July 1, 2025 • 41 mins
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Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ed Mathews (00:50):
Greetings and salutations.
Real Estate Undergrounders.
It is Ed Mathews with the RealEstate Underground.
Thank you so much for makingthis a part of your day.
I'm really excited to have thisconversation.
I just found out that our guest, Mark Shuler, was the architect
to the stars, and we may or maynot get into that.
I'm a huge music fan, andparticular grunge, and it turns
out Mark, who lives in one of myfavorite cities, Seattle, knows
(01:13):
a bunch of the guys that I usedto listen to.
We're going to get into that,but first, mark, thank you so
much for joining us.
It's a pleasure to meet you andI'm really excited to have this
conversation.
Thanks for having me All right.
For those folks out there whodon't know about SGRE
investments or your architecturefirm or anything else you do,
why don't you tell us a littlebit about who you are and what
you do?
Mark Shuler (01:34):
Sure, my name is Mark Shuler.
I am a practicing architect forprobably the last 40 years,
always what I wanted to do withmy life, and then, probably 12,
15 years ago, I started pivotinginto real estate investing.
I got licensed in 1992 and thenpracticed traditionally for a
lot of years, on my shingle outwith two different firms.
(01:57):
In 2002, I went to theUniversity of Washington's
business school and got a fancertification in commercial real
estate development.
I've been always fascinated bythe industry.
I have five family members whoare commercial brokers.
My kid brother is the foremosttaxation authority for real
estate in the country.
Just a long career, always realestate related.
(02:19):
One way or another, I'vedesigned and built probably
close to 500 structures orremodels.
At this point, I have a greatunderstanding of the permitting
process probably too much and alot of battle scars to prove it
too.
At this point, I'm about onethird on real estate, one third
on architecture, and I've gotanother business that we're
launching right now indoor golfsimulator business down in
(02:42):
Phoenix.
So I'm spending a lot of timeon that, building that up.
Ed Mathews (02:45):
Are you also an avid golfer, or are you in that just
because it's a good business?
Mark Shuler (02:50):
Just a good entertainment play and a balance
to the other business venturesI have going on.
Real estate is you make allyour wealth, but it's all equity
based, not cashflow.
So I needed something that wasa little more cashflow based.
So I decided after running thenumbers I couldn't pass up on
this.
Ed Mathews (03:08):
So I'm curious about your transition from being an
architect to being an investor.
Can you walk us through thatmoment, that series of events
that led you to decide that youshould, instead of designing
these houses and, ultimately,these commercial properties?
What brought you into this sideof the business?
Mark Shuler (03:26):
Yeah, First of all, it's the family business.
But more to the point, for me,I was doing a lot of projects
for investors and developers andjust looking over their
shoulders and seeing the processthey were going through and the
mistakes they were making.
Well, if they can do that, Ican do that, and I'm just a
rabid entrepreneur.
Do not have it in my DNA towork for a large enterprise.
(03:53):
I wish I did sometimes, but Ijust have always found that the
real estate is like the ultimateform of entrepreneurialism.
I guess I'm a bit of aadrenaline junkie.
So I like the risk and rewardfactor, but most importantly, I
like the calculated risk.
I just have the personalitytype for it.
Oh, you can't wing it On a hopeand a prayer.
You got to really build a gameand get an A game going on to be
(04:13):
able to do this successfully.
Ed Mathews (04:15):
So you owned a little more than a thousand
units, right North of 4,000units oh, congratulations.
And obviously you've been doingthis for a while, and so I'm
curious about when you look atthe asset class out there.
Multifamily is where you'remost active.
I'm curious about yourperspective on the market.
It's interesting because yourmarket and one of our markets in
(04:36):
Boston, they tend to trend verysimilarly and I'm curious what
you're seeing.
Mark Shuler (04:40):
You know it's a very controlled market.
The headlines coming out of NewYork City today are a candidate
, a Democratic socialist, whowants to enact rent control
citywide and also havestate-funded grocery stores.
I don't understand thatcomponent of it, but good luck.
Execution is everything.
I work in a similarlycontrolled market.
(05:01):
Seattle is historically a labortown.
It is now a company town andthere's a lot of people who
rebel against that and our citycouncil reflects that rebellion.
So it's a very challengingenvironment to be an operator in
, to the point where I've soldmost everything up here.
We have one remaining assetthat we're going to probably
(05:22):
sell next year, and then I'mdone.
One remaining asset that we'regoing to probably sell next year
, and then I'm done.
I'm done investing in Seattle.
You're going to see that playout in New York city.
Right, watch it carefully forthe next two weeks.
Housing in particular is a freemarket phenomenon.
I have never seen government doit well.
Now, anytime government getsinvolved, it gets screwed up and
the flip side of it is thereare slumlords out there.
(05:44):
I get it, but I can tell youthe profit margins in the real
estate game and the housingmarket I play in they're thin.
I am not walking away with tensof millions of dollars and
drinking Mai Tais on the beach,and all that's not how it works.
It is an extremely challengingmarket right now.
A lot of operators are losingtheir assets, so it's a high
(06:06):
risk, potentially high rewardgame.
The margins are super thin.
Right, I know plenty ofoperators are not paying
distribution.
Ed Mathews (06:15):
And is that because of cost of capital?
Is that because they werecowboys and bought poorly?
What do you see, some?
Mark Shuler (06:21):
of them bought at the height of the market in 21,
22.
And they are running on arunway on their loans.
They are underwater.
They didn't create enough NOIexpansion to be able to refi the
property and so they're lookingat cash-in refis, not cash-out
(06:43):
refis, and they're not evenneutral.
They're taking a risk.
Look, lenders, the leverage islower than what it was when they
took on the deal.
I doubt it All the way around.
There's nothing but risk inthis line of work.
No-transcript, and I thinkthey're coming up here next.
(07:29):
I hope they sue the shit out ofSeattle because I'm just tired
of this.
Yeah, it is a difficult enoughbusiness, but then to have
government just like enact allthis legislation and declare
that making a profit on this isbad, it should not be allowed,
that's crazy.
There's no without reward.
There's no risk.
No one does any housing andit's not.
Ed Mathews (07:52):
I was just having this conversation with Ben
Carmona, who was on a previousshow about 1031's Delaware
Statutory Trust.
One of the reasons thatlegislation exists in the tax
code is because they wereenabled.
The government wanted peoplelike you and me to provide good,
clean housing that's well run.
They're trying to incent ourbehavior.
I think probably part of it isa rebellion against a guy in the
(08:15):
White House not to make thistotally political, but I think
part of it is just a lack ofunderstanding understanding
which you're exactly right howgovernment got out of the
business of housing years ago.
Mark Shuler (08:26):
Because not only that, I flip over into the
architecture side of things.
The regulatory environmentnever stops, and so the drawing
sets I produce now, compared towhen I first started my career
in the regulatory environment,is a thousand times more
complicated than it was 20, 30,40 years ago.
You want to see all thishousing produced and yet you're
(08:49):
just piling down the red.
That's why we have a housingshortage in this country.
You can drop the pin anywherein this country, and there's a
housing shortage.
Ed Mathews (08:55):
I think 2008 wiped out a whole class of general
contractors that just never cameback, exactly Right, and so
you've got a supply problem bothboth at the construction level
as well as the material, for allproject mentioned.
That whole thing with thatpost-corona is still.
The materials are still out ofthis world, expensive.
Mark Shuler (09:14):
Yeah, and you're starting to see we're at the
bottom of the cycle right now.
Real estate moves in cycles andwe've had a recalibration for
the last three years and you'reseeing a lot of product types
that everybody wasprognosticating was on its way
to the graveyard Retail office.
Both of them is all beingabsorbed right now.
One of the markets I play in alot is Houston.
(09:35):
Year over year, permit activityand housing delivery is down
72%, 24 to 20.
(09:55):
And you're going to startseeing vacancy rates go down and
occupancy rates go up and it'sgoing to really tighten up and
that's going to happennationwide.
So you compare that that's themarketplace phenomenon with this
regulatory environment.
How do you reconcile all this?
That's what's so challengingabout real estate right there.
I'm just describing it.
That's what I spend a lot oftime weaving through, trying to
(10:17):
make my projects go forward.
Ed Mathews (10:19):
Yeah, it's interesting.
We play here predominantly inConnecticut.
Like I said, we started to lookat Boston and a couple other
markets, but here in Connecticut, for instance, there was a
report a couple of years agomaybe that Connecticut is like
30,000 units short of its 2030affordable housing projections
and that's universal right.
There's less.
I saw over 4 million unitsshort across the country, maybe
(10:41):
more.
One of the things that youmentioned and I wholeheartedly
agree with is government's gotto get out of the way.
Forget parties.
I don't care what you'retalking about politically, I'm
talking about just theregulatory environment.
Here in Connecticut.
We're in a development projectright now.
It's taken us nine months justto get to planning and zoning.
It's crazy.
Mark Shuler (11:01):
I live in King County, Washington.
A residential permit for ahouse in King County takes 16
months through the approvalprocess.
So think about how insane.
Yeah, I talk to people whoroutinely interface with the
government over there.
Government is absolutely slowwalking these permits because
they don't want to see housingdevelopment beyond the growth
management.
(11:22):
We have it around the PugetSound and they are trying to
focus all this developmentinside out in the rural areas,
unincorporated areas of KingCounty.
They slow it down.
Who can afford 16 months ofcarrying a piece of dirt?
Nobody.
It bifurcates society.
Only the wealthy can afford todo it.
I have a house out there I'mdesigning right now.
(11:43):
It's 31,000 square feet.
This is not affordable housing.
Ed Mathews (11:48):
This is Bill Gates and friends.
Mark Shuler (11:50):
People can afford to do it.
It has the exact oppositeeffect of what the reporting
policy goal is and it's justnaivete on the part of
policymakers.
It just drives me nuts.
I'm all about life safety inany building.
This is the building code, thethree-ring binder.
My nose is in that all the time, trying to figure out the codes
.
And it's complicated.
(12:10):
The impact of the regulatoryenvironment is a little bit out
of control.
Ed Mathews (12:16):
So let's talk about asset class and let's talk about
regions that you like.
From an asset class perspective, what are you hunting for these
days?
What do you like or what haveyou tended to like over the last
couple years?
I'm a housing guy.
Mark Shuler (12:29):
I've been my whole career so I stick with housing.
I do multi-family and largemulti-family projects, so our
minimum purchase is 250 units.
We're doing the deep value addthing okay and so we're trying
to create value where there wasnone before.
And the nice thing about thatthey tend to be C-class deals.
I like 80s product and newer.
(12:51):
We've purchased and renovatedolder product.
You tend to find older wiring,older plumbing, electric panels
that need to be replaced.
They tend to be deeper liftsthan you anticipate, 80s and
newer.
But then you don't even thinkabout assets go through a major
kind of maintenance cycle every25 years or so the heat pumps
(13:12):
wear out, pipes burst.
You got to kind of look and seewhen the last major rehab of
the project was.
But we do these deep value addplays.
So we're spending.
Our cost is 18000 a door on thelift.
Anybody else it's 35 to 40,000.
And we're turning C-class assetsinto condo quality finishes.
They look really nice and we'restill catering to the C-class
(13:35):
workforce crowd.
We're getting rent bumps of 100to 150 a month.
This is some of the nicesthousing these folks have ever
lived in.
There's a little social missionthere that we stick with.
We've got a model and I don'tlook at retail.
I don't know anything about itOffice product, I don't want to
go anywhere near it.
That product is stable.
People need housing.
(13:55):
We have a housing affordabilityproblem in this country.
Nobody can buy a house, so theygot to rent.
It's a good long-term bet.
That's why we like it.
Ed Mathews (14:04):
Yeah, I've read article and report after report
on the fact that, particularlyyounger generations, we're
becoming a renter nation, rightand for 15 years.
What other markets are youparticularly paying attention to
these days?
Mark Shuler (14:18):
We have a couple of deals up in Oklahoma city, okay
, but at this point we've done abig lift on them and they're
stabilized.
Yeah, remember, I think wemight have even refined those.
We're just managing them andfigure out what we're going to
do next.
We might hold those in houseand buy out the investors.
I don't know, but houston is aginormous market.
(14:38):
Yeah, I don't need to goanywhere.
Our, our business strategy is to, instead of going broad and
wide, like a lot of operators,they tend to look at markets all
over the country.
I can't do that.
I know too much about the gameand I don't want to have to
figure out the personalities ofmultiple jurisdictions.
The thing about Houston is it'slike the 34th largest city in
(14:59):
the country, second largestapartment market, and they built
a lot of product back in thelate seventies and eighties
during that oil boom, and all ofthat needs to be renovated.
So we just stick to Houston andwe've built a large
organization, we've got over 200people on the payroll and every
time we take down a deal, we'reday after closing, we're onsite
(15:22):
, we're renovating.
We just have a really developedbusiness model at this point
that worked for us.
I don't need to go anywhereelse honestly.
Ed Mathews (15:30):
Yeah, I was going to ask you why.
Your turnover or rehab is 18per unit and the market is 35
plus, right?
So part of that is captive oremployed your employee base,
right?
Mark Shuler (15:42):
All of our everybody's on a W-2 and we
control our labor.
We also control our supplychain.
Okay, yeah, so we have directvendor relationships in India
and China and the port ofHouston is the largest port on
the Gulf Coast.
So you know, when we orderdoors we order a thousand of
them at a time, right.
And then we had a 20,000 squarefoot warehouse.
(16:04):
Just go grab the container,haul it there, warehouse manager
catalogs it, drivers go downand get it when we need it.
We're getting slab countertopsfor 50 bucks a slab.
I just price slabs from my ownhouse.
It's 1500 bucks.
So, and we're just cutting outlike three layers of middlemen
(16:26):
and our whole business model ispremised on efficiency and
operations.
So the more I drive the costdown, the greater the return for
my investor.
I know that we return four tofive points more to the IRR than
most other syndicates.
Ed Mathews (16:41):
I imagine part of that is tenant retention as well
.
Right yeah, In this downtime inthe marketplace.
Mark Shuler (16:46):
We did two deals in Q4 of last year and those are
the only deals we did all oflast year.
We've literally been on thesidelines for 18 months.
Yeah, those both weredistressed deals.
That operator probablyevaporated $40 million in
investment equity.
That was blood in the streets,but we got those assets at 2018
prices and, yeah, so we tookthem down.
(17:09):
One of them was a real niceB-plus class asset going west
out of Houston.
They call it the energycorridor.
There's seven or eight Fortune500s that their headquarters are
based out there and there'slots of people who work there
that need a place to live.
It's just like amenity ladenasset.
Now that's a step up for us.
We're mainly in the workforcehousing business, but we're
(17:31):
sitting on sidelines right now,still just waiting for interest
rates to come down, the bondmarkets to calm down and I think
we're going to be labor problemthere's a massive supply chain
problem.
Ed Mathews (17:59):
The fact is that, yes, the political cycle,
presidential in particular,makes people a little bit nutty
and that tends to affect theeconomy.
Yet to be determined what thetariff policies and how they're
going to affect what we're doing.
Inflation seems to be gettingunder control.
The bottom line is that whererates are now historically, if
you look at the last 50 plusyears we're right down the
(18:20):
middle right now.
Mark Shuler (18:22):
Between the garden rails.
Yeah, people, for the last 15years we've had this free money
floating around.
People got that was by that,when you had a lot of people
getting into the apartment game,not having ever lived through a
more turbulent cycle, yeah, andinterest rates that are two
points higher than where theywere, and it's more challenging.
(18:44):
That's the nature of thebusiness.
And, to your point, thepolitical thing.
I'm decidedly agnostic.
Me too.
I play with house money and Ican't afford opinions and that's
the way I think I have them.
I just don't share them.
That's for couch time with mywife.
The most challenging problem forany entrepreneur and business
(19:06):
owner right now is you don'tknow what to do.
Everybody's paralyzed, tryingto make decisions for six, 12,
18 months out.
And so how do you do a deal nowat a certain interest rate?
And so how do you do a deal nowat a certain interest rate,
making a ton of assumptionsabout the structure of that deal
and renovations and lease up,and all that when it is just
utter chaos in the politicalenvironment out of DC right now.
(19:30):
That's as political as I'mgoing to get in this
conversation.
It's challenging to conductbusiness.
Ed Mathews (19:35):
It's completely dysfunctional on both sides, but
we can talk about that.
All I'm curious about it isimpossible to predict 6, 12, 18
months out, but how are youapproaching underwriting when
you're looking at properties andwhat are your assumptions going
into?
26, 27, 28?
That's a damn good question.
Mark Shuler (19:55):
I read a lot of reports.
It's not all doom and gloom.
We're at the bottom of a cycleand so we're going to be heading
up into an expansion cycle inmarkets, and who doesn't like
that?
It's just a matter of how manyblack swan events and dead cat
bounces can we go through beforewe get there?
That's the challenging part.
(20:16):
The first thing I do everymorning when I get up, log in
and check what the bond marketsare doing.
So I look at the five year, the10 year, the two year and up to
about three weeks ago, the fiveyear was just stubbornly
holding to just above 4%, andwe've dropped 15, 20 basis
points on any given day sincethen.
(20:36):
So they're trending in theright direction, but everybody
is on a knife edge, worryingabout which way this is going,
and our debt level isunsustainable and everything's
so leveraged up that even at thegovernment level right now.
So to answer your question, oneof the things in our
(20:57):
underwriting that we are doingdoing we're looking at lower
leverage on all our dealsbecause that's what's in the
banding.
You can't be so rosy in thesepredictions.
A lot of syndicators back three, four years ago.
They didn't have a value-addstrategy, they were just buying
and hoping that the rising tideraised all ships.
That is just gambling.
Ed Mathews (21:22):
Yeah, I was telling people we were having this
conversation a few weeks ago.
I made that whole environmentfrom 19 to 21 and probably even
before 19,.
But made geniuses out ofeverybody artificially.
Mark Shuler (21:32):
But it's go time.
Ed Mathews (21:34):
It's one of the work from each of the room, but now
it's markets like this thatseparate the wheat from the
chaff, right?
I'm interested in terms ofleverage right.
We're going into deals andunderwriting them at a minimum
65, 35 debt to equity and I'mtrying to get a low 50 just in
anticipation of interest ratesnot moving, maybe even going up,
(21:56):
but definitely not down.
I'm curious what you're doing.
Mark Shuler (21:59):
We actually underwrite on a continuum.
Different lenders havedifferent underwriting
requirements and I think we'rehovering around 60 on our deals
Seems to be a good medium for us.
You have to understand.
We're expanding our NOI throughour renovation and it tends to
drive down the unlevered IRR.
So that's why we're maniacalabout getting the rentals done.
(22:21):
We target 5% of the units permonth with a goal of after 20
months we're a hundred percentdone with the renovation.
We will have then really grownNOI and so our leverage goes way
down.
So we don't have to be so lowon the front end going in
because we're frequent suppliers.
So a lot of lenders know whatour exercise is and we have a
proven business model.
So we can afford to be a littlemore risky on the front end.
(22:44):
Sometimes we get up as high as70, but that's as high as you're
seeing right now.
Ed Mathews (22:48):
Yeah, and I would submit that's not that risky,
that's more measured, especiallyif you know your rehab costs
are half.
Because of the team you have inplace, you can move a whole
heck of a lot faster than prettymuch anybody else in that
market.
Yeah, we don't.
Mark Shuler (23:03):
Third-party anything we don't license trades
.
All of our asset management isin-house.
We have our own assetmanagement company.
We have a sponsorship deal,acquisition leg and then we have
the management leg.
All the construction andmanagement is in-house.
We're just trying to doeverything we can to control the
expense side of the logic thereare variable costs.
Ed Mathews (23:22):
You have no control over taxes and insurance by
being the two biggest don't evenget me going on insurance guys
saw that coming.
I had an interestingconversation with a commercial
broker.
We were interviewing him forthis show, as a matter of fact,
and he was talking about whatwas happening.
This was by late 23, early 24.
And he was talking about whatwas happening.
This was late 23, early 24.
And he was talking about thehurricanes that had blown
(23:42):
through Florida, what that haddone to the insurance
underwriting business.
And very in parallel to that,because I started to get
interested we were sourcing ourinsurance for the following year
and starting to see the ratesclimb, in some cases
exponentially.
Starting to see the rates climbin some cases exponentially,
and so I started asking aboutthat and it was eye-opening.
The insurance companies wereviewing risk going into 24 and
(24:06):
25.
That's just another unknown.
Mark Shuler (24:08):
I have a buddy who owns a deal in the Ninth Ward in
New Orleans Tried to get me aninvestor.
New Orleans is underwater, it'sclose.
Never gonna so when heunderwrote it and bought it, he
was paying $850 a door forinsurance.
His insurance is somewherebetween $2,500 and $3,000.
You never recover from them.
(24:29):
No, and it's in the Ninth Ward.
That is the challenges of thisbusiness.
What we did is we partners goton a plane and flew to England
and meet with Lloyd's of Londonsee if we could get blanket
policy for our entire portfolio.
We self-insure Right the way wekeep our costs down.
Ed Mathews (24:48):
Smart, spread the risk outside of the areas that
are affected by major weather,right, yeah, one of the things
you mentioned before we hitrecord, actually, is that you
did a report, or we werediscussing that you've written a
report about the state of themarket.
Can you tell me a little bitmore about that?
Mark Shuler (25:05):
Yeah, look, I don't want to come across as a total
Debbie Downer here.
This is just a business and anybusiness is all about operation
.
The best real estate investorsare good operators and they have
their operations under control.
At a macro level, there'sactually a lot of good positives
out there in the marketplaceright now.
(25:25):
It's just that we can't gainany consistency as we come off
the bottom.
So I just really got interestedin kind of overall, where we
sit in the market, where we sitin the cycle, and tried to read
the tea leaves of what wereasonably expect in the next 12
to 15 months.
Interest rates have beentrending down.
They're going in the rightdirection, despite kind of the
(25:48):
political white noise coming outof Washington.
The Fed's done a damn good jobof containing inflation.
I did a podcast three or fouryears ago at the beginning of
this inflationary cycle, and thecomment I made it still sticks
with me is once inflation getsbaked into a market system, it
is damn hard to squeeze it out,and during the pandemic the Fed
(26:08):
and the government flooded themarket with money and put the
economy on a sugar buzz.
M1 is not a capital floatingaround the economy.
They pumped $8 trillion in theeconomy and then the CDC decided
to do an unconstitutionalnationwide eviction moratorium
(26:28):
yeah, I think that's, but sincethen has been buying back.
A lot of that are evaporatingand they don't actually buy it,
but they've gotten the moneysupply back down to a reasonable
level.
I think they still have somework to do on that, but it's
more easy.
Interest rates and inflationhave fallen in tandem and we
were on track by the end of thisyear to see the Fed achieve its
(26:50):
goal of 2% inflation.
This tariff war has thrown ahuge monkey wrench into all that
.
The recent reports I've beenreading is there might be a
little bump, but it's notblowing up.
Let me put it that way.
It seems like the economy isstill clicking along.
There has been some softening,but I don't think it's going to
(27:10):
be catastrophic.
Other reports I've read surveyof economists.
You know 50% think we're goingto make it through without going
into a recession.
There's a variety of opinionsof the other 50%.
But even in my architecturebusiness I'm definitely seeing a
bit of a slowdown in theeconomy.
Yeah, where we go from here forthe rest of the year, it just
(27:31):
depends on supply chains.
Want to see what the shelveslook like at the Home Depot in a
month and how much plywood'savailable coming out of Canada.
Ed Mathews (27:39):
I'd love to know board foot numbers.
Mark Shuler (27:41):
We're definitely.
I don't know if inflectionpoint is the right phrase here,
but we're definitely.
It's either going to go one wayor the other and it just
unfortunately hinges on thewhims of one person.
Ed Mathews (27:53):
And buckle up Once I'm able to go retrieve that in
my email.
Thank you again for sharing it.
We'll certainly make thatreport available in the show
notes.
We'll go from there, all right.
We've been talking for quite abit of time and normally we go
about 25, 35 minutes.
We're already at the 40 minutemarks, but I don't care, because
this has been gold.
Maybe we'll break this up intoa two part series.
(28:14):
One of the things I'd like todo is go through our final five.
Okay, and I think we've gottena really good insight into how
your brain works.
But I'd like to dig a littledeeper.
Somebody like you who has beenvery successful the mortgage is
handled, the college education'shandled, the car payments are
handled, and yet you still getup on Monday morning and go to
work, and that tends to bepurpose.
Mark Shuler (29:07):
And I'm curious when your eyes open on Monday
ADHD and he's got anxiety anddepression comorbidity and so
I've mentored, raised him sincehe was like 13.
And he still has challenges inlife.
He's high end.
He didn't go to college.
He went to six high schools.
I mentored him throughout allof that.
I had to send him to a militaryhigh school.
He went from a 1.4 to a 3.8.
It's not that he's stupid, it'sthe executive functioning right
(29:28):
, yeah, processing right, but hemanaged to pull it together.
Go to trade school.
He's a high-end Audi mechanic.
Now they're going to park$100,000 vehicles and he loves
it.
He's learning about how to flipcars and so he flipped a couple
of.
Recently.
He's got a walking around money.
He's feeling good about himself.
So I get up just to be a rolemodel and then I get informed
like this and to impart myknowledge.
(29:49):
It makes my life meaningful.
Ed Mathews (29:52):
I tell people I'm not a grandparent yet.
I have younger daughters.
They're 22 and 17.
But I tell people all the time,being a parent, step-parent or
parent, it's the best thingyou'll ever do, Most important
thing you'll ever do, for sure.
I'm also curious about yourgrowth and I want to ask you a
couple of questions about thatMentorship.
You mentioned that in theprevious question.
I'm curious about the mentorsthat you've had along the way
(30:15):
and what's the best advice youever got and who gave it to you?
Mark Shuler (30:18):
one of the things I glommed down to earlier in my
career was those rockefellerprinciples being a part of
masterminds, finding coaches,just associating with people who
are smarter than you or maybemore experienced than you.
I've been able to do that.
My whole career, just thenature of my career.
I'm not designing such a newhousing, but the whole nature of
(30:38):
my career is also one ofmentorship.
So as you come out ofarchitecture school and you get
your first job or two, you'reworking in an environment where
you're being mentored by moresenior architects.
It became a mantra or model forme of how I wanted to migrate
through my life.
I still do that to this day.
I'm part of a mastermind.
(31:00):
I just dropped 10 Gs on andit's the smartest thing I ever
did in the last three years byfar.
I am constantly on a growthmodel.
I do not know everything as anarchitect.
I sit in front of this box allday.
Who am I going to know?
So you got to force yourself toget out there and force
yourself to tuck your ego asideand just learn and grow.
(31:23):
Once you stop growing, you die.
I'm not ready to hang it up byany stretch of the imagination.
I am still moving forward.
You have to be very forward.
When you look back, you'redepressed.
When you look forward, you'retotally neurotic, and so you've
got to find a balance betweenbeing forwardly propelled but
living in the moment, and thatis a life work balance that I
(31:45):
struggle with.
Any busy professional is goingto be that.
That's the best advice I cangive you.
Ed Mathews (31:52):
And so I'm also interested in.
I fundamentally believe that welearn more from the mistakes
that we've made over the courseof time.
I'm talking professionally,right, but in this context I'm
talking professionally.
I'm curious about a mistake ora decision that you would love
to have back.
And what was it?
And how did you recover if youdidn't?
Mark Shuler (32:10):
We reevaluate every deal we do.
Hindsight's always 20-20.
And some of the deals we boughtwe've had to really roll up our
sleeves and put some elbowgrease into it.
Hindsight probably wasn'tsomething we should have bought.
We'll get through it and we'llachieve our objectives, but it's
been a lot of work.
Operations is everything inmulti-family.
If you don't have youroperations down or if you try to
(32:33):
sub that out to a third party,you're going to be disappointed.
I think just every deal I'veever had.
I have regrets, others morethan some.
But you dig down deeper and dodiligence.
You don't buy an impulse.
You stay very data-driven andyou do your research in the
marketplace.
(32:53):
One other thing getting theright partner in life is
everything I mean.
You're married, you've got kids.
I would not be where I amwithout my compassionate partner
who puts up with me and keepsme grounded Wonderful.
Ed Mathews (33:09):
Yeah, I find that, no matter how hard the day is,
when you walk in the door intoyour home and you have somebody
there that is truly supportiveand a life partner and will help
you figure out and help youprocess what just happened in
the last eight, 10 hours,getting up the next morning is a
lot easier.
It's funny, I tell my wife allthe time we've been married 29
(33:29):
years now and every year when wecelebrate our anniversary, I
ask her what were you thinking?
Because, as a friend of minesays, in talking to his partner,
it's his husband's.
They've been married, I don'tknow, 12, 13 years maybe, and he
said it's two or three of thehappiest years of his partner's
life.
So you got to be it's always aninterview for us guys, we're
(33:51):
just like stupid puppy dogs andsomeone-.
Yeah, I'm a 14-year old wrappedin a 55 year old's body.
At no time.
I am no peach to live with, Ican assure you.
I'm curious about growth.
We talked about mistakes andhow you approach that but I'm
also interested in how you takein information, whether you're a
reader or you go to conferencesor your network or whatever and
(34:11):
who do you pay attention tothese days in terms of the way
you gather information?
Mark Shuler (34:15):
So I follow a lot of folks on LinkedIn who and I
try to use the same principles Iwas just telling you.
I try to find guys who aresmarter than me, who have better
data sets than I do and who canimpart that data to me.
I've got like 20 people.
I follow on LinkedInreligiously and I'm always
reading their posts.
I get up every morning and thefirst thing I do every morning
(34:38):
is I'm online absorbing as muchdata as I can.
You have to be a data junkie.
You have to build a largemacroeconomic model in your
brain to be able to successfullyexecute in this business,
because you've got to understandhow actions promulgated by
government today are going tolook like six, 12 months down
(34:59):
the road and what that's goingto do to your business.
Ed Mathews (35:01):
I have a mentor who's always talking about
pattern recognition.
Mark Shuler (35:04):
And you don't get up and read a newspaper one day
and have it all.
This is a success habit thatyou just have to embody and then
all of a sudden, you become adata hound and you can't live
without it.
I don't know how many hours youhave to do through repetition
for it to become a habit.
Ed Mathews (35:17):
It's what?
21 days or something like that.
Mark Shuler (35:20):
Just get into the habit.
But if I can't figure it out,put post-it notes all over your
office reminding you to do thisNext thing.
It'll be ingrained.
Ed Mathews (35:28):
Even if you spend.
I was talking with a softballcoach about this this morning
over breakfast.
He was talking about working ona skill for 18 minutes a day.
If you work on a skill for 18minutes a day for one year, it's
100 hours.
Yeah, and you are ahead of 95of the people that don't do it
consistently so recently Istarted getting really curious
(35:49):
about this concept called timeblock.
Mark Shuler (35:52):
I use it and it's changed how I work.
I know when I'm certain timesof the day I can do certain
tasks really efficiently.
I know when I get up in themorning.
I've got from eight to 11.
That is when I'm fresh, mybrain is rested and I can make
decisions three times fasterfrom eight to 11 than I can from
(36:13):
one and.
And then by 4 o'clock I'm toastand you go off and go relax
with a light beer or somethinglike that.
And I'm an early bed guy.
I go to bed at 9.30 every nightand so I get to hang out with
my partner for a few hours.
Yeah, and you just need to adoptthese habits.
And what's really interestingabout this?
The last point I'll make onthis is once you adopt the
(36:35):
habits, it becomes much easierto adopt other habits because
you're already in the mindset.
You've already adopted themindset to be open to that
concept.
You just get better and better,and really a lot of what we do
is time management.
So you just get better at thesetasks.
All I think about is efficiency.
How can I do things moreefficiently?
Ed Mathews (36:54):
Good things will come from it and the last of the
five questions.
I'm curious how you definesuccess in your life.
Mark Shuler (37:00):
Funny thing is it's not monetary.
At the end of the day, I cangive a rip about that.
It's not how I define success.
Anybody does anything just tochase a buck.
Good luck with that, but it'sjust not how I define it.
Never actually been thatmotivated by money.
I need to pay the bills, Istress about it like anybody
(37:21):
else, but chasing money formoney's sake is just sort of
lost on me.
I'm an ideas guy.
Success for me just looks likedoing good work, being a good
partner, being a good mentor tomy stepson, being a good grandpa
, I think, opening up, recedingand closing down, maintaining.
Look at the end of your life,the only thing you got is
reputations in your relationship.
Nothing else matters.
(37:43):
It's the journey of gettingthere that forces you to figure
that out, because we're allknuckleheads as guys.
That's how I think about it.
Do I want to have a secureretirement?
Yeah, but guys like me neverretire.
Excellent.
Ed Mathews (37:55):
All right, hey, mark , I've really enjoyed this.
I thoroughly have, and so I'mcurious.
One last question about yourbusiness, and then we'll wrap
this up.
When you're not working, whatdo you like to do for fun?
How do you spend your time?
Mark Shuler (38:09):
Yeah, take care of your health.
First thing I do on Thursdaymornings I go work out with my
trainer.
Worked out with him today and Ithink about my health a lot, so
that's one thing.
I don't obsess about it, butI'm trying to make better
choices.
I'm almost a vegan.
I have a BMI.
That's the same as when I was afreshman in high school you
just got to take care ofyourself.
It's a marathon, and thatactually is fun for me, believe
(38:32):
it or not.
Also, relationships are really,as I've gotten older, I've
learned to treasure those Likemy kid brother and I were
talking the other day and he's62 and he's going to retire,
worked hellacious hours hiswhole career, the managing
partner of one of the largestCPA firms in the country.
So we're just having abrotherly conversation and so I
look for meaning that's for me.
(38:53):
I never for meaning that's forme.
I never clubbed.
I don't give a shit about that.
I used to do a lot more outdooractivity, but managing
businesses is very timeconsuming, so I don't have time.
But I like to hang with mypartner.
We like to go out and do things, and right now we're working on
the house, so we're executing aminor kitchen remodel.
She's got an art background, sowe argue about that insensibly.
(39:14):
You can't take any of it withyou, so you might as well enjoy
the ride.
I'm just always constantlytrying to figure out ways to
enjoy the ride more and becomeless of the jerk.
Ed Mathews (39:22):
I would love to learn that.
Mark Shuler (39:23):
Yeah.
Ed Mathews (39:24):
Yeah.
So, mark, like I said, I reallyenjoyed this conversation and
getting to know you and talkingin general, if people want to
learn more about SGREInvestments or you, or want to
get in touch, what's the bestway to do that?
Mark Shuler (39:37):
Yeah, you can just surf over to my website,
sgreinvestments.
com.
There's contact me link there.
You can just send me an email.
Or you can just send an emailto investor at sgreinvestments
plural com.
I'm in front of this box allday long and you hit me up with
an email and you'll probably geta response in three minutes.
Ed Mathews (39:59):
Good to know.
All right, Mark Shuler, thankyou so much for your time today.
You were very kind and generouswith your time and I'm grateful
and continued good fortune, andI would love to hear more about
that golf project, so we'llmaybe talk about that offline.
Greetings and salutations.
Real Estate Undergrounders.
It is Ed Mathews with the RealEstate Underground.
Thank you so much for makingthis a part of your day.
I'm really excited to have thisconversation.
I just found out that our guest, Mark Shuler, was the architect
to the stars, and we may or maynot get into that.
I'm a huge music fan, andparticular grunge, and it turns
out Mark, who lives in one of myfavorite cities, Seattle, knows
(01:13):
a bunch of the guys that I usedto listen to.
We're going to get into that,but first, mark, thank you so
much for joining us.
It's a pleasure to meet you andI'm really excited to have this
conversation.
Thanks for having me All right.
For those folks out there whodon't know about SGRE
investments or your architecturefirm or anything else you do,
why don't you tell us a littlebit about who you are and what
you do?
Mark Shuler (01:34):
Sure, my name is Mark Shuler.
I am a practicing architect forprobably the last 40 years,
always what I wanted to do withmy life, and then, probably 12,
15 years ago, I started pivotinginto real estate investing.
I got licensed in 1992 and thenpracticed traditionally for a
lot of years, on my shingle outwith two different firms.
(01:57):
In 2002, I went to theUniversity of Washington's
business school and got a fancertification in commercial real
estate development.
I've been always fascinated bythe industry.
I have five family members whoare commercial brokers.
My kid brother is the foremosttaxation authority for real
estate in the country.
Just a long career, always realestate related.
(02:19):
One way or another, I'vedesigned and built probably
close to 500 structures orremodels.
At this point, I have a greatunderstanding of the permitting
process probably too much and alot of battle scars to prove it
too.
At this point, I'm about onethird on real estate, one third
on architecture, and I've gotanother business that we're
launching right now indoor golfsimulator business down in
(02:42):
Phoenix.
So I'm spending a lot of timeon that, building that up.
Ed Mathews (02:45):
Are you also an avid golfer, or are you in that just
because it's a good business?
Mark Shuler (02:50):
Just a good entertainment play and a balance
to the other business venturesI have going on.
Real estate is you make allyour wealth, but it's all equity
based, not cashflow.
So I needed something that wasa little more cashflow based.
So I decided after running thenumbers I couldn't pass up on
this.
Ed Mathews (03:08):
So I'm curious about your transition from being an
architect to being an investor.
Can you walk us through thatmoment, that series of events
that led you to decide that youshould, instead of designing
these houses and, ultimately,these commercial properties?
What brought you into this sideof the business?
Mark Shuler (03:26):
Yeah, First of all, it's the family business.
But more to the point, for me,I was doing a lot of projects
for investors and developers andjust looking over their
shoulders and seeing the processthey were going through and the
mistakes they were making.
Well, if they can do that, Ican do that, and I'm just a
rabid entrepreneur.
Do not have it in my DNA towork for a large enterprise.
(03:53):
I wish I did sometimes, but Ijust have always found that the
real estate is like the ultimateform of entrepreneurialism.
I guess I'm a bit of aadrenaline junkie.
So I like the risk and rewardfactor, but most importantly, I
like the calculated risk.
I just have the personalitytype for it.
Oh, you can't wing it On a hopeand a prayer.
You got to really build a gameand get an A game going on to be
(04:13):
able to do this successfully.
Ed Mathews (04:15):
So you owned a little more than a thousand
units, right North of 4,000units oh, congratulations.
And obviously you've been doingthis for a while, and so I'm
curious about when you look atthe asset class out there.
Multifamily is where you'remost active.
I'm curious about yourperspective on the market.
It's interesting because yourmarket and one of our markets in
(04:36):
Boston, they tend to trend verysimilarly and I'm curious what
you're seeing.
Mark Shuler (04:40):
You know it's a very controlled market.
The headlines coming out of NewYork City today are a candidate
, a Democratic socialist, whowants to enact rent control
citywide and also havestate-funded grocery stores.
I don't understand thatcomponent of it, but good luck.
Execution is everything.
I work in a similarlycontrolled market.
(05:01):
Seattle is historically a labortown.
It is now a company town andthere's a lot of people who
rebel against that and our citycouncil reflects that rebellion.
So it's a very challengingenvironment to be an operator in
, to the point where I've soldmost everything up here.
We have one remaining assetthat we're going to probably
(05:22):
sell next year, and then I'mdone.
One remaining asset that we'regoing to probably sell next year
, and then I'm done.
I'm done investing in Seattle.
You're going to see that playout in New York city.
Right, watch it carefully forthe next two weeks.
Housing in particular is a freemarket phenomenon.
I have never seen government doit well.
Now, anytime government getsinvolved, it gets screwed up and
the flip side of it is thereare slumlords out there.
(05:44):
I get it, but I can tell youthe profit margins in the real
estate game and the housingmarket I play in they're thin.
I am not walking away with tensof millions of dollars and
drinking Mai Tais on the beach,and all that's not how it works.
It is an extremely challengingmarket right now.
A lot of operators are losingtheir assets, so it's a high
(06:06):
risk, potentially high rewardgame.
The margins are super thin.
Right, I know plenty ofoperators are not paying
distribution.
Ed Mathews (06:15):
And is that because of cost of capital?
Is that because they werecowboys and bought poorly?
What do you see, some?
Mark Shuler (06:21):
of them bought at the height of the market in 21,
22.
And they are running on arunway on their loans.
They are underwater.
They didn't create enough NOIexpansion to be able to refi the
property and so they're lookingat cash-in refis, not cash-out
(06:43):
refis, and they're not evenneutral.
They're taking a risk.
Look, lenders, the leverage islower than what it was when they
took on the deal.
I doubt it All the way around.
There's nothing but risk inthis line of work.
No-transcript, and I thinkthey're coming up here next.
(07:29):
I hope they sue the shit out ofSeattle because I'm just tired
of this.
Yeah, it is a difficult enoughbusiness, but then to have
government just like enact allthis legislation and declare
that making a profit on this isbad, it should not be allowed,
that's crazy.
There's no without reward.
There's no risk.
No one does any housing andit's not.
Ed Mathews (07:52):
I was just having this conversation with Ben
Carmona, who was on a previousshow about 1031's Delaware
Statutory Trust.
One of the reasons thatlegislation exists in the tax
code is because they wereenabled.
The government wanted peoplelike you and me to provide good,
clean housing that's well run.
They're trying to incent ourbehavior.
I think probably part of it isa rebellion against a guy in the
(08:15):
White House not to make thistotally political, but I think
part of it is just a lack ofunderstanding understanding
which you're exactly right howgovernment got out of the
business of housing years ago.
Mark Shuler (08:26):
Because not only that, I flip over into the
architecture side of things.
The regulatory environmentnever stops, and so the drawing
sets I produce now, compared towhen I first started my career
in the regulatory environment,is a thousand times more
complicated than it was 20, 30,40 years ago.
You want to see all thishousing produced and yet you're
(08:49):
just piling down the red.
That's why we have a housingshortage in this country.
You can drop the pin anywherein this country, and there's a
housing shortage.
Ed Mathews (08:55):
I think 2008 wiped out a whole class of general
contractors that just never cameback, exactly Right, and so
you've got a supply problem bothboth at the construction level
as well as the material, for allproject mentioned.
That whole thing with thatpost-corona is still.
The materials are still out ofthis world, expensive.
Mark Shuler (09:14):
Yeah, and you're starting to see we're at the
bottom of the cycle right now.
Real estate moves in cycles andwe've had a recalibration for
the last three years and you'reseeing a lot of product types
that everybody wasprognosticating was on its way
to the graveyard Retail office.
Both of them is all beingabsorbed right now.
One of the markets I play in alot is Houston.
(09:35):
Year over year, permit activityand housing delivery is down
72%, 24 to 20.
(09:55):
And you're going to startseeing vacancy rates go down and
occupancy rates go up and it'sgoing to really tighten up and
that's going to happennationwide.
So you compare that that's themarketplace phenomenon with this
regulatory environment.
How do you reconcile all this?
That's what's so challengingabout real estate right there.
I'm just describing it.
That's what I spend a lot oftime weaving through, trying to
(10:17):
make my projects go forward.
Ed Mathews (10:19):
Yeah, it's interesting.
We play here predominantly inConnecticut.
Like I said, we started to lookat Boston and a couple other
markets, but here in Connecticut, for instance, there was a
report a couple of years agomaybe that Connecticut is like
30,000 units short of its 2030affordable housing projections
and that's universal right.
There's less.
I saw over 4 million unitsshort across the country, maybe
(10:41):
more.
One of the things that youmentioned and I wholeheartedly
agree with is government's gotto get out of the way.
Forget parties.
I don't care what you'retalking about politically, I'm
talking about just theregulatory environment.
Here in Connecticut.
We're in a development projectright now.
It's taken us nine months justto get to planning and zoning.
It's crazy.
Mark Shuler (11:01):
I live in King County, Washington.
A residential permit for ahouse in King County takes 16
months through the approvalprocess.
So think about how insane.
Yeah, I talk to people whoroutinely interface with the
government over there.
Government is absolutely slowwalking these permits because
they don't want to see housingdevelopment beyond the growth
management.
(11:22):
We have it around the PugetSound and they are trying to
focus all this developmentinside out in the rural areas,
unincorporated areas of KingCounty.
They slow it down.
Who can afford 16 months ofcarrying a piece of dirt?
Nobody.
It bifurcates society.
Only the wealthy can afford todo it.
I have a house out there I'mdesigning right now.
(11:43):
It's 31,000 square feet.
This is not affordable housing.
Ed Mathews (11:48):
This is Bill Gates and friends.
Mark Shuler (11:50):
People can afford to do it.
It has the exact oppositeeffect of what the reporting
policy goal is and it's justnaivete on the part of
policymakers.
It just drives me nuts.
I'm all about life safety inany building.
This is the building code, thethree-ring binder.
My nose is in that all the time, trying to figure out the codes
.
And it's complicated.
(12:10):
The impact of the regulatoryenvironment is a little bit out
of control.
Ed Mathews (12:16):
So let's talk about asset class and let's talk about
regions that you like.
From an asset class perspective, what are you hunting for these
days?
What do you like or what haveyou tended to like over the last
couple years?
I'm a housing guy.
Mark Shuler (12:29):
I've been my whole career so I stick with housing.
I do multi-family and largemulti-family projects, so our
minimum purchase is 250 units.
We're doing the deep value addthing okay and so we're trying
to create value where there wasnone before.
And the nice thing about thatthey tend to be C-class deals.
I like 80s product and newer.
(12:51):
We've purchased and renovatedolder product.
You tend to find older wiring,older plumbing, electric panels
that need to be replaced.
They tend to be deeper liftsthan you anticipate, 80s and
newer.
But then you don't even thinkabout assets go through a major
kind of maintenance cycle every25 years or so the heat pumps
(13:12):
wear out, pipes burst.
You got to kind of look and seewhen the last major rehab of
the project was.
But we do these deep value addplays.
So we're spending.
Our cost is 18000 a door on thelift.
Anybody else it's 35 to 40,000.
And we're turning C-class assetsinto condo quality finishes.
They look really nice and we'restill catering to the C-class
(13:35):
workforce crowd.
We're getting rent bumps of 100to 150 a month.
This is some of the nicesthousing these folks have ever
lived in.
There's a little social missionthere that we stick with.
We've got a model and I don'tlook at retail.
I don't know anything about itOffice product, I don't want to
go anywhere near it.
That product is stable.
People need housing.
(13:55):
We have a housing affordabilityproblem in this country.
Nobody can buy a house, so theygot to rent.
It's a good long-term bet.
That's why we like it.
Ed Mathews (14:04):
Yeah, I've read article and report after report
on the fact that, particularlyyounger generations, we're
becoming a renter nation, rightand for 15 years.
What other markets are youparticularly paying attention to
these days?
Mark Shuler (14:18):
We have a couple of deals up in Oklahoma city, okay
, but at this point we've done abig lift on them and they're
stabilized.
Yeah, remember, I think wemight have even refined those.
We're just managing them andfigure out what we're going to
do next.
We might hold those in houseand buy out the investors.
I don't know, but houston is aginormous market.
(14:38):
Yeah, I don't need to goanywhere.
Our, our business strategy is to, instead of going broad and
wide, like a lot of operators,they tend to look at markets all
over the country.
I can't do that.
I know too much about the gameand I don't want to have to
figure out the personalities ofmultiple jurisdictions.
The thing about Houston is it'slike the 34th largest city in
(14:59):
the country, second largestapartment market, and they built
a lot of product back in thelate seventies and eighties
during that oil boom, and all ofthat needs to be renovated.
So we just stick to Houston andwe've built a large
organization, we've got over 200people on the payroll and every
time we take down a deal, we'reday after closing, we're onsite
(15:22):
, we're renovating.
We just have a really developedbusiness model at this point
that worked for us.
I don't need to go anywhereelse honestly.
Ed Mathews (15:30):
Yeah, I was going to ask you why.
Your turnover or rehab is 18per unit and the market is 35
plus, right?
So part of that is captive oremployed your employee base,
right?
Mark Shuler (15:42):
All of our everybody's on a W-2 and we
control our labor.
We also control our supplychain.
Okay, yeah, so we have directvendor relationships in India
and China and the port ofHouston is the largest port on
the Gulf Coast.
So you know, when we orderdoors we order a thousand of
them at a time, right.
And then we had a 20,000 squarefoot warehouse.
(16:04):
Just go grab the container,haul it there, warehouse manager
catalogs it, drivers go downand get it when we need it.
We're getting slab countertopsfor 50 bucks a slab.
I just price slabs from my ownhouse.
It's 1500 bucks.
So, and we're just cutting outlike three layers of middlemen
(16:26):
and our whole business model ispremised on efficiency and
operations.
So the more I drive the costdown, the greater the return for
my investor.
I know that we return four tofive points more to the IRR than
most other syndicates.
Ed Mathews (16:41):
I imagine part of that is tenant retention as well
.
Right yeah, In this downtime inthe marketplace.
Mark Shuler (16:46):
We did two deals in Q4 of last year and those are
the only deals we did all oflast year.
We've literally been on thesidelines for 18 months.
Yeah, those both weredistressed deals.
That operator probablyevaporated $40 million in
investment equity.
That was blood in the streets,but we got those assets at 2018
prices and, yeah, so we tookthem down.
(17:09):
One of them was a real niceB-plus class asset going west
out of Houston.
They call it the energycorridor.
There's seven or eight Fortune500s that their headquarters are
based out there and there'slots of people who work there
that need a place to live.
It's just like amenity ladenasset.
Now that's a step up for us.
We're mainly in the workforcehousing business, but we're
(17:31):
sitting on sidelines right now,still just waiting for interest
rates to come down, the bondmarkets to calm down and I think
we're going to be labor problemthere's a massive supply chain
problem.
Ed Mathews (17:59):
The fact is that, yes, the political cycle,
presidential in particular,makes people a little bit nutty
and that tends to affect theeconomy.
Yet to be determined what thetariff policies and how they're
going to affect what we're doing.
Inflation seems to be gettingunder control.
The bottom line is that whererates are now historically, if
you look at the last 50 plusyears we're right down the
(18:20):
middle right now.
Mark Shuler (18:22):
Between the garden rails.
Yeah, people, for the last 15years we've had this free money
floating around.
People got that was by that,when you had a lot of people
getting into the apartment game,not having ever lived through a
more turbulent cycle, yeah, andinterest rates that are two
points higher than where theywere, and it's more challenging.
(18:44):
That's the nature of thebusiness.
And, to your point, thepolitical thing.
I'm decidedly agnostic.
Me too.
I play with house money and Ican't afford opinions and that's
the way I think I have them.
I just don't share them.
That's for couch time with mywife.
The most challenging problem forany entrepreneur and business
(19:06):
owner right now is you don'tknow what to do.
Everybody's paralyzed, tryingto make decisions for six, 12,
18 months out.
And so how do you do a deal nowat a certain interest rate?
And so how do you do a deal nowat a certain interest rate,
making a ton of assumptionsabout the structure of that deal
and renovations and lease up,and all that when it is just
utter chaos in the politicalenvironment out of DC right now.
(19:30):
That's as political as I'mgoing to get in this
conversation.
It's challenging to conductbusiness.
Ed Mathews (19:35):
It's completely dysfunctional on both sides, but
we can talk about that.
All I'm curious about it isimpossible to predict 6, 12, 18
months out, but how are youapproaching underwriting when
you're looking at properties andwhat are your assumptions going
into?
26, 27, 28?
That's a damn good question.
Mark Shuler (19:55):
I read a lot of reports.
It's not all doom and gloom.
We're at the bottom of a cycleand so we're going to be heading
up into an expansion cycle inmarkets, and who doesn't like
that?
It's just a matter of how manyblack swan events and dead cat
bounces can we go through beforewe get there?
That's the challenging part.
(20:16):
The first thing I do everymorning when I get up, log in
and check what the bond marketsare doing.
So I look at the five year, the10 year, the two year and up to
about three weeks ago, the fiveyear was just stubbornly
holding to just above 4%, andwe've dropped 15, 20 basis
points on any given day sincethen.
(20:36):
So they're trending in theright direction, but everybody
is on a knife edge, worryingabout which way this is going,
and our debt level isunsustainable and everything's
so leveraged up that even at thegovernment level right now.
So to answer your question, oneof the things in our
(20:57):
underwriting that we are doingdoing we're looking at lower
leverage on all our dealsbecause that's what's in the
banding.
You can't be so rosy in thesepredictions.
A lot of syndicators back three, four years ago.
They didn't have a value-addstrategy, they were just buying
and hoping that the rising tideraised all ships.
That is just gambling.
Ed Mathews (21:22):
Yeah, I was telling people we were having this
conversation a few weeks ago.
I made that whole environmentfrom 19 to 21 and probably even
before 19,.
But made geniuses out ofeverybody artificially.
Mark Shuler (21:32):
But it's go time.
Ed Mathews (21:34):
It's one of the work from each of the room, but now
it's markets like this thatseparate the wheat from the
chaff, right?
I'm interested in terms ofleverage right.
We're going into deals andunderwriting them at a minimum
65, 35 debt to equity and I'mtrying to get a low 50 just in
anticipation of interest ratesnot moving, maybe even going up,
(21:56):
but definitely not down.
I'm curious what you're doing.
Mark Shuler (21:59):
We actually underwrite on a continuum.
Different lenders havedifferent underwriting
requirements and I think we'rehovering around 60 on our deals
Seems to be a good medium for us.
You have to understand.
We're expanding our NOI throughour renovation and it tends to
drive down the unlevered IRR.
So that's why we're maniacalabout getting the rentals done.
(22:21):
We target 5% of the units permonth with a goal of after 20
months we're a hundred percentdone with the renovation.
We will have then really grownNOI and so our leverage goes way
down.
So we don't have to be so lowon the front end going in
because we're frequent suppliers.
So a lot of lenders know whatour exercise is and we have a
proven business model.
So we can afford to be a littlemore risky on the front end.
(22:44):
Sometimes we get up as high as70, but that's as high as you're
seeing right now.
Ed Mathews (22:48):
Yeah, and I would submit that's not that risky,
that's more measured, especiallyif you know your rehab costs
are half.
Because of the team you have inplace, you can move a whole
heck of a lot faster than prettymuch anybody else in that
market.
Yeah, we don't.
Mark Shuler (23:03):
Third-party anything we don't license trades
.
All of our asset management isin-house.
We have our own assetmanagement company.
We have a sponsorship deal,acquisition leg and then we have
the management leg.
All the construction andmanagement is in-house.
We're just trying to doeverything we can to control the
expense side of the logic thereare variable costs.
Ed Mathews (23:22):
You have no control over taxes and insurance by
being the two biggest don't evenget me going on insurance guys
saw that coming.
I had an interestingconversation with a commercial
broker.
We were interviewing him forthis show, as a matter of fact,
and he was talking about whatwas happening.
This was by late 23, early 24.
And he was talking about whatwas happening.
This was late 23, early 24.
And he was talking about thehurricanes that had blown
(23:42):
through Florida, what that haddone to the insurance
underwriting business.
And very in parallel to that,because I started to get
interested we were sourcing ourinsurance for the following year
and starting to see the ratesclimb, in some cases
exponentially.
Starting to see the rates climbin some cases exponentially,
and so I started asking aboutthat and it was eye-opening.
The insurance companies wereviewing risk going into 24 and
(24:06):
25.
That's just another unknown.
Mark Shuler (24:08):
I have a buddy who owns a deal in the Ninth Ward in
New Orleans Tried to get me aninvestor.
New Orleans is underwater, it'sclose.
Never gonna so when heunderwrote it and bought it, he
was paying $850 a door forinsurance.
His insurance is somewherebetween $2,500 and $3,000.
You never recover from them.
(24:29):
No, and it's in the Ninth Ward.
That is the challenges of thisbusiness.
What we did is we partners goton a plane and flew to England
and meet with Lloyd's of Londonsee if we could get blanket
policy for our entire portfolio.
We self-insure Right the way wekeep our costs down.
Ed Mathews (24:48):
Smart, spread the risk outside of the areas that
are affected by major weather,right, yeah, one of the things
you mentioned before we hitrecord, actually, is that you
did a report, or we werediscussing that you've written a
report about the state of themarket.
Can you tell me a little bitmore about that?
Mark Shuler (25:05):
Yeah, look, I don't want to come across as a total
Debbie Downer here.
This is just a business and anybusiness is all about operation
.
The best real estate investorsare good operators and they have
their operations under control.
At a macro level, there'sactually a lot of good positives
out there in the marketplaceright now.
(25:25):
It's just that we can't gainany consistency as we come off
the bottom.
So I just really got interestedin kind of overall, where we
sit in the market, where we sitin the cycle, and tried to read
the tea leaves of what wereasonably expect in the next 12
to 15 months.
Interest rates have beentrending down.
They're going in the rightdirection, despite kind of the
(25:48):
political white noise coming outof Washington.
The Fed's done a damn good jobof containing inflation.
I did a podcast three or fouryears ago at the beginning of
this inflationary cycle, and thecomment I made it still sticks
with me is once inflation getsbaked into a market system, it
is damn hard to squeeze it out,and during the pandemic the Fed
(26:08):
and the government flooded themarket with money and put the
economy on a sugar buzz.
M1 is not a capital floatingaround the economy.
They pumped $8 trillion in theeconomy and then the CDC decided
to do an unconstitutionalnationwide eviction moratorium
(26:28):
yeah, I think that's, but sincethen has been buying back.
A lot of that are evaporatingand they don't actually buy it,
but they've gotten the moneysupply back down to a reasonable
level.
I think they still have somework to do on that, but it's
more easy.
Interest rates and inflationhave fallen in tandem and we
were on track by the end of thisyear to see the Fed achieve its
(26:50):
goal of 2% inflation.
This tariff war has thrown ahuge monkey wrench into all that
.
The recent reports I've beenreading is there might be a
little bump, but it's notblowing up.
Let me put it that way.
It seems like the economy isstill clicking along.
There has been some softening,but I don't think it's going to
(27:10):
be catastrophic.
Other reports I've read surveyof economists.
You know 50% think we're goingto make it through without going
into a recession.
There's a variety of opinionsof the other 50%.
But even in my architecturebusiness I'm definitely seeing a
bit of a slowdown in theeconomy.
Yeah, where we go from here forthe rest of the year, it just
(27:31):
depends on supply chains.
Want to see what the shelveslook like at the Home Depot in a
month and how much plywood'savailable coming out of Canada.
Ed Mathews (27:39):
I'd love to know board foot numbers.
Mark Shuler (27:41):
We're definitely.
I don't know if inflectionpoint is the right phrase here,
but we're definitely.
It's either going to go one wayor the other and it just
unfortunately hinges on thewhims of one person.
Ed Mathews (27:53):
And buckle up Once I'm able to go retrieve that in
my email.
Thank you again for sharing it.
We'll certainly make thatreport available in the show
notes.
We'll go from there, all right.
We've been talking for quite abit of time and normally we go
about 25, 35 minutes.
We're already at the 40 minutemarks, but I don't care, because
this has been gold.
Maybe we'll break this up intoa two part series.
(28:14):
One of the things I'd like todo is go through our final five.
Okay, and I think we've gottena really good insight into how
your brain works.
But I'd like to dig a littledeeper.
Somebody like you who has beenvery successful the mortgage is
handled, the college education'shandled, the car payments are
handled, and yet you still getup on Monday morning and go to
work, and that tends to bepurpose.
Mark Shuler (29:07):
And I'm curious when your eyes open on Monday
ADHD and he's got anxiety anddepression comorbidity and so
I've mentored, raised him sincehe was like 13.
And he still has challenges inlife.
He's high end.
He didn't go to college.
He went to six high schools.
I mentored him throughout allof that.
I had to send him to a militaryhigh school.
He went from a 1.4 to a 3.8.
It's not that he's stupid, it'sthe executive functioning right
(29:28):
, yeah, processing right, but hemanaged to pull it together.
Go to trade school.
He's a high-end Audi mechanic.
Now they're going to park$100,000 vehicles and he loves
it.
He's learning about how to flipcars and so he flipped a couple
of.
Recently.
He's got a walking around money.
He's feeling good about himself.
So I get up just to be a rolemodel and then I get informed
like this and to impart myknowledge.
(29:49):
It makes my life meaningful.
Ed Mathews (29:52):
I tell people I'm not a grandparent yet.
I have younger daughters.
They're 22 and 17.
But I tell people all the time,being a parent, step-parent or
parent, it's the best thingyou'll ever do, Most important
thing you'll ever do, for sure.
I'm also curious about yourgrowth and I want to ask you a
couple of questions about thatMentorship.
You mentioned that in theprevious question.
I'm curious about the mentorsthat you've had along the way
(30:15):
and what's the best advice youever got and who gave it to you?
Mark Shuler (30:18):
one of the things I glommed down to earlier in my
career was those rockefellerprinciples being a part of
masterminds, finding coaches,just associating with people who
are smarter than you or maybemore experienced than you.
I've been able to do that.
My whole career, just thenature of my career.
I'm not designing such a newhousing, but the whole nature of
(30:38):
my career is also one ofmentorship.
So as you come out ofarchitecture school and you get
your first job or two, you'reworking in an environment where
you're being mentored by moresenior architects.
It became a mantra or model forme of how I wanted to migrate
through my life.
I still do that to this day.
I'm part of a mastermind.
(31:00):
I just dropped 10 Gs on andit's the smartest thing I ever
did in the last three years byfar.
I am constantly on a growthmodel.
I do not know everything as anarchitect.
I sit in front of this box allday.
Who am I going to know?
So you got to force yourself toget out there and force
yourself to tuck your ego asideand just learn and grow.
(31:23):
Once you stop growing, you die.
I'm not ready to hang it up byany stretch of the imagination.
I am still moving forward.
You have to be very forward.
When you look back, you'redepressed.
When you look forward, you'retotally neurotic, and so you've
got to find a balance betweenbeing forwardly propelled but
living in the moment, and thatis a life work balance that I
(31:45):
struggle with.
Any busy professional is goingto be that.
That's the best advice I cangive you.
Ed Mathews (31:52):
And so I'm also interested in.
I fundamentally believe that welearn more from the mistakes
that we've made over the courseof time.
I'm talking professionally,right, but in this context I'm
talking professionally.
I'm curious about a mistake ora decision that you would love
to have back.
And what was it?
And how did you recover if youdidn't?
Mark Shuler (32:10):
We reevaluate every deal we do.
Hindsight's always 20-20.
And some of the deals we boughtwe've had to really roll up our
sleeves and put some elbowgrease into it.
Hindsight probably wasn'tsomething we should have bought.
We'll get through it and we'llachieve our objectives, but it's
been a lot of work.
Operations is everything inmulti-family.
If you don't have youroperations down or if you try to
(32:33):
sub that out to a third party,you're going to be disappointed.
I think just every deal I'veever had.
I have regrets, others morethan some.
But you dig down deeper and dodiligence.
You don't buy an impulse.
You stay very data-driven andyou do your research in the
marketplace.
(32:53):
One other thing getting theright partner in life is
everything I mean.
You're married, you've got kids.
I would not be where I amwithout my compassionate partner
who puts up with me and keepsme grounded Wonderful.
Ed Mathews (33:09):
Yeah, I find that, no matter how hard the day is,
when you walk in the door intoyour home and you have somebody
there that is truly supportiveand a life partner and will help
you figure out and help youprocess what just happened in
the last eight, 10 hours,getting up the next morning is a
lot easier.
It's funny, I tell my wife allthe time we've been married 29
(33:29):
years now and every year when wecelebrate our anniversary, I
ask her what were you thinking?
Because, as a friend of minesays, in talking to his partner,
it's his husband's.
They've been married, I don'tknow, 12, 13 years maybe, and he
said it's two or three of thehappiest years of his partner's
life.
So you got to be it's always aninterview for us guys, we're
(33:51):
just like stupid puppy dogs andsomeone-.
Yeah, I'm a 14-year old wrappedin a 55 year old's body.
At no time.
I am no peach to live with, Ican assure you.
I'm curious about growth.
We talked about mistakes andhow you approach that but I'm
also interested in how you takein information, whether you're a
reader or you go to conferencesor your network or whatever and
(34:11):
who do you pay attention tothese days in terms of the way
you gather information?
Mark Shuler (34:15):
So I follow a lot of folks on LinkedIn who and I
try to use the same principles Iwas just telling you.
I try to find guys who aresmarter than me, who have better
data sets than I do and who canimpart that data to me.
I've got like 20 people.
I follow on LinkedInreligiously and I'm always
reading their posts.
I get up every morning and thefirst thing I do every morning
(34:38):
is I'm online absorbing as muchdata as I can.
You have to be a data junkie.
You have to build a largemacroeconomic model in your
brain to be able to successfullyexecute in this business,
because you've got to understandhow actions promulgated by
government today are going tolook like six, 12 months down
(34:59):
the road and what that's goingto do to your business.
Ed Mathews (35:01):
I have a mentor who's always talking about
pattern recognition.
Mark Shuler (35:04):
And you don't get up and read a newspaper one day
and have it all.
This is a success habit thatyou just have to embody and then
all of a sudden, you become adata hound and you can't live
without it.
I don't know how many hours youhave to do through repetition
for it to become a habit.
Ed Mathews (35:17):
It's what?
21 days or something like that.
Mark Shuler (35:20):
Just get into the habit.
But if I can't figure it out,put post-it notes all over your
office reminding you to do thisNext thing.
It'll be ingrained.
Ed Mathews (35:28):
Even if you spend.
I was talking with a softballcoach about this this morning
over breakfast.
He was talking about working ona skill for 18 minutes a day.
If you work on a skill for 18minutes a day for one year, it's
100 hours.
Yeah, and you are ahead of 95of the people that don't do it
consistently so recently Istarted getting really curious
(35:49):
about this concept called timeblock.
Mark Shuler (35:52):
I use it and it's changed how I work.
I know when I'm certain timesof the day I can do certain
tasks really efficiently.
I know when I get up in themorning.
I've got from eight to 11.
That is when I'm fresh, mybrain is rested and I can make
decisions three times fasterfrom eight to 11 than I can from
(36:13):
one and.
And then by 4 o'clock I'm toastand you go off and go relax
with a light beer or somethinglike that.
And I'm an early bed guy.
I go to bed at 9.30 every nightand so I get to hang out with
my partner for a few hours.
Yeah, and you just need to adoptthese habits.
And what's really interestingabout this?
The last point I'll make onthis is once you adopt the
(36:35):
habits, it becomes much easierto adopt other habits because
you're already in the mindset.
You've already adopted themindset to be open to that
concept.
You just get better and better,and really a lot of what we do
is time management.
So you just get better at thesetasks.
All I think about is efficiency.
How can I do things moreefficiently?
Ed Mathews (36:54):
Good things will come from it and the last of the
five questions.
I'm curious how you definesuccess in your life.
Mark Shuler (37:00):
Funny thing is it's not monetary.
At the end of the day, I cangive a rip about that.
It's not how I define success.
Anybody does anything just tochase a buck.
Good luck with that, but it'sjust not how I define it.
Never actually been thatmotivated by money.
I need to pay the bills, Istress about it like anybody
(37:21):
else, but chasing money formoney's sake is just sort of
lost on me.
I'm an ideas guy.
Success for me just looks likedoing good work, being a good
partner, being a good mentor tomy stepson, being a good grandpa
, I think, opening up, recedingand closing down, maintaining.
Look at the end of your life,the only thing you got is
reputations in your relationship.
Nothing else matters.
(37:43):
It's the journey of gettingthere that forces you to figure
that out, because we're allknuckleheads as guys.
That's how I think about it.
Do I want to have a secureretirement?
Yeah, but guys like me neverretire.
Excellent.
Ed Mathews (37:55):
All right, hey, mark , I've really enjoyed this.
I thoroughly have, and so I'mcurious.
One last question about yourbusiness, and then we'll wrap
this up.
When you're not working, whatdo you like to do for fun?
How do you spend your time?
Mark Shuler (38:09):
Yeah, take care of your health.
First thing I do on Thursdaymornings I go work out with my
trainer.
Worked out with him today and Ithink about my health a lot, so
that's one thing.
I don't obsess about it, butI'm trying to make better
choices.
I'm almost a vegan.
I have a BMI.
That's the same as when I was afreshman in high school you
just got to take care ofyourself.
It's a marathon, and thatactually is fun for me, believe
(38:32):
it or not.
Also, relationships are really,as I've gotten older, I've
learned to treasure those Likemy kid brother and I were
talking the other day and he's62 and he's going to retire,
worked hellacious hours hiswhole career, the managing
partner of one of the largestCPA firms in the country.
So we're just having abrotherly conversation and so I
look for meaning that's for me.
(38:53):
I never for meaning that's forme.
I never clubbed.
I don't give a shit about that.
I used to do a lot more outdooractivity, but managing
businesses is very timeconsuming, so I don't have time.
But I like to hang with mypartner.
We like to go out and do things, and right now we're working on
the house, so we're executing aminor kitchen remodel.
She's got an art background, sowe argue about that insensibly.
(39:14):
You can't take any of it withyou, so you might as well enjoy
the ride.
I'm just always constantlytrying to figure out ways to
enjoy the ride more and becomeless of the jerk.
Ed Mathews (39:22):
I would love to learn that.
Mark Shuler (39:23):
Yeah.
Ed Mathews (39:24):
Yeah.
So, mark, like I said, I reallyenjoyed this conversation and
getting to know you and talkingin general, if people want to
learn more about SGREInvestments or you, or want to
get in touch, what's the bestway to do that?
Mark Shuler (39:37):
Yeah, you can just surf over to my website,
sgreinvestments.
com.
There's contact me link there.
You can just send me an email.
Or you can just send an emailto investor at sgreinvestments
plural com.
I'm in front of this box allday long and you hit me up with
an email and you'll probably geta response in three minutes.
Ed Mathews (39:59):
Good to know.
All right, Mark Shuler, thankyou so much for your time today.
You were very kind and generouswith your time and I'm grateful
and continued good fortune, andI would love to hear more about
that golf project, so we'llmaybe talk about that offline.
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