Working Capital The Real Estate Podcast

Crowdfunding Real Estate with Ian Formigle|EP41

Feb 17, 2021

In This Episode

Ian Formigle is a real estate professional and serial entrepreneur with over 25 years of experience in real estate private equity, equity options trading, and start-ups. Ian is Chief Investment Officer at CrowdStreet, overseeing its marketplace, an online commercial real estate investment platform that has completed over 500 offerings totaling over $16 billion of commercial real estate. Ian is the author of “The Comprehensive Guide to Commercial Real Estate Investing” and he is a contributing author at Prior to joining CrowdStreet, Ian was VP of Business Development for ScanlanKemperBard Companies, where he managed the firm’s alternative investment platform and served as a senior acquisitions officer. Previously, Ian cofounded and served as CEO of Clarus Property Ventures, a regional real estate private equity firm that focused on multifamily acquisitions. Ian began his career as an equity options market maker and member of the Pacific Exchange.
Ian holds a BA in Economics and a BA in Political Science from the University of California at Berkeley as well as Series 7 and 63 licenses.


In this episode, we talked about:

  • Ian’s real estate journey
  • Commercial Real Estate’s various asset classes
  • Crowdfunding in real estate
  • Covid’s impact on real estate
  • Co-working space
  • And MUCH MORE!

Resources and Links:

Connect with Ian



Jesse (1s):

Hey everybody. This is Jesse for galley. Before we started this episode, I just want to say thank you so much for everybody that keeps on listening, it really is amazing to me and I can’t. Thank you enough. What would really help us out is if you enjoy the show to go over to iTunes and leave us a five star review. Also, if you have a favorite episode, what would be great is if you could share it on social media, whether that’s Facebook, Instagram, or LinkedIn, anyways, enjoy the show. Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time.

Jesse (48s):

All right, ladies and gentlemen, I have a special guest on the show today. Ian, for migli Ian is a real estate professional and a serial entrepreneur with over 25 years of experience in real estate, private equity, equity options, trading and startups. Ian is chief investment officer at crowd street overseeing its marketplace on online commercial real estate investment platform that is completed. We’ve just updated 500 over, just about 500 offerings, totaling 16 billion of commercial real estate. Ian is the author of the comprehensive guide to commercial real estate investing. And he’s a contributing Ian, how you doing today?

Ian (1m 26s):

I’m doing great, Jesse. Thanks for having me on the podcast. It’s a pleasure to be here.

Jesse (1m 29s):

No problem. So, so that’s fantastic. We just updated a few of those numbers before the show. So congratulations on what you’ve done there. I can’t wait to get into the weeds and talk a little bit about that, but before we start, as we do with most, with most guests on the show, we’d love to hear a little bit about your background in real estate. You know, how you got the bug and a little bit of your, your journey to where you are today.

Ian (1m 53s):

Yeah, no happy to do so. So, you know, as, as you mentioned, my professional career is a little over 25 years at this point. It actually, it did not technically begin in commercial real estate. It got there, it began in derivatives trading. So for the first five to six years of my career, I was what you call a pit trader. I was an equity options market maker. I stood on the, in the crowd. I wore the jacket and I traded options predominantly on Microsoft for a number of years. And it was kind of during bust in bear market of the 2000 period where I had the opportunity to kind of start pivoting towards real estate. I had been fortunate to kind of get a head start in my career and had some capital to deploy.

Ian (2m 36s):

And while I wasn’t seeing the opportunity necessarily anymore in derivatives trading, I was starting to see opportunity in real estate. So like most investors I started where we all start, we start, we buy it, we buy a second home, we buy a rental home and then I bought some more after that. So for the first few years, purchased, managed, rented, fixed, and ultimately flipped single family homes in California and Sacramento region. And it was from there that kind of sprung me after doing that for a few years and realizing gains and wanting to do 10 30 ones. It’s what got us. I got me embarked on a, into multi-family. So then it kind of started transitioning to scale, started buying 20 to 30 unit buildings.

Ian (3m 17s):

Eventually turn that into, you know, 150 to 200 unit buildings. I became a multifamily syndicator for a number of years. And then, then during the great financial crisis, you know, during a period where I wasn’t syndicating, but we had class B predominantly garden style multifamily deals in the South and Southeast that we’re doing okay, but we’re hanging in there. So then, then I set my sights on wanting to get into large-scale commercial real estate was really excited and enthused about the idea of really taking it to the, to the true large institutional level, had an opportunity to join a commercial private equity group. I did that spent the next years doing what we call a GP LP deals with large sources of institutional capital deal sizes ranging from 25 million to $150 million per transaction.

Ian (4m 5s):

And then really learning, you know, large scale office towers, large business parks, million square foot, industrial buildings, retail shopping centers, you know, in the like, and then from there in around 2014, you know, it was kind of the accumulation of that experience that, that set the stage for talking to the founders at crowd street and joining them. And at the, as the platform got going to be the chief investment officer. So, you know, they, they were looking for somebody who had, who had a breadth of experience across invest in different asset classes, understood how to structure deals kind of how to ask the right questions and then partner with groups out there to bring deal flow to what is, you know, to our marketplace.

Ian (4m 46s):

And so it’s been an amazing journey, luckily, that is worked out. And as you mentioned, we’ve now done about 500 deals, but $16 billion of total real estate. And so I guess it’s been, I feel a little bit tired some days, but you know, a high, a high velocity commercial real estate career is kind of where, where I sit right now.

Jesse (5m 4s):

That’s great. That’s a, that’s such a good arc in the story. It’s, it’s not dissimilar from so many people that get into our world where, you know, you’re starting with single family and moving up the ladder. And it sounds like you were doing syndicating before syndicating was cool. And it’s, it’s the big buzz word now in, in real estate. I, before we get into to where you’re at right now and, and cross street, you were a university of California, Berkeley, if I, if I remember correctly. So when you were investing, you talked a little bit about investing in the South, those first few deals when you were, when you started to syndicate, which a geographical area where you were you doing those deals

Ian (5m 42s):

Well, okay. So again, so the first, so jumping, so the first single family homes where, like I said, in the CA California in Sacramento region, and then around 2002, 2003, that’s when we pivoted to multifamily and those first deals were in Birmingham, Alabama. And so what was interesting at the time is that I had a very West coast centric view. I’m on West course, West coast, born and raised and educated. And, you know, so it immediately started to translate into, Hey, if I don’t want to do single family homes in California anymore. Cause at that time, the, the, the, the pricing felt high. I remember I was, I was a volatility trader. So the homes went from two 20 to three 50 in a few years.

Ian (6m 22s):

And so I view that as high volatility, I tend to sell high volatility. I like to buy low. So then it became, where do you buy it quickly? Looked like, okay. Multifamily only at the time in California felt pretty high price. Steven was Seattle Washington. I looked at Phoenix, Arizona that felt a little high price. And so I had, I paused at that moment. I said, let’s, let’s assemble a model. Let’s, let’s let the data, tell me where to go. Clearly, I, I wanna, I wanna remove my own personal bias from this next decision. So at that time I assembled a fairly rudimentary, but three tiered model that contemplated first top line, macro economic drivers, kind of the job growth population, growth type type of stuff. Like where are people and money flowing in into a market in the United States?

Ian (7m 6s):

The second layer of that analysis was kind of micro market and true like market drivers, things like cap rates, where cap rates now to relative to where they were, then where are, what are happening with rents? You know, how has asset pricing looking today? W what looks attractive and relative value. And then the third was the time of I’m a fan of an economist by the name of Richard Florida, who at that time had written a book called the rise of the creative class. And so after reading him and being a fan of, of his thought process, I said, really, the final part of this analysis has to be a subjective layer of why would you want to live here? You live here. And in my litmus test was, I’m going to assume I’m a corporate employee.

Ian (7m 48s):

And I just got transferred to the city and I need to live here for three or five years. I don’t need to retire here. I don’t even necessarily my whole life here, but could I live there for three to five years and enjoy my life for that period of time. And so after I assessed that whole market, Birmingham, Alabama kind of stood out. And, and also, particularly from the standpoint of it had steadily appreciating, you know, real estate there wasn’t flying off the charts, but it wasn’t going down. And remember, I was coming off of a scenario where I had been fortuitous to have some gains coming out of California, and I was looking for capital preservation. So I didn’t want to jump into the next market that seemed like high growth, but potentially bust. I wanted to park money, feel good about what that, what that money was doing.

Ian (8m 31s):

And then, you know, turn two and three X multiples over three years into like, you know, 10, 20, 30% returns on an annual basis, right? Say let’s grow wealth, but let’s not just go bet the ranch again on another high growth market. So those factors, when we thought about all three of those layers, Birmingham just stood out. Yeah, it was attracting population out of Atlanta. It was becoming a healthcare desk and destination, the real estate was affordable. We could buy multifamily with, with, you know, at, you know, price per doors that looked really cheap. Now it was 40, $50,000 per door. And it had, you know, and then up to that part about the, the kicker of the subjective view, it looked, it was interesting. We would, we, we went down there and had a nice experience.

Ian (9m 14s):

And at the time I had a friend actually, who was managing large bands that were national. So some headliners, so he would travel all over the country with a couple of his bands. And I said, at the time he said, patent, this is, I lived in San Francisco at the time. They said, Pat, Hey, you know, you go all over the country all the time. W what do you think of Birmingham, Alabama? And he said, I love Birmingham. We have a great experience. There we go. That we sell out great crowd. He’s like, we love to hang out in five points. I’m like very interesting. I’m looking at a couple of deals right now that are walking distance from five, five points in Birmingham. He’s like, Oh, great, great. Some market love going there. You know, when you go back down there, let me know, maybe I’ll come visit you. We’ll, we’ll go hang out and I’ll show you all the cool bars and restaurants. And that, to me, that was it.

Ian (9m 54s):

That was the kicker. I was pretty much in, on Birmingham from a macro and then micro market driver perspective. And then now I have the context of my friend who goes to like 40 cities a year and, and knows the life blood of those cities and said, yeah, you’re making a good choice if you want to go park money in Birmingham. So that was it. That’s how I got started. And we did some deals there. We then ended up doing deals in Dallas, Fort worth. Did data particular specific to you in Oklahoma city, as well as Louisville, Kentucky, and some other places. So that was, that was my multi-family investing experience. That’s great. So

Jesse (10m 25s):

Before we go to a little bit of the overview of the commercial real estate asset classes, I’d like to just ask you in those, in those initial deals, you talked about eventually doing a GPLP model in private equity, but those initial deals, when you were, I assume, syndicating them, was it a single asset syndications, or did you kind of grow that into a fund or fund of funds type of type of model?

Ian (10m 48s):

It was single asset syndications. And it was literally the friends and family model. What happened was after we invested in California, people were interested. They kind of looked at what we were doing. And at the point we were selling single family homes in California, and we were realizing two to three X multiples within, you know, a few years. And then they asked, well, what are you doing? They said, we’re going to go invest in apartments in Birmingham. It was friends and family money that approach and said, can we do that with you? And I, when we initially started my wife and I at the time were just thinking about going and buying an apartment complex, or to have ourselves say, Hey, we made some money. Let’s, let’s go translate that into some units. And it was at that moment. And it was actually my wife who first called it.

Ian (11m 29s):

She said, well, you know, if these people want to come to you and invest like, isn’t this what you, don’t, you form a company, a partnership, and, and you start, you start, you know, doing this. And I said, yeah, that’s interesting. That’s called syndication. We can, we can do that. So that was it. That was the impetus for starting, you know, our small multi-family platform.

Jesse (11m 47s):

And that’s a, it’s a really cool backstory to, to kind of see the different markets on the podcast that people gravitate towards. So it sounds like you did the technical aspects, and then you just needed that third subjective, you know, a friend or family saying this, this is a great place. So I want to back up. So one of the, one of the great things that I found about finding you online and the resources was you, you had a conversation where you talked about commercial real estate really holistically, and it was a, it was a discussion of, you know, multi residential retail, industrial office, and in commercial real estate in general. And what I’d love for people to hear is, is that, you know, 30,000 foot view of the way you approach commercial real estate for listeners that may be, you know, have invested in single family or, or even gone into the multi residential side, but don’t really know as much about the, the other verticals.

Ian (12m 41s):

Sure. I’d be happy to. So when we think about commercial real estate, there’s just a number of factors that start to enter the equation. And for starters, you know, there are different markets around the United States. Obviously there are different markets that are suited to different types of commercial real estate. And so if we, if we, once we enter the commercial real estate arena, we, we, we, we, we want to drive. We want to really think towards first and foremost, okay, let’s talk about macro drivers because macro drivers are highly important. But then once we start to peel the onion back a little bit, we then can get into the conversation of saying, okay, well now if we think we have a thesis around this city, this Metro it’s growing, it looks great.

Ian (13m 22s):

You know, now we can actually have the conversation about now. We need to think about what are we going to do in that Metro? Because they might, that one strategy might be brilliant take multi-family. If people are just showing up, they’re showing up in hordes and they are millennials. They’re not looking for, you know, to buy homes right now, they’re looking to rent apartments, and they’re trying to kind of find their footing in a, in a new, really fast growing market. Well, then that’s going to translate into absorption of multi-family right now. Meanwhile, if you think now let’s talk about industrial for a minute. Well, that market may have like very little connectivity to industrial. Maybe it’s over in the corner of the country. When we think about industrial, we have to think about distribution.

Ian (14m 4s):

We’re trying to put shove things around the country, and we need to do that through both space. Industrial is a very land intensive, right? It doesn’t stack up 40 stories high. It’s usually a building on a ground with clear Heights that range from 25 to 40 feet. And, and you really need good ingress egress, and you need transportation infrastructure. You need good highway systems, and then you need drivability proximity to a lot of people. So where does that translate to, it translates a lot to the middle of the country, right? You think about Indianapolis, you think about Dallas. These are places that have all of those things. You can drive within four or five hours and get to a lot of people.

Ian (14m 44s):

And they are relatively land unconstrained while San Francisco is like 100% landlocked. So those are just things that you have to start thinking about when you think about investing, you can. So when we look at it, for example, we’re going to think about overall like types of strategies at work right now. And as we enter 2021, you know, we think that multi-family works. Definitely. We like industrial. We like other niche, asset classes, like self storage. We, we understand that retail and office sit right now in some levels of dislocation in the hospitality, major dislocation and hospitality. But we also know that those markets will ultimately come back. Let’s talk about hospitality for a minute.

Ian (15m 24s):

It got absolutely decimated in 2020, you know, the tsunami hit it. It is absolutely crushed, but we also know that as soon as we can get to the backside of a pandemic and return to a life that’s normal, don’t, isn’t every one of us itching to get back out and go somewhere and experience something, the roaring twenties, the roaring twenties. Right. So I totally agree. So I think we look at, when you look at that kind of market, it’s just understanding where you are. That real estate is cyclical and industrial is just kind of up into the right right now, because we’ve just spiked online sales. And now they’re going to, they even might even regress to the mean, a little bit in 2021, but we’re now on a trajectory to meaningful progression of online sales by 2030.

Ian (16m 11s):

I mean, the, you know, the estimates are roughly 30% of all sales online by 2030. You know, we, we kind of punched into about the 20% range this year and are back down kind of in the high teens. So, but hospitality, for example, that’s just a market that’s, that’s crushed, but it’s going to bounce back. So when we, now, if we think about investing in hospitality, it is, am I getting the appropriate discount to what it would have traded at? Because it is distressed. It’s not going to have income right now, but it will most likely in the future, the, the markets that were desirable to travel to will be desirable again. Right. So just looking at those locations, in those metros, in those destinations to say, did something really change?

Ian (16m 52s):

Sometimes the answer can be maybe yes. And then you pause and you understand that. But if the answer is no, I think, you know, take Orlando, for example, I’m pretty confident that once Disney opens, there’s gonna be a lot of people staying in Orlando hotels, again, 75 million people like to go to Orlando every year to experience Disney and universal studios. And the like, so I think that stuff’s coming back, it’s just about appropriate capitalization of that deal to get to the two back to normal growth rates, which we expect in hospitality to happen 22, 23 by 24, probably fully back to where we were in, in 19.

Jesse (17m 28s):

So if we broaden that hospitality out to retail in general right now, you know, I can’t remember the stat exactly. If it’s 27 square foot per person, you know, the, the, the traditional quote of, you know, overbuilt under demolished, what’s your, what, you know, if we just focused in, on retail, w what are your thoughts on the, on the future retail, you know, without having a crystal ball and maybe more specifically what the assets, I know you mentioned that you’re going to have to capitalize, you’re going to have to figure out what the adjustment is, but also, you know, there is that dislocation and trying to figure out, you know, what happens with these? Do, do these get converted to industrial?

Jesse (18m 8s):

Do they can get converted to single family? What’s your view on that from, for retail?

Ian (18m 13s):

Yeah, very interesting years of coming from retail. So I think there’s a bunch of stuff to unpack there. So for starters, I’d say in the next year or two, I think two things happen. There’s some bifurcation in retail and there’s also consolidation. So by bifurcation, I mean, let’s look at what what’s working in retail today. The grocery store is working really well. Grocery stores, sales doubled during the pandemic. So we, we reset. And what was interesting is that you could trace grocery store sales back 20 plus years. And what we just did in the pandemic is we reset the portion of our food budget that we buy in the grocery store back to the mid 1990s levels, because the nineties, and now we have this proliferation of restaurant and food concepts.

Ian (18m 60s):

So we were going away from like, Hey, we know, eat out more and more. Now we eat out very little. So we’re, we’re, we’re back to that 1990s. Now we’re gonna, we’re gonna bounce back. And we’re going to quickly kind of jump back probably into 2005 to 2010 zone, but it’s gonna take a little while for us to kind of resume eating like we did in 2020. So you, you know, that we’re the foreseeable future now, not only did you know, it was grocery anchored retail viable in 2019, it proved during the pandemic that it’s, it’s resilient and actually it’s the anchor of what we do need it. So it’s, it’s very relevant to our day-to-day lives. And I think to me, that’s the important point when we think about retail, what is its relevancy to you today?

Ian (19m 43s):

And what is the probability of that relevancy staying there for the foreseeable future? And if the answer is good to both, and it’s relevant to both of those questions, that retail centers not going away, it’s the ones that lose their relevancy. They get old, they get tired, they’re in a location that the momentum is going away from them. They start to degrade in the level and the quality of the tenancy, and then it’s at that point, and maybe they have a big box that goes vacant and it doesn’t get released. It’s those kinds of like, kind of catastrophic changes to a retail center that then lead it to being redeveloped and redevelopment does happen in real estate, in retail. You know, so a good example is we did a deal on our platform a little over a year ago, and the, the operator was based in the Southeast, and they did a deal in the Philadelphia Metro.

Ian (20m 29s):

And it was the conversion of a large box retail in a retail shopping center. So they took just the large box and they converted it into self storage. And so this property had been sitting there and it kind of lost its relevancy for, for big box retail, but it sits in a good part of the, with a lot of cars outside, in proximity to a lot of ha rooftops and, and also with a relative dearth of supply of self storage in that sub-market. So the operator came to us and said, Hey, we’re going to redevelop this thing we’re going to take. And we, they, it has high clear Heights inside, and you don’t even have to. So what you do in that building is you create the storage inside the building at the normal storage height, and you just have the clear Heights above it.

Ian (21m 13s):

So it’s all lit, it’s all nice. You can drive around inside it. And then you can just roll up your own doors and then stick your stuff in. Well, that deal is now under contract to sell. And now they’re there, they’re looking at a substantial gain. So those types of things. So, you know, there’s obviously there’s creative destruction that happens in commercial real estate. And so you can actually make money in that scenario to say, you can buy empty retail and make a lot of money if you know how to repurpose it in the right way and just make it again relevant to what’s going on in the sub-market because we still need physical space. Right. I mean, that’s the one thing it’s like, well, we can, we do shop online, but we live in a physical world. And until we stop living in the physical world, we do need space for something we need space to do those things with that we’re buying online.

Ian (21m 56s):

Right? I mean, so it’s, it’s just thinking through the next level of like, what are we doing here? How is this going to work? Do the things that we think happen if we, if we continue to have trends, do those trends work against me in my favor? And if, if they, even if they work against you, is there a way to like, pivot and make that work in your favor? Yeah,

Jesse (22m 15s):

That’s great. And I think my dad would be happy with the, with the stat, for eating at home. You know, then why are you going out for food? You got a perfectly good kitchen at home, but that that’s great. And so if we slide over from, from there to, you know, my sandbox, you know, for, we talked a little bit earlier, what I do as a day job into the office world at, you know, we are seeing bonus if bonus commission fees in, in downtown metros, we’re seeing the sublease market flooded in a lot of areas because companies really don’t know what their plan is for the next 12 months, let alone five or 10 or 15 year leases. Let’s talk a little bit about office and maybe we can organize it by downtown and suburban office.

Ian (22m 59s):

Sure. So let’s take downtown first. So there’s no doubt that downtown office has short-term disruption associated with it in a lot of markets, but, but I would characterize it as short term there. There’s definitely an in the reason we can see is that in what we saw throughout 2020 was you saw, you know, a lot of office users that still have viable business models that are, that are getting work done from home. So the good news is, is that we were, you know, and thanks to things like zoom that we’re on. We were, we were nimble, we all pivoted, and we figured out how to get some work done while we were sheltering in place. And, but what that puts office users in the perspective of right now is to say where they’re not, but yet, mostly back in the office, some markets are more utilized than, you know, you’ve got markets like Dallas that are approaching 50% utilization right now.

Ian (23m 50s):

Meanwhile, San Francisco, New York still sit kind of down in the 10% range. But the, but the answer is everyone’s coming back to work eventually, but we don’t really know what that looks like. So you have office tenants saying, I don’t exactly know my future office need today. So I’m not going to make any, any bets right now. I’m not going to lease more space because I’m not using it, but there will come a time where they’re going to need to lease more space again, that will probably start to occur even just later this year. And, you know, so the, the Annie, you could even see that in the renewal activity, you know, you sit, you, you lease office space, you understand that market looks like, you know, we saw six month and 12 month extensions.

Ian (24m 30s):

I characterize that as kicking the camp type of strategy. Yeah. We don’t want to actually have the hard conversation of what we’re going to do. We’re going to all agree that we’re not going to have that conversation to next year. Landlords and tenants were happy to agree to not, to not have to have that conversation. And what we do understand is that when we get back into the office, it’s going to look somewhat different. Short-term for sure. And it may look different midterm or longterm, but really what we don’t really know yet is from, from now a space utilization perspective in the midterm, does that equal, less, does equal the same? Does it equal more? What we can probably know is that the work from home phenomenon is going to stick around to a percentage with a lot of employers, but the percentage is not going to be 30 or 40%.

Ian (25m 16s):

It’s going to be like 10, 15%. There’s enough data out there that suggest that the majority, the 80 plus percent of workers that were previously in an office would like to return to the office at a minimum for like three to four days a week, if not five days a week. So office utilization is going to come back and then there’s going to be that segment of the population. The 10 to 15% that say, I think working at home is great. I think that’s what I want to do for the rest of my career or for the foreseeable career. And we have companies that are going to support that. So, but then when we think about what that office space is going to look like, so we say, so there’s one mode of thoughts as well. Like office demand is going to drop by 10 to 15% because these people are never going to return to an office.

Ian (25m 57s):

And the answer is, well, well, not exactly because now we need to think about that space. Just use a really simple example, 10,000 square feet of space. Well, just because 10% of the office workers don’t show up anymore doesn’t mean you need 9,000 square feet anymore. It probably needs, you need to repurpose the remaining 1000 square feet into something else. That’s more hotel like, right? Because the, the flex space requires more space. We need more meeting space, we need collaboration. We need to be able to go hang out. And so what you’re already starting to see is an we’re probably going to need to space out a little bit more for awhile. I don’t know how quickly people are going to want to immediately jump back into.

Ian (26m 41s):

I can reach out and touch three of my workers, probably one on one, some physical space. So that’s going to probably equal some greater space needs per employee. So the way we can boil that down to a square footage per employee is a hundred to 125 square feet per employee. It’s probably gone for awhile. You probably see that bounce back up to, you know, 150 200 square feet per employee, but some of those employees aren’t there anymore every day. So it’s going to be a big mix. It’s going to determine, and it’s all going to vary by which company all remains to be said that when you, when you put that into the totality kind of bake into the equation, CBD office is going to have to go through that process, figure it out. But I, I I’m, I’m very optimistic by the middle of this decade.

Ian (27m 24s):

It’s, we’re back to record levels of office demand in the downtown.

Jesse (27m 29s):

Yeah. And just on the, on that point, I think it was, it was PWC that did the 20, 21 outlook. And, you know, a lot of this is they talk about the utilization of space and that we had gone to a point where we got almost too tight, where a hundred, you know, square feet per person. And we really, we went through a phase where every company is a collaborative company and everything needs to be open concept. And I think we were already shifting a little bit back towards that. But what I also tell people that, that aren’t in the office world is that if you ask any people that, that do this for a living, they will tell you that a lot of this stuff had proceeded or predated COVID. We were going in this direction. It definitely got kicked up a notch for sure.

Jesse (28m 11s):

And, you know, got people that maybe would have never thought about doing their day teleconferencing or on zoom or Hangouts basically forced them into that. But I think this was a trend that was happening with office. And just that the second point on utilization, you know, every time we have our workplace strategy group do a utilization study, it, it is just amazing how many companies will have the partners on the outside exterior and bums in seats are just, it’s not there. They’re not there. The utilization is so low. So I think you’re right, right. Sizing the space before we moved to suburban, I would actually like to get your office. Cause you mentioned flex. I would like to get your office on co-work your, your view on coworking and how, you know, the last few, few months or a year, the impact to them and what your thoughts are.

Ian (28m 57s):

Yeah. So for the coworking space, you know, and again, there’s different models within co-working, you know, I’m, I’m more of a fan of the, of the management model. You, you take a building, you take the lower floors, turn that into coworking, and then you have the, the co-working user tenant kind of partner with the building and say, look, I’m going to, I’m going to run the deal. I’m going to get a piece of the revenue, but, but I’m fundamentally aligned with the office building that if I graduate, if, if one of these small users blows up and now needs 5,000, 10,000 square feet, I can lease them upstairs in the building. I’m not taking them down the street to another building. So industrious is at a good example of a co-working group that I think has the model that I, that I see as sustainable coworking, obviously what was hit during the pandemic.

Ian (29m 43s):

But the reason I’m optimistic about it coming back is that it is for, for that 10 to 15% of workers who want to kind of stay out. And also the fact that we’re now Moodle, you know, there is going to be some satellite effect. If we are a company that employs, you know,

Jesse (29m 57s):

You take a company that employs 200 people, for example,

Ian (29m 60s):

And now they’re going to embrace a little bit more of work from where you want to work perspective. You might have three, four or five people now in various metros around the United States. That’s too small to go out and lease office for it. But it’s perfect about go have a coworking space because those three or five people are going to want to come together and collaborate and hang out. They’re going to want to have some identity that I’m attached to a company that, that company, you know, maybe a flight away, but I have three coworkers down the street. So w why would I not want to actually hang out with them? You know, go grab a beer, go grab lunch with them. So I think that’s the perfect spot for coworking. So I think coworking actually has a really interesting spot. Like, watch this, watch it bounce back, watch, watch all these things, come back and watch it absorb.

Ian (30m 43s):

Once again, this goes back to the, like, we have to figure out the future of office, that’s going to take a year or so to figure that out. But watch in 2022, those companies come to those decisions, say, we’re going to let people remain remote, but we’ve got a cluster here. It’s not enough to go lease a whole full-blown, you know, portion of a floor, but let’s go, let’s go plug them into a coworking space and go let them hang out, you know,

Jesse (31m 7s):

In an oversized, you know, glass box within that space. So I guess just to wrap up the office thoughts on suburban office and, and, you know, w

Ian (31m 18s):

Yeah, so suburban obviously sits in a much better place than CBD and entering 2021. And I agree with you, Jesse, that you already saw this suburban trend coming pre COVID. You know, the data that I saw, if I recall, I think it was JLL or Cushman Wakefield that pointed out that, you know, over the last overlook over the what 18 and 19, you know, roughly 70% of officers opposite absorption actually occurred in the suburbs. It was kind of a little bit of like a, not talked about, you know, suburban office is not super sexy, right? Or you fill a Tarion, you know, there was all, you know, we wanted to talk about the cool coworking environment, downtown stacked in the CBD with it, you know, the, the new awesome cafe down the street, and that’s important.

Ian (31m 60s):

And that’s going to be important again to the future. But meanwhile, suburban office was working. People were, were leasing. It, people were using it. It’s a lot cheaper than, than CBD office for starters, you know, it’s what roughly, I think like 60% of the cost across the country. So I think that factors, because again, if we, if we want to draw that back to the office square feet per employee, well, if we’re going to need more space per employee, I mean, cost is going to become a real issue in the, in the central business district, right? I mean, that’s, that’s expensive stuff. Go, go look back at what New York and San Francisco is charging at the height, and it’s over a hundred dollars a square foot. So now, but meanwhile, you could go if you want to take New York, for example, okay.

Ian (32m 39s):

You’re, you’re over a hundred dollars a square foot in Manhattan. I mean, you’re 30 bucks a square foot over in Northern New Jersey. And meanwhile, your decision-makers live there, right? They live in Northern New Jersey commuting in. So maybe what’s going to happen now is that they’re going to say, let’s do a satellite approach. We saw that in Boston, for example, million square foot user in the CBD, starting to shop for 50 to a hundred thousand square feet in the inner, in the rings. And then there’s this other concept that I’ve talked about before, where look at that inner ring suburb, there was momentum coming there. And I think where we sit kind of from a macro level is, you know, the, the central business districts, the downtowns got a lot more livable and there was this, you know, the 24 seven live work play phenomenon, and that got a lot of press.

Ian (33m 22s):

But then what happens now is that as you start to think about that phenomenon is coming to the inner ring, the first kind of ring suburbs into the extent that you can now create live, work, play environments in the suburbs that becomes really attractive because eights, it’s easier. It’s easier to access. It’s closer to your home. If now the amenities that only were downtown are now in that first ring suburb. I mean, that’s really what you want. You want the cool brewery. You want the cool cafe. You want the great restaurant. Like you don’t have to be in the city center to get it like that. That’s, that’s an exciting experience, but let’s also be real. It’s a, it’s a, it’s a harder experience to access.

Ian (34m 2s):

It comes with really expensive parking and it comes with heart with traffic in and out. If I could replicate that experience in the, in an inner suburb and I can get access to a cool office that I can then go walk to a cafe or a restaurant, and then I can go see a show or do something fun. And then I, and then I have a quick, easy drive back to my house. It’s 10 minutes away, like that’s attractive. So you were seeing that start to happen. That that phenomenon is called hipster, BIA, ULI coin, the coin, that phrase last year, I loved it when, like I get it, create the hip urban environment, but created in the inner suburb. It makes an abundant amount of sense.

Ian (34m 43s):

So to me, that’s the exciting part about suburban office is that I like it. I like the movement. You’re definitely, now it’s definitely got a COVID enhancement now, but if I’m investing in it, I want to invest in it in the locations where I see there was momentum about creating what I call. Like it’s gotta be some there, there, right? Yeah. If I can find that they’re there in that suburban location, that then I’m all in. I want to learn more about that deal.

Jesse (35m 9s):

Yeah. That’s a good point. And I chuckle a little, when you say that the majority of the, the C-suite and, you know, live in Jersey anyways, it’s, it’s actually sad to see desert extent how many national multi-national clients we have that we do all these sophisticated analysis of location, and then the office ends up being down the street from the CEO’s house. So yeah, that’s, that is a real thing. So I want to be respectful of your time here. So we’re, we’re a little bit close to the end here, but I’d like to really talk about crowd street and your role and what you do with the company and the outlook that you have. We’ve talked about it throughout the show in 2021, but from an investor’s standpoint, and from the company’s standpoint, what are the opportunities you’re looking for?

Jesse (35m 57s):

What are, what is the investment philosophy that you’re maybe pivoting to because of 20, 21 and, and yeah. Like, you know, w what you’re doing.

Ian (36m 6s):

Yeah. So well, to take it from the top really well. So what we do at crowd street is where it’s just focused on trying to bring institutional quality commercial real estate investments to the individual investor is the type of real estate that years ago was just completely dominated by large institutions, the pension funds and the large capital providers out there. And it was, it was what we called it. It was a club. If you were outside the club, you didn’t have access. We took a website and a change in legislation, you know, which is, which is called the jobs act. And we transformed that into trying to then create, you know, bite-size, you know, investment increments into large commercial real estate deals that now people like you and I can afford.

Ian (36m 49s):

And so that was the vision. And so now, luckily it’s starting to work. And so with that now, and then when w turning into like, well, what do I do? What I do out, out there serving as the CIO is that we are now talking constantly to real estate operators and developers across every different asset class, all over the country every day, and getting to deal flow, and then evaluating that deal flow and determining if we think it’s it’s good. And is it also relevant and applicable to our marketplace? Does it fit with our investment thesis? So my job as a service, as the key decision maker and all that, so we have a capital markets team there they’re primarily charged with having those grassroots down at the street level discussions, meeting with groups day-to-day bringing in that deal flow.

Ian (37m 36s):

We then have an investments team that is charged with picking that up, having conversations with the operators and developers, and then doing the first level of analysis and evaluation, and then, and then doing a level of screening and then bringing in the next level down to say, we think these are, you know, viable operator, viable developer, good market. We think it’s a good deal. We think that there’s opportunity here, but there’s still a couple of remaining questions. Then, then it, then it comes to my attention. I’m running an investment committee, you know, meeting every day, evaluating deals and then saying, is this really a fit or not? So my job is to really scrutinize it from there. It’s made it through multiple levels to get to me, but I I’m the one who then has to come in, beat it up, ask hard questions and say, have you really considered the angles?

Ian (38m 21s):

You know, the, the person who’s been, you know, been around has seen it all. I’ve now seen 500 of these things. And I saw a bunch of deals throughout my career. You know, sometimes in real estate just experience counts, right? You have to see things go good, bad, and in between, and, and like run through those scenarios. So oftentimes probably the best thing that I can do Mo highest value for the investors on the platform is something comes in. It has a business model attached to it. It has some assumptions baked into it, and I’m drawing out something that I experienced 12 years ago to then say, well, what about this? Yeah. Goes in when I was looking at, at something like this in 2010 or 11, I, this was, this is what happened.

Ian (39m 2s):

This is what we didn’t think would happen, but it did. And then it did, and this was the outcome. Have we, have we thought about that scenario? You know, one of my best friends would say like, you know, we’re in the, what if game? You know, what, if this, what if that, and that’s, and that’s honestly probably the best value add that I can, I can provide to the company and to the investors is saying, you know, really thinking through all the, what ifs and then determining what of that eligible deal flow really makes the most sense. And then, you know, and then from there, our team picks it up and works on it and brings it to the marketplace. And so, you know, and then from there, yeah, I, I travel around the country I meet with when we could, I’m not traveling around the country right now, obviously, but, but get out there and meet with operators and developers, tour markets, understand landscapes, meet with investors, and then really bring that richness of the context.

Ian (39m 48s):

Again, back to that data discussion. You know, we talk about a crowd street that as we navigated 2020, really the question that we had to always ask was why this deal right now? Yeah. That’s it. I think why this deal right now?

Jesse (40m 2s):

Yeah, that’s a great point. And it reminds me of a little bit of Howard marks from Oak tree, one of the, the memos on risk. And, and if, if people are familiar with him, Howard marks check him out, and there’s this one graph of that we all know from finance, you know, risk return, and people just assume risk a higher, a high risk means higher return. And he’s, and he, the caveat with this is he says, no, no higher potential return. And the thing that he has is on the graph instead of a straight line from the bottom left to the top, right. Each portion of a higher return has a distribution. And there’s there’s risk in that each section. So that’s really interesting because real estate is one of those things. It really is a would if it’s not a percentage of, Oh, this is the percentage of risk.

Jesse (40m 46s):

It’s like, no, what if this happens and totally, you know, messes up your messes up your deal.

Ian (40m 52s):

So wait, sorry, go ahead. I couldn’t agree with you more. I mean, first of all, I’m a big fan of Howard marks. I, you know, I read his letters. I think he’s, he’s a fantastic and amazingly visionary, insightful investor. And he, he is. So he is so on point that when, you know, when we, when we, I see this every day in the marketplace, it’s easy for investors to come to the marketplace, look at a targeted return on a page and, and assume that is like the most likely scenario. And we say, well, it’s, it’s, it is a point on a distribution. I mean, there’s an infinite number of outcomes, really what that number on the page.

Ian (41m 32s):

And this is, you know, phrase in the terms of internal rate of return. If that’s a 12% internal rate of return or 15, it’s just really the best guess of the operator developer has to put something, has to come to a series of assumptions of which like any of those things could go wrong. But then what we can do is we, we have to do is we have to look at the CA the texture what’s that real estate. And I totally, I, and I, I wrote an article on our website. It’s on our website a few years ago. I called it the returns fallacy. And I said, you know, you have to remember that what you are looking at a, a potential distribution curve, what you call a Monte Carlo analysis. Yeah. Every deal and a deal. So if you look at one property and you say this property is a hundred percent leased and has a 10 year lease term, it’s leased by Amazon.

Ian (42m 17s):

Let’s just say, for example, an office tower in Seattle just traded with this scenario, like, you know what, you’re going to get the probability of Amazon defaulting on you on its 10 year lease is probably, I would take that risk over treasury bills at this point. I mean like that, because T-bills are going to get, they’re getting debased and the lease and Amazon has rest rent, escalations attached to it. So that’s probably a pretty low risk. So are you going to, you know, eat over the course of 10 years, are you going to quadruple your money in that deal? There’s no way because your revenue stream is basically already fixed. You know what, you’re going to get it from Amazon, you know, when you’re going to get it and you know how it’s going to escalate.

Ian (42m 59s):

And then from there, you, you take that value of that revenue stream and you apply, you know, a reverse discount factor to that. You know, that’s, the cap rate is out analysis, and then you can back into asset value. So over the course of 10 years, with that type of a revenue stream coming from Amazon, if you put some leverage on the deal, but it’s 50 or 60%, that’s going to translate to about it, eight to 10% return. It’s not going to translate into a 30% return in it. But the good news is it’s not going to translate into a negative 30% return when you get out to that risk spectrum of like, I want to swing for the fences. And I want to double my money in four years. I think sometimes that’s when the investors, you know, I would, I encourage them to pause and say with this money, are you prepared to lose it?

Ian (43m 44s):

Because now to get to that level of return, you’re assuming that a bunch of stuff goes right, of which neither you, the operator, the developer, nobody can factually say that will happen. There’s probabilities that each one of those things could happen. And then there’s probabilities that they could not happen. And if three of those things not don’t happen and they happen, and the outcomes are bad. We’re in a, we’re in a re we’re in a money losing category, right. We have a building that’s vacant, we’re going to go put a bunch of money into it, for example, and then we’re going to go lease it up and then we’re going to go sell it for a bunch more than we have into it. Well, there’s a, that’s a lot of assumptions of things going, right.

Ian (44m 24s):

Yeah. And they don’t always go. Right. So I, I love that question because it really just stresses that when you look at a real estate deal and you look at a targeted return, it’s targeted for a reason, it has a blend of different outcomes, lower risk real estate has a narrow range of outcomes while it has range, but we can definitively say the range of outcomes is lower on that. Love that core real estate relative to the range of outcomes at the high end, that opportunistic or development type of real estate.

Jesse (44m 56s):

Yeah. That’s great. And it’s, it’s funny too, when you, when you talk about that internal rate of return, you know, almost by definition, the one thing you do know for sure is whatever number you have in your model is not the number that it’s going to end up being when you finish the deal. And, and it’s just something that’s so easy. As you know, when, when I remember first getting into this, you know, the, the cap rate that you, that you put in your reversion, your, the end cap rate on a model, you know, that that’s sometimes a hand-waving exercise, but the one thing I just want for listeners as well, and we’re getting into the weeds a little bit here, but just to acknowledge that we had a professor, Frank Allen Lee, or I think he was an instructor at Columbia, his master’s in real estate. And one thing he always said, I really liked.

Jesse (45m 36s):

He’s like, that’s not to say that we don’t make assumptions. He’s like, because people will say, well, how can you assume this, this and this? And he’s like, well, if you make no assumptions, that’s your assumption. That’s your, your no assumption model. That is an assumption. So what we try to do is figure out the best way, just like you’re describing here.

Ian (45m 53s):

Yeah, absolutely. Frank is right. He’s, I’ve read his book, his book that he’s fantastic. He, again, you know, somebody that I would look up to in the industry and, and you’re, you’re totally correct. You, you do have to make assumptions because, and the other thing you can think about is that you could put yourself for a moment into the, into the shoes of the operator or developer. If you don’t make any assumptions and you’re not willing to take risk, then you’ll never acquire a property because the market is willing to take risks and the market is willing to price that risk. So obviously when we look at that fully leased, Amazon building, the amount of risk is lower.

Ian (46m 34s):

Hence the amount of certainty of like, so the, the level of that capital that’s going into that deal, it’s willing to put more like lower risk capital into it because they know they have the certainty of the revenue stream coming from Amazon. There’s a different type of capital. If the building was a hundred percent vacant, it’s a vacant office tower in Seattle, for example, that has a value eat. We’ll have to have assumptions. Like, so if the assumption is, it remains exactly as it is, then the value of that asset is negative, but I’m going to be pretty sure that if there was a vacant office tower in Seattle, it doesn’t trade negative. It’s interesting.

Ian (47m 14s):

There’s there is a pot, there was a point in time where an office building in a city did trade for a negative value. So it can’t say that it can’t happen because I know of the story in the industry where that occurred. I’m not going to talk about who it was or where it went, but I know that somebody paid money to have an asset taken their hands. I it’s possible. So that’s the other thing. It is, it is even that is even possible, but a vacant office tower in Seattle will have a positive value attached to it, which means ultimately that the market has assumed that there is that the high likelihood that somebody will come in to that property in the future, somebody will lease it and somebody will pay a rent. And that rent will turn into a positive return. Now, how, when, how much and what will it cost to get there?

Ian (47m 59s):

That’s why there’s a price discovery process on that deal. That’s why you expose that deal to the market. And it’s ultimately the person who is willing to take the most risk today oftentimes ends up winning it. Not often, not always, I should say price. Isn’t the thing that oftentimes drives the execution of that deal. A lot of times, it’s the certainty of execution over the price. So essentially the group that is most credible, who is willing to, to also take the most relative risk, you know, into the range, that’s probably the group that wins that deal. But your point, you have to make assumptions in this business or else you will simply do nothing.

Jesse (48m 37s):

Yeah, for sure. So we ask four questions to all of our guests, but before we do, I would just like to generally speaking, ask you for 2021 with, with crowd street, anything on the horizon that you’re keeping an eye on. Any, anything that you think is worth noting?

Ian (48m 56s):

Sure. When we think about 2021 at crowd street, we see opportunity in a variety of asset classes, geographies, and risk profiles. So for starters, let’s just talk about big macro geo. We have been a proponent of the secondary market. That’s predominant. We kind of have that as our secondary market thesis. We have been big fans of going around the country, the Denvers, the Austins, the Nashvilles the, even the Atlanta is right. The Raleigh Durham’s of the country. We are we’re, we’re fully back in the saddle on that thesis as we come out of, you know what we view this as basically a real, this is a new real estate cycle. That’s beginning, you know, we, we basically had a fast reset during COVID and luckily the stimulus money with low interest rate environments basically kicking off a new cycle.

Ian (49m 45s):

So we go back first and foremost is saying, we, that those markets, we like those. We also, with a twist, we like mountain region markets. We, we, we like salt Lake city for some strategies. I think we even like Bozeman Montana, right? For multi-family development. We also like, we also like Boise, Idaho, we think that’s a market. That’s got great, great momentum coming to it with good things ahead. So those are probably the areas of the country where we see the most opportunities, these secondary markets that we’ve had. We saw people going to them. They had quality of life, had affordability. They had increasing connectivity to the United States, you know, through airport expansions and transportation and infrastructure. And the like, then when we think about asset classes now, generally speaking, we think multifamily in a good spot.

Ian (50m 28s):

Again, it’s the biggest beneficiary of the cheapest form of, of debt through agency financing, Fannie Mae, Freddie Mac, you know, when you can buy an apartment complex and lever it with sub 3% debt you’re you’re. And right now the cap rates are five, five and a half percent. Well there’s cap rate compression. That’s going to go that we’re already seeing demand, basically bid up those deals because the, the, the positive leverage effect in the yield on that deal is, is good. It’s good relative to other things out there. So again, take, multi-family put it back into that secondary market that’s growing. We think there’s opportunity there. We think there’s opportunity from both a ground up development perspective when it’s not oversupplied in the market.

Ian (51m 8s):

And we think it’s there from an existing asset perspective. We’re also bullish on industrial it’s it’s, it’s, it’s a no brainer. It’s the thing that has, it has been absolutely stellar during COVID, you know, to our conversation earlier, we just spiked our rate of online sales. We’re on a trajectory toward to 30% of online sales over the next decade. We’re under supplied for industrial retail and industrial real estate in the United States. So we, we like industrial. We like existing kind of class B in place, more oriented towards manufacturing, because that’s the kind of stuff that there’s, they’re not building manufactured oriented class B industrial anymore, because it’s hard if the land is too valuable, but if you can find that close to a Metro, and it’s under a hundred bucks a foot, it’s going to have demand.

Ian (51m 57s):

We also like ground up, you know, stuff. When it comes to distribution, both be a larger box. You know, the stuff on the outskirts of the city, that’s the 750,000 to a million and a half square feet. The step that’s closer to the cities, that’s a three 50. And under, we think from a ground up perspective that, that if it has a distribution component to, it could have cold storage component to it as well. Or if it’s oriented to the growth of e-commerce sales, we think that deal has legs. We liked that. When we think about other asset classes, we start to get a little bit more cycle oriented opportunistic office it’s so there’s, again, there’s a bifurcation of the office market. If you have weighted average lease term. So you’ve got long term leases in place with credit tenants in a well occupied building, that’s kind of like a bond.

Ian (52m 41s):

So we think that deal has value, but it’s going to be value oriented to the cashflow type investor, not going to set the world on fire on returns, but these days earning five, six, 7% yield. When interest rate, when, when T-bills are getting a 1%, it’s pretty attractive. Other than that, if we think about multi-tenant kind of class B office downtown and suburban want that to be a little bit more opportunistic, right? That’s going to be relative value to where it was. We’re assuming that leasing occurs, things need to occur. That aren’t haven’t been occurring. You need to get paid for that risk. So we’re looking at it from that. So we want basis to be low. We want market to be right. We want absorption that we think is on the horizon.

Ian (53m 22s):

W w you know, I said like, we want to get paid for the risk to take it. We think about retail. Similarly, we want, we want, we want good value. We want good basis. Ideally speaking, we want that, that, that shopping center to be grocery anchored. If it’s not grocery anchored, we want it to be the best thing in the market. Top one or two locations, because that shopping center, even if it doesn’t have grocery in it, but it was the best one or two things, and it’s somewhere get pre COVID. That’s going to get bounced back, maybe, right. I had three or four different retailers blow out during COVID. We saw all the headlines, we get it, but what’s going to happen is that it’s the best thing and the best location coming out of the pandemic. It has the opportunity to lease up because there’s going to be other groups that were pushed out previously that want to jump into the best location.

Ian (54m 5s):

So if you’re, if you’re in the prime spot, you’ll be fine to me. It’s the fourth or fifth best locations. Those are, the ones are gonna, they’re gonna, like, they’re gonna flag. They’re gonna ultimately maybe not recover. Those would be the ones to our point earlier in the conversation. Those are maybe the redevelopment plays of the future. So we’ll avoid those for now. We’ll look for the best stuff in the best location. And if we can find grocery anchored with the ability and we like basis, retail works, hospitality, opportunistic deals, discount to replacement cost discount in 19 2019 levels. Good example is we did one opportunity. Steak hotel deal on our platform in 2020, the large hotel it’s called the it’s actually the Marriott Renaissance hotel in the Baltimore inner Harbor, large hotel, it’s 600 and some keys, major asset nature location, pretty empty.

Ian (54m 56s):

In 2020, we were able to buy that at a six over 60% discount to the basis of the previous owner. In essence, if that building can operate, that hotel can operate like it did in 2018, we’re at a, or what about a nine cap in a market where, when it was trading, normally if it’s sold in 2018, it would sell for more like a seven cap, 200 basis points of spread there equals really good value, really good basis. You got to put a lot of money behind that kind of deal. You can’t assume that it’s going to begin to operate anywhere near normal until 22. So that deal had a lot of reserves put into it, but that’s the kind of thing. When you think hospitality, it’s like, look, take risk.

Ian (55m 38s):

Nope, eyes wide, open. It’s risky, but we have a substantial return there. But yeah, again for high-risk capital hospitality is a really interesting situation. Otherwise, when we think about the niche products, we love self storage. We love it from a ground up perspective. We also love it from a value add perspective, really interesting asset class it’s done really well over the last few years. It’s very resilient. It was totally resilient during COVID. Yeah. From there, we get into other things. We’ve done a data center. We did a discount, no purchase on the platform. Last year, we can find that kind of like really interesting niche stuff. We obviously are our fan of, of the medical office space. We’ve done, particularly like daily needs kind of use. We D we’ve done some dialysis center deals on our marketplace, you know, dialysis, that kind of thing, where you, if you, if you need it, you’re going to go to it.

Ian (56m 23s):

You can find great credit tenants in there for sending us as an example, we did a deal that was anchored by Fresenius and multiple locations around the United States, 10 year term, seven to 8% cashflow, really like that kind of strategy, all balled up. There’s a lot of different kinds of steps. So, which means, and, and what I recommend for any investors that want to check it out. We have, we publish our investment thesis. It’s on the homepage of our website. So when you go up in the corner, you’ll say resources for investors. You can go down and you could read the thesis and you can read exactly what we’re thinking. Asset class, by asset, class, and geo. What, what, what is kind of like what to expect lower total returns, but less volatility. And then what to expect, maybe a greater volatility, but looking for higher returns.

Ian (57m 6s):

Yeah. That’s,

Jesse (57m 7s):

That’s a great summary. All right. We’re going to get into these questions here. So if you’re ready, Ian, I’ll, I’ll lay them on you. All right. Some something, you know, now in your career that you wish you knew when you started out.

Ian (57m 20s):

Wow. Usually a long

Jesse (57m 22s):

List, but there’s a couple that usually come to mind.

Ian (57m 25s):

Yeah. I would say that the thing I wish I knew now, I know now that I knew then is to really think through, I think experience teaches you what leverage can and can’t do for deals and the risk that it either helps you alleviate or insert. I would say more knowledge around debt it’s structure, it’s pros and cons and its risks earlier in my career. The earlier the better, I mean, you, you get beat up at some point and then you really kind of understand what debt does to you and what leverage does to you. Knowing that earlier with an awesome what’s the word,

Jesse (57m 58s):

The resource you would give the real estate investor listening. It can be a podcast. Can be a book.

Ian (58m 6s):

Okay. Yes. I have. There’s three books that I think are great. I I’m, I love books. I like I’d say I consume books and podcasts. I think a lot. I also listen to, you know, people that I think that are pretty smart out there and I, I listen to them. So for example, three books that I think are, are great resources. One a book by Peter Lindemann. I’m a big fan of Peter Lindemann. I think he’s a fantastic real estate economist. He’s a former Wharton professor. Now he has his own group called the Lindemann group. He wrote a book called real estate finance and investment risks and opportunities. Find that on Amazon. Obviously. I think that’s a great book to read. Another great book is Frank Gallan Ellie’s book when every real estate investor needs to know about cashflow in 36, other key financial measures.

Ian (58m 54s):

That was probably one of, I read that book probably 15 times when we got a great book, it’s just such a great, it’s such a great tool. And you do. And that was probably, that’s why my other recommendation, like there’s these financial metrics that help you start to understand commercial real estate and you can’t read them once you gotta read them, you got to exercise and you got to read them again. You got to exercise as getting in is all about the repetitions, right? This is, this is the 10,000 hours of practice that really makes you an expert. I think Frank is a, is a great example of that. And I mean, third, I’ll do a shameless plug for my own book, right? I have a book called the comprehensive guide to commercial real estate. You can find it on Amazon. I wrote that book specifically for the crowd street style investor, somebody who wants to passively invest in commercial real estate.

Ian (59m 39s):

So if you want to go active, that book is probably as a couple of tools. It will teach you about cap rate, you know, equity, multiple it’ll teach you about yield on cost and other things, but it’s really more oriented towards, Hey, I want to understand how to evaluate a deal, a private equity deal and determine whether or not, you know, what the, what the operator developer is telling me makes any sense or not. So those, I think those are three books that I record.

2 (1h 0m 1s):

Okay. Number three, your view on mentorship.

Ian (1h 0m 6s):

Love it. Can you see, you have to in this industry, I think it is paramount. I’ve had the privilege to have three mentors. I think three really distinct mentors in my career. Each one of them did amazing things for me to separate the way my first mentor was my trading mentor. The guy who hired me to trade on the options page, tell me how to trade. Tell me so many things about the early phase of my career. So totally thankful to him. Then later in my career, when I was at my private equity group, the CEO of that company, that was my second mentor, taught me so much about thinking about commercial real estate. How to think about investors, how to think about investments, how to think about risk, you know, and he, and he had a very huge story career and different aspects.

Ian (1h 0m 49s):

He was at 1.1 of the senior partners or CB Richard Ellis. So really understood, you know, commercial real estate, the world about how it operates. My third mentor I have right now. He’s fantastic. He is, his name is Jack Chandler. He’s the former global head of real estate at BlackRock. And he’s, he’s the former CIO LaSalle. So talking with Jack on a weekly basis has been absolutely fantastic. I learned so much from him on a weekly basis. So mentorship is absolutely key. Find the REL and the thing is find the appropriate right. Mentor. I mean, I even go back to the beginning. There was there, there was a temporary mentor I had when I first broke into multi-family. I had a family friend who had been doing it for, you know, a dozen or so years.

Ian (1h 1m 33s):

He basically had his own portfolio. He wasn’t a syndicator, but he owned probably six or 700 units across four properties in the Southeast. And his name is Mercer. And so I called him up and said, Hey, I think I’m going to go look at deals in Birmingham, Alabama. Like, what do you know? Like, what do I need to know? He said, well, you gotta start thinking about these things. And like, you know, so he taught me so much about getting those that helped me get those first deals done. So find the first appropriate mentor and then, and then go from there.

2 (1h 2m 1s):

All right. And my favorite poach, this one for master’s a master’s in business and Bloomberg, your favorite car, or sorry, your original first car make and model. Ah,

Ian (1h 2m 12s):

Interesting. Some people might not actually know it. My first car was a 1960 Sunbeam, Alpine convertible, British Roadster. My dad, the reason I got that car was my dad was a, he’s a baby boomer. He was in college during the 1960s. He was a big fan of British Roadsters. He actually owned this company that he, they operated while I was in college. That would repair why our wheels now remember, like when, why our wheels were like a real wheel and they had knockoffs and you would literally knock them onto the wheel. So he owned Austin Healey’s he owned a Datsun Roadster and a couple other things. So he was, yeah, so he, he was like a total British Roadster kind of guy, the 15 years old.

Ian (1h 2m 56s):

He is now at this point, he was a civil engineer and he became a general contractor. So he’s out there, you know, remodeling people’s homes. And in my part, I grew up in the Bay area. So he comes home one day and goes, Ian, I found your card. I was probably like 15 and two years and two days old at the time. What are you talking about? You found my car. Like, I can’t even try. I won’t even be able to get my permit for like six months. He’s like, yeah, I found a car, but you’re going to want to come check it out and I’ll, and I’ll talk to you about it when we go there. So it was at his client’s house. It’s sitting on the side of the house. It’s under a big tarp and he’s like, this is a 1960 Sunbeam Alpine. It’s just kind of cool British Roadster. It’s very rare. I can’t find a lot of them and it didn’t run. And so he said, I’ll make you a deal.

Ian (1h 3m 36s):

He’s like this, thing’s going to need an engine and suspension, a couple of things. Like it’s going to need some work to get it running. And it looks like crap right now. So he’s like, I will get it running, but it’s going to take a lot more money to make it look nice. You make it look nice on your dime. I get it running on my dime and you can have a night, you can have a British Roadster for your first car. And I was like, that sounds cool to me. So I ended up ripping the engine out of that thing. Like two times, I, I mean, like talk about a way to like, get a kid to understand w what, you know, the basics of like car Makita, a British Roadster. It breaks down like every five minutes. So, you know, so yeah, I, I spent the next three or four years, you know, restoring the car, working on it every day kind of thing.

Ian (1h 4m 23s):

And then when I went to college, you know, I couldn’t take care of it because you literally got, you gotta take care of that thing, like every day. So sold it when I was in college and I turned that into like a Mazda RX, seven, you know?

Jesse (1h 4m 35s):

Awesome. That’s awesome. I can, it’s so fun. So you became a true British petrol head. And if I remember correctly, I feel like it was roots. That was the manufacturer that back in the day, but that that’s great. So I can, I can a hundred percent say we haven’t had that on the show, so that’s great. I listened. This has been, this has been amazing. I’m just digesting everything we just talked about for those that want to connect with you. What is, what’s the easiest route? We’ll put some show links show laying to the, to the book, but any, any other websites or links that we should put up?

Ian (1h 5m 9s):

Yeah. What I typically tell people out there is there’s a, there’s a few different ways to connect with me. The easiest way is I am the only informally on the LinkedIn platform. So if you type in my name and you get right to me right away, and I, and I love talking with investors about deals. I mean, you can tell I’m a deal junkie. So feel free to ping me on LinkedIn. I’m happy to chat the second way. Obviously, just through the website, WW dot crowd There’s a lot of information there. There’s ways to get in touch with the company. You know, I’m kind of one layer removed that way. But if, if people, you know, it’s, and, and again, given the inbound traffic, it’s easier for people to kind of pick it up. And then if people want to get directly connected with me and take it from there, those are, those are the, probably the two key ways.

Ian (1h 5m 53s):

But you know, LinkedIn I’d say is the starter. And then, and then check out the website.

3 (1h 5m 58s):

My guest today has been Ian for migli Ian. Thanks for being part of working capital.

Ian (1h 6m 2s):

Oh, it’s been a pleasure, Jesse. I love the conversation.

3 (1h 6m 5s):

Thanks for having me favorite listening to the working capital podcast. My goal is to help individuals break into real estate investing as well as educate experienced investors. If you enjoyed the show, please share with a friend, subscribe and give us a rating on iTunes. It really helps us. If you have any questions, want to learn more or likely to cover a specific topic on the show, please reach out to me via My name is Jessica galley, and I’ll see you back here for the next episode or the working capital real estate podcast.