Working Capital The Real Estate Podcast

Returning guest Bob Knakal is the Chairman & CEO of BKREA, a commercial real estate capital markets brokerage company in New York City. Bob was the former Chairman of NY Investment Sales & Head of the NY Private Capital Group within JLL Capital Markets in New York City as well as Chairman of NY Investment Sales at Cushman & Wakefield and Chairman and Founding Partner of Massey Knakal Realty Services, New York's #1 building sales firm.In this episode, we talked about:•⁠  ⁠Real Estate Market Overview•⁠  ⁠Geopolitics•⁠  ⁠NY Market•⁠  ⁠Team Goals•⁠  ⁠AI Impact on Real Estate•⁠  ⁠Prospecting Tools•⁠  ⁠2025-2026 Areas of OpportunitiesUseful links:Previous Podcast with Bobhttps://podcasts.apple.com/gb/podcast/bob-knakal-nycs-billion-dollar-broker-ep181/id1505750263?i=1000663926821

Michael Munger is an American economist and a former chair of the political science department at Duke University, In this episode, we talked about:•⁠  ⁠Michael's Bio & Background•⁠  ⁠Housing Rights•⁠  ⁠Rent Control•⁠  ⁠Corporate Income Tax•⁠  ⁠Line LegislationUseful links:Podcast: The Answer Is Transaction Costshttps://podcasts.apple.com/us/podcast/the-answer-is-transaction-costs/id1687215430

Colin Craig is a President of SecondStreet. In 2018, he was hired as President of SecondStreet.org and played an instrumental role in launching the organization. Colin oversees the organization's groundbreaking research and storytelling activities, In this episode, we talked about:•⁠  ⁠Colin's interest in Canada Healthcare•⁠  ⁠“How bad is Canadian Healthcare”•⁠  ⁠Activity based funding•⁠  ⁠2025 OutlookUseful links:Health Reform Now https://secondstreet.org/new-documentary-health-reform-now/

Aliyah Mohamed is Chief Capital Officer at KingSett Capital. She joined in 2022 and has oversight of equity and debt capital strategy and formation, as well as marketing and communications.Prior to joining KingSett, Aliyah spent over 16 years in Investment Banking at TD Securities, most recently as Managing Director, Real Estate, where she advised clients on a wide variety of mergers and acquisitions, divestitures, initial public offerings and equity and debt, public and private offerings.In this episode, we talked about:•⁠  ⁠How Aliyah Got into Real Estate•⁠  ⁠Chief Investment Officer vs Chief Capital Officer Jobs Aspects•⁠  ⁠Kingsett’s Main Focus•⁠  ⁠Institutional Clients Industries•⁠  ⁠Canadian Investment â€¢â   ⁠Fund Structures•⁠  ⁠Acquiring Process•⁠  ⁠Acquisition in the Canadian Market•⁠  ⁠Diversity in Real Estate

Bryan Caplan is a Professor of Economics at George Mason University and New York Times Bestselling author.In this episode, we talked about:Genesis of “Build, Baby, Build: The Science and Ethics of Housing Regulation” Book with Edy BranzeiWhy Housing Regulations?Gino's View on Financial IntelligenceHousing Shortages Despite Ample Land for DevelopmentUrbanisationAffordibilityRent ControlUseful links:First episode - https://podcasts.apple.com/dk/podcast/education-economics-and-real-estate-with-bryan/id1505750263?i=1000624154266Books - https://www.amazon.co.uk/Books-Bryan-Caplan/s?rh=n%3A266239%2Cp_27%3ABryan+Caplan

Gino Barbara is a real estate entrepreneur, he has grown his portfolio to over 350 million in assets under management and is teaching others how to do the same. Gino Barbaro is the co-founder of Jake & Gino, a multifamily real estate education company that offers coaching and training in real estate founded upon their proprietary framework of Buy Right, Manage Right & Finance Right In this episode, we talked about:Government and Economic PoliciesGino's View on Financial IntelligenceReal Estate Investment ChallengesHappy Money ConceptReal Estate Market ReactionsWealth Building through Real EstatePurpose-Driven Financial GoalsUseful links:https://www.linkedin.com/in/gino-barbaro-03973b4bhttps://jakeandgino.com/Transcription:Jesse Fragale (00:01.767)Ladies and gentlemen, my name is Jesse Vergali and you're listening to Working Capital, the real estate podcast. Our returning guest today, Gino Barbaro, as a real estate entrepreneur, he has grown his portfolio to over 350 million in assets under management and is teaching others how to do the same. We could do a long -winded introduction here, but we've done it before and let's get it from the horse's mouth. Gino, how's it going?Gino (00:23.35)I'm doing good, Jesse. How you doing, brother?Jesse Fragale (00:25.509)I'm doing great. It's been a while. I think over a year since we last spoke. So I'm really excited to talk about what's going on in your corner of the world. In terms of where you're recording today, are you still in Florida? Do I have thatGino (00:40.182)Yes, I'm still living in St. Augustine, Florida. I would not leave it for the world. Best place on the planet to live, in my opinion.Jesse Fragale (00:47.281)So from, what was it, pizzas, pizzas on the East coast and now in Florida in the sun.Gino (00:51.342)Yeah. It's been a big transition. used to live in New York. I left back in 2017. I have six kids. So the kids were the older kids and the younger kids loved it. The two in the middle were like, Dad, what are you doing? You're killing me. Took them a couple of years. But then when COVID hit, everything changed. We're living in the land of freedom down in Florida. And they're like, OK, Dad, now I see why you moved down here. Then I started talking to them about property taxes and about no state income tax. And they're like, how much are you saving?Why didn't you move sooner, dad? I said, I didn't know. What you don't know, you don't do it. So we love living down here, Jesse.Jesse Fragale (01:25.339)Yeah, we're just joking before the show about kind of the Canadian environment versus, you know, Florida obviously being a red state, very different, different experience being a landlord in that, in that state. So we haven't talked like I said, from the outset in a little while. So why don't you give us an update? You know, what, what's going on in your world right now in terms of, you know, what you're seeing in the market and the deals you're working on. I knowGino (01:33.059)Yes.Gino (01:37.035)IJesse Fragale (01:53.179)from up north here, we see a lot in the news right now. You guys have kind of a crazy presidential run going on. There's the economies on the top of the list for a lot of business people and landlords. So what are you seeing out there and what's been goingGino (02:08.398)Well, the first comment that I'd like to make is I never thought I'd have to go on X to get my news. I never thought I'd have to do that. And I'll tell you, Jesse, I was never

Bob Knakal. Bob is a New York city broker. He has been doing this since 1984.Over that time, he has brokered the sale of over 2 ,300 buildings, having a market value of approximately $22 billion. For 26 of those years, he owned and ran Massey Knakal Realty Services, which was eventually sold to Cushman Wakefield, moved into JLL for a period of time. And then recently, an investment sales and capital market brokerage firm that Bob has started. In this episode, we talked about:•⁠  ⁠Bob's First Steps in Real Estate•⁠  ⁠Geographic Expansion•⁠  ⁠Post-9/11 Growth•⁠  ⁠Service Diversification•⁠  ⁠Approach to Sales•⁠  ⁠Client Relationships•⁠  ⁠Current Market Trends•⁠  ⁠Office Market Dynamics•⁠  ⁠Macroeconomy and Interest RatesUseful links:Bobknakal.comBKREA.com

Chad has been in the industrial Real Estate industry since 2005 as a global commercial Real Estate company member and a partner with his local firm. Chad has completed over a thousand deals with clients ranging from small companies to large institutional owners as an active investor. Since 2014, Chad is co-owner of 150,000 square feet of industrial properties. Chad and Jesse also speak with Tyler Cobble once a month or once every two weeks on his podcast.In this episode, we talked about:•⁠  ⁠Chad's Bio & Background•⁠  ⁠First Steps in Real Estate Space•⁠  ⁠Asset Classes Outlooks•⁠  ⁠Investing Side of Business•⁠  ⁠Financing Deals Structure and Challenges•⁠  ⁠2024-2025 Opportunities in Real EstateUseful links:Tyler Cauble channel https://www.youtube.com/c/tylercaublehttps://www.linkedin.com/in/chadgriffiths/https://www.youtube.com/channel/UCRc7fHYWp9ThYaReiz8jhyQhttps://www.instagram.com/chadgriffith5

Kevin Katigback, Strategy Director Principal at Gensler. As the Strategy Director and Principal in Gensler's Toronto office, Kevin specializes in using place-making to create inclusive, accessible, and sustainable environments. In his role, Kevin delivers workplace and design strategies to help his clients adapt to disruption and the changing nature of work. For more than 20 years, Kevin has worked with innovative companies to help create and implement high-performance people-focused spaces that capitalize on new technologies and cater to the shifting needs of employees. In this episode, we talked about:•⁠  ⁠Kevin's Bio & Background•⁠  ⁠Client Acquisition•⁠  ⁠Global Workplace Survey•⁠  ⁠Geography Differences•⁠  ⁠Latest Trends in Remote Work vs Office Work•⁠  ⁠Hybrid Working•⁠  ⁠Company Productivity Measuring•⁠  ⁠Must have Amenities•⁠  ⁠ResourcesUseful links:https://www.gensler.com/https://www.gensler.com/people/kevin-katigbak

Walter is an American  Austrian School economist and anarcho-capitalist theorist. He was the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the School of Business at Loyola University New Orleans and a senior fellow of the non-profit think-tank Ludwig von Mises Institute in Auburn, AlabamaIn this episode, we talked about:•⁠  ⁠Walter's Bio & Background•⁠  ⁠Friedrich Hayek Works•⁠  ⁠Austrian Approach to Business Cycles and Economy Recession•⁠  ⁠Free Speech•⁠  ⁠Monopolies•⁠  ⁠Rent ControlUseful links:Friedrich Hayek “Prices and Production”, “Human Action”, “Man Economy”Transcriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. ladies and gentlemen, my name's Jesse Fragale. You're listening to Working Capital. The Real. Estate Podcast. It is my special honor to have Walter Edward Block on the show. Walter is an American, Austrian School economist, and anarcho capital theorist.He was the Herald e worth eminent scholar, endowed chair in economics at the School of Business at Loyola University in New Orleans, and a senior fellow of the non profit think tank, Ludwig von Mises Institute in Auburn, Alabama. How's it going? Walter? PrettyWalter (50s): Good. I want to add, I'm not just an American economist, I'm also a Canadian. I worked for the Fraser Institute for about 12 years from 1979 to 1991. And I am a, a Canadian citizen, so I'm, I'm also, I don't know how to say out and about yet correctly, but otherwise I'm a Canadian as well. You'reJesse (1m 12s): Out of the, out of the closet. Out of the closet on the Canadian front that, yeah, that is, that is news to me. Were you born in, in Canada or just citizenship?Walter (1m 22s): Brooklyn.Jesse (1m 23s): Brooklyn, New York. Brooklyn. Okay. That's what I thought. Interesting. Okay. Well, you know, for those that don't know on the podcast, we mainly talk real estate with, as listeners know, we sprinkle in economists. I think you're, you're definitely unique in the sense that some of your thoughts may not be in the mainstream of, of your typical left right kind of political ideology. I, I kind of discovered you in, in high school actually, with, with some of the works that I think you wrote in the seventies, if I remember correctly.And I just think that the, some of the concepts that you talk about touch on real estate, rent control, some of the economic aspects, minimum wage. But for those that that don't know your work, don't know you Walter, maybe you could give a bit of a background, you know, how, what was your journey, you know, become an economist and, and what you do today?Walter (2m 14s): Well, it all started with me and Bernie Sanders. Bernie and I went to high school together for, we overlapped for four years, and we were sort of buddies because we were on the same track team and we ran the same events. I have to tell you, my Bernie Sanders joke, it's not at his expense. Bernie Sanders joke is that Bernie doesn't run away from much, he didn't run away from socialism even before socialism became as popular as it is now.Banks, in part to his efforts, he didn't run away not only for ex-cons voting, but even convicts voting. But there's one person that he ran away from, and that's me. Why? Because we both did the same event about a mile, and his time was about four 30 and I never broke five minutes.

Brian Burke is President & CEO of Praxis Capital, Inc., a vertically integrated real estate private equity investment firm, which he founded in 2001. Brian is also a member of the Praxis Investment Committee. Praxis operates on multiple platforms, currently managing active syndications for the acquisition of single-family, multifamily and opportunistic residential assets in US growth markets.Brian is the author of “The Hands-Off Investor: An Insider's Guide to Investing in Passive Real Estate Syndications” and is a frequent speaker at real estate investment forums and conferences across the country.In this episode, we talked about:Brian's Bio & BackgroundAbout PraxisGetting DealsHow “The Hands-Off Investor: An Insider's Guide to Investing in Passive Real Estate Syndications” Book was BornInvestor's Capital DeploymentDebt Fund2025 OutlookUseful links:https://praxcap.com/

In this episode, we talked about:•⁠  ⁠Convincing Orders to Sell•⁠  ⁠Land and Marketing Listings•⁠  ⁠Finding Buyers•⁠  ⁠Tips for Negotiating and Closing Transactions

Kane Willmott is the Co-Founder and CEO of iQ Offices, a luxury coworking company with locations in Toronto, Vancouver, Ottawa and Montreal. Kane has over 20 years of entrepreneurial experience, assisting in the startup of multiple real estate brokerages as well as a public company listed on the Toronto Stock Exchange.  In this episode, we talked about:Kane's Background & First Steps in Real EstateCo-Working Workspace EvolutionEnterprise Co-WorkingCo-Working vs Sublease/LeaseOffice Market OverviewResourcesUseful links:https://www.iqoffices.com/https://www.linkedin.com/in/kane-willmott/?originalSubdomain=caTranscriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. ladies and gentlemen, my name's Jesse Ali, and you're listening to Working Capital. The Real Estate Podcast. My guest today is Kane Willmott. Kain is the co-founder and CEO of iQ Offices, a luxury coworking company with locations in Toronto, Vancouver, Ottawa, and Montreal Kane, how you doing?Kane (37s): I'm good, Jesse. How are you doing?Jesse (39s): Doing great today. So for, you know, for those that don't know, iQ Offices the largest Canadian node coworking operator with eight locations in downtown Toronto, Vancouver, Ottawa, and Montreal. And I think I've got e everyone there. Is that right? Kane? YouKane (52s): Got it. Perfect.Jesse (54s): So, Kane, for those that you know, for those that don't know who you are, are iQ, Offices. What we'd like to do with most guests is basically have a little bit of a backgrounder on how you got into the real estate space, and then maybe we could talk a little bit of about iQ and how you got into that world after.Kane (1m 10s): Great. Yeah, well, I'll try and make it a short story because I've been in the, in the business quite a while, but I started at a university at Pricewaterhouse, large accounting firm, and I found out very early on that that, that, that really wasn't for me in terms of the job and what I was doing every single day. And, but it, it taught me a lot about, about what I wanted to do really with the rest of my career. And I moved to Toronto that I, I went to school in Waterloo, moved to Toronto, and got into brokerage in 1998 and had the great fortune of working for Craig Smith and Brian Murphy.Craig Smith started Asher Urban Realty. And I went over and started that with him about a year into my career. So I had the opportunity to really go through, starting up a business very early on in my career, in a fairly low risk way from an opportunity cost perspective. And, and I had a lot of great mentorship and guidance from Craig Smith. So from there started another brokerage with another partner, ultimately took a company public, and then started a company called Spire Commercial Realty, another brokerage with Alex Sharp, who's my business partner now in iQ Offices.So we started Spire in 2009, focused on investment sales, and then in 2012 we got into iQ. So that's like the, the short genealogy of, of how we got to where we are now. But I can say in terms of why we started iQ, I started in office leasing in 98. And what I found in 2011 when we started looking at this as a business model, is that office space was transacting in t

Chris Picciurro is a highly respected expert in US-based Tax Planning and Strategy for Real Esate Investors, with international recognition as a presenter on the subject. He is based in Franklin, TN, where he currently resides with his family. Chris holds several accreditations, including a CPA, MBA, PFS, and ARA. He is an accomplished public speaker, recognized for delivering informative and engaging presentations at notable events hosted by organizations such as the National Association of Tax Professionals (NATP), Michigan Association of CPAs, and the Memphis Investment Group. He also previously participated as an Adjust Professor at Baker College and Davenport University.In this episode, we talked about:Chris's Bio & BackgroundCanadian Investing in the United StatesDealing with Losses in Real EstateDepreciationOffsetting Gains Tax ConsiderationsAsset DispositionResourcesUseful links:https://www.chrispicciurro.com/https://www.linkedin.com/in/picciurro/https://www.facebook.com/YourRealEstateCPA/Transcriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. ladies and gentlemen, my name's Jesse Alii. You're listening to Working Capital. The Real Estate Podcast. My returning guest today is Chris Paterno is a respected expert in US-based tax planning and strategy for real estate.Investors with international recognition as a presenter on the subject. He's based in Franklin, Tennessee, where he currently resides with his family. Chris holds a number of different accreditations, including CPA, MBA, PFS and ARA. Chris, welcome back to the show. How you doing?Chris (53s): I am amazing, Jesse, thanks so much for having me back. I really enjoyed our episode a few years ago and, and we still get people asking questions about it. So, you know, I'm, I'm excited to be back here honored and there's been some changes over the last few years that we wanted to make Canadian residents that are doing business in the United States aware of you have a an amazing following, amazing community. So I'm always, again, always honored to come back on the show.Jesse (1m 22s): Well, I appreciate it. Yeah. you know, from time to time I get these questions about the, the original interview we did. So we'll have some link in the show notes for that. I think we also put it out on YouTube. If you just type in investing in US real estate from Canada and you put my name Jesse Fragale or Chris's, you'll probably be able to pop that video out. But to make things easy, we'll also put a link in the show notes on that one. So, Chris, we've, we probably haven't talked, if I look at this episode, that was December, 2020, which is crazy to think it's been that long.Wow. So I always say there's a lot has happened over the last couple years, but before we even kind of get into it, why don't you give a little bit of a backgrounder for listeners, kind of who you are, how you got into, into real estate, and, you know, what you do today for, for individuals.Chris (2m 22s): Absolutely. So, yeah, my name, my name's Chris Picciurro, again, CPA Love Real estate investing. I and I have been a CPA here in the States for well over 20 years, the last 15 years niching in helping real estate investors

Nick Hill is a host of the Canadian Real Estate Investor podcast. He's a mortgage agent, Real Estate investor, and works in brokerage and lending services through their company, LandBank.In this episode, we talked about:•⁠  ⁠Nick's First Steps in Real Estate•⁠  ⁠Canadian Real Estate Investor Podcast•⁠  ⁠Specifics of the Canadian Real Estate Market•⁠  ⁠Interest Rates Environment•⁠  ⁠2024-2025 Opportunities for Real Estate Investors•⁠  ⁠ResourcesUseful links:https://www.instagram.com/mybuddynick/?hl=enhttps://www.linkedin.com/in/nick-hill-337a8762/?originalSubdomain=caTranscriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. ladies and gentlemen, my name's Jessica Galley and you're listening to Working Capital. The Real. Estate Podcast. My guest today is Nick Hill, an investor real estate professional mortgage broker, and one of the hosts of the Canadian Real Estate Investor Podcast Nick.How's it going?Nick (39s): Very well, longtime listener. Honored to be, honored to be a, a guest. So yeah, happy to be here. Happy to, happy to chat. And man, the bio makes me sound pretty good, I guess. Eh,Jesse (50s): It's not bad, eh, I don't know. Was it the, was it the mic or the content?Nick (55s): Maybe the guy saying it. I'm not sure.Jesse (58s): Oh, that's, you're too, you're too nice. So, Nick for, for those that don't know, maybe you could give a little bit of a, of a background for, for basically how you got into real estate, and we could talk a little bit more about kind of social media and, and the, the podcast that you guys have. But why don't we start with a little bit of a, a background on yourself?Nick (1m 18s): Yeah, appreciate that. I don't know how far I'll go back here. I've, I've kind of always just been attracted to the entrepreneurial side of things. Started a lot of businesses, kind of my late teens, early twenties, originally wanted to be a lawyer. Started talking to lawyers when I was in university. I was watching a lot of suits at the time and realized that that was nothing like reality. So quickly. Finished up my degree, went into construction engineering management, which kind of put my career trajectory into the construction side of things.So I worked on condos as a project coordinator. I worked at Sanofi Past, which is a big pharma company in, in north Toronto on the CapEx team. Did that for a few years and kind of wanted to get more in the business side of things. So I transferred out of the construction side of things, making a really good salary, and decided to get into commercial real estate where, you know, Jesse, there is no such thing as a salary.So did that for, for a while as a junior associate at Ellington, which kind of little offshoot of of Collier, some of the top guys there, went and started their own shop. Did that for a while. Great experience, great exposure. Got into the business development world kind of within the tenant fit out space in, in commercial real estate. And from there, just kind of coasted along for, for several years when the pandemic hit, I actually just before the pandemic hit, I decided I was gonna finally dip my toes in and start trying to build my own personal real estate portfolio.So started buying small cap residential properties, couple duplexes here and ther

Mr. Gordon Wadley is the Chief Operating Officer of Dream Office REIT. Mr. Wadley provides leadership to the overall asset strategy of Dream Office REIT's Toronto portfolio. Mr. Wadley has held progressively senior positions within the company since he joined in 2011.In this episode, we talked about:Gordon's First Steps in Real Estate SpaceAsset Classes OverviewThoughts on Co-working Space in 2024Interest RatesOffice Space Conversion2024 Outlook Advice to Individuals who Consider Making a Career in Real EstateUseful links:https://dream.ca/office/

Lauren Cohen is a cross-border lawyer, realtor, best-selling author, international speaker & business immigration strategist with over 25+ years of personal and professional experience, thousands of clients successfully invested in and relocated to the U.S., and tens of millions of dollars in investments secured:  In this episode, we talked about:Lauren's Bio & BackgroundImmigration InvestmentBest Timing for Real Estate InvestmentGeography of InvestmentTypes of VisaUseful links:https://www.eb5investors.com/https://www.linkedin.com/in/lauren-a-cohen-9b54b11a2/https://www.instagram.com/laurenesq1/Transcriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. ladies and gentlemen, my name's Jesse Fragale and you're listening to Working Capital. The Real Estate Podcast. We have a returning guest on the show today, Lauren Cohen.Lauren is a US immigration lawyer, Lauren a US immigrant from Canada is a serial entrepreneurial realtor, cross-border. Legal strategist. Bestselling author and global keynote speaker. Lauren is the founder of Investing Across Borders, the only concierge full service, investment and immigration advisory company helping clients navigate through the complex journey of cross-border real estate investing business set up and expansion and securing us visas. Lauren, how you doing?Lauren (1m 1s): I'm pretty good. How are you doing? How's the weather? Ah,Jesse (1m 5s): You know what? It's not bad. It's okay. We're not in the, we're not in the negative weather, but it's very, I feel like we've been in London in Toronto for the last month.Lauren (1m 14s): Oh, that much rain, huh? A lot of gray. Huh?Jesse (1m 17s): Rain a lot of gray. It's dreary, but you know what? Can't complain. you know, I'm not, the winter jacket isn't fully out yet, so we're okay. How about you? You're still in Florida?Lauren (1m 28s): Yes, sir. I will not be there in January. Anytime in any January. Anytime soon.Jesse (1m 36s): Fair enough. Yeah, I'm sure it's, it's a lot different right now in terms of the weather there. Yeah. Lauren, it's been, it's been quite a while since we last spoke. We had you on the podcast and we can link to that probably, I'm gonna say two years ago, if not, if not more. During,Lauren (1m 53s): During Covid, was it the last time?Jesse (1m 55s): It was, it was definitely during some sort of lockdown.Lauren (1m 59s): Yeah, at the tail end I think. Yeah. Yeah, it's, well, you know, you have so many lockdowns in Toronto, which were good for me, but not so good for you guys, so, yeah.Jesse (2m 9s): Well it's funny when people say the C word on the podcast, we, we don't know if they're talking like if it's a US individual, I don't know, you know, when it took place. 'cause it was different for us than, than down south. Very,Lauren (2m 21s): Very, very.Jesse (2m 23s): Yeah. So Lauren for, for those that you know, didn't listen to the first podcast and, and you know, just want to know kind of yo

Omar Khan is a Returning Champion - the Founder and Managing Partner at Boardwalk Properties. Omar has advised on $3.7 billion in capital financing and M&A transactions, as well as securing $50+ million in equity from private and institutional capital. He is a graduate from the Rotman School of Business (University of Toronto), and a CFA charter holder with 10+ years of investing experience across real estate and commodities. As the principal of Boardwalk Wealth, Omar is primarily responsible for developing strong relationships with private and institutional investors, brokers, and strategic partners. He has closed on over $450 million of assets across TX, GA, FL, and SD.In this episode, we talked about:•⁠  ⁠Omar's Bio & Background•⁠  ⁠Canada vs America's Entrepreneurship•⁠  ⁠Initial Steps in Real Estate Investing•⁠  ⁠Asset Classes•⁠  ⁠Agency Debts•⁠  ⁠Forecast for Retail, Industrial, and Multifamily Asset Sectors•⁠  ⁠The Impact of Current Macroeconomic Changes on Omar's Investment Philosophy•⁠  ⁠2024-2025 Outlook and Opportunities for InvestorsUseful links:https://www.boardwalkwealth.com

Ashley Kehr purchased her first rental property in 2014 and since then has grown her buy-and-hold portfolio to over 30 units. She has experience in residential and commercial properties. She accredits much of her success to the use of partners on several real estate deals and creative financing. Ashley developed a passion for real estate after quitting her staff accountant job to work as a property manager. Within several years, she had created two property management companies, which she ran for over five years. Her speciality was creating systems to work efficiently and remotely within the companies. Ashley Kehr is the co-host of the Real Estate Rookie Podcast. Just a few years removed from being a beginner herself, Ashley is now helping newbies figure out actionable steps to get their first deal. She has a dual degree in finance and public accounting and recently became a licensed insurance agent.In this episode, we talked about:Ashley's Background and First Steps into Real Estate Journey with Bigger PocketsDecoding Asset Class Shifts Over TimeLong Term vs Short Term RentalsInterest Rates2024-2025 OutlookUseful links:Instagram https://www.instagram.com/wealthfromrentals/?hl=enhttps://www.ashleykehr.com/Transcriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name's Jesse Fragale. You're listening to Working Capital. The Real Estate Podcast. Our returning guest today is Ashley Kerr. Ashley purchased her first rental property in 2014 and has since then grown her portfolio to over 30 units.Ashley is the author of Real Estate Rookie, 90 Days To Your First Investment. So for those that you know, didn't listen to the first conversation, it's been a few years since, since we last chatted, maybe you could give a little bit of a background for the listeners of, you know, how you, how you kind of came into real estate and more specifically what you've been doing the last couple years. 'cause I know you're fairly active online and I know that, you know, you've been affiliated with BiggerPockets for the last few years, so if you could speak to that, that'd be great.Ashley (1m 5s): Yeah, sure. So to get my start, I actually was an accountant. I hated my job and I quit it and I was just gonna be a stay at home mom. My husband, he was a dairy farmer. And so right after I quit as an accountant, I decided to get pregnant, have a baby. And my neighbor growing up, who was a really good family friend, I was best friends with his kids growing up. He said, I have a 40 unit apartment complex I'd love for you to manage. So that was my first kind of insight into real estate.Growing up, I knew the family was very well off that, you know, he had made investments And, he owned a couple businesses that I knew about, but I never knew about the real estate part of it. And so that was my experience as to like what you can actually do. And when I first started working for him, he had me sit in and help him acquire another business. And the way he was able to acquire this business was actually leveraging his multifamily property. He had refinancing it, pulling the equity out And, he used the cash to buy this new business, And.he took me to the closing table. He let me like write out the checks of this huge amount and like right there, like I can still, you know, see the orange shag on the atto

Tyler Cauble is an Investor and Broker in Commercial Real EstateIn this episode, we talked about:Tyler's Background and First Steps into Real Estate First DealsRetail Real Estate ChallengesBroker - Investor Transition2024-2025 OutlookUseful links:https://www.instagram.com/commercial_in_nashville/Transcriptions:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. ladies and gentlemen, my name's Jesse Galley and you're listening to working capital, the real estate Podcast. My guest today is Tyler Codwell. Tyler is an investor and Broker in commercial real estate from Nashville.Tyler, welcome back.Tyler (35s): Jesse. Honored to be here, man. Thanks for having me on.Jesse (38s): Anytime, man. So, you are a returning guest. It's probably been about a year since you were last on the podcast, but we have been kind of going back and forth, I think biweekly or bimonthly, whatever the correct term is for that on kind of chatting basically commercial real estate from a broker's perspective, Broker and investors perspective. So that's been a lot of fun. So I thought it would be great to have you on and, you know, talk to my audience a little bit about kind of the background of what you do and chat a little bit about where we're at right now in the market cycle and, you know, where you're seeing opportunities.Obviously, you know, there's a bunch of different markets that are telling different stories. You're in Nashville, I'm in Toronto, we, you know, we chat about all the cities in North America and kind of generally speaking, but yeah, I, I thought it'd be great to, to have that conversation. So for, for people that didn't tune into the first podcast, maybe you could give a little bit of a background of kind of how you got into real estate and, and what you currently do now, Ty.Tyler (1m 38s): Yeah, man, it's gonna be a fun conversation. you know, appreciate you coming on the brokers round tables. Those have been a lot of fun. And you know, it's, it's, it's the content that you and I wish that we'd had when we first got started, right? I mean, that's, that's why I'm doing a podcast so much. And I know that's why you do it. It's because, you know, back when we were getting started, nobody was doing this stuff and so it was so frustrating to learn everything. So, so of course appreciate what you're doing and love the podcast. But yeah, man, I got started back in 2013 as the in-house leasing agent for a boutique development firm. Had zero knowledge about commercial real estate.I didn't even know that somebody represented Chipotle and put them in there. Never even thought about somebody owning those buildings. Hmm. So it was quite the learning curve getting started. And, and of course I never realized how lucky I had it until probably three or four years into the business when I, most of my friends had graduated college 'cause I was a dropout. They were graduating college and trying to get into commercial real estate, and some of them were interviewing 50 times and not getting a job. So that's when I kind of realized like, oh man, I kind of, I might have struck gold here, but I focused, you know, solely on our in-house assets, some office retail and industrial, and got those leased up in about two years.Then I started looking into development projects, put my first development deal together, which was 42 town homes and then left and started my own fi

Ian is Chief Investment Officer at CrowdStreet, overseeing its marketplace, an online commercial real estate investment platform that has completed over 650 offerings totalling over $25 billion of commercial real estate. Ian's Bio & BackgroundInterest Rates PolicyReal Estate PricingPotential Opportunities in Real Estate 2024-2025Useful links:Previous episode https://www.buzzsprout.com/2246698/episodes/13585761 https://www.linkedin.com/in/ianformigle/https://www.crowdstreet.com/Transcription:Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. My name's Jesse Ali. You're listening to working capital, the real estate Podcast. My guest today is Ian for Mely, chief Investment Officer at Crowdstreet.CrowdStreet is one of the largest online private equity real estate investing platforms. Ian, how are you doing today?Ian (39s): I'm doing good, Jesse. It's great to be back on the podcast.Jesse (42s): Yeah, it's fantastic to have you back on. I think, you know, you're one of the perfect guys to talk to right now in this current economic and, and real estate environment that we're in right now. So for those that that want to check the original episode, you can go back to that and I think it's, it's probably been close to two years now, maybe a little bit shorter than that, but it seems like time has been going by fairly quickly here, given the last couple years. But for those that don't kind of know Crowdstreet or your background, Ian, maybe you could just give a little bit of a, a backgrounder on, on what you do at Crowdstreet.Ian (1m 19s): Sure, yeah, thanks. From a high level, first just high level on Crowdstreet is, you know, we're an online equity syndication platform credited investors, you know, typically in the US I think there's, we do actually have some Canadians Jesse that invests on the platform, if I recall correctly. But, you know, we're, we're, we're bringing deals to the, to a marketplace that are generally located in the United States. We have syndicated about 4.2 billion in, in, in total aggregate equity since our inception, which dates back to April of 2014.That's been across a lot of deals, I think upwards of 800 deals at this point. I joined Crowdstreet in the summer of 2014 after the platform had gotten live, but essentially got its second deal on the platform. So I guess I've served as the key decision maker on, you know, two through N of deals since then. So been a, been a lot of work over those years. It's been, but it's been interesting to see a lot of deals come and go. Our platform is historically about 50% multifamily, 50% everything else, everything else being essentially we look at deals in the hospitality space, industrial, retail, you know, pretty much all the major food groups, even self-storage.We don't really do land deals. That would be the, probably the one, one area of real estate that we don't tread into. And we've done deals both from an acquisition standpoint and a development standpoint, and our general MO is to, you know, partner with operators and developers across the United States who are looking to gain access to syndication at a greater scale. Bring that into their, you know, the, their form of their capitalization of deal

Andrew Drexler is First National's Assistant Vice President and Team Director in the Commercial Financing division. Andrew has originated more than $4 billion in Commercial Financing. In this episode, we talked about:Andrew's Bio & BackgroundAbout First NationalAsset Class BreakdownCommercial vs Residential LendingCMHC FeesDebt marketsApartment Sector ConstructionInterest Rates OutlookReal Estate OpportunitiesUseful links:Previous podcast with Andrew: https://podcasts.apple.com/id/podcast/real-estate-financing-development-and-student-housing/id1505750263?i=1000539900581https://www.firstnational.ca/

Jackie Greene is Vice President of Economics. Jackie has been serving ITR Economics' clients since 2005. Over the years, Jackie has proved to be a critical member of the ITR Economics team. She has elevated her skills and expertise, reaching new heights in advanced forecasting, gaining a deep understanding of the business application of ITR Economics' trend analysis, and developing a keen awareness of how to incorporate our insights into business strategy best.In this episode, we talked about:Jackie's Bio & BackgroundPassion of EconomicsCurrent Real Estate EnvironmentInflationInterest Rates PolicyDebt Market OverviewDebt Income MetricsRecessionIndustrial SpaceEmployment IssuesUS Economy OpportunitiesUseful links:Itreconomics.com

Cadence Capital works with investors who are dissatisfied with the low returns from savings accounts and bonds and investors who are concerned about the volatility of the stock market.Cadence Capital puts discerning investors' capital to work for them by investing in exceptional multifamily properties in the best markets nationwide. Demand for multifamily rental units continues to grow and is driven by both the preference of certain demographics as well as unaffordable single-family homeownership options.Cadence Capital is based in Toronto and partners with investors for whom the stability of real estate investment is appealing but the stress of property ownership is not. We give our investors the benefits of real estate investment through syndication, which is a group investment in a multifamily property.

Peter Linneman leads as Founder and CEO of American Land Fund Management, KL Realty, and Linneman Associates. He is the author of Real Estate Finance and Investments: Risks and Opportunities, the quarterly publication, The Linneman Letter, and more than 100 scholarly publications.In this episode, we talked about:Peter's Book: Real Estate Finance and Investments: Risks and OpportunitiesOffice Real Estate Market OverviewOpportunities in Real EstateUseful links:Previous episode: https://podcasts.apple.com/ca/podcast/state-of-the-market-and-real-estate/id1505750263?i=1000557554818

Michael is the founder, President and Chief Executive Officer of Allied Properties REIT. Prior to entering the Real Estate business in 1988, he was a partner at the law firm of Aird & Berlis LLP, specializing in corporate and real estate finance. He is also a Director of EQB Inc. and Equitable Bank.In this episode, we talked about:Mike's Bio & BackgroundMike's View on the Office Market: Downtown and SuburbianClimate RisksInterest Rates and Monetary PolicyInflationMike's Advice to Individuals Who Want to Get into Real EstateFuture of Mike EmoryUseful links:https://schulich.yorku.ca/faculty/jim-clayton/

Travis Watts is the director of investor education at Ashcroft Capital and a multi-family apartment investor. He has been investing in real estate since 2009 in multi-family, single-family, and vacation rentals. Mr. Watts dedicates his time to educating others who are looking to be more "hands-off" in Real Estate.   In this episode, we talked about: Travis's Bio & Background Passive vs Active Investing Transition Into a Full-Time Passive Investing Deal Vetting Geography of Deals Finding Real Estate Deals Investment Philosophy   Useful links: https://info.ashcroftcapital.com/travis Transcriptions: Jesse (0s): Welcome to the working capital real estate podcast. My name's Jessica Galley And. on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. My name's Jesse Rega and you're listening to working capital. My guest today is Travis Watts. Travis is a full-time investor, Passive income advocate, public speaker, and the director of investor education at Ashcroft Ashcroft Capital.   He dedicates his time to educating investors who are looking to be when it comes to real estate investing. Travis, welcome back.   Travis (42s): Hey, Jesse. So glad to be here. Thanks for the invite back.   Jesse (45s): Not a problem at all. It's great to see you again. We've chatted before on working capital for those listeners that wanna see the, that first conversation, I was pretty wide ranged in terms of the topics, but you know, like most returning guests we have on a lot has happened over the last couple years. So we thought we'd kind of have you back on, talk about what you're doing currently and your take on on where we're currently at in the real estate cycle. So before we kick it off, for those that didn't hear the first episode, maybe you could give a little bit of a background for listeners to what you do and how you got into, into the world of real estate.   Travis (1m 25s): Sure, yeah, happy to. So humble beginnings, you know, wasn't raised by an investor minded family, not a real estate background at all, but reading some of the books a lot of us have read. The Rich Dad Poor Dad type stuff, kind of was my gateway drug into learning about Passive income and financial freedom, things like that. So, started out with single family homes, did flips, did vacation rentals, you know, had roommates, just was trying to pull every string I could early on with a low budget on how I could make more money. And then I kind of shied away from doing as much of the buy low sell high strategy.   And I really started to hone in on Passive income. So in recent years I've been a full-time limited partner, mostly in multifamily, private placements with many different operators, of course, Ashcroft Capital and Joe Fearless as well. And you know, I'm just a guy who, you know, came from nothing in terms of, you know, being handed anything or, or again, coming from a family of this. And once I realized what Passive income did in my own life and how it can truly free up your time, how it can give you more options in your life, it was a complete game changer.   And so I dedicated the rest of my time from that point to trying to help others, trying to explain this, simplify it. So I've launched a couple different podcasts over the years. Passive Investor Tips is my current one under the best ever brand. And I just make these short episodes five to seven minutes. I try to consolidate as much as I can into quick snippets to help people. And then I'm on podcasts like yours and I'm writing and blogging out there, and I just wanna open up an underserved niche, which is a private placement Investing, and B, not many people talking about Passive income.   So that's what my passion is, that's a quick background and that's what I do to, to help others.   Jesse (3m 11s): That's great. And for those that if you've been kind of under a rock in terms of real estate investing, Joe Fearless website, I mean you just Google it, you'll see a number of resources from him. He kind of wrote what's known in our circles as like the Bible of multifamily. It's a massive book on Investing. In terms of the, the Passive nature, I always find this kind of fascinating from the standpoint that people go into real estate a lot of times because they expect it to be a Passive investment. And what one person's definition of Passive is very different than another person.   So maybe just from, you know, 30,000 feet on Passive Investing, what do you consider Passive and where do you see people kind of mixing in, you know, what we would consider really an operator as opposed to a purely Passive investor?   Travis (3m 59s): Yeah, I think you hit on a great point. As I mentioned, I started with single family homes, don don't know. If I was so focused on whether it was gonna be active or Passive, that really wasn't my concern at that time. But as many hope it, you know, to be Passive, when you start acquiring that property, 5, 6, 7, 8, you start to realize you kind of gotta make a decision at some point. Are you going to be, you know, a real estate professional, maybe a, you know, a full-time landlord, or are you gonna work a career, you know, and then have investments on the side? And that was kind of the threshold I hit because I used to work in oil and gas, a hundred hour work weeks, 14 hour days, and I'm trying to do all this real estate on the side and scale it up with, you know, one or two properties a year.   And I just completely, you know, hit that threshold in about six and a half years. And I'm like, man, this is not for me anyway, this was not scalable, even with property management companies, I was still having to make a lot of active decisions. First of all, finding the properties, underwriting 'em, showing up to closings, understanding the markets and how they shift and how they change. And then, you know, making decisions. Do I repair that roof? Do I replace that roof? Do I paint the house? Do I refinance right now? So you, you can't help but say there's a, there, there's a lot of active components to owning, you know, your own individual real estate.   So my definition to answer your question about what is Passive, this could pertain to real estate or any other asset or business. If you do not materially participate in the actual business itself, then you would be Passive as an investor in it. So it could be as simple as owning some stocks. Maybe you own Apple or Microsoft stock. That doesn't mean you're active with the company, it doesn't mean you work for the company. You, you just wanna be a Passive investor. You just wanna share in the profits and let the team do their thing.   And so that's what I found to be the best strategy as you start to acquire more and more capital to free up your time so that you can spend your active time on what it is you wanna do. And there's nothing wrong with being active in Real, Estate or being a general partner or flipping houses or being a wholesaler, if that's what you like to do, if that's truly your skillset, your passion, your desire, nothing wrong with that. But for me, owning my own real estate was really a pain point. It was really a headache, it was really a hassle. I didn't have the skillset, I didn't have the background, I couldn't compete with the people that were 20, 30 years into it.   And, and me being this naive newbie that kind of hit a, a market dip at the right time.   Jesse (6m 24s): I think the, the nature of the, the conversation of Passive versus active too, it, it, in a lot of ways it can hinder or really stop progress in Investing in general. A lot of times people get a few investment properties and they get kind of a stale taste in their mouth after a couple bad experiences. you know, even for people that have been successful, oftentimes maybe it's moving to multifamily where you can make a, a re a real argument that it's less stressful having a hundred tenants than it is having two tenants in, in a lot of ways in, in that you're dealing with a lot of emotional one-on-one conversations.   You don't have enough to necessitate prop property management or asset management. And then you have a lot of times in those cases, a hundred percent vacancy when somebody leaves. So, you know, there is that argument. But to get to that scaled place, oftentimes you, you deal with a lot of this and I think a lot of investors bow out after a few bad experiences on the operating end.   Travis (7m 22s): That's a great point. And statistically, what is it, three failures for the average person, they call it quits, right? And so it doesn't take much to get there when you're doing your own properties. you know, I had properties where I was cash flow and a few hundred bucks a month, and all of a sudden, you know, the, the H V A C system goes out and there's 5,000 outta your pocket, there went a whole year of cash flow or you know, tenant quits paying rent. That's the obvious one. I've had tenants destroy properties. I'm not trying to make horror stories out of it. I, I made, you know, great money too in my active deals.   But it really is, it takes a lot of perseverance, let's just put it that way and time.   Jesse (7m 59s): A hundred percent. And I think you've touched on something too where your definition is not material materially participating in the active business or the, the operations of the business. And you know, oftentimes depending on the country or state, there's legal definitions, you know, in terms of limited partner that you cannot participate or you lose your, your limited liability status. So it's not necessarily just a, you know, a a definition, just have a definition. Oftentimes there is a, there's kind of a legal structure in place and those definitions are important.   Travis (8m 30s): A hundred percent man. Yeah, it's just my Philosophy was kind of, if I can't beat 'em, join 'em, I guess, you know, there's always gonna be people that are, are better than you at any particular thing. So it's just why not profit share with them in their journey. And so, yeah, made a lot of sense in my case. Anyway.   Jesse (8m 47s): So for those that, you know, say they've been Investing in Real, Estate just on, you know, your typical active end, whether it's smaller, single family commercial or, or you know, multi res, how do, how have you seen people make that transition or, or foray into Passive Investing? Because a lot of times we see is people that have earned a decent amount of income where they can put 50 or a hundred thousand, 150, whatever the minimum is, say, for a certain fund or asset into a Passive investment.   What, what's that transition or what does that process look like for your clients?   Travis (9m 24s): Well, the first thing I'd point out is there's not many people that are like myself and a few others here in the industry that are literally full-time Passive investors. Meaning that every investment I have, I'm an lp, I've, I've never been a gp, I'm not looking to become one. That kind of thing. Most of our clients are what, what we're talking about here, it's the, it's the typical story that they bought a property themselves, maybe two, maybe three. They like 'em, there's pros and cons, they understand that, but they also know that if they had 20 of those, they don't want that.   And so I use my dad as a good example. He got up to eight properties on his own single family and decided I wanna retire and I don't want to have 20 properties. I I like my eight and they're paid off and it's all good. But he, he transitioned at that point into becoming a limited partner in syndications. And now it's a, it's a limitless opportunity. Anytime he has liquidity or a sale or refinance or whatever, he can just do another syndication investment. And another, and another, and another. I'll tell you, it's not much harder to have, you know, two syndication deals under your belt as an LP versus say 50 of them.   It's, it's still very Passive if you choose to make it that way.   Jesse (10m 35s): So in terms of the Vetting or the questions that you're typically asking when you're getting into a Passive deal, 'cause often people will say, well, okay, if you grant the fact that we're gonna trust people, operators that are smarter than us know what they're doing, you also have to, you know, know how to vet them. So what's your approach to that?   Travis (10m 54s): Yeah, I do. I'll answer that absolutely. But I want to point out that the foundation to this answer is one of the best things about being a limited partner is no matter where you live in the world, you can invest wherever you want. Okay? So like back when I had all these properties, single family all in Colorado, I lived in Colorado and I started to get scared about natural disaster risk or political risk. What if Colorado says, Hey, we got a 10% state income tax, now all of a sudden All, right? People are gonna move out in droves.   I'm gonna have a hundred percent of my portfolio right there in the heat of it. And so I never want that. And it's a beautiful thing to be able to, to spread out. Now what I do in my approach is I start with my goals first, and I recommend people do that. So what is your actual long-term goal? It doesn't have to be the complete end goal, but maybe a five year goal, maybe a 10 year goal. Are you looking to build up more Passive income to create a backstop for your active income or maybe to retire? Or do you want a certain amount of net worth?   Maybe you want $2 million net worth by the time you retire, whatever it is, I start there and then I start looking at what types of investments could potentially move me towards those goals. And so what I like is kind of a, a 50 50 hybrid, I'm gonna put my money in something that pays me on a monthly basis. So there's my Passive income, but also has the potential for equity upside if we buy low and sell high, I still like that strategy. I just don't do it full-time. There's no investment that I've ever made, well, not ever recently made where it's just solely buy low, sell high with zero cash flow.   But that just fits my risk profile, my goals and objectives. That doesn't mean it's right for anybody listening to this episode. So first, identify what it is you're trying to do. Try not to just make a number goal, like 10,000 a month Passive income. Ask yourself the real why questions, why do you want 10,000 a month Passive income? What would that mean for you? What would you do with the money? Put your kids through college, retire early, quit your job, vacation more. You gotta really know what you're after. And you gotta put some emotional thought towards that because I can tell you firsthand, if you just say 10,000 a month Passive income and you get up to seven and we have a nasty recession and, and you start going downhill, you're very likely to give up on that goal and just settle for less and say, well, maybe, maybe I'm, my goal is now six and and I'll settle on that.   So you gotta tie it to like, I'll fail my kids if I don't put 'em through college, you know, if I don't meet this goal and then you're not gonna give up on your family. So that's a little piece of advice. Now for the technicals to your question, I look for a solid track record. I look for reputable groups. you know, I started Investing with Ashcroft years before I came on board to, to help 'em out with investor relations and education and all that kind of stuff. I wanted more of a transparent, you know, look into the company so to speak, so that I knew where I was placing my money and I could learn the business that way.   And then, you know, just conservative underwriting, conservative projections, you gotta start to learn your criteria. You mentioned Joe's book earlier, the best ever apartment syndication book. It's about 400 pages, but it can help you identify your criteria. Do you like value add business plans? Do you like new development? you know, do you like core assets or core plus or opportunistic? There's a lot of jargon to learn in this industry, but for me, I like Sunbelt markets right now. And for the last, you know, seven years or so, it's where people are moving, it's where companies are relocating to.   But with that in mind, markets change. you know, we just saw Phoenix go through kind of a big boom and a little bit of a bust right now, so there's opportunistic times to get in and out. And so it's just kind of like writing down your criteria once you understand it and can identify with it. And then just trying to check off as many boxes as you can. And I rarely get a hundred percent of my criteria met on any given deal, but if I can get 70 to 80% there, then I feel good about moving forward with that particular group.   Jesse (14m 48s): Yeah, and it's, it's kind of, it's cool that you, you mentioned the geographic diver diversification, where I find with Passive investments, especially on the, if you're on the LP side, you can really spread yourself or di diversify yourself, whether it's like you said geographically or it's the, the type, you know, maybe you're doing value add in this area, you're doing a buy and hold in this area. In terms of the initial kind of outreach and basically finding the investors that you want to invest with are, are you typically networking in your home state or is it something where you, you know, you, you talk to somebody like yourself and it's, you know, maybe word of mouth in terms of finding these operators.   How do you, how do you typically go about that? Especially for somebody that's kind of breaking into Investing or is moving from operating some rental properties to somebody who's gonna take Passive Investing on the LP side more seriously?   Travis (15m 42s): That's a great question and I'm a big believer in, you know, your network is your net worth. And I started with just simple, easy, low hanging fruit sources, like getting on Google and typing in, you know, syndication groups and making phone calls. And then it led to local real estate meetup groups and trying to meet people face to face, which gave me such a better indication of who these people were and what they were doing. And then I just started branching out more and more from there. I would go tour properties with different groups and then I would do national conferences and now I speak at national conferences.   So it's kind of a win-win because I'm there to, you know, help educate on this topic, but I'm also there to network and learn. And I'd say I've found about 60%, maybe even 70% of all the operators that I've ever worked with through face-to-face contact. So the more you can get out there and the more you can network, the better off you'll be. And another key, if you want to kind of just get right to the point and circumvent some time is find other people. I've always been a big believer in this, find people doing what it is you wanna do and just make them your mentor Whether, you have to pay them Whether, you just have a quick 15 minute call, maybe once a month.   Pick their brain. Who are you Investing with? What, you know, how, what's your experience been? you know, who would you recommend? Testimonials go a long way in this industry and if I can get, you know, five, six testimonials lined up for a particular group and they all happen to be positive and you know, they got the track record and all the rest, I'll probably invest with them.   Jesse (17m 12s): Do you make a, any distinction in terms of Investing with an operator that invest in asset specific deals as opposed to creating funds? you know, are you agnostic or do you prefer one over the other?   Travis (17m 25s): It's funny, if you listen to some of my earlier content, when I first started doing podcasting and speaking, I had the opposite point of view. And the, the parallel I'll draw for your audience is it's kind of like imagine the stock market, okay? You can either go handpick stocks you think are gonna do great and outperform, or you can just buy the s and p 500 index or some other equivalent index, right? So at first I'm thinking, hey, I know how this works and I can, I can pick a good deal and then come to find out that three or four of those didn't do so hot, right? I didn't lose money thankfully, but they certainly didn't hit the projections that we were all hoping for.   And so I became more of a fan over time into the fund model, even before Ashcroft moved into the funds, I had no idea they were gonna make that transition. But it gives you broader diversification, right? You can still put in that minimum investment or that 50 K, but now you could be invested in four different properties and not just have to pick one. And then you're outta capital and you just have to hope and pray that that deal works out. It's not always the fault of the operator. It could be, you know, again, natural disaster risk, the it, there could be a, a fire, there could be a flood, there could be a hurricane, a tornado, a blizzard, snowstorm, who knows.   So I don't like to put too much into any one deal. I don't care if it's a fund or an individual deal, but, you know, at the end of the day I still do both. I do mostly funds nowadays if, if anyone caress to know that. But it's a personal preference.   Jesse (18m 49s): Okay, fair enough. And now we've talked a little bit about the last year or two. Been unprecedented, unprecedented time, lots of ch lots has changed. I, I want to get your take on if your Investment Philosophy has changed or, or you've pivoted within the last few years as a result of the kind of, you know, you wouldn't call it your typical business cycle. We've been forced into certain things and other things have been put on hold. So I guess generally speaking, since the last time we spoke, has there been any light bulb moments or things that you've changed?   you know, in terms of the investments?   Travis (19m 24s): You know, I'll, I'll start by sharing this. My general Philosophy is that I'm a dollar cost averaging guy because I love real estate and I intend to be in it for the long haul and I don't try to pretend to be able to time markets. I remember talking to syndicators one in particular that's very experienced 20 plus year track record in 2015. I'm like, please put me on your deal list. I wanna see what you're doing, I'd like to participate with you. And he's like, Travis, we're gonna have the biggest meltdown you've ever seen in your life in 2016. I, I expect everything to implode and just blow up.   And it kind of freaked me out. But again, that wasn't my belief or Philosophy, so I'm like, All, right? I'll do a little bit of Investing. Now maybe that happens, maybe not, and it didn't, right? So thankfully those deals did exceptionally well. And the thing is, what we're seeing right now is that, you know, the Fed went historically aggressive with interest rates through 22 and continues here in 23. That is a negative correlation to the pricing of real estate. you know, especially in commercial. 'cause commercial has shorter debt terms compared to single family folks with 30 year terms, things like that.   So what we're seeing as a result is, is anywhere between a 20 and maybe a 25% price discount relative to previous pricings or a cap rate reversion from maybe a four cap to a five cap, or a five and a half cap or something like that. So all it really means is right now is an opportunity to kind of buy the dip again, back to the dollar cost averaging Philosophy. So it's the same thing for the folks that buy into the Philosophy of buy the s and p 500 index and sometimes the market's up and sometimes the market's down, and you're gonna get kind of that average cost over the long haul.   That's my Philosophy as well. So I don't know, is it gonna get worse or go further? Maybe, maybe not, but at least we're getting 20, 25% off right now, which was the same opportunity that you had if you were a stock investor in 22 when the market had declined 20 to 25% at whatever point that was October of last year. So, and again, will the stock market retest that and go back down, don don't know, but at least you know that it's, you know, historically making all time highs every, you know, so often or whatnot, and you just have to factor in being an investor that there's market cycles, you know, every 10 years or so we're gonna go through a pullback.   It's just what happens. So if you're not comfortable with that, it, it may not be a suitable investment.   Jesse (21m 48s): Yeah, I think we've talked a quite a bit about this lately in terms of, you know, the buying at the bottom is, it's pretty much impossible. You're, you look for indicators and I think we are entering a phase where we're gonna look five, four or five years from now, we're gonna look that this is somewhat of the beginning of the end in terms of the low point in the cycle and where the buying opportunities might be from now for the next two years. Who really knows. But like you're saying, if you're, if you're incrementally buying during that period, then you look back four or five years and that you dollar cost at average because you bought through the, through, you know, what you call the dip.   And that's really all you can, you can do, you know, don don't think anybody on this podcast or certainly myself is gonna just have more knowledge than anybody else and be able to buy at the perfect time and then, you know, reap the benefits of that. There's   Travis (22m 36s): A lot of opportunity costs to consider. And I look at that too when I'm Vetting deals and I'm looking at cash flow, I'm not that guy that says a anymore. Let me be clear. I was this guy in the beginning to say, Hey, this deal says 8% cash flow and this deal says 6% cash flow, I'm gonna go with the eight. You have to factor in different things. Like, you know, do they pay monthly? Do they pay quarterly? When did the distribution start? And you'll see in the structuring sometimes that, hey, we're gonna pay you 8%, but it's gonna be six months before we start distributions.   Well guess what? It's now a 4% return. Right? Yeah. Or, or the thought of like, oh, I think the market's going to implode and sorry, my son's knocking on my door over here. Yeah, no problem. The market's gonna implode, so I'm gonna sit on the sidelines for two or three years and wait it out. Well, it, we may to your point, be very well nearing out a bottom and it's going up from here. Who knows?   Jesse (23m 27s): Yeah, I think it's just, it's one of those things where you, you get, you educate yourself, at least for me, I like looking at the history of, of the cycles in our industry and you look for the certain indicators and then you're as prudent as you possibly can be. I think one thing that you mentioned when you said natural disasters is, you know, the way I look at even the lockdown, so we had somewhat of a natural disaster in, in the form of, you know, something pretty, pretty horrifying globally. And I think the, the way that we deal with that going forward I think may be a little bit different in terms of our underwriting.   So to the que back to the question on if the Philosophy has changed, we've looked at a lot of investors that somewhat a a lot of them through no fault of their own, are now having to do capital calls depending if, if you were a value add business. And during that, the period over the last couple years, you know, you didn't have fixed rate debt where you had to go back to your investors. What, what are your thoughts on, you know, let's, let's take it from the perspective as of an lp. you know, you have investors that are ask asking for a, I guess in this case, a cash in refinance, asking investors to commit larger capital to certain deals.   Do you have an opinion on, you know, what, what is adequate or what reasons you would say do that? And what reasons you would say, you know, avoid that?   Travis (24m 47s): Yeah, I think generally speaking, no syndication group wants to have a capital call ever. And, and you certainly don't want that on your track record. And now that becomes kind of a question that you know, investors are going to ask every year moving forward for the rest of your career. Have you ever done a capital call and why and how and what happened? So no one wants to deal with that. So what happens is, you know, interest rates were what, you know, 3% loans is what a lot of people were getting and now they're what, 7% loans. So that's just a crazy debacle, right?   So it can, it can suck all the cash flow out of these properties. So you do a, either a capital call and say, give us more money so we can restructure this debt and save the deal and keep moving forward. Or you could pause distributions and say, you know, we're gonna save up some cash reserves here so that we can restructure our debt or buy another interest rate cap or something like that. Or if you're completely nearing the end of the, the deal as in, you know, you finished renovating it and the value add business plan, there may be enough equity to go ahead and exit it profitably and just give investors some kind of equity return, but just maybe not what you originally projected.   But then again, that goes on your permanent track record. It's like, why did that deal only do 10% and all your other deals did 20%, you know, i r r So you gotta answer to that. So these are really tough questions and what I've seen in my own portfolio, because I'm I'm invested among a lot of different operators, again, is mostly it's been pause distributions in my particular case, which if I were a general partner and we could pull it off using that strategy, that's what, that's what I would do personally. But it all depends when your debt's coming up and, and how much, what nobody anticipated Jesse and everybody listening is that these, a lot of people had this floating rate debt, but then they thought, okay, we'll be conservative and we'll buy a two year interest rate cap at 200 basis points above our loan as a worst case scenario.   And if you go back and you actually look at what people were, the economists were forecasting for interest rates, it was nowhere near what actually happened. So who could have really known, right, it's kind of a crappy situation, but what no one knew is on one of these properties, maybe you bought that interest rate cap for a hundred thousand dollars for two years, well now it's trading at a million dollars. you know, so now the lender's like, hey, we need enough escrows here, you know, to cover a, a million dollar repurchase of another cap.   And that's what caught so many operators off guard. And so how do you come up with a million dollars on the spot if it's not just sitting in the account? In most cases it's not just doing that. So again, capital call, pausing distributions, doing some kind of other injection of capital or, or selling the property. I mean, are are your options?   Jesse (27m 35s): Yeah, fair enough. Not, not too many, you know, not too many good options, but I think you deal with the situations as they come and, you know, we've talked about this with a couple podcasts ago and that you just wanna make sure that if your investors are asking for a capital call, that you're very clear on what they're doing with this, this cash and that there's, there's a clear plan as to what's going on here. Is it just to break even or is it, you know, we're gonna get out of this and this is, you know, this is the roadmap.   Travis (28m 4s): Yep. A hundred percent tough call. I don't envy gps. But again, I mean, you, you could, the investors that may be upset by it, which I mean, to be honest, who's not upset by pause distributions. I mean, I'm a person that lives on cashflow and, you know, probably seven of my deals are paused. That's not a a, a favorable thing. But you gotta put it in perspective because, you know, I own some REITs, some real estate investment trust in my brokerage account and they're sitting at 30, 35% loss right now. So, you know, you gotta, or or they've slashed their dividend in half or whatever's happened.   So it's not like anybody's immune when the Federal Reserve brings interest rates up more than double, the economy is impacted. And the scary part is it's a delayed effect. And, and the fact that they went so fast and so quick last year especially, we haven't seen the full repercussions in my opinion. And we're just starting to see them as these commercial deals come up for renewing their debt. And so there's gonna be some distress, but I don't think it'll be anything like a 2008 kind of crisis.   It's just going to be a setback and who knows how long it lasts a year or two years. But eventually you and I know, and hopefully your listeners know, there's such a, a, a lack of affordable housing for people in America by, by the tune of millions. And even though we're getting new inventory coming to market, we are still millions behind and there's such strong demand for this asset class. So it's all in kind of how you can structure your, your deals right now.   Jesse (29m 38s): Yep. That makes sense. We could talk for another half hour just on the opportunities and outlook right now. I wanna be mindful of the times. So Travis for individuals that you wanna get in contact with you or have any questions regarding real estate investing, Passive, Investing, where can we send them?   Travis (29m 56s): Yeah, so for everybody out there, don, don't care if you're brand new. I don't care if you're accredited or not, or you're 70 years old or you're 18, you can go Ashcroft capital.com/ Travis and jump on my calendar. I'm happy to have a, a 15 minute call, no obligation, no upsell, and just help you out, point you in the right direction or provide any resources that I can to help you.   Jesse (30m 19s): My guest today has been Travis Watts, Travis, thanks for being part of working capital.   Travis (30m 24s): Thanks Jesse. Thanks everyone.   Jesse (30m 25s): Thank you so much for listening to Working Capital. The Real, Estate Podcast. I'm your host, Jesse Fragale. If you like the episode, head on to iTunes and leave us a five star review and share on social media. It really helps us out. If you have any questions, feel free to reach out to me on Instagram. Jesse Fragale, F R A G A L E. Have a good one. Take care.  

Neal Bawa is a Returning Guest. Neal is CEO / Founder at UGro and Grocapitus, two commercial real estate investment companies. Neal's companies use cutting-edge Real Estate analytics technology to source and acquire OR build large Commercial properties across the U.S., for over 800 investors. The current portfolio of over 4800 units, with an AUM value (upon completion) of over $1 Billion In this episode, we talked about: Neal's Updates 2022-2023 Real Estate Market Overview Mortgage rates Debt Structure Single Family vs Multi-Family Markets Inflation Rates Useful links: Past episode: https://podcasts.apple.com/se/podcast/strategic-multifamily-real-estate-investing-with-neal/id1505750263?i=1000580909466 Webinars: https://multifamilyu.com/

Bryan Douglas Caplan is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and a former contributor to the Freakonomics blog and EconLog In this episode, we talked about: * Bryan's Bio & Overview of His Activities as an Economist * Toronto vs Florida Housing Policies * The Myth of the Rational Order * Rent Replacement Strategy * Bryan's Books * Canada's Immigration Policy * Family Sponsorship * The Case Against Education Brief * Don't be a Feminist Useful links: Books: https://www.amazon.com/Books-Bryan-Caplan/s?rh=n%3A283155%2Cp_27%3ABryan+Caplan

Mark is a Certified Financial Planner, a three-time #1 Best Selling Author and the owner of Lake Growth Financial Services, a financial firm in Chicago, Illinois. Over the years, he has helped hundreds of his clients take back control of their financial future and build their businesses with proven, tax-efficient financial solutions. He specializes in building custom-tailored financial strategies that are unknown to typical stock jockeys, attorneys, or other financial gurus. As host of the Not Your Average Financial Podcast™, he shares some of his strategies for working with real estate, paying for college without going broke, and creating an income in retirement you will not outlive.   In this episode we talked about: Mark's Background Getting Started as a Financial Planner Approaching Clients Be your Own Bank  First Few Questions to ask Real Estate Investors Debt Aspect Mark's Advice to Beginners in Real Estat Useful links: https://kickstartwithmark.com/ The book “The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future” by Pamela Yellen Transcription: Jesse (0s): Welcome to the Working Capital Real Estate Podcast. My name's Jessica Galley, and on this show we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, you're listening to Working Capital, the Real Estate Podcast. My name's Jesse for Galley, and my guest today is Mark Willis. Mark is a certified financial planner, a three-time best number, one best-selling author, and the owner of Lake Growth Financial Services, a financial firm in Chicago, Illinois, and co-host of the not your average financial podcast.   Mark, how you doing today?   Mark (42s): Doing great, Jesse. Thanks for having me on.   Jesse (44s): Well, a pleasure to have you on. I know that we, we chatted a little bit before, I thought listeners, you know, whether they are investing in real estate, are interested in entrepreneurship and business, that they would get some value about having you on as a guest. And you can talk a little bit about your, your story and, and kind of what you bring to the table in terms of the financial world. But before we do that for listeners, you know, that don't know who Mark Willis is, why don't you give us a quick background of your background for listeners and we can, we can kick it off from there.   Mark (1m 18s): Sure, yeah. Well, I've, I've had the great privilege of working with clients all over the country, us, Canada, and around the world. I've been able to serve many business owners, real many real estate investors, even some N F L Super Bowl champions. But Jesse, most people I work with are just interested in having a bit more certainty, you know, assurance and maybe, I guess, you know, the belief that they're gonna actually achieve what they're trying to do. I feel like a lot of people are frustrated with their real estate portfolio, their financial lives, because what they attempt to do is just not working or it's not working efficiently.   So a lot of people who come to me say, mark, I feel like I'm just floating down the gutter of life and I, I can't seem to catch, catch on to a a, a log to move upstream financially. I can't swim upstream. So what we get to work with, and I have the, you know, great honor to do this is work with clients that wanna move upstream financially and become, you know, more in control of their financial future.   Jesse (2m 18s): That makes sense. And, and I like it. Appreciate that. That kind of, I guess, philosophy or goal for, for what you do, for your, for your background. You mentioned, you know, before that, how you got into this business. We talked a bit about 2008, and if for listeners that don't know, you know, your background originally was not kind of being the self-employed, the financial planner helping people out. So how did, how did you get, get started in that and, and where you are today?   Mark (2m 48s): Yeah, well, I, I certainly didn't grow up wanting to be, or even knowing what a financial planner was. So I think the, the first inclination that money was a part of my life was as I graduated college, sadly enough, I just never paid attention to money and found myself in debt up to my eyeballs in the middle of a great worldwide recession, you know, six figures of student loan debt and no plan to pay the thing off, Jesse.   It was, it was like a mortgage around my neck. It was like a, a weight pulling me down. And given that I had no plan to pay the thing off, it was just becoming worse and worse. And it was a surprise to me that there was no training, no education on money or money management for all of the education you get in college. It was surprising that there was no real basic budgeting pla class or whatever, at least not where I went to school. So, yeah, it got me really focused really fast when I realized that, oh yeah, these guys want me to pay them back.   So that was a surprise. And I got into a couple of businesses, you know, worked my tail off for a couple years in the middle of a recession where no one was hiring, did every job I could find, including some property management positions, which put me under the, under the, under the, in, into the darkest place you could probably imagine, which is under an elevator that's being serviced. And I'm there with a, a shop vac sucking out God knows what to clean this thing out.   And I'm, I'm hoping that they don't snap the wire and end me right there, you know, so that was the, that was the service I had to give the debt, slavery I had to give to my slave masters, Nelnet and Sally Mae and all the rest of the banksters that had a, you know, a knife to my throat as I was trying to pay off all this debt. Fast forward a little bit, I was working for a C P A trying to get my bearings on, on income, and I was listening to her. I was mainly doing tax prep and I was listening to her as I was doing some tax prep.   I would overhear the calls where she would be discussing retirement plans for her clients. I wasn't doing the investing necessarily at that point, I was just tax prep guy, but she would have those calls and it was the calls that you never want to have as a financial professional where you have to tell the client, I'm sorry, Mr. Client, I know you're 63, I know you're about to retire, but I just lost you half your life savings. Sorry about it. Click, you know, that's a terrible way to run a business. I, I hadn't no desire to have anything to do with it.   And I almost left the financial industry until I found some strategies that had nothing to do with Wall Street that helped us meet our goals without taking a bunch of unnecessary risk. And it also happened to help me pay off my debt too. So it was a, it was a light bulb moment. And in that moment my wife had the, the wherewithal to kick me in the pants and say, start a business, don't be some w2. Go out there and start the business. And at the time I needed to borrow her courage, but I did it, man. I did it.   And that was 11 years ago, almost 12 years ago. And here we are with, you know, several advisors that I get the privilege of working with and a little over 1200 clients around the country and around the world. So it's been a great honor to get to serve clients and help them meet their goals.   Jesse (6m 8s): That's great. And on that point with clients, when it comes down to, you know, you talking about your services for individuals that, you know, for our audience group, real estate investors, people you know, potentially with a portfolio or building their portfolio, how do you approach that type of client differently if, if at all than, you know, your average, your average, say employee of large company? You know, is it, is it a different value add or is it a, a different offer or discussion, you know, with real estate investors?   Mark (6m 38s): Well, I'll tell you what, I, you know, I think one of the best parts of being a business owner is you get to pick your clients after a certain point. And, you know, maybe not the very beginning, but at some point you really begin to say, I want this kind of person in my life. And that's a beautiful thing. Cuz if you're a w2, you get basically got one client and that's your boss. But yeah, when you, when you get to work with real estate investors, business owners, they make up the vast majority of our clients. Not everybody, certainly not, but a good chunk of our clients want some agency in their life.   I believe that in many ways, part of the reason why people stumble into this insanity known as real estate investing or business ownership. And I say that with all the, the positive regard I can, being both of those things, real estate investor and business owner, the insanity of it all is you take on a lot of risk. I mean a lot of risk, but you get access to the dial on your life. You're not just a thermometer, you're a thermostat. You get to dial up the temperature, dial down the temperature.   You, you, you gotta understand, as a financial planner, we all swim in this thing called finance money. Money is the environment where we live most of our lives. It's half of every transaction. It's certainly not the, the most important thing in your life, but, but I do believe money touches the most important things of our life, our legacy, our children, our marriage, our health, our future, you know, these things, our retirement, our, you know, our, our capacity to feel secure.   So when we, when we have some manner to engage the environment in which our entire life lives, we feel a sense of security there. And so yeah, when you've got a, a business or you've got a real estate portfolio, then you can manage to manipulate the environment where you're living, you feel at ease. Much like dialing up the thermostat when it's 22 below, like it might be in, in Chicago here today or in Toronto there tomorrow.   Jesse (8m 43s): Hmm. Yeah, fair enough. And in terms of the actual, the technical aspect of, you know, a real estate investor comes to you and, you know, as opposed to say somebody that's purely a, a salaried employee, you know, real estate investors take a lot of different forms. Some of them as you know, are, are fully self-employed. They're doing that for, for a living. Other ones are working a job, but as a side hustle or, you know, part of their portfolio is real estate investors. So just from a technical aspect, when you, when those individuals come to you, you know, what are the first few questions you're asking them and what are you trying to, what are you trying to get out of that con initial conversation to be able to say, you know, this is, I, I think the best path for, for you going forward?   Mark (9m 25s): Yeah, most financial planners, I would say, direct you toward a set of pre-determined outcomes. It's like those old choose your own adventure books, you know, you felt like you were able to go anywhere you wanted, but really the book was moving you in one direction. And for most financial planners, that's Wall Street, that's the endgame. Let's get you into a my index fund or let's get you into my, my mutual fund or my ETF or my target date fund, or you know, your 401ks, your RSPs, whatever it is.   And given all that, it's sort of, it's sort of unfortunate that most real estate investors don't have a pathway with most financial planners, but like it or hate it, I've been now coined the not your average financial planner. And I love it. I personally love it because we look for strategies that don't rely on the whims of Wall Street or the typical financial products and tools. Listen, where is it written that we all have to dump a bunch of money into, you know, a a market casino that has no access and there's no outcome predictability.   And we don't know what the taxes are gonna be when we take the money out anyway. So, you know, where is that? Is it written on some law that I didn't read? No. So yeah, when, when I sit down to have one-on-one advisory consultations with anybody, whether real estate investor or not, I do have a, I got about 10, 12 pages of notes we end up taking and, and, and including questions like, well, what does the word retirement even mean to you? What about your spouse? Maybe it's a different thing altogether for him or her. Also, you know, in five years, let's say, let's fast forward five years and we're building this plan together and we're making it work, how will you know it's a success?   How will you know we're on the right path? What are the mile markers? What are the distinctive characteristics of things that are tangibly different? Is this depth gone? Is your income doubled? Do you have seven properties or 70, you know, these are the questions you'd want to ask to really get a sense of are we on the right track or not? It makes my job so much fun. I feel like your financial conversations should be some among the best conversations of your life, you know, because it, again, it touches the most important areas of your life money does.   So yeah, we dug, we dig into strategies that I think help be like a, a, a hinge, a small little hinge that can swing very big doors in your life if we know the right tools and tactics and strategies to take on. If you don't know those tools and tactics and strategies, I gotta say, man, real estate investing or any kind of financial project is gonna feel like swinging a very dull ax, or even worse, like a butter knife at your tree trying to chop it down. It's just gonna take forever.   You'll eventually get there with Wall Street with index funds, but it's so inefficient. You might as well look and see if there's better ways to leverage the finite time and money and energy that we all have in this life to put toward things that are gonna really move the needle. And again, be that leverage point that, that I think many people are looking for.   Jesse (12m 30s): Yeah, and I'm curious too, because we not just invest as real estate investors, but even, you know, for example, when we're raising capital from, from inve, from investors for real estate, oftentimes what investors tell me is either, you know, at the, at the best they, you know, they're invested in, you know, whether it's mutual funds or Wall Street to some, some degree stocks and bonds, but you know, they don't really have clarity exactly on the fees like that they're actually getting pay, you know, that they're actually paying on.   So for them, one of the value a or one of the value propositions for real estate, it's, it's that tangible aspect that people can kind of understand, even if it's commercial they've all owned or they've all rented or owned a place and they understand that. But I imagine it's somewhat similar when people come to you, if you see the current investments that they have, if they have them. I'm sure you guys fe see some red flags. So are there anything, is there anything on that, in that topic of fees that you don't realize you're actually getting charge, but you are, I assume you have conversations somewhat similar to that?   Mark (13m 34s): Oh yeah. Well, I mean, nothing is free except the cheese on the wrong end of a mouse trap, Jesse. So let's be clear about that. Nothing's free, not real estate. Yeah. All right. Not index funds, nothing's free, but it's egregious to me to think that, well, let me just say it this way, nothing's free and it's all, it's all in the, the perceived value that you receive. So if it's perceived as valuable enough, then pay whatever price it is. You know, I'll, I'll, if I had to, I'd chop my arm off to escape a, you know, a, a dangerous situation if I had to.   It's quite a price to pay, but I'd do it if it was perceived as valuable enough. The unfortunate truth is, fees are the hidden viper in your portfolio. This is according to the Department of Labor. They say a 1% fee on your 401k, your IRA or Canadian equivalent accounts over a 35 year period. That's like a typical retirement, right? Is gonna eat up a third of your nest egg, 27% of your nest egg just gone to fees.   And what is, what is it we're getting for that fee? Are we getting something magical? No, we're getting illiquidity and volatility and in retirement, that is not what we need. Right? When is it that we're mo when are the times we're most likely gonna need cash, probably during a crisis? When is our portfolio gonna be at its lowest value, probably during a crisis? Oh, by the way, when are banks least likely gonna lend us money?   Same answer, right? During a crisis? Yeah. So for all the fees, is it worth it? And I would say again, the, the best thing you can do is find the areas in your life, your financial life specifically in every area really. But on this podcast, we're talking finance and money. Find the areas in your financial life that are the leverage points. And, and I'll just go ahead and say it. One of the big aha moments of my young adult life was when I realized that underneath the importance of stocks, bonds, mutual funds underneath the importance of cash, savings, money markets, all that was the fundamental reality of banking.   Banking is actually the operating system of the financial world. It's actually as old as human civilization. There's great books out there. There's a good book out there by David David Frager who says Debt. The first 5,000 years is the title of the book, and it's a phenomenal book, but it kind of shakes me every time I think about it to think that this book is talking about a topic of banking debt that's been around since caveman paintings, right?   To have to have the four letter word of debt in our human consciousness for that long. Think of how much pain has come from all the debt that's incurred over these many years and think of all the incredible wealth that's been generated if you were the banker. So part of our experience as financial planners, I think has been focused on the tail of the elephant. When I wanna look at the whole thing, all I care all most financial planners care about is that tail of that elephant, Hey, look at this rate of return.   I got you last quarter, I just got off the phone with a client. He said, my, my investment guy, cuz he has another guy who does his investments for him. He said, my investment guy, the best he could tell me, mark, he said, my investment guy's best, best feedback or self aggrandizement was that he only lost him 18% last year, whereas the market lost 20. And so the best he could say is, Hey, I only lost you 18%. That's looking at the elephant's tail. I wanna look at the whole elephant. I wanna look at how do we take on the banking function to control not just the rate of return of your savings, but how do we control the environment in which your money lives and dial up, dial down that thermostat so that you can, you know, win by default in your real estate portfolio or wherever you might be focused on.   Jesse (17m 44s): Okay. So on that point, I think, you know, there's the, there's the de debate of, you know, whether you're, if you are a bit more of a dove or a hawk, depending on your amount of financial leverage or debt that you take on, you know, most listeners being real estate investors, we, you know, we have a love hate relationship with debt. It's, it's really the DNA of our business leverage. You know, we couldn't do what we do. The successes that we have are clearly compounded by leverage the, you know, the losses that you have are too.   But it is something where I think most investors would, investors would say that there's a consumer debt as opposed to debt for real estate investments where somebody else is paying off that, you know, the actual debt service of it are two different things. So on that piece of banking, if you go over to talk about what you've talked about in the past on banking, banking on yourself, or having controlling the, the debt aspect or the structure in which you invest with your portfolio, how does that look for real estate investors?   And, and yeah, I'll let you take it from there.   Mark (18m 46s): Sure. Yeah. Well, you're exactly right. There's good debt and bad debt. I fully agree with you on that. And I also say that leverage is a beautiful thing. And we all can acknowledge that leverage works in both directions. And I think too many people, as they've been on variable rate loans, are gonna find that out the hard way if interest rates continue to rise. So, on the other hand, you know, I think you're right. I think a great deal of opportunity can happen when we use debt to our advantage or for our convenience.   I think the problem is too often banks use us for their convenience. So what if it was possible to do what banks do with their money? And instead of just using a, letting the bank use us for their convenience, the regular cash flow that comes from our mortgage payments and whatnot, what if we could be the bank? You know, why, why in, why get into all the mess of, you know, even other assets. If we could just collect the payments, the mortgage payments even from other people or even ourselves, if we controlled the banking function for our real estate deals, we'd win by default.   And so one of the tools that I've stumbled across that's been profoundly impactful for me and for real estate investors is a little known variation of whole life insurance of all things. Now, again, as a C F P certified financial planner, I never thought I'd be talking to real estate investors or anybody really about boring old whole life insurance. It's, it's about as plain vanilla as it gets, right? It's been around 200 years. But the more I got into this and really saw how it functions, I could not look away.   It became more and more compelling. So I'll be quick about this and in fact, I'm a, a huge nerd for acronyms. So I'll give you a, an an acronym to help us get through the kind of primer on what is bank on yourself, and then you can help me take this wherever you want to go. Sure. So we'll use the acronym T G I F to help us kind of understand how bank on yourself works. Again, it's a modernized, more efficient form of whole life insurance and whole life insurance. If it's designed for commissions, then you're gonna have very little cash value.   It's gonna have a big juicy death benefit and a very fat and happy insurance agent connected to it. All right. I like to flip that upside down. How can we pack as little death benefit on this thing as possible, which is where the commissions are, and instead flood as much of your money as you comfortably can put into it. We call that premium. How can we flood as much of that as possible into the living benefits? What, what's known as the cash value of the policy? That cash value does some really cool things.   Okay, back to T G I F. The cash value is tax free. You can get access to the policy with tax advantages or even tax free if we design it correctly, which means that it's a lot like a Roth IRA or equivalent Canadian account. And without all the restrictions of a Roth ira, you know, there's no income phase out rules. For example, you can make whatever you want in your income and still put money into a policy. It's also no contribution limits.   So you can put in six grand or 60 grand or 600 grand a year into one of these policies. So that's the first one is it's, it's got some significant tax advantages. T is tax advantages, G is guarantees the policy grows on a guaranteed basis each and every year the cash value grows without market risk. And every year you're hitting an all-time record high. Just got off the phone with someone earlier today and he said, mark, all my other accounts are down, but my policy just hit another all-time record high.   That's awesome. All right. So, and when you get a gain from last year, it's locked in. You don't lose it this year. There's no risk of loss. If I invest in Coca-Cola or Tesla and the stock goes up last year, I could lose it. I could lose what I earned last year this year due to loss of market share and so forth. So not, so with whole life insurance, it grows guaranteed. That's g is guarantees. Third, it is insurance. So I'm taking care of my family favorite charities. It's doing what I need my money to do for me, whether I'm on this side of heaven or on the other side.   And then finally it's allows me to become my own source of financing. F is financing. So financing is the biggest part of your financial success or failure. Let me say that again cuz that's as a cfp. Why am I not ch you know, chomping at the bit to talk about Wall Street? Because I believe that financing is the crucial hinge that will be the difference between your success or failure in your financial life. The average American spends about a third of his or her income, 34% according to the US Commerce Bureau just covering deaths and financing costs 34% of your income.   If that's, if time is money, what's 34% of your day, Jesse? Right? So if I could recapture some of that money, pay myself or run my mortgage or down payments or my property taxes or my HVAC systems or any other major expense I have in my life through my policy, here's what happens next. I can borrow against life insurance policies that are designed the bank on yourself way. Okay? And the policy will continue to grow and compound on the entire cash value.   Even what I borrowed out as if I hadn't touched a dime of the money. So I'll say this and then I'll hush and I'll get your feedback. Let's say I got a hundred grand of cash, a hundred grand of cash value in one of these policies and I borrowed out 70 grand to go put into a syndication deal that year. And every year I've, I've got that money out, my policy will continue to grow and appreciate on the entire 100,000 bucks, even the 70 grand I'd go and, and put over in the syndication deal.   Now, that to me is the holy grail of financial sanity because I get uninterrupted compounding growth on my policy. And of course I've still got the money out here in the real world doing things like syndication deals or buying cars or whatever else I need the money doing for me. So that is T G I F, tax advantages, guarantees, insurance and freedom and financing.   Jesse (25m 16s): So in terms of the, just in that example, just so I understand that if it's a hundred thousand dollars, that is that up to that point that has been paid into the policy, it's your a hundred thousand dollars and say you take 50 grand of it or 75, like you said, you want to invest in this real estate deal. So you're taking that 50 out, technically it's coming out, but the policy, you're not penalized, you're not getting charged to take it out and now whatever the growth rate is on that, a hundred remains the same on that full amount. Is that right?   Mark (25m 44s): That's right. Yeah. So you've got a chunk of money that you can borrow against and the policy is still there earning interest in dividends. You've just simply used the cash value as collateral for the loan that comes from the insurance company and then you're in control of repaying that loan. You could take a year, six years, 10 years, but it's up to you or never. If you never pay off the loan, they'll just deduct it from your death benefit when you pass away. Oh, I see. So it's a non-recourse collateralized loan.   Jesse (26m 15s): So it's not taking 50 grand cash out, it's, it's borrowing 50 grand with that as security.   Mark (26m 19s): That's it. That's it. Exactly. It's a lot like a home equity line of credit if your audience is familiar with that. Yeah. The difference between, you know, cuz the house grows, whether you borrow from the house HeLOCK or not. Right. The house is gonna just appreciate whether you use that HeLOCK or not. And that's where they are similar, but where they are different is the policy grows, guaranteed houses do not grow guaranteed. Right. Also, a bank can give you a HeLOCK and the bank can take it away again. Yeah. But there's a guarantee of the loan provision with life insurance that cannot take away that loan.   It's baked right into your contract.   Jesse (26m 55s): So who at the, you know, the point of you're doing this, you, you've say you've done this for a number of years now and you are looking at larger purchases with real estate who basically says how much you can take out based, you know, how much you can lend on your own nest egg or the policy and at what rate, what are like those details I assume happen at at inception, but I I guess they would change over time depending on how this, the value of this, of what you have in their changes if I, if I understand it correctly.   Mark (27m 25s): Yeah, well it's, it, it is a, each person is different. You know, each person's situation and numbers will be different. But let give you an example. Alright, I'll give you, you mind if I know no numbers over a podcast can be a little tricky, so I'll try to keep this simple. Sure. So let's say I've, I've got numbers in front of me here, I'll take the names off of it, but there's a 40 year old who put in some cash into a policy. He, in this case he put in 400,000 bucks, dumped it in, got a cash out from a, a syndication, he wanted to get another syndication going, but first he decided to put that money, that 400 grand into a policy.   That was his one and only contribution. Now, a lot of folks believe you gotta pay for these whole life policies for decades and decades. Sometimes you can, and in fact, a lot of times that's best. But in his case, he just had one, he just wanted to dump it in and that's it. So he put in 400 grand. Now right away he's got a cash value. I'm looking at it here of $378,000 and a death benefit of 1.7 million bucks. So let that sink in for a minute. He's got 94% of his cash give or take liquid right away.   Where'd the other money go? Well, it went to buy that 1.7 million gift to the family there. That's a tax-free gift to the family for sure. But he doesn't just leave that $378,000 just sitting in the policy. By the way it grows, that cash value would grow to 3 94, 411 in year three. So it's already broke even by year three there, 4 29 the next year. But in year one, again, back to our numbers there, he's got 378,000 bucks. He decides to borrow against that $360,000 in the first year within 30 days of starting this policy, he borrows out 360 grand to go invest in another multi-family deal.   So far so good. Any questions so far?   Jesse (29m 16s): No, that makes sense.   Mark (29m 17s): Okay, so he decides he's gonna do this loan. Now remember, the policy is still growing on the full 378,000, even though he's got the money over in the multifamily, he pays it off over an eight year period through a combination of rent and refis. Okay? So after the eighth year, his loan is completely gone. His cash value is $507,000 in year eight. That represents an increase from 400 to 5 0 7. That's an increase of 107 grant of gains.   That's way more than he would've had in a savings account for sure. But it's impressive when you think that he also had this syndication deal going on over here, whatever it did. I'm not even factoring into these numbers. So did he pay some loan interest? Some people might ask. Well sure he did. He paid loan interest. How much was it? It was 2.1% a p r, that was the annual percentage rate to borrow money for eight years, and that totals 54,000 bucks of interest paid. So let's kind of summarize and then I'll let you ask any question you'd like, he paid 54 grand to borrow the money, he earned 107 grand in the policy plus whatever he did over in the syndication deal.   How many times would you do that deal?   Jesse (30m 36s): Yeah, right. That sounds pretty good. Now, in terms of the actual investors that are trying to go from where they're at right now, say they have in the states agency debt or in Canada, CMHC or you know, whatever, they have standard mortgages right now that they kind of wind want to wind out of. If they were to go the route that you're talking about, is there a logical transition? Is it something that you do over time? Or is it kind of focused on what you have right now? And, and we'll build, you know, what we've just been talking about, you know, on the, on the side of what you have currently.   Mark (31m 10s): Well, okay, so a couple of things there. If you're, you're asking, hey, if, if I've got investors who are trying to, you know, reorganize the debt portfolio Yeah. And do it in a way that is sane and helps them get back in control. That's what you're asking. Get rid of the highest interest debt first, that sort of thing. Well, you know, there's a few ways you can do it. And I, again, I had mega student loan debts, so I could have used my earnings and just thrown that into a hole and paid off my debt, right?   Yep. And I would've been six years older and zero in my net worth, right? I could have just thrown all my money at my student loans and hopefully had it paid off in six, seven years, eight years and be done with it. Now I'm eight years older and I have nothing earning to my name. I didn't, I I started with that plan. That's known as the debt snowball method, by the way. However, halfway through that project, I kind of stumbled across the bank on yourself concept, Jesse. And I said, well, why not dump money into my policies first and then borrow against those policies to pay off my creditors, my banks, my loan companies.   And in fact, the guy who stumbled across this strategy, it was actually in 19 80, 19 81 when this concept was discovered or, or I guess expressed first in the book, becoming your own banker. And guess what was happening to interest rates back in 19 80, 19 81, he was a more, he was a real estate investor. This gentleman, Nelson Nash, he was a real estate investor. He saw his variable rate loans go from whatever it was, 5% up to 18% like overnight. And he was on the bathroom floor praying, trying to find a way out of this nightmare.   He had found that he was going bankrupt and he said he heard a voice, right? Heard a voice that said, you have what you need to get out of this mess, but you look at things the way everybody else does. And he got up from that prayer and said, I gotta find what, find what I'm looking at. That's not right. So he remembered that he had all these whole life insurance policies that he was just throwing little bits in, you know, pennies, pennies each month then too. And he said, I'm thinking about this the way everybody else does. This is, you know, super low interest debt.   The, the gentleman I just explained, he had a 2.1% annual percentage rate on that example I just gave. So Nelson back in the eighties, he just changed his thinking. I said, Hey, instead of paying pennies into my policies, I'm gonna just dump massive amounts. Everything I can goes into these policies and I'm gonna borrow against them to wipe out all these accounts that I have, all this high interest debt that I have. So for a lot of you listening, I just got off the phone with someone who has a 6.7% primary residential mortgage loan and it could go higher.   I've seen people with variable rates going even higher. So I don't know where the future is gonna take you, but if you want to control that process, if you want to be your own banker, maybe it's time to buy it. Buy your debt back from the banks. So we call that the debt snowbank method. We got that trademarked and it's been a lot of fun helping clients, not just with consumer debts, but also with some, you know, unimpressive real estate debt as well.   Jesse (34m 26s): No, that makes sense. I wanna be mindful of the time here, mark, we do have a few questions that we ask all the guests when we come to the end here. It's just for questions. And, but before we do that, why don't you let us know, we'll put it in the show notes. I want to know where people can actually get ahold of you and reach out if they, if they want to get in touch.   Mark (34m 47s): Sure. And I, I'll just brief as we're wrapping up, I'll just briefly say, this strategy that we've been describing is not for everybody. So do your own due diligence, make sure it's what you are looking to accomplish. We love to sit down with folks and weigh the pros and the cons, the costs and considerations. So if you're looking for a way to build real wealth outside of Wall Street, if you like the idea of controlling the, the banking function in your life, we can help, we work with clients throughout Canada and the United States and beyond. Reach out to us, you can go to kickstart with mark.com.   That's the website to go to. We can schedule a quick 15 minute chat that's kickstart with mark.com.   Jesse (35m 26s): Awesome. Okay, mark, if, if you are ready, I'll lob some of these questions over at you.   Mark (35m 31s): Sounds great. Okay. I'll see where it goes.   Jesse (35m 34s): What's something that you wish you learned a little bit earlier in your career that you know now? If you could go back in time, you talked to a younger version of Mark Willis.   Mark (35m 43s): So the briefest way I can answer that is, the problem of paying cash for things was the biggest aha in my life. If I pay cash, I lose the opportunity to grow that money ever again. So I no longer make major cash only purchases. I use my policies instead.   Jesse (35m 60s): That makes sense. In terms of mentorship, if you were to give a recommendation or advice to younger people getting in our business, whether that's in the financial side of things in real estate, or even just generally speaking, getting into the workforce, things that that tell them, or you know, your view on mentorship and if they should be, you know, seeking out mentors, how, how you see that?   Mark (36m 24s): Yeah, well, I mean, it's crucial. You know, you can either l learn by your own mistakes or the mistakes of others and you can dramatically lower your costs and pain if you can just learn from the expenses and mistakes of others. So yeah, absolutely. Look for people who are a few years ahead of you and stay focused and listen on only listen to one or two. Don't take 30 different mentors, you know, and make sure Jesse's in that crowd, by the way of mentors.   Jesse (36m 56s): There you go. Any book recommendations, podcasts or other media that you think listeners would get a get something out of?   Mark (37m 4s): Well, there's all the always the shameless self-promotion on my own shows, but we've done plenty of that today. So I'll point to a book behind me. It's the Bank on Yourself Revolution, New York Times bestselling book by Pamela Yellen. She coined the phrase bank on yourself, and I'd say it's the best go-to user manual for how this strategy works. And so that's the Bank on Yourself revolution.   Jesse (37m 27s): My guest today has been Mark Willis. Mark, thanks for being part of Working Capital.   Mark (37m 31s): Thank you Jesse. Appreciate it.   Jesse (37m 40s): Thank you so much for listening to Working Capital, the Real Estate podcast. I'm your host, Jesse for Galley. If you like the episode, head on to iTunes and leave us a five star review and share on social media. It really helps us out. If you have any questions, feel free to reach out to me on Instagram. Jesse for galley, F R A G A L E. Have a good one. Take care.  

Amanda is a Managing Director of Keystone CPA, INC. Amanda received her accounting degree from UNLV. As a CPA and real estate investor, Amanda has helped countless investors across the nation to supercharge their wealth building through proactive tax saving with her top-selling Amazon books as well as her teachings on prominent publications such as Money Magazine, Google Talks, and CNBC.  Amanda brings over two decades of tax planning and compliance experience from working in Big 4 Public Accounting as well as public and private companies.  In this episode we talked about: * Amanda's Updates and Changes * Tax Strategies  * Depreciations  * Trump Tax Regime  * Cost Segregation Analysis * Bonus Depreciation  * Partnership Losses * How much to Spend on Accounting  * Tax Designation * How to structure your RE investments  Useful links:
Books: “The Book on Tax Strategies for the Savvy Real Estate Investor: Powerful techniques anyone can use to deduct more, invest smarter, and pay far less to the IRS!” https://www.amazon.com/Book-Strategies-Savvy-Estate-Investor/dp/0990711765 “The Book on Advanced Tax Strategies: Cracking the Code for Savvy Real Estate Investors” https://www.amazon.com/Book-Strategies-Savvy-Estate-Investor/dp/0990711765 https://www.keystonecpa.com/ https://www.keystonecpa.com/eBook-Download Tax Saving Toolkit https://www.instagram.com/amanda_han_cpa/

Amanda is a Managing Director of Keystone CPA, INC. Amanda received her accounting degree from UNLV. As a CPA and real estate investor, Amanda has helped countless investors across the nation to supercharge their wealth building through proactive tax saving with her top-selling Amazon books as well as her teachings on prominent publications such as Money Magazine, Google Talks, and CNBC.  Amanda brings over two decades of tax planning and compliance experience from working in Big 4 Public Accounting as well as public and private companies.  In this episode we talked about: * Amanda's Updates and Changes * Tax Strategies  * Depreciations  * Trump Tax Regime  * Cost Segregation Analysis * Bonus Depreciation  * Partnership Losses * How much to Spend on Accounting  * Tax Designation * How to structure your RE investments  Useful links:
Books: “The Book on Tax Strategies for the Savvy Real Estate Investor: Powerful techniques anyone can use to deduct more, invest smarter, and pay far less to the IRS!” https://www.amazon.com/Book-Strategies-Savvy-Estate-Investor/dp/0990711765 “The Book on Advanced Tax Strategies: Cracking the Code for Savvy Real Estate Investors” https://www.amazon.com/Book-Strategies-Savvy-Estate-Investor/dp/0990711765 https://www.keystonecpa.com/ https://www.keystonecpa.com/eBook-Download Tax Saving Toolkit https://www.instagram.com/amanda_han_cpa/

Mark Kenney is a President and Chief Executive Officer at CAPREIT   Mark Kenney joined Canadian Apartment Properties Real Estate Investment Trust (CAPREIT), a TSX listed company, in 1998. In 2019, Mark was appointed President and Chief Executive Officer. 
 
As Canada's largest publicly traded provider of quality rental housing, CAPREIT currently owns or has interests in approximately 67,000 residential apartment suites, townhomes and manufactured housing community sites well-located across Canada,  the Netherlands and Ireland. In 2020, CAPREIT was included in the S&P/TSX 60 Index. 
 
With over 30 years of experience in the multi-family sector and as President and Chief Executive Officer, Mark is actively involved in creating and implementing the strategic vision for the organization through the direction of company policy and oversight of the crucial divisions within CAPREIT, including property management operations, marketing, procurement, development, and acquisitions. A frequent contributor to BNN Bloomberg and other media, Mark is a passionate advocate for the role of Real Estate investor 

In this episode we talked about: * Mark's Background and How he Got into Real Estate * The Comparison of the Commercial Real Estate World of the 80s-90s and nowadays * Difference between Commercial Real Estate and Residential Real Estate * Pricing and Valuations of Industrial Multi-Residential * Supply in Real Estate  * Real Estate Deals in Suburban and Rural Areas * Development Costs and Charges * Areas of Investment into Manufacturing Housing * CAPREIT Focus in terms of Real Estate Projects * 2023-2024 Interest Rates Environment * Advice to Newcomers Transcription: Jesse (0s): Welcome to the Working Capital Real Estate Podcast. My name's Jessica Galley, and on this show we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name's Jessica Gallen. You're listening to Working Capital, the Real Estate Podcast. My guest today is Mark Heney, president and Chief Executive Officer at Capri.   Mark joined Canadian Apartment Properties real estate investment trust, a TSX listed company in 1998. In 2019, mark was appointed president and chief executive officer as Canada's largest publicly traded provider of quality rental housing. Capri currently owns or has interest in approximately 67,000 residential apartment suites, town homes, and manufactured housing community sites. Well located across Canada, the Netherlands, and Ireland in 2020. Capri was included in the S N P and TSX 60 index.   Mark, how you doing today?   Mark (1m 3s): Great, Jesse, thanks for having me.   Jesse (1m 4s): Yeah, pleasure to have you on. You know, wanted to talk a little bit about, you know, the current environment that we're in right now, you know, your background in the industry and, and Capri in general. But I guess, you know, maybe we could start with you have over 30 years experience in multifamily in that sector, and I was just curious to kind of get a little bit of a background of guests that we have on. It's always interesting to see how they got into the wild West. We called real estate.   Mark (1m 32s): Yeah, so I, I don't know, like, because I go back in time here to when I was growing up, I think it was very normal for young people to be interested in cars and real estate. It was, so, it wasn't anything that special about being drawn to real estate. I think like a lot of people I would daydream about real estate and back then it was probably just what it would be like to have a pool and a, and a big yard and, and a bit of a fascination how people got there, which kind of always stuck with me, but I didn't want to be a salesperson in real estate.   I was obviously just fascinated. Again, nothing unusual about that. And, and I found my, my way into, into real estate primarily because I probably wasn't the best student in the world and I, I really wanted to do this. So the thing I maybe haven't talked about a lot in the past was, it was an incredible opportunity because nobody, there was no competition. So a lot of my friends coming outta school we're lawyers and accountants and, and, and I, I was not the academic overachiever.   I really was always focused on just working. I didn't really understand why people went to school unless you're gonna become a doctor. I thought this isn't really helping me. And, and so I went into a field where there wasn't a lot of competition. I was one of the first people to get involved that, that had a degree and I stood out. And so the, the pool of people even today who you're competing with for a great career in real estate, especially on the property management side, I don't think it's fully understood by a lot of people.   Young people wanna go into tech, a lot of people wanna go into crypto or sales or something glitzy. But the cautionary tale is like, you know, who are you gonna be competing with in there and where can you really, you know, stand out.   Jesse (3m 37s): Yeah, fair enough. I tried to ask every time I have somebody with your amount of experience in the industry, I find I find the late eighties and early nineties commercial real estate world kind of fascinating. Not just in in North America, but specifically in the, in the kind of Toronto environment. And I find that, you know, younger people in, in the industry, I consider myself included in that. I think it's important for us to understand the history of, of some of the times that we've gone through in real estate, whether that's the early nineties, 2000, 2008 and, and what we're currently doing today.   But I'd like to just get your perspective. Obviously you're working in the industry during that time. Do you see any, any applications or do you see anything that you know, was happening back then that are reminiscent of, of what we're going through today?   Mark (4m 26s): Well, very different back then. Just to touch on what I said a minute ago, apartments in the eighties were the dirty cousin of all real estate sectors. Like nobody wanted to be involved in apartments. So that again, was a reason to go there. And I, I'd like to say I was a visionary and saw that the truth is, I, I got a raise every six months and that's why I stayed in it and by a raise, I mean, all they had to do was throw 500 bucks a year at me and I was there to stay.   Most people my age that had gotten into multifamily and it was starting to happen early nineties, would be lured into commercial immediately. Like if a commercial job was to present itself, you'd leave multifamily, go into commercial, and, and that was the general trend as you aspired to get into commercial in some form, especially office in Toronto at the time. So, so for me, I guess partially because I was, you know, excited to get a raise every once in a while I dragged into the sector longer and the longer I stayed, the more experience I had and the more sought after I became.   Jesse (5m 41s): So in terms of the kind of the history that you had with, with Kareed in, in the career in general, like I come from the, the office world and you know, I, I find it still kind of amazing today that, you know, we're very specific about when we're talking about real estate, whether it's rentable, square feet, everything's per square foot, and I talked to our apartment team and you know, we're going by either the door if it's, you know, by the unit or by the bed if it's student housing. But how, how have you seen that evolve over the last, even, even 10 years in terms of how it's, I feel like it's, you guys have now kind of been more formulaic than you may have been in the past, but it's, there still seems to be a difference between the pure commercial stuff and an apartment world.   Mark (6m 24s): So apartments, I'll give you an idea. Like in 1996, I worked for a company by, by the name of Real start. And one again, one of my career benefits with Real Start is I was hired as one of Canada's first multi province property managers. I was a district manager with Real start, but I was overseeing property in three different provinces. I, I think I was the only one in the country at the time. Okay. So the reason that's important is that the consolidation hadn't even started then.   There was the consolidation of big ownership pools in multifamily has only really happened in the last 15 years if at at most. And that's where all the career opportunities come from. So you've got for the first time a handful of big companies that you can have a, you know, a a traditional career of promotion if you're gonna be an employee, but most of the sector is still private. Most of it still is. And, and it's a great ownership path.   It's a great investment path. It's not necessarily a career path. And, and I think that now in multifamily there are institutional owners like Capri and Starlight Hazel View. You've got all these different companies that are large or, and you can have a progressive career from the entry level right to the right to the top kind of thing. But imagine a, a sector that's as old as real estate and multi-family in particular, where that opportunity's a new one. Still new, very, very few people when we're looking to hire, I, I can't find people with 10 years experience in the industry for senior jobs.   If they have 10 years of experience, they can pretty much name their own price.   Jesse (8m 11s): Yeah. And in terms of the last couple years, it's not, it's no surprise industrial multi-res, there's been some key sectors that have been red hot in terms of the demand, the the actual availability of the space. Why don't you give us a sense in terms of the, the last few years for multi-res, the pricing right now, the valuations that, that we saw. Were we just at a frothy time where the valuations were getting a bit disconnected from, from the actual real environment in terms of the rent?   Or do you have, do you take a different view on that?   Mark (8m 45s): No, I don't think so. I think my view is the institutions called cap rate or others that talk about cap rates, that's our game. The private market looks at price per door. They look at different whole set of different metrics, how much leverage they can get, is there yield spread? They don't care about yields, they just care about paying off their debt and, and they get security when they look at price per door. So when you look at our sector in general, the older assets, like we will say the, the plus 20 year assets are, are even with low capri today, trading at 30% of replacement costs.   In some cases it's basically 30 to 50 across the country. So when 97% of the market is private, like the rates are less than 3% of the market. Just to give you an idea, the apartment reach, now there's other institutional owners, but the REIT sector, all of us combined are less than 3%. Well then we'd be fool hearted to pay attention to just cap rates when the market is valuing apartments differently. So today, when you have the kind of housing crisis you have in Canada, this was, this is not gonna get solved overnight.   This is a a 10 year journey and we might have a chance of seeing some balance, but as the, as we continue to up our immigration numbers and don't outpace our development, we end up with a more and more pronounced problem. And, and so the fundamentals for multifamily are off the charts positive. The only, the only headwind we have is the potential government regulation and additional regulation which doesn't build homes that will not attract capital.   So we're in very, very interesting times right now.   Jesse (10m 31s): So I want to touch on that point. We recently had, Richard a Epstein is a professor of nyu and we were kind of talking about the regulatory environment in the US and Canada, the impact of some of these, the different policies that are being put in place. You were, you were on B N N a little earlier in 2022 discussing this, you know, this regulatory environment. We see this constant headline of affordable housing, the way we get to affordable housing, various pres prescriptive type of policies. But like you said, not necessarily addressing the supply constraints.   What is your view on that? Where, where do we get to a place where we actually can make an impact on, on housing? You know, the affordability aspect and just actually, like you said, building   Mark (11m 14s): Supply is you have to start with supply. Okay, in Canada, we have an affordability crisis and we have a supply crisis. They're, they're siblings, they're not the same thing, but they're absolutely family members. So when it comes to what needs to be done, well supply has to be addressed. So then you go affordability, well that's more of a government decision to help provide supports. Okay. Whether it be building all the housing requirements of Canada, like CMHC puts it at close to $3 trillion of investment that's required.   So the government can choose in a country where our, our debt is now our total lifelong country history debt is at a trillion, are we really gonna go 3 trillion further into the hole for the housing problem or are we gonna turn to the housing private sector to say help? So, I don't know, I've never, there's no example on the, on the history of the planet Earth and no example where the Hubble's telescope is ever seen a planet anywhere where taxes build homes, taxes do not build homes, taxes keep capital aside, uncertainty keeps capital at bay.   A clear path of investment will bring capital to work. So I think instead of like pointing fingers at who, who the boogeyman is, I think that as a country, if we do not awaken to, to the reality that the private sector has to be a big part of this, then, then the country just stays in, in the washing machine and the problem gets worse. You just can't continue to bring people into the country without, without a housing solution.   And we already don't have one for our own people. So we've gotta get focused on supply and, and I've got a lot of different views on, on why that supply problem exists.   Jesse (13m 8s): So I'd like to get into a couple of those, those views in terms of the supply, cuz you know, you hear, you hear a number of different reasons that we believe that the, this is the case. Whether it is the regulatory environment not being able to, to build, not be able to build certain asset classes. What do you see, you know, what's, what's your view on that? If you could name a couple on the supply end,   Mark (13m 30s): I'll give you one that nobody's talking about and hopefully this is interesting. Sure. Taxes, whatever, we gotta get through that gate. But then it's like, why don't we have affordability in housing in Canada? Well the number one distinguishing factor between Canada and the US is the cost of land. But why is land so expensive? We have a lot of empty land. We have a lot more empty land than the US has.   And, and so why? Well, the answer is in part that in Canada, if you need multifamily, it has to be on municipal services. Okay? If it's on municipal services, then you can put multi-family. Now, if you ever thought of it, when you drive in the countryside, you never see an apartment building. Why? Cuz it's not a municipal services. It's not because nobody wants a a sixplex there. It's cuz it's not a municipal services. Okay? So municipal services drives up the cost of land.   Cause municipals are doing nothing. Like they're slow, they're bureaucratic. There's a finite amount of land in our municipalities. Okay? So they have to expand hyper fast so that we can get things. So that's the land price issue. Then you have development fees. So before you even break ground, you in Toronto, you got $250,000 of land cost and $200,000 of, of development fees. Why? Because it has to be on municipal services. Okay. So then you go, well what do you do by that mark?   Well, if you look at the us you know, they, what, think of a, a very robustly built market, Dallas, Texas. Okay? In Dallas, Texas, they have what, what are called muni municipal utility districts muds. And in Dallas, Texas, there's 58 of them right now. And what those are is private sector building, municipal service hyper fast. So the private sector can do it more efficiently than municipalities can and they can do it faster and they can attract capital to do it.   Municipalities are capital constrained, they're efficiency constrained, they're ability constrained. So number one thing we can do is embrace a different way of getting more land to build more. In Canada, we got lots of land. There's no excuse for this. We've got a planning act that makes us put multifamily on municipal services. This is, nobody's talking about this. This is at the core of the affordability issue. Now interest rate Sure. And supply chain issues, sure.   But we, we, we, we can solve those problems. The one problem no one's been able to solve in Canada is land costs.   Jesse (16m 16s): So I'm thinking about some of these more, you know, suburban or rural areas where you actually don't have services. What does that structure look like in terms of actually getting that paid for in terms of, you know, is that something that you give credits to landowners that are there to have it built, but somebody's ultimately gotta pay for these services to, to get built? So you mentioned mud, so a private sector solution. How would something like that work in, in kind of our, our environment, our environment, let's say Ontario. Okay.   Mark (16m 44s): Have you ever been to a cottage? Sure. Have you ever been to a house in the country?   Jesse (16m 49s): Yeah.   Mark (16m 50s): Every single one of those properties is on a well and a septic, every single one without exception. Maybe it's a holding take, maybe it's a weeping bed, but they're all on wells. Okay. So it can be done. You look at manufactured home communities, they're all on, on their own water system. They all have their own private waste treatment. Okay. I love to talk about the example, the piece of land in Berry Ontario, a building lot in Berry Ontario cost about six to $700,000. That's on municipal services.   That exact same size piece of land five minutes away is about $15,000. You can't convince me that it, we know that it costs about $50,000 to private service a lot. Okay. And we know the province overseas, this, this is why I'm such a loud advocate for manufactured housing as part of the solution. It's not the urban solution, but it's part of the solution. We've told government you can have home ownership in Canada for under $200,000. That's the, the cost of a 1300 square foot manufactured home.   Sure it's not the traditional home, but people can get into the home ownership market and they're blocking them out of it right now by not permitting the zoning of these kind of communities. So when you think about it, 30 over 30 million Americans live in a manufactured home. It's been used to treat affordability for decades in Canada. We shut down the sector about 30 years ago and said no more. His multifamily needs to be on municipal services.   Jesse (18m 21s): So if there's such, like take that example, if that delta is that large between 600,000 and and 15,000, wouldn't there be, I'm thinking for just from an economic standpoint, once you have developers coming in and literally paying for those municipal services specifically per project, or is that just, isn't   Mark (18m 37s): That a good idea? That sounds like a good idea.   Jesse (18m 39s): You like that one? I just, I just made it up now I   Mark (18m 41s): Like he's listening to me. But I think it's a great idea.   Jesse (18m 44s): So that, okay, I just on the the other point there, you mentioned development, development cost. So the land cost piece, there's one, they're municipal services on the development cost. I mean, it's just from our, from my point of view, it's so expensive to build in when you hear these stats of how much development cost costs are as a percentage of the project. I don't know how we got to where we got today, but for listeners that don't know, can you talk a little bit about the development charges and costs for doing, you know, any given project, you know, in your portfolio and, and how onerous that is on the, on the developers?   Mark (19m 18s): Well, on the big cities it's over 200,000 a unit. 200 to $250,000 a unit. The land is 200 to 250,000 a unit. We haven't built anything yet. Like, so yeah, reduce those costs and then you've got the hard costs. But if we could knock 30, 35% out the cost of home ownership by being efficient, that's a good start. That helps things out. And then, and then overly supplied market will just bring balance into developer profits. That's a good idea.   So like, we've got answers here. There's a hundred percent answers. It's just sad that we're not embracing these, these solutions. It's, it's, it's instead, you know, on the manufactured home front, I call them tiny eco homes, like 1300 square feet is not actually tiny. It's a pretty decent size livable space, but they're stigmatized. People like to call trailer parks and all this, but forget that if you saw these new homes, you would, you would really have a hard time convincing anybody that they're, you know, a stigmatized way of living. It's dignified living.   Jesse (20m 18s): So we have a, we have a few guests that have come on, just investors in the states, different companies. And manufactured housing is, you know, big topic for a lot of the, a lot of different states for those, you know, when you talk to Canadians about it, it's just something that the average person I find they're not as familiar with and don't even know where it is in Canada. If we even have any you guys have invested in, in manufactured housing, what, what areas are these? You know, are guys everywhere?   Mark (20m 45s): Everywhere. They're, they're, they're, they're ideally saluted suited in remote locations where you can't get a carpenter, you can't get a brick builder, you can't get a whatever. They're built in a controlled environment and moved. So they're perfect for those locations. They're also perfect for rural locations. Like I, we have three communities outside of Aurelia and Barry. Okay, perfect locations, they're affordable. The people don't have to buy that $600,000 piece of land. They can rent that land, okay for two or $300 and they can buy a new home for $200,000.   This is extreme affordability. They don't have the capital outlay for the land and they do for the home, but they have a serviceable amount of debt less than the cost of rent. So, so why not give people the option? It's regulated by the province. There's with brand new infrastructure, you don't have the risk of aging infrastructure communities. And, and, and it's, it's kind of like there's no excuse quite frankly that we're not doing this and to say, oh, we don't know about it. Well, Canada was doing this for decades until planning acts were changed.   So that multi-family had to be on municipal services.   Jesse (21m 55s): And when did   Mark (21m 56s): All this, all this untapped land,   Jesse (21m 58s): When did that, that, sorry to interrupt. I was gonna say, when did that happen? Were we, were, we basically mandated that it had to be on municipal   Mark (22m 5s): In the eighties when housing was affordable. Hmm. Don't remember in Canada, like immigration was never a topic because we had affordable housing. We've, we've hit the tipping point here, you know, probably 20 years ago and nobody woke up and now we're in a catastrophe and we're making it worse by, by putting more people in ho in homeless situation.   Jesse (22m 26s): So what do you see Mark, as the kind of going forward, if, if something isn't done here, is, is it the political will that's, that's kind of inh hindering this is, is it other factors that, that are really stopping us from being able to kind of push forward with some of these prescriptions?   Mark (22m 42s): I think, I think the narrative of blaming REITs or blaming parties is failing fast. I think nimbyism is quickly disappearing because the, the, the situation has become dire. So I'm hopeful that it takes a good reset to get, get people thinking I am, I'm frustrated by personality type, but I, I find it hard to believe that when we've got like such obvious examples that we can duplicate like municipal unit utility districts and manufactured homes as a, a solution and, and the whole host of things that we can do.   And we're not doing any of it. Not in event like we're talking, but problem. And I think I hopefully we're getting beyond the finger pointing and getting onto solution phase. But anybody in real estate I think owes Canada the obligation of speaking up. And I keep saying this, like we've gotta stop being polite about it. Like people need to start asking hard questions in public about why we're not pursuing solutions. So there are, there, there are, like the province of Ontario has, has, has, has taken action.   And, and that's, that's a, a decent step, but I think it, it it's, it's all hands on deck. Like as the, the REIT community, for example, REIT sector in Canada has 230,000 units planned of new, new apartment development. Now that's not just the apartment REITs, that's the, the diversify its as well that's in the pipeline and the government's talking about taxing REITs. So, so that's gonna disappear. So we got a pipeline and a and a and a and a and a solution.   But we've got, we've got a narrative around, I don't even know what it's around anymore that REITs are destroying affordability. Like if that's the case, then what's going on in Canada right now?   Jesse (24m 29s): When you say tax rates, you're talking about losing the kind of the flow through status that they were pretty much created for.   Mark (24m 35s): I think, I think there's a narrative that REITs don't pay tax and that's not true. Our unit holders pay income tax, those income tax rates are higher than corporate tax. Yep. So it's a narrative around big is bad, but we're tiny and, and, and we're not bad. So instead of like picking on big, I think pick on bad behavior is what I'm an advocate for. Like if there is bad behavior by actors out there, then those actors should be, should be corrected. But you can't, you can't chase someone because they're perceived as being a large entity.   You need to chase someone cuz their behavior is bad. So I'll give you an example. Cabret is only doing new construction apartments now. That's all we do. We're not buying the value add assets anymore, we're selling them. So how is this bad for Canada at a time when we're like, I don't understand, I'm lost.   Jesse (25m 25s): Yeah. Can't have it both ways.   Mark (25m 27s): You can't have it both ways.   Jesse (25m 29s): So Murray, I wanna be mindful of the time here, but I do want to talk a little bit on a positive note in terms of the, the projects that Capri is working on. Anything exciting in the pipeline that you'd, you'd wanna mention and you know, maybe even touch a little bit? I've know, I know that you're in Ireland in the Netherlands, which is kind of cool. I don't think we hear enough about that locally. So I'll Yeah, I'll let you go there.   Mark (25m 52s): Well our focus is really on Canada cuz the crisis is here and, and we have to contribute in any way we can here. So what I get very excited about is that we are still, we're doing quite a bit of disposition work, selling some of the older assets. I'm a big advocate for putting those assets in nonprofit hands. If you want to solve affordability, why not go to a targeted neighborhood that has affordability pro problems? Why not? Why not help those people?   And, and, and you can do it now and fast. I don't understand why you build something for a hundred cents on the dollar when you buy for something for 30 cents on the dollar now in a neighborhood that needs help. So I'm excited about that, that conversation and we're getting great, great traction with government finally understanding that this is a, a part of the solution. It's not, not not gonna solve affordability crisis, but it'll help some folks that are distressed potentially. And it's better than building new, I think I'm very excited about.   There's been a bit of a move away from Nimbyism and more into getting good entitlement and we're getting that on our land. So I'm very hopeful that those entitlements will, will obviously help the supply scenario whether we build on it or someone else does. We're doing our part in getting it ready for the market. And I feel very, very good about just, you know, always being a Canadian in the fundamentals of Canada. So I think that we're in, you know, living in one of the world's greatest countries and you know, the, the prospects and the fundamentals for real estate in this country are, are best in the world probably.   And everybody wants to live here. I think that, you know, as Canadians we are, we, we have proven that we can wake up from time to time and I think we're in that awakening stage right now of really getting serious to solve the problem.   Jesse (27m 41s): Fair enough. One thing I'd, you know, I'd be remiss if I didn't ask you about the, the current interest rate environment and kind of, you know, the feds just announced the 25 basis point raised recently. You mentioned, I I've, I've read an article, either an article or there was something that you were talking about last year where Capri is, if not the leader, one of the longest debt companies. In terms of, in terms of your capital structure on the debt side, what do you see 20 23, 20 24, how do you see this environment playing out in terms of interest rates?   Mark (28m 15s): Well, our, we always do 10 year money when we buy. We always model that. We always do that on renewal. We're always inclined to do 10 or 15 year debt. So our ladder is long and our leverage is low. We have the lowest leverage of our peers and we have the longest debt ladder of our peers. That's great. We also have a very active disposition program in the affordable market. We're seeing lots of private buyers. Oddly enough, it's not in the core apartment market, it's in the affordable apartment market.   It's a very strange phenomenon and in part it's because a lot of these private guys were never invited to bid in the past and they're just anxious to be able to get their hands on some of this property and they love the price per unit. So as we're selling out of the, of the lowest here rent wise of the market, we are able to defer even further our, our refinancing requirements. So we're staying out of the debt market with the bet that things will improve in, in 2024 and beyond.   But it's all, it's all a matter of inflation data. You just gotta watch that inflation data inflation's coming down, then hopefully we see a return to, to more normalized rates. But I think that, you know, we're not gonna settle where we were. I I I see, you know, the return of 10 year high 3% rate money for multifamily.   Jesse (29m 41s): That makes sense. So Mark, we always wrap up with a couple quick questions for our guests. I'll, I'll start off here. What would you tell somebody that is getting into our industry, whether it's in multi-res or commercial real estate in general, you know, what advice would you give them?   Mark (29m 59s): Stick. Stick. If you love it, stick with it. You know, the advice I had way back in the day was that, you know, points of my career, I love my job and I didn't like my boss. That doesn't mean leave the sector, okay? It means get a new boss. So you do have control of that, but if you don't love what you do, don't do it. You got it's okay to make change and find, find what you love to do. If you do love what you do, don't give up. Stick with it. I, I have without exception, a group of friends go back to high school that have all achieved success.   Well, the ones that achieved success and the ones that stuck with, with, with what they like doing and if they stayed in the area, the, the market finds that, that enthusiasm, the market finds the talent. You have a responsibility to go seek out your best option. But don't seek it out too often cuz you had a bad Thursday afternoon. You know, don't be afraid to, to build some grit. But when you have to make those strategic changes, when, when, when it's just not working. If you don't like your boss, change, change your boss.   Jesse (31m 4s): What is a book, podcast newsletter that you'd recommend to listeners?   Mark (31m 8s): Too busy working. I, I don't, I don't know. This one seems pretty good.   Jesse (31m 12s): My guest today has been Mark Kenny. Mark, thanks for being part of Working Capital.   Mark (31m 15s): Thanks for having me.   Jesse (31m 24s): Thank you so much for listening to Working Capital, the Real Estate podcast. I'm your host, Jesse for Galley. If you like the episode, head on to iTunes and leave us a five star review and share on social media. It really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R A G A L E. Have a good one. Take care.  

Richard Epstein is our returning guest. Richard is an American legal scholar known for his writings on torts, contracts, property rights, law and economics, classical liberalism, and libertarianism. He is the Laurence A. Tisch Professor of Law and director of the Classical Liberal Institute at New York University, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution In this episode we talked about: Historical Perspective of  Land Use and Regulation Government Real Estate Agencies Inflationary and Interest rates Environment Macroeconomic Outlook ​​Jesse (0s): Welcome to the Working Capital Real Estate Podcast. My name's Jessica Galley, and on this show we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Richard is an American legal scholar known for his writing on torts, contracts, property rights, law and economics, classical liberalism and libertarianism. He is the Lawrence, a Tish professor of law at nyu, and the director of the university's Classical Liberal Institute.   Richard, it's great to have you back on. How you doing?   Richard (39s): It's always great to be here, Jesse.   Jesse (41s): Well, we're gonna have a bit of a, a crash course here in in property rights land use regulation, and kind of talk about how we got to where we, we are right now in, in the US in Canada as it as it relates to property rights. And it'll be topical for anybody interested in real estate, real estate investing development law. And you know, if you're ever interested to see why certain investment firms pick different states or pick different countries, you know, we'll, we'll touch on the intricacies and differences between how some of these laws develop.   But Richard, why don't we, why don't we start from the beginning? You talked about a historical perspective when it comes to land use and regulation, so I'll leave it with you here.   Richard (1m 29s): Okay, look, well the first thing to note is that when densities and real estate densities are very, very low, there's very little reason to have any kind of land use regulation. Land use regulation is a function of having large numbers of people within relatively close levels. One way to try to regulate this is from the private law of nuisance dealing with offensive smells and so forth. And that certainly is a part of the system. But when you're dealing with modern zoning laws, it turns out it's a relatively unimportant part of the system unless you're dealing with certain kind of very difficult industrial manufacturing areas.   But if you're going to the sort of the city life, the, the story really begins in 1916 when in New York City they realize that if you put up certain kinds of large buildings, the equitable building, what it's gonna do is gonna block light in other parts of town. And so the question was, are you willing to suffer that and let people build as they will, or do you think that you could kind of regulate densities and distances? And the initial New York statute was designed to deal with exactly that. And so they put up kinds of restrictions and they were relatively modest, but nonetheless they were there.   The one that was put into place in Washington was a high limitation. And in 1909 the Supreme Court said it's okay for you to do that. There's some kind of average reciprocity of advantage in everybody having the same kind of stuff. And so it's also another effort to sort of attack the light interest one way or another. And zoning of that particular sort was a relatively modest affair. I think the entire zoning book was, you know, 20 pages or something of that sort. But the movement got Abe boost from a very strange location in the United States.   And that strange location was a Department of Commerce where the Secretary of Commerce was none other than Herbert Hoover, later known for his other kinds of deeds. And what he did is he called together a national conference of local people trying to explain why it was that a general kind of zoning law was something that ought to be put into place throughout the United States. And federal government at that time had no power to regulate zoning within cities today in the United States. And in principle has that power, but it is virtually never exercised.   But what Hoover did was to persuade all of these towns and all these governments that they should put together a zoning package which is much more comprehensive than the ones that they had before. The theory behind this stuff was how you organize land uses as opposed to blocking light. And the notion of a zone actually quite literally meant this. We put in this zone, we put manufacturing in that zone, we put commercial in this other zone, we put in apartment houses, this other zone we put in single family homes.   And the theory was that if you have each zone with a pure type of, what would happen is you would prevent all sorts of nasty kinds of interactions between people and everybody would be better off. It turns out that this is a colossal blunder in the way in which you organize because what it does is it gets you uniform zones within use. It prevents incompatible uses from taking place, but it also prevents compatible uses from taking place. And so if you wanna get a sense of how, for example, real estate is organized in a more or less voluntary market, take any city, whether it's Toronto or New York and just go vertical.   And at the bottom what you do is you see a series of real estate stores, mainly commercial one way or another in New York. And probably in many other places, the escalator in these real estate stores goes down, not up because what you do is you have a lot of space below ground that doesn't change the profile, the building above ground. And so you do that. And then above that what you do is you probably have some degree of office space, which is a different kind of use. And above that you start having hotels in one kind of amenities.   And then above that what you do is you probably have some residential units and on the top you have some fancy club where everybody could look out at fine dining or a conference center. So you get four or five different uses stacked with one another. If you change the order, you would realize that this is not a random phenomenon, it's the way of maximizing value. A traditional zoning statute makes that extremely difficult. And so when Jane Jacobs wrote her famous book in 1961, she was always against single use areas because she said, if you're alive during the day, you're gonna be dead at night.   Or if you're alive at night, you're gonna be dead during the day. If you have the right kind of mix, you can have a steady flow of people in and out of the city and get greater utilization of your public resources. So the zoning system essentially made this mistake. And the case that demonstrated this was a case called Ewa cited in 1926, which was the same year that Hoover called his particular meeting in Washington. And what was the UK case about? It was about an industrial site between the nickel white railroad and some fancy highway on the south.   And what happened was a unified plot, and it was ideal for a major plant of one kind or another, but the city fathers decided that they were gonna change the way that this thing operated. And so what they did is they created zones going from top to bottom in that area and there was a zone that was designed to be manufacturing and then there was a commercial zone and there was a certain kind of residential zone and then a over the apartment house and a play zone. And what happened is you start looking at this stuff, you realize that having divided this thing, the loss and value is necessarily enormous.   You had a single owner of this patent and as you know Jesse, one of the fundamental theorem of real estate is if you have a single owner, every time you decide to do something on behalf of one of your potential buyers of renters, you're gonna hurt somebody else. So your constant job is to try to figure out how it is that you maximize the net value of all the uses that you sell, taking into account direct and indirect benefits like views and so forth. And sure enough, if you start looking the way these things go, you never see any of these things where the rental units are buried down below and the parking spaces are above.   The whole thing is organized in a way to sort of maximize access on the one hand and views on the other hand. And people really know how to do that and they're experts in excuse. So what you're doing is you're taking away the actual owner who's all the right incentives. He can only maximize his values if he maximizes that of his buyers and renters and and putting in place a government organization. And what it did in zoning, excuse me, what that did in zoning is it knocked out 75 or 85% of the total value by creating artificial barriers, discontinuities of one sort or another.   And it goes to the Supreme Court and the question is, is this thing constitution? Well, it was argued that it was a taking of one kind or another cause you saw the huge value. But the Supreme Court in a sublimely stupid opinion by a conservative judge known as Sutherland, a decent man, but a terrible judge on this stuff said, well, you know, you gotta have zoning laws because you have to have traffic regulations of one form or another. So what he was doing was talking about this areas where these units were already divided and you had to coordinate them and saying, that's the rule that we have when we already have a coordinated unit.   And so what you do is you know, for certainty that you've got a huge loss in net value. And the net question as a social thinker is, is there gonna be some external benefit that justifies the losses that you're imposing? And then you look around and you say, well, is it gonna be the fact that you're gonna prevent nuisances? Well, you could do that by saying you can't admit slope. And in fact, if it's a large part of land ly, every landowner wants a little bit of setback from the street, right, in order to give themselves a little bit more flexibility.   And so they have a garden or they have some kind of a statute in front of the place and so forth. And so there's gonna be zero probability of nuisances against neighbors. But on the other hand, you shut this thing down as a con industrial site, there are gonna be a lot of people who live in the neighborhood who now will not be able to get jobs. So if you're trying to figure out what the net effect of construction is, the standard zoning model is every time you build something here, it's gonna have a negative effect everywhere else. The more accurate situation is there a few uses that you have to ban and you can do that.   But most of the interactions that are gonna take place within the nearby neighborhood are gonna be positive. And so you put into place a system which essentially is doomed to fail from the start. And then the question is, what about constitutional attacks on? And what you always have to say about something like the Euclid decision is the moment you sustain the constitutionality of what must be the dumbest plan imaginable for land use planning, you're never gonna be able to attack anything else because every other program's gonna be less stupid than the one that you have here, even though they're plenty dumb.   And so essentially in the United States and in Canada, I believe there was no serious challenge to zoning ordinances that took place for the next 50 or 60 years. The system essentially went on autopilot and the positive externalities would be taken into account in some cases politically but never legally. So one of the things you mentioned, you can interrupt me at any time, is how do different towns respond to this stuff? Well, it's a very funny game. I'll tell you just a little anecdote is we wanted to build a house in Michigan at a time when the area was somewhat depressed and there was a zoning ordinance that was administered by the local government on behalf of the state and they were desperate to get our house in there.   Why is that? Because in the usual exurban communities, they have two tiers of taxes. They have low taxes for people who live there full-time and high taxes for com, people who live there for the summers or the weekends or whatever. And they were desperate to get those revenues. So our architect goes out and presents his plan and this is what the host of the situation said, this is 35 years ago, but it's the same story. I said, Mr Grun, would you like to go first? You came a long way. Now what's going on is they really wanted that stuff.   And there are many towns in the United States where zoning has done in exactly that way. So that what happens is if you have the equid frame of mind in Ohio, it gets taken over in New York, it then spreads to building permits and other situations like that. And so essentially to construct something in New York City is about as difficult as breaking into a bank cuz nobody wants you to come. You go to Texas, it takes, you know, two weeks to get a building permit as opposed to three years to get a building permit, the land use review processes, is your building gonna fall down?   Will you let us know? Is your building going to have no access to the street? Will you let us know? So essentially what they worry about is a little bit about massing. They worry a lot about safety construction floors and so forth. And the very important issue of how you coordinate entrances and exit from a large building onto a complicated city set of griefs. And those are all the things that you really have to worry about. But what goes on inside the box is something for which in general it is very unwise zoning board to take hold of.   But you take a place like New York, it's not only zoning, it's handicapped regulation. So somebody will tell you how wide the hallways have to be in order to accommodate a wheelchair that you don't need of a bill that's no longer made, which will reduce the value of your house by 20% every time you try to do a renovation. So the thing to understand is every community is not so stupid as to try to take advantage of the full powers of the zoning law, but you can easily find configurations where local politics are such that the dumbest of the dumbest get to the top of the roof.   And if you wanna find a place in which that's likely to happen, you go to San Francisco, you go to New York, not so much Chicago, although they have a terrible mayor and so forth, it's essentially major progressive communities tend to be most insistent and what they do is they drive people away with their stupidity.   Jesse (13m 46s): So Richard, the, this kind of, it reminds me a bit of this common misconception between freedom and license and the, I guess we could back up and say from, from a standpoint, I don't think I, if you are extremely lez fair in disposition that you think that there's no limits on on, you know, what you can do with your property, but, but there is seems to be a certain balance. So there are certain externalities that are easy to control and, and others that are different. For instance, you know, the law of trespassing, it's very obvious but the, you know, the externality of environmental issues or you know, smell emanating front property.   So I, I'm curious to, to know that for instance, I live in downtown Toronto. If I'm walking down the street, as much as I don't like to be the nimbyism not in my backyard type of person, when there's certain condos put up in certain sight lines where there was one sun is there's no longer sun, we, we certainly lose something as a community the way that we go about ameliorating that or or dealing with it is, is not efficient. And it reminds me a bit of a book by Charles Murray, I think it was by the people and it was talking about like what you're talking about a lot of regulations that you know, say you have a commercial building and the steps need to be this many inches and have these, these spindles and and realize it doesn't apply to a certain case.   So, so where's the balance when it comes to the ability for you to have efficiencies and be able to have that quick turnaround time like in some of the southern states as opposed to not, not limiting other rights that are external to say your   Richard (15m 21s): Property. Now look, as I mentioned to you, light is one of these very difficult issues as is density. And the point about light and views is everybody knows that you attach an enormous positive value to their use. And so for example, if you have in New York an apartment on Central Park West that looks over the park, it's gonna be worth $40 percent more than a unit in the same building and that looks down the street that another street. So these things are extremely valuable and so the question then is how do you manage to preserve them?   And it turns out I think the only thing that you can say is that in plan unit developments, these things are gonna be naturally taken to account for the reasons that I mentioned at the outset. The developer who denies somebody of view in order to give somebody else a lot of space, he may lose more money on the view apartment than he will gain on the space apartment. So he'll do something else. When it comes to uncoordinated development, it's an absolutely killer and one of the kinds of regulations that have been sustained and it's one for which I have a little bit of sympathy, I'm not sure exactly how hard a setback regulation.   So the same time they put Euclid into place, they said you could require everybody to set back 10 feet from their neighbor, 10 feet from the floor. Now is this a good or a bad idea? Well it really depends. So let me give you the Epstein situation circa 1950. I grew up in a duplex, not a duplex, it's a semi attached house. We had a neighbor on one side with a common party wall and it was open on the other side. And essentially this was a kind of an effort to sort of create that sort of compromise that you want to have, you reduce the density a little bit by having that common wall and so forth but you kept the openness by making sure that every two units instead of every single unit has some setback or partition from the guy behind you.   And and I think trying to put zoning ordinances like that into place is not going to give rise to a huge thing. And there's a simple way to try to test this out. The zoning ordinances that I mentioned in equi were ordinances that resulted in a loss of value, easily measurable because of the market value of the land of 80%. Now you put a setback regulation in on a large unit owned by a common developer and you ask yourself how much is gonna be the reduction in value if any from this situation?   And remember the people who live in the houses, houses are the people who walk on the public streets and probably it's gonna be the case that the sort of setback regulations you're talking about will have relatively modest effect on property values and positive effects on neighborhood amenities. And so they should be upheld is being some kind of constitutional, the reason why this is so difficult is I suppose you have a part which is 25 feet wide, having a setback on that is gonna be very, very difficult than the width. But if you have one of 40 feet you can start to do it.   So the sizes make a difference, the ratios make a difference, which means that it's extremely difficult when you're doing these things that kind of figure out the way in which they go. One of the things I do when I teach land use, however it is kind of interesting is you wanna see how a constructive zoning situation did the case book. I had my friend Bob Eon and Vicki Beam with the editors at the time, they had a proposed plan for development with entrance entrances on various streets and configurations within the law.   And then they, that was before they spoke to the planning bureau and then what happened? They show the same thing after you look at the planning bureau and I'm very happy to say this was a positive story. The revised plan was much better than the original plan by any standard that you could ought to do better access in the right places, better internal configuration on the roads and so forth. So what it does so is that planning should not be regarded necessarily as an evil to send all evil, but it has to be done with a set of incentives where it is that the people who are designing these particular program are trying to maximize the value of the unit development, not trying to destroy it.   And so, so much depends when you go into a government as to whether they're the welcoming kind of government or whether they're just people or outright hostile. Now this has huge implications for constitutional law. If you have government which is responsive and reliable, giving in their reign is almost a wonderful thing cuz they're doing good things and they'll do 'em better. But if you have a terrible government and giving it its reign, they're gonna take advantage of you and wipe out private values. Well when you plan your law, you have no idea in the same state or in the same county whether the local zoning boards are gonna be the good guys of the bad guy.   And how do you then put together a set of rules to deal with people who are so fundamentally different than the way in which they approach land use? That's the fundamental challenge. And essentially the way I think you do it is you start off worrying about the bad guys and what you say is the kind of test that we're gonna put into place is that which talks about overall diminution and value taking into account all the members of the community. And then if you take that over and you look to the good guys, they'll pass that test.   The bad guys won't. So that overall will make a difference. Let me give you an illustration. Okay, nice one. I think having to do, not so much with urban planning but with beach fund planning and as you know as a real estate guy, beach funds are very sensitive because the value of the land is so much determined by access to the public road. Everything changes. When you're in most parts of the world you tend to have squareish lots or when in beachfront company tend to have bowling alleys, very narrow cuff to give as many people possible, some degree of frontage with respect to the beach and so forth, right?   Well one of the things that you have when you face the beach is you have an erosion risk. And once you realize that the maximum private values come from having relatively narrow and deep plus you realize that there's no way that individual owners in an uncoordinated fashion are going to be able to stop their erosion risk. Your parts are too small, you build a wall on your thing and it simply destroys the guy to the left of you and the right of you. So you need to do is have a common wall if you're gonna be able to do this at all.   And then the question is how do you put this into place? And here's a scheme called stop the beach nourishment was the name of the case decided by Justice Scalia who came out with the right result having no idea what the actual logic of the scheme was. So these guys realized they had an erosion risk, they realized they had a collective action problem because there was no way any single owner alone could make his press situation better without making his neighbors worse. And if you're trying to figure out how you're put together a wall that's gonna have to deal with say 40 or 15 homes, a single continuous wall's gonna be much better than a HighSpot a little one.   So they did is they said we're gonna require that, but they made a deal and the deal was what you have to do when we put this wall up is give up the rights that you have to exclusivity on the seawood side of that wall. So what was once a private piece of land above the high watermark now became collected, okay, you lost something. But on the other hand we're gonna give you two things in exchange. One, we're gonna protect your house and that's worth the law. And two, we're gonna make sure that nobody builds on the seawood side of the wall so that your views are protected on the one hand and your access to the beach are protected on the other.   So you look at this kind of scheme and you say, are these people entitled to compensation? Well you'd have to be a little bit nuts to think. So if it turns out when you're taken into account the cost of construction and all the other net benefits, the value of every piece on the breach goes up by 10%, right? At that point, compensation is not what you want. It's what we call technically implicit in-kind compensation. That is the nature of the project itself imposes reciprocal obligations on people. Each of them have to pay X, each of them get y Y is greater than X.   So if you have NX N Y minus nx, it's a greater gain still. So it works. Now is this always gonna work? No, Jesse, life is unkind to us. If the units are heterogeneous, it turns out it's harder to get common projects that work. So think of the beachfront in which some guys on a rocket, he doesn't care about the erosion risk given where he's located. Or some people have bigger houses, some people have a small narrow part. When you have heterogeneity, it's harder to make the thing work.   And so what do you have to do? There's an institution with the odd name of owl, T O W E L T Y. What you do in effect is you start making side payments so that those people who are given burdens that are greater than their benefits receive cash payments from the other. And if they could make the cash payments and still come out net winners, what you've done is you've taken an unequal distribution of good fortune that is somehow need the protection and some don't. And the side payments allow you to equalize the benefits so that everybody in this particular area get the same rate of return from common project.   And I think you, you've worked real estate, right? Yep. And you understand that in certain cases where you make global improvements with local disadvantages, you have to have implicit transfer payments or explicit one, if it's a common unit development, it comes out in the pricing. If it turns out they're separate units, it has to be an explicit make and you can do all of that stuff. But the key thing to understand when you're doing land use regulation, given the adjacencies, you can't say that what goes on in one plot of land is irrelevant to what goes on the next.   What you try to do is to put into a project that satisfies two conditions. One, overall all values of all the unit owners and so forth of property owners are increased. And B, you are going to give a uniform rate of return because if you don't do that, then the following will take place. We have a development and 60% of the percent of the people game a hundred percent and 40% of the people lose 50%. If you don't have transfer payments, you're gonna have a Holy War taking place because the losers are gonna do everything they can to bottle that up.   And as you know, generally speaking on this conflict, a simple majority is not enough to prevail over determined resistance. That's just the way committees and organizations struck. It's a multiple stage project in order to put legislation through and the veto guys that all they have to do is to shut down one of the gates. Whereas the pro guys, all they have to do is to keep every gate open, which is a much harder tan. So given that fundamental asymmetry the correct solution of transfer payments so is to make it that foolish for people to object if the side payments will leave them better off than they were before.   And so that's how you have to start thinking about managing various kinds of real estate projects. And that's why it is at the zoning model so utterly rigid because the other thing that it does, it doesn't allow the subsequent contractual variation.   Speaker 3 (26m 34s): So   Jesse (26m 35s): That's, yeah, it's fascinating to, to see cuz we, we deal with different, like we were mentioning before, different provinces or different states and you just have obviously varying sets of, of norms, varying sets of laws for regulation. I wanna get your take on something that was recently passed or pushed forth in, in the Canadian context. I think every country in some aspect, I know in the states and in Canada we're, we're affordable housing is constantly talked about. And the question of how do we deal with affordable housing, you know, depending on your political disposition you'll have a different tool or different, you know, different view.   You know, obviously I'm biased in the commercial and residential real estate space that we think, I think a lot of the regulations really hamper us and and limit the supply. Now, I'm not sure if you're aware of this, but recently something called the prohibition on purchase of residential properties by Non Canadians Act was was passed and it was basically it, it's a two year moratorium on foreign individuals buying property in the states. Now if you really look at the actual details of it, you realize that people in MySpace and the commercial real estate space aren't really affected because it's limited to I think three or four or less units.   I think it's four or less units. So you know, the large companies buying properties or multi-residential or commercial pro larger commercial properties. But I'm curious of your view of how, you know, you see a government agency, C M H C, the Canadian Morgan Housing Corporation as our equivalent of Fannie Mae, Freddie Mac, you see them past this with the talk about how we're gonna increase affordable housing and, and we're gonna address supply con issues by, you know, banning, you know, foreign individuals from, from buying it.   And I feel like that's, that's kind of doing it as backwards, you know, we're, we're not looking at the actual source of what the issue is. So I'd like to get your take on that. I know we didn't chat about it before.   Richard (28m 29s): Hope swings the eternal on this stuff. I am a fierce opponent for the most part of a firm of affordable action affordable housing programs. But let me explain why this is not just a sort of a terrible situation. There are two ways in which you could try to expand the housing for the port. One of them is you could reduce the various regulatory obstacles that stand in the path of constructing that or two, what you could try to do is to force a subsidy on somebody else so that people are going to pay only a fraction of the price that the housing that they occupy is going to cost.   And very, the first thing you used to do is you always start with the first. If there are a series of barriers to entry that you could remove, what it does is it will lower cost, lower administrative expenses and increase the availability of units so that you will start with the housing program just by getting rid of the obstacles. Let me give you an example. Many places, so like New York City have rent control. What rent control does is it means that people have large houses when they had children keep their large houses when the children have gone away.   And so there's nothing more common than in New York City to have a 2,500 square foot units with one person living in them if you had no rent control system subsidy kind of right? Well what happened is that woman would sell her house to a family of four. So what you would be able to do just by getting rid of the rent control restrictions would prevent residential mobility is increase the supply of housing without changing a single thing in the external world by making sure that units are fully occupied up to their rational level.   And so that's the kind of thing that you want to start with. Always get rid of the crazy restrictions before you put something else into place. And we know that there are many kinds of odd restrictions on zoning, how many units you could vote in a given area. The neighbors are always trying to Beto these kinds of things and if they succeed, you're gonna s cut down the supply. The liberal progressive view on this is we keep all of this stuff in place, we have a housing shortage, what we then do is we decide that we're gonna subsidize housing. This is what Governor HOK is trying to do in New York State in a lame brain program where she thinks she can force every single community in town to get some state money in order to build the housing that she would like to be built in the places where she wants to build them.   These programs of coercion never worked and they're costly. So you're talking about affordable housing, they're two ways you can do it. One way, the honorable way is to put it on the public budget. You say, we happen to believe that it's important to have poor people in the community, it's going to cost us a thousand dollars a unit per month to get them here and they can only afford to pay $600. So what we are gonna do is we're gonna appropriate money from the public treasury $400 a month for each of the units that we want to create.   And there will then be political decisions as to how far you want to go with this program. And my view, the moment you put this on balance on the balance sheet for the public, what you will see is a huge diminution in the desire to do this. And this will create greater pressures to increase housing by reducing barriers to entry, which is exactly what you want. So you want to do is if in fact you're going to have a public subsidy, make it outta general revenues. But local communities don't like general revenues. So what they try to do is they try to put it on the developers, right?   And so you get the following kind of scheme. All developer, if you wish to build three market rate units of housing, you have to build one affordable unit. And what you do is you take your excess rents from the market rate housing and use that to support the other housing. And we the public have to pay nothing about it. Well it turns out, of course there is no free lunch on this situation. The first thing you're gonna have to do is you're gonna have to raise the the rents or the sales prices on the unaffordable market rate units above what they were.   If you assume that the demand is constant regardless of the price, then you live in a world that I do not understand. So what's gonna happen is the market rate housing is gonna be above market rates. You're gonna see essentially a kind of price control system put into place a form of monopolization and you're not gonna be able to sell as many of those. And if you can't sell as many of those, you're not gonna be able to sell as many of the affordable units. And so what happens is you put this thing, the total stock is going to start to go down in the availability.   Then of course what happens is the people are being forced to pay this stuff, they're gonna try to fight one way or another in order to cheat on this. So you're gonna have to have excessive monitoring on the way in which it goes. Then on the other side, the moment you have affordable housing, it turns out you have affordable housing criteria. And so to give you a kind of a simple illustration, suppose you assume that the affordable housing unit at $600 a month as opposed to a thousand dollars a month must go to a family that earns under $40,000 a year.   So you elect family in at $40,000 a year and then it turns out in the second year the spouse goes to work and total family income is $48,000, not $40,000. Well one of the two things could happen, either the second job is kept off the books so that what happens is the person don't move but they violate the criteria. And once one person does it, everybody does it. So after a while it's just subsidized housing, but you're not gonna be able to keep your target population or what you can do under these circumstances say, all right, we're gonna throw you out of this affordable housing unit, which isn't gonna do anybody any good cuz then you have all the costs of trying to find another tenant to fill it in.   Or what you can do is you say, okay, well we'll do is you now got $48,000 for this thing, we're gonna raise you by 10% and so forth. But somebody has to figure out what those increments are and then you're gonna have to calculate them on an annual basis and you're gonna have to do this for 50,000 units inside a very large town. It becomes a completed administrative nightmare. And so it's just very, very difficult to kind of put these programs into place and yet the more difficult it becomes, the more insistent people are creating them.   And so what happens is you get this kind of situation where you get a lot of cheating at the bottom and real restriction to elite people at the top. And then you have to know what are you gonna do with the rest of the zoning system. So it's just another piece and a messy kind of puzzle. If you want to give subsidies to people, the only way that really works is to give them a subsidy of them and say if you spend $500 on a unit a month, we will give you a 10% increment over that.   So you could get $600 and sure enough the landlords will be aware of that. Then what will happen is the price that you bid will have to be a little bit higher because they're gonna try to take some of the subsidy for themselves. It's very, very difficult to run cross subsidies in a housing market and that's what they're trying to do in Canada. And when you said the last point you mentioned, oh you can't sell to Americans, right? Well who's that gonna hurt amongst other people? Canadians, right? Because the Canadians who want to sell their property are now gonna be forced to take a lower price for what's going on.   If you'll let the Americans in, you're gonna get more on the real estate taxes and so forth gonna increase the general vibrancy of the community and you can now start to afford to open up new housing. And so you don't wanna put these models in place which assume we have to keep the bad guys from out because there's a static source of housing, there's a total fixed amount of supply that you can't increase if you know that people wanna come in, the appropriate thing to do is to build more unit and that means to relax these units. Canada last I looked, is a big country, right?   It has what, 35, 40 million people, right? Well I mean I think that you can figure out a way to find some plot of lands to build additional units so as to accommodate virtually everybody. But what happens is all the people in favor of affordable housing and subsidy have no idea of the resiliency or the sense of how markets work. And they don't have any idea as to how the eminent domain and the regulatory power should be done. Remember, I'm trying to figure out what you do with regulation. I didn't say you could build anything you want anywhere you want to do it.   There are certain kinds of minimum constraints, but the constraints that I'm talking about, you know, on structural integrity, parking places, access to streets and so forth is about 10% of what they're doing today. But it's the 10% that is most valuable and it turns out it's the 10% that it's least controversial. And so it turns out that you do all of that stuff, which is fine, but all the other stuff that you do is largely a mistake.   Jesse (37m 20s): So a couple points first of all that it kind of reminds me of the, if, if anybody hasn't read Capitalism and Freedom by Milton Friedman, I think it's a, it's a great tax and the the cutoff example you use, I think was how he described his negative income tax of if there are transfer payments, you know, you don't just have a cutoff where people now start try to game the system. And the piece I'm curious about, you mentioned the honorable way to do it and, and I guess the dishonorable way in the honorable way situation there where you have a, a certain amount from the public purse that, that you appropriate to provide to people for affordable housing.   You, you find whatever, whatever test or criteria that that you know, that is needed, what is the mechanism? You mentioned giving them subsidies, but would there be a situation where you have a, you have a developer, they're building X amount of units, the government says this amount has to be affordable, however, the the c the rent, the, the payment will be a payment directly from, you know, whatever a Canadian agency or are you saying put it directly into the hands as a subsidy for rent so that it can only be used in one fashion from the prospective tenant?   Or are you saying give them cash?   Richard (38m 34s): Well this is the way way I would do it. You wanna get units at a subsidy, what the government does. You take a private developer and it says we are gonna rent this unit from you for X dollars and you're gonna give us permission to rent it to Subedit to somebody else for X minus Y and we will pay that difference cause we're gonna have to pay you the rent and then we'll collect less and the rest will take from the public purse. You could do it. Justice Scalia actually talked about that in a case called Pinella as a potential way of dealing with it.   But what it does in effect is it means that you can't hide behind various indirect loses and tie in arrangements of one kind or another. You put it on the public budget and once you put it on the public budget, there's gonna be a public debate as to how it ought to be done. And so, strangely enough, using a taking wall makes democratic processes more true because otherwise what you do is now imagine what the discourse is gonna be like on rent control or an affordable housing where you know that you, if you get a political majority, your majority can force some vulner minority to have a net loss in order to stay in business, right?   So you have to have this heavy tax and so the de deliberative process will work, this follows all the progressives in on in New York or in oil Toronto will come together and say, how much can we extract from landlord my way of rent control and not drive them completely out of business? And I said, well you know, we got a lot of working room here. And of course they always miscalculate because generally if you're a progressive, you underestimate the, the violence of response, the dramatic nature of response to regulation. You assume people are gonna be relatively indifferent when in fact they're gonna be furiously backed.   So what you do is you get a deliberative process, which is designed to say how can a 70% majority really stick it to a 30% minority? But if on the other hand you do it the way I'm talking about it through the public trust, there's no way that any group can hide a general revenue tax is gonna hit them all. So now they're going to have to ask whether they think this is important enough to them to support it. And since they're paying the money, they're gonna be a lot more reluctance since Margaret Thatcher's old jokes, she says, you know, socialism last so long as you haven't run out of other people's money.   And that's exactly what people are kind of trying to do with this system. So, but you have to understand about affordable housing, rent control projects and so forth. There are all various reasons of price control schemes and the simple price control scheme is just a cap. And what happens is you discover at the cap and a price control scheme, there are lots of buyers and there are very few sellers. You have a systematic shortage. And then you're gonna have to figure out what kind of political intrigue is going to figure out who are gonna be the lucky winners amongst the shortages.   All right? And who's gonna be left out to drive? This is a terribly unstable system, but that's what you're doing. And as you mentioned where ways to do that, you could find minority groups and you could exclude them. You could take people who don't live in the community and exclude them. And so just to give you the sort of the political dynamic in any large city, there's always a strong constituency for rent control cuz these are sitting tenants who now think that they could get a subsidy in New York City or in Toronto. We're not talking trivial numbers.   No, oftentimes the difference between a rent controlled price and a market price in that very small part of the market, which is unregulated, could be a difference of four or five fold per square foot as you well know, right? And so   Jesse (42m 6s): I can give you just a, it's just a quick one that just we, a property we're dealing with today, the market rent is $4,300 or sorry, the, the, yeah market rent is $4,300. The, the on the books rent right now in, in a, you know, rent controlled AR area is, I think it's 1,650. So yeah, you know we're now   Richard (42m 26s): It's two half, right? Yeah. And you know, in some places it's higher in New York City it's actually larger than that because what they did is they put the stabilization cap in at $2,500. So essentially a 22,000 square foot unit that's controlled in New York City's $2,500, the same unit on the open market is 10 to $12,000, right? So it's a five or six fold difference. So let's just assume it's a thousand dollars a month, right? That's $12,000 a year, that's a trivial amount.   And then you have to capitalize as a hundred thousand dollars subsidy. If you're talking about these larger numbers, it gets close to a half a million dollars in that transfers to people they'll fight very hard for. So then somebody said, I remember this well if there's a short is what we have to put as a maximum cap on the sales price of homes. Now this is different, the landlords are people you're willing to screw, but the voters that you have are these homeowners and you're not gonna be able to win a lot of election if you tell a given homeowner your house is worth 3 million. But we like the rent control model when you sell at the maximum that you could ask for is $1,800 and then all of a sudden, amazingly you've got 1500 people standing on your front door, he is trying to bid for the property below that, somebody's gonna try to sneak you a few extra dollars to put it his way.   So we don't have sales control, we do have rent control, but the basic maximum about this is supply and demand aqui brace. Whereas all price control systems create chronic shortages, which lead to chronic intrigue, affordable housing is essentially a price control system which is much more complicated than the simple rule, but it's gonna create all the same kinds of distortions and more why? More because it gives you more room to wiggle and giggle. And what happens is when people start making private accommodations for their own benefit, what it always does is reduce the total amount of social welfare and that can take place.   And what happens is you give it to take the progressive mind in New York City and you see the complete failure. They don't talk about deregulation or destabilization very often. They say, oh we gotta have another set of restrictions, another set of taxes and another set of subsidy. And then they wonder, well why are all the people leaving this state? Now I don't think this has happened in Canada, right? I mean cuz I don't think you have anything close to the disparities that you have in the United States, but let's be very clear about this.   New York state has the largest percentage of people leaving the state each and every day. California is next. You are talking about hundreds of thousands of people abandoning the state in a given year. I mean, it's gotten to the point where it's that large. And then you ask yourself, well what are you going to try to do in order to keep them here? And we know this, we're gonna have more affordable housing, higher taxes, greater subsidies, more pro-union benefits. So you want to increase the cost of housing, just require everything to be done by union construction firms and so forth.   And so more people are gonna leave, right? And then you have the same cycle over and over again. Some people will not learn that essentially the exit, right? Is a constraint on what you can do. People don't like to leave their homes in order for you to get somebody to leave their friends and their neighbors. You have to create massive dislocations and the political system to override the local benefits that you have by just being in a community with your friends and family. And that's exactly what's happening.   California lost a half a million people I think in the course of a year. Well it's a 40 million people state. So it's 2%, you do this for five years, however, it's all of a sudden, hey you really have completely rewritten the map of the United States unless you can control the exit rights. And so you know what they're trying to do, of course you're aware of this. They're trying to control exit rights. Now how are they trying to do that? They try to impose wealth taxes, crazy system. And they say, if you leave the state in order to avoid the wealth tax, we're going to impose an exit tax on you equal to the wealth tax that we would've imposed upon you if you had stayed.   And that's the sign, that's what East Germany did to keep people. And that's what these countries are trying to make themselves   Jesse (46m 40s): Like. So Richard, I I know that's, it's fascinating. I think we could talk, we could talk for another half an hour on that point alone. I think we talked, chatted a little bit about it on the last time that you were on, but we got up five minutes here and it's not a lot of time, but I'd be, it'd be remiss me not to ask you about, you know, with your work and, and writings on, on law and economics, our current inflationary and interest rate environment. I know it's a broad topic, but I would like to get your take on not necessarily what has happened in the last 12 months.   Obviously we use historical aspects as a way to look at the future. You know, we can say that feds acted too late, feds acted improperly. But what I'm curious about is what your view is on the next short to midterm. How we, how we, where we go from, from here and how you think this will unfold or it ought to unfold.   Richard (47m 33s): Look, I mean it, it's quite clear that we kept interest rates artificially low for a very long period of time. And it's like everything else you say, ah, this is going to stimulate investment. But on the other hand, you now have people who are living off their retirement savings and the interest rates have been cut by two-thirds under this situation. And so they are really kind of hurting. So it turns out manipulation of interest rates are like wealth transfers from one group to another. And in general, the winners always get less by way of profit than the losers do because the uncertainty means that the whole game is going to be bad.   So the first thing you have to do when you think about this stuff is to figure out how you stabilize this and take it out of politics. One of the reasons why the gold standard actually worked, not withstanding the fact that it seems highly improbable to do so, is it's a lot more difficult to manipulate the supply of gold than it is to manipulate the supply of paper, right? And so what it did is it created a natural degree of stability and then people could adjust to that situation. The current situation, when you have this uncertainty, it means that every financial transaction has an additional degree of risk associated with it.   Cuz you don't know whether the dollars that you're gonna get tomorrow are gonna relate in some particular way to the dollars that you're spending today. So the stability point is, I think the first thing that you want The, the second thing I think that one wants to recognize is that inflation is not just a monetary phenomenon. It is too many dollars tasting too few goods, right? And well, you can screw this equation up in two ways. One is you could create too many dollars, which is running the printing press to the point where the money starts to come out in a pandemic.   There may be a lot of dollars out there, but there's not gonna be a lot of activity. So the velocity of money will be slow, which means that the increase in the quantity of money is not going to show itself immediately. But the moment the velocity of money starts to speed up and the quantity of money starts to speed up, then you got a problem. But on the other side, it's chasing too few goods. You can have a system on direct regulation of the production of goods that favors it or destroys it. If you increase overall productivity, you're gonna reduce inflationary pressures because what's gonna happen is you have more dollars chasing more goods and the more goods offset, the more dollars on the other side.   What you see in the United States, I think more so than in Canada, is this relentless effort to shut down production through a system of transfer payment. So this kind of exacerbates the overall problem, and it's something of course, which the Fed cannot solve or any monetary problem can solve because the determinants of overall goods production are going to be industrial organization. They're gonna be labor laws, they're gonna be zoning laws, they're gonna be taxes and tariffs on imports and experts, all exports, all of which fall outside of the purview of the Fed.   It's not that the Fed is irrelevant, it has a huge role to play on one side of this equation, but it has no role to play on the other. You see somebody like Joe Biden, I mean, you know, he is generally regarded as one of the dumber people ever to take in public office that widely known but not widely spoken today. But you know, every time he sees something, if it's a good move, it's because government has done it. If it's a bad move, it's because greed has taken play. He has no idea that changes in market conditions could lead to changes in prices.   And that changes in prices that reflect scarcity are generally a good thing. Because if you raise the price, the people will stay on the market the longest of those that get the net profit, largest net profit out of the use of goods. It's not great that you have to cut things down, but better to do it that way than by some government allocation scheme, which is the only question that you start to add. And so what you do is you get these constant drumbeat of people on top of the market. And one of the things that happened is if you look for example, at a Congress which has lost its way, or a government in Canada that loses its way, even the threat of regulation will have very bad effects on the operation of A, so if somebody says there's a 20% chance that there's gonna be a windfall profits taxed on oil in the next year or so, it is going to skew investment in consumption systems all the way down the line, even if it never passes.   And the reason why you like constitutional prohibitions against certain kinds of fools errands like this is very simple. What it does is it gets that element of risk outta the situation. So the ideal theory of constitutionalism is you put into a constitutional, those constraints that make sense in good times are bad, but you don't try to constitutionalized those restrictions that will work on one set of times. But not only. So for example, on taxation, there is no way you wanna put in a rule that says you cannot tax more than 22% of the economy and put it into the government in wartime or crisis.   You may need more money than that. But what you can do is to say, look, when we do this taxes, we are going to do it through a flat tax, and that means that everybody's gonna go up or down at the same ratio. That constraint doesn't stop you on the revenue side, right? But what it does is it does a great deal to stop the partisan fighting where one group is strong enough to impose specialized taxes on another or to get disproportionate gain. So the theory of pro-rata benefits off of common investment was the exact same theory I talked about was stop the beach renourishment, right?   Hmm. Have hydrogen as people, and you're trying to get uniform rates of return by side payments and so forth. Well, with taxes, you don't have to worry about those complications. You keep the system flat and that you then do is just change the rate. But of course, course the progressives have exactly the opposite situation. They're trying to figure out how to get 90% of the money outta 1% of the people. And so you take a state like California and tech was good last year, and they get huge surpluses from these rich folks. The tech business seems to be fairly bad this year, right?   Google's laying off people, everybody's laying off people, and all of a sudden they run enormous deficits. Well, that's what's going to happen to you if you don't use a more robust tax. A flat tax is much more stable when you're starting to deal with differences and conditions and so forth, which is one of the political economy reasons why you want it. If you listen to people like a manual size, and Elizabeth Warren, all they're interested in is shoveling money from people they don't like the people they do like, and they seem utterly oblivious to the whole question about growth and political stability.   And so this is a great tragedy that's taking place right now. The movement of getting rid of the standard limitations on the income tax, the realization requirement, the net increase in wealth requirement and so forth, is likely to take hold in some places. There'll be a huge constitutional battle over it. I think much of it will fail, but some of it might succeed. And what happens is just what I mentioned, every, every state that wants to impose a wealth tax, wants to impose an exit tax as well.   And that's East German, the sign of a socialist. The government is a prohibit exit because they know they don't have enough to offer you to keep you here in a voluntary.   Jesse (54m 59s): And on that ominous note, my guest today has been Richard a Epstein. Richard, thanks again for being part of Working Capital.   Richard (55m 6s): Great.   Jesse (55m 13s): Thank you so much for listening to Working Capital, the Real Estate Podcast. I'm your host, Jesse for Galley. If you like the episode, head on to iTunes and leave us a five star review and share on social media. It really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R A G A L E. Have a good one. Take care.