Podcast Episode 332: Larry Feldman, CEO Feldman Equities
Reinventing the Office Building
The Investor Acquisition System:
- Find More Investors
- Raise Money Online
- Finance Your Projects
WHITE BOARD WORKSHOP
Larry contacted me via LinkedIn over the summer and asked what I knew about digital marketing and how it could benefit his company. Little did I know at the time that I was speaking to one of the real estate industry's foremost marketing experts.
What Larry did not know, though, was how to transition his formidable marketing machine from the analogue to the digital world and so he hired GowerCrowd to do it for him.
In this episode Larry and I talk about the power of digital marketing, how it is revolutionizing real estate capital formation, and how you can also harness these resources to stay ahead of the crowd.
Find out more about Larry below including a short video of his website before GowerCrowd got to work on it, as well as, of course, a link to the website now.
What You're Going to Learn
* How the Life of a Real Estate Developer is Not Always Glamorous.
* How to NOT Lose Your Mind While Losing Thousands of Dollars
* How a Sponsor's 1990s Marketing Strategy Compares to Today's.
* How Crowdfunding Has Democratized the Real Estate Business.
* The Limitations of Old School Methods for Raising Capital.
* How Real Estate Crowdfunding Keeps Cash Flowing for Ongoing Development.
* Why to Give Away All Your Secrets to Success.
* Why Being Authentic and Having Fun Are the Keys to Successful Digital Marketing.
* What to Realistically Expect from Your Real Estate Crowdfunding Launch.
* And much, much more.
Listen To or Watch the Full Podcast Here
Feldman Equities Website Rebuild - Before and After
One of the most important drivers of a successful digital marketing system is having an effective, lead-generating website that provides high value, educational content to subscribers. Check out the before version of Feldman Equities' website (short video) before the GowerCrowd team got to work on it, and then visit the new website to see the new version.
The Life of a Real Estate Developer is NOT Always Glamorous
Larry: We have been in the real estate business for about 35 years. Actually, my dad preceded me, and my grandfather preceded me and now, my son is fourth generation. My dad used to say that the commercial real estate business is somewhat like a manufacturing plant. The role of a developer is somewhat like a manufacturing plant, where, at one end of the manufacturing plant, by the loading dock area, the tractor-trailer loads pull up. But the only difference in the real estate business versus, say, the widget business is that the tractor-trailer loads need to be filled with cash because this is a very capital-intensive business.
While real estate developers have a very inflated ego, and a lot of people think I sit in a vault counting gold coins, and I fly around in private jets all day and go on two-months vacations in the Riviera, it really isn't exactly like that. What it actually boils down to is, at times, I'm a professional beggar for capital. Even though we've got some of the largest institutional joint-venture partners in the world, who we've had great relationships with, the money runs hot and cold.
For example, we partnered, a while back ago - and I probably shouldn't say the name - let's just say it's one of the largest financial institutions in the world. We hit the ball out of the ballpark. We literally hit like a 40-percent IRR overnight with this particular fund. Two years later, they had decided to pull back from the real estate business, where we felt it was the second or third inning of the recovery. We saw a lot more opportunity, but that spigot had turned off, even though we hit a home run for them. They extolled our virtues; in fact, talked about us at a national conference. Then, the money just sort of turned off.
How to Not Lose Your Mind While Losing Thousands of Dollars a Day
Larry: The beginnings of my real estate career were in the 1980s. I developed a tower in midtown Manhattan called Tower 45. The delivery of this building to the market, meaning the completion of the construction, was at the absolute worst possible time in the history of New York, or certainly one of the worst recessions New York had had in the last 30-40 years; perhaps worse than the '08 recession was the 1990 recession, which followed the savings and loans collapse on a national basis, but it infected every part of the real estate business, particularly in Manhattan.
We had developed this 40-story tower, which we had pre-leased with a grand total of six-percent pre-leasing commitments; meaning the day the building opened, it was 93-percent vacant. I think I mentioned this to you before, we calculated that every day that went by, it was roughly $44,000 a day we were losing in interest. It was about a $140 million construction loan and debt that we had on the property. The construction loan, the real estate taxes, the insurance, and so on was about $44,000 a day - the cost of the vacant space.
You can kind of lose your mind if you take it too seriously. Fortunately, we didn't take it too seriously, but we broke it ... I remember thinking to myself, "Well, if I go to sleep, that's going to cost me about $8,000-$9,000. If I take a shower, that's about 400 or 500 bucks, and if I go to the bathroom ... Well, depending ... We won't go into detail, but you get the idea. You could really lose your mind on that.
We decided to have fun with it. We actually, instead of really going crazy, mentally taking it too seriously, we decided to have a lot of fun. How it all started was that the ad firm came to me that we had hired - a big, fancy New York ad firm that represented virtually every major real estate developer who had developed a high-rise office tower in Manhattan hired this firm - and they said, "Larry, here is your bill. We want you to sign on this: $50,000 for The Wall Street Journal; $50,000 for The New York Times; full-page ads. You've got to do it. Every building always does this."
I said, "Wait a minute ... I'm going to spend $100,000 on ads, one time, and this is going to be shown - in the case of The New York Times - maybe to ladies going to sales at Macy's, in New York, to buy bedding for a new bed that they bought. Am I really effectively targeting the market?"
In college, I sort of majored in sex, drugs, and rock and roll, but I did learn a few things, and I actually, believe it or not, still remember one or two things. When I went to college, I had these two Harvard MBA- former Harvard MBA young guys that were actually out in the marketing world, themselves, running a marketing firm. So, I took this marketing course. They hammered home - know exactly who you're marketing to. Really, it was one of the few things that I remembered, and I learned from college.
We actually do 90 to 95 percent of our leases through commercial real estate leasing brokers. So, these were not just brokers who did homes. In fact, the brokers we deal with almost never sell a home. They are strictly specialists in commercial office leasing. We discovered that they did about 90-95 percent of our deals, so we said why not channel all of that marketing money to that discrete group? And we went ahead and did that, but we did it to the nth degree.
We literally bombarded these 300 brokers in New York City, who are specialists in commercial leasing. Every week, literally, we somehow contacted them. Now, that might have been a coffee mug with the name of the building and the leasing telephone number. It was squeeze balls, which was big in 1990 [crosstalk] A lot of tense people in New York.
One of the most notable things we did was we sent out 300 live trees, live trees with seedlings ... These were seedlings of the trees that were going to be in our atrium as we completed the building we were building. It was a 40-story tower in midtown Manhattan, which had an outdoor atrium. The outdoor atrium had trees. We found a seedling company that actually had that exact tree. We put it in a root ball, in a box, and on one side of the box was your planting instructions for your new tree, and on the other side of the box was all kinds of leasing information and why you should lease space in the building.
How a Sponsor's 1990 Marketing Strategy Compares to His Strategy Today
Larry: We set out this concept, which was that the amount of quantity that we were sending out, in measurable quantity - we had this concept - would equal the amount of leads coming in. It was a hypothesis. We didn't know ... We were only six-percent leased. We didn't know for sure, but that was the hypothesis.
We had this ever-increasing ramping up, and ramping up, and ramping up of marketing going on all year, following the opening of this empty building. P.S. a year later, we were over 90-percent leased in the middle of what was a near depression in the real estate business. All around us, buildings were being foreclosed, and we were one of the few surviving buildings that had been built in that era that had not been foreclosed and taken over by the bank. That's how bad the situation was and how good our situation was.
I never forgot it; a real estate developer came up to me and said, "Larry ..." this was a guy being foreclosed. He said, "How did you do this?" He just wanted to know, and I told him, but I don't know that it registered, because what I'm saying, it sounds so simplistic. It's really the number of flows out equals the number of flow in [crosstalk]
Adam: -right, but it's not just volume, is it, Larry? It's the quality of the outflow; it's the [crosstalk]
Larry: No doubt. It's the quality has got to be there, and the create, and the fun part of it. That's what was so interesting about that 1990 experience. We were making very creative ads. We were sending it out in massive ever-increasing quantity, so we were doing both-
Adam: To the same people, right? Let me ask, of the things that you, and I are doing together, the things that you've seen me produce from conversations like this, the videos, the articles, the thumbnails; just this massive ... What similarity do you see between what we're doing today? Connect the dots with that experience.
Larry: Sure. One of the things that I love - I had never seen this done before - was what you just created, which are these little two-minute snippets, I call them. I don't know what word you have for them, but it's like a two-minute video, which is an edited-down version of maybe a half-hour talk that I might have done with you, and you have a more flattering picture of me, by the way, than I look currently; so that was nice.
Adam: It's your high school graduation picture. I use that one for me, as well.
Larry: Alongside it is actually in very bold letters what I'm stating in words. So, you hear the audio and then, up on the screen, you're seeing the actual words coming up and scrolling, and there's a couple of cool graphics that are coming up showing sort of the sonic electronic. It's very eye-catching. I can email these out, en masse ...
The thing that you educated me on that I've never thought about before - it never even dawned on me before - is you keep putting these into a library, and putting these into a library, and it's massively accumulating. It's a lot of work for us to do this, but then, it's forever. It's there, and it's working for me day and night.
When I'm asleep at night, somebody could be clicking this stuff on, and five years from now, they might be clicking it on, because the things I talk about are not just faddish ... I'm talking about a story that happened in 1990 that's still relevant in 2019.
Crowdfunding Has Democratized the Real Estate Business
Larry: Well, one of the things we specialize in, and our main focus, is in high-rise buildings in downtown environments. I'm sitting, right now, in the Wells Fargo Center building in downtown Tampa. This is a building that we are currently in joint-venture ownership with New York Life Insurance.
When people see a big high-rise building like this, including some very sophisticated people in our business, they automatically assume that I'm in ownership with somebody like New York Life Insurance. Historically, insurance companies were some of the most prevalent owners. In fact, if you went into virtually any downtown 20 years ago, you could just walk down a street, and it would be likely that you would run across a building that was owned, at least in part, if not wholly, by an insurance company.
The reason that they like high-rise buildings in downtowns is that they're steady-Eddie - what we call - coupon-clippers; meaning the cash flow is very steady and very safe. So, when they sell life-insurance premiums to a 30-year-old recently married couple with maybe 1.2 kids, they are hoping that that person lives to 104, so they don't have to pay the insurance premium.
All during that period, they own these office buildings, and they keep throwing off dividends. So, by the time that person dies, they have not only enough money to pay the premium, but they've also got a lot of money left over, which they call profit. That's the history and the reason why you see these big giant institutions owning these high-rise buildings.
The average investor, or even somebody that has a half a million, or $100,000 to invest would just walk by one of these office buildings and just say, "Oh, well that's just way out of my league. I wouldn't even look at something like that." Now, all of a sudden, we have democratized the business through crowdfunding, and it really opens up a whole new world.
Old School Methods for Raising Capital Have Their Limitations
Adam: In the past, you would raise money from institutional investors, and that would be a meeting, presumably, with them, or you'd present your deal. You would have to explain your background, if they didn't know you already, and your track record. Then, you would explain the numbers on the deal, and there'd be a negotiation, et cetera, right That's basically how ...?
Larry: Yeah. Major institutions are devourers of information. They have databases that give them demographic information. They want you to provide a tremendous amount of information. The process could go on for many months before an investment is committed. The good news with an institution, though, is that they write one check. So, after six months of - pardon my expression - proctological examination, you do get the money. It's a great thing to have one check.
Adam: Now, have you raised money from individual investors, as well, over the years? High net worth-
Larry: High net worth folks; friends and family; the golf-club buddies; those kind of things are typical of real estate developers, but, you know, it's a finite source. Then, sometimes, you feel uncomfortable about leaning on family or close friends to be your investors, and there's a limit to how many times you want to go to the bucket.
How Real Estate Crowdfunding Keep Cash Flowing for Ongoing Development
Larry: Going back to that story my dad told me, with the tractor-trailer loads, you need to constantly have those tractor-trailer loads of cash coming into the manufacturing plant in order to ... It's got to be a constant inflow.
Adam: Okay, let's talk about it. Let's continue that analogy, or metaphor, because it's quite an interesting one, actually.
Adam: The tractor brings a huge, great big shovel full of product, of raw materials; dumps it in; and you're able to do everything you want for weeks and weeks. With crowdfunding, you've got people walking up to that back door with a teaspoon, or a small shovel-
Adam: -and dropping it in. So, to adopt that, or to continue that thought, aren't you concerned that having a wave of ... Or having too many investors all asking questions, and having ... How do you manage them? What have you been your thoughts about that?
Larry: We've just started to staff up for that. We've done two very successful offerings. We have now a very personable, people-friendly young lady in our office that interfaces with the investors - an IR person. As we do more deals, the economy of scale of being able to hire- keep her full-time on doing this starts to become more efficient.
We find that if we stay out ahead of the investors with good, regular newsletters that are good, sufficient detail and communicate often with investors and create a Q&A section in our websites, those are all the things that we're doing to help improve communication to stay out ahead of it, rather than wait for investors to call us up and say, "What the hell is going on?" We stay out ahead of it.
The idea, though, to have a constant flow of even small investments is terrific. You know that we are now working with you and setting up our own portal on our own website. We are working with CrowdStreet.com, where we do our marketing through them; but, as an adjunct to them, we'll be actually able to market directly to investors, very, very shortly, on our own website.
That is an ideal scene for us, where we will have a fund that will establish a certain amount of working capital, so that when we see an opportunity, we can pounce on it. A lot of the relationships that we have in the business are from owners/brokers, who have a deal that is not publicly known. It might be what we call an off-market deal that we want to buy discreetly.
The seller might be in a position where, let's say, his lender is sort of knock-knock-knocking on his door. He may have a significant vacancy; hasn't really been able to reinvest in the property, and he's got to sell quick. You want to have the dry powder to execute quickly. So, having a fund set up, where money is coming in constantly and replenishing money in that fund to go out and buy a deal, so that by the time that deal closes, more money now is coming in for the next deal, this is the ideal scene for a real estate developer.
Why Larry Gives Away All His Secrets to Success
Adam: For most of your history, you have raised money from institutional investors. That's been a very, very small group of people to whom you have shared, or with whom you have shared absolutely everything. So, now, basically, you're doing the same thing on an industrial scale with individual high net worth investors. Aren't you concerned that the intelligence, and knowledge, and experience that you've built up over the last 30 years is going to be widely known and your secret sauce will no longer be secret?
Larry: You know, it's a funny thing ... My wife sometimes says to me, "Larry, you can't give out all your secrets over the internet. Don't write these articles!" I say, "At this stage of my life, I actually feel like ... I love the teaching aspect, and every time I have to teach something, I actually learn more."
My dad used to say, "You never begin to learn a subject until you have to teach it." It's true that, at times, people do take our ideas. When we first got to Tampa, we bought a lot of under-performing, or even distressed office buildings, and they had virtually no, what we call, amenities.
What do I mean by amenities? In every building we bought, we put in what you would consider to be a first-class fitness center; a real fully equipped gym with typically $100,000 or more worth of brand-new commercial-grade gym equipment, shower facilities, locker rooms. What you'd expect to pay - 30, 40, 50 bucks a month or more - for a full-service gym, we basically gave that almost for free to our tenants.
Then, we put in chill zones, which are a 24/7 laptop areas with a cappuccino machine running. You could come into a space at 2:00 in the morning. We upgraded all of our lobbies and our common areas. We did all these things ... Shoeshine, car detailing; you name it, we put it in.
Then, other people started to imitate that and now, everybody's doing it. Now, we have to up our game. We like to say we're reinventing the office building, so we're going to ... We're working on some really cool new ideas to up our game. Yeah, it's possible people will take our ideas, but it'll just make us better, and I'm not really worried about.
Two Keys to Successful Digital Marketing
Adam: ... Working together for just 60 days and, in fact, before we started this podcast ... It's actually an interesting time to be talking, today. You gave me the thumbs up to launch, basically. Time to go live. We've done a lot of work over the last 60 days. I'm not going to lie-
Larry: Yes, we have.
Adam: So, it's an interesting moment for us. This is the "before." All being well, in a few months, we'll have ... I said we'll have another podcast from hammocks in Hawaii or something, celebrating the results.
Larry: That sounds good.
Adam: Let's hope so. In the first 60 days, let me ask you, what has been your experience of gearing up to go digital? And I suppose I have another question that I'll follow up with in a moment, as well, but what has been your experience? What have been the most surprising things maybe? The hardest things?
Larry: You know, I listen to almost all of your podcasts. I love listening to your podcasts. I've learned something from every one of them. There was a recurring theme that I would say at least two, or three, or four of your guests identified, which was - be authentic in how you do these presentations; whether you're doing articles, or you're doing videography, be authentic.
I also took from that page of the old playbook from 1990, where we had fun. You, and I have had fun over the last 60 days. It's been hard work, also, but, for example, when you were here in our offices, we just did a freewheeling tour of the building with the cameramen. This was actually an idea that came from one of your podcasts. I forget who- it was the famous videographer that has this million followers of YouTube.
Adam: Yeah, Gary. Gary Lipovetsky.
Larry: Right. You asked him, "What do you suggest for a real estate guy doing crowdfunding?" He suggested a sort of a show-and-tell, where you would actually walk through the real estate and show people what we were doing. On the spur of the moment, with no script whatsoever, we just started walking through the building, with a cameraman, and my second in command.
We were joking it up and just talking about some of the things we had done with the renovation and how we leased up the building. We were just ... We went into bathrooms and into elevators. We showed how we renovated them and how our elevators are so much faster now that the lawyers have more billing time because they shaved a minute a day off of each lawyer, and at the end of the year, they added up ... We did all kinds of goofy things like that and had fun doing it, so it wasn't a tour ...
What I realized about marketing is that it has to be the heart and soul of your business, to be successful today. Business just doesn't come to you. You've got to reach out and get it. Why not have fun in the process of doing that?
Realistic Expectations for a Real Estate Crowdfunding Launch
Adam: We are at launch. This is it. We're about to take off. What are your expectations? When we press that button, what do you expect? What are your hopes and expectations?
Larry: Well, the older I get the more I believe UPOD, as opposed to OPUD ... UPOD is Under-Promise; Over-Deliver. OPUD is Over-Promise; Under-Deliver and is a double entendre.
Adam: Right, got it.
Larry: I do that with myself, also. I don't necessarily believe this is going to result in a million dollars a minute coming in, in investment. It's a long-term investment. It's creating this library that we've talked about that is something that we're going to constantly build and constantly sow, almost like you would a garden. Your garden just doesn't ... You don't just throw some seeds down and come back six months later. It's a constant effort. So, I'm under-promising to myself on this effort. I think that, over time, it's something that's going to happen.
One of your podcasts - it was the Origin Investments folks - astounded me with $103 million dollars that they raised; 24 hours or whatever the number was. But, if you listen to the woman that you interviewed, she said that was a year's worth of work that led up to that; over a year's worth of work in building the database, and building the content that really gives back to the community that you hope to attract, which is making yourself a valuable resource on the internet. You, and I have spent a lot of time just kind of doing a Vulcan mind meld [crosstalk]
Adam: We have, haven't we?
Larry: -36 years of the business being spewed out into video, which fortunately, you've been able to transcribe it into articles and so on ... All of that educational aspect, I hope will be a great resource for folks interested in office-building investing, or just investing in real estate, in general.
The Investor Acquisition System:
- Find More Investors
- Raise Money Online
- Finance Your Projects
WHITE BOARD WORKSHOP
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