[00:03:05] Kevin Clark: He was somebody that, you know, recommended I get a degree and take things a little bit more seriously early on so I could, because I had, I was almost 30 when I transferred into real estate and then he went on to, you know, he’s been very helpful throughout my career. But yeah, I think your theory’s right, for sure.

[00:03:20] Kevin Clark: Especially because it’s an industry that I think people think they know a lot about from the outside looking in. But it’s a lot different typically than people expect. So, it definitely helps to have a leg up early on for sure. 

[00:03:32] Patrick Donley: Absolutely. I wanted to hear, didn’t you do a fix and flip early on while your wife was in college?

[00:03:39] Kevin Clark: We did actually. Wow. That’s good. Yeah, I did. I, you know, I was we moved from, we were in Chicago for a very short period of time, and then my wife got into grad school in, outside of Detroit, in a co a graduate program at Cranbrook Academy of Art, and we ended up buying a little bungalow for like $96,000 in Oak Park, which is, everyone knows eight mile from m and m, but this is like nine miles.

[00:04:03] Kevin Clark: So you’re just north on Woodward? Blv or Woodward, whatever. It’s Woodward Boulevard, I think just past nine Mile, and it was owned by had been in a family for like 50 years. The guy who, the son of the owner, you know, sort of a degenerate. So it was, it had sort of run into the ground and yeah, so we went and we took up the carpets and fixed the floors and.

[00:04:24] Kevin Clark: I learned how to fix plaster and that kind of stuff on a cove ceiling, which is what I think I tweeted about. But yeah we actually did pretty well. We moved to, we moved from there. She graduated in like 2002, I think, and we almost immediately sold the house and moved to New York and we made money and we did well.

[00:04:42] Kevin Clark: And then very shortly after that, we saw that the house had sold for significantly less than even what we paid for it. But now it’s funny. As part of this, I looked back to see if I could see where the, and the prices are like more than double in that market, which they should. I mean, that’s, it’s like what, 20 years ago?

[00:04:59] Kevin Clark: But yeah, it’s a good experience, especially when it’s your own money, when you’re working on stuff. 

[00:05:04] Patrick Donley: So did that give you a little bit of the fever to get more involved in real estate at that point? Making a little bit of money and seeing a project from start to finish, like that? 

[00:05:13] Kevin Clark: You know, we actually we ended up buying a place in putting that money into a place in Manhattan that was also a, it was a co-op fixer upper, and that was a gut renovation where I did go, because in the city, if you do any work where you’re bringing in, you know, getting permits and things like that, you either have to hire a general contractor or you have to be your own general contractor and you have to pay insurance and stuff like that.

[00:05:36] Kevin Clark: So I did that because I didn’t, we didn’t have enough money and I didn’t really have an interest in hiring a general contractor. So I did do that. And what was interesting was I learned sort of the red tape in New York City and how you go about sort of renovation and talking to an architect and how arcane the rules can be and what it’s like to br bring a plumber in and things like that.

[00:05:56] Kevin Clark: But more from a, but that was just sort of like houses and apartments. But I was more the transition into real estate. I had been in university fundraising for about seven years, for a short time at Northwestern, and then for about seven years at Michigan. And I was, it was more where I was not super committed to fundraising and I was at, I felt like at the time, in the, in hindsight I think it was sort of a silly feeling to be honest with you, but I was getting to be 30 and realized that I kind of had to make a decision about whether I wanted to stay into, in it and do it as a career or transition into something else.

[00:06:32] Kevin Clark: And I was looking around and I think we’d spoken a little bit. I almost went to law school as a kid. And then, so I was looking around for something to do and that relationship that I had with my wife’s cousin really sort of helped me because I loved talking to him about what he was doing and he was having a really exciting early or sort of mid-career for him.

[00:06:50] Kevin Clark: And so that was a good transition for me because I need, I knew I needed to either stay in it and like lean into it and try to like, take it somewhere or do something else. So I decided to get into real estate and I loved it. I mean, it was, it’s something that I genuinely have a passion for. That was great and I don’t think I really had a passion for fundraising.

[00:07:08] Kevin Clark: It was something I sort of stumbled into and did well, but it wasn’t something I was super happy with. 

[00:07:13] Patrick Donley: So talk about that. You were doing fundraising for quite a while and then at 30 you ended up getting a master’s at NYU. Talk about that real estate program that you did that transition, what that was like.

[00:07:25] Patrick Donley: I’m interested in hearing about the program, but also like if you would also ad advise somebody to do something like how you progressed in real estate by getting a master’s. 

[00:07:35] Kevin Clark: Yes, for sure. Just stepping back, what I was actually at Michigan for three and a half years. My wife finished her program in 2002 and I, at that point it was pretty much, I’m done.

[00:07:48] Kevin Clark: I don’t really want to do this anymore. My wife, we really wanted to move to New York. We wanted to get back to New York because we’d lived there for a year and a half before moving to. And I came back to interview. Interestingly, the president of Michigan at the time was Lee Bollinger, who’s now, I think he’s still the president at Columbia University.

[00:08:05] Kevin Clark: But he had moved over and they had, he’d gone from Michigan to Columbia. Had nothing to do with why I wanted to move. I was like, oh, this is just a great opportunity. I can just go to do the same thing at Columbia. And a lot of people, the senior people moved over from Michigan to Columbia. I came in for an interview, didn’t get the job, realized why I didn’t get the job after my interview, but that’s a whole another story.

[00:08:24] Kevin Clark: But when I went to my boss at Michigan and said, Hey, I’m done. My wife and I want to move to New York. We’re out of here. She amazingly said, what are you going to do? And I said I don’t know. I’m not sure, but I don’t want to stay in Michigan. And she said, well, our largest alumni base outside of the state of Michigan is in the Tri-state area of New York.

[00:08:45] Kevin Clark: Why don’t you just go to the office and work there and do what you’re doing from here, but work there. And that was amazing because at the time, I mean you think about it, it was 20, it was 2002. We had sort of like a remote office, a large, a significant donor had allowed us to use office space in their office building, but it was not set up for it.

[00:09:04] Kevin Clark: It was more like the equivalent to co-working. Like we could go in and use a desk if we wanted to, but it wasn’t co-working. Didn’t exist at the time. That was a new, sort of a new idea. Effectively what they did is they gave me a laptop and I worked from home in 2002 full-time. And so that was enabled me to kind of have way more flexibility than I could ever imagine.

[00:09:25] Kevin Clark: And that was the period I decided to go back and get into real estate and that. And then, so I was able to go to school full-time, work full-time because I was working remotely and also ironically renovate my apartment, which was, that was a whole mess in itself where I was, you know, we were literally gut renovating an apartment.

[00:09:44] Kevin Clark: I was working on a laptop and I was studying at the university. That gave me a lot of freedom. That was a, and also a lesson about sort of having the key to life is really having enough money to sustain what you’re doing. So don’t quit your job until you know what you’re doing next, or unless you have enough money to sustain yourself.

[00:10:01] Kevin Clark: I didn’t, if I didn’t have a job, I wouldn’t have been able to do what I did. 

[00:10:06] Patrick Donley: Yeah. I ask that sometimes about like having a W2 job and you know, a lot of people poo that on with regards to real estate, you know, that live on your passive cash flow. And I think what she said is absolutely correct. Like, don’t leave your W2 until you have got things in place.

[00:10:22] Kevin Clark: Yeah. And whether it’s a W2 or it’s something else, whether you’re, you know, you’re driving an Uber or you’re, you know, you’re managing buildings or you’re mowing lawns or something to keep the lights on. When I started in brokerage, I was fortunate that I had some money saved up, that I could put everything into it, and that, that enabled me to close deals faster and be more focused on my career than other people that I started with who had to have, you know, had to work restaurant jobs and bartending jobs and stuff like that, which is exhausting.

[00:10:53] Kevin Clark: You know, that’s a till three o’clock in the morning kind of job, and they weren’t able to put as much into it as early on. So they were, they you know, they’re doing fine now, but there’s only so many hours in the day. And if you have to work to pay the bills, you have to, and if you have to make that sacrifice, that’s really what you have to do.

[00:11:09] Patrick Donley: You had a ton going on. You had a renovation that you’re doing, you’re working and you’re getting a master’s degree in, what was it in real estate Finance is what you ended up. 

[00:11:18] Kevin Clark: Yeah. Real estate finance. 

[00:11:20] Patrick Donley: Say more about that. The real estate finance program, you hadn’t had a finance background, it was PolySci, right?

[00:11:27] Kevin Clark: Right, right. It was a law. Yeah I had a sort of a pre-law minor cause I thought I was going to go to law school and so I didn’t really have any accounting, any finance, very little economics. I mean, not really nothing. The mentor that I had, I went to him and you know, said, Hey, I’m thinking about getting into commercial real estate.

[00:11:46] Kevin Clark: What do you think? And his response, Kevin, you’re, you know, you’re 30 or almost 30 and you’re going to be starting at a company. because I thought what I wanted to do was sort of what he did, which was, he’s a GP for lack of a better way of saying it. But he ran a fund that invested money for pension funds and they had one pension fund in particular was their main equity source.

[00:12:09] Kevin Clark: And I was looking at what he did and I was like, this is amazing. I, you know, this looks like a lot of fun. And he and I had spent a lot of time on family holiday kind of things, talking and walking and stuff. So I really enjoyed that. And his said to me, look, you have no leg up at all and everybody you’re going to go to work with, who’s your peer is going to be five years younger than you or younger, they’re going to have a family background in the business, so they’re going to have a leg up.

[00:12:32] Kevin Clark: Or if they’re like you with no leg up, they’re going to be a lot younger than you. So you’re sort of the three years you put into it, you’re going to be in your mid 30s, they’re going to be 27 or 26. And you’re just sort of handicapping yourself. So why don’t you, NYU’s got this amazing program. Why don’t you look into it, go and get your degree?

[00:12:52] Kevin Clark: And then when you get out, it’s like you have an MBA in real estate and you’ve got a network. You’ve got some knowledge, but most importantly, you have, you’ve learned the stuff that you would learn your first three or four years if you’re lucky. And I think that was great advice for me, especially because I didn’t have much, you know, I didn’t even really know how to use Excel other than open it and use it as like a, you know, a calendar or something.

[00:13:17] Kevin Clark: I didn’t really know, understand formulas, I didn’t understand finance for me, and I think anybody who, for a particular type of real estate professional, I think this grad degree that I have is completely worth every penny. And the reason for that is the day I graduated and it was a very intense program.

[00:13:36] Kevin Clark: I did it full-time. I mean, I pulled lots of all nighters. I made sure I took the best professors in the program and really put everything that I could into it. But when I got out of the program, I could sit across the table from anybody and talk to them about their investment decision. And for me, I was in brokerage at the time.

[00:13:55] Kevin Clark: You know, I could have an educated and informed discussion with a seller about their a hundred million dollar asset and why what they wanted us to do was a bad idea from a return standpoint, and especially in brokerage, that’s a huge advantage because most brokers are hardworking momentum traders. And you know, if the market’s going up, they’re, you know, they’re just everything into, Hey, everything’s going up, everything’s great.

[00:14:22] Kevin Clark: I’m going to call a thousand people and make this deal happen, which is what you want in a. But when you have to advise somebody, it’s really difficult if you don’t really have the knowledge or understanding. So for me, it was a, you know, fit my personality really well. I could sit across from somebody and have those discussions and it’s done well for me.

[00:14:40] Kevin Clark: But the program itself is much more geared not towards brokers, it’s more geared toward people who are going to be real estate, quote unquote professionals, meaning trying to allocate money for, you know, capital allocators for pension funds and that kind of stuff, which is where I started the first job I got out of that, I did that and I didn’t like it very much, but I had an opportunity, this was around 2005 or so, and we were allocating a ton of money in five and six, just sh literally shoveling money out the door and dealing with the consequences of that.

[00:15:12] Kevin Clark: But we also were selling assets that had been purchased three or four years earlier that we were getting ridiculous offers on, and I had the opportunity to sell a few of those assets working with brokers. And really loved it, really loved the experience. The sort of transactional side of the business really was appealing to me.

[00:15:30] Kevin Clark: And I was lucky when I was in one of the graduate classes I had, Bob Knakalcame and talked to us. He was a guest speaker at one of our classes. And I remember saying to one of my colleagues at the time, I, you know, I had real, really no interest in brokerage at the time because of all the things I didn’t like about brokers.

[00:15:45] Kevin Clark: But I said, if I ever was going to do brokerage, it would be that model. Because they have this sort of interesting territory system where you’re not really competing with anybody inside. And you can sort of be an expert in one market. So when I realized I, I wasn’t into the pension advisory business the way I thought I might be, I went, I called Massey Knakal and said, Hey, are you hiring?

[00:16:05] Kevin Clark: And I got an interview and got the job.

[00:16:07] Patrick Donley: So I want to get into that, what that first year was like. You hadn’t really had any kind of sales background. It doesn’t sound like.

[00:16:15] Kevin Clark: Not really not anything on a professional level, that’s for sure. Massey Mcle was sold. I forget the year 2009 maybe to Cushman and Wakefield for like a hundred million bucks.

[00:16:24] Kevin Clark: But I was there when they were expanding dramatically because the market was really hot and it was a life-changing experience for me. The model is really interesting. Bob and Paul started this territory system that to my knowledge, nobody else does and I don’t think they even do it anymore. They’re both at pretty successful at Post Massey Mcle, post Kushman.

[00:16:47] Kevin Clark: But the idea that they had was you carve up the city or carve up an area into markets and one broker handles that market and everything commercial in that market they handle. So whether it’s a development site taxpayer, a small multi-family, everything, and anything that’s income producing from an investment standpoint, you need to know who the owner is.

[00:17:09] Kevin Clark: Reach out to those owners, know who the buyers are. And we spent like six months I think in training. And in that time we had to catalog the territory, which is essentially taking a picture of every building and cleaning up a mailing list of, and contact list of all the owners of those buildings. And then when you’re ready, you had sort of like a graduation, for lack of a better way of saying it, where you had to sort of give a pitch of a potential sale to a seller.

[00:17:36] Kevin Clark: And when you were ready to hit the bricks, you really knew the territory and you knew who the players were. And that system, they were something like five times as active as than any other broker in New York. And that’s not crazy numbers. It was like the second we had something like 550 transactions a year on average, and the nearest broker was less than a hundred.

[00:18:00] Kevin Clark: Now we were mid-market, we focused, you know, most of what we did was, you know, sub $5 million deals. And so on a dollar volume, it was, we weren’t five times as active on a dollar volume because, you know, you throw in a billion dollar sale here and there and all of a sudden it looks really big, but one building versus, you know, 300 buildings kind of thing.

[00:18:19] Kevin Clark: So it was a great experience and the training was amazing. And it was, you know, they spent a lot of time on the training and I loved it because what we were doing is we, and we also only represented sellers. That was the other sort of hook, is that we didn’t do any buy-side brokerage at all. And why did they choose that strategy?

[00:18:36] Kevin Clark: What was the reason behind that? I think the pitch, right, what we said to sellers, which is was mostly true, was we’re our interests are a hundred percent aligned with the sellers. Like, we’re trying to get the best price, the highest price we have, we don’t care who buys it because we don’t work the buy side at all.

[00:18:52] Kevin Clark: We’re not going to be in a situation where, which you commonly are in brokerage, where you’re like, take care of me here and you can sell it for me. And if you work the buy side, you end up sort of getting in this weird position. There’s no risk of dual agency, right? Actually, there is dual agency if they’re not represented by a buyer, I mean by his buyer’s broker.

[00:19:12] Kevin Clark: But it’s more that. But the business side of it, the business decision is if you get a building to sell and you market it, you price it right? And you might market it right? There’s a pretty high likelihood you’re going to sell the building. If it’s overpriced. But if it’s priced correctly and you market it correctly, you’re going to transact.

[00:19:30] Kevin Clark: Most likely. If you’re a buy-side broker, it is very difficult to transact. You put offers in, you get cut out. because the seller wants, or the seller’s broker wants to do a direct deal and not co-broke. You know, there’s lots and lots. So you’re wasting a lot of time running around trying to find deals for.

[00:19:48] Kevin Clark: Now, depending on the market, you know, when the market slows way down and you’ve got a lot of great investing clients, that’s where you want to be is on the buy side, right? But at the time when we were hired, the market, when I was hired and then the guys I was hired with were brought in it, the market was crazy.

[00:20:03] Kevin Clark: And so it was a great way to learn the business and it was a great way to learn the business. And I did well I had, I was the fastest sale, hired a sale of any agent. And it was because in the history of the firm, I, it was one, it was mostly market driven, right? The market was crazy. I started like, in, I want to say 2005 and it might have been 2006, and the market was just bananas.

[00:20:27] Kevin Clark: And it was a little tiny mixed use store over with apartment above. And it was in sort of this crappy market that I was covering. And I did the whole system. I sent the mail out, I did all the reporting, I did all the things that I was supposed to do, got an offer closed really quick. The buyer was experienced.

[00:20:45] Kevin Clark: I also did all my client reporting the way I was supposed to do, the way I was trained. And so interestingly, the person who bought it tried to flip it right away for a lot more money. And the seller called, my client called me and said, what is going on? You know, this person’s trying to get like $300,000 more than we sold it.

[00:21:01] Kevin Clark: I’m going to sue you. And I picked up the reports, cause I generated these 12 page reports of everything we were doing and all the offers that we got and all the feedback we were getting and everything. And she couldn’t say a word because everything that I said to her was documented and it was legit.

[00:21:18] Kevin Clark: So it was a great experience and a great place to learn, you know? Then the market turned. We had, you know, the territories were too small. The market slowed way down, you know, they were positioning themselves for sale. I was there for the glory days. The other thing I think was interesting is the day I started, we were in this little tiny office in on 86th Street in Brooklyn, and was like above a retail, like it was just sort of cr, it looked like it was almost like boiler room, right?

[00:21:45] Kevin Clark: If you remember boiler room, you walk in and it was like we were shoulder to shoulder. There were, I think maybe 30 brokers shoulder to shoulder in an area that should have been maybe for 15. And what had happened was they had expanded dramatically. They had a lease for this big office in downtown Brooklyn, but it wasn’t ready yet.

[00:22:05] Kevin Clark: And so all these agents that had been hired were all brought in to work the phones and do all the things that we were doing. And the thing that was amazing was, All of the energy and the electricity of that place. It was just electrifying. I mean, you walked in and it was like a jolt of caffeine and not just from the energy, but also the sharing of information and the, all the stuff happening.

[00:22:30] Kevin Clark: And so somebody’s talking on the phone saying something you didn’t understand. They get off the phone and you lean over and you’re like, what were you just talking about? Like you said this, I, somebody just asked me that and I didn’t know what to say. And it sounds like you had that same question, like, what did you say?

[00:22:42] Kevin Clark: And why’d you say it? And it was just this sort of immersive work experience. So not just the training, but also the environment. And so when we talk about work from home and we talk about kids getting jobs today, working zoom’s great. I mean, I did that, like I said, at the University of Michigan, I was home for working from home and being able to go to school full-time and you know, renovate an apartment and do all the things.

[00:23:02] Kevin Clark: But imagine if the University of Michigan’s listening to that, they’re like, wait a minute. We are paying you for 50 hours of work. You were going to school full-time, pulling all nighters regularly. And you were renovating your apartment and you were pretending to be a GC in the city of New York while we were paying you your salary.

[00:23:17] Kevin Clark: Really? How’s that po And it’s true, it’s impossible. Did they know? No, they had no idea. But was my output, would it have been if I was working there a hundred percent of the time playing golf on the weekend? Probably not. So you have a dim view of the whole work 

[00:23:30] Patrick Donley: from home movement that’s 

[00:23:32] Kevin Clark: going on right now.

[00:23:33] Kevin Clark: Yes and no. I mean, I think that my stage in my career with what I know, my client base, where my ambitions are, what I enjoy doing, I think work from home is unbelievable. If I had to go to the office, if I had to take a train from the suburbs and go to the office, I mean, I live in Brooklyn, so I wouldn’t be doing this, but if I had to get up in the morning, put a suit on, take a train to an office to man the phones at my stage in my career, I would not want to do it.

[00:24:00] Kevin Clark: But I’m 50 and it doesn’t mean I wouldn’t, I probably would make more money if I did that, if that was my driving force is to go in the office every day and just light the phones up and do that. I’ve been open about this on Twitter. I’m really into my kid, what my kids are doing and going to their events and being involved in their lives now and making them lunch in the morning and doing all those things.

[00:24:20] Kevin Clark: And I think that certainly you work from home enables that type of rich experience. But I’m beyond a mid-career, you know what I mean? If I was 22, and I’m working on a thread right now about this, that if you’re interviewing today and you want to get a job today coming out of school and you’re even considering work from home, you’re insane.

[00:24:41] Kevin Clark: Unless you’re a coder and you don’t, you know, unless there’s some reason why what you’re doing does not require or it doesn’t benefit you at all. And I actually can’t even think of an example of this. 

[00:24:52] Patrick Donley: And why do you say that? Is it because the discipline isn’t developed at, you know, you don’t develop the dis discipline at a young age?

[00:24:59] Kevin Clark: I think discipline is certainly part of it. I think that I certainly, for me, and I think most people are like me, You’re way more disciplined when somebody’s watching what you’re doing, right? You’re working from home, you’re doing your laundry, you’re got the TV going, you’re doing whatever. Okay. And I think that’s natural, normal.

[00:25:14] Kevin Clark: You go to the gym, you get a cup of coffee, and all of a sudden it’s a two hour lunch at the office. If you pull a two hour lunch, you’re going to get, somebody’s going to ask you where you are. Right. That discipline. And the problem with that being the and by the way, as an employer, I think that discipline is to pretend that covid eliminated that need for us to watch over people’s shoulders is, I think, a little bit silly.

[00:25:41] Kevin Clark: But I don’t think you even need to go to that point where you say, well, you, because that implies you have to micromanage people. And I think that’s, I agree with you. You agree with the notion that you shouldn’t have to do that if you have good employees. But I do think there’s a check and balance system that is naturally in place in a work environment.

[00:25:56] Kevin Clark: But I think it’s actually more than that. When I was, I think the opportunity for, let’s go back to the Massey example that I used. If I would’ve been doing what I, if Massie would’ve given me a computer, given me a high speed internet access, given me a phone and said, Kevin, here’s your territory. We’ve done your training, go to work.

[00:26:15] Kevin Clark: And I didn’t have that sort of immediate feedback loop of information. I don’t think, I couldn’t have learned in that first one month, six month period. I learned more in that period of time than I could have learned in six years, probably at home on my own would I’ve gotten there. Sure. But I don’t think it’s fair to say that I would’ve, that there was a hundred percent benefit for me to be in that situation.

[00:26:41] Kevin Clark: The other thing that people don’t, and I do believe what’s going to happen is I think there’s going to be like a work from home and a work from the office. And so if you want to work from home and you want to be hybrid, you are essentially putting yourself for many of these jobs. You’re going to be putting yourself in a position that says, yeah, Kevin’s, we value Kevin as an employee, but he doesn’t value us necessarily.

[00:27:04] Kevin Clark: He values his lifestyle, so we’re probably not going to pay him as much. He’s definitely not going to advance as quickly, and he’s not going to be the person we go to when we’re putting out fires and we need, and so when you’re not putting out fires at a company, you’re not learning, you’re not involved in the sort of c-suite decisions of where that company is going.

[00:27:25] Kevin Clark: So I think it’s going to be a limiting factor for people who want to value their home life or work balance or whatever that is. We called that mommy tracking, which I hate because I think, and I deplore that statement, but it’s true. If I wanted to be involved with my kids’ life and I was an attorney, I could go to my company and say, Hey, I’m the primary caregiver of my kids.

[00:27:48] Kevin Clark: It means that I can’t be in the office past, you know, six 30 and I can’t get into the office until eight and the weekends I’ve gotta be available and you can’t send me on a document discovery, on a moment’s notice, and all of those things. I did as a 22 year old. I was 22, I turned 23, my first job in New York.

[00:28:06] Kevin Clark: I turned 23. I got a job as a paralegal thinking I was going to go to law school at a corporate litigation white shoe law firm. And I went to the office and I proved myself as being a valuable employee on day one. And it was this crazy contract case where we were working. I was billing most weeks between a hundred and 115 hours a week of billable time.

[00:28:28] Kevin Clark: That’s how much we were in the office. And it was this crazy contract case. It was we represented a company that invented the airbag module and there was a contract dispute with the company they licensed the technology to. And our company was going to go out of business. Our client was going to go out of business.

[00:28:42] Kevin Clark: If we didn’t. We had to sue essentially, to enforce the contract. And then I was, because of that work that I did, I was not the lead paralegal in the case. There was a guy ahead of me who was technically my boss, but when they decided they needed somebody on the trial team, they went to me and said, you’re on a plane in three hours to Phoenix for the weekend.

[00:29:02] Kevin Clark: And I ended up staying for three months. Now it helped, I was 22. My girlfriend, who’s now my wife was taking care, was not taking care of the house, but she, our apartment was, I couldn’t just leave my apartment. Somebody was living there and had to pay the bills and all that stuff. But the point is that experience was, I couldn’t gotten that experience work from home.

[00:29:20] Kevin Clark: I could have done almost everything I was doing as a paralegal in at home, but I would never have been shown my value in any way. You know? So I think, I do think something is lost for a work from home. And I anecdotally, because I’m not, you know, I’m not a workplace sociologist or anything like that, but I do from a brokerage standpoint, I have gotten.

[00:29:42] Kevin Clark: Multiple calls from companies that you would think would be work from home advocates or remote work advocates who, you know, these are web three type companies, cryptocurrency type companies, and they’re looking for amazing office space in Brooklyn, which is a high dollar market in a great location in Brooklyn.

[00:30:03] Kevin Clark: And their idea, there are three things that were said to me. One office is going to be a differentiator. We’re going to get better employees because we have this amazing office space. Two, work from home is not efficient. Every week can pretend that they’re getting as much work done. It’s not that they’re not working, but they may not be working.

[00:30:21] Kevin Clark: And frequently we’re finding they’re not working on the right things. Whatever the thing they need to be working on because there’s not enough information being transferred back and forth. They’re working, but they’re not necessarily working efficiently. And the last one is that they just don’t get as much done even on the things that they’re supposed to be doing.

[00:30:38] Kevin Clark: They’re just not as, and at the end of the day if you have a job where people want to work, there’s this, there’s an attitude that I don’t have to work for you, so you have to make me happy. And I think that’s a really interesting, I’m a Gen Xer. When I came out of college, there weren’t a lot of jobs. You know, we had a smaller population, so that was part of the issue.

[00:30:59] Kevin Clark: Baby boomers were not retired yet, so there weren’t as many jobs available and the economy wasn’t doing well. So I’m used to a situation where I had to interview for jobs where, I don’t want to say we were dime a dozen, but we were less valuable to the company than maybe graduates are today because baby boomers are retiring.

[00:31:16] Kevin Clark: There’s a lot of people, their job, the job market’s slightly different. The issue is, I think we are going to get into an economy where there’s going to be less leverage on the worker side. So they’re going to need to go to the office. At least I hope so. I mean, I’m a believer that’s a better, professionally, that’s a better work environment.

[00:31:35] Kevin Clark: And I don’t sell office buildings. I don’t really care what happened. I love cities and I’m long cities, so if work from home stays a thing, it’s going to be rough on cities, but I think it’s going to be a better environment for everybody. It’s going to be interesting to see how it all unfolds. Yeah. I’m glad.

[00:31:49] Kevin Clark: I don’t own any office buildings though, cause I don’t know when it’s going to happen. We talked a little bit 

[00:31:54] Patrick Donley: earlier before we started recording about a tweet that Moses Kagan posted about. His idea was like, it would be great to interview a lot of very successful commercial real estate brokers and talk to them about their first year in the brokerage business, tips for Success, how much you can expect to make those kinds of questions, and then compile it into a book.

[00:32:14] Patrick Donley: I interviewed Matt Lasky, which I told you, and we kind of went into that. But I wanted to hear, you’ve kind of touched on some of these points, but I wanted to hear a little bit about tips for surviving your first year. How much you can expect to make. How to find a great mentor, things like that. If you could touch on some of the, I threw a lot at you there, but if you could touch on 

[00:32:31] Kevin Clark: some of those.

[00:32:32] Kevin Clark: I think Strip mall, Trent does a really, has a really strong opinion about mentoring and I think he’s not wrong. I would argue that this is going to sound wrong and I don’t mean it to disparage what he said, but I think that’s somewhat of an entitled position because there really aren’t that many great people who are available to mentor people.

[00:32:50] Kevin Clark: Tell me his position on mentors. This is about a year ago, he did a great tweet on how to get started in the brokerage business and the real estate business is find a mentor. And a way to find a mentor is to be somebody who wants, who a mentor. Wants to mentor, right? I think that is fantastic advice and if you’re in the position that you can get that, like if you have a personal network of people or family, network of people that can mentor you, but many people are not in that position.

[00:33:16] Kevin Clark: And if you want to get into there is a lot of opportunity in commercial brokerage, commercial real estate if you want to put the time in to working really hard and working smart. And you may not be a person that has the ability to get a great mentor. So I’m not a huge believer in that being a path.

[00:33:33] Kevin Clark: If you’re lucky, if you’re lucky that works out for you, then great. You know, I think the way to think about brokerage, I think the first thing to understand is real estate markets are really cycle. And we’ve been in a period of, you know, 13 or 14 years of nothing but sort of up, you know, there was some questions in 2018, 19 in New York.

[00:33:54] Kevin Clark: We were certainly softening, we were hitting a correction point in New York, but the broader market was not, and that makes sense. New York’s typically about 18 months ahead of the rest of the market and that, but then Covid hits incredible fiscal, monetary policy, keeps us out of the ditches, but also is a huge driver of investment in real estate and extra capital available to pay rent and all that stuff.

[00:34:15] Kevin Clark: I think that the key thing for success in real estate in any market, is there any cycle, any period in the cycle. The first is you gotta be passionate about what you’re. If you like retail, focus on retail. If you like land, focus on land. If you like multi-family, focus on multi-family. But generally speaking, unless you’re in a crazy active market with incredible deal flow, it’s really hard to add value to the market if you don’t have real expertise in a thing that you’re selling and real passion about the thing you’re selling.

[00:34:48] Kevin Clark: And so, because that ultimately, if the market’s really hot, you can be active and not really add a lot of value, meaning you get enough phone calls out there, you get enough listings. The listings sort of sell themselves because everybody’s interested in real estate. But that’s more of a, those type of brokers tend to lose out in periods like today when the market softens and all of a sudden you were just sort of, you know, you were a meat grinder or you were a butcher or whatever, you just pushing product out the door.

[00:35:19] Kevin Clark: Longer careers are built in, in, from my perspective, if you can add value and adding value is information, it’s advice, it’s putting, you know, your client’s interest ahead of yours. You know, I had a client who, this is a couple, this is maybe like 2019 time period. Covid hadn’t happened yet. Interest rates were really low in the US but also even lower in, in Europe where this person’s from.

[00:35:45] Kevin Clark: And he wanted, he had a small fund that was trying to buy assets in New York. And we found a great asset and I was essentially running the due diligence process also. And in the due diligence period, we found that there was a pretty significant issue with the rent roll. He could have done the deal and it probably would’ve been okay, but the reality is there was fraud in the rent roll there was some, they essentially funded prepayment of a lease and there was no way we’d be able to repeat this lease.

[00:36:13] Kevin Clark: And so we pointed it out, we discovered it. We had to get bank statements. We, you know, figured out what was going on and ultimately the recommendation for me was, Hey, we either retrade or we don’t move forward. I had no vested interest in it harmed me significantly not to do that deal. I didn’t earn a commission on that deal because my advice to him was not to move forward, but he also looked at me and said, I believe everything you say from now on, because you could have gotten your a hundred thousand dollars commission off this deal and everything would’ve been fine for you.

[00:36:45] Kevin Clark: And I would’ve in, you know, 17 months or 16 months when that lease burns off. I would have a vacant office and no way to repeat this revenue. And the point of that story is to say, I will make 10 times as much money from that guy because of this than I would’ve made on trying to close that deal. And then him looking at me and saying, Hey, why didn’t we realize that there was something funky about this?

[00:37:08] Kevin Clark: Because there was something funky about it. We don’t need to get into it. But there was, it was just obvious there was a problem with this lease on the physical inspection. Going back to your question, it’s like add value. You know, when somebody calls you and they’re asking about information, and one of the ways to sort of, do that is to provide free market reports.

[00:37:24] Kevin Clark: I mean, one of the reasons why people send out market reports is because it’s marketing material for the agency. It’s not market, it’s not, a lot of the market reports aren’t great, but if you’re a specialist in, you know, multi-family in a certain region and you send out quarterly reports to people and say, Hey, this is where things are happening, and they pick up the phone and they say, Hey I’m on your mailing list for some reason.

[00:37:44] Kevin Clark: I own six buildings in your market. I’m not really a seller, but I like what you just said about this. Can we talk more? And then you end up having dinner with them. You have coffee, whatever. You go out for drinks and then 18 months later, they are a seller or they’re a buyer. Hey, we just have a 10 31.

[00:37:59] Kevin Clark: We’re trying, you know, in another market we want to reinvest. Do you have any, anything interesting? That’s where you really gain. And it’s the adage in social media, it’s like, are you adding value or you’re not? You know, if you’re not adding value, it’s much harder for people to listen to you. Those are good points.

[00:38:14] Patrick Donley: I wanted  to talk about Cribdilla, that’s your Twitter handle, and I wanted to get into understanding it a little bit more how it’s going. I know the pandemic kind of put a little bit of breaks on the project, but I wanted to hear what the idea is, how it’s going, what’s your plans 

[00:38:28] Kevin Clark: are for it. Sure. So crypto was for the, for all intents purposes, it’s on hold.

[00:38:34] Kevin Clark: I don’t know if it’s permanent hold or. The idea with Cribdilla is, the fancy way to say it, is it’s a disintermediating brokerage and the on rental apartments. So the idea is that instead of an owner not knowing that their tenant is going to leave and or not renew, and then they find out maybe, you know, 15 days before, or in fact sometimes they find out, you know, a couple of days before the lease expires, tenant leaves.

[00:38:59] Kevin Clark: Landlord is in a situation where they have no information from the outgoing tenant and they now need to market a unit that’s going to get something between 15 and 45 days of vacancy. What we did is we provided a platform where a departing tenant could contact us. We would help them list the apartment on our platform, and effectively it was a listing platform for apartments that were be going to become vacant over the next one to six months.

[00:39:25] Kevin Clark: And so anybody looking for an apartment in their, in that timeline could have sort of a, an early look at the market to lease that apartment before it’s effectively vacant. And the way we set it up is we paid the departing tenant effectively, a third a month of rent to contact us to tell us that they were not intending to renew, and then being available to provide access to searching tenants who were coming to look at the apartment.

[00:39:51] Kevin Clark: So effectively opening a door, letting them look around the apartment for three or four minutes, and then leaving on average showings about five times. And so you’re talking maybe 15 minutes or 20 minutes of work, and they would make about a thousand bucks on average. It’s essentially removing the need to have an agent walk and open a door for you.

[00:40:11] Kevin Clark: And the idea, I’m on paper, it’s a great idea. Meaning right now, on average a market rate apartment in New York turns over once every three years. Nationwide, it’s once every two years. So you’re getting somewhere, you’re losing anywhere from 45 to 60 days essentially per vacant an apartment. And you don’t really have a way to plan for vacancy or know how mu you know, know when people are leaving or renewing.

[00:40:37] Kevin Clark: And the reality is the tenants themselves typically do know that they don’t intend to renew. Couple reasons why it, it hasn’t worked or, I mean, COVID certainly put the breaks on it big time because in New York we launched in New York and Boston, the Covid sort of ended, did a couple of things for us.

[00:40:54] Kevin Clark: The first is market turnover sort of stopped. People didn’t really move or they stopped paying rent. There was about 30% vacancy. So for us it really works when you have an occupancy rate of like 96, 97, 90 8%, where there’s really, you’re really just relying on market turnover. So in really dense markets it works very well.

[00:41:13] Kevin Clark: We just didn’t get the turnover in New York. The other issue is, and a larger sort of business issue is everything looks sort of great on paper and does look good on paper and it makes sense. Landlords make more money. Departing tenants make money and brokers. We essentially, were a brokerage firm without any agents, so we could scale, truly be scalable because we, the agent is effectively the departing tenant, so we could have an infinite number of agents.

[00:41:38] Kevin Clark: The problem though is, and I think this is a common problem in PropTech, is you’re really in trouble if you’re trying to change behaviors in any business model. And if you’re trying to change one behavior, that’s tough. We were effectively trying to change three, the departing tenant contacting us instead of just ignoring and leaving whenever they wanted to.

[00:41:58] Kevin Clark: Right? Searching. Tenant had to know that we were a plat, a listing platform for them to search because as soon as we start adding listings to Street easy, it becomes economically impossible for us to do it because our average lead time was around six months, so we couldn’t list an apartment for six months on Street Easy.

[00:42:16] Kevin Clark: We would literally spend all of our marketing budget on the apartment itself, only the profit we would get. We would go to marketing budget. Landlords had to change their behavior in the way that they communicated with tenants, the way they communicated with brokers. For those three reasons, I think it was a heavier lift than I anticipated.

[00:42:33] Kevin Clark: I still love the idea and I still think it works. We did some really interesting things, got approval from the city of New York or the State of New York to pay tenants as brokers, essentially. And I still think it’s a model that could work, but I also have to pay the rent. Yeah. 

[00:42:46] Patrick Donley: And you’re a busy guy.

[00:42:47] Patrick Donley: I mean, you’ve got a ton going on. We haven’t even 

[00:42:50] Kevin Clark: touched on it yet. Yeah, I’m glad I did it. I put a lot of time into it. I spent a lot of money on it and I learned a lot. I did some accelerators. I did, you know, I learned the sort of startup business and I’m glad I did it. I’m not sure it’s going to be the thing that buys me a Bugatti or anything like that.

[00:43:07] Kevin Clark: Not that I want a Bugatti. 

[00:43:09] Patrick Donley: It’s a great idea. And then you would monetize it by the landlords paying you because you’re saving them 40 to 60 days of lost rent?

[00:43:16] Kevin Clark: Yeah. The idea is they’re already spending the money. Most landlords already pay. In New York City brokers get paid by the searching tenant. So we would either get the money from the searching tenant or from the landlord and the landlord pays on average about a month of rent for whoever’s doing the releasing.

[00:43:35] Kevin Clark: If it’s an agent, it’s an agent. If it’s a property manager, it’s a property manager, but there is the cost. So there is a time savings there and efficiency savings. But there’s also the cost is the cost. We weren’t changing and that was the problem I think maybe was that for it to work you need network effect, right?

[00:43:52] Kevin Clark: You need enough people to be in the system for it to work, because you need to have listings to get, it’s a flywheel that has to have inventory, right? It’s a marketplace. And so we spent a lot of time and I think we contacted tenants in the markets that we were operating in and convinced them to list with us and we got a bunch of listings.

[00:44:12] Kevin Clark: But the issue was you need to market those listings in a way that makes sense. And it’s a money proposition. You have to spend a lot of money to get the inventory and then you have to spend money to make that inventory reachable. Right? That it’s not because you’re competing with Zillow, truly a street easy, you know, apartments.com.

[00:44:31] Kevin Clark: But once that network effect kicks in, I think it’s something that could work. And the issue is it could work in any market, and it’s better, arguably it’s better outside of New York because you have the turnover rate in outside of New York is actually higher than in New York. But it’s also a function of the market.

[00:44:46] Kevin Clark: I mean, if you look at it, devil’s advocate, you look at it the other side, we would never have anticipated the rent spike that we experienced in covid. Let’s say we were, if you released your apartment four months in advance, you would’ve missed out on that opportunity. So yeah, you wouldn’t have lost the 45 days of income, but you would’ve missed out maybe on the opportunity to boost your rents 15% or whatever.

[00:45:07] Kevin Clark: Arguably the type of landlord that we would be dealing with wouldn’t have experienced those types of rental bumps, because I think they would’ve been more on top of where market rents were. But hey, you know, it’s a great, like I said, I think it’s an interesting idea and it also shows how hard it is to work in the PropTech space because there’s this idea that real estate investors are stupid and they’re just waiting for you to come along to solve all the problems that they never figured out.

[00:45:34] Kevin Clark: And I can’t think of a single example of that actually happening in, in real estate. I mean, co-working certainly has proven that it’s not going to solve any real problems. Keyless locks, I mean, you go through the list of PropTech ideas and there’s a reason why. I mean, maybe online payments, but marginally, that’s not really, not a lot of people are making much money doing that because you have to have a huge volume to make that work.

[00:46:01] Kevin Clark: And there’s a bazillion competitors, and that’s not to suggest. Technology hasn’t changed. Real estate investing, it has changed a lot. I mean, look at Nick Huber’s business and how they’ve gone, you know, they’ve moved overseas, a lot of their workforce, they’re doing a lot of stuff automating, they’re, you’re using cameras and keyless entry and all these things.

[00:46:18] Kevin Clark: Yes, absolutely technology helps. But I think this idea that an outsider’s going to come in with a so and, but those savings are just saving him money. I don’t know how much the businesses that help him, what their business model is. Right. You’re not going to come in and change real estate all that much with a little marginal change in operations.

[00:46:40] Patrick Donley: I wanted to switch gears a little bit. We haven’t even touched on the fact that you teach at NYU, I don’t think yet. But I read that you have taught negotiation classes and you do negotiations. And I heard in an interview that you said you would never use a agent or you would never try to sell your own home.

[00:46:57] Patrick Donley: You would always farm that out to an agent to handle the negotiation. And I was really interested in hearing more about that. You know, the fact that you do teach negotiation, you’ve done a lot of negotiations. Why would you not handle your own transaction? 

[00:47:11] Kevin Clark: When we sold our apartment in New York, I’m not a residential agent, and I, we had a co-op in Manhattan.

[00:47:17] Kevin Clark: We sold, we moved to Brooklyn. I knew immediately that I would not be able to market it the way a residential agent could, and for a couple of reasons. One, you’re too emotionally attached to it. You know, I gut renovated that apartment. I, every single inch of that apartment I planned, and you just can’t, from my perspective, it’s very difficult to get top dollar and be that emotionally attached to a discussion to the right value.

[00:47:46] Kevin Clark: The other thing is selling commercials very different than selling residential. So if I was a residential agent, I think maybe my opinion would be slightly d. Although the other thing about negotiation is the way to win at negotiation is it’s not emotional. And I think if you’re emotionally invested in an outcome the way you are with something you own personally, it’s much harder to remove yourself emotionally and make rational decisions.

[00:48:10] Kevin Clark: Most of what we do is brokers. I mean, I was just involved in a, you know, I tweeted about it so it’s no secret, but I just sold a 20, or represented the buyer of a 23 and a half million dollar office building in Irvington, New York. And I would say that at various times in that transaction, I was either, I was essentially the buffer between the seller and the buyer in their emotional outbursts about things that were said, perceptions of things that were done.

[00:48:39] Kevin Clark: Nobody wants to be retraded on. Right? If we agreed to 28 million and now we’re at 23 5 and you’re really angry about that, you’re going to say things that you don’t mean, or maybe you mean them, but they don’t need to be heard, right? So I can hear that. And when my buyer says, well, what did they say?

[00:48:56] Kevin Clark: And I say, oh, well, you know, they’re not really happy. They didn’t need to hear that. They think you’re, you know, an a-hole or whatever, right? Because you hear that and then the discussion becomes, you’re, I’m the A-hole. Wait, you’re the a-hole. Because the reason we had to retrade was X, Y, and Z. And this actually is not an actual thing that happened in this, I just want to say that it did happen.

[00:49:15] Kevin Clark: What did happen, were internal negotiation between the buyer and seller. The brokers act as buffers, and so these are not shrinking violets, right? These are two successful business people who’ve made a lot of money. It’s just an inherently emotional business. So I think when you’re emotionally invested in anything, it’s really hard to negotiate and negotiation is, you know, at the end of the day, I mean, Voss says this, right?

[00:49:38] Kevin Clark: Voss is the guy who wrote, Never Split the Difference, and he’s an FBI negotiator, probably the best. It’s not a real estate negotiation book, but there aren’t many good real estate negotiation books. But his thing is, arguably, in my opinion, the best real estate negotiation theory and the issue is real estate negotiation is it’s a one off negotiation.

[00:49:56] Kevin Clark: So if you buy my house from me, I’m not going to turn around and buy your house from you. Our transaction is almost always one of one in the most active markets with in commercial, sure, I might do four or five deals with somebody, but that’s a lot. And so win. And you know, starting with No, and all these sort of treatises on negotiation, they’re, a lot of them are about making sure that there’s enough meat on the bone for both people.

[00:50:22] Kevin Clark: That when you have to come back and renegotiate that con union contract, there’s not so many people upset that it’s going to harm a future negotiation. Well, the reality in real estate is if I rob you today or you rob me, there’s going to be almost no opportunity for me to get back at you. And so Voss talks about this idea of keeping everything, you not be emotional, but you make everybody else emotional.

[00:50:44] Kevin Clark: Well, it’s hard to do that, right? It’s hard to do that when everybody thinks their baby is beautiful. 

[00:50:51] Patrick Donley: Does he have any recommendations on how to make others emotional while you say calm and placid?

[00:50:54] Kevin Clark: Oh yeah. I mean, you, I mean, most of the time you’re reacting to somebody trying to make you emotional. It’s really just sort of stepping back.

[00:51:03] Kevin Clark: And so somebody, I mean, a big one, a big trigger for people is you underwrite a building and you think it’s worth 3 million bucks and they want $5 million, and that’s an immediate trigger. You get angry, like, I just wasted all my time underwriting this. You’re insane. Well, you can’t say somebody’s insane.

[00:51:18] Kevin Clark: And oftentimes that’s a response. You’re crazy. No one’s going to pay that. You know, you’re stupid. You know, and I, a great response in that example is, well, tell me how you got there. That’s interesting. That would be fantastic if we could get to that number. Explain to me how that number makes sense. Oh, well it’s the guy down the street.

[00:51:35] Kevin Clark: The guy down the street. He’s, well, yeah, he’s listing it. It’s been on the market for a year. Is there anybody else that, you know, let’s talk about your building. Let’s talk about the income. Oh, okay. I see that. I see you have this income. Now do we see it upside here that I’m not seeing? Are we getting somewhere in the next year that can make, because I’d love to make 5 million work, but you know, how do I get there?

[00:51:54] Kevin Clark: Oh, okay. Well what are you, why are you selling? Let’s forget about 5 million for a minute. Let forget about 3 million, 5 million. What problem are we solving in this sale? Right? You don’t say that necessarily, but everybody is selling for a reason. Either they think the market’s so high that it’s the time is to get out, but that’s usually the last reason, right?

[00:52:13] Kevin Clark: Usually it’s, I’ve got dead. I’m sick and tired of this. I want to move to Florida. I want to do something else, right? So what problem? How can I help you solve the problem you want to solve? And the way to do that is to get you talking. But if I’m selling my apartment, I’m just trying to get top dollar, right? I don’t care what you, if you think it’s just hard.

[00:52:31] Kevin Clark: And the other thing is people, the reality is the minute you start dealing with somebody who owns an asset, the broker’s there to be the bad guy, right? The broker’s there to be the bad guy. I’m there to filter the information from one side to the other. And in this particular transaction, The broker on the sell side stepped away, didn’t, they were still there, but they weren’t dealing with the process.

[00:52:51] Kevin Clark: So I was talking to the owner and I was talking to my buyer, and it was like, you’re just running interference. 

[00:52:57] Patrick Donley: I’m just interested because I’m in the middle of 10 30, a reverse 10 31 exchange and selling two houses, two rentals. And how I’ve typically done it is I list with a flat fee brokerage, and, you know, I know the house really well.

[00:53:12] Patrick Donley: I enjoy the sales process, I enjoy the marketing process. I like showing the homes. So I just pay 300 bucks to get it listed on the mls. It shoots out to Zillow and Redfin and all the platforms. And then I do the showings and handle the sale. But I’m just wondering if I’m possibly making a mistake doing that.

[00:53:30] Kevin Clark: No, I think the difference, there’s a couple of differences. I think. One, you said you’re in Columbus, right? A single family home in a market that’s, it’s a little bit more commoditized than New York. I just think there’s more ways to, there are more places to put a valuation metric on what you have than in, and then what we were doing, we were in a pretty small, very custom co-op.

[00:53:56] Kevin Clark: And the marginal difference between, I mean, there’s almost no way that I’d be able to do a direct sale. Okay. I, a buyer would come in and buy directly from me without an agent, so I was going to pay 3% no matter what. And then, so I’m really looking at the 3% difference. Do I get more out of that with somebody who is active in my market, can sell this apartment for top top dollar on a price per square foot basis, much higher than any of the comps around, because we had done a custom renovation and our co-op fees were really low.

[00:54:27] Kevin Clark: And like, there were lots of reasons why I needed somebody to put lipstick on this pig in a way that as a seller, I mean as an owner, it’s much, much harder to do. I think if I had, it’s an interesting question. If I had a six family that I wanted to sell today, You know, I probably would do that. I probably would sell it myself because it’s in my wheelhouse.

[00:54:49] Kevin Clark: I know the market. I probably, the way I would sell it is the way I sell stuff now, which is I know who the buyers are. You know, 50 to 75% of the time, the people who are going to buy that building are going to buy it. Whether it’s, you know what I mean? Like, if I price it right, they’re buyers if I don’t price it right.

[00:55:05] Kevin Clark: So I don’t necessarily think it’s different for that. I do think it’s different though. Let’s hypothetically say your family owns a 20 unit building in Columbus and you’re a, your bread and butter single family home rentals is basically what you just said, right? Let’s just hypothe, let’s hypothetically say your market is single family homes and your, but your family owns a 20 unit building and it’s gotta be sold because it gets left to the estate.

[00:55:27] Kevin Clark: I would argue that you should hire the best broker in the, that market for that type of asset because it’s not an asset, you know, or understand. And in this, I don’t know what you know and don’t understand, but I’m just saying something that’s way outside of your wheelhouse, you know what I mean?

[00:55:41] Kevin Clark: It’s land or something. And that’s, I think the conversation Peter and I had because I, because he’s very against agents and I think, listen, I think there’s a lot of crappy agents. I think there’s a lot of, especially in the re in the residential side, I can’t go into too many specifics, but I had a conversation with a residential agent over the weekend and they were talking to me about a development deal that their investors in and they didn’t know.

[00:56:07] Kevin Clark: I said, oh, what I know that block I have actually sold in that there’s a three block area on that strip of road that I’ve sold about six buildings in the last six years. I know that market really well. What’s the address? And they did not know the address of a building they’ve invested in. They had to like look it up in the E and I was like, you know, I do, I mean, I’ve, I wouldn’t be the first time I’ve listed stuff where I couldn’t remember the address.

[00:56:29] Kevin Clark: I mean, I know the building intimately, but I just, the number wasn’t popping. And then I was like, well, tell me about the deal. Tell me what you’re, and they had no idea, and this is money they had written as an lp. That to me is like typical of a residential agent. There’s not a lot of love. It’s just money.

[00:56:47] Kevin Clark: It’s like, oh, everybody’s doing this. If you find a residential agent who’s really good and really successful, there’s a differentiator there that is probably adds a lot of value. I can tell you there’s a lot worse commercial. I mean, I have a, about eight years ago or nine years ago, I started talking to an owner of a building in Brooklyn, and I drove by the building today, or not today, over the weekend.

[00:57:10] Kevin Clark: And there was a for sale sign out front. Now, I hadn’t talked to this woman in five years, but it was a property I really liked. I, we were looking at maybe putting an office in it and just a great unique asset. And I was like, oh man, I didn’t recognize the brokerage firm, the name on it. So I know that they don’t operate in Brooklyn or they’re new or something, which is fine.

[00:57:29] Kevin Clark: And I, but I didn’t have the list price, had no idea, wasn’t on Google, couldn’t find it, found it on their website. They’re a Manhattan brokerage firm trying to sell something in Stuyvesant Heights, Brooklyn, which is crazy. And the price is about two x. What is reasonable for that market in 2021? Not today, 2021.

[00:57:49] Kevin Clark: And it turns out this woman has passed away. This is a building that’s like a historical building in that market from a, the business that was there and the owner, it was there for like 50 years. And, but the building’s a great building. But completely, it’s a tragedy quite frankly, that this family that needs to sell death in the family, the business is no, they’re no longer running the business.

[00:58:10] Kevin Clark: And it’s a great asset that would have, I mean, they would have buyers out the wazoo if it was priced correctly, but it’s literally priced at about two times what it’s actually worth. And it’s just going to sit on the market. And it’s either one of two things. Either the agent is just going to give up and they have a six month exclusive and it’s just going to sit there.

[00:58:28] Kevin Clark: Or they’ve got some other plan in place where they, you know, are working with somebody and the person’s going to low ball them and they’re going to just convince the person to sell. And it’s just a, how they got to that agent. I have no idea why they hired that agent, because there’s probably a half a dozen agents that work that market who they have gotten mail from and are active and would know how to price it.

[00:58:46] Kevin Clark: And it’s possible that they talked to them and they said, you know, your building is worth this and we can’t, if we go out any higher than this, it’s just going to sit on the market. And this other broker comes in and says, oh yeah, we’ll list it for whatever you want. So it might be on the seller. But those are the worst kind of things in commercial because you looked that and you say, at the right price, I’m a buyer of that asset eight days to Sunday, and, but at the wrong price, it’s just going to sit there and it’s going to burn and burn.

[00:59:11] Kevin Clark: While you look at that, it’s really frustrating. And what happens is everybody blames brokers and they should blame the brokers, but most of the time it’s a few bad apples. Well, unfortunately, it’s a lot of bad apples. 

[00:59:22] Patrick Donley: I wanted to get into one of your more controversial opinions on real estate Twitter, and that is that real estate is not an Inflation Hedge. You know, this completely goes against conventional wisdom 

[00:59:34] Patrick Donley: for most people. So I wanted to hear about this. I listened to a little bit of what you said about it, but for our listeners, I’d like you to explain why you feel that way. I know you’ve got some empirical evidence to support your case. 

[00:59:47] Kevin Clark: This comes out of, when I was in grad school, I did a study on this and trying to answer that question is any real estate?

[00:59:54] Kevin Clark: And if it is, what makes it an Inflation Hedge? And the conclusion that I came to, and this is from reading a bunch of stuff, and also looking at how we invest in and why we invest in real estate. And if we understand that real estate is a levered business and when we talk, when I’m talking about real estate, I’m talking about investing in real estate for income, not for well no income or appreciate in investing in it as an asset, not as a domicile, not as a place to live in.

[01:00:19] Kevin Clark: Okay? I do feel though the same way about houses. Houses are not, the only thing about real estate that is an Inflation Hedge or has Inflation Hedge characteristics is fixed straight debt. And explain why that is, right? It’s because your payments are fixed. Let’s say you get a 30 year mortgage on a house and your payment is $1,200 on day one.

[01:00:42] Kevin Clark: Or payment one, payment 360. Presuming you do not do any refinancing, cash out, refinance, whatever. If you don’t change your debt, your dollar payment in payment number one is going to be exactly the same dollar payment in payment 336. And your $1,200 today are definitely worth more than $1,200 in three in 30 years.

[01:01:05] Kevin Clark: Okay. So that is the hedge though, is the fixed rate debt. It’s not the real estate. The real estate can go up or down in value depending on the supply and demand characteristics in that market. And one of the questions you had w we had today was, how’d you get into real estate or, and my dad was a college professor and we moved to Charleston, West Virginia at one time, and we lived there for about six years.

[01:01:29] Kevin Clark: Charleston, West Virginia was, it’s the capital of West Virginia. He worked for university. I had a suburban experience in West Virginia was an Appalachia. But Charleston, West Virginia was the corporate headquarters for two chemical companies, Union Carbide and FMC. When we lived in West Virginia and Union Carbide in Bhopal India had a massive chemical leak that killed tens of thou.

[01:01:51] Kevin Clark: I think it was tens of thousands of people, and it cascaded into Union Carbide shutting down the plant in Charleston, West Virginia. That was the major employer in Charleston. My parents owned the house that we lived in, that I, for the years I lived in Charleston, they owned that house for five years.

[01:02:08] Kevin Clark: When we lived in Chicago, there were no buyers at a market price that was sustainable for my parents who had a mortgage on the house. So they had to rent it out. They had to decide how much they were willing to take a haircut on a home that they bought and renovated in Charleston. It was a beautiful house that we did a lot.

[01:02:24] Kevin Clark: I mean, I, it was a wonderful place to live. Our neighbor was a West Virginia senator. Like it was a nice neighborhood in a great part of town. But the issue was when the major employer of a place, even the capital of West Virginia, if the demand drops like a rock, that real estate values plummet. If FMC and Union Carbine didn’t go out of business, but they expanded operations in Charleston, real estate values would’ve gone up significantly.

[01:02:51] Kevin Clark: My parents fixed rate debt, though. Sure that was Inflation Hedge. Their payment didn’t change. They didn’t refinance. There was no equity to pull out, so they just kept paying their mortgage. So those dollars every year went down relatively speaking to the amount of money they were earning or the buying power really of those dollars was lower in future years than it was the first year.

[01:03:11] Kevin Clark: So yes, that has an Inflation Hedge characteristic, but the real estate functions as a supply and demand metric. Rents go up because demand goes up, rents go down because demand goes down, prices go up. Asset prices go up for two reasons. It’s supply and demand driven, but it’s also interest rate driven and cap rate driven.

[01:03:32] Kevin Clark: And cap rates are fundamentally about of long-term interest rates in the economy. Expectation of rent growth, which is a supply and demand metric, credit of the tendency, which is an economy driven thing primarily, and real estate taxes. So let’s talk about those. Interest rates go up, cap rates go up, asset prices go down.

[01:03:50] Kevin Clark: Why do interest rates go up primarily to combat inflation? Inflation goes up, interest rates go up, interest rates go up, asset prices go down, real estate goes down, and real estate has two fundamental value metrics. They’re two things that make real estate an investment. Real estate for income and investment.

[01:04:09] Kevin Clark: One is annual income, so that’s NOI after expenses, cash on cash return, whatever you want to call it. Okay? There’s also underlying appreciation of the asset itself. If you buy an asset that it’s underlying appreciation goes down because inflation is rampant and interest rates are going up and staying up, you’ve just lost your ability to get 50 to 80% of your income, I mean of your, of the investment value that you invested in just disappeared.

[01:04:39] Kevin Clark: If we think about where in from 2010 to 2020 rents went up, something like 40%, which is fantastic. Great rents went up a lot. Okay? Pre covid, underlying appreciation of assets went up well over a hundred percent, and that was primarily from cap rate compression. 2010 cap rates were 6, 7, 8 9 s, 2020. They were threes and three and a half, and fours.

[01:05:03] Kevin Clark: If as we enter a period of high inflation cap rates are going to go up because interest rates are going up. So it’s hard to say, well, my asset prices are depreciating, but I should buy more and more real estate because of inflation. Most of the argument was, well, I’m buying in anticipation of inflation. I would argue now is the time, once we’re in inflation and cap rates are ex have expanded significantly.

[01:05:27] Kevin Clark: Now is the time to buy. But not because of inflation. It’s because at some point inflation’s going to end and interest rates are going to go back down and you’re going to get cap rate compression. So if anything you want to buy counter inflation, real estate, you want to double down when inflation’s high, not because you’re going to get high rank growth.

[01:05:44] Kevin Clark: You’re going to have at least the opportunity of buying in a cap rate compressing environment. And if you buy a three and a half cap, I don’t care who you are, the only way you’re going to get any appreciation in that asset is from rank growth. because cap rates are not returning to 3.5% unless we have some crazy event like Covid again, which was not just low interest rates, but it was a crazy amount of fiscal and monetary policy to drive interest rates lower and get money into the economy.

[01:06:10] Kevin Clark: And that was a hundred year event. The thing is if you look at, and the other point of this is if you read why real estate is an Inflation Hedge every single, now I have not read every academic paper. Okay? I will say, and I, and people send them to me and I read them. And every single one that I’ve read ever says, well, there’s all of these reasons why it real estate is an Inflation Hedge, but real estate rents tend to increase over time.

[01:06:41] Kevin Clark: Therefore, it’s a real estate hedge. By that calculation or that metric, the stock market is a and is Inflation Hedge. The stock market tends to go upward of time. Sure. But nobody in their right mind would say if we’re into a period of inflation is the time you ought to double down on the stock market.

[01:06:59] Kevin Clark: No. In fact, you may want to divest of your stocks, buy bonds and other things that are going to perform better and then get back into it when the recession hits or whenever you know the stock market corrects 20 to 30% or whatever, then you get back. The other issue is a lot of this academic research is done by economists who are not real estate professionals.

[01:07:20] Kevin Clark: They’re looking at real estate data and saying, oh, well we’re able to measure this, therefore the correlation is almost one, yada, yada, yada. Okay? Oftentimes, they’re focusing on NCREIF data. A NCREIF data is internally reported REIT return data. And if you remember why LIBOR kind of blew up, it was because the banks were gaming LIBOR, because of course, if you have a vested interest in the outcome of what the of LIBOR is, you’re going to report diff self-report something that is favorable to you.

[01:07:50] Kevin Clark: It’s one of the reasons why I just tweeted it said, you shouldn’t rely on cap rate data from CoStar because it’s reported. CoStar calls up. The agents who are involved with the brokers involved say, oh, tell me about that cap rate. Well, if I’m operating in that market and I know that cap rate is a six, but it was more like a five, then I’m going to say five.

[01:08:07] Kevin Clark: Because when I go to somebody else and say, Hey, look, I just sold a set of five cap, this is where the market is. I’m self-reporting. It doesn’t mean I’m necessarily lying, but I’m not telling the truth. I’m not saying, oh, well actually, if you really use biometrics and really reasonable expectations of expenses, and I don’t discount the CapEx expenses that we’re going to have to expend every year, and oh yeah, I add that number, that line item that every broker likes to forget, which is called management fees, then oh, it’s the cap rate is a five or a.

[01:08:35] Kevin Clark: The point is I’m self-reporting information. If it’s really a six and I want it to be a five, if it’s really a five and I want it to be a six, my vested interest is going to come through in that data. And that’s what the problem with NARI is. Nari, they’re relying on appraised data. They’re relying on some transaction data, but it’s not really operating data in, oh, if I actually sold this building in the market today, what is that cap rate Right now, the data itself is not a hundred percent reliable.

[01:09:02] Kevin Clark: The other issue is real estate is a backward looking transaction. We rely on trailing data. Anything that’s sold today, the decision to sell that property is a, has aged significantly, nine months, six months, they start listing it, it goes into contract, and then it’s in contract for three to six months while before it closes.

[01:09:22] Kevin Clark: Because at due diligence periods, financing periods, whatever it is, right? So we’re looking at what the market was six months ago when we see a transaction closed today. The problem with that is we knew, I mean, when did the first inflation numbers get reported to middle of 2022, right? We’re not a hundred percent lined up because 22, middle of 2022, we’re closing on stuff.

[01:09:44] Kevin Clark: That was of December of 2021. Well, December of 2021, inflation hadn’t really kicked in yet, or it had kicked in, but it wasn’t measurably kicking it. All of these things intuitively, you step back and you say, okay, supply and demand. And I and by the way, everybody says to me, you’re bearish on real estate.

[01:09:59] Kevin Clark: I’m actually super bullish on real estate right now. I think now is the time to buy. If you can find a product that is appropriately priced at a high cap rate with high debt in place, you’re hitting a home run because you are going to get cap rate compression at some point in the future. If you’re buying a seven cap today, cap rates will compress from today.

[01:10:17] Kevin Clark: You’re also borrowing at a, I mean, you’re buying at above your borrowing rate, so as long as you’re getting positive leverage there, so you’re buying at a high cap rate, which is a relatively low dollar amount, right? Lower dollar amount than you would if you’re paying a four cap, even if you’re getting positive leverage at a four cap.

[01:10:32] Kevin Clark: The problem is that cap rate compression is not going to happen from a four to a three or a three to a two or a two to a one. And by the way, we heard that’s the other thing, when cap rates were super low and I was like, guys, where are we going to get cap rate compression out of this? The argument or the discussion points on Twitter were, well, interest rates are going to go.

[01:10:50] Kevin Clark: And it’s like, okay, well they might, you know, sure Switzerland has negative interest rates, but do we want to be Switzerland? And by the way, you can’t borrow in Switzerland to buy real estate assets unless they’re specific type, very specific types, real estate assets. It’s not like houses or whatever are trading at those numbers.

[01:11:07] Kevin Clark: The point is that intuitively if you look at and you say, okay, prove it, it’s very difficult to prove that it’s a hedge. And what it comes down to is, sure in rents tend to grow over time. Yes. But asset prices fluctuate widely during those periods of time. And I would much rather buy in a period where I’m not overpaying for the asset to get a very marginal return because on a risk adjusted basis, I’m never going to be able to catch up.

[01:11:30] Kevin Clark: I want to slow 

[01:11:31] Patrick Donley: down a little bit on this, and you covered a lot. You taught a class on cap rates, and we’ve got a lot of beginning and intermediate real estate listeners explain to us real simply, when you talk cap rate, explain what it is, why it’s important. How to understand it when you think about 

[01:11:49] Kevin Clark: real estate investing?

[01:11:51] Kevin Clark: Sure. So a cap rate is the income on any asset that has some type of income. It doesn’t matter what it is. A dividend stock, A bond right, has an income amount. The amount of income that you get relative to the price you’re paying for it is your cap rate. So if you put a hundred thousand dollars into a bond and you’re getting $5,000 a year from that bond, that’s a 5% return.

[01:12:13] Kevin Clark: It’s a 5% cap rate. Same thing in real estate. The only difference with real estate is you’re buying the asset today and you’re projecting out what you believe the income is going to be for the next 12 months, because you don’t own that asset yet, but you’re looking at the leases that you have in place.

[01:12:31] Kevin Clark: You have a rent role of what you expect to collect, and then you have all the expenses associated with that real estate to get you that 5% return or 6% return. And we do it unlevered, meaning before debt. In commercial real estate, you do it before debt because there’s no one metric that everybody borrows from.

[01:12:49] Kevin Clark: Unlike in houses where most people use the th the 30 year mortgage. So you can be kind of close. In commercial, it’s all about the borrower, what they already own, what their, what the asset type is. So it’s much, much harder to consider debt as part of the return. So we always look at it on an unlevered basis.

[01:13:05] Kevin Clark: Keeping it simple, if you buy a million dollar asset, you have $60,000 of income after expenses. That’s a 6% return cause it’s 60,000 divided by a million. But it is that sort of snapshot in time. Reasonable expectation of expenses and expenses are everything above the line. So things like management, maintenance, utilities, real estate taxes, all of those things.

[01:13:28] Kevin Clark: Whatever’s left over, if you didn’t, if you bought that asset that at $60,000 at NOI and you paid cash for it, that’s the money you’d be able to put in your pocket. It’s the same as a cash on cash return in year one. The problem with it though, is, You don’t really know what your expenses are going to be in the first 12 months because you’re going to start owning it and you’re going to start managing it.

[01:13:47] Kevin Clark: You may decide to defer some expenses into the second year. You may decide to spend more money in the first year to upgrade things or to spend money on, you know, a renovation to get more rent. Or you may have leasing expenses that you didn’t anticipate, or somebody may renew and you get fewer leasing expenses than you thought you’d have.

[01:14:03] Kevin Clark: So the end of year one, that’s your cash on cash return. Sometimes it’s your cap rate, the same as your cap rate, but usually it’s something different. And because of all the businesses decisions you made as an owner, that’s why we talk about something, what’s called unlevered yield on cost, or a levered yield on cost.

[01:14:20] Kevin Clark: It’s sort of, okay, now you’ve owned it for a year. How much did you really make after all your expenses, et cetera. Okay, so that’s a simple definition of a cap rate. And the reason we use cap rates is we can say, I’m projecting a 6% return for this asset. I’m projecting a 6.5% return for that asset. I’m projecting an 8% return for that asset over there, and it allows us to make more of a apples to apples comparison from one asset type to another, or one location to another.

[01:14:50] Kevin Clark: It’s also supposed to measure risk, and what we mean by that is the lower your cap rate is the lower return for that million dollars you’re willing to accept. The higher your cap rate is, the more money you’re going to collect for that million dollars. Intuitively, you say, well, I’d much rather get 8% than 6%, so why wouldn’t I always buy an 8% versus a six?

[01:15:13] Kevin Clark: Well, in real estate, we have risk, right? We have lots of risk, we have rental risk, we have collection risk, we have vacancy risk. We have all these different risks that we have to account for. When we think about are we actually going to get. So the lower the cap rate, meaning the less you’re getting for that million dollar investment, the more secure you ought to be in your rent role.

[01:15:37] Kevin Clark: Meaning a credit tenant like a bank or a national tenant versus a mom and pop lamp shop, right? Mom and pop lamp shop. You may want to have coffee or a beer with them because they’re great people and the vice president of the bank is not a very nice person. But at the end of the day, the credit of the bank is better than the credit of the lamp shop.

[01:15:55] Kevin Clark: That lamp shop is barely holding on. In that example, you’re going to take less return if your bank is a tenant, versus you need more return to justify the risk of the lamp shop owner, because more than likely, at some point in your whole period, they’re probably either going to call you and say they don’t have enough money to pay the rent, or they’re going to need to leave and you’re going to have to absorb that vacancy and maybe you can’t repeat their rent because they’re paying above market rent or something like that.

[01:16:20] Kevin Clark: That’s effectively what a cap rate is. It is a return calculation, but when we think through what it is, it’s really a measure of, or it ought to be a measure of risk. It’s one reason why cap rates in a dense market lost like Los Angeles or New York City should be lower than a less dense tertiary market like Columbus, Ohio or Allentown.

[01:16:42] Kevin Clark: It’s not that Allentown or Columbus are bad investments. In fact, they may be great investments, but their underlying fun market fundamentals from a real estate standpoint are a little more risky, might maybe less demand, maybe lower barriers to entry, maybe older housing stock or whatever that you need to factor in those when you think about what you’re willing to pay versus the income you’re willing to accept.

[01:17:05] Kevin Clark: And then the last sort of thing is when you think about cap rates, there are four things that make it up though. It’s that return, but what does that really mean? And the first is there’s four components. The first is what are long-term interest rates in the economy? So if interest rates are at 3% or zero or 0% or two and half percent or whatever, you can accept a lower cap rate above that two and a half percent because your cost of debt is that much lower.

[01:17:29] Kevin Clark: Okay? So maybe you can, maybe 4% is okay because long-term interest rates in the economy are low. If interest, long-term interest rates in the economy are like they are now, which is like five and a half or six, your cap rates are going to typically have to be higher than that five and a half or 6%, because you don’t want to borrow at what’s called negative leverage.

[01:17:48] Kevin Clark: You don’t want to pay for money, you want to be earning money on the money you’re borrowing, not paying extra for what you’re borrowing. That’s called negative leverage. There are instances though, where you could accept negative leverage, and that’s where the three other components come in. The first one is expectation of rank growth at the property level.

[01:18:06] Kevin Clark: That means you buy an asset, it’s under leased, either because let’s say you have long-term leases in place. They’re below market, they’re going to turn over in a few years and you can get 50% increases in your rent because that long-term lease is expiring. That’s a typical one. A less typical one though, which is what we tend to rely on a lot, especially recently, is oh, under management or the market rents are higher than they are at the property level.

[01:18:30] Kevin Clark: That may be true, but oftentimes there’s a reason for that. Either the property manager or owner wasn’t managing well and that could happen. Or there’s some reason why that property isn’t, you know, market rent is $2,000 a month for the same unit, but it’s $1,800 because it’s not as well located, or it’s not as amenitized or other reasons.

[01:18:49] Kevin Clark: So it’s expectation, rent growth at the property level. That’s the big second thing. The third thing is the credit of the tendency, and that’s again, either, you know, in a commercial situation, it’s the bank versus mom and pop. But it also could be in residential, it could be, it’s hard to evict people. Right.

[01:19:04] Kevin Clark: In Florida it’s easy. In Texas, it’s easy. In New York it’s in California, it’s hard. If it’s going to take you a long time to evict a non-paying tenant, you’re going to have to absorb more vacancy and credit loss in those markets. So you’re going to have to pay a little less except the higher and you get a higher return.

[01:19:18] Kevin Clark: But it’s factoring that risk of credit. And then the last one is treatment of real estate taxes in the tax code. Places like New York taxes, California, we rely heavily on real estate taxes to fund the operations of the, at the municipal level. If that’s the case, then you have to underwrite longer term exposure to high real estate taxes.

[01:19:38] Kevin Clark: So people in Texas complain a lot about, you know, their taxes going up all the time every year, and that’s because they have no state income tax. So real estate taxes fund a significant amount of their operations. So if real estate taxes are high and relatively speaking in expected to grow significantly over the hold period, you’ve gotta underwrite essentially a higher cap rate to factor in the idea that over time you’re going to get your real estate taxes are going to inflate more, more substantially than just.

[01:20:06] Kevin Clark: Regular expenses. So that’s cap rates in a nutshell. So those are the four factors 

[01:20:10] Patrick Donley: that that affect cap rates. You’ve just given us a mini course in cap rates, which this 

[01:20:15] Kevin Clark: is great. And I think the really big way to consider cap rates is to understand and I frequently have this conversation, why would I take a five cap or a four and a half cap in New York when I can get a seven and a half or an eight cap in a mall in the suburbs?

[01:20:30] Kevin Clark: And what I would, what I always say to people is, are you sure it’s a seven and a half cap? Because that’s a significant difference in return. And if you actually collect that seven and a half percent, then on a risk adjusted basis, it might be worth it. But maybe that 7% return ought to be a nine or a 10 because your releasing risk there is very high.

[01:20:54] Kevin Clark: So you have in place leases that give you a seven and a half percent return. But they’re holding on for dear life and when they leave, which they will, you always lose tenants when they leave. How long is it going to take you to replace that income? And if it’s a long time because malls are dead effectively, then your seven and a half that you just paid for just became a four.

[01:21:18] Kevin Clark: So the point there is actually it should have been a 10 because when they leave it’ll become more like an like a seven. That’s the argument at least, is that it? It should reflect risk. And ideally, and the last thing I’ll say, and I don’t want to go too long on this, but the last thing I’ll say is ideally from real estate investor standpoint, when people say, I don’t really worry about cap rates, you shouldn’t be, because what you’re doing is you’re saying, you know, people say, well, do you think about the cap rate environment that you’re in?

[01:21:42] Kevin Clark: And I say, absolutely, but I don’t really care what the person down the street paid for their building. I mean, it may be a guide for me that, hey, if I’m, if I can get this that traded at a six, if I can get this for anything around a six, that may make sense. But the, ultimately, I don’t really care. For me, it’s, I want to, I want to pay a seven for something that should be a five.

[01:22:03] Kevin Clark: I want something that’s mispriced and that’s what it means. What you’re paying less for the same amount of risk, because ultimately cap rates are, they have an inverse relationship to value. The higher the cap rate, the lower the purchase price, the higher the purchase price, the lower the cap rate.

[01:22:18] Kevin Clark: So if I’m paying less for the same asset, I’m gooing my return on a risk adjusted basis. Whether they’ll like to admit or not, that’s what every investor says. I’m looking for something that’s inefficient or mispriced or whatever it is. 

[01:22:31] Patrick Donley: Let’s jump into the fire round here. I’ve got several questions here that will touch on.

[01:22:36] Patrick Donley: First one is, what’s been the most impactful book for you? 

[01:22:40] Kevin Clark: Oh, wow. Do I have it here? This is one of them. Is it backwards? It’s Capital Ideas by Peter Bernstein. Be Peter Bernstein has three, there’s three books in this trilogy and they’re all really good. But basically it talks about risk and it talks about how to think about risk and how to, are we being compensated for risk?

[01:23:01] Kevin Clark: And he talks about e-commerce and how we were able to expand commerce and it, and about, and it was really about offloading risk to, for insurance companies and factoring companies, and all these things enabled sort of global commerce. For me, it changed sort of the way I think about real estate because we like to get really sort of micro-focused on assets and we need to make sure we’re always thinking bigger.

[01:23:25] Kevin Clark: Like what’s the big picture in what we’re looking at? Because I got a lot of flack when I kept saying, guys, cap rates this low, just historically doesn’t make a lot of sense. And we really ought to be, you know, thinking about this. You know? So that’s a that’s a good one. Peter L Bernstein, he’s got three books in the trilogy and they’re all fantastic.

[01:23:44] Patrick Donley: Yeah, I’ll have to check it out. I’m familiar with that. That one’s what? The second or third one? 

[01:23:49] Kevin Clark: I think it’s the, it might be the second one. I actually can’t I have them all here, but I usually have them on my bookshelf here, but they’re at one of them. They’re some of them at home. I mean, from a real estate standpoint, you know, the big short is great and it’s not really even, and the reason why I love it is a market analyst is all of the information.

[01:24:07] Kevin Clark: You know, we like to think that people who make a lot of money in real estate are geniuses or in any financial sector, are geniuses. And the reality is the group of people that shorted the housing market, all they did is the first thing is they said there’s something wrong and is it measurable?

[01:24:26] Kevin Clark: And a, we all knew something was wrong if you went to, I mean, the capital markets conferences. NYU has these great capital market conferences every twice a year. And at the capital Markets conferences in 2007, they talked about is anybody worried about the housing market right now? And every single one said, the only thing I’m worried about is condos in Brooklyn.

[01:24:44] Kevin Clark: Well, condos in Brooklyn six months later blew up. So we all could see there was something wrong in the market. Okay. But then they took it one step further and they said, is it measurable? It’s not my gut, you know? My gut says, yeah, this is wrong, but hey, everybody else is doing it, so I’m just going to do it.

[01:25:01] Kevin Clark: What they did is they actually went and they looked at the loans. That’s all they did. They went and they looked at the loans and said, these loans are garbage and the information is available. They put the work in. They did the work, and they were like, as crazy as it seems, it’s, you know, it’s another great one.

[01:25:15] Kevin Clark: Especially an easier, easy read. Yeah. And great movie, obviously. How about your best investment? My best investment, I’m going to say my education. Yeah. I think that’s born way more than I could have ever expected, and I’ve always looked at it as an investment in myself. I mean, there are other ones I would say that are not financial, which is like marriage and kids are huge.

[01:25:39] Kevin Clark: But yeah, I would say the money I spent on my education has returned 30 40 x easy. I’ve made a lot of bad financial decisions. I invested in a restaurant, which is really dumb. Lost the money there. I’ve invested in stocks that I really liked a lot and didn’t make any money on. I’ve made good money in real estate for sure.

[01:25:56] Kevin Clark: But yeah, education bar none. 

[01:26:00] Patrick Donley: Kevin, thanks a lot for your time. I do appreciate it here. It’s been fun. For people that want to learn more about you or reach out to you, what’s the best way for them to get in touch, learn about the course that you’re teaching, things like that? 

[01:26:11] Kevin Clark: Sure. Easiest is definitely Twitter, just d Either add me on Twitter or DM me.

[01:26:16] Kevin Clark: My dms are open and that’s the easiest way to do it. For sure. Kevin, thanks so much for your time. I appreciate it. Hey, you too, Patrick. Thanks so much. I’ll see you soon, okay? 

[01:26:25] Patrick Donley: Okay folks, that’s all I had for today’s episode. I hope you enjoyed the show and I’ll see you back here real soon. 

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