MULTIFAMILY DEVELOPMENTS THAT THRIVE IN A DOWNTURN – WITH SCOTT CHOPPIN

“Some real estate investments are riskier than others, especially in an economic downturn. Class A multifamily developers, for example, are likely to lose their tenant base in a recession. So, what can developers do to forecast what the world will look like at the end of a build cycle and make decisions accordingly? And what can we ALL learn from this approach that will help us prosper through multiple market cycles?
Scott Choppin is the Founder of Urban Pacific, a real estate development company out of Long Beach, California. With 35-plus years of experience in the business, Scott has led the development of nearly 1,700 units throughout the Western United States. He is also responsible for a recent innovation known as Urban Town House, a middle-income, multigenerational housing product that serves urban families in California. Scott’s work has been featured in Forbes, The Los Angeles Times and Builder Magazine, among many other media publications.

On this episode of Apartment Building Investing, Scott joins me to explain how he got his start working for a large development firm, describing the wide range of skills and knowledge he picked up before striking out on his own. He discusses how he leveraged joint venture partnerships in the early days of Urban Pacific, what the company is doing to mitigate risk in a recession, and why he is optimistic about the current circumstances. Listen in for Scott’s insight on transitioning from a W-2 to real estate development and find out what YOU can do to survive and thrive in an economic downturn.”

For full transcript click here Expand

George Grombacher: Come on. Welcome to Money Savage REI, and welcome our guests. The strong and powerful Scott Choppin. Scott, welcome.

Scott Choppin: Hey George. Great to be here. [Inaudible 00:19].

George: It’s good to have you on. Yeah. Scott is the founder and CEO of the Urban Pacific Group. They’re real estate development veterans, helping investors achieve superior, recession-resistant, long-term results. Getting excited to have you on, Scott. Tell us a little bit about your personal life, some more about your work, and why you do what you do.

Scott: Yeah, I appreciate that. So basically, I have a family background in real estate development. I’ve spent the entirety of my career doing real estate development even differentiated from investing in real estate. Although we do invest in our own projects, we’re really exclusively a developer and I’ve spent now close to 35 years basically, honing my skills in this space. Family background, I’m married to my wife, Becky. She and I have been together and married for 27 years.

George: Nice.

Scott: Three kids, 19, 17, and 13. So oldest is in college at USC and then my younger son is in high school and my daughter, our youngest she’s in junior high school. My family is what is my existential purpose. Like, why do I do what I do? Of course, I’m like anybody, I want to build an identity in the marketplace to be successful and productive, and profitable in business operations. But every day that I go to work, that I do what I do, it’s really to take care of my family, both now, in the immediate, present but also in the long-term future. I think it took me many years to really know that. Like, have it be something I thought about consciously. I mean, I was always oriented towards family, but it finally dawned on me probably eight or 10 years ago. I go, oh, like, this is really why I do it. I mean there’s a certain amount of ego I suppose and wanting to be successful in what you do and what you undertake, but all that goes out the window, when you go really what the decision-making, the metric is I need to take care of others and business while I take care of my family. So that’s sort of my background.

George: Nice. I appreciate that. So, 35 years in the real estate industry in development, has it all been in a certain region?

Scott: You know, so 35 years when…I have a family background, George, where basically my uncle Mike, my dad, Kerry were both real estate developers in their own right. So I basically started at 16 years old, I’d get up or mornings before I went to high school and I’d drive to my dad’s apartment projects, in particular, I’d pick up trash. You know, super sexy, right?

George: Sure.
Scott: Probably if you’d asked me at the time, I would’ve told you, I hated every minute of it. And I probably was terrible, probably awful trash or…

George: Or bad trash picker-upper.

Scott: But it informed me over several major milestones, decision-making, time periods in my younger years. I got out of high school didn’t necessarily have a specific intention to go to college, or even necessarily my career was, which sounds silly because I come from a family of very successful people, but being 18 sort of does that to you.

George: Yeah.

Scott: So I worked for a couple of years in the construction trades and learned a lot about how apart, like all the work I did was on new construction apartment buildings which came from helping my dad gave to find that job. And that taught me several things about what I didn’t want to do. I didn’t want to be in construction. Good people and we still do a lot of that work. We work with people who are in the trades and construction industry but wasn’t going to be what I want to do exclusively. And then at about that age of 18 or 19, I read several books that really sort of brought home for me, finally, what my uncle and my dad did relative to deal-making, right. Like I understood sort of the background of development. I saw what they did. Like, hey, you build buildings. You find land. You rent out offices or apartments.

But these books finally opened up my thinking and go, oh, this is what an entrepreneur is. You find the deal, you add value and you sell it for more than it costs you. Very fundamental and really what ultimately sort of motivated me to then pursue real estate development as a career. And from really that point on George, it was like, I knew I needed to go to college. I need to get a certain degree in business administration and finances, what I picked, what I thought was going to be most applicable for that. And then worked for several years for other companies learning the profession of real estate development, project management. And then at 32 was the time period that I decided it was time to go out on my own and really run my own company, which has been Urban Pacific now for 20, it’ll be 21 years, this coming March.

George: Nice. It’s always cool to learn about people’s journeys. So, all right. So tell us specifically what it is that Urban Pacific does?

Scott: Yeah. So being a real estate developer, we find land either vacant or underutilized and we design and build buildings that in our instance, we are an apartment developer. So we build new construction apartment projects, and we focus specifically on the workforce housing domain. So we build apartments. In fact, we have a unique product called Urban Town House or UTH for short, which was really predominantly designed and built to rent to families. Think a working-class family in Southern California is where we’re headquartered, but any major urban high-cost housing market, which California is like the top of that pile of expensive marketplaces. So we really are predominantly working to build apartments to serve multi-generational families. In fact, we build a five-bedroom, four-bath townhouse rental product that basically sort of lives like a house is the way we say it.

It lives like a house, but rents like an apartment unit. And it allows us to serve these families in relative affordability. And I’d say relative because of course that depends on who the family is in the market, specific micro-market that they’re in. But the intention is that give them an environment and a housing unit that allows them to economic share amongst multiple income earners and live multi-generationally, which is not typical for the apartment development industry. They’re not serving that demographic. And then more recently during this coronavirus era, we’ve actually had a huge increase in working professional roommates. So not your younger population, although there are some of those folks, these would be people that are in their late twenties and thirties that are working professionally. Their companies have released them from working in a specific geographic location, they can now work virtually and so they become what I call location agnostic.

And in fact, they’re predominantly forming the roommate groups around some pre-existing friendship group or, people that enjoyed living together, that now can go live together because their companies have all gone virtual. So they care where they live, but they don’t have to live in city X or city Y. And so they’re forming these groups and then they pick someplace that they want to live, and we’re attracting them because we have these five-bedroom units. So what we’re having is we’ll get three or four professionals working together and three people live in a unit. The three bedrooms they use for living, and then they have the two extra bedrooms for work from home space. So we’ve had a vast increase in acceleration in that environment. So we always anticipated that in a recession, our product would be attractive to people that wanted to economic share amongst multiple earners, which in our minds was always families and still is. But this roommate group, the economic sharing lifestyle is the same. And it’s typical for humans to live that way, to live together and share incomes and expenses during recessionary periods. So we’re seeing really very significant uptick in our business plan in that environment and this environment right now.

George: How interesting. When did you sort of make the decision to focus on that Urban Town House model?

Scott: So about four years ago is when we really started thinking about so 2016, 2017. We had been developing a different product type that was more oriented to studio and one-bedroom unit. So think young working professionals that were moving to the city center, downtown areas. Great product. Great demographic. But in 2017, we started to see a real big surge in new supply from really big, small, middle-sized companies. There’s a lot of product coming on onto the marketplace and really gearing up to come in the future. We’ve always wanted to operate in a contrarian mode wherever we could. And so just given my background in affordable housing and market-rate housing, I knew the story of families in need of housing that [inaudible 10:07] families, right. You know, think about it, a studio or one-bedroom doesn’t fit families. They would never choose the lifestyle. Just the living format isn’t cohesive for them.

But also those projects are very expensive, right. And so if you’re a working family with four or six or eight people, and you do rent either by choice or by default, then you start to look around the marketplace and there’s a very limited supply of product that really fits this family lifestyle, multi-generational. So we started to look and go, what can we be doing that’s different than what everybody else is doing so we can move away from the crowd. So we cannot be surrounded by huge amounts of competition. You know what’s a product that’s in high demand and low supply. So we really arrived at this UTH model after a few months of research and working on a few early projects that sort of informed how we could build it. After about the first couple of projects that really cemented our thinking, we go, this is a long-term space to occupy in the market, market niche. It has this great social impact story of helping families, now helping roommates. It’s not in huge supply. I mean, there’s not a lot of people that are going to do five-bedroom units, right. It’s just wholly uncontested and there are a few people at a low level that play in that space. But we’re the only ones that I can see that are doing it at scale and really growing that scale also.

So we basically about three years ago just went solely and exclusively to the UTH model. And in fact, we’re working on raising a real estate equity fund that should be out in the public domain in the next 60 days, that would finance an existing portfolio of projects that we’ve already developed and will hold long-term and then roll several new projects. And the intention is to have a supply of capital with really a long-term five to seven-year, window of time to invest. And then we’ll structure these. So we hold them in perpetuity. Really for all intent and purposes, we want to hold these projects forever. We think the story of multi-generational living and economic sharing in California particularly is going to be the story for a very long time. So we’ve committed really our entire company and all our resources towards that business plan.

George: Nice. Well, I think it’s exciting and it seems like anytime that you can find something that’s in high demand and low supply, that seems like a pretty good idea.

Scott: Yeah. That came from one of those books I mentioned earlier, right. Like buy low and then sell high.

George: Right. But obviously, nobody else thinks that it’s a good idea or they just can’t figure out how to do it. What is it?

Scott: Yeah, great question. I mean my role as CEO is a lot about strategy and innovation, right. Like what’s the next phase? What’s the next step? What can we be doing to stay ahead of the competition? I don’t say that nobody will do five bedrooms. Now, a couple of answers to your question. One is all the institutional developers and builders and investors won’t really get into this domain in a big way, because it’s so far on that end of the spectrum, as far as unit type. Now that’s not to say developer, won’t put some larger bedroom count units into their project, but they wouldn’t do it exclusively like we are. So a certain level of commitment. I think that because it’s so extreme institutions and social capital sources aren’t built to be extreme. They’re in fact built to be the middle of the road. They have a fiduciary duty. They want to produce returns, but they also don’t want to screw it up and invest in something that’s so extreme as to be unknown or untested.

Now because we do raise capital and that’s an ongoing effort of ours, we look to make the product competitive and compelling from a narrative standpoint. Like why would an investor invest in this? Well stable families, right. Strong social networks that keep these families local. You know low supply, high demand, right. Long-term future of like not enough product to meet the needs of it. And so I think we’ll see an uptick in moderate-income housing and workforce housing and multi-generational housing. But those are like small niche parts of the business generally when you look at the total marketplace. So that will always be the case, right. Institutions are not experimental. That’ll keep them out of the space. Then we just need to contend with those people that do get comfort with the extreme nature of the product type and our job, my job is to innovate, to continue to stay ahead of the crowd. Maybe new build technologies, maybe different markets. Maybe we expand instead of only families, we think of roommates that work from home, right. And that’s an observation we saw in the marketplace. Naturally, we go, can we do things in our business plan that can make that more conducive to expanding a business plan. Staying ahead of the crowd, ultimately. So it’s never that it will never happen or it’s not, how can I put this? You know the competition will come and it’s just our job basically continue to innovate, stay ahead of that.

But I think in relative terms, we’re going to stay in this workforce housing space because I do think in general terms, it’s underserved from what I spoke about before. But also I think just the narrative and the mental model that most institutions have, if you look at the mainstream media, they’re like, “Oh, workforce housing doesn’t work or there’s no way to make it work.” And I read a lot and I hear those narratives and I go, great. We would love more families to be served by workforce housing. There’s plenty of demand to go around. Like we would never be able to fulfill even just even a small portion of it. So I think that generally growth in that marketplace is welcomed. But at the same time, it’s such an extreme niche that I don’t see that mainstream, the crowd won’t come into that space.

George: Right.

Scott: In general.

George: Makes sense. I like it. Well, Scott Savage Nation is ready for your difference making tip. What do you have for them?

Scott: You know the place I’ve been spending a lot of time thinking about is what I call networks of capability, right. So we all know the term networking, and I’m not meaning that exactly although that’s part of it. It’s really to think about it in a new way. So we’re in this new environment of technology acceleration, right. Coronavirus has come. We’ve moved what would have been a 10-year technology adoption cycle, and we’ve moved it into five months or whatever. Zoom would be an example of that. So what that does that should throw, and we’re in the story, people into building their networks around capabilities and not convenience, right. So convenience, you know in the old days, when you lived in the village, you have the local candle maker and the local butcher and the person who made clothes and they were in your village so you transacted with them because they were convenient, right.

What I call the third industrial revolution which would be predating computers. You had people in your local community or your local industry of, you know I sell widgets in the United States and I’m in the Widget Conference of America Group. Now technology, computers, and the internet allow us to basically transact globally. I think everybody’s aware of that story. But what I think is sort of new thinking is that we’re not limited to our local networks or networks of convenience. We really can go to any nation around the globe and find the best of the best in that particular. When you need to transact with somebody who edits videos, I don’t need to have somebody who’s in the US. I can go to India or the Philippines or I can hire somebody who lives in middle America in a rural town who has great skills but doesn’t live in Southern California, which normally would be the way you’d look at it.

So really to be oriented around networks of capability and to really work to build strong, powerful networks in a way that advantages now from this global connectivity, coordination, [unintelligible 19:03]. If I think about it now, George, like my job over the last few years, plus really the rest of my career will be to amplify and accelerate those networks of capability to upgrade our company’s capability to execute on real estate projects, to find new groups of investors who like the story of what we’re producing in the workforce housing space and to really just continue to build that network of both internal, people who work for us directly. But external also and we’re making moves constantly to figure out how to upgrade the teams and the people that we work with. You know we’ve got to take care of the people who are with us already.

So like you and I talked about pre-interview is sometimes you have to quit people and companies and processes and markets to be successful. So there’s building powerful networks and there’s quitting less powerful networks. And it sounds harsh as I say it. But the reality is if you don’t do that as a company and as an organization, as a manager or CEO, those people that you stick with from a loyalty standpoint could drag you down, right. Maybe it’s not fatal. But if you’ve got a person who holds your growth back, they’re thwarting you from taking care of your family. They’re thwarting your employees from taking care of their families. So building networks of capability and quitting, they go together.

George: Well, I think that that is great stuff that definitely gets to come up. Come on, Scott. Thank you so much for coming on. Where can Savage Nation learn about you? How can people engage with you and Urban Pacific?

Scott: Yeah. Thank you for that. So for your listeners, I would offer, if folks want to go to our website, www.urbanpacific.com/ebook. We’ve got an eBook offer of How to Survive and Thrive in a Recession, which I think is an appropriate, timely conversation to be having. And this eBook really sort of a reflection and lessons learned from the 2008 recession that I was managing this company through that time period and I think very applicable. So if folks want to go there, get the eBook that will put you on our email list. We’ll put out every Saturday, we put out an email and our emails are really around market updates, economic trends, some of the thinking that you see, this network of capability, and quitting conversations. There’s sort of that knowledge in there. People want to go to the website and go to our Investor Education Section, got a lot of information there. Then go to our Contact Page and our entire team email and phone numbers are on there. People can get a hold of us that way. Email is best.

George: Love it. Well, Savage Nation, if you enjoyed this as much as I did, show Scott your appreciation and share today’s show with a friend who also appreciates good ideas. Go to urbanpacific.com/eBook and get that information about managing through recessions. Go to urbanpacific.com, the Investor Education Page, as well as the Contact Page. Check out all the great resources. Thanks. Good, Scott.

Scott: All right, George. Thank you so much.

George: And until next time, keep fighting the good fight because we’re all in this together.

I know how important it is for me to hit reset, to refocus, reprioritize, and even reprogram myself every quarter or so in order to make sure that my mind, my body, and my money are where they need to be. These days we’re all going hard, constantly with so many demands on our time or attention. That’s why I created the Strive Online Bootcamp to be able to take a step back. To ensure that we’re optimized in three key areas of our lives, our minds, our bodies, and our money. I’d love for you to come with me on this two-week journey and click on the link in the notes of the show, or you can go to strivedetox.com. Check out the program. Love to have you as part of it.

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