RG 234 – Real Estate Investing In The Big Apple w/ James Nelson
James Nelson is the principle and head of Avison Young Tristate Sales Group which is a leaders group of 36 people in sales of multifamily, office and retail properties. In 2018 the sales group closed on over 16 sales valued at over $394million. James was names as one f the top sales professionals in the company for the year. He is also the host of a podcast called The Nelson Report. He made his first dollar as a child working in his family business of second hand car sales.
James went to university in upstate NY and when he went to the career service centre he took part in a resume drop for a small regional brokerage firm. The company had a niche in the middle market building sales and they split the city into regions and studied the neighbourhoods. James started out working in Chelsea and learned all about the power of zoning. James was with this company for 17 years until they sold the company 5 years ago. The average deal size was $5-10million and they made 400 sales a year.
- Most important habit – Consistency
- Most influential person – Founders of his first firm that he joined
- Most important tool – His team
- Most important failure – Talking too much
- Contact – james nelson NYC on socials
Listen to Podcast
James Nelson (00:00):
You know, the nice thing about New York city is it is as of right, so as technical as the zoning is, you know what you can and can’t do in other municipalities, you might not know. I mean, I I’ve heard horror stories in some of these towns in Westchester where investors developers have been waiting for years for approval. So really, um, advice to your listeners. If you’re going into an area where, you know, you have to go through, uh, an extensive review process, you’ve got to make sure that you have staying power. Maybe it’s a covered land play, where you’ve got some income on the site where you wait, you know, and then the other end of the spectrum is you’ve got markets like Houston, where if I’m not mistaken, you can build anything you want.
Reed Goossens (01:26):
Welcome to investing in the U S a podcast for real estate investors, business owners, and aspiring entrepreneurs looking to break into the U S market join Reed, as he interviews go getters risk-takers and the best in the business about their journey towards financial freedom and the sheer joy of creating something from nothing.
Reed Goossens (01:47):
Did I get a ladies and gentlemen and welcome to another cracking edition of investing in the us podcast from Los Angeles? I’m your host Reed. Goossens good as always every with us on the show. Now, I’m glad that you’ve all tuned into learn from my incredible guests and each and every one of them are the cream of the crop here in the United States. When it comes to real estate, investing, business, investing, and entrepreneurship, each show, I try and tease out their incredible stories of how they have successfully created the businesses here in the U S how they’ve created financial freedom, massive amounts of cashflow, and ultimately create extraordinary lives for themselves and their families life by design. As I like to say, hopefully these guests will inspire all of my cracking listeners, which are you guys to get off the couch and go and take massive amounts of action.
Reed Goossens (02:34):
If these guys can do it. So can you now, as you know, I’m all about sharing the knowledge with my loyal listeners, which is you guys, and there’s absolutely no BS on this show, just straight into the nuts and bolts. Now, if you do like to show the easiest way to give back is to give us a review on iTunes, and you can follow me on Facebook and Twitter by searching at Reed Goossens. You can find the show wherever you podcast on iTunes, SoundCloud, Stitcher, and Google play, but you can also find episodes up on my YouTube channel. So head over to Reed goossens.com, click on the video link, and it will take you to the video recordings of these podcasts, where you can see my ugly mug, but the beautiful faces of my guests each and every week. All right. And I’ve had a meal let’s get cracking and into today’s
Reed Goossens (03:24):
Let’s show the pleasure of speaking with James Nelson. James is the principal and head of AVS Avison Young’s tri-state investment sales group, where he leads a group of three dozen professionals in the style of multifamily office development and retail properties in 2018. This tri-state investment sales group closed on over 16 sales valued at over $394 million resulting in Avison young naming James as one of its top sales professionals for the year to top it all off. James is also the host of the real estate show called real estate investing live from New York. So he’s a huge wealth of knowledge. I’m really excited and pumped to have him on the show today. But enough of me let’s get him out of here. Get James, welcome to the show, head on today, mate.
James Nelson (04:05):
Great to see you. Thank you so much for having me. And, uh, I’m a big fan of your show and your book and everything that you’re doing for investors out there and was really thrilled to have you on my show. So for all of you listening to this, if you’ve not heard a read story recently, it’s an incredible one. So please check it out on my show.
Reed Goossens (04:26):
Well, Mike, I’m, I’m blushing here, so thank you very much for the, for the shout out, but, uh, today’s show is gonna be a little bit more about you going to reverse the roles and we’re going to get into your story. And, um, but before we do get into your story, rewind the clock and tell me how you met your first-ever dollar as a kid.
James Nelson (04:41):
So I grew up in Madison, Wisconsin, uh, in the Midwest and, uh, got God’s country up there. And, uh, I, I’ve got to say, I always liked to sales and it was always trying to figure out a way to make a buck. And I remember one of my, uh, early projects was we had these community gardens and, you know, my mom she’d have all the vegetables and everything planted, but, um, I decided that I would just fill up the whole thing with, with flowers, uh, Xenos. I remember, and I would go and I would bundle them and then I would sell them on, on the street. And so, uh, because I didn’t have to pay for the community garden or I thinking even the seeds, the, uh, that the ROI was, uh, you know, through the roof back then, but just, um, you know, that always stuck with me. Um, my grandfather was actually in the car dealership business. So even, um, you know, in my college days in the summer, I even, uh, try to hand one summer of selling used cars where, you know, if you can do that, you can do pretty much anything. So, uh, those were just a couple of things that I did along the way.
Reed Goossens (05:42):
How was the used car sales business going, or how was it, how was it as a, as a, as a sort of,
James Nelson (05:47):
It was really tough. I have a lot of respect for these people because, you know, when you, you step onto a car lot, you, you assume that you’re going to get ripped off right from the start. Right. And, um, you know, so, so, and the other thing is car sales people are so pushing. You always think that, you know, they’re trying to get you to do something that day. And the reason is if you don’t, you’re probably going to go shop at other dealerships. So, uh, but, but I, I definitely had some stories, uh, you know, from those days, uh, where, uh, we had one disgruntled buyer and before he made an offer, he, he had to put his deposit down and it was a busy day on the lot and hours. My buyer couldn’t get my sales manager to negotiate. And, um, you know, he, he was, he was getting pretty steamed. And finally he said, you know, give me my money back. And, uh, you know, I, I definitely gave in, but, uh, it was, it was a little rough and tumble. But again, if you can, if you could do that, you can, you can get through anything.
Reed Goossens (06:42):
Exactly. No, it’s super important having that background in sales too, to help you go out there and know the value of a dollar and the know the value of a product in order to, how to then pitch it correctly to someone to then want to exchange money for that particular product. And I’m sure over your career, your pitch is probably your pitching in general, I should say, has probably been refined many, many times. Would that be correct?
James Nelson (07:02):
Yeah. I mean, I, I think, um, in sales and, you know, whatever it is, I think what I’ve learned over the years is you’re really providing a service and you, you need to put yourself in your client’s shoes and do what’s best for the investors. So whether they’re buying a car or in New York, it could be a multimillion dollar asset. You want to tell everyone the good, the bad, the ugly, uh, and really be an, you know, an advocate for them. So I I’ve really, really enjoyed it over over the years. Um, it’s, it’s a fascinating business and, um, I’ve, I’ve really enjoyed it.
Reed Goossens (07:39):
Yeah. Well, going back to your story. So you, you had car salesman early on your career. How did you get into the world of real estate investing or, and being a broker and a sales guy for obviously young?
James Nelson (07:49):
Well, it was really locked. I went to Colgate university in upstate New York. Uh, and I went there because I swam in college and, uh, did a little bit of studying too. I should, we should add that. And my senior year, every, every one of my fraternity, they all had jobs, many of the investment banks. I still didn’t really know what I wanted to do. I thought maybe I’d head out to the West coast and make movies or something until I learned that you actually needed, uh, no one was actually paying any salary to do that. So I said, I better go try to find a quote unquote, real job. So I went up to the career service center and this was late in the spring. And I, uh, there was a resume drop due that day for a small regional brokerage firm, uh, in, in New York city Massey knack.
James Nelson (08:31):
Uh, one of the founders Paul Massey had gone to Colgate. So, uh, they didn’t even require a cover letter and they said, just drop your resume, which I did later, I found out there was only two people who applied for the job and I was their second choice. So, um, I like to remind them that the other candidate, uh, who, who accepted the job, and then they ended up taking both of us. He flamed out after six months, I was there, you know, 20 years later. So that, that was a nasty NACAL. And, um, you know, to give Bob and Paul credit who started that firm, uh, they found a niche which was middle market building sales. And I said, we’re going to carve up the city into territories, and we’re going to represent sellers exclusively to get them the highest price. And no one else was doing this.
James Nelson (09:19):
The brokers were mostly out there chasing the skyscrapers. No one wanted to deal with the, you know, the million, 2 million, $10 million deals at the time were actually 95% of the deal volume took place. And so, um, but this territory’s, uh, specialization was really, really Cate because what we found is if you studied a neighborhood, even for three to six months, learn everything about the neighborhood comparable sales, what are the new developments what’s going on with leasing values, zoning changes. You could even being brand new to the business. You could know more than the generalist out there who had been doing this for 20, 30 years. So we were very, very successful. Um, they’re very kind to me. They ended up promoting me as a partner early on, um, and I was with them for 17 years. And by the time we sold the company to Cushman and Wakefield, which was about five years ago, we were selling four times. The amount of properties is the next brokerage firm in New York city. So we were doing 400 sales a year. Now our average deal size was, you know, it had certainly risen since, um, you know, the days when I started, but, but it was still kind of an average five to $10 million sale. Uh, but we were very comfortable in the space and it was a great introduction to the business.
Reed Goossens (10:42):
You mentioned some really key points there, I think, which is super, super helpful for a lot of people is, is studying neighborhoods because they’re studying markets, but then they’re studying neighborhoods. And I’ve always said on this show, like I remember back in two, you know, 2012 when I first moved to the United States. And, um, there’s, the USA has got 400 MSIs, right? When they say the us housing crisis back in 2008 it’s was like, it’s not a blanket statement across everywhere because there’s 400 different MSIs. And within each NMSA, there’s a different neighborhood. We need each enabled. There’s a North, South East, West there’s good, solid, bad tracks, good side of the tracks, the bad side of the tracks. And so getting very niche and granular on, on zoning changes, um, all the way down to, you know, staying in enabled and understanding worth of what things are coming and trying to be at the coalface of those changes and, and talking to local cities and municipalities about the changes will put you in a better point for understanding the true value of a particular asset.
Reed Goossens (11:33):
If you know, what’s being built two blocks down the way, right? So I think that in itself is a super powerful tool. And you, you made a good point about you don’t need to know you might not have any experience, but if you can know enough about a certain neighborhood, you can be dangerous and know what the value of the true value of an asset may be worth. So, um, so I think that it’s, I think it’s very, very, just off the bat of extremely valuable advice just there. So talk to me about like, what neighborhoods where you, where you focused on. Because I lived in New York city for two, two and a half years. I love that town. Whereabouts, where was your sort of territory back in the day?
James Nelson (12:05):
So I started out in Chelsea, uh, which was, you know, if you look at the map of Manhattan, pretty, pretty much in the, in the middle, uh, West twenties, uh, the teens. And I learned very early the power of zoning because when I started there, you looked up and down sixth Avenue and it was nothing but flea markets because then the whole, most of the area was manufacturing. And so, I mean, yes, there was some residential, but going, you know, further West towards the river West of 10th Avenue was all these abandoned industrial buildings, which ended up becoming the art gallery district and became one of the hottest neighborhoods in the city. But the city came in and they said, look, this is right in the middle of the city. There’s plenty of, um, transportation. We’re going to change the zoning from a low rise manufacturing to very high density for residential.
James Nelson (12:56):
And so almost over night, you had 30 story buildings popping up and down six and seventh Avenue. And I think for the investors, uh, the small time investors who could either buy up smaller pieces near those developments or on the side streets did incredibly well and even looking further West, uh, and, and kind of being a pioneer and kind of really seen where the, the opportunities and trends were, you know, once those galleries started fill up, then the restaurants came then the, you know, the rest of the retail, uh, they ended up taking this abandoned, uh, rail line and turning it into the Highline, which now is five, 6 million people that, you know, connects Hudson yards down to the meat packing district. So if you bought any of those properties and you got in early, those properties include the increased 20 times in value. Uh, in a matter of years,
Reed Goossens (13:51):
When was this period of time specifically?
James Nelson (13:54):
It was 1998. That’s when I got into the business. And really 2000 early two thousands was when it started to really peak. Yeah.
Reed Goossens (14:04):
Yeah. And we talk about New York city as being an Island and low cap rates, high demand, low supply, you know, the value, the true value of the piece of dirt, and really where I come from an Australia that like New York city is very similar to the housing that we see in Australia where cashflow is very low, because the demand is very high and there’s low supply. So the value is all in the land. Um, pivoting just a little bit. I w I had a bit of experience working with a structural engineer when I first moved to New York city in 2012, because a lot of the same, I wanna, I wanna say zoning, but the same sort of principles were being applied in Brooklyn. Um, actually net Dean down in DeKalb Avenue. And a lot of people were buying these single story, retail, France, keeping the facade, and then stepping in the columns and then going up like 15, 20, but they kept that facade on the bottom level, because from a planning point of view, it could be more deemed as a renovation, even though you’re only keeping one story, then an actual new build.
Reed Goossens (15:00):
So I was involved when a couple of, in 2012, a lot of the development in and around downtown Brooklyn, um, and expanding in and around that sort of near the Barclay center as well, um, where we was just being built back in the day, but interesting type of stuff. When you talk about the power of zoning, and if you don’t understand it, we’ll go and understand it. So, so what, what advice do you have for those people out there thinking that they want to get, they want to know zoning more, where should they go and what are some good resources? And I guess every single municipality is different, but for your specific area and niche in New York, what’s a good place to jump online and check it out.
James Nelson (15:36):
Yeah. So, uh, New York city does have very technical zoning. There’s all different, not only defining the use, but, uh, you know, what type of bulk height, setbacks, uh, it is very, very complicated. The zoning handbook is over a thousand pages. You can go to the New York, city’s, uh, city planning website, and you can download it all if you’re having trouble sleeping at night. But, uh, yes, I work closely with zoning council, uh, architecture firms. And I know, and I’ve listened to your show before and kind of the advice to have your team ready, to be able to move on things. And so you want to have the right professionals because, you know, not all investors have the same information, and if you can find something that no one else sees, I have a very good client. And I, and I, I joke with her because I want sold her this property in the West village.
James Nelson (16:28):
And I thought I got a great price. And then I saw that she got plans approved to build another structure behind the property. I said, how did you even do that? She as well, there’s some nuance in the zoning code where the way the buildings are separated, I could build another structure. So she, she got a two for one sale there, but, um, you know, the nice thing about New York city is it is as of right. So as technical as the zoning is, you know, what you can and can’t do in other municipalities, you might not know. I mean, I, I’ve heard horror stories in some of these towns in Westchester where investors developers have been waiting for years for approval. So really, um, advice to your listeners, if you’re going into an area where, you know, you have to go through, uh, an extensive review process, you got to make sure that you have staying power.
James Nelson (17:16):
Maybe it’s a covered land play, where you’ve got some income on the site where you wait, you know, and then the other end of the spectrum is you’ve got markets like Houston, where if I’m not mistaken, you can build anything you want. Right. Right. So, um, you know, which might sound great. And, and it, it certainly allows for a lot of development, but then as an investor, you have to think, okay, well, if I own this property here and across the street, nothing’s stopping anyone from building another 50 story tower or another gated community, does my investment then become obsolete. So, um, I think that’s, that’s definitely something to consider.
Reed Goossens (17:52):
I think it’s also looking at the highest and best use of a particular piece of dirt. And particularly in coastal markets like LA San Francisco, New York being savvy like that, that particular client that you’re working with in seeing the dominant, and not necessarily even the diamond in the rough, you could have a really nice fricking building, but if you’ve got an extra, additional land in the back and you know how to look for loopholes in, in and around the zoning code, that is a huge value add that you can bring to a team in terms of, even to your investment thesis, right? Like you completely, and now viewing this piece of dirt or this building with so much more value. And to your point, you thought you made a cracking sale on it, and you thought you’ve got the highest and best use for it.
Reed Goossens (18:33):
But she came back and said, actually, screw you, James, Matt. I’ve actually got a, I got a two for one here. So, um, no, it developments, uh, very near and dear to my heart. I, I worked for many developers in the past before going out and doing my own stuff. So, but I want to get back to you and your story, because this is about you, um, in and around being a broker, what type of advice can you give to people out there who are trying to build a good relationship with brokers? I know, you know, up until this is we’re recording this midst of the COVID-19 locked in our houses, and it was very frothy, the market coming up until pre COVID. Um, what do you, what, what, what advice do you give to people to try and stand out and get it, get the attention of brokers in, in, in, in terms of the getting the right deal flow, um, for, for investors and buyers, when, when they’re trying to hunt hunt for deals.
James Nelson (19:22):
So, um, I know your show, you have a lot of aspiring investors. Um, certainly have a similar audience on my show, as well as the veterans. And, you know, the same advice applies for everyone, you know, be a straight shooter, you know, and I know your, your integrity is paramount as is mine in the business. And if you’re new to the game, it’s okay to say that I’m new to the game. Don’t, don’t try to come in and try to pretend that you can do something that you can because as big of a market is that New York city is, you know, we all do take notes. We all, you know, see how you perform on a transaction. So if something’s a little bit over your head, maybe bring in a partner, bring in a coach, GP partner, if it’s going to be too heavy lift, bring in someone with credibility, because for us, um, you know, as the S when I’m representing the seller, yes, I have a job to do to go out and market the property and get the highest and best price.
James Nelson (20:13):
But I also have a job to make sure that I’m dealing with a credible buyer. Right. And so know, usually we’re looking for track record. We’re going to ask you, what else have you bought in the past? You know, sometimes you’re going to ask you for proof of funds, but we’re going to be looking to qualify you. Um, so again, if you do not have that experience, you know, my advice is go partner with someone first, get that experience under your belt. And, you know, after you have a couple of deals on your resume, it’s going to be a lot easier,
Reed Goossens (20:41):
A hundred percent. And, and to that point, how do you then go and try and maximize the value for particular clients these days? Um, and do you have a sort of a methodology to go maximize building costs when you come to sale?
James Nelson (20:54):
Yeah. It’s something that I’m passionate about. And I think it’s also, um, important to know there’s definitely two different ways to approach this business, or maybe even three ways, but you’ve got a sell side and the transaction where I represent the owner, my job is to get the highest price for the seller in the process. I bring buyers to the table as well. My job is to consummate a transaction, give those buyers the right advice, the right information to guide them to a successful transaction in the process. I also work with co brokers out there, other brokers who represent buyers, willing to work with them, split fees. Um, so I think it’s important when for your investors, for your listeners, when they’re approaching a deal, you want to know, okay, do you have the exclusive listening? You know, who are you representing? Off-market sounds really exciting, especially for an investor because they say, well, if it’s off market, no one knows about it, but then, you know, what information is that broker even providing you?
James Nelson (21:54):
Do they even have a real handle on the situation? Um, but when, um, when I’m representing the seller, my job is to maximize the exposure that means, and in this day and age, and I’ve been doing this over 20 years, the leaps that we’ve had in technology over the last couple of years, it is so powerful what we can do now. And so, you know, sure. When we send out listings, we do the, the, um, the e-blast where we’re sending them out to the investors. Uh, of course we’re posting them on all the multiple listing sites, whether it’s CoStar, LoopNet, craxy, uh, IDX in New York city. Um, sometimes we partner with 10 X and we’ll we’ll list our properties online, but we want to get the most exposure possible for our listings. Um, I’ve found over the last couple of years, social media is incredibly powerful.
James Nelson (22:46):
I’m putting property videos on LinkedIn. Uh, I’m, I’m, uh, sending the links out on, on Twitter, uh, Instagram, uh, you know, the, the e-blasts are actually becoming less effective because, and I’m sure you, as an investor, you probably get thousands of these, you know, you just, you know, you just delete them. And so I think sometimes maybe, maybe you’re on Instagram, you’re checking out what your mates are doing, uh, you know, on, on vacation or at home now, uh, while, while we’re on lockdown. But, you know, you see a nice looking asset. It might be a way to get interest. So we really want to make the net cast as wide as possible, bring in the interest. And if I’m really doing my job for a seller, even in a market like today, which is very, very challenging, I’m not going to just say here, take the first offer you get my job is to bring in multiple options and sometimes advising the seller that look, you know, the highest price not might not be the best offer. No, this is a better qualified buyer, especially today where there’s going to be challenges, getting, you know, the type of leverage that maybe, uh, investors could have obtained a month or two ago. Uh, someone who’s has the equity financially qualified, you know, is, is typically who we’re going to be recommending as the front runner
Reed Goossens (24:02):
Investing in the U S podcast is proudly sponsored by art or seo.com online marketing for your business. Shouldn’t be a headache. And that’s why the guys over at Otto SEO have created a no hassle system that will increase your online traffic, increase your leads and generate predictable and reliable revenue. So what are you waiting for head over to art or seo.com and find out more that’s a R D O R S E o.com. Now back into the show, it’s interesting. I’m just gonna quickly rewind to the off market piece. You said before. And, um, we’ve, we’ve bought a couple of deals off market, uh, in our portfolio, my business partner and I, but there’s actually another school of thought that cause everything’s all off market. Great. But there’s another school of thought that I think is really interesting. And off-market really means pre-listing it’s in your pocket, but you haven’t hit the, the, the sin to the masses yet. And the, the, the thought or the thought process is, well, if I’m getting it off market, I don’t know what the market’s going to pay for it. You know what I mean? And so, particularly in a frothy market, if you’re getting an off market deal, when it’s a really a buyer’s market seller’s market, you may be overpaying. And so the off-market lead might not be as juicy as what you think it is in your mind. So any comments to that, because
James Nelson (25:13):
Really that’s a, that’s a great point. And it’s something that I say, you know, when the market is going up, you’re absolutely right. You want to get an early, you want to preempt. And even when I’m the, you know, the listing agent, I send it out. I tell buyers, look, you want to preempt, just put it in an offer, right? I mean, we’ll typically if we’re dealing with a non real estate professional, they’ll probably want to see the process play out, but a sophisticated investor, uh, you know, they know where, where the number is to hit the bid. Uh, but, but you’re right when the market is flat or declining. My job as the broker is also to educate my clients. And I I’m, I’ve been working on a portfolio on the upper East side where we started at a hundred million dollars. Then we had massive rent reform that took place in New York city.
James Nelson (25:58):
And now this, I mean, pricing on that is probably going to come down by 30%. But, but if, if, if we didn’t bring that to market and educate our clients, we would not have gotten to that point. So, uh, yes, our job is to, to really educate the sellers on the market. And sometimes, uh, as the investor, you want to have the, uh, be the last phone call. So, you know, stay close to the broker. You, you, you were asking earlier about advice. Um, look, I, I do that the most important thing that I do when I market properties, I’m doing direct outreach and I’m calling investors and I’m saying, look, I have an opportunity because I know how ineffective emails are now, but if I really know, yeah, read if I really know what you’re looking and I can call you with something that’s really tailored to your criteria.
James Nelson (26:47):
And yes, I’ve got a Salesforce database that helps me know who to call, what on, you’re going to pick up the phone. And instead of trying to pitch you three or four dozen exclusives that I’m working on, I’ll say these are the best two or three that I think you should focus on. And this is why. And I think the investors really appreciate that. But the flip side is I’ve found that some of the best investors they’re calling me, they’re pushing me. I’ve got some buyers who asked to come into my office once a month and they say, look, James, I want to go through the stack. Don’t rule anything out. And you know, you’d be surprised sometimes they’ll say, well, you know, there’s this one where, you know, I’m not quite sure what the story is. He said, I’ll take that one. I’ll buy it. So you want to, you want to want to stay close to your brokers, reach out to them. Uh, you wanna work with a lot of brokers and there’s no one broker in a city that has all the listings. Uh, you, you want to reach out and, and have a network.
Reed Goossens (27:42):
I want to quickly pivot a little bit into, we speak a lot on this show about cash flow and more affordable markets and, you know, moderate, moderate cap rates, your in the belly of the beast in terms of low cap rate environments. Um, and it has been for decades. What do investors look for in New York city from a long-term point of view? Are they more focused on the long-term and not to worry about the cashflow? Or what are you seeing? What, how does, how does, how do investors make a dollar in, in New York city?
James Nelson (28:12):
Well, we used to say, you, you make the Mark, you make your profit on the sell, not, not the, the buy. And so what happens is that, um, in New York where rents have risen so dramatically, okay, most of our investors are value add as opposed to core core plus where they’re just taking, you know, clipping coupons. They’re looking for a situation long-term ownership, billings been mismanaged, rents are below market. They’re looking to improve upon the property. And, um, you know, yes, for a while, New York city certainly benefited by a kind of a three, four cap tight market. Well guess what, that’s changing now, it’s going to change everywhere. But, um, one thing that did happen in our multi-family segment is now we have a rapper form. Now we’ve always had rent stabilization and even rent control dating, uh, before world war II. But, uh, what they said in New York and there’s 3 million housing units there, they said, look, we’re going to take these million rent-stabilized units.
James Nelson (29:16):
And you are no longer going to be able to decontrol them and charge a market rent. So the way it used to work, because these investors would buy these stabilized buildings, where they find tenants who were paying a thousand a month for a two bedroom, that should be worth 4,000. And they would either go in there and they’d find out which tenants were illegally occupying those apartments, or they’d buy them out. And then they would go in and triple and quadruple the rent. And so, you know, there were massive fortunes made. So that, that was really the process by the building, increase the rent, roll, go and sell it in five years or refi out today. That’s a lot more challenging because they don’t allow you to do that with the existing rent regulated. You can do that with fair market units. Although they’re now talking about, um, what you’re seeing out in California, we’re having basically universal rent control limits on how much you can raise your fair market rent.
James Nelson (30:10):
So for all of your listeners, so important to understand the markets where you’re investing, you know, is there rent regulation? Are there restrictions on increases? What type of affordability components are there? Um, but I’m still seeing, uh, there was tremendous potential still in the office market here in New York. I mean, last year we had record leasing. There was over 45 million square feet leased in New York city. We had Facebook that just took a million and a half square feet after we sent Amazon packing, which, which I think was the worst failure of local government ever. They’re still back. And they just bought the Lord and Taylor building from a, we work of, you know, of all people, uh, that actually happened right before this pandemic started. Uh, so they’re there and we have the talent, and that is really for your listeners. I think the most important driver is job growth.
James Nelson (31:03):
You have to look where are the cities that are growing and, you know, look at job growth, the jobs are there, the apartments follow, the retail follows. And, you know, th th th this next cycle here is going to be very telling because there there’s a lot of questions out there where do peoples start to work more from home? Are they gonna want to live in cities? Are they going to want to live in the suburbs? So, um, I certainly don’t have a crystal ball on that. I mean, I’ve got some thoughts. I mean, I think the workplace of the future certainly will change. And I think some people will work from home, but I also think that the reason why Facebook and even Google’s the, you know, the biggest example they have, I think they have, um, close to, uh, I mean, several million square feet now in New York city. And they’re growing because that’s where the talent is. People still want to live and work in New York city. And that’s what makes it so attractive.
Reed Goossens (31:56):
Right? It’s a sec, it’s a sexy market. Um, you, you job growth. I completely agree with you following the talent, but you also mentioned three to 4% cap rates. Do you think that’s going to change even with a low interest rate environment? Like we are predicting to still be in even post pet pandemic?
James Nelson (32:13):
You know, I just delivered our state of the market for the first quarter, and I was because all those sales still were negotiated at the end of last year. So we really haven’t seen what’s going to happen, uh, post, uh, you know, COVID and the, the real impact, I believe this year is going to look like 2009, where the only sales that are going to happen are going to be the estate sales, partnerships, sales, and ultimately the banks and the distress. Okay. Um, you know, you’re going to see very few sales as far as the returns and kind of looking back to what happened 2007, 2009, uh, peak to trough. There was cap rate expansion of, uh, almost a hundred basis points for multifamily and for office and retail as 150 basis points. So, um, our multi-family cap rates had already risen from three and four to five, five and a half percent as a result of this reform.
James Nelson (33:08):
I was at the national multifamily housing conference down in Orlando and our brokers in the Southeast, you know, they were handing out, you know, four, four and a half caps down in Charlotte and, uh, you know, down in Florida and Texas, and they had a line around the, you know, the block and I’m trying to sell five, five and a half caps in New York city. And they’re saying, well, you know, if I don’t have upside and I can’t raise the rent, why would I do that? So, uh, if you tack on a hundred basis, points to that, could New York city actually be, uh, over a six cap market for multifamily? Um, I would be shocked just because there is so much money, a certain, certainly foreign capital and interest in our market that I think investors are going to look for stability. They’re going to look for hard assets. There’s so much uncertainty in the stock market. That’s bouncing up and down. Uh, but we’re going to absolutely, uh, receive cap rate expansion.
Reed Goossens (34:04):
And you were saying Keppra expansion, regardless of what happens with these interest rates.
James Nelson (34:08):
I was going to come to that next, which is yes, the 10-year treasury remains at all time lows, but unfortunately I think what’s, you’re going to see happen. I mean, right now banks have become so conservative. CMBS is out of the market. Uh, life insurance companies are, are, are definitely cautious. Community banks have really been the lenders, but they are pulling back. They’re becoming a lot more conservative with their loan devalues, but they’re also asking for a wider spreads, uh, for the risk. And so our debt equity group, they were saying guys that the days, unfortunately, a 3% money are, are gone. So I they’re expecting, you know, a hundred, 150 basis point shifts as well. Again, just because of the spread. Uh, so I, I think the cap rates will we’ll track along with that.
Reed Goossens (34:53):
Yeah, no, I completely agree that that’s very interesting insight on terms of that you thinking, because you’ve taken away the value add opportunity. Thus, the cap rate is expanding and people view a New York city asset because you can’t perceive to add the value. And some competitor say somewhere like Texas, where you don’t have that rent control and you have all this up quote, unquote upside, um, they can jam the cap rate down and I can sell that at a lower cap rate than the New York city. I would take a New York city asset over a Texas ax asset any day of the week, because I just know the value of, of dirt. So, um, but I want to quickly pivot before you ended up that ran up the show here into your, your, your, your podcast and, and, and the whole why and how did it help your business, and why did you decide to go do a podcast, um, uh, in New York city?
James Nelson (35:40):
You know, it really started as a passion project. I love teaching. I’ve taught as an adjunct at NYU and just in my business. I really think it’s so important to be a source for information. I, I really feel that I’m in the information business, not in the sales business. And so I am passionate about it. Um, you know, besides your show, uh, and maybe a few others, there’s actually very few shows that teach you how to invest in real estate and operate it. If you look at the stock market, there’s hundreds and hundreds of shows on how to play stocks, but you look at real estate, which is when you look at, uh, Americans, uh, or would imagine anywhere in the world, uh, individuals, top holdings. I mean, that real estate bucket, including someone’s own home is usually a significant part of their holdings. And yet there’s very few shows like yours, that actually talk about how to do it. And so what I really wanted to do was to showcase investors like yourself, uh, like others, uh, in New York who have, uh, started with, with very little or nothing and how they, uh, created real estate fortunes. Uh, so I I’ve really enjoyed doing it. I learned a ton along the way, so it’s, it’s, it’s really been my pleasure.
Reed Goossens (37:00):
Sure. It also has helped your business, right. Your sales business, because I think it’s such a key thing that you’re saying you’re in the information business, you know, in the sales business and coming forth with information and educating people on a particular topic, whether it be a seller, whether you’d be a buyer, whether you’d be just someone interested to get, get that toe in the water, having that leading as the first and foremost, rather than asking for something from a, you know, a lot of businesses ask the things straight away rather than giving out the information. I think it’s super important as to be that key person of influence. So, um, I’m sure you’ve seen it, your business also on the sales side, grow in leaps and bounds as well, but would I be correct?
James Nelson (37:35):
Yeah. It’s been a great exposure tool and you know, a lot of my competitors, they just call up owners, are you selling no click, are you selling no click? You know, and I really try to take that longer-term perspective and it is a great way to, uh, help educate people and help show that that I’m active and have knowledge in this area. So it, it, it, it’s been a great thing to help get the word out on what we’re doing. Um, I’m two years in, at Avison young building out our tri-state investment sale platform, uh, and it’s, it’s really important to stay top of mind and let investors know that we’re a resource out there. And I’ve also encouraged we have 60 offices across the U S so for any of your listeners who are looking to buy in certain markets, I mean, feel free to lean on us for information, and it might just be comps and helping figure out a market. And I always believe that you got to take the long view in this business.
Reed Goossens (38:33):
100%. Well, James, you’ve been a wealth of information, um, to wrap up the show, we like to dive into a lightning round called the top five investment tips.
Speaker 4 (38:42):
Yes, mate. What is the daily habit to practice to keep on track towards your goals?
James Nelson (38:53):
I think it’s just consistency and tenacity. Even on lockdown. I’m still getting up early, maybe not at a four handle, but it’s five 30 in the morning. It’s being highly scheduled and really prioritizing to make sure that the most important things happen each day.
Reed Goossens (39:08):
Love it, love it. Um, who’s been the most influential person in your career to date.
James Nelson (39:14):
You know, I, I’ve got to go with a tie there. It’s gotta be Paul Massey and Bob knackle who founded the firm where I started my career. I learned so much, and I would encourage all of your listeners out there, have a mentor, have someone that you keep close by. I got better than an MBA by spending time in a cube next to them. And so I’m, uh, eternally grateful
Reed Goossens (39:36):
Love that I got better than the MBI by, by buggy being in the weeds and in the, in the trenches. I think that’s super important. Um, question number three is in your business, you would have a most influential tool. And when I say tool, it could be a phone, it could be a, you know, a hard way like a phone or it could be software. So what is the most influential tool you use on a daily basis in your business?
James Nelson (39:57):
You know what, I, I might answer the question in a slightly different way, which is, uh, and I haven’t given them enough credit on this, the show yet, but having a team, I have a group and you mentioned, uh, in the lead up that I have three dozen people in the group, there is no way that I can even do a fraction of what I’m able to accomplish without an incredible team. So having a dedicated research analysts, having associates with boots on the ground, so important to have a team, the technology piece to it is having the database that we share it all. So we can really leverage that information. But again, this is not a business that you want to try to do on your own.
Reed Goossens (40:36):
No, I think that’s, yeah, it’s super important teams do make or break the business. And you’re, you’re actually not the only person who said that, but we have a few people in the show that have said their team is the most important tool in their business. And it is it’s, it’s correct because you can’t do everything yourself and in your, your mad men to think if you, if you can, uh, in one sentence, what has been the biggest failure in your career and what you learned from that failure?
James Nelson (41:00):
I think talking too much. And I want to qualify that by saying when I started off, I figured that I had the just, uh, try to show everyone that I knew everything instead of listen. So the advice is there’s so much knowledge out there. Just listen. I’m sorry. That was probably more than a sentence, but I don’t know.
Reed Goossens (41:20):
Well, that’s good. That’s good. No, yeah, just sort of shutting up and listening and not, and not thinking that you need to prove something right. Ego, which is probably what it boils down to at the end of the day. So, um, my last question is where can people reach you to continue conversation? They want to be in your sphere? What do they do?
James Nelson (41:36):
Perfect. So, uh, would love people checked out the podcast, uh, which is real estate investing live from New York. It’s on the VoiceAmerica network, uh, it’s syndicated on iTunes and Spotify or wherever you get your podcasts. My social media handles are James Nelson MYC. So we put a lot of content up on LinkedIn, uh, and, uh, Twitter as well as Instagram. So please connect with me or email James periodNelson@avisonyoung.com or call me (917) 362-1485 is myself.
Reed Goossens (42:10):
Awesome. Awesome. Well, mate, I want to thank you for taking some time out of the day to jump on this show and just wanna reflect a few of the things that I took away from today’s conversation. I think the number one thing, or a couple of the top things I took away was that the first thing was the power of zoning, understanding the power of zoning, and you can make money in any single market, regardless of how hot and frothy it is. If you know the power of zoning. I think that was probably the number one piece of advice that I took away from today’s show and that everyone should be writing that down. And if you don’t know zoning, you can go out and get some good thousand page books online about it, but looking at zoning changes and really studying a neighborhood. The other thing I think is, is you’re in the information business and leading that first and foremost, uh, as a, as a sales card, uh, not wanting to sell anything to someone, but actually providing information to people means that you will ultimately be the point of reference or that first to mind, when they think of wanting to sell their business, uh, the, the, the building, or if they want to invest in a deal, then we’ll come to you.
Reed Goossens (43:05):
So I think that’s super important. And the last piece of advice that I really took away from today’s show is the talent, where is talent going, jobs, jobs, jobs, and following that talent in terms of the market growth and seeing what other market factors will come from that because of where the talent is. So I think those three pieces of advice have been super informative. Um, did I leave anything out?
James Nelson (43:28):
No, I think, uh, that’s all fantastic. And it’s just, you know, continue to improve yourself by listening to shows like these, uh, especially while we’re on lockdown, you know, don’t sit idle, use this as time to improve yourself. So, uh, again, uh, if your listeners I’d be surprised that they haven’t picked up a copy of your book, but, uh, if not, they should, uh, should definitely order it online.
Reed Goossens (43:51):
Mike, thank you very much for the plug, but again, I want to thank you for taking some time out of date, enjoy the rest of your week and we’ll catch up very, very
James Nelson (43:57):
Soon. Awesome. Thanks so much.
Reed Goossens (44:00):
Well, they have another cracking episode jam pack with some incredible advice from James. Please do check out his website and it make sure you check out his podcast as well. Real estate investing live from New York. It is a cracking podcast that has all information about investing in New York tri-state area. Um, I think James is a wealth of knowledge and you need to definitely check him out and check it Avis and young as well, because they are also a wealth of knowledge in terms of if you’re looking to buy commercial real estate in maybe your local market or in a market that you’re looking to invest in. I want to thank you all again for taking some time of your day to tune in, to continue to grow your financial IQ. Because if we’re all about here on this show, the easiest way to get back to this show is giving us a five-star review on iTunes, and we’re gonna do it all again next week. So be bold, be brave. Remember, go give life a crack.