Category: Multifamily
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In today’s episode of #RitterOnRealEstate, we have a conversation with Morris Groberman. Morris Groberman has been in the commercial real estate business for over 30 years and is a principal in Northwest Commercial Real Estate Investments, LLC. Morris has successfully completed more than 50 syndications since 1997, raising over $150 million in equity to acquire properties.
Morris was a Senior Vice President with Colliers International, a leading brokerage firm. He was a top local broker in the company for many years and was nationally ranked in the top 25 for Colliers International several times. Morris has served as a broker for many significant apartment buildings and seeks to acquire exceptional properties for his investors.
Key Points Discussed In This Episode:
-How Morris Groberman Got Started In Real Estate
-The importance of equity.
-Buying his first 8 unit apartment building.
-Why Morris chose Real Estate as his primary business.
-How to buy off-market deals.
-Relationships and why they are everything.
-Investing in your backyard.
-Rents/job growth being very important factors in deals.
-Understanding appreciation and cap rates.
-How to keep your investors happy and in the loop.
-What to ask your deal sponsor.
Books mentioned:
- Winning Through Intimidation by Robert Ringer
Transcript:
[0:00:00.0] MG:
They keep giving me more money because I’m not always asking them for money. I give them information I tell them what’s going on and we’re just part of their investment portfolio.
[0:00:11.0] KR:
Welcome to Ritter On Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts to give their top investing advice, strategies and tools. They break down the insights into practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter On Real Estate. I’m your host Kent Ritter.
[0:00:35.0] KR:
Hello fellow investors Welcome back to another episode of Ritter On Real Estate where we teach you how to passively invest like a pro. Today I’ve got a very special guest His name is Morris Groberman, and Morris has been in commercial real estate for over 30 years. He’s a principal with Northwest commercial real estate investments. And he’s successfully completed more than 50 syndications since 1997, and raised over 150 million in equity to acquire properties. So I think we are really, really blessed to have you here today Morris to share your wisdom It’s not often that we get such a seasoned investor in house to give us you know, give us such a different point of view. So thanks for coming on the show.
[0:01:18.0] MG:
No problem I look forward to this.
[0:01:20.0] KR:
So before we jump in, why don’t you tell folks a little more about yourself and how you got started and then kind of how you got to where you are today.
[0:01:29.0] MG:
Okay, well I’m I graduated from college and went in right into commercial real estate at Colliers as a broker and as a broker you learn from everyone and how to do business and what to do what not to do and you take the things you like, and you throw away the things you don’t like. But the one thing I did realize early on is that being a broker is great, it gets some cash flow, but you don’t build equity and equity is where you want to be. So I had to figure out from being a broker how to get equity and how to start buying these buildings because later on in my career, all I was doing is I’d find the deal I sell it to somebody and I’d put the whole thing together I get them their financing I do all the due diligence and all they would have to do is show up at closing with some money and then it was over and I got my check but I didn’t own the building I should own the building I owned all those buildings I sold but it gave me that education and the confidence I needed to go out on my own and start buying and so you know what i did early on and this is when I had hair I went to you know my investors and investors you know asked me you know hey more if you find a good deal, let me know and I’ll buy it from you. So I wrote their names down on an Excel spreadsheet we did have Excel them and and then I found a deal and that was actually a deal I was selling as a broker three people passed on it and I’m going to sell it to the seller and I go I don’t I don’t know why these guys are tying this property up and then blowing up so I said hey, if I buy it for the price that they had it would you sell it to me so he said sure I want to buy this other building so yeah, so I went and bought his building and that’s how it all started.
[0:03:26.0] KR:
Nice and what was that first investment what type of building was that?
[0:03:30.0] MG:
It was an eight unit apartment building built in 1910 I still own it today. We bought it for 465 and it’s probably worth 2 million bucks today I still own it just you know I refinanced it so many times my investors have received their money back tax free and they basically every time they get do the refinance and get their money back they just give it to me for my next deal because money they had allocated for real estate so just keep giving them money back. And that’s typically you know, how we’ve been able to keep growing is we don’t necessarily sell I’ve maybe sold two or three buildings in my whole career as an owner. Oh yeah, I just it’s so hard to find good assets to buy. And then you have to pay taxes and all the stuff is so much easier just to refinance, give your investors back their money and then keep owning it. It’s the Devil You Know, versus the devil you don’t know. And the one the buildings I have sold except for the office building. I wish I did not sell the office building. I’m still glad I sold. Yeah.
[0:04:37.0] KR:
So let’s start with just just real estate. Why Why were you so attracted to real estate and why did you choose that as as your vehicle of choice?
[0:04:48.0] MG:
Well, you know, growing up, my grandfather and father were in the real estate business in Canada and I saw what they did and then my steps Dad in Vancouver, Washington owned a furniture store. And I saw what he did. And I said, I don’t want to be in furniture, that’s too much capital, let’s and then you have to wait for people to come to you. I want to be a real estate broker. Because you can make some money being a real estate broker, if you’re good and you work hard, but you don’t have any capital you only have your time. And you don’t have to wait for the customers to come to you you can go to your customer and say, Hey, buy this building, it’s a great deal. So that’s how I got into it. And I was with Colliers for 19 and a half years and during that time they let me buy my buildings
[0:05:40.0] KR:
Nice so this,
[0:05:41.0] MG:
Business and then finally I just said enough is enough and yeah, can’t do it all.
[0:05:45.0] KR:
Yeah, it didn’t make sense anymore. You had too many assets at that point. Yeah.
[0:05:49.0] MG:
Yeah. And I was and candidly I was competing with my customers right? They didn’t like that very much.
[0:00:44.0] KR:
But I found some pretty good deals though. You get the first little.
[0:06:00.0] MG:
You know what, as a former broker yeah I knew all the the owners in the markets I became friends with them they knew me and so I they would call me for advice or something and we end up buying their buildings off market and on buying another deal off market. It’s all about relationships in our business. I would say probably 60% of the buildings we buy are off market maybe 70 It’s just that you know people come to us first that were unknown quantity and they know we were able to close.
[0:06:39.0] KR:
Yeah which is really the most important thing right that are close
[0:06:43.0] MG:
For yeah for owners and brokers if they want to put it on the market they want to know it’s going to close.
[0:06:48.0] KR:
Yeah, absolutely right. So tell us where you’re investing.
[0:06:54.0] MG:
Okay, I will say so when we invest in the Seattle area only. I learned early on in my career not to buy any property more than 45 minutes from my house because you just never will see it and the key is just being more on top of things don’t get on an airplane you know it’s hard enough for me to drive 30 minutes to look at a building level loan get on a plane to do it etc. And there if you know your market, there’s plenty of buildings to buy and things to find in that market. But you know, we own all asset classes now. You know, growing up I started as a leasing agent. So I understood office leasing, industrial leasing, retail leasing. So we own office, we own industrial right now and retail and and mostly multifamily. I owned an office building, I was an office leasing broker for many years. And my motto now is friends don’t let friends buy office buildings for several reasons but one tenant improvements downtime real estate Commission’s it just eats all your profitable alive. And it’s just kind of a pain in the neck. apartments are so much easier to own and operate. Retail we own core asset and in retail. Yeah, we are impact a little bit by the COVID thing, but not as bad as others have been. Apartments the same thing. We want about 1800 units, and I have about not quite 15 people not paying now. So it’s not I’m not getting crushed by that. It’s more of a pain. We did see our incomes, our rents drop in the heart of the problem 15 20% Plus, we have to give concessions. But we’re back now to 2019 rents or or above. And we’re just plodding along. I bought a couple of properties. During this time. We’re doing a lot of development deals now. Development takes a long time to do so I’m going to break ground and 22 on about three buildings. No, those will take between a year and a half and two years to build depending on the size.
[0:09:16.0] KR:
Yeah, and what type of apartments are you invested in like A B C, or there is an urban suburban mix.
[0:09:24.0] MG:
We used to really just focus on the the urban in city core Seattle, but we you know, we’ve really spread out now we’re in all the areas of Seattle, you know, we have a big tech presence here in the Seattle area. So we’re trying to get those customers we’re just opening a new building in Kirkland, Washington next to the big Google Web campus. So that’ll be pretty successful. We’ve already got all the commercial there rented, so I got seven units to rent but I can’t rent them until they finish the building. I think we got a couple pre rentals of just have friends and family that wanted to get in there because such a great location. We’re building on Queen Anne and Seattle, and we have three or four buildings now we’re doing in downtown Bellevue, that’ll be mid rises. We’ve been we’ve been very busy during COVID It sounds like crazy, you’ve tapped in and I’m buying another building right now, in North Seattle area. It just wasn’t on the market. And it’s gonna put out for us a three to 4% cash on cash return plus I have a lift in rents. So we set up that’s looks like a good deal. Let’s just do it. And and the thing that’s really helping us is are the interest rates they make they make really makes sense. Right?
[0:10:43.0] KR:
Yeah. And, and so I want to get your perspective here, because you’re just you’re unique, too. I think a lot of what we what I would say, a lot of what I hear, you know, and maybe that’s just the circles that I run in but but a lot a lot of people are people that come out of training programs to be syndicators, things like that are focused in that everybody’s gonna push to the southeast, everybody’s pushed to Texas to maybe Arizona, right, you hear about Phoenix and Dallas, and all the growth and things that are going on. Nobody talks about going going to Seattle, really and investing in Seattle and making that work, but but obviously you are you’ve been extremely successful. So I’m just curious on one, if you could enlighten us on kind of the market dynamics in Seattle, Nolan, you know, price per units are fairly high. He said a three or four cash on cash that that’s a little lower than, than in some other markets. But so the dynamics are different. But also I so I’d love to hear that. I’d love to just hear your, your perspective on just make making investments work there, and kind of the strategy on how you on how you deploy that and make that work in Seattle, and why that’s attractive.
[0:12:01.0] MG:
Well, okay, so I can talk for days on this. So sit down, everyone, we’re gonna we’re going to have a little visit on Seattle, and we got time. Yeah, so how do I start so when I started in commercial real estate, Seattle was a very provincial area, no one really did, necessarily, except the locals want to invest in Seattle. And then we had, you know, Boeing Comm. And they were they’re a big presence here in the area, and then they left and went to Chicago. And that really kind of upset the applecart. But there was this weird company called Microsoft, that was really starting to grow. And they’re just huge here. And then, you know, we have all these other tech companies in the biotechs. So as I always tell people, it’s all about jobs, what we do, especially in multifamily housing, you know, everywhere I’m I’m trying to locate my buildings is near jobs, and well paying jobs. And that’s kind of what we look to do. And then if you look at all the institutional investment lists, Seattle is always at the very top of their list. Because we’re really constrained by water, there’s water all around us. So it really limits them the land, and then we have the zoning. So it’s there’s really high barriers to entry. And yes, our returns just like the left coast and the right coast. Those those areas those those coasts have, it’s harder to get in there. And so the returns are a little lower to start with. But here’s what here’s what’s really happened to us and Seattle, and I, I’ve been talking about this for years, when I was a broker, and now as an owner, and to my investors. It’s really a capital appreciation play things in Seattle. I don’t know how it happens, like kind of new cars ramps, double every 7 to 10 years. values and buildings double. And that’s a lot. And that’s why our our cashflow returns aren’t as high as they are in the Midwest. Midwest, you’re not seeing that, you know, you can get a 6789 cap, I mean, way better than our caps. And you can get better cash flow. But when you go to sell your property, you’re not getting the appreciation like we can get on the left and the right coasts. Don’t know what it is. It’s really all about rents, it’s all about job growth. It’s all about, you know, I go and peek in our job, our applications, it’s not my job, but I like to know who my customer is. So I’m always looking at the rental applications and seeing who they are. And these kids get $150,000 to start computers. So with Amazon with Facebook, with all these companies, they can pay these huge rents and it’s just pushing our market like crazy. So you know, this building, we’re building, encourage clip, I think my low rent for a little crappy studio is 2300 bucks.
[0:15:05.0] KR:
Wow. Yeah.
[0:15:10.0] MG:
It blows me away. I’ve been doing this long, I’m too old, but it’s just really very fascinating. And these Google employees are going to be able to pay it No problem. And we’re right across the street from their main campus. So yeah, we’ll be fine. And and it’s just a wonderful location there. But yeah, our rents in the Seattle area for a new product vary between three and five bucks a foot.
[0:16:34.0] KR:
Wow, that is a different world than than where I am here in Indianapolis, for sure. But I love your perspective, because I mean, all the time I hear about the way, the way most people talk about cap rates is that low cap rates are a bad thing. You know, when I hear most people talk about they talk about the cap rate, you know, I would never buy a four cap, I would never buy a three cap all this. But what I always try to tell people is like cap rates are not good or bad. They just, they just are what they are. And you have to alter your strategy based on what the cap rates are based on. Like he said, if it’s a capital appreciation market, or if it’s a cash flow market, and it says and I love how, how you’ve just developed the strategy around capital appreciation, because that’s the market you’re in and and you’re being very successful in a market where there’s three caps and maybe even two caps.
[0:16:28.0] MG:
No, you know, I bought two, I don’t mind buying two caps. Um, you know, because here’s the deal is you got to say, Okay, I know the market pretty well. So I say, Okay, if I do this to this building, will I get a six cap, okay, and then oh, there’s a parking garage, I can build more units. Or, you know, I can add units. So that, that that to cap I bought, which I did, I added three units into the building. So I went from a 30 unit building to a 33 unit building, and now we’re moving down the garage and we’re putting up 27 units, the garage is free, it’s free land. So that to cap I could have bought for a one cap and I was still made money. You just have to look it. People look so short term it like it’s like looking at the stock market. When I buy a building, I don’t look at what’s going to happen in one or two years. I look okay, 10 years down the road. Am I going to be happy I own it. And the answer to your question is basically, if you buy the right location, you’ll always be happy. Location really does matter. You can never fix a location you can always fix a building. And we fix buildings and we run pretty good buildings. And I don’t mind buying old buildings I bought a lot of old buildings. You can look at our website in wcorei.com and you can see all the properties we own and how we operate. It’s it’s fascinating, even to me, and I’ve been doing this all my life.
[0:18:00.0] KR:
Yeah, yeah, I love that perspective. It’s just different than what we hear most of the time. That was one of the reasons I wanted to have you on as well. And and you and I actually so folks know Morris and I met through a we were on a conference call together and and Morris actually gave me a great piece of advice on that call because I was talking about all the appreciation that I had seen in the markets that I’m in and Louisville, for example is up kind of 30% building prices are up 30% over the last, you know, eight or nine months as a man that’s just really hard to take. And your comment right back at me was you know what, you’re just you’re looking at it the wrong way, in that, you know, you can’t frame you can’t worry about what you paid last year, you’re never gonna pay this year what you paid last year, right? And you’ve got you’ve got to look at the future. And if the future like you said looks bright and that makes sense, then then that’s okay. But if you’re always thinking about what you paid last year, you’re never gonna buy another building. And so I really appreciated that advice and it’s exactly right.
[0:19:03.0] MG:
Well, I bought my home I bought my first few buildings 50,000 the door and I’m buying a building right now at $300,000 a door and you know, it still makes sense the rents are triple so he just remember you just have to look at the future. And it’s almost like buying a business, you know, and and candidly, I like to buy a business, right where you know, the rents for example on most of the units in that building haven’t gone up in two years because of COVID they haven’t been allowed to go up in the next six months, they’ll be able to go up so I’m looking to be able to raise rents on current residents. You know, whatever I need to to get to market and then it’s interesting is that, you know, we’re on the turns where we’re getting those much higher rents, and this these are apartment buildings, people don’t live there forever, especially the ones I own. And it’s not because I’m kicking them out. It’s just because they’re apartment renters. They move we’ve seen 30 to 50% Turn a year in the buildings and that’s just what it is. So we’re able to get that turn unable to get that, that that new rate, the why it’s more difficult in commercial you’re signing 357 year leases. I don’t like doing 10 year leases. I don’t like doing options. We can go into that another day about lease negotiations for commercial tenants.
[0:20:21.0] KR:
Yeah, I mean, one of the positives of multifamily right is you have a year long lease and you can continue to stay up with the market as those leases turnover in the shorter term.
[0:20:30.0] GM:
And inflation,
[0:20:32.0] KR:
And inflation, right?
[0:20:33.0] MG:
It’s tougher on the commercial long term leases, you try to have your CPI and your clauses but you know, you’re typically able to only bounce them 3 to 5% a year. But if inflation is running higher, and I remember the 80s, when inflation was running higher, the early 80s I was there for it. I watched my parents struggle in the furniture store holding inventory. And as I just said that is not for me.
[0:20:58.0] KR:
Yeah, that makes a ton of sense. So you know, what our, we’ve talked about the dynamics of Seattle, how it’s a different market, right? It’s a capital appreciation market, we’ve talked a lot about the importance of rents and rents continuing to increase the turn that are doing things to turn that two cap into a six cap, right? Or be able to be able to really push the value in these properties. But what are the key things that you look for? When you’re evaluating one of these buildings? Or one of these investments? I mean, what are the things that you’re really honing in on that move the needle?
[0:21:35.0] MG:
Well, I say the main thing is, we all talk about real estate one on one is location, location, location, it really does matter. As I said, you can never fix a location, you can always fix a building. I like to be able to add units and buildings, I like to be able to turn them around. We’ve done a lot of turnarounds in great locations, that’s fine, the building I’m buying now is actually in decent shape. This the rents are a little soft, because he hasn’t been able to raise the rents in two years, and interest rates are low enough that I’m able to get a decent amount of cash right out of the gates. You know, for years, I was buying buildings in Seattle here offering my investments, no returns, zero cash flow, and to say, hey, well, we’ll raise rents, we’ll get the capital appreciation for you. Now we were able to do that. But they also like their cash flow now. And you know, I’m, I’m getting older now and so are my investors. So eventually we’re gonna have to sell but they don’t typically they’re not pushing me to sell it’s kind of interesting. They like the tax benefits. They like the cash flow out of the product projects. And they know if we do sell it, it’s huge capital gains and depreciation recapture. So they’d rather if I just keep refinancing it. And I have some interests. I have some older investors guys, they’re like 90 years old, and they give me money. I go, Why? Because I don’t want to give the kids the money. I want to give them a building that’s gonna give them cash flow. Right? That makes sense. Right? I’ll do that. And then then the kids get the stepped up basis.
[0:23:05.0] KR:
Yep. Yeah, that that’s, I mean, that’s the best price that you can get. Right? Yeah,
[0:23:11.0] MG:
I would think I would like that.
[0:23:13.0] KR:
So tell me about Tell me more about how your how your investments work? Because it sounds like like, again, a little bit different from kind of the normal crowd, it’s a longer term hold play. So. So tell me about about how they work as you seek to refinance? You know, are you returning equity back to the investors? Are they staying in the deal? And kind of how does it? How does it go as you go through the process?
Yeah, it’s interesting, you know, I started and said, you know, I started when I first built a couple buildings, saying, oh, we’re gonna hold them for 10 years. And then we looked at each other and said, Well, now I think we want to hold them longer. And we’re giving our investors back the money, they don’t want to sell, they want to keep owning. So now I just say, I don’t know what I’m selling. I’ll just refinance, if you want to get bought out, I guess I buy out but at market, and no one that does anything they dislike to stay in. I think that was the one thing that was maybe different than others. And I learned this early on is I report to my investors monthly. I give them a sheet about what’s going on at the building, a little Market Report, and then they get their balance sheet, their rap sheet, and their p&l statement. They know exactly what’s going on. And so I think it’s critical to keep your investors really knowledgeable about their asset. And they don’t call me, they have the information. And they keep giving me more money because I’m not always asking them for money. I give them information, I tell them what’s going on, and we’re just part of their investment portfolio, and they like it and I don’t really have any complaints. All the investors know what they’re getting into when they get into business with us. Now, as I said to you before, you know, we started with eight investors We’re up to over 600. And I keep trying to grow that because, you know, some investors come and go, and they don’t want to, they’ve allocated enough into real estate. And so they’re out, but I have some funny stories that, you know, met with some tech guys and they said, Okay, I’m gonna give you x dollars for these five deals that you’re going to have. And then that’s it. So that same guy is is now said that to me five deals he’s now in 15. You know, I don’t He just won’t do that one I’ll do you know, because they come up with money, and they don’t want to put it in the stock market. They want to diversify. And then one thing they can do in Seattle, because I don’t reach out to anyone else, is they can go drive by their buildings. And if, and I always offer my investors, hey, you want to walk through, I want to see your building. No one takes me up on the offer. Well, you know, I had a, I have a friend of mine, that gave me a lot of money. And he’s actually a tenant and common investor with me. And the one thing he was so proud of, and he’s still is to this day, and he invested in we bought this building the other in 2005, says Morris, I’ve never seen the building. And he lives in Bellevue, which is across the lake from Seattle. And this this is right. Off Broadway. I won’t I don’t want to see it. I haven’t seen it. But because you know, he trusted me. And that’s our business. It’s about trust and transparency.
[0:26:26.0] KR:
Yeah, no, I love your message about communication. I don’t think enough people do that. I mean, it’s something I actually try to do, as well as send out my monthly updates to the investors because because when I started as an investor passively investing first, that was one of the things I hated was like, you give somebody money, and you wouldn’t hear from him for six months, and you’re like, what the hell is going on with my property? Like, are we good? Are we bad? And where are we? So I completely agree with that. And I’m sure that’s a huge part of your long term success.
[0:26:56.0] MG:
With that, and you know, we do quarterly updates about the market, especially during COVID. We did zoom calls with all of our ambassadors, because, you know, everyone was concerned and candidly, so we’re we, you know, when they’re when they’re talking about rent strikes, you know, how is that going to impact us? I mean, that’s, that could be really a problem. So we really kept abreast and we keep everyone abreast we’re you know, we work with all the local people around and I know most of the local syndicators of what I do. And Matt, property managers and appraisers, so we’re we’re really kind of on top of this market. And that’s the only way to be I really know the Seattle area market very, very, very well. If I went into Portland, or Phoenix or some other market, I wouldn’t know it as well. And, candidly, if a building came on the market, the local Phoenix guy would get it before I would. And I wouldn’t know if it was a good or bad deal. The guy would just swoop it up, just like I swoop up these deals that aren’t on the market here. They people bring it to me, and we just go and buy it and the outside people don’t ever see it.
[0:28:03.0] KR:
Yeah, I mean, I think there’s a ton of value there and owning your backyard and knowing the market and and being the being the first to the table, because you have those relationships. I think that’s why it’s so difficult to enter other markets, you know, it seems like you always end up paying a premium for that first one, because that’s the only way you get in is you got to you got to come in above above and beyond what any of the relationships and relationships. Yeah, exactly, Which kind of tells you something, right? If all the old guys don’t think it’s worth that, then you know, is it.
[0:28:38.0] MG:
It’s not Well, again, the thing that’s, you know, saves a lot of people in real estate, especially if you don’t tell your investors you’re selling in two years is time. Time heals all wounds. And I’m telling you, the second building I bought back in 99, January of 99. I thought I really screwed it out. Oh, yeah. Yeah. And it was just, it was just tough on and it was it was a really, you know, I really had to work at that. And that’s, that’s turned into be a tremendous winner for us. And it’s just time took care of it and all the development around it. And I still own I still own it today. Again, that’s the second building and that was 99. And we still own it, we just won’t sell.
[0:29:21.0] KR:
Yeah, I love that. So you’ve, you’ve obviously had had a very successful career over a long period of time. And so how have you been able to maintain your success like like through all the ups and downs through through the different cycles and what what’s your philosophy on and how you continue to just be as successful as you are?
[0:29:44.0] MG:
Heads and beds. That’s how we do it through the cycles, even in COVID. I’ll drop my rents faster than anyone else just to keep cash flow going. And so we were able to keep cash flow going I think I don’t think we I don’t think we cut distributions during COVID for any of the buildings outstanding so that was kind of interesting. commercial building we had two because two of the commercial tenants weren’t paying rent but I have 15 others so we just cut it a little bit but the apartments have been just fine yeah, and you know the other thing that we’ve done that’s pretty smart I thought was we have these significant reserves in the apartments You know, when we do refi or when I buy buildings I have capital reserves it’s called it’s called being able to sleep at night and I and my ambassadors I say Why do you have so much cash and COVID showed us why we have so much cash.
[0:30:44.0] KR:
Yeah 100% So tell me more what kind of reserves are you putting in Are you allocating to specific things is it just kind of the bucket of cash How do you?
[0:30:53.0] MG:
Just a bucket of cash to 300,000 bucks and it just stays in the building and you know if I have a negative month it doesn’t impact us it just we just keep going because you know you know you have you know, higher turnover months are more costly and you know, so it just balances everything out it just the one thing that was the first thing I learned actually on my first building is I didn’t raise enough money and so the reserves were coming out of my back pocket and when you when you feel that yourself, you learn and so the next deal I said oh and we maybe maybe we should have some reserves on this. So I got about 50 to 100,000 in reserves on that and that was fine. So depending on the size of the building, let’s say we’ll do 50 to 300,000 in reserves.
[0:31:41.0] KR:
Gotcha I love that and I think that’s really important for everybody to understand it’s listening to this because that it’s so it’s so critical and I think that’s where people start to you know you start to want to make a deal work right it’s not quite at the number you want and you start to cut things in your spreadsheet and and I think those are serves are some of the first things to be cut but you know, at the end of the day it’s critical to invest with folks that are putting reserves in place because if they’re not there and things go wrong, I mean the net unless it’s coming out of your pocket like like it was Morris’s when the option is you go back to the investors and do a capital call and say hey, you know what, it’s not working we got to throw it we got to throw more money added and hopefully you’re not throwing good money after bad but those reserves are critical to making a deal work when people talk everybody always says they have conservative underwriting right like nobody has ever been like my underwriting is aggressive. But the way that I really consider conservative underwriting is exactly like you said more says you’ve got to have decent amount of cash sitting there for that rainy day that you don’t know may come.
[0:32:48.0] MG:
Well I mean we have bad rooms we’ve had bad boilers we’ve had a just a number of things happen. And yeah, I’ve never done a capital call and nor will I because we have the reserves and and that and that really does help us.
[0:33:03.0] KR:
Yeah, yeah, I mean, I think especially with in the market dynamics you’re in there’s a ton of appreciation, which is great, but but margins are thinner, my cash flow standpoint, so it’s even more critical to have that cash on the side to sustain if, like you said, you got to drop your rents, you gotta you know, to keep those heads in the beds, like you said, I imagine that that’s extremely important there with the dynamics in your market as well.
[0:33:26.0] MG:
Yeah, I mean, our rents went down 15-20% plus concessions, it was brutal. But you know, we just sucked it up, took it. And you know, these people that got their great deal for a year for their, it’s going up to market again, and we’ll be back to normal in 2022.
[0:33:43.0] KR:
Yeah, like you said, time, time heals all wounds, right. So as you know, as you’re looking out, right now, you’re looking at the market, you’re looking at what’s coming up over the neck over the next few years. I mean, what advice do you have for folks as they’re looking, you know, as they’re evaluating investments as they’re looking to make an investment, you know, with someone, someone like you or me or anyone, what advice do you have for folks? What should they be paying attention to?
[0:34:12.0] MG:
It’s pretty simple. There’s a poem that I read, that I that I have somewhere I can’t it’s called buyers lament. Maybe we look it up online. It’s an old pom from the 70s. And about a guy that always thought he should be buying these buildings, and all of a sudden he didn’t, and then he saw them go up in value, and then he couldn’t buy them because they went up too much in value. Here’s the deal. Do you want to own real estate? You don’t want to do the work. You don’t want to have your wife show it on a November evening when it’s dark and blustery and meeting some stranger. Yeah, give it to the professionals and diversify your portfolio into some real estate. I said to people, I don’t want all your money. I just want a summer Have it and just diversify. That’s all you need to do. And they listen, and it seems to be working, but they just need to do it and and not worry about, oh, I could have paid $200,000 a unit last year, it doesn’t matter. It’s what you can pay now. And the future is only, you know, going to be brighter. I think in terms of rents are only going to go up especially in the Seattle area, we got tremendous job growth, we have tremendous population growth. And we have constricted area to build and zoning laws. So I think Seattle’s is going to be great, especially the east side of Seattle, where you have all the tech companies, Microsoft, Google, Amazon is moving more to Bellevue. But the interesting thing is that a lot of the Amazon, Amazon employees are younger in their 20s. And they all want to live in Seattle. And they and Amazon has these buses that commute people and so it was Microsoft back and forth from Seattle to their offices in Bellevue and Redmond it’s fascinating.
[0:36:09.0] KR:
Yeah, no, I mean, I couldn’t agree more. I think we’re in a unique time right now, I think whether you’re looking at Seattle, or you’re looking at most markets in the country, there’s just not enough. Not enough housing, there’s not enough rentals. So as you break it down simply and think about supply and demand in an area where demand is outpacing supply, what happens? Well, prices are going to go up right? That’s kind of econ 101. And I think I don’t think we’re gonna be out of that situation for quite a while just based on how we’ve projected building and, and the new supply that’s coming online. So So I agree with you. I think it’s a unique time. From a demand standpoint, I think it’s unique time from just like you said, interest rates are so low and how cheap money is. And then all the all the stimulus that’s been pumped in and all just the extra money that’s floating around. That wasn’t 18 months ago, right? trillions 912 trillion dollars.
[0:37:00.0] MG:
What about this new, the transportation package for like, 1.2 billion?
[0:37:06.0] KR:
It’s Yeah, infrastructure,
[0:37:07.0] MG:
Yeah, infrastructure, it’s just gonna spur more inflation. And what’s a great hedge against inflation? I don’t know about Bitcoin. But you know, gold has always been there, and certainly real estate. But the one thing that the one thing about real estate is it’s a tangible asset. And, you know, you can see it, you can feel it, and it provides cash flow, and it provides tax advantages, and that no other asset that stocks don’t do that unless you do your margin calls. But real estate is a really a great vehicle to invest in. If you do a right and you go with the right people that know what they’re doing. And and and they’re conservative enough, yet know the market to be able to grow the values.
[0:37:54.0] KR:
Yeah, I’m interested in how I’m sure you get this question. You know, I saw one question that I get are just, as I talked to new investors kind of phrase, a common frame of mind, I would say is Oh, Real Estate is risky, right. Real estate is risky. That just seems like like a general general thing that people think for some reason, I’m sure when you get that question, how do you answer that question?
[0:38:20.0] MG:
I will always says, Well, here’s the deal, I’ve invested in some stocks, and they went down from they went down from let’s say, 20 to zero, and I lost all my money. Real Estate, yeah, at least you have something, you have an asset. And it’s always going to be worth something now if, unless you over leveraged it, but you know, typically I’m doing this new deal, and my loan is going to be 60% of value. So it’s not like I’m, you know, it’s really over leveraging these things. And people, no, we don’t do that. And again, if you’re concerned about that, you shouldn’t invest anything, you should just keep your money in the bank. And then it’ll actually do negative because the amount of money you’re making from the bank and paying the taxes on that, and then with the inflation, your money is not growing at all. So you know, put it in a conservative, you know, asset and real estate’s more conservative, as far as I’m concerned, and stocks and it certainly doesn’t go up and down on a daily basis, like stocks do up down, depending on what the market feels like. You know, we just got to feel good about that location, and invest in a location but mostly invest in the sponsor, even believe in the sponsor. And that’s how we’ve been able to grow our business so well is that you know, everyone has cocktail talk and they say, Hey, this is what I’ve done. And then all of a sudden they from the cocktail party, I get a couple of phone calls. Hey, what do you got, I got I got nothing, but I’ll put you on my list. You know, we just felt like I’m at a point in my career now that I don’t have to buy another deal to be successful. Everything’s just Great, but we do it because we’re having fun doing it. And we enjoy doing it. And I don’t want to be at home sitting at home, just doing nothing. I want to be active. I want to run the company, I want to be just really involved in the community.
[0:40:18.0] KR:
Yeah, I love that. I love that perspective. I mean, in 30 years, I want to be exactly in your shoes. So I love hearing I love hearing your story.
[0:40:26.0] MG:
Without my hair, you’re gonna think you’re gonna keep it.
[0:40:30.0] KR:
In your shoes, not necessarily with your hairstyle. But Morris it’s been awesome having you on before I let you go, I want to take you through our keys to success round, there’s four questions, I want to ask you that ask all the guests. And the first one is, put yourself in your investor shoes, if there was only one question that an investor could ask you. What is that question? What should that question be?
[0:41:03.0] MG:
Are you going to deliver what you say you’re going to deliver? Yes, there’s so there’s so many things that go into what we do. So that’s interesting. But again, I think the one thing that we’ve been able to do that why we’ve been able to maintain all our ambassadors and get new ones, it’s just the reporting on a monthly basis. And the quarterly basis in the market reports, I really think that is really helped a lot. And again, we try to be as transparent as possible with our investors. That’s so important. I love to take more through the buildings and show them what they own, but they don’t want to go, they just want a passive investment, and know that we’re going to deliver and that the, their monthly checks are going to show up in their bank account. And they’re going to get their k ones in a timely manner. So we auto deposit all their money. And we provide the K ones in a timely manner on our investor portal.
[0:41:59.0] KR:
You do what you say you’re going to do. That’s really the the underlying truth of it. I mean, the report the reporting is, is a cherry on top, that’s fantastic, but but you do what you say you’re going to do, and you’ve hit the returns that you’ve promised, right? And that’s why they stay with you.
[0:42:14.0] MG:
Sometimes it takes a little longer to hit the returns that you promised. We’d be honest about that. Sometimes it does, but then all of a sudden, you’re way above the returns, you promise so you know just that’s what’s great about real estate.
[0:42:29.0] KR:
So what are you most proud of in your career?
[0:42:35.0] MG:
How we built the business successfully, and how we treat our employees and our residents and our buildings. And that I think that’s that’s the happiest thing for me that was the scariest part for me is actually how you know it’s just wonky. When your father you have kids, Oh, you got more responsibility, right? But when you start having employees, they’re like kids, and it’s a lot more responsibility. If you screw up, you got a lot of lives on the line too, you know, without better on unemployment. So we’re very cognizant of that. And in maybe we become more conservative than I was when I was younger, because we just don’t want to mess it up for them.
[0:43:20.0] KR:
Yeah, that’s awesome. You have, you know, you build a community and you’re taking care of them. Yeah. What’s a book that everyone should read?
[0:43:31.0] MG:
Well, the one book that I tell all the real estate brokers to read, and I still laugh about it, but this this has nothing to do with investing. But it’s about brokerage and that’s what I learned. It’s called “Winning Through Intimidation”. And as you can tell, I’m not an intimidating guy, and the book really isn’t about intimidation. But I thought it was just such a great book. When I was a real estate broker and I and I just loved that book I was just so good. And cuz it really has nothing to do with the title and it’s a short book that I can actually pay attention to.
[0:44:08.0] KR:
Gotcha. And then last question for you. What is your number one key to success?
[0:44:15.0] MG:
You know what, I’m here at the office. I work hard. I answer my calls. I respond to my emails quickly. And people can trust me simple Mostly the trust but
[0:44:30.0] KR:
That’s great.
[0:44:31.0] MG:
Mostly the trust but
[0:44:33.0] KR:
The trust far.
[0:44:33.0] MG:
Well you know do what you say you’re gonna do and and if you’re not tell them why and be transparent.
[0:44:44.0] KR:
It’s as simple as that.
[0:44:46.0] MG:
Really, people don’t do it though. I’ve seen so many syndicators fail it’s just and then they don’t they wonder why they don’t get money it’s because they don’t report and you know people are saying well what happened to my money? Oh, you know, you’ll you’ll get your your K one whatever.
[0:45:07.0] KR:
Yeah, and that’s the difference between somebody that’s had a 30 year career and been successful right?
[0:45:11.0] MG:
Yeah really, really really good I see them coming they go and you know, we were just consistent.
[0:45:18.0] KR:
Yeah, I love that message. Well, Morris, it has been fantastic having you on the show. if folks want to learn more about your company and what you’re doing how can they get ahold of you?
[0:45:28.0] MG:
Just go to nwcorei.com that’s Northwest commercial real estate investments. com, see a bunch of our projects. And then there’s a place if you want to contact us, you can contact us and I’ll talk more about you know, our philosophy on real estate investing because it really is a philosophy. It’s an art, not a science. And you just got to trust your gut. And you know, I’ve been doing this so long since I was 21 years old and brought in brokerage and then ownership. This is all I know, I couldn’t do anything else.
[0:45:59.0] KR:
And you love doing it. So you don’t have to
[0:46:01.0] MG:
I love doing it. That’s right.
[0:46:03.0] KR:
That’s That’s awesome. Well, thanks again so much for coming on the show and the rest of the day.
[0:46:09.0] MG:
Thank you Take care.
[0:46:10.0] KR:
Thanks for listening to another great episode of Ritter On Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also visit kentritter.com for articles, videos and tools curated just for passive investors from next time. This is Kent Ritter with Ritter On Real Estate.Go out and invest like a pro.