How to Maximize Profits and Minimize Taxes on Commercial Real Estate

Episode Transcript
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Speaker 1 (00:00):
We hear a lot and talk a lot about real
estate on The Wealth Ability Show, and particularly we've talked
a lot about residential real estate, multifamily, single family, et cetera.
But rarely do we get a chance to really dig
into commercial real estate. And today we're going to discover
how to maximize profits minimize taxes on commercial real estate.

(00:22):
And we have two of the most impressive experienced people
in commercial real estate in the US, if not in
the world, Bob Knackle and Rod Santomassimo. And so good
to have you guys with us today. Thank you so
much for taking time you guys, I know you guys
can be out doing deals, so really appreciate the time.

(00:43):
I know, I know you wrote this book, Selling Buildings,
which is a great book for I love the title.
It's like truth and advertising, totally great. So if you
would there you go there it is, if you would.
Starting with you, Bob, give us a little bit of
your background and why you decide to write a book

(01:05):
on this.

Speaker 2 (01:06):
Sure well, Tom, First of all, thanks so much for
having Rod and I I really appreciate being on the show.
And hello to all your listeners and viewers. So I'm
Bob Knackle, I am the chairman and CEO of Bkrea,
which is a company that I formed about sixteen months ago.

(01:27):
I've been a commercial real estate broker selling investment properties
in New York City for forty one years now and
I absolutely love the business. Got into it by accident,
but it's been the greatest accident that ever happened.

Speaker 3 (01:43):
I truly love it. I feel like my.

Speaker 2 (01:47):
Full time job selling buildings is not only a job,
but it's my hobby and couldn't be happier doing it
and get to meet and interact with a lot of
great people every day, including co author Rod Santa Mosmo,
who has actually been my broker coach since twenty eleven
and one of my best friends. So again, thanks for

(02:08):
having us on today.

Speaker 4 (02:09):
Well, thank you, Rod, so a little of your background, Yeah,
rod'san Tomaso. Tom, Thank thanks so much for having me.
I run a company called the Mosmo Group. We are
the premier commercial real estate broker coaching organization on the planet.
We're fortunate enough to have incredible clients such as Bob
Nakel and yes we did we help brokers make more

(02:31):
money in less time on the commercial side. But before
we move forward, I think you know for your audience,
just put things in perspective. BKA, how many buildings we
sold have you sold so far in your.

Speaker 2 (02:43):
Career as of two weeks ago two thousand three, and
fifty one.

Speaker 4 (02:49):
Two thousand three, so everyone understand this. Und and fifty
one divided by forty one years of commercial real estate
experience means that Bob has sold personally with his team
over one building per for forty one years straight. So
Bob doesn't like the tutors horn, but he is the
goat of commercial real estate brokerage. He is we coach

(03:09):
folks all over the planet. We do. He is the
goat of commercial real estate brokerage and it comes to
selling buildings, he's the man. Very simple. So let's let's go.

Speaker 1 (03:20):
This is awesome, guys. So if we can kind of
just start the kind of basic stuff. Why do you
love commercial real estate?

Speaker 3 (03:29):
Why?

Speaker 1 (03:30):
What makes commercial real estate unique? What makes it?

Speaker 4 (03:33):
Bob?

Speaker 1 (03:34):
You said, it's not just your your job, it's your hobby.
Why commercial real estate over any other kind of real estate?

Speaker 2 (03:42):
Well, I'll tell you that. For me, it's commercial real
estate because it's the only real estate I know. I
don't know residential real estate. I have never been a residential
real estate broker. And why do I like the business?

Speaker 3 (03:54):
Several reasons.

Speaker 2 (03:57):
It is a extraord it's an extraordinary competitive business. It
is a very very pure form of meritocracy. You get
out of it exactly what you put into it, and
there are a lot of wins along the way that
become addictive. It's not just about closing a deal. You know,

(04:20):
they talk often about kids on cell phones and why
they're so addicted to cell phones is because of this
dopamine rush that they get from different interactions. And I
will tell you Tom, I get the same rushes in
the brokerage business. And you get that rush when you
find out you know, you call an owner and they say, hey,

(04:42):
I'm thinking about selling my building.

Speaker 3 (04:43):
You get the rush.

Speaker 2 (04:44):
And then you put your presentation together, go meet with
the owner and they say I'm going.

Speaker 3 (04:49):
To hire you. You get the rush.

Speaker 2 (04:51):
And then you're marketing the building and you get somebody
to make an offer that you know will be accepted.
You get the rush, and then you sign the contract.
You get the rush, and then you the deal. You
get the rush. And that's just on one deal. I'm
doing fifty deals at once. Now, So you're getting these
dopamine rushes of positive feedback in this business. And yes,

(05:12):
there comes even more rejection and negative stuff than these
positive things that happen, But there's so many positive things
that go on that is just to me. It's very,
very rewarding, fulfilling, and I just absolutely love the competition
of it. You know, we've always looked to hire people
who were active in team sports because not only our

(05:37):
team sport athletes generally very competitive, but you know how
to work well with other people, and this is a
business you cannot do by yourself. You know, Rod mentioned
my team and I over the forty one years, I've
had a variety of teammates. For twenty six years, I
had my own company, mass Sinakle, which we sold in

(05:57):
twenty fourteen and back to having my own firm again.
But I've worked with a lot of great people over
the years, and I owe a lot of my success
to them as well.

Speaker 1 (06:09):
So when you're looking at now, Rod, You're you're you're
you're coaching this. When when when you're looking at a
commercial real estate deal outside of the obvious, you know,
good tenants, cap rates, all that kind of stuff, what
are you looking for what what makes a deal a

(06:29):
good deal in your mind?

Speaker 4 (06:31):
Well, I gotta I gotta, Bob answer that question because
I don't. I don't focus on the deals. I focus
on the people. That's that's what we do here at MASMO.
The reason we do commercial real estate is because, as
Bob said, it's the greatest entrepreneurial business there is. So
but from my people standpoint, you know, it's it's amazing.

Speaker 3 (06:51):
We don't.

Speaker 4 (06:52):
I don't look at and Bob Boba correct me here.
My clients don't focus on such things as cap rates
and returns as much as the location and the quality
and the opportunity of that real estate across across across
anyone in the United States. Could be in Scottsdale, could
be in in Sedona, could be in Brooklyn. Right, it
doesn't really matter. From that standpoint. The professional investor will

(07:15):
focus more on the institutional investor, who's not necessarily your
audience or most commercial state investors. Right, They'll focus on
those elements of return and so forth. But they gotta
be comfortable that it's going to be an asset like
an see the use like seed, the adaptation over the years.
It's going to happen, right, that's what they're looking at.

(07:35):
But BK, how about you from a what are your
investors focused on a commercial real estate side?

Speaker 3 (07:39):
Yeah?

Speaker 2 (07:40):
Well, I would like to answer this two ways, one
like what makes a deal a good deal? When basically
a deal is a good deal if an investor thinks
they can make money by buying it. And I often
say that in order to buy buildings you need two things.
You need capital and you need courage, and the courage

(08:00):
becomes more important in markets that are uncertain.

Speaker 3 (08:04):
But basically, if someone.

Speaker 2 (08:07):
Believes in the deal they're buying and believes they'll make
money in it. And you know, similar to brokerage, where
I think it's a highly accretive quality to specialize in
something to be a true market expert, I think on
the investment side, I see the same thing where investors

(08:28):
who buy one type of deal in one type of
location generally tend to be dominant because they know every
little thing about that. Yes, there are some companies that
are so big that they have these specialists in a
lot of different areas and they can buy office buildings
and hotels and apartment buildings and a bunch of different things,
but they probably have somebody that's an expert at that

(08:48):
one particular product type, and that kind of dovetails into
I can talk a little bit about the characteristics that
I've seen in brokers that really excel in our business
and alluded to it. But there's three characteristics that we
see routinely in people who who are at the top
of our business. First being they are a true expert

(09:12):
at something. A slice of the market that is small
enough that you can really get your arms around every
single aspect of it and know everything about it, yet
large enough you can make a good living.

Speaker 1 (09:25):
So if you would, Bob, give us an example of that.
Just give us an example of a slice like that.

Speaker 2 (09:31):
Okay, Well, like I sell in New York City, I
sell development sites, which basically are land deals or what
you most markets around the country you call them land deals.
Here we call them development deals because there's not rolling
pastures of land in New York City, so we have
to buy a crappy old building or a bunch of

(09:53):
little crappy buildings, knock them down, and create a piece
of land on which to build a building. So it's
a a thin slice of the market. So not only
do we focus on that, one type of building, but
everybody has their own geographic area they work on, so
they're doing one type of transaction in one specific geographic area,
and that gives you the ability to differentiate yourself from

(10:17):
everyone else, and that differentiation leads to a competitive advantage.
And that's what we're all trying to do, is get
a competitive advantage. So expertise number one. Number two passion.
You gotta love this I love this business. I think
people who really excel at it have to love it.
Why because no matter how good you are, you're going
to have tough times in this business. The market is

(10:40):
naturally cyclical. There's going to be ups and downs through
no fault of your own, You're going to go through
some tough patches. And it's that passion and love for
the business that keeps you going and keeps you around
for those times when the market gets better, which they
inevitably will, but you have to be there. And in
order to be there, of folks drop out of the

(11:01):
business when things get tough, but if you love it,
you won't drop out. And then the third characteristic is
being able to use discipline well. And I say use
discipline as opposed to have discipline, because we all have
access to the same exact amount of discipline, but we
all choose to use it differently. It's the folks who
can use discipline too, as long as they're doing fundamentally

(11:24):
correct things. You have to do these things, a lot
of which are not that glamorous, but you have to
do them over and over and over again, day after day,
week after week, month after month, year after year, in
my case, decade after decade.

Speaker 3 (11:37):
But you have to keep doing them.

Speaker 2 (11:39):
Have the discipline to keep doing those fundamentally sound things,
and eventually that will.

Speaker 3 (11:43):
Pay dividends for you.

Speaker 2 (11:44):
So those are the three things, and I think that
they're probably very similar. On the investment side, it's expertise, passion, discipline,
those three things.

Speaker 3 (11:55):
All top people have those.

Speaker 1 (11:56):
Yeah, I love the way you talk about focus. In
my company, we talk about focus all the time. You've
got what way I've seen over the years, and I've
been in my business forty five years and I see
hundreds of investors, thousands of investors and entrepreneurs, and what
I find is that those that are that focused and
really gained that expertise and that passionate they're always the

(12:19):
ones who win. It's the ones who are trying to
scatter themselves all over the place that tend to that
tend to lose. They're the ones who are losing money
where you guys are out there making money. And so
let's talk about a tough time, So talk about changing markets.
So New York twenty twenty became a ghost town and

(12:40):
uh and since then, the whole world's changed. I mean,
we have we have people working from home, we have
people working you know, remote, part time, et cetera. Would
you talk a little bit about how's from your perspective,
how's that changed the commercial real estate market?

Speaker 3 (12:56):
Sure? Well, Tom, I think that's a great question.

Speaker 2 (12:59):
What I would recommend and if you really want to
get very granular on this topic, by rot in my
book Selling Buildings, because we talk about what happened in
the markets during the savings alone crisis in the early nineties,
during the recession in the early two thousands, and after
nine to eleven, particularly in New York, and the GFC

(13:22):
and the pandemic, and we talk about what things were
like during each of these times, which were challenging. But
you know, I think back to the savings a loan crisis,
we ran our company on credit cards for three years.
I ran my personal life on credit cards for ten years.
You go to nine to eleven and the recession that

(13:42):
we were in at the time, and we made a
very bold move. At that time, every other company in
town was laying people off and downsizing and taking await
and see attitude.

Speaker 3 (13:53):
We went out.

Speaker 2 (13:53):
Hired a director of hr which we hadn't had up
to that point, and said, go out and hire all
these people the mark it's going to bounce back. Let's
be ready to take advantage of that. And when everybody
else was downsizing, we were growing. And when the market
started to get better in two thousand and three, we
were perfectly positioned to take advantage of it. And you know,

(14:14):
during the pandemic, I took that opportunity to do something
that has been the single greatest marketing thing I've ever
done in my career, which was to actually go out
and spend two hundred and twenty hours in the field
walking every block of Manhattan south of ninety sixth Street

(14:35):
on the east side, south of one ten on the
west side. I've created what I call the Knackle Map Room,
which has a gigantic map that's twenty four feet long,
ten feet wide that it's highlighted. I had sections of
this thing out in the field with me. It is
an analog map room in a digital world, but it

(14:56):
is so impactful on people, and I wouldn't have I
had the time to do it or the ease with
which to do it, other than during the pandemic when
there was no business going on and there was nobody
in New York City. It was a ghost town. So
it was a perfect time to go out and do that.
You know, Historically, over the course of my career, I've

(15:18):
given over ten thousand pitches. I've won historically twenty six
percent of those pitches. But when I've been able to
get clients into the Nackle map room, I've now won
thirty nine out of thirty nine pitches, one hundred percent
success rate. Because that giant piece of paper very clearly

(15:40):
demonstrates market knowledge that is beyond the depth that anyone
else has. And that's really again that that's that expertise
component that if you can have the expertise and be
able to articulate the expertise gives you a tremendous advantage
over others. And so we look at these these times

(16:01):
when things were tough, and those are actually times that
are filled with great opportunity.

Speaker 3 (16:06):
And you know, we.

Speaker 2 (16:08):
Got we got very lucky to have good credit in
the during the SNL crisis, got made a huge bet
that could have totally tanked us UH at post nine
to eleven if the market didn't come back UH. And
you know, having the opportunity to go out and create
the map room has been the single greatest thing that

(16:30):
I've done professionally in my career.

Speaker 3 (16:32):
I I own.

Speaker 2 (16:33):
My only regret is I wish I had done it
thirty years ago. But you know, you you have to
see opportunity during challenging times.

Speaker 1 (16:43):
Yeah, for sure. So how have you seen commercial real
estate change and the development opportunities You're you're you're you're
in that development space. Have you seen that changed? Are
people in New York there in the rest of the country,
are they still working a lot from home? Is there's
still a lot of remote so you still have a
lot of aacant office space there like we do here

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Speaker 3 (17:54):
You've had.

Speaker 2 (17:56):
A better than average return to work swing here in
New York. I think New York is probably the number
one marketplace in terms of people getting back to work.
We also happen to be the city with the largest
net population growth. In the last twelve months, we've had
plus eighty nine thousand new people have moved into New York.

Speaker 3 (18:19):
So that's a positive thing.

Speaker 2 (18:21):
But the development landscape here has changed very dramatically. We
have you mentioned the office space. We at one time
had close to one hundred million square feet vacant. Think
about that, there are only six cities in the whole
country that even have one hundred million feet. We had
one hundred million feet empty. We now have about seventy

(18:45):
million feet empty because about thirty million of these square
feet in sixty four properties are being converted from office
to residential. We have a very very compelling tax ebatement
program that is incentivizing the private sector to do these conversions,
and you know, the market definitely, people are seeing the opportunity.

Speaker 3 (19:09):
We have too much office.

Speaker 2 (19:10):
Space, most of which is very old and functionally obsolete. Uh,
and we desperately need housing. Our policymakers here have not
figured out how to stimulate new housing creation. So there's
a huge demand to convert this older, obsolete office stock
into into housing.

Speaker 1 (19:32):
So that's what's going on. That's how it's being taken
care of. Is that you're actually changing the use to
to the residential use because that's what's needed. So you're
always looking for what's needed.

Speaker 2 (19:47):
Yeah, and if you look at the B and C
not to get too granular, but you know, our B
and C office stock here in New York is really suffering.
Those buildings, you know, six seven, eight years ago were
selling for six hundred, seven hundred, eight hundred dollars per
square foot. They're selling for in the two hundreds today,
some even below two hundred, which is below land value

(20:11):
even after you layer in demolition cost. So what we're
seeing in the Garment Center, which is right where my
office is, we have a Midtown South rezoning that is underway.
It's gotten some preliminary approvals, waiting for final approval, which
hopefully will come by the end of August. That will

(20:33):
incentivize the demolition of a lot of these buildings. So,
you know, most people who are familiar with New York
think the Garment Center is a little gritty and grimy.
But I gave a speech a couple of months ago,
and I said that if Midtown South rezoning passes in
its current form, ten fifteen years from now, the coolest,
hippest place to live in New York City.

Speaker 3 (20:54):
Is going to be in the Garment Center. And people
were shocked.

Speaker 2 (20:57):
I said that, but if you're in a neighborhood where
half the buildings are going to be brand new, it's
going to be pretty cool to live there. So lots
of things changing in New York.

Speaker 1 (21:07):
So that's an interesting question. So are you seeing that
existing owners. Let's say you've got an owner of an
office building that is largely vacant. Are they doing are
they bringing in and renovating it, or are they selling
it to a developer? Are you ending up buying that
for one of your clients.

Speaker 2 (21:26):
Well, unfortunately, most of these folks have debt on the
property that is way higher than the building value, so
they're unable to sell it unless they get the lender
to go operate in a short sale. But it's the
folks who are in trouble and being forced by the
lender to sell the property that are transacting, and you know,

(21:47):
it's shocking. It's a very interesting time in New York
and that different market sectors in terms of property type,
are moving in different directions. At the same time, certain
sectors are doing really well. Retail properties are on the
up swing. Hotels are the hottest sector in the market.
Plan values are going up. Industrial is still very very strong.

(22:09):
But then you look at our apartment building market still
facing tremendous policy headwinds, and then our B and C
office sector. You know, I thought six months ago, I
thought we had bottomed out, but yet it seems like
every week we're hearing about a new transaction that's occurring
at an even lower price point. So don't see a

(22:32):
bottom to that market yet. But you know, this is
why local market expertise is so important, because very confusing
to have different sectors moving in different directions at the
same time. That's never happened before. So it's very very
interesting times and you have to really be paying attention
to figure out what's going on.

Speaker 3 (22:52):
Well, and.

Speaker 1 (22:54):
I've read you talk a lot about how important information
is in the commercial real estate mark. How do you
sift through how do you even find and sift through
all that information? What are your clients looking for?

Speaker 2 (23:07):
Well, clients are looking for insight And you know one
of the interesting points that I always find fascinating and
mind blowing. So they have clients, some of whom have
very substantial portfolios. Maybe they own twenty thirty forty buildings,
but most of these folks are so myopic in their

(23:27):
day to day activities. They're looking at their buildings. They
have to refinance this one, renovate that one, the tenant's
up for renewal. They're so busy working in the day
to day activities of their buildings that they often don't
take a time to step back or go to thirty
thousand feet and look at what's happening in the entire market.
So we try to give them that insight, and so

(23:51):
clients are always looking for, Hey, what's happening in the market.
You know, the most frequently asked question that you get
as a broker is how's the market? And as Rod
will tell you, most people answer that question with adjectives.
The expert answers that question with statistics. You know, we
have two volume metrics. We have the dollar volume of

(24:11):
sales and the number of properties sold. We have a
value metric. Whether those numbers are going up or down,
and how much they're going up or how much they're
going down really gives the client insight into what's happening
in the market. So we always try to share that
information with them for a couple of reasons. One they
want to know because what's happening will impact the.

Speaker 3 (24:33):
Value of their properties.

Speaker 2 (24:36):
But secondly, we want to make a good impression on
them so that when they do want to transact, which
is not all that often because if you think about
it in Manhattan, using Manhattan as a microcosm south of
ninety sixth Street, this twenty seven six and forty nine buildings.
Over forty years, the average turnover rate of that stock
has been two point six percent, which means in the

(24:56):
average year, seven hundred and nineteen properties sell. The highest
that turnover rate ever was is four point three percent.
The lowest that ever was was one point two percent.
And if you look at that two point six percent
turnover ratio, what that tells you is when someone buys
a property in New York, they will own it for

(25:17):
thirty eight and a half years before they sell it.
So they're not constantly transacting. So you have to remain
top of mind. And it's easier to remain top of
mind if you can impress them with your market knowledge,
and if you just say, oh, the market's hot, the
market's cool, the market's not doing so well, we're really busy,
it will leave a better impression that will make you

(25:37):
more memorable and rememberable, so that when the client does
have to transact, they think about calling you.

Speaker 1 (25:45):
So, with information at such a premium in your business,
where does where do you see AI coming in play?
Because in most businesses, AI is dominating because it has
all the information. Does is it is it easy enough
to get to the information so that you can use
AI tools to identify, you know, really what you're looking for?

Speaker 3 (26:10):
You go ahead answers that, Yeah.

Speaker 4 (26:12):
You know, great, that's a great question, Tom, because AI,
when you have access to the information, is an incredible
thought partner. Never a thought leader, never a thought leader. Ah,
he's a thought partner. Right, But that's that and that's
where folks like Bob. Right, Bob has primary information. So
in the commercial side, the biggest UH provider of commercial

(26:34):
information would be a co star and an up and
coming craxy platform, right, but you would need the access
with your AI a PI to get access to those
and they don't allow that. They don't. So what does
that mean even though it's a great tools like AI,
if you can't have access to mark information the way
it works if you have your own primary information. And

(26:54):
that's that's why Bob's a goat. He has all the
primary information. So you combine the prime information with with
the with the queries you want you in AI, now
you become the facto. You are now the market leader
of intelligence you are.

Speaker 2 (27:08):
So so let me let me answer that too, because
I want to tack onto that because I think it's
really interesting. And you know I started the new business,
uh sixteen months ago. My first hire was an AI
guy because you know I I love uh doctor Benjamin
Hardy and Dan Sullivan's books, and one of them is

(27:30):
who Not How? And the premises when you have a
good idea and you say to yourself, that's a great idea,
how am I going to do that? You're asking the
wrong question. It's that's a great idea. Who am I
going to get to do this for me? So, realizing
that AI was becoming so popular through all my work
with Rod, I said, I have to get on top
of this. I'm not going to study AI and get

(27:52):
to learn it. Let me hire an AI guy to
come in. And so my COO is an AI guru.
And so the way we're using AI is in two
main ways. We use it for prospecting and deal execution,
which are nothing more than funneling processes. We go thousands

(28:12):
of people to hundreds to dozens to a few.

Speaker 3 (28:15):
AI is great for that.

Speaker 2 (28:17):
The other way we're using AI, which potentially has the
most power because AI can do that millions of calculations
in a second. But it is going to be the
toughest for the industry to utilize is in data interpretation.
The reason it's going to be so hard is most
data sets in at least in New York City are

(28:39):
really horrible.

Speaker 3 (28:41):
You know, you have a.

Speaker 2 (28:42):
Change in the head of research, and they have different
ways to calculate things, And you know, I always say
that the absolute numbers are not nearly as important as
the trends over time. How much are they they going
up or going down, how much they're going on, how
much they're going down. For instance, if I told you

(29:03):
that in twenty nineteen there was twenty six point three
billion dollars of investment sales activity in Manhattan, you really
wouldn't know what to think about that number until I
tell you that at the peak of the market in
twenty fifteen, it was fifty seven point four billion, and
during COVID, at the bottom of the market, it dropped

(29:24):
to eleven point one billion. So now the twenty six
point three starts to have some feel to it for you.
And in the same way, it's the relationship between numbers
in a data set over time that are really insightful
and meaningful. And so we're fortunate in that I've always
been a very statistics oriented guy. As a kid, I

(29:45):
collected baseball cards and always spent much more time looking
at the back of the cards than the front of
the cards. So I've always been into stats. So I
have real estate data sets that go back to nineteen
eighty four, where the methodology for calculating the data has
remained exactly the same. So in our data sets, we

(30:05):
have true apples to apples comparisons. I don't think that
exists anywhere else. And so we're applying AI models to
these data sets to come up with some very intuitive
and predictive things that we can get from the data.
So it's been it's been really really cool, And you know,

(30:26):
Rod probably I would say Rod probably knows more about
AI within the real estate industry than anybody else. I mean,
he spends time every day studying it, and it has
really been fantastic to work with him and to understand
all these things that are changing the.

Speaker 3 (30:43):
Way they are.

Speaker 2 (30:44):
I mean I always say to people, you know, when
I started in this business at eighty four, at my desk,
I had no computer, no fax machine, no cell phone.
We carried rolls of quarters around to make calls from
the payphone at the corner. And you know, you look
at how much things have changed in the past forty
one years, but I think that they're going to change

(31:05):
even to a greater degree in the next five because
AI is moving so quickly, and you know, the tool
that we just got comfortable using that's two months old,
you know, becomes a dinosaur because something new comes out
that's bigger, faster, stronger, broader, more powerful, and it's just
moving so quickly.

Speaker 3 (31:26):
It's it's mind blowing.

Speaker 1 (31:27):
So do you think that do you see that the
data is going to become more become more accessible or
is it going to still stay as difficult as it
is that you really need an affiliation with somebody like
you in order to have access to that data. It's
not going to be regularly public like in a lot

(31:47):
of industries.

Speaker 3 (31:49):
Yeah, you know, it's not.

Speaker 2 (31:50):
The data does not exist in a form that can
get by without some type of proprietary manipulation to it.
For instance, I sell a development site. I sold the
development site last year on the Upper east Side. It

(32:10):
was a seventy seven million dollar transaction, and anybody who
looks at the public record sees, oh, a sale of
seventy seven million dollars, and it was ex buildable square
feet were in an as of right zoning jurisdiction in
New York.

Speaker 3 (32:24):
So you figure out or know.

Speaker 2 (32:25):
What the buildable footage is, divide the price by the
buildable footage, you get the price for square foot. That's
what everybody believes the price to be. But people who
are just looking at what's in the public record don't
know that you had to pay three and a half
million dollars on top of the price for a light
and air reesement to an adjacent property. They don't know
that you had to pay a million and a half

(32:46):
dollars for a first rider refusal on two adjacent parcels.
They didn't know that you had to pay ten million
dollars to two rents stabilize tenants to get them out
of the building.

Speaker 3 (32:56):
So all of a sudden, the.

Speaker 2 (32:58):
Price is actually fifteen million dollars higher than you thought
it was. And if you're relying on the public record,
you go in and you compete on the next assignment
with me, and you say, hey, the price for square
foot was four hundred dollars a foot, And I say, no, no,
it wasn't. It was four hundred and eighty dollars a
square foot because you didn't layer in these other things
that you were unaware of. So in each case we

(33:21):
try to, you know, for land transactions in New York,
I speak to the buyer and seller of everyone and
ask all these questions. Were bonuses included, were contracts included
to buy other things?

Speaker 3 (33:33):
Was there anything?

Speaker 2 (33:34):
Was there an environmental condition that required additional money? In
terms of remediation, you have to know you have to
break each transaction down on an apples to Apple's basis
to truly make them comparable. And if you don't have
that level of insight into the material, you could have
the greatest you know, algorithms in the world. They're gonna

(33:57):
spit out bad information because you're starting with bad information.

Speaker 1 (34:01):
No, it's sounds like a really good example of the
who not how right. You've got to have good advisors,
good team members, and Rod, that's kind of your expertise
right as you're coaching these team members. So if an
investor were looking for a great broker and it wasn't
and they wanted a you know, particular slice, they're looking

(34:21):
for particular expertise, what would you tell them, Rod about
you know what are you looking for?

Speaker 4 (34:27):
You got you got to absolute look at their track
record and as Bob shares, based on the what you're
looking to purchase. Was a multifamily asset, is an industrial asset?
Is it? Whatever it is? Does that person? Is that
person the expert in that asset class, because every asset
class is a different set of rules and regulations, just

(34:48):
from a negotiation standpoint and a business standpoint. If you
don't know those little facets, you don't leave money on
the table. You just are uh way too many investors
and I mean this eight too many investors commercial and
residential either don't use a broker, which is a huge mistake.
It is because the money they'll save them is expancing

(35:10):
more than the commission they'll pay. But then they use
their wrong broker because of a gut or friend or
worst case, a relative. And I'm sorry, I don't mean
to be a negative here. You can't use a residential
broker for a commercial transaction. You simply can't, Nor should
you ever use a commercial broker for residential transaction. You shouldn't.

(35:31):
So make sure the broker you're choosing has a clear,
articulated success path in that specific asset class. And you'll
be fine.

Speaker 1 (35:43):
So if you were to just give investors somebody wants
to invest in commercial real estate, you would give them
three pieces of advice, three things that they ought to
be doing. Let's start with you, Rod, what would you
have them be doing?

Speaker 4 (35:58):
Number one? Get a broker? Number two, just like I have,
I have a tax strategist, I have a CPA, I
have insurance advisor, I had, I have specialists that I
don't know what I don't know, and I don't want
to leave money on the table. So please get a broker.
Number two. Have a long term plan, right. I know
why you're buying that asset and what the EXI strategy

(36:20):
might look like. I have that defined before you go
into it. You need to know what success looks like.
Often people don't define that. What does success look like
when I do this transaction? And last, but not least,
make sure you choose vanity over sanity. I'm sorry, sanity
over vanity, I got that wrong. Make sure you choose
sanity over vanity. You won't be proud to own a

(36:41):
building that's you know and tell your friends, look what
I own. That's the stupidity.

Speaker 3 (36:46):
It just is.

Speaker 4 (36:48):
So always choose sanity over vanity or making a real
estate decision. I like that.

Speaker 1 (36:53):
What about you, Bob, What are the three things you'd
advise people industors to do well?

Speaker 3 (36:58):
Tom?

Speaker 2 (36:58):
I My practice is little unusual in that, and my
value proposition has been the same for forty one years.
I only sell buildings, I only represent sellers, I only
work on exclusives, and I only sell buildings in New York.
So my opinion is choose vanity over sanity overpay for

(37:20):
buildings so that my clients do a great job. But
you know, what I tell seller is similar to what
Rod said. I tell my clients, choose a broker. Have
somebody who knows what they're doing in your corner fighting
for you. If you don't like me and don't want
to hire me, go find somebody you do like and
hire them. You need somebody in your corner to help

(37:42):
you sift through this. You know, there's so many people
climbing around the market in New York today that every
time I get hired, the owner has had offers, he's
met with people. The neighbors for twenty years have said,
if you ever sell, come to me.

Speaker 3 (37:56):
There are always interested parties.

Speaker 2 (37:58):
So a lot of it is just kind of orchestrating
the right process to make sure that the seller gets
the highest possible price. I always tell people you can
only sell once. There are no do overs.

Speaker 3 (38:11):
If you sell at.

Speaker 2 (38:13):
The wrong price, you can't get the property back and
try again. So although there's no law that says you
have to sell at the highest price, why not sell
at the highest price? So, you know, hire a broker,
have somebody in your corner fighting for you, and you know, again,
from my perspective, I'm just trying to get the highest
possible price for my seller. I hope that the buyer

(38:34):
makes money. I hope they're happy they bought the building,
but I really don't care that much. I just need
to get the highest price for my client. And if
the buyer does.

Speaker 3 (38:43):
Great, so be it.

Speaker 2 (38:45):
If the buyer does poorly, so be it. But I
just I have a fiduciary responsibility to my seller to
get them the highest possible price I can, And focusing
on this one narrow value proposition makes life very easy.
I never have conflicts of interest, I never have to
remember what I say to anybody. All I'm doing all

(39:06):
day long is just trying to get the highest possible price.
I can for my client.

Speaker 1 (39:10):
I love it. You're an advocate. I love that. So
I have to ask one last question because I'm a
tax guy. I want to know your thoughts on So
this new tax bill is bringing back full bonus appreciation
certainly has an impact. How much of an impact does
it actually have, do you think in the marketplace?

Speaker 2 (39:31):
Well, I think to the extent that it will impact
the flow of capital. It's profoundly impactful. And if you
think about this, most people make the mistake of believing
that interest rates are highly correlated to cap rates, and
it's not true. Cap rates are highly correlated to capital

(39:56):
flows than they are interest rates. And as an exis, Tom,
you're you're in Phoenix, right, he said, So if I
gave you three billion dollars of equity and said, Tom,
go buy up every apartment building you can in Phoenix,
I guarantee you, regardless of what the interest rate environment's doing,
cap rates on apartment buildings are going to go down

(40:19):
because you're deploying that three billion dollars in your market.

Speaker 3 (40:22):
Right.

Speaker 2 (40:22):
So, to the extent that there's a tax advantage to
deploying capital, and more capital is being deployed, it will
impact the market very profoundly.

Speaker 1 (40:33):
I love that. That's really great insight. Rod any thoughts
on that, No, he's the best. That was awesome. That
was very well said. So the book is selling buildings,
maximizing prices and profits in real estate. And you show
it again there you go, right, And our guests have
been Bob Mackle and Rod Santa Masimo and it's been

(40:54):
a pleasure having you guys, absolutely, And just remember that
when you really get what I've gotten out of this
is you get really focused, you get a really good
team together, and you don't deviate from that. And when
you really when you do those right things, you'll always
make way more money and pay wayless tax. We'll see

(41:15):
you next time on the Weltibility Show.

Speaker 3 (41:16):
Hey Tom, thank you Tom.

Speaker 1 (41:18):
Thanks for listening to The Wealtability Show. If today's episode
gave you a new perspective, remember this, the tax law
is not your enemy. It's a roadmap and when you
know how to follow it, you can build real lasting well.
If you're a business owner or investor who's tired of
overpaying taxes, the Wealthability Accelerator is your next step. You'll

(41:39):
have the opportunity to work directly with me for eighty
percent less than my standard rate, and I'll personally guide
you through how to change your facts so that you
can change your tax. Go to wealthability dot com slash
bonus and apply today. Remember it's not just what you make,
it's what you keep. This podcast is a presentation of

(42:07):
rich Dad Media Network.

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