Aileen: Welcome everyone to today’s episode of the, How Did They Do It? Real Estate podcast. We are your hosts Seyla and Aileen. Today, our guest is John Azar. John is the founder and managing partner of Peak 15 Capital, a capital advisory firm, servicing commercial real estate operators and sponsors and identifying, sourcing and securing the capital stack. John is also the executive vice president and managing partner of MACC Venture Partners, where he directs acquisitions, strategic development, capital management and growth. He also oversees alternative financing and investor/portfolio development and fund management. Previously, he was a co-founder and managing partner of Boston Venture Partners, a private equity consulting and finance firm based in Boston specializing in real estate development and structured finance. At BVP, he worked on accumulative portfolio of $1.8 billion spanning from Boston to Miami, as well as London. So, we’re very excited to have you on today, John, and that’s a very extensive background that you have, so we’ll have a lot to talk about.

John: Thanks. That was a mouthful. I appreciate it. Thanks.

Aileen: So, can we please start off by telling the listeners a little bit more about your background and how did you get started in real estate?

John: Yeah, yeah. My background is mostly professionally, mostly in investments and finance. I was, I got started out with, on that sort of in the equity desk at Morgan Stanley and moved through different various roles in that sort of investment world on the equity side. And then later on, on the debt side through commercial banking, couple of commercial banking roles, but started out in commercial real estate after my first few Stanton in investments on equity investments with a couple of partners, we had a structured finance firm in Boston, which is called Boston Metro partners. I think you may have mentioned it. We essentially did structured finance for large-scale mixed-use development out of on the Eastern seaboard for the most part, we did have a London project, but for the most part, we had all our project based on the Eastern seaboard. And we essentially structured the deals for developers, little large-scale developers that were either condo conversion projects, multi-family project, but certainly a lot of kinds of projects, like either luxury condos or ultra-luxury condos, high-rise or low-rise. And then 2008 hit, and we kind of almost lost our business overnight and we have to shut our doors and kind of go back and get day jobs just because we lost everything overnight, almost within the course of a couple of months, we lost our large clients. We lost all the projects that we had and the market was going nowhere.

So that was a tough time. We had to essentially, again, retool and lick our wounds and start back up again. Around the same time my brother Tony had started the MACC Venture Partners, he firm you mentioned earlier, and he was just starting to grow the company based in the Carolinas. And on 2013, 14, I joined the firm and started growing the company together to kind of the next stage of its growth and in the past a last six years or so, we’ve grown to about 6,000 doors. And as of last year, as of the end of last year, beginning of this year, but we’ve since shed few hundred doors just because we started to kind of go through some dispositions last year, as opposed to any acquisitions. We kind of took a step back from active acquisitions in this market, and started doing a little bit more, taking some more chips off the table. So now we’re right around 5,500 doors and we might be dropping even less than that by the end of the year, beginning of next year, just because we might have a couple more sell offs. Right around a couple of years ago, I started another firm called Peak 15 Capital. So pre COVID, I started Peak 15 Capital, and it’s basically just meant as a capital advisory platform for owners and operators for sponsors similar to myself. I felt that there was a need in the marketplace for someone who would be a lot more aligned with the sponsors who knew the sponsors business, who really kind of felt and felt their pain on a deal by deal basis and knew the equation inside and out. And I thought that Peak 15 could bring something to the market that is unique. And we were right, the market answered very favorably for us through our deep connections. And, you know, with owner operators where, you know, we’re able to bring a variety of deals last year to the table, we worked on hospitality deals in some construction deals. And this year we’ve continued our growth, you know, post COVID even which we were really surprised with post COVID we’ve had a lot of clients coming in from various acquisitions in the different stages of the cycle, either through a development deal, new construction deals to lots of new acquisitions deals that are coming through sponsors who are buying stabilized, multifamily assets.

Seyla: I just want to go back and talk about the first multifamily apartment deals that you acquire originally. Could you give us some more details of how you tackled that first multifamily apartment deal and what were the major challenges that you face at the time?

John: Yeah, I mean, you know, the first one, the first deal that we’ve ever added to the portfolio was a deal in Augusta, Georgia, which we still actually own in that portfolio. My brother’s pretty sentimental about keeping it on, and even though it really is not something we should keep in our portfolio in all senses, they should all sold out of it. But again, sentimentally we’ve held on to it. There we have no investors in it. We own it at this point a hundred percent, so but this was a smaller deal, it’s an 80 some unit deal and Augusta, Georgia. And it was the fundraise for it was friends and family. I mean, that’s what you start out with. For the most part, when you start doing your first syndications and multi-families, you don’t have a big network, we didn’t have a big network of investors. We did not have obviously access to institutional or private equity money yet. So, you start to go to the people that you know, best and those are that your close circle of friends. And I don’t want to say family, but you know, better known in around friends and family, but really anyone, you know, that would know you best, which is what we did with this. You people that knew us best our capabilities, who we are, that trust foremost, trusted you, and you bring that to the table and hopefully take it one bite at a time. And that’s really how you handle the first deal. You’re going to make a lot of mistakes. We still make mistakes. You make a lot of mistakes along the way. We’ve made a ton of them. And like I said, we still make them. But yeah, I mean, you have to start out small and it doesn’t have to be that big,

Even at around 80 some units, it was probably bigger than what we anticipated, but, you know, first deal could be, you know, as big as you can manage it with your network. I would say, I always advise people, take your first deal with however you can manage it. Don’t compare yourself to somebody else just because somebody did their first deal that was, you know, 80 units or a hundred units doesn’t mean that your first deal should be 80 units or a hundred. You know, your first deal can be 20 units. Your first deal could be 10 units. Your first deal could be 300 units. It just depends what you know, what your comfort level is and where your, you know, where your network is at that point. Obviously, I wouldn’t recommend a couple of hundred units for your first deal, because it’s probably a little too big. You need to get your arms around property, you know, how you would handle your property management or deal itself. And you start to get to learn a number and how you look at the deal critically and what’s missing and what’s not missing. So, I would keep it to a manageable format. I would definitely keep it under a hundred units for your first deal, or maybe a right around a hundred units. That would be at the top is what I would recommend for first deals.

Seyla: Yep. That makes sense. And you mentioned earlier that you able to scale up to 5,500 units so far, will you be able to share some of the insights of how you able to scale your business up from that first apartment buildings to today up to 5,500 units.

John: Yeah, well, we were at 6,000. We’re only 5,500 units of them because we started selling. So, we actually transacted since our inception, we transacted probably close to 9,000 units, but obviously we’ve done some selloffs through the years, but you, scale up by different evolutions of your business. You need different people in different times of your business. So, the person that got you from point “A” to point “B” may not be the same person that’s going to get you from point “B” to point “C”. The same goes for your investors and the same goes for your people internally. The same even goes for how you look at things yourself. So, what you’ve done right 10 years ago may not be the same thing that you do five years ago. It may not be the same thing you do two years ago; may not be the same thing you do from now moving forward. So, you have to always kind of retool yourself. A lot of what changed for us is what we’ve done internally for the company and that’s the biggest thing that you change as you continue to grow, you have to retool yourself to make sure that you are presenting, that you are structuring yourself internally to where you can handle your growth. That’s the biggest reason why you have to retool yourself on a regular basis, because you want to make sure that as you continue to have more capacity or as you’re continuing to have more access to deals or more access to money, and you continue to grow that way, that your capacity can keep up with it, your internal capacity. And that’s what really, a lot of some of the things that companies sometimes forget about they see deals and they see access to money.

So, I see a lot of people sometimes who they’re yeah, yeah, we can access money. Well that’s great, but do you have the capacity internally need to handle that growth? You know, can you handle getting another thousand units this year? Can you handle getting another 500 units this year? And if the answer is no, or I don’t know what to do or I’ll figure it out when I get there, that’s probably not the right answer. You probably should figure it out before you get there and putting mechanisms in place to do that. So really the biggest thing is you have to make sure your capacity and your, the way that you are tooling, your business continued to grow with you. And that includes how to reach out to investors, that include what profile investors you’re going after. That includes how you manage internally. That includes who you hire inside your company. That includes how you efficiently move through different operational issues internally for your company. Again, in the beginning, it might be okay for, you know, a one-man shop to do it all but at some point, that’s not going to be good enough and that’s not going to do the trick. You’re going to have to hire more people. So, you just have to know your limitations and what you can deliver.

Seyla: That makes sense. I mean, setting up a system in place for your company and knowing your capacity, as you mentioned making sure that you can handle additional units as you growing up your business. So, I really appreciate that. So just want to talk about capital raising a little bit. So, for your first deal, you mentioned that like raising capital from your network, from your family or someone around your circle. As your company is growing, how has that strategy changed along the way, in terms of reaching out to other investors or using other people’s money?

John: Change with the profile of the investors I mean, so somebody who was willing to give you 50,000 bucks, you know, 10 years ago may still be with you, but your needs is going to increase exponentially as you increase the size of the deals and the need of need for the money. I mean, you may need, if you continue to raise money from accredited investors or high net worth investors, you might need a lot more of them. So, you have to, the difference is you’re going to have to increase the number of them. And then as you continue to grow and scale your business, you’re going to probably end up acquiring some institutional level assets and those will require different type of investors. And institutional investor is not the same thing as an individual high net worth investor. These are expectations are going to be differently, different there, the way that they structure the deal with you is going to be different. Your returns to yourself is going to be different. So, I think a lot of times people make the mistake of thinking that, Oh, they’ve done really well and they have certain expectations on returns and how they structure deals with individual investors. And they go an institutional route and they are unpleasantly surprised because they’re not making as much money or you’re not going to make as much money if somebody is going to cut you a check for, you know, one check for 90% of your equity, as opposed to you going out to, you know, 20 or 30 different people to cut your checks. They, you know, that one check that’s a one large check front and institution is going to be a lot more picky and they’re going to want to demand a lot different parameters for their money than individual investor.

Seyla: So, can you talk a little bit about how you’ve been able to grow your network of investors?

John: Just be in out there. That’s really the simplest way I could put it. You’d have to grow your own personal brand. You have to grow your company brand. You have to grow your personal brand and that starts with a relationship and relationship development. There’s there there’s really no magic there to it. There’s no bullet magic bullet to it. You have to just be out there, grow your brand, whether it’s through social media, through actual personal engagements, through speaking engagements, through attending, you know, webinars, attending seminars, attending conferences, various conferences. It’s an ongoing process as needed, never stops. I mean, so you’re, again, it’s really networking, one-on-one. You’re always trying to grow that brand and the best thing I can tell you is make sure that you’re seeking relationships before you need them. So just because you don’t have a deal on the plate right now that requires an investor. It doesn’t mean that you shouldn’t go out there and find investors. You find investors when times that you don’t need them, that’s when you really should be finding investors. When you have a deal on your plate that you need investors for the next 30 to 50 days, that’s usually the wrong time to go out there and get new hunt for new investors. You hunt for new investors before you have a deal on a plate, because you bring them to the table with your relationship and with yourself and with your background and what you have and your value proposition, you don’t just bring them to the plate just because you have a deal. I mean, you do sometimes. Sometimes you have to be pressed and you go out into the market and bring investors via deal but ideally you shouldn’t be bringing investors before you have a deal on the table.

Seyla: So, when raising capital, especially now, did you see any challenges with raising capital in the pandemic situation right now? And what are some of the concerns that you receive from the investor?

John: There’s a lot of challenges in raising post COVID. There are people, individual investors’ money is very, very careful these days, so if they can afford to stay on the sideline, individual investors are not investing as much. So, they want to wait and see what happens, and they want to wait and see what goes on. So, a lot of them are, but some of them are, and a lot of them are investing also, you just have to make sure that they’re just a lot more careful on who they invest with. So, the expertise and background of the sponsor, the location of the deals, the returns have to be their risk, obviously any anybody right now think that they’re taking a risk by investing so, or taking an extra risk rather in invest right now. So, in order for them to be compensated for that extra risk, they’re looking for extra rewards. So, the deal dynamics have to work to your favor, to their investors favor a lot more now. So, deal numbers have to make very much, a lot of sense. An investor who used to put in something for in multifamily pre COVID could live with 9% returns, now probably want 11% or 12% returns because they think that they need more reward for taking the risk in these challenging times, and they’re right they should be getting more reward because it is risky out there.

Seyla: So, you mentioned about 11 to 12% of return. Are you talking about… [cross-talking 15:20]?

John: That’s a pure, pure example. That’s not really based on any real numbers out there. I’m just making a case of comparing what it was pre COVID to post COVID that these are not real numbers at all.

Seyla: Got it. Okay. So, what is your investment criteria? And can you share some of the metrics that you use when you’re underwriting a property?

John: We have to hit mid-teens IRR on our underwriting and we have to hit close to double digit cash on cash return. So, cash on cash has to get close to the 10% range and IRR has to be in the mid-teens, 15, 16, 17% IRR, 15% at the very least in order for us to really be interested in the deal. And, that’s been the case these days with a lot of institutional investors and a lot of private investors, do they like a deal that has at least that sort of approach to that mid teen IRR, because they’re really, that’s the level you need to be in order for you to get close to two X of the deal multiples. So for those of you out there who don’t know what the multiples are, it’s the amount of, well, it’s really, when you put in a hundred thousand dollars in a deal, what is it in during the whole time what you get when you get it out four years from now, or five years from now, three years from now? So, if a deal multiple is 1.5 X of your money, that means if you put a hundred thousand in a deal today and you get your deal out at year four or year three or year five, whenever the business plan is supposed to be you get $150,000 out. If the deal multiples 2 X, that means if you put a hundred thousand dollars in today four years from now, you get $200,000 out of the deal. And having those returns of that I just mentioned close to mid-teen IRR and upper close to double digit cash on cash, those are typically the numbers that will get you close to that 1.8, 1.92 X multiples on returns.

Aileen: And has this changed with the pandemic or is it, are you still seeing that it’s pretty consistent with how the properties have been performing pre COVID?

John: There’s been challenges in some properties performing less, but just because your properties are performing less, that doesn’t mean the expectations of investors out there have gotten less. The expectations have actually gone the other way. They might have gotten less to be on more that’s what I was saying before. So, if the investors out before COVID, they were expecting 14% IRR post COVID, they’re probably now expecting 16% IRR. So that’s the challenge is that some folks out there are experiencing a decrease in revenue in there, and some of their assets, it depends how they manage their assets. If they can manage, hopefully they manage their right. But there are a lot of assets that we’re not that affected by COVID. The occupancy is still high. And for the most part, and most multifamily assets and turnover is actually slightly lower in this COVID environment than pre COVID, just because people don’t want to move as much. And, yeah, so, I mean, the numbers are certainly higher and the expectation is higher but some sponsors and some owners of multifamily assets have definitely had a harder time than others. Larger Metro areas like the New York’s and the Boston’s of the world certainly had a lot more pain during this COVID environment than other places.

Seyla: Yes, it sounds like, as you mentioned, you know, investing during the COVID time right now is a higher risk for investors. However, it’s not like it’s not possible, so you can still invest and it sounds like they expect more higher return. So, talking about that, what about going back to finding deals itself? Has your acquisition strategy changed during the pandemic? Do you have any issue finding the deal flow?

John: Yeah. Well, let me correct that, correct something earlier. It’s not more risky now more during the pandemic, they just perceive it as more risky. The deals are not any more risky. The deals are the same as they were before. You know, some of the risk factors maybe have changed or shifted slightly a little bit now just because of collection rate or something like that. But the risk is not any more increased. I would say maybe there’s a three, 5% increase in risk and, you know, pre COVID to post COVID now environment in your risk factors, if you’re looking at beta, which is a measure of risk, maybe there’s a three to 5% increase but not really anything significant. So, the risk has not increased, but the perception of risk is a lot higher than the risk itself. The perception of risk is probably double that, you know, that people think that there’s a 10% more risk in the marketplace in COVID environment than where it is, even though in reality, it’s probably more like 5% increase in risk. Anyway, I’m sorry, I was just commenting on something earlier. What was your question again?

Seyla: Yes, thank you so much for correcting me on that perception of the risk. I really appreciate that. So, my question is I wanted to go back and talk about the deal flows during the pandemics. Have you seen any changes?

John: Yeah. The deal flow, hasn’t slowed down believe it or not in the deal flow is still pretty strong. There is in the pricing on deal flows, we have not yet seen a major discount on deals. I mean, we’ve been averaging some discount in some markets there’s some discounts of 4 to 6% on what they work pre COVID to post COVID, but they’re really, you know, you’re really not seeing a lot of discounts simply because you’re not seeing a lot of pay. So, a lot of others not, again, it goes back to that what I just said earlier, the elections have been, you know, not as bad as they were. So, if collections are fine, your occupancy is pretty high. Your revenue is still somewhat steady. A lot of owners and brokers don’t feel like they should be discounting that assets that much and they probably shouldn’t if the numbers are correct, but there is probably going to be more paint as we, as we inch towards closer to the end of this year, beginning of next year. And it probably would be a lot more buying opportunity. We hope that there’s going to be a lot more buying opportunity in 2021 and then 2020. So, we’ll, I think we were expecting deal flow itself to increase tremendously by 2021 by next year, Q1 or Q2 of next year.

Aileen: So, what are the different ways that you guys are preparing for that end of the year, beginning of next year?

John: You have to prepare to have, you know, either your ducks in a row when it comes to capital and where are you going to access it? You make sure that you retooled yourself internally. You make sure that you have enough dry powder that you can participate in deals and you make sure that you have the right partners in place. I mean, I guess it’s not any different than any other year. So, it’s just if you’re expecting a buying opportunity, you obviously have to have what would go into your buying criteria, you know, in place, meaning money, partners, procedures in place, being able to absorb and onboard new assets into your portfolio. So, all these things are going to matter as you’ve kind of retool and expect hopefully some growth next year.

Aileen: So, you also mentioned partners. How do you find your partners and how do you make sure that they are the right fit for you?

John: When I say partners, that includes a wide swath of things. Partners could be your deal partners, could be the people who are important in the deal, meaning either legal or accounting or obviously money capital. It could be the operating partners. You know, if you’re sourcing out, if your third party managing your assets, it’s the property management company partners. So, you know, all of these are your partners in the deal. Now there are obviously capital partners in the deal. Those guys are going to be your investors to some extent, but you can also bring in partners in a deal that could partner up with you and taking down a deal from a general partner, from a GP side. So those are going to be tougher for you guys to, or tougher to find, just because you want to be in bed with somebody you trust. You know, you want to be in bed with somebody you rely on and they can rely on you. And because it’s going to be you know, when you go into, in an asset with a partner, it’s somewhat of a marriage in that asset and you want to make sure that you’ve chosen correctly and you want to make sure that, you know, you’re doing business with people that you like and trust and you can move forward with. So, it’s not an easy question. It’s just something that you have to source out and make sure that you are in with people that you like and trust.

Aileen: Yep. Divorces tend to not be very pretty.

John: No, for the most part. They do not. No.

Seyla: Thank you, John, for sharing all your experience. I have four more questions that we usually ask all our guests as closing questions. Are you ready?

John: Sure.

Seyla: How has real estate investing impacted your life?

John: Made my life more hectic, more rich, more complicated, more rewarding, more challenging, and more adventurous and exciting. So, all in on the same thing,

Seyla: What is one thing that you know now about real estate that you wish you knew when you first started?

John: I started much earlier in life than I did in real estate. I did not start in real estate until my thirties and really mid to late thirties and I wish I started earlier.

Seyla: If someone wanted to start up their real estate investing business right now, what is the one thing that set the successful people apart?

John: Discipline and, really your discipline in your relationship building capacity. Are you disciplined to your business and your discipline to what you want to get accomplished in your life? You have to realize that the wind is not going to go your way every day. It may not go your way to that month. It may not go your way that year, but if you’re disciplined and dedicated to doing what you feel is right in your heart, then that’s going to go a long way and build the right relationship with the right people. Relationships are huge in this business. People can get so much accomplished when they have the right relationships in place in their lives. You know, whether it’s, and I’m not just talking about capital, you know, it’s not just capital, it’s mentorships, it’s coaching. It’s people that you are doing business with people that you do deals with people that you get information from. I mean, it’s relationships that you develop into business are going to be the one that propel you forward in this business,

Seyla: What tool or techniques have you used to improve the efficiency of your business or personal life?

John: We use a lot of, I mean, on our company side, we use a lot of technology tools to make sure that we are more efficient. So, you know, the name of the game right now is really efficiency. So, and that’s certainly more true in post COVID, but you know, I love any tools that make my life more efficient every day, you know, the less that I have to do and the more that I could produce by that, you know, less amount of time, the better. You know, and these can be simple things. They don’t have to be that complicated. I mean, you know, like using tools like Calendly, for instance, I mean, I don’t know, I’m always amazed of how many people don’t know about Calendly. Calendly is such a great tool. I should be a spokesman for the company. It’s like, I don’t know what I would do with my life without Calendly things. Tools like that, or like, you know, obviously zoom is a great example of productivity and efficiency, you don’t need to be, you know, stepping out into, out of your office or out of your home office anymore to meet someone, you can meet them right here. So, you know, so any kind of efficiency like that, obviously there’s a lot of tools and software systems for our business in particular, whether it’s for market analysis or investor portal analysis, or investor management systems and investor management tools, those are really great. We use different partners in those areas. You know, we have an investment portal that we use. We use a software provider called IMS and those for that. So, they have been a great partner for us. So, I mean, again, it goes back to the building that team and the right partnerships in place it again, kind of choose the people that you are using, that that will bring more value, add to where you want to go into your

Aileen: Thank you so much John. And if our listeners wanted to find out more about you and get in touch, where can they go?

John: It can go to peak15cap.com. They can email me @azarpeak15cap.com. They can find me on Instagram. They can find me on LinkedIn under Jalal John Azar. Thy can also go to the other website, which is Maccvp.com. So, I’m out there.

Aileen: Awesome. Thank you so much, John. We really appreciate your time today.

John: Of course. Thank you so much for having me.