Question the audience always wants to hear and I think it's probably one of the
best questions for us to acknowledge and that is Looking back on some of the
projects that you've done What was the one mistake that you made that you look back
and go again? No, we probably learned the most from that of anything that we did.
I I'll jump in right now. I'm sure there in real estate. We all have that face,
right? We go. Oh, oh, yeah. Oh, we remember that problem. Yeah. Yeah. Um, I'd say
it was being too focused on the numbers. And then I think it was John said it
this morning, right? And then you fall in love with the idea of what it could be
and you forget to go. Do I even know this neighborhood? Would I hang out here?
Or do I do I expect, do I expect too much from this place?
And then you start throwing everything out the window and you just go, well, I just
need it. I have to have it. And so, finding yourself on the wrong side of those
numbers very quickly after that is the problem. Yeah, I've definitely bought some
portfolios in some places that I just didn't know and it was too far from home. So
there you go. - I get it. - I'll add to that, and urge you to fall in love. Don't
fall in love with a deal. Take your rational mind. I mean, everyone's done it in
here, I'm sure. You buy the deal or you're the lead on the deal and you get it
and maybe it starts going sideways. Well, irrationally, you wanna show everyone that's
a good deal. Cut bait and run and if you have to sell and re -look at that every
45 days, I'd say. Just don't fall in love with a deal. It's not Fall in love with
your wife or your husband. - I thought John's comment this morning, everybody's got
the cutest baby. That was a great line, that was a great line. Y 'all realize
there's four personalities sitting in the room, okay? Best thing that we ever did
with Keller Williams, we hired a guy that came in and he said, "Y 'all don't know
anything about franchising." And we didn't, Gary and I didn't know that. He said,
"I'm gonna teach you the models and systems that you have to use to build a
franchise and number one model Joe is how do you go hire talented people and the
first thing you learn of those four personalities sitting in this room two of them
shouldn't do anything in terms of evaluating product because guess what they're hard
people it's just like you said why I gotta have this it's downtown Nashville we're
gonna look awesome on the on the building nothing to do with it I learned hanging
out with my partner Gary says something the path is in the math in other words get
the numbers out and look at the numbers if the numbers work that's first stage but
if you Get those emotional people inside your organization trying to do the
analytical stuff. It doesn't work very well. So I get that.
So Erwin, what from a mistake perspective would you learn most? - Well, some of it
comes from structuring the financing. We had a two and a half million square foot
multi -state, multi -city portfolio. I had staples in 650 ,000 feet in one building,
and they were a holdover tenant.
And once, and if we thought about it, if we took their rent out, we still would
have had a debt service. We would have made the debt service requirement done it
alone, but because we didn't think about it enough, once staples moved out, we had
a cashflow jail until we released up the space again, which we eventually did, but
it took, you know, 12 months to do that, so we had trapped our cash. And the
other other thing is I remember, you know, you never know how long you're gonna
have to hold an asset. So we've learned that to take debt for longer than we're
projecting to hold a deal, because you don't know where it's going to be five or
seven years from now. And you don't want to have to worry about a capital markets
event and refinancing in a down market if you're debts maturing. Good point. Good
point. Now, Jack, you look so young. I don't know if I can even ask you that
question, but give it a shot. - I've seen a lot, I've seen a lot.
(audience laughing)
Yeah, so over the last six years, we've been very lucky. We haven't taken a loss
in any property that we've invested in, but that doesn't say that there haven't been
hiccups or things we've had to work out. It just so happens that the first couple
of deals that we actually did in our first fund are the ones that had some
workouts. And since then, we've got a lot smarter, but in those first few deals,
you learn a lot, and right now, we're actually...
go into the HVAC or the security, the lighting, anything else, we don't take any of
that into account. So we thought the property would be worth about $18 to $20
million. So fast forward to today, this loan was about four years ago. The tenant
ended up going bankrupt. We had to put the property in receivership. And for the
past year, we've been trying to figure that whole situation out, got an offer, then
we've gone back and forth with them. There are certain things we could have done
better. There are certain things we could have done ourselves instead of giving out
to other people. But at the end of the day, you know, we're still going to be
making an eight or nine percent, you know, IRR on the deal, and that's going to
be, you know, probably one of our worst. So we are very lucky in that sense. And
that's because the team is very stringent in the way that they underwrite these
properties, right? The family's been doing, you know, real estate investing now for
60 years in a lot of different areas. And that they just brought that over to this
one. So, you know, really being careful. And I think what makes our fund a little
bit different also is, you know, the family is about 27 % of the LP capital, right?
So you don't usually see a principle with that much actually skin in the game. So
the family is very focused on not losing their own money as much as they're focused
on not losing anybody else's money. - That's a good point. That's a very good point.
What do you think, Matt? - You know, we're, I played the big game for the last 25
years. We're a small community, lender, friends and family money, we raise money from
time to time. You know, we own every deal, but if I can tell you, it hasn't
fallen on our investor, but it's that deal you do, and there's one I have in mind,
it's the drama, the deal you take on that you have to live with the amount of
time it takes on your bottom line, which is your time, as you learn about the kind
of deals you wanna do, so. which is to say, it's a way you're saying it,
getting your expertise. - Yes. - Yeah, being an expert in a particular class. - Yeah,
in other words, take account of the drama that you might be taking on. It may not
be the loan to value or the risk to the investor, but how much drama am I taking
on as a manager? - Yeah, that's right. And keep in mind, for the crowd, real
estate, every real estate deal is different. It's a bit like painting a Mozart
painting every time you go into a specific project So if you can stay with a
specific asset class that you get to know You mitigate a lot of the risk that you
might have otherwise because you're not having to learn a lot of new stuff every
single time
So tell us Christ what you think I think I think I'm relying too much on other
people. A specific instance, for example, our farm were not developers, we partner
with developers. And one of our development partners was not being not transparent,
but not telling the full truth to a very large institutional LP. They had broken
some covenants with due to the environment. And when the LP found out,
they were upset and we actually took over that deal and we went to the lender,
went to the LP equity provider and really just we're transparent with them.
We delivered the bad news faster than the good news and what we've learned is
there's really not much that can't get worked out and in general lenders, partners
want to see things work out and they're willing to work with you, especially if
it's to a detriment not of our own. If it's an environment that we couldn't avoid
a situation, generally people want to be good partners and frankly I think how
people react in those situations are really more meaningful to your reputation than
your success stories. >> Yeah, good point, good point. What do you think? >> So
we're developers and developers like to develop, burn and turn and keep going the
next one, the next one, the next one. As we grow, we're starting to keep more
assets under management. So this goes back to kind of in all of our prior lives of
just watching an asset on autopilot, I say of, "Oh, money's coming in. I'll just
collect rent. I don't really want to watch it." So what we're implementing into our
performers on these new dev deals in our existing deals is the $5 ,000 expense.
One of my good friends is over at CBRE, and once a quarter, we dump all the
financials on him and go over each asset and he says, from a third party view, you
guys should have done this or you should have done this, 'cause once you have that
deal with your baby and sometimes you get blinded to bad things that are happening
and you pull the wool over your own eyes. So we're on the camp of more eyes on
it or better and it's such a minimal cost on a 10, I said I honestly don't know
why more groups aren't doing something like that maybe they are but you mean You
mean like the government can be just functioning along and it becomes Disfunctional
until somebody wakes up and says wait a minute. We're sending so security checks the
dead people
That's that makes too much sense Joe