JF2031: Digital Marketing to Fund Your Deals With Dr. Adam Gower

Dr. Adam Gower is the Founder of GowerCrowd and Author of “Leaders of the Crowd” with over 30 years of real estate experience. Dr. Gower explains the importance of understanding debt, and how to utilize digital marketing to grow your presence and also fund future deals.

Dr. Adam Gower Real Estate Background:

 

 

Best Ever Tweet:

“You will have to go through a downturn, period. It will happen. The only guarantee in real estate is prices will go down.” – Dr. Adam Gower


TRANSCRIPTION

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, Dr. Adam Gower. How are you doing, Adam?

Dr. Adam Gower: Very well, thank you. Nice to meet you. Thanks, Joe.

Joe Fairless: Well I’m glad to hear that, and it’s a pleasure to meet you as well. A little bit about Adam – he’s a founder of Gower Crowd. He’s the author of Leaders of the Crowd, and he’s got 30 years of real estate experience. He’s located in Beverly Hills, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dr. Adam Gower: Sure. Ever so briefly, I do have over 30 years of real estate investments and finance experience, both at institutional levels, but also on my own account. I ran a division of Universal Studios during the 1990s, responsible for all of their development in the Asia-Pacific. That was actually out of Tokyo.

Then I came back to the States and developed my own portfolio. In 2007 I sold everything. I managed to get out right before the door was shut. With that, I was hired by a major bank, and then also by one of the top private equity funds, Colony Capital (you may know), to assist them with portfolio divestment.

So I actually saw every possible way that a real estate can go wrong during that time, because I was working on non-performing real estate collateralized loan portfolios. And once the economy picked up after that, all that good distressed stuff went away, so I started doing some seed investments, Joe… And it was through that that I learned a new language, and it was the language of digital marketing. It was absolutely fascinating to me.

And at around the same time, the laws changed. The laws suddenly, overnight – this is what my Leaders of the Crowd is about – changed, allowing real estate investors like your listeners to go out online and to raise money using digital marketing. Prior to that it was prohibited.

So over the last five years I am an old dog that has learned new tricks, and have developed a state of the art digital marketing system for finding passive investors who write checks to developers, so they can go out and buy more deals. My client base is developers who are raising money online. So that’s it in a nutshell.

Joe Fairless: We’ll focus our conversation on what you’re currently doing… But I do want to back-track a little bit and ask you about your statement of you “saw every way in which a deal could go wrong.” I would love to learn about that. So what are some ways that you found most common, and then I wanna talk to you about some more outlier scenarios that you came across.

Dr. Adam Gower: Sure. There is one simple word that defines where people go wrong. It’s as simple as this. Debt. Too much debt. Because people talk about the capital stack… Actually, this is something that I discuss in my next book, that’s coming out at the end of the summer.

The way that people talk about debt is they think of the capital stack, and it’s the language patterns that people use that give the wrong impression. When you talk about the capital stack, people say the bank gets paid first, and the investors get paid next, right? There is an inherent assumption that you will get paid back. But the capital stack does not describe the order in which you get paid back as  much as it describes the hierarchy of power in a deal.

The bank holds all the power in a deal, because they can foreclose on you. It’s as simple as that. They can wipe you out, and anybody above them. So if there’s a second-position loan above them, it doesn’t matter that they get paid second. What matters is that if you have equity above you, they have power over you. They can foreclose on you and wipe you out. You can lose everything.

So the biggest mistake that people make is in failing to underwrite the risks accurately enough and taking on too much debt… So when they get hit with a downturn, they’re unable to service that debt, and in kicks that capital stack power hierarchy, and the bank comes knocking on the door and takes your building from you. They’re not friendly partners when that happens, because they’re regulated; they have no option. So that’s the long answer to a short answer. The short answer being debt.

Joe Fairless: What is too much debt?

Dr. Adam Gower: Too much debt is that which you cannot handle, or that which you cannot handle repaying on a consistent basis under a worst-case scenario when you underwrite a deal. When  you underwrite a deal,  you’ve got to look at three scenarios. So just between you, me, and the 27 million people listening now, Joe, we all know that there are three spreadsheets that every investor concocts. There’s the one that they write for the bank, the one that they write for their investors, and the one that they keep for themselves, that they think is the most likely scenario.

So the best way to underwrite a deal is to basically take those three scenarios but be open about them, especially with investors, and create a best-case, worst-case and most-likely case scenario, and be honest about it. Look at your worst-case scenario, and the best way to do that is to look at how deep the market fell in your location during the last recession, and specifically the global financial crisis of 2008. You can find that data, how far did vacancy rates go up, how far did rents go down – and underwrite  to those numbers on your projections, and only take on as much debt as you can handle under those circumstances. That includes terminal values as well, Joe. So you’ve got to also look at cap rates.

If you are assuming that cap rates are gonna continue to compress, you’re probably making a mistake, especially now, this stage of the cycle. You wanna be looking forward and being pragmatic about where you think cap rates can be, and probably increasing your exit cap rates assumptions, and then underwriting to that, as well as worst-case, and being able to cover your debt under both of those circumstances.

Joe Fairless: How would you suggest coming up with that terminal cap rate or the exit cap projection whenever you do an underwriting?

Dr. Adam Gower: Again, look at historical cap rates. This data is readily available. I hope you don’t mind me mentioning my podcast, Joe…

Joe Fairless: Of course, mention it.

Dr. Adam Gower: So I also have a podcast, The Real Estate Crowdfunding Show, Syndication in the Digital Age, and I interviewed Spencer Levy, who wrote the CBRE Cap Rate Report. It’s their most popular report, absolutely fascinating. They have incredible amounts of data. So sources like that you can go to, and have a  look and see “Where did cap rates go during the 2008-2009 recession?” and assume that you’re gonna get back those rates at the end of the cycle. That’s one way to look at it; look at historical patterns. They will repeat.

Joe Fairless: Let’s talk about what you’re doing now. And thank you for the analysis approach for looking at it historically. Because when you said “worst-case scenario”, I’m thinking “Well, the worst case is there’s a nuclear bomb that hits your area.”

Dr. Adam Gower: But then you don’t have anything to worry about… [laughs]

Joe Fairless: That’s true, yeah… But you took a more pragmatic approach for worst-case, and that’s when we had 2008-2009, or whatever timeframe the recession hit your area.

Dr. Adam Gower: Yeah. Look, Joe, worst-case scenario is systemic collapse and military on the streets, locking everyone. When that happens, or if the dollar collapses, then there’s nothing you can do about that. Lawyers, guns and money is what you need. Gold and guns, basically, is the only thing to secure you in that scenario.

Joe Fairless: Well, let’s talk about what you’re doing now. So you mentioned what GowerCrowd does, but elaborate a little bit more on a case study that you have, just to give us a sense of what’s taking place.

Dr. Adam Gower: Thank you so  much for asking that. It’s really nice of you to ask such a question. So what I do is I build digital marketing systems for real estate developers who want to raise money online… To go out and raise equity capital. Well, actually it’s for anybody; they don’t have to want to raise it online. You can want to raise it at the country club, or from friends and family in your immediate network. But the law now says you can do it online, so you might as well do that, because it’s very, very powerful.

And again, just let me know – I’m not going to pitch too hard, Joe, but let me know if I can, because I’ve actually put together a free workshop that you can take a look at and you see this whole thing in great detail.

Joe Fairless: Yeah, at the end of our conversation I’ll ask how can listeners get a hold of you, so feel free to mention that.

Dr. Adam Gower: That’s very nice of you, thanks so much.

Joe Fairless: So we have been tracking for the last five years or so, which is as long as it’s been allowed in the United States, we’ve been tracking best practices in the industry. And this is absolutely brand new for the real estate industry that you’re able to do this. So everybody is kind of feeling their way forward. Digital content marketing – exactly what you’re doing, Joe; this podcast is exactly that – has been around for a long time, and it has disrupted just every industry in the world, except real estate, until now. So we’ve been adapting best-of-class practices and applying it exclusively to commercial real estate, so developers can raise more money online. We’ve built and developed a system for doing that, that is largely content-driven.

For example on my podcast, I will create out of a single podcast one or two thought leadership pieces, half a dozen videos, and half a dozen notable quotes. So in an hour I’ll get 15-20 pieces of content, that we will then rotate online. We do this for our clients as well, so we get into your DNA, find out who you are, just in the same way as you’re talking to me, in 20 minutes, but we’ll spend an hour a week with a client, recording conversations and really understanding how they see the world and how they see commercial real estate investing. Then we create content from that, and with that we fuel a machine.

I’m gonna give you a case study your listeners can actually go and take a look at if you like in a minute, but think of it this way… It used to be that it was mandatory to have a business card; how old school is that? That’s number one. Then it became mandatory to have a website. You’re gonna have a website, right? Some kind of landing page that people can go. But nothing’s really changed since the website.

The website, to pick a metaphor, is like the body of a car in your driveway. It looks gorgeous, but it doesn’t go anywhere without an engine. It’s got to have an engine. And that engine is, in the digital marketing world, sophisticated communications like autoresponding emails, auto-posting to social media, tracking visitor behavior on the website etc. That’s your engine. That’s what powers the investor journey to getting to know “I can trust you enough” that they send you money. But there’s one vital part of that machine – your body and your engine – that you also need, and that is content. Content is the fuel that powers that vehicle, that investor acquisition system is what we call it, that vehicle to raising money – you have to have content.

So the biggest problem I’ve had, Joe – it sounds whacky – since I’ve been doing this… I’m frequently asked, “Can you give me references?” So when I first started doing this, I would ask my clients “Can I please give this guy your name as a reference?” And the reaction I got was not one that I had expected. I was afraid they would actually cut me off, even though I was doing an amazing job, because they didn’t want to give a reference, because they didn’t want to think that I was actually building these systems for anybody else; they wanted to think that they had exclusive rights to it. This competitive edge.

But there is one client who very kindly has let me point to his business… So if you go to Feldman Equities — in fact, we’ll even give a link to the podcast on his website; I’ll give you a back-link as well, Joe, as well as on my site. FeldmanEquities.com. They’re out of Tampa. Basically, 100% of everything you see on that website – the website design itself, and layouts and structures, entirely GowerCrowd. And the entirety of the education and video pages. You can also go and have a look at YouTube, and then check out LinkedIn and Twitter and everything and just see how this machine works; you can see it in action.

And then if you also want to go onto my website, on the podcast page I actually interviewed Larry Feldman. Just to contextualize, they actually own four million sqft. of downtown office buildings. Third-generation family office out of Tampa, Florida. They built Chicago Apple, basically… Huge family in the 1960’s. And the interview that I did with him, on that podcast page there’s a before and after look of his website, where I describe basically the moving parts and everything that we do. So that’s the answer… A bit longer than just the debt answer.

Joe Fairless: Yeah, it’s interesting, because it’s not what I thought your focus was, so I’m glad that you explained it. I thought that you were a crowdfunding platform, but really – and I hope I’m not trivializing this – you’re  a marketing company that focuses on building out content and doing best practices on behalf of your clients, who are in the real estate investing space, who are focused on bringing on investors. Is that accurate?

Dr. Adam Gower: [laughs] I love that you say you hope you’re not trivializing it… I’ll tell you something – there was an expression I learned on my Peloton the other day… It’s one of the expressions I like, and I tell everybody: “Perfection is the enemy of the good”, and what I’ve come to realize actually is that progress, not perfection, is a better catchphrase. You’ve gotta constantly move forwards. It’s really important to do that.

So it’s funny that you used the term “trivialize” in the idea that what I am is a digital marketing agency. The reason that it amuses me is because it’s taken me a while to accept that yes, that is actually exactly what we do. We are a digital marketing agency. But the techniques that are used by the best of the best crowdfunding platforms like Crowdstreet, RealCrowd, Fundrise etc. – those are the techniques that we have been tracking for the last five years, implementing on our own stuff, GowerCrowds (we test everything on my website first) and rolling out to clients.

So those platforms had to learn how to do this the hard way. No one had ever done it before in real estate. So what you get working with us is you get that five years of learning curve on day one. So if you start with the absolute best–

Joe Fairless: Got it. So let’s talk about some tactical things that some of our listeners can implement after listening to this conversation. So you mentioned auto-responders on emails… If someone wants to implement an autoresponder within their marketing process, which one do you use and what tips do you have for that?

Dr. Adam Gower: So the first tip I would give you is that none of them are perfect. There’s a bunch of them that you can use, but none of them are perfect. That’s the first tip. So don’t expect not to have challenges with any of them. I am ancient, Joe; I told you I started this business in the early 1980’s; unbelievable, really. And I’ve found those platforms that I personally find the easiest to use.

The one that we use for auto-responding is ConvertKit. It is not without its problems, none of them are. I can say I’ve tested all of them. But that’s the one that we like, and we use, and we’ve actually developed some integrations that allow us to track user behavior in a far more advanced way than they can provide their customers. We’ve built some systems on top of that. But as a starting point, that’s really easy to use.

The key to an auto-responding email system is you’ve got to feed it. It’s just a small part of an investor acquisition system. You’ve gotta think of it as being part of a sequence of events that have to happen to draw investors into your orbit and educate them. And the first place that starts is on social media, with posting. Then direct people that you don’t know to your website. And on your website, you have to have a lead generation form or two, that says “To get our whitepaper, to get a case study, or to learn more, or to get access to our deals, or join our waitlist… Give me your name and email address.”

Then, that’s when ConvertKit auto-responding email systems kick in. But again, you’ve got to have content to fuel that system. You’ll have something to [unintelligible [00:20:01].25] on social media, and then you’ve gotta have something to send out in those emails when you send them out. And that’s all content-based.

Joe Fairless: Based on your  experience as a real estate investor, and now someone who works with real estate investors directly on their marketing approach and execution, what’s your best real estate investing advice ever?

Dr. Adam Gower: I have to go back to your first question, and that is “Don’t over-extend on debt.” It will kill you. Period. That is the best advice. If there was just one thing you wanted, that’s it. Do not over-lever. Make sure you can survive a downturn, because you will have to go through a downturn, period. It will happen. The only guarantee in real estate is that prices will go down… Whether you’ve seen it in your lifetime or not, it will happen, so don’t over-lever.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Dr. Adam Gower: Fire away!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:21:11].04] to [00:22:00].22]

Joe Fairless: Alright, what’s the best ever tool that you use in your business or for your clients that we haven’t talked about, that you think they should start using?

Dr. Adam Gower: Authenticity. Create content that is truly you. Don’t try to be somebody else. Just be you. You said lightning round, so have I got like 60 seconds to answer this?

Joe Fairless: Yeah, sure.

Dr. Adam Gower: I have clients come in the door, wanting to portray themselves as a major private equity fund. They’re not. I know private equity, I’ve been inside private equity, and I’ve done a huge amount of business in the private equity world. The problem is that if you create a persona online, when it comes to actually meeting your prospect to raise money from them – which you have to do, by the way; no one’s gonna write you a $100,00 check without at least one phone call. They’re gonna have to meet you at some point. If there is a disconnect between the persona that you put out online and the reality of who you are, you will lose that prospect and you won’t raise a  penny. So be confident in who you are. You are an expert, don’t ever doubt that.

Joe Fairless: Best ever way you like to give back to the community?

Dr. Adam Gower: Two things. It’s the second time I’ve been asked this recently on a podcast… And I got the answer wrong the first time, so I’m gonna get it right this time. This is what I said last time, and I forgot the important bit. Number one, I produce massive amounts of high-value free content. I really do put a lot out that is very valuable and useful, and I love doing that, actually. And then the second thing, on a slightly more pragmatic level, I actually donate exactly — well, I actually donate more; it depends on the year, but cash – 10% at least of my income to charity. I write checks. A lot of checks. Don’t call me for one though. [laughs]

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you or learn more about your business?

Dr. Adam Gower: Thanks, Joe. The one thing that I would recommend you do is go to GowerCrowd.com/waterfall. Naturally, I gave it a whacky, completely unrelated landing page… But go to /waterfall and watch my whiteboard workshop, where I walk you through the entire system. It’s one of those value-add things… The entire system that I built for private clients, in detail. I stand at a whiteboard and walk you through that. That’s GowerCrowd.com/waterfall, and you’ll get on my mail list if you sign up for that workshop. Then you’ll get an email from me sooner or later. Just go ahead and reply to it if you’ve got any questions.

Joe Fairless: Well, thank you so much for being on the show, talking about how to think about debt, and – it’s not a matter of if, but when prices go down… And how you provided your thought process for the amount of debt that is the right amount. What you mentioned is look at the three scenarios that you might have already – one with the bank, one with investors, one where you keep for yourselves; then take a look at what is the worst-case scenario based off of where the vacancy rates were, where the rents were, cap rates during 2008, 2009, 2010, whenever the recession hit your area. Then underwrite to those and take on the debt accordingly.

Not everyone will have the three scenarios, where they’ve got bank investor [unintelligible [00:25:35].19] I know we don’t have that… But the thought process for how to think about that certainly resonates.

And then on what you’re doing now – as you said, you’re a digital marketer, focused on working with real estate companies that work with private investors, and building out the content and making sure that you have the fuel and the engine that are running the car working properly, to use your analogy. Thanks for giving your tips on that and your thought process for that, as well as getting into the weeds with some tactical stuff like auto-responders.

Thanks for being on the show. I hope you have a best ever day. I enjoyed our conversation, and we’ll talk to  you again soon.

Dr. Adam Gower: Joe, thanks so much.

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JF1889: Investing In & Managing over $2 Billion In Real Estate with Alexander Radosevic

Alexander is joining us today to share his background, how he got into real estate investing and built a large company focused on investing and managing real estate. We’ll hear a couple of case studies from some of his deals, how he found them, financed them, and what he’s done with the deals since acquiring. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“There are so many career opportunities in real estate” – Alexander Radosevic

 

Alexander Radosevic Real Estate Background:

  • Launched his real estate company, Canon Business Properties, in 2001
  • His company now owns or manages over $2 Billion of retail, hotel, industrial, and residential properties
  • Based in Beverly Hills, CA
  • Say hi to him at https://www.canonproperties.com/
  • Best Ever Book: Great by Choice

 


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Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.


TRANSCRIPTION

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, Alexander Radosevic. How are you doing, Alexander?

Alexander Radosevic: Doing great!

Joe Fairless: I’m glad to hear that, and looking forward to our conversation. A little bit about Alexander – he launched his real estate company Canon Business Properties in 2001. His company now owns or manages over two billion dollars of retail, hotel, industrial and residential properties. Based in Beverly Hills, California.

With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current business focus?

Alexander Radosevic: Sure. Initially, I was an investment banker with Lehman Brothers, from ’84 to ’87. That collapsed, and I got involved with real estate through a client, and have consistently stayed in that marketplace, from the acquisition side, into management and construction… And the focus of our company is in those areas today. We focus on retail investment, commercial/industrial investments, we also then take care of construction and construction management, and we’re also advisors in other genres for debt financing and things along that nature.

Joe Fairless: So when you were an investment banker and you transitioned into real estate full-time, what were a couple of your first projects that you worked on?

Alexander Radosevic: Interestingly enough, I was involved with debt financing first. Numbers is something that comes very good to me… So I analyzed a lot of properties first, before we started making acquisitions. So it gave me a lot of understanding really how properties operate. And I looked at industrial, office, retail – all different types of investments, from the analytics side, and see how profitable they were for our investment purposes. That was my first role in real estate.

Joe Fairless: So you were a W-2 employee, assessing opportunities that you all wanted to finance?

Alexander Radosevic: Yes.

Joe Fairless: Okay. And then how long did you have that role?

Alexander Radosevic: To give you an idea, after about two years of doing this, one of the brokers I did a transaction with – I asked “How did everything go? Were you happy with the funding?” [unintelligible [00:03:36].20] “What are you gonna do with your $10,000?” and I was like “Excuse me?” He said “Yeah, isn’t that what you made on this?” And I was thinking like “Wow, this is interesting. What did you get out of the deal?” and he said “Well, I made $50,000 out of it.” So I had immediately said selling is a much better opportunity from the side of the financing for me at that time, I thought, and I enjoyed getting out of the office and working on properties. So that sort of conversation got me to get out of an office, go entrepreneurial, and begin to search for investments on my own, and that’s how I started my company. I was driven by the commission dollars earned from the sale and acquisition side, other than the financing side.

Joe Fairless: So you had that background both from Lehman Brothers as an investment banker, and then also looking at debt financing… And what was the first couple projects as an entrepreneur?

Alexander Radosevic: Well, probably the one that I’d say to me was the best one for me long-term – in 1994 we had the L.A. riots here, and South Central L.A. was the area which was hurt the most. At that time I was looking at properties there and found an abandoned bakery, about a 40,000-foot single-tenant building. It had been burnt. I took a risk, which we all know risks can have great rewards… I acquired the property, I went in, I had some construction background already through my family, and my father was in the construction business… I went through, cleaned the property up, and converted it into a nine-unit multi-tenant manufacturing/warehousing building.

What that became was my first value-add project, really without even knowing it. And it sort of set a template for me going forward, and it’s something I still do today.

Joe Fairless: How did you get the funds to purchase that?

Alexander Radosevic: My very first real estate transaction of my life – I bought land at Laughlin before Laughlin was ever developed. I was reading something called The Penny Saver; it was a throw-away paper here in L.A. while I worked at Lehman Brothers…

Joe Fairless: Sure.

Alexander Radosevic: …in my twenties. I think I was 22 at the time when I bought it… And I bought 2,5 acres on the river, which as we know Laughlin, Nevada has now turned into quite a profitable sort of marketplace. There’s hotels, some 60,000 people there living, and so forth. So that was my first opportunity in real estate, and I used those funds from the monies I made there and continued to invest those monies when I sold out of that property and invested into other real estate opportunities.

Joe Fairless: And that abandoned bakery – did you get financing on it?

Alexander Radosevic: Yeah, we did. At the time it was tough to get…

Joe Fairless: I bet.

Alexander Radosevic: [unintelligible [00:06:25].04] you’re talking double-digit rates… But I think I probably leveraged somewhere around 40% debt. It was all I could get out of it… So I had to raise 60% capital. but once I got the capital, the profit — not even the profit, really. The building was bought at such a good price, obviously, like anything in that time. It was worth it. I took a little risk, and the rewards were there.

Joe Fairless: So it’s been a little while since that property that we’re referring to, and I respect your memory. I appreciate you going back in time with us on this… You’ve clearly grown your company to a great degree since then… So along the way, my assumption is that you’ve optimized certain things that you do now on deals, compared to when you were doing your first handful of deals as an entrepreneur. What are some things that you’ve now optimized, knowing what you know now?

Alexander Radosevic: Well, from a standpoint of acquisition, due diligence has become to me the key to all the opportunities I find for myself personally, and those that I represent on transactions. I’d say the ability to gather and review information today, in comparison to what I did 20 years ago, is really one of the key elements to what we do for not only myself, but for my clients. We’ve got a very vast portfolio of property. We look at tons of deals all the time, and our ability to thoroughly examine cashflow, marketplaces, management, financing, all within a concise period of time, so that we’re performing and not losing opportunities, like we had at times – I’d say that’s been probably the key growth for me personally, is to have the ability to analyze the information quickly, and that the information is accurate and thorough. It’s been a great change for us.

Joe Fairless: Would those be the four buckets that you do due diligence in? On a high-level… Cashflow, marketplaces, management and financing?

Alexander Radosevic: Well, those four are critical. Look, first of all, you have to know what you want to achieve. Are you looking value-add, are you long-term hold, are you short-term? Are you gonna tear down, develop? You have to know what you’re shooting for, but first and foremost, like they say, “location, location, location”, and then of course, pricing and financing, because you’ve got debt… And for me, since we have a lot of properties under management, we’re real strong on who will be the team that’s gonna be responsible for that asset as it’s being repositioned or acquired. So those are four strong buckets, but there are other criteria in which we may look at something for a specific client… Especially if we’re looking for trophy/legacy properties. There are other very serious factors to look at, and those become a little bit more detailed… Without getting into that; I’ll just leave it at that. But there’s other criteria for different acquisitions, but those would be the four primary.

Joe Fairless: Let’s go with any of them, whichever one you wanna go with. Cashflow… When you say marketplaces, just so I’m tracking what you’re talking about, what are you referring to?

Alexander Radosevic: Okay, so for us it was some corporate offices here in Beverly Hills. We consider L.A. our home base… Outside of Beverly Hills, a province within L.A, right? So we look at the marketplace here as a focus — if we’re looking at retail, we might be looking in Beverly Hills specifically; we might be looking at a trophy sort of property on Rodeo Drive. And then within that area it’s just gonna be a long-term hold  for the family, are we looking to perhaps take out a quality tenant, bring in a new tenant that the family has a relationship with? It’s that sort of criteria.

If we’re looking at industrial properties, which I’m a big fan of, to be honest with you, we’re looking for properties that are located near international airports in major cities like LAX, Denver, Cincinnati. We’re looking for major distribution centers, let’s say within a mile or two-mile radius, that we’re looking to acquire to develop… So that marketplace already has a built-in need, or a built-in opportunity, if you will. That’s the  criteria in which we’re investing for that particular purpose. And again, we’re in different areas, but let’s just hone in on the idea of industrial, for instance.

Joe Fairless: Sure.

Alexander Radosevic: We’ve looked at stuff in Houston, George Bush Airport, LAX airport… We wanna stay, as I said, within a mile to two-mile radius. We know that these are key opportunities for distribution, and distribution now is becoming quite a big topic with what Amazon has done recently to the marketplace. We’ve been probably doing that for almost 15 years consistently, and that actually has been one of the best returns we’ve seen; industrial real estate has become a very hot topic, whereas 15 years ago there were very few really dedicated to that market space.

So that’s what I’m referring to. If it’s in industrial, we’re very specific on the criteria we’re gonna acquire. We have a base of who we’re probably gonna be looking for for tenants. We’re doing build to suits, if you will, along the way… And that’s how we evaluate the real estate; if it’s gonna be an office building, again, whether it’s in South Beach Miami, in a marketplace right now where we’re looking at some opportunities, there has to be for us to evaluate an end game [unintelligible [00:12:08].19] for us in that marketplace. We’re not just going in blindly, and I think that’s where we really capitalize, again, on the information that we’re ascertaining on these deals. Because when you’re not in a city itself, you’ve gotta rely on foot soldiers’ information. So this is critical to us.

Joe Fairless: Let’s talk about a recent transaction… Just real quick, what’s a recent transaction, and then I’ve got a couple questions; I just wanna learn more about it.

Alexander Radosevic: Sure. Recently, we’re looking at – to be honest with you – land acquisition, that we’re gonna go into for the development of a boutique-style hotel. That’s hotness marketplace, as you know; I know you’ve had some of your speakers speak about this… The small boutique hotel is a very hot market. We’re looking now for something on the coast here in California. California has a lot of restrictions, [unintelligible [00:13:03].03] but we’ve found a land, we do have entitlements in place, and it was a process that was started by the previous owner some nine years ago…

Joe Fairless: Wow…

Alexander Radosevic: And it will take us about another four more years of entitlement work to get what we need out of it. To give you an idea, that’s a very, very marketplace-specific opportunity. And once it is entitled, of course, like anything else, it will give us  a tremendous amount of opportunity and profitability, that’s for sure.

Joe Fairless: I was gonna ask some questions, but you took it in a direction that’s much more interesting than what I was thinking, so let’s talk about it… Nine years that they started on it, and then four additional years; what is transpiring over the four years?

Alexander Radosevic: Sure. Coastline development, which is similar to (let’s say) inner-city development, if it’s got too many apartment buildings, there’s more restrictions placed on it. But coastline here in California in particular is difficult. So the nine-year process was converting what was originally a residential/commercial use into what will be a hotel use. So the zoning process itself, with the prior ownership, and the city, combined with the Coastal Commission, all have to come to an agreement on the conversion from its initial approved use into a hotel base use.

So you’ve got three different governmental agencies working at the same time, and not all of them want the same result. Then you have to have some legal power come in, you have to have some meetings with city officials… There’s just so many things that take place that many people give up.

Joe Fairless: Oh, yeah.

Alexander Radosevic: This family persevered, but they owned quite a bit of real estate, knew or were properly advised by  a third-party that said “This is gonna be your highest and best use”, but the issue was they couldn’t take it to the end because they lacked what the city really wanted, which was where we come in – hotel-experienced operator/developer that could show the finish line to them. And that’s where some people get stuck and repurposing a property. You have the great idea and you have the right intention, but you don’t have the expertise. Without the expertise sometimes you just have to sell it and allow someone else with more expertise to take over.

So we’re looking at that opportunity now, and we’re gonna get the feedback we believe that we should get, which is an approval. The issues now we’re battling with is how many keys are we gonna get out of the property. We would like to get 131 keys, but we may only get 101. Well, if you only get 101 keys versus 131, you’ve lost almost 25%, right? So now the dollars and cents become more critical. The construction costs may come down, but then your cashflow NOI on the back-end are also coming down. These are really critical issues when you’re developing any sort of project roundup that’s relying on cashflow, not the single-tenant use.

So this is part of what any development — this is gonna be the same with an industrial building. If you only get a 500,000-foot structure down to 300,000 feet, it’s the same sort of an issue. But in this particular matter we’re fighting to get as many keys as we can, obliging the city with communal parking for the [unintelligible [00:16:29].09] providing some retail opportunity,  a quality restaurant, and all those factors come into painting this beautiful picture, so that someone sitting behind an office the day that it goes to a Council meeting can now look at this visually and say “Okay, I get it. Let’s go with 131 rooms” or “Let’s split the difference at 117, but you’ve gotta give us an extra 100-car parking on the weekends for the beach, and we would like two restaurants instead of one”, and some other criteria. So it’s a give and take, and it’s a process, but it’s one that — in this particular case I can’t share with you the exact location, but it’s gonna be very well received and a very well-used hotel.

Joe Fairless: So you’re estimating four years from now that process will be completed…

Alexander Radosevic: Yeah, yeah.

Joe Fairless: What about the project makes it worth four years of your life to focus on?

Alexander Radosevic: In that particular market space it would be the only class A opportunity there. So number one, the destination is very well known, however there just has not been a new development there in over 20 years. To give you an idea – number one, we’ve capitalized on the most important part… Quality AA, plus location, the most newest development, highly-trafficked, perfect opportunity for us to capitalize on what will be a new destination. High dollar rent per door, and in a marketplace that, as I said, is very desirable. It’s a very well-known area. If I said it, you’d be like “Oh my god, I can’t believe this is gonna be the first one in 20 years”, but that’s the way it is; it’s been that way. So that’s the answer for that.

Now, why is it worth the four years? Well, the back-end value of it – it’s construction costs after we’re done and  into this project, and depending on what flag we decide to put there, it will be more than 4x return on your money after it’s all said and done. So you’re looking for that sort of opportunity. It doesn’t come that often, so  you have to be patient; it’s just part of real estate, you have to be patient at times… And this is one of those you’re gonna have to jump through not one hoop, not two hoops, but probably like 50 more hoops. It’s gonna be that sort of process.

Joe Fairless: If you were the original owner, so nine years ago you owned that land, and for whatever reason it also would have taken you 13 years from the start to finish to get it done, would you have chosen to do this, versus just — you said it was zoned for residential, so I assume you could do some sort of multifamily use there…?

Alexander Radosevic: Yes… No. Because multifamily — well, actually let’s take that back. The answer is I would have chosen it, knowing what I know now. But nine years ago you don’t know. So if you take a risk like when I bought that 1994 property – they took a  risk and carried that torch a long way, but only lacked one component: they don’t have the expertise in this marketplace to develop this property. They had to have a third-party come in or flip it. So had they had the experience, then they would have taken this all the way to the end and really benefitted. They took it as far as they could.

One lesson I learned from one of my original clients was I bought some land — I bought land a lot, and I had asked one of my clients to help me build it. He was a builder. He was actually an industrial real estate builder and a mentor of mine, and one of the guys I first started managing with. I bought some land down in San Diego, and I said “Look, I got this from a guy, he went belly up, out of New York, doing a subdivision funding up in San Diego. And it was about 32 acres. We can get 16 homes out of it. Each parcel had to be a minimum of two acres, and I was gonna put a park in the middle of it, and it would be a communal park for families.

Joe Fairless: It sounds like a nice place.

Alexander Radosevic: So I laid it all out and I called my client up and I said “Would you help me with this?” His answer was “Alex, you’re a great guy…” I was maybe 29 at the time. Not even 30 yet. And he says “…but here’s what I’m gonna tell you. If you can just get some utilities there and get some streets paved, let someone else carry that torch and build the houses. You did your part and make a profit.”

To give you an idea – I ended up buying all those pieces at about $70,000 for a two plus acre parcel was my total all-in cost in the end, and I sold them off for over $200,000 a piece without putting up a structure.

Joe Fairless: Beautiful.

Alexander Radosevic: Just assembling land and getting utilities, and basically doing a subdivision, getting things lined up and handing it to somebody else can also be a very profitable business in real estate. Real estate is great for that reason, because you can be a land guy, you can be a land parcel guy, you can be the guy who puts utilities in and flips it to the developer, you can be a finance guy… There’s so many [unintelligible [00:21:07].08] opportunities in real estate, and I’ve had the good fortune of touching a few, and really becoming an  expert in some others.

The land thing happened through a client who said “I won’t help you, but here’s what I would do if I were you, and this is how I got started.”

Joe Fairless: With this transaction, the one with the boutique hotel, did you just outright purchase that land from them? Or is there a joint venture?

Alexander Radosevic: We will do a joint venture…

Joe Fairless: Okay, cool.

Alexander Radosevic: …and they will participate, as some do, not on a 50/50 basis, but we’re giving a sort of back-end deal, and then at the time of the sale, if we decide to sell out, there will also be a piece for them on the back-end.

Joe Fairless: Cool. So their contribution was the land, plus getting it to wherever point they had gotten it, and then you’re taking it–

Alexander Radosevic: Correct.

Joe Fairless: Got it. Okay. And if they had sold it to you outright, I was gonna ask you why they didn’t just do a joint venture, but never mind. Okay.

Alexander Radosevic: [unintelligible [00:22:02].07] he would love that. Any guy like me would love to have been able to acquire it all out, but you know what –  they’re not fools either. They did have [unintelligible [00:22:09].18] They just didn’t have the expertise to take it to the next level… As I didn’t when I bought that land in San Diego. I knew the client, it was a client of mine. He says “Look, Alex, I don’t wanna build with you right now, my friend. I’m building other things. But here’s what I would do… Take it from there.” So they did what they could do, and I think they’re very happy. We came in strong, and — don’t get me wrong, this isn’t something that happens in a day. It took quite a bit of time to build a relationship. It’s not just coming in and knocking on someone’s door and saying “Hey, we’re the best deal in town.” It’s building a relationship with someone, the family, and creating some faith and trust, and having some sort of proven track record to do something.

Joe Fairless: Taking a giant step back, based on your experience, what’s your best real estate investing advice ever?

Alexander Radosevic: Best ever advice – if you can, try to hold the properties that you buy, allow them to appreciate, and leverage against them, as opposed to selling them and trying to trade up. We all need to sell and trade up to buy bigger and better things, but there comes a point in which if I just had held on a little bit longer to some investments, I could have easily leveraged out now two or threefold what I got out of it selling it. It’s just the way it is. And I have tried to buy in areas — because I understood how to underwrite property, so I’m always trying to buy in areas where I know that are strong, that are growing.

As a cheat sheet answer – and sorry to divert, but you’ll have the chance to do what you want with the information I’m providing – I would track the top five best places to live and work in in the United States when we’re looking and analyzing properties. So that’s one of the criteria I look for. I look at consensus information throughout the country, and tracking the top five places to live and work. What does that tell me right away? There’s expansion, there’s stability, there’s financing…

I’ve tried to invest that way not just in California, but throughout the United States, where I’d put my money and my clients’ money to work. In those marketplaces you know that push comes to shove, you can always get rid of a property. In all those marketplaces that we’ve held on to, refinancing out, cashing out, holding the asset is a better position to take.

Joe Fairless: What source do you use for best places to live and work? Or sources. Because there’s all sorts of stuff  [unintelligible [00:24:28].16]

Alexander Radosevic: Yeah, unfortunately that’s changed a lot, too. You bring up a great point without really saying it… There’s too much information available for a lot of us, and knowing when information has value is what you’re kind of alluding to; which one of this many sources is there.

So there are government consensus in every state, that I’m more a fan of than just a third-party periodical published by a company saying “These are the spaces.” So I’m looking at cities, I’m looking at their information provided, because theirs is the most accurate in terms of income, revenue, traffic, tax bills, all that information. Now, there are companies now that are coming out, and I’ve had a chance to speak on some panels that are out there, but I won’t say one is favored to the other. I would have to say if you go online and you’re looking for that specific information – growth, tax bill, tax benefits, utility bill opportunities…

You must understand, if you’re building an industrial building, I’d rather build it in an industrial marketplace right now that the city is giving tax benefits for the next ten years for developers coming in that are building in this marketplace, and I know that’s gonna be attractive for the buyer coming in, and the manufacturer coming in, because they’re also getting tax benefits. So if I’m looking at an industrial building, I’m looking for those specific  marketplaces, with those key information, if you understand what I’m saying.

So I’m picking the five best places to live and work, and then I’m saying “Okay, I wanna build an industrial park near an airport. Where am I getting the best tax benefits from?” That area is gonna be growing. This is gonna be a multi-tenant park, there’ll be a lot of small mom-and-pops wanting to develop in that area and service the community… So I’m looking at true city factual statistics; I’m not really going to third-party emailing sort of collaborated surveys done by third-parties. I’m actually going to those cities and getting as much information as I can from them directly.

Joe Fairless: And then your team has to aggregate that, and then make it apples to apples comparison, because I’m sure you’re getting it in all sorts of different formats from each of the different cities, right?

Alexander Radosevic: Right. And there are, as I said, without giving a lot of secrets out, there are ways to get that information a little bit easier… But you’re right. We will look at the information aggregated, and I’m looking for specific factors that are attractive to me in that marketplace. As  I said, housing, if you’re doing an apartment structure, how many have to be in a community that’s really thriving? How many of those have to be units that are dedicated to housing for X, Y and Z? Is it 10% of those properties? Is it gonna have to be subsidized housing? Is it 18% of that property that has to be subsidized housing? That element to me right away is important, because that’s gonna change my cashflow out of that property by x%. Is it worth it for us? So we’re looking at certain criteria within that marketplace specific to our needs.

Joe Fairless: It makes sense. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Alexander Radosevic: I hope so. Let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:27:39].25] to [00:28:18].18]

Joe Fairless: Best ever book you’ve recently read?

Alexander Radosevic: Wow… That’s a tough one. I’d have to say probably a book — Great by Choice, let’s go with that one. Jim Collins is a pretty well-respected author, and he’s got some good books out. I don’t know how many bestsellers — he’s got quite a few. The most recent one is why do some companies thrive, let’s say in uncertainty and in chaos, and others not? It’s a great read; it’s something that anybody in business can use.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Alexander Radosevic: Wow. A mistake… You know what – as always, lack of due diligence.

Joe Fairless: What about a best ever deal you’ve done?

Alexander Radosevic: I alluded to the first one, the bakery, but probably the best I ever did was buying that land in Laughlin, Nevada. It was my first, and it had an amazing return.

Joe Fairless: What did you buy it and what did you sell it for?

Alexander Radosevic: I bought those parcels of land for $2,500, with $500 down. 2,5 acres on the Colorado River. I am embarrassed to say that we’re talking well over hundreds of percent return on my money.

Joe Fairless: [laughs] Embarrassed/you’d do it again.

Alexander Radosevic: Oh, my god… Let’s say 1,000% return on my money, right? Yes, of course. It’s just luck. Sometimes we need to be lucky in life, right? But I was reading a paper — and I’ll tell you why I read the paper; can I get a minute?

Joe Fairless: Yeah, of course.

Alexander Radosevic: I know it’s the lightning round, but I’ll just tell you – true story. At the time I was working at Lehman Brothers, and a couple guys had brand new Porsches. And I wanted a Porsche. I had heard a story that a woman sold her husband’s Porsche for $100, angry because she had cheated on him. And that’s why I started reading that Penny Saver. Because I really was — I was reading the Wall Street Journal, what you normally do as an investment banker; you’re in a different realm. But that story got me so convinced, so I started reading it all the time, and coincidentally I found this guy selling this land in the Penny Saver. I contacted him, and he goes “If you buy this, you’re gonna be rich, kid.” I was like 22 at the time, the guy was like 45 years old. He was an airline pilot, of all things, who was friends with the developer.

Joe Fairless: Oh, wow…

Alexander Radosevic: And he goes “Trust me, you’re gonna be lucky.”

Joe Fairless: [laughs]

Alexander Radosevic: So I bought as much as I could, with $500 each time, and that’s how it worked out.

Joe Fairless: Oh, good for you. Best ever way you like to give back to the community?

Alexander Radosevic: Okay, so I didn’t come from any family with money, to be honest with you. I alluded my dad was in construction… My mom and dad divorced when I was six months old, and my mom remarried a clothing guy; I worked after school every day as a kid, since I was eight years old, buttoning blouses, and sweeping the floor, and doing things like that with my stepdad. So I didn’t come from many money… And what I do or what I like to do is help young entrepreneurs that lack education or funding, if you will, that have the strive and desire to be successful – I like to help in that matter one-on-one, if I can. So I always focus on trying to help young people, or young men or women, whether they come to my office and they leave to go on to another career, or they come to my office and  start their own construction company… Whatever it is that I can do. But I like the idea of working with someone one-on-one and helping them grow.

Joe Fairless: How can the Best Ever listeners learn more about your company?

Alexander Radosevic: The company is Canon Properties. I’m at my office here. My website – you gave it – is canonproperties.com, and I’m happy to take any email. I try my best to respond, I’m at alex@canonproperties.com.

Joe Fairless: Alex, thank you so much for being on the show. I loved hearing about the boutique hotel land acquisition joint venture that you’re doing, and just talking us through the four-year process (knock on wood) that you’re about to undertake, you and your partners, as well as the previous nine years that your joint venture partner undertook with what they did.

Then also the deals that you did previously, and then talking a little industrial, too. We don’t talk enough about industrial on this show, so again, thank you so much for being on the show. I’m really grateful for our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Alexander Radosevic: Thank you so much for your time, and I really appreciate the opportunity to speak with you as well.

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