Arie van Gemeren is the Founder and Owner of Lombard Equities Group, a real estate investment firm with a portfolio valued near $150 million, focused on tier-1 value-add properties in major West Coast cities. With experience as a Principal at Rising Tide and an investment advisor at Goldman, Sachs & Co., where he oversaw $4 billion in client assets, Arie brings a strong financial background. He earned his CFA designation and holds degrees in History, Political Science, and Philosophy from UC Davis, where he competed in Division 1 swimming. Arie lives in Portland, Oregon, with his wife and four children and serves on several local boards.

You can purchase Arie’s book here https://a.co/d/8SxT06E

Here’s some of the topics we covered:

  • Transitioning from stock market success to real estate investing
  • Comparing yield play and value-add style strategies
  • Understanding the dynamics of the family office business
  • The Power of Connecting People
  • Using Tax Codes To Your Advantage
  • One of The Earliest Pioneers In Multifamily Real Estate
  • The Benefits of Investing In Blue Cities
  • A Deep Dive Into Rent Control Laws
  • Navigating tenant evictions in blue state rental markets
  • Taxation On Real Estate In Blue Cities
  • Key reasons Arie avoids investing in red states

To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com

Full Transcript Below

01:20:15:12 – 01:20:33:00
Rod
Welcome to another edition of Life Time Cash Flow through Real Estate Investing. I’m Rod Khleif and I’m thrilled you’re here. And I’ve already had a lot of fun, pre-recording with the gentleman I’m interviewing today who happens to be a fellow Dutchman. I was born in the Netherlands, if you didn’t know that. But, Yeah. Wooden shoes, windmills.

01:20:33:03 – 01:20:51:12
Rod
I tell the story about getting dumped into school and didn’t speak English when I was six. And then my mom sent me to school in wooden shoes. So I found out what bullies were for the first time. But, anyway, my guest today is Arie Van Cameron, and, Arie is the founder and owner of Lombard Equities.

01:20:51:15 – 01:21:05:00
Rod
And his holdings are primarily in the Pacific Northwest in Blue State. So we’re going to have a lot of fun debating the difference between that and Florida, because he said he won’t invest in Florida. And I say all the time that I want to invest in a blue state. So we’re going to have a lot of fun with that.

01:21:05:08 – 01:21:06:07
Rod
Welcome to the show, brother.

01:21:06:07 – 01:21:07:21
Arie
Thank you. Rod. Good to be here.

01:21:07:23 – 01:21:23:17
Rod
Thank you so. And I know you flew all the way from freaking Portland. Doesn’t get any bluer than that. But, I’m. I’m honored that you came all this way, buddy. And so, you know, let’s start by just having you tell your story. You know, you’ve got quite an interesting background. You’ve, you’ve you’ve done some pretty, pretty cool things.

01:21:23:17 – 01:21:26:04
Rod
So let let my listeners know.

01:21:26:07 – 01:21:38:21
Arie
Yeah, absolutely. So, been in real estate now for about five years. Started my career with Fisher Investments and was a stock market research analyst, actually working out of Ken Fisher’s home in Woodside.

01:21:38:27 – 01:21:40:08
Rod
No kidding. Yeah.

01:21:40:10 – 01:21:59:19
Arie
Amazing place to work. Amazing company. Amazing CEO. Could not say more good things about them. I went to Goldman Sachs after that. It was in the private wealth group and working with a lot of very affluent and wealthy investors in the San Francisco Bay area. And, after that period, I had started acquiring real estate on my own account in Portland.

01:21:59:20 – 01:22:23:06
Arie
So I can’t wait to talk about why Portland is a great place to invest, but okay. Started buying in Portland around that time and then left Goldman to join one of my client’s family offices. So I was working in the family office business, working for the family, investing in property, technology and financial technology companies, but continuing to buy real estate on my own account over that time and 2020 hit.

01:22:23:09 – 01:22:40:16
Arie
Covid hit. And, it seemed like there was this interesting window of time and opportunity to get into this business that I learned a lot about. And, I had built a huge Rolodex of families and people that I knew. And so I said, would you guys be interested in investing in larger projects like, these are the deals I’ve done.

01:22:40:18 – 01:22:48:13
Arie
Do you want to do something bigger? And people were excited about it. So in late 2020, we got started and, been building the company since then.

01:22:48:16 – 01:23:12:21
Rod
Okay. And I know, you’ve got about 500 doors, which on the, you know, in the Pacific Northwest is, equivalent of about 1000 or 1500 in pretty much anywhere else. So it’s not insignificant. And, so, talk about so you’ve been building this ever since, talk about your team. Is it just you now, or do you have other people that you work with?

01:23:12:22 – 01:23:12:29
Rod
Yeah, we.

01:23:12:29 – 01:23:28:13
Arie
Have a couple analysts that work with us. Okay. And then we in every region we’re in, we obviously have a third party management company to work with. So I view them as an extended part of our team. She’s you know, I think anybody in this business would agree. Managing the property management company is a lot of the job.

01:23:28:19 – 01:23:32:26
Arie
And so we’re in constant communication with these guys. Sure.

01:23:32:28 – 01:23:36:00
Rod
Do you do, yield plays or value add?

01:23:36:03 – 01:23:59:12
Arie
We do both. Okay. I would say I’m a little bit mindful of what the market is offering at the time. So I started as a value add guy. All my deals 2020 through the end of 2023 were value add deals. I’ll still look at value add deals. I’m starting to see opportunity in vintage assets in core cities on the West Coast.

01:23:59:15 – 01:24:21:18
Arie
No market, no buyers insurance problems cap, like improvement problems. But the pricing on those has dropped so far that we’re now seeing seven, eight, nine cab deals available in course Seattle in core San Francisco, where you can get a really high cash yield up front. So our perspective is we’ll do a value add deal, will buy a suburban value add play.

01:24:21:18 – 01:24:26:10
Arie
But if I’m presented with, double digit cash flow type deal like.

01:24:26:13 – 01:24:30:24
Rod
Explain, explain to my listeners the difference between a value add in a yield play, if you would. Sure.

01:24:30:24 – 01:24:48:17
Arie
Of course. Yeah. Value add is like we’re going to buy an apartment complex and there’s something we can do to it, right. To improve it, to improve the final net operating income off the building, which then drives up the value of the building. So and I like those deals, honestly, they’re my preferred kind of deal because I like that you can control the.

01:24:48:21 – 01:24:50:15
Rod
You can force appreciation by your efforts.

01:24:50:15 – 01:24:52:17
Arie
You can. Exactly right. Couldn’t say it better.

01:24:52:17 – 01:24:53:20
Rod
So you’ll play.

01:24:53:22 – 01:25:14:25
Arie
You’ll play by contrast, is something where I’m not going to do anything with the asset. I just feel that we’ve bought it so cheap that we can put a loan on the building, a long term loan, and the difference between, the capitalization rate and the loan rate is so dramatic that the investors receive a very high current cash yield on the building.

01:25:14:27 – 01:25:31:14
Arie
So you get much higher return upfront in cash. But I can’t control appreciation to the same level. So so you’re a little more exposed to like what the market wants to give you. But you do get current cash yield. So that’s the yeah.

01:25:31:14 – 01:25:56:06
Rod
No, I mean, you know the name Grant Cardone. He’s here in Florida. And, he does primarily or did primarily yield place, although he and I went back and forth a little bit. He’s now doing remodeling and CapEx work to improve his properties. But, you know, banking on rents to continue to go up, banking on I mean, I saw one of his pro forma and it actually had 10% per year.

01:25:56:09 – 01:26:15:24
Rod
On rent bumps. So I’m like, no, no, no, I love Grant. But no, I didn’t buy that. But, but anyway, so that’s the difference there, guys. So, one of the things, so you’ve got a couple of analysts that that help you look at your deals. You you’re involved in the asset management, which is the most important piece.

01:26:15:24 – 01:26:36:19
Rod
And I will tell you, there are a lot of you challenges with third party property management companies when you’re when you’re geographically diverse. But yeah, I, I’ve come to the realization that the most successful people that I’ve met in this business stay geographically specific. For that reason, I think because of the challenges of management. So they ultimately can vertically integrate.

01:26:36:25 – 01:26:53:25
Rod
Yep. I agree. Yeah. So, talk about, if you don’t mind, because I’ve never really had someone on the show talk about family offices before. And I think that this is a great opportunity because, you know, I get my students, my warriors, my coaching students, they’ll ask, you know, how do we get in with a family office?

01:26:53:25 – 01:27:12:14
Rod
And I’ve I’ve attended conferences and heard people speak about this. But I’d love for you to tell my listeners. So if someone wants to do business with a family office, what suggestions might you make for them to evaluate who they’d even want to approach? Right, okay. And then how they would approach you got any thoughts on that?

01:27:12:16 – 01:27:26:23
Arie
Yeah. So I have a lot of thoughts on it. Okay. Have you spent a lot of time talking to and trying to work with family offices even before my company? First of all, who are they? Really difficult to figure that out.

01:27:26:27 – 01:27:27:26
Rod
Who? The offices.

01:27:28:02 – 01:27:31:12
Arie
Who are, like, who are who? Who is a family office? What is a family office?

01:27:31:12 – 01:27:32:00
Rod
Okay. We’ll speak.

01:27:32:00 – 01:27:39:12
Arie
To that. Many of them are intentionally very private about who they are. They don’t make it. They don’t hang a shingle and make it very obvious who they are.

01:27:39:12 – 01:27:39:25
Rod
I see.

01:27:39:27 – 01:27:47:11
Arie
So I think the first challenge for anybody getting into the family office businesses is to identify who is the family office in the first place.

01:27:47:11 – 01:27:50:12
Rod
Well, I know there there’s, Oh, God, I had him on the show.

01:27:50:13 – 01:27:51:19
Arie
Oh, yeah, I know, family office club.

01:27:51:20 – 01:27:55:02
Rod
Yeah, yeah. And they have a whole listing of a bunch of them. I think that’s the name.

01:27:55:05 – 01:28:14:23
Arie
They have a list of it, I would say. The other thing is that family offices are not a monolith, so they don’t all they’re not all interested in real estate. Right. Which is surprising because I think everybody should do real estate, but they’re not all interested in some of them. I just had a conversation last week with a very impressive, you know, billion dollar plus family.

01:28:14:25 – 01:28:20:08
Arie
And all they want to do is tech growth place. And they were not interested in real estate. So

01:28:20:11 – 01:28:21:18
Rod
Right quick hits.

01:28:21:20 – 01:28:29:20
Arie
Yeah. So sussing out, sussing out, what the family’s interested in in the first place. Do I do real estate in the first place? And then obviously.

01:28:29:27 – 01:28:34:11
Rod
I think, you know, he’s got a listing where you can see what the target.

01:28:34:13 – 01:28:35:09
Arie
Investment.

01:28:35:11 – 01:28:50:10
Rod
Properties opportunities are that they’re looking for. Yeah. So that’s that’s a resource guy’s family office club. Give him a shout out. I he does a nice job. He does events all over the country as well. Last time I checked, he did, so you got to figure out if they even want real estate.

01:28:50:10 – 01:28:51:05
Arie
Do they want real estate?

01:28:51:05 – 01:28:53:15
Rod
And and geographically, probably geographic.

01:28:53:15 – 01:29:14:02
Arie
The type I find is a Pacific Northwest investor that I don’t even usually bother talking to Florida family offices because they don’t want to go that far to the north. And same thing and vice versa. Yeah, vice versa. And, often oftentimes family offices are very focused on control. So understanding, you know, are they willing to share with other investors.

01:29:14:06 – 01:29:27:26
Arie
And, you know, I kind of laugh about this because whenever someone says to me, like, I’m willing to invest of you, but I need to be the only investor I said, that’s great. Like, let’s figure out a deal to do together that works for you, right? But that’s important to understand as well.

01:29:27:28 – 01:29:46:18
Rod
So let me stop you there for a second, especially the control piece, because we and I bought an asset in Lexington, now 188 units, I think. And the seller was pissed because his private equity family office, in this case was insisting that he sell. So they had control over over sale decisions. And he didn’t want to sell.

01:29:46:20 – 01:30:04:06
Rod
Yeah. So that’s what he’s talking about. Your guy. So, you know, if you, if you decide to, you know, approach a family office and you’ve got they’re going to want to see some, some historical, success on in your portfolio as well. They’re going to want to see that you’ve gone full cycle on deals, meaning you bought and sold a deal as well.

01:30:04:06 – 01:30:04:22
Rod
Correct?

01:30:04:22 – 01:30:24:00
Arie
I’m sure not. Not in every case. I would say yes. And it’s, if you get into the world of moving beyond family offices just for a second, but if you get into the world of institutional JV partners, right. Definitely. They want to see full cycle deal deals. Family offices are interesting and alluring because they’re also very relationship driven.

01:30:24:00 – 01:30:33:14
Arie
So if you can develop a good relationship with one, that kind of backs away a little bit. If the family office personnel like you, they trust you, they want to work with you.

01:30:33:19 – 01:30:37:27
Rod
How would you develop a relationship like that? How could you possibly add value? Any idea?

01:30:37:29 – 01:30:45:06
Arie
There’s a lot. I mean, I think, as a former private wealth guy, I think there’s a lot of ways to add value to your network.

01:30:45:06 – 01:30:45:19
Rod
Okay?

01:30:45:21 – 01:31:03:05
Arie
Like, we I think the one of the, the things people can add in, unequal monetary situation where the family office has a lot of capital and maybe you don’t, but you have other things. We’re constantly meeting people. How to how what else are you looking for? Do you want to meet somebody that’s building interesting tech companies? I know someone else is doing that.

01:31:03:05 – 01:31:09:05
Arie
Let me introduce you to this guy making introductions of where you’re not getting anything out of it. You’re just like, how.

01:31:09:10 – 01:31:09:25
Rod
Do you.

01:31:09:25 – 01:31:10:25
Arie
Like, what can I do for you?

01:31:10:26 – 01:31:26:17
Rod
Love it. Love it. Yeah, I call that super networking. Actually, you know, you meet these people that when they meet you, they find out what you need, and they’re always asking what everybody needs, and they put people together. I consider that super networking. And that’s a great example of a tier. So how you could add value okay I love that.

01:31:26:24 – 01:31:39:15
Rod
And so you got to find out what they want. You build a relationship. What sorts of controls have you see them. Have you seen family offices put in place? If you know, since you mentioned control.

01:31:39:17 – 01:31:59:19
Arie
The ones that have invested with me have not insisted on control. So I haven’t seen it too much. But I what I have seen in conversations more recently with newer family offices we’ve engaged with are they want to be able to make the sale decision exactly like you described in the Lexington deal? They want to be able to make the decision on the refinance.

01:31:59:21 – 01:32:14:05
Arie
You know, I think I’ve engaged with family offices where they want to exit you. So they may have a perpetual hold belief on the building, and they want to build in a way to make sure that you are no longer involved in a deal. Interesting. And and, you know, that can be pretty good for you to.

01:32:14:05 – 01:32:16:07
Rod
Sure. Because you can be like a buyout at a multiple.

01:32:16:07 – 01:32:30:25
Arie
Crystallize my promote pay me out and I leave. Right. And so there’s there’s a lot of different permutations that it takes. It depends on the family. And I would also say if we think about family offices, how they made their money is really relevant to how they think about investing.

01:32:30:25 – 01:32:51:22
Rod
So that’s that’s a really interesting point. Yeah. That’s a really because certainly the families involved in the decision making, by the way, family office, they’re going to hire financial people. They’ll hire CPAs to hire attorneys. They’ll hire, you know, a whole menu of people that direct their, their, their, you know, decisions on their money, but they’re still in the background making the real decisions.

01:32:51:22 – 01:33:08:07
Arie
Yeah, absolutely. Yeah. Because they have to sign off on it. Right. But the like I’ll give you a couple quick examples, like a real estate family that made its money in real estate probably isn’t interested in investing in your co-mingled fund. Right. They want to do direct deals and they want control.

01:33:08:09 – 01:33:08:26
Rod
Yeah.

01:33:08:28 – 01:33:19:14
Arie
By contrast, a tech family that made its money in tech may not want to do direct real estate deals. They may just want to invest in a co-mingled fund because they’re they understand that and they’re comfortable with it.

01:33:19:14 – 01:33:21:00
Rod
Interesting.

01:33:21:02 – 01:33:45:02
Arie
You know, in this new day and age, we’re in a Bitcoin family may not want to do any of it because they just want to do they just want to do bitcoin focus type investments. And so but I would say generally speaking real estate family offices are sort of a tough place to fish for capital because the, the as, as you know, and anybody in this business knows as a real estate person, you generally you think you want.

01:33:45:02 – 01:33:45:19
Rod
Where you I want to.

01:33:45:19 – 01:33:47:04
Arie
Put in my own deals like I know my own.

01:33:47:04 – 01:33:54:21
Rod
Stock. Exactly. You want to control that you you’re an operator. You know, you you don’t want some. You’re not going to invest in someone else’s deal if you’ve made big money in real estate.

01:33:54:22 – 01:34:05:15
Arie
Correct. And they have. Right. And they’re usually deal guys. And we see that with big real estate families where they’re like, well, I’ll do it. But that’s they’re the ones that usually want the most control as well because they’re like, well, I know this business.

01:34:05:15 – 01:34:23:14
Rod
I’m I’m really glad we’re having this conversation because is you really adding tremendous value here? I because that makes so much sense as it relates to the different types of, of of, you know, where the money came from just makes so much sense. So you still approach family offices to fund your deals then? I take it.

01:34:23:21 – 01:34:42:11
Rod
Absolutely. Yeah. Okay. And you deal with high net worth individuals as well. You said you dealt with physicians and and so on. And your website is Lombard equities.com. I want to give you a shout out there. You’re writing a book. Yes. All right. Let’s hear let’s hear about it, man. I know I think by the time this episode airs that you’ll be on Amazon.

01:34:42:11 – 01:34:45:03
Rod
So, sell the hell out of it. Tell me what it’s about.

01:34:45:03 – 01:34:56:18
Arie
Yeah. So I it’s a I’m a I’m a history guy. Okay, so I studied history in college history and poly sci and philosophy, and so, I was always interested in writing a book about the history of religion.

01:34:56:20 – 01:35:09:14
Rod
Poli sci is political science. Because I was going to give him shit because he loves the blue states and I love the red states. And then Matt’s like, hey buddy, he’s a poly site, grad. He’s going to kick your butt. So anyway, yeah.

01:35:09:16 – 01:35:18:06
Arie
Anyway, good. We’ll have a great conversation on it. I was always interested in writing. I enjoy writing, and I love reading. I think reading is a superpower. I tell my.

01:35:18:06 – 01:35:19:27
Rod
Kids. So my library downstairs, I did.

01:35:19:27 – 01:35:20:02
Arie
It was.

01:35:20:02 – 01:35:20:28
Rod
Beautiful. Thank you.

01:35:20:28 – 01:35:31:12
Arie
I told I tell my kids, the the closest thing to a superpower is to read because you can teach yourself anything and, and educating them on that same thing. So for me kids you have I have four children.

01:35:31:19 – 01:35:32:20
Rod
Age range.

01:35:32:22 – 01:35:35:00
Arie
My oldest is eight and my youngest is two months.

01:35:35:00 – 01:35:36:04
Rod
Holy cow. Yeah.

01:35:36:04 – 01:35:36:14
Arie
We’re busy.

01:35:36:14 – 01:35:39:24
Rod
Wow. Okay. Sorry to interrupt. Please continue. Wow.

01:35:39:27 – 01:36:13:07
Arie
So, writing is a passion of mine. It’s something I’ve always been interested in doing, and I wanted to combine what I do in real estate with my interest in history, with an interest in writing. So I wrote a new book called Timeless Wealth Real Estate Through the Ages, Timeless Wealth. And, the premise of the book was that in contrast to, you know, technology and, and things that are constantly changing, real estate has an immutable quality to it, and we should be able to learn from the examples of people that have come before, strategies that are timeless and continue to work.

01:36:13:09 – 01:36:31:25
Arie
And that was the premise of the book. And so it’s organized into ten chapters, and we kind of go through like, what are two historic examples of families that, you know, utilize value add as a strategy? What are historic examples of families that held, like long term buy and hold ownership of buildings, and how did they do that?

01:36:31:25 – 01:37:10:27
Arie
And, you know, and some unexpected detours in the book that I didn’t expect, like you, why does government create policies that incentivize people to own real estate in this country? Why should you take advantage of the tax code and the benefits that the government puts in place? Because there’s long standing history and reason why the founding fathers of this country and, the people that run this country have, over time realized that it’s important for people to be like the common man, not just the wealthiest families, to own, to own, to touch, to control their own real estate and there’s reasons why the tax code is the way it is, why it’s so beneficial for

01:37:10:27 – 01:37:15:11
Arie
owners. And there’s this asset class, but there’s and I could digress for a long time.

01:37:15:11 – 01:37:33:00
Rod
But you know, what’s interesting is, you know, that’s the reason Trump probably didn’t want to release his tax returns because he just he like you and me or anybody that’s in this business doesn’t pay taxes. I mean, that’s that’s the reason we’re in this is a reason why 90% of the world’s millionaires either made it in real estate or invested in real estate, mainly because the incredible tax benefits absolutely.

01:37:33:00 – 01:37:37:19
Rod
So so you dig into that, you dig into into why those laws were enacted.

01:37:37:20 – 01:38:04:03
Arie
I dig I dig into the idea that there’s nothing to be, to feel bad about, about taking, about using tax code to your advantage. Because I think some people feel dirty about it. But yeah, I think so. But I think my, my, my premise is basically that, there’s a very good social reason for the stability of a nation that we incentivize people to own property.

01:38:04:05 – 01:38:21:11
Rod
And I couldn’t agree more. And I will tell you, I would guess that it’s more the people that don’t own real estate that complain about it. Candidly, that would be my guess. Or the entitled people that, did complain about everything. I get hate every single day on social media. No one should own 800 houses. Like, okay, well, whatever.

01:38:21:11 – 01:38:40:16
Rod
Then go buy one at least. So you’re not bitching at me about it anyway. Don’t get me started. We’re going to political here if you’re not careful. Anyway, you talk about the different ways that people have created wealth through the ages. With real estate, you got value, and you’ve got long term hold. Is any anything else pop in your head?

01:38:40:18 – 01:38:46:10
Arie
I know investing in emerging markets early. So like people that were early in Hong Kong, people that were.

01:38:46:13 – 01:38:49:03
Rod
Oh so you you look at the whole world, Daniel. Well, we went.

01:38:49:03 – 01:39:06:25
Arie
I went beyond here. But yeah, we look I mean, we’ll look like I’ll give you an example. Marcus Crassus is one of the was known as the wealthiest man in the Roman and the Roman Republic at the time. Wow. One of the triumphs. He made his wealth in real estate. He was an early investor in basically multifamily housing in Rome.

01:39:06:25 – 01:39:07:20
Rod
No kidding.

01:39:07:20 – 01:39:34:04
Arie
At a time when the Roman elite were mostly wanting to invest in very nice like facilities, estates, different things, he saw this amazing opportunity where the Roman Rome was like space constrained and started buying up huge plots and especially after fires, and they would rebuild and put in place instead multi multi-tenant housing at that time.

01:39:34:11 – 01:39:34:20
Rod
Wow.

01:39:34:20 – 01:39:51:07
Arie
So the early, early pioneer of multifamily housing and he was known as one of the wealthiest. He was the wealthiest man in the Roman Empire and he built his wealth. He also invested in farmland. He had a bunch of things. Actually, a funny anecdote on it is, one of the, I think the benefits of government services that we have today.

01:39:51:07 – 01:40:11:24
Arie
This is a great story. Why there was no public fire brigade. So when fires would break out in Rome, Crassus had his own private fire brigade, and they would surround the building, and then they would negotiate with the owner on the spot, the purchase price he was going to take for the building. Only after they negotiated the agreement did he let his guys stop the fire.

01:40:11:25 – 01:40:17:13
Arie
Wow. So I say, this is one reason why we should be somewhat grateful that we have public services, right?

01:40:17:15 – 01:40:19:09
Rod
Wow. Wow.

01:40:19:10 – 01:40:22:18
Arie
That is an incredible, incredible story. John Jacob Astor is another.

01:40:22:19 – 01:40:26:28
Rod
Oh yeah. Really funny. I just watched Titanic the night before last and I think he passed on.

01:40:26:28 – 01:40:29:26
Arie
That is one of his, descendants. One of his.

01:40:29:26 – 01:40:31:14
Rod
Descendants still got it. So.

01:40:31:16 – 01:40:36:13
Arie
So, John Jacob Astor, and I would highly recommend the book Astoria to any of your listeners.

01:40:36:13 – 01:40:37:03
Rod
Astoria.

01:40:37:03 – 01:40:37:20
Arie
Astoria.

01:40:37:20 – 01:40:39:03
Rod
So, Santorini in the front.

01:40:39:03 – 01:41:02:11
Arie
A story is a city in Oregon. And John Jacob Astor and Thomas Jefferson, when he was president, set up a fur trading depot in Oregon when it was still a no man’s land as a as an incredible play on controlling the beaver trade on the West Coast of the United States when it was not controlled by any European power.

01:41:02:13 – 01:41:19:25
Arie
And it was incredible because they could trade for beaver pelts from the local tribes that did all the all the trapping for like a dollar. But then they would sell directly across to China and sell the same pelt for $100. Wow. Because the Mandarin elite and China were heavy users of those pelts.

01:41:19:27 – 01:41:20:12
Rod
Wow.

01:41:20:12 – 01:41:27:01
Arie
And so there was this incredible trade arbitrage. But he made his money in the fur trade, which was a very rough like cowboys.

01:41:27:02 – 01:41:31:07
Rod
I did not know that. I asked, or I was thinking oil or real estate or something like that.

01:41:31:08 – 01:41:55:08
Arie
He made his money in the fur trade. However, what what he ultimately did is he took every dollar he made and he bought land in Manhattan. So when he arrived as a young, almost penniless boy in Manhattan, he got into the fur trade to make money. But they had this great part in Astoria where they talk about him coming and seeing these incredible homes in Manhattan and saying, I’m going to own one of those someday.

01:41:55:10 – 01:42:13:18
Arie
As he made money in the fur trade, he bought parcels in Manhattan north of Wall Street, where it was not yet developed. So you could say he was almost like a path of progress investor. But his key thing was he leased the land above the land, but he kept the land so that he had recurring cash flow coming in from it.

01:42:13:18 – 01:42:21:09
Rod
So not least anybody wanted to build on it. But he kept the ownership of the land. So he basically did long term land leases.

01:42:21:09 – 01:42:25:25
Arie
Correct. One of the early, early, generators of the strategy.

01:42:25:28 – 01:42:43:16
Rod
And I’ll bet you there’s still example. I mean, I know that there’s air rights and everything else that they sell in New York and all that. That’s fascinating. And so that’s how Astor did it. That’s so funny, because like I said, I just watched Titanic and and, I forgot who played the the Molly, unsinkable Molly Brown.

01:42:43:16 – 01:43:05:19
Rod
What’s her name? The actress. Anyway, she was saying, oh, that’s Astor. She was telling DiCaprio, that’s Astor. Yep. That’s interesting. So. So, Wow, you you really dug deep on this thing. I’m really looking forward. You better send me a copy of that book. I’m. I’m absolutely looking forward to reading that. That’s fascinating. What a what an awesome, angle to take on real estate.

01:43:05:19 – 01:43:14:21
Rod
Yeah, I can that’s going to be, And by the way, what a great gift you could give a family office when you go in there. There’s my book. Yeah, I really like it.

01:43:14:23 – 01:43:20:25
Arie
Yeah, it was exciting. It was fun to write. It’s been a lot of work. I’m excited to release the book, but it was.

01:43:20:26 – 01:43:22:24
Rod
A lot to take you to write it.

01:43:22:26 – 01:43:23:12
Arie
About a year.

01:43:23:12 – 01:43:33:16
Rod
Yeah, I’m writing it. I’m in the midst of, threatening to write a second book. Yeah, I want to do one on habits for success. It’s a topic I talk about a lot.

01:43:33:16 – 01:43:35:21
Arie
So that’s a great concept. Yeah.

01:43:35:24 – 01:43:55:26
Rod
But, know that Timeless Wealth and it’s going to be on Amazon. We said we’ll wait to air this episode, but he’s drawn a line in the sand. So he finishes and gets it. Gets it. On online in time for this. Yeah. Let’s go. Fantastic. Well, so let’s have some fun. Now tell me why you don’t like Florida.

01:43:55:26 – 01:44:01:21
Arie
So let me just let me just clarify a couple things. So I think Florida’s great. Florida’s got nice climate. I enjoy coming here.

01:44:01:27 – 01:44:02:22
Rod
Oh, now you’re waffling.

01:44:02:26 – 01:44:05:11
Arie
No no no no waffling coming.

01:44:05:13 – 01:44:07:14
Rod
I.

01:44:07:17 – 01:44:27:25
Arie
I think in order to explain why I have an issue with investing in Florida, I want to explain why I like some blue state. Sounds good. So, I like there’s a there’s a couple factors that lend into how we think about investing. So the regulatory and political issues in blue cities are very well known, very well understood.

01:44:27:27 – 01:44:30:29
Arie
They’re not great. They’re difficult to deal with. I’m not mean thank.

01:44:30:29 – 01:44:33:28
Rod
You for understating that. But okay. Yes, they’re very hard.

01:44:33:28 – 01:44:35:00
Arie
They’re very hard to deal with.

01:44:35:00 – 01:44:39:09
Rod
I mean they’re we’re talking about in LA where the fires are. It could take them a year to get a permit to rebuild their home.

01:44:39:10 – 01:44:59:26
Arie
It is it is a problem. Right. It is a problem. And I think the biggest problem that I will highlight that I am working on figuring out how to deal with, is one of the biggest issues in blue cities is that they will change the law on a whim. They. Your business plan is built on. So that is one reason we don’t invest in Northern California anymore.

01:44:59:27 – 01:45:01:15
Rod
Well.

01:45:01:17 – 01:45:03:00
Arie
Because one thing.

01:45:03:04 – 01:45:04:12
Rod
Because you’re from San Fran, right?

01:45:04:12 – 01:45:14:04
Arie
I’m from the Bay area area. Yeah, yeah. So one thing that we all in this business rely on is stability of law and. Yeah. And tax code rules.

01:45:14:06 – 01:45:14:15
Rod
Yeah.

01:45:14:23 – 01:45:35:19
Arie
When you underwrite a deal for a 5 to 7 year hold and the law can change quite dramatically in that period of time. Well, none of us are really outfitted to deal with that because how can you how can you underwrite to that? How can you project to that? So that is probably the number one, in my opinion, one of the biggest difficulties with blue state investing.

01:45:35:21 – 01:45:41:00
Arie
And so you, you do have to anticipate some level of volatility from that.

01:45:41:06 – 01:45:43:25
Rod
Even even in Portland and these other it.

01:45:43:26 – 01:45:49:22
Arie
Hasn’t happened. But I the my experience in Northern California leads me to say.

01:45:49:24 – 01:45:50:01
Rod
It’s.

01:45:50:08 – 01:45:54:22
Arie
One must be prepared. Yeah. But one must be prepared in any jurisdiction because you don’t really know.

01:45:54:22 – 01:46:01:10
Rod
Well sure, sure. No, I don’t disagree. What about things like rent control. How is that impact?

01:46:01:10 – 01:46:34:13
Arie
Okay. So this so rent control is a fact of life where we live, right? It is much more difficult in the Bay area, which is another reason that we’ve started, migrating out of investing in the Bay area. What I would say is this blue state investing to me is basically an argument that the the policies and procedures that the state has put in place in their interests in trying to do good is not actually going to help the people that they intend to help.

01:46:34:15 – 01:46:38:16
Arie
And and the reason for it is it artificially constrains supply.

01:46:38:21 – 01:46:39:06
Rod
Yeah.

01:46:39:08 – 01:46:42:20
Arie
So rent control artificially constraints supply it.

01:46:42:22 – 01:46:58:25
Rod
They don’t look at they don’t look at the, the the the ultimate outcomes. Now even the whole minimum wage thing, I mean, there’s a big argument for, for that being an issue because so but anyway I’m sorry to so so explain explain what you just said as it relates. Sure.

01:46:59:00 – 01:47:05:22
Arie
So so rent control in particular doesn’t bring rents down. Rent control makes rents go up.

01:47:05:25 – 01:47:06:12
Rod
Really.

01:47:06:14 – 01:47:20:29
Arie
Absolutely. And I believe there is a lot of demonstrable evidence that cities with rent control see rising rents because they constrain supply. So you look at Manhattan, you look at San Francisco, and these are two cities with very strict rent price.

01:47:20:29 – 01:47:21:22
Rod
Rents in the country.

01:47:21:22 – 01:47:22:23
Arie
Highest rents in the country.

01:47:22:23 – 01:47:24:26
Rod
So those are the two highest square foot. Yeah.

01:47:24:29 – 01:47:34:26
Arie
By square foot in every single respect. It’s a failed policy. But it has its, diehards. It’s, you know, it’s it’s a dogma.

01:47:34:28 – 01:47:43:18
Rod
They don’t see the forest for the trees because. Because you just name the two highest rent cities in the country. Miami is given a close second at or at this point. But interesting.

01:47:43:18 – 01:47:46:02
Arie
So the, the argument in my opinion.

01:47:46:02 – 01:47:47:25
Rod
So so that’s rent control.

01:47:47:26 – 01:48:08:25
Arie
Little known anecdote on rent control because the the guy that developed the code for rent control in San Francisco was the largest landlord at the time when it came into place. And people gave him a hard time for doing it. But he said it puts a floor on my rents, and my rents don’t go below it. And so his view was like it promotes stability of my portfolio.

01:48:08:25 – 01:48:13:08
Arie
People stay in their units, they don’t move, they just stay and they pay rent year after year.

01:48:13:08 – 01:48:14:12
Rod
That is an argument for that.

01:48:14:20 – 01:48:37:04
Arie
Okay. There is an argument for it. I don’t fully agree because once the rent control gets too strict, then you then you start to have a difficulty with insurance costs rising, utility costs rising. How does rent call rent control keep up? But it to me it comes down to it constrains supply, which is really the argument for the blue states in general, which is the other thing that I’ve noticed in these cities.

01:48:37:07 – 01:49:02:03
Arie
One other target type geography for us is we call them bridge and tunnel cities. So I vastly prefer cities that are hemmed in by water or natural, restrictions. Right. So Portland is a really good example. So Portland has the Willamette and the Columbia River flowing through it. And the desirable parts of the city are also hemmed in by actual, like large hills with nice homes on top of it.

01:49:02:06 – 01:49:20:28
Arie
You cannot sprawl, right? Right. So I look at, markets like Arizona, for example, which was a competitor for me in terms of where capital was going for most of my career thus far. And my issue with Arizona is you can go in every direction as long as you want. And so there is no there is no natural constraint on supply in the cities.

01:49:20:28 – 01:49:39:20
Rod
Yeah, we had that constraint in Lexington as well, by the way, which is one of the reasons I decided to pull the trigger on that asset is they have these four horse farms, and they are so grandfathered in because they’re known for horses. You see these white, white, horse fencing all over the place. Interesting. Okay. So so I could see that as a, as a, as a, as a plus for Portland.

01:49:39:22 – 01:49:46:23
Rod
What about, you know, what, you just hear horror stories about your ability to evict someone if they don’t pay.

01:49:46:25 – 01:50:10:12
Arie
Okay. Great question. So, it is not that difficult. Okay. Okay. You can do it. And I will say this, I don’t want to give away, I don’t I, I feel like this is a insider secret for right now to people that live on the West Coast. Here’s my perspective, okay? As an active participant in this market living in Portland, things are changing.

01:50:10:14 – 01:50:31:20
Arie
The local politics is changing. The the view of local investors is changing. People are tired of it. It’s true. Across the West Coast there have been significant political changes happening. What I like about this is the national news hasn’t really picked it up. Everybody is still thinking the West Coast is the way it was. There are big changes afoot.

01:50:31:22 – 01:50:40:18
Arie
Yeah. California sent their their new rent control provision down in flames. They recalled the Da in Oakland I believe they called it. Yeah. No context.

01:50:40:18 – 01:50:41:12
Rod
So yeah.

01:50:41:15 – 01:50:58:21
Arie
The mayor in Oakland was removed. We removed a, and I don’t I don’t mean this to sound conspiracy theory. Ask. We removed a Soros backed district attorney in Portland, and I say Soros backed, not to say conspiratorial. This. We actually sent actually sent $20 million like 10,000 on the reality.

01:50:58:21 – 01:51:21:08
Rod
Soros has put billions into Democratic initiatives, and supported the Democratic candidates. So so okay. Evictions. I’ll scratch that. A scratch through that when I scratch the rent control. What about just the over regulations? How how does that affect your doing business? It’s great. I’ll let you attack Florida here in just a moment. By the way, I’m stacking.

01:51:21:13 – 01:51:33:17
Rod
I’m stacking stuff up here to try to get an edge, but, But, anyway, talk about the, you know, because it’s, you see, some of these laws that they’re trying to put through and they’re just like, are you freaking kidding me?

01:51:33:23 – 01:51:55:16
Arie
Yeah. So overregulation is a problem? There’s no question. Yeah. And, one of the things I’m cautiously optimistic on with the new administration is that we may have a deregulatory period coming, which I think is good for business. Yeah. However, one of the things I like about the regulatory environment and blue states is that it makes building new property very difficult.

01:51:55:18 – 01:52:20:28
Arie
And so it is just a further constraint on supply. Yeah. So Portland is perennially under housed. And you can so I’ll give you a quick example of how this plays out in reality. Okay. So Portland was a hot market and money was coming in. Corbin bought a building there like money was flowing into Portland. And they passed a new thing called icy housing in Portland, which inclusionary zoning, housing.

01:52:20:28 – 01:52:42:05
Arie
So the rule said if you built more than 19 units in a building, some percent, I don’t know the exact percentage, but some percentage of the building now needed to be dedicated to affordable housing. If it’s 19 plus or more than 19. And what happened as a result of that bill was that we had the most ever permits for 19 unit buildings taken out.

01:52:42:05 – 01:52:42:20
Arie
I’m sure.

01:52:42:22 – 01:52:43:24
Rod
And sure.

01:52:43:25 – 01:52:59:00
Arie
And so and in my opinion, what that what that really means is that where you could have built a 100 unit building, you built a 19 in a building instead, because the math doesn’t work to put in 30% affordable housing when you also have material costs rising and wages rising and inflation, it doesn’t work.

01:52:59:00 – 01:53:02:10
Rod
That’s why it’s where there’s such a huge shortage of affordable housing, can’t afford to build it.

01:53:02:10 – 01:53:12:21
Arie
Can’t afford to build. That’s right. It cannot afford to build it. And and one of the net results for Portland is that there’s just not enough housing, which is a problem. Like it’s a it’s a social it’s a.

01:53:12:21 – 01:53:13:08
Rod
National.

01:53:13:08 – 01:53:16:03
Arie
Problem. It’s a national problem. But it’s a really,

01:53:16:06 – 01:53:16:21
Rod
It’s a.

01:53:16:24 – 01:53:42:20
Arie
Really significant problem on the West Coast. And you couple that with, you don’t. So, so in my opinion, as, as a rental housing operator in these cities, you it’s a good thing for us in some ways, because rents will go up like they must go up unless you have a significant drop in population. Just controlling the supply piece is good.

01:53:42:22 – 01:53:44:14
Arie
So that has been our.

01:53:44:16 – 01:54:04:16
Rod
So that’s valid. That’s valid for sure. I got to give you that for sure. Okay. Last one. And then you can attack Florida is taxation I mean you guys have the highest tech at least. California. California Texas is a freakin country. Well, how does how does, well, you know, Portland, Oregon and Washington compared to California in that regard?

01:54:04:19 – 01:54:23:14
Arie
Oregon is much better. Okay. There’s some difficulty in Oregon with personal tax rates, which is definitely an issue as far as, you know, business creators moving and leaving, which is something that all these states need to be mindful of. Yeah. Because they all have something great right there. Nice places to live.

01:54:23:16 – 01:54:37:13
Rod
Oh, I love San Francisco. I mean, I just, you know, you hear these horror stories about people defecating on the sidewalk and trash everywhere. Oakland. Good God, that just you see stuff on TV about that. But, I mean, it’s one of my favorite places to visit.

01:54:37:16 – 01:55:02:17
Arie
It is here. It it is incredibly temperate climate. It is an incredibly well-educated area. There’s tons of business opportunity. There’s a reason that technology companies continue to flourish in this region because there’s a confluence of incredible university ecosystems, tons of capital, and some of the best and brightest people in the world for sure working at these companies. So therefore they continue to do it.

01:55:02:17 – 01:55:23:14
Arie
But the thing is, you know, I think Governor Newsom and these folks are aware that you can’t keep strangling the golden goose forever like it is a golden goose, but like, don’t destroy it. So I, I’m hopeful that there’s a change coming. I think voters are asking for a change. I think we started to see it.

01:55:23:17 – 01:55:41:20
Rod
And I was kind of bite my tongue. I just kind of bite my tongue about about Newsom. Good God help me. But, All right, all right, I’m ready, I’m ready. I got I got my armor on. Talk about. Talk about floor. Why? Why you could, I mean, okay, I’ll give you insurance. Okay? I told you before we started, I give you insurance.

01:55:41:23 – 01:55:45:22
Rod
But why else would you not like Florida?

01:55:45:24 – 01:55:49:15
Arie
There’s a I. There’s a couple reasons. And this is more of a I’m going to make a couple broader statements.

01:55:49:15 – 01:56:01:28
Rod
All right. Let me just say this. I. I’d volunteer to be a poster child for the Florida Chamber of Commerce. Okay, so just know this. No, you have to make it out the door. And I’m just kidding. I’m ready. All right.

01:56:02:00 – 01:56:24:13
Arie
So when I started my business, it was during Covid and there was the red state exodus happening. So I knew plenty of people that left California to go to red state locations. And part of my investment theory has always been that the reaction against deep blue areas was overdone. No. And that people would come back at some point and that the cities wouldn’t just fade away into nothing and deteriorate.

01:56:24:13 – 01:56:49:03
Arie
Right. Now it happens, right? Detroit happened. But there’s like you also have to identify are they big single industry towns? So and so forth. Part of that development process, as I built, my company was looking into red state locations more and more and more. And there’s a lot to like, like I’m I would be clear like the, the, the policies governing how to manage your residents is favorable.

01:56:49:06 – 01:56:49:24
Arie
It’s much more.

01:56:49:24 – 01:56:50:05
Rod
Landlord.

01:56:50:05 – 01:57:10:04
Arie
Friendly. It’s much more landlord friendly. The business growth story is real. Like it’s real. The thing that I always struggle with, with red state locations for investing was they felt highly levered to population growth, and I didn’t feel that I could constantly figure out because they don’t have the same supply constraint issue. So you can have anemic population growth.

01:57:10:04 – 01:57:31:09
Arie
And I mean, Manhattan is again a prime example. Its population has actually decreased over time. And yet rents have gone up. And you know that the supply is constrained. And it’s a very obvious situation. When I looked at places like Arizona and you look at the 10% year over year rent growth estimations, Texas Tech and Texas is a great Austin is a great example.

01:57:31:12 – 01:57:33:10
Arie
Is particularly suffering right now.

01:57:33:10 – 01:57:33:25
Rod
Yeah.

01:57:33:27 – 01:57:40:00
Arie
Where in trouble people assumed robust population growth going forever and rent growth growing. And it didn’t happen.

01:57:40:01 – 01:57:42:04
Rod
Well they overbuilt too okay.

01:57:42:04 – 01:57:42:21
Arie
Because they could.

01:57:42:22 – 01:58:04:25
Rod
Yeah. Because they could. Exactly. And so yeah. No. And and there should get some there’ll be some equilibrium here at some point. Right. That’s the way it works in fact in fact new constructions have fallen off a cliff. So I think, you know, by the end of 20 into 26 we’re going to see things rebound for sure. I mean, I’ve got two, three actually three assets in San Antonio.

01:58:04:28 – 01:58:15:09
Rod
And you know, we’ve seen a little softening, but more in the sea class. I’ve got one sea class that’s soften. But anyway, please continue. So. So I am totally with you on the on the supply constraints.

01:58:15:10 – 01:58:28:04
Arie
Of the site, the lack of supply constraint and the requirement for continued red hot population growth is difficult. I agree with you. I think this environment made it so that developers all over the place are having a hard time. Oh, and so.

01:58:28:05 – 01:58:37:28
Rod
I my attorney, my attorney has 9000 units and he’s trying to bring it like a thousand out of the ground. And he’s having incredible capital constraints and and debt constraints and. Yeah. Yeah.

01:58:38:01 – 01:58:56:26
Arie
So so Florida in particular. So Florida is a lovely place. I enjoy it. I have a couple specific things on Florida. So I think Florida is highly levered to continue red hot population growth as well. I think there’s a significant concern in my mind that the ten year, 100 year storm starts to be an annual event here.

01:58:56:28 – 01:59:05:05
Arie
I just was driving in here and my Uber driver was mentioning that the last big hurricane that hit here was it for him. And he’s been here for that.

01:59:05:08 – 01:59:05:22
Rod
He’s leaving.

01:59:05:25 – 01:59:06:20
Arie
He’s out as well.

01:59:06:21 – 01:59:08:05
Rod
He’s look at my doc before he came in.

01:59:08:05 – 01:59:08:22
Arie
No I heard.

01:59:08:22 – 01:59:13:21
Rod
About it okay. It looks like something out of a Doctor Seuss book. It’s hilarious. So we got to look at it when you leave.

01:59:13:22 – 01:59:40:23
Arie
I look forward to seeing it. Yeah. The other thing about Florida is, we have 100 years of history to say Florida is a boom and bust state. So I prefer markets that tend to move up into the right gradually. And over time. Florida has gone through an incredible boom period. I was just we were just, at dinner with friends of ours last night who were mentioning home prices have gone up like forex since they moved here.

01:59:40:23 – 01:59:51:19
Arie
And they’re like, we’ve done incredible. And I was like, that’s amazing, good for you. But a bust is coming and it it hits. It just seems to hit Florida harder than it hits other parts of the country.

01:59:51:19 – 02:00:09:27
Rod
Give you an example of how hard it hits Florida. Okay. Because it does. I actually don’t think a bust of the magnitude that I experienced in oh 8 or 9 is going to happen. I just don’t because the, the, the, the underlying factors are way different. Back then if you followed a map, you could buy a house, right?

02:00:09:29 – 02:00:34:28
Rod
Okay. That’s no longer the case. People that own houses are solid. But you know, I had 800 houses, in, in 2008 when the market crashed and I was only at a 30% loan to value. Okay. And I still, and and by the end of 2009, my portfolio was underwater. It had dropped by 70%. To give you an idea of the boom and bust.

02:00:35:00 – 02:00:56:19
Rod
So, I agree. I agree with that. I don’t think anything like that is on the horizon. But I will say this though, in my defense, California got hit just as hard in 089 as did Arizona. And I don’t know what happened in Portland or, you know, the Pacific Northwest, but California got decimated back in 89. Yeah.

02:00:56:19 – 02:00:57:09
Rod
So which is.

02:00:57:09 – 02:01:11:26
Arie
Which is why in the West Coast, we now have supply shortage, housing supply shortages of single family homes as well because all of the big builders, I’m sure it’s the same thing here. But all the big single family home builders went back bankrupt and they haven’t come back.

02:01:12:02 – 02:01:18:28
Rod
Really? Yeah. I mean, right now new home sales have, from what I’m hearing of falling off a cliff, it’s not really my wheelhouse, but that’s what I’m hearing.

02:01:18:28 – 02:01:34:07
Arie
I’m hearing I’ve heard the same. Yeah. And then I would just say on, on the on the Florida note, though. Okay. There is decent evidence that the selling of swamp land in Florida was one of the catalysts of the Great Depression. So I look at Florida and I say, we have a 100.

02:01:34:07 – 02:01:35:25
Rod
Years, interesting 100.

02:01:35:25 – 02:01:36:23
Arie
Years of evidence.

02:01:37:01 – 02:01:39:19
Rod
Let’s talk about that. Let’s talk about that swamp plant.

02:01:39:20 – 02:01:41:25
Arie
I can’t go too deep on it, but I can.

02:01:41:26 – 02:02:10:28
Rod
I can because I’ve owned some. And, you know, back. But if you guys don’t know this, back in the day, Johnny Carson had a sidekick named Ed McMahon, and he promoted a company here that was selling, really selling the swamp land in Florida. And they call it swamp land, because if it rains, it’s under, you know, which is why, you know, when you build a house here in Florida, you literally have to bring in fill dirt and raise it up because you get you get drainage issues here and, and and so if it had a heavy rain, it would look like a swamp.

02:02:11:02 – 02:02:31:12
Rod
But now, you know, it’s only under, you know, six inches of water. But you’d think it was a, you know, it was like that all the time. But that’s, that’s where the term swamp land in Florida came from. And I bought lots down in Charlotte County here, which is the county just south of us here. And, and they literally there are areas down there where they develop the roads, they put in the lots, they put in the they didn’t put in the water and sewer.

02:02:31:12 – 02:02:47:24
Rod
Yeah. But you can see roads for miles and miles that have nothing but the roads, just these little like residential roads. And they went belly up at some point. I think it was general development. I think it was maybe the companies coming back to me now. But but yeah, they were basically that’s, that’s where that term came from.

02:02:47:26 – 02:02:52:06
Rod
And anyway, why did you bring that up. What did that have. What does that have to do with it.

02:02:52:08 – 02:03:16:22
Arie
Just to me was demonstrable evidence that like, there’s been 100 years of boom and bust cycles in Florida that seem to me to be more extreme than elsewhere, and for some reason, Florida attracts, capital that is hungry and really wants like a faster return. And it is is a place where you can get a faster return, but then you can get your face ripped off when the market turns on you.

02:03:16:25 – 02:03:37:11
Rod
And if the market turns, you know, again, you gotta have a reason for the turn. And I don’t think that reason exists right now. Now, in the multifamily space, I’m sure you’re seeing the meltdown there with, with adjustable rate debt and everything, but there’s a lot of operators in big trouble right now. I mean, my attorney told me that he just took a client with $20 that I.

02:03:37:11 – 02:03:43:19
Rod
He said, I know very well he couldn’t tell me who it was. So a lot of big operators in trouble right now.

02:03:43:21 – 02:03:49:17
Arie
It’s a difficult time. Yeah. I’ve had some good learnings from this period we’ve just gone through.

02:03:49:22 – 02:04:08:11
Rod
Yeah. Same here, same here. I got, I got I’m dealing with a couple of these are and these, bridge loans myself. It’s. Yeah, it’s ugly. And, you know, we’ll get through it, but it’s no fun. And, but, so that’s all you got is the swampland and the storms. That’s it. Oh, man. Okay, well, we know who won this debate.

02:04:08:13 – 02:04:25:09
Rod
I I’m just I’m just messing with you. You know, I tell you, the storms. I used to think Sarasota was storm proof, and and we’ve been hit three times now, a hurricane. And I settled for almost $1 million. My insurance company here, I to notice the new roofs and everything else, but, But I was out of town, so Helene and Milton, I got it reversed.

02:04:25:09 – 02:04:38:21
Rod
Yeah. And and I was. I was out of the country and and, and now and I’ve got big generators here, and I’m like, you know, we were on a cruise ship in the Mediterranean, and I’m like, okay, well, if my cameras go out, I’ve got a hell of a camera system here. My cameras go. I know I’m screwed.

02:04:38:23 – 02:04:40:20
Rod
I means I got flooded, my cameras went.

02:04:40:20 – 02:04:41:18
Arie
Out. Oh, no.

02:04:41:21 – 02:05:00:16
Rod
Yeah, but it was just because the generator blew a belt. Thank God I didn’t. I didn’t get flooded here. But the dock, my my boat ended up three houses away. My jetskis ended up in my backyard. Thank God they ended up in my backyard. So you’d mentioned that you’re actually looking at urban core vintage buildings, correct? The word vintage scares me.

02:05:00:23 – 02:05:02:21
Rod
But but talk about why you like it.

02:05:02:24 – 02:05:09:25
Arie
Yeah. So a couple reasons. First of all, vintage were built when the building when the city was first built, usually. So.

02:05:09:26 – 02:05:12:06
Rod
So when you say vintage, just how vintage are we talking?

02:05:12:06 – 02:05:13:17
Arie
Like 1910 to 19?

02:05:13:17 – 02:05:21:17
Rod
Oh my God, oh my God. So we’re talking about windows that have weights in the sides with ropes and, and they.

02:05:21:17 – 02:05:22:01
Arie
Might have.

02:05:22:03 – 02:05:28:29
Rod
Gravity, gravity furnaces with asbestos wrapped duct work. And I’ve seen it all. All of this. Yes.

02:05:29:06 – 02:05:30:27
Arie
Yep. Some of them do for sure.

02:05:30:27 – 02:05:33:20
Rod
See? Okay, so they’re heavy renovation jobs and something.

02:05:33:21 – 02:05:34:01
Arie
Might.

02:05:34:01 – 02:05:34:19
Rod
Be okay.

02:05:34:20 – 02:05:56:10
Arie
They also sometimes play into the yield space. Okay. So really? Yeah. So I think the premise for investing in these assets is is thusly, first of all, the way they built properties back then in my opinion is better than a lot of the newer construction. So you like they use like old growth, timber or timber from old growth forests.

02:05:56:10 – 02:06:01:01
Arie
And they only use heartwood versus like today we use a lot of particleboard and like much cheaper.

02:06:01:04 – 02:06:08:21
Rod
And then the lumber is much, much better. And so even the foundations in some case you’ll see some of these brick foundations that are just saw unless they’ve had water intrusion or some. Yeah.

02:06:08:21 – 02:06:29:00
Arie
Exactly. Right. And they’re usually they’re actually usually concrete foundations. Sometimes they have brick foundations. Okay. But they’re really well built. Okay. They occupy prime real estate. So because they were built so early in the formation of a city like Seattle, for example, they occupy really prime real estate. They’re desired by residents. So the units are unique.

02:06:29:00 – 02:06:30:25
Arie
They’re different. A lot of developers today.

02:06:30:25 – 02:06:33:06
Rod
Exposed brick walls, high ceilings.

02:06:33:08 – 02:06:49:26
Arie
They have coffered ceilings. They have all these interesting architectural details. And so you don’t usually have a difficulty finding residents for your building. The difficulties you have are the ones you mentioned. So there might be some control systems. Maintenance is definitely an issue that comes up with these buildings. Insurance can be difficult.

02:06:49:29 – 02:06:50:13
Rod
Oh, yeah.

02:06:50:21 – 02:06:52:08
Arie
Although we’ve been able to find and is.

02:06:52:08 – 02:06:55:14
Rod
Surprising if they’re solid. And maybe there’s fire dangers.

02:06:55:18 – 02:07:03:12
Arie
There’s a there’s some concerns. Usually with the electric systems, we’re more likely to have not been too bright galvanized. They all have galvanized piping. Right. So, which.

02:07:03:12 – 02:07:19:27
Rod
Is, by the way, galvanized the paint guys because it rusts and the water flows get terrible. And, and and and you know, you see it more with drain lines now in the assets you buy where you’ll have, you know, constrictions and backups and things like that. But till you’re galvanized, the paint.

02:07:19:27 – 02:07:41:22
Arie
Galvanized is difficult. Yeah. And ripping a building is not something you really want to get into. But what’s interesting about them is everybody’s aware of that, and there’s no buyers. So we are seeing prices fall off a cliff on this style of building. And so as an example, I think two years ago, the average price per unit in Portland for a building like this was around 180,000 a door.

02:07:41:24 – 02:08:09:20
Arie
Last year, the first building we bought, we bought at 140,000 a door. We bought a building in Seattle at 160,000 a door. And then the third building we bought was at 98,000 a door. So prices were tanking. Well, our perspective was basically, can we buy and hold long term, really good assets and really good locations, get great cash flow out of them, and kind of wait for the market to turn back around and buyers to come back in for those buildings, which I do think will happen when it happens, is a different question.

02:08:09:22 – 02:08:32:20
Rod
Interesting. Yeah. Yeah. No, I mean, I, I’m very familiar with that age demographic. I bought tons of, I had, I don’t know, 500 houses in Denver at one time. I had antebellum houses, you know, built in before 1900. And it’s some, some very interesting stories, but we’re out of time for that. But, yeah, about some of these, some of these houses, but you have some really cool features.

02:08:32:20 – 02:08:46:15
Rod
You’ll see cloth tubs, you’ll see, sometimes these fireplaces with the incredible inserts with the pillars in the mirror behind, above the mantel. They’re just spectacular. So you I’m sure you probably experienced some of that in some of these buildings, I would guess maybe I yeah.

02:08:46:15 – 02:09:10:22
Arie
The artistry is. Yeah, I’m like, I, I made the comment they don’t build them like they used to. The artistry is on another level, like the intricacy of like like every historical craftsman, their crafts, their craftsman build, assets that are timeless. And to go back to our family office point your buyer is probably a family office that wants to own something like that, a trophy esque asset in a city for a long time.

02:09:10:25 – 02:09:13:03
Arie
And it occupies a trophy location.

02:09:13:06 – 02:09:29:09
Rod
Yeah, it’s location. It’s all location, location, location. You know, as long as you can, you know, as long as you don’t have to replace all the plumbing. You know, we’ve done I remember in some of these buildings we would take the galvanized, we cut out as much as we can and copper the rest of it, you know, you can you can do that in stubborn copper.

02:09:29:09 – 02:09:46:12
Rod
Yeah, yeah. And when you get by, you know, sometimes the heating can be a real pain in the ass because, you know, if it’s boiler heat and you’ve got galvanized lines there, that could be a challenge. But, But I think the strategy’s sound. I actually, I’m I’m intrigued. Honestly, I think I could really do well with with the inner city stuff.

02:09:46:12 – 02:09:46:23
Rod
Thanks.

02:09:46:24 – 02:09:50:21
Arie
Yeah, I think we our view is just been like, let’s go where no one’s looking.

02:09:50:21 – 02:10:06:07
Rod
Yeah. No, I like him, I like it. Yeah. And I actually I like the business model. I think that that absolutely makes sense. Ari, I appreciate you coming down, brother. I, this has been a lot of fun, a lot of back and forth. And, you know, guys, keep an eye out for his book, Timeless Wealth.

02:10:06:07 – 02:10:20:25
Rod
It’s going to be on Amazon, and I’m really looking forward to reading it myself. And if you want to check him out, he’s at Lombard Equities. Dot com. Anyway, safe travels back brother. Again. And I’ll let you have a laugh and I’ll go look at my doc. You’ll get a kick out of that. It’s thanks, but thank you.

02:10:20:25 – 02:10:20:29
Arie
Thank.