Today, my guest is Chris Zona. Chris Zona is a partner at Mandelbaum Barrett PC in New York, and a trial attorney specializing in Complex Commercial Litigation, and in just a minute, we're going to speak with Chris Zona about Turning Conflict into Capital Litigation as a Real Estate Investment Tool.
https://www.linkedin.com/in/chris-zona/
https://mblawfirm.com/professionals/christopher-t-zona
J Darrin Gross
I'd like to ask you, Chris Zona, what is the BIGGEST RISK?
Chris Zona
Sure. So I think it really fits within what we're talking about. I think the biggest risk for investors that are in this this realm is that you need to be comfortable with taking over a potential non performing note, right? Like there is no way to avoid risk when you're making this sort of play. So what you need to do is kind of, you know, balance minimizing the risk through your diligence process, because you don't want to take on something that you're not ready to you don't want to overextend in taking it on, and then kind of balance that with the, you know, maximize your return on whatever risk, wherever in the risk matrix that you fall right, they always say higher risk, higher returns. Was very true. You know, if you're going to buy a very, very non performing loan, you're going to be, you know, probably up on the tier of of the extension of capital, and you need to mitigate whatever risk, make sure that you have a cap stack in place to do that you don't want to take on additional debt in order to kind of engage in that strategy, because now you're becoming another note holder as well as being the Enforcer.
And then make sure that on the back end, that you're prepared for whatever the downside of your investment is, and that your investors, if you're running a management that you're openly communicating with them, timeline and the potential downfall, as you've said, there's the nice thing about this strategy is, if you're not a very, very specific strategy fund or investor, you can minimize the downside by how you enter and what your exit looks like. If you're flexible in what your exit looks like, then this could be a very attractive strategy, because you know, if you don't need to exit the property and return your to your investors capital within a short period of time, then maybe you can stay in that property longer, hopeful, hope that the note holder turns it around.
https://www.linkedin.com/in/chris-zona/
https://mblawfirm.com/professionals/christopher-t-zona
Today, my guest is Travis King. Travis is the founder and CEO of Realm, where he is responsible for overseeing all aspects of the organization with a particular focus on culture, strategy and investments.
J Darrin Gross
I'd like to ask you. Travis King, what is the BIGGEST RISK?
Travis King
It's a great question. It's actually really hard to try to encapsulate it in one thing, so maybe I might give a multifaceted answer, if that's okay with you. One thing I would say that is paramount in real estate, and I alluded to it earlier, is the only real way I know to lose money in real estate is to lever inappropriately. So leverage at the end of the day, that's how you lose control of your properties, right? And that happens. So then I you peel that onion a little bit and say, Okay, well, how does that happen? Right? How do you run into problems there? And I think there's two main areas that I would focus on as kind of sub points. Number one is going to be making sure that you're checking your assumptions and making sure that they stand up in a lot of alternative scenarios you might not have considered, right? A perfect example was back in, remember, during the housing bubble of of 2008 when everything popped, they realized at one point that there was no way to even show you know, potential negative drop in housing values, right? That's a great example of just a a glaring error of saying, Well, you got to be able to test some of your assumptions. And I think you really need to beat them up and test them under old under ultimate scenarios that could happen. Black Swans do happen, right? And I think that sometimes it doesn't even need to be a black swan. And we've seen things where we've preached to folks over and over to say, in multifamily as an example, if you were to go through and change your rents just by 10 or 15% on a multifamily property. And then, you know, the cap rates move, you know, a little bit. You know, you have cap rates move 50 basis point because the markets in a little bit of turmoil, right? And your occupancy gets hit by five 10% just all these things are fairly small changes. It could be 15 to 20% of the value of the property. So if you're if you're buying something, you know, that's very highly leveraged, you could find yourself in a very difficult position very quickly. The second thing I would say is be careful who you're doing business with. A lot of times it really comes down to making sure you have the right partners. Some of the biggest problems I've seen happen are are doing business with the wrong people. And I think that that's where you run into problem, regardless of what your dollar of what your documents might say. If you're not dealing with trustworthy people that are putting integrity first and foremost, that's an easy way to get into trouble. So eyes wide open on who you work with. Do your do your background checks, talk to people, get references, referrals. Move slowly. I think you do those two things together and stay conservative in your capital structure. You avoid, you avoid a lot of pitfalls.
Today, my guests are Bill Kannatas and Ben Salzberg with Self Storage Developers. And just a minute, we're going to speak with Bill Kanatas and Ben Salzberg about Self Storage from Dirt to Doors.
https://self-storagedevelopers.com/
J Darrin Gross
I'd like to ask you Bill Kanatas and Ben Salzberg, what is the BIGGEST RISK?
Bill Kanatas
I look at two different risks, one as an investor slash investment, and one is a developer slash development. Um, so if we're talking about the development aspect first, because, as I mentioned earlier, Ben and I spend our money up front first, before we go to the investors looking for their money, we do a lot of work upfront to mitigate that risk, and in any development, nothing ever goes perfect, as much as we think it's going to be great. It's not going to rain tomorrow. We're going to have sunshine for three weeks, and the bulldozers will be out there, and all sudden, we get rain for three weeks, and the holes we just dug flood, right? So you gotta be able to have that in your underwriting. Right? So when I tell somebody it's going to be 10 to 12 months, you know, I underwrite it 14 months, in case we have an additional four months of interest reserve or operational losses. So we try to mitigate all that risk upfront. When you're looking as an investor, slash investment. Then, you know, the advice I always give to my own friends is look at the first let's start with the development team, right? Do they know how to develop you know, whatever it is, is it a Starbucks? Is it self storage? Is it car washes? Make sure you're right with the right development team, or make sure they have experience, obviously. Make sure that you believe in the area. You know. Is there a reason to put one in Bosie, Idaho, or is there one to put it one in Manhattan, you know? Is there a demand for self storage? And then who's operating it? Is it the Bill and Ben show? Or is it, you know, an operator who knows what they're doing? Is it the first time they're operating? Or do they have, you know, billions of dollars of annual revenue in this space? So I think there's various checklists to kind of mitigate that risk. And then at some point you gotta say, I'm all in and and dive in and know that if there is any problems, your partners will communicate that with you, right? Because it's very, very important to always have communication, you know, with your lender, with your investor, with your general contractor, with the village. You know, Benz, an elected official. And when you're working with the communities, you have to perform. You can't tell them one thing and do something else, right? So communication for me is always the best,
Ben Salzberg
And then I agree with you on that bill, you know, making sure the constituents in the area, which are mine and that they're they like what we're building and developing in the community, and to mitigate that risk of any type of Fallout, of people being frustrated, being built self storage in the neighborhood, um, you know, that's that, that risk. And of course, then there's, you know, you want to make sure that the job is insured in case somebody gets hurt, you know. And that goes with you Darrin, you know, you have to, you know, PNC, make sure that it's everybody's covered.
https://self-storagedevelopers.com/
Today, my guest is Philippe Lanier. Philippe Lanier is the principal at East Bank Inc, a DC based developer with 2 million plus square feet of trophy office, luxury retail and residential assets in the greater DC region. And in just a minute, we're going to speak with Philippe Lanier about commercial real estate's evolving intersection with technology and culture.
J Darrin Gross
I'd like to ask you, Philippe Lanier, what is the biggest risk?
Philippe Lanier
Just to answer, because you gave me a little bit of a chain, one of the first important steps sitting in my feet. And to simplify for your audience, if you are an owner, you are an owner of real estate, is to recognize that the world changed and you lost a lot of money, and not bury your head in the sand. The value was fundamentally changed, and it's not coming back. And once you can emotionally get over that, you know, then you're then you're thinking about how to apply what I know and what I have left to rebuild it and to create something great. And that's where we are right now. I think the worst is in theory over and then, how do we reassess where we are as owners, what we've had lost, and how do we build something new? The you know, the biggest risk is if you haven't absorbed that, but you think that help is around the corner, if you run out of time, then you're out of the game. If the banks foreclose, then you've lost all sweat equity. It's very difficult to start again. So to make sure, you put yourself in a position where you're not hoping for a situation to change. Imagine that interest rates away may maintain high for a while. Imagine that this stuff is not going to get easier for longer. Make sure that you're you're running a company that doesn't, you know, lose money every month in salaries. That might mean you have to let some people go that that's just where we. Are. And then, then you solve for the risk of of things not getting better. And then, and then, yeah, then you, you just work hard and build
the pain is real, but I love the the advice to, you know, say, Just admit it, and, you know, go forward from there, as opposed to keep looking for the the silver bullet, or, you know, something that's going to come and save the day, because that, that is, that's, that's really wise.
Today, my guest is Josh Bauchner. Josh is a partner in the landlord tenant and litigation practices at Mandelbaum Barrett PC in New York. He brings a depth of experience and dedication to his practice, where he's involved in complex commercial litigation and class action lawsuits, and in just a minute, we're going to speak with Josh Bauchner about the Nuisance ADA Lawsuits.