if you're willing, I'd like to ask you, Manny Renteria, what is the BIGGEST RISK?
So the biggest risks that we run as a nationwide consultancy, and myself myself personally, as a consultant that has, that has a phone with with over 1000 clients, and that call me You know, every other day is, is, is not meeting the performance, right. So I've, I've made this mistake, you know, when I, when I first started consulting, in the consulting business signing agreements, on behalf of service providers, so I would be the the in between the service provider and the customer. And so, in this agreement, I'm the one presenting disagreement to the customer and saying, hey, these are all the benefits of, you know, doing solar with, with my, with my service provider. And so in these agreements, it's it's not, it hasn't been a standard to have a performance guarantee. And that I think, is the biggest, biggest ticket item for me, for my customer. And for him, even for the for the service provider, is to have that, because now without that I cannot sell anybody's product, I cannot promote or sign anybody's agreements, unless there is a performance guarantee, which covers me, and it covers my, my, my client, in this case. And what that is, is very simple if if your system is, is out there and is producing power, but the power that it's that it's supposed to be producing, let's say I presented you with a proposal that says, hey, this, this system is is supposed to produce 10,000 kilowatt hours every month, okay. And for the first year, you know, multiply it by 12, that's 120/3, whatever that is, right. So, so they sign up based on the fact that you showed them, you know, a performance estimate on the proposal that they signed, and then the agreement didn't really have any performance guarantees. And what happens is, a year later, when this system underperforms significantly, and and your customer ends up with with a system that doesn't produce or meet their needs, and on top of that, now they have a huge utility bill, why because all the power that they didn't produce is now coming from the utility and now they have this extra bill on top of whatever, you know, if they're financing, then they have the only have two bills. And so what ends up happening is I have to go and explain why the system is underperforming, or whether or not they need more panels. And I'm stuck in between, you know, explaining to the customer, hey, you know, your system didn't produce because these trees are still in the way or something like that. So it's really, really important that that a performance guarantee is set in place by any service provider. And then that performance guarantee has some sort of sort of sort of monetary compensation in in the event that the system underperforms in a certain year or every two years and typically what a performance guarantee does is every two years if the accumulated power doesn't equate to this much you get reimbursed at this rate. So that to me now is is one of the biggest risks that I that I've had moving forward. And so now I always look for that in service providers to give me that performance guarantee. Otherwise, I'm out there, you know, exposing myself and my company as as you know, as being untrue or just on I don't know, just not not trained, I guess
Today, my guest is Charles had cell. Charles is the CEO of EA property care, a prop tech company based in Boston that provides smart building solutions for landlords and developers that operate over the cellular network. And in just a minute, we're going to speak with Charles about tech for property that can help boost your net operating income.
if you're willing, I'd like to ask you, Charles. Hansel, what is the BIGGEST RISK?
Charles Hadsell 32:36
Yeah, sure. Darrin, I think, you know, when I thought about this, I think the biggest risk I think about is technology rescue, you know, even even alluded to it a little a little earlier in our discussion, right of kind of the early generation water bugs having so many like false alerts that it kind of caused the owner to like be dead in because the alerts and now you have a real issue. And now you're, you miss it. So I think technology changes rapidly, you know, and this kind of comes back to my time and some doctor as well, we look at the pace of innovation on putting more electronics into smaller places and asking like these, you know, end nodes of the network to do a lot more you rather than sending it back to some centralized server, you're having decisions made at the very edge of the network. So reliability is like is like very important for these, these these applications. And I think with semiconductor technology, reliability is continually improving. But there's always that risk of a component failing at the wrong time and leading to like a bad outcome. You know, so that's why we kind of like to take the approach of kind of layers of redundancy, you know, like, so for example, like to prevent, like water loss in your basement or in the basement of a building, have a sensor to tell you, if someone left the exterior door open, then have a sensor that tells you it starts to get cold, then a sensor to tell you that there's a water problem, you know, so you have kind of three layers of redundancy there that could kind of prevent, prevent a disaster. So So that's kind of how I think about risk is like a technology is changing rapidly, you need a platform that could adapt to that. So you're not kind of stuck in the stone age's with the platform that's, you know, out of date are no longer relevant. And then also like the kind of I say that the connectivity risk, you know, of a, that power outage happens, what happens to your system, we saw what happened in Texas, you know, a few months ago where all that led to all that damage. So that's why we covered this a couple different places on the show today, you know, cellular i think is the right technology medium for these IoT systems and these rental property and like landlord applications, just because it's up, it's up when everything else is not up. So that's kind of my overall kind of thought of you technology risk is kind of the big one and that's how we really like to wrap your head around minimizing the impact and putting redundancies in place.
Today, my guest is Matthew Ricciardella. Matthew is the founder of Crystal Spring, excuse me, Crystal View Capital and has over 18 years of experience in the real estate industry. Crystal View Capital is a private equity real estate firm that specializes in acquisition and management of self storage facilities and manufactured housing communities across the United States. Known for its in house acquisitions and management team and unique company culture. Crystal View Capital is vertically integrated, disciplined to its investment strategy and has a proven track record since a firm's launch in 2014. And in just a minute, we're gonna speak with Matt about self storage facilities in manufactured housing.
J Darrin Gross:
I'd like to ask you, Matt Ricciardella, what is the BIGGEST RISK?
Well, I think it's a great question, obviously. And I think there's a lot of answers to that question. But I've, I've thought about this, obviously, in depth. I think, for me personally, in what we do, by far, the largest risk is overpaying for an asset. You could take a good investment and make it a poor one, by paying the wrong price. Or vice versa, you could take a mediocre investment and make it a wonderful one by paying the right price. So we focus diligently on not overpaying. And the way we do that. There's a term actually I think, Charlie Munger had this term, which is Warren Buffett's partner. And he said that risk is inextricably bound up in the price that you pay for an asset. And I think that rings true for me in a major way, the way we mitigate that risk to answer the other part of your question, Dan, is, by and large, we don't compete with the rest of the buyer pool that's out there. way we do that is we buy most of our properties off market. So we create a bond in a relationship with a seller where we're dealing direct with them without a broker. And that's how we put probably 80 to 90% of our deals together. Right now, as I mentioned, the two asset classes are white hot. Because of that. There's bidding wars, there's auctions, you have to compete in those auctions, and you offer the highest price and you win. But question I have is, Are you really a winner? Or are you a loser? I mean, you paid more than everyone else out there. So we like to focus on finding our deals without competing. And I think that's how we lay off the risk. So as you would use the term in the insurance world where we mitigate our risk to a large extent.
Today, my guest is John Stoeber. John uses his background in finance to build financial models and analyze multifamily properties from a number of different perspectives. He currently owns and operates 34 apartments in Little Rock, Arkansas, and is looking for deals in growing markets. And in just a minute we're going to speak with john about partners deals in the skill set you need to do your first deal.
J. Darrin Gross: I'd like to ask you, John Stoeber, what is the BIGGEST RISK?
Right now, I still think COVID. And just the environment we're in is the biggest risk, especially if you're dealing with C class properties, you tend to deal with residents who are on the lower end of the socio economic scale. So these are the people that you know, their servers, waitresses, receptionist, they actually have to go into work. So if there's a shutdown, like, they're not going into work, or if they get COVID, like, and they may not have a job anymore. So I think that is a huge risk, like from a property perspective, but also with this, like the home market right now. And it you know, it's February 2021. Like the whole market just seems crazy. If you're, if you and your listeners have been, like paying attention. I mean, just look at gamestop, AMC Dogecoin. It's just like it seems very unstable right now. Kind of bubbly and frothy. And like, I don't know if the lending market is going to be the same 12 months from now where people are able to get loans so freely. And if you can't get loans, that really drives down the number of buyers who can buy a property, which in turn is going to drive down values.
Today, my guest is Erik Hayden. Erik is the founder of Silicon Valley based urban catalyst, named by Forbes and Sorenson impact Center has a top 10 opportunity's own fund. And in just a minute, we're going to speak with Erik about opportunity's own funds, and the potential for investors in the next 10 years.
J. Darrin Gross:
I'd like to ask you, Erik Hayden, what is the BIGGEST RISK?
Sure, and this is a great question, because this is what every investor should ask whenever they invest into a property or a fund is what is the risk versus return because that's what matters when you're looking to make your investments. When you look at ground up real estate development, which is really what urban catalyst is, you really have to compare it to a group that goes out and buys existing stabilized real estate assets. Because you have a much better idea of what you're getting into, if you're buying an asset that has a tenant, it has a cash flow, it's already in existence, and if it's a piece of dirt that I'm going to build a building on, and there's a whole future. So really in, in ground up development, there are four major risks. The first is pre construction risk, and that is, am I going to be able to get building permits and approvals from the city to build the buildings I say, I'm going to build. And here in downtown San Jose, that risk is significantly mitigated, really, because the local government wants to see development happen. And they're very clear with developers early on in the process as in way before we enter into the contract to buy the land, say, here's what you can do, here's what you can't do. And they've been really true to their word on that. So as far as other jurisdictions here in the Bay Area in California, it's not quite as easy in a process so that risk is much higher in other jurisdictions here in downtown San Jose, that risk is significantly mitigated. The next risk that we look at is called land development risk. That's there are things associated with the land that you just can't see. I mean, there's environmental contamination. There's liquefaction geotechnical risks, there can be underground structures that you don't know about. There can be landslides, there can be water tables, all sorts of stuff. And of course, we do a lot of studies before we acquire any property to make sure that we know everything that we can possibly know. But I'll tell you, one of the reasons why I like doing development in downtown San Jose is because it's flat, I know it's flat, I know that there's a high water table, so I don't build any underground parking garages. And I do all those studies to make sure I know how to mitigate, you know, build my structural systems for a geotechnical standpoint and my foundations, and how I'm going to clean up any environmental contamination that's associated with the property, I need to be able to put, when I say put a number in a box, right, you got to understand how much your risk costs. The next type of risk associated chronic development is construction risk. And this can be a bad one. But in order to mitigate that, we do a couple of things. The first is, and this is a bank requirement, every ground development project we do, we need to have a guaranteed maximum price contract with our general contractor. So we use third party general contractors. And really the way that those work is they say, here's the price we're gonna build this building for. And if we go over that price, it's on us not on you. Now, a couple caveats to that. The first is it has to be a large enough general contractor that they can handle those cost overruns, if they happen, so you can't have them just go out of business on yet. The second is, their bidding a set of plans, those plans better be clear up your architect, let's hope they didn't forget to put doorknobs on the third floor. Because if they did, that cost is on you as the developer. So we have a team of 12 development and construction professionals here at Urban catalysts, where we have a ton of experience diving through those construction plans to make sure that they're accurate and complete, so that we get the best price on our guaranteed maximum price contract. We also, of course, carry contingencies associated with the project so that there are cost overruns, we have money to pay that. And then the last thing is a risk that everybody's going to take, which is market risk. The difference between a grounded development and a project that's existing is we're anticipating what is market risk several years from now, because our buildings take a while to build. So that looking into the future market is that additional risk, we mitigate that risk by doing business here in Silicon Valley, one of the best real estate markets historically in the country, one of the last places to go into a recession, one of the first places to recover. Those are the four types.