[00:00:09] Mike: Hey everybody. Good afternoon, welcome back. It is Mike you’re host of Insider Secrets and Insider Secrets is brought to you by My Core Intentions. And if you are watching this today, my guest is going to be Bryan Shaffer with George Smith Partners. Hey, Brian, tell our listeners a couple of things that they’re going to hear today on the show.

[00:00:30] Bryan: We had a really great conversation about debt and equity financing and mistakes people commonly make and where the market stands. How to make money in today’s market and what type of investors can make money.

[00:00:42] Mike: Yeah. It is really a high level conversation today and a lot of knowledge and information.

[00:00:47] Hey, you know what? This is 30 years of experience meets 30 years of experience, and we have a blast today. So listen in, we’ll see you on the inside everybody.

[00:00:58] Kristen: Welcome to this week’s [00:01:00] edition of Insider Secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host Mike Morawski has more than 30 years of multifamily, real estate investing and property management experience.

[00:01:20] Mike is the founder of My Core Intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.

[00:01:35] Mike: Hey everybody, welcome back. It’s Mike, your host of Insider Secrets and today another great episode, no doubt about that. Hey, Insider Secrets is brought to you by My Core Intentions. And as always, let me just ask you, please go to social media and follow us. Instagram Twitter, Facebook, subscribe, love us and like us on YouTube and our YouTube channel.

[00:02:00] Appreciate you supporting us and being here. And I certainly hope that and as my intention is to bring good quality material, good quality education to you every week as we release these new episodes. But today, I am super excited about our guest, he comes to us with a ton of knowledge, a ton of information, been in the industry a long time, but Bryan Shaffer. Brian say hi to our listeners. Would you?

[00:02:25] Bryan: Hey everyone, that’s nice to meet you.

[00:02:26] Mike: Yeah, I’m glad that you’re here, Brian. And let me get in and just give a little brief bio about you. But Brian is the principal managing director of George Smith partners, where he focuses on delivering solutions to address his client’s real estate capital requirements.

[00:02:43] Brian’s hard work to arrange structured financing for multifamily and commercial properties, including acquisition refinance, construction, bridge, and permanent loans. He has successfully structured both debt and equity placements for private entrepreneurs [00:03:00] and entrepreneurial clients. He has been able to utilize his prior vast diverse experiences in only operating and developing commercial real estate to help him succeed in capital raising for multifamily affordable housing office, retail, industrial, and hospitality. Data centers, healthcare, medical, and senior housing sectors to provide the best operations and structure for his client.

[00:03:27] Hey, I challenge you to say that 10 times really fast, right?

[00:03:31] Bryan: Yeah, no, I think it just shows that I’m old and I’ve been around for a really long time for well over 30 years. And I think, you go through the industry, you do lots of different things and you learn what you’re good at and what you’re not good at. That’s been my learning process over the last 30 years.

[00:03:46] Mike: Boy. And you know what? We both been in the business over 30 years. That’s crazy. So that’s like 90 years of experience probably.

[00:03:54] Bryan: Yeah. We should charge people for this Podcast.

[00:03:56] Mike: Yeah right. I’m up for that, right? Hey, so Brian, I’m pretty impressed with your background seriously, and there’s a lot there and being in the industry a long time, how much is in there, and how much there is to unpack. But today I really want to do a deep dive into the world of finance around multi-family. And how you and your firm can support my listeners or anybody who listens in with debt, equity, bridge debt, whatever that might be. And one word that really jumps out and we’ll get to this in a minute, but that’s the structured equity piece, structured financing.

[00:04:34] And I want to just talk about that in a minute, but the first thing I want to ask and I ask all my listeners this question, I think it’s really important because it really gives an idea of who people are. But in one word, what best describes you personally, and professionally?

[00:04:51] Bryan:  Focused,

[00:04:52] Mike: Really? Focused. That’s a good one. How come?

[00:04:56] Bryan: Because in our industry, there’s a lot of noise. We go through a [00:05:00] process where we basically make a market for our clients and we find what the best debt and equity solution is for that client. It can vary from client to client. But you really have to focus in and figure out where you’re at in the process when you’re ready to close.

[00:05:14] Because through the process, there’s a lot of noise. There’s people saying, we need this, we need that. This only works under these conditions. I’ll only work with that partner. There’s a lot of different things to try and pull you in different directions. And what clients really high-risk for is take them from finding a project to close unit project. And it only gets closed if you’re focused. And so that’s why focus is my most important work.

[00:05:39] Mike: Yeah. That’s awesome. And I like what you said about, there’s a lot of noise. I call it the shiny object syndrome. Too many shiny objects laying around. So listen, your bio is great and that gives you a little overview of who you are. Talk about your background a little bit.

[00:05:55] How’d you get in this crazy industry? Where did you come from? I know 30 years ago, tell us the journey.

[00:06:00] Bryan: Yeah, I’m a Midwestern guy. I grew up in Kansas city, Missouri, and I went to college in Arizona. And when I was in college, I worked for a developer that did strip shopping center company called Leo Eisenberg.

[00:06:13] And they were very successful, 1980, 1990s strip center developer. And in 1990, the world came to an end. I went to work for them after college. And so after college I went to work for them and moved to Los Angeles and started working on properties. And then all of a sudden the savings and loan crisis happened.

[00:06:38] And that was the first time I really learned that real estate is sort of a crisis driven industry. And the company I was working for ran into some problems and I actually went to work for some receivers and then the RTC ultimately. So that sort of gave me at 23 and 24, I was meeting with a lot of families that the parents had bought one or two [00:07:00] buildings, and then the kids had taken those and made it into 20 or 30 buildings. And then I was there to take away all 30 buildings from the family, which is in some ways a horrible job that I did learn a lot. And I learned what people go through and the common mistakes that people make.

[00:07:15] And then after that period, the market started taking off and I worked for three or four different developers. And then that led me to work for a couple of large institutional companies. The biggest was Mitsui Fudosan, a big Japanese company where I describe it as monopoly. We had 90 properties, they were like, we want to make the properties better and we want to sell them.

[00:07:37] So there was no limitation on cash or what you could do. And during that period, I learned a tremendous amount. I got to play with money and make decisions and made a lot of brokers millions and millions of dollars. Ended up, when we started, it was probably valued at $200 to $300 million.

[00:07:55] They had some offers just to sell the whole thing. We fixed up the properties, sold them [00:08:00] one by one, and over eight to 10 year period, we ended up with $2 billion of properties. So it was very successful. And sold everything in 2005, we finished up, I decided I know everything about international real estate.

[00:08:17] I’m going to teach everybody else in the world. Similar to like you did on the coaching side, where I started something called IRETO, the International Real Estate Trade Organization. And we tried to teach people in the US how to buy properties in China, in Japan. And Chinese and Japanese investors, we tried to teach them how to do business in the US with its work in Europe as well.

[00:08:38] In 2005, it seemed like a great deal. There was no opportunities in the US and everybody wanted to expand internationally. As we all know, by 2008, there was a great financial crisis. We went from having thousands of people buying stuff from us and getting information from us to nobody really caring about international real estate.

[00:09:00] Everybody just said, we’re on hold. We’re not doing any more international real estate and we don’t need you anymore. We’re going to buy distressed properties in the United States now, or we’re losing all of our properties. Some people thought the world was coming to an end at that point.

[00:09:13] So that was my sort of third cycle of my life. And that was probably one of the tougher ones. Where I had to decide, keep working on international real estate that nobody’s involved in, or do I go back to the fundamentals of what I learned over the last 20 some years and get back involved in helping developers and owners with core real estate.

[00:09:33] And that’s the decision I made. So in the end of 2010, early 2011, I joined George Smith Partners. And never really worked for people arranging debt and equity. I’d worked for big institutions, knew the structure had bought some properties on my own, my family, but never really did it for other people.

[00:09:50] And I think the last 10 years, I learned a tremendous amount about what individual owners and developers need. I learned all the different problems, [00:10:00] brothers and sisters that inherited stuff and ended up hating each other, suing each other. Developers that had a great idea or a great property, but no money and everything in between.

[00:10:11] And my job was really just to find a project, focus on it and get people the money they needed. And what I learned is that there aren’t that many people out there that have good relationships that have been around for 30 years, that know people that can do that inequity and can help these people hold their hand and get them the loan they need.

[00:10:31] And I worked on a skilled nursing facility where the guy had owned some that never developed his own properties. And I was able to get them a loan and allow them to develop the properties, raised some equity forum to be able to get it completed. Worked on multiple apartment buildings and office buildings and shopping centers and just helping those people understand the right need for capital.

[00:10:53] Sometimes it was very simple. Sometimes it was finding, going to five banks and finding the cheapest possible capital. [00:11:00] Other time, it was really getting into that structure side where you need preferred equity, you need a partner, you need some type of special thing to allow this person to move on.

[00:11:09] And they think that’s what I’ve become really good at. Especially since I joined George Smith partners. But really over my whole career, part of my career was helping big companies figure out how to do their capital and how to close their deals and how to restructure their properties.

[00:11:24] And then this half has really been more helping private individuals do $5 million loans, $10 million loans. They inked the largest deal we’ve worked on for my team is about $130 million. And our company has done some as high as like $450 million. So we’ve done a big range, but it’s really focused on entrepreneurs and helping those entrepreneurs. And a lot of ways, I always say, we become our clients chief financial officer or chief investment officer.

[00:11:52] We really help them structure their company and not look at it deal by deal. But look at it like, I own 300 units [00:12:00] today and I want to own 3000 units tomorrow. And we do is we provide the capital to allow them to grow from that 300 to 3000 units. So that’s a long answer.

[00:12:11] Mike: No, it’s a great answer though. So I think I said at the beginning of this show, we’ll probably wind up in some rabbit hole trying to figure out. But you said something that just really knocked me off the rails here, but 2005, there were no properties in the US, so you started this organization, right?

[00:12:29] Getting people to invest out of the country and then people from China investing here. But do you see shades of that today with the way cap rates are, the lack of the demand on property and the lack of property availability or even good property availability do you see that shade 2005, again at all?

[00:12:52] Bryan: A little bit. We’re at a very interesting place. A lot of the fundamentals are still weak because of what’s happened during the crisis. And I think there’s still some [00:13:00] people out there not pay the rent, there’s people that would like to evict a tenant, but they can’t evict them because of COVID and the current situation we’re in.

[00:13:09] And then on the other side, people are paying record prices for buildings. And so there’s definitely a mismatch between where we are specifically today and where the market is. I think the market’s a little bit of head of the fundamentals on the ground, but it looks if everything continues and we continue to get vaccinated, I think we’ll get to that point where they’re at equilibrium.

[00:13:34] Where a building that somebody’s paying for is actually receiving the rents that it should be, and is in the big shape that it shouldn’t be in. It seems like at the end of last year, there were still a few deals out there. People were buying things that were distressed and people didn’t know what was going to happen with the election.

[00:13:50] And there was that uncertainty. So there was some good deals made where people just decided I went out to the market. But at least, most of the markets since March, it’s just been [00:14:00] extremely expensive. Sellers have been dominating and getting the prices they want for the assets.

[00:14:05] There hasn’t been a ton coming on the market and they’re out, like I said, I think some of the fundamentals are more gray than people say they are.

[00:14:13] Mike: Yeah. It’s interesting. I don’t think it got as bad as people thought it was going to get. I talked to somebody else this morning who said that the rent didn’t get out of hand like they thought. That their collections are better than they’ve ever been. They bump rents, they’ve increased their cap X dollars. And so a lot of guys are business as usual. And then, I think there is that disparity though.

[00:14:37] Where on the other side with small operator, the little mom and pop guy is probably hurting a little bit more.

[00:14:44] Bryan: Yeah, and it’s really market by market. We’re based in Los Angeles and we have seven to nine deals right now that are construction projects in Boise, Idaho for multi-family. And it’s just a crazy thing where probably over the last 10 [00:15:00] years, or has it been nine major projects in Boise, Idaho, and this year there’s nine of them lined up. Where in downtown Los Angeles, there’s probably been 200 projects over the last 10 years. And today there’s probably one or two, if any, like it’s really shifted where people are focused on the belt and stage and on some of the Southern markets, those markets that didn’t really have a big impact on COVID where people have more space, more ability.

[00:15:28] And I think there’s still a big question out there. If the shift’s going to come back again, or people going to move back to San Francisco or New York or Los Angeles? I think LA is already starting to see some fairly substantial inflows. San Francisco is the most vaccinated place in the country.

[00:15:44] They’re 70% vaccinated and they’re starting to see their economy get a little bit better. New York, I just know anecdotally, there was a couple of guys in my office there last weekend and they said it felt like COVID was over, back to normal. So it’s really interesting [00:16:00] to see how this shakes out.

[00:16:01] Was this a short-term phenomenon where people wanted to move to houses and they wanted to move to places where they had more space and give up the fund of the city. The cities were all dead anyway, or are they going to want to move back for the fund now that the cities are reopening? So I think that’s a big question. That’s out there.

[00:16:18] Mike: Yeah, it’ll be interesting to see how it all shakes out. That’s what I thought it was interesting what you said about nine projects in Boise, Idaho, what the heck is going on with the population growth? It’s gotta be trending in a direction we haven’t unprecedented, right?

[00:16:32] Bryan: Yeah. People are leaving. I was in Boise in the west is probably the most cost efficient or was probably isn’t anymore. But it was before all this started, one of the lowest costs for rents and lowest costs for land markets and in our region. And so as California’s had this mass Exodus and a lot of it’s tech people that can now work remotely and, do you want to live in a condo in San Francisco that [00:17:00] your mortgage payment is $8,000 a month? Or do you want to live at a house in Boise where you’re paying $2,500 a month in mortgage payment? So it’s just that people are making that decision based on the changes that have happened.

[00:17:17] COVID and there’s just been a lot of people that had assets and were still employed leaving California. We had one building that was developed last year that opened and they said, there was just California people lined up to rent those units, and everybody wanted to live in a new building.

[00:17:34] Then we stopped in four months in Boise. Because it was really the only thing that had come online. It was brand new. And they were able to get much higher rents than projected because all these people were leaving California, where they were used to paying much much higher rents.

[00:17:48] Mike: Yeah.

[00:17:50] Bryan: I think that’s the shift though. I think they’re leaving the big cities and going into the smaller places. Same thing, some friends in New Jersey that sold a building because they were offered 40% more than [00:18:00] they ever thought they would be able to get for it. And they just said, we’re going to sell it and we’ll buy somewhere else.

[00:18:04] So buy in a different market. But everybody from New York, once on this Jersey building, because it’s got so much space.

[00:18:09] Mike: So is that a reflection of lifestyle today, do you think, or do you think it’s a reflection of the pandemic and people wanting to get to a less crowded area?

[00:18:19] Bryan: I think that’s still the question and that’s really the question like if we saw that a little bit in Texas, although we still don’t know like tons of people from Los Angeles and from San Francisco and all of California moved to Texas for better jobs. And I think a little bit more freedom that they felt that they were getting there through the government.

[00:18:38] And at the same time, they had this electric rig crisis where all of a sudden they’re there and they had to spend two weeks with no power and there was no government that could help. And so there’s some people that I’ve talked with that moved to Texas and now don’t wanna move back to California.

[00:18:55] They just don’t like the way everything’s run there. And then there’s other people that put up with it. Cause they think the [00:19:00] system there’s better. I think it’s hard to say. I personally think that the younger people that left there was a lot of younger people that grew up in the Midwest and decided we’re going to move to California and work for a talent agency or work in the restaurant industry.

[00:19:20] And those people got clobbered during the downturn and had to move back home or somewhere else. I think those people will come back, but the 50 year old that decided. I can retire now or I’ll spend my next five years working from remotely. I’m going to move to Boise. I think those people won’t be back.

[00:19:40] I think they’re going to decide they want that less expensive lifestyle. And so I think it’s going to be a mixed bag. I think we’re going to see enough people moving to Boise and markets like Boise, that those markets will do okay. We might see as all these new projects come online, that they overbuild to compensate, which usually [00:20:00] happens in an industry where people see a couple of great success stories and then they copy it.

[00:20:04] And then there’s too many of those success stories. But I think overall the cities will come back, but maybe not quite as strong, it will take three or four years for them to get back to where they were and markets like Boise and Austin and Denver will all benefit as well.

[00:20:20] Mike: Yeah. A good perspective. Thanks for that. So listen, I want to ask you to bring some clarity and explain what structured finances, a lot of times listeners ask, Hey, what is it structured finance mean or capital markets, or talk about some of that terminology a little bit and explain some of that more in a layman’s term, if you would.

[00:20:41] Bryan: Yeah. And what happens is and it’s funny, cause somebody that’s helping people with debt and equity, you get these calls and somebody read through a posting online and they’re like, I want a first loan, I want a second loan and then I want a mezzanine loan and then I want an equity [00:21:00] loan.

[00:21:00] And then my next question. How much money do you have to bring in? Oh, that’s why I need the loan. I don’t have any money, but I really liked this project. I’d like to buy it. I just don’t have any money. And I usually explain what structured finance is that all of them are pieces or tools that can be used to buyer buy a property.

[00:21:18] Typically all of them can’t be used together. You still need some real dollar equity that you’re putting into a project. But structured finances really figuring out the puzzle and saying, you’ve got this much of debt. You’ve got this much of maybe a second loan or mezzanine loan. You’re this much maybe preferred equity.

[00:21:39] The typical deal doesn’t have 20 layers to it. It just has one, two, three layers to it. And a lot of the layers don’t like working together. We hear a lot about joint venture equity, which is basically where typically an institution comes in and says, we’ll give you 90% of the equity you put in 10% of the equity in those types of [00:22:00] structures.

[00:22:00] And we want to make, say a 16 or 17% return over the three years where in the investment and anything over that you can keep. So a lot of times what happens with those deals is if you have a deal that you know is going to be a 30% return, those are great opportunities. And the guys that can do deals and really get a 30% return do really well with those joint ventures.

[00:22:26] But the typical guy doesn’t hit even a 20% return and sometimes those structures aren’t so good for them. So in structured finance, what we’re trying to do is figure out really what’s going to work for that person, because if you mismatch, if I tell you, oh, do equity with BlackRock on this project.

[00:22:45] And you’re not going to hit a 16% return, what’s going to happen is your little 10% sliver of equity that you’re actually putting in. You’re going to make 16%, but the entire project you’re going to [00:23:00] make very little, because you’re going to have to pay that partner or the way that it’s structured is going to be set up.

[00:23:07] They’re going to make money or the majority of the money up to that 16%. So it’s really important when you put together and you structure these deals to make sure that they’re aligned to what the realistic outcome is, because if you don’t, that JV investor that had a great property or is a really good investor, won’t make any money.

[00:23:25] Mike: It’s interesting. I think people do deals too often on a razor thin, right? They think this is just enough to get by. But what’s interesting is you set a 30% return and unlike where are you finding 30% return today? Tell me about one of those deals.

[00:23:41] Bryan: I think development deals, you can get 30% and that’s a leveraged IRR. So that’s, it’s using leverage to get to those results, but I think that sort of mechanism, most institutions want to be between 16 and 18% on a three year old IRR. So it’s finding those [00:24:00] buildings. And usually today that means development or a major rehab if you’re doing multifamily.

[00:24:05] And it’s hard to get to those returns, that’s what I’m saying. There’s a lot of guys that project 16% returns, but they don’t, they can’t achieve those. And these partnerships aren’t really good for people like that, because if you don’t achieve the return, you don’t make any money off the project. You’d be better to do a smaller project and not bring in a partner than you would to do a bigger project to bring in the partner.

[00:24:29] So it’s really taking that risk that’s going to allow you to get that return. If you’re buying a property at a four cap or a five cap somewhere, and you’re not doing a major rehab. There’s no way to get to those numbers a hundred percent. And I would say most of the deals today, I’d say average return on my view is like seven to 10% is what people are doing.

[00:24:51] And most of those deals are done with private investors. So if you’re doing a deal with your aunt or your cousin, and you tell them, the bank’s paying you 1% [00:25:00] or no percent. We’ll give you seven or 8%. A lot of people will invest in it and make those deals. But if you want to go out and get BlackRock in a deal, you’ve got to have a deal that is going to at least get a 16% return.

[00:25:13] Mike: And when you talk about a 16% return, like that’s what everybody’s really looking for today is that 16% IRR.

[00:25:21] Bryan: 16 to 18, I would say is really where that IRR is on most projects. That’s what the institutions want to have for their deals to make sense.

[00:25:30] Mike: And is that indicative of the cap rate today? Because I know when I was syndicating deals a few years ago and I was doing cap rates that were north of 10%, my IRRs were typically north of 20. So do you think that there is the return, per all perspective of what the cap rate is?

[00:25:48] Bryan: Yeah, it definitely has an impact. I would say like the target is 20 for most deals. Like they say they want 20, but when you make them compete and you organize everything and because of where [00:26:00] rates are and cap rates are, I think a 16 is acceptable. The other thing is that you have very favorable leverage, so that adds to those returns.

[00:26:09] And very favorable rates too. So your rate and your leverage are allowing you to somewhat hit those returns with a lower cap rate. So if rates increased too much, you’re going to get hit because you won’t be able to make the profit from that at that cap rate.

[00:26:25] Mike: [00:26:25] It’s interesting. Cause I’m seeing a lot of deals and I’ve been underwriting a whole bunch of stuff lately, and I’m seeing a whole bunch of deals that just don’t pencil. And I think sellers are getting to a point again where a little bit of greed is setting in, and they’re saying, oh, the market is hot and it’s high.

[00:26:42] And people are, this product is in demand and, I’m seeing things that don’t pencil. It’s interesting. And then you got to think, can I re-engineer the deal? And then, now you gotta be careful.

[00:26:53] Bryan: [00:26:53] And, we’re always, especially on development deals, the horizon is very long. You go in and you’re not going to finish for [00:27:00] a year and a half or two years the construction, and then you’re going to be in a different market. And so if interest rates are higher and maybe lumber prices are different than they are today. That’s been a big impact too, is just commodity prices are way up one verse through the roof.

[00:27:15] And projects that made sense six months ago don’t make sense today because the cost is so much higher just to build it because of the cost of the material. And then when you exit, whoever buys it from you has to be able to finance it. And if rates are up three years from now or five years from now, when you’re selling the property, that can also destroy the price they can pay and the return you’re able to make.

[00:27:40] So there’s a lot of moving pieces and it’s very hard. There’s no safe way. Like I can’t tell somebody, this is a safe way that you’re going to make 16 to 20% on a project today. It’s very difficult, there’s guys doing it. There’s guys hitting 30% on the right project, but there’s no stat, like if you do this and this, I can guarantee, [00:28:00] you’ll end up here.

[00:28:01] I just think there’s risk, and if you can hit those risks requirements, you’ll get the reward.

[00:28:07] Mike: Yeah, it’s interesting. I can’t believe how much times burned by already. I get in these conversations sometimes and it’s man, I could talk about this stuff for hours, but that’s just the homeless want to say?

[00:28:18] Bryan: Yeah.

[00:28:19] Mike: OCD piece of me. But listen, I’m in the coaching and training space, right? And I think that what I see is people in the real estate space gets so focused on what they’re doing and what they’re trying to do, that they can tend to live a life sometimes out of balance and make choices and decisions that almost can be irrational at times.

[00:28:42] So I always like to ask this question, how do you make high stake decisions in your life? Because I’m sure that you see enough pressure and enough stress in your business and the world that you’re in, that you sometimes have to make choices and decisions. And how do you go about what’s your [00:29:00] process for that?

[00:29:00] Bryan:  And it goes back to what I said in the beginning. It being focused on what outcome you want to receive and how you get to that outcome. It’s very difficult as you said. It’s a hard balance. I’m probably a little bit out of balance where I’ve worked too much, but I think you’ve got to always think about what your longer term goals is.

[00:29:17] Sometimes you can make a decision that will fix something for today, tomorrow you’re going to have to redo that again. And what I try and do in those decisions is just think about it rationally and look at what I want the outcome to be. And even if I’ve got to take a little bit less money or whatever’s at stake in this deal to get the outcome I want for the longer term, I try and do that. Because I’ve learned that if you make these short-term irrational decisions and they work for today, tomorrow you pay the price for them.

[00:29:48] So that’s the real thing I’ve learned over the years. And the other thing I’ve learned that I tell all my developers and owners and everybody I work with is that it’s important to have a cushion. Like you never [00:30:00] know what’s going to happen. And we live in an industry where if I figured out a way to make money on real estate and real estate is very tax efficient.

[00:30:08] I wouldn’t put every penny I have into real estate. If I have $500,000 in cash, that 500,000 could be working for me and making me more money in real estate. And I try and get my owners to hold on to part of that where this market, I’ve learned over the last 35 years that it’s ups and downs and the people that can hold on are the people that win.

[00:30:32] And no matter how big you become in one cycle, it’s easy to go back down to zero from being very big and all of us have experienced that. And so I think it’s just really important to keep in mind that having that holding power and being able to survive that extra two years when there’s a pandemic or there’s a problem will make your life a lot better and safer. So I think that’s a big balance too, is just being a little more conservative.

[00:30:58] Mike: Yeah. Great [00:31:00] thought. Hey listen, so right now multi-family is the sexy spot to be. That’s the darling of the industry, right? Do you see another asset class that if you look down the road, 12, 24, 36 months down the road, is there another asset class that you think that’s going to make sense?

[00:31:20] Bryan: Yeah, right now I would say multifamily and industrial is also very popular. It’s a little bit harder for individual investors to get in industrial and it’s more controlled by a smaller group of people, but industrial properties are also very hot. And then we were seeing self storage do very well during this cycle as well.

[00:31:38] To me, the hotel industry will come back. Like I’m dealing right now with some clients that have problems on certain hotel assets just haven’t had cashflow in three years or two years, and it’s very difficult to make a property work when you don’t have cashflow. But I think hotels will come back.

[00:31:54] I’m not sure and it’s a strange thing that I was describing earlier where we [00:32:00] know there’s billions and billions of dollars of hotel assets that aren’t functioning. But there’s a minute number of hotels that are actually selling or trading. So there’s going to be some opportunities, I think on the hospitality side. But it’s a risky business because it’s a combination of a real estate business and operating business.

[00:32:21] I think retail we’re seeing come back a little bit. I think located smart retail makes a lot of sense. So I think retail is another asset class. Office is the one I would be more cautious with. I think the right office buildings will do okay too. But I think that’s the one that’s longer term, we’re not sure where everything’s going to shake out or are more people going to work from home. Is there going to be some mix retail? I think there’ll be some sort of convergence between retail and industrial. But I think what the pandemic hottest is, we can’t rely on Amazon only, or some place that’s not close to us.

[00:32:57] We need a grocery store that we can [00:33:00] run to. Cause if there’s a crisis, it might take Amazon two weeks to get us our product or whatever. So there’s a balance out there. I think that’s where retail is going to figure out over the next five years. And so I think there’s a lot of opportunity in retail.

[00:33:13] And the triple net side of retail hasn’t really slowed down. So it’s a mixed bag. There’s no secret answer. I think the smartest thing people can do is do what they know and don’t chase after something they don’t know.

[00:33:26] Mike: Yeah. How about when I look at the city of Chicago, that’s why I’m here.

[00:33:30] Bryan: Yeah.

[00:33:31] Mike: I have your absorption rate for office space just in the city alone. So what happens with that? What’s a retrofit for that office space that makes sense.

[00:33:40] Bryan: That’s a good question. And I think that people will figure it out. And that’s the thing about real estate is you figure out a solution. And a lot of people think that, bigger corporations will have satellite offices that WeWork, and those WeWorks will take up a lot of those office buildings. We’re finding with some retail [00:34:00] properties, there was some mall recently in Northern California that got acquired by a big logistics company.

[00:34:06] And they figured out how many storage units they could build there. And industrial units they could build there. And that, even though the land was expensive, it was close enough and it’ll save them shipping costs to go to other places where it made sense as logistics. Like we always figure out, we might need less office buildings, but we might need more data centers, that people work from home.

[00:34:25] They’re going to need to use their computer more and they’re going to need more well located data centers. And so there’s always some use that people figure out it’s just not always the same. That’s the hardest thing is like when you’re in a super expensive area, can that be replaced? And that’s the big question, but we’ve also seen like in LA, like there was a shopping center in west LA that is going to be used by Google is their LA office.

[00:34:50] And it’s an interesting project where they’re still moving forward. They believe in the area. It was a very expensive asset, but comparatively to the amount of revenues, I think they’ll be [00:35:00] able to generate and the type of quality people they’ll be able to hire that moving forward with the project and it doesn’t seem to deter them.

[00:35:07] If there’s going to be less people working directly in the office, they still want to have that space to have more meeting spaces, more creative spaces. So I think it’s about this, but it’s a question. It is something that isn’t resolved right now, and there might be some change in values or an office building and office properties.

[00:35:25] Mike: So this was a pretty high level conversation today. And what I’d like to know is will you work with the small investor too? So somebody’s doing a half a million dollar project, as much as somebody doing a half a billion dollar project?

[00:35:39] Bryan: Probably starting at about a million. And you’re like, I have a client in Texas that two guys, in the late twenties, early thirties, they had five to like maybe 12 to 15 unit building in a small town in Texas.

[00:35:56] And they wanted grand pub, they wanted to do the burn method [00:36:00] where, you go out, buy and renovate and refinance and use that capital redeploy it. And I met them about two years ago. We’ve done, I think four projects together, there are about 250 or 300 units now.

[00:36:13] They started growing their portfolio. I love clients like that. Sometimes hard for us to work on a $500,000 deal, but a million dollar deal with guys that I know we’ll be doing, five or $10 million deals in the next three years I’m happy to do that. So it’s that for us, that sometimes the best time to get in is when somebody is in that growth mode.

[00:36:34] When somebody has a big problem and you help them and you solve that problem for them, they keep you around and you keep working with them. Or during that growth though, they need to get started or they making a transition? Like they’ve got all of that 10 small buildings, but they want to move up to five larger buildings.

[00:36:52] And that’s another time where we actually get involved a lot. I don’t think there’s ever a dollar amount too small, but I [00:37:00] do think that it’s just not efficient. If there’s a $500,000 deal in new Orleans that somebody wants to buy, we’re probably not the most efficient person in that premium.

[00:37:09] Mike: Yeah. Got it. Listen, this has been really interesting today. A lot of information, high level. I love that. I know that you no doubt stretch my listeners mind today, and I always say from an education standpoint that the mind works like a rubber band. The more we stretch it, it never returns to its original shape.

[00:37:30]So I love that when we can do that, just make people think outside the box or think outside of their normal way of doing business or thinking because it helps. It helps us all grow. So I appreciate that. Hey, if people want to get ahold of you, how do they reach out to you?

[00:37:46] Bryan: Our website is gspartners.com.

[00:37:50] And that’s usually the easiest way my email’s on there. My phone numbers on there to just go gspartners.com that’s George Smith partners. It’s the easiest way to [00:38:00] get a hold of us. People can always call me or email me or text me any of those ways work.

[00:38:05] Mike: Any last thoughts or advice that you’d give an investor today?

[00:38:09] Bryan: I think it’s just be smart. I meet so many people that are trying to figure out how to grow from zero to a billion dollars. And I would say that the key is taking small steps and making smart investments. And you buy a one small building and then you refinance that, which the second building, the third building.

[00:38:31] And you’re not sitting around pondering how to get to this huge amount and going nowhere. So I think it’s taking small steps and being smart and meeting with the right people, having you coach them, having someone like me, help them on the finance side.

[00:38:45] There’s lots of resources out there and people try and do this on their own and make big mistakes. And so if you can find the right advisors and the right helpers, I think you’d get a lot further.

[00:38:55] Mike: Yeah. Excellent. Thanks for being here. Appreciate you, appreciate your [00:39:00] information and your experience, your knowledge.

[00:39:02] It’s always nice to talk to somebody who’s been in the business as long or longer than me. Hey, thanks everybody for being here for tuning in today. And we will be here next Tuesday and remember, you can always ask Alexa to play the most recent session of Insider Secrets.

[00:39:18] Have a great day. We’ll talk to you soon.

[00:39:21] Kristen: Thank you, Mike, and thank you for joining us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing and property management.

[00:39:39] We’re looking forward to having you back again next week for more Insider Secrets