Episode Transcript
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(00:01):
Welcome to the Real Estate Special Podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host. Victor Minash This is the
weekend edition where? We interview notable.
People from the world of real estate investing today is no
exception. We have a great guest all the
way. From Provo, UT, Welcome to the
show, Jacob Sabreski. It's great to be here, Victor,
thank you so much for having me.Well, great to have you here
(00:22):
now, Jacob, you're just a stone throw.
From where? Our US headquarters.
Are located. And I'm excited to have this.
Conversation you work with a number of high net worth
families, but maybe before we dive into the details perhaps
give a little bit of your back story and how you got to this
point in your journey. Absolutely originally was born
in London England. We moved to the US when I was a
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small child was educated at Brigham Young University and
then I received a or earned a doctorate in personal financial
planning from Texas Tech University.
I've had a wonderful career primarily based in education,
but have always stayed close to industry.
We have real estate development is runs within our families.
(01:05):
My father in particular did a lot to build and started a
number of companies. He was a great mentor, a great
friend and a great teacher. This point in my career I'm
transitioning from full time academics and part time industry
work and consulting and I'm justflipping that.
And so that brings me to where we are today working with some
(01:27):
wonderful families and great individuals and real estate is a
really important part of portfolios in general, but
especially for the ultra wealthy.
Absolutely. I mean when I think about.
You know the. Traditional family office,
whether it's a single family office or multi family office,
they are often trying to figure out not just what to do with
(01:49):
money within the family because it's not just one individual's,
it's money. It is the family's money most of
the time. And how do you create that
governance? Where do you put the money?
Where's where's the safety bucket?
Where's the growth bucket? Where's the dream bucket?
You know how to do that asset allocation.
(02:11):
And there's probably as many opinions as there are family
members. I, I think you're right.
I couldn't have said it better myself.
When working with large familiesin multiple generations, it
creates a really unique dynamic.In traditional wealth
management, you focus on usuallyone or two, a few people that
(02:31):
are in the same age range typically and so their time
horizon and their investment goals tend to be quite
consistent. When working with a larger
family structure, we typically have to acknowledge that we're
working with at least two more often 3 and sometimes even 4
generations. And so the different needs in
(02:52):
the mix have to be acknowledged there where you might have a
first generation of senior, a patriarch and a matriarch to the
family that are looking for someincome generation and then you
have growth orientation on some of the younger generations is
typically what they're looking for.
You combine that with tax efficiency and diversi
(03:14):
diversification across sub assetclasses and it makes for a
really unique but exciting challenge.
One of the things we've seen in the last couple of years is the
bar has moved with interest rates having risen to the degree
that they have. Many people say why would I take
risk for 8% when my risk free rate of return is in the fives?
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It changes the investment thesis, doesn't it?
It it absolutely does, and rightfully so when looking at
risk premium, the additional return expected beyond a risk
free rate. I think that's a valid question
and I've seen that happen multiple times throughout my
career as interest rates ebb andflow and move different
(03:58):
directions. One thing that is consistent in
the world of interest rates is change.
Even though things seem stuck a little bit right now, I'm one of
those that believes that there'ssome change on the horizon as
early as tomorrow. In theory, I don't the the
predictions for the rate change tomorrow is that it will likely
(04:18):
stay the same and I think there's various opinions for a
lot of people on how that might move.
Overall, we see it moving down in the next couple of months and
that changes the the dynamics onboth ends.
It makes investment in real estate in particular much more
attractive with higher yields and then with the risk free rate
lowering, people want to flee from cash and we're seeing that
(04:41):
that there's less cash that's been held in portfolios and more
people that are interested in diving into real estate again
at. The end of the day when the Fed
sets the rate, it's really a very short term rate.
I think most people have their eye at least on the two year, if
not the ten. And you know, certainly the two
year is much lower yield than than it was historically.
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And I think the prevailing wisdom is that the 10 year will
eventually follow suit, whether it does or not, of course, as
anyone's crystal ball gaze. But if that's true, then yes, I
agree, real estate does become more attractive on a relative
basis. Now when I think about high net
worth families investing in realestate, just making a good
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investment in today's environment isn't enough.
They're often using the word opportunistic that that's code
for vulture in in some circles. Where?
Where are the deals getting donein your opinion?
Yeah, We've seen a significant increase in deal flow in general
and we see it a lot in multi family housing is huge.
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There's huge need for additionalhousing especially in this
region, the kind of Intermount, Intermountain W some of the more
opportunistic deals that we're seeing.
We've seen a few deals that timed out or eventually people
needed to pull out. And so the deals have kind of
fallen apart. We're seeing a few that are
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coming across our trading platforms and are being
presented to our diligence team where there's been a reason to
restructure the deal and those are coming in with some really
attractive rates. And we've also seen when we look
at real estate, we our belief isthat it's not what you earn,
it's what you actually yield, what the family receives after
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tax that's most important. And we're seeing that tremendous
opportunities opening up with some very great tax efficient
yield. I think that's certainly the
latest changes to the tax code help that, obviously, but the
landscape has shifted as well. Things that may have had tax
credits associated with them before, some of those have
disappeared. New ones have become more
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efficient in the families that you're working with.
How has that moved the mandate, if at all?
Yeah. That's the mandate for us is to
always look at tax efficiency. And so we end up shifting our
portfolios to the degree that wecan to where the best tax deals
are. And without going into specific
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details, we have one deal that we're working on with a few
families right now that's here in the state of Utah.
There's the projected rate of return is about 23%, which is
very attractive based on today'srates.
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And when you look at the tax efficiency of the deal, there is
additional depreciation and somebonus depreciation, which is
pushing the expected yield for some of our clients up to 38 and
as high as 42% depending on their tax bracket.
And so those are some of the types of things that we're
starting to see come through. They're relatively few and far
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between. We don't have a lot of deal flow
to that degree, but it's allowing us to look at portfolio
construction again from a more holistic stance and that we can
balance this type of a deal withsome multifamily housing, a
couple of other sub asset classes.
We're still waiting to see commercial real estate come back
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that still, in our opinion, appears to be soft and hasn't
been as attractive. That said, we saw another deal
come across that we had a few families jump into a couple of
months ago, some commercial space in a neighboring state
where they were able to pick up the deal for pennies on the
dollar and really offer some attractive rates for investors.
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And so we're we're seeing deals like that, that when you mix the
tax efficiency with some of the opportunities out there, we're
starting to see a couple of unique deals come across again.
And again, very refreshing to beable to add in some of those
deals with some of the more traditional deals that we've
seen over the last two years. When you're looking for
opportunities that are attractive, most families have a
(09:12):
due diligence process. If they're working with
professionals, they have a due diligence process.
Can you talk a little bit about velocity of execution versus
thoroughness of due diligence? Yes.
In fact, that's a great question.
One of the things that has surprised me is that we've been
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able to take our time and reallydo our thorough diligence
process. My expectation is that as these
deals started to become available on the market that
they'd be scooped up almost instantly.
What we're seeing is that there's still a little bit of
people just being a little bit skittish and not wanting to jump
(09:55):
right in. So we have a few that are, we
have a few that are jumping in, but most of the families that we
work with, they're taking a a cautious approach.
The top issue that they cite forstill being cautious is just the
uncertainty with interest rates and exactly where the market
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overall is going. For many that have weathered the
storm of high interest rates over the last few years, they've
locked themselves into some somegood portfolios that have
reasonable yield growth or cash flow oriented, again, depending
on the goals and what the clients are looking for.
We're also seeing some hesitancyto pull out of those deals.
(10:38):
I think that's proving to be a little bit of a limit for cash
flow and that could be a little bit of the drag on moving into
some of these new deals that seem to offer more attractive
rates. We're looking at a number of
clients though that have exits coming up naturally as
refinancing is coming up in in typical five year cycles.
(10:59):
We anticipate that within the next few months there'll be
additional cash flow and that these deals will probably be
scooped up quite a bit faster. Although in many cases, if folks
are coming up on a five year note where the previous terms
might have started with them in the threes, they're certainly
not at those rates today. They may not be getting a cash
(11:21):
out. They may have to in fact fork
over a big check in order just to maintain the ratios.
That's absolutely true. And hence another reason why we
see generally there's people still sitting on a little bit
more cash than we're used to seeing on the sideline.
That's another. That's another valid reason for
doing that. We tend to watch very closely
(11:44):
and in our portfolios try to hold sufficient cash over the
long run. We like our clients to be able
to remain with their investment allocation and not have to hoard
extra cash. But we do see a little bit of
that in the market today, absolutely.
Well, fascinating, Jacob, if folks want to connect, if they
want to learn more, what's the best way?
(12:04):
Absolutely. We love to talk to anyone who
has interest. The best way to reach out to me
directly is via e-mail jaysybrowski@diversify.com.
Love it. Well, Jacob, great to catch up
and for the listeners at home. Definitely reach out to.
Jacob.sybrowski@diversify.com The links will be in the show
(12:25):
notes both of the website and e-mail.
And in the meantime, have an awesome rest of your weekend.
Go make some great things happenand we'll talk to you again
tomorrow.