How to Cultivate Relationships to Find Investment Gems

Multifamily Investing Create Multi Generational Wealth

Hanh Brown: Tell us an about your career, how you got into real estate, what you currently do with the Better World Properties and at KET.

Tom Wilkinson: Okay. Well, I’m an apartment broker. We’ve been doing selling apartments since 1990. Basically, as you know, we make sure it gets mostly ANC. Been doing it a long time. In a previous podcast, I did with a mortgage company, they thought I’d been doing it may be too long. I don’t know. But, you know, I really enjoy the business and so it’s always a challenge and it was a pleasure to see you out at the convention.

Reuven M. Bisk: Again. And in my case, as you annunciated, I’m president of Better World Holdings, which is looking to purchase and acquire more holdings of properties in Texas, and as well as partner with those out of state who want a local office, whoever when a partner in their deals here. I’m CFO and general counsel of Better World Holdings as our affiliate. I have to believe what the fastest growing management company in this area because we started out a little two years ago with 200 units and we’re next month we should be around 4,000. So, that’s also been a preoccupation but an enjoyable one.

Hanh Brown: Congrats. That sounds awesome. Knowing the real estate markets intimately and being able to correctly identify the phase each market is currently in, is the key to recognizing what is a good investment versus what to pass on.  Where do you see us relative to Recovery, Expansion, Hyper Supply, and Recession?

Tom Wilkinson: Well, my feelings are that we’ve been at least a 10 year upwardly mobile expansion in the United States. And maybe the longest expansion has been maybe 12 years. But I’ve heard some economic forecasters say that their sense is that it may not be moving at the same upward pace as it was, but we’re so moving forward and there’s no signs of a recession on the immediate future. Also, we’re expecting a prospective 75,000 to 100,000 jobs in Houston this year. Occupancy should jump from 88% to 90% according to apartment data services. Rent should jump 3% to 4% depending upon which source you hear. So, construction is not ruined. Large and usage compared to Dallas. Dallas had 50,000 units added to the last 18 months, and we had maybe 5,500 more on the line in 2018 and maybe 8,500 in 2019. We don’t think we have 650,000 units roughly. So, it’s not like we’re seeing a huge amount of new constructions. I don’t think there were, you know, the biggest potential threat in my opinion is terrorists. That’s another topic.

Reuven M. Bisk  That’s also a general opening. Obviously, you folks, are based in Dallas, in the metroplex, as well as use some of the major organizations like our institute, claim it’s the number one market overall for real estate for 2019. And we’re talking about 100,000 people growth and use them. They’re talking about 146,000 in growth. It happened in 2018 in Dallas. And the same thing is anticipated this year. So, bottom line as well, both of those markets are strong. I would generally, however, take two points. One, at least my perspective, I believe in Texas overall. So that’s why we’ve invested not only in tech, in the major metropolitan areas, but we also bought three apartment complexes and in a secondary market, Victoria recently. Also, number two is even though that means everything is going well in the general scope, that means there’s more opportunities out there, but doesn’t mean they constitute deals. There’s still plenty of lemons, especially if you overpay and there can be a frenzy basically of the general economic activity. Though that frenzy does benefit Tom as broker, you have to be concerned and basically make sure you find the right deals. There are plenty of opportunities out there.

Hanh Brown: Okay. So, not all commercial properties are created equal. While a commercial property’s market value may seem acceptable, it’s operating income and costs could outweigh, and therefore overshadow, what you thought was a good deal.

Knowing your exit strategy, Capitalization rate, cash on cash, and net operating income are key components to help an investor calculate the true value of a investment property.  Give us some details regarding your recent equity acquisition and how mother nature played a role in this?

Multifamily Investing Create Multi Generational Wealth

Reuven M. Bisk: Victoria is an interesting story. Honestly, my opinion. Okay. In this case actually, Tom helped us—which I’ll get to later—in some of our equity acquisition. We got the property from ARA. We knew about it early, but we were forced into the bidding process as the final. We a contract on August 16th, 2017. On August 25th, 2017, a minor storm hit Texas by the name of Hurricane Harvey. So almost all deals under contract died in the course of that because of the hurricane. But we persevered and we had to close it last year in October—excuse me, February 22nd. So, that basically is a deal. You could describe a normal terms, but it has special wrinkles because we had to survive the effects of the hurricane as well.

Hanh Brown: So you’ve decided on the Location, total Number of Units, The Potential Income, The Costs, and The Sellers motivation, please tell us about the recent seller and the motivation behind Victoria.  Was this a listing from Tom. You bought it out of an insurance claim? Was there a “best and final” in that bid?

Reuven M. Bisk: No, no. We bought it from a different brokerage firm, ARA. And they went through the norm and we basically bid out depo on a best and final process. Ultimately, we were on the top three bids. The seller believed—and we obviously understood the opportunity—and the broker believed that we would execute on and could close. Obviously, the broker was right. We did, despite the hurricane.

Hanh Brown: What was the condition of Victoria? Was this opportunity one of the major cities in Texas or was it a hidden gem in a unknown pocket? What municipalities in Texas did you look for opportunities?

Reuven M. Bisk: Well, the condition was, well…we saw it out as a good buy. A part of this, as I mentioned to you before, there was a major market myopia in the world so basically if you’re sitting in mid-California, in New York or Boston, you’ve kind of heard of the four major cities particularly used in Dallas, Austin, and to a certain extent, San Antonio. But there are other opportunities in other pockets where there are strengths in other municipalities of Texas. Okay. So, in this case, we saw two DC properties that would have passed their prime because they hadn’t been refreshed or upgraded for 10 years, and surrounded to a certain extent, two of them by 12, 1300 new class, eight units, which were basically pulling in and they were leased up 1200- or 1400-a-month rents. So, it seemed pretty obvious from our perspective that this was an opportunity that we could create a like-kind and quality units. It’s every years and similar amenities, even though it would be 1980s construction and obviously raise rents to the 850 or 800 level, which we’ve been able to do. So that really was the opportunity we saw. And that’s the opportunity to talk.

Hanh Brown: Was the condition of the property in a B minus in a B neighborhood or where would you categorize it?

Reuven M. Bisk: Two of them were basically previously Bs. I would say one of them was a B minus surrounded by A properties.

Hanh Brown: Nice. Nice. Did you have comps since it is a small pocket, which can be a blessing in disguise where you as an investor can set the comps.

Multifamily Investing Create Multi Generational Wealth

Reuven M. Bisk: Yeah, exactly. You and I understand, and Tom understands why that’s an opportunity. Unfortunately, given a hurricane and given the fact that it’s a small market with very few direct comps, it’s a challenge. But we took that challenge and were able to pull it off.

Hanh Brown: What are you doing right now in the repositioning?  What is your plan, budget, what are you doing to the interior and exterior, and how much?  What is your exit strategy and are you on track?

Reuven M. Bisk: Well, the basic plan, as we put forward was to, you know—It’s kind of like you have a plan and then you have your actual budget. So, we have followed through on our plan. We spent on the average, and obviously these are three different complexes and so the complex, each one are different, but on average it’s been about 4,000 on the exteriors and 5,000 on the interiors. And the plan we presented originally the original bridge financing was too do it, do the turn of the units over three years. Our actual budget, which is what we’ve acted on and actualized to get it done between 18 and 21 months and refinance hopefully mid- this year or soon. I bet this year for sure. And that’s what you basically, you set a goal. Yeah, you’d beat it. That’s basically the approach.

Hanh Brown: So, are you a halfway there in your goal? How many units did you turn over and were you successful in raising the rent amount to set out?

Reuven M. Bisk: We’ve turned 70% of the units—they’re ready, and every unit we’ve been able to raise rounds as we anticipated. Actually, a little better.

Hanh Brown: Nice. Very nice.  What percentage of rent are you raising?

Reuven M. Bisk: And this year we’ll also do the normal. We’re increasing rents between 3% to 5% depending on the project, on top of that.

Hanh Brown:  So what marketing strategy are you using to get the renters? I mean, are they coming in this community because they know the class A buildings are under construction? How are you getting your tenants? Do you look at any demographics on whom your units would appeal to the most?  How are you tapping into social media?

Tom Wilkinson:  Well, we as an entity generally believe in social media is the new, you know, curb appeal. So, we basically approached people in that respect other than using standard mechanisms. Basically, you know, some internet listings, et cetera. But generally speaking, the product has pulled people in. It’s also been something that when we looked at the demographic of the people living in the units, we knew they could afford based on their income levels, the modest increases. I know though they don’t sound modest under 150, but if you basically worked out to their income level, the people there who want to stay, would stay. It takes a little bit longer to turn a unit with someone in it, but the bottom line is this, in addition to bringing people in. So, at this point, even though we’re still going to disruption of correcting and cleaning out some of the last 30 units, we’re still in the 93%, 95%, 96%, 98% of stuff done. So, we’ve done well anyway.

Hanh Brown:  Was the Tom the broker on this acquisition? Did other institutions shy away from this because of its uncertainty.  How much was the insurance claim? Who is the management team and how is it going?

Reuven M. Bisk:  Yes. In this case, we basically—as I mentioned, Tom helped us with this case raise capital. He’s a multi-talented individual. Okay. Even though he wasn’t the broker on it. Institutions had difficulty because of not knowing exactitude on insurance proceeds, which was difficult in this process because you have multi-million claim. By the way, I want to explain that Victoria was not hit with water—it was a wind event, not a water event. There was no flooding, like in your stomach. Okay. So, basically we raised money from wealthy individuals in conjunction with our partners, the organization, HR, and management, which was introduced to us by Tom. In this case, we split the management and about them as an asset management and the property management. As far as the general and working off of our budgets, Better World Holdings obviously works hand-in-hand with the management arm, Better World Properties. As I said, it’s a new company. I told you how we’ve grown. It’s really essential, in my opinion. I have a joke which I like to joke around with that any property, at least in Houston, Terry once managed. My partner, Terry Cliff, a donor of Leary Hill, he was my godfather who once owned it. That’s not literally true, but something in the neighborhood is true typically. Basically, it gives us a more active working knowledge, which helps achieves the owners’ objectives and also bringing great staff. So it’s been a really, it’s a really symbiotic relationship when you kind of know what’s going to happen because we have more knowledge of comparable properties in comparable situations.

Hanh Brown:  So, you have a joint venture with H&M capital and your holding company?

Reuven M. Bisk:  That’s just in Victoria. We may do other deals with them, but no, Victoria, they’re part of our team.

Hanh Brown: Do you manage other properties? Tell us about your staff and what makes you and your team successful.

Reuven M. Bisk: I would say it’s several points, I somewhat kind of touched about that. One is that we have a vision of bringing management to a new level of professionalism. You know, Michael Night, one of my partners, made his name in the facilities management business, which is another way of saying “janitors.” Janitorial services. And by being able to bring up professionalism in that field, we’re able to create a company that was worth a lot of money. So, he has that same goal. He wants the basically, and we bought into that, bring the management profession up to a same way level or higher-level professionalism to what it was in the past. Number two is generally speaking, Terry is on the board of HAA, but she’s a professional 30 years, they’re in Clifton. So, she is able to attract great people and people want to work for her. So we have no problem basically attracting great staff, which is the key to provide great management. Also, because Larry Hill also, he is an Honorary Ameritus or whatever, president of the board, they call it the Honor Board or something like that. Basically, we understand the owner’s objectives and we don’t just clock time. We try to help them achieve their objectives and work out their budgets with a greater understanding and knowledge.

Hanh Brown: Elaborate why you home in to the geography and demographic.

Reuven M. Bisk: And, as I said that I repeated that joke, you know, we’ve managed our own things with similar properties. If you’re talking about me personally, I have the approaches and I think that I liked geopolitics. What I’m saying is you have to look at the geography and the demographics of everything in the region to really analyze a property directly. So yes, it’s a good starting place to use Co-Star, ALN. But you’ve really got to apply your own analysis and drop your own maps and really to get deeply into analyzing those. And I think we have the right team basically to do that very well. That’s my opinion. Is that enough of us to have a sales pitch?

Hanh Brown: So, any folks that are in your local area in Houston or any of the out-of-state investors can always reach out to you? Do you have a specific area designed to accommodate their needs?

Multifamily Investing Create Multi Generational Wealth

Reuven M. Bisk: Yeah, we have that. We’re moving into new offices on April 1st and it was something that Michael came up with it and I didn’t think it would be a great idea. We set aside one office, pretty large one, which is our clients’ office. So, whenever they’re in town, they have a place to work from. So that basically, yes, we’re trying to be—not just for use them, but for Texas—for those upstate to have a local office for them to feel at home and now that they have people who have their hands on the project and are in place.

Hanh Brown:  So basically you, you have that local connection to the market, to the communities and also connections with the local brokerage. Can local investors or out of state investors reach out for you for a property management?

Reuven M. Bisk:  Right, exactly. Or just whatever they need. We’re basically out to be their help and that’s what we’re there for.

Hanh Brown: I see. Okay. So, you’ve been in this business for very long and you’ve grown a lot. Can you share with us what’s your biggest success or setback over the past couple of years?

Tom Wilkinson: Oh, Ruevan had a variety of things. He’s made loans for people, he’s managed for investors, for owners of houses, he’s had old apartments in the valley. He’s done. He’s been an attorney here.

Reuven M. Bisk: So, what’s the main thing? You know, I think the key thing is being with the right people, you know. And, then basically working very hard and basically don’t assume things. Work very hard and analyze things from there. It’s just generalities.

Tom Wilkinson:  We don’t usually get asked these kinds of questions like this. No one asks them of us, by the way. So that’s kind of an interesting scenario, since neither of us have canned responses. I don’t know if we can respond to that. Right.

Hanh Brown:  You know, I and other listeners love to hear your stories about successes and setbacks and the learnings along the way just because that’s what builds our expertise. It’s some of those setbacks and failures. We all have them. And I think that’s what makes us successful.

Tom Wilkinson:  I remember, I remember walking into the federal courthouse in 1994 having declared personal bankruptcy. And that day I took the oath and never before again. So, if I have to work the rest of my life every hour of every day, it’s okay.

Reuven M. Bisk: It was like a Scarlet O’Hara moment.

Tom Wilkinson: Yeah. I got a divorce. Very few years. My parents died. It was a very interesting time.

Reuven M. Bisk:   No, I was just stuck. Like specifically since you’re talking about Victoria, when that hurricane hit, we’re probably the only deal that was in process that actually closed. Okay. Because when you have a multi-million-dollar insurance claim, that sounds like a good thing. And it is, because it covers a few things. That word you cap x budget already, but it complicated everything. In other words, you know, your financing doesn’t know how to handle the insurance. Your equity is frustrated cause they want certainty. And as you might know, when you’re working with adjusters and big insurance companies, you can have an idea but until you have the exact, you know, loss statement, you know, that takes a long time. So, in our case, the success was, is that we have the patients, well, we have a seller who was willing to work with us and we were willing to triple down. We ended up putting three times earnest money down to show our commitment that a deal in order basically to write out that process and get it done. So, I would say if you want to, another pearl of wisdom you already know is you’ve got to be tireless and you’ve gotta be Doggit in pursuing your goals.

Hanh Brown:   So, relationships, hard work, and persistence. Go after the deals that may require more creativity and be tireless in pursuing your goals.

Multifamily Investing Create Multi Generational Wealth

Texas has six of the country’s 20 biggest cities, Houston, San Antonio, Dallas, Austin, Fort Worth, or El Paso. Texas is one of only seven states where residents pay no personal state income tax.  There is an abundant supply of land and fewer regulations and more friendly government, generally a much better business attitude here than other states.

Reuven M. Bisk:  Right. And that does make it a challenge. Obviously, you know, there’s, as I said, the institutional equity markets are far more comfortable in the four major markets of which we’re focused on here today than what’s happening outside. I see Texas as very interesting and a multi-market environment. I mean, let’s face it, San Antonio is not the same as Houston is not the same of Dallas, which is not the same of Austin, which is not the same as Corpus Christi, which isn’t the same as college station, which isn’t, you know, et cetera. You know, so, look at deals in Amarillo. I mean it’s very interesting and that’s why we focused on this state, which is, you know, frankly almost is the size of a lot of countries in a very big accounting. I think they said that the economy of Texas is a little bit bigger than that of Russia’s. So, it is a dynamic opportunity. I feel very good about Texas also because, the business environment is strong. I think you already know that everyone thought it was energy. I don’t think the energy sector is going to suffer. I think it’s a combination of lower prices and increased technology, but the petrochemical industry, it’s an industrial sector that will continue to do well. So, I just, I think you should keep your eyes open, but on the other end should be careful. So, that’s really my only suggestion.

Hanh Brown:   Dallas-Fort Worth was in the running for Amazon’s new facility; with an estimated 50,000 new jobs it would bring.  But the new headquarters will be split between Long Island City, New York and Arlington County’s Crystal City in Northern Virginia.  What’s your thoughts on that?

Reuven M. Bisk:  I think the most likely would be Dallas if it does it, because of the Austin. Because Dallas has got the best airline routes. It’s more centrally located. I don’t know. I know the buzz of New York missing it. Of blowing it again.

Tom Wilkinson:   No, I understand. People who were excited, they had condo prices that couldn’t sell and all of a sudden, they were convinced they were going to do that. They were in Long Island City and really thought they would hit the motherload. Local politics can sure make things, you know…I’m not sure the people in New York did the right thing, you know?

Reuven M. Bisk:   Yeah. I thought that was funny today when DeBlasio said, “No, I don’t have the $3 billion I was going to give to Amazon. It was coming from the $30 billion we were going to make from Amazon.” We don’t know. I don’t know. But you know what, it doesn’t matter. Honestly. I think, you have to look it from a whole perspective. I mean, bottom line is used and grows well last 10 years, 1.3 million, probably more in the next 10 years. A similar growth maybe a million and a half in Metropolitan Dallas. When I went to the University of Texas who there was about 350,000, not 1.4 million people in Austin. Something gained, something lost. But the bottom line is, I think you’re seeing that development throughout the state. San Antonio’s nice. Used to be a million people and now it’s heading towards three.

Hanh Brown:   A lot of people are migrating to Texas, The main reason people go is for employment.  Oil and gas boom has helped turn Texas into an economic juggernaut, particularly world energy capital Houston. New York, LA and the [San Francisco] Bay Area are too expensive for most people to live, but Houston has the highest ‘effective’ pay cheque in the country.  In New York, San Francisco and LA, if you’re blue-collar you will be renting forever and struggling to make ends meet. But people in Texas have a better shot at getting some of the things associated with middle-class life

Tom Wilkinson:  The migration from New York and California is shocking. It’s probably been 4 or 5 million people in over the last 10 years who moved out of there and come to the Sunbelt.

Reuven M. Bisk:   So that’s the story repeats itself as many times. I like Victoria. Victoria, before it was only about a hundred to 150,000 people in the metropolitan area, but you know, highway 69, interstate 69, which is now being established north to South of the United States, terminates, so to speak, and Victoria doesn’t really terminate but then splits into three, to reach north, east and south, I believe. So it becomes a central location for transportation, as well. It also has, believe it or not, even though it’s in the city, it’s in the inward land because it has a canal. It has a water transportation facility into it, as well. So, Victoria is doing very well. They just expanded the university. Everything going now. That’s like I said, I mean every city has its own step. There’s nothing boring about things about in Texas. There’s plenty of diversity. Okay.

Hanh Brown:  Okay. What is your advice for investors to be successful? Whether it’s Texas or just anywhere. Your advice to a younger self, so to speak. What would you say?

Multifamily Investing Create Multi Generational Wealth

Tom Wilkinson:  I advise you to try to get a good team. I think it’s really important getting good real estate attorney, insurance broker, get good real estate broker, get a good property, major company cars. You know, you can make a lot of mistakes in the business and it’s probably better to have someone who’s kind of been there to help you at least avoid some of the more obvious pitfalls. You can always make mistakes even with the best of the best people. But it’s also useful to buy in areas where there’s economic growth. There’s certain parts of Houston where there’s no jobs and real poor transportation, you don’t have good appreciation down there because everyone’s on welfare. They only go for the amount they make per year. Certain percent, like 2% 3% growth.

Reuven M. Bisk:  Yeah, I mean that’s the problem. You talk about Dallas or Houston, you’re talking about areas larger than some states, right? So, I mean it’s not going to be that you just throw your money at a place and it’s going to work out. That’s where I go back and this is, I don’t know, I’m being self-indulgent and going on to geopolitics, you know. I like to study to about seven national level, you know, like three or international level. I mean I may like the Tibetan people, but there’s no way China is going to give up the headwaters of the Yellow and Young See rivers. You know, like Turkey is not going to give up the Tigris. Right? So, bottom line is it’s similar. You’re looking at a property, it’s got great walkability, it’s next to a nice park or it’s next to a garbage dump, and you know, does it this, I got some good retail nearby, either jobs immediately in the area. How was the quality of life there? What’s the views? So, I, as I said is it’s a good starting point. Look at the data services, but honestly I think we were here and studied the properties firsthand and also got a look at them and had an advantage to the people who are long distance and trying to crunch numbers and data based off of their computer. Far, far away.

Hanh Brown: Yeah, I agree. Real estate is local, local, local. Know your neighborhood and region, examine the Physical Environment of the property, look closely at the Trends and Demographics.

Reuven M. Bisk: Yeah. Well then again, you know, we can only do so much to, so you’ve got to concentrate on what you allow and try to help people in that area. That’s it.

Hanh Brown: So, what’s next for you both in 2019 what are your goals? What do you want to work on?

Tom Wilkinson: I want to sell more urban properties. That’s, that’s my goal.

Reuven M. Bisk: We want to continue to expand the management company, which we will as well improve ourselves, improve the standard of management generally and on the acquisition side. Acquire more apartment complexes.

Hanh Brown: Are you considering outside of Texas?

Reuven M. Bisk:  I’m not.

Tom Wilkinson: I only broker in Texas. I have sold stuff in other states. Not frequently. Easier to work in your own backyard so much. He used to know an area like Houston, which has got, you know, probably 50 or a hundred different neighborhoods. It’s easier to try to master Dallas. Although I sold stuff in Dallas mostly for people who own apartments, who live in Houston. Who owned in Dallas. But I will also sell, I would sell a trash pile on Mars if it was the right thing.

Hanh Brown: How would listeners reach out to you if they want to contact you?

Tom Wilkinson: Well, I’ve got a website: it’s k e t e n All my data is on there from Tom Wilkinson. Reuven has got a website called a Better World, LLC.

Reuven M. Bisk: Just Better World. Www. Better World Llc. So other than that, it’s pretty easy. Better World Llc. We’ll do it.

Hanh Brown: Well, thank you so much. I look forward to next time. Thank you.