Season 2:

Episode 28

November 30, 2021

Chatham on Main with Peter Brosens

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On today’s episode we will be speaking with Peter (Pete) Brosens, the co-founder of Stolar Capital, a real estate investment firm with offices in Hoboken and Philadelphia. Since 2012, the firm’s focus has been on developing large mixed-use projects in transit oriented downtown locations in New Jersey. We will be speaking with Pete about his Chatham on Main project which incorporates the charm of garden-style living into his development plans. Today we will also be discussing the larger topic of the challenges that inevitably come with journeying into the world of real estate and how Pete has leveraged his past experiences at JBG Companies.

The career path to becoming a real estate developer is not a smooth one, it will undoubtedly involve many twists and turns. However, it is possible to set yourself up for success in the early stages of your career as a real estate developer. Join us on this week’s episode as we learn more about Pete’s journey, including the challenges he had to face and how they have brought him to where he is today. We will be exploring these topics in-depth, including Pete’s experience acquiring, rehabilitating, and leasing single-family homes in the Washington Metropolitan area.

About Peter Brosens

Peter is the co-founder of Stolar Capital, a real estate investment firm that blends entrepreneurial, hands-on management with data-driven risk assessment processes. In doing so, they transform underutilized properties into development plans that can withstand short-term market disruptions. Peter’s involvement with the firm has led him to overseas business development and management of the acquisition department. He has also raised a $10M specialty-financing fund to focus on investment in repositioning multifamily residential assets across the country. Prior to starting Stolar Capital, Peter worked at the JBG Companies in Washington, DC, where he developed several large commercial buildings. Peter received his BA in Political Science from Columbia University.

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Today our guest is Peter Brosens. Pete is the founder ofStolar Capital, a real estate investment firm with offices in Hoboken and in Philadelphia. The firm’s focus since 2012 has been on developing large mixed use projects and transit oriented downtown locations in New Jersey. In addition, he has raised a $10 million specialty financing fund to focus on investment and repositioning multifamily residential assets across the country. Prior to starting Stolar Capital. Pete worked at the JBG companies in Washington, DC.

He is a Columbia university alum like me. We’ll be talking about his Chatham on Main project and more broadly, we will discuss the challenges of starting out as a real estate developer, war stories and all. So thank you so much for being here with us, Pete.

[00:02:11] Peter Brosens: Thanks so much for having me. It’s great to be here.

[00:02:14] Atif Qadir: Absolutely. So you joined the JBG companies right after Columbia. What kinds of projects did you work on there and what did you learn while you were there?

[00:02:25] Peter Brosens: Yeah. I mean, while I was at JBG, I learned how to underwrite commercial real estate assets predominantly focused in a large office buildings and multifamily development, as well as just asset managing their assets and very, very fortunate to be there as a fantastic company. They gave me a lot of responsibilities as a financial analyst coming out of school, which really allowed me to grow.

[00:02:51] Atif Qadir: So when you look at Washington DC at that point about a decade ago, versus where it is now with a really vibrant multi-industry world, Amazon’s located there. What was Washington DC in 2012? Like when you were moving there?

[00:03:05] Peter Brosens: Yeah, I mean, I think it was, I don’t know if it was as vibrant as it is today, but it was still a very, very vibrant city and it had a, but it also had a small town feel. I met so many great friends at so many of the same, you know, bars and restaurants and places where we’d go out coupon circle down to the place, right.

DuPont circle or use streets. And obviously now it’s kind of grown to Shawn, a couple of other areas, but a lot of just young interesting. Diverse folks that really attracted me to the city in the first place. And a little bit less, I want to say power hungry because a little bit less sharp elbow than, than potentially New York city.

Okay. I think I’ve had a friendlier feel. At least that was my experience. And you were there for a number of years, and then you started Stoller capital when you were 26 years old. Pretty young on the entrepreneurial developer age spectrum. How do you know it was time to go out on. Yeah, I don’t think you ever know.

And to your point, it may have been a little premature. So while I was at JBG, uh, one of my best friends when I was there, who’s actually is now doing very, very well for himself. And JBG is a fantastic guy and a brilliant guy. What’s his name? George Sanders. And he’s now the CIO of, of JBG. We were the same analyst class and we were both underwriting.

You know, we were financial analysts. We’re both underwriting, large commercial acquisitions, and sometimes you can get lost in Excel. And then we wanted maybe more of a broad, real estate experience and what it was like to finance these properties by ourselves, where it’s like to actually go through renovation.

What was it actually like to lease out the, you know, real estate assets to folks and actually manage a real building? Cause I think some of that gets lost when you’re working in Excel, uh, 10, 12 hours a day. And so on weekly expression. Yeah, I think that is the expression. And so we went off on weekends and we were buying these single family homes and running them out to college kids or graduate kids near the university of Maryland.

And I wanted to start my own company kind of leveraging my experience at JBG and leveraging what. At this other small company that we started, I’ve always been extremely close to my three younger brothers and my family. So I want to move back to New York. So four brothers and one family, four boys, and one family.

I’m the oldest of four boys. So three brothers. And so we found an opportunity in, in New Jersey. And so we started small. We started by a couple of single family homes, renting them out, and then we over the next 18 to 24 months bought and built 130 single family and small multifamily assets throughout central Northern Jersey.

[00:05:49] Atif Qadir: So you mentioned that some of your early team members for your brothers, who all are the team members at Stoller capital. And how did you meet them? Or how did you come to them if they weren’t your siblings?

[00:06:00] Peter Brosens: Yeah, no, I only one of them is my sibling. So Kyle Petrelli who started Stollar with me, that was my best friend growing up in high school and college. He was actually my best man at my wedding. He are you from Maryland. No, I’m from Washington county. So about an hour from New York. Okay. Yup. And so he went the investment banking route, uh, JP Morgan. Then he went to business school actually at Maryland. We start in July to the 12th and the other team members came naturally, you know, Joe Carroll, very, very good friend of mine, St. Analyst class at JBG with me.

So we worked alongside each other for four years. He went to Wharton business school after a JBG, and then work-related for a couple of years. And then I twisted his arm to come join us as a partner. And he’s been fantastic tile land. And Joe is more of a CIO and spearheaded the acquisitions for this profit mez fund that I’m sure we’ll talk more about later on the podcast, Kyle land was an intern and he’s now a partner of the firm we had about 20 interns.

A lot of really smart guys and gals from Columbia, NYU, and Kyle was just a really, really hard worker, really trustworthy guy that kind of earned my respect very early on. And he essentially now runs asset management and construction management. And then John, my youngest brother, very, very sure. Uh, uh, underwriting all of our deals.

So he’s a very, very strong financial analyst. That’s been with us for five, six years now. So it’s a team of five of us, you know, we’re lean, I think, as we grow these two platforms that we’re currently working on that again, that we’ll talk about more later on, the team will naturally have to grow. Uh, we’re trying to keep it as lean as possible.

[00:07:50] Atif Qadir: Excellent. So I think there might be a good appoint to transition to the project that we are discussing today, which is Chatham on main. So talk to us about the city of Chatham and the specific, uh, site.

[00:08:04] Peter Brosens: So just to back up, uh, maybe a little bit, one of the routes that we just talked about is. Buying value, add mixed use or multi-family properties and repositioning them through either asset management, construction management, or property management and asset management really encompasses both of those.

Uh, we bought a couple of smaller properties in shadow. We own about five properties and shot them. And Kevin was basically a city in Northern affluent town, about 45 minutes west of Manhattan, phenomenal schools, train lines, train 50 minutes into, you know, intimate Hatton, but there’s also just a lot of employment in and around Chatham.

And the goal of this business is to find institutional size assets. And enter into a typical GPLP relationship with one institution, because so much of our previous business has been raising money from, you know, start very early on with friends and family, and then it became, and then expanded fairly quickly.

So now we have about a hundred high net worth investors that are fantastic. Um, they become family, but when you’re raising money for now, As you know, you can’t take a dollar from this one and a dollar for now and certainty of close is just really important. And so when you go to them a SLE, as you approach them with investment one month and they’re on vacation, or they’re busy in the next month, they want to give you a lot of money.

And so certainty of close becomes a real problem. So, so to go to this asset a little bit, then it can be, we can talk about, you know, kind of how this. I came to fruition and kind of how we arrive at this thing. It’s a half mile from the train, kind of in between shadow and Madison. It’s 118 apartments, 72 betters at 48, uh, 48 1 bedrooms.

And it was completely mismanaged. I don’t wanna get in too many of the details, but the previous owner just wasn’t taking care of the property. That may be an understatement. And so we kind of use a lot of our construction expertise. To upgrade, upgrade the apartments we brought in Greystar, and we actually manage the asset alongside Greystar to kind of provide best in class, property management, to all the tenants because the tenants, you know, your tenants or your clients.

I mean, it’s, it’s one of the most important, you know, you got to treat your tenants like gold, both for referrals, but it’s also just, I think the way to do business. And, you know, the, you know, the goal is, you know, we’re, we bought the property for 35 and a quarter million dollars. We are investing about $7 million into the asset.

I mean, so our renovations are, you know, we kind of pride ourselves in doing top, top. Uh, renovations to kind of, again, give that tenant a best-in-class living experience we’re putting in about between, depending on the, if the previous seller actually put any money into the apartment we’re putting between 15 and $35,000 into the units.

And we invested about $3 million in the exterior 29 new roofs, beautiful landscaping, extra facade. We repainted the building to completely rebrand rebrand the asset. I mean, it was previously labeled Chatham village and shot a village had, you know, developed a bad connotation just because. How the previous ownership treated tenants.

And so we rebranded Chatham on main because Ron main street, but it’s been a fantastic success. The goal is to through construction, to increase rents in a way where kind of unlevered yields approach kind of a 6%, which, which I think is in line. Value add multi.

[00:11:34] Atif Qadir: And when you say unlevered yield, could you explain it? It means like a return on costs, right?

[00:11:40] Peter Brosens: Yeah. I mean, you know, NOI over kind of your all-in basis to date. So I think in a couple of years, our NOI over that total basis, uh, will be around a 6%.

[00:11:51] Atif Qadir: Okay. And then this sounds like a interesting operational challenge in terms of repositioning it. How did you find this deal and what was the process of closing it like?

[00:12:02] Peter Brosens: Yeah, it’s a great question. So, so how we found this deal is, you know, I mean, I think one of, you know, I think real estate is all about relationships. And so a previous colleague, a guy who used to work at Stoller named synthesize, who now works at advance, you know, it’s one of those things where, you know, he left Stoller, but we remained very good friends and we still talk frequently.

And I think that’s really important. And he introduced me to Steven Feinberg and ever west and Steven just joined ever west. And we naturally caught up and I was talking to him about, you know, kind of some of the opportunities that we’re looking at. He immediately jumped to this property and we were the process of acquiring it and about to go look for an LP.

And now he’s our LP and they’ve been a fantastic partner for us. I mean, we had about three. X BlackRock folks and it ever west, I think there’s two or three X black folks as well. And so when I spoke to my, my existing industrial base, they said, Peter, you couldn’t be partnering with, with a better company.

And it’s proven to be true. You know, we got very lucky because at the time we really didn’t have money behind us, we would lock up these deals and then we’d go run around and try to find a partner which puts you at an immediate disadvantage. Oh, wait, you’re competing against..

[00:13:14] Atif Qadir: Give you some extra heartburn.

[00:13:17] Peter Brosens: Yeah, it was also just, it puts you at a really strong disadvantage when you’re competing against guys that have discretionary capital and have the ability to close quickly and put down hard money fairly quickly.

[00:13:26] Atif Qadir: So could you explain what GP and LP means and what those roles are and deal structure?

[00:13:32] Peter Brosens: Yeah. Yeah. GP I referred to as kind of general partner and LP is limited partner. And typically you’ll enter into the structure of the GP. We’ll put. Five to 15% of the equity and the LP. And we’ll put in the remainder, whether it’s kind of 85 to 95 or eight, 80 to 95%. And the LP typically plays a more passive role and their capital is where they provide most of the value.

And the GP is the owner and operator that’s responsible for kind of the day to day. I wouldn’t even say day-to-day management day-to-day decision making. I mean, obviously when a LP puts in the majority of the capital, they have all major decisions because they’ve got to build, protect our capital and the ability to do all sorts of bad things to us if we don’t do right to them. But, but knock on wood, it’s gone incredibly well.

[00:14:21] Atif Qadir: Good. And then, uh, so you had mentioned that there’s a significant amount of. Capital expenditures that you’re putting in to upgrade the units, the exterior’s the site as well, walk listeners through what they would see if they were going from say the, the train station downtown to this site, what they would be seeing, what that experience would be. And now it’s, some of the renovation is still in progress or it’s fully complete.

[00:14:43] Peter Brosens: It’s fully complete. So if you walk in the transition to our site, you would see predominantly older red brick, garden style complex. That, that some of them have been, have been well kept and some of them haven’t and then we complete painting.

The exterior brick white. Well, it’s not tactically white, but you know, they look white and by redoing, by putting on 29 new roofs, new shutters, having all the extra doors, this Cougar blue, we’ve got recess lighting, all the exterior is now matching. There’s three buildings and two of them on one side of the street and one is on the other side and it used to just be discovered.

And now everything is uniform. It just looks really, really professional. It’s really clean. The landscaping was great. It’s really well lit and it looks like a community that, that, or URI would be proud to live in.

[00:15:40] Atif Qadir: And do you find that all of those, those elements that you’re talking about, the visual appearance, how does that translate to rent and retention of your customers or your renters?

[00:15:50] Peter Brosens: Yeah. I mean, it’s been, I can’t speak to the actual numbers as if we, you know, because it’d be hard to compare to if we didn’t do it, cause we always do it, but the retention is great. The feedback’s great. The reviews have been really positive and the rents are really strong. We’re earning some, two bedroom runs around $2,600, which I think is a very, very strong rent for an eight foot garden-style complex and shot them. And I think we’ve got room to kind of continue to push rents and it’s become a very coveted property.

[00:16:20] Atif Qadir: Excellent. I am going to pause here to let our listeners know that we’ll be having my friend, Jason Morgan Roth of capital solutions on the show next month. Capital solutions is a real estate investment firm headquartered in Philadelphia with assets all across the country. Subscribe now to American building So you don’t miss a single episode and season two.

Uh, I want to dig into that first iteration of solar capital that you mentioned, which was a single family homes central to Northern New Jersey. What went well and perhaps more interestingly, what did not go well?

[00:17:04] Peter Brosens: Yeah, I mean, what one? Well, that’s a good question.

[00:17:09] Atif Qadir: It’s a different way of saying, okay, I got it.

[00:17:12] Peter Brosens: I think we were doing was interesting and ambitious, and we were able to attract a lot of talent. And so, you know, again, Kyle land, you know, came on as an intern is now a partner and a very, very close friend of mine. And so developed some strong relations. And the overall investment went fine just because we were kind of saved by a tailwind, so to speak because the whole premise was false, you know, trying to really scale this business falling kind of way.

Point home. Colony Amor securities at the time is buying thousands of homes, Blackstone, and it was never really done before. And it really, no one was doing it in New Jersey. And we came across some really, really strong headwinds and some really, really strong challenges. You know, one of the biggest challenges was just management.

You know, we were spread out between, you know, Monmouth county and Bergen county and just like anything else. Um, without speaking ill of anybody, I think if you’re good at something. You typically gravitate towards where the more money is at bigger, right? So if you’re a really good property manager, they’re not managing scalar homes.

If you’re really good at construction, you’re gonna be working on, you know, 70 to $120,000 homes. And by the way, some general companies are very good at that stuff. But I think from our perspective, we had three people at a time where their background was strictly in finance. And, and, you know, as you mentioned being an Excel monkey and it was much less of micro ma you know, you need, you really need to micromanage and have a strong.

Strong focus on management. And we just didn’t. We know we didn’t, there’s at a big firm, you know, you buy a property, you hand it off and things just happen and you only know how they happen, but things just happen. And that’s not the case, that’s not the case at a small company. And when things fall through the cracks, Things really fall through the cracks.

And we also were a little bit naive, you know, you mentioned I was 26, a little bit young to start something. And so, you know, we’re a little naive and we know, you know, one of our first ideas that we had was to kind of go into some of these rougher neighborhoods and really try to distinguish ourselves from the rest of the landlords, by being incredibly tenant friendly, put some more money into these projects.

And in return they would, they would treat us really well. That didn’t really happen. But again, it’s hard enough to find really good talent to work on these homes, without somebody watching you without really any oversight. And then it was even harder to find good talent to go into some of the rougher areas, New Jersey to do this stuff because you know, our general economy, they would constantly be assault.

There are tools would be stolen frequently. There’d be break-ins two or three times a week at our properties. You know, people would still copper and we have to go in and deal with police. And it was one problem after another, that just took up an enormous amount of my time where we said, you know, we took a step back and said kind of what are we really good at?

What is our skillset kind of cater us or, you know, will lead us to do it where, you know, to, to some success. Yeah. It was larger multifamily assets and being more of an investment professional than a microbiome.

[00:20:34] Atif Qadir: So to give people a frame of reference, the counties that Peter mentioned in terms like Monmouth county to Bergen county, New Jersey is a relatively small state, but that distance could be anywhere from one hour to maybe four hours depending on traffic.

So the ability to be able to go across the gardens. Is one thing that requires a lot of planning and preparation. That’s why they, they function as well as they’ll the different markets, the different parts of New Jersey. And, uh, you mentioned this idea of, of looking for houses. And so the rougher neighborhoods that maybe think of when my family immigrated to the United States of the golden rule that my parents always had as they wanted to buy the worst house in the best neighborhood. That way they didn’t have to deal with any of that odd stuff that you were just talking about.

[00:21:21] Peter Brosens: Yeah, no, I mean, it’s, I mean, you’re spot on. I mean, you know, I remember, you know, we talked briefly before this podcast, but one of my previous colleagues was held at gunpoint and they stole my car in Newark. And by the way, I think Newark is a fantastic city and there’s a lot going for it.

And I think dork will do quite well in the next five to 10 years, but there are still parts of new. Yeah, maybe closer to Irvington or on the Southwest side that that’s still can remain very rough. And, and this was at 1:00 PM and it was 70 degrees and it was sunny outside. It’s not like we were hanging out there at eight o’clock at night, but no, we took a step back and, you know, really focused on kind of larger value, add multi.

We developed a couple of larger buildings, one in particular Morrison. To more sounds and other large towns, city historic, nice downtown Northern Jersey. That’s basically the idea. That is the idea. I mean, it’s about an hour west of Manhattan. That’s about 15 minutes west of Chatham, you know, it’s, you know, people say it’s Hoboken west it’s it’s the second people would call it.

[00:22:25] Atif Qadir: People call Hoboken Brooklyn west as well.

[00:22:27] Peter Brosens: Yeah. It’s got a fantastic, fantastic downtown, very vibrant. If you live in Chad or Madison or any of those towns, you know, usually go into Morristown. Eat drink, socialize. There’s also a lot of businesses that are in Morristown. And so it really, a lot of the action circles around what’s called the Morristown green.

And our project is about 50, 60 yards from the. So that was one of the larger projects that you’ve done. And talk to us about some of the other developments that you’ve worked on over the past couple of years. Well, developing worked on a relatively small, you know, we’ve got one that we’re trying to get off the ground in Chatham, that we’ve got two partners on that that are both kind of task parts, both vertical and carry.

We had one in south orange. That we just couldn’t get to work. We worked with the town for about five years. We were trying to develop student housing about three blocks from the downtown. And we’re our main focus is value, add large commercial properties. And Morristown was a very large property for us.

I mean, Morristown was about 80,000 feet, 54 luxury apartments over about 20,000 feet of commercial space. And took all the energy out of me too, to kind of continue to do Roundup development deals in Northern New Jersey.

[00:23:46] Atif Qadir: So, well, let me ask this. So you said to you five years to try to get through approvals. So I’m a city planning commissioner in Hoboken, so I know exactly what you’re talking about, but for listeners that don’t what happens over five years to still get to enough, like what is happening.

[00:24:02] Peter Brosens: Yeah. I mean, that’s, that’s a great question. As you know, probably better than I do, you know, Donald, it’s funny because to a lot of folks, when they say, oh, you’re a real estate developer, they immediately think of the sexy renderings, these amazing construction projects.

You’d be more Donald Trump or Donald Trump without getting into politics. And you being built, pull the strings and having all these guys work for you. And then you just make all this money and it just couldn’t be farther from the truth. At least in our experience, being in development is essentially like being in politics.

You know, so much of your time and effort is behind the scenes working with. The city planners, city officials getting your project approved. I mean, nothing in New Jersey, unlike New York city, nothing in New Jersey is as of right. Even if you have the necessary zoning, you still have to go in front of the planning board. So they approve your design.

[00:24:55] Atif Qadir: And what kind of eldest side one thing is what makes us so complex is that there’s 554 different municipalities in New Jersey, which is like the size of like this that’s how big it is. And each of them has their own the planning commission, their own zoning commission and their own city council or town council.

[00:25:15] Peter Brosens: You’re absolutely right. And they’ve got their own agenda and they’ve got developers that they like for one reason or another, they’ve got some developers, they don’t like foreigners and other, and then they’ve got their own agenda besides putting developers and actually approving developments. I mean, they’ve got, and they also have to run a town, which is an easy, and, and so for that project, we ended up getting a 30 year pilot.

Which is a payment in lieu of taxes. So New Jersey, uh, you know, the fiscal state of New Jersey. I don’t want him to go into too much, but, but, but it isn’t the rosiest picture. And so, you know, people say that people can move and you’re seeing a lot of movement to kind of some of these Sunbelt areas in the Sunbelt and, and business convention

[00:25:57] Atif Qadir: I’m actually surprised this year, that New Jersey didn’t lose the congressional seat.

[00:26:00] Peter Brosens: Yeah. Yeah. And so, and businesses can also move as you kind of read the news, you know, these companies, but being out of New York and California to tax friendlier states, But buildings can move. And so historically when towns and states have gone in trouble, you know, one of the first things they do is they look at.

Property tax for large commercial assets and they can go through what’s called a Reval or revaluation process. And so a 30 year pilot essentially locks our taxes in as a percentage of our effective, gross revenue. And there’s some step ups, but it starts at about 11 and a quarter percent. And so very, very important, you know, for us because taxes could double or even triple and just so, so just know that.

Having certainty in what your cash was looked like was worth going back and forth to the town over, over this pilot for a substantial amount of time. And also, you know, you are an architect, but they liked to play architects and they are not architects. And they like to play designer and they are not designers.

And they really have with every tweak of the design and every tweak of the actual plan costs. Can greatly change one way or another, and they don’t really care about your costs. And so they’ll change things like they made us vent everything out to the roof and we’re as opposed to, if you were at the exterior wall, right.

That’s a cheaper way. I share a wall with either P-TECH units or magic packs, but they had us spent everything out to the roof that this was one change among many that just going to continue to add to. Our costs and our bottom line was that because of noise or because of perceived quality of not having heating units on through the wall, like the visual note, pure visual aesthetic, for sure.

A visual aesthetic, they, you know, they didn’t want to see it. And the bill is beautiful. And by the way, I think, you know, I think I would agree that that buildings without these small movers do look better, but I don’t think it’s that big of a change. And. You know, you’ve got to close or to be competitive, you’ve got to close these properties really and take on a lot of risk.

And then you’re kind of at the town’s mercy. So to city John, on how they ended up getting designed and for, you know, our investors, I think we’ll do fine. But when you’re working for. You know, we went and worked on a project for five, six years. There’s only so many fees and promote you can take before investors don’t do well.

And so you’re really, you, you know, us as a business. Yeah. We’re really not making that much money. I mean, if you factor in all the years and all the time that we put into it. And so a much more scalable model for us was buying existing, fix existing. If the unit renovations or through property management or through exterior renovation.

And by build wishes with fantastic. Institutional partners and kind of continue to keep moving. And we started to look at the growth markets and what we found was when we looked at these growth markets, you know, we kind of took a step back and said, are we the best sponsor to be buying these deals in say, Tampa, Florida.

And we, we really came to the residents that were not. And so we said, okay, how do we get exposure to these markets? Without actually buying these properties outright. And we started this preferred equity and mezzanine loan platform where we kind of found this nuanced space between kind of Ford, of, you know, 4 million to $50 million in the capital stack, or about 65% to 80% of the capital stack where you can earn value at equity like returns.

By partnering with fantastic local sponsors and not taking on nearly as much risk because you obviously got all the common equity in front of you. And so that’s really where this preferred equity and mess platform, how it started, because we originally wanted to invest your own money there. And, you know, we just didn’t, it would be the equivalent of somebody from Florida investing in Chatham where we own six properties and, you know, we own, you know, we know almost every seller and every owner, you know, we know the town pretty well, and I just don’t know. How well they’d be able to compete with us.

[00:30:21] Atif Qadir: So you mentioned preferred equity and mezzanine capital stack. Could you explain what those terms mean in terms of the financing of the deal?

[00:30:30] Peter Brosens: Yeah. So when you buy a deal, a lot of the sponsors that we partner with that we’ve given preferred equity and to we’ll buy a deal with 6,500. Debt and 35% of their own equity. So let’s just call it a a hundred million dollar deal. They get, they go to the bank, they get a $65 million loan from the bank and they put in $35 million of their own equity. And a lot of sponsors either don’t want to put in $35 million though. And equity didn’t want to leverage that capital or they don’t have it.

And so we’ll come in. You know, on top of the 65% senior loan, we’ll give you an additional 15 to 20%. So we’ll give you an additional 15 to $20 million and obviously a higher rate than the senior loan, because it’s a much riskier place in the capital stack and they can put in the. And as long as they abide by their business plan and they abide by our agreement, it’s essentially a second loan.

I mean, I mean to simplify things, it’s essentially a second loan where we can earn 10 or 12% of our money in deals that I don’t think have a lot of. And you had mentioned growth markets like Tampa. Could you talk about the metric or the criteria that you use to determine the markets that you want to invest in through this platform and what some of those are just across the country?

Yeah, sure. And I’ll keep it very high level, but high level, we look at. Meds and ads. And we look at where people are moving and we look at that means hospitals and universities metrics.

[00:32:00] Atif Qadir: So real estate has its whole like lingo thing, right?

[00:32:03] Peter Brosens: Sorry. And, and I mean, hospitals and universities, they are economic engines and stabilizers and value. Correct. And when the economy does really well or does really poorly these universities and hospitals are, they still are a massive employment center. We also look at where people are. And we also look at kind of areas in which rents have quote-unquote room to run. And so we really like parts of Florida, whether it’s Tampa, Orlando, Jacksonville, we love the Carolinas and the research triangle.

We love Columbus, but I think more important, at least for us in the location is who the actual sponsor is a hundred percent of scope so much. When we underwrite a deal, we underwrite the sponsor, the sponsor, this. And then it’s the actual deal itself, which will one of the facets of the deal will include location.

So much of real estate I’ve come to understand is about relationships and it’s about. And if you can find really good sponsors, I would much rather do a deal with a really good sponsor and an awful location then vice versa. And it just makes doing business so much easier. You know, we’ve encountered people, especially in the single family and small multi-family phase of our business.

We’ve encountered some less than honest people, I would say. Yeah. It just makes doing business much, much more complicated. You’re constantly looking over your shoulder. You’re constantly wondering if you’re getting mistreated and if you can find a really good, honest sponsor. You got to deal with things that you should have to deal with, which is the market and which is actually the deal itself.

And you shouldn’t have to worry about any sponsor risks. And so, so that’s really our focus and we do incredibly heavy background checks. We do incredibly heavy reference checks. We’ll meet with these sponsors. We’ll fly down to these locations. Multiple times. We’ll meet with our colleagues, we’ll have interviews and we really, really get to know these people.

And we’ve become friends with them. And an ideal scenario, these investment opportunities come from existing relationships and a lot of them have, and we’re doing a deal right now with a former partner at a firm that I was at. I don’t want to say the firm, but the firm that one of the partners was at, and he’s been a friend of mine for, for 20 years.

He’s a fantastic guy. He’s brilliant. And I would almost, I’m an almost, I would almost give him money blind because I trust them that much, the deal happens to be a really, really attractive deal in the Carolinas, but we really have a strong focus on people and yeah.

[00:34:43] Atif Qadir: I think what you’re describing in terms of the sponsor being such a critical part of these types of repositioning deals, uh, is very similar to the way that early-stage venture capital investing happens. Since we just came through a $2 million seed financing round for Redis my technology company, and as the, the conversations that we had, uh, in some of you talked to 200 people to get 20 people to invest, that’s just the way it works.

That’s similar to real estate, but the conversation is always began with the sponsors or the founders, the farm that you talked about, the meat potatoes, the business, and then to really close the deal and make it happen. It always comes back to the conversation about the sponsors. And are they the right ones to be doing this startup technology company? Or are they the right ones to be doing this repositioning of a huge asset next to duke or UNC or anywhere else in the Caroline’s.

[00:35:34] Peter Brosens: A hundred percent. And for you and for us to just like, they’re looking at you as a sponsor and doing heavy background checks, Their partnership is really important for you because it’s very good, really good partner. You know, we, we have a strong preference and I know a lot of people don’t, a lot of people want a blank check and they want their partners to just never call them.

And we’re, we’re the opposite. And I think that would be opposite to where we really want active. Partners, which means people that we can kind of use as a sounding board, people that will help grow our business. People that will go out of their way to make introductions for us if we do right by them, if we do well for them, because that’s, that’s how we’ve grown the past and their capital is usually a little bit more expensive.

To me, it’s the best trade-off you can possibly make. And so I think valuating the sponsor, I mean, again, it kind of goes, it goes both ways.

[00:36:32] Atif Qadir: Yeah. I think that’s a huge, that’s probably the biggest piece of advice that I’d have to anyone that is getting started as a developer is looking for this long-term in terms of building relationships, whether you’re talking about in the beginning of the conversation on Chatham and Main, in terms of the renters, this idea of seeing the renters, uh, not as annoyances, but as like the, the lifeblood of your business or treating them in an honest, direct way in terms of your contractors and people that are doing with work for you to make sure that your beautiful building is going to be beautiful and functional and everything else and treating them honestly.

And then in terms of your investors, finding the right partners that treat you well, but also that you make sure that you treat them exceedingly well and provide them any information, anything that they need. And I think that might end up taking a longer path to get started, but I think that’s a much stronger foundation to be on when the economy takes a swing in the wrong direction, as it did.

[00:37:30] Peter Brosens: Sure. Now you said it really well, and I completely agree with you.

[00:37:34] Atif Qadir: What do you see the next five years of your business being?

[00:37:39] Peter Brosens: Yeah, it’s a, it’s a great question. So I think we’re going to continue to expand in our two businesses, which is investing in preferred equity and mez and mezzanine loans in growth markets across the country with experience. Sponsors, we are in the process right now. We’re about to start the next week or two.

We’re about to go out and try to raise, you know, we raise a $10 million fund initially through co-invest capital. We’ve ended up investing a little bit over $20 million and we’re targeting on the second raise somewhere around 50 million. And so in the next five years, you know, our hope is go from $50 million to potentially a hundred or $150 million and kind of continue to grow those funds.

As long as we can find, continue to find attractive deals that provide really strong risk adjusted returns to our investors in those funds. And then the second business is. To actually be the sponsor ourselves and to own and operate large institutional size multi-family deals. And what we did was called weeks ago, we entered into a partnership with a large family office where they would backstop debt and equity, so we could close cash and we can close with certainty, which sellers really appreciate.

And the idea is to have chat among me. Which is total capitalization on $43 million. Have that be the first of many deals that we do in Northern Jersey. And I think the next five years, if we’re successful in owning and operating kind of three, four assets in New Jersey, I would love to expand Stoller into other markets, whether that’s parts of the Carolinas, whether that’s Columbus, whether that’s parts of Florida.

And I think the only way. For me to do that. Cause JBG was JBG was hyper-focused on being local. And so that always resonated with me. You’re moving to Durham. That’s what’s happening. You know, I hope my wife doesn’t listen to podcasts, but, or we’d hire somebody to kind of be our boots on the ground. And I would fly there once a week or once every other week, and try to expand and own and operate multi-family in those areas.

[00:39:54] Atif Qadir: So earlier this season, we had Elisia Hilton Daniel, who’s a HGTV design star. She’s a designer and contractor and the developer as well. She’s all three together. And she’s been doing residential new construction repositionings in Durham. And that episode, we talked quite a bit about the business case for the Carolinas. And it’s specifically research triangle, incredibly compelling.

[00:40:18] Peter Brosens: Incredibly compelling. Yeah. Yeah. One of my best friends is, is that blue Heron and they’re in Raleigh and they focus on the Carolinas and they focus in the Southeast. And he’s trying to get me to move there every day. The story is incredibly compelling. His story is incredibly.

[00:40:35] Atif Qadir: There is also this great contrarion idea is that Florida, Texas, Arizona, North Carolina, Georgia, everyone on their mom is looking for deals there. I feel there is the. Opportunity that exists when everyone was running this way that you look this way. And even in the expensive states that say, for example, you mentioned high taxes, an issue with New Jersey, losing population, New York loss, a congressional seat, and other Northeastern states have lost rational seats because it defined a population.

I still think that those present opportunities, if you’re able to find and move in and around the issues that exist. And I think that’s probably the other piece of advice that I’d have for someone getting started is when people are running this way, perhaps run this way and see what see what’s there. And maybe there’s something.

[00:41:25] Peter Brosens: No, you’re absolutely right. And don’t get me wrong. I think there’s a lot of potential in New Jersey and there’s lot of potential in New York city, but I think you’ve got to be local because that is the key, a lot of the. And a potential potholes are really only seen by people that are kind of living and breathing in the market themselves, which is why I don’t want to be the forerunner.

So to speak into carpet down here, I think that’s expression in Durham. If we end up investing there, I would want a strong presence there because I think being local is just such an advantage. And these markets are so competitive that you need to be local I think to be able to compete, at least we do at least that’s our strong.

[00:42:08] Atif Qadir: Excellent. I think you have an incredibly bright future ahead of you in terms of balancing things in your backyard here with a high growth opportunities elsewhere. So thank you so much for joining us today on the American building podcast.

If you want to hear the behind the scenes stories of how buildings in our country were designed and built subscribe to this podcast on Spotify, iTunes, Google, or wherever you like to listen.

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 Finally, we live in the richest country and the history of humankind. We must reach out beyond the boundaries that we see and the boundaries that we create in order to help build homes and communities today. Pete and I have made donations to The Bail Project, which pays bail for people in need, reuniting families and restoring the presumption of innocence. I encourage you our listeners to support their worthwhile work as well.

I encourage you our listeners to support their worthwhile work as well. My name is Atif Qadir, and this has been American Building by Michael Graves.

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