The Simple Math of Multifamily

Full Transcript Below

Intro
Hi, my name is Rod Khleif, and I’m the host of “The Lifetime Cashflow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they build incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.

Rod
Welcome to another edition of The Lifetime Cashflow. I’m Rod Khleif, and I am thrilled that you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Chris Okada, and he’s the CEO of Okada & Company. He’s in New York, and they have done a lot. During the crash, they had collateralized a lot of debt, like upwards of $700 million worth of debt. They’re in retail, they’re in office, they’re in multifamily, and they’re in one of the toughest, if not the toughest, markets in the country, New York. And so really excited to talk about a lot of things with Chris, including the economy and what’s happening with the debt markets and so on and so forth. So welcome to the show, brother.

Chris
All right Rod, thank you so much for having me.

Rod
Absolutely.

Chris
Yeah. I really do hope that your listeners find value in what we’re saying. And we’ll take a nationwide approach to everything, even though I’m a New York maxi if you will, and do most of our business in Manhattan.

Rod
Yeah, sounds good. Well, why don’t you just take a minute and give us a little background on you? I know you’ve got kind of an interesting story. Your father was a real icon. So why don’t you just kind of tell us about your– you know, at a high level, your experience, trajectory, and bring us current?

Chris
Sure. My name is Chris Okada, CEO of Okada & Company. We are a commercial real estate investment and brokerage company. We do have a portfolio of 2.7 million square feet. Now, that is not all property that we own. We do third-party leasing, mostly in office and retail. And I know for a lot of headliners out there, people are very concerned with office and with commercial in general. So we’ll jump into that. And yeah, in the downturn, I did do about a billion dollars of distressed mortgage sales. We pivoted completely away from leasing because there was no money to be made. And really that was our come up was the financial crisis. And today we’re seeing sort of the post-pandemic chaotic world that we’re experiencing due to monetary tightening and interest rates climbing. And I think that we’re right there depending on asset class and region. Of course, you know, down in Florida, you guys are crushing it. But also I do think that because there’s such a discrepancy as far as existing mortgages on properties and when the refinance comes, their debt payments double. I don’t care where you are in the country or even in the world when you have such a steep thing, there’s going to be a lot of cash in refinancing going on, a lot of white knight sort of capital that’s going to have to be allocated. But–

Rod
You want to call it white knight? I don’t know. There could be a different adjective for that. You’re talking about opportunity funds, rescue capital.

Chris
Rescue capital.

Rod
Right.

Chris
Yeah, you’re absolutely right. It depends on the makeup of the person where they’ll charge, sure, we’ll give you 10 million bucks, but we need 18%.

Rod
Right. And that’s coming. That’s coming for sure. And yeah, please continue. Sorry, I interrupted.

Chris
Yeah, sure. So this is my 21st year in New York City commercial real estate. My family’s 54th year in New York City real estate, and I am a second gen real estate of executive. My father was famous for bringing over Toyota Motor Company, Honda, Sony, Panasonic to America from Japan, really focused on the Fortune 500 global manufacturers in the ’70s and ’80s and parts of the ’90s. And my mother was in residential for 42 years. She retired a couple of years ago.

Rod
Wow.

Chris
Yeah. And she serviced on the residential side, only C-suite executives for my father’s clientele. So it was a one-two punch as far as commercial and residential. And when I jumped in, it was right after 9/11. This is my 21st year. You know, right after 9/11 in 2002, Jesus.

Rod
Right.

Chris
And so this will be pretty much my third cycle or two and a half, if you will, real estate and economic cycle that we’re experiencing. And I’m out here, I’m really just letting everyone know that yeah, times are challenging. There’s a lot of uncertainty in the market. If you’ve been doing everything right as far as building your passive income or your cash flow, there are these black Swan events of money and monetary tightening and pandemics and all kinds of things. But it’s also a time of opportunity. And that’s the main thing that I think everyone should be aware of. If you wanted to get into Miami, if you wanted to get into Fort Lauderdale, let’s talk about the cream of the crop, right? Billions and billions of dollars coming down the I-95 down to Florida and the Carolinas from up north and from the West Coast to Texas and the West Coast to Florida. Billions of dollars are being poured in. There’s still going to be a lot of upheaval for people that bought you know, a fully rented 4.5% capitalization rate, took out a loan at 4%. They’re 50 basis points above the loan. But now we’re talking 5.75% and the debt service coverage ratio you know, really starts having banks being like, I’m so sorry, you have a $50 million loan, in order for us to stay with you, you’re going to have to cut us a $10 million check just because you know, the debt is not being covered.

Rod
Right.

Chris
And I understand you’re 100% rented and your rents have gone up. Unfortunately, this is our bank mandate now, and we’ll try to work with you. And that’s where–

Rod
There’s going to be a lot of that. I’m seeing it in my own portfolio, actually, with a previous partner. And we talked about this before we started recording. You know, depending on where you set your timeline, there’s somewhere between 1.6 and three trillion in debt coming due over the next few years. I believe it’s 1.6 trillion by the end of next year. Half a trillion is multifamily only. And, you know, we’re not even talking about you know, some of the areas that are getting their rear ends handed to them, like where you’re at with New York, with office vacancy, San Francisco. I mean, it’s almost like a ghost town driving through San Francisco, you know, downtown. But, you know, there’s a lot of debt coming due. And, you know, I just saw an article that in multifamily, it’s a 74% year-over-year decline for the first quarter this year in multifamily sales.

Chris
Yeah.

Rod
So not only do you have the fact that they raised the interest rates yesterday, again, or the day before, but also, you know– so you’ve got that interest rate hurdle, but you’ve also got the problem with selling right now. You know, a lot of people are sitting on the sidelines and a lot of the numbers just don’t make sense. And you’ve got problems with insurance right now as well, especially if you’re in our market. Good Lord. We were looking at assets in Louisiana, a screaming deal, and the current seller was paying 500 bucks a unit. They quoted us 3,000 a unit, and the best deal we got was 2,500. So lots of things happening that are tightening. But, you know, let’s talk about what some of the solutions are. You talked about the white hat. I wouldn’t call them white hat because these guys that are coming in on these opportunity funds, they’re looking for deals.

Chris
They’re definitely boulders.

Rod
Yeah, I was going to say the word you did. Thank you. But yeah. And listen, I’m looking for deals, too. I mean, I would love to jump in on some nice assets like you just described where they have to sell. You know, right now, it’s still the people that want to sell, but the ones that have to sell is coming. And we’re seeing some of it. We’ve seen a couple of large foreclosures already. You know, I just saw something today about– oh God, the big office company.

Chris
Blackstone?

Rod
No. Blackstone, yes. They have a fund that’s in trouble, but there’s another one as well, another big one. But anyway, you know, I’d love to get your read on a real macro level. By the way, I was just in Japan three or four weeks ago. You were talking about your dad bringing over Toyota and stuff like that. Kind of cool. Yeah. I was just there for a couple of weeks with my kids and–

Chris
Another planet there. It’s amazing. Love it.

Rod
Oh, it did. We rode go-karts through downtown Tokyo with Pokémon suits on.

Chris
Oh, you did that.

Rod
Oh, yeah, we did that. We went to all kinds of cool places and had a good time. I was there for two weeks. I digress. So let’s talk macro-economics for a minute and talk about your opinion of the impact of– you know, like you had told me before we started recording, office is about 20% vacant in New York, and that means they are not cash flowing. Okay?

Chris
Yeah.

Rod
So you want to speak to that?

Chris
I’ll definitely paint a quick picture on that. Definitely 20% vacancy, but not only 20% vacant, rents have declined about 20% to 25%.

Rod
Wow.

Chris
So when you look at 2019 numbers and Office just a few years ago was the darling of all funds, banks, and retail was the trouble child, if you will, and industrial you know, shot through the ranks and everything. So definitely it is an evolving asset class right now as we speak. And evolution is very painful. Will Office go away forever? No, but you’re going to have to make sense of a negative 25% rent roll if you bought in the last decade as far as rent and income is concerned, with a higher than 15% vacant seat. Now, that’s not all landlords, and that’s where it’s really, really important talking about solutions to have a longer-term approach. And this is exactly the time to think about you know, let me take a step back, let me look at my entire portfolio. And yes, there are going to be A-assets that you’re never going to want to let go of. There are going to be B-assets that are chugging along, you know, they’re okay. And then the Cs are the sort of troubled assets. So I think that you should take a look at your portfolio and do whatever it takes to shore up A, if there are any issues, and or B. And then the C, you’re going to have to figure out exits and what a lot of these funds do, whether it’s Blackstone or Brookfield or any of these national companies, is that they figure out what do we do with these troubled assets. And a lot of guys have just been saying, look, we got to take care, we can’t burn the whole place down. We got to let go of these five assets. I’m so sorry, Mr. Lender, and try to work out something with the loan. However, family offices, smaller companies, we’re not talking billion and trillion-dollar institutions. Let’s say it’s a family office or a private investor.

Rod
Private equity.

Chris
Private individual, really. You know, a lot of your listeners, they may be working at PRE funds or equity groups or REITs or whatever. But for the guys that are coming up and they want to amass their own 1,000 units, 1,000 doors, you know, they want to own half a million feet, whatever your goal is, it’s definitely important to take a step back if you have accumulated and split your portfolio up into three.

Rod
Yeah, I agree with what you said. The same thing, honestly, in my opinion, applies to multifamily right now, and I’ll tell you why. Inflation is killing people. And who’s it killing the most? It’s killing the people in the C-class assets, the ones that you know, live paycheck to paycheck. And, you know, that’s where we’re seeing collection issues, things like that in the marketplace. So let me ask you this, not to scare the hell out of everybody, but I actually think this thing could get uglier than a lot of people are saying. And here’s why. And, okay, I could be all wet on this. I could be wrong, but, you know, all that bad debt that’s going to be hitting the market on these office buildings, on this commercial real estate, you know, there’s going to be people that can’t be rescued, you know. You know, we’ve already seen some bank collapses. Do you feel like there could be more of that? I’m just curious. And again, I’m not trying to scare everybody. With crisis comes opportunity, you know, like we’ve been saying. But what’s your opinion on that, Chris?

Chris
I think that– and I hope there is not, let’s just be very, very clear. What I hope and what is the truth and the reality, First Republic Bank came out yesterday, I believe it was, with earning– two days ago, they lost 102 billion dollars in deposits.

Rod
Yeah.

Chris
So I think that that bank run that was experienced in March and I’m not sure if people are still worried about that, but that is something that was very telling. A 102 billion dollars were lost from deposits.

Rod
Right.

Chris
I think that is the catalyst. I think that is one of the major catalysts of any bank failure. So all eyes are on First Republic, their stock is down something like 80 to 90%, you know, within the past few months. And it really is for these larger institutions. Citibank came out, Bank of America, and JP Morgan Chase, they came out strong. So it’s a really interesting dynamic just within the bank–

Rod
I think there’s a flight from the regional banks to these big national you know, behemoths like B of A and Chase and so on, Wells. Yeah, I agree with you on the withdrawals but what about this bad debt? I mean, we’re talking– you know, it could be a trillion dollars, you know, especially in the office arena. I mean, you know, I think other asset classes are going to have some pain as well. So there’s that. And then there’s you know– now, this isn’t really a bank issue. Well, it could be. But all the bridge debt that happened, I’m just curious, by the way, I know the multifamily space really well. Was there a lot of bridge debt used in office and retail and industrial?

Chris
Oh, yeah.

Rod
Yeah? See, that’s a–

Chris
Anything under construction, anything with big renovation plans that is not 100% just leased and they’re just collecting checks, any construction at all, small renovations. Well, not small, but substantial renovations. That’s all variable.

Rod
Bridge.

Chris
That’s all bridge. Not only that, you know, people, even the pros, even the BlackStones, Blackrocks, Brookfields, you know, RXRs of the world, the guys that have a squad of analysts and executives, they spend millions and millions of dollars on underwriting and analytics. They got it wrong, too. They got it wrong.

Rod
Yeah.

Chris
They have debt and they have mezzanine debt. They really were trying to push the ROI for their investors, and they also got it wrong.

Rod
They got bad debt. They got bad debt. And just because– and guys, by the way, you know, for those of you who don’t understand what we’re talking about here, over the last couple of years it was difficult to get conforming debt at a decent loan to value. And so, you know, even if it wasn’t a new construction deal if it was just a normal value add multifamily purchase, for example, people would use bridge debt because they got a higher loan to value so they could show better returns on their proformas to their investors. Well, bridge debt is an adjustable rate. It’s short-term. And a bunch of that’s coming due as well. And that’s really rough because with that stuff, you know, you either have to buy a very expensive rate cap to extend or you’ve got to take it out somehow. And again, you’re going to see where people have to put money in to refinance these things. And some of these people don’t have the amount of liquidity that’s needed to pull these things together. So again, I’m saying all this and we’re talking about this, and I wanted to talk about this because I think there’s going to be, yeah, I know there’s going to be a lot of opportunity. And so I know you’re gearing up for it. I’m sure you’re getting into cash and access to cash and so on and so forth. So would you agree? I mean, you’re gearing up to–

Chris
Yeah, I think, you know, I’m pretty active on Twitter as well. So, anyone, find me on Twitter @ChrisOkada. And I was a speaker with Grant Cardone, who’s one of the great in the south.

Rod
I was just at his GrowthCon in Vegas about a month ago. Yeah.

Chris
Oh, nice. Nice.

Rod
Yeah.

Chris
Awesome. I didn’t get to make it. And I think he has another one this month. But really quickly, I asked him, you know, all this stuff is going on in the capital markets, how much are you on the defense worrying about your existing portfolio? Because, you know, when if you have a billion-dollar portfolio, there’s a problem child. There’s an issue somewhere, you know. It doesn’t matter–

Rod
I saw one today. It was on social. There was water running from a pool on one of his assets in Fort Lauderdale down the hallway. And this is one of Grant’s places. It’s literally right before this I saw–

Chris
Oh, my God.

Rod
Yeah. I mean, that was just a weather-related thing. But what did he say? I’m sorry I interrupted. I literally just saw it a moment ago. That’s why I said it.

Chris
No problem. But how much are you going after new projects? But you have fires to put out. You have a lot of fires to put out. How much of your energy in a given 24 hours a day or a given week, you know, are you putting into finding new deals, you know, returns that are 50% better than the last five years? And he said 98% of my energy has got to be on the offense, not on the defense. I thought that that perspective was interesting. It’s very–

Rod
Well, that’s him. Okay, now that’s him. Okay?

Chris
Yeah.

Rod
I mean, that’s his personality. Okay? I mean, I remember, we got into it on it. I’ve had him on the show a couple of times. We got into it because we had a vet call in and we took questions from listeners. And the vet said, hey, should I use my VA to buy a fourplex to get started in multifamily? And I’m like, hell, yes, because it’s no money down. It’s no money-down loans for a vet. And he’s like, No, buy a 16-unit. I’m like, Grant, it’s freaking no money down money. And he was pissed. But, you know, he’s balls to the wall, 10X everything. So that’s an interesting perspective. And I’m not sure I agree with it, honestly, Chris.

Chris
I’m not sure I agree with it. But sometimes you got to put on the hat of other great people in business. Right?

Rod
Yeah. He’s extraordinary. He’s got a jet and a helicopter. Smarter than I am. But, you know, you do have to keep the ship upright. And I think in what’s coming, you know, the real operators are going to come through because asset management is going to be critical. Maintaining occupancy is going to be critical. And so, you know, there are a lot of newbies in the space that you know, if you could fog a mirror, you could buy multifamily at least the last few years. And I think there’s going to be some pain. I really do because they’ve never been through a downturn. And I don’t know if you agree or disagree with that.

Chris
Yeah, I think a lot of the operators and a lot of the owners here are definitely on the defense, you know.

Rod
Yeah.

Chris
And they’re trying to figure out ways, especially in office. In multifamily, it’s still– you don’t have an occupancy issue. You’re still [inaudible] 100% lease. So at the very least, your revenue is good. It’s a capital market issue. And that’s when I think a person-to-person approach with the head of the commercial division of lending at your institution, that’s when you bring him out on the golf course because that guy can literally change your life. I think it’s important to reach out to all of them and then to befriend them because if they have–

Rod
Do you mean the lenders on your existing portfolio? Keep them close.

Chris
Absolutely.

Rod
Yeah, I couldn’t agree more. Overcommunicate right now because they’re fearful, too. Yeah. No, I couldn’t agree more. Let me ask you this, sorry, as an aside.

Chris
Sure. Yeah.

Rod
You know, do you think there’s any merit to conversion in the office world and in converting a multifamily or whatever?

Chris
Yes.

Rod
Yeah?

Chris
I do think so. You’re still stuck with this high bridge loan, construction loan environment.

Rod
Yeah.

Chris
So, you know, the math has to math. It has to work out. So if you are borrowing money at, you know, 8% and now you’re at 11%, you got to price that in.

Rod
Yeah.

Chris
And as you know, construction, you’re like, yeah, I’ll be done in two to three years. No, you know, add an extra 18 months to your project and look at it at 11%. Now, so you got to price that in your acquisition cost. Right?

Rod
Significant. Yeah.

Chris
Yeah. So that’s when you really got to take a step back and assess your underwriting and everything takes 25% longer and everything now is you know, worth 500 basis points higher. So, you know, I think that someone that has the wherewithal to acquire land very cheaply, you got to have more of a land bank approach to it, you know. And you got to wait out the storm.

Rod
Yeah, holding on to it for a bit. Yeah.

Chris
You got to wait out the storm. So you got to run different models you know, because we don’t know. We don’t know when interest rates, it’s impossible to predict. Oh, I think– you know, people are like, oh, I believe that autumn 2023– this year, Q3, rates are coming down. I’m like, there’s no way.

Rod
I can’t tell you how many times I’ve heard that myself. You know, I host a Mastermind of about, I don’t know, I think there’s actually, I say 16 billion. I think it’s probably closer to about 25 billion in assets in this Mastermind.

Chris
Wow. Nice.

Rod
We met in Dallas a week ago and there’s about 10 billion represented by the guys there. And a lot of them are saying, oh, yeah, the rates are coming down at the end of the year. And I’m like, I don’t know. I don’t know. I’m not sure I agree, you know, because–

Chris
So what does it look if we– we all can sort of agree that Jerome Powell, we’re sort of at the top. Maybe there’s a quarter point, maybe worst case, there’s two-quarter points. We don’t know, but we’re done with the 5%.

Rod
Correct.

Chris
You know, maybe it’ll be 5 and a half.

Rod
Correct.

Chris
How long are we going to stay at this level? And that’s definitely the next question where we all hope that it’s going to decline, but that means that there was a break in the system, that there’s a crack. There’s not a crack. Something major has happened that will cause you know, a 100, 200 basis point reduction.

Rod
Well, I will tell you. You know, I interviewed a guy on the show that really studies macroeconomics, and we talked about the debt in this country, and we talked about the impact of the increase in those interest rates to that debt. And it is freaking scary. It’s sobering.

Chris
Do you mean the national debt?

Rod
National debt.

Chris
Yeah.

Rod
Just the increase in the interest in that national debt went up 1.6 trillion because of these interest rate increases. Okay? The US only collects between three and three and a half trillion a year in income taxes. Okay? And spends more than that every year. So it’s like you know, it’s just this cumulative thing that’s happening that is so sobering. But his rationale in that– or his reasoning for bringing that up is he does believe the rates will come back down because they have to come back down because of the rates on that national debt. So we’ll see. I don’t know if he’s crazy. We’ll see. Let’s hope so. Let’s hope he’s right because–

Chris
I hope so. Now, do your listeners, do your speakers, what do they think about a recession or a soft landing, hard landing? Because, you know, we all want to avoid this pain. We’re already in pain. We’re already planning–

Rod
Listen, I’m a bear. I’m a bear. I’m just going to tell you right now, I think it’s going to be ugly. I’ve been telling people, get ready, get up to speed, pick a vehicle right now. There’s going to be an opportunity to buy businesses, to buy any real estate asset class, you know. But get up to speed right away so you can capitalize on what’s coming because I believe it’s coming. You don’t know my story, Chris. I lost $50 million in 2008 and ’09. I got crushed.

Chris
Wow.

Rod
And so, you know, this time– and I got crushed by that wave. This time I’m surfing that wave. Okay? I’m in a lot of cash. I have access to a lot of cash. And I believe there’s going to be an exponential opportunity. I really do. Again, I’m pretty bearish.

Chris
Do you think that because that happened in ’08 and ’09 and I love that– people love–

Rod
That I’m dragging around that bag of– yeah, yeah, yeah, yeah. Listen, that absolutely affects my opinion for sure, because I got my ass handed to me. So, yes, I am bringing around that negative experience to today. If that’s what you’re asking, right?

Chris
No, that’s not– I was going to ask–

Rod
Oh.

Chris
Did that help you? Did that wake you up and say– and how did you– because my [inaudible]

Rod
Yes. Oh, no, that’s a really good question. Yes. And I’ll tell you–

Chris
How did you get back up? How did you get back up? You got your ass kicked. Did you have to take six months off? Did you take two months to regroup? Like what did that– because everyone– the comeback story is the rocky story.

Rod
That’s what I talk about when I get interviewed. I get interviewed all the time. And it’s what strategies that I implement. And I talk about this in my boot camps. How did I recover? You know, I will tell you, real high level, real quick. You know, I realigned with what I wanted. I got real clear on my goals again. I got real clear on my whys again. You know, goals and whys evolve over time. So I got real clear on that. I made a decision, you know, no more pity party, get out from under the freaking rock and kick my ass in gear. And then I took that first step to rebuilding myself, surrounded myself with peers that were killing it. I was in Tony Robbins’ Platinum Partnership at the time. You know, people, they were thriving through the crash. And they’re like, 50 million, schimillion. Get up, you puss. Go make something happen.

Chris
Love that.

Rod
You know, that’s who you want to be around when the soup hits the fan, right? So your peer group is super important. And then, you know, staying positive, it’s staying focused. Focus is super important. And I know, by the way, and you guys have heard me say this, if you’re listening or watching my show, you are a leader. And I’m going to tell you, in what’s coming, the world needs leaders. And as a leader, you have to decide what you’re going to focus on. Don’t get me started on the crap in the news. And it’s all crap because whatever you focus on gets larger, both positive or negative. So it’s super important that you manage your focus. You stand guard at the door to your mind, bring in the good stuff, don’t get too sucked into the politics and the complete BS that’s on the news anymore, and get clear on your goals. Focus on those goals because these next few years literally could be the greatest transfer of wealth you and I see in our lifetimes, Chris. I really believe it’s possible. And if that’s the case, by God, you better be up to speed and ready to capitalize. So, you know, let me ask you this, on that note, Chris.

Chris
Sure.

Rod
You know, what are you doing in case it gets ugly? Are you thinking about debt buying again or brokering or whatever you did back then? Are you thinking about any other strategy? Let’s just say it really gets ugly. What might you be thinking?

Chris
So post 2020– you know, 2020 was the worst year of my career, revenue-wise, as far as there was just no business and the expenses just kept going. On the principal side and ownership side, the banks were incredible. Everyone was doing forbearances. You know, and then all of a sudden, every month there were checks coming in and government assistance.

Rod
Right.

Chris
But the thing that really took off, ironically, was our office leasing business. We are up–

Rod
That makes no sense at all, but okay. That’s awesome.

Chris
’23 to ’22, we are up 216% right now.

Rod
Wow.

Chris
Q1 ’23 versus Q1 ’22. Why? Because everyone left. People left the industry and we had landlords. You know, our portfolio–

Rod
Ah, so you got a market share. You got a market share in your business of brokering offices, basically. Got it. Very good.

Chris
Yes. So we got a market share. Our revenue is up. It’s still super scary because, on the principal side, you got to do this balancing act. But as far as preparation is concerned, as far as looking at and going on the offense, we are working and talking with lenders. We are talking with portfolio clients that have 40, 30 buildings, and they’re saying, Chris, you know, these are our prized possessions. These are our headaches. And I think that it’s time to really start paying attention to how to get rid of those headaches, even if it is painful and we start painting that picture now. I think as far as in general, it’s starting to really crystallize, and trying to put together the puzzle piece of this is how the markets changed today. And these are the sort of trends that I’m seeing in my sandbox. And for us, we’re seeing, oh, you know, retail has been beaten up so much. You know, you could get a 7% unlevered return because no one’s paying attention to that, you know.

Rod
Really? Wow. Interesting.

Chris
In Manhattan, multifamily is hanging out. They’re very strong. Sellers still want a five cap. [inaudible]

Rod
Right. And that’ll change. It’ll be the ones that need to sell instead of the ones that want to sell. But I think that’s coming.

Chris
Yeah. I think affordable– anyone that’s in the affordable or rent-regulated space in New York, lots of pain in that because you can’t increase the rent like a free market. So, you know, it’s really looking at asset classes, locations, and using data to make a decision based on where am I going to attack, where am I going to focus on, what is that focus? And just like you said, maybe in ’09 and ’10, where you had to take a step back, you got to look at the numbers, you got to look at the facts, and then you have to align yourself. So we’ve been talking with a lot of private equity funds. As I mentioned, there’s something like $300 billion that was raised in the last 12 to 18 months for North American real estate, whereas in 2009, there was only 80 billion. So we’re seeing lots of smart money come, and they’re going to have to deploy in the next 24 months. Align yourself with who has the money. If you don’t have a dollar to your name, you got to at least be in the world and start talking to what are you looking for. What are you trying to do? How are you deploying this? What are your strategies? And then all of a sudden you got 100 billion dollars worth of dry powder and you got to sort of align yourself to get in. Maybe you say my fee is 2% of this deal. You take 98%. Just to let you know, Mr. Private Equity, you know, we’ll help you asset manage this, but we’re not bringing money to the table. It’s your deal. You tell us what you want, but this is the deal and this is what we want. At closing, we want, you know, a fair fee. If it’s a $50 million project, we’re not going to charge you– give us 1%, and then can you give us some equity slice. Bless you.

Rod
Thank you. Thank you.

Chris
So really just to look at–

Rod
No, that’s good advice. That’s really good advice. I have to tell you. So let me shift gears for just a second. I’m just interested to see what you think. And I’m going a little bit political for a minute here.

Chris
Okay. Yeah.

Rod
I mean, you’re so well entrenched and vertically integrated in New York. Have you ever thought about buying elsewhere?

Chris
Yes, absolutely. I’m a huge fan of Palm Beach County. I love all the different areas in South Florida. I go to South Florida twice a year. Delray Beach. I’ve been going to Delray. It’s a small beach town in Palm Beach County. I love Delray. During the– in 2020, went down there, have a lot of friends from New York that went you know, down in Florida and fully pivoted their business to building you know, 50-foot skyscrapers in Southern Florida. I would certainly look at Southern Florida. I would continue. But what value proposition do I bring other than maybe I am close to money? So I spent a month in May– I’m sorry, June 2020 when the world was cut off and I stayed in Delray for a month. And I got an office down there. A temporary office, I was in the office every single day. And I didn’t feel the rush. New York City has a two trillion dollars GDP per annum. There’s money flowing from all over the world. South Florida is amazing, but I didn’t know the value proposition. What value do I bring because I’m so new? And so I then said, all right, you know, let me start looking at deals in South Florida. And South Florida, multifamily is still so competitive.

Rod
Sure.

Chris
It’s like, yeah, we’re interested in selling at a 4% capitalization rate, but we have nine offers, so we’re probably going to settle at 3.75%. Are you interested? And how do you compete in such a world unless you go way bigger, unless you’re like, you know what, this is what we’re going to have to do. We have a $150 million equity potential check coming in. This fund raised $5 billion. That fund raised $2 billion. They’re looking to do something. They don’t want risk, but they want you know, a 20– they want a 2X in five years. Maybe the only way I would do that is on the much larger portfolio level where it would make sense. It’d be like Rod, you would call me and say, hey, you know, this is what we’re trying to move. I have a $350 million portfolio. We’re doing a recap. We’re gladly doing a 5.5% thing, but we need 50 million bucks. At that level, I think that I could certainly bring value on the smaller day-to-day, 3 million, 5 million. I don’t believe– I think that there’s a lot of wonderful operators down in Florida that don’t necessarily need me. I think that you know, again, we have the 2.7 million square foot portfolio here in New York that we have to tend to.

Rod
Sure. So you got to play defense and offense. And you want to play some offense, but you got to play some defense. You’re smart enough to realize that. And by the way, guys, I want to point something out to you that he said, because I don’t care if you don’t have anything right now. His approach to this is something you need to make note of. And that is he looked at a situation and he looked at how can I add value. Because you got to figure out how you can add value to do this business. And I know some of you are just starting out. So you got to think about what area of the business you might want to start in, whether it’s finding deals, raising money, those are the two biggest. Or maybe you’ve got project management, construction, and maybe get into asset management in some fashion. Maybe you’ve got some finance background, you know. So think about what hat you can wear because a lot of hats you can wear in our space and you don’t have to know it all. Maybe it’s underwriting, maybe you’re a spreadsheet nut and you can underwrite deals and evaluate deals. So think about what you might bring. But I love the fact that that’s how you approached it, Chris, because that was a great lesson for my listeners that haven’t really done anything yet and know they want to get in this business because that’s how you approach this is how can I add value? And the people that add the most value in this world are the wealthiest people on the planet. Okay? Look at Bezos, look at Jobs, look at, you know, Musk. I mean, that’s it. That’s how it’s done.

Chris
For your listeners also, if you’re just starting out, we have a family saying that there are million dollars in your backyard, but it’s up to you to dig it up.

Rod
Love it.

Chris
So if your backyard is Louisville or, you know, Sarasota or Miami, look in your backyard, focus on your backyard. Don’t start saying, you know, I’m going to go to LA. Or actually, probably people are saying–

Rod
Don’t do that anyway. Don’t do that. No, I’m just kidding. For those of you in LA you know I dog the blue states a little bit, but only because they’re so regulatory, which is why I asked the question of you. I mean, it’s so much harder to do business. I mean, you talked about rent control and everything else.

Chris
It’s so challenging. They can’t get out of their own way.

Rod
Right.

Chris
They promise one thing and they can’t deliver on their promise because they want to stay in office with votes.

Rod
Right.

Chris
So then they have to make a splash. Behind closed doors, they’re like, yeah, we’re going to try to do this. We’re going to want to try to do that. Please, you know, collect as many $2,500 donation checks as possible. When the test comes, they’re in it for the votes and they’ll do it you know, for the population. And they want to stay in power. It’s a tough line and that’s why the best time to get to a politician or work with anyone in politics is towards the end of their term when they’re done with their term, anyway, so then hook us up, you know, help us out, you know, remember that.

Rod
Yeah, that’s good. That’s good.

Chris
But yeah, as far as location is concerned, focus on your backyard. That’s where you add the most value. You’ll walk around and you’ll drive around your area, your city, your town, and you’ll start seeing what’s going on with that abandoned you know [inaudible]

Rod
That’s right.

Chris
What’s going on with that hotel, you know? I think they’re doing construction, but they stopped construction. And then it’s simple math. If there’s a large empty building, someone’s paying a mortgage on a large empty building. And that’s in ’08 where I just started walking around and being like that construction site, how can they pay the bills, you know?

Rod
Right.

Chris
It’s ’09, it’s ’08, it’s 70% complete. I haven’t seen any construction workers in the past three weeks. I passed by every day. Let me look into it. It’s as simple as that. And those strikes– and once you start looking and start speaking and start calling and then start really just focusing on a building by building, property by property, you’ll find a nugget. You’ll find a nugget. But that means you’re on the offense. That means you are on the lookout and you’re not on the defense. And on the defense, you’re figuring out capital issues, money issues, you’re working with the lenders, you’re out there looking for other replacement debt. And I think it’s a balance, but you definitely should time manage the big think as well.

Rod
I agree.

Chris
The big think, you know, you’ll never get out of the small weeds. And I love the fact that you surrounded yourself with guys like, oh, 50 million? Yeah. You know, what is that? Two years of work?

Rod
Right.

Chris
Like someone will just blow you out and be like, oh, don’t worry about that. You know you’ll be back in two years, three years. And to be able to have that [inaudible]

Rod
Yeah, and the same goes for you guys listening, okay? Again, the fear is going to be rampant if it gets much worse. And just pay attention to who you’re around. You know, be around people that want more, you know, get into a group. My coaching students, my Warriors, are really proud of something. They own upwards of 150, I think between 150 and 160,000 units that we know of.

Chris
Wow.

Rod
And I’ve only been teaching five years, so really proud of that. And of course, that’s because that group is so supportive. They do deals together. They’re pushing each other. They’re not afraid of success like a lot of people are. So be very, very careful who you allow to influence you and get in groups like that.

Chris
When you say afraid of success, like what exactly is fear of success? Likw what is that?

Rod
They’re fearful, period. Okay? They have limiting beliefs, fear of failure, limiting beliefs like, I’m not good enough, I’m not strong enough, I’m not smart enough. I don’t have enough money, I don’t have enough time. And sometimes the people that are fearful, they’re afraid of being left behind if you succeed. They’re afraid of feeling less than if you succeed. They’re afraid of losing you if you succeed. So there’s all these dynamics. And sometimes it’s family. You know what I’m going to tell you, love your family, but proactively choose who you allow to influence you. So many people will default to a peer group of people they went to school with or people they work with. And again, those people may not have your success mindset and your best interests at heart if you really pursue that. And when you first start a dream, you first start something that you want to do as a side hustle, it’s a fragile thread and you got to protect it because you know, some well-meaning negative person can break that thread very easily. So be very careful who you share your dreams with and who you hang out with. Anyway, listen, brother, I appreciate you coming on. This has been a lot of fun. I’m actually getting a place in Fort Lauderdale, believe it or not. We’re going to go out there in a couple of weeks. We’re going to get a condo out there. That or Miami, but Miami was so stupid. We’re going to look up in Fort Lauderdale, too. But, yeah, next time you’re in South Florida, let me know. Would love to connect, have a meal or something.

Chris
Yeah. And I’m going to ping you about this mastermind, you know.

Rod
Okay.

Chris
I’ve always had a mentor. I’ve always had a mentor.

Rod
Well, you had your dad. We didn’t talk about him. Very impressive guy. Yeah.

Chris
So we’ll save that for another time. But, Rod, thank you so much for having me and for everyone else, I’m @ChrisOkada on all social media platforms. And keep in touch. And thank you so much for having me. I hope your listeners found some valuable information.

Rod
I know they did. And I did as well. Thanks, brother. Take care.

Outro
So one other quick thing. We encounter so many people that are frankly frustrated. They’re looking in the mirror and they’re frustrated that they haven’t been able to escape the rat race. They haven’t been able to build cash flow to the point where they’re able to have financial and time freedom with their families. And maybe they see other people buying real estate and creating incredible cash flow, and they think, Well, it’s just scary. You know, buying apartments is intimidating. And I get it. See, that’s why we created our Warrior Mentorship Program. They’re our coaching students, and they’ve had extraordinary results. My students, I’ve been teaching about five years and they own upwards of 140,000 units now that we know of. Right? And we feel like it’s just getting going. Now, we’re looking to grow this group and really take it to the next level, and honestly, believe that the greatest transfer of wealth could be upon us right now with this current economic environment. Everything’s going on sale. So we’re looking for people who want to follow a proven framework, really like a blueprint or a map, literally, step by step. And then they’re able to leverage our systems and our incredible network to raise money and equity, to find deals and close those deals and build partnerships, really nationwide. So if you’re interested in finding out more about how you can become more in our incredible network and take advantage of the unbelievable opportunities that are upon us, you can apply to my Warrior Mentorship Program by texting the word “CRUSH” to “72345”, or you can go to “MentorWithRod.com” and what we’ll do is we’ll set up a call so you can check us out and we can check you out and see if it’s a fit. Now, again, you can go to “MentorWithRod.com” or text the word “CRUSH” to “72345” to apply, and we will speak soon.