848
you know, hang on to But that took a lot
of discipline we didn't have.

288
00:13:59,674 --> 00:14:02,915
~ so we got into commercial real estate
around fourteen and fifteen

289
00:14:02,915 --> 00:14:05,116
and kind of overlapped the fix and flip
strategy.

290
00:14:05,116 --> 00:14:11,048
And we started concluding that ~ maybe
wealth creation is durable recurring
revenue

291
00:14:11,048 --> 00:14:14,849
streams that just pay you all the time
versus transactional.

292
00:14:14,849 --> 00:14:17,970
And we thought commercial real estate was
a good vehicle to kind of shift into

293
00:14:17,970 --> 00:14:21,781
to do that. And we started off with doing
a lot of adaptive reuse,

294
00:14:21,781 --> 00:14:23,672
kind of historic preservation retail
deals.

295
00:14:23,672 --> 00:14:24,782
You probably have lots of cool.

296
00:14:25,238 --> 00:14:28,529
old brick buildings in Cincinnati that
someone's demise and put the brewery

297
00:14:28,529 --> 00:14:30,560
and the restaurant and yoga studio into.

298
00:14:30,560 --> 00:14:33,521
~ did a bunch of those. We did town home
development,

299
00:14:33,521 --> 00:14:36,940
which is still transactional. That's
basically just a slow fix and flip,

300
00:14:36,940 --> 00:14:38,282
you know, instead of a fast one.

301
00:14:38,282 --> 00:14:43,344
And ~ we looked at self storage for a
while and we liked the fact that it's been

302
00:14:43,344 --> 00:14:44,815
historically downside protected,

303
00:14:44,815 --> 00:14:46,595
fairly resilient, fairly durable,

304
00:14:46,595 --> 00:14:49,016
you know, predictable recurring revenue
streams.

305
00:14:49,842 --> 00:14:52,763
And we got into business in 15 with a
joint venture partner.

306
00:14:52,763 --> 00:14:55,123
We did a development project and it went
okay.

307
00:14:55,123 --> 00:14:59,145
So we did another one and over time we
evolved to being pretty much exclusively

308
00:14:59,145 --> 00:15:00,625
a self storage owner operator.

309
00:15:00,625 --> 00:15:04,136
And it takes a long time to get these
things set up.

310
00:15:04,136 --> 00:15:08,587
Once you do, ~ you've got predictable
recurring cash flow.

311
00:15:08,587 --> 00:15:11,958
And our definition of wealth is not net
worth,

312
00:15:11,958 --> 00:15:14,049
because net worth is fake, right?

313
00:15:14,049 --> 00:15:16,389
Like somebody deeds you a ten million
dollar mansion,

314
00:15:16,389 --> 00:15:18,100
~ great.

315
00:15:18,604 --> 00:15:20,365
You're you're worth another 10 million
bucks,

316
00:15:20,365 --> 00:15:23,476
but you gotta pay the taxes, you gotta pay
the maintenance and the groundskeepers,

317
00:15:23,476 --> 00:15:27,118
it's not paying you. The only way to
monetize that mansion is to refinance

318
00:15:27,118 --> 00:15:29,039
it or sell it, right? It's just a
liability.

319
00:15:29,039 --> 00:15:31,850
~ whereas real estate that creates cash
flow,

320
00:15:31,850 --> 00:15:34,171
~ it takes a while to build up,

321
00:15:34,171 --> 00:15:35,632
but once you kind of get to scale,

322
00:15:35,632 --> 00:15:38,383
it becomes pretty meaningful. And before
you know it,

323
00:15:38,383 --> 00:15:40,244
maybe you're in a position where you don't
have to deal,

324
00:15:40,244 --> 00:15:43,185
to to do a deal to, you know, pay your
bills the next month.

325
00:15:43,185 --> 00:15:45,716
~ but it takes time and it takes
discipline.

326
00:15:47,308 --> 00:15:52,311
The I'm sitting here and it seems like the
journey that you've been on,

327
00:15:52,311 --> 00:15:55,342
it's been a similar one, me operating an
agency but also being

328
00:15:55,342 --> 00:15:56,883
an investor and building a portfolio.

329
00:15:56,883 --> 00:15:58,844
But when you said it's transactional,

330
00:15:58,844 --> 00:16:03,227
it's exactly what it is. But but go into
when you said downside protected.

331
00:16:03,227 --> 00:16:06,318
So let's say that again, somebody's out
here and they're gonna diversify.

332
00:16:06,318 --> 00:16:07,589
They haven't been in real estate.

333
00:16:07,589 --> 00:16:10,351
Tell us the to the layman's terms,

334
00:16:10,351 --> 00:16:13,302
because you're a sophisticated investor,

335
00:16:13,302 --> 00:16:16,524
advisor, deal maker now. I'm still

336
00:16:17,194 --> 00:16:20,176
On this other side. I'm not as my brain
hasn't evolved.

337
00:16:20,176 --> 00:16:21,917
I'm not as smart in what you do.

338
00:16:21,917 --> 00:16:23,659
Understand financial principles,

339
00:16:23,659 --> 00:16:27,251
investments. I get it. But the average
person out here,

340
00:16:27,251 --> 00:16:28,962
when they say downside protection,

341
00:16:28,962 --> 00:16:30,343
I don't think they know what it means.

342
00:16:30,343 --> 00:16:34,306
And I'm a guy that's about helping people
change their life the same way I have.

343
00:16:34,306 --> 00:16:37,829
A kid that grew up poor, that just had a
good mom,

344
00:16:37,829 --> 00:16:39,790
but not anything else too much better in
their life,

345
00:16:39,790 --> 00:16:42,512
that put a roof over his head that just
had an opportunity.

346
00:16:42,512 --> 00:16:45,014
And I got busy and I started working
really hard.

347
00:16:45,238 --> 00:16:48,520
I think there's a lot of people stuck in a
lot of places that work hard that they

348
00:16:48,520 --> 00:16:51,363
haven't developed this financial
dictionary in their brain.

349
00:16:51,363 --> 00:16:56,977
So downside protection to this country boy
that grew up in northern Kentucky

350
00:16:56,977 --> 00:16:58,908
and Cincinnati and all the people that are
around me,

351
00:16:58,908 --> 00:17:01,330
give us a good layman's explanation of
that.

352
00:17:02,476 --> 00:17:06,067
Yeah, a couple examples of how to kind of
think about downside protection.

353
00:17:06,067 --> 00:17:10,897
One is ~ how does the value that you're
the value that you're paying for this
asset,

354
00:17:10,897 --> 00:17:12,329
the price you're paying for this asset,

355
00:17:12,329 --> 00:17:15,589
compare to the value of other assets in
the neighborhood or in the market,

356
00:17:15,589 --> 00:17:18,790
right? That's an easy one. And if you're
buying a fix and flip

357
00:17:18,790 --> 00:17:21,811
in a neighborhood where all the houses
trade for three hundred grand

358
00:17:22,392 --> 00:17:24,902
and you're paying three hundred grand and
you want to put fifty into it

359
00:17:24,902 --> 00:17:28,242
and sell for four fifty, it's probably not
a good idea because everything trades

360
00:17:28,242 --> 00:17:30,184
for three hundred, right? You got to pay
less for it.

361
00:17:30,892 --> 00:17:35,886
So buying at a either subjective or
subjective discount to market value

362
00:17:35,886 --> 00:17:38,969
is important. And market value is always
kind of elusive.

363
00:17:38,969 --> 00:17:40,190
Like what's market value mean,

364
00:17:40,190 --> 00:17:41,701
right? Is it is it an appraisal?

365
00:17:41,701 --> 00:17:43,552
Is it is it your opinion? Is it the
broker?

366
00:17:43,552 --> 00:17:48,366
~ market value is objective, unassailable
data on what's selling and at what price.

367
00:17:48,366 --> 00:17:49,577
How long does it take to sell?

368
00:17:49,577 --> 00:17:56,333
So buying something that's ~ pr at least a
perceived but confident discount

369
00:17:56,333 --> 00:17:59,935
for market value. ~ secondly, especially
in this environment,

370
00:17:59,935 --> 00:18:00,935
debt financing.

371
00:18:01,280 --> 00:18:04,791
And this is simple concept, but ~ I've
failed many times to think about this,

372
00:18:04,791 --> 00:18:06,782
especially early in my career 20 years
ago.

373
00:18:06,782 --> 00:18:12,035
~ in in real estate finance, ~ NOI is net
operating income,

374
00:18:12,035 --> 00:18:14,556
and that's just revenue minus expenses.

375
00:18:14,556 --> 00:18:17,317
It's kind of like EBITDA in any other
business,

376
00:18:17,317 --> 00:18:22,659
right? In an in an OTCO. ~ does your NOI
cover your debt service?

377
00:18:22,659 --> 00:18:26,000
Right? That's a pretty easy question and a
fundamental question you want to know.

378
00:18:26,000 --> 00:18:29,582
~ if your net operating income does not
cover your debt service,

379
00:18:30,156 --> 00:18:32,607
Is there a reason for that? And is that
the intention?

380
00:18:32,607 --> 00:18:34,347
Well, maybe it's a development project,

381
00:18:34,347 --> 00:18:36,768
right? You're obviously not going to cash
flow development project because

382
00:18:36,768 --> 00:18:40,149
you got to build it and you got to lease
it up and you got to raise rents over
time.

383
00:18:40,149 --> 00:18:44,790
~ but when you're when you're making your
projections in your deal,

384
00:18:44,790 --> 00:18:46,831
debt management is so important.

385
00:18:46,831 --> 00:18:51,172
~ when is your debt mature? ~ how are you
stress testing your interest rate?

386
00:18:51,172 --> 00:18:53,073
Let's say it's a bridge loan for two
years.

387
00:18:53,073 --> 00:18:58,054
~ a lot of folks got themselves into
trouble originating bridge loans in 2022.

388
00:18:58,668 --> 00:19:02,601
By twenty four, their interest rate had
doubled and suddenly they can't find

389
00:19:02,601 --> 00:19:05,003
a new loan that's equal to or greater than
the current loan.

390
00:19:05,003 --> 00:19:08,526
So unplanned capital calls, fire sales,

391
00:19:08,526 --> 00:19:11,068
technical defaults, maturity defaults,

392
00:19:11,068 --> 00:19:14,831
payment defaults. So managing your debts
important.

393
00:19:14,831 --> 00:19:20,215
~ and this is a harder one to kind of put
a put a pin on because it's so subjective,

394
00:19:20,215 --> 00:19:22,677
but just making reasonable, achievable,

395
00:19:22,677 --> 00:19:25,279
and conservative assumptions in your
forward cash flows.

396
00:19:25,279 --> 00:19:28,262
~ if things don't go that well.

397
00:19:28,578 --> 00:19:30,679
Assuming they don't completely implode on
this deal.

398
00:19:30,679 --> 00:19:33,460
But if we miss our mark, is this deal
going to be okay?

399
00:19:33,460 --> 00:19:37,182
So relative to market value, what's the
price you're paying?

400
00:19:37,182 --> 00:19:42,134
~ what's your what's your debt management
strategy look like and your debt financing

401
00:19:42,134 --> 00:19:45,816
strategy look like? Does your does your
going in net operating income cover your

402
00:19:45,816 --> 00:19:49,767
debt service? And then the assumptions
that you're layering into your model that

403
00:19:49,808 --> 00:19:52,969
are creating your value and your returns
to your investors,

404
00:19:52,969 --> 00:19:55,410
are those assumptions achievable and
reasonable?

405
00:19:56,532 --> 00:19:58,643
I I view all those things as downside
protection.

406
00:19:58,643 --> 00:20:02,246
And when you have a downside scenario,

407
00:20:02,246 --> 00:20:06,549
~ okay, what what would have to occur
there where we couldn't refinance when

408
00:20:06,549 --> 00:20:10,371
our debt mature? Okay, we'd have to miss
our NOI growth target by half,

409
00:20:10,371 --> 00:20:11,712
right? That's a pretty wide margin.

410
00:20:11,712 --> 00:20:14,114
We still have to grow NOI. We can't leave
it static.

411
00:20:14,114 --> 00:20:17,036
But if we miss it by half, are we still
okay?

412
00:20:17,036 --> 00:20:18,767
Okay, yeah, that's a pretty good story to
tell.

413
00:20:18,767 --> 00:20:23,551
~ occupancy assumptions. Can we take this
thing from sixty to seventy five percent

414
00:20:23,551 --> 00:20:25,642
occupancy over three years, five points a
year?

415
00:20:26,158 --> 00:20:27,990
Yeah, we probably can't. What happens if
we miss that?

416
00:20:27,990 --> 00:20:29,201
What happens if we land at seventy?

417
00:20:29,201 --> 00:20:31,624
So asking yourself all these questions,

418
00:20:31,624 --> 00:20:33,165
and these are applicable to any business,

419
00:20:33,165 --> 00:20:35,377
right? You buy an opco for a three times
multiple.

420
00:20:35,377 --> 00:20:39,051
You think you can leverage AI and
advertising in your back office

421
00:20:39,051 --> 00:20:42,975
to grow EBITDA over time. it's the same
principles,

422
00:20:42,975 --> 00:20:48,531
right? Just believing in your assumptions
and ~ protecting against downside

423
00:20:48,531 --> 00:20:49,622
on missing those assumptions.

424
00:20:50,774 --> 00:20:54,836
Is this let me try to make a ~ an analogy
for our lives and our personal lives?

425
00:20:54,836 --> 00:20:58,087
Isn't this as simple how we can understand
this for somebody that's trying

426
00:20:58,087 --> 00:20:59,787
to develop the knowledge? They have some
money,

427
00:20:59,787 --> 00:21:01,258
they got some cash to put to work,

428
00:21:01,258 --> 00:21:02,769
but they wanna they wanna say,

429
00:21:02,769 --> 00:21:03,839
Hey, how do I understand this?

430
00:21:03,839 --> 00:21:08,081
It's like, hey, are you bringing in more
income from your job and your income than

431
00:21:08,081 --> 00:21:09,441
it costs for you to live your life?

432
00:21:09,441 --> 00:21:11,382
The difference is in OI.

433
00:21:12,482 --> 00:21:13,508
Yep, it is.

434
00:21:14,178 --> 00:21:15,540
That's it. So at the end of the day,

435
00:21:15,540 --> 00:21:18,365
what you take home every monthly month
from your paycheck,

436
00:21:18,365 --> 00:21:22,622
after your taxes are paid, your net take
home after you pay all your bills,

437
00:21:22,622 --> 00:21:23,734
the difference is in OI.

438
00:21:25,846 --> 00:21:27,338
You can look at that. Absolutely.

439
00:21:27,338 --> 00:21:28,338
Yep.

440
00:21:28,254 --> 00:21:29,254
In

441
00:21:28,514 --> 00:21:30,715
business, all of your expenses,

442
00:21:30,715 --> 00:21:33,357
or take your income minus all your
expenses,

443
00:21:33,357 --> 00:21:35,298
what's left over. That's your net
operating income.

444
00:21:35,298 --> 00:21:37,019
And when that starts to get squeezed,

445
00:21:37,019 --> 00:21:39,541
that's when you're going to start to have
some problems if it doesn't line

446
00:21:39,541 --> 00:21:40,881
up with what the downside could be.

447
00:21:40,881 --> 00:21:44,353
Yep. So, you know, it's like, for example,

448
00:21:44,353 --> 00:21:47,255
if somebody would it's why you don't go
out and stack a bunch of debt

449
00:21:47,255 --> 00:21:50,067
on a credit card if you can't afford it
every month,

450
00:21:50,067 --> 00:21:52,498
because at some point that debt's gonna
come do it.

451
00:21:52,498 --> 00:21:54,119
If you can't pay it, you're gonna have
some problems.

452
00:21:54,119 --> 00:21:55,380
Your credit score is gonna be hit.

453
00:21:55,672 --> 00:21:57,224
Then you can't go out and get more credit.

454
00:21:57,224 --> 00:21:58,646
Then you can't refi your house.

455
00:21:58,646 --> 00:22:02,963
If everybody would understand that running
business and investments is

456
00:22:02,963 --> 00:22:04,635
the same way you run your personal life,

457
00:22:04,635 --> 00:22:06,578
you can kind of understand it a little bit
better.

458
00:22:08,544 --> 00:22:11,287
Yet somehow it's still fairly elusive to a
lot of us.

459
00:22:11,778 --> 00:22:13,674
Yeah, it's fascinating. ~ all right,

460
00:22:13,674 --> 00:22:16,564
so does does cash flow matter?

461
00:22:18,671 --> 00:22:19,971
Cash flow is all that matters.

462
00:22:19,971 --> 00:22:22,633
~ we're we're big cash flow investors.

463
00:22:22,633 --> 00:22:26,446
And I'll tell you, if you ever crash and
burn or you have a deal that goes bad,

464
00:22:26,446 --> 00:22:29,819
it's almost always because of a cash flow
issue or a timing

465
00:22:29,819 --> 00:22:31,560
of liquidity events issue, right?

466
00:22:31,560 --> 00:22:33,742
You've got a liquidity event in August,

467
00:22:33,742 --> 00:22:37,224
you need the cash in June, you borrow,

468
00:22:37,224 --> 00:22:39,336
knowing that event's coming in in August,

469
00:22:39,336 --> 00:22:41,187
and that event gets pushed out from
August.

470
00:22:41,187 --> 00:22:43,149
Same same thing with credit card bill,

471
00:22:43,149 --> 00:22:44,760
right? You're gonna get your bonus in
March.

472
00:22:45,260 --> 00:22:47,171
Right. I'm gonna wrap some credit cards
over the holidays,

473
00:22:47,171 --> 00:22:49,531
I'll get bonused, ~ and you get laid off,

474
00:22:49,531 --> 00:22:52,632
right? It's a timing of liquidity events
and a cash flow issue.

475
00:22:52,632 --> 00:22:54,953
but every deal that we invest in,

476
00:22:54,953 --> 00:22:58,003
~ we are always, always targeting cash
flow.

477
00:22:58,003 --> 00:23:00,324
And that's one of our main metrics we look
at.

478
00:23:00,324 --> 00:23:02,605
And we speak to IRR and we speak to
multiple,

479
00:23:02,605 --> 00:23:05,816
but I think cash flow is so much more
visceral and real and quantifiable.

480
00:23:05,816 --> 00:23:08,516
~ I've had a lot of old rich folks tell
me,

481
00:23:08,516 --> 00:23:12,357
~ would you rather put IRR in your pocket
or cash flow in your pocket?

482
00:23:12,357 --> 00:23:14,858
Right. And the answer is cash flow.

483
00:23:14,990 --> 00:23:20,544
Because IRR is so abstract. ~ the path we
take to get to cash flow

484
00:23:20,544 --> 00:23:23,045
can vary from deal to deal. So for
example,

485
00:23:23,045 --> 00:23:25,316
we opened up a development project here in
Denver.

486
00:23:25,316 --> 00:23:28,288
It's a big one. It's all in at about 25
million,

487
00:23:28,288 --> 00:23:30,250
which is a lot of money to any of us
listening.

488
00:23:30,250 --> 00:23:33,191
But in the storage business, one deal at
25 million,

489
00:23:33,191 --> 00:23:35,023
that's a that's a big total project cost.

490
00:23:35,023 --> 00:23:36,504
Most of our deals are around eight to ten.

491
00:23:36,504 --> 00:23:40,186
~ we opened that thing up in July of last
year.

492
00:23:40,750 --> 00:23:44,361
probably nine months late and slightly
over budget as it tends to happen,

493
00:23:44,361 --> 00:23:46,152
especially in municipalities like Denver.

494
00:23:46,152 --> 00:23:49,553
And our leasing velocity has been
spectacular.

495
00:23:49,553 --> 00:23:53,274
~ we've gotten up to 90% physical
occupancy and we weren't targeting

496
00:23:53,274 --> 00:23:55,494
90% for a couple of years. However,

497
00:23:55,494 --> 00:23:59,536
we are not going to be cash flow positive
until probably 2020 early 28.

498
00:23:59,536 --> 00:24:02,416
So we're still targeting cash flow,

499
00:24:02,416 --> 00:24:05,137
but we recognize that in a development
project,

500
00:24:05,137 --> 00:24:07,528
there's not a cash flow component for a
while.

501
00:24:07,904 --> 00:24:11,997
So most of that return is on the reversion
or the back end or maybe a recap event.

502
00:24:11,997 --> 00:24:15,260
~ so cash flow we live and breathe by,

503
00:24:15,260 --> 00:24:18,442
but we also recognize the paths to that
cash flow can vary.

504
00:24:19,394 --> 00:24:21,055
Yeah, you have to build it and put in the
work,

505
00:24:21,055 --> 00:24:23,616
right? Because there's not anybody out in
this world that's going to sell

506
00:24:23,616 --> 00:24:28,248
and give away substantial cash flow for
for for any type of a bad investment
number.

507
00:24:28,248 --> 00:24:29,438
They're just not going to give it to you.

508
00:24:29,438 --> 00:24:32,580
You got to buy it, right? So you're either
going to buy it

509
00:24:32,860 --> 00:24:35,061
and maybe somewhat overpay for a good
deal,

510
00:24:35,061 --> 00:24:36,641
or you're going to have to build it.

511
00:24:36,641 --> 00:24:43,264
Yeah. So but at what point See,

512
00:24:37,528 --> 00:24:38,528
Jacqueline.

513
00:24:43,264 --> 00:24:45,115
this is the part that so many people don't
talk about.

514
00:24:45,115 --> 00:24:46,786
I I guess that the really wealthy people.

515
00:24:47,168 --> 00:24:50,390
I don't know if they don't want to share
the rules of the game so other people come

516
00:24:50,390 --> 00:24:54,163
in and compete with them. But what I
didn't understand when I started

517
00:24:54,618 --> 00:24:57,286
in the real estate investment ~ part,

518
00:24:57,286 --> 00:25:00,078
I I I thought it was cash flow because in
our businesses,

519
00:25:00,078 --> 00:25:03,249
as we unless you want to put a bunch of
debt and and pull out equity,

520
00:25:03,249 --> 00:25:06,703
but I always thought it was a cash flow
play,

521
00:25:06,703 --> 00:25:12,867
I did. But then I realized there's also
this huge non taxable event that also

522
00:25:12,867 --> 00:25:13,867
you can benefit from.

523
00:25:14,764 --> 00:25:18,517
That in your normal life, there's not many
opportunities to be able to do that.

524
00:25:18,517 --> 00:25:21,619
The only similar opportunity, as we can
get into it here,

525
00:25:21,619 --> 00:25:24,812
if you develop a lot of equity in your
personal residence and you want

526
00:25:24,812 --> 00:25:27,784
to put an addition on or you want to do a
remodel,

527
00:25:27,784 --> 00:25:32,338
a home equity line of credit and refining
or taking out a HELOC or a refi,

528
00:25:32,338 --> 00:25:36,401
when they give you that extra cash above
and beyond what your current note

529
00:25:36,401 --> 00:25:39,674
is or your first mortgage, that's a
non-taxable moment.

530
00:25:39,674 --> 00:25:42,476
Because it's not normal income.

531
00:25:42,476 --> 00:25:44,448
You're borrowing the money from a from a
bank.

532
00:25:45,164 --> 00:25:48,097
And so if I borrow $100,000 against my
home,

533
00:25:48,097 --> 00:25:50,349
I'm not paying income tax on that hundred,

534
00:25:50,349 --> 00:25:52,861
I legit get a hundred thousand dollars to
go spend.

535
00:25:52,861 --> 00:25:57,905
Right. The same thing is real about these
commercial properties.

536
00:25:57,905 --> 00:26:01,527
So you could build equity, get to a point
where you could extract five

537
00:26:01,527 --> 00:26:05,612
or ten or fifteen or twenty million
dollars in a non non taxable event

538
00:26:06,053 --> 00:26:09,115
and then take and reinvest that and build
other projects and properties.

539
00:26:09,115 --> 00:26:12,258
Right. So I didn't fully understand those
principles.

540
00:26:12,738 --> 00:26:15,231
that what the real end goal and how I
build substantial wealth.

541
00:26:15,231 --> 00:26:16,463
So I don't know if you want to talk to
that.

542
00:26:16,463 --> 00:26:18,446
You can push back on the importance of it,

543
00:26:18,446 --> 00:26:22,691
but that's the way I'm going to build
hundreds of millions in wealth

544
00:26:23,352 --> 00:26:24,724
in the portfolios I'm building.

545
00:26:25,794 --> 00:26:28,386
Debt debt is a beautiful and terrifying
thing.

546
00:26:28,386 --> 00:26:32,499
leverage when used responsibly,

547
00:26:32,499 --> 00:26:36,542
lever what what leverage does not do is
make a bad deal good.

548
00:26:36,542 --> 00:26:40,395
Responsible and appropriate and
conservative leverage will make a d

549
00:26:40,395 --> 00:26:44,819
a good deal better. And it's a it's an art
and a science kind of where's that fine

550
00:26:44,819 --> 00:26:46,530
line on over leveraging, you know,

551
00:26:46,530 --> 00:26:48,692
assuming the bank will let you borrow
whatever you want,

552
00:26:48,692 --> 00:26:49,973
which isn't the case these days.

553
00:26:49,973 --> 00:26:50,994
~

554
00:26:51,308 --> 00:26:54,310
Yeah, we've we've done that a handful of
times and before we started recording,

555
00:26:54,310 --> 00:26:56,022
we did that on one of our fund vehicles.

556
00:26:56,022 --> 00:26:59,354
And ~ as I often say, I'd rather be lucky
than good.

557
00:26:59,354 --> 00:27:01,356
We bought these deals in nineteen and
twenty,

558
00:27:01,356 --> 00:27:05,349
which was great timing, and we refinanced
the entire portfolio

559
00:27:05,670 --> 00:27:10,604
in January of twenty-two, which was right
on the precipice of rising interest rates,

560
00:27:10,604 --> 00:27:12,695
rising bond yields, rising short-term
rates.

561
00:27:12,695 --> 00:27:15,638
We rate locked a 10-year fix at four
percent,

562
00:27:15,638 --> 00:27:19,581
and we pulled half the equity out tax-free
from the loan proceeds.

563
00:27:19,581 --> 00:27:20,581
Now

564
00:27:21,260 --> 00:27:22,510
Especially in this environment,

565
00:27:22,510 --> 00:27:26,091
~ you know, the the downside to do to
doing a cash out refinance

566
00:27:26,592 --> 00:27:28,632
is your debt service goes up, right?

567
00:27:28,632 --> 00:27:30,283
Now you've got a bigger mortgage payment,

568
00:27:30,283 --> 00:27:31,863
you've got a bigger contingent liability,

569
00:27:31,863 --> 00:27:35,854
and then whole dollars, at least for the
near term,

570
00:27:35,854 --> 00:27:38,315
your cash flow from that deal diminishes,

571
00:27:38,315 --> 00:27:42,106
right? ~ if you have a ten million dollar
deal with a five million dollar loan,

572
00:27:42,106 --> 00:27:44,427
you're making X in cash flow on your five
million in equity,

573
00:27:44,427 --> 00:27:46,507
you refinance it with an eight million
dollar loan,

574
00:27:46,507 --> 00:27:48,448
you get all that all that money tax free
and

575
00:27:48,568 --> 00:27:50,179
go walk around and do whatever you want
with it,

576
00:27:50,179 --> 00:27:52,141
buy something else, invest in something
else.

577
00:27:52,141 --> 00:27:54,863
but your cash flow got materially
haircutted,

578
00:27:54,863 --> 00:27:56,724
especially if you're refinance into a
higher rate.

579
00:27:56,724 --> 00:27:59,226
But you might have to refinance into a
higher rate because your debt's gonna
mature,

580
00:27:59,226 --> 00:28:01,027
your four percent loan's gonna mature,

581
00:28:01,027 --> 00:28:02,749
now you to borrow it a six and a half or
seven.

582
00:28:04,462 --> 00:28:05,462
Be

583
00:28:04,793 --> 00:28:06,390
underperform at some point in the future,

584
00:28:06,390 --> 00:28:07,635
then you've got issues, right?

585
00:28:07,635 --> 00:28:08,635
Yeah.

586
00:28:08,384 --> 00:28:09,824
And not to get in the weeds here too much,

587
00:28:09,824 --> 00:28:13,625
but just briefly, in in commercial real
estate finance and probably businesses
too,

588
00:28:13,625 --> 00:28:17,536
~ if you get a home loan and you lose your
job,

589
00:28:17,536 --> 00:28:20,717
your lender doesn't care as long as you
make your mortgage payment,

590
00:28:20,717 --> 00:28:24,138
right? You can't default on your loan
unless you don't make your payment.

591
00:28:24,138 --> 00:28:28,029
In commercial real estate, we have all
kinds of things in our loan documents
called

592
00:28:28,029 --> 00:28:32,080
loan covenants. And these loan covenants
stipulate rules on what we have

593
00:28:32,080 --> 00:28:34,261
to do as far as a debt coverage ratio,

594
00:28:34,261 --> 00:28:37,752
meaning the margin between our net
operating income and our debt service.

595
00:28:38,168 --> 00:28:40,920
We have liquidity requirements that are
tested annually.

596
00:28:40,920 --> 00:28:46,465
~ there's all kinds of trips. So going
back to the cash out refinance component,

597
00:28:46,465 --> 00:28:50,478
~ you better believe that property's gonna
produce the same or greater

598
00:28:50,478 --> 00:28:54,511
NOI for the foreseeable future because
you've just exponentially increased your
risk

599
00:28:54,872 --> 00:28:56,183
of going in a technical default,

600
00:28:56,183 --> 00:28:57,574
even if you're still making your payment.

601
00:28:57,574 --> 00:29:00,867
You drop from a one twenty five coverage
ratio to a one ten,

602
00:29:00,867 --> 00:29:02,438
you send your lender your financials,

603
00:29:02,438 --> 00:29:04,409
and they call you up and say, gosh,

604
00:29:04,409 --> 00:29:07,542
looks like you're gonna have to wire in a
million bucks to right size your loan.

605
00:29:08,332 --> 00:29:09,923
to get to the proper coverage ratio.

606
00:29:09,923 --> 00:29:14,105
but again, when loot when used
responsibly,

607
00:29:14,105 --> 00:29:16,205
~ debt could be a beautiful thing,

608
00:29:16,205 --> 00:29:19,628
but it's also what's gotten a lot of folks
in trouble the last couple of years.

609
00:29:19,628 --> 00:29:24,051
~ a lot of the horror stories I hear on
deals gone awry,

610
00:29:24,051 --> 00:29:25,551
underperformed, capital calls,

611
00:29:25,551 --> 00:29:28,813
whatever, most of them are debt maturity
related.

612
00:29:28,813 --> 00:29:30,734
You know, our debts come and do,

613
00:29:30,734 --> 00:29:33,516
we can't refinance into the same loan
amount,

614
00:29:33,516 --> 00:29:36,902
and now we got a problem. So like anything
like with anything,

615
00:29:36,902 --> 00:29:37,902
you gotta be careful.

616
00:29:38,188 --> 00:29:41,662
Yeah. And there comes the expertise of the
people running the funds,

617
00:29:41,662 --> 00:29:44,325
the partnership, right? The brains behind
the operation.

618
00:29:44,325 --> 00:29:48,751
And that's probably why it's tough to be a
part time investor in these deals

619
00:29:48,971 --> 00:29:51,114
if you're the one that's running the
funds.

620
00:29:51,114 --> 00:29:55,860
Because there's things moving on a daily
basis that impact these transactions

621
00:29:56,280 --> 00:29:57,602
and they impact these properties.

622
00:29:58,146 --> 00:30:00,528
Yeah, I mean we have we have twenty one
thousand units,

623
00:30:00,528 --> 00:30:02,158
almost twenty one thousand units,

624
00:30:02,158 --> 00:30:04,290
like twenty thousand five hundred and
fifty something.

625
00:30:04,290 --> 00:30:06,132
And I guarantee you right now,

626
00:30:06,132 --> 00:30:07,873
someone's breaking into a unit,

627
00:30:07,873 --> 00:30:11,075
someone's cooking meth, someone's back in
their U-hole into

628
00:30:11,075 --> 00:30:12,776
our thirty thousand dollar gate system.

629
00:30:12,776 --> 00:30:18,500
~ something bad is happening. And and
that's that's independent from interest
rates,

630
00:30:18,500 --> 00:30:22,243
right? That's independent from bottom line
operating expense,

631
00:30:22,243 --> 00:30:26,426
inflationary pressure. That's independent
from ~ employee challenges.

632
00:30:27,166 --> 00:30:31,770
~ so yeah, th if you're ~ if you're owning
and operating a real estate portfolio,

633
00:30:31,770 --> 00:30:34,533
just dipping your toe in part time is
probably not the way to go.

634
00:30:34,533 --> 00:30:38,997
~ doing it passively or with a partner
that's doing most of the heavy lifting

635
00:30:38,997 --> 00:30:40,288
is is a much better option.

636
00:30:41,560 --> 00:30:44,765
So what do you hear when you hear this
word thrown out here,

637
00:30:44,765 --> 00:30:47,059
two words consistently? People wear the
hats on it,

638
00:30:47,059 --> 00:30:51,496
passive income. What happens to your brain
when you hear people throw that out?

639
00:30:51,746 --> 00:30:54,678
Yeah. Well it depends on what side of the
fence you're in you're on.

640
00:30:54,678 --> 00:30:57,550
~ none of my income is passive.

641
00:30:57,550 --> 00:31:00,222
I mean it's recurring, but it's certainly
not passive.

642
00:31:00,222 --> 00:31:03,884
We're we have a team of almost ninety
people and ourselves personally

643
00:31:03,884 --> 00:31:07,507
who are grinding every hour, every day to
go out and execute on our business plan.

644
00:31:07,507 --> 00:31:12,900
~ but passive income is not necessarily
going out and buying your

645
00:31:12,900 --> 00:31:15,102
own retail center and running it yourself.

646
00:31:15,102 --> 00:31:17,904
Now you might get recurring income from
that,

647
00:31:17,904 --> 00:31:20,876
right? There's a big distinction between
recurring and passive.

648
00:31:21,576 --> 00:31:24,848
~ but if you're investing in a in a
private real estate vehicle,

649
00:31:24,848 --> 00:31:27,129
multifamily industrial, retail,

650
00:31:27,129 --> 00:31:30,881
self storage, whatever, and you're getting
distributions and it's

651
00:31:30,881 --> 00:31:33,823
not failing and the business plan is
working like it was supposed to,

652
00:31:33,823 --> 00:31:37,575
~ all the work you put into that was
getting to know the sponsor,

653
00:31:37,575 --> 00:31:40,596
signing your documents, wiring your funds,

654
00:31:40,596 --> 00:31:41,947
reading their quarterly reports,

655
00:31:41,947 --> 00:31:45,239
maybe a check in call once in a while if
you have a K one question.

656
00:31:45,239 --> 00:31:47,580
~ but I would say that's passive,

657
00:31:47,580 --> 00:31:49,741
right? You're not rolling up your sleeves,

658
00:31:49,741 --> 00:31:50,946
you're not going to ~

659
00:31:51,256 --> 00:31:53,186
to the theft issue and the break in,

660
00:31:53,186 --> 00:31:56,101
you're just getting your distributions and
your operating partners handling

661
00:31:56,101 --> 00:31:59,764
it for you. So passive and recurring are
not the same thing.

662
00:32:01,486 --> 00:32:03,127
If you had to do this all over again,

663
00:32:03,127 --> 00:32:05,259
this isn't the re this isn't the regret
question,

664
00:32:05,259 --> 00:32:08,511
if you would. ~ but if you had to do this
all over again,

665
00:32:08,511 --> 00:32:11,733
how would you do it differently?

666
00:32:11,733 --> 00:32:15,236
Knowing what you know about, needing to
build capital,

667
00:32:15,236 --> 00:32:16,777
being able to roll into equity,

668
00:32:16,777 --> 00:32:20,039
how would you do it differently than you
did it from doing the fix and flips

669
00:32:20,119 --> 00:32:23,802
all the way to the evolution now of twenty
one thousand storage units

670
00:32:23,802 --> 00:32:26,066
and the ninety employees? How would you do
it then?

671
00:32:26,066 --> 00:32:28,305
And the reason why I think we asked the
question is,

672
00:32:28,305 --> 00:32:30,196
how would you do it faster?

673
00:32:30,935 --> 00:32:32,137
If you knew what you know now.

674
00:32:33,110 --> 00:32:36,932
Yeah, well, differently is easier to
answer than how I do it faster.

675
00:32:36,932 --> 00:32:39,703
But I mean, I'll I'll speak to the faster
component,

676
00:32:39,703 --> 00:32:44,375
but differently, and this is much more
like many things,

677
00:32:44,375 --> 00:32:47,796
easier said than done. But I would never
sell anything.

678
00:32:47,796 --> 00:32:52,338
Just wouldn't sell. And I think it takes
more discipline,

679
00:32:52,338 --> 00:32:54,984
~ that apparently we've lacked over the
years.

680
00:32:54,984 --> 00:32:56,860
I think it takes more discipline not to
sell,

681
00:32:56,860 --> 00:32:59,842
~ than it does, ~ than it does to sell.

682
00:32:59,842 --> 00:33:00,842
~

683
00:33:00,982 --> 00:33:02,373
the enticement of the sale, you know,

684
00:33:02,373 --> 00:33:04,023
that equity pop, that big gain,

685
00:33:04,023 --> 00:33:07,795
that cash event, that that point where you
monetize all the value creation,

686
00:33:07,795 --> 00:33:10,746
that's attractive, obviously, right?

687
00:33:10,746 --> 00:33:13,527
It's a lot of walking around money
assuming the deal went well.

688
00:33:13,527 --> 00:33:20,190
~ but that durable recurring revenue that
we kind of define wealth by is over.

689
00:33:20,190 --> 00:33:23,511
Whatever you thought was going to happen
on that deal is quantified.

690
00:33:23,511 --> 00:33:25,422
There's a line drawn in the sand.

691
00:33:25,422 --> 00:33:27,673
There's no more upside, right?

692
00:33:27,673 --> 00:33:29,274
There's no more value creation.

693
00:33:29,870 --> 00:33:33,141
There's no more durable recurring revenue
and you got a big tax bill unless

694
00:33:33,141 --> 00:33:37,761
you tend thirty one. ~ so having the
discipline to strap in and hold for
longer,

695
00:33:37,761 --> 00:33:40,635
I mean, there's a time and a place to sell
when we do sell and we intend

696
00:33:40,635 --> 00:33:42,795
to sell our deals once they're appropriate
to sell.

697
00:33:42,795 --> 00:33:45,617
~ but if it was just me in a vacuum,

698
00:33:45,617 --> 00:33:49,198
I would strap in and recap with some debt
responsibly and just build

699
00:33:49,198 --> 00:33:53,980
up the portfolio over time. ~ as far as
doing it faster goes,

700
00:33:53,980 --> 00:33:57,622
I look back in twenty one, I keep
mentioning twenty twenty one.

701
00:33:57,622 --> 00:33:58,622
~

702
00:33:59,074 --> 00:34:00,585
You know, it was still hard back then,

703
00:34:00,585 --> 00:34:04,847
but I I had no idea how much less
difficult it was in twenty one compared

704
00:34:04,847 --> 00:34:06,918
to like twenty five and year to day
twenty-six.

705
00:34:06,918 --> 00:34:09,659
~ equity was falling out of the sky,

706
00:34:09,659 --> 00:34:15,203
~ raising a hundred grand an hour on Zoom
calls just over and over again.

707
00:34:15,203 --> 00:34:18,324
Debt was cheap and deal flow was
plentiful.

708
00:34:18,324 --> 00:34:20,815
And as far as doing it faster,

709
00:34:20,815 --> 00:34:22,516
it's always clear in the review mirror,

710
00:34:22,516 --> 00:34:27,190
right? But we could have probably maybe
better to say this in twenty twenty than

711
00:34:27,190 --> 00:34:28,190
twenty one, but

712
00:34:28,386 --> 00:34:30,920
We could have almost gone out and bought
any storage deal that was

713
00:34:30,920 --> 00:34:34,518
for sale in twenty twenty and it would
have been probably a home run.

714
00:34:34,518 --> 00:34:39,859
Like pay any any advertised price within
reason and just gobble all up as fast

715
00:34:39,859 --> 00:34:40,859
as we can.

716
00:34:41,346 --> 00:34:42,777
Because the equity growth that now,

717
00:34:42,777 --> 00:34:44,149
in retrospect, we have.

718
00:34:44,428 --> 00:34:46,399
Yeah. And we've had some softening in the
industry,

719
00:34:46,399 --> 00:34:48,109
like in a lot of real estate asset
classes,

720
00:34:48,109 --> 00:34:50,810
~ the last couple of years. but yeah,

721
00:34:50,810 --> 00:34:53,860
if you if you just had a pulse and you
bought something back then,

722
00:34:53,860 --> 00:34:55,362
you're an American hero, you know,

723
00:34:55,362 --> 00:34:59,323
some years later. ~ but speaking of speed,

724
00:34:59,323 --> 00:35:01,583
it it's it's worth talking about size.

725
00:35:01,583 --> 00:35:04,785
And especially being an entrepreneur and
an entrepreneurial podcast,

726
00:35:04,785 --> 00:35:07,565
you'll certainly agree that bigger is not
always better,

727
00:35:07,565 --> 00:35:09,186
right? ~

728
00:35:09,582 --> 00:35:10,953
How do we how do we get bigger?

729
00:35:10,953 --> 00:35:14,195
How do we get to, you know, we're at about
300 million and change an AUM?

730
00:35:14,195 --> 00:35:16,046
You know, how do we get to 500 million?

731
00:35:16,046 --> 00:35:20,308
~ well, growth doesn't matter if you're
not more profitable,

732
00:35:20,308 --> 00:35:26,171
right? You could grow and have a bigger
asset base and ~ your fixed costs grew

733
00:35:26,171 --> 00:35:29,738
faster. ~ maybe your variable costs grew
faster too.

734
00:35:29,738 --> 00:35:32,475
And before you know it, you've got more
assets and you're making less money.

735
00:35:32,475 --> 00:35:34,959
~ so we've learned the hard way.

736
00:35:34,959 --> 00:35:37,518
I I mean, I I can tell you what not to do.

737
00:35:37,718 --> 00:35:40,480
I can't tell you what to do, but I can
tell you a lot of a lot of don't do this,

738
00:35:40,480 --> 00:35:46,115
don't do that. ~ but growth and some AUM
target is is in in our view

739
00:35:46,115 --> 00:35:48,027
not necessarily a good way to kind of hang
your hat on.

740
00:35:48,027 --> 00:35:51,650
Responsible growth, profitable growth.

741
00:35:51,650 --> 00:35:55,784
And maybe it makes sense to get smaller
and more profitable versus bigger

742
00:35:55,784 --> 00:36:00,198
and less profitable. ~ but should have
bought more back in the day

743
00:36:00,378 --> 00:36:02,620
and should have held on to more than we
have.

744
00:36:02,620 --> 00:36:04,332
We still have a good size asset base,

745
00:36:04,332 --> 00:36:05,332
but

746
00:36:05,294 --> 00:36:07,384
A lot of the deals we've round tripped in
twenty years,

747
00:36:07,384 --> 00:36:09,856
~ would be worth a lot more today than
they were when we sold them.

748
00:36:10,766 --> 00:36:14,041
Do you think that that focused discipline
will be the truth over

749
00:36:14,041 --> 00:36:15,864
the longevity of your career from here on
out?

750
00:36:15,864 --> 00:36:19,650
Do you think you should hold true to those
things that you can see in

751
00:36:19,650 --> 00:36:22,495
the rear view mirror and look through the
windshield and do the same thing

752
00:36:22,495 --> 00:36:23,495
and it'll be true?

753
00:36:23,756 --> 00:36:26,607
Yeah. We're we're trying to. ~ I I mean,

754
00:36:26,607 --> 00:36:30,038
I I think about O eight almost every day
and what that was like going through that

755
00:36:30,038 --> 00:36:32,509
environment, just the the failure,

756
00:36:32,509 --> 00:36:34,889
the implosion, the reduction in values.

757
00:36:34,889 --> 00:36:38,250
And I'm not saying that we're on the
precipice of another O eight situation.

758
00:36:38,250 --> 00:36:42,121
Who knows? But how are we positioning
ourselves to protect against that
happening

759
00:36:42,121 --> 00:36:43,772
and and not losing and not failing?

760
00:36:43,772 --> 00:36:46,312
But as far as what drives us now,

761
00:36:46,312 --> 00:36:48,933
we we're disciplined when we sell.

762
00:36:48,933 --> 00:36:51,314
It's gotta be the right reason and the
right price.

763
00:36:52,246 --> 00:36:54,686
We have to show around trip. We can't just
raise money and say you're gonna

764
00:36:54,686 --> 00:36:55,948
be in this deal forever. You know,

765
00:36:55,948 --> 00:36:59,831
welcome to the show. But we're a lot more
disciplined on what we buy.

766
00:36:59,831 --> 00:37:02,893
And I feel like we've always been
disciplined there,

767
00:37:02,893 --> 00:37:05,534
but the last couple of years, just given
how touch and go

768
00:37:05,534 --> 00:37:09,937
and uncertain everything is, ~ it's a good
time to be hyper selective with deploying

769
00:37:09,937 --> 00:37:13,289
capital. And if a deal doesn't tell the
story you want it to,

770
00:37:13,289 --> 00:37:14,480
it's not something we're interested in.

771
00:37:14,480 --> 00:37:17,592
~ we looked at nine hundred deals in
twenty twenty five.

772
00:37:18,264 --> 00:37:20,046
We financially modeled probably 200,

773
00:37:20,046 --> 00:37:22,157
250 of them, like full Excel model.

774
00:37:22,157 --> 00:37:25,060
And we bought one. And that was in
February.

775
00:37:25,060 --> 00:37:28,603
So the last time we closed on an
acquisition was February at twenty-five.

776
00:37:28,603 --> 00:37:30,225
We had a couple in the pipeline,

777
00:37:30,225 --> 00:37:34,629
but I can't remember a period in my real
estate career that's even close

778
00:37:34,629 --> 00:37:36,851
to that long where we haven't bought
something.

779
00:37:36,851 --> 00:37:40,714
And maybe that's maybe we're not good at
finding deals,

780
00:37:40,714 --> 00:37:43,617
but I think it's also a testament to just
how uncertain the environment

781
00:37:43,617 --> 00:37:44,918
is and how tight deal flow is.

782
00:37:45,580 --> 00:37:49,518
So is the move now to try to have a rinse
and repeat on doing the developments,

783
00:37:49,518 --> 00:37:52,133
the twenty and twenty five million
developments like you did in Denver,

784
00:37:52,133 --> 00:37:53,366
and just try to do the new ones?

785
00:37:53,996 --> 00:37:57,508
Yeah, we're we don't do a lot of
development and we're finding that
development,

786
00:37:57,508 --> 00:38:00,230
especially these days, is not paying you
for the risk.

787
00:38:00,230 --> 00:38:02,752
Development's inherent inherently riskier.

788
00:38:02,752 --> 00:38:05,113
And from a return perspective,

789
00:38:05,113 --> 00:38:10,316
the risk the the return is not
incrementally higher enough than the
return might

790
00:38:10,316 --> 00:38:13,629
be on buying an existing facility that's
already there and it's eighty percent

791
00:38:13,629 --> 00:38:16,061
occupied. You just gotta raise rents and
lease up some units.

792
00:38:16,061 --> 00:38:17,902
~ so

793
00:38:18,764 --> 00:38:20,916
We're we've got two deals in the pipeline
right now.

794
00:38:20,916 --> 00:38:22,807
One's a conversion project in Milwaukee.

795
00:38:22,807 --> 00:38:24,038
It's a market we've done a lot in.

796
00:38:24,038 --> 00:38:26,520
And that's an industrial to self-storage
conversion.

797
00:38:26,520 --> 00:38:28,791
It's almost like development, except we're
not building a new building.

798
00:38:28,791 --> 00:38:30,162
We're just taking the existing one and,

799
00:38:30,162 --> 00:38:34,115
you know, retrofitting it. path to cash
flow is a while on that one.

800
00:38:34,115 --> 00:38:37,350
And we have another value add deal in
Southeast Georgia in a market we've
already

801
00:38:37,350 --> 00:38:40,059
kind of been in for a while that's sort of
in the pipeline.

802
00:38:40,059 --> 00:38:41,591
We'll see if the guy signs a contract.

803
00:38:41,591 --> 00:38:46,274
And that's just more of an economic ~ lift
than a capital improvement lift.

804
00:38:47,142 --> 00:38:49,777
~ so we're looking for deals, we're
putting LOIs out there,

805
00:38:49,777 --> 00:38:51,861
we're underwriting them, we're just not
seeing much that meets

806
00:38:51,861 --> 00:38:53,413
our risk adjuster return requirements.

807
00:38:53,413 --> 00:38:55,697
but if we find a storage deal that does,

808
00:38:55,697 --> 00:38:58,282
we'll pursue it. We just haven't found
that much lately.

809
00:38:58,872 --> 00:39:02,026
So what's what's business development
since it's on my mind all the time?

810
00:39:02,026 --> 00:39:05,610
People call it prospecting. They could
call it working a sphere in a network.

811
00:39:05,610 --> 00:39:09,755
At the end of the day, what's the business
development tactics that

812
00:39:09,755 --> 00:39:14,500
and procedures you need? So is that
raising money from investors and finding
deals?

813
00:39:14,500 --> 00:39:15,852
Is that two silos?

814
00:39:17,016 --> 00:39:19,346
Yeah, ~ oversimplification, but you know,

815
00:39:19,346 --> 00:39:22,369
every real estate business needs it needs
deal flow,

816
00:39:22,369 --> 00:39:23,960
it needs operational excellence,

817
00:39:23,960 --> 00:39:27,702
and it needs capital, right? And typically
if you have two of those,

818
00:39:27,702 --> 00:39:29,143
you can find the other one, right?

819
00:39:29,143 --> 00:39:33,815
~ but in our his history, the capital and
the deal flow have never really been

820
00:39:33,815 --> 00:39:37,897
in balance, right? It's either too many
deals and not enough money or

821
00:39:38,898 --> 00:39:41,159
not enough not enough deals and too much
money,

822
00:39:41,159 --> 00:39:43,881
right? ~ they're never like perfectly in
sync.

823
00:39:43,881 --> 00:39:45,922
So on the business development question,

824
00:39:46,642 --> 00:39:50,845
~ we sell our product to two different
kind of customer avatars.

825
00:39:50,845 --> 00:39:55,728
~ one, because we self-manage our entire
portfolio.

826
00:39:55,728 --> 00:39:59,110
~ we have a property management company
that's a Van West affiliate.

827
00:39:59,110 --> 00:40:03,153
It only manages what we own. ~ so we sell
our storage units

828
00:40:03,313 --> 00:40:05,064
to self-storage customers, right?

829
00:40:05,064 --> 00:40:08,456
That's one customer. And the other
customer we have is investors.

830
00:40:08,456 --> 00:40:11,098
~ and raising capital.

831
00:40:12,150 --> 00:40:14,572
is extremely difficult in this
environment.

832
00:40:14,572 --> 00:40:18,815
Even shops with seasoned track records and
a great investor following,

833
00:40:18,815 --> 00:40:25,680
the reluctance out there ~ from real
estate LPs cannot be overstated,

834
00:40:25,680 --> 00:40:27,061
right? As we mentioned earlier,

835
00:40:27,061 --> 00:40:29,472
they've gotten burned. They're worried
about interest rates

836
00:40:29,472 --> 00:40:33,105
or worried about inflation. ~ it's really
tough to raise money.

837
00:40:33,105 --> 00:40:36,527
~ but when we sometimes do raise money,

838
00:40:36,527 --> 00:40:39,650
we try to establish credibility by talking
to guys like you,

839
00:40:39,650 --> 00:40:40,650
right?

840
00:40:40,152 --> 00:40:42,123
Being at a podcast, becoming thought
leaders,

841
00:40:42,123 --> 00:40:47,606
LinkedIn posts, webinars, investor
marketing or investor networking events,

842
00:40:47,606 --> 00:40:54,110
quality quarterly reports. people want to
invest with somebody who they feel like

843
00:40:54,110 --> 00:40:57,402
they know what they're doing. And the way
you can establish the fact that

844
00:40:57,402 --> 00:40:59,713
you know what you're doing is establishing
credibility.

845
00:40:59,713 --> 00:41:01,414
And that comes from your track record,

846
00:41:01,414 --> 00:41:06,397
your investor communications, and your
just overall presence virtually.

847
00:41:08,482 --> 00:41:09,832
That's how we try to get investors.

848
00:41:09,832 --> 00:41:12,925
with a lot of referrals, like a lot of ~
you know,

849
00:41:12,925 --> 00:41:14,165
guys been with us for ten years.

850
00:41:14,165 --> 00:41:17,447
He tells us co his cousin about us and
tells him we treated him right.

851
00:41:17,447 --> 00:41:20,789
We have a Zoom call. We talk about what
their investment objectives are,

852
00:41:20,789 --> 00:41:23,791
~ talk about what we could do for what the
risks are,

853
00:41:23,791 --> 00:41:29,314
what the upside is. ~ but a lot of my time
is spent on capital development

854
00:41:29,314 --> 00:41:31,726
and investor relations. we have a lot of
overlap,

855
00:41:31,726 --> 00:41:32,977
we're a relatively small shop,

856
00:41:32,977 --> 00:41:34,257
so we kind of do a bit of everything.

857
00:41:34,257 --> 00:41:35,278
~

858
00:41:35,756 --> 00:41:39,036
But that investor component, you're not
gonna buy deals unless you have capital.

859
00:41:39,036 --> 00:41:40,802
And your capital comes from your LPs.

860
00:41:42,178 --> 00:41:47,290
Was it tough over the past five to eight
years when

861
00:41:47,290 --> 00:41:51,042
the multifamily investments just took off?

862
00:41:51,042 --> 00:41:55,114
Was it tough not to get distracted that
this over here was happening

863
00:41:55,114 --> 00:41:58,046
and should we redeploy capital and
investments to do this?

864
00:41:58,046 --> 00:41:59,046
Was that hard?

865
00:41:59,596 --> 00:42:02,847
Yeah, I'm kind of the shiny object guy and
you know,

866
00:42:02,847 --> 00:42:05,269
I consider myself a real estate
entrepreneur that happens to own a

867
00:42:05,269 --> 00:42:08,910
lot of self storage. And maybe we'll do
something different in the coming years,

868
00:42:08,910 --> 00:42:11,982
if we're not finding the deal flow and
just the industry's not making sense

869
00:42:11,982 --> 00:42:14,533
to deploy more capital into. But yeah,

870
00:42:14,533 --> 00:42:17,504
I was ~ I was watching a bunch of
apartment buildings come out of

871
00:42:17,504 --> 00:42:21,216
the ground in Denver and my buddies who
were the sponsors,

872
00:42:21,216 --> 00:42:23,777
you know, would sell a year after they
were done for a,

873
00:42:23,777 --> 00:42:26,218
you know, three X multiple and a crazy
IRR.

874
00:42:27,346 --> 00:42:29,237
And it's tough not to chase that.

875
00:42:29,237 --> 00:42:30,937
And every time it happened, you'd think to
yourself,

876
00:42:30,937 --> 00:42:32,758
All right, that's the last time it's gonna
sop and up.

877
00:42:32,758 --> 00:42:34,478
Then it would happen again, happen again,

878
00:42:34,478 --> 00:42:38,229
over and over again. ~ but eventually my
brook clock is right,

879
00:42:38,229 --> 00:42:42,830
right, twice a day. And ~ that fire has
gone out in a big way,

880
00:42:42,830 --> 00:42:47,542
~ on a macro level. ~ multifamily values
are down,

881
00:42:47,542 --> 00:42:52,533
rents, especially in Denver, ~ largely
because of our the wisdom of our regime.

882
00:42:52,533 --> 00:42:56,174
~ rents are way down, the regulatory
environment's unfriendly.

883
00:42:56,756 --> 00:42:59,748
And Denver was very much supply shocked
with apartments.

884
00:42:59,748 --> 00:43:04,730
~ and you if you're if you're like in your
home MSA and you're driving down

885
00:43:04,730 --> 00:43:07,533
the highway and you see a big apartment
building that's like framed,

886
00:43:07,533 --> 00:43:12,736
that deal was so to speak knocked up well
before the market change and they have

887
00:43:12,736 --> 00:43:14,458
to finish it, right? I mean

888
00:43:14,648 --> 00:43:16,673
Thirty six months ago, forty eight months
ago.

889
00:43:16,673 --> 00:43:17,673
Yeah.

890
00:43:16,930 --> 00:43:22,001
Yeah, yeah. ~ yeah. And and a a lot of
these guys that are delivering,

891
00:43:22,001 --> 00:43:24,402
I think, are probably, you know,

892
00:43:24,402 --> 00:43:27,393
fairly puckered just given how
fundamentals have softened.

893
00:43:27,393 --> 00:43:30,584
And and we've had similar things happen in
self storage depending on the market.

894
00:43:30,584 --> 00:43:34,065
We've had some supply shock in the Florida
Panhandle in Atlanta.

895
00:43:34,065 --> 00:43:37,556
~ Phoenix, we have one asset in Tucson
that's pretty unaffected,

896
00:43:37,556 --> 00:43:40,196
but Phoenix is kind of a poster child for
a lot of supply coming out

897
00:43:40,196 --> 00:43:41,207
of the ground at the same time.

898
00:43:41,207 --> 00:43:43,467
~ any real estate asset class,

899
00:43:43,467 --> 00:43:45,718
if a lot of the same stuff gets built in
the same area.

900
00:43:46,166 --> 00:43:47,508
It's gonna be a challenge for a while.

901
00:43:47,508 --> 00:43:50,511
But inevitably what happens is developers
pull back,

902
00:43:50,511 --> 00:43:52,133
the fundamentals no longer make sense,

903
00:43:52,133 --> 00:43:55,858
those units fill up, rents stabilize and
you know,

904
00:43:55,858 --> 00:43:58,546
start the cycle again. Developers come
back in.

905
00:43:58,546 --> 00:43:59,546
Do you think

906
00:43:59,264 --> 00:44:02,165
A lot of the investment dollars right now,

907
00:44:02,165 --> 00:44:03,326
even though it's the hot topic,

908
00:44:03,326 --> 00:44:07,477
it's real what it costs. Are they going to
this AI data center development?

909
00:44:07,477 --> 00:44:12,039
Right. For a long time it was in maybe
industrial development around airports

910
00:44:12,039 --> 00:44:14,000
for storage, what was happening to
logistics,

911
00:44:14,000 --> 00:44:16,661
right? That burned out, multifamilies
burning out.

912
00:44:16,661 --> 00:44:21,854
There's massive income revenue investment
that has to be put in for these

913
00:44:21,854 --> 00:44:24,105
AI super centers, and they're going up
everywhere.

914
00:44:24,105 --> 00:44:27,214
Do you think that's the redeployment of
capital and commercial real estate right

915
00:44:27,214 --> 00:44:28,214
now?

916
00:44:27,478 --> 00:44:31,590
I think there's certainly been ~ been a
pivot from asset classes.

917
00:44:31,590 --> 00:44:35,490
Like think about all the office private
equity shops that are their balance sheets

918
00:44:35,490 --> 00:44:37,622
been ruined, but they still have capital
to deploy.

919
00:44:37,622 --> 00:44:38,983
They're not getting back into office.

920
00:44:38,983 --> 00:44:41,024
I think there's been a rotation is a
better word.

921
00:44:41,024 --> 00:44:44,525
Rotation of capital from other asset
classes into data centers.

922
00:44:44,525 --> 00:44:48,647
I mean, this this appetite for these
things is unsatiable,

923
00:44:48,647 --> 00:44:51,528
insatiable. ~ they just kind of keep
going.

924
00:44:51,528 --> 00:44:53,819
And ~ when's that shoe gonna drop?

925
00:44:53,819 --> 00:44:55,950
I don't know. But you look at some of
these valuations.

926
00:44:56,514 --> 00:44:59,198
in the stock market and you feel like
something's gotta break there,

927
00:44:59,198 --> 00:45:01,571
right? I mean, SpaceX is a good example.

928
00:45:01,571 --> 00:45:04,715
~ they're trading at like a hundred and
ten to one on

929
00:45:05,794 --> 00:45:07,051
versus Amazon at fifteen.

930
00:45:07,458 --> 00:45:09,460
Yeah, yeah, exactly. I mean, you asked
Buffett,

931
00:45:09,460 --> 00:45:13,714
right? On his one pager, that'd be
something he'd look at for five seconds

932
00:45:13,714 --> 00:45:14,936
and go to the next one, right?

933
00:45:14,936 --> 00:45:20,791
You you have this deviation from value
investing to momentum investing.

934
00:45:20,791 --> 00:45:25,076
And the momentum investors out there are
having a good run,

935
00:45:25,076 --> 00:45:28,759
you know? I mean, they're think of all
these tech companies you could have
bought,

936
00:45:28,759 --> 00:45:30,841
and you've probably two X your position in
a year,

937
00:45:30,841 --> 00:45:31,841
right?

938
00:45:31,934 --> 00:45:34,425
the SpaceX IPO, right? You got it at one
thirty five,

939
00:45:34,425 --> 00:45:35,845
and I think today it dropped a bit,

940
00:45:35,845 --> 00:45:37,776
but it was like one hundred seventy-five
in less than a week,

941
00:45:37,776 --> 00:45:42,777
right? ~ it's this irrational exuberance
that's confounding.

942
00:45:42,777 --> 00:45:45,848
~ because it feels so touch and go.

943
00:45:45,848 --> 00:45:47,828
And we've got inflationary pressure now,

944
00:45:47,828 --> 00:45:52,760
and we've got a new Fed share who's maybe
alluding to a rate hike and instead

945
00:45:52,760 --> 00:45:57,181
of a rate cut, right? ~ and the market got
spooked from that yesterday.

946
00:45:57,181 --> 00:46:00,802
But it just feels like there's a lot of
irrationality out there right now.

947
00:46:01,302 --> 00:46:04,595
It's a good time to just refocus on value
versus momentum.

948
00:46:04,595 --> 00:46:07,336
I think real estate when done properly is
a good vehicle for that.

949
00:46:07,916 --> 00:46:10,147
Yeah. We didn't touch on depreciation
today.

950
00:46:10,147 --> 00:46:11,601
I don't know how much you want to get into
it,

951
00:46:11,601 --> 00:46:14,124
but it's a real value to these real estate
deals.

952
00:46:15,318 --> 00:46:19,060
Yeah, it's ~ for those of you who maybe
aren't real estate exposed

953
00:46:19,060 --> 00:46:21,621
or maybe haven't invested in a private
vehicle,

954
00:46:21,621 --> 00:46:24,923
one of the many benefits of real estate is
it generates a passive loss,

955
00:46:24,923 --> 00:46:29,436
the depreciation. And if you're a if you
have membership interest

956
00:46:29,436 --> 00:46:32,458
in a syndication or a fund, let's say
you're getting the equivalent

957
00:46:32,458 --> 00:46:34,489
of a seven percent cash on cash return.

958
00:46:34,489 --> 00:46:37,400
Well, that passive loss on your K one,

959
00:46:37,400 --> 00:46:39,011
because you're a member of the L L C,

960
00:46:39,011 --> 00:46:44,044
that passive loss may largely or more than
wash out ~

961
00:46:44,362 --> 00:46:48,645
your your ~ your taxable income from that
recurring revenue.

962
00:46:48,645 --> 00:46:54,119
So that's a nice thing about real estate
is you can generate tax losses while still

963
00:46:54,119 --> 00:46:57,641
being positive cash flow. And then if you
bonus depreciate,

964
00:46:57,641 --> 00:47:00,213
which means you take certain segments of
the building and you depreciate them

965
00:47:00,213 --> 00:47:04,656
on a faster schedule, you can turbocharge
your first year of passive losses.

966
00:47:04,656 --> 00:47:06,867
Now, we keep talking about downside.

967
00:47:06,867 --> 00:47:09,069
The downside to all this is sometime,

968
00:47:09,069 --> 00:47:11,240
yeah, some point in the future that's get
recaptured,

969
00:47:11,240 --> 00:47:13,882
right? Unless you 1031 into something
else.

970
00:47:14,938 --> 00:47:18,690
you're gonna have all that bonus or
standard depreciation get recaptured in
tax,

971
00:47:18,690 --> 00:47:22,660
then obviously your long term cap gain
from your from your tax basis

972
00:47:22,660 --> 00:47:26,493
is gonna get taxed too. But if you
refinance your equity back out,

973
00:47:26,493 --> 00:47:28,461
you never sell it and you die out of it,

974
00:47:28,461 --> 00:47:29,504
you don't have to worry about it.

975
00:47:29,504 --> 00:47:33,496
But depreciation is definitely something
that we've enjoyed for many years.

976
00:47:34,284 --> 00:47:36,665
Well, he just brought mortality into the
conversation,

977
00:47:36,665 --> 00:47:41,898
guys. We knew we'd bring this full circle
somehow.

978
00:47:41,898 --> 00:47:47,120
~ what ~ what makes you excited about
doing this?

979
00:47:47,120 --> 00:47:49,441
Right? 'Cause it's tough right now.

980
00:47:49,441 --> 00:47:51,052
We all go through these tough seasons.

981
00:47:51,052 --> 00:47:53,023
There's it's like, man, this is not fun.

982
00:47:53,023 --> 00:47:54,874
I can't work this the way I want to work
it,

983
00:47:54,874 --> 00:47:57,195
right? I'm I'm just it feels like a job at
some point.

984
00:47:57,195 --> 00:47:58,846
What what still makes you excited?

985
00:48:00,224 --> 00:48:02,566
You know, candidly, it's hard to find
excitement late.

986
00:48:02,566 --> 00:48:05,849
Like it really is. I mean, we're we're
lucky that our portfolio

987
00:48:05,849 --> 00:48:09,132
has performed fairly well relative to
what's happening out there.

988
00:48:09,132 --> 00:48:11,605
Don't have any major debt maturity issues,

989
00:48:11,605 --> 00:48:17,174
no major cash flow issues. ~ but I'm just
so often kind of ~ I don't know what

990
00:48:17,174 --> 00:48:19,782
to say down in the dumps, but just
thinking about bad stuff,

991
00:48:19,782 --> 00:48:21,294
like going into our P and L, like,

992
00:48:21,294 --> 00:48:23,155
all right, where's this thing gonna break
in the future?

993
00:48:23,155 --> 00:48:24,997
What do we need to protect against?

994
00:48:24,997 --> 00:48:25,997
~

995
00:48:26,242 --> 00:48:27,923
But even though we haven't bought anything
for a while,

996
00:48:27,923 --> 00:48:32,426
what I enjoy most about real estate is the
thrill of the chase and the dream

997
00:48:32,426 --> 00:48:35,547
of a new acquisition. Right. It's like a
new baby.

998
00:48:35,547 --> 00:48:40,440
You've got your model and we're gonna go
out and execute this business plan.

999
00:48:40,440 --> 00:48:43,392
It's gonna grow NOI, we're gonna refinance
it on year three.

1000
00:48:43,392 --> 00:48:45,003
We're gonna sell it at this valuation,

1001
00:48:45,003 --> 00:48:48,295
not the other side. It's gonna come this
IRR and this multiple and

1002
00:48:48,295 --> 00:48:52,918
and our carried interest. And it's always
fascinating.

1003
00:48:52,918 --> 00:48:53,918
~

1004
00:48:53,994 --> 00:48:56,496
And in your own businesses, I would
encourage you to do this.

1005
00:48:56,496 --> 00:49:01,371
It's always fascinating to look back on
what you thought was going

1006
00:49:01,371 --> 00:49:04,003
to happen versus what actually happened.

1007
00:49:04,003 --> 00:49:06,305
You can learn so much from that.

1008
00:49:06,305 --> 00:49:11,669
And invariably, the deal never goes like
the mod its model says it will,

1009
00:49:11,669 --> 00:49:13,691
right? It's always better or worse.

1010
00:49:13,691 --> 00:49:16,894
hopefully it's better, more often than
it's worse than you expected.

1011
00:49:16,894 --> 00:49:19,656
But if you're targeting a 15.1% IRR in
your model,

1012
00:49:21,740 --> 00:49:24,592
I can guarantee you that deal's not going
to generate a 15.1,

1013
00:49:24,592 --> 00:49:26,893
right? It's going to be, it's going to be
more or it's going to be less.

1014
00:49:26,893 --> 00:49:31,596
But we've learned so much from just going
back and identifying like,

1015
00:49:31,596 --> 00:49:34,297
why did this work so much better than we
thought it would?

1016
00:49:34,297 --> 00:49:38,540
And man, this home run deal, why did it
just underperform?

1017
00:49:38,540 --> 00:49:41,631
And we sold it for a lower return than we
thought we were going to get just

1018
00:49:41,631 --> 00:49:43,542
to get out of it and just make a little
bit of money.

1019
00:49:43,542 --> 00:49:46,824
And I'm saying you learn a lot from doing
that,

1020
00:49:46,824 --> 00:49:49,566
but sometimes you can't figure out why.

1021
00:49:50,422 --> 00:49:55,266
You cannot figure out why this thing went
so much better or so much worse.

1022
00:49:55,266 --> 00:49:56,987
There's not one metric you can point to.

1023
00:49:56,987 --> 00:49:59,810
There's not like a competitor that came on
across the street.

1024
00:49:59,810 --> 00:50:04,073
Sometimes it just happens. And that's the
beautiful mystery

1025
00:50:04,073 --> 00:50:05,073
of being an entrepreneur.

1026
00:50:06,424 --> 00:50:09,279
So if you're putting together all the
things that you've learned

1027
00:50:10,741 --> 00:50:15,830
and you're sitting here today with a
hundred million in cash.

1028
00:50:18,274 --> 00:50:22,319
That you can leave it sit, you can deploy
it somewhere.

1029
00:50:22,319 --> 00:50:27,056
So so right now, so I'm assuming you don't
have the extra hundred million sitting

1030
00:50:27,056 --> 00:50:28,056
there.

1031
00:50:27,950 --> 00:50:30,243
That is one hundred percent correct.

1032
00:50:30,243 --> 00:50:31,243
Yes.

1033
00:50:30,606 --> 00:50:31,606
So

1034
00:50:30,666 --> 00:50:32,488
if you if you had the hundred million
though,

1035
00:50:32,488 --> 00:50:35,991
and this is maybe something since maybe
you can't execute on it without raising

1036
00:50:35,991 --> 00:50:37,552
it or what you would do with it to deploy
it,

1037
00:50:37,552 --> 00:50:41,936
what do you think you'd do with it over
the next twelve to eighteen months?

1038
00:50:41,936 --> 00:50:43,388
So if somebody's listening with a hundred
million,

1039
00:50:43,388 --> 00:50:46,200
they can call you and let you work it and
put something together,

1040
00:50:46,200 --> 00:50:47,341
they can go do it on their own.

1041
00:50:47,341 --> 00:50:51,545
So let's give a little inside baseball
secret that in your brain,

1042
00:50:51,545 --> 00:50:53,366
what you pre what you projected,

1043
00:50:53,366 --> 00:50:56,019
everything you've learned, what would you
do with a hundred million over

1044
00:50:56,019 --> 00:50:57,120
the next twelve to eighteen months?

1045
00:50:57,730 --> 00:50:58,990
You know, we get this question a lot,

1046
00:50:58,990 --> 00:51:01,051
but it's it's similar but more along the
lines of,

1047
00:51:01,051 --> 00:51:02,591
hey, besides your own asset class,

1048
00:51:02,591 --> 00:51:03,752
like what do you like right now?

1049
00:51:03,752 --> 00:51:05,002
You know, what would you focus on?

1050
00:51:05,002 --> 00:51:09,051
~ I don't have any really good responses.

1051
00:51:09,051 --> 00:51:12,174
I w I will say, ~ I've been researching
this more.

1052
00:51:12,174 --> 00:51:14,445
I think precious metals are a position for
a run,

1053
00:51:14,445 --> 00:51:18,196
~ based on what this inflationary
environment does and what the Fed does.

1054
00:51:18,196 --> 00:51:23,577
I think I think the US is in an untenable
borrow borrowing position.

1055
00:51:23,577 --> 00:51:25,848
And if bond yields go up

1056
00:51:26,414 --> 00:51:30,526
~ interest expense goes up and if the
stock market softens,

1057
00:51:30,526 --> 00:51:32,196
people aren't selling stocks as much.

1058
00:51:32,196 --> 00:51:34,297
So cap gains, tax revenue goes down.

1059
00:51:34,297 --> 00:51:39,039
~ I read this somewhere, I won't get these
numbers exactly right,

1060
00:51:39,039 --> 00:51:43,051
but I can't, and you probably can't
process trillions of dollars,

1061
00:51:43,051 --> 00:51:46,573
right? The government owes this much and
ha trillions and it's got this much

1062
00:51:46,573 --> 00:51:50,354
in revenue and trillions. But what I can
process is like an example

1063
00:51:50,354 --> 00:51:53,746
of an American family. And I this isn't
exactly right,

1064
00:51:53,746 --> 00:51:54,746
but I think

1065
00:51:54,936 --> 00:51:58,518
The US government's position is basically
an American family that has

1066
00:51:58,518 --> 00:52:02,100
a million plus in debt and they make fifty
grand a year.

1067
00:52:04,440 --> 00:52:06,432
How is that family ever going to get out
of that?

1068
00:52:06,432 --> 00:52:09,164
Right. They they can't. They they can't.

1069
00:52:09,164 --> 00:52:10,755
They got to make more money somehow,

1070
00:52:10,755 --> 00:52:11,916
or they gotta lower the cost. I mean,

1071
00:52:11,916 --> 00:52:13,818
it's it's an untenable position.

1072
00:52:13,818 --> 00:52:16,820
So I think precious metals, as unexciting
as they are,

1073
00:52:16,820 --> 00:52:19,582
~ could be in a position for a run.

1074
00:52:19,582 --> 00:52:21,034
There's been a big drop in gold.

1075
00:52:21,034 --> 00:52:22,645
I would I would buy some gold right now.

1076
00:52:22,645 --> 00:52:24,186
I would allocate something to gold.

1077
00:52:24,186 --> 00:52:27,879
~ I just listened to a precious metals
webinar yesterday,

1078
00:52:27,879 --> 00:52:30,091
so it's kind of top of mind, but I'm
thinking about that.

1079
00:52:30,091 --> 00:52:33,113
~ you know, it's a broader statement,

1080
00:52:33,113 --> 00:52:34,113
but I would

1081
00:52:33,964 --> 00:52:35,375
continue doing what I'm doing,

1082
00:52:35,375 --> 00:52:38,236
and that's chasing hard assets that
produce cash flow.

1083
00:52:38,236 --> 00:52:43,829
~ in a touch and go environment with
equities that are arguably overvalued,

1084
00:52:43,829 --> 00:52:47,701
~ very hot stock market, things feel very
fiery right now.

1085
00:52:47,701 --> 00:52:52,504
Hard assets, when underwritten responsibly
and financed responsibly,

1086
00:52:52,504 --> 00:52:54,865
offer really good downside protection,

1087
00:52:54,865 --> 00:52:57,527
especially if inflation is going to be
around for a while.

1088
00:52:57,527 --> 00:53:02,169
~ so yeah, but buy hard assets and I would
say within hard assets,

1089
00:53:02,169 --> 00:53:03,210
beyond real estate,

1090
00:53:03,586 --> 00:53:05,209
You know, gold, it's a hard asset,

1091
00:53:05,209 --> 00:53:07,533
right? Touch and feel it and put it you're
safe.

1092
00:53:07,533 --> 00:53:12,212
I don't understand it any more than I
think it could be going on a run pretty
soon.

1093
00:53:12,588 --> 00:53:18,296
Yeah. But I think the ~ underlying message
here is own things.

1094
00:53:19,690 --> 00:53:22,685
Assets. The the old rich guys I've met
over the years.

1095
00:53:22,685 --> 00:53:27,822
How'd you do it? And the answer is they
accumulated an asset base.

1096
00:53:27,822 --> 00:53:30,206
That's how they did it.

1097
00:53:33,154 --> 00:53:34,937
That's why the wealthy are so much
wealthier.

1098
00:53:34,937 --> 00:53:37,942
You know, they started last year with a
big denominator.

1099
00:53:37,942 --> 00:53:41,929
Everything's gone up and now they're
exponentially more wealthy than they were.

1100
00:53:41,929 --> 00:53:45,274
~ but you can't create that wealth if you
don't start with a denominator.

1101
00:53:45,274 --> 00:53:47,318
And that denominator needs to be an asset
base.

1102
00:53:47,810 --> 00:53:50,981
There you go. So if you had to project,

1103
00:53:50,981 --> 00:53:52,201
you know, we're all talking about,

1104
00:53:52,201 --> 00:53:54,732
you know, the federal debt, which you just
touched on.

1105
00:53:54,732 --> 00:53:56,622
And I think if people didn't understand
it,

1106
00:53:56,622 --> 00:54:01,054
we'll go there one more time. The federal
debt is the metaphor for

1107
00:54:01,054 --> 00:54:04,013
a single family home if you're making
fifty thousand or single family,

1108
00:54:04,013 --> 00:54:07,055
if you're making fifty thousand dollars a
year and that person also

1109
00:54:07,055 --> 00:54:08,175
has a million dollars in debt.

1110
00:54:08,175 --> 00:54:09,276
How do you ever get out of it?

1111
00:54:09,276 --> 00:54:13,547
Yeah. What do you think because we're
forward looking based upon

1112
00:54:13,547 --> 00:54:16,058
how we're investing, what do we think's
gonna happen?

1113
00:54:16,058 --> 00:54:17,588
What's the best place to deploy capital?

1114
00:54:18,710 --> 00:54:23,084
When do you think it breaks? Is the 'cause
smart people have to know they're just

1115
00:54:23,084 --> 00:54:26,137
not telling us 'cause they're trying to
put band-aids on it so long.

1116
00:54:26,137 --> 00:54:31,912
Does it break when the world finally says
we don't believe you anymore?

1117
00:54:36,098 --> 00:54:37,198
That might already be happening,

1118
00:54:37,198 --> 00:54:40,582
right? Look at look at the amount of you
know,

1119
00:54:40,582 --> 00:54:44,786
foreign entities that own US treasuries
and how much they're shedding those.

1120
00:54:44,786 --> 00:54:48,229
~ central banks are accumulating a lot of
gold lately.

1121
00:54:48,229 --> 00:54:51,572
The market's behaving like there's some
sort of calamity coming.

1122
00:54:51,572 --> 00:54:55,916
And I I I'm always wrong. I got a fifty
fifty on forward looking statements

1123
00:54:55,916 --> 00:54:57,688
and every freaking time I'm you know,

1124
00:54:57,688 --> 00:55:00,000
I thought we used to say like in twenty
four,

1125
00:55:00,000 --> 00:55:01,912
you know, rates were up, it was harder.

1126
00:55:02,328 --> 00:55:04,119
Like survive to twenty-five, right?

1127
00:55:04,119 --> 00:55:06,240
Twenty-five is gonna be the year of
moderation.

1128
00:55:06,240 --> 00:55:10,043
And we got there and twenty-five is harder
than twenty-four.

1129
00:55:10,043 --> 00:55:12,495
And yeah, rates, you know, short term
rates at least.

1130
00:55:12,495 --> 00:55:15,026
We haven't seen a fed r federal funds rate
hike for a while,

1131
00:55:15,026 --> 00:55:18,268
but we could. ~ what gets me worried,

1132
00:55:18,268 --> 00:55:21,901
and I think people pay too much attention
to short term rates with what

1133
00:55:21,901 --> 00:55:23,184
the Fed's doing, and that matters,

1134
00:55:23,184 --> 00:55:27,054
and it's a big deal. But the Fed can't
push a button and control bond yields.

1135
00:55:27,782 --> 00:55:31,063
And bond yields drive a lot of what we do
in our business.

1136
00:55:31,063 --> 00:55:33,965
~ first of all, there's a correlation to
cap rates.

1137
00:55:33,965 --> 00:55:38,887
Cap rates are the multiple ~ of a of the
income stream that a real estate deal

1138
00:55:38,887 --> 00:55:42,328
produces, inverse relationship between
value and cap rates.

1139
00:55:42,328 --> 00:55:43,989
So lower the cap rate, higher the value,

1140
00:55:43,989 --> 00:55:48,591
vice versa. But bond yields are heavily
correlated to capitalization rates.

1141
00:55:48,591 --> 00:55:51,232
And if that forward curve is moving up and
to the right,

1142
00:55:51,232 --> 00:55:55,553
that corresponding result in real estate
would be a decline in values

1143
00:55:55,553 --> 00:55:56,854
if cap rates increase, right?

1144
00:55:57,368 --> 00:55:59,860
That also affects our long term borrowing
costs.

1145
00:55:59,860 --> 00:56:03,683
The 10 year treasury and the 30 year
mortgage are heavily correlated.

1146
00:56:03,683 --> 00:56:05,241
We already have an unaffordable,

1147
00:56:05,241 --> 00:56:06,796
I'm going to sound like a dirty communist
here,

1148
00:56:06,796 --> 00:56:09,889
which you know I'm not. We already have an
unaffordable housing market.

1149
00:56:09,889 --> 00:56:13,552
People can't afford to buy homes because
values are still relatively buoyant

1150
00:56:14,152 --> 00:56:16,855
and you know their interest rate's six and
a half or whatever it is,

1151
00:56:16,855 --> 00:56:18,616
right? They just they can't afford the
nut.

1152
00:56:18,616 --> 00:56:21,478
~ so imagine that rate going up further.

1153
00:56:21,478 --> 00:56:23,570
I'm not saying that rates are unfairly
high.

1154
00:56:23,570 --> 00:56:25,492
They're actually reasonable.

1155
00:56:25,710 --> 00:56:27,691
Compared to where they've been throughout
US history,

1156
00:56:27,691 --> 00:56:29,511
but the rate that they went up,

1157
00:56:29,511 --> 00:56:31,242
the speed that they went up, I should say,

1158
00:56:31,242 --> 00:56:33,692
since 2022 has been a shock to the market.

1159
00:56:33,692 --> 00:56:37,263
So 10 year treasury yield going up and to
the right is going to be

1160
00:56:37,263 --> 00:56:39,354
put more pressure on the 30-year mortgage,

1161
00:56:39,354 --> 00:56:42,455
but also on 10 year fixed commercial real
estate debt,

1162
00:56:42,455 --> 00:56:45,976
right? If we originate a 10 year loan and
try to pull some cash out,

1163
00:56:45,976 --> 00:56:49,747
almost every time we're priced with a
spread over the 10 year treasury.

1164
00:56:49,747 --> 00:56:53,398
~ we refinanced some of these deals back
in January.

1165
00:56:54,086 --> 00:56:55,578
And I don't know if this is exactly right,

1166
00:56:55,578 --> 00:56:57,490
but I think if we did the same debt terms
today,

1167
00:56:57,490 --> 00:57:00,594
our interest rate would be like thirty
five basis points higher.

1168
00:57:00,594 --> 00:57:02,911
Now, on a two hundred K home loan,

1169
00:57:02,911 --> 00:57:04,198
it doesn't move a needle too much.

1170
00:57:04,198 --> 00:57:06,681
If it's a twenty million dollar real
estate loan,

1171
00:57:06,681 --> 00:57:10,476
thirty five bips, you know, that move that
that moves the needle for sure.

1172
00:57:10,766 --> 00:57:12,373
Yeah, you're talking about fifty thousand
dollars a month.

1173
00:57:12,716 --> 00:57:15,010
Yeah, so I'm I'm definitely concerned
about bond yields.

1174
00:57:15,010 --> 00:57:17,325
And I'm looking at those every day.

1175
00:57:17,325 --> 00:57:20,866
I can't do anything about I don't know why
I bother looking at ~ But the

1176
00:57:21,046 --> 00:57:24,391
If we can't if we can't predict this is
what's so tough about it,

1177
00:57:24,391 --> 00:57:28,088
is there anybody that's smart enough that
actually knows when it breaks?

1178
00:57:30,316 --> 00:57:32,928
I think the the guys that bet get lucky.

1179
00:57:32,928 --> 00:57:36,872
I think so much of wealth creation is
timing.

1180
00:57:36,872 --> 00:57:41,546
If you meet somebody, ~ my buddy made a
lot of money in real estate,

1181
00:57:41,546 --> 00:57:43,318
my buddy made a lot of money in the stock
market.

1182
00:57:43,318 --> 00:57:45,239
The question you should always ask is,

1183
00:57:45,239 --> 00:57:47,341
when did they enter and when did they
exit?

1184
00:57:47,341 --> 00:57:52,326
Right? That's so much of it. ~ is market
timing.

1185
00:57:52,326 --> 00:57:56,570
We can't time the market. All we can do is
make responsible acquisition decisions

1186
00:57:56,570 --> 00:57:57,570
and

1187
00:57:56,952 --> 00:58:00,188
finance them responsibly and protect the
downside as best we can.

1188
00:58:00,188 --> 00:58:04,696
If you do those things, generally not to
be flippant,

1189
00:58:04,696 --> 00:58:07,532
but everything else can sometimes take
care of itself.

1190
00:58:09,824 --> 00:58:11,516
And capitalism's resilient, right?

1191
00:58:11,516 --> 00:58:13,688
I mean it is a rapid interest rates,

1192
00:58:13,688 --> 00:58:15,020
the market's gonna adapt, right?

1193
00:58:15,020 --> 00:58:17,282
Values are gonna adapt, opportunities are
gonna be created.

1194
00:58:17,538 --> 00:58:20,702
Maybe that's why the attitude is always
just survive for another year.

1195
00:58:20,702 --> 00:58:23,845
Keep it alive, right? Keep the system
going.

1196
00:58:23,845 --> 00:58:27,630
~ I wonder

1197
00:58:30,924 --> 00:58:32,945
Yeah, there's just so many there's so many
places that we could

1198
00:58:32,945 --> 00:58:34,166
go about this investment piece,

1199
00:58:34,166 --> 00:58:36,868
but I always try to break it down and make
it try to make it really simple

1200
00:58:36,868 --> 00:58:39,060
for folks to try to say what should they
do,

1201
00:58:39,060 --> 00:58:43,152
right? And this isn't a Dave Ramsey show
and pay off your credit card bills first,

1202
00:58:43,152 --> 00:58:45,114
and then if you have twenty grand or a
hundred grand,

1203
00:58:45,114 --> 00:58:49,697
but what's the reality threshold that now
~ when you're young kids when they grow

1204
00:58:49,697 --> 00:58:51,528
up and they're twenty three and they're
like,

1205
00:58:51,528 --> 00:58:55,511
Dad, I want to be an investor and I want
to invest in things.

1206
00:58:55,511 --> 00:59:00,034
And they said, I have thirty thousand
dollars.

1207
00:59:00,174 --> 00:59:01,485
Like we're not giving investment advice,

1208
00:59:01,485 --> 00:59:02,937
but if you were giving them advice,

1209
00:59:02,937 --> 00:59:07,722
would you say, build it, you need to have
a hundred before you really start?

1210
00:59:07,722 --> 00:59:10,565
Do you need to because what what would you
do?

1211
00:59:10,565 --> 00:59:14,399
What should people So again, this isn't
giving investment advice to an individual.

1212
00:59:14,399 --> 00:59:15,399
So somebody using it as your son,

1213
00:59:15,380 --> 00:59:19,274
what would you tell them? Is thirty grand
enough to invest in something?

1214
00:59:19,766 --> 00:59:21,402
Yeah, I I've learned, I mean

1215
00:59:24,056 --> 00:59:28,980
This seems like a stretch, but I can apply
what I learned actively doing

1216
00:59:28,980 --> 00:59:33,955
fix and flips and rentals to our fairly
large commercial real estate business.

1217
00:59:33,955 --> 00:59:35,997
Like those fundamentals are the same.

1218
00:59:35,997 --> 00:59:40,563
And t since I'm I'm just a simple real
estate guy,

1219
00:59:40,563 --> 00:59:43,914
I know enough about stocks to be maybe s
even slightly dangerous,

1220
00:59:43,914 --> 00:59:48,248
but not hardly anything. So we'll keep it
in the in the framework of real estate.

1221
00:59:48,248 --> 00:59:50,230
~ in real estate.

1222
00:59:51,522 --> 00:59:55,023
You gotta you gotta find out the answer to
two questions to answer

1223
00:59:55,023 --> 00:59:59,134
the first question. And those two
questions are what's it worth when

1224
00:59:59,134 --> 01:00:03,065
I make it better? And what will it cost me
to make it better?

1225
01:00:03,065 --> 01:00:06,286
And once you can figure out those two
things,

1226
01:00:06,286 --> 01:00:08,407
you can back into what you can pay for the
deal,

1227
01:00:08,407 --> 01:00:10,927
right? And and those fundamentals,

1228
01:00:10,927 --> 01:00:13,508
and I'm obviously grossly oversimplifying
this,

1229
01:00:13,508 --> 01:00:17,129
but those fundamentals transcend from a
$25 million development project

1230
01:00:17,129 --> 01:00:20,070
to a hundred K fix and flip. ~ so

1231
01:00:20,630 --> 01:00:22,671
Maybe thirty grand is a tough starting
point.

1232
01:00:22,671 --> 01:00:24,031
Maybe it's more like a hundred.

1233
01:00:24,031 --> 01:00:27,892
~ but some markets, right? ~ you know,

1234
01:00:27,892 --> 01:00:30,251
Detroit, right? You buy a house for fifty
grand,

1235
01:00:30,251 --> 01:00:31,251
at least you used to be able to.

1236
01:00:31,143 --> 01:00:32,533
We did a bunch of those back in the day.

1237
01:00:32,533 --> 01:00:36,294
~ you will learn if you wanna if you want
to become a real estate entrepreneur,

1238
01:00:36,294 --> 01:00:39,535
you will learn so much by just buying a
rental or a fix flip

1239
01:00:39,575 --> 01:00:43,136
and managing it yourself. And do a few of
those,

1240
01:00:43,136 --> 01:00:45,327
right? Buy it, make some money.

1241
01:00:45,327 --> 01:00:46,627
Hopefully, even if you don't make money,

1242
01:00:46,627 --> 01:00:48,338
and if you lose money, ~

1243
01:00:48,652 --> 01:00:51,863
the value in that education is you you you
can't quantify it.

1244
01:00:51,863 --> 01:00:54,704
~ but go out and do a real estate deal.

1245
01:00:54,704 --> 01:00:59,286
Where you probably won't learn too much is
deploying thirty K as an LP into

1246
01:00:59,286 --> 01:01:04,408
a real estate font. Right. You're you're
just not gonna you're gonna learn by
doing.

1247
01:01:04,408 --> 01:01:07,729
Everything I've learned has been by by
failing and by doing.

1248
01:01:07,729 --> 01:01:09,490
you know, I listen to podcasts,

1249
01:01:09,490 --> 01:01:10,490
I read books.

1250
01:01:10,840 --> 01:01:12,651
But ~ all the mistakes we've made,

1251
01:01:12,651 --> 01:01:15,908
~ all the deals we've done, I've I've
learned by being exposed to

1252
01:01:15,908 --> 01:01:19,062
it and executing on a business plan or
failing to execute on a business plan.

1253
01:01:19,062 --> 01:01:21,376
And the best way to learn that is to go
into a deal.

1254
01:01:22,124 --> 01:01:24,375
Yeah. So that was gonna be where I was
gonna wrap up,

1255
01:01:24,375 --> 01:01:27,806
and this is probably a good place is have
you learned have you learned

1256
01:01:27,806 --> 01:01:30,898
the most through your own experiences?

1257
01:01:30,898 --> 01:01:35,180
Or is there some you know, sometime they
somebody has this person that they learn

1258
01:01:35,180 --> 01:01:38,941
from, like a a mentor, a a manager,

1259
01:01:38,941 --> 01:01:43,733
sometimes it's a relative. Is there
somebody that significantly impacted you?

1260
01:01:43,733 --> 01:01:48,485
Sometimes it's a professor. ~ or is it all
just out of your own sheer experience

1261
01:01:48,485 --> 01:01:50,366
and learning and compounding and growing
and failing?

1262
01:01:51,436 --> 01:01:54,217
Yeah, there's been a few to degree mentors
along the way.

1263
01:01:54,217 --> 01:01:59,189
We we did this ~ this JB ~ doing fix and
flips with an ultra high net worth,

1264
01:01:59,189 --> 01:02:01,270
you know, private single family office.

1265
01:02:01,270 --> 01:02:04,241
And this guy, classic story, you know,

1266
01:02:04,241 --> 01:02:07,413
came to Denver in the seventies with five
bucks in his pocket and half

1267
01:02:07,413 --> 01:02:09,394
a tank of gas, and today he's a
billionaire.

1268
01:02:09,394 --> 01:02:13,245
~ just being alongside him and seeing how
he thought,

1269
01:02:13,245 --> 01:02:16,937
~ you know, I I wouldn't say that we
learned anything specifically tactical.

1270
01:02:16,937 --> 01:02:19,538
~ it was more just philosophical,

1271
01:02:19,538 --> 01:02:20,538
right?

1272
01:02:20,546 --> 01:02:24,869
Take risks. if you see a new opportunity
that could make sense,

1273
01:02:24,869 --> 01:02:28,141
you know, don't not do that because it's
out of your lane.

1274
01:02:28,141 --> 01:02:30,753
Like if you're a self-storage guy and you
see a great apartment deal,

1275
01:02:30,753 --> 01:02:32,494
I'm not an apartment guy, I'm not gonna do
it.

1276
01:02:32,494 --> 01:02:34,856
~ he built his wealth in real estate,

1277
01:02:34,856 --> 01:02:37,408
oil and gas, railroads, ~ you know,

1278
01:02:37,408 --> 01:02:42,542
industrial. ~ just just being exposed to
the dreamy way that he thinks

1279
01:02:42,542 --> 01:02:44,963
and like I can never be stopped and it's
never,

1280
01:02:44,963 --> 01:02:48,366
you know, it's there's never a deal too
big to pull off.

1281
01:02:48,794 --> 01:02:51,867
~ like he he sent us to go meet with the
government back when

1282
01:02:51,867 --> 01:02:53,778
the foreclosure crisis was happening.

1283
01:02:53,778 --> 01:03:00,043
And we had a meeting with a congressman
and like some FHA guy and he wanted

1284
01:03:00,043 --> 01:03:03,205
us to offer to buy all of their government
owned homes.

1285
01:03:03,205 --> 01:03:04,205
All of them.

1286
01:03:04,620 --> 01:03:05,936
He's if you go there, you cut a deal,

1287
01:03:05,936 --> 01:03:06,936
you buy them.

1288
01:03:06,398 --> 01:03:07,398
~

1289
01:03:07,318 --> 01:03:10,620
we'll find a way. And that big thinking,

1290
01:03:10,620 --> 01:03:13,341
I'm still trying to get there and think
that big.

1291
01:03:13,341 --> 01:03:16,272
So I've I've been just so beat up with the
market the last couple of years.

1292
01:03:16,272 --> 01:03:19,964
It's hard to kind of have that dreamy big
vision still.

1293
01:03:19,964 --> 01:03:22,174
~ but that definitely resonated.

1294
01:03:22,174 --> 01:03:25,866
~ and we try to apply that in our business
as much as we can.

1295
01:03:26,594 --> 01:03:31,499
Hm. Boy, that's a true real world example
of you're an average of

1296
01:03:31,499 --> 01:03:33,081
the five people you spend time around.

1297
01:03:33,081 --> 01:03:38,386
Right. Right. Yeah. You put yourself
around thinkers like that versus

1298
01:03:34,178 --> 01:03:35,178
Right.

1299
01:03:38,386 --> 01:03:40,238
an average mind that feels limited,

1300
01:03:40,238 --> 01:03:42,130
the way that a lot of people are trying to
break out of.

1301
01:03:42,130 --> 01:03:44,392
Yeah. It's gonna ru it's it's gonna roll
downhill.

1302
01:03:44,392 --> 01:03:46,014
You're you're gonna start to become some
of that.

1303
01:03:46,476 --> 01:03:48,020
If it was just me, I would have gone to
that meeting,

1304
01:03:48,020 --> 01:03:50,256
like, can we buy a hundred houses from
you?

1305
01:03:50,256 --> 01:03:54,157
You know? I never would have dreamt to
even think to ask them what can

1306
01:03:54,157 --> 01:03:55,168
we buy them all, right?

1307
01:03:55,222 --> 01:03:57,349
And and when they said no, you can't,

1308
01:03:57,349 --> 01:04:00,520
a guy like him doesn't even care,

1309
01:04:00,520 --> 01:04:02,205
it's just on to the next one immediately.

1310
01:04:02,205 --> 01:04:03,205
Yeah.

1311
01:04:02,754 --> 01:04:05,298
Yeah. And we we knew that was gonna be the
answer,

1312
01:04:05,298 --> 01:04:06,541
obviously, but you never know,

1313
01:04:06,541 --> 01:04:07,541
right? Yeah.

1314
01:04:07,234 --> 01:04:10,318
You never know. It's what what what do you
what do you think that's

1315
01:04:10,318 --> 01:04:13,673
a resilient mind. How do what are the some
of the other things

1316
01:04:13,673 --> 01:04:17,468
you garnered from from him? I'm assuming
that resilience came from

1317
01:04:17,789 --> 01:04:19,771
way more failure than successes,

1318
01:04:19,771 --> 01:04:21,274
the same thing that we talk about,

1319
01:04:21,274 --> 01:04:22,274
right?

1320
01:04:21,698 --> 01:04:24,900
Yep. Yep. So he had a right hand guy.

1321
01:04:24,900 --> 01:04:26,721
Been with him for thirty years,

1322
01:04:26,721 --> 01:04:27,891
and this right hand guy, I think,

1323
01:04:27,891 --> 01:04:31,403
really, really created a lot of a lot of
the wealth for the for that company.

1324
01:04:31,403 --> 01:04:35,085
And his right hand guy would tell us,

1325
01:04:35,085 --> 01:04:38,107
we were looking at we were trying to pitch
him to do like a development project.

1326
01:04:38,107 --> 01:04:40,468
And he would tell us repeatedly,

1327
01:04:40,468 --> 01:04:43,770
If you become a developer, you will go
bankrupt someday.

1328
01:04:43,770 --> 01:04:46,711
You will go bankrupt. He would tell us
over and over again.

1329
01:04:46,711 --> 01:04:49,813
And here we are, we're not primarily a
developer,

1330
01:04:49,813 --> 01:04:51,244
but we've done a fair amount of
development.

1331
01:04:51,950 --> 01:04:54,051
And every time we've broken ground in a
project,

1332
01:04:54,051 --> 01:04:57,313
I I think about those words. It's not
enough to make me not do it.

1333
01:04:57,313 --> 01:04:58,664
It's kind of the opposite, right?

1334
01:04:58,664 --> 01:05:01,075
Like dream big, go big, but it's kinda,

1335
01:05:01,075 --> 01:05:04,937
you know, is it's kind of protect your guy
that's watching the numbers.

1336
01:05:04,937 --> 01:05:08,919
~ you know, I think about a lot of his his
sooth saying over the years.

1337
01:05:08,919 --> 01:05:10,700
Like, don't do that because of this.

1338
01:05:10,700 --> 01:05:12,701
We had this project fail over here.

1339
01:05:12,701 --> 01:05:16,924
You know, don't don't keep your operating
account at the same bank you're borrowing

1340
01:05:16,924 --> 01:05:20,105
for because the day you default they can
suck all your money out.

1341
01:05:20,105 --> 01:05:21,105
~

1342
01:05:21,986 --> 01:05:25,676
Little tidbits like that, ~ we've carried
with us.

1343
01:05:25,676 --> 01:05:28,695
Whether we apply all the time remains to
be seen,

1344
01:05:28,695 --> 01:05:29,695
but

1345
01:05:30,134 --> 01:05:32,185
If if you're writing a chapter in the
book,

1346
01:05:32,185 --> 01:05:34,757
and and we'll wrap this up on this so we
can both get rolling and

1347
01:05:34,757 --> 01:05:36,518
and I appreciate the time you spent with
us,

1348
01:05:36,518 --> 01:05:39,260
if you could write a chapter in the book
of all the advice that

1349
01:05:39,260 --> 01:05:43,403
you would give people, who do you have to
become?

1350
01:05:43,403 --> 01:05:48,406
What are the moves you have to make that
you can be around someone like that?

1351
01:05:48,406 --> 01:05:51,038
Because you can't pick up the phone,

1352
01:05:51,038 --> 01:05:53,310
send an email, send one message on
LinkedIn.

1353
01:05:53,310 --> 01:05:54,651
There are stories where it happens,

1354
01:05:54,651 --> 01:05:57,493
but it's very rare because all those
billionaires,

1355
01:05:57,493 --> 01:05:59,534
high net worth, people that have massive
success.

1356
01:05:59,828 --> 01:06:01,585
Everyone wants something from them.

1357
01:06:01,585 --> 01:06:04,958
Who how do you get close to them?

1358
01:06:01,933 --> 01:06:02,933
Yes.

1359
01:06:07,330 --> 01:06:08,711
Man, that's a tough one to answer.

1360
01:06:08,711 --> 01:06:14,715
~ we we have gotten close to the like
we've done joint ventures with high

1361
01:06:14,715 --> 01:06:17,057
net worth family offices, institutional
partners,

1362
01:06:17,057 --> 01:06:20,299
and it's always been a word of mouth or
introduction,

1363
01:06:20,299 --> 01:06:23,942
right? It's it's always been what you're
not gonna do probably is go

1364
01:06:23,942 --> 01:06:25,303
in there cold and get a meeting.

1365
01:06:25,303 --> 01:06:27,044
You know, that just almost never happens.

1366
01:06:27,044 --> 01:06:33,208
~ but you probably know somebody who knows
someone like that and they have some kind

1367
01:06:33,208 --> 01:06:35,610
of in, maybe their cousin works there or

1368
01:06:36,184 --> 01:06:37,334
you know, maybe it's their uncle.

1369
01:06:37,334 --> 01:06:41,956
I think leveraging your network to get
introductions to those relationships

1370
01:06:41,956 --> 01:06:45,897
is the way to go. ~ hitting them cold in
our experience.

1371
01:06:45,897 --> 01:06:50,818
I mean, we went on a big effort a couple
of years ago to attract like larger family

1372
01:06:50,818 --> 01:06:53,059
office, registered investment advisor
capital.

1373
01:06:53,059 --> 01:06:57,640
And it'd be tough to even get a meeting
with these guys unless you had some,

1374
01:06:57,640 --> 01:06:59,941
you know, some connection somehow.

1375
01:06:59,941 --> 01:07:02,901
But yeah, leveraging your network.

1376
01:07:02,901 --> 01:07:04,782
this is one I'm working on.

1377
01:07:05,036 --> 01:07:07,059
I know you know this person. You know,

1378
01:07:07,059 --> 01:07:08,571
would you be kind enough to do me an
intro?

1379
01:07:08,571 --> 01:07:12,296
And sometimes I'll take you under your
under their wing un unexpectedly.

1380
01:07:12,296 --> 01:07:13,908
Yeah. If you resonate with them.

1381
01:07:14,466 --> 01:07:16,862
Yeah. Hm. Ask the question, right?

1382
01:07:16,862 --> 01:07:18,075
The worst thing that can happen is no,

1383
01:07:18,075 --> 01:07:19,075
we've heard enough of those over

1384
01:07:18,914 --> 01:07:19,914
the

1385
01:07:19,045 --> 01:07:23,307
years. Yeah, yeah. I've got more no's and
than yeses for sure.

1386
01:07:24,082 --> 01:07:25,725
~ hey, thanks for spending this time.

1387
01:07:25,725 --> 01:07:28,280
So ~ you know, you guys know this is
Jacob.

1388
01:07:28,280 --> 01:07:29,803
When you have a name like Vanderslice,

1389
01:07:29,803 --> 01:07:31,556
we didn't get into it, but that's good.

1390
01:07:31,556 --> 01:07:33,569
It sounds like it has some Dutch
underpinnings.

1391
01:07:33,569 --> 01:07:37,056
It's got some stuff in there. But ~ am I
correct in that?

1392
01:07:37,358 --> 01:07:38,477
It's got a lot going on, yeah.

1393
01:07:38,477 --> 01:07:39,817
Very Dutch. Yeah. Yep.

1394
01:07:40,270 --> 01:07:42,303
from Van West Partners. Thanks for
spending the time.

1395
01:07:42,303 --> 01:07:44,066
And what'd we miss? What what do we miss?

1396
01:07:44,066 --> 01:07:47,351
A way they can, you know, engage with you
all and see what you're doing,

1397
01:07:47,351 --> 01:07:48,351
you two

1398
01:07:47,980 --> 01:07:48,980
We

1399
01:07:48,120 --> 01:07:50,694
always love to talk shop. ~ if you got a
cool deal,

1400
01:07:50,694 --> 01:07:52,447
we'd love to hear about it. You can email
me,

1401
01:07:52,447 --> 01:07:54,310
Jacob at VanWestpartners dot com,

1402
01:07:54,310 --> 01:07:57,394
go to our website vanwestpartners dot com
or hit me on LinkedIn,

1403
01:07:57,394 --> 01:07:58,496
Jacob Vanderslice.

1404
01:07:59,594 --> 01:08:02,011
And you will talk to anyone about
anything.

1405
01:08:02,011 --> 01:08:03,836
It might not last long the conversation,

1406
01:08:03,836 --> 01:08:04,970
but you'll entertain anything.

1407
01:08:05,428 --> 01:08:09,837
Absolutely. Yeah. Yeah. Bring it bring us
your craziest deals and we'll take a look.

1408
01:08:09,837 --> 01:08:10,837
All right.

1409
01:08:10,670 --> 01:08:11,670
Right,

1410
01:08:10,811 --> 01:08:13,119
man. I appreciate the time. Thanks for
coming on and sharing with us.

1411
01:08:13,494 --> 01:08:15,422
Mark, had a blast. Love the energy.

1412
01:08:15,422 --> 01:08:16,422
Thanks for having us on.