How to Lose Money by Not Knowing What You Don’t Know Podcast with Host Paul Moore & Josh Thomas and Guest Scott Choppin
Scott K. Choppin is the founder of Urban Pacific Group of Companies. Scott oversees all operations of the Urban Pacific family of companies including business development, capital acquisition and strategic planning. Prior to that, Scott was director of land acquisition for the multifamily development division of Irvine-based Sares-Regis Group. In that position, he was responsible for all land acquisition activities for the development of luxury, market rate and senior rental communities throughout California, Colorado and Arizona. Before that, Scott was with Kaufman and Broad Multi-Housing Group (KBMH) as senior project manager who was responsible for all activities including multifamily development, acquisition and more. He was with Snyder Langston Real Estate and Construction Services. He has a B.A. with a specialization in finance from Cal Poly San Luis Obispo.
For full transcript click here Expand Episode 214: How to Lose Money By Not Knowing What You Don’t Know With Scott Choppin Duration: 42:48 Three SpeakersHost: Paul Moore & Josh ThomasGuest: Scott Choppin [Music 00:00]Infomercial:
Welcome to the most important podcast of your financial future. Today, we’re going to teach you how to lose money, pay attention, because these are the most valuable lessons you’ll ever learn about creating wealth. Let’s get started.Paul:Johnny Cash sold electrical appliances door to door, and he said about himself. He was the worst salesman who ever lived. Johnny Cash became a country music superstar winning 10 Grammy awards. He sold more than 50 million albums saying the hit songs, ‘Folsom Prison’, ‘Blues Ring Of Fire’, and ‘I Walked The Line’,and he hosted the Johnny Cash show on TV. Hi, welcome,everyone. I’m Paul Moore.Josh:Well, Paul. Yeah, I’m Josh Thomas and Paul, you really hit close to my heart there. That is probably my favorite musician of all time. I don’t know if you knew that.Paul:I didn’t know that. I just watched,“Walk The Line”,for about the fourth time and man, what a great movie.Josh:There’s a place down here in Austin. It’s a bar called the “Mean Eyed Cat”, and they are a Johnny Cash themed bar. And so there’s all this memorabilia on the walls. And towards the end of February, they celebrate his birthday and they have a Johnny Cash birthday bash. And I was there. Not only was I there, but I walked up to the tribute band that was called “The Band In Black”, by the way. And I asked them, I said, “Hey”, can I sing a song? Can I sing a Johnny Cash song with you guys? And they said, yes, sure, come on up. And,so I sang a song called “Tennessee Stud”, with the band on the Johnny Cash birthday bash.Paul:Really is this recorded?Josh:It is documented. I’ll send it to you.
Paul:Yeah. I would like to see, I like to get your wife’s take on it. So that’s oh…
Josh:Well she’s from Columbia. So the whole thing was just completely bizarre to her, but she was like, alright, well I’ll film you anyway.
Paul:Well, that’s down South. Isn’t it?Josh:Something like that. So, well, “How to Lose Money”, is a podcast where we discuss defining moments of success through distinctive stories of failure with business owners, investors, and entrepreneurs.
Paul:Today, our guest is Scott Choppin. Who’s going to tell us, “How to lose money by not knowing what you don’t know”. Hey Scott. And did I pronounce your last name, right?
Scott:Yes. Choppins correct. Yes. Thanks,guys. So appreciate the invite, Josh and Paul, glad to join you guys.
Josh:Are you Johnny Cash fan?
Scott:I actually, as you were describing that I am, and then I was also triggered to think about there’s a HBO documentary on Elvis. And it reminds me about that similar time of the fifties in the South and, Memphis and country music. What a great era.
Paul:Yes. I was born 75 years too late.
Josh:Paul, you were just a twinkle in your mom’s eye or something at that moment.
Paul:Something like that. But I do remember Johnny;my son just played the music video “Hurt”, for us man, what a great video.
Josh:Yes, man. So Scott, tell us a little bit about you know, give us a teaser for the story that you’re going to tell here in a couple of words.
Scott:Sure. So we’re a Real Estate Development Company that specializes in urban infill projects. Meaning taking under-utilized sites in already existing neighborhoods,and building those out in some sort of urban housing product types. So the project we’re going to talk about today was a large condo project, a podium condo project in San Pedro, which is a small town that’s adjacent to where we’re headquartered in Long Beach in Southern California. So think around the Palos Verdes Peninsula, and this will be a 2008 vintage project with all the craziness that came with what people are now calling the GFC. So we were right in the middle of that.
Josh:Wow, excellent. Well, looking forward to digging into that. Paul, tell us a little bit about it our guest today.
Paul:Scott K. Choppin is the founder of Urban Pacific Group of Companies. Scott oversees all operations of the Urban Pacific family of companies, including business development, capital acquisition, and strategic planning. Prior to that, Scott was Director of Land Acquisition for the multifamily development division of Irvine based Saris-Regis Group. In that position, he was responsible for all land acquisition activities for the development of luxury market-rate and senior rental communities throughout California, Colorado, and Arizona. Before that Scott was with Kaufman and Broad Multi-Housing Group (KBMH), as senior project manager is responsible for all activities, including multifamily development acquisition and more. And before that, he was also with Snyder Langston Real Estate and Construction Services. He’s got a B.A. with a specialization in Finance from Cal poly San Luis Obispo. So,Scott being a developer is really easy and not much risk, right?
Scott:Not at all. Right. Easy and low risk. Like we always say Paul, if it was easy, everybody would be doing it.
Paul:Right. Yes. I often say, no, I don’t know if I’m really right. I said, if you want to be a developer, you might end up one of the wealthiest people in America, or you might end up delivering pizzas.
Scott:Right. And, we’ll be talking about in our conversation today and I always talk about strategic knowledge or, the knowledge of the ability to execute effectively in the real estate development space. I mean, this could be applied to any career or business. But I have learned many, many lessons, Paul and Josh over the years. And I think talking to you guys today and conveying some of those lessons learned will be should be valuable. I know if I had heard them, I would have probably not listened well enough, but they still would have been valued in that nonetheless.
Josh:Well, let’s dig into it going to the green flag here. Tell us how this story begins and set us up? Scott:Yes. So I founded the company in 2000 after working with the companies that you guys mentioned in the bio, and in 2000, we identified the opportunity to building an urban environment. So think city centers, neighborhoods peripheral to downtown locations. And that basically had us live in certain particular types of real estate development product types. And what I mean by that is we built a lot of podium buildings. Podium would be an underground or ground floor, concrete parking structure with the units. You know, stick-built stacked on top of that, not high rise, maybe think three, four or five-story typical of those days. And so, the San Pedro project came really at the tail end of that period of time from about the mid-’90s through 2007, 2008, depending on how you look at the stats for housing production. And most notably as everybody looks back on it, we were in the largest expansion of the, for sale mortgage markets, through CDL products. That Wall Street was generating that we had ever seen and ever will see in our lifetimes.And so where the San Pedro project came in is because it was at the tail end of this time period. We really were at peak market thinking peak market planning, prices were peaking, construction costs are peaking. And at the time I worked with… I had a partner and we had different philosophies of how to approach projects. I’ve always been a person who wants to plan and grow new operations in a conservative way to learn lessons along the way. And in this partnership,the dynamic one was, he was pushing hard to get big. I went with that to some degree and, but I always felt sort of uncomfortable with it and ended up being correct at the end of the day, that related to strategic knowledge. We got ourselves into projects and project sizes, particularly that we really had no business to be in.Paul:Understandable. And so as you’re moving into these bigger projects that you weren’t really ready for, what were some of the first red flags that came up that indicated this wasn’t quite the right place for you? Scott:Yes. Great question. Really for us,the red flag showed up in a couple of different places and again harking back to strategic knowledge. One is we had hired a group of vendors. So think architects, civil engineers, structural engineers that were well-branded. Meaning these were, and I’m not going to name any names, but these were… Continue to be even today known brands in the industry. But at the time what we were dealing with was that everybody was so busy that even if you hired a name-brand architect and other vendors that you were really defaulting to whoever you got as the job captain. Let’s say for the architect and all good people, all meant well, but where we ran into the red flag is that we didn’t know as a company enough to be able to assess the vendors and their team members sufficiently to know that the project would be designed in a way that it could then be cleanly executed later in construction.So, as an example the San Pedro project we bought two pieces of land. One was an old bank building, a beautiful sort of marble exterior arch window, single-story building in this downtown environment in San Pedro. And then what we did is we developed the two lots that were on the North and West of the building, including the building. We kept the facade;we called it a facade ectomy. And then we built…dug out the basement and built a new parking structure inside the facade and including the two lots of adjacent to it. And then up into what turned out to be a four-story building over basically,it’s about a floor and a half underground. And so what the first red flag was that it just was clear that we had really too many different designers. So,as an example, in the structural environment, we had a structural engineer who did the slab of the underground garage and the columns.And then we had another structural engineer who did the post-tension deck, which is the deck where the unit sit on top, like really think the ceiling of the garage floor of the first floor. And then we had a shoring engineer who did the shoring for digging the hole where the garage went. And we were having huge disconnects between those three parties, a lot of missed details of poorly coordinated plans. So, when this structural detail needed to meet this other structural detail on somebody else’s plans that those weren’t coordinated correctly. And people might argue well as the coordination, meaning the review of the plan such that they all match and mate together. Well, is that the architect’s job? Is that the structural engineer’s job themselves? is that the GC? Is that the developer. And where we ultimately landed in answering your question is that although we had good name brands and we even asked them to coordinate the plans, we weren’t at the time savvy enough, and this incredibly complex, build environment that’s comes out of these plans to assess the coordination was really being done correctly.So we went along into the construction phase,which we can talk about that’s the next red flag,without really having a clear idea that we had a very poor set of coordinated plans. And what that adds up to is basically cost overruns, change orders, when there’s missing details or details that don’t match or pair together well, you’re going to change it. And you’re going to change it in the field at the most expensive, possible time in the life cycle of the development project is while you’re under construction, changing things is going to be the most cost least cost-efficient move that you can make in the development cycle. Josh:Okay. So it sounds like you had a bunch of plans, but they didn’t really talk to each other very well. And they didn’t,really kind of gel together. Because somebody maybe at a higher point had not said, “Okay”, well, let’s figure out how we structure this, is that right? Scott:Right. Yes. In sort of common language, I would agree with the way you’re describing it. And diminution of the description, you’re putting it in, like more elegant way that I would put it or had put it. But yes, and it’s really subtle. Josh,it’s the plans look great. Everybody is talking, we’re meeting regularly. Everybody says that they are talking efficiently and sending comments to each other. So all the activity around it looked correct, it looked active and appropriate. But really it was in the finest of details, buried deep, deep in the plans that the disconnects were buried. And when I say buried, literally you would have to go into the detail pages and then you’d have to compare two different details from different sheets of the plans side by side, to know that they didn’t made up correctly.And it wasn’t that we were knowledgeable or should even be knowledgeable in the structural, meeting of shoring plans. But that we should have been able to compel the vendors to show us, prove to us ground that you really have coordinated these correctly. And then ultimately what we learned later, it really now that we use lessons today is, the best way, the best people to assess the detailed disconnects are the people who are going to build it. So,your subcontractors, your podium garage,and your foundation structural concrete sub. The guy who does the PT deck the structural sub who’s mandated to hold up that existing facade in the context of everybody else’s construction. And really what you need to do is get everybody together who’s going to build it, and with trusted subs, and this really only happens with trusted subs, ask them to look at the plans.And basically,what I tell people today, guys, is I say, tear the plans apart, show me every weakness that you can find. Like,be brutal and merciless, because what I want to do is, I want to flesh all that out as best I can. And mind you never can do it completely. In fact, what I say internally to our teams is,we can get at 98% right in coordination, but the 2% you just can’t get done. It’s too costly. It takes too much time and delays your project too much. And that’s what your construction contingency is for. And if you use those ratios, the 98%, 2%, coordinated, torn apart, details, assessed and changed and matched up and really argued really over. That’s going to serve you best in the long run. That’s really what we weren’t doing. We were accepting assessments of vendors that they had correctly coordinated the plans, and they really hadn’t. Josh:Understood. And so this kind of all came to a head at some point, moving to the black flag. You were uncovering these lacking of communication and some lack of efficiency. At what point did you realize, what was the catalyst that helped you understand that this was, this was not viable. This was not going to work. We could not continue this way. Scott:Yes. Great question, Josh. Thank you. Basically in my world and the real estate development world, this will always show up if you don’t recognize it because they’re buried, it will show up when you start to build the project. And if you didn’t do the way, I now describe that we do the practice that we’re in of assessing plans ahead of time. I want subs to look at them the day they go into plan check with the city. I also distribute them to all our trusted subs. And that’s when I have that narrative of tear them apart. So,in this instance, in the San Pedro project,it didn’t show up actually for several months until we started to build sections of the project that these details were related to. So, as an example, we dug the hole for the podium garage. It was a full level, underground level,and a half. And then you start to build the, you know, do that, your plumbing, you do your foundation, your columns start to rise up, you’re doing your structural concrete. And then you start to match the sidewalls with the ceiling, the PT deck. And that’s really where it came to a head is that’s when those, all those details, everybody starts to look at them and go, ‘Oh’, well, doesn’t work. Sub,say it to the GC, GC, if they can, if they’re competent, which in this instance, we did not have a competent general contractor.We figured out it was somebody we had a relationship with, but we press them into building a building that probably they weren’t ready to. So another assessment of your vendors and including GCs capabilities to execute on that was weak. And so where it shows up guys, as you start getting change orders. I mean, it was just matter of fact, GC says, ‘Hey’, we’ve got this, bolt detail or a welding detail on the structural steel in the podium garage where it ties into the shoring around the periphery. What’s not in the plans or the details unclear and therefore we need to change order this work because the sub didn’t bid it. We didn’t bid it and therefore you get to pay it. Josh:That’s crazy. And so, as this is all kind of coming to a head there was this moment where, you had to kind of dust your hands of the situation as you’re walking away from this project. What was the ultimate fallout from this not knowing what you don’t know was, could you quantify it in a dollar figure or opportunity cost,or how would we,how would we define it? Scott:Yes. So, we actually didn’t walk away from the project. I mean, no argument with the way that you describe it. I think that would be, probably a move that happened, certainly in that era, it happened a lot. No, we actually buckled down. So really the functional process was us and our investors. We terminate the general contractor. We brought in a new team under our own, basically, our own internal management. We oversaw the project, we kept some of the subcontractors. We fired others that were incompetent. Now you got to remember, this is all overarching while we’re going through 2007, 2008. So the market is crashing around us. It was awful,to put it bluntly. But our mandate with our lender was that we had a completion guarantee. So we needed to get the project complete.We had no…that was non-recourse beyond completion. And so, we were really compelled to, but our ethic was to anyway. So we just hunkered down and we finished the project. So arguably, one of the major results is that we had cost over runs our investors and ourselves ponied up to get that, to get it complete, you got to basically figure out how to finish it. What subs, what contractors, what methodology, what management practices to get it done in an environment where the market’s changing rapidly. And then have hopefully a capital relationship that’s sufficient to be able to complete it. At the end of the day, interestingly enough the project was completed. We basically were with a lender that was a very late entrant into the construction lending markets in the 2004 to 2007 era.And so the bank was patient, but they actually got taken over by the FDIC. So, ultimately the status of the project was dictated by the FDIC and the new lender that they basically brought on board. Which that lender basically said, ‘Hey’, at this point, we’re, it’s finished, but we can’t sell the units. We didn’t talk about this, but this was a condo sort of a loft urban-style condo project. And so we had to work it out with that new lender, and basically,the deal ended up turning into a rental project. And then we exited the deal. Our investor stayed in because of course,they had put up the majority of the money. And they’ve held that long-term. We basically left all of our money in the deal. So although you described walk away, so maybe that was a version of walk away, but we wanted to stick in the deal, but they asked us to leave and we complied just because they had put the money up.That was a fair deal in our minds. And then actually that deal is still today as a rental deal, it has changed hands two or three times. I think it’s an okay rental deal. It’s a great location. It’s a great building and I say, it’s okay because we built a loft condo units, which were very big and the marketplace for rental housing. While it was sufficient to absorb the units in the rental marketplace, the units were really too big for the market. I mean, we had some 1600 to 3000 square foot loft condo units, which in the 2007 peak market area era would have been fine. We’re fine. In fact, we sold numerous and other projects, but when the market turns against you and particularly remember in this 2008, the mortgage market fell off the map. I mean, it went from 150% to zero, like in, in a matter of weeks and months. So even the people who were contracted to buy couldn’t get finance with mortgages, that market had, was disrupted,and disappeared ultimately. So rental was the appropriate move to make at the end of the day. Paul:Makes sense. Josh:Understandable. It was a difficult situation for everybody. And so obviously there are some lessons to learn from that. Paul take us from here. Paul:Real estate has a certain inherent degree of risk as everything does. Every investment nature is putting out principle to get, hopefully,get a return, but taking a risk on that. And I think development certainly is an additional layer of risk. That’s added on top of that. And so it’s really… I’m reading Howard Marks, ‘Mastering The Market Cycle’, again and thinking through, all my goodness, the risk,and return is just on steroids with development. Is that what you’ve found over the years and how have you been able to hang in there with all the risk involved? Scott:Yes. Great question, Paul, thank you. Well, I mean, look, I mean we’re here talking about breakdowns and real estate development projects. And, so,each of those breakdowns teaches a lesson. And the factor Paul, to answer your question is whether over a period of time a company and its managers learn those lessons and hold them. And,in fact, every day that we execute in our new models that are actually working, very well in this downturn environment, which we can talk about in a minute. We’re applying these lessons. So, even the one I described earlier of having a trusted long-term setup, subcontractor in your networks. Of course, everybody says, well, great long-term trust. So that’s good, but also compelling them, requiring of them that if they’re in a relationship with us, that they have to do this, you know, pre-construction review process that they need to help us coordinate the plans that they need to tear them apart. As I, as I put it in blunt way. Paul:Right. Scott:Then you take that kind of a lesson and then you apply it. Well, back up a little bit, you take that lesson plus, thousands and thousands of other lessons that you learned. I mean, I’m giving you one example and thousands of that we’ve learned over the years. And then we actually implement them in practices actions that we’re in every day in our development projects. To avoid those breakdowns, to plan ahead, to work proactively, to build capacity ahead of time, and to be executing well. And so our entire, set of practices, our business plans are all oriented around, what can we be doing and how can we be doing it in such a way that both avoids the breakdowns of the past and informs us of how we assess the future.So as an example we converted to our UTH turban townhouse workforce housing model about three years ago. Because at the time we saw a flat spot in the market at the end of 2016. A flat spot in the market meaning capital debt and equity had pulled back for just a few months but was a signal for us to see sort of like, look at and go, okay, this is a signal. There are lots of signals. In fact, the hard part is to pick the right signal in the background noise. Because there’s so many and pay attention to it. And so what that did is this, we said, okay, if equity and debt indicates that they think there may be a problem with a call oversupply lessening demand disruptions, maybe changes in interest rates in the marketplace. That those are the kind of signals that we now pay attention.In fact, we have a weekly and quarterly internal review of economic indicators, and we track actually three major tools that we use that involve probably fifty economic variables so that we can basically be regularly assessing where we are in the economic cycle. And in 2016 we had finished two major projects, one 453 unit market-rate project in Denver, Colorado, and actually Westminster, Colorado City adjacent to Denver. And then we had sold off our last podium project in downtown Long Beach where we’re based. And this flat spot gave us a chance to look around at the marketplace. And our assessment at the time was that there was a new wave of podium style projects coming online and places like downtown LA and downtown Long Beach. That gave us a little concern and ultimately turned out to be a lot of concern, that there was an oversupply story in this particular domain. Meaning studio and one bedroom’s in large urban institutional projects and major markets that would be affected in our judgment in a downturn that they have lots of younger, single-earner households think Gen Z millennial, which is a great cohort.I mean they’re coming up in their life cycle and starting to move out of the house. And then eventually there’ll be in the buying market places. But at the time our assessment was if a recession came that these single-earner households would be particularly vulnerable because they were young, maybe they were at the lower end of the totem pole in their job cycle. Maybe they had relocated from Dallas to LA for their new job. And in our estimate, all those would be reversed very quickly in a downturn. In other words, they would lose their job quickly. They would move home quickly. And no negative assessment about the demographic. In fact, it’s the largest single demographic cohort in US history. Kids of baby boomers, a great market to be in, but also had these, these weaknesses, these challenges in a recession environment.So that prompted us to move into the UTH model, which we are singularly focused on the urban infill, you know, middle-income working family, and particularly two advantages in that marketplace that are the opposite of this millennial assessment that we made. One is these families are multi earner households on average between two and four wage earners per household. We build a five-bedroom, four-bath product that’s coherent with larger families. And then particularly we’re building into an under supplied marketplace. So podium studio and one-bedroom units were vastly oversupplied. I mean different markets, different oversupply stories. But in this middle income working family demographic, particularly for the large units that we’re building, nobody was competing in that marketplace. And certainly,nobody at scale and so call it contrarian,call it niche. We just recognize part of the marketplace that was not being served and particularly recognize that these families, because of their multi earner configuration would be defensive in a downturn and culturally and economically they’re already defensive.They already live an economic sharing lifestyle. We call it Paul. Which means that they share incomes and expenses across the family group. Paul:Right. Scott:Naturally they’ve already been doing this for long before any of us were in the business, comes from culture, comes from economic configurations, think immigrant families would be one example. Paul:Right. Scott:So we made that move three years ahead of where we’re now in this March 2020 era. Because we had to learn the lessons from 2008 to not ignore the economic signals.That when you look backward were clear, they’re obvious. You just need to be savvy enough and disciplined enough to be looking at them regularly, not ignore the bad stories that come from them because no one wants to really have a downturn. We’d never wished that, but if you’re disciplined, you go, I move forward. I do new business. I call it being vigilant, which means that we’re very watchful. We’re careful in our planning. We anticipate future changes, but we still have to execute on a business plan. Because we don’t make money if we don’t produce new projects. So it’s a balancing act. Paul:Right. So we’re going to jump into a next segment of our show called ‘Failing Forward’. And this is where I’m going to ask you a series of questions. You can answer each one briefly in a sentence or two. But before we do, I want to tell our listeners about the multifamily investor nation summit coming up on June 11th-13th. It’s a three-day information-packed event from multifamily and other investors with over 1000 attendees and over 50 speakers. You’re going to hear from experts about finding deals, raising capital, underwriting strategies, selecting markets, and a lot more. I’ve been invited to be one of the speakers. I’m going to be talking about working, setting up,and working with an open fund structure. If you want to learn more, you can go to www.mfinsummit.com. That’s www.mfinsummit.comto grab your ticket. And your promo code all caps WELLINGS, ‘WELLINGS’ to get a hundred dollars off. Whether you are a new multifamily investment or a season investor, you do not want to miss this event. Hope to see you at www.mfinsummit.com, The Multifamily Investor Nation Summit. So, okay. I’m going to ask you a handful of questions. You can answer each one in a sentence or two Scott. First question, bottom line. Why did this experience happen to you? Scott:We were blind to what we didn’t know. So we call it a cognitive blind spot. So we didn’t know what we didn’t know. Like we talked about earlier. Paul:Yes. Right. Scott:So I would encourage people to work in networks that are observant of these blind spots and can, kick in the shins when you need to acknowledging things that you don’t recognize. Paul:Awesome. Question two. What’s the single most important lesson you learned from this?Scott:Really is to build powerful networks. And what I mean is have people around you that are oriented around their success at the same time that they’re oriented around your success. So think identities of trust, value, authority, and leadership trust being the most important. Which people talk a lot about that in business, but you need to have people around, around you that are high performers themselves, but that will be brutally honest with you when you need it.Paul:Right. Good. Question three. How do you protect yourself from failing in this way again, Scott? Scott:Well, again, good networks, having people that will make powerful assessments for you and with you. Building strategic knowledge, so ever learning and ever asking questions to improve, be oriented around constant improvement with your teams, with yourself competitive learning. To ever be oriented around you don’t know enough. I need to know more. I have been a Real Estate Developer for 35 years, Paul,and I still don’t know enough. Paul:Right. That’s great attitude. Being a constant learner. I know people who seem to know the most about things say that they are the ones learning all the time. Warren Buffett’s one of the examples of that. Scott:Yes. Paul:So Scott, who do you turn to when you need help?Scott:So I actually work I’ll name, www.aji.comis their website, and that’s run by a guy named Toby Hecht. And Toby is a purveyor specific group that I work with. So I actually work with a group called ‘The AJI Network’of learning strategic knowledge and working in a way that strategic, effective and competitive. And this network is, I’m going to guess the number probably about two people, maybe more depending on what programs people are involved in. But particularly when I describe powerful networks before I have several groups that I work in through this learning network this discourse of learning a strategic knowledge or we’re regularly assessing each other’s offers in the marketplace. So, I work in groups that are in different businesses nobody else in my networks that I learn with weekly as a Real Estate Developer.So we’re looking at each other’s businesses, not in the sense of I’m looking at financial statements, but really is what is your fundamental offer? How are you oriented to the marketplace and gaining strategic knowledge? What ways can you improve what you do? What ways can you improve it to be more strategic, effective, competitive? Produce what we call marginal utility, which is being competitive ahead of the marketplace. And,also lastly being oriented around using computers and the internet and this domain of the most rapidly changing marketplace that we’ve ever had in human history. Related to our use of,smartphones, computers, social media, digital content, and to be oriented around the fundamentals of operations that are needed to be able to adjust to the rapidly changing marketplace. And an example of that is the Coronavirus has changed the marketplace more rapidly than I’ve ever seen, but because of our learning, we’ve been able to act effectively in this marketplace. Sort of keep our wits about us and move forward, even accelerate in times of turbulence.Paul:Awesome. Last question. In one sentence, how would you summarize advice that you would give to an up and coming brand new real estate developer? What would you say is the most important thing they need to know?Scott:Well, again, strategic knowledge. But I’ll give a specific piece of advice is, if you’re somebody who’s new to the development business, you want to either get a mentor, somebody who’s willing to provide you guidance and knowledge in the space. Or what I tell people to do is joint venture your first few deals, like let’s say you want to go build duplexes or you want to go build new construction apartments in Orange County. What you want to do is pair up with somebody who’s in the market already, and that they’re executing already. In other words, don’t pair up with just anybody, pair up with somebody who’s proven themselves, that they have accomplishments that they can demonstrate in that specific domain.
Paul:Right.
Scott:Not building houses and then okay. And now I know how to build apartments. It’s not that, it’s like if you’re going to build the apartments, find a joint venture partner, who’s an expert in that space. Make offers to them to help them in a way that would have, want to bring you into their networks as a GEpartner. Paul:Agreed. Scott: Like you need to produce value also. But between those two, like that’s an acknowledgement that you don’t know enough Paul. Paul:Right. Scott:In your question. And either getting a mentor or JV or both, right. I mean, they don’t have to be mutually exclusive. I just be oriented around, like it don’t know enough and who is around me that I can make offers to. And whatever way I can make them to that basically has me act more strategic, effective, and competitive in what I want to do as a real estate developer. Josh:Nice. So Scott, tell us a little bit about what you’re doing now and how people can reach out to you and who should engage with you. Scott:Sure. Appreciate that. So actually alluded to it a little bit before we’re actually exclusively building now what’s called the urban townhouse or UTH product. And that’s a basically middle-density workforce housing rental model, where we pair private capital with moderate-income housing, and we build these multi-generationally. So it’s a five-bedroom, four-bath, three-story townhouse product serving these families that we described earlier, multi-income earner, multi generational, urban families. And we always anticipated that this would accelerate in a downturn and here we are starting at the early edge of it. I mean, I think we’re early in this recession, but so far the products actually performing well.We’re a new project in Orange County. We’re now 42% leased up at $300 a month above proforma which I think is a good early sign. And we’re particularly receiving the families that are starting to recombine. So,families that are boomerang kids moving home to live with parents roommates or combining together. And that’s the economically share housing across the larger group of people. So to make it more affordable. I would encourage people if they want to learn more about it, go to our website, that’s www.urbanpacific.com. And I would encourage people to go to our investor education section. We have significant articles videos that we’ve produced really both about our UTH model, but most importantly about educating yourself as an investor in the marketplace. How to underwrite apartments, how to assess deals that you might see from sponsors. Really just again, in this competitive learning practices, methodology, we’re putting out a lot of information that we use ourselves. I mean, this is all stuff that; these lessons that we’ve learned that we’ve talked about today and how to be effective as an investor. So that’s www.urbanpacific.com. Contact info is there if anybody wants to reach me and then I would encourage people, they can check us out on LinkedIn. It’s LinkedIn, and just look for Scott Choppin and you can find me there. Josh:Very good Scott Choppin. Thanks very much for joining us and sharing this story, cautionary talefor making sure that youif you don’t know what you don’t know that you surround yourself by people that do know that. So thank you for that. Scott:Thanks,guys. Josh:For those of you who are interested in engaging with Scott talking about his development project, you can go to urbanpacific.com. I highly encourage you to do that. The best way you can show your appreciation to us is to tell a friend about howtolosemoney.com. You can access all of our previous episodes on there. We’re also on Spotify and iTunes until next time. Remember this failure is a fact of life, whether or not it defines you is a personal choice. Paul:Thanks,Josh. Thanks,Scott. Goodbye. Everybody. We’ll see you here next to time at ‘How To Lose Money’.[Music 42:20]Infomercial:You’ve been listening “To How To Lose Money’, to ensure that you never miss an episode, subscribe to the show on iTunes or your favorite podcast player, have something you want to share. Send us your comments, stories, and suggestions to howtolosemoney.comand we’ll consider them for a future episode until next time.End of Podcast InterviewSubscribe to our regular newsletter and get exclusive access to our next investment opportunity.
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