Deals & Dollars: Real Estate Investors and Entrepreneurs
Welcome to the Deals & Dollars Podcast, hosted by David Choi, Eric Panecki, and John Libretti, three real estate executives from the New York City metro area. Every week, they bring on the best real estate investors and entrepreneurs they know to learn about how they got started, how they source their deals, and -- most importantly-- how they make their dollars.
If you're interested in being on the show or want to receive exclusive invites to our networking events, you can reach out at (http://www.dealsndollars.com)
Deals & Dollars: Real Estate Investors and Entrepreneurs
How to Create Outsized Returns in Office Space Investing w/ Daniel Garcia-Pedrosa
Today we have a long-time friend of Dave and the Managing Director of Pymstone Realty: Daniel Garcia-Pedrosa.
We've all heard it: people claiming that the biggest threat to Commercial Real Estate is office space going unrented. Yet Daniel, a former consultant turned successful real estate investor, joins us to share his unbelievable success story how office space is the keystone to his entire operation.
Daniel's transition from a 9-5 job to pursuing his passion for real estate is a riveting tale, filled with invaluable lessons for aspiring entrepreneurs and seasoned investors alike. We delve into the importance of timing, risk-taking, and being a contrarian in the market, as we explore the nuances of the real estate industry.
From challenging the common belief that office buildings are risky investments to sharing a personal success story of investing in a medical office building that now houses a cannabis dispensary, this episode is brimming with refreshing insights. We also dive into the world of property management, stress the importance of understanding it before outsourcing, and share our experiences with "office hacking". Interested in learning more about growing your real estate portfolio? We've got you covered.
Join the Deals & Dollars community today. If you're interested in becoming a guest on the show or receiving exclusive invites to our networking events, sign up on our official website.
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My golly, are you gonna get yourself a deal? You should be paying me for this one. This is a gold mine. So for you, daniel, yeah, I'm sure you have some unique strategy to lease up that most people don't know. And if you don't feel totally comfortable, sherry, you feel totally comfortable there.
Speaker 2:Let's go. You've made me feel totally comfortable here and I appreciate that.
Speaker 1:All right man. What an honor and a privilege to have Daniel here with us today. Daniel, believe it or not, was one of my first real estate mentors. It was right around the time he got started in his own business as a real estate investor. At the time he was working at ZS Associates, correct. He quit there to chase his dreams and I was just learning about real estate right, and we ended up licking up. And he, just from the very moment I met Daniel, he was a go-giver. He was just pouring into others, mentoring others, and I think that has a lot to do with the tremendous amount of success that he's had. So, daniel, eight years later, thank you so much for making the time today. How are you doing?
Speaker 2:I'm doing great, david, thank you. And you know, eight years, right, it's been a long time. I think you were in college, I was just getting started, as you mentioned, eight years ago. But you know, cheers to you, brother, because I'm so happy to see your success eight years later and I'm just thrilled for everything you've accomplished, not surprised because I knew what happened, but really happy for you. So cheers to that.
Speaker 1:Cheers, cheers.
Speaker 2:Thanks for having me on.
Speaker 1:Of course, it really is my pleasure. I'm so glad you said yes, because a lot of people that we know, when they've done really well for themselves, they're like I'd rather keep a low profile, but I'm thrilled that you're here. I'm sure the audience is going to get a ton of value and wisdom from your lessons and the lessons that you've learned throughout this entrepreneurial journey, for the audience and for me. Can you just give us a little background on who you were before real estate?
Speaker 2:Yeah, sure, yeah. So I've always had real estate kind of in my family a little bit. So my, you know, starting with my grandfather, my mother, we owned a property or two here and there, so I was always exposed to it. As I got older I was a little bit more involved with those properties. But professionally I have a management consulting background, got my MBA, went back to consulting a couple of other things along the way, but real estate was always there.
Speaker 2:It was always, you know, that passion that I was trying to do it on the side for a while while I was doing consulting, but you know, between the travel and the long hours it just wasn't happening. So there was a moment when I decided to take the leap from consulting to real estate. And you're not going to believe me when I say this, but that moment was exactly to the day 11 years ago. And the reason I know is to the day is because yesterday was my daughter's 11th birthday. Okay, and 11 years ago, the day after she was born, is when I kind of had. So the day she was born, you know, I had a baby, and the day after that I was like all right, let me reevaluate my life now, right. So it's a good time to do it.
Speaker 2:And I thought what kind of life do I want to have? And you know, do I want to be traveling? Do I want to? You know all this stuff? So there's a lot that I enjoyed about consulting, but I wanted to have more control of my time and basically spend that time doing what I was passionate about, which is real estate. So people said it's crazy, it's the worst time to do it you just had a kid, you know whatever but for me, that was the best time, because this is where life is sort of showing me two different paths, right. So that's when I decided to jump in full time.
Speaker 1:That's awesome. I appreciate you sharing that story. Daniel, Happy birthday to the daughter.
Speaker 2:Cheers to that.
Speaker 1:I'm glad that you said that you had tried to do real estate while working a full-time job. A lot of people they're like David, I want to quit my job, I want to quit my job and I want to go do this all in. I say, dude, slow down. You have a job that pays your bills.
Speaker 2:Right.
Speaker 1:Why don't you start doing it after hours? Why don't you start doing it on Saturdays? But given that you know management consulting is a very, very difficult it's probably one of the hardest, like close to investment banking. You're traveling, you're working odd hours a day, so I understand why you had to make that leap. Did you have any success on the side while you were hustling on the side?
Speaker 2:I mean, I had one property that I owned and I had third-party management and it was you know, so I could have maybe bought a second one, but that was it. I mean, there was a cap to what I was able to do, but I was really interested in developing that as my career. So you know, it's not something that can just be done in nights and weekends really.
Speaker 1:Yeah, no, I learned that pretty quickly. You'll get a deal locked up and then you're working 80 hours a week. You're like holy shit, holy shit. What happened to that deal Exactly? Awesome, awesome. So, from your experience, you're an educated man MBA. I think you went to some pretty good schools too. From what I remember, You're a Wharton guy, right? Yeah, Wharton guy.
Speaker 2:MBA, yeah, Harvard undergrad oh man. He's a, he's a. Come on, flex on the ground a little bit. No, I don't know. It's been. It was a long time ago. I'm old now. It doesn't count, it doesn't count anymore.
Speaker 1:Oh man, so Harvard grad very smart, I mean incredible accomplishment in itself to just get accepted Once you're there. It's a little easier here, but just to get through the door is an accomplishment. But from your experience in corporate and your education and now you're, you know 11 years tenured in the business to you what is a good deal.
Speaker 2:Well, great question, david. You know that the answer has changed over time, right so? And it's changed with the market and it's changed with what my own goals were. You know, 11 years, even five, four years ago, you were able to buy a nice, clean property and multifamily with nice cash flow and upside, and that's changed. I mean right now, you know, based on rates and how the market's gone, you have to, you have to really rely on that upside. So I started out buying small multifamily and it would cash flow nicely from day one and then it would also have upside and then the market also moved in the right direction. Now so I Should say I haven't actually bought anything the past year Because of where things are and because I'm really busy with all the properties that we have. But prior to that I was really I was seeing good deals in office, the kind of the unloved asset class and Some mixed use. So looking at things that not everybody's looking at and looking at more upside versus cash flow.
Speaker 1:Interesting, interesting. How has that treated you, the office?
Speaker 2:play Listen. I mean, everyone was down on office, especially during COVID. You know, work from home phenomenon is gonna take over office is dead and Maybe was dead for a little while. But it's case by case. You know, it's market by market, sub market by sub market, building by building. I'm not talking about office buildings like the one here where you have your office, I mean your smaller buildings and I was able to find that's really the only place I was able to find cash flow and the upside wasn't clear whether there was going to be upside or not.
Speaker 2:But you know when, when people, when everyone says this is a terrible idea, you know you're, you're gonna lose all your money. So okay, so let's, let's quantify that. All right, what does that mean? Does that mean I should just plug in a different number in my spreadsheet, right? I should say, okay, maybe the, the rent per square foot is gonna be a little lower, maybe the vacancy is vacancy is gonna be a little higher. But like you know, we can work with that, we can come up with you know. So the numbers might still work. So, so there's no, this whole like the sky is falling thing didn't really happen. So you know. Short answer yes, you know so. Especially you know the office building where I have my office. We bought it two years ago with about a third vacancy and now it's it's at full occupancy With higher rents. You know, because it just you know it worked, the numbers work, the location was good, so we were able to overcome some of the these challenges of yeah that everybody's talking about yeah, true contrarian man I mean, I was.
Speaker 1:I'm terrified of office space. The fact that you jumped in when the when there was real blood on the streets Probably got some good deals.
Speaker 2:Yeah, you know it's, you know I didn't, I didn't take unreasonable risk. I think, first of all, like a lot of the the stuff, a lot of the tenants, we have a medical so so that that's a different kind of office right, that's Much more resistant to to to these, to these Negative factors, right, so often. And you know there's a, there's some interesting personal services, so we actually have Newer tenant in our building is cannabis dispensary, so that's obviously a big Opportunity. In the past year or so we got lucky because the town designated that neighborhood For a dispensary. So I started getting calls From brokers saying you know, I have a client that wants to open a dispensary and they have to open it here. Okay, you know I didn't know that when I bought the building, so that that I got lucky on. But something like that is is just, you know, is a pretty solid tenant Along with the medical tenants.
Speaker 1:Yeah, medical tenants are fantastic. Yeah, had, did you have any challenges raising capital for these, this asset class?
Speaker 2:Not so much raising capital, more the challenge was on the debt side. So so the banks Past couple years have gotten Pretty tight with lending. The LTVs went down, they started holding back escrows, they started, you know, asking a lot more questions about the leases and so forth. So it's been a process of kind of proving, you know, proving that we can get those vacancies down and we can, and you know we're we're able to do. But yeah, it's, it was more of a challenge on that on that side, on the on the lending side.
Speaker 1:Got it. We're prior bank relationships help at all, or they were. These were new lenders that you had to reach out to.
Speaker 2:No, you know they help for sure. And that's one of the things like when I was starting out I don't know if you can relate but I felt like, okay, let me, I'll shop around everything you know it from, from lenders to Electricians to plumbers. I'll just you know I'm gonna go to 10 people and get the best price.
Speaker 2:And then I realized, you know, one of the lessons learned right over time is is that relationships matter, and when you work with the same bank, no, I have two banks really it's not always the same bank but and I have two plumbers, but it's not, it's not 10 and those relationships matter and you will get a better price and you'll get better service and you'll have someone you can trust and that's worth more than maybe once in a while you save a couple bucks on one deal, but it's worth it to have the relationship.
Speaker 1:You're absolutely right. Some of the best people like my, my big I'm I I still shop. I do Largely because the beginning of my career was hard money DSCR products but then, once rates started going up, I couldn't get out of my my deals with the way that DSCR Interest rates were, so I had no choice but to go to local banks Fannie Mae, freddie Mac and so Now that I'm really learning about how difficult it is to get bank financing and not, you know, stated income loans right, yes, yes, absolutely those. Those relationships matter. And when things get really, really hard and Other people stop lending, if you have that relationship, those relationships could save the day right so, yeah, that's great wisdom there, Starting off in the beginning of your career.
Speaker 1:I want to just rewind a couple a couple seconds. You did one deal. You had one that was being third party managed Right. Obviously you're brilliant. You have a track record in one of the best management consulting firms in the world best universities in the world so I'm sure people trusted you in that. You're highly intelligent. But like going out and raising capital with no real track record, that must have been freaking hard for your first few deals.
Speaker 2:Right. Well, yeah, the first few deals is really friends and family. Yeah, I think so. So that's you know. And that has its own risks. Right, you don't want to. You know you care about your friends and family's money more than your own. So that's you know. You're highly motivated there to make it happen. But yeah, that's where it starts, and then just kind of one degree removed from that. You know, friends of friends, friends of family, that kind of thing.
Speaker 1:Was it difficult at all for you, or or like, because for me, raising money in the beginning was probably one of my biggest nightmares.
Speaker 2:Well, I started pretty small. I mean, I started I, you know it was a very gradual entry into this, which is a nice way of saying. I made no money the first year, you know, and and I tried to build credibility by doing everything myself, or everything, meaning the management myself, like on the first property. So, you know, I went from managing it myself to hiring a management company to having an employee of my own as a property manager. That was the progression. But I think starting with managing myself not only did that help me, it was a source of revenue, although small, but it helped to build that credibility saying I am hands on at this property, I know everything more than I want to know, but but that, even that at the beginning, that helps you raise money because you're, you're just, you know you've all the skin, not just skin.
Speaker 2:You have all your skin is in the game.
Speaker 1:That's the hardest part of this job. Man Property management. Oh, absolutely. I don't know how the hell you do it. I'm going to be honest with you.
Speaker 2:Well, I'm going to give a shout out now to my team because, as I said, I mean there's been an evolution, but right now I am blessed to have a great team of five employees. Two are property management, three are maintenance and that's you know, that's the secret to to anybody's success is having the right team. Yeah, I'm sure you seem to have a great team here yourself, so I'm sure you understand. But yeah, you can't do it yourself, is that is the lady that was still with.
Speaker 1:Was with you about eight years ago. Still with you today.
Speaker 2:No, I don't think eight years ago wasn't the same person, but but the ones. I have now been been several years already.
Speaker 1:Awesome. So yes, it's great I had. I was just watching this Facebook reel from one of my mentors. He owns a couple hundred units and he was talking about property management. People ask me all the time should I, should I start? Should I manage my own property? Should I, should I hire property? Should I start a property management company? And he goes stay the hell away from property management.
Speaker 1:It is a freaking nightmare. So, dude, kudos to you that you, because it helps when you're that hands on and you're the one making sure things get done tenant turnover, lease up nobody cares more than you, right? So the fact that you were able to do that is it is a is a huge accomplishment. I guess can you kind of walk me through some of the pros and the cons and some of the challenges that you had to overcome by in-housing this?
Speaker 2:Yeah. So you know it's interesting from the beginning. You know you get a lot of advice from from people, most of it unsolicited, right and and it's contradictory advice. Some people will say you got to manage everything yourself because you have to be hands-on and no one cares as much as you. And then some people say you have to focus your time on the higher value activities and you have to outsource the property management. So I'm getting these, you know, contradicting advice at the same time and the problems are both right. So what do you do? So but it was important for the learning, for for my own learning to with property number one, I'm doing it myself. All right, that yes.
Speaker 2:And then quickly moved to hiring another company, and that was useful because I could learn kind of what they're doing, right and wrong, and then.
Speaker 2:But my goal always was to get to the hiring of an employee as quickly as possible. But by the time I got there I had learned enough to be able to train that person and to guide them and provide you know these systems in place, the processes that I, how I wanted to do things and and so that, and having the right person is but but you can't, I don't think you can do that day one. I think you have to learn, you have to get in, get in the weeds a little bit and then get out of the weeds. Yes, so you know. And then once, once I have the right person and they're trained on the systems and processes, then I turn them loose. Then I say, like you, you know you're the expert on this property. If you're my property manager, you know I'm asking you what I should do, not the other way around, because you're the expert on this property now, so that's why you're on my team.
Speaker 2:And and then you know if it's a person you know, has to be a person that I can trust to make those make those decisions and have the right, right judgment.
Speaker 1:Gotcha. I mean how far it's. Half the battle is finding the right person. Sure, the right personality, the right temperament, the right subject matter, expertise, intelligence level, you know, did you find someone brand new or did you hire somebody with existing experience?
Speaker 2:A little bit of experience, so not brand new, but also early career, because I can't train somebody from zero, but I do need, but I also don't want somebody who's done it for so many years that they're set in their ways and they don't know anything else. So the right balance there come in. We have a way that we do things, and hiring somebody internally, by the way, didn't save money versus hiring a company, but it improved quality, for sure, and it improved the consistency. You wanna be able to treat all your properties and your tenants the same way and be able to kinda oversee that how that goes, and so there's value in having that.
Speaker 1:I like that. You said earlier that you did your own property management, initially to get in the nitty gritty, and then you hired third party management, leveraged their tools, their technologies, anything that you could learn from them, and then the last step was bringing that totally in-house with an employee on staff, right, I guess, by. I don't know if that was a planned. Was that planned for you or was that something that you just kinda fell together?
Speaker 2:No, it was planned and those were the steps I felt I had to take, because I knew I'm not my personality, I'm not a micromanager and probably the opposite of that. But I don't wanna hire somebody and say, oh, I have no idea what I'm doing, you figure it out? I mean, I wanna be able to guide them from the beginning on how we're gonna do things here. So I needed to learn, I needed to gain that expertise through first doing it hands-on and then hiring a third party.
Speaker 1:I think I love that because I don't really run asset management for my company. We own about 188 doors now and I'm very rarely involved in asset. My business partner, the better half of me, eric, who's not here today thank God for him because he really bears the burden and that's the hardest part of the job and I get to do fun stuff sometimes. I get the acquisition, I negotiate, I structure the deal and I'm lucky to have him. But what we did was we did the same thing.
Speaker 1:We took down a couple of twos, three families, four families, six units, 10 units, and we aggregated about 100 units, self-funded and self-managed, and we're like this is fucking hard. Well, I can't really speak for that, but just seeing him operate day to day is a real miracle, because he's not only doing that, but he's running another company, he's running two. I don't know how he does it, he's a beast. But so then we bought a large asset out in Westchester County 79 units yeah, 79 units and we hired a phenomenal management company and they are, quite frankly, they're way better than us. Oh good.
Speaker 1:So you did the right thing by hiring them, and if we had hired her earlier on and brought in phenomenal management for our existing portfolio, then we would have been able to leverage the learnings and then. So the last step for us now is okay, you're gonna come here, you're gonna manage our portfolio, you're gonna help us get things right and really systematize weekly reporting, all that good stuff, and then we're gonna part ways and that's kind of laid out already up front. He knows the deal, and so that's. The third step for us is eventually taking on this behemoth of a job and start to manage our entire portfolio. But I think there's a lot of wisdom to be had there. That's a great lesson for those that are looking to grow your real estate portfolio. You mentioned that you occupy the space that you're. You occupy one of your office buildings that you own.
Speaker 2:Yeah, yeah. So I moved into my own building, but I've done that a couple of times in a row now, so that's kind of been a strategy. Really All the office hacking, if you will Like. You've heard of house hacking, right.
Speaker 2:Yeah, yeah, yeah Well house hacking is for people that you know probably don't have families and wanna like move around every few years. And but I think when we met or and worked together, I think, the office we were renting, a small office in Bloomfield on Bloomfield Avenue, and so we ended up moving from there to a building that we bought. So we built. It was a small mixed use building in orange, too commercial, too residential needed full rehab and bought it, started the rehab. I didn't even plan to do this when we first bought it, but then, halfway through the rehab, I realized, hey, this would actually make a good office for me. So we moved in to one of the commercial units and rented the other one and the two apartments as well. Then, a couple of years later, I ended up selling the building and staying on as a tenant for another year. So being a tenant in that building helped us sell the building because we were 25% of the building, so we were a great tenant, right, obviously so.
Speaker 2:So we sold the building, stayed on and then did the same thing again bought another building, a much larger 14,000 square foot building in West Orange, which was about one third vacant and needed work as well. So we went in there, moved in, started leasing it, fixing it up, leasing it up, and we actually moved from one office to another within the building. Once we had somebody that wanted to rent our office, so we kicked ourselves out of that office, moved to the other office and that's where we are. So, including our office, we're fully occupied now, including that cannabis dispensary there. They're one of the tenants too. It's a very funky building, but we plan to hold this one for a while. But it was just being there was helpful for the leasing as well. We're on site management for our own building and that's just helped in a lot of ways to get things moving in the right direction there.
Speaker 1:Very cool, very cool. What are some of the strategies and challenges of office that you've had? And you've taken buildings that were underperforming and you take them to full stabilization. You're doing the cat-backs. I mean, what are some of the challenges you had? Stabilizing this office? Mixed use as opposed to, I guess, just a regular multifamily building.
Speaker 2:Well, with multifamily which we have some of we if you're renting an apartment you have to fix it up yourself right, and then it's never a problem to rent an apartment In the areas we have apartments, for sure. But so definitely it takes longer to lease an office space, but especially for the larger tenants, they do the work themselves most of the time. So we had a medical building in Bergen County we still have and we had about 25% large office it was about 25% of the total square footage of the building and we're having a little trouble renting it. During COVID then a dental practice came in and they didn't care what the place looked like because they were gonna renovate it to their standards and it is a beautiful I've never seen an office like this, a gorgeous dental practice, and so all that worrying about what the place looks like and all that it didn't even matter.
Speaker 2:It was just they liked the location. It was the right size for them, they came in and they did what they had to do, and so it was a challenge to lease it. But some of the benefits are they come in and they do the work and then now they're here for 20 years and you know, of all the dental practices sorry, of all the medical practices types of tenants, I think dentists are one of the best because they spend a lot of money, they invest a lot in fitting out their space and then they never leave, and when they do leave, when they retire, they sell the practice to another dentist and then you basically have somebody forever there in that space. So we have three dentists now as tenants across all our properties and they're great. That's amazing, congrats on that.
Speaker 1:That's fantastic, like when you're taking down these deals. I have no office experience whatsoever. I worked at Kane Anderson. We did some medical office but unfortunately my tenure wasn't long enough to get to that asset class. I did more senior housing and self-storage, but the medical office they made a ton of money on medical law. It's such a niche asset class with tons of demand and the trend is that it's gonna continue to grow. There's gonna be more demand than supply on the marketplace, so the supply demand equilibrium for the next few decades won't be met right. So great asset class, great choice. I expect nothing more from you than to pick a good one. So I guess the question is how long does it take to typically lease up one of these spaces?
Speaker 2:Well, for the larger spaces it can take longer a few months, six months or something that's not bad For the small.
Speaker 2:we have another building that has small spaces that we get therapists, that type of which is like quasi-medical I would say and those tend to be more similar to residential that they're quicker to lease but they're a shorter tenure of the tenants. So it's been a mix. I also tell you, the other asset class that I'm talking about being a contrarian a little bit is during COVID is restaurants. So right now we have six restaurants and all of them survive COVID. So I'm proud of that.
Speaker 2:And that was another one that people said during COVID oh, restaurants are dead, you can't invest in restaurants. I said, wait a minute, people are gonna go back to eating at a restaurant at some point, and restaurants is another one, so the tenant may come and go. That's true, they may fail. Restaurants fail all the time, but the kitchen is still there, so you're gonna be able to get somebody else in there. And we've only had One that turned over ownership but we had a new tenant come in and they changed the concept and renovated whatever. But that's another one where you know, once you have it built out the right way in the good location, you're gonna have a tenant at some point I love that man, it's you've always you always thought outside the box.
Speaker 1:for as long as I've known you Like, I remember Going to your office in Bloomfield. Going up those stairs, he goes a left turn.
Speaker 2:It was a left turn.
Speaker 1:Yeah, and then it was. It was a scary it was come along whites and said yeah, I mean it looks like you've had a ton of success, dude, so I'm so thrilled for you. Thank you, good memories there, though you know it's always the hardest times that you look back on and you go that that was the best times because, that's when your, your grit was tested.
Speaker 1:That's when you're fortitude and what you're willing to put in is tested, and that really took. It's like throwing a 12 year old and spart out into the forest and saying come back with wolf, wolf, like a wolf on your shoulders or don't come back at all, right and you became a man.
Speaker 2:You come out like like a beast.
Speaker 1:You can't be stopped after you overcome those hard times, but um. So when you're looking at walk is to be honest, daniel, when I see you mix, use building, I go I.
Speaker 2:Go the opposite of that.
Speaker 1:Teach me, teach me, like, give me, like. What do you look? What are you looking for when you see Office? Or what are you looking for when you see mix use? What do you see? You obviously have a different pair of glasses than I do. What are your glasses? What are you looking for when you, when you look at these assets Demographically? Is this, is it traffic count? Is it curb appeal, like? What are some things that you're seeing that I'm not?
Speaker 2:Well, in the past few years, office has been the main, the main asset class where you can still find cash flow. All right. So right now, especially with the rates where they are, I'm not seeing it in multifamily. So, if, yeah, and I've always prioritized cash flow and only recently been, you know, willing to look more at the upside than cash flow, but that's where that's why I was looking more at office, because the current cash flow was there. And if you know, the building is 75% occupied and it's still cash flowing. I Mean that's fine with me. Yeah, you know, and I'll and I'll and I'll see more upside than downside there. You know, if you know, like, we purchased something at the end of 2021, so like, well, if these tenants have survived COVID this long, they're probably gonna stay, and then the other 25% of the building we can up.
Speaker 2:So, looking for, you know, office was all about cash flow. I only look at, you know, upper, middle and income in higher areas. With office, with Apartments, it's more of a range. And Then you know, the mixed use is is great because you have a blend of, you have apartments, so I'm talking about more retail and apartments or restaurants and apartments the apartments You'll have zero vacancy, pretty much, but the rents will be limited, right, and most of the towns where we operate have rent control, by the way.
Speaker 2:So, but the commercial is the opposite. You're gonna have more volatility, you're gonna have more vacancy, more risk, but you're also, with the, with the economy improving, you're gonna have higher rents and you're gonna be able to upgrade your tenants more, more Significantly. So you have a blend of those two. That's why I love mixed use, because you have, you know, and it's just like you know, you have something for everyone. We have restaurants, we have hair salon, nail salon yeah, I don't go to either of those, but Barbershop, you know. But you know, commercial really says a lot of fun though. You get to meet, you know, get to meet interesting people doing interesting things and, you know, help them be successful with their, with their business.
Speaker 1:That's really cool man, that's really cool. So you're a marketing I. You're one of the smartest marketers I know. Thank you, the, and I think that's kind of what you did when you're as yes, too right, you were on the marketing consultant side. Yes, I remember you taught me how to aggregate tax leans.
Speaker 1:Oh, right, right, tax, yeah, and I remember taking that list and sending out my first direct mail campaign from it. And I still this day, I still aggregate tax leans. How's that worked out? It so it's. It's usually my hi like. So if you're listening to this, this is gold right here. My highest, my highest fees, my biggest deals, my fattest profits have come directly from this list.
Speaker 1:Okay, if an owner has a tax lien and there's just a few months away from foreclosure and losing it, but they have equity equity they're not gonna want to just lose hundreds of thousands of dollars in years that they put into the property, they're gonna want to monetize or get paid. Nothing, right, mm-hmm. And so if you could find these three categories and one owner, they're going for closure in the next three to six months. They have equity in their property and they inherited it over the last two years. My golly, are you gonna get yourself a deal? Should pay. You should be paying me for this one. This is a gold mine. So so for you, daniel, thank you for teaching me by teaching that to me. But if you Are sure you have some unique strategy to lease up that most people don't know, and if you don't feel totally comfortable sharing, I felt totally comfortable, david.
Speaker 1:Let's go.
Speaker 2:You've made me feel totally comfortable here. I appreciate that. I love that.
Speaker 1:So can you share some sort like what are you doing, what are some strategies that you implement to lease up retail and office, because a lot of people are failing at this.
Speaker 2:Yeah, okay, you know. So, depending on the property and the size of the unit, sometimes I do put it out with brokers and sometimes I don't. So even though I I'm also a licensed realtor, I I do, I do work with other realtors just to help access or help me access their network. So it's worth it sometimes to do that, especially for the larger units. But you know we're we're blasting, you know social media we're doing. You know loop net we're doing For for residential at Zillow, truly on those, but for for commercial it's more loop netted in the MLS and and also just being involved in the community. So we're mostly centered around Essex County. We have properties around West Orange, montclair, bloomfield, so we get involved with, let's say, the towns and the downtown association and we hear this tenants thinking about moving somewhere else or we have a space that could suit them and these kind of things. So it's a lot of word of mouth which takes work, but it pays off.
Speaker 1:That's probably a huge. You're probably getting tons of benefit from that network.
Speaker 2:Yeah, yeah, and fortunately we haven't had a need for it that much because we haven't had a lot of turnover really for especially for retail. There hasn't been a ton of turnover Office here and there. But yeah, we've. Look, half the battle is keeping the tenants you have, by the way. So that's really that's where I have to acknowledge my team in the service that they provide to the tenants that we have. That helps retain them. That's the first thing, so we won't have as many vacancies.
Speaker 1:Right. Shout out to the team. You guys doing a great job. Team, you guys doing a great job Go team. Go team. Yeah, daniel, I remember when we first met, if I recall correctly, you were a five year exit by value add exit, five years, the standard private equity syndication model. Have you transitioned that all to more of a corp like a long-term play dealing with different timelines of investors? Have you deviated at all from that strategy?
Speaker 2:Well, yes, because when I was, and still now, when I for starting in now, I don't feel it's right. Or I don't think you can just tell somebody we're gonna keep your money forever, you have to give them, whether it's five years or more, you have to give them some time horizon. And so there have been now several investments that have hit that five year mark or seven year mark and what's happened is that most of the time investors say so, I've come to them and say, hey, I know, I told you that we were gonna exit in five or seven years, but I don't see a good opportunity now. I think we're paying dividends, things are going the right direction. I think we need to hold it longer.
Speaker 2:And most people say, all right, I'm on board with you, but for those who want to exit, we could work it out where we buy them out, and we've done that. We've done that and everybody's happy, because the investors that are staying in get to increase their share right, and usually we can structure it so they're not actually out of pocket. We just the distributions that are being paid out will just go to the exiting partner. Okay, so it's not like everybody's coming out of pocket. And then if you are staying in the deal, then you just don't get those distributions, but your equity is increased.
Speaker 1:That is so smart. I've never, ever heard of buying out a partnership by redistributing the distributions and creating more for that exit partner, so they get more cash in the short time. That's really a smart way to do it. I would hate to buy out an investor and lay out that personally or have someone else do that, so I guess that really is a very, very good way to do it. Thank you for that.
Speaker 2:Right, yeah, I mean a lot of people are not concerned with getting that distribution check, but they don't want to come out of pocket, so we're just trying to help everybody meet their goals here, so we can usually work it out. I love that.
Speaker 1:There might come a time where I'm gonna have to do that. So good stuff man, you always drop and follow us for me.
Speaker 2:Thank you.
Speaker 1:All right, all right. I have one more question, but before we wrap up, you know interest rates. I mean it's been record breaking how fast they've gone up over the last two years. How are you navigating this current interest rate environment? So?
Speaker 2:whereas I started off focusing on cash flow, now I've found that, because the prices haven't dropped enough to compensate for the higher rates, that the cash flow is not there. I mean there are deals where, at the price that you can realistically buy a property for, you're not gonna cash flow. So therefore, besides not buying anything, but what I am looking to buy is focused more on the upside, so properties and when I say upside, it's not this magical, the market's gonna change, that's out of your control. You know I prefer something that is a property's been underutilized, you know, underperforming. Again, the mixed use is great because you have apartments that are below market rent, that as people move out, you can renovate. You have tenants that you know, commercial tenants that maybe there's vacancy or maybe they're under market as well, so things that are more under your control.
Speaker 2:If you can buy a property, you know I still like to break even. I still don't look at properties where I'm gonna be losing money every month. But at this point you can't ask for too much with the rates the way they are, you know so. And I don't like this whole negative leverage, barring at 8%, investing at 5% cap rate, you know. But if you can break even and you have some upside over time. Great, I think that's what we can look for now.
Speaker 1:You know, it's really amazing that you say what you say. You've taken a lot of the philosophies of highly successful multi-generational investment firms and you've had the discipline to stay in that zone, right. I remember listening to a podcast about a year ago and I'm forgetting the name of the company, but it's one of the largest real estate private equity firms in the world and the key for them was exactly what you said buy for cash flow today, right. Make sure there's room for value add opportunity. Can you decrease expenses? Can you increase top line income? And is this in a market where there's strong growth? Like Montclair Bloomfield? Some of the areas that you're investing in. They're definitely positioned for, like it's the upper middle class, right? So super awesome that you're staying disciplined in your investment approach. Have you ever considered seller financing, creative seller, carry back?
Speaker 2:Yeah, we've done it a couple of times actually Really. Not recently but early on when, yeah, when property, especially when properties with high vacancy and where banks shy away, that can be a good you know with. Usually one year term is enough to get things turned around where you can refinance into bank loan. But yeah, and that's something that also makes sense today with the higher rates. So, yeah, it's worth exploring for sure. Very cool.
Speaker 1:For the audience, if they wanna invest with you. What kind of returns in terms of cash flow I guess cash on cash returns can they expect over a five year horizon, and what kind of total returns or IRR are you targeting?
Speaker 2:So we, historically, you know, we had projected and we've hit or exceeded about 15% IRR on, you know, whether it's small, multifamily or mixed use so but, as I mentioned, we haven't really sold a lot. So it kind of remains to be seen and that means that we see even higher potential than that in the future. I mean, if we thought we could sell it for 15% IRR, we would, but we think we're gonna do better than that going forward. So we've held onto a lot of things. Now, what you buy now it's hard to promise an IRR these days because of where the rates are and volatility and stuff, so being very selective about upside. So definitely there's a little more risk now but with the right asset you can still opportunity.
Speaker 1:Going into 2024,. Daniel, what are some of the goals that you have in mind?
Speaker 2:So, david, I'm looking to expand by partnering with other investors. So I've, you know, from the early days of managing the properties myself, I've done a lot of the hands on work. But there's a lot of great people out there that are, you know, maybe early career, very hungry, very motivated to invest in real estate. I wanna be able to partner with them, whether it's by an equity investment or adding some of my expertise, and be able to grow that way. Not necessarily every property managed and run in my office, but be able to grow a little bit by working with other operators.
Speaker 1:Awesome. My mentor, actually one of my paid coaches. I paid him $20,000 to coach me and he signed the Fannie Mae loan with me because I wasn't qualified. I had enough liquidity and AUM and track record, but I didn't have enough experience on deals that big. So now that I've done that, I'm a Fannie Mae guy and I can start offering that service. But so, yes, just to be more clear, right, it's hard to get big financing. It's hard. You can't pay enough for great mentorship and to have someone that has been a true mentor to me and just an overall great guy man. I think that's a huge value add that a lot of people can get for the audience If they wanna reach you, whether they have a deal, if they wanna invest maybe they're a lender and they're like I got great office and makes these products. If the people wanna find you reach out to you, daniel, what's the best way to get in touch?
Speaker 2:Yeah, thanks, David. So we're about to revamp the website, but himstonecom is my management company, PYMstonecom. So we're on Facebook and I guess it's called X now. I still can't say that Twitter X, X and Facebook haven't gotten into the gram yet, but I hear I'm supposed to. But, Pimstone Realty on Twitter and Facebook.
Speaker 1:Awesome, Daniel, honor to have you on the show. Great catching up with you, man.
Speaker 2:Thanks so much, David.
