Making Money in Multifamily Real Estate Show

173 | Using local backing to accelerate your opportunities with Nick Earls and Eric DiNicola

March 09, 2022 Dave Morgia Season 1
Making Money in Multifamily Real Estate Show
173 | Using local backing to accelerate your opportunities with Nick Earls and Eric DiNicola
Show Notes Transcript

Eric/Nick's Background:

  • Nick is the co-founder and managing principal of Winterspring Capital and has over a decade of experience in all phases of commercial real estate, including asset management, sales, new construction development, and property management. While building his own portfolio, he has also guided many investors down the path of multifamily investment, management, or development. He is an expert on underwriting and asset management in the multifamily space and also the author of the top-rated book “Making Millions through Multi-Family Development.”
  • Eric DiNicola, co-founder and managing principal, has a strong financial background spanning over a decade. Eric understands the importance of investment diversification.  He began working in public equity in 2010 and moved into the private equity markets where he worked on valuations and capital raising.  Joining forces with Nick in 2015, he leveraged his investment experience and expertise to accelerate the growth of our real estate business.   Heading up our acquisitions team, Eric leans on his extensive broker network to keep our deal pipeline full.

In this episode we cover:

  • 04:43 Opportunistic Investing
  • 08:29 Understanding Submarkets within a MSA
  • 12:26 Getting buy in from the city and locals
  • 18:26 Buy and hold structuring
  • 22:11 Lump sum preferred return
  • 33:02 Patience involved in investing in Boston
  • 36:00 5 Key Questions
  • 46:59 Outro

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Intro:

Welcome to the Making Money in Multifamily Show, where we discuss everything to do with multifamily real estate investing. We believe it's the best way to gain financial freedom and build lasting wealth. This is where you'll find it the best information and practices to help you succeed in your real estate business, whether you're already experienced or just starting out. Here's your host, Dave Morgia.

Dave Morgia:

listener and welcome to the show. I'm your host, Dave Morgia and with me today is Nick Earls, and Eric DiNicola, Nick and Eric, welcome to the show.

Nick Earls:

Hey, Dave, thanks for having us on.

Dave Morgia:

Yeah, I just really appreciate you guys coming on. And just for the listener want to give you your background to them. So Nick and Eric, have founded Winterspring Capital, they both bring, you know, tons of experience in a couple of decades combined. In the real estate realm. I'll pretty much all facets of it. So Nick is the Managing Principal. And he's done asset management, new construction, property management, he pretty much runs kind of the more we spoke Nick, earlier, before we record it, but more the entrepreneurial side, if you could call it that, of the business. And then on the flip side, Eric is is more of kind of the business management, more financial background understands, kind of the more portfolio management and a little bit more of, yeah, I guess more of the numbers side of things. So would you guys just mind kind of digging into your backgrounds? I know, you have a lot of development experience and kind of a lot of creative methods to get real estate done today. And and I know you're up in Boston, Massachusetts area and a couple of these deals. So yeah, if you just wouldn't mind digging in a little bit.

Nick Earls:

Yeah, absolutely. Eric, and I've actually been friends since we were kids almost 20 years now. And just growing up in high school, we always kind of did these team oriented activities, powerlifting, football played, you know, competitive video games, stuff like that. So good, you know, good teamwork between the two of us from a young age. And we also kind of had that I don't really want to work for someone else kind of rebel streak, you know, behind us from a young age, didn't know how we'd implement that. But just get ahead. This idea out there went our separate ways, for a few years went to different colleges. And I got my real estate license out of college, I was in kind of a smaller commercial, residential apartment buildings, Massachusetts, and Connecticut. And I kind of saw the more investor side of real estate, I actually come from a construction background, my parents owned a contracting company growing up, doing kind of public work. So I knew construction, but I didn't like that. I'm not, you know, I'm not good with my hands. And yeah, my father was a carpenter, my brother's a carpenter. So I knew I wouldn't do that. But I saw the financial side of it. And I really understood that, you know, this is a way that you could achieve financial freedom and kind of security that we're looking for control our own lives, and, eventually, someday, maybe not even have to work that much retire. So I told Eric, and we had this plan, we're gonna save up money, we're gonna buy a rental property. And we're doing that for a few years. And in the process, I saw an opportunity and condominium development. In some of these up and coming neighborhoods of Boston, Boston is one of the number one life sciences cities in the country. So you got biotech and medical, you got Madonna, one of the vaccine producers and Cambridge right outside of Boston. So you've got a lot of these high income workers flooding into the city. And a lot of them are renters, but a lot of them also want to own condos. And so there's a good opportunity there. There's a huge supply shortage, due to some red tape and barriers we could get into. But we decided instead of buying a rental property, we would buy two family where you could add a third unit was in a three families don't. And I we had saved up money for maybe like four or five years at that point. And that's how we got into it. We've been doing condo projects ever since. Nowadays, we're doing some other stuff as well. We're doing affordable housing project and we're doing a office to apartment conversion project as we're kind of building up our own rental portfolio, but we always do these condo jobs. And yeah, it's just kind of a niche. That's that's served us well over the years.

Dave Morgia:

Yeah, and I guess you mentioned a lot of the bases these condos, right. So it seems like one of your strengths and we can dig in further but would be kind of finding these development niches where there might be some opportunity others aren't seeing, not literally opportunity zones necessarily but opportunity nonetheless, where maybe you mentioned that duplex that could turn into a try. It's, it's something that has value that you might not be able to tell if you're only looking at the high level, can we just kind of maybe pick it that is to something more recent, or even just specifically one of these kinds of deals or something where you were able to value something and determine it was a good buy that maybe someone else wasn't seeing?

Eric DiNicola:

Yeah, that's, that's a really good point, Dave, I think we're very I know, we're very opportunistic, guys. Our company that, you know, we formed and got to this point is a very opportunistic company. And we're not, you know, married just to that one niche and say, okay, look, this is what we're doing. That's it, this is all we can ever do, where we are really opportunistic. So we saw, you know, the first one that Nick was talking about the, the the two family, we call it to family over I know, it says duplex, you know different parts of the country. But you know, as duplex, we turned into three individual units by adding a bit to them, and then sold them individually. And so that was something where within the zoning code, we didn't need any special permission, which most of our projects, we need special permission, which is a whole big process. But Nick found this situation where he said, there can be a lot of value added here, without sort of going through all these additional hoops that we now typically go through, there's not many of those projects left in Boston, where there's a lot of value. You know, he's that we're seeing, and we're, we're pretty much seeing everything at this point in our backyard is, there's not a lot of though, so what you have to do to really create value is be creative, be opportunistic, you know, kind of morph with the market as it changes. And so, you know, that's where we've come now to, we're doing the condo development still, you know, we'll see to family and we say, Okay, well, you know, I think based on the size of that lot, we can knock this thing down and build a seven unit building. And, you know, we'll have conceptual plans will do, it will take a long time, we'll go through the process. And then we'll sell seven individual units to seven new homeowners. And it's great, you know, but we're really seeing a new opportunity over the last year or so is kind of the thing, it's been touched on a little bit so far here today is the office conversion. So we found as you get a little outside Boston, and Nick alluded to this, the red tape in Boston is becoming you know, thicker and thicker. whatever term you want to use, it's becoming more and more difficult as a developer to do anything, especially smaller firms, small and medium sort of firms. You know, like some of the big guys, it's no matter what you know, they're going to get through, they're good, they can push their weight around, they have a lot of money behind them. All the other firms out there, though, they're really they're fought from every angle, it says, if at this point, you know, Boston doesn't even want you to develop in their city, they don't want you to upgrade a parcel of land to its highest and best use, you know, that we see. And we think, hey, we can do this, we can do that. They put up many barriers. So we're starting to go outside Boston a bit and seeing that there's some opportunity and maybe conversions. And not in sort of the original sense that we found, you know, to family and made it into a three we're seeing, okay, there's old buildings that are really underutilized. There's a high demand for rent and some of these satellite cities for, you know, for renters to find spaces to rent, I should say. Maybe there's kind of a connection there that we can make, can we turn these underutilized spaces, and when I say underutilized, I mean, pretty much vacant, you know, not even like, you know, one big tenant is narrow using it properly. It's really, you know, the building we have now under agreement, for example, it's about 50% occupied of offices. So this isn't a satellite city outside Boston, where we said, okay, look, there's some retail on the first floor. This is an area where they will the city wants you to help them redevelop it. They want you to bring money in they want you to bring renters in they want people to live there to move there. The crime rate has really gone down over the past two decades in the city. So it's there's a few of these kind of like I'm saying satellite cities around Boston where this is still possible and rents are very affordable for normal family or normal person normal renter. So we've come in and we saw an opportunity to convert this about 50,000 square foot office building and retail on the first floor into 31 apartment units with a bit of office space on all the upper floors there and then the first floor will remain for retail spaces. So it's kind of like a covered land play, where we're gonna still collect rent from the retail tenants who have leases in place while we work on the upper floors. And unlike Boston the process to getting special permits something like this it'd be so difficult in Boston you're not only are you adding you know All these changes, you're actually changing the use from, you know, commercial residential, so that but they welcome that here, they want you to do that they're willing to work with you, they're willing to give you the special permit if you can follow certain guidelines. So that's something where we, we see a really big opportunity to come in and create homes, for renters, and from an investment standpoint that we're gonna hold on to this asset. So it's something where we can now continue to build our company's balance sheet once we're done with this thing, rather than, you know, selling for even, you know, great profits, sometimes the condo projects, once we sell them that that's it, you know, we sell it to homeowners, and we're out of it. So this kind of is a two fold opportunistic approach where we see the market is allowing us to do this. And then we see, okay, this also benefits our company. And the third prong, I guess you could say, you're bringing renters into the city, who actually, you know, want them.

Dave Morgia:

Yeah, so All right, I got a few things coming out of that. First one is just to, I guess, highlight, it seems like you guys are very agile in the fact that you can keep creative on these deals, but remain flexible on how they get done and still be in your market. But also where they get done. You're talking about hopping to different smaller sub markets here outside of Boston. And then the second thing I noticed was, was really, and you really briefly kind of highlighted Eric, but just the the city by in the town buy in on that. It sounds like if you guys come in, and you guys are a strong team, someone comes in like a strong team like yourselves, and has a great idea like that, where they're trying to. I mean, there's like cities like this all over the US, right? Especially I come from more of the rust belt area in upstate New York, just towards the end of the Rust Belt, if you were to kind of draw it out, you know, towns are looking to get redeveloped. They're just itching for a good excuse to have businesses come back small business. So what does that look like for you guys? Day one, to identify that opportunity, and then go to whether it's the city or the owner of the building that needs repurposing, you know, how does that look like for you guys to come in super strong and ready to rock to actually make kind of honestly something out of nothing?

Nick Earls:

Yeah, so I mean, I could even go through that whole process of when we identified this deal on the open market, we had never done a project in the city before. But we have years of experience kind of with an even more difficult market where you're, you have to get permission, literally from the neighbors. And you know, there's so many neighborhood groups, and there's a lot of political, you know, stuff you got to do. So we're used to that. But we knew this a new market. So what is how is this going to work? So what we did is, before we even put an offer on the property, we were calling the city government, we were talking to the city planner, and we were talking it's also a historical building, it's an old used to be the heart of you know, the the industrial revolution here in the United States is a city called low. So there's a lot of these really nice historical buildings from the 1800s. And you can actually get make additional profit, you can get tax credits when you renovate them. So that's another aspect of this project. But we identified this project, and we said, Okay, is it feasible, what's the government, you know, think and so we called them. And we learned that even though by the zoning code, you're not able to do residential on this particular street, that's an outdated zoning code, and there's just not really enough political will to completely revise it. But they have this special permitting system, and they're actually encouraging you to go in there. So that was a good kind of, you know, green signal for us to move forward. Knowing that the city was on board before we even put an offer, before I even toured the building, actually, because that's step one to us, because we're, you know, we're very used to having to scale those barriers. And then from there, it's getting a zoning attorney. So we we spoke with a couple brokers, commercial brokers in the area, and they all kind of recommended to us the same guy, the same zoning attorney, which is a good sign. We always go for kind of word of mouth recommendation. You can you know, you're not going to get it from Google or forums. You got to talk to people or you know, boots on the ground. You know, when we start off, we want to Google stuff and that just doesn't work. But you get the recommendation. We spoke with him and he's right in there speaking with the city from day one. We have an architect we've been working with for years. We had him come in there, measure the building, we had our contractor walk through Give us a price. So we've kind of already assembled the whole team before we've closed. And we're already, we already have a preliminary plan set. And we're going to be submitting for that special permit. At the end of the month here, I forget the exact date, but the end of December.

Dave Morgia:

So, yeah, the strong team, I guess, obviously, especially when you get to the local level here, there's probably a good level of buy in when you're already using kind of the local players. Was that part of the decision to I guess? Or was it really just to find the most qualified? Because like you say, it's a little bit political when you're talking about something like this? Right. So So what was kind of the thought process through that vetting too?

Eric DiNicola:

Well, I would say, you know, our initial goal wasn't to necessarily get someone in law. But once we once we heard, you know, oh, yeah, we've worked at this guy, the the state, you know, again, tax credits, this firm is done state tax rate, Sr, this firm has done federal tax credits, oh, we've all done, you know, projects in the city that made us feel a lot better. And, you know, we knew we were making the right decision with these people.

Dave Morgia:

Got it. So it's kind of just a good match on both sides of the coin there. And then really getting into you mentioned that this deal is different, technically, but not necessarily using a different skill set. Can we just dive in there a little bit? I know, this is kind of a, you know, basically a repurposing of an old historic building. How are you guys using, you know, your construction background and your backgrounds in general to structure this deal? And do it more of, you know, I guess the more real estate side of things to get this deal developed in through the wickets?

Nick Earls:

Yeah, so I mean, for us, it's kind of a confidence thing, because this is really, it's a value add deal, which is what everyone's going after. Because if you can add value, you can generate the most return for yourself and your investors. For us, it might intimidate a normal person to say, well, we got to completely gut renovate this building. And it's a historical building, we've got to get a historical process, we got to get a special permit. But since we've been building these condos, and we get special permission on most of our projects, we feel like you know, it's a slam dunk. And and it's, it has been so far easier. In the process we've done so far, then, you know, projects we've already dealt with. So it's, it goes back to the classic thing of adding value, you know, we know how to build a building from the ground up. We've done historical renovations before actually were returned them into condominiums. So having that experience behind us kind of makes this project not feel like anything new, even though we're you know, we're in a new city, we're getting tax credits and some sort of things that we haven't done before, but it's all the same sort of skills we've already built up.

Dave Morgia:

And then this deal sounds like more of a, you know, a legacy project for you guys, you mentioned the condos more than flipping, if you were to commit to anything, and this is more of a buy and hold type of situation, or at least a long term hold. Are you able to structure this? So it's only a deal between? You guys? Are you bringing in investor capital as passive money? How is this structure kind of on the equity? And and that I guess, I mean, how are you guys getting this deal? Done?

Eric DiNicola:

We are, we're currently working on structuring it. You know, we've talked to a few guys about the debt so far. Since you're dealing with, you know, tax credits as part of it, it's almost like that's another capital source that gets kind of worked into the overall stack, which is new to us. We spent a long time sort of studying and talking to, you know, consultants we're working with and the advisors and the attorney. It also helps that our general contractor has done his own tax credit project in another city in Massachusetts. So that that kind of helps, so we sort of pieced it all together, and we figured out, okay, you know, you could go into this like a normal project where you have your entire capital stack up front, you're buying the land, and you're getting the construction loan, and you're gonna start in our case, since there's sort of a longer build up or working on applying for the tax credits and that sort of aspect. It makes it a bit different. So in our case, you know, we're probably going to acquire the end up closing on just a building. First, we'll own that we'll be taking an income from those existing tenants, which is nice as we continue to kind of go through the process. And so that'll be structured, you know, most likely kind of a typical like 75 LTV put down 25%. And we'll be raising capital for that. And the way we we kind of see this investment working is, we're going to give, you know, our investors people are interested in it's a play like this, we're going to give them a preferred rate of return. So until they were going to go through the process, it'll take a couple years at the end, will either sell or refinance either way, they get that return at that point, whether from the sale or from the cash out on the refi, before we see anything. And so that's kind of a way that we figured, okay, we're going to bring it outside capital, it's going to be a couple years, there's not going to be really, you know, incremental payments going out not going to really be distributions till the end, just given the nature of this, which, you know, we're used to with condos, there's no income during construction. So, you know, a lot of the investors we work with, they're used to that, and they're willing to trade that off for the, you know, the good returns. So that's yeah, that's how we see this project going, it's sort of dependent on the market at that time, will disclose all that upfront, and say, Well, you know, we might sell this thing, we might refi it either way, you're gonna get that preferred rate of return, you know, before anything, you know, happens for us.

Dave Morgia:

And I think you kind of nailed it there. So the deals, I typically look at more conventional, where there's cash flow, or at least some level of cash flow day one, not a development player, or anything that you guys are looking at, where there's basically delayed gratification on your return on money. Is that just a scenario of that's your guy's bread and butter, so your investors know what to expect when they go into investing with you? Or was that a kind of had to train them up, because he used to do it a different way. Sometimes, if you go in with different expectations on a specific deal, it could get tricky to teach investors that have been investing a certain way to, you know, kind of expect a different profile of return on a deal. So yeah, just maybe speak on that for a moment.

Nick Earls:

Yeah, I mean, from the beginning, they've our investors have been built up around condominium development. So they're used to this kind of what as Eric referenced it, we do this kind of lump sum preferred return, which is very easy to understand, it's a little different from what you typically see in the industry, but I think people like it, especially people who are new to real estate investing, because it's very simple. And they're used to that the people work with us and a lot of our investors are just repeat investors. And at the same time, you know, you're making a higher return, typically, with the successful development deals. So that's that you might have a person who is investing in something where they're seeing cash flow on day one, and then they're putting some money into a project like ours, at the same time, you know, they're, they have a lump amount that they can invest every year, they put some into development projects, where you get a higher return a little bit more delayed, they put some into existing, you know, buy and holds where there's already cash flow in place. So I think actually, I would prefer that if you know, that's what we do, you know, we have a rental portfolio, and we do these development jobs. So I think that's a good diversification within the real estate industry.

Dave Morgia:

Yeah. I mean, there's certainly no wrong way, right? It's whatever profile meets your criteria to want to invest with somebody I had seen before people who do a different deal than they used to normally do or use typically do, right, where it's like, if they never done development, before, it was their first development deal. They started, they had trouble raising for their first development deal, or vice versa, if they only had done development, you know, they can't raise the regular syndication model, because their development investors are used to getting those big pops like you guys tried to look for. Right. So yeah, I was just curious, but it sounds like you guys are still maintaining pretty much consistently, I guess it is kind of deferred, if you will, kind of deferred gains, but a bigger profile return at the end there. So yeah, I just wanted to kind of hear your guy's takes on that. But yeah, as far as this deal are ones you're still looking at, what do you think are some of the more interesting hurdles that you don't typically find in the space? I mean, these are, I would argue, obviously, more creatively done then your typical kind of buy and hold asset and do a little value add and kind of walk away from it. So what are some of the hurdles that I guess maybe just thinking about this deal specifically? Going through it, you learned some lessons you talked about, you know, some of the credits you can get kind of getting the backing of, of the community behind you. Is there some more focus that you'll be driving towards some of these channels moving forward to get more of these types of deals done or where do you see kind of more value out of out of These types of deals.

Eric DiNicola:

Yeah, it is something we want to start doing more of. And I would say, you know, kind of to your first part of the question, the difference between, you know, maybe a more, you know, typical kind of I know, every, there's no such thing as typical reveals. But sort of like a more using air signs, typical buy and hold, or maybe a value add. This is it's really like an extreme value add doing something like this. And then, you know, the condo plays are almost like an extreme version of a flip, you know. And so I think it if we're talking, you know, I know you're asking about this, but I almost think there's more we can talk about in terms of hurdles, to answer part of your question with the condos. Because there's so much you have to go through to get to the point of actually putting a shovel in the ground. It seems like what the office conversion in this new city we're working there almost, it's sort of catered for that where they want you to come in, they're kind of ushering you along, as long as you're, you know, working with them, they're very friendly, that they're nice to you. So far, they appreciate what you're trying to do for the city. You know, it's still a lot of legwork, you get to design you get to like kind of create out of nothing and envision how this will look. But flip back again, here, I'm going back and forth to the condos, there's so many roadblocks that you wouldn't think you might see. Okay, you know, Boston has sort of all these borrows, or neighborhoods, you know, not not like the boroughs in New York, but in much smaller, but different kinds of sections of Boston. And there's one area called East Boston, and we do a lot of projects, there condo projects. And you'll see sometimes a really old, dilapidated building, maybe it's a two family or three family, that's the majority of your housing over there. Right now, the housing stock in East Boston is smaller multi families. So we'll see an opportunity. And we've done this before where the parcel of land is pretty, pretty good size, maybe it's like a little bigger than the average one you'll see on that street. But none of these are huge, we're talking when we say good size, we're talking maybe 6000 square feet 6500. So we find something where we can kind of our architect, we can knock it down architect can kind of blend in the new design, and end up maybe being like six or seven units, but it will kind of look like a triple decker, it'll fit in in such a way. So it's like, it's not just one unit per floor, it's kind of inside, if you saw the floor plans, it'd be kind of meshed. And it's it's a very interesting thing, but it's not hard to do for him, he can do it architect. And we'll kind of present something like that a lot of times the neighbors. And that's kind of the first step because again, say it's a two families zone, you're only allowed to build two units there. So when we go in and say we want to build seven, that's against the zoning code, well, it's just you can't do that you're not going to get your building permit to get your building permit, you need variances on all the specific zoning violations that you incur. So if you're building seven units instead of two, it's you know, number of units violation. If you're, you know, five feet from the street, your front of your building, but you need to be 15 it's, you know, a setback violation that so those are like dimensional violations, height stories, those type of things, you might need one parking space per unit. So if you're doing seven units, you need to somehow figure out how to find seven parking spaces on that parcel. So you know, you have a lot, there's so many steps to finally getting that permit issued, you get to meet with neighbors, you got to get support, you got to meet with neighborhood groups, the mayor's office then sends a representative to see how these meetings are going and tried to sort of mediate, then, you know, you move on to kind of civic groups, which are a little wider versions of these sort of local neighborhood. You know, you talk with the local politicians trying to get their support. But you know, of course, they want the neighbors or the majority of their, you know, voters, they don't care about one developer. So they, they're pretty wishy washy, depending on what helps them the most. And most of the time, the neighbors don't want you to do anything you go in with, Hey, I'm going to do nine units here. They say this is a two family zone, you're only doing two. So right away, it's a hostile situation. You know, they hear you might sell a unit for 500 grand, in the end to a new homeowner, they think you're putting a $500,000 check every unit in your pocket and they get pissed about that, you know, but it's obviously it's not the reality of it, it costs you to do it, most of that money. So there's all these kind of barriers you have to go through just to get to the point where you're then in front of the Zoning Board of Appeals to make your case and say, Look, you know, we've been working with the neighbors for 12 months now. We work that these two civic groups we have this guy supporting us this guy, we got all these letters of support, you get to go around, try to get people to support you. And the problem is, you know, their challenge I should say than we usually have to get around is most people who show up to these meetings are against you, people who don't care, if you're doing something in their neighborhood just don't show up, you know, they say, go ahead and build it, it's fine. Some people have the perspective that this is going to increase my property value, some, they have the opposite perspective. So you're finding all these different challenges, personalities, like political, you know, issues and factors that aren't related to your construction of a new building, or providing new housing whatsoever, you might have a dilapidated house that no one lives in, and they're still fighting you when you're going to upgrade the neighborhood, you know, so that's why there's so many hurdles to overcome with that aspect of our business that particular you know, sort of niche that we're in with the condo development, again, to even get to the point where you're in front of the zoning board, and you say, Okay, your attorney speaks and says, these are all the violations we're incurring? Can we get relief on these? And they'll factor and they'll weigh all the factors, they'll say, Okay, you have this many letters of support, you met with these people, they agreed they agreed, looking at the shape your lot, okay, it makes sense that you couldn't really do what you want to do your buildings, not outlandish. But you have these 75 neighbors with opposition letters, you know, so then they weigh all this, and then they, they vote and they grant you the variances. And once you get that, in most places, you'd be pretty soon you'd get your permit, not in Boston, you still have a lot of big sort of uphill battle, that's the biggest hurdle. But to finally get to that building permit, you know, you need a full construction set, you needed approve of drawings, you know, so the actual contract can go off it. You need, you know, water and sewer plan. So civil civil plans, mechanical plans, fire plans, and then these all need to be approved by so many departments in the city. And so it's a long process until you finally can get your demolition and separately building permit. If you're not going to host down you need the demolition permit. So that's very long winded, but also very short compared to the real, the real process. And no, that's why I chose that as an example to talk about the hurdles, because so far in our experience and Benoit more hurdles, developing condos, that will actually, you know, bring residents to own homes and pay taxes and that community then, then we've seen with the Office conversion.

Dave Morgia:

Well, man, I mean, it makes you guys expert deal closers, if you got to get through all those and it sounds like it makes the office conversions a cakewalk. Right. So you know, there's, there's some benefit to that pain, I guess, if you will. Yeah. Really, really interesting to hear that. Yeah, I guess when there's more buy in like, like, we talked about these secondary, tertiary sub markets in Boston, there's a lot more want or need for you guys to come in and add some, you know, quality space to, you know, the city or the town. On the flip side of development, probably more harder. Boston, right? So a lot more red tape, literally, legally. And of course, from the people nearby. Do you have to kind of just throw in the towel at some of those deals that just there's, there's too many things going against you whether it's, you know, the local neighbors or anything like that, or do you find a way to get around this stubbornness. And you know, we've through the deal.

Nick Earls:

We've never thrown in the towel, per se, but it's not, you know, we could, you know, we'll have certain deals where we have what's called a zoning contingency. And we don't actually close on the property until we already have full approvals. In a situation where we sense that this is just not going to happen, or it's going to be a ton of revisions gonna be very expensive to keep, you know, doing plans, we would have backed backed out, but we actually haven't had that happen to us. We have been in deals where we were denied at zoning, because of, you know, too much opposition. And we do have a good team, we have a really good zoning attorney, we always get support from a decent chunk of, you know, neighbors through letters of support, or, or whatnot. But as Eric said, the people who show up to these zoning hearings and these meetings, they're driven by, you know, feelings of wanting to stop this, you know, the people who are positive or neutral, they don't show up so that we have had projects where we got denied. But in those projects, we had a backup plan. So and our investors would know that from the beginning where we say, if we get approved for, you know, six units are seven units, you know, maybe your return will be higher, it's different from deal to deal. But in those cases where we didn't have a zoning contingency, we already own the land and we got denied, we knew that we could build three units there, pair investors back, make a little bit of profit, maybe not the amount we would want, but it's not going to be a bad deal. So we actually have deals like that going on right now. Typically what we do in those sort of deals, we would be building a multifamily condo building. But now we're getting knocked down. So we build kind of bigger townhouses instead, because there's also a lot of demand for units like that. And then we'll sell those individual units for, you know, the highest price that we could get in those markets.

Dave Morgia:

Yeah, it doesn't matter what deal you're getting into, if you can underwrite the, you know, the safest assumption and exit, whatever that business plan is. Go for that one. And then the upside is obviously more fun when you get to that one. But, but yeah, Nick, and Eric, I'd love to I know, we're slowly running out of time here. But I'd love to get to these five key questions. Not sure who wants to start. But the first one here is if you could only pick one trait that explains your success? What is that trait? And why?

Eric DiNicola:

I'll start I mean, I almost feel like this. Could China Well, I won't speak for Nick, because I have no idea what his might be. But I would say willingness to, you know, sort of like I don't know if this a trait, but willingness to to listen and observe others and sort of, you know, lose the ego. I think don't go into it. I want to make this super long answer. But I think going into it running our own business when we're young and, you know, just kind of working backwards. Not that we are know it alls, but I don't think we realize the you know, the the need to do that. And so I think having a self awareness and say, Look, you know, how do you know if you're, you know, if you're, you know, in your late 20s, starting a business, and this guy who's 55, who has all these assets is telling you, that's probably not the best approach, try this, how you just factually, he knows more than you about it, you know, you got to once you kind of accept that, and really looked at other people for advice and see what they're doing. And take that all in and just realize, this is all about the end goal of you know, accumulating assets, building housing for people and securing you know, financial freedom for your family. And don't let any personal kind of ego or thoughts like that get into it. You really, I mean, sky's the limit, you know, you can just you can learn whatever you want to really

Dave Morgia:

Yeah, I don't know. Nick, did you want to take a turner you guys want to alternate is totally up to you guys.

Nick Earls:

I think we'll alternate it. Because, you know, one of the reasons we're good partners is a pretty aligned,

Dave Morgia:

similar mindset. Like that. I like that. So this one's for you, then Nick, what is the most uncharacteristic thing you have done in your business? And why did you do it?

Nick Earls:

Um, I guess it would be overpaying for deals, you know, people would say never overpay, right, you're always looking for value. But in that case, have a zoning contingency I mentioned earlier, what we do is we go off market and we go to these homeowners that are in really favorable zones for developing, you know, apartment buildings or multifamily buildings. We know from the beginning, we can do a good project there. So we say to them, if you let us wait, you're not you're not even looking to sell your home, right? So if you sell it to us in a year or two, we go through this process, get it approved, we'll pay more than the market value. So that's a very rare thing that I think in real estate you typically don't want to do, but in this specific circumstance, it's actually you know, done pretty well we've been able to get some good projects out of that.

Dave Morgia:

And I think the takeaway overpaying to me would be paying more which basically ends up in your investors getting less return than the risk they're putting their dollars and so if you have that kind of opportunity that you can squeeze out then no one else is seeing you're still giving a good risk reward profile to your investors. I think that's you know, you probably paid fair price or even below so it might have been conventional you know, the listing market price was overpaying but that's what the value add is right? So so yeah, I really appreciate that. And then Eric, can you name a time where you felt like you were not going to end up successful and how did you overcome that fear?

Eric DiNicola:

Yeah, you know what, it wasn't it wasn't too long ago actually should really you know going back probably about six months ago. We our biggest deal now that we have is we don't you know, we own it. All right. It's a 32 unit condo development. Construction is just started pretty much like this last week. And the the sort of thing with that where We thought we're just this is we're not going to be successful in this that thought was creeping into both our minds at one point was, you know, really back in the spring, we got this thing under agreement like late winter, early spring 2020, it was a permitted deal. So that's a thing some developers do in Boston, they go through that whole difficult entitlement process, then sell it with the permit. So we didn't have to go through the neighborhood process, we bought it already, just about ready to go. And we've done that to ourselves. And as long as there's meat on the bone for both parties, you know, you can make a deal happen sometimes. So we've now taken it over, we're developing it. And it was our biggest jump up in size of project units value, you know, everything. Even from like price per square foot perspective, and really every metric you can think of was the highest we've dealt with. And so right away, you know, lenders and equity groups we started going to, that's all they could point out was, you guys have, you know, done, the biggest you've done is like a 10 unit building before this, and this is 32, you know, sorry, you know, you and we're thinking how the hell are we going to bridge this gap? How do you do that, then we have to do 11 units and 12. And just so you know, what I mean, how do we do this? But we just we said, No, we're not, we're not going to listen, anyone we're going to keep we kept flight pounding, and finding people that would help us raise money and just kept talking to different lenders, tons of private lenders. Eventually, after months and months and months, we found the right source, we're able to then raise some capital for it, and we ended up, you know, making it work. And it was sort of a point where he said, I don't see how we're going to run out of data, you know, we have certain dates and contingencies as part of our offer that the seller agreed to, we're just going to run out of time the markets got up, he's gonna sell this thing to someone else for way more, we got to figure it out. And so we did yeah, it was basically just relentless. You know, non stop. That was probably I feel like the hardest, we both probably work that anything was was this getting this deal together?

Dave Morgia:

And it's funny, because that kind of goes back to the first question, but a frequent answer I get for the one tray question is kind of just that stubbornness or the tenacity or the keep going this you know, and that's basically what that was, right? It's like Screw this, I will figure out a way to get this done. Whatever it takes dial, dial dial, find the right partners. So yeah, that's awesome. And then Eric, the flip one is to you pretty much. Yeah, exact opposite. Can you name something where your business went perfectly? And what did you do to make that a reality?

Nick Earls:

Yeah, I would say, one of our earlier deals, it was a two family. We wanted to go in and build, you know, seven to nine units. Very quickly, we got approved, we had a good zoning attorney, she actually retired. So we got a new one. But he's also good. She was really good got through the process really quickly bought this property for, you know, a steal on mls of all places, which usually, you know, we have to get it off market nowadays. And sold all the units pre sold them. Every unit other than one before we were even finished with construction. Prior like, five 5x, multiple on our money on that deal. Pretty much all the stars aligned. Very good. Project.

Dave Morgia:

Yeah, that's, that's, that's a 5x is pretty impressive, even even on, you know, development, or redevelopment, whatever that is. That's pretty darn good. So good for you guys. And the last one here, fellas, what have you been focusing on lately to improve yourself or your business?

Eric DiNicola:

Um, I think, you know, just kind of focusing on bringing in experts, if you will. So it's like, you know, we don't have a ton of people that work within our company, for, say, a handful of people. But we've started to realize, you know, we're looking at like this tax credit thing. For example, at the the office conversion, we have no idea when we didn't, we've learned a lot more in the last few months, but we had no idea what we're even talking about discussing these things at first. So we kind of, you know, we started to realize we got to, I don't want to say start to realize we've been doing this for a few years now. You have to really let the experts handle it. So like the architect comes up with a design, you know, just you can you can tweak it and point out stuff, but what, trust Him, that's what you're paying him to do. Your zoning attorney, you know, you might think something logical to say to the zoning board, but But what about this, you know, no, they're basing it on, you know, code and laws. So let your attorney handle that. You know, the tax credit consultant. No, but this guy got this deal down the street. Why couldn't wait. He says, Trust me, guys. I've been doing this for 20 years. I know how the tax credit approval process works, you know. So when you kind of get to that point, it almost allows you to really expand and grow your business and almost buy more time for yourself and your family even outside work because you're not putting you're not spending all this time, like crunching numbers and doing stuff that you don't even understand what you're doing. Not that we don't crunch numbers all the time, of course, but it's certain aspects of it. You got to just give up The power of not recklessly you know, we, we understand it to the best of our ability and then we say, okay, you know, way more what you're doing, you're gonna get us a much better result get our investors a much better payout when it's done. You handle this part of the business. I think that's a big thing we focused on more and more, sort of, I guess at one word answer could have been kind of offloading

Dave Morgia:

you. No, no, no, that's great. And it can be tough because at the start of anything, you kind of have to wear a lot of hats. Luckily, you have a good partner where you can at least split it up into but eventually as you get going, those hats got to be divided up even further and you got to trust who you're giving them to and you know, and you don't want to wear them all anyways, you want to just stay in your lane and do the things you're best at and that's going to grow faster anyways but yeah, it's it's the goal is to do that as fast as possible. Pretty much it's so much easier to say that 30 seconds like I didn't realize so. But yeah, gentlemen, really appreciate the time today in case a listener does want to reach out to you to get in talk about investing or what you guys are up to how can they reach you guys?

Nick Earls:

Yeah, Eric and I are both on LinkedIn under our name's Nick girls, Eric de Nicola. We have an active Instagram account, we post you know, project updates and stuff like that. That's Winter, Spring capital on Instagram, and then our website, winter spring capital calm, got a whole bunch of articles on there pretty much all the stuff we've learned over our careers. We've put into free educational content. We've got a couple of ebooks on there. But condo development passive investing so definitely check that out.

Dave Morgia:

Nick, Eric, really appreciate the time I like when I can get a couple of smart guys on and get my gears turning. I got you know, a couple things going in the back of my brain now. So appreciate that. Personally, hopefully listener got something out as well. I'm sure they did. Yeah, just just appreciate it once more, guys. Thanks for your time. Thanks, Dave.

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