JF1886: From Skyscrapers To Retail & Multifamily with Donato Settanni
Donato worked for a company building skyscrapers in NYC, one of those projects sold apartments in the building for $90 million. Once he had an education base Donato wanted to do his own thing, and branched out to create his own company. We’ll hear some about his skyscraper experience, then we’ll hear more details on his own current investments which total a value of $25 million and growing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“The best way to learn is to do it for yourself” – Donato Settani
Donato Settanni Real Estate Background:
- Managing Partner of DXE Properties
- Has managed multiple projects and closings totaling over $3 Billion in value
- Based in NYC, NY
- Say hi to him at https://www.dxeproperties.com/
- Best Ever Book: Tools of Titans
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Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and I will be the host today. Today we’ll be speaking with Donato Settani. Donato, how are you doing today?
Donato Settani: I’m doing great, thanks for having me.
Theo Hicks: Absolutely. I appreciate you coming on the show, and I’m looking forward to our conversation. A little bit about Donato – he is the managing partner of DXE Properties, has managed multiple projects in closing, totaling over 3 billion (billion with a B) in value. Based in New York City, New York, and you can say hi to him at DXEProperties.com.
Donato, before we get started, can you tell us a little bit more about your background and what you’re focused on now?
Donato Settani: Sure, no problem. So I started my career in New York City in the construction industry. I’ve then decided that that wasn’t necessarily for me, so I went back to school for a masters degree in real estate development, and then went on to work for a couple of owner in New York City, including Macklowe Properties and Oxford Properties, two very large owner-developers in Manhattan, where I had the opportunity to build some mega-tall skyscrapers and close on huge properties, upwards of 3 billion dollars, in real estate.
Since then, I’ve recognized that you should work for yourself, and split off and created DXE Properties with a friend of mine, and we currently own seven properties, around 25 million dollars in real estate, and we plan to keep going.
Theo Hicks: Are the properties you own through DXE – are those also skyscrapers, or are they a different type of real estate?
Donato Settani: No, they are totally different. The properties we currently own – we own two retail properties (one has a development component) both outside of New York City, and then we own five multifamily properties, scattered throughout the South-East mostly.
Theo Hicks: Alright, let’s talk about the skyscrapers first, because not every day you get to talk to someone who develops a skyscraper. Do you wanna tell us maybe about one particular project that you worked on, that stands out? Talk about the height, the cost, and what all goes into developing a skyscraper, from a preparation standpoint?
Donato Settani: Yeah, no problem. Building in New York City is quite difficult; we always call it building on a postage stamp. One of my most notable projects was with Harry Macklowe of Macklowe Properties. There we developed 432 Park Avenue, which was the tallest residential building in the Western hemisphere. The total height was about 1,400 feet tall, 106 apartments. The most expensive apartment went for over 90 million dollars, so it was an extraordinary experience to be a part of…
As far as the planning, he bought the site back in around 2006-2007. It was [unintelligible [00:04:24].18] He bought it for 400 million dollars, and then had to slowly assemble land around it. Eventually, he demolished the site, but the economy turned, so the project stalled. Harry Macklowe is a very tenacious developer and was able to convince a large equity partner to step in and continue on with the development. From there, we planned this 1,400-foot tower which had never been done before in New York City, for high-end condos. Overlooking Central Park, you could see all the way out to the Atlantic Ocean when you’re up nice and high. So we planned it, we pre-sold a lot of units, and there’s only a couple units left today.
Theo Hicks: So did most skyscraper developers — would they build it and then they will also manage it, or sell the units afterwards? Or do they typically build it and then sell it to someone else who then actually sells the units or rents out the units?
Donato Settani: Most developers in New York City, when they’re developing condo units, they will build it, manage it and sell off the units. Some of them, depending on which company, will keep property management in-house. There’s a couple reasons for it. Number one, you wanna make sure tath the units you sold to the tenants – that they’re happy tenants, and the best way to do that is to keep managing the property. Number two – in New York City there’s a sponsorship requirement that you’re responsible for any defects in a property after you build it and sell it… So it’s best to manage it and know what defects might come up firsthand, and be able to fix them before you get into a lawsuit.
Theo Hicks: What are the profit margins on these types of developments? I’m pretty familiar with multifamily development… Just mid or low-rise apartments. What would be the ROI you would estimate was made on this project?
Donato Settani: This project was very unique. I can talk about it from when it was recapitalized on forward, with the new equity that was brought in as a starting point… But I would say that Harry was visionary in putting it together at the right time, and we also had some good, dumb luck, and hit the market right… But in terms of returns, we could loosely say that the project cost around 1.3 billion dollars, and the sellout, including the retail, was over 3 billion dollars.
Theo Hicks: Okay, and just out of curiosity, how did you get into — not why you decided to get in this skyscraper development, but how were you able to get on this team, for these large projects? So if I’m someone who’s interested in becoming a skyscraper developer, or at least working on a team of a developer who makes skyscrapers, what’s some advice you would have for how I could get picked up by someone?
Donato Settani: That’s a great question. I worked out of school — so I went to school for engineering, and out of school I worked for a major construction firm in New York City. I actually was able to be on the team that built the new Yankee Stadium up in the Bronx, and also in Madison Square Garden renovation projects… So that gave me some big-time experience on the order of magnitude of billion-dollar projects.
I then went back to school to try and get onto the owner’s side. That’s what a lot of people do… So I went back to school for real estate development, and I actually took a job interning for free when the market was bad, because no one wanted to hire me. So I’d read somewhere that if you really wanna do something, do it for free… So I took a job, interning for free for a smaller owner in New York City, got some experience with that smaller owner, and the equity partner of that smaller owner happened to be the equity partner with Macklowe Properties on this huge project… And they called me up one day and said “Hey, how would you like to build the tallest skyscraper in the Western hemisphere?” and I said “Sign me up.”
Theo Hicks: That’s really solid advice. That’s actually how I got started working for Joe. So whenever anyone asks me “How can I get into a unique industry, like skyscrapers or multifamily syndication, what’s a really good way to quickly climb the real estate ladder and find your way working for a multi-million-dollar or multi-billion-dollar company?”, working for free is a great answer. It sounds like for you — you didn’t even work for free for this large company. You started really small, you got that experience, and then from there you were able to jump to the higher levels… So yeah, really good advice.
Let’s talk about your DXE with your friend… I guess my first question is what advice do you have about partnering up with people? How do you make sure you’re selecting the right partner? And then maybe talk a little bit about any challenges or benefits of partnering up with a friend, as opposed to partnering up with someone who you’ve met pretty recently?
Donato Settani: I’d say that we both had a decent amount of caution on partnering up. I had done my own development project outside of New York City by myself, and he had bought a bunch of multifamily, mostly in the Midwest and some in the South-East on his own. So we weren’t used to working together by any means, and used to just doing things on our own.
I would say that we took about a year to formalize the relationship. We did a couple deals together using our separate entities to make sure that the relationship was going to work, and then we came up with a pretty strong and robust operating agreement over time, as we really got to know each other on a business level, to make sure that we could move forward in the right way and create a long-standing company.
Theo Hicks: Alright. And then those seven deals that you’ve done – you said you currently own seven properties, 25 million dollars; two of them are retail properties outside of New York City, and then you said five are multifamilies in the South-East. So it sounds like you’re kind of focusing on the areas that you know, which is in New York City, and then focusing on — I think you said that he owns some multifamily properties in the Midwest, but I guess he was the guy that knew the multifamily. Do you wanna walk us through one of those retail deals in New York City? How you found it, how much it cost, what you did to it, and then maybe what’s its value right now?
Donato Settani: We bought a small, small property up in Upper Westchester in New York. It was a small retail property. It has three retail tenants currently, but what we liked the most about it was it had four acres of land right behind it, and it was located right in the center of a wealthy town in Westchester County, which is a major suburb of New York City. So we bought the property… The major tenant, which was Chase Bank, was leaving. We were able to get the property off market, through a lawyer that we knew, just at a compelling price. We actually got it well below the recent appraised value, and have had offers since to purchase the property from us just as a flip, which we have denied.
We’re hopefully able to secure a new bank tenant in there. We’re currently working out a lease on that, and just trying to get to the end on that one. Then we also have the opportunity to develop further behind the property, which really makes our basis on that land a zero. So if we get this lease done, which we’re confident on, I’d say within the next year from purchasing the property we would have doubled the value of the equity in the property, at a minimum, not even including the potential development further down the road.
Theo Hicks: And as the reason why you’re targeting a bank – is that just because banks are really good tenants, or is it just because the current unit is set up for banking?
Donato Settani: It’s really both. The current unit is set up for banking. It actually has a drive-through; the town won’t let you use the drive-through if you don’t continue the use as a bank, so there’s advantages to going after a bank… And then furthermore, everyone knows that a bank is a credit tenant. So when we go to sell the property, selling the property with a credit tenant is gonna be a lot more valuable, especially in this tenuous retail market, than selling a property with a restaurant owner, or a day spa.
Theo Hicks: What is a credit tenant? What does that mean? Just out of curiosity. I don’t know…
Donato Settani: Sorry, a credit tenant is just a name used for a national tenant, whether it be in the retail space or the commercial space. So you would consider a good bank a credit tenant, or on the larger retail side something like a Stop & Shop, or a Target, or a CVS. Those are all credit tenants. On the office side – a major office player. Basically, even if the office went dark or the retail went dark, you’d still be getting your rent payment, because the overall company is not going to go bankrupt… Forseeably.
Theo Hicks: Yeah, that makes sense why you’d wanna target someone like that. So it’s not like a small business and that’s the only location they have. Something that’s got thousands of locations across the country are preferable to those smaller mom-and-pop type shops. Alright, Donato, what is your best real estate investing advice ever?
Donato Settani: Best real estate investing advice ever is it’s really hard to take the leap into investing in real estate. As I said, I had a full-time job and was investing on the side… Really, what you need to do is you just need to jump in with both feet. You need to be smart about it, obviously, and not take a dumb risk… But the best way to learn is to do it for yourself. Once you do it, you’re never going to turn back. As you see the fruits of all your work, you’re just gonna get more and more excited about doing the next deal.
Theo Hicks: Alrighty. Are you ready for the best ever lightning round?
Donato Settani: I am.
Theo Hicks: Alrighty. First, a quick word from our sponsor.
Theo Hicks: Alright, Donato, what is the best ever book you’ve recently read?
Donato Settani: The best book I have ever read recently – I would have to say Tim Ferriss’ book. I’m pretty sure the name of it — it’s called Tools of Titans. It’s a great book about a bunch of podcasts that he’s done over the past couple years – he put all the best information into that book.
What I really like to do – I’ve read the book cover to cover, and then I go and seek out all those podcasts that I really liked what he talked about, because there’s just so much more information in the podcasts than he was able to put in the book… So it’s really like a continuous learning experience, over and over again.
Theo Hicks: Alright. Well, what’s the best ever Tim Ferriss podcast we should all listen to?
Donato Settani: Best ever Tim Ferriss podcast… He does an interview with Tony Robbins, which was really good. I’ve recently listened to one with Seth Godin, which was very good. And the third one I would say is he interviewed one of the founders of Google, which was just fantastic.
Theo Hicks: If your business were to collapse today, what would you do next?
Donato Settani: I always say — it’s kind of a joke, but if my business were to collapse today, I’d just go be a pizza man. I’ve got the name for it.
Theo Hicks: There you go… It’d be Donato, singular, not Donatos Pizza. What is the worst deal you’ve ever done?
Donato Settani: The worst deal I’ve ever done… I would have to say that that’s a tough question right now. We’ve been riding a very good market on the way up, and we’ve been lucky enough to not have too many bad ones. I would say that there’s skill involved in that, but we also have to understand that we’ve been in a good market, so… Only time will tell, and I’m sure there will be a bad one in our mix, but the goal is to not have any.
Theo Hicks: On the other hand — besides your first deal, the one we already talked about, and then your most recent deal, what’s the best ever deal you’ve done?
Donato Settani: Best ever deal I’ve done – I’ve built a townhouse development outside of New York City, in Westchester County. The whole deal took me 18 months from the day I closed on the contract to the day I sold the last condo and got out of the deal. We did really well on that deal. All the investors were very happy, and I actually now live in that same village, because I like the experience of building and the people that I sold to so much.
Theo Hicks: And then lastly, what is the best ever place to reach you?
Donato Settani: Best ever place to reach me – if you go to our website, www.DXEProperties.com. Or my email address is firstname.lastname@example.org.
Theo Hicks: Alright, Donato, I’ve really enjoyed this conversation. Lots of good information. Just to recap some of the main takeaways – you talked about how you started off in the construction industry and were able to transition into working on the tallest residential building in the Western Hemisphere, and then from there you learned that you wanted to go off on your own and start your own business…
We talked about some of the things to put in place when you’re going off on your own and in creating a partnership. In this case it was with a friend, but these lessons really apply to any sort of partnership. A few of the main things were to make sure you do a few deals together via your separate entities first, just to make sure everything works out, before jumping in and starting a business together and having the same LLC. You mentioned how you worked together for a year first, to make sure everything worked out, and then also make sure that you create a strong operating agreement to set yourself up for success.
You also talked about how you were able to go from working in the construction industry to working on the tallest residential building in the Western hemisphere – one of the main takeaways was intern for free. So if you want to get into an industry, find a smaller owner in the industry and work with them for free to get that experience, and then hopefully pursue a larger firm, leveraging that previous experience.
Then I also learned what a credit tenant is, which is essentially a national tenant. So if you’re in the retail space, there are advantages to having a credit/national tenant – that’s a company that isn’t just a one-off company; it’s like a Chase Bank, or a Target, or a CVS… Just because you’re lowering your risk of them not paying for rent.
And then I guess lastly was your best ever advice, which I whole-heartedly agree with, and it’s how I got into real estate, which is — it’s obviously pretty difficult to get into real estate. The best way to do it is to just jump in with both feet. Now, obviously, be smart about it; don’t do anything stupid, and set yourself up for success, but educating yourself and building a strong team… But the best way to learn, the best way to stay in the game long-term is to actually get in the game. So just do a deal… For me – I house-hacked a duplex, put 3.5% down… It was small, but I got into real estate that way.
Again, Donato, I appreciate you taking the time to speak with us today. Best Ever listeners, thanks for stopping buy. I know this episode was valuable to you… Have a best ever day, and we’ll talk to you soon.
Donato Settani: Thanks a lot for having me.