Episode Transcript
[00:00:00] Speaker A: Foreign welcome to another episode of the Real Estate Chicago Style podcast. I'm your host, Joe Smazel. I'm a broker and partner at Interra Realty. I focus on selling mid sized apartment buildings on the north side of the city and I own and operate little buildings on the north side too. It's been cool to hear everybody's feedback about the first few episodes. We've released three at the time of filming this one and we're gonna keep it going. So it's been fun but don't be shy about anything that I could be doing better or doing different. Want to keep improving this and I'm totally mindful that I'm new to it. So also shout out Stephen Fullbars Media. He's partnered with me to produce this. Help me put it out at a very high level in terms of production quality to kind of compensate for the host. And he's great. All your real estate marketing needs, hit him up. Full bars Media.
All right, today's episode, I'm excited. We've got a friend of mine, Gabe Horstick, founder and CEO of Base3 Real Estate Development.
He founded Campbell Street Asset Management in 2008 and later established Base 3 Development which now owns and manages 650 multifamily units. Over 650 multif family units. By the time this is out, it's probably 900.
[00:01:27] Speaker B: The clippy's growing, usually need to round up. There is 2, 300.
[00:01:32] Speaker A: I'm a broker, I'm familiar with rounding up. Gabe has successfully developed and rehabbed properties throughout Chicago, building and managing assets exceeding 300 million in total value. So Gabe, welcome to the show.
[00:01:45] Speaker B: Well, thank you for having me.
[00:01:46] Speaker A: That's the first time I've called.
[00:01:48] Speaker B: Pleasure to be here and you have a face for tv. So glad you can share that with the world and tell your story and I'm really honored to be here. So thank you.
[00:01:57] Speaker A: Appreciate you doing it. First of all, Gabe arrived from a vacation at 5 in the morning today we're shooting this at about 10. And so he is just like, he's always a positive guy, he's always upbeat. We're putting it to the test today after crummy travel day. So appreciate you following through with it.
We are going to start with some kind of a speed round and I don't know whether you listen to the first couple, but we got a couple different ones in here. So you, I don't think you're going to be prepared for these. So quick answers. All right.
Thin crust or deep dish?
[00:02:33] Speaker B: I'm going to say deep.
[00:02:36] Speaker A: Okay, from where?
[00:02:37] Speaker B: I mean, I love luminatis and pequods, but pequods, you have to eat there. And I mean, part of the experience is sitting on a sticky bench. But that's one of my favorite Lincoln park classic. But you know, there's just so many good options.
[00:02:53] Speaker A: Okay, that's right.
Lakefront 606 or Riverwalk.
[00:02:59] Speaker B: Well, I'm now more approximate to the 606, so I'm gonna have to vote that. But I've always been a lakeshore trail guy for running and biking. That's one of my personal favorites.
[00:03:08] Speaker A: Those are three out world class amenities of the city that I think the riverwalk, maybe especially of the three is like underappreciated. We're really close to it here where our office is and it is the most pleasant. Like get out of the office for a half an hour, make a couple calls down there. It's a great amenity of the city.
All right. Keeping with the speed round theme, let me keep it moving. Favorite intersection or corridor in the city.
[00:03:36] Speaker B: Wow, these are really good questions. My favorite intersection corridor.
I'm a big fan of the corridor of Lincoln and Webster. Kind of the heart of Lincoln Park. You have that area leading up Clark Street. I think that's a really great area. And that place has a special place in my heart. Kind of first moved there when I lived in Chicago. So I think that's a great area.
[00:04:03] Speaker A: Always buzzing, always full. Corridor's always full. Yeah. Best Chicago steakhouse.
[00:04:11] Speaker B: I'm gonna have to say Gibson's just cause it's a mainstay and you don't have to think too hard.
[00:04:16] Speaker A: So what is your favorite building style in Chicago? You can either answer with like a specific building or a general, you know.
[00:04:25] Speaker B: Yeah, let me think about that.
[00:04:26] Speaker A: For instance, I'm a Tudor style soccer.
[00:04:28] Speaker B: Yeah. I love classic gray stones.
Really anything that was built in the early 1900s, I'm a fan of. I find that architecture just to be completely timeless. And especially just given the. The detail on the masonry and the artisanship that goes into some of those buildings. It's really hard to. To replic. So that's a quick, easy answer. I think if I had more time to think about it, I'd probably come up with something else. But that's what I think. One of my classic. Classic.
[00:04:57] Speaker A: Yeah.
I think part of the reason why Chicago real estate's so fun is it takes a lot of different personalities. I think we're all a little bit weird. Can you share a weird personality trait or habit of yours?
[00:05:11] Speaker B: I think it's a level of obsessiveness to details and perfection.
Like, you know, for instance, going through a building that's been renovated or reviewing construction work and seeing the absolute minute detail that will drive you nuts. And it's something you can go through with other people and they'll be like, yeah, that would drive me nuts too. But, you know, 98 out of 100 normal, normal people would not see it. And I think that's, that's certainly one of my.
[00:05:42] Speaker A: We're going to talk about that. That's actually on my list of questions for. Use your attention to detail. All right, last one in the speed round.
Plug. An up and coming Chicago real estate person that you think deserves a little love, a little recognition.
[00:05:56] Speaker B: I mean, that, that is easy, but it's hard. There's two people that I, we talked about before we started this, and that's Alec Greenberg, who's my partner in base three. I mean, he's absolutely brilliant.
He's only 30 years old and he's helping put together massive multifamily projects. He's involved in running some other operating businesses. And then one of the other people I'm super proud of is Reid Meyer. He is absolutely brilliant. He is like Alec, another rising star. And when I met both of these guys in their mid-20s, I said the number one goal is you're going to buy a building and then you're going to buy another building and buy another building, another building. And I think alec, who's again 30, he has maybe 13, 14 buildings, several with me. And I think Reid Meyer has a couple of his own. So it's really just amazing seeing those young up and comers and there's a.
[00:06:52] Speaker A: Couple others, but I think those are two great. And also I think that you've done a good job. Like, I think sometimes when people meet somebody that's young and they see a lot of potential in them, they almost want to like harness it, not let them grow too fast because they're, they're fearful that they'll like kind of go off on their own and leave them. You've done a good job empowering both those guys who I agree are absolute like superstars and going to be in the business for a long time. You've done a good job empowering them and encouraging them to do more and to grow and then they grow with you as opposed to like, you know, feeling like they're hitting a ceiling and wanting to go off on their own.
[00:07:33] Speaker B: Yeah, no, I couldn't Agree more. And I think one of the recurring themes and what I do, and I imagine you find this yourself, and I think this is a habit of successful people is focus on the experience and focus on the process and have fun with it. And if you have fun with it, some of the financial success follows. But when you make it less about the. The money. Money is important. Money is good, right? So they say. But when you focus on the experience and the process and the relationships and trying to make everything fun and trying to find the humor in some really stupid situations, we find ourselves especially doing real estate in this wonderful city of ours.
It allows you to kind of keep a positive attitude and keep plugging away.
[00:08:20] Speaker A: I agree. It's something that I'm trying to appreciate the, the daily work life of being in real estate, because it is fun. But a lot of it has to do with your perspective because you can get kind of bogged down by your to do list for that day and feel stressed or overwhelmed or like, let the things that are.
Let the hurdles that you're kind of working through really, like, bog you down and wear on you. I'm trying to embrace all, like, I have so many people that I do business with that I can, that I'm friendly with. I consider friends that I enjoy grabbing a cup of coffee or lunch with and getting to know what's going on in their lives and trying to have more fun. I mean, it's part of the impetus for starting the podcast is, like, we were talking about it a little bit where you and I could sit there and talk, but are we getting, you know, I haven't caught up with you for a while and what's going on in your life and then also just like, what's making you tick? What are your goals in your business? So hopefully we get a chance to go through some of that today. So tell us a little bit about growing up. Tell us about kind of young Gabe and then, you know, lead us into how you got into real estate. And, you know, don't forget to tell us also why you got into real estate.
[00:09:26] Speaker B: Yeah, no, that's a great question.
Well, young Gabe had many iterations. There was young Gabe before high school, and then there was Gabe in high school who got in a lot of trouble and had a lot of excitement and gave his wonderful parents a lot of gray hairs and sleepless nights. So there were several phases of me, but grew up playing hockey very close with my family. I have an older brother, 11 and a half months older. And so we were every other year on the same hockey team. And when you're a hockey family, you're traveling together all the time, and you're just kind of just together as a family, which was really a great part of growing up. Yeah, my dad has always been and was a very influential figure in my life. He, you know, was around a lot for us kids and super involved in school, but he also had a pretty good business degree, I guess you could call it, for lack of a better word, better terminology. And when I was a little kid, I mean, I'm thinking, like, I'm 10 years old, he'd, like, have me into his home office and, like, pull up stock charts, and I'm like, little over my head. But he would always be, yeah, he'd be putting the Wall Street Journal in front of me. And, you know, it's funny, like, he sent me this. He had this article clipped, and he's like, see this guy? This guy is in real estate, and when the market's slow, he focuses on car collecting. He's like, that's a cool industry. He's like, you might enjoy that. I'm like, all right, well, yeah, I'll consider it. I'm 10 years old at the time, and I think I was 12 years old, and I was doing the where will you be in 20 years?
Because, you know, everyone knows when you're 12 years old getting out of grammar school, where you're going to be.
And mine was that I'm going to be a real estate developer renovating historic buildings, and I'm going to have this number of units, and I'm going to, like. I have, like, an idea. It is. And it's kind of crazy. And I've been trying to find that document because it does exist. But, you know, everyone else is like, lawyer, doctor, you know the buzzwords that kids want to be.
[00:11:30] Speaker A: Where did you grow up? Where is it?
[00:11:31] Speaker B: This is a small town in Wisconsin just outside of Milwaukee, called Pewaukee. But anyways, I was always into math and science, and my dad encouraged me to be handy. So we were always building little things at home, like wood projects. You know, we were in Cub Scouts. And he was super involved in, like, teaching us how to make a napkin holder and doing things with the other kids. And so he. He always really impressed upon me that it was good to be able to build things and do things. And so when I bought my first building, I was able to do some of my own work, but ended up at UW Madison.
Did a degree in real estate and finance. Somehow, I don't know how made it out in four years and just had a tremendous experience. But while I was there, initially I worked for a bricklayer in construction over the summers. So I learned how to do fine carpentry, bricklaying, painting, landscaping. And then I ended up working for developer who became a close friend and mentor my last two years of college. Then moved to the Windy City and took a job at Wells Fargo, which I jokingly call the anti entrepreneur. But it was a tremendous place to learn. And so that's sort of my background of without, you know, getting too into the weeds. A lot of great stories will say.
[00:12:50] Speaker A: I don't know that I've ever heard somebody go through their background and it be such a. I mean, I'm sure it didn't feel like a straight path to real estate, but you were kind of a technical, you know, building things with your hand math and science brain kid.
Crazy enough to not be boring right when you're growing up pretty much. And then went to a great real estate school, studied real estate and then, you know, moved to the biggest city, kind of close to home. But, you know, as, as a lot of us do, Big ten grads moving to Chicago for potential and ambition and the buzz and everything that comes with it. So that's awesome. And, and why, why did you leave Wells Fargo to found at that point? Campbell Street, I think, or was it pre Campbell Street? You were kind of doing your own thing?
[00:13:41] Speaker B: No, there was some overlap there.
That's the one thing I loved about that corporate job, was that I worked for people that were very encouraging. They knew that I wasn't going to be a banker forever. And you know, at the time I was financing projects for people kind of like us, like buying apartment buildings, shopping centers, office, retail, et cetera. And you know, my, my manager at the time who I became very close friends with, she was like, well, you're going to be a borrower one day. Like, I just know it. And she was kind of cool with me dabbling on the side. So I got my real estate license. I think I got my real estate license when I was 19 and I was still at UW Madison. And I was like always kind of hustling then. But then I got it when I moved to Chicago and then I bought my first building when I was 23 in Lakeview. I still own it.
[00:14:35] Speaker A: Awesome.
[00:14:38] Speaker B: And you know, it's like, funny thing is that the time of real estate, like, you blink and you're 40. And I bought that when I was 23. I'm 40 years old now, so that's 17 years. And like, I think I've refinanced five or six times. But like, that's the fun thing about real estate is if you can be patient and you can have that long term vision at really works. But as far as the Wells Fargo stint goes, I gave a speech to a UW Madison alumni group about my career, and I'll never forget it. I was basically like, I stayed at Wells Fargo because it was a good job. I was risk adverse, and there was no other developer or anyone that was more like what I'm doing now that would hire me. I wasn't smart enough. So I basically bought a couple buildings and I think I got to about 40 or 50 units and maybe five or six buildings. And I was like, okay, like, I can finally leave Wells Fargo. And I think it was after seven years, but learned a lot about finance, made some great new friends, many of which are still my friends to this date. And, you know, I think what was good about being in the banking world was you saw other clients. Many of my clients were immigrant success stories that came here with nothing. And, you know, I saw their pfs because I was, they're essentially their banker. And I was like, wow, how'd you do that? And, and that's. I think the funny thing about this business is like, everyone's path is different and unique, but, you know, when you see other people doing it and you have someone that'll explain it to you, it's like, oh, this isn't. It's not splitting atoms. I mean, they jokingly say real estate's for C students.
So it went down a tangent there, but. But yeah, that's kind of how that path can be.
[00:16:21] Speaker A: One thing I think I want to highlight in what you said, and it reminded me of a conversation I had with Adam Friedberg, is, you know, you have to start somewhere. And you started when you were young. You and I have known each other for over 12 years, probably 13 or 14 years. You were at Wells Fargo, I think owned maybe one building. I, I had just started very green would. I don't think I had even. Maybe I hadn't sold anything. Maybe I had sold a building or two.
One thing that I think is maybe helpful for young people to hear is we all started somewhere and we help, you know, along the way. You get to be friends with people, you see other people grow their business. Like Adam and I knew each other before he was developing high rises and before I had made a good living being a broker and a Lot of people, I think in real estate these days, maybe even more in years past, they almost, I think maybe like social media influences it where they want to. They expect to be able to start in like year five or like year seven where it's like you have to have some entry point, you have to make lifestyle choices to do it and you can't. There's no fast forward button, there's no shortcuts to it. It's a business for patients. It's a business for building long term real relationships with people.
And it's been really cool for me to see the business that you've built from knowing where you started and knowing that you weren't always doing projects that today look really sexy. And now you're very successful and you've got multiple business lines and all this stuff wasn't always that way. So kudos for what you did. It's really cool.
All right, so enough tooting your horn.
Well, I guess we're probably going to continue to do.
Every time I go online, I feel like I see another project you have going. So I don't know if you know the specific number, if you can give us an approximate, but how many developments or renovation projects do you have? What you'd consider kind of in the pipeline right now.
[00:18:20] Speaker B: Real number or broker number?
[00:18:23] Speaker A: Give us both.
[00:18:24] Speaker B: Of course.
I mean I've done, by my math, I believe I've done around 80 projects. But like that could be a 4 flat, it could be a 30 unit, it could be a 50 unit.
I mean there's the pipeline and then there's where you have a shovel in the ground, but probably somewhere in the neighborhood of two to 250 units. And it's really a varying sizes, which has been interesting because you kind of bigger isn't always better. Like sometimes there's sort of the sweet spot and where I think, you know, you reach a point where it's like what is the most fun? Where, where do I really love the work? I think the bigger projects can be stressful. But to answer your question, I mean I.
It's, it's kind of like, like you hear about people like setting a world, a world record for running a mile and all of a sudden like you're beating the record and it's like, oh, that's no big deal. Five minutes goes to four goes to 350. I'm not a runner and I'm certainly not that fast. But you know, it's, it's been an interesting journey jumping into some of these bigger 50ish plus unit developments. And so like right now I, I'm doing some existing renovation projects on the north and northwest side, kind of walk up 10, 20, 25 unit type projects. I'm doing some adaptive reuse projects which to me are the most fun because they require the most creativity and just thinking outside the box and working on an office to residential conversion that is quite large, that's very complicated, involving historic tax credits. So it's been fun learning some of those nuances and trying to evolve. And you know, I think at the end of the day, like, and I tell this to a lot of my friends, my proteges, people that anyone that will listen is try and find what's the most fun and really lean into that. Because adding a zero isn't always better. And frankly, it can be more stressful.
[00:20:29] Speaker A: You gotta enjoy the ride, huh?
[00:20:31] Speaker B: Yeah, you gotta enjoy the ride. But yeah, I mean, what is the.
[00:20:35] Speaker A: First, when you're looking at that many different types and scales of projects, what is the first, what is the first minute of screening an opportunity look like for you? Like, you know, and you can answer it different ways if it's not, you know, because I understand if you're, you know, you kind of run the gamut. You have, you know, you'll renovate a six unit Greystone and you'll also do a large adaptive reuse, very complex deal. So I imagine the answers might have some similarities and differences, but you're seeing a lot of deal flow because of how active you've been. And I imagine that within a minute you have some sense of whether it's something to dive more into or not. So what does the initial screening look like for you?
[00:21:17] Speaker B: It's a really good question. And it's, it's.
[00:21:19] Speaker A: I just started.
[00:21:20] Speaker B: No, no. And you know, it's funny, something that I've encouraged people to do and that one of my very good friends who was helping me with sort of a business coaching capacity a few years ago helped me do was like, when you can try and think of your own career in your own path, not just professionally, but personally in terms of milestones. And I think for where we're both at, five years is a good number professionally. And so part of what really drove a lot of my decision making on that first minute is having a plan and a path. And for me, I had a five year goal from the inception of base three that I wanted to build or renovate or 500 units.
And it's like, okay, well how do I do that? It's five buildings that are 100 units, it's 20 buildings that are units.
Jet lagged as hell, the math is wrong anyways. And so it was sort of like thinking a little bit about what fits in the plan. But then as I got closer to hitting the plan and have like done the 50 unit and trying to do the 100 plus unit, it was a little more about like, okay, I mean the numbers matter, the numbers are number one. But then also it's like, well, if you have a goal and you're goal oriented and you're trying to back into what makes sense, you're not going to do every six unit that comes across your desk unless somehow that fits into the plan. And so I think thinking in terms of like your goals, your plans is sort of a very high level way of looking at it. And then beyond that it's really getting into the numbers of how financeable is it if you need to go out and raise equity, how does that look? What's the spread on your cost to value? We really don't buy stuff that is a coat of paint and raising the rents. Frankly, I think that's a great business model and it's a lot easier and a lot less risky. And I don't think the risk adjusted returns are that much further off. But I would say that it's just sort of, it reaches a point too. Like I was saying before we had, before we started filming, like the most fun project I'm doing right now is the smallest because it's creative and it's fun and it's different, it's quirky and it's not very stressful. Like the equity was a piece of cake or could have been self funded. And it's like reimagining and revisioning an old building and rezoning it and putting our little pixie dust on it. That's more fun than getting gray hairs. Worrying about raising a bunch of money and having a ton of risk. Not to say that isn't also at times fun, but it's like the relative level of joy and fulfillment of different projects. And you know, who do you want to be? Like, what's your brand? Like what are you? Are you the guy that goes in, hits it with a coat of paint? Or are you the guy that comes in and like gun blazing, like guts the building and makes it crazy? Makes it something out of a magazine?
[00:24:24] Speaker A: I love that answer. So, so like, before you even assess like the economics of the deal, you're deciding whether it inspires you and whether it is in line with Your, your goals, your, your plan, your five year plan, I think that's fair, but that doesn't, I think a lot of people don't do that. I think a lot of people are on, they're so consumed in their daily work day and you know, there's that they, they don't take a step. Is this aligning with my, Is this aligning with the goals of the business overall? Because then you have a hard time like assessing it in hindsight. Whereas if you're, if that's like your guiding principle when you're evaluating every potential project, then you're always kind of like steering the ship in that direction. And you can, if something really, you want to see it on your website, you want to sink your teeth into it, then you go for it and you decide whether it makes sense versus like being driven just by the numbers of the deal. And then you do 20 of those and you're like, is that really what I wanted to do? It's hard to, it's hard to assess in hindsight like that, you know.
[00:25:27] Speaker B: Yeah. And I think, I mean outside of the, you know, there is no one, I'd say barometer or measure of that first minute. But you know, I think also just like taking the goal, you know, the goal and does it fit the plan aside, I think really it's just, can you create value? I mean, there's the, Is this enjoyable, can this be financially rewarding? But also like, how can we look at something differently to unlock value and see something that maybe other people couldn't see?
[00:26:02] Speaker A: Well, do you think that some of your assessment of a deal, do you think that it changes because you're different in that a lot of your projects you keep, you'll either finish the rehab or you'll finish the development of it and you'll own and operate it thereafter. Whereas a lot of folks who are renovating or developing new will sell the lion's share of their, their project. So do you think that that changes your perspective on what you take on or. And then also maybe tell us why that's a part of your business. Why do you, after you put all this work in you generally, you know, a lot of people kind of take those chips off the table and recycle it back into the, you know, return the money to the investors and, and kind of keep the machine going. But how do you, why do you look at it that way? And then do you think that it changes anything about the deals you look at?
[00:26:51] Speaker B: Yeah, that's a great question, man.
I think when you think about like, who are some of the biggest players in this amazing market we call home? And I know you have a lot of firsthand experience with them. And I saw a lot of this when I was a banker at Wells Fargo. The people that led the best lives financially and frankly, in many respects personally, they were long term holders. Everything wasn't chasing the next. It was like, I'm buying a building in a great location, I'm going to make it great and I'm going to own it. It's going to be fun to own and operate. And the building in the better location will have higher rent appreciation, higher value appreciation. It will be fundamentally more liquid.
And so, just as a general philosophy, I've always wanted to keep the properties. I think that it's extremely tax efficient, as you know.
You know, it's funny, I had a Wells Fargo client, I'll never forget what he said. He's like, you lose the most money on the sale. Like you, you know, you have an, for every million dollars of asset value, you take off 3 to 5% of transaction costs and that's gone. And that that translates to a reduction on your balance sheet. Now that's not to say it doesn't make sense to turn capital over and keep doing it, but is it make.
[00:28:11] Speaker A: It, do you think it makes it a little harder on the fundraising because you're not returning the capital? Or do your investors like to see that you're developing these with the intent to own them and are they generally aligned with that? Obviously, I'm sure if they're in a project with you, they're aligned. But do you think that it makes it easier or harder to raise money for new stuff?
[00:28:31] Speaker B: I think that it's about having the right partnership and people that share the long term vision and goal of like this is the get rich slow. Like rents do this, debt does this, you can refinance. You know, something I think is funny for people that are potentially younger starting their career is I remember when I bought my first building that was a little bit bigger. I think I was around 27 years old at the time.
And it was like, we're putting a 10 year loan on it, like, and that felt like forever. And 10 years had come, come and gone. And forever is a long time. Yeah, right. You know, and I don't know, I mean, it's funny though, what I will say also, like from a business perspective, like, I'll give you an example. I bought a building north of Wrigley, amazing location, walk out the door, you see the north, north side of the, the gate. And everyone else looking at it was like, well it's kind of in good shape. And it was kind of rehabbed, like. Yeah, like just, you know, kitchen, bath. And I went in and gutted it.
[00:29:39] Speaker A: Yeah.
[00:29:40] Speaker B: And I have something that's so beautiful and it's done and it's done for the next 30 years. And every unit has tons of exposed brick wall. Meaning those are walls I will not have to paint, touch up, deal with patch.
And I'm hitting some eye popping rents. I mean I'm getting and walk up product on the north side. I'm getting over five, six dollars a foot. And another thing on that note, this is a whole nother rabbit hole. But like I, I did another, I did another building, 50 unit in East Lincoln park that Craig Martin, one of my favorite guys in, in the world sold me and my other partner and everyone looking at it was like, price, it's tight, it's tight. And I believe that 9 out of 10 people were like kitchens, baths, laundry.
[00:30:30] Speaker A: Yeah.
[00:30:30] Speaker B: And I said, well you know, let's just, let's rip everything out. Let's pour new concrete flooring, soundproofing, exposed brick everywhere.
And I think let's say hypothetically the proforma for that project is a, as I call fluff and buff. Just go in, go out, quick hit, no permits maybe, not that I've ever done that, but no permits. But like just quick in and out, kitchens, baths, like.
[00:30:55] Speaker A: Yeah.
[00:30:56] Speaker B: Never works out that way. It always turns into a gut.
[00:30:58] Speaker A: Yeah.
[00:30:58] Speaker B: Let's say that building, when it's done, is grossing a million two.
I went in, went nuts, probably spent an extra couple, I don't know, two and a half million dollars on the renovation. I'm getting 15516 of gross rent.
[00:31:13] Speaker A: Yeah.
[00:31:14] Speaker B: You know what's funny in that situation.
[00:31:15] Speaker A: That math works the property.
[00:31:17] Speaker B: Here's why the math works. Property taxes. If you're grossing 800 grand, you're grossing a million, you're grossing 2 million, you're grossing a million 3, they're $120,000. And that's what's so wild about where things I think work in this market is like you have to go nuts on the rehab. You have to deliver best in class product, you have to get top dollar rent because it is the only way you can make deals profitable. Because the property taxes are not based on any level of sanity. Like I said, I mean if that like, like the building I just described, someone else might have renovated it, got it to 350, I'm going to get it to 450. Maybe four and a quarter taxes, you're quoting per foot.
[00:32:01] Speaker A: There is that.
[00:32:02] Speaker B: Sorry, gross revenue. Okay, but, but maybe I'll be like five bucks a foot. But it's like property taxes and scenario one, do nothing. Scenario two, light rehab. Scenario three, full gut. Property taxes are all the same. So we have some of these buildings that are coming out, coming online and we're doing a 25% OPEX.
That's super lean. But it's like, it's not because I'm that smart, it's because of, that's how property taxes work. Whereas you have some of these smaller buildings, they're less efficient. It doesn't work. But that's why I think just the general philosophy of like you just, you have to go all in and you have to gut it and you have to get top dollar. It's the only way to, I think, keep operating.
[00:32:43] Speaker A: What else?
[00:32:44] Speaker B: Weird environment.
[00:32:45] Speaker A: What else? You'd mention exposed brick and why you like that? Talk to us about details. A lot of people, I think, like to hear specifics. So are there any other. You mentioned soundproofing and concrete floor. So I don't want to take all your answers away from. Yeah, but what are like, what are some differentiating features or, or things that you do about whether it's building envelope, building systems or unit finishes that you think either help you achieve top dollar rents or help you operate a leaner expense load?
[00:33:16] Speaker B: Great questions.
I mean, when I think about it, it's like one of the biggest complaints is noise. That's fairly obvious, but I'll give you an example.
Every building I've done a substantial rehab on, when you do a gut and you have the original subfloor exposed, you can put down new plywood, which is X per sheet. I don't have the numbers handy in my mind, but I think it worked out to give you perspective. Like the building I'm doing up by Wrigley, I could do new sheets of plywood as like a new underlayment over the old subfloor. And that would be, let's say $1,100 a unit. Or I can put in a quarter inch to half inch sound pad and then pour a thin layer of concrete on top for $1,500. Well, what's nice about that pour is it creates its self leveling. So now I have perfectly flat, flat light glass floors. Perfect to take lvt. And so that's an example of something on the margin where it's like, well, I can spend a little more, but I am saving here. And it's sometimes just looking for some of those, like, those little value differentiators. So, like, another example would be. And this drives me nuts, but it's like tile in a bathroom. You know what really sucks when you live in a unit or when you own a unit is how do you paint and clean behind a toilet? It's kind of gross, depending on your aim.
So, like, okay, how much more does it cost to just do tile all the way around behind a toilet? Like, why wouldn't you do that? What is an extra $400 a unit? Now, when you're doing 100 units, that obviously adds up. And sometimes you have to just sacrifice things. But, like, if you have a full elevation of tile in a bathroom, when you turn it over, like, it's not starting to roll it. And worrying about it's. I have a spray bottle and a rag and I just cleaned it and like, done. So it's like those little things where.
[00:35:18] Speaker A: It'S like, that's an operator's perspective, right?
[00:35:20] Speaker B: Yeah, Yep. And. And I think it makes for a better tenant experience as well. So it's.
[00:35:25] Speaker A: That stuff will change the retention too. So it's. It's hard to really, like, kind of quantify what it's worth to folks. But I think as you do a number of those things, there's this compounding effect where together you're like, wow, this guy thought or this group thought of every little thing in renting this unit. So they don't get annoyed by frivolous things and they enjoy the living experience a little bit more. And when they go to shop, they decide to pay a premium for those things. Right?
[00:35:48] Speaker B: Yeah.
[00:35:49] Speaker A: You have a discerning tenant base in really good locations of the city.
[00:35:52] Speaker B: Yeah. And I think it's just people, I think, will be sometimes very surprised. Some of those upgrades move rent in a meaningful way. And I think it's very easy to recuperate it. And I don't know, again, if you're doing it to flip, it might not work. But if you want to be long term and you want to have really, really awesome product and a great brand when you're done, I think that's important. Another example I'll actually give is Smart Access. It's shockingly affordable. So we've been using Latch, which is one of the many systems available. But we as a manager and an owner, it's like, okay, I never have to cut a key. I never have a lockout.
Like, taking that out of the equation for turning over units. And if you're turning over 50 to 80 units in a weekend some summer.
[00:36:39] Speaker A: Yeah.
[00:36:40] Speaker B: Like I don't have to mess around with a key. Like, God, that sounds like a dream. So it's.
[00:36:45] Speaker A: And the tenants have one less thing in their pocket.
[00:36:47] Speaker B: Yeah, exactly.
[00:36:48] Speaker A: And your maintenance guys have less after hours calls for lockouts or you know.
[00:36:53] Speaker B: So yeah, it's some of those little things that. And I also think it's part of like making. Even though some of these buildings are more like, you know, smallish walk up buildings or smaller mid rise buildings is like making it feel a little more like it's like a, like a nice hotel. And it's just those little details where it's like, hey, it looks like someone actually gave a shit.
[00:37:14] Speaker A: Yeah.
[00:37:14] Speaker B: When they designed this and they didn't put in the cheapest thing. They don't have nipple lights from Home Depot.
[00:37:19] Speaker A: Yeah.
[00:37:19] Speaker B: They spend a little extra. And you know, I think it goes a long way. Same with like built in closets. Like I see wire racking in closets. I'm like, you're spending 90 grand to remodel an apartment, spend $90,400 and do a closet shelf that doesn't fall off that someone actually likes.
[00:37:38] Speaker A: But how do you. I remember going through a building that you developed one time and you were so you were looking at this like detail between the carpet and the base. I don't even remember what it was. And I don't even, I don't even know if I caught it. Even when you pointed out what you were looking at. That's a sickness. Okay, but how do you get in the weeds with the details as you just described and as the example that I gave and still make big decisions, still focus on big picture stuff? You have a. I mean from my perspective, your projects have the attention to detail that like uses your kind of German engineering type mind. And you know, you're. But you're still also obviously making a lot of big decisions because you got a lot of projects in the hopper. What do you think about that balance at all of those things? Or is it just your nature and just kind of how you go about your day?
[00:38:25] Speaker B: I think it's a little bit about how I go about my day. I mean, one of the things that I love about some of these projects, especially the smaller ones, which is why I frankly prefer them, is I'm able to basically be the general contractor of them. And then I actually even now have my own crew that can do a lot of the finish details as needed and that becomes a capacity issue. But then also it's like trying to have, we don't want to be plain Jane, the same thing all the time, but we want to have recurring themes and some level of consistency on how we execute so that the people in the field executing typically under my leadership or my partner's leadership or someone else's supervision, has some level of consistency where it's like, for instance, you know, we did a one off remodeling job for a friend of mine just as purely as a favorite. And I went into the unit and there was a hollow door and I'm like, we don't use cheap product. We don't. That's not what we do. When you grab one of our doors, they're solid. And the same with, the same with levers. Like we use nice levers, we don't use $5 levers, we use $30 levers. We want a fit and finish that is consistent with a nicer product, a nicer brand. And I think as we've done more of that, it's funny, it's actually helped us win general contracting opportunities. And it's, it's like when you have a good brand and you care and you clearly love the work, I think that's really important. And I think it, it shows in the product and then, you know, it also starts to show in the numbers. And I think again, just long term, the way I look at things as I'm like coaching or mentoring someone younger doing their first rehab is I'll give you an example, someone's like, well, the basement's like 6 foot 4 and it's kind of a lot of money. And do I go down five inches? I'm like, dude, it's a lot of money now, but like it's not going to be that much in a year or two. It's certainly going to cost a lot more to do it. And so if you're going to do it, do it right, Just spend the extra. You will be so surprised by the rent. You'll have more value. When you go to reappraise it, when you go to refinance it, when you look to sell it, like spend the extra. Because the potential buyer of this thing, your customer, the renter, whoever, they're going to see that and be like, whoa, like this is different. I want this.
[00:40:45] Speaker A: That's. I mean real estate is beautiful that way. In that half assing, it doesn't get you very far. But if you know whether it, whether you're a service provider like I am. And, you know, if, if I do the equivalent in the job on an assignment, if I take shortcuts or my heart's not in translates, and not only does it translate, then it becomes part of your brand, which you alluded to earlier. And then it compounds everything you do and you're just known as the guy that half asses it. Same way in your building execution, if some, if a tenant comes in or if an investor comes in, or if a lender comes in, whoever is touching and feeling the product that you build, if there are things in there that they perceive as shortcuts or if they perceive as cutting corners or half assing, it, it just manifests and it becomes this like. So in real estate, I feel like the people that do it for the long term, do it the right way, end up getting ahead, even if it's a little bit more expensive or a little time consuming on the front end.
[00:41:42] Speaker B: Well, the other thing I'll say too, that's really been fun about that experience and being so involved in the renovation. And like, you know, I jokingly say, like, I mean, after this, I will probably go to a job site and put on tennis shoes and help unload a truck because I'm sick. But I like that it's fun.
[00:41:58] Speaker A: You're always looking dapper, though.
[00:41:59] Speaker B: Well, but what I'll say, though, that's really cool and inspiring is when you care about doing good work. The guy hanging the drywall, the guy doing the finished carpentry, the guy putting in the cabinets, the guy doing the tile, he sees that he's not just pumping out crap. He sees that he's actually doing something kind of cool. And I've had projects where, I mean, some really cool projects that had like super creative design elements. And all the guys, like, all the workers doing the work, I was in general contracting it, but I was. They're very involved day to day. They're all like taking TikTok videos and they're like, they're so proud of it.
[00:42:37] Speaker A: Yeah.
[00:42:38] Speaker B: And it's like when you actually believe that what you're doing is special and different. And it's not just we're stamping out, you know, dollar foot crap Home Depot tile. We're actually doing something that's thoughtful and different and made to last. Like, it's infectious. It spreads. It creates this cult following where now all the guys working on the job are into it. They know that you care. They know that this isn't just half asset. Call it a day and I think that that just creates a better experience for everyone. Because I go to these job sites and everyone's having fun. They're listening to music, they feel good about the work, and it's, like, cool. Like, this is a culture I want not just at the office, but also at the job site. Because, again, this should be fun. And I think that's something that I find in, you know, going to certain other job sites where it's like, got it. Everyone wake up at the wrong side of the batter. Does everyone have just a rip and hangover? Because everything seems pretty pissed off. But that's because, like, well, is the job fun? Is the work fun? Does anyone actually care about making a sick building?
[00:43:42] Speaker A: Well, I would venture to guess it's. It's the same for your customer experience, your tenant experience, you know, because if they see that somebody took a high attention to detail and executing the project and thought about these, all these, the fit and finish and the touch and how the. The unit really lives, as opposed to trying to do something just, you know, pretty for the pictures and that's it. They appreciate it more as their home, too, and they treat it better. I venture to guess they don't beat as beat it up as much. And so, yeah, your turnover is lighter. You're, you know, the hallways are cleaner. Like, it just. It's everything, you know, like, if you go into buildings that were cheaply renovated or haven't been pridefully maintained, you go through the hallways, they stink. There's tire marks, or people are dinging it up with their bicycles or whatever. It just. These are people's homes. This is a very, like. It's a very personal relationship, and it certainly is. You can set the tone just the way you do with your service, like your trades and your contractors. It's the same for the user experience, too.
[00:44:42] Speaker B: Yeah, I couldn't agree more.
[00:44:43] Speaker A: How do you.
You keep a lot of these projects, so you have to operate them. You have to set up a team to operate them. So how does that change your staffing model? How did it change? I imagine that you weren't able to run quite as lean of a shop because you have to have. There's a certain level of just, you know, manpower that goes into. And bandwidth that goes into operating these buildings. So how did you have to kind of build out the team when you decided that you were going to be so vertical?
[00:45:11] Speaker B: Yeah, that's a great question. And to me, explaining that, it's like the epiphany with property taxes. Like, you have to get big Rents, because property taxes are for the most part fixed. So as far as is building out a team and getting vertical, there were a couple components to it. And I won't go down all the different rabbit holes. But something really interesting about my several companies is that most of my staff is offshore. I have a brick and mortar location in the Philippines with some extremely talented people. And I basically created an organizational chart over there that includes an accounting department, a revenue management, maintenance, coordination. I mean, it's pretty, pretty incredible because the amount of output I'm getting relative to the cost is eye popping. And it's gone so well that I then started a whole nother offshoot to basically do that. Staff Olio, Staff Folio, which is at about 100 employees right now, give or take. But what was so cool about doing that, is it like, put the light bulb on in my head where it's like every business that can have an issue or a bottleneck, be it property management, be it construction, be it some level of marketing related to it, like you can get a person to basically help offload that work remotely at a fraction of the price. And so my construction company, like it has grown. It's not huge, but it's growing. And the person that was really responsible for it, I'm like, where do you spend all your time?
Dude, I'm on the phone with Home Depot no less than like six hours a day. I can't get anything done. I now have a guy 7,000 miles away. All he does is talks to Home Depot. That's it. All he does is goes to the bid room. All he does is get proposals. So it's like, okay, like so much of business in property management, development, construction, it's the game of business ping pong, like back and forth, back and forth, back and forth. Believe it or not, you may have conversed with someone 7,000 miles away. That was my avatar because I can't keep up with it. And so it's been really leveraging off of other people. One thing I will say has been incredibly important and it's like so obvious now for property management and basically just being vertical is that like if you always have a pipeline and you always have work and you have a portfolio and you're chronically like, oh, time to upgrade the kitchen, time to refresh the unit. Oh, I got a shit 2, 300 units turning over the summer.
It is essential to be vertical in construction. And so like something that I've really leaned into in the last year was having basically a captive crew of people that can self perform everything, including carpenter, pretty much everything except mep, mechanical, electrical, plumbing, which is more technical. That's next. Just kidding.
But like having those crews because it's like, okay guys, like you just got done tiling 15 bathrooms, then the trim, then this, this. Hey, like you're gonna take a three day break and you're gonna turn over 40 apartments. You good. And so it's like having that vertical not only just to maintain the asset management side of it and to not have the, just the sheer panic of how am I going to physically turn over 50 apartments in a day, but when you have that crew of people that can just keep rolling and you always got something to do and you always got something in the p, all of a sudden you can be self performing your own tile work, your own carpentry, your own anything, you know, really that isn't super technical. And, and it's kind of fun. It's fun having the people where it's like you can muster up an army of people. And so basically having construction arm and then a maintenance arm, janitorial arm, and trying to really get as many verticals inside of like, what does it take to manage a building? I mean, one of the funny things I added in was a pest control vertical. I'm in the pest control business. You know what it takes to control pests. You put out a bait box. It's seriously, it's like, oh, that's a business. Like someone pays for that. So you obviously have to know what you're doing. But that's something that's been done by a janitor or maintenance tech. So I just dumped a lot of information.
[00:49:39] Speaker A: No, but having all those things, like I thought about when you were talking about the construction team that you've built out, having having that process and that goal of moving them from one to the next also helps your overall kind of business consistency because you're thinking about it from like the pipeline is kind of managing itself where you're like, all right, where this, where's the crew going after they're finished with, you know, with this development or with this turnover? You know, it just takes some of the, the hamster wheel feeling out of it where you're shoot, oh, shoot, I gotta find something to do to keep these guys busy.
[00:50:12] Speaker B: Well, yeah, but then you're like, you're like, well, but will I. But then I'm like, well, I have consistently for 15 years.
[00:50:18] Speaker A: But like if you didn't have that.
[00:50:19] Speaker B: You know, it's scary like, and you, you take care of these people and they become like your family, and then you're helping take care of their family, and it's gets a little heavy. But, you know, it's. It's also fun and it's super rewarding.
[00:50:30] Speaker A: If you didn't have that little bit of angst, you wouldn't be as successful as you are. Believer. We're going to ask three questions that I'm asking all of our guests, and we'll wrap it up. So thanks. Thanks for all your time, man.
As the leader of one of the most active development firms in Chicago, what's a typical day look like? And tell me something you'd like to do more of in your day and something you'd like to do less of in your day.
[00:50:52] Speaker B: Typical day.
If I'm lucky, it's going to job sites and getting my shoes dirty and meeting with the guys and finding imperfections in something that'll drive me totally nuts. That is of no consequence to the record.
So it's a lot of that. It's a lot of email.
You know, I recently brought on an executive assistant, and it's like all of a sudden, I'm not doing emails for five hours a day. I'm getting a dashboard and then delegating that. So that's been huge.
And then it's really trying to just do more networking and lean into what I enjoy. And so what I enjoy most is job sites, touring assets, meeting with people. Like, that's what's fun is the people, like, you know, catching up, like with you having coffee or doing something like this and really just working on growing the Rolodex for younger people. That's a thing we used to use to organize contact.
I still use the expression a lot, but it's. It's a lot of that. And just trying to. Trying to be sporadic, trying to not be too structured and kind of like just be all over the place.
[00:51:55] Speaker A: I love that. All right. For someone getting started in real estate, what's a piece of advice you'd give them to propel their success or to get started in their career?
[00:52:06] Speaker B: I would say that there's an element of luck, but I think that hard work increases the chance of luck and chance of success. And I would say that it may seem really daunting to go out and buy your first building or to raise equity or to get started, but, like, you can do it. Just believe in yourself, set some clear goals and try and live up to those goals and set high goals. And I would also say too, that, like, if you want to be an entrepreneur. And you want to get into this. Surround yourself with other entrepreneurs, get involved in local organizations, be around other people that will inspire you and be able to share their story of how they were successful. And it's kind of like, you know the saying, like, if everyone you know is an alcoholic, you might become one. If everyone you know is successful and happy and has a great life, like, you know, you might emulate those people. So I think that emulating those around you is important. And I would say that just kind of keep at it. I don't. I think I looked at 80 buildings before I bought my first four flat. It took forever. And I was like, there's no good deals. It's like people saying there's no more inventions. It's like, no, there's a. There's a deal within five blocks of here. I promise you, there are so many deals. You just have to work really hard to find them.
[00:53:28] Speaker A: Yeah. One of many things that I admire about you is you're very successful, but you're still very, very ambitious, very goal driven. I think that you've. You practice what you preached in that answer. Thank you. Keep it up, man.
All right. We are pro Chicago show.
I don't know if you call this a show or not.
We're approaching podcast. Why do you love Chicago as a place and you're a proud resident, A place to live, to work, to invest.
And if you feel so compelled, say one thing that you would change as a mayor.
One, one.
But no, give us the why you love Chicago. That's the important part of the question.
[00:54:11] Speaker B: So being from a small town in Wisconsin, like, this was the place to go. This was the obvious place to go. I think for a lot of young people, it is still an amazing place because there's so much commerce here. There's so much opportunity. I look at all the interesting people I've met here, and as much as I love where I grew up in Wisconsin, I'm so proud of that area and my upbringing, like, there just was not the same access to all the incredibly intelligent, talented. I'm sorry, Intelligent, talented and successful people. And so I think it's really just a numbers game that, like, there is a lot of wealth, there is a lot of commerce, there is a lot of property here. And I think that, like with anything, if you can be long term focused, you know, Chicago isn't always the sexiest, especially on the real estate side. It does this.
It's not the coast doesn't do this.
[00:55:06] Speaker A: But that was a slow and steady, if Anybody's listening on the.
[00:55:09] Speaker B: Yes, it does though. And. Right. It does.
It's more of a slow burn. And while I do think we obviously have some headwinds, I don't know, there's people like me, you know, my wife was born in Lincoln park, grew up in the western suburbs, and she's like, I'm not leaving, certainly not going to Wisconsin, unfortunately, unless it's for a lake home. And I just don't. For myself. Like, I just can't imagine living anywhere else. All my friends are here, my business is here, the guys working on my jobs are here. And like, it's my community. Like, I. Maybe when I'm ready to retire, you know, in like 60 years, I would leave and go to Florida, but I'd still want to or wherever. But like, this is my community and like, I'm not leaving my community. Community. This is who I know. And it's, it's fun. Every day is fun. And I'm. I'm sure you feel the same way. Like this. These are your people here.
[00:55:57] Speaker A: Yeah. I mean, we're two. We're two guys that grew up in Iowa and Wisconsin and moved to Chicago and love the city and want what's best for it long term. And it's. We're lucky to call it home and call it a place that we do work. So let's leave it there. Man, you were great. Well, thank you.
[00:56:13] Speaker B: It was a pleasure being here.
[00:56:15] Speaker A: Yeah. I mean, I just want to point out again that that was Gabe after being jet lagged and it just like shot out of a cannon still, so. Thanks, man.
[00:56:23] Speaker B: I appreciate it. Thanks for having me.
