JF2673: How to Fix Trust Issues Between GPs and LPs to Source Better Deals with Zain Jaffer

December 27, 2021 | Joe Fairless | 00:35:18

JF2673: How to Fix Trust Issues Between GPs and LPs to Source Better Deals with Zain Jaffer

Zain Jaffer transitioned from the tech space into commercial real estate, bringing with him a unique perspective on sourcing deals, forming partnerships, and streamlining systems to cut down on revenue and time cost. In this episode, Zain shares why trust among investors is vital to finding deals and how gatekeeping advice can harm not only your reputation, but future opportunities.

Zain Jaffer | Real Estate Background

  • General Partner at Bluefield Capital
  • Portfolio: GP on 400 units in family office, 4000+ at Bluefield Capital.
  • Focuses on multifamily, hospitality, senior care, and industrial.
  • Based in San Francisco, CA.
  • Say hi to him at: zain@proptechvc.com | https://www.bluefieldcap.com/
  • Best Ever Book: Blitzscaling by Chris Yeh

Click here to know more about our sponsors:

Deal Maker Mentoring

 

PassiveInvesting.com

 

 

Follow Up Boss

 

TRANSCRIPTION

Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Zain Jaffer. Zain is joining us from San Francisco, California. He is a general partner in Bluefield Capital and focuses on multifamily, hospitality, senior care, and industrial. Zain’s portfolio consists of 400 units in a family office and over 4,000 units in Bluefield Capital. Zain, thank you for joining us. How are you today?

Zain Jaffer: I’m doing great. Thank you for having me on the show.

Ash Patel: Awesome. Zain, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Zain Jaffer: I came formally from the tech industry after having an exit. What do tech people do when they make money? They get out of tech and diversify through real estate, after listening to all these podcasts. So I followed that journey and I started off myself buying single-family rentals, doing a lot of hard money lending with construction loans, buying multifamily apartments as well, and investing as an LP in a variety of funds. And it wasn’t until some time passed — and I had a lot of heartache, by the way, investing in third-party funds. You’re paying these management fees, you’re paying acquisition fees, you’re giving a share of the profits to someone else. It wasn’t until some time passed that I realized, “Wow, some of these funds I’ve invested in are totally outperforming everything I’m doing personally.” So I decided to just be smarter to take a lot of the money I have and just give it more to funds. And I decided, let me join one of these funds, which is Bluefield Capital. I joined their platform and now I’ve been investing as a general partner of Bluefield, where I’ve got a lot of my own money in the fund, but I’m also managing other people’s money, and we’ve acquired quite a good portfolio since 2014.

Ash Patel: And what was Bluefield capital before you joined? Was it primarily multifamily?

Zain Jaffer: No. Bluefield is pretty diversified; all the asset classes you mentioned. And since I’ve joined, that sort of coincides with the big trends that we’re seeing with COVID; the landscape’s changed. Now we’re doing things like ground-up construction of townhomes because there’s more demand for more space and more land. There are new types of geographies that are really emerging because of the whole work-from-home movement, or because there’s more job security and more employment.

We’re also looking at some new types of asset classes — and I call them new… I call single-family new because it’s becoming institutionalized. Bluefield is also looking to do more of that. Industrial has been really big, and we’re also looking at experimental asset classes like ghost kitchens as well.

Ash Patel: Incredible. Zain, how many years between when you had your exit and started as a partner in Bluefield?

Zain Jaffer: Probably about one and a half years.

Ash Patel: Okay. In that one and a half years, how did you figure out who to invest with?

Zain Jaffer: At the beginning, you ask for referrals and introductions. You obviously know the big names, so you’re more comfortable putting money in with some of the big names. I invested with Blackstone, I invested with Bridge, and RXR. You also have some capital – for example, I had a big exit from some of my tech companies. I wanted to sort of shelter some of those capital gains so I invested in some opportunity zones as well. And then you’re sitting with all this cash in the bank, you’re obviously deploying it into the markets, but interest rates are so low… And what I love about real estate is cash flow. Then you get approached with a lot of individual projects. I started investing, project by project, trying to understand what is it that these guys are doing?

At the same time, I actually listened to a lot of podcasts and just thought, “Let me just jump in and do something small locally. Let me just start buying some single-family rentals.” It was just a mix of everything. I was trying to figure out, what do I want to do? I had a lot of capital to deploy, and so I just started moving. I made a lot of mistakes in the process, but I think that’s the route for everyone. A few mistakes later, you eventually wise up and you eventually figure out what not to do. So you try to do things that make sense after a while.

Ash Patel: Zain, what was the biggest mistake that you made?

Zain Jaffer: I think it’s a mistake I’m still paying the consequences for today. I focused too much on metrics like cap rates. Or for me — I’m Indian, and being an Indian person, I’m an East Indian, we’re very tight with money. We’ve got this reputation. So we love value. And I was obsessed with metrics like price per square foot. I’m one of the guys that when I go to buy my own home, I’m trying to get a bargain, I would offer way below the listing price, and I want to calculate “The average square foot price is this much in the neighborhood. Here’s what I got it for.” Big mistake. You get what you pay for; sometimes it’s worth paying a premium or worth paying market rates. That’s the mistake I’m still learning today, or dealing with mistakes.

Ash Patel: So your tech background coupled with being Indian defined a lot of your decisions.

Zain Jaffer: Yes. [laughs]

Ash Patel: Awesome. So how did you join Bluefield Capital?

Zain Jaffer: I joined Bluefield when — I had already invested in numerous projects. I was just amazed at some of the returns that generated. So realized, not unrealized; realized, net IRR of about mid 30 percentage points, since 2014. That’s one hell of a track record. When I was speaking to a lot of operators, I felt the Bluefield team was different, because they were very conservative. There he was, just always be deploying, but deploy carefully. You can’t necessarily time the markets, things do feel frothy… But going slow. I was like, “Guys, I want capital deployed. Can you take some money and get me returns?” They were like, “No, we can’t right now. We have a feeling more opportunities will come up.” And I just liked that conservative nature that they had.

The other thing was they had very little tech. They had achieved all of these returns with the old school mentality of relationships; relationships with vendors, relationships with agents and buyers they had worked with in the past. And I thought to myself, “If I can bring some of my technical expertise…” You can bring some of that magic, you see, with these larger institutional funds, like Blackstone. No one has the infrastructure as Blackstone has. But the smaller funds –  I thought I can join these guys. I can get them a website to start with, and start bringing in some technology in, being smarter with how we buy things, and scale up what we’re doing.

Break: [00:06:34][00:08:12]

Ash Patel: Did you have to pitch them to become a GP? Because they have to be thinking “Who is Zain Jaffer? Why should we partner with him?”

Zain Jaffer: I actually approached them and said, “Guys, I’m struggling.” I’ve got these tenants, I own a bunch of multifamily assets through my family office, 400 of them in Texas, a lot of workforce housing in tertiary markets… I contacted them and I said, “Guys, I’m kind of struggling right now. I’m having a hard time collecting rent.” We’ve got a lot of delinquency, we’ve got high occupancy, but people just aren’t paying rents. I’ve never dealt with this before; I’m new to real estate, and here I am, on paper thinking things look great, and I buy the buildings and I realize “Crap, cashflow was not there. I should have bought something that was 50% occupied rather than 90%, where half the tenant base isn’t even paying.” They coached me through that and we decided that “Why don’t I partner with you guys, and you guys can sort of be advisors to me?” Then after realizing we had shared values, realizing that I needed something that was different than me… Like, I’m this aggressive, ambitious guy that’s so impatient, I want things immediately, like in tech. You get it done quickly, you keep executing… You’ve got to throw that playbook away when you go into real estate; you have got to take a very different approach. I thought I’d learned from the team, and decided, “Hey, COVID just hit. There are these opportunities that are going to come out… Why don’t we just partner up and start a fund? I’ll join you guys full-time.” I sort of gave the pitch, they thought about it, and they said “You know what? It actually makes sense. We think it would be a good partnership.” I haven’t looked back since. I kind of wish I had done all that before I made my mistakes.

Ash Patel: I’m still trying to understand this… You joined them full-time. Was that a paid position?

Zain Jaffer: Well, I’m a GP, so you don’t really take a salary as a GP. You’re taking your management fees, you’re taking acquisition fees… You have a share in the partnership, a share in the LLC.

Ash Patel: And your value-add was bringing the tech to the table.

Zain Jaffer: Bringing the tech to the table, bringing a more fresh perspective, I’d say, wanting to learn real estate… Because they didn’t have really a base in the San Francisco region and the tech area. But yeah, sort of a mix of things.

Ash Patel: How many other GPS was there?

Zain Jaffer: There’s four other GPS.

Ash Patel: Okay, so not a huge conglomerate.

Zain Jaffer: No, and that’s what I liked about it. They were just big enough where I could make a meaningful amount of money myself and deploy a meaningful amount, but small enough where there was still room at the table for me. If they were an order of magnitude larger, there’s no way I would have had skin in the game, you could say.

Ash Patel: Yeah, I assumed they were larger just because of the different asset classes they were in.

Zain Jaffer: Yes.

Ash Patel: And I have to ask, when you started in real estate and you acquired your properties, did you have these rosy projections on spreadsheets of the three and five years and how much how many millions of dollars you were going to gain?

Zain Jaffer: Man, I had rosy projections on day one. I’m thinking, “Wow, this seller’s dumb.” I’m here and I’ve figured it out. The broker is telling me this is a great deal. “You should really, really do this.” Here I am, rosy-eyed thinking, “Wow!” I’m looking at my family office portfolio, and I’ve got some bonds that are yielding something 1%. I’m looking here and I’m like, “Oh, my God. This thing can cash flow immediately.” So this is the problem when you have a tech guy or an entrepreneur coming into real estate. In tech – and even investing in tech, because I’m also a venture capitalist… At Bluefield, I started the venture capital fund as well where we invest in prop tech startups. That was another value-add I brought in. When you’re wearing that hat, you back the person; you have to trust the person, you have to back their vision and their ambition, and you assume what they say is true, because things are at such an early stage. You do not do that in real estate. The last thing you want to do is to think “I really like this seller. He’s really ambitious, he’s bold, and here I am, getting a deal.” No. Everything that he said, you just throw it away and you do your own underwriting, your own models; you don’t take what you hear at face value. That was the mistake that I made, and the partner that I had at the time also, trusting in that partner, too. So hey, you learn… Trust but verify I think is the key term that’s now used, and I think that’s the case. It’s definitely hard for a lot of tech people when they come in.

The other thing is too, [unintelligible [00:12:10].26] tertiary market, and it’s the 650 or four and five area code, they know “Ha-ha, money’s calling.” Suddenly, the price is up 20 to 30% when you ask what it’s going for.

Ash Patel: You’re not kidding. I’m in the Midwest, and our goal – personally, my goal, is if I’m going to sell a property, I try to market it to coastal buyers. Because they’re just not used to the types of returns that we have here. So Zain – hospitality, multifamily, senior care, industrial, and then ghost kitchens as well you mentioned… How do you guys look for value add opportunities without getting overwhelmed?

Zain Jaffer: We’ve had to be very nimble, and you can do that when you’re small. Once you find a really good partner — Bluefield’s approach is to partner up with other funds to co-invest often, or to find vendors you really like and you’ve had a track record with. So we know some really good hotel operators who have performed for us historically. We’re very comfortable. And when they underwrite a project for us, they’re not only being held accountable for those numbers; we’ve seen them perform consistently. We’re comfortable. We’re a lot more comfortable with their projections, even if it’s lower than some third-party management firm we don’t know. Same with multifamily. We also have some partnerships with some construction developers who have really performed for us. And when we see them, we think to ourselves, “Let’s go in as a partnership here. You guys put some money into the project as well, some skin in the game. We’ll bring the majority of the capital, our balance sheet, our lending, our relationships, and our deal sourcing… And let’s partner here and let’s start doing this new asset class.” So Bluefield has done a lot relative to a lot of firms, because a lot of firms will just focus on one geography or one type of asset class and real estate. I think that’s the way to succeed. But for Bluefield, because of the depth of the relationships they have, they’ve partnered with a lot of funds, de-risked things and built expertise quite broadly.

What that’s done for us too, is that we were very multifamily focused heading into COVID, and multifamily has been impossible for us. Although we bought a couple of apartments through 2020, we must have made 100 straight offers that were rejected. Because the markets heating up, there’s a flight to safety in multifamily, people are abandoning – or were abandoning – retail and office… We had expertise in hospitality, for example. So that was a sector where we realized “Okay, we’re struggling with multifamily, but we have some experience in hospitality. Let’s double down on that.” So it’s literally this simple. We have an [unintelligible [00:14:42].22] as a team, it’s a small team, six or seven people, we meet somewhere because the team’s spread across the US, and we write on a whiteboard. “Hey guys, let’s put down what our relationships are. Let’s put down what our strengths are.” Our strengths are multifamily, but we’re not winning here, so let’s look at where else we can play. And we can move very quickly enough to one off-site, small team, quick decisions. We’re outbidding and winning. Larger firms are just entrenched, or specialist players are stuck. I feel sorry for the multifamily guys who had this to themselves, and now institutions are coming in and paying 3% or 4% cap rates. And the way people are underwriting, it’s mind-boggling.

Ash Patel: I agree. A 3% cap rate in the Southwest… Hard to make money when you do that. So what percentage of your capital deployed is in your own, deals versus partners deals?

Zain Jaffer: Bluefield, 100% of the deals are our own needles. Initially, Bluefield used to be more of a fund of fund, we didn’t invest as an LP. Now everything we do is a GP…

Ash Patel: Got it, okay.

Zain Jaffer: If we’re going to do anything with another fund, typically we want to see a clean 50/50 share of the GP. I’m glad you’re talking about this. People don’t talk about this enough on podcasts. It’s easy to say I want to partner with someone else. People use the word “partner” so casually and liberally. “Yeah, we’ll give you a 1% share that GP and we’ll give you an assignment fee.” That’s not a true partnership. We don’t want to work with someone where we don’t have a say in the project; we want to have a pretty good say in the project, and we want to have control of the project. If we’re not going to get more than 50% of the share, everyone have at least a 50% share. That way, if you run a fund and I run a fund, I know you’re on the market, you know I’m in the market – guess what? We’re bidding against each other every time, it makes no sense. You and me, we’re similar-sized funds. Let’s just partner together and do more deals together. So if you have a deal that you like, I expect you to bring it to me and vice versa. We’ve done that. We’ve got deals that we could fund in a heartbeat, but we’ll go to our partners and say, “Look, you brought us the last deal. We really want to build a relationship in these three or four markets with you. Let’s work together.” And you sit down and you’re [unintelligible [00:16:44].29] They’re better at managing the asset than we are, we have better lending relationships than they do, and they also have a really good inside contact here, and then you just match up… One plus one is more than two here. In real estate, it doesn’t have to be three, one plus one can be 2.3 because of the leverage involved. The returns are beautiful.

Ash Patel: Yeah, that’s so important, what you just said, where you share your deals, you reward other people that brought you deals, and you continue to build those relationships, which is appearing to be the foundation of how Bluefield is successful.

Zain Jaffer: Absolutely. And once that’s ingrained as a culture… I find real estate is too much about information symmetry. Everything firm, every man or woman for themselves. There’s so much opportunity out there that we all win if we share in that upside together. And it’s a zero-sum game, frankly; either you buy or I buy. So why don’t we both partner together and buy together if we can? Especially when I bid, and you bid, we’re pushing up the price, and we’re like the third or fourth-highest bidder out of like 10, 12, or 15 bidders. I don’t understand what’s going on out there. I’ve talked to other firms, I’ve talked to the analysts even of these other firms, and this is what I’m hearing. “Well, we just had to make the deal make sense. We penciled it out, we had to make a few assumptions, we assume cap rates would compress, we assume interest rates will stay low forever, we assume the rent growth would continue to be where it is, 5% a year or whatever…” That’s criminal. You’re going to blow investors’ money. So when you have two partners that underwrite the same way, then I should share my off-market deals with you and likewise. And it de-risks things, too. There are disagreements – litigation is full of like real estate-related cases – but it’s worth the squeeze. If you have the shared alignment of trust and vision and values, it’s the way to grow, I think, especially for newbies.

Ash Patel: I agree. And I’ve got to tell you, the mentality on the coast is a lot different than in the Midwest and in the South. Here in Cincinnati, we have a tremendous real estate community where we give away all of our knowledge. We’ll ask colleagues to help us underwrite a deal and they very well could steal it, but it never happens. I’ve talked to people who have called me about looking at deals in the Midwest, and they’re baffled. These are coastal people that are calling me. They’re telling me that even amongst their closest friends, they don’t talk about the deals that they have in the works. During get-togethers, it’s like, “Hey, what are you working on?” “I got some things going on.” Whereas here, I’ll share everything; deals that I’m going to make an offer on – no problem. I’ll even share them on this podcast. It’s just a different mentality out here.

Zain Jaffer: You hit the nail on the head. I should have mentioned that the Bluefield real estate team is primarily located in the Midwest. So – surprise, surprise.

Ash Patel: Beautiful.

Zain Jaffer: In the Utah region, but also all over we buy, and the Midwest is a key focus for us, by the way. At bluefordcapital.com, you see we’ve got a map that I coded. You can see on there where our real estate is. But this is it. And I’ve been an LP in many funds, and they’re very hesitant to share the deal with me, because the deal isn’t yet closed. They’re worried I might swoop in, and I’m like, “I don’t have time to do that.” You’re the one designing the blueprint, I’m not going to try to copy the blueprint. “Yeah, but you have your own real estate activities, too.” I’m like, “Okay.” If that’s the level of distrust between an LP and a GP, that’s not a fit there. But in the Midwest, it is different. I think that’s a really key insight you pointed out.

Ash Patel: Zain, what you talked about just a minute ago about how these firms are possibly outbidding you guys on so many deals… I think it’s the same reason that when you first try to give Bluefield money, they didn’t want it, they didn’t need it. Whereas a lot of other operators are just taking as much money as they can. And now they have to deploy it. It’s just a machine that you have to keep feeding. I think that’s helping drive some of these compressions in cap rates.

Zain Jaffer: I tell you, sitting as an LP here — and I don’t do much anymore; I do everything via Bluefield now. Rarely do I invest outside of Bluefield via my family office. But I am shocked at some of the projections I get from funds where they’re underwriting this in the mid 20% IRR. And yeah, because they had success the last three or four years… Everyone was winning the last three or four years. What I liked about Bluefield is every deal they’ve ever done, it needs to pencil out in the mid-teen IRR or less, maybe 10% IRR. But historically, they’ve achieved 30% or 40% IRR and some projects even crazier amounts. I like that about them, that you set expectations with LPs and you under-promise and over-deliver. And I feel like if you do that for the long term, you are going to succeed in real estate, because the industry is very, very small. I think you also alluded to the idea of people stealing each other’s deals. Well yeah, you do that once or twice. But if you want to stay in town and you want to build a reputation, people are going to reference check you; sellers are going to reference check you, buyers are going to reference check you, banks are going to know what you’re about. The industry is too small to try to make a quick buck. This is an industry that is very cliquey, in a good way and in a bad way.

Ash Patel: I 100% agree with you.

Break: [00:21:46][00:24:43]

Ash Patel: Does Bloomfield deploy their own capital or do you guys take on investors as well?

Zain Jaffer: It’s mainly investors. We have a series of funds. We see a deal, we love the deal, priority goes to the fund. Transparently, the best deal is going to come from our fund. But sometimes there’s a deal that’s a little bit too big for us to chew on, so we’ll open it up to other external investors. People can come in and they’ll invest in that SPV, which has a share in that real estate project. Typically, we’ll also open that up to people we want to work with as well. There’s a family office, and we want them to build a long-term relationship with us – we’ll offer that to them.

The priority usually goes to our fund, but then there are some deals that might not make sense. Like, we’ve got one fund where it’s focused a lot on cash flow. The investors want more safety, where the preferred return is important. We’re not going to basically do construction projects in that fund, because we won’t be able to catch up for many years. So we might set up a special fund or it might go to a few LPs and say, “Look, here’s a $50 million ground construction play. The payback is at least two or three years out.” That flexibility has helped us a lot.

Ash Patel: Is there a minimum size deal that you look at?

Zain Jaffer: Minimum size deal – it really depends… I’d say 10 million is probably the bare minimum, and I’d say 100 million is probably the maximum. If we’re going north of 100 million, then that’s why we want to partner with other funds. And you know what? Here’s the other secret to real estate. It takes just as much work to do a large deal as it does to do a small deal. If I’m doing larger deals, it’s way easier. It’s easier because – guess what? There’s a data room. Things are generally more organized. Banks are also more willing to lend on it, and the fee structure makes a lot more sense. Here’s the other painful thing I learned. I own a 35-unit building personally; this is the smallest building I own. A 35-unit building in South Texas. Amd when I want to replace that roof, I have to spend the same amount on that roof as a property that’s about a mile away from me, that has 35 units, but costs five times as much. Sometimes doing large deals is better because you get efficiency and scale.

Ash Patel: Yes, it’s so important. I’ve learned that lesson later in life, but a $500,000 strip mall that I had is actually more work than a five-million-dollar strip mall. You have mom-and-pop tenants versus national tenants, and you have gross leases versus triple net… And those smaller properties can consume you. It’s easier to manage the larger property, so I agree with you. What is your best real estate investing advice ever?

Zain Jaffer: Oh my god… Best real estate investing advice ever. I want to say something unique here. Find out what your strengths are. And for some firms or people, it might be “I like making deals.” Real estate comes down to a few things. Deal-making, which is buying and selling properties, or capital raising, or management of the asset, or in some cases, development of the asset, like construction. Figure out what your strength is. If you’re not strong in those four areas… And I think those four areas are pretty important. Construction – you can subtract that, because that involves a whole new type of real estate. I’d say under management it’s renovation and rehab. Find out which areas you are strong in, double down on those areas, build up competence internally, and if you’re not strong, find a firm that is the best in the world in that area, in that region, in that asset class. Very important. Too many people try to do too many things themselves.

The other thing I’d say that’s much more unique because of my tech perspective is deal-making is still about relationships, but property management is about technology. I promise, today I don’t think traditional property management firms are going to survive unless they embrace a technology stack. There is so much opportunity to improve your revenues and decrease your costs by bringing in prop tech, which is property technology. If management is one of those things one of your viewers wrote down on a piece of paper as something that they’re good at, focus on tech. Otherwise, you’re going to be like the frog in a bowl of water that slowly boils and you get boiled to death. That is actually happening in the real estate industry. Property management firms, and even agencies. Property management firms have to embrace tech.

Ash Patel: These are incredible lessons that you’ve learned in the short time, that the rest of us suffered through and learned the hard way. So good for you. The value of having partners – I’m sure you learned a lot from them.

Zain Jaffer: Yes, and being on the coast… Being in tech, we do tend to partner a lot more. I think I like that vision in real estate where there’s there’s more partnerships. But a lot of people want to own everything themselves, and this isn’t Monopoly. Real Estate feels like Monopoly because you can make a lot of money in it, you can lose a lot of money, but you have to partner with others, and that’s not very Monopoly-like.

Ash Patel: Zain, you’ve got your pulse on a lot of different assets. What would you focus on going forward?

Zain Jaffer: Me or generic advice to a listener?

Ash Patel: I think generic advice, in terms of hospitality, senior care, industrial; they all seem really appealing.

Zain Jaffer: Just pick one. It could be strip malls, it could be anything. Pick one and focus on your geography, understand that asset class, become a sector expert. If you’re asking for generic advice, it would be go really local, go really asset-specific, and don’t make a single damn transaction until you studied three months of the market, you looked at every comp you can get, you’ve talked to every agent you can talk to; don’t pull any moves until then. And then once you’ve done that, get a good damn attorney. Attorneys are so important; they can kill a deal, they can ruin everything for you. The accountants aren’t as important as the attorneys. Learn how to do financial modeling and be smart with deal structuring. You can do seller financing… There’s a lot of smart ways you can enter with very little capital, but be hyper-focused so that if a large fund comes in, they’re not going to have the relationships you have and the knowledge you have of your sector. Ideally, let it be someone that’s within travel distance from you, a couple of hours. Me? I have to take a whole week out to go to Texas; what a mistake that was. I should have done things locally in California. And I have done a few things locally in San Francisco, and it’s so much easier to deal with, and I know people here. It’s way harder when you’re out of town.

Ash Patel: Wait a minute. What do you say to all those people in California, New Jersey, and New York that say, “There are no good deals locally?” How do you find deals in San Fran?

Zain Jaffer: There are always deals everywhere. I figured out an arbitrage opportunity I’ll share with your listeners. I’m going to try to summarize the model that I came up with, and it’s still a model I think that can work. Everyone’s saying San Francisco is way too expensive, it’s very difficult to enter here because cap rates are so low, or whatever, and you can’t make cash flow; when you buy assets for appreciation [unintelligible [00:31:16].14] I figured out San Francisco’s market is unique, and every market is unique, but in San Francisco we have condo units and then we have TIC units. TIC unit means a tenancy in common unit. Basically, you’re buying a share of a building, you’re not buying an actual legal condo. I’ve figured out, as far as a tenant is concerned, they don’t care whether it’s a TIC or condo; they’ll pay the same rent. The TIC is 20% to 30% cheaper than condos. I started buying a bunch of TICs and I started making great cash flow. Even through COVID, I underwrote for a 5% or 6% cap rate. But through COVID it was more like 4% or 3%. That’s way better than the average. I understood the market, I bid low in some cases… The ones I went in too low on were kind of garbage properties. But some of the premium properties are generating great cash flow. You can make money, you just have to be creative and understand the local market. There was a lot of the off market, too.

Ash Patel: TICs in New York are referred to as co-ops. They often do not allow rentals. Is that not the case?

Zain Jaffer: Oh, that’s a shame. I know sometimes you have rules with some of these TIC or condos with the HOAs. That was okay for me. I wasn’t looking for Airbnb, shorts, and furnished rentals. Many of these buildings allow six-month minimums. At least in San Francisco; I can’t speak for New York. So understand the market, and when there are regulations like that, when there are certain factors in the market, play that as a strength. Some of these things you’re talking about make it very unattractive for your average real estate investor to come into. Look at TICs, it’s very hard to a loan on them, and there is a bit of risk. If one TIC owner defaults on the property, you’re liable for that person. Mortgage – you’re liable for that person’s repair costs, because you own a fraction or a share of the building. But I made that a strength. I realized I can buy this 20% to 30% cheaper, and I can now enter the San Francisco market and play arbitrage for the long-term.

The other thing too is when something is difficult to finance — strip malls for example can be difficult for lenders to wrap their heads around. Now, guess what? If you focused on building a knowledge base in strip malls, finding some lenders that get the asset class, finding LPs that want access to this unique asset class called strip malls… Which by the way I think is up 14% when other assets in retail are down significantly… Then you figure out your magic; you don’t try to do a bit of everything.

Ash Patel: I love it. Zain, are you ready for the Best Ever lightning round?

Zain Jaffer: Go for it. Yes.

Ash Patel: Alright. Let’s do it. Zain what’s the Best Ever book you recently read?

Zain Jaffer: I would say Blitzscaling by Reid Hoffman. It’s not on real estate, and it will make real estate people puke, because it’s about being super aggressive in technology. But man, it’s a fun book. It’s like how Airbnb and others spent a crazy amount of money Blitzscaling their company, and how sometimes that’s the right thing to do for some companies.

Ash Patel: Zain, what’s the Best Ever way you like to give back?

Zain Jaffer: What’s the Best Ever way I like to give back? I’ve got my own private foundation right now, and we’re talking about it a little more publicly. We’ve done a lot of things anonymously before, but some of the things we’re doing need a bit more public awareness, like climate change. We are the executive producer in a bunch of climate change documentaries we are producing throughout Asia, and we’re also trying to make it more about real estate too, because the construction industry is so bad with the amount of carbon emissions that are produced. There are always green loans and green financing initiatives you can tap into in the real estate sector. So naturally, I thought climate change is a good area to focus on, and our foundation does a lot of that.

Ash Patel: And Zain, how can the Best Ever listeners reach out to you?

Zain Jaffer: zain@proptechvc.com. That’s the newsletter I have. I’m building a directory of who the investors are and companies that are in prop tech. Also, I’ve got a podcast that is focused on technology in real estate, it’s called Prop Tech VC.

Ash Patel: Zain, I love your story. Thanks for joining us, sharing your experience of exiting tech, learning some lessons about real estate, and just killing it now. Thank you for taking the time and being on the show.

Zain Jaffer: Thank you so much for having me.

Ash Patel: Best Ever listeners, thank you for joining us. Have a Best Ever day.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

Follow Me:  
FacebooktwitterlinkedinrssyoutubeinstagramFacebooktwitterlinkedinrssyoutubeinstagram


Share this:  
FacebooktwitterpinterestlinkedinFacebooktwitterpinterestlinkedin

You may also like

Leave a comment

Joe Fairless