Today, my guest is Scott chop and Scott is the CEO and founder of the Urban Pacific Group of Companies along the Long Beach, California based real estate development company, founded in 2000. They focus exclusively on workforce rental housing communities throughout California. And in just a minute, we're going to speak with Scott about multifamily opportunities for workforce housing in California.
But if you're willing, I'd like to ask you, Scott choppin. What is the BIGGEST RISK?
Scott Choppin 57:16
Yeah, no, great question. You know, like I mentioned, when we before we began the interview, like real estate development, and you could say a real estate investment really is entirely a risk mitigation, you call that minimize? So I'd say squarely in the in the middle there. Really, at the end of the day, you know, investing and development are a risk you like there require risk to be taken to produce these returns that we're describing. Right?
Always the trade off. And so really where I've arrived in my career, where I am now, is to be risk mitigating everywhere we can and so like, I'm not, I'll fill in the answer some more. But, you know, there's many, many places that we've mitigate risk. But here's, here's my answer. Is it really around a philosophy and a style and approach to how you mitigate risk? And I'll give you an example what I mean. And by the way, this like this risk mitigation is a fundamental tenet of our business. In fact, I would say it's probably the most important one because we have so many different exposures to risk in so many different areas, right? market demand with tenants, interest rates with like, debt, return here six with, with investors, governmental agencies who oversee us, right? talked about California, right, that's a that's an increased risk. So when I was a young project manager, I worked for my costs. And basically, part of my job, the way I work with Mike and the way he had his project management team structures, as a project manager, you basically were responsible for the full life of a project, from finding the land all the way through to completing it and handing it over to the asset management team after his lease. Right. And that was very unusual. You know, maybe call it cradle to grave, you know, beginning to end have your describe it. So what that did is that threw me as a young project manager into, like, you didn't have to find new deals if you didn't want to, but I was, like, incredibly ambitious, to, to grow my knowledge. You know, I knew I wanted to be a developer, you know, running and forming my own company, like I knew that, you know, to have the wave, you know, since I was 18. And but what I remember was looking at land, and I had good teachers. But when I would look at stuff, it was everything, I couldn't make it work. There was no project that I looked at that I couldn't figure out or thought I couldn't figure out how to problem solve, right? There's no deal. I can't figure out the hairiest deals with environmental issues, tough neighborhoods, tough cities, whatever, right? I go, Oh, I could go in there. I could figure out a way how to do it. Right. And what I figured out dawned on me years later, is that by having that approach, I took on an incredible amount of additional risks now when I worked for the company was their risk. And of course, they were smart about it and only gave me so much, you know, rope to hang myself on a deal. But when I got out on my own, you know, I continue to learn these lessons. And now it's, in fact exactly the opposite. There's almost no deal that makes it through the underwriting, right? And I'm, in fact very fast. And we can talk to our internal teams who bring us deals, people, partners, people bring the like, I'll No, no, no, no. And why that's important is because it's a philosophy, philosophical approach to mitigating risk, meaning, acknowledgement of a risk and a willingness to mitigate it. And I'm willingness to say no, if it's unmitigated, right, that's up for us, there's some risk that can't be transferred. Right, the construction risk, under a personal guarantee to a lender is not, I can't shift it to anybody else. In fact, it's funny, in the old days, we was used third party GC is right to construct our buildings. And then in 2005, the market was really peaking and we had a hard time getting GCS. And we brought all of our construction operations in house, like our project managers are superintendents, they'll work for us, you know, we were the, you know, became the default builder, if you will. And I remember a headhunter does to you don't do that, you have to shift the risk to the GC. And this is what I told them. I said, at the end of the day, I hired the GC as the developer and I give the bank a personal guarantee, I sit in between those two people, or those two companies. And if the GC screws it up, I still own the risk. I mean, it may look like I shifted it to him. And contractually, I did shift the obligations of building a building. But if he screwed up enough, or in the, you know, time or money, like it's gonna flow back to me. So where I told this headhunters I go, look, yes, I'm bringing some of these risks in house, but it also allows me to control and get direct access to the field, to the subcontractors to the owners of the subcontractors, because the GC that sat in between me, he had his own agenda, he had his own profit to increase, he had his own stories that he told the subs, you know, and, you know, sometimes that was good, but if the person didn't have good ethics, or they were trying to, you know, manipulate which people do in that business, I mean, all business suppose, I found it to be incredibly like it was I took on more risk that I could then not even control, or I had to, like, go through people to try to control it. And of course, when they have their own agenda, they're not gonna let me control it if it's against their agenda. So this is a way for us to can control really minimize that risk, we still took on risk. But by having that direct access, we minimize that. So if you take that story, and then you apply it to every possible facet of the real estate development process, at every time we underwrite, every time we buy land, we build the building, we rent units, we're looking to constantly always look at it from the standpoint of what if this fails, what if the spread doesn't achieve what we think it's going to achieve? Maybe we better look at it at a lower rate to be more comfortable that we've mitigated that risk. And why save that way is because people who are entrepreneurs are naturally risk takers. And you're, in most cases, your own worst enemy. And that, you know, in other words, you're a risk taker, you're built to take risks, and you do take risks, then the job becomes how to take risks that don't blow you up. And that's your own learning. That's, in fact, networks of people around me that I use that my teams internally, like, I encourage people like, dude, you got to tell me, no, more of the famous saying, I'm as I'm a great problem solver, I cannot solve a problem I don't know about, bring me all the problems, don't hide anything, don't cover it up or try to mean you know, if I can help solve, you solve a great, I'll do that. But I want everything fleshed out. Because you know, when you then get all the full picture, it's then I mean, my job, our job as a company is to problem solve and mitigate risk. And we do that 1000s of 1000 times in a deal to every day, you know, over you know, the two or three year lifecycle of that development project. So I know that was a really long and winded answer, but it's really like, it's like having a mental model of how you approach risk and you do it, you know, every day in your business, you know, as you know, your insurance and underwriting risk. But I would always advise, particularly people who are coming new into the business to like, you know, hear these words. And you know, a lot of times go here and they go, Well, I'm different, I can do better. I'm a better problem solver than these guys. And that's fine. But like know that that risk doesn't go away just because you think that way. In fact, arguably you increase your risk because there's stuff you don't see. You can't admit to yourself that you have blind spots and need help from others to go dude, you miss that thing. Better watch out for that right and, you know, got all kinds of betters around me that you know, I'm like, dude, tell me like, donate it. You know, I don't like bad news. I don't like surprises. But you know, what I like worse is, you know, bad news and surprises that now I'm late to the game on.
Today, my guest is Eric Voyles. Eric is the Executive Vice President and Chief Economic Development Officer of Tex America Center, which operates one of the largest mixed use industrial parks in the United States. in Texarkana, Texas. And in just a minute, we're going to speak with Eric about the COVID effect and the opportunities created from COVID in rural markets in an in an industrial and flex space properties. And, but be first.
J. Darrin Gross:
I'd like to ask you, Eric Voyles. What is the biggest risk?
For you? No, I'm looking at it from the perspective of my clients, you know, the people I work with their biggest risk is potential for failure. And if you fail, when you expand many times you drag your entire company down with you. And so I always try to help people understand that not only is being in charge of an expansion if you're in a larger company, a potential career limiting assignment. But, you know, you you could you could actually if it's your own company, you know, you could have complete financial failure of your business, if you make the wrong choice. And so that's why we focus most of what we do. I'm trying to help people drive down that risk of relocation. You know, we began the process I mentioned I come out of economic development. So we began the process of once I got here of assessing the property. We looked at what are our costs, and really have tried to understand our cost structure. Then we've and we've tried to understand what companies need that structure. Then we've tried to understand what, you know, the political risks that might be involved with our property. And so there weren't really incentives available. So we have worked aggressively to put incentives on the footprint that you can get access to. And again, that that kind of ties back to financial. But you know, it also demonstrates that we are 100% committed to your company, to work with you, in the long run to achieve not just profitability, but stabilization in the shortest time frame possible, then we'll work with you to grow profitability. So all of this is really important when people are making decisions, we try to understand our market so that you can build a business plan that you can have confidence in, you can take it to the bank, you can take it to your board of directors. So you know, we many times are helping people collect the data that they need to put into their business plan. And you know, if it's good, and you can make your decision favorable for us, that's great. If if it doesn't match up to something else, that's great, too, because we've helped you make a decision. So you can move on, it allows us to focus on other things. So my entire our entire thought process in this is risk mitigation. And by doing this, when someone decides that we're the right place, what we've seen is those companies tend to be successful, they usually are willing to come back and provide testimonials for us about what we've done, that they didn't realize they needed help with at the time, but the things we did made a difference in their startup and their stabilization and in their long term profitability. So that that's what we focus on. I think that is the biggest issue that that corporate executive or that business owner has to address when they're trying to expand, they need to think about what are the risks associated with making this decision, and they need to choose the right place.
Today, my guest is Matt Sullivan. Matt is the founder and full time Chief Executive Officer of quantum Mari, a serial entrepreneur. He's the founder of crowd venture.com, and a co founder of two real estate funds. And in just a minute, we're going to speak with Matt about how a home equity agreement works and what it can do for you.
J. Darrin Gross:
But if you're willing, I'd like to ask you, Matt Sullivan. What is the biggest risk?
Well, I think the answer is relatively straightforward, because from an investor's perspective, it's a real estate investment. It's an equity investment. And so the risk to the investor is that the value of the underlying real estate decays to the point where they no longer have an interest because their equity interest has been reduced. Now, as you quite rightly say, so that is the risk, how do you mitigate that risk? How do you reduce that risk? How do you remove that risk. So the way the contracts are written, there are protections in there for investors. So, when we value the property, in some cases, we'll build in a little bit of a discount so that if the value of the property doesn't go up very much, or in fact stays the same, there's still a return in there for the investors. But really, the way that we look at the risk for both sides is it is absolutely directly correlated to the value of real estate. And so there are no extraneous risks that I'm aware of, there's no sort of risks that would not be sort of directly related to whether the value of the property goes up or goes down. So that's actually quite easy to quantify. Because we know from an investor's perspective, what the returns are going to be if the property goes up, what they're going to be if the property goes down, and the same for the homeowner, if the property goes up significantly, they're going to have a bigger share of the equity that they're going to be going to be paying. If it goes down, the homeowner actually benefits because they may not have, they may have to pay back far less than they originally received. And the other thing to mention is for our business as a whole, the biggest challenge, which is a bit like a risk, is education is getting people to understand what this Anneli what this animal is, how it's not debt, how it is not too good to be true, how it is a viable financial tool. So I hope I'm not mixing apples and pears there. When I'm talking about sort of, you know, risks and challenges, but I didn't, you know, I, we are seeing far more interest and willingness from homeowners funnily enough to investigate these types of alternative funding options. So, I mean, risk is a word I, I'd like to finish on opportunity, rather than risk however, that, hey, you
Today, my guest is Rich West. Rich is the general manager at Lightbox, where he oversees their lender and valuation business. Prior to joining Lightbox, he spent 13 years at CBRE. Most recently running the Americas valuation business, the largest valuation firm in the world. And in just a minute, we're going to speak with rich about lending volume trends and commercial property tech tools like light box valuation.
I'd like to ask you, Rich West, what is the BIGGEST RISK?
Okay, so the biggest risk for me and I'm going to come at this from my years of experience, looking at buildings, right? And, and living through the, you know, the 2007 2009 era, living through this era. biggest risk in my mind is not talking to your tenants and understanding what your tenants are doing. What what your tenants mindset is how your tenants business is doing? Because in the end, that's really what drives virtually all value is what the heck, what value is the tenant getting out of the space? And how is their business doing and, and, and what are their problems? So So to me, the biggest risk is being disconnected from what your tenants are doing, you know, whether it's a building you own, or if it's a building that you're you're looking to purchase.
Today, my guest is Ari Rastegar. Ari is the founder and CEO of Rastegar Property Company has earned a reputation as a thought leader in real estate with his innovative technology driven investment strategies. And in just a minute, we're going to speak with Ari about opportunities that Biden's sustainability initiatives will bring.
I'd like to ask you Ari Rastegar, what is the BIGGEST RISK?
The biggest risk is ego, always to me, you know, and I say that in whatever instance that you're working on, you know, as you know, whether as a CEO, as a father as a husband, you know, early in my career, and I'd like to, I'd like to believe that I've improved on this a little bit. I don't know if my wife would agree with me entirely at home. But, but but the key is looking for the right answer. And we touched on that before, and it's really being collaborative, and it's really, you know, taking yourself out of the equation, because a lot of times I'm not the consumer, so there might be a countertop that I want to install. And I love this red, I'm just using I'm just using a random color, but I might not be the consumer. And so doing a focus group, you know, asking other believable people bringing up their, you know, using collaboration to find the right answer. And, you know, whether it's a father talking to our children, and I might think that, you know, this is the way that I should be talking to them or teaching them or disciplining them, but is that their love language? Is that the way they shouldn't they need to be spoken with? Is that the way that they need to be nurtured? Is that the way that I need to show up for my wife does she need me to listen to me listen to her, or does she need a solution and you know, and really taking myself out of the equation and and and that's been one of the biggest evolutions of Rasta Gar. Is is really that is that's the biggest risk, because when we think we're right, and Mark Twain said it best he said, it's not what, you know, we don't know that gets us in trouble. It's what we know for sure. That just ain't so. And and I think that's been the biggest learning experience for me. And the thing that I've really, you know, really focused on. I think, some of my childhood friends would say that was a little bit more of an arrogant man, earlier in life, and I'm looking to find a little bit more humility there, but not humility in the sense that I think less of myself or less of, you know, less confident, but thinking less about myself and thinking more about what that end user consumer is, our investors, the property themselves, investments themselves, and all the other facets that come together.