JF1789: Ground Up Development, Asset Management, & Litigation Tips with Roni Elias
Roni always loved real estate, he worked in the industry for years before working in his current role. He helps manage a large portfolio for his company, as well as works on the funding side. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Someone has to be the good cop, someone has to be the bad cop” – Roni Elias
Roni Elias Real Estate Background:
- Lead asset manager for TownCenter Partners, LLC
- Has worked in litigation cases reaching over $9.5 Billion
- Managed a portfolio of over $520 Million in real estate assets at previous firm
- Based in McLean, Virginia
- Say hi to him at https://yourtcp.com/
- Best Ever Book: https://www.biggerpockets.com/blog/forget-brrrr-try-barrrr/
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Joe Fairless: Best Ever listeners, how are you doing? 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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Roni Elias. How are you doing, Roni?
Roni Elias: Wonderful. Thank you so much for having me.
Joe Fairless: Well, I’m glad to hear that, and it is my pleasure. A little bit about Roni – he’s the lead asset manager for TownCenter Partners. He has worked in litigation cases reaching over 9.5 billion dollars, managed a portfolio of over 520 million in real estate assets at a previous firm. Based in McLean, Virginia. Did I pronounce that right?
Roni Elias: Yeah, McLean, Virginia.
Joe Fairless: McLean, Virginia. With that being said, Roni, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Roni Elias: Sure thing. Thanks for the introduction. Previously I was very heavily involved in real estate assets, and predominantly we were ground-up developers, going anywhere from purchasing hundreds to thousands of acres, and being the master developer, holding back sometimes portions for multifamily development or retail development, and selling off residential portions, outparcels and so forth.
We grew from a very modest firm. We were backed by very significant private individuals. We grew from probably a five-million-dollar firm, in excess of almost 600 million. As our ownership team started to get a little bit older, we started to liquidate some assets, so they could retire. I was then given the opportunity to do something a little bit outside of real estate when I came and joined TownCenter Partners, where we do probably something very unique – while everyone probably hates the word “lawsuits”, or being involved with a lawsuit, we look at a lawsuit as an asset. A lot of plaintiffs come to us – or plaintiff law firms – saying “Hey, I’ve got this great case. It’s against a Fortune 500, or this massive company. Lawsuits are very expensive, I need assistance.”
We step in, we fund that lawsuit or fund the company that has been essentially hurt by that lawsuit to keep it afloat, and then when they win their lawsuit, we’re repaid what we invested, plus a portion of the winnings. And if the case, for some reason, is not successful, no harm, no foul; we have taken that financial loss and the plaintiff can just go on from there. So we’re definitely assisting folks, and we started to do a dramatic amount of real estate litigations, and a lot of our clients now who have won their lawsuits – we’ve created kind of our asset advisory side, where we’re out there scouring for talented general partners, where we’re created our own fund for clients who have now successfully won their lawsuits and wanna put their financial earnings to work… And seeing who are talented GPs to partner up with. We will just be focusing on the multifamily sector. We think that that’s a great sector to be in, and it can create a great income stability for our clients. We’re just very excited for what the future holds for everyone right now.
Joe Fairless: Well, so many questions to ask… Let’s start with — when you were working with the ground-up development team and you were developing hundreds of thousands of acres, how did you get involved with that, and what was your role?
Roni Elias: I started off initially as an asset manager. We were a very small team, and our ownership group kind of wanted to be in control of the process, the planning, and kind of creating large-scale development projects. I always had a love for real estate; it was always great that you could take a drawing, where sometimes there was just a big, square box, and just saying “Hey, this corner is going to be apartments. Along this major highway we wanna do a retail shopping center, grocery-anchored.” We really love that.
As we started to do it more and more, I’ll tell you, it was a lot of probably brain cell damage. We predominantly were developing in Florida and New York…
Joe Fairless: Oh, wow…
Roni Elias: …and we got to see some extreme heights, where you could have bought a property for 2-3 million dollars, and the next day you were getting phone calls saying “Hey, I wanna buy this for 4-5 million dollars.” Appreciation was happening through the roof. And then during the downturn, where things were just so bad, we had some development projects where we had poured millions into it, and a new mayor was elected and there’s now a referendum on any large-scale developments. And now millions of dollars poured in for design plans, engineering, legal fees and all that, and now you’re kind of holding something that “has a diminished value” because the city wants to look at its new scale type of developments.
So it was very exciting, we got to experience some great highs, but we during the Great Recession even a firm of our size, we did have to give back the “keys” to some assets, because they just did not work… And we worked some things out with some banks. We had to restructure some deals with them; and some banks were great to work with, some not so great. Again, when we’re looking for GPs to partner up with our fund for our clients, we don’t look at it as really a bad thing that folks went through a tough time, or some things happened to them. We’re doing our due diligence and seeing “Hey, did you at least live through a bad fight call, or how did you deal with the situation?” Because life is not perfect. Things happen, and how you react to it is the most important thing, and how you dealt with those situations.
Joe Fairless: When you’re in a tough spot and you’re working with a bank, or you’re attempting to work with a bank, what are some things a bank that isn’t as amenable to you working with them, what are some things that they’re saying to you, versus a bank that is willing to work with you more?
Roni Elias: I’ll give you at least a tactic that I think is the best way. I think there should be always a two-team approach, and the best way to attack it is someone’s got to be the good cop, someone has to be the bad cop. I predominantly took on the position as the bad cop, to kind of drill things down while either another team member of mine would be the good cop, or our legal counsel would try to be the good cop.
Our goal was to always save the assets. Sometimes banks are just very unrealistic. Back in the day when you’d just call them up for “Hey, I’d like to borrow 20 million”, their response was “Why don’t you borrow 30 million?” Now the phone call was “You owe me 25 million. I would like a check for 25 million tomorrow.” And my response would be “Well, let me go and look underneath my bed, and if I have 25 million dollars, it will be there tomorrow.”
I think as we’ve gotten older, especially now that we’ve been through that downturn, we try to always see where that person is coming from. Understanding people might be going through bad days, and if this person is maybe sometimes speaking that aggression out on you, it’s okay; I don’t try to take things personal, which in the back of my mind it was personal, because “Hey, you’re taking this asset that we added so much quality to and put so much money into…”, and things change; and it didn’t just change for us. This was kind of a halving across the board for everyone.
Joe Fairless: When you were being the bad cop, and say your counsel was being the good cop when you’re communicating with the lender, what were some things that you would say or talk about as the bad cop?
Roni Elias: As the bad cop, we’re gonna make this a very long, arduous journey. Today you’re getting some payments. We’re asking for extensions; we’re asking for maybe lowering the payment. If you aren’t happy with getting paid $100,000 a month, I wonder how it’s gonna feel when you’re getting paid zero a month, racking up hundreds of thousands of dollars in legal fees. We made a name for ourselves — I think one thing you have to also make sure is you don’t say something unless you’re actually gonna do it or back it up… Because the worst thing is to put deadlines or say stuff and you just would not follow through.
Our in-house and even our outside counsel understood when we would say something (or when I would say something), that they could pretty much take what I said as going to the bank. So if we were gonna fight this aggressively, or we were closing on this deal on XYZ date, it was going to happen. So I think them just making sure that what you say is actually gonna happen — and some folks might not know this out there. Once the loan goes into default, usually there is some person, a special asset person who’s usually a legal cousin Vinnie, who wants to kind of just scare you and intimidate you into all of these actions to take. “Hey, if you’re not going to get us our money, we’re gonna chase you till the end of time for this”, and all of these things, and kind of scare you.
Those folks – what maybe a lot of people don’t know about them is they have a financial incentive to squeeze as much blood out of you as possible, because they are going to earn either a bonus or some type of commission off of you by squeezing every little penny out of you. Again, nothing wrong with that; everyone has to make a living. But I think knowledge is power coming into discussions with them, and just saying “Hey listen…”, you lay it out there for them, you try to make them understand things…
And sometimes I would say they’ve got a little bit of a sick head; it takes a couple knocks to the skull for things to now start making sense, saying “Oh, jeez, these guys are kind of difficult”, and making them realize for every dollar we’re spending in legal fees, you’re probably spending 5 or 6 dollars. Is that a wise benefit of the bank’s time and money? …while “Hey, maybe we should give these guys some breathing room, so they can refinance, earn some money during this time period, and we all go our separate ways.” Because at that point it was “Okay, do you wanna take the property back? What are you gonna do with it? You’re a bank. You’re not in the business of developing. Or do you wanna start building apartment complexes and doing that? No.” So what were they gonna do? They were gonna take it back, have to fire-sale it… Okay, so we could have refinanced you out higher than that fire-sale, and all it was was time, and you’re still earning a monthly P&I payment.
So it took some convincing. Some did not wanna see it, so finally – “Okay, here’s the key”, and walked away, no recourse against that. And at the end of the day they did what we expected – they fire-sold it, and had to take a substantial loss than the offer we had given them. The market dictates what people are willing to offer, and then when things are in that distressed position, it causes different dynamics. Either has to come all-cash purchase, or there’s a lower LTV or LTC, so the pool of buyers becomes much more limited. Some banks recognize that, some did not.
I would say an unfortunate [unintelligible [00:15:38].11] good learning experience, because now definitely — at least myself and the team, we definitely look at things much more differently. Back then when things were just gung-ho and the phone was always ringing off the hook, “Hey, I wanna buy this asset, boom-boom-boom…” Looking back at it, I wish we said yes to a lot of those phone calls, instead of wanting to hold on… So that’s just given us kind of a much better outlook, especially now going forward, and being extremely good shepherds for our clients, who — we’ve seen them go through very difficult positions with their lawsuits, and now they came to us and said “Listen, I wanna do something that can help my family” or “I wanna have some type of income-generation going forward”, finding those quality general partners for them, so they can have a healthy cashflow and their initial investment is protected as much as possible going forward.
Joe Fairless: Let’s talk about some of the circumstances where there’s litigation and you all fund the company through that process, and then you share on the upside… What are some examples — and obviously, share whatever you can share, but I’m curious of some examples where there’s this level of litigation. What happens where there’s a multi-million – or in this case, when I introduced you and your bio, I mentioned that you’ve worked in litigation cases reaching over 9.5 billion… So what are some things that one company is doing to another that causes this high of dollar values?
Roni Elias: Let’s take an example, and – not to get a letter tomorrow from the Fortune 500 company saying “How dare you use our name?!” Let’s take an example, and let’s try to make it real estate-related… So let’s say the John Doe family in 1960 became joint venture partners with the Mouse company. At that point, the Mouse company was a very small company, and part of their joint venture agreement – that they would continuously grow together, and as new locations were built, they were 50/50 partners.
Let’s say in 2018 John Doe company has now 100 stores with the Mouse company. The Mouse company has now grown to be a publicly-traded Fortune 500 company worth billions of dollars. Someone inside of the Mouse company says “Man, these John Doe’s have really made a ton of money off our back. And you know what? Looking at this agreement, we think they actually are in default of their agreement. And if they’re in default of their agreement, do you know what we can do? We can take those 100 stores from them, liquidate them, give them 10 cents on the dollar, and we’ve now come into so much great cash and great equity. This is a home run for the Mouse company.”
[unintelligible [00:19:06].12] this is all highly unethical. You’re doing this to a partner that has been with you for 50+ years, and this was the deal. Just because the deal went great and you became a multi-billion-dollar company, and John Doe’s family has become wealthy off the deal, which one would say is a win/win situation for all”, someone in grand wisdom says “You know what, we can stick it to John Doe company and call them on a default.”
It’s a lovely Thursday, he’s out there drinking coffee with his family, and goes and checks his mail, and gets a letter from the Mouse company that says “Dear Mr. John Doe, we find you in default. We are hereby terminating our agreements. We are seizing the 100 stores. You will be receiving no more distributions, and we think after we do all the books more than likely these 100 stores have zero value, or you have to write us a check.”
Adding insult to injury, a Fortune 500 company wants to rob you blind and tell you at the end of the day “Hey, you might even owe us some money on top.” So John Doe quickly goes and speaks to their lawyer, has to file a lawsuit, and predominantly if you were to imagine yourself looking at the courtroom, it’s John Doe with his one-person attorney, and on the other side this Fortune 500 company who has five or six representatives there, and probably another five or six attorneys also, and spending thousands of dollars an hour saying how John Doe and his family are such bad people, and they were forced to call them in default, and so forth.
Joe Fairless: Got it.
Roni Elias: So John Doe comes to us and says “Hey listen, I’m up against the Mouse company. They are a multi-billion-dollar company. My attorney has told me it’s going to a million dollars to fund this lawsuit and go forward.”
We’ll review it, we’ll do our own underwriting, and give it a value internally. Then we’ll come up with, let’s say, “Okay, John Doe, we’re gonna fund your lawsuit for half a million or a million dollars.” Or if John Doe says “My attorney is working on a contingency fee. I need half a million or a million dollars to survive during the lawsuit”, we would do that also.
And then there would be a repayment structure where every six months the amount that has to be repaid is increasing… And as I tell everyone, it is increasing at a very high rate. But it’s not a loan, and so forth. It’s a non-recourse advance. Again, like I said, if the lawsuits flop, you never have to pay back that money. We take that loss.
So a year or a year and a half later the Mouse company says “How about we pay you 75 million dollars? We’ll take these 100 stores off your books, and we just separate and go away.” It is up to John Doe and his attorney to decide what’s fair; if the thinks 75 million is fair. He takes the 75 million, refers to our contract and sees what that million dollars has now grown to, pays us, and the rest goes to him, and everyone goes their separate way.
Had we not funded that million dollars, who knows what John Doe would have gotten, if anything. If you look at our tagline, that’s all that we’re doing – we’re here to help folks that are truly hurt, or trying to be taken advantage of by some larger player out there in the market, and just trying to tip the scale in favor of John Doe.
Joe Fairless: Got it. Thank you for that example, and thank goodness that you all are there for the companies that need help and can’t financially weather the storm during the litigation process.
Taking a giant step back, really quick, here’s a question I ask all the guests – what is your best real estate investing advice ever?
Roni Elias: The best real estate advice – listen to your gut and do your homework. If for whatever reason it doesn’t feel right, listen to it. There’s been multiple chances that “Man, I wish I did that deal.” I could have made so much money. And there’s been times where we were like “You know what, thank God we didn’t do it.” We would have been sitting here with a fat zero. So just listen to your gut and do your homework.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Roni Elias: Yes, sir!
Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.
Joe Fairless: Okay, best ever book you’ve recently read?
Roni Elias: The best ever book I’ve recently read… Believe or not, I’ve been reading the BRRRR book by Bigger Pockets. It kind of intrigued me a bit.
Joe Fairless: What is the best ever deal you’ve done? We’ve talked about some already… What’s the best ever?
Roni Elias: By best ever you mean largest profit ever made, or…?
Joe Fairless: However you define it.
Roni Elias: I’d say the best ever deal closed Friday, on a purchase for two million; on Monday we sold it for five.
Joe Fairless: Yes, please. Where was that located?
Roni Elias: This was located out in International Drive in Orlando, Florida. Heavy tour area, next to the Convention Center… A commercial piece of property where we had certain plans for it during the due diligence and closing of the property; a substantial tenant reached out to us, that wanted to purchase the property, and made us a deal that was too good to be true in such a short time period that we said we should be put in an insane asylum if we do not accept these people’s offer. We said “Let’s do it!” We were very hush about it. We did not even tell our lender about it.
They were very perplexed when we closed on Friday, and Saturday I was just saying “Can you just confirm what is the pay-off amount?” and the banker was like “Well, I can tell you what it is, but I’m kind of surprised why you’re asking about this.” I said, “Don’t worry about, we’ll talk on Monday.” On Monday our closing agent reached out to them and said “Hey, I wanna confirm the pay-off. Is it this?” They were like “Yes, it is. Thank you very much, we look forward to receiving the wire.”
That was probably one of our best deals ever.
Joe Fairless: We’ve talked about deals that didn’t go well, so I won’t ask about that again… What’s the best ever way you like to give back to the community?
Roni Elias: Right now at TownCenter — when we were created, 5% of our profits (not our investors’ or anyone else’s) we donate. We have two charities, Hands Along the Nile and Orphans Africa, and we also do a couple scholarship programs for young attorneys who are studying for the Bar. You reap what you sow, so we’re very big believers in that.
Joe Fairless: I completely agree. And how can the Best Ever listeners learn more about your company?
Roni Elias: I invite you to our website, which is yourtcp.com. I’m very accessible via email; if you ever wanna shoot me an email just to discuss whatever, email@example.com. It would be a pleasure to help anyone out there that’s going through some type of difficulty, in a lawsuit where they’re the plaintiff. And I definitely wanna wish everyone an exciting 2019, and see how things go here for the rest of the year. It’s gonna be definitely some exciting time periods for everyone.
Joe Fairless: Well, Roni, thank you for being on the show, talking about the challenges that took place during the recession, and some insider knowledge on when you’re working with banks – how to approach it, the team members involved. I loved your “unofficial cousin Vinnie to scare you” analogy (or reference, I should say), and how to have those conversations if we are in a situation like that… And then also, on the flip side, some deals that you’ve done that have received a tremendous amount of profit.
And then obviously, talking about what you’re focused on now, and representing those who need representation in order to receive the justice that needs to be received… So thanks for being on the show, Roni. I hope you have a best ever day, great catching up with you, and talk to you again soon.
Roni Elias: Thank you so much. Take care.