April 29, 2025 • 44 mins
Joel Palathinkal welcomes Russ Krivor to discuss the impact of interest rates on real estate and Russ's early career. They explore multifamily units, community building, and cost management in development, contrasting development and acquisition strategies. The episode covers fundraising, market trends, manufacturing investments, water availability, and coastal real estate risks. Emerging markets, strategic policy mistakes, and technological advancements like robotic 3D printing and modular housing are also discussed. Russ shares insights on investment opportunities in elderly care and tiny homes, offering advice on building a successful investment firm and valuing integrity in business.
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(00:00):
It's such a juggernaut.
(00:01):
But but Idaho is, Idaho is is is a big one.
It's an emerging market, and I love it.
So I would if I were if I were a young guystarting out today, I'd move to Boise, start
buying land, and building single family homes.
Welcome to The Investor, a podcast where I,Joel Palafinkel, your host, dives deep into the
(00:23):
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
All right, so really excited for my guesttoday.
(00:44):
I've got Ross Crevore.
He's a president and CEO of SovereignProperties, a real estate development firm
based in New York.
Sovereign Properties is focused on theconstruction and acquisition of multifamily
apartment communities and they seek to deploycapital across The US.
Know that you've developed an interest in realestate at a young age and really built an
(01:09):
amazing career in this space.
So Russ, welcome to the show.
Thanks for coming and excited to learneverything that you're working on and hopefully
get the audience educated more on multifamily.
Great to be here, Joel.
Thanks so much, man.
Yeah.
It's it's an exciting and interesting time.
There's a lot of transition given all of thegiven all of the just changes in interest rates
(01:33):
and lot of changes that are happening with bothsingle family home ownership and the cost of
renting.
So lots, I guess, discuss.
Well, why don't we start with just your earlycareer?
The audience here is people who are looking toallocate, people that are looking to launch
(01:56):
their own fund, there's people that are aspiredto get into the real estate industry from
college.
I think your background and your story couldprobably serve all three of those communities.
So let's start with that.
If that is maybe a good starting point, likewhere'd you grow up?
What'd you study?
And then how did you kind of get into yourfirst career move into real estate?
(02:18):
And then maybe tell us what you're allowed toaround what you're building now.
Yeah, no, absolutely.
So I started my career in 02/2004 buildingsingle family homes.
Now I was I grew up in the Chicago area.
I I was my family are immigrants.
Mhmm.
And we're we're I was born in Ukraine.
(02:40):
We moved to Chicago Suburbs when I was threeyears old, and I grew up I grew up around a you
know, just to focus on education.
Mhmm.
Went to went to Northwestern, at kind of ayoung age.
I was 16 when I went.
And then when I was 19, I took a leave ofabsence from Northwestern, to start building
(03:02):
homes for a friend of my father's.
Yeah.
He was he was looking to buy some homes inFlorida at the time, and we were all our
families were both on vacation.
And I said I I had asked him to go and see,what he was working on and what he was looking
to buy.
And because I grew up on my uncle'sconstruction job sites, I figured it wouldn't
(03:23):
hurt to, it wouldn't hurt to, to to check itout.
And I told him that he was getting fleeced andthat he could hire a contractor and build those
homes for a lot less money.
He said that if my father would agree to it, hesaid, you know, can you take a year off of
school and manage that contractor for me here?
And I said, sure.
I'll I'll I'll figure it out.
(03:44):
I promise.
So, after that, I I built him 10 homes.
I built
another 300 with what was my first businesspartner.
Mhmm.
Her name was, her name was Helen.
Was an Asian lady, that, is is interestinglyenough, looking to invest in our current fund
twenty years later, which is kind of excitingjust coming full circle like that.
(04:06):
And then in 02/2006, we sold out of our singlefamily home portfolio.
Mhmm.
The the supply and demand numbers just didn'tmake sense anymore.
I looked at, how many single family or it's notmany housing units were being built that year
Mhmm.
In The US versus household creation, and it wasthree to one.
And so unless we became a country where therewere three homes for every, every household,
(04:32):
something was really off.
So I sold out before the crash.
And in '2 and then, I eventually I went back toto university.
I did my degree online in one one class asemester.
I'm a big believer in education.
One class a semester, I did my degree.
And so I'm trained as an economist, and my mysort of research led me to believe that a lot
(04:57):
of people would be renting over the comingyears.
So we, we started building rental communitiesin 02/2009.
And in the last fifteen years, I've builtroughly under various partnerships, roughly
7,000 apartments And and and a total of maybe700 single family homes, including what I built
(05:19):
back in o four, a few retail centers, andseveral large master plan communities.
Sure.
And then just walk us through kind of the buildprocess.
And maybe there's some insights with differentregions as well.
Right?
So if you wanna build a community, maybe walkme through one community and how many units
(05:40):
there are and what you have to do.
I'm assuming it to set up the foundation andall plumbing and electricity.
Can you unpack that a little bit?
Yeah.
Yeah.
So I you know, I think what's most important inin the real estate world is really buying
buying your property.
Mhmm.
When you you I mean, this has been said adnauseam, but I'm gonna repeat it.
(06:03):
Mhmm.
Location, location, location.
When you've bought your property, your basis inyour location will dictate how you how you do.
Mhmm.
And so first, you've gotta find an area withgood demographic growth with good where you've
got tailwinds, you've got the wind at yourback.
(06:23):
Mhmm.
And then you go and and find, you know, qualityarchitect, civil engineer, and and good
consultants.
Get the property zoned.
Mhmm.
My firm, build primarily in the Sunbelt.
I have been working in Minneapolis and andChicago in the past.
We don't do much of that these days.
(06:43):
We we work primarily in the Sunbelt, but youfind a good location.
You you hire the architect engineer, get itsown, get it financed, and then, of course, and
then comes the building process.
My first couple of projects, I was on-siteevery day.
My first few rental communities were in inDallas, Texas, you know, in the DFW area.
(07:06):
And I was there every day, because I I neverwanted to be that guy sitting here signing a
change order and not knowing what that changeorder means.
Sure.
So as a result, I think that you've gotta bereally hands on.
And you have to understand what you're whatyou're signing.
You have to understand the costs.
And you have to poke holes at every cost.
(07:30):
Because the minute you stop doing that, you setyourself up for some larger failures.
Sure, so when you say a change order, maybe thedesign of the building wasn't thought through
properly and now there needs to be someinfrastructure change that could just add a lot
of cost.
Yeah.
So every project has change orders, right?
(07:50):
Every project will have will have a changeorder or change orders, plural.
Mhmm.
You know, anything from anything from, youknow, the architect missed this this, you know,
this, guardrail along the stairs Mhmm.
Two, we'd like to add, we'd like to add adifferent kind of stone to the countertops
(08:12):
Mhmm.
Because our competitors are doing that.
So every project is is gonna have that.
But what you don't want is you don't wanna besigning something that you don't understand.
So oftentimes, and and funny enough, you know,we we build probably, on on a on a normal year,
1,500 to 2,000 apartments a year.
Mhmm.
(08:33):
I still sign every change order personally.
Yeah.
Even the small ones for $700.
The reason I do that is because if you don'tkeep track of the small things Mhmm.
They're they're gonna it'll be death by athousand cuts.
So so what you don't want is you don't wannahave some kind of a an an electrical
engineering change order that you're signingthat you're not sure what it is, but someone
(08:58):
but someone sort of two levels below youapproved it.
Right?
My guys will approve it.
Mhmm.
Right?
But I'm still not gonna rubber stamp it.
I call them and I say, what is this?
What am I signing?
And and for me, I I wanna know the sort of insand outs of construction of what I'm signing,
why is it there.
(09:18):
You know?
So, anyway, that that's that's kinda my take onit.
And I think a sponsor should be whether you'rein the real estate business or you're in the
tech world
Mhmm.
Or you're or you're you're in the biotechworld, a sponsor, the number one thing that
you've got to keep track of are are are theexpenses.
Yeah, right?
If you're not keeping track of the expenses ina meaningful way, you're setting yourself up
(09:41):
for a failure and for a disaster long term.
Sure.
And then how do you decide where you want to,number one, purchase the offerings?
I guess what is some advice to people that arelooking to be getting into this space?
Because it sounds like you're developing, butare you also investing some capital into some
(10:02):
opportunistic opportunities as well?
Because those are two different buckets.
You need capital to actually fulfill thedevelopment project.
But then I think you can probably double downand actually invest in those projects as well,
right?
As kind of like a almost like a private equityinvestor buying up those homes, right?
Because wouldn't that be two different costcenters to be able to do the operational work
(10:26):
and then to actually acquire them?
Yeah, that's a great question.
We have both an acquisitions arm and adevelopment arm.
Our acquisition arm has not been active reallyuntil this year.
For about two years, we didn't see a lot ofopportunity.
Mhmm.
We so we sold out of everything in 02/2022Mhmm.
(10:49):
And, almost everything.
We had we had two, two deals left.
Our average deal deal is probably 300apartments, about a hundred million dollars.
Our average senior living deal is about a 50apartments.
Mhmm.
And our our average master plan community ismaybe 200 acres and will encompass 2,000
rooftops.
But in in oats in '22, we sold out ofeverything.
(11:12):
For two years, we kinda looked at the market.
We did a few deals here and there.
Now we're ramping up acquisitions and anddevelopment again.
We're raising our, second fund.
We we did everything for in it with SPVs forabout fifteen years, and now we're on our
second commingled vehicle.
Mhmm.
But essentially, we we look at we look atacquisitions in a very specific way, kinda
(11:37):
stress testing.
What happens if financing doesn't go our way?
And then we do the same with development.
Acquisitions are probably about 20% of ourbusiness currently.
Can we invest in and have we some of the dealsthat we've developed?
It's different investors because some of ourinstitutional investors wanna get out right
away.
Mhmm.
We can give them that opportunity via a aspecific acquisition process.
(12:01):
Generally, we always still list the propertyfor sale because we're a fiduciary for the
investors.
Yeah.
And if our internal acquisitions group can canoffer as much or more money, then we'll do it.
If they can't, then then we'll sell it on onthe open market.
Mhmm.
Got it.
Okay.
That makes sense.
(12:21):
Yeah.
That's really helpful.
And, you know, I guess the the motivation I'massuming for people to sell off everything was
just to kinda, know, just appreciate some typeof multiple, I guess.
Is that Yeah.
Is that kind of the main play?
You know, do these holding periods vary acrossvintages?
(12:43):
Or is there just kind of an average hold timeanywhere from three to five years as kind of a
benchmark or is there like a variationdepending on the geography and kind of the type
of asset, I'm assuming?
You you know, most groups, their investmentfund time frame Mhmm.
Their their investment period is five years.
Mhmm.
So that yeah.
(13:06):
So so oftentimes, we'll have an institutionalpartner or we'll have a bunch of investors who
are at sort of the end of their fund life.
Mhmm.
And they'll say to us, hey.
We'd like to get out.
Yeah.
At that point, we'll we'll take a call foroffers.
And, again, if if we can match the highestoffer, we do.
If not, we sell it.
(13:26):
And then and then it it it it really runs thegamut.
I've seen groups hold things for ten years.
Mhmm.
Private family offices love to hold things forten years because of all of the tax the
extraordinary tax benefits.
Mhmm.
And then and then some groups wanna be in andout and their merchant builders.
I would say the industry average, though, isthree to five years.
Yeah.
(13:47):
And what are some trends that you're seeingacross the different regions?
Know, see, I think you said you started out inTexas.
I know you guys are doing some stuff in Floridanow.
So I guess what are what are some criteria thatyou look for for maybe an acquisition or
possibly building something?
So we're looking at we're looking at supplycertainly to see where where there is there is
(14:09):
less land available and where the zoning isdifficult.
That's always been my motto.
So I've I've been very interested in theOrlando market.
I think a lot of people from South Florida andfrom the West Coast Of Florida are gonna move
into the Orlando market because it's it's it'sinsulated from some of the storm activity and
(14:31):
has a great, very well diversified economy.
As a developer, I, you know, I think Orlandohas a business friendly and sort of development
friendly climate, but they don't have just sortof open zoning the way Houston does.
So I like that market.
I think that that sort of that Northern Floridacorridor is gonna do really well over the next
(14:53):
ten years.
I think the Carolinas anywhere.
So what's interesting right now, you've got thethe Biden Harris administration, they've spent
about a trillion dollars at this point onstimulating manufacturing.
So you've had a lot of manufacturinginvestments in The US, and a lot of that is
(15:15):
going to the Southern states.
Texas has been the biggest recipient of newmanufacturing investments, followed by, I wanna
say Arizona, Nevada, North Carolina has hadsome, Idaho has had a significant amount.
Those are the areas where you wanna investbecause those manufacturing investments are
(15:35):
gonna create a lot of jobs, which will createhousehold.
Something to keep in mind, though, I'm youknow, we're very cautious about the Arizona
Nevada corridor.
They've got a lot of water in, wateravailability problems.
So Lake Lake Mead is at its lowest levels in inmany years or has been, at at at drought levels
(15:56):
for several years.
And so we're very concerned about theavailability of water because what'll happen is
you're gonna have higher property taxes as theyhave to invest in that infrastructure.
Yeah.
You wanna watch if you're investing in thosemarkets, you wanna watch that you have water
concurrency.
So for example, unincorporated Phoenix does nothave water concurrency, incorporated Phoenix
(16:20):
does.
It's really important that you have waterrights and water access rights.
And you you have to have space for higherproperty taxes if you're investing in these
markets.
Mhmm.
Because because they will have to raiseproperty taxes, in order to deal with some of
these infrastructure issues.
Got it.
Okay.
Yeah.
That makes sense.
(16:40):
And then, what do you think is gonna happen nowwith Tampa?
So my brother's in Tampa.
You know, luckily, he's okay.
But do you think that's gonna have a lot ofopportunity for private equity firms to come in
and fix all that property.
I mean, they just got hit a couple of weeksago, I think a week ago or two before.
So what usually happens when there's kind oflike it's kind of a sad thing to talk about.
(17:04):
It's interesting too that with my family, Iwatched that movie Twisters.
Don't know if you saw that, but it was kind ofa second sequel to the Twister movie from the
90s.
And there's this kind of like greedy realestate investor that pretty much takes pretty
much low balls all the people that got hit bytornado.
(17:26):
So I guess kind of what's your reaction to thatmovie?
And then I guess what are your thoughts interms of what's gonna happen down there for not
only the real estate market, but just kind ofthe property value and just opportunity
investing in Florida?
Yeah,
(17:47):
interesting.
So a couple things.
I think that historically, the property marketactually does really well in most places after
hurricanes.
As tragic as the loss of life is in places likeTampa and Miami and and Fort Myers, you know,
you look at Southwest Florida right after thestorm, there's just a flurry of economic
(18:10):
activity.
And so Yeah.
Property values tend to go up for propertiesthat survived.
Mhmm.
So, you know, I'll tell you like this.
I think Tampa is going to continue to grow.
Mhmm.
I we don't have damage numbers yet as to whatwas destroyed.
But I think the rental market in both theFlorida and North Carolina corridor is gonna
(18:31):
improve significantly.
Yeah.
Because there will be there will have been alot of properties that were destroyed and a lot
of people are gonna have to rent.
And there's gonna be a lot of rebuilding andthere's gonna be a lot of new property built as
a result, and there's probably gonna besignificant federal investment.
And that's all fine.
I think the challenge is going to be and whatwe all need to and and in the property world,
(18:53):
we're all trying to figure out what happenswith insurance rates.
Mhmm.
Insurance rates have have gone up, have havegone hyperbolic in the last three years.
Mhmm.
And so what happens with insurance rates?
And, you know, I mean, you look at you look atsort of these these big hurricanes every
fifteen years.
We have a a once in a a thousand year event anda once in a thousand year flood.
(19:16):
Mhmm.
And it wipes out some major city in the South.
Right?
So fifteen, twenty years ago, was Katrina withNew Orleans.
Then it was Fort Myers A Few Years two yearsago.
And then, you know, now it's North Carolina.
We're gonna have to figure out some method toensure these properties because people aren't
(19:37):
going to abandon Tampa Bay.
Right?
People aren't going to abandon Miami and andand, you know, Palm Beach.
And on top of that, you know, Tampa doesn'thave quite as much property in quite as many
buildings as Miami and and places.
Mhmm.
So, you know, what happens if a cat five hitsMiami?
Mhmm.
Right?
Yeah.
It's just just that the the insurability ofthese buildings.
(20:00):
I, you know, frankly, I'm not a big fan ofinvesting in the coastlines.
I think there are going to be a lot of justjust insurance and and bigger concerns.
You know, I think we could see a world whereinsurability is questioned for some of these
coastal properties.
So I don't know what the solution is.
(20:22):
Our firm does not invest in coastal propertiesat this time.
We you know, if we do, there's a really, reallygood economic reason.
But for the most part, we you know, we'restaying away from Tampa Bay.
We're staying away from sort of, you know youknow, these these sorry.
(20:42):
Southern coastal areas we're we're trying notto invest in.
So we're we're cautious about them.
We're really we're concerned.
We think it's it's it's gonna be an issue.
We'll invest in coastal areas North Of Orlandobecause we think those are less likely to get
hit by major hurricanes.
But this last week or this last two weeks withHelene proved us wrong.
(21:03):
Right?
So, I think you have to be really, reallycautious and and and thoughtful about this.
What are some other areas that you think areemerging?
Because I mean, Tampa, I mean, the price pointthat you're getting in is definitely it's
definitely surged since COVID.
So what are some tertiary cities or maybesecondary cities that you think could be a good
(21:25):
opportunity for people just getting started tomaybe look at for allocating to?
I, you know, I love the San Antonio market.
I think that area is
going that hasn't gone too high yet.
No.
I I I think San Antonio is is reasonablypriced.
Okay.
Not only that, the I 35 Corridor as you'recoming up from Mexico, I think, 37% of the
(21:47):
goods that come into The US by truck come inthrough the I Corridor.
Mhmm.
And that number was up 12% year over yearbetween 2022 and 2023.
I don't know what the number is now.
Yeah.
'23 to '24.
Mhmm.
So what's happening is as The US is divestingfrom China Mhmm.
And trying to trying to, sort of, essentiallyprotect our supply chains and onshore a lot of
(22:16):
manufacturing or near shore it, the place it'sgoing to most is Northern Mexico.
Mexico surpassed China as our largest tradingpartner in 2021, and that gap continues to
grow.
And so a lot, what's happening is that thereare these massive industrial parks in Northern,
Mexico, and all of the goods are then shippedon I 30 V I 35 through the San Antonio
(22:39):
Corridor.
You have the, you've got the Port San AntonioFree Trade Zone that I love over there.
It's 1,800 acres.
It it's it's there are, 25,000 jobs there, andthere's gonna be another, another, 15 to 18,000
jobs created there in the next eight years asthey, add another 800 acres to Port San
(23:02):
Antonio.
So I think all of this, I think there are a lotof companies that buy goods from these Mexican
producers and then assemble them, or they theywarehouse them, and wholesale them and
redistribute through that San Antonio corridor.
Mhmm.
So I think it's increasingly going to become animportant metro to The United States.
(23:23):
Got it.
What else?
What are some other areas?
I mean, you'd be looking at anything on the onthe East on the West Coast at all?
Yes.
So I love Idaho.
Mhmm.
I think that California, Oregon, and WashingtonState have made a lot of strategic mistakes
when it comes to when it comes to development,zoning regulation, when it comes to taxation,
(23:47):
just a lot of things.
And and so as a result, cost of living, it's sofunny.
I had a conversation with Mary Daly of the SanFrancisco Fed about a year ago.
And we were both sharing our frustrations aboutkind of a lot of people in California.
(24:08):
They wanna solve the homelessness crisis andthe housing crisis and the cost of housing.
Mhmm.
But what they don't want is they don't is is,you know, they don't want their two acre lot
neighborhoods or one acre lot neighborhoods tobecome quarter acre lot neighborhoods.
Right?
Because that would solve a lot of problems ifyou could simplify zoning and streamline,
(24:28):
development approvals.
Right?
Then then all of a sudden, you would have a lotless homelessness.
Yeah.
That's not happening.
And so a lot of people are moving to Idaho,Idaho, Nevada, it's right there.
I was sitting in a seminar about climate changeat some point.
And the the data overwhelmingly shows that whensomeone is forced out of their, their region,
(24:55):
whether it's for climate change reasons orbecause of, because of affordability, they move
as close as possible, both for climate reasonsand just comfort level, to where they used to
live.
So if you look at California, that's Arizona,Nevada, Idaho.
If you look at Oregon, that's Idaho.
Utah has been a big destination.
(25:17):
And then if you look at Washington State,that's that's Idaho, Arizona, Nevada.
Mhmm.
And and there are a lot of these people.
And if you look at heat maps of The US forwhere people are moving to and out of, people
are overwhelmingly moving out of some of thesesort of high regulation states into the Sunbelt
(25:38):
and Idaho's of the world.
Idaho actually has the highest populationgrowth by percentage and job growth by
percentage in the country.
Yeah.
Really like that market.
By the way, Texas is the highest populationgrowth by sheer number.
Mhmm.
It's such a juggernaut.
(26:00):
But but Idaho is, Idaho is is is a big one.
It's an emerging market, and I love it.
So I would if I were if I were a young guystarting out today, I'd move to Boise, start
buying land, and building single family homes.
Sure.
What are your thoughts on the robotic three dprinting of units?
So I've come across a few people that havepurchased the machines and they're actually
(26:25):
building, some of them are looking into tinyhomes and also just kind of residential
communities.
So what are your thoughts on just kind of thattechnology and the future that that holds?
Yeah, so it's interesting.
I have not priced out a three d printing ofhomes, but we have looked at factory built
(26:48):
modular housing or sorry, factory built.
I think it's modular housing.
The way it works is essentially if you wannabuild an apartment community, you contract with
a factory, they deliver pods, they put themtogether on-site, and then they put the stucco
up outside of them.
Mhmm.
I'm not a fan for a couple of reasons at thistime.
(27:12):
When we priced it out, I think that thismodular housing system could work in the
Northeast where construction is reallyexpensive.
Mhmm.
But in the South, construction costs aresignificantly lower, and so we found the
modular housing system to be about 15 to 20%more expensive than building on-site.
(27:34):
Oh,
yes.
Some of that is offset, especially now byhigher interest rates.
Sure.
It's it's it happens a lot quicker.
It it happens about 50% of the time that youcould build, that you could build, stick built
product or or on cycle product.
I'm not a fan at this time.
I don't think the cost makes sense.
(27:54):
I'm also concerned about what happens if thatparticular factory goes out of business.
Mhmm.
You know, you're stuck with a system thatanother factory may or may not be able to work
with.
These are all solvable problems.
You know, my firm does not find the risk rewardto to to to be worth it.
As far as sort of robotics, you know, ourindustry has had very little innovation in the
(28:18):
last one hundred years.
Yeah.
If you
wanna make a billion dollars, figure out how tomake a robot that can go on a roof and put roof
shingles Mhmm.
And and and install roof shingles.
You will make a billion dollars, I promise you.
If it's an efficient robot that can do that ina in a, you know, in a cost effective manner,
will be thrilled.
Mhmm.
But it hasn't happened.
(28:39):
It hasn't So, you know, three d printinghouses, the kind of homes that Americans wanna
live in today, I don't think that's realistic.
Is it is it Is it a great option sort of in thethird world for, you know, people where housing
is just not available?
Sure.
I don't think it's realistic today.
(29:02):
That may very well change.
And haven't kept as far abreast of three dprinting as an option as I should.
Yeah.
And what are your thoughts on just elderlycare, as an opportunity to invest in, you know,
because it generates revenue.
There's additional services that you canprovide alongside just the rent.
(29:26):
Then what are your thoughts on just the trendof people moving into tiny homes as a category
as well?
So I don't think so.
I'm gonna start with tiny homes because thoseare two very different questions and two
separate questions.
I don't think tiny homes are a trend that'shere to stay.
I think smaller homes will will are making acomeback.
(29:46):
Yeah, I think builders are building smallerhomes because of the affordability issues.
Sure, we have an affordability crisis in thiscountry.
I've written about it quite a bit both inForbes and and in various publications in
Florida and across the country.
We, you know, at this point, so five, fouryears ago, 65,000,000 households in America
(30:07):
could afford to buy the median single familyhome.
Today, that number is 37,000,000.
So, yeah, I I think people will be living insmaller homes.
Larger homes have been have been, have havecome about, at the same time as interest rates
have have sort of come down.
Yeah.
So interest rates have come down over the lastforty years.
(30:27):
Larger homes have come up, have become moreprevalent because people can afford more house,
right?
A lower fee.
So I think that slightly higher interest ratesare here to stay.
We're not gonna stay at six to 7% mortgagerates forever.
I think we're gonna be down to 5%, five and ahalf in the coming year.
Yeah.
But I think that I think that home I I don'tthink they're gonna be tiny homes.
(30:50):
I think they're gonna be smaller than whatwe're used to.
And and I think that we're gonna need more ofthose, and I think builders are gonna switch
back into those.
Sure.
The other piece you're asking me about iselderly housing.
Mhmm.
I think it'll be the most important segment ofthe real estate world within five years.
Okay.
We're gonna have a trillion dollar shortage inassisted living memory care and elderly housing
(31:16):
over the next twenty five years.
Mhmm.
Because there are a lot of aging.
So, Americans over the age of 65 are thefastest growing segment of our population.
A lot of people are growing old without havinga family support system in place, Remember, the
birth rate is dropping.
So as the birth rate has been dropping over thelast thirty years, there are more people aging
(31:38):
without kids or maybe with one child instead ofyou to take care of them.
So they're gonna need more services.
The good news, they have more money becausethey didn't spend their money on their kids
ironically enough.
Sure.
So they have the money.
So you're gonna need all kinds of senior careoptions.
We're we're really excited about the space.
(31:58):
We're gonna be making a lot of investments inthat space over the next ten years.
Sure.
No.
This is really interesting.
And Another question that I have is just firmbuilding as a whole.
What are some of the pieces of advice that youwould share with some of your lessons that
you've learned in terms of building a firm?
(32:19):
Someone's going to go out and build some typeof franchise like you did.
What's the advice that you would give them?
First of all, focus on integrity.
If you don't have integrity, you don't have abusiness and a you don't have a meaningful
life.
You know there are there there over the lasttwenty years I've seen it time and time again.
(32:46):
I have I have always done my best to air on theside of of of the right thing to do the path of
integrity.
And I have seen it pay off in my career.
And I have seen operators and I've seen groupsthat that have taken both routes.
And I've yeah.
I consistently see you always pay the piper.
(33:08):
Run your firm conservatively and properly.
Right?
And the second piece is, you know, anybodywho's a CEO and who wants to be a CEO of any
sizable enterprise, you have to think of it asservant leadership.
Read the book servant leadership.
I really enjoyed it.
You know, you're there to serve everyone aroundyou.
(33:30):
As a CEO, you're there to serve your clientsfirst, your shareholders second, and your
employees and team members third.
And then you serve yourself after them, right?
There's another great book about the militarycalled Leaders Eat Last.
It's about how, high ranking, militaryofficials always eat after the sort of lower
(33:55):
ranking, military officers.
And it's really important because my team knowsthat my number one priority after taking care
of our tenants in our properties and takingcare of our investors is taking care of them.
I want to make sure that they make money.
I want to make sure that they feel they have aplace that that is theirs, not mine, but theirs
(34:16):
in mind.
That can be a place for them to grow wealth, togrow their skills.
And also, messaging matters.
A leader, people look to you for reassurance.
But also if you're helping someone learn, theyfeel like they're growing and they appreciate
that.
(34:36):
Yeah.
You know, I'm I'm gonna have a conversationlater today with with someone that didn't
maximize on a task that was pretty important,and it was because they didn't wanna go out of
their comfort zone.
And the conversation I'm gonna have is, hey, isnot, hey.
You really you know, you you dropped the ballon this.
The conversation I'm gonna have is, you know,you've gotta go out of your comfort zone.
(34:57):
This is how this could have been donedifferently.
Mhmm.
Invest better in the task at hand next time.
Yeah.
Right?
The messaging matters because one message is,you know, you're an idiot.
Right?
Which is not true.
I mean, if that person's working for you andthey're an idiot, then you're an idiot for
keeping them, first of all.
Let let's remember that.
Right?
So generally, let's just start with theassumption that if you're if that person's been
(35:21):
with you for some time and if there's somethingthat wasn't done that that you don't think was
maximized as a task and and the way it was donefor the company.
Right?
It means that it can be, you know, themessaging of, hey, you know, you're a screw up
is very different than, hey, here's how I thinkthis could have been done differently, have
been better for the company, and it would havebeen better for you personally.
(35:42):
For you to grow, this is how I would suggestit's handled next time.
Right?
Sure.
That messaging, that person's gonna leave workthat day and say, you know, I'm gonna grow in
this direction.
Feel like this.
Right?
And if they if someone consistently leaves youroffice feeling awful about themselves Mhmm.
Matter of time before they're looking for theirfor their exit route.
Right?
But if believe if if if you have good people,you want them leaving feeling like they're
(36:08):
growing.
And by the way, as leaders, every one of us hashad a day where we didn't maximize.
Every one of us has had a day that we're notproud of.
Yeah.
And so you wanna you wanna and for forourselves, hopefully, you say to yourself, I
didn't maximize these three things today, but Iwill tomorrow.
I'm gonna do better.
So give your team members that sameopportunity.
(36:29):
Say, hey, you didn't do as well as you couldtoday, but you'll do better.
Give them the same grace that you would giveyourself Yeah.
In a in a task that you didn't maximize.
Mhmm.
I don't know.
Maybe that wasn't where this conversation wassupposed to go, but
I think it's important.
I think part of firm building is number onegetting people to obviously if they're an LP,
(36:51):
being able to be aligned with what you'rebuilding and solving their problems.
So there may be people that are in the realestate space that are trying to learn more
about private equity.
Maybe they have a mandate and you as a fundmanager can provide access education and a
platform and a community to do that.
(37:11):
But then the other piece of it is sellingpeople on just sticking around with you.
I think there's a lot of things around a lot ofpsychology around compensation.
You could save a couple bucks, maybeunderpaying people below market and you get
labor for cheap.
But then what happens is once they leave, nowyou have all this work that you gotta do.
(37:33):
Right?
And then now you're out to find talent again.
And and by the way, you want continuity.
You want you want continuity because, you know,it it continuity with quality people.
You don't want continuity with people whoshouldn't be there, but continuity with quality
people, leads to growth, leads to leads tobuilding relationships outside of your company.
(37:58):
Leave, you know, helps helps, you know, helps,frame your company as a place of stability.
Mhmm.
And and really when it comes to your LPs, Ihave a rule when I negotiate, but also when I
go out with an offering.
I don't offer someone a deal I would not take.
Sure.
Right?
(38:19):
Don't don't, you know, and and and the otherpieces when you're negotiating, do not take the
last dollar.
Because if you do, you may get that one dealdone, but that that that partner sponsor LP,
landowner won't want or broker won't wanna dobusiness with you the next time.
(38:40):
Right?
So so when you say the last dollar, can youclarify that?
So you're saying, like, if you're negotiating aa $50,000,000 property and, you know, you yeah.
Walk me through that a little bit.
Yeah.
So so, you know, for example, I, you know, I Idid a deal years ago.
(39:01):
We signed a partnership agreement and then andthen, you know, it was was it was with with a
big institutional group.
We signed a partnership agreement.
We got it done.
And then what they did was the way theystructured the financing, they basically
fleeced me on on on a good portion of mypromote.
Mhmm.
Right?
But by by the the structure of of the they theyhad they had some some discretion on how much
(39:27):
leverage to take.
And so that makes me less likely to wanna do adeal with them in the future.
Yeah.
You know, whereas whereas other groups thatother groups that that I've worked with, you
know, even when it comes to to land contracts,you know, I've I've done I've done deals where
(39:47):
I'm selling land and where a buyer has had anissue in the eleventh hour.
Mhmm.
They needed a small extension.
Right?
And and, you know, or, you know, the brokercomes back and the broker says, hey, listen,
this buyer is having trouble.
They can't close at this level.
Right?
Mhmm.
And they need they need this kind of aconcession.
(40:09):
I could squeeze the broker for every lastdollar there.
Right?
I could say, well, you've gotta give 50% ofyour commission.
Right?
Yeah.
But that 50% of his commission represents notsuch a huge piece of my of my capital stack.
Mhmm.
Right?
Yeah.
If I'm doing it just to be just sort of to bepunitive to the broker, that broker's not gonna
(40:30):
bring me that next buyer.
He's gonna take him to Jim, right, who who willsay to him, hey.
Maybe you kick in a little bit.
I'll kick in a significant amount, and we getit done.
Right?
Yeah.
Don't squeeze the last dollar out of someonewho's up against the wall because they'll
they'll remember that, and then you're gonna bethe one paying the price when the time comes
later.
Yeah.
(40:51):
No.
I mean, it's I mean, that's one piece and thenI've seen people and we'll wrap up with this,
but I've seen people that I've mentored in thepast.
They just came to me and they're just like,hey, you know what?
This is what I'm doing with my career.
I tried to just share whatever I learned withthem and then fast forward ten, maybe five
years later, they've kind of evolved in theircareer and they're a person that I need, I
(41:17):
would look up to now, because they're like aninstitution.
So you never know where people could end up,especially in a city like New York.
They changed jobs a few times.
They're a GP one day, they're an institutionalLP one day, then they go to a pension fund.
And at some point, there'll be the person thatmakes decisions to allocate or not.
(41:40):
It just happens full circle.
So you just never know where people can end.
I think it's just for the spirit of just notonly networking karma and just having
integrity, I think it goes a long way justtrying to be nice to everybody and try to
figure it out somehow.
You know?
Joel, I can't stress that enough.
I'm glad you said that.
(42:00):
I think that's one of the most important thingsabout especially, like, an ecosystem like New
York City.
Yeah.
But in general, when you when you pay itforward in the business world, in in life in
general, you have to pay it forward.
But in the business world, don't just belooking out for yourself.
Right?
Make connections for people.
Mhmm.
Brainstorm how to help them.
(42:21):
And when you go into every relationship, Ithink it it behooves you to say how can I be of
service to this person?
What do they need?
Even if it can't do anything for me, right?
Yeah.
But what do they need?
Because somehow someway life comes back around.
I've got guys that I mentored fifteen years agowho call me up and say, hey man, you know, I'm
(42:42):
at such and such firm, let's get together.
Do you need equity?
Do you need this?
Do you need that?
Right?
It was, you know, my business partner and Ifrom the housing business, right?
We went through a rather difficult time sellingthose last single family homes, right?
And so, and not only that, after a number ofour buyers had closed, a year later, they came
(43:03):
back to us with property management issues.
Some of them were renting them out, whateverthe case may be.
Yeah.
They they were really because the the SouthFlorida had been hit really hard in o eight.
Sure.
We did everything we could to help them to helpthem manage those homes to help them turn that
around.
We didn't have to.
We just did.
We told them, you know, we we we worked on onproperty management with them, you name it.
(43:24):
And one thing she said to me a couple weeksago, we had dinner.
She said, you know, you you she says with everywith with a lot of the builders that she had
worked with at that time, the relationshipended with the closing and she's like, you sort
of stuck by everybody.
Yeah.
And now, you know, we continue workingtogether.
She's she's investing in in my new fund.
(43:46):
She's making introductions.
It's just the world life is long and the worldis round.
Right?
Yeah.
I I love that you said that, Joel.
I think it's it's really meaningful.
Yeah.
Appreciate it.
Well, hey, Russ.
Really appreciate your time.
It was really great learning from you and justsharing your knowledge with the community.
And I'm sure we'll bump into each other at oneof these cocktail events in the city.
(44:07):
I look forward to it, Joel.
Be well, man.
Thank you for having me on.
Yeah, thank you.
Appreciate it.
It was a lot of fun.
Take care.
Take care.
Bye.
It's such a juggernaut.
(00:01):
But but Idaho is, Idaho is is is a big one.
It's an emerging market, and I love it.
So I would if I were if I were a young guystarting out today, I'd move to Boise, start
buying land, and building single family homes.
Welcome to The Investor, a podcast where I,Joel Palafinkel, your host, dives deep into the
(00:23):
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
All right, so really excited for my guesttoday.
(00:44):
I've got Ross Crevore.
He's a president and CEO of SovereignProperties, a real estate development firm
based in New York.
Sovereign Properties is focused on theconstruction and acquisition of multifamily
apartment communities and they seek to deploycapital across The US.
Know that you've developed an interest in realestate at a young age and really built an
(01:09):
amazing career in this space.
So Russ, welcome to the show.
Thanks for coming and excited to learneverything that you're working on and hopefully
get the audience educated more on multifamily.
Great to be here, Joel.
Thanks so much, man.
Yeah.
It's it's an exciting and interesting time.
There's a lot of transition given all of thegiven all of the just changes in interest rates
(01:33):
and lot of changes that are happening with bothsingle family home ownership and the cost of
renting.
So lots, I guess, discuss.
Well, why don't we start with just your earlycareer?
The audience here is people who are looking toallocate, people that are looking to launch
(01:56):
their own fund, there's people that are aspiredto get into the real estate industry from
college.
I think your background and your story couldprobably serve all three of those communities.
So let's start with that.
If that is maybe a good starting point, likewhere'd you grow up?
What'd you study?
And then how did you kind of get into yourfirst career move into real estate?
(02:18):
And then maybe tell us what you're allowed toaround what you're building now.
Yeah, no, absolutely.
So I started my career in 02/2004 buildingsingle family homes.
Now I was I grew up in the Chicago area.
I I was my family are immigrants.
Mhmm.
And we're we're I was born in Ukraine.
(02:40):
We moved to Chicago Suburbs when I was threeyears old, and I grew up I grew up around a you
know, just to focus on education.
Mhmm.
Went to went to Northwestern, at kind of ayoung age.
I was 16 when I went.
And then when I was 19, I took a leave ofabsence from Northwestern, to start building
(03:02):
homes for a friend of my father's.
Yeah.
He was he was looking to buy some homes inFlorida at the time, and we were all our
families were both on vacation.
And I said I I had asked him to go and see,what he was working on and what he was looking
to buy.
And because I grew up on my uncle'sconstruction job sites, I figured it wouldn't
(03:23):
hurt to, it wouldn't hurt to, to to check itout.
And I told him that he was getting fleeced andthat he could hire a contractor and build those
homes for a lot less money.
He said that if my father would agree to it, hesaid, you know, can you take a year off of
school and manage that contractor for me here?
And I said, sure.
I'll I'll I'll figure it out.
(03:44):
I promise.
So, after that, I I built him 10 homes.
I built
another 300 with what was my first businesspartner.
Mhmm.
Her name was, her name was Helen.
Was an Asian lady, that, is is interestinglyenough, looking to invest in our current fund
twenty years later, which is kind of excitingjust coming full circle like that.
(04:06):
And then in 02/2006, we sold out of our singlefamily home portfolio.
Mhmm.
The the supply and demand numbers just didn'tmake sense anymore.
I looked at, how many single family or it's notmany housing units were being built that year
Mhmm.
In The US versus household creation, and it wasthree to one.
And so unless we became a country where therewere three homes for every, every household,
(04:32):
something was really off.
So I sold out before the crash.
And in '2 and then, I eventually I went back toto university.
I did my degree online in one one class asemester.
I'm a big believer in education.
One class a semester, I did my degree.
And so I'm trained as an economist, and my mysort of research led me to believe that a lot
(04:57):
of people would be renting over the comingyears.
So we, we started building rental communitiesin 02/2009.
And in the last fifteen years, I've builtroughly under various partnerships, roughly
7,000 apartments And and and a total of maybe700 single family homes, including what I built
(05:19):
back in o four, a few retail centers, andseveral large master plan communities.
Sure.
And then just walk us through kind of the buildprocess.
And maybe there's some insights with differentregions as well.
Right?
So if you wanna build a community, maybe walkme through one community and how many units
(05:40):
there are and what you have to do.
I'm assuming it to set up the foundation andall plumbing and electricity.
Can you unpack that a little bit?
Yeah.
Yeah.
So I you know, I think what's most important inin the real estate world is really buying
buying your property.
Mhmm.
When you you I mean, this has been said adnauseam, but I'm gonna repeat it.
(06:03):
Mhmm.
Location, location, location.
When you've bought your property, your basis inyour location will dictate how you how you do.
Mhmm.
And so first, you've gotta find an area withgood demographic growth with good where you've
got tailwinds, you've got the wind at yourback.
(06:23):
Mhmm.
And then you go and and find, you know, qualityarchitect, civil engineer, and and good
consultants.
Get the property zoned.
Mhmm.
My firm, build primarily in the Sunbelt.
I have been working in Minneapolis and andChicago in the past.
We don't do much of that these days.
(06:43):
We we work primarily in the Sunbelt, but youfind a good location.
You you hire the architect engineer, get itsown, get it financed, and then, of course, and
then comes the building process.
My first couple of projects, I was on-siteevery day.
My first few rental communities were in inDallas, Texas, you know, in the DFW area.
(07:06):
And I was there every day, because I I neverwanted to be that guy sitting here signing a
change order and not knowing what that changeorder means.
Sure.
So as a result, I think that you've gotta bereally hands on.
And you have to understand what you're whatyou're signing.
You have to understand the costs.
And you have to poke holes at every cost.
(07:30):
Because the minute you stop doing that, you setyourself up for some larger failures.
Sure, so when you say a change order, maybe thedesign of the building wasn't thought through
properly and now there needs to be someinfrastructure change that could just add a lot
of cost.
Yeah.
So every project has change orders, right?
(07:50):
Every project will have will have a changeorder or change orders, plural.
Mhmm.
You know, anything from anything from, youknow, the architect missed this this, you know,
this, guardrail along the stairs Mhmm.
Two, we'd like to add, we'd like to add adifferent kind of stone to the countertops
(08:12):
Mhmm.
Because our competitors are doing that.
So every project is is gonna have that.
But what you don't want is you don't wanna besigning something that you don't understand.
So oftentimes, and and funny enough, you know,we we build probably, on on a on a normal year,
1,500 to 2,000 apartments a year.
Mhmm.
(08:33):
I still sign every change order personally.
Yeah.
Even the small ones for $700.
The reason I do that is because if you don'tkeep track of the small things Mhmm.
They're they're gonna it'll be death by athousand cuts.
So so what you don't want is you don't wannahave some kind of a an an electrical
engineering change order that you're signingthat you're not sure what it is, but someone
(08:58):
but someone sort of two levels below youapproved it.
Right?
My guys will approve it.
Mhmm.
Right?
But I'm still not gonna rubber stamp it.
I call them and I say, what is this?
What am I signing?
And and for me, I I wanna know the sort of insand outs of construction of what I'm signing,
why is it there.
(09:18):
You know?
So, anyway, that that's that's kinda my take onit.
And I think a sponsor should be whether you'rein the real estate business or you're in the
tech world
Mhmm.
Or you're or you're you're in the biotechworld, a sponsor, the number one thing that
you've got to keep track of are are are theexpenses.
Yeah, right?
If you're not keeping track of the expenses ina meaningful way, you're setting yourself up
(09:41):
for a failure and for a disaster long term.
Sure.
And then how do you decide where you want to,number one, purchase the offerings?
I guess what is some advice to people that arelooking to be getting into this space?
Because it sounds like you're developing, butare you also investing some capital into some
(10:02):
opportunistic opportunities as well?
Because those are two different buckets.
You need capital to actually fulfill thedevelopment project.
But then I think you can probably double downand actually invest in those projects as well,
right?
As kind of like a almost like a private equityinvestor buying up those homes, right?
Because wouldn't that be two different costcenters to be able to do the operational work
(10:26):
and then to actually acquire them?
Yeah, that's a great question.
We have both an acquisitions arm and adevelopment arm.
Our acquisition arm has not been active reallyuntil this year.
For about two years, we didn't see a lot ofopportunity.
Mhmm.
We so we sold out of everything in 02/2022Mhmm.
(10:49):
And, almost everything.
We had we had two, two deals left.
Our average deal deal is probably 300apartments, about a hundred million dollars.
Our average senior living deal is about a 50apartments.
Mhmm.
And our our average master plan community ismaybe 200 acres and will encompass 2,000
rooftops.
But in in oats in '22, we sold out ofeverything.
(11:12):
For two years, we kinda looked at the market.
We did a few deals here and there.
Now we're ramping up acquisitions and anddevelopment again.
We're raising our, second fund.
We we did everything for in it with SPVs forabout fifteen years, and now we're on our
second commingled vehicle.
Mhmm.
But essentially, we we look at we look atacquisitions in a very specific way, kinda
(11:37):
stress testing.
What happens if financing doesn't go our way?
And then we do the same with development.
Acquisitions are probably about 20% of ourbusiness currently.
Can we invest in and have we some of the dealsthat we've developed?
It's different investors because some of ourinstitutional investors wanna get out right
away.
Mhmm.
We can give them that opportunity via a aspecific acquisition process.
(12:01):
Generally, we always still list the propertyfor sale because we're a fiduciary for the
investors.
Yeah.
And if our internal acquisitions group can canoffer as much or more money, then we'll do it.
If they can't, then then we'll sell it on onthe open market.
Mhmm.
Got it.
Okay.
That makes sense.
(12:21):
Yeah.
That's really helpful.
And, you know, I guess the the motivation I'massuming for people to sell off everything was
just to kinda, know, just appreciate some typeof multiple, I guess.
Is that Yeah.
Is that kind of the main play?
You know, do these holding periods vary acrossvintages?
(12:43):
Or is there just kind of an average hold timeanywhere from three to five years as kind of a
benchmark or is there like a variationdepending on the geography and kind of the type
of asset, I'm assuming?
You you know, most groups, their investmentfund time frame Mhmm.
Their their investment period is five years.
Mhmm.
So that yeah.
(13:06):
So so oftentimes, we'll have an institutionalpartner or we'll have a bunch of investors who
are at sort of the end of their fund life.
Mhmm.
And they'll say to us, hey.
We'd like to get out.
Yeah.
At that point, we'll we'll take a call foroffers.
And, again, if if we can match the highestoffer, we do.
If not, we sell it.
(13:26):
And then and then it it it it really runs thegamut.
I've seen groups hold things for ten years.
Mhmm.
Private family offices love to hold things forten years because of all of the tax the
extraordinary tax benefits.
Mhmm.
And then and then some groups wanna be in andout and their merchant builders.
I would say the industry average, though, isthree to five years.
Yeah.
(13:47):
And what are some trends that you're seeingacross the different regions?
Know, see, I think you said you started out inTexas.
I know you guys are doing some stuff in Floridanow.
So I guess what are what are some criteria thatyou look for for maybe an acquisition or
possibly building something?
So we're looking at we're looking at supplycertainly to see where where there is there is
(14:09):
less land available and where the zoning isdifficult.
That's always been my motto.
So I've I've been very interested in theOrlando market.
I think a lot of people from South Florida andfrom the West Coast Of Florida are gonna move
into the Orlando market because it's it's it'sinsulated from some of the storm activity and
(14:31):
has a great, very well diversified economy.
As a developer, I, you know, I think Orlandohas a business friendly and sort of development
friendly climate, but they don't have just sortof open zoning the way Houston does.
So I like that market.
I think that that sort of that Northern Floridacorridor is gonna do really well over the next
(14:53):
ten years.
I think the Carolinas anywhere.
So what's interesting right now, you've got thethe Biden Harris administration, they've spent
about a trillion dollars at this point onstimulating manufacturing.
So you've had a lot of manufacturinginvestments in The US, and a lot of that is
(15:15):
going to the Southern states.
Texas has been the biggest recipient of newmanufacturing investments, followed by, I wanna
say Arizona, Nevada, North Carolina has hadsome, Idaho has had a significant amount.
Those are the areas where you wanna investbecause those manufacturing investments are
(15:35):
gonna create a lot of jobs, which will createhousehold.
Something to keep in mind, though, I'm youknow, we're very cautious about the Arizona
Nevada corridor.
They've got a lot of water in, wateravailability problems.
So Lake Lake Mead is at its lowest levels in inmany years or has been, at at at drought levels
(15:56):
for several years.
And so we're very concerned about theavailability of water because what'll happen is
you're gonna have higher property taxes as theyhave to invest in that infrastructure.
Yeah.
You wanna watch if you're investing in thosemarkets, you wanna watch that you have water
concurrency.
So for example, unincorporated Phoenix does nothave water concurrency, incorporated Phoenix
(16:20):
does.
It's really important that you have waterrights and water access rights.
And you you have to have space for higherproperty taxes if you're investing in these
markets.
Mhmm.
Because because they will have to raiseproperty taxes, in order to deal with some of
these infrastructure issues.
Got it.
Okay.
Yeah.
That makes sense.
(16:40):
And then, what do you think is gonna happen nowwith Tampa?
So my brother's in Tampa.
You know, luckily, he's okay.
But do you think that's gonna have a lot ofopportunity for private equity firms to come in
and fix all that property.
I mean, they just got hit a couple of weeksago, I think a week ago or two before.
So what usually happens when there's kind oflike it's kind of a sad thing to talk about.
(17:04):
It's interesting too that with my family, Iwatched that movie Twisters.
Don't know if you saw that, but it was kind ofa second sequel to the Twister movie from the
90s.
And there's this kind of like greedy realestate investor that pretty much takes pretty
much low balls all the people that got hit bytornado.
(17:26):
So I guess kind of what's your reaction to thatmovie?
And then I guess what are your thoughts interms of what's gonna happen down there for not
only the real estate market, but just kind ofthe property value and just opportunity
investing in Florida?
Yeah,
(17:47):
interesting.
So a couple things.
I think that historically, the property marketactually does really well in most places after
hurricanes.
As tragic as the loss of life is in places likeTampa and Miami and and Fort Myers, you know,
you look at Southwest Florida right after thestorm, there's just a flurry of economic
(18:10):
activity.
And so Yeah.
Property values tend to go up for propertiesthat survived.
Mhmm.
So, you know, I'll tell you like this.
I think Tampa is going to continue to grow.
Mhmm.
I we don't have damage numbers yet as to whatwas destroyed.
But I think the rental market in both theFlorida and North Carolina corridor is gonna
(18:31):
improve significantly.
Yeah.
Because there will be there will have been alot of properties that were destroyed and a lot
of people are gonna have to rent.
And there's gonna be a lot of rebuilding andthere's gonna be a lot of new property built as
a result, and there's probably gonna besignificant federal investment.
And that's all fine.
I think the challenge is going to be and whatwe all need to and and in the property world,
(18:53):
we're all trying to figure out what happenswith insurance rates.
Mhmm.
Insurance rates have have gone up, have havegone hyperbolic in the last three years.
Mhmm.
And so what happens with insurance rates?
And, you know, I mean, you look at you look atsort of these these big hurricanes every
fifteen years.
We have a a once in a a thousand year event anda once in a thousand year flood.
(19:16):
Mhmm.
And it wipes out some major city in the South.
Right?
So fifteen, twenty years ago, was Katrina withNew Orleans.
Then it was Fort Myers A Few Years two yearsago.
And then, you know, now it's North Carolina.
We're gonna have to figure out some method toensure these properties because people aren't
(19:37):
going to abandon Tampa Bay.
Right?
People aren't going to abandon Miami and andand, you know, Palm Beach.
And on top of that, you know, Tampa doesn'thave quite as much property in quite as many
buildings as Miami and and places.
Mhmm.
So, you know, what happens if a cat five hitsMiami?
Mhmm.
Right?
Yeah.
It's just just that the the insurability ofthese buildings.
(20:00):
I, you know, frankly, I'm not a big fan ofinvesting in the coastlines.
I think there are going to be a lot of justjust insurance and and bigger concerns.
You know, I think we could see a world whereinsurability is questioned for some of these
coastal properties.
So I don't know what the solution is.
(20:22):
Our firm does not invest in coastal propertiesat this time.
We you know, if we do, there's a really, reallygood economic reason.
But for the most part, we you know, we'restaying away from Tampa Bay.
We're staying away from sort of, you know youknow, these these sorry.
(20:42):
Southern coastal areas we're we're trying notto invest in.
So we're we're cautious about them.
We're really we're concerned.
We think it's it's it's gonna be an issue.
We'll invest in coastal areas North Of Orlandobecause we think those are less likely to get
hit by major hurricanes.
But this last week or this last two weeks withHelene proved us wrong.
(21:03):
Right?
So, I think you have to be really, reallycautious and and and thoughtful about this.
What are some other areas that you think areemerging?
Because I mean, Tampa, I mean, the price pointthat you're getting in is definitely it's
definitely surged since COVID.
So what are some tertiary cities or maybesecondary cities that you think could be a good
(21:25):
opportunity for people just getting started tomaybe look at for allocating to?
I, you know, I love the San Antonio market.
I think that area is
going that hasn't gone too high yet.
No.
I I I think San Antonio is is reasonablypriced.
Okay.
Not only that, the I 35 Corridor as you'recoming up from Mexico, I think, 37% of the
(21:47):
goods that come into The US by truck come inthrough the I Corridor.
Mhmm.
And that number was up 12% year over yearbetween 2022 and 2023.
I don't know what the number is now.
Yeah.
'23 to '24.
Mhmm.
So what's happening is as The US is divestingfrom China Mhmm.
And trying to trying to, sort of, essentiallyprotect our supply chains and onshore a lot of
(22:16):
manufacturing or near shore it, the place it'sgoing to most is Northern Mexico.
Mexico surpassed China as our largest tradingpartner in 2021, and that gap continues to
grow.
And so a lot, what's happening is that thereare these massive industrial parks in Northern,
Mexico, and all of the goods are then shippedon I 30 V I 35 through the San Antonio
(22:39):
Corridor.
You have the, you've got the Port San AntonioFree Trade Zone that I love over there.
It's 1,800 acres.
It it's it's there are, 25,000 jobs there, andthere's gonna be another, another, 15 to 18,000
jobs created there in the next eight years asthey, add another 800 acres to Port San
(23:02):
Antonio.
So I think all of this, I think there are a lotof companies that buy goods from these Mexican
producers and then assemble them, or they theywarehouse them, and wholesale them and
redistribute through that San Antonio corridor.
Mhmm.
So I think it's increasingly going to become animportant metro to The United States.
(23:23):
Got it.
What else?
What are some other areas?
I mean, you'd be looking at anything on the onthe East on the West Coast at all?
Yes.
So I love Idaho.
Mhmm.
I think that California, Oregon, and WashingtonState have made a lot of strategic mistakes
when it comes to when it comes to development,zoning regulation, when it comes to taxation,
(23:47):
just a lot of things.
And and so as a result, cost of living, it's sofunny.
I had a conversation with Mary Daly of the SanFrancisco Fed about a year ago.
And we were both sharing our frustrations aboutkind of a lot of people in California.
(24:08):
They wanna solve the homelessness crisis andthe housing crisis and the cost of housing.
Mhmm.
But what they don't want is they don't is is,you know, they don't want their two acre lot
neighborhoods or one acre lot neighborhoods tobecome quarter acre lot neighborhoods.
Right?
Because that would solve a lot of problems ifyou could simplify zoning and streamline,
(24:28):
development approvals.
Right?
Then then all of a sudden, you would have a lotless homelessness.
Yeah.
That's not happening.
And so a lot of people are moving to Idaho,Idaho, Nevada, it's right there.
I was sitting in a seminar about climate changeat some point.
And the the data overwhelmingly shows that whensomeone is forced out of their, their region,
(24:55):
whether it's for climate change reasons orbecause of, because of affordability, they move
as close as possible, both for climate reasonsand just comfort level, to where they used to
live.
So if you look at California, that's Arizona,Nevada, Idaho.
If you look at Oregon, that's Idaho.
Utah has been a big destination.
(25:17):
And then if you look at Washington State,that's that's Idaho, Arizona, Nevada.
Mhmm.
And and there are a lot of these people.
And if you look at heat maps of The US forwhere people are moving to and out of, people
are overwhelmingly moving out of some of thesesort of high regulation states into the Sunbelt
(25:38):
and Idaho's of the world.
Idaho actually has the highest populationgrowth by percentage and job growth by
percentage in the country.
Yeah.
Really like that market.
By the way, Texas is the highest populationgrowth by sheer number.
Mhmm.
It's such a juggernaut.
(26:00):
But but Idaho is, Idaho is is is a big one.
It's an emerging market, and I love it.
So I would if I were if I were a young guystarting out today, I'd move to Boise, start
buying land, and building single family homes.
Sure.
What are your thoughts on the robotic three dprinting of units?
So I've come across a few people that havepurchased the machines and they're actually
(26:25):
building, some of them are looking into tinyhomes and also just kind of residential
communities.
So what are your thoughts on just kind of thattechnology and the future that that holds?
Yeah, so it's interesting.
I have not priced out a three d printing ofhomes, but we have looked at factory built
(26:48):
modular housing or sorry, factory built.
I think it's modular housing.
The way it works is essentially if you wannabuild an apartment community, you contract with
a factory, they deliver pods, they put themtogether on-site, and then they put the stucco
up outside of them.
Mhmm.
I'm not a fan for a couple of reasons at thistime.
(27:12):
When we priced it out, I think that thismodular housing system could work in the
Northeast where construction is reallyexpensive.
Mhmm.
But in the South, construction costs aresignificantly lower, and so we found the
modular housing system to be about 15 to 20%more expensive than building on-site.
(27:34):
Oh,
yes.
Some of that is offset, especially now byhigher interest rates.
Sure.
It's it's it happens a lot quicker.
It it happens about 50% of the time that youcould build, that you could build, stick built
product or or on cycle product.
I'm not a fan at this time.
I don't think the cost makes sense.
(27:54):
I'm also concerned about what happens if thatparticular factory goes out of business.
Mhmm.
You know, you're stuck with a system thatanother factory may or may not be able to work
with.
These are all solvable problems.
You know, my firm does not find the risk rewardto to to to be worth it.
As far as sort of robotics, you know, ourindustry has had very little innovation in the
(28:18):
last one hundred years.
Yeah.
If you
wanna make a billion dollars, figure out how tomake a robot that can go on a roof and put roof
shingles Mhmm.
And and and install roof shingles.
You will make a billion dollars, I promise you.
If it's an efficient robot that can do that ina in a, you know, in a cost effective manner,
will be thrilled.
Mhmm.
But it hasn't happened.
(28:39):
It hasn't So, you know, three d printinghouses, the kind of homes that Americans wanna
live in today, I don't think that's realistic.
Is it is it Is it a great option sort of in thethird world for, you know, people where housing
is just not available?
Sure.
I don't think it's realistic today.
(29:02):
That may very well change.
And haven't kept as far abreast of three dprinting as an option as I should.
Yeah.
And what are your thoughts on just elderlycare, as an opportunity to invest in, you know,
because it generates revenue.
There's additional services that you canprovide alongside just the rent.
(29:26):
Then what are your thoughts on just the trendof people moving into tiny homes as a category
as well?
So I don't think so.
I'm gonna start with tiny homes because thoseare two very different questions and two
separate questions.
I don't think tiny homes are a trend that'shere to stay.
I think smaller homes will will are making acomeback.
(29:46):
Yeah, I think builders are building smallerhomes because of the affordability issues.
Sure, we have an affordability crisis in thiscountry.
I've written about it quite a bit both inForbes and and in various publications in
Florida and across the country.
We, you know, at this point, so five, fouryears ago, 65,000,000 households in America
(30:07):
could afford to buy the median single familyhome.
Today, that number is 37,000,000.
So, yeah, I I think people will be living insmaller homes.
Larger homes have been have been, have havecome about, at the same time as interest rates
have have sort of come down.
Yeah.
So interest rates have come down over the lastforty years.
(30:27):
Larger homes have come up, have become moreprevalent because people can afford more house,
right?
A lower fee.
So I think that slightly higher interest ratesare here to stay.
We're not gonna stay at six to 7% mortgagerates forever.
I think we're gonna be down to 5%, five and ahalf in the coming year.
Yeah.
But I think that I think that home I I don'tthink they're gonna be tiny homes.
(30:50):
I think they're gonna be smaller than whatwe're used to.
And and I think that we're gonna need more ofthose, and I think builders are gonna switch
back into those.
Sure.
The other piece you're asking me about iselderly housing.
Mhmm.
I think it'll be the most important segment ofthe real estate world within five years.
Okay.
We're gonna have a trillion dollar shortage inassisted living memory care and elderly housing
(31:16):
over the next twenty five years.
Mhmm.
Because there are a lot of aging.
So, Americans over the age of 65 are thefastest growing segment of our population.
A lot of people are growing old without havinga family support system in place, Remember, the
birth rate is dropping.
So as the birth rate has been dropping over thelast thirty years, there are more people aging
(31:38):
without kids or maybe with one child instead ofyou to take care of them.
So they're gonna need more services.
The good news, they have more money becausethey didn't spend their money on their kids
ironically enough.
Sure.
So they have the money.
So you're gonna need all kinds of senior careoptions.
We're we're really excited about the space.
(31:58):
We're gonna be making a lot of investments inthat space over the next ten years.
Sure.
No.
This is really interesting.
And Another question that I have is just firmbuilding as a whole.
What are some of the pieces of advice that youwould share with some of your lessons that
you've learned in terms of building a firm?
(32:19):
Someone's going to go out and build some typeof franchise like you did.
What's the advice that you would give them?
First of all, focus on integrity.
If you don't have integrity, you don't have abusiness and a you don't have a meaningful
life.
You know there are there there over the lasttwenty years I've seen it time and time again.
(32:46):
I have I have always done my best to air on theside of of of the right thing to do the path of
integrity.
And I have seen it pay off in my career.
And I have seen operators and I've seen groupsthat that have taken both routes.
And I've yeah.
I consistently see you always pay the piper.
(33:08):
Run your firm conservatively and properly.
Right?
And the second piece is, you know, anybodywho's a CEO and who wants to be a CEO of any
sizable enterprise, you have to think of it asservant leadership.
Read the book servant leadership.
I really enjoyed it.
You know, you're there to serve everyone aroundyou.
(33:30):
As a CEO, you're there to serve your clientsfirst, your shareholders second, and your
employees and team members third.
And then you serve yourself after them, right?
There's another great book about the militarycalled Leaders Eat Last.
It's about how, high ranking, militaryofficials always eat after the sort of lower
(33:55):
ranking, military officers.
And it's really important because my team knowsthat my number one priority after taking care
of our tenants in our properties and takingcare of our investors is taking care of them.
I want to make sure that they make money.
I want to make sure that they feel they have aplace that that is theirs, not mine, but theirs
(34:16):
in mind.
That can be a place for them to grow wealth, togrow their skills.
And also, messaging matters.
A leader, people look to you for reassurance.
But also if you're helping someone learn, theyfeel like they're growing and they appreciate
that.
(34:36):
Yeah.
You know, I'm I'm gonna have a conversationlater today with with someone that didn't
maximize on a task that was pretty important,and it was because they didn't wanna go out of
their comfort zone.
And the conversation I'm gonna have is, hey, isnot, hey.
You really you know, you you dropped the ballon this.
The conversation I'm gonna have is, you know,you've gotta go out of your comfort zone.
(34:57):
This is how this could have been donedifferently.
Mhmm.
Invest better in the task at hand next time.
Yeah.
Right?
The messaging matters because one message is,you know, you're an idiot.
Right?
Which is not true.
I mean, if that person's working for you andthey're an idiot, then you're an idiot for
keeping them, first of all.
Let let's remember that.
Right?
So generally, let's just start with theassumption that if you're if that person's been
(35:21):
with you for some time and if there's somethingthat wasn't done that that you don't think was
maximized as a task and and the way it was donefor the company.
Right?
It means that it can be, you know, themessaging of, hey, you know, you're a screw up
is very different than, hey, here's how I thinkthis could have been done differently, have
been better for the company, and it would havebeen better for you personally.
(35:42):
For you to grow, this is how I would suggestit's handled next time.
Right?
Sure.
That messaging, that person's gonna leave workthat day and say, you know, I'm gonna grow in
this direction.
Feel like this.
Right?
And if they if someone consistently leaves youroffice feeling awful about themselves Mhmm.
Matter of time before they're looking for theirfor their exit route.
Right?
But if believe if if if you have good people,you want them leaving feeling like they're
(36:08):
growing.
And by the way, as leaders, every one of us hashad a day where we didn't maximize.
Every one of us has had a day that we're notproud of.
Yeah.
And so you wanna you wanna and for forourselves, hopefully, you say to yourself, I
didn't maximize these three things today, but Iwill tomorrow.
I'm gonna do better.
So give your team members that sameopportunity.
(36:29):
Say, hey, you didn't do as well as you couldtoday, but you'll do better.
Give them the same grace that you would giveyourself Yeah.
In a in a task that you didn't maximize.
Mhmm.
I don't know.
Maybe that wasn't where this conversation wassupposed to go, but
I think it's important.
I think part of firm building is number onegetting people to obviously if they're an LP,
(36:51):
being able to be aligned with what you'rebuilding and solving their problems.
So there may be people that are in the realestate space that are trying to learn more
about private equity.
Maybe they have a mandate and you as a fundmanager can provide access education and a
platform and a community to do that.
(37:11):
But then the other piece of it is sellingpeople on just sticking around with you.
I think there's a lot of things around a lot ofpsychology around compensation.
You could save a couple bucks, maybeunderpaying people below market and you get
labor for cheap.
But then what happens is once they leave, nowyou have all this work that you gotta do.
(37:33):
Right?
And then now you're out to find talent again.
And and by the way, you want continuity.
You want you want continuity because, you know,it it continuity with quality people.
You don't want continuity with people whoshouldn't be there, but continuity with quality
people, leads to growth, leads to leads tobuilding relationships outside of your company.
(37:58):
Leave, you know, helps helps, you know, helps,frame your company as a place of stability.
Mhmm.
And and really when it comes to your LPs, Ihave a rule when I negotiate, but also when I
go out with an offering.
I don't offer someone a deal I would not take.
Sure.
Right?
(38:19):
Don't don't, you know, and and and the otherpieces when you're negotiating, do not take the
last dollar.
Because if you do, you may get that one dealdone, but that that that partner sponsor LP,
landowner won't want or broker won't wanna dobusiness with you the next time.
(38:40):
Right?
So so when you say the last dollar, can youclarify that?
So you're saying, like, if you're negotiating aa $50,000,000 property and, you know, you yeah.
Walk me through that a little bit.
Yeah.
So so, you know, for example, I, you know, I Idid a deal years ago.
(39:01):
We signed a partnership agreement and then andthen, you know, it was was it was with with a
big institutional group.
We signed a partnership agreement.
We got it done.
And then what they did was the way theystructured the financing, they basically
fleeced me on on on a good portion of mypromote.
Mhmm.
Right?
But by by the the structure of of the they theyhad they had some some discretion on how much
(39:27):
leverage to take.
And so that makes me less likely to wanna do adeal with them in the future.
Yeah.
You know, whereas whereas other groups thatother groups that that I've worked with, you
know, even when it comes to to land contracts,you know, I've I've done I've done deals where
(39:47):
I'm selling land and where a buyer has had anissue in the eleventh hour.
Mhmm.
They needed a small extension.
Right?
And and, you know, or, you know, the brokercomes back and the broker says, hey, listen,
this buyer is having trouble.
They can't close at this level.
Right?
Mhmm.
And they need they need this kind of aconcession.
(40:09):
I could squeeze the broker for every lastdollar there.
Right?
I could say, well, you've gotta give 50% ofyour commission.
Right?
Yeah.
But that 50% of his commission represents notsuch a huge piece of my of my capital stack.
Mhmm.
Right?
Yeah.
If I'm doing it just to be just sort of to bepunitive to the broker, that broker's not gonna
(40:30):
bring me that next buyer.
He's gonna take him to Jim, right, who who willsay to him, hey.
Maybe you kick in a little bit.
I'll kick in a significant amount, and we getit done.
Right?
Yeah.
Don't squeeze the last dollar out of someonewho's up against the wall because they'll
they'll remember that, and then you're gonna bethe one paying the price when the time comes
later.
Yeah.
(40:51):
No.
I mean, it's I mean, that's one piece and thenI've seen people and we'll wrap up with this,
but I've seen people that I've mentored in thepast.
They just came to me and they're just like,hey, you know what?
This is what I'm doing with my career.
I tried to just share whatever I learned withthem and then fast forward ten, maybe five
years later, they've kind of evolved in theircareer and they're a person that I need, I
(41:17):
would look up to now, because they're like aninstitution.
So you never know where people could end up,especially in a city like New York.
They changed jobs a few times.
They're a GP one day, they're an institutionalLP one day, then they go to a pension fund.
And at some point, there'll be the person thatmakes decisions to allocate or not.
(41:40):
It just happens full circle.
So you just never know where people can end.
I think it's just for the spirit of just notonly networking karma and just having
integrity, I think it goes a long way justtrying to be nice to everybody and try to
figure it out somehow.
You know?
Joel, I can't stress that enough.
I'm glad you said that.
(42:00):
I think that's one of the most important thingsabout especially, like, an ecosystem like New
York City.
Yeah.
But in general, when you when you pay itforward in the business world, in in life in
general, you have to pay it forward.
But in the business world, don't just belooking out for yourself.
Right?
Make connections for people.
Mhmm.
Brainstorm how to help them.
(42:21):
And when you go into every relationship, Ithink it it behooves you to say how can I be of
service to this person?
What do they need?
Even if it can't do anything for me, right?
Yeah.
But what do they need?
Because somehow someway life comes back around.
I've got guys that I mentored fifteen years agowho call me up and say, hey man, you know, I'm
(42:42):
at such and such firm, let's get together.
Do you need equity?
Do you need this?
Do you need that?
Right?
It was, you know, my business partner and Ifrom the housing business, right?
We went through a rather difficult time sellingthose last single family homes, right?
And so, and not only that, after a number ofour buyers had closed, a year later, they came
(43:03):
back to us with property management issues.
Some of them were renting them out, whateverthe case may be.
Yeah.
They they were really because the the SouthFlorida had been hit really hard in o eight.
Sure.
We did everything we could to help them to helpthem manage those homes to help them turn that
around.
We didn't have to.
We just did.
We told them, you know, we we we worked on onproperty management with them, you name it.
(43:24):
And one thing she said to me a couple weeksago, we had dinner.
She said, you know, you you she says with everywith with a lot of the builders that she had
worked with at that time, the relationshipended with the closing and she's like, you sort
of stuck by everybody.
Yeah.
And now, you know, we continue workingtogether.
She's she's investing in in my new fund.
(43:46):
She's making introductions.
It's just the world life is long and the worldis round.
Right?
Yeah.
I I love that you said that, Joel.
I think it's it's really meaningful.
Yeah.
Appreciate it.
Well, hey, Russ.
Really appreciate your time.
It was really great learning from you and justsharing your knowledge with the community.
And I'm sure we'll bump into each other at oneof these cocktail events in the city.
(44:07):
I look forward to it, Joel.
Be well, man.
Thank you for having me on.
Yeah, thank you.
Appreciate it.
It was a lot of fun.
Take care.
Take care.
Bye.
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