JF954: Former DALLAS MAVERICKS President Develops RE with Foreign Capital and How YOU Can Too

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Now off the court, former Dallas Mavericks President, Frank Zaccanelli, has raised over $235 million in just the last three years for real estate development, and he did it with foreign investors through a program called EBI. Hear what projects he’s developing and short-term goals, he definitely knows how to think big!

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Frank Zaccanelli Real Estate Background:

– Chief Executive Officer and Managing Partner of Fiamma Partners, LLC; an investment & development firm
– Invested over $235 million in residential and mixed-use real estate opportunities across the United States in       the last 3 years.
– Former President, General Manager and Managing Partner of the Dallas Mavericks
– He spearheaded the effort to acquire and redevelop 75 acres of environmentally-contaminated land, which now   houses Mavericks, Dallas Stars (NHL) and concerts.
– Currently working on revitalizing a historic shopping complex in Dallas
– Based in Dallas, Texas
– Say hi to him at www.linkedin.com/in/frankzaccanelli/
– Best Ever Book: Tuesdays with Morrie

 

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki, the author of Rich Dad, Poor Dad, and a whole bunch of others. With us today, Frank Zaccanelli. How are you doing, Frank?

Frank Zaccanelli: Doing well, thank you.

Joe Fairless: Nice to have you on the show. A little bit about Frank – he is the chief executive officer and managing partner at Fiamma Partners, which is an investment and development firm. He is the former president, general manager and managing partner of the Dallas Mavericks. He has invested over 235 million dollars in residential and mixed-use real estate opportunities across the U.S. And this is really interesting – he spearheaded the effort to acquire and redevelop 75 acres of environmentally contaminated land, which now houses the Mavericks, the Dallas Stars and a whole bunch of concerts. Last thing I’ll mention before we get into it, he is currently working on revitalizing a historic shopping center in Dallas.

Lots of real estate related conversation that we’re gonna be talking about. Based in Texas… With that being said, Frank, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Frank Zaccanelli: It’s good to be with you in the no-fluff zone; I guess this is the no-fluff zone.

Joe Fairless: You betcha!

Frank Zaccanelli: I’m happy to be in the no-fluff zone with you. I started off in real estate as a real estate broker back in 1980, and I went to work for a guy who was a really famous guy in Dallas, and probably around the country, Roger Staubach. He had just gotten out of football, and he knew in his last years in football he was going to make real estate his career. I met him playing basketball. I played basketball in college; he played a lot of basketball in the off-season to stay in shape.

We met and hit it off pretty well. One day he invited me to his house, and we played. He asked me “What do you do for a living?” At that time I was in the consumer product industry, I was a marketing guy; I was young out of school, and I went from there. He said, “Have you ever thought about getting your real estate license?” I said, “I thought about it.” He said, “Well, maybe what you should do is you should go do that and then come back and see me.” Well, he didn’t have to ask twice.

I went to get my license and I went to work for him, and had a wonderful five-year career with him. I was probably the 12th to 14th employee. When he sold his company, I think he had either 2,500 or 3,000 employees. So I was there very early on, and I basically parlayed that into meeting Ross Perot Senior, then Ross Perot Junior, and ultimately went on to a really fun and exciting career with the Perot family for a long period of time before I started all of my own ventures. I’ve had a really lucky and blessed career, and I’ve been around some really good people.

Joe Fairless: You’ve invested over 235 million in residential mixed use real estate across the U.S. Can you elaborate on…

Frank Zaccanelli: That’s just in the last three years. We’ve invested billions through my career. I’ve been lucky enough again to be with some very powerful groups that had done a lot of great things, but the 235 has been invested really over the last three years.

Joe Fairless: Alright, let’s talk about the last three years. What have you been investing in?

Frank Zaccanelli: Well, actually, the EB5 program – I don’t know if you know what that is, but maybe some of your listeners… It’s an immigration program that actually is pay-for-play immigration, where they allow up to 10,000 visas a year through the United States government, the USCIS, and ultimately what happens is is that money has to go into projects that create jobs and economic development in the United States.

This all got started for me in this EB5 program in San Francisco, back in 2010. San Francisco was a real hotbed for the Chinese. The Chinese dominate the EB5 program. They’re probably 90% of the total program. One company is probably 60% of the 90%; that’s the company that basically I linked up with. But we went to China, and like we would do in the Unites States at a public offering, [unintelligible [00:06:32].27] you sit in front of investors, you explain to them what you’re doing in the real estate they’ll be investing in, and ultimately all this has to be approved by the United States government.

So we did that in 2015, and raised the 235 million dollars of EB5 funds, and we placed that money into two land development deals in the suburbs of Dallas. I know you’re from Fort Worth, so you would know where Westlake (Texas) is, and Flower Mound, Texas. And then a historic hotel in downtown Dallas called The Statler, which is ultimately one of the premier properties in Dallas historically. It was Conrad Hilton’s biggest hotel at the time, back in the ’50 when he opened it.

The building has been vacant for a while, and we used these funds and our expertise to be able to redevelop that project. So those three projects kind of make up Fiamma’s playlist now, and the 235 million that you were speaking of.

Joe Fairless: What are some things that we should know about the EB5 program in terms of pros and cons as a real estate developer when you use it?

Frank Zaccanelli: Well, that’s a great question, actually. It’s a very arduous, long process, which I think really connects in with the government’s involvement. Projects take about a year to a year and three months to get approved. If you’re in the middle of a very active development and you need financing right away, the EB5 program probably is not the way to go. But if you can plan out your financing and your capital stack and your capital structure, it’s pretty cheap money, and ultimately if you can get through all of the coordinates that you have to get through, which is ultimately you have to have certain job numbers, you have to have certain economic development numbers, it has to be a certain tax space… These basic things, if you meet the standard on that, and you have the time to be able to really utilize that financing – because it doesn’t happen overnight – it’s a pretty nice way to basically finance your projects.

Many big development companies, especially out of New York, have done EB5 deals on major projects, where they’ve raised on a single project, five, six, seven hundred million dollars. So it’s good financing if you have the time and you meet the criteria.

Joe Fairless: What is your specific role within those three projects?

Frank Zaccanelli: Well, I raise the capital and I’m the developer. I have a long history of building things from my Hillwood and Ross Perot days. So really, the two projects in the suburbs are land development projects where we’re actually going to build 14 buildings, on the land development projects in the suburbs. At the Statler, that’s really brain surgery, because you’re taking an existing historic building and you’re actually having to retrofit it under the laws of the historic tax credit program, which is another great way to raise capital if you meet those standards. Ultimately then, you have to do your engineering and your architectural work in conjunction with the fact that you’re involved in a historic project, and you have to meet all these basic standards. My job is to make sure all that happens.

I’ve spent a lifetime really working with engineers and architects and the like, to be able to really understand all the disciplines that are necessary as you go through these steps.

Joe Fairless: A couple questions on that… On the raising capital front, in the last three years 235 million, and it’s been through the EB5 program that you have done your projects with that capital — this is a broad question, so feel free to take it in whichever direction you like… How do you raise that amount of capital?

Frank Zaccanelli: Well, again, in the EB5 program a lot of it has to do with who you’re involved with. We were involved with the right company that ultimately has 45 officers in China, and does this as the main course of their business. They raise 50-70 million dollars a month of this money. That gives  you some idea of how big this company really is, and the broadness of that. So I think a lot of that has to do with who you’re involved with.

I think ultimately your background has a lot to do with it. I’ll give you a very interesting thing. Something in your life that you never think is going to be a big deal became a big deal with me going to China. In 1997 or 1998, Don Nelson and I (a guy that I brought in as the general manager of the Dallas Mavericks, and then he became the head coach) – Nelly and I worked together to bring the first Chinese-born basketball player into the NBA; his name is Wang Zhizhi, and he is a very famous guy in China. In the United States not so famous, but he was the precursors to Yao Ming coming over, so it became a very big deal. We worked with the Chinese government for over a year to basically make all this happen.

Well, when I went for the first time and I was getting ready to do this road show, someone had recognized my name and recognized me, because over in China when we did this deal, it made major news; this was a huge deal. And so they asked me about it and they asked if we had any photos… Well, by the time that we got to our first couple of meetings, I realized how big of a deal this really was to the Chinese, because it was really, again, the groundbreaker to a lot of Chinese players to come to the United States and play in the NBA.

By far of any place I’ve ever been other than the United States, China is the biggest basketball place where fans just are insane about the NBA, more than any other place in the world that I’ve ever traveled. They’re really up to speed on exactly what’s going on, they watch all the games, they follow all the stats… So that became a very important thing for me on something that really was not a big deal at the time, but it became a huge deal and it gave me some notoriety and some credibility that also helped us.

Joe Fairless: When you have conversations with investors, whether it’s about these particular projects or something else, how do you approach those conversations? As far as preparation in advance, or just knowing what you need to know about the project, or maybe something else? And again, I’m leaving it broad to hear what comes top of mind for you.

Frank Zaccanelli: Well, I’ll just use China and then we’ll bring it back to the United States. In China, it’s really just being very prepared in terms of the numbers, and being prepared in terms of the information. They’re information freaks there, so they wanna know all of the details. In China, it’s really about preparation.
In the United States it’s also about preparation, but then there becomes a scenario where basically you have to make a connection with the people. They have to trust you and they have to believe that you really are knowledgeable, you have the background, they understand that you’ve done this before… It’d be the same thing that anybody who is gonna invest any money in something would want to know; they’d want to know that the people that they’re investing with are competent and capable, and more importantly, they’re honest.

Joe Fairless: And then bringing it back to the U.S. – when did you first go off on your own, outside of working at a real estate company?

Frank Zaccanelli: That was in 2000, when we sold the team to Mark Cuban, who has been all over the news lately. We sold the team and I thought that was a really good time for me to exist Hillwood and the Perot families business. That was the best situation that any real estate person or any business person could ever have. They’re the top of the line, the best all the way around.

I felt that was a good time for me to cash out and to exit, and to start doing my own deals. I always had a drive that I wanted to do my own projects, and in 2000 that was a really good time for me to exit, if you will, the corporate world, even though the Perot family was very entrepreneurial… But the bigger real estate companies [unintelligible [00:15:05].17] boutique companies. I’ve never had 50 employees. We’ve always kept it small and on the investment side, and I only wanna take on two or three deals at a time, because I think you can get yourself overloaded, and when you get yourself overloaded, you have an opportunity not to do as good a job.

Joe Fairless: In 2000 you went out on your own, and you’d take on at most two to three deals at a time. How do you structure those deals with investors?

Frank Zaccanelli: Well, it just depends on what the deal is. Again, if it’s equity, if it’s debt… A lot of times I just put up  my own equity and we went out and raised that. That side of things, quite frankly, is a little bit easier. The banks are looking for collateral, they’re looking for the ability to be able to take a look at what’s the loan-to-value ratios that they’re loaning in. They wanna know that the developer’s competent, they wanna know that the projects are sound… So when it’s on the debt side, it’s easier.

When it’s on the equity side, there has to be some camaraderie. There has to be controlled provisions, there has to be – in the event that there’s a problem between the partners, there has to be buy sells and there has to be all kinds of other mechanisms that come into play, so things become a little bit more complicated if it’s on the equity side. So it just really depends on what the deal is and what kind of capital you’re trying to raise.

Joe Fairless: Thinking of a specific example with the equity side, where you brought in equity partners – can you give a specific example for how you structured the equity side? Just so the Best Ever listeners can hear how you had structured an equity deal in the past.

Frank Zaccanelli: We’ll take a project that was a land development project where the properties were in the — buildings that were gonna be built once the entitlements got done. There was a process that we had to get through on the entitlements side, and that took about two years, to get all the entitlements in place, and get the city’s and the state’s approval on everything that we needed approvals on.

When we brought in equity partners there, it was really based on them being silent money partners, because it was up to us to be able to go in and complete the function with the municipalities and with the government agencies to get everything in place, and then it was a matter of actually starting the infrastructure and starting to build some of the buildings. That was all, again, on us as developers.

I had other deals where the equity that you bring in wants to be part of the development team, and if they wanna be part of the development team, that becomes a little bit trickier, because you can’t have too many cooks in the kitchen. What you have to do is you have to really understand exactly who’s gonna do what, who’s gonna be responsible for what… Because if you have too many cooks in the kitchen, you have the opportunity to start to run into each other and have some conflicts.

It’s better on the equity side if  the money and the equity that you’re bringing in is more silent than not if you’re the master of development.

Joe Fairless: On that first example, the land development project where it took two years to get the city and state approval, the equity partners wanted to be silent money partners, what type of structure – I’m talking about preferred return, equity split… Can you get into those details as far as what type of structure you offer in that scenario?

Frank Zaccanelli: Yeah, sure. A lot of times the money that comes in that’s silent wants to be in a preferred position. Let’s assume that they put in 80%-90% of the capital. If they’re in a preferred position, normally what you’re doing is you’re accruing some interest rate to their capital; let’s just assume that your accrual is 6%-8% on the equity, and that money is not paid in kind; basically, over time it’s accrued until the deal has the money to pay them out.

You as the developer, a lot of times will take a development seat, and you’ll have a current pay on the development seat out of the proceeds that are in the capital stack. Once the entitlements got done and once you start the land development and you actually start selling assets, then normally the way this works is the preferred capital is paid off first, and then there’s some [unintelligible [00:19:36].23] of split. The splits are never 90/10 when there’s preferred capital. Say that then goes after all, the preferred money is paid back, and then any of your money that you put in upfront, then normally the splits are 50/50, and then all proceeds from that point are then basically split on an agreed upon after-capital split. Those after-capital splits are never the pre-capital splits, so ultimately, the developer has an opportunity to promote the silent money, once their preferred return is paid back and their capital is paid back, to get in a better equity position. That’s normally how it works.

Joe Fairless: So give them interest on their money AND their money back, and then perhaps do a 50/50 split, or whatever the project calls for…?

Frank Zaccanelli: Correct. Ultimately, there’s always a promote for the developer once the preferred capital is paid off.

Joe Fairless: And as a developer, how do you know what percentage to charge? What’s typical?

Frank Zaccanelli: Well, it just depends on what interest rates are, what equity returns are in the marketplace, but I would say that 6%-8% in a normal market is probably a pretty good target.

There are a lot of investment companies that want a higher return. Let’s assume that they want in the low teens. Well, then the backend split, if you’re gonna pay them in the low teens, then the backend has to be adjusted so that the developer has the benefit of his bargain.

Let’s assume that I paid in the low teens; that’s something that I don’t really like doing, but let’s assume that was the case. Then we make it 70%-80% of the backend, because the investor got most of their money upfront.

Joe Fairless: Last question on this, and then I wanna talk more high-level… The developer fee that’s paid upfront – is that a percentage of the overall project cost? Or how do you figure that?

Frank Zaccanelli: It’s normally negotiated, but it can be a percentage of the project cost, and ultimately it’s paid out every month, so that the developer can pay their people and can do all the things that they have to do during this period of time where they’re getting the development ready to actually start selling assets.

In the land development world, what you’re normally doing is you’re either selling parcels of land that are now fully developed from a land development standpoint to other developers, or you’re building buildings and then eventually selling those buildings. The developer fee is kind of based on the total dollars that are put into the deal, and you get a percentage of that on a monthly basis that ultimately is part of your compensation as a developer.

Joe Fairless: And then just industry standard, what would be that percentage that would be reasonable? I know it depends on the project, but generally what would be that percentage?

Frank Zaccanelli: In the 2%-3% is probably industry standard. I’ve seen it a little lower, I’ve seen it a little bit higher. Now, this is not to be confused though – because I don’t wanna confuse your listeners – with actually managing money. There are a lot of firms that go out and raise institutional capital and manage money; that is much lower than 2%-3%. We’re talking about project-specific development fees, and normally in the 2%-4% range, that’s right there in terms of what the market would be.

Joe Fairless: You have the connections to invest in, I imagine, any type of real estate: ground-up development, office, retail that currently exists, maybe reposition it… Reposition a warehouse into condos, whatever. The perception that — at least my perception of development is that there’s more risk, but more reward. If that perception is the case – feel free to say “Joe, you’re absolutely wrong” – then why do you choose to do development instead of something that would appear to have your risk mitigated by working on a project that already exists?

Frank Zaccanelli: I think you’ve hit it your first statements on the topic – the returns are much higher if you’re in the development business. I’m not looking for institutional returns of 7%-8%. In the development business we look for 20%+ returns on projects that we invest our money in, and ultimately then build out. 20%, 25%, 30%.

A lot of the Wall-Street firms, quite frankly, are very comfortable in that space of 7%, 8%, 10% returns. “I’m not taking a lot of risk, buying existing cash flow, buying existing assets.” That’s ultimately the buyer for a lot of the properties that I develop, so therefore the real niche that I think that my company has is the ability to understand all of the entitlement-related issues, all of the environmental-related issues, of the engineering, of the architectural… All of the pieces that really are important that ultimately create a development opportunity. Ultimately, that’s really where we find that our expertise lies, better than just buying existing buildings.

Joe Fairless: Clearly, with you being on the development side, you’ve got to stay in tune with the political climate not only locally, but nationwide… And especially if you’re involved in EB5 programs, too. I think that has to continue to be renewed periodically; I’m not too close to it, but I remember reading something about that.

Before we jumped on the call and started recording this, I know that one of the topics that was mentioned to me as something that you have some good insight on is what does Donald Trump in the White House mean for real estate investors, and especially now that we have more context about what you’re doing, it’s clearly very important to you, since you’re on the development side.

In my notes that were sent to me it says that you are an independent, and you’re gonna stay away from saying one or the other, but you’re purely coming at it from an objective real estate investor standpoint… So what are your thoughts on what does it mean to have Donald Trump in the White House for real estate investors?

Frank Zaccanelli: That’s another great question, and I would tell you four, five things about it. Number one – and you mentioned – I don’t come at things in my life or in business from an ideological point of view. I think there’s way too much of that in our system. If you turn on the major cable networks, or you turn on the major news networks, it seems to me that 80%-90% of the commentary is all ideologically based. They’re not really giving viewers the opportunity to get information. That is not where I’m at, and I’ve never been.

I voted for Barack Obama, I voted for Donald Trump, so ultimately I’m all over the board in terms of exactly where I stand with my politics and where I think the country needs to go. Now, I think that Donald Trump – and I like calling him The Donald… He’s The Donald to every real estate guy, right? Ultimately, he’s gonna become the deregulation president. That’s gonna be a major piece of what he does.

In 2008 we had the worst meltdown. I’ve been doing this at a pretty high level for 38 years. In 2008 it was the worst financial and real estate meltdown I ever saw. World markets were melting down, and the whole TARP program that was put into place – I wasn’t a gigantic fan of at the time. Ultimately, TARP came in and really stabilized the marketplace, and I think hindsight being 20/20, which it always is, I think TARP was probably a pretty good idea.

Now, where they individually went in and said, “We’re gonna save one company, not gonna save another” – probably not the greatest idea. But when Barack Obama came in, he put pretty heavy regulations on the banks and Wall-Street in things that they could and could not do. The deregulation president, Donald Trump, is now gonna lift those regulations and open the markets up a little bit more.

What always happens in life and in business  and in politics is that we overcompensate. I believe with the regulations that went into place in 2008, 2009 and 2010, I believe we somewhat overcompensated with the banks. Now, Trump is basically signaling that he’s going to take some of these regulations off, which is gonna open up the money flow from the banks, which I think ultimately is gonna be very important to real estate lending and financing in the United States.

The other point that I’d like to make to you is that when you really take a look at Trump’s policies, they’re all very pro-business. Now again, you can deregulate to a level that doesn’t make sense, so I think we have to really watch now and make sure that we don’t overcompensate the other way, with too much deregulation and not enough coordinating policies that ultimately don’t allow for what happened in 2005, 2006 and 2007 to occur again. So I think it’s a real balancing act.

But if you take a look at the markets and you take a look at the stock market, as long as Donald Trump can get his agenda through Congress, which is still now a question mark – if he can get it through Congress, the markets have taken very kindly to his policies, and ultimately I think the markets will continue to improve if he can get his agenda through Congress.

Joe Fairless: What are you doing in your business right now, knowing what you just said, to either prepare or take advantage of what you see coming?

Frank Zaccanelli: Well, ultimately I think that there’s going to be an increase in interest rates, right? I don’t think that’s a surprise to anyone. We’ve been in this zero interest rate climate for a long time, and inflation has been, for the most part, in check. So ultimately, as interest rates start to go up, which eventually has to happen, inflation will probably go up a little bit, and ultimately if you own some really good hard assets, it’s probably a good time to be an owner of some good, hard assets as inflation may increase the value of those.

I think ultimately anybody who’s been sitting on a lot of cash for the last 10-12 years hasn’t seen very good returns. There really hasn’t been a real marketplace for cash in the non-real estate, non oil and gas, non investing market, just cash in treasury bills or municipal bonds or other things.

I remember in my career buying municipal bonds 20 years ago where the yields were 7%, 8%, 9% tax-free, and ultimately now those yields are 1%-2.5%. So I think that ultimately if the markets continue to grown, and I think there’s some level of inflation – probably not a bad time to own hard assets.

Joe Fairless: I hear that. So with your investments in particular, what are you personally doing?

Frank Zaccanelli: We’re building hard assets to hold and then eventually sell at the right time. Ultimately, this gets back to your question a few minutes ago where you said, “Why are you in the development business?” Well, we’re in the development business because the returns are much better than buying institutional great quality hard assets, because the returns are two to three times if you can buy the ground assets, the land assets properly and you get to write entitlements. The returns are much higher, and ultimately you cash flow them until you decide that you want to sell them.

Joe Fairless: The last thing I’d love to talk to you about, because I’m sure we piqued the Best Ever listeners’ curiosity when I mentioned the redevelopment of 75 acres of environmentally contaminated land that now houses the Mavericks, the Stars and some concerts. Can you tell us a story about that?

Frank Zaccanelli: Yeah, we were looking in 1996… When we bought the Mavericks in May 1996, Ross Perot Jr. and I knew that all of our economics were gonna be tied to our ability to build a new arena. The team had played in Reunion Arena, which was a functional arena that was in downtown Dallas, and they played there since their inception in 1980. But it didn’t have the revenue capabilities of some of the new arenas that were being built, like the United Center in Chicago. That was, in my opinion, the greatest arena that we built at its time in terms of its design, in terms of its maximization of revenues… So we knew that our economics were largely tied into our ability to build an arena.

Well, you wanna talk about a lot of regulation and a lot of politics and a lot of public/private partnership… We went through about a year and a half of that, maybe two years of really identifying how we were gonna do this, what the city’s participation was gonna be… On the West side of downtown along I-35 was probably the least desirable properties, and they had a big power substation; I don’t know if you’ve ever seen one of those, but they’re pretty unsightly. And it was on this piece of property, and it was right along the freeway, and you knew that that was where downtown eventually had to go.

So we went in and we started buying up properties… I think we bought up some 31 different parcels that created the 75 acres of land. We knew that we had an environmental challenge in front of us. If you’re in the development business and you are rushed for time, don’t win environmental awards… Because when you win environmental awards, that means that it’s taken three times longer than anything that you ever thought. But we won every environmental award that there was.

The cleanup, needless to say, was a little bit more significant than what we thought, but ultimately we were able to get through that and we were able to take what I considered to be the worst part of downtown and make it now into what’s called Victory Park. If you went there today and you saw what was built there and what was being built there… People are living there, they’re working there, they’re shopping there, they’re going to games there…

I’m really proud every time that I drive by there that we had the foresight at least to be able to see not what a property was then, but what it could be. That’s the ultimate part of all the development business – what can it be? What can you turn it into? But don’t ever win environmental awards; that means the project’s been delayed.

Joe Fairless: Frank, based on your experience as a real estate investor, what is your best advice ever for other real estate investors.

Frank Zaccanelli: Well, I’ll give you a piece of advice that H. Ross Perot gave me as a really young business guy. I’ll never forget the day I walked into his office, and he looked at me, and he looked at me hard and he said, “Zaccanelli – he always called me by my last name – forget about the return on your capital. Forget about it. I’m more interested in return OF my capital. Once I get my capital back, then we’ll worry about what the return ON my capital is. But I’m worried about the return OF my capital, not return ON my capital.”

I’ll never forget that, because his message really was you need to ultimately be very careful about how you invest your money. Everybody gets so caught up in what their returns are, and his philosophy was “Yes, returns are important. We need to make sure that the returns are there, but we need to make sure that all of our money comes back to us, because we don’t wanna be out there lunging when we’re risking our capital.”

I had another guy tell me another really interesting anecdote. He said, “Always bet the milk from the cow, but don’t bet the cow. Because if you bet the cow, then there’s no more milk. If you lose the cow, you’re out.” I think both of those kind of lend themselves to a philosophy that “Be careful as you take your capital or other people’s capital – be careful about the risk that you take on when you invest.”

Joe Fairless: What is one either underwriting approach, or just your overall… I’m looking for a more granular, tactical thing that you do when you evaluate development deals – or potential deals – where you make sure that your risk is mitigated, so you do have that return OF your capital first and foremost.

Frank Zaccanelli: Well, take all your reports and all the market studies, and everything that everybody does – we do the same thing – and then at the end of the day when it comes down to putting your final numbers together, discount all that about 20-25%. If you can discount those numbers 20-25, even 30% – if you can discount that and the deal still makes sense, then you’ve probably got something that you should do.

So take all your market data, take all the reports that everyone puts out about the office market and the hotel market and the apartment market, and then discount that back, assuming that the market is gonna adjust at some point, and if your numbers still make sense from a return standpoint, then you probably have a good deal.

Joe Fairless: And by “makes sense” does that means it’s safe to assume you’ll get your capital back?

Frank Zaccanelli: Well, capital plus returns. Again, the story that I tell you about Ross Perot – it was nothing more than him telling me that “Look, the most important part in investing is return OF your capital. Once you get your capital back, then your returns are infinite. So get your capital back. Make sure that you’re structuring things…” Because I know a lot of investment companies that structure things and take a lot more risk on for a higher return.

In other words, I could structure certain things that are really 20% deals and make them 30% deals, but my capital takes on a whole [unintelligible [00:38:53].25] of additional risk that is really not necessary.

Ultimately, you invest to make money, and I told you that the targeted returns in the development business are 20%-30%, but ultimately I think the message is structure things so that you make sure that your capital is not greatly at risk. To say your capital is never at risk – it doesn’t work that way. Your capital is always at risk, but take away as much of the risk as you can on the front end.

Joe Fairless: Alright, we’re gonna do a Lightning Round, are you ready for it?

Frank Zaccanelli: Sure.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [[00:39:32].16] to [[00:40:14].09]

Joe Fairless: Alright, Frank, what’s the best ever book you’ve read?

Frank Zaccanelli: The most interesting book that I’ve ever read – and it was probably because of the time that I read it, years and years ago – was Tuesdays With Morrie. That book really hit me… It was done by a guy out of Detroit who was a sports guy – Mitch Albom. Tuesdays With Morrie was a great story about him and his college professor, and life, and business, and relationships.
At the time that I read it, that book really stuck with me. So I would say Tuesdays With Morrie.

Joe Fairless: The best ever personal growth experience and what did you learn from it?

Frank Zaccanelli: Probably the first brokerage deal that I did that didn’t work. Because you learn a hell of a lot more about life when things don’t work. The first deal ever that I thought was going to the title company and was gonna close, all the detail wasn’t done and it wasn’t there, and the deal did not close. So I learned a lot more about that, that went into subsequent deals that did happen… So that was probably the most significant.

Joe Fairless: What’s one specific aspect that you learned, that you then applied to future deals?

Frank Zaccanelli: Expect the unexpected. I think that ultimately the way that you think a deal is gonna go, and the way that you chart it out during your due dilligence process – rarely does it complete itself in that exact matter. So expect the unexpected. Expect the change in the market, expect the problem with your partner, expect a hiccup with the banks… Expect something that ultimately is gonna challenge you as you go through these deals.

Joe Fairless: What’s the best ever deal you’ve done?

Frank Zaccanelli: The best ever deal I’ve ever done – probably the deal that we made the most money on over the long haul and the one I’m probably the most proud of is the Alliance Airport. You’re from Fort Worth, Texas…

Joe Fairless: Yup.

Frank Zaccanelli: Alliance Airport is by far the finest industrial airport ever built, not only in the United States, but maybe in the world. We control 22,000 acres of land; you wanna talk about a public/private partnership back in 1986 – George Herbert Walker Bush called it the model for public/private partnership, and ultimately the amount of tax revenue that was generated there, the amount of jobs and all the pieces of that deal I’m probably the proudest of… And I was one of the initial 4-5 guys that really spent 3, 4, 5 years of their life getting that not only approved, but built. So that’s probably the most satisfying deal I’ve ever done.

Joe Fairless: What’s the best ever way you like to give back?

Frank Zaccanelli: Well, I think ultimately you give back every day. You give back by the way that you deal with people… I think ultimately the best way to give back — in order to help somebody else, you have to be doing okay yourself, right? So I think that if you can continue to build your career and you can continue to be successful, you can help more people. So ultimately, I think that’s the gauge… People that unfortunately are struggling in their own careers, in their own life financially probably can’t help as many people as if you were doing much better in your life. I think that’s really the key.

Joe Fairless: What would you say is a mistake you’ve made on a particular deal that you haven’t mentioned already?

Frank Zaccanelli: 20/20 vision is always the best. I think that ultimately the biggest thing that I could tell somebody that’s out there that’s gonna listen to this is that you have to pick your partners wisely. I think the picking of your partners is probably sometimes more important than the picking of your deals. You can have every kind of problem in a partnership, and ultimately I think the mistakes that sometimes are made is that not enough work and due dillligence goes into underwriting your partners and your lenders.

You spend all your time on the deal itself, but I think you need to spend as much time in the underwriting of your partners and your lenders.

Joe Fairless: What are some specific things that you would do during that underwriting or analysis of partners in particular?

Frank Zaccanelli: I just think you have to look into their backgrounds and the stuff that they’ve done, and you have to make sure that your documentation is clear. It gets back to what we talked about 15-20 minutes ago, about “What does a partner really bring to the table?” When a partner decides that they wanna be a co-developer or a co-manager, then you have to make sure that the lines of who’s going to do what are very well defined, because you get yourself in a position that you could butt heads very easily over insignificant things that then can cause even more problems.

I would just say make sure that your documentation is right and make sure that the lines of communication are very clear as you go through these partnership-related issues.

Joe Fairless: And lastly, where can the Best Ever listeners get in touch with you and/or your company?

Frank Zaccanelli: They can go to my website, FiammaPartners.com, and ultimately that’s really where somebody can get a hold of me. Or they can get a hold of me through Berk Communications, which is the company that kind of represents me now in some of the things that I’m doing. Berk Communications is out of New York; they’re a great firm, and I’m working with them to develop some of these other media things that we’re doing.

Joe Fairless: Outstanding. Frank, I’m really grateful that we jumped on a call and had our conversation. We talked about a lot of different stuff, from the EB5 program, raising money overseas, to very granular — I love how you got specific on developer fees, what’s the market do or what’s reasonable, what have you seen, as well as getting into some case studies that you’ve done, from Alliance Airport to the land development projects where the Dallas Mavericks currently play, to the mistakes along the way, and the advice that you received when you were getting started – forget about your return ON your capital, and be more interested in the return OF your capital. I capitalized OF, because I think that’s where the emphasis goes. And the also, always bet the milk from the cow, but never the cow.

Thanks so much for being on the show. I hope you have a best ever day, Frank, and we’ll talk to you soon.

Frank Zaccanelli: Great to be with you! Thank you for having me.

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