WS1854 Innovative Real Estate Investment Strategies | Highlights Ori Ohayon & Daniel Lichtman

Are you ready to venture into the awe-inspiring world of blockchain technology and its potential for real estate syndication? The founder of On Chain Listings, Ori  Ohayon , joins us to shed light on this futuristic landscape. Together, we explore the synergies between Web 3, Bitcoin, and blockchain, and their transformative potential for the real estate industry.

Revolutionizing property title transfers, securing venture capital for blockchain projects, and streamlining processes are just a few areas where blockchain can make a significant impact. Ori shares valuable insights on launching patents and pilot projects, highlighting how blockchain could enhance efficiency, reduce costs, and expedite transactions in the real estate world.

However, with great power comes great responsibility. We also discuss the regulatory challenges and potential risks associated with adopting blockchain technology in the real estate sector. It's crucial to navigate these waters carefully to ensure a secure and transparent ecosystem.

But it's not all about technology. We take a moment to reflect on the importance of work-life balance and stepping away from the digital world. Lightwater Capital's broker serves as an example of maintaining a healthy equilibrium between work and family life.

Property management and deal acquisitions are vital aspects of real estate syndication. We dive into these topics and explore how blockchain technology can streamline these processes, making them more efficient and transparent. Market conditions and case studies provide a comprehensive look into the wealth-building potential of real estate syndication.

Join us on this enlightening journey into the future of real estate with blockchain technology. If you're eager to dive deeper into these discussions and gain even more valuable insights, click the links to tune in to the full episodes.
 


https://lifebridgecapital.com/2023/07/13/ws1726-an-interview-the-director-of-lightwater-capital-daniel-lichtman/


https://lifebridgecapital.com/2023/05/29/ws1681-revolutionizing-real-estate-with-nfts-ori-ohayon/

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Transcript

00:02 - Speaker 1 (Host)
This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today. We've packed a number of shows together to give you some highlights. I know you're gonna enjoy the show. Thank you for being with us today. 

00:19 - Sam Rust (Host)
So, as I was preparing for this interview, Ori, I noticed that on the header of your LinkedIn page is this quote courage is going from failure to failure without losing enthusiasm by Winston Churchill. You're in the NFT space, which necessarily is gonna bring about some failure. It's definitely been one of the bigger boom bus cycles that we've seen in recent history. Why that quote? What does that quote mean to you and why do you have that on your LinkedIn header? 

00:48 - Ori Ohayon (Guest)
It's a really good question. I think that goes very far back, obviously. For example, I grew up in England, I was born in Paris. I moved to Toronto when I was like 17. 

00:59
I didn't necessarily take the most linear path through life. I've bounced around, I've hit my head against brick walls many times and the one thing I think it told me when I got into a professional environment was failing is in final, no matter how many times you screw up, you make a mistake, someone tells you no, you still have the capacity to get back up, and that's your own personal decision to make. Working in the NFT space and having quit a very traditional career in cash, a career in capital markets, in order to go into blockchain, we get told we're insane more often than not, and eventually I think we will be right. I think there's a fundamental way to build this. Tech is a fundamental way to work in an industry that very few understand, and I think that's what's the most interesting part of being an entrepreneur is. So now I'm the founder of my second company, now called On Chain Listings, and that's a mantra I kind of tried to live by. Just failure is in final. 

02:00 - Sam Rust (Host)
Yeah, it's one step along the path right. Life is, in many ways, an evolution of moving from one thing to the next. You mentioned blockchain, bitcoin we're talking here. We're gonna be kind of crypto focused in how that crosses over into real estate, but I wonder if we could just run through a couple of terms just to set the baseline at a real high level. You're gonna hear us talk about Web 3 a lot today. For our audience, could you define Web 3, bitcoin and blockchain? And I think Bitcoin and blockchain just differentiating, because a lot of times people hear Bitcoin, they think blockchain and vice versa. 

02:37 - Ori Ohayon (Guest)
The way I like to separate Bitcoin, blockchain and even Web 3 on a macro level is look at Bitcoin as almost like the equivalent of a security right, Like when you own an assets, let's say on the stock market or in the real estate market. An equity is a share of a network. It's a percentage of something bigger and everyone shares exactly the same. Bitcoin is just a percentage of a network and you're buying a share of that and you're buying a share of this macro sentiment towards the blockchain that's obviously positively correlated to it. 

03:13
When you look at an NFT, it's a unique asset, so let's say, the title or deed of ownership to a watch or a home or a painting or anything on those lines. That's what an NFT symbolizes a unique asset. When you talk about blockchain, blockchain is simply the ledger that moves it across. Token is a duplicate of many different shares. An NFT is a unique asset. And then when you look at what Web 3 is, it's basically a network or internet kind of tech that allows you to own your own data and when you put something out there, you can sell it and track it using the blockchain as the ledger for that problems. 

03:56 - Sam Rust (Host)
Yeah, and maybe give some real world examples, if you could, of real world ledgers, because that work gets thrown out a lot in cryptocurrency circles and NFTs and all of that. Hey, this is a ledger and to a lot of, I'll say, normal people like, what is this ledger concept? People don't realize that it affects us on a day-to-day basis. So what would be some examples of real world ledgers that we interact with on maybe a daily or an annual basis? 

04:25 - Ori Ohayon (Guest)
Fairly so. The one I'm working on right now is basically land registries, right? So purchasing a property is obviously one of the biggest markets in the world. Real estate is essentially like deeply decentralized. Every state, for example, in the US, has a different land registry. The solution that blockchain could correct in the real world is to create a digital land registry where there's a uniform body that tracks and conducts those transactions on a net kind of ledger. So essentially, it just creates a rule set. So that's something I'm deeply interested in. 

05:02
Ocl is trying to correct that industry and create a bunch of fixes for it, but an NFT would have the power to conduct that transaction and the ledger tracks. It watches the provenance, does the title search on your behalf, checks if there's any leans against the property, for example, allowing users to conduct transactions within a 30 minutes window versus a couple of weeks, for example. And then the way we conduct traditional transactions, as is today. We're spending a ton of time and money on title searches, lean searches, verifying the conditional reports on a property, verifying even if the owner that is trying to sell us the house is legit or if it's a title fraud case. By putting all that information on the blockchain, it's now all transparent, it's all been tracked there and it can't be cheated on, it can't be hacked. 

05:55
So by doing so let's say you come and try to sell your house to me, I can go on the blockchain or, let's say, the new equivalent of what an MLS would provide, and I can actually verify that you, sam, are the owner of this house. You've owned it for five years, you bought it at this price from this guy and I can track all the conditions since then Versus now, where I have to go find a title lawyer who's gonna verify the land registry on my behalf, who I have to pay a few hundred bucks to do that, and then, once I want to submit my bid, I have to pay the land registry to get that title and then to conduct the transaction on it. So that's something that NFTs essentially can conduct. That as is right now. The only issue is how do we regulate that, and that's something we've been working on. 

06:44 - Sam Rust (Host)
And I've been hearing about this use case for a while now, maybe two or three years. I think it was one of the first bigger real world problems that people identified that NFTs could solve. I mean also sports tickets and some of those types of things, but this is a big issue. Adding transparency to land registries, simplifying the title process that would be phenomenal. It's also very, very challenging because you have so many different stakeholders. You have individual regulation at a state level and it's a very complicated process with a lot of vested stakeholders and kind of maintaining the status quo, and so to me it seems like a little bit of a chicken and egg problem. You need some critical mass of people that are demanding that type of system. But how can you get that critical mass of consumers if you don't have the system in the first place? How are you guys going about solving that problem or trying? 

07:37
to address those issues. 

07:39 - Ori Ohayon (Guest)
So what we've done, is we actually okay? So step one is we brought in a title lawyer as a partner. So OCL is composed of five founders. One of our founders has a ton of experience dealing with land registries, closing statements and all the traditional stuff that typically a guy like me wouldn't really know how to deal with. One of the main issues is obviously, as you mentioned, there are stakeholders in these transactions. 

08:05
So let's start with, like, title brokers or real estate brokers and title and escrow lawyers. 

08:12
Those guys typically sit in the middle of most transactions and they hold most of the keys that are needed to close those transactions. 

08:20
So what we did is we created what's kind of similar to a proof of work protocol where, let's say, you list your home for sale. So you list your home for sale on Sotheby's Realty and now I see it as available for me to submit a bid on Using blockchain. I can submit my bid and if you choose to accept it, the title will go into escrow and my bid will also go into escrow, my deposit amount and the title lawyer and the real estate broker will now be able to log in and conduct the verification of that transaction Very similar to what would be done on a Bitcoin transaction in order to verify it, basically by a miner. When those players come into the transaction and they verify it, they provide digital sign off and the title can now flow through and we can track that on the blockchain and then submit the land registry changes and by doing so we can conduct a transaction significantly faster but also way cheaper, because I'm not paying all those intermediaries for these quote unquote, miscellaneous expenses anymore. 

09:26 - Sam Rust (Host)
Would you anticipate that an ancillary effect of this would be to drop the cost of title insurance, because it's going to be easier to ascertain what's on title? 

09:35 - Ori Ohayon (Guest)
Totally so. That's going to be something we're going to look at Absolutely. When you look at the insurance, one of the big things is obviously the legitimacy of the title and the condition of the title and so on. If we have a clean digital land registry that's immutable by definition then when someone submits to you their land, their title, that's, let's say, an NFT or a smart contract. They can't fake it. There's therefore the insurance on that asset should be significantly cheaper. Those aren't conversations we started having yet, but it's definitely something we're looking at. 

10:11 - Sam Rust (Host)
So that would be a second order effect once you once you solve the first order problems. So what's it going to take to roll this out? Is it going to take getting an entire state to buy off on this and move that way? You know entirely. Or can a title company be formed that decides, hey, we're going to operate on the chain even if no one else is? 

10:32 - Ori Ohayon (Guest)
So it actually work. 

10:34
The way we're building it and the way I want to make sure people adopted is is actually I want to make it a back end solution. 

10:40
I don't want people to actually have to interact with blockchain actively, and that's been my thesis all along is I don't think blockchain is something metamask having to pay gas fees and all this stuff. 

10:50
I don't think people should have to deal with this, especially if you want mass adoption of any kind of technology. So what we've done is it's an API tool. It feeds on to existing platforms so brokers, real title lawyers and so on will be able to just log in and use the tools of blockchain to conduct their transactions. All we do is we're just feeding tech into the back end. By doing so, we only need to partner with brokers and really like lawyers and give them access to the tech so that they can put properties for sale through us on their own website. They're just using our API to verify the title and then, when the transaction goes through, the lawyers and the brokers just log into, sign off on it. So it's it's. It's as minimalistic and back end focus as possible and we only make money if the transaction saves money by using us. So we've created a very like simple business model that just promotes adoption. Really. 

11:49 - Sam Rust (Host)
So you're currently trying to develop a system that plugs in on the backside and pulls in transactions kind of one at a time, so you're not loading an entire land registry in, you're doing it transaction by transaction, embedding that through the use of NFTs and software in the back end. 

12:07 - Ori Ohayon (Guest)
So it's a great example that you can drive those title searches faster and complete them more accurately and cheaper, ultimately for everybody exactly, yeah, that's a goal is we start at day one with new titles, ideally, or even older titles where we have to do the back end search and then over time we'll start back filling that information. But step one for us is let's start with, like, new developments or or bigger properties that have easy titles to find. And we had a couple economies or countries that don't have clean land registries and we're looking to pilot OCL in those countries in order to create an original digital registry for them. 

12:50 - Sam Rust (Host)
Yeah, kind of wipe the slate clean, begin afresh, as it were, and do it right for the 21st century and create a new standard, exactly. So what would be a couple of countries that you guys are looking at exploring with the, the cloudy title process currently? 

13:05 - Ori Ohayon (Guest)
So. So one that would be really interesting for us is actually to go into the Ukraine when, when things clean up, when, when everything is, when, when infrastructure is in a position to be rebuilt there, the land registries are going to be demolished. They're going to be very few people who are going to actually have the original titles to their homes now. What we would like to do is is go in and basically rebuild it for them, show that we can find whatever historical data there is, recreate it and then put it on the land registry. That can drag, transact way easier and that's and that's completely transparent to everyone. So that's a big case study for us. We're also looking at different countries in Asia to do this with, like Singapore, the Philippines, for example, thailand. Their land registries have a lot of issues. By using something like this that has uniform rules, that follows a governing bodies, methodologies, we can clean up a lot. 

14:03 - Sam Rust (Host)
Yeah, what's one of the biggest objections that you get and how do you answer Honestly? 

14:08 - Ori Ohayon (Guest)
we don't really get many objections. I think people are afraid of losing their jobs to something that automates their stuff. Obviously, our response to that is honestly quite simple it's we're not. We're not getting rid of people's jobs. Are the need for licensing at all right, like, and I don't think any tech, any platform really serves to do that, even a AI right. It's. 

14:29
It's not the people losing jobs, it's just you're making their job a lot faster, you're providing them with a tool that allows them to conduct those, those transactions, and you're just getting rid of a lot of grunt work. 

14:42
So, for example, like a title lawyer has to rewrite statements of closing and sale all the time, they probably do multiple a day. They can conduct three a day at this point, right, and they charge, let's say, $2,000 transaction. If I'm able to create a cookie cutter contract that is a statement of closing and sale that auto fills of all the variables that the broker already had verified from the title or the land registry and then all the lawyer has to do is log in, verify, make sure everything's up to date and sign off, I'm giving the lawyers the tools to conduct 20 transactions in the day at a fraction of the pace or the fraction of the time spent, versus limiting themselves to three a day. So fine they could. They charge less per transaction, but they're conducting four to five times more. It's not that we're taking the fishing rod away from the fishermen, we're just giving them away stronger one. 

15:35 - Sam Rust (Host)
So it makes sense to me, if you can get title moved on to a blockchain, into a ledger, digital ledger, that from then on everything is much faster, much quicker. I mean by by an exponential factor, but bridging the gap from where we are today to the first time that the title hits the ledger, that seems to me to be a really crucial step, and the hardest piece of it all because it at least in theory, as I'm thinking about it, it's going to require the highest level of accuracy and your transitioning systems. And so how your business model seems to be predicated on the fact that you can make that transition on an individual title basis cleaner, smoother than a regular transaction leaving title in the antiquated system. Am I thinking through that correctly, and how are you guys solving for those problems that'll occur in transitioning from one system to another? 

16:34 - Ori Ohayon (Guest)
So step one is we haven't the way we've designed it is. We're not stepping on the existing systems toes. We're creating something that can mirror it and conduct side by side to it, without replacing one or the other. Right now, it's just an elegant way that's a little bit cheaper, and we conduct the closing on your behalf. Longer term, what our goal is is that it becomes like the gold standard of the preferred party to conduct these transactions, in which case we can start backfilling a lot more information. 

17:01
My goal is that we create something that's not invasive. Our biggest hurdle right now is VCs and institutional money are very reluctant to invest in anything that has blockchain on it. That's been like the biggest pain in being an entrepreneur in this space, but when we found fantastic partners we have really, really good co-founders, we've found friends and family who were willing to fund it and, as a result, we managed to go patented very early. We managed to get a bunch of pilot projects ready to go. So, yes, the blockchain space took a massive hit. Adoption's not going to be simple, but we've created a tool that is as simple, elegant and not invasive as possible. So I think, if we execute this correctly, we have something that could be revolutionary. To like PropTech. 

17:48 - Sam Rust (Host)
And what do you think that window is? There was a lot of promises made. I'll go back to like 2019, when the latest round of crypto mania kind of took hold and everything proliferated. It was no longer just BTC and Ethereum, but hey, there's all these different things and crypto punks and rocks and all these different things hit the zeitgeist and then it all kind of washed away or not all of it, but a lot of the hype washed away in 2022. Where are we at in the building cycle? 

18:19 - Ori Ohayon (Guest)
So we've okay. So we just got our patents approved a couple of weeks ago. We're already in like very early stage developments. Now we're basically closing funding for the final version of the product. I would say the first transactions can expect to be seen in six to eight months and we've got pilots ready to start taking it on, so we're in pretty good form for that. 

18:41
There are many players out there who've stated they can conduct transactions on chain, and some of my partners and myself were part of that wave and we saw a lot of this stuff happening a bit very early on. Essentially, what people were doing which is really funny is they were just making shell companies tie to the NFT and they were transacting that NFT. So shell company holding house 123 was able to move using the smart contract, but that wasn't a title transfer, that wasn't a land registry check. None of these components were a part of that process. So it never saved anyone money. We've created a product that's much more complicated, much more expensive to build and it will take a bit longer to get to market, but because of that I think it's got much more capacity for innovation. 

19:25 - Sam Rust (Host)
Yeah, when you guys launch to market and you're ready for those first transactions in six months, what's your target market immediately? I mean, there's a ton of different types of transactions that happen within land registries. I would imagine that you've identified a segment or two that are most favorable for being flipped for one reason or another, which are those? 

19:46 - Ori Ohayon (Guest)
So we're focusing on new construction, residential. We're starting in Florida. We're doing the US as our primary target right now in terms of mass market, so we're starting with Florida, then we'll work our way into Colorado and then, most likely, texas. Once those dates are done, then we'll look at what's easiest to adopt next, because essentially, what we have is a smart contract that just needs to be tweaked, based off of the regulatory body. So we just need to figure out what makes the most sense and what's the most cost effective for us today. 

20:19 - Sam Rust (Host)
And new construction, I would imagine, because you can sell a developer on this concept and potentially have hundreds of transactions with the same counterparty on one side. And then Florida, texas and Colorado, because those states are relatively crypto friendly in their legislation, or smart contract friendly, maybe would be a better way to put it. 

20:38 - Ori Ohayon (Guest)
Yeah, that would be. Basically, the benefit is also with new construction, all the titles are clean, right? The new construction building has an original plot that was on the registry and then that was split up into, however, hundreds of units. So it makes it a lot easier for us to create clean titles based off of that, versus backdating a hundred year old home and finding out every owner along the way. So that's the cleanest way to start a new title. 

21:08 - Sam Rust (Host)
Depending on how educated someone is, you're gonna get a lot of different hurdles or they'll perceive a lot of different risks. So there's people that would say, hey, the problem with the digital ledger is if you just unplug it and where's it gonna live and I think that's among them are ignorant. But when you look out at the landscape, what risk do you think is actually the biggest risk to this entire space taking off? 

21:31 - Ori Ohayon (Guest)
I think the biggest risk is obviously gonna be regulatory. If regulators shut us down and tell us we don't want to see this happening or we don't want transactions occurring like this, then we've got issues. But we have been really careful the way we've designed it so that it essentially conducts the transaction the same way it happens today just through portals versus through paper and email. So that's a risk, Obviously. 

21:56
The second risk is gonna be adoption. If people are gonna be willing to give this a shot. We don't think that's gonna be an issue because we're saving everyone money and we're giving royalties to our partners for letting us do that. So we're really treating people as partners, as friends and family, like the way we work with people like you'll see when you meet my partners, like we all work with people as if they are relatives and we've known them for our whole lives so we really work based off of trust and mutual benefit. We're not trying to sell people in some form of a scam. We've all been in blockchain since relatively early. We've seen those guys playing these games and that's definitely what interests us. 

22:34 - Sam Rust (Host)
What do you think the adoption curve looks like? Maybe like an optimistic and a pessimistic view? You're in the building side. You obviously are optimistic about the space as a whole, or you wouldn't be here. But if you guys are 68 months away from rolling out your first transactions, when will it be a real, verifiable option for the majority of folks to use a service like this in their area? 

23:00 - Ori Ohayon (Guest)
Within the first year, we're hoping to be generating revenue to actually prove that we can conduct transactions on a mass scale. I think once we announce one of our lead partnerships, I think there will be obviously like a fad of adoption, because it will become a much more credible tool and it'll be a little cheaper. And then we'll see. I think tech goes through waves. There's always going to be hurdles. There's definitely going to be regulatory hurdles for us to overcome, as is. I think we're give us a year and you'll start seeing transactions occurring on chain. Say, within five years, you'll start seeing regulators adopted and if regulators start to adopt it and land registry starts to get digitized, then it'll be everything. Then it'll be all real estate transactions will be occurring using a digital ledger, and then suddenly real estate becomes like PropTech and real estate just become one and everything is occurring using the net. And that's when I think it becomes really fascinating. 

24:03 - Sam Rust (Host)
Now you're talking about a lot of bureaucracy in there as well, and historically, anything with that level of bureaucracy is one of the slowest to adopt new technology of any sort, let alone something is cutting edges blockchain. So when you look at that point of mass adoption, we five years away, 10 years away, 15 years away what do you think? 

24:23 - Ori Ohayon (Guest)
It's at least five years before it even gets looked at on that scale. But the benefit is when you're looking at like closing statements for example, you have these miscellaneous legal fees, title search fees. They add up to, let's say, $2,000 transaction. We can cut that down by close to 50%. But when you start talking about title searches, lean searches, when you start talking about the land registry and cleaning all that up, you're talking about impacts on transactions between 10 to $20,000 in the US. So there's a massive, massive opportunity there to save people money and literally lower the barrier of entry into real estate. So there's a huge benefit and there's socioeconomic impact is actually quite big on this, let alone the fact that you like eradicate the need for paper and a transaction. 

25:13
So there are more than enough incentives to push for something like this to work. If the US is not the first to adopt it and we still have to like take baby steps there, we're going to go into other economies that are going to be willing to help us adopt it. And if that means we go into the Ukraine, as opposed to war efforts, and we try to recreate their land registry, we'll do that. And the same thing with Asia, same thing with North America. We'll do it pretty much anywhere we can, but coming in from the top and from a regulatory level. 

25:42 - Sam Rust (Host)
Well, or a fascinating conversation. I'm looking forward to tracking this space, as builders like yourself continue to iterate. Continue to drive innovation forward. You had a post a little while back on LinkedIn where you talked about how you turn your cell phone off for 25 hours a week. Okay sure. A lot of people. That be like cutting off their right arm and putting it on a counter and not being able to use it. What's the genesis of that and how has that been beneficial in your life in achieving that work life balance? 

26:11 - Daniel Lichtman (Guest)
Sure, so I'm a religious Orthodox Jew grew up that way. For me, every Saturday was a Sabbath that we didn't. We disconnect it to reconnect, so I grew up with it. So obviously it's a lot easier than someone that has an experience that from sundown Friday until Saturday evening for about 25 hours, we don't get in the car, we don't turn on a long electricity, we make sure everything is set up before we use a crock pot to warm up something for the for Saturday to have hot food, because we do things in advance to prepare for it. Another thing we do, obviously, like I discussed, was that we turn off our phones. We're not a communication with the greater world. We spend time with our family and with our communities and honestly it's not easy. 

26:51
But when I made that post, I recommended it a few people thought were they going to try it? And I actually have a pretty cool story for you. One of our brokers at Indiana. She told me that before COVID she was trying this, for she would. She wouldn't work on Saturday just as a way to spend time with their family. I sent her this video about my turn off my phone and she got back to me a week later and said Daniel, I just want to let you know. This past Saturday I decided I'm not going to work. I spent time reading and and just talking and chatting with my 12 year old. He said, mom, I forgot how nice it was to spend time with you. So definitely, I definitely would highly recommend it and obviously I do it from religious perspective. But it could be done. It doesn't have to be that way. It could be done by anyone that wants to try it and just disconnect, reconnecting for a few hours of time, just to really spend quality time with your family. I would highly recommend it, yeah. 

27:41 - Sam Rust (Host)
So there's a lot of folks that struggle with compulsive behaviors, particularly around technology. So totally understand that you're doing this for religious reasons. But have you found that that regular cadence of just not being with technology for that 24 hour period has allowed you to have more control over technology in the other six days of the week and use it maybe in a more purpose driven way? 

28:03 - Daniel Lichtman (Guest)
Yes, for sure. I mean the fact that we were forced to turn things off allows you to recalibrate. Every Friday evening when sitting at the Sabbath dinner, my family likes to go over what our goals are for the next week and talk about what we're grateful for, and that definitely helps us reset. But I also try as much as possible, when I do come home from a busy day, to put away my phone, not to be busy with things. Emails can weigh, we think the way family is important. I feel that that 25-hour period definitely helps recalibrate your week and allows you to really reset that only I appreciate you elaborating on that. 

28:39 - Sam Rust (Host)
What does keep you busy is multifamily acquisitions. You have a background there. You've been doing that for a long period of time, and obviously at Lightwater for the last year. So maybe just sketch your firm's thesis where you guys are buying, what kind of assets you're buying, and we'll kind of start drilling down on some multifamily stuff for the audience here. 

28:57 - Daniel Lichtman (Guest)
Sure. So Lightwater Capital started in 2019. They have a separate division that started in 2007 called J Wassernko, which manages New York properties, which is still in existence, managing about 3,000 units in the five boroughs of New York. In 2019, the rent laws changed and made it quite difficult to be profitable with any properties in New York and they decided Joe Wassernko and we are free. The two principals of the company decided to start Lightwater Capital to invest out of state. They spent about the next seven or eight months researching different markets and they finally landed on Atlanta, georgia, as a market they wanted to start with. They bought two deals there in the beginning of COVID in 2020, which they since sold in 2022 for a really nice return to our investors in a short two-year time period, and since then we picked up six properties, one of them which I was involved in an acquisitions role. The other five were from before I joined the company and now I'm involved in the asset management of those six properties, totally about 1,300 units. 

29:55
Since then, we've added, I should say, a focus on the Indianapolis market, the Midwest. We really like that market. We picked up a $72 million portfolio there last year in June of 2022. And we've never looked back. In January of 2023, we picked up another property and we just closed thank God last week on two deals in Indianapolis as well. So we have about 1,200 or 13 Nijimis there as well and we have one small bill on Savannah. We typically target value add workforce housing type of multi-family, lighter value add, something that's already existing cash flow that we have opportunities to bring it to the next level, to maybe take some of the long-term ownership that hasn't really pushed the rent or hasn't really renovated the units will come in these two strategies renovations will add or improve the amenities, will do light upgrades to the units and we'll try to bring down our expenses as much as possible to really maximize the profitability of the properties. 

30:53 - Sam Rust (Host)
So Atlanta in Indianapolis, those are two markets that you don't see paired very often, especially as like the two primary targets of a firm Atlanta, our audience is probably a little bit more familiar with the, the macro drivers there, big city, southeast, manufacturing, population growth, all those things, but Indianapolis, midwest, a little bit slower rate of growth than Atlanta. What attracted you guys there? I like the strategy. We also are working on some Midwest markets, so I understand it. But I'd be curious for you to elaborate on what you drew you guys specifically to Indianapolis. 

31:27 - Daniel Lichtman (Guest)
Sure. So Indianapolis is, we felt was an interesting market, the first thing that our firm based. We're based in New York, new Jersey. The first thing we always look at for an investment is can we get in and out same day? Because we asset managed and we like to be at the properties at least once a month, if not once a week running on the property. We like to know that we can get in and out. We all have families at home. We're not looking to spend two, three, four days away, so we like to get in and out. So Indianapolis checked the box in the sense of being able to fly in it. 

31:54
Number one, number two what we like about Indianapolis is it's kind of the central portion of the Midwest. 

31:59
It doesn't have maybe the, it's very landlord friendly, tax friendly, but it's also it's not a boomer bust in the sense it's not like in Austin or Phoenix or certain markets that went crazy during the when crazy, during the pandemic, and now I've been, you know, cooled off significantly. We found that it's a steady eddy where average rents were probably $8,900 and market brands across the nation are probably $13, $14, $500. We felt there was a lot of room and we went down. We like to think that if these didn't get to and there's good demographics and there's tons of logistics and it's within a, I think, the social statistics within a day or 24 hour drive or truck drivers get anywhere in the country, so it really provides an affordable place for and with a lot of jobs and a lot of growth in a steady type of growth. Versus the US market that's seen 20 plus percent rent growth and now it's seeing negative rent growth. That's what we really like to do, yeah. 

32:53 - Speaker 1 (Host)
Yeah, that's fantastic. 

32:55 - Sam Rust (Host)
I was on your website browsing through your portfolio and you've got a lot of 60s, 70s, you've got a few 80s, you've got a 90s deal. You've even got a 2021 deal, so you've bought across the spectrum. You mentioned that you focus a lot on value add, but what has led you to some of those newer deals as well? 

33:13 - Daniel Lichtman (Guest)
So it's interesting. The Newer deal in Savannah a group had it on the contract for a few months in K-Fest. We met at a conference and they said, hey, we need about $5 or $6 million of equity. We'd love to partner with you. We haven't had to be at that deal. We had a 1031 need so it made sense for us to place equity. We've always wanted to get into Newer deals but I would say most of the A-B plus deals don't provide the same type of returns as the heavier or the value add class C type properties. 

33:41
This particular property was very interesting because it was built by the original developer and is being sold by the developer. His average rents were about $1300 and the market rent was closer to $17-$1800. So we thought that it was a great second generation lease play. We said, hey, let's test the waters because obviously we'd love to do Newer and nicer assets, especially in today's market. But we haven't been able to find deals that have pencil, that have worked, and this particular deal made a lot of sense. So it was a smaller asset. It's only 104 units. Our typical deals are 150 plus units so it was a little smaller in a new market that we've heard great things about, and most people will tell you that Savannah is a great market and I'm saying God. It was a good way for us to test the waters on a smaller deal and new construction. Our campx budget was much less than what we typically would do in our campx budget and so far we've had a lot of success in that. 

34:33 - Sam Rust (Host)
Yeah, that's excellent. So asset management really crucial, often overlooked portion of what we do in multifamily business, particularly from a retail investors. I think sometimes retail investors can get this idea that, oh, if we just invest, then we're completely passive and five years later we sell and the property does well and we all make money. And there's a lot that goes between closing on the property and selling it on the back end. That's where the general partnership and their experience really makes the difference. What's your role in that process at Lightwater Capital and what are a few things that you really enjoy about being involved in the asset management side? 

35:15 - Daniel Lichtman (Guest)
Sure. So I oversee the general oversight of the asset management across the portfolio. Once a month We'll go through the, we'll do the monthly reporting to see how the assets are performing and give an update internally In Atlanta, particularly the last few months, I've really jumped in on operations to really be on top of any collections or evictions that are needed, any rental assistance programs. I've really been able to succeed in getting a lot of our residents much needed back rent that have had a hard time paying since COVID and getting them back on their feet. But what I really enjoy is really seeing the properties improve. I would say over the last few months we've definitely seen improvement in our occupancy. 

35:53
One of the things that I've done is that maybe I don't know if it's so much asset management or management, but I've gone down and we have 13 units in Atlanta and we have some properties that have a few more vacancies than other. I've gone through most of the vacant units and the reason why I did that was because I saw that it was units instead of being turned quickly. We're taking a little longer. Some of them had reasons for it. Maybe they need a little more work. A lot of them just weren't getting the proper oversight and I decided to jump in and say you know what I'm going to go in and I'm going to. You know they say trust for verify. I wanted to see where the unit holding and how much time is the need, and many of the units I found, my surprise, that were vacant for a little longer than they should have been. They didn't need that much and that little extra push helped our management company realize like, hey, we need to be moving these along in a quicker fashion. So that's just one one component. 

36:41
Another thing I do is always look at any other income. So we recently implemented across the board in our Lancet portfolio. We started using jetty as a way to help the win-win to the residents to help them move in without a security deposit. At the same time, it allows us to get more than maybe a half month or a month's rent. We're able to push even close to two months rent by having the resident paying a monthly fee. We've also implemented a rents insurance program. 

37:09
We've done a lot of many different things to improve the ancillary and other income as well as try to bring down some expenses as well. We did low flow toilets. We've used a company based in Ohio that does our local toilets. We've done that at most of our properties. We have one property with some weeks. We had our property manager go building by building and check every unit and every you know fixture to make sure there's nothing leaking and we brought down our water bills like 30 to 40%. So we were very proactive and from behind the scenes and also boots on the ground, we have no problem going there knocking on doors, making our suggestions to our management company and having them improve. So we definitely see an improvement with that asset management. 

37:51 - Sam Rust (Host)
So Lightwater Capital started as a property management firm in New York, which I think is one of the toughest places to property manage in the world, and that's even before some of the more recent regulation that made it, I would say, almost impossible to manage properties there. But it sounds like you guys are third party managing in your remote markets. Is that correct? 

38:08 - Daniel Lichtman (Guest)
Correct, correct. And the reason why we did that is we really wanted to scale. We started Lightwater Capital. The focus was we're going to. We still have our New York management company. That's kind of the full day-to-day focus. But we want to scale and be able to really pick up a few thousand units out of state and we felt that if we're going to do our own management, we felt that it's just going to maybe slow us down from doing more acquisitions. But we really have a good partnership with our management company, our management companies. We seek them obviously once a week on a call, but we're also in touch with the property managers. We'll go down once a week or once a month, depending on the property. So we have a good relationship with them. They're the management company, we're directly involved in asset management and we're able to help dictate the possibility of the properties. 

38:52 - Sam Rust (Host)
Yeah, you're actively involved. Is it the same third party manager in Atlanta and in Indianapolis? 

38:58 - Daniel Lichtman (Guest)
That's actually. We have three different management companies actually. 

39:01 - Sam Rust (Host)
Okay, yeah, yeah, that's part of the scaling process is solving for property management and I know there's groups like us that have gone in-house and there's advantages to that. But on the flip side, like you just alluded to, if you keep that third party and you do have that rigorous asset management piece, it allows you to focus more of the time inside your capital organization on moving the ball forward as far as acquisitions and can lead to scaling much faster. 

39:30 - Daniel Lichtman (Guest)
Right. Two months ago I was actually on a panel at the. I am in Fambods in Miami and I really would have rather been done something with acquisitions, but the only option that was in-house management versus third party management. So I said, sure, I don't mind being on that panel. I prepared all the questions. The problem was that the moderator decided to ask completely different questions. It was a very interesting. That was on the conference, which was fine. It was definitely very interesting to hear there were some people that manage themselves. Some of them are third party management companies, so it was interesting to hear each one's perspective. And then there was us that we used third party management but we asset managed them, kind of in the blend of the two. 

40:07 - Sam Rust (Host)
Yeah, so switching gears from asset management more towards acquisitions. Daniel, multifamily transaction volume is down significantly from 2021 to 2023, even last year. This year, significant changes and yet you guys are still getting deals done. Where do you see opportunities in today's marketplace with the higher interest rates and maybe a little bit of a wider spread in the bid? Ask yeah, how are you guys getting deals done? 

40:35 - Daniel Lichtman (Guest)
Sure. So I'll give you one case study, for example. We closed the deal in Indianapolis about six months called the Sixth Mortars Apartments. It's a 210 unit deal. The original asset price was close to 30 million and by the time the broker brought it to the table they said it's probably going to be 27 million. We said no, we're only at 24 million. And the end they came back to us and said a few months later, you still have 24 million. We said no, I'm sorry with today's market, because that was when the rates were going up and up. We said, oh, we're only at 22 million. 

41:03
And at the end of the day, I guess the seller, if they're in a position that they need to sell or have to sell, that's obviously the best opportunity. And we were able to get that opportunity where we got the deal down to about 21 to 22 million dollars. There's exactly where we needed it to be, which is north of a six cap, which is how we're doing waller deals now, north of six cap, and our theory is that we can make the deals pencil in today's market and hold on to it and ref, either refire or sell within three to five years and hopefully, the more hopefully that markets will come down again. That's another crystal ball, so it's anybody's guess. But hopefully. Obviously it hasn't happened yet, but hopefully, if you're able to hold on for three, four years with fixed financing and not you know, not still with a recap and with floating, that if you could make a deal, pencil in today's market and get it at the north of a six cap and you get financing around the around the same, so you don't come in day one with negative leverage and hey, then you should be great if the market goes down, rates go down to four or a half 5% and especially since we're building it out to get north of a eight, like a eight cap in our five projections. So we're the way we're doing is. 

42:05
We used to look at deals and say, okay, if it's four and a half, or let's say it's a five cap, we have to build it out. That's seven cap. Now we're looking at it that it's six cap or building out north of an eight cap and our hopes are obviously that the rates do come down. And we're obviously we're not under any of that way, because that would be, that would be probably reckless to do that, but we're. 

42:22
But instead we're actually just saying, okay, if, even if the rates don't come down, let's stress that If that's the rate, is that 6%, this is what it'll look like. If it's that 5%, this is what an exit will look like. So we're just going, we're just looking at deals obviously more carefully, and we're still finding opportunities because people that need to sell are coming, are finally starting that. We found that finally starting to come meet the market and we're only offering on deals that that we feel we're only offering a prices, pricing that we feel comfortable at per se. Maybe a year, year and a half ago, when it was, you know, if you were a million or two off, don't even bother bidding. There's going to be 50 other operates, markets that definitely change. 

43:00 - Sam Rust (Host)
Yeah, yeah, it's definitely more of a buyer's market. I think sellers are still adjusting to the reality of what current dynamics are. You mentioned debt. That's obviously a crucial piece of this. That's anywhere from 50 to 70% of your capital stack. What kind of debt are you placing on your properties today? Are you going fixed rate? Are you going floaters? Are you going longer term, shorter term? 

43:22 - Daniel Lichtman (Guest)
So primarily, we're looking at all our deals with fixed rate financing. That's how we're looking at our deals, but half as the one of the deals we closed recently was a heavy value add that was right next to our best performing property in Indianapolis, so it was only about 40% occupied. But it was due to a major oversight, a major lack, I should say, of oversight and management, where they just, you know, dropped the ball. They weren't putting any funds into the deal and we went there thinking it needed a crazy amount of capex and really needed a lot less capex, so it needed a decent amount. So that particular deal we had to go with rich financing, obviously because it wasn't stable. But primarily, any of the other deals that we're looking at, we're looking at fixed financing. I believe we're doing the Fannie five year program, which allows us to step down after three years. So we're not looking to lock in long term debt at seven to 10 plus years, because we don't want to be left holding the bag. 

44:11
I remember looking at deals in a previous company in 2020. I was with a different group called our real legacy group, and I remember looking at deals that the rates then were probably two and a half three percent, oh, but you have to assume the loan through 2018 at a four and a half percent and I remember thinking no way 2018, those guys get a lot of holding the bag. Now it looks great If a guy had a loan four and a half percent, people would take it all day, all day. So we don't want to end up that we lock in a loan that's at six, six, that percent for 10 years and then when the rates come down it'll kind of stuck holding the bag. So we're looking, we do, but we also obviously want to be conservative and make sure that we don't rush it, say, oh, that it's going to be a short term refi. So we are taking, for most of our deals, fixed that at five years, with the option of refinancing after three years. 

45:01 - Speaker 1 (Host)
Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the real estate syndication show and how they can also build wealth in real estate. You can also go to livebridgecapitalcom and start investing today.