I have a special guest. I have Brian Green from Greensprings Capital Group. How are you?
I’m great. Thank you for having me.
I’m going to enjoy this conversation because as we talk real estate and Brian has his own company, it’s interesting that when you talk to a lot of people who start their own companies, we all have lives. Brian is a father and a married man. He has daughters and dogs. We all have normal lives as well. We’ll probably talk a little bit about successes and some of the challenges of that but also talk about what’s going on in real estate and Brian’s niche that he works on, especially working in Upstate New York.
You’ve heard me talk in the past about what we do in note investing, New York is a very challenging state, depending on where you are in a state. It’s like anything. If you can put a team together and build a niche, you can be very successful. Brian, thanks for joining us. Tell us what you got going on and then I’ll hit the rewind button on how you got into the business.
Our company has a portfolio of over 100 units, all located in Upstate New York. We are specifically located in Saratoga County, which is South of Lake George and a little bit north of Albany, the state capital. We have 37 units under contract that we’re going to be bringing on within the next few weeks. We have a ground-up development project, which is financed through syndication. That one is 42 units that we’re working through the final phases of approvals with our municipality. Within the figures that I’ve already provided, we have fifteen short-term rentals that we own and operate ourselves. Saratoga is a very big regional tourist hotspot, especially in the summer months. We were able to capitalize on that influx of population in the summer as well.
One of the questions going to ask when you mentioned Saratoga is why specifically, but somewhat answered that question of you got the tourist hotspot, and being North of Albany, it seems like a good place for people to go. You mentioned the ground-up construction. Is this your first syndication deal?
It is. In the past, we’ve raised investor capital, but it has always been private notes. We go in with the model of redeveloping properties. It’s a little bit more than your traditional value-add strategy. When we go in, we’re converting an entire building from something that was created in the 1960s or ‘70s with very little upkeep or renovation since then, and going in and making it a 2023 product. When we do that, we’re doing a ton of construction work. We’re taking it from maybe a C-plus all the way up to an A-minus type of property.
As a guy who has cut my teeth for 25 years in construction, let’s go back and see how you get into this business. Most people who get into it eventually want to get out as fast as possible. It sounds like you’re enjoying what you’re doing. How did you get into this business?
I do not have a construction background. My background is in finance and marketing. The first company that I started out of college was a chain of Verizon Wireless stores. I have an operations and finance background. I built up that business from 1 store up to the most we were at is 23, and then I scaled it back to 15. Ultimately, it had a successful exit in 2014.
I got into real estate as a business person, not as a contractor. I started buying small multifamily properties using the BRRRR methodology, buying a distressed property, fixing it up, refinancing it, spitting that same capital into the next project, and stacking one property on top of the other. All the while, I am self-managing because of my operations background. I didn’t know any better, but my thought methodology was I had to manage these myself. I never thought about third-party management. I started creating a property management company myself as we scaled up.
It sounds like a lifelong entrepreneur. You did the wireless to get into real estate at the perfect time right around 2014. I was down in the DC area from 2012 to 2014 if you got in at that time or even after that, but that was a very good time to get into real estate. I’m guessing it was as well for you. Tell us about the first real estate deal that you did. Was it a little nerve-wracking for you to switch business models to get into real estate?
I don’t remember it being that way. It was a small building. It was a four-unit apartment building. I knew enough to know that I wanted to get into real estate and I knew how the finances worked, but I didn’t know what I was doing. I probably overpaid for the property. I purchased it originally with all cash instead of financing it. I made a bunch of rookie mistakes. I went into the units thinking I was going to start doing the maintenance myself. I even went out and got myself a lot more in a snow plow. I thought I was going to be the stereotypical landlord.
I quickly figured out that the game was not for me. I started looking through it with the prism of if I have 500 units at some point, I’m not going to be the guy going around able to mow all the lawns and push the snow around. I quickly converted into more of a business model where I outsourced all those types of trades. That’s how I got started. I bought one small building and figured it out as I went along, especially the relationships with tenants. It’s not that much different than the customer service element that I had in retail before that when I was dealing with a lot of customers. It had that synchronization as I moved into real estate.
A two-part question that I was going to ask as you got going into real estate. You mentioned that in a lot of your earlier deals, you did private notes with investors. Why use private notes over traditional bank lending?
We do both and we still do it to this day on many projects that we get into. Our normal model is we’ll get 75% to 80% of the loan to the cost of the purchase and the renovation. Most of our bank lending on the front end is with local banks and it’s construction loans. You still have that 20% delta there where we either have to come out of pocket with equity or we raise a portion of that from private individuals on notes that we can repay once construction is finished because our bank lending is always built into auto-convert to a long-term mortgage at the stabilized value.
We’re buying properties with the methodology that we’re going to be able to fix them up, refinance out, return all the investor’s note capital, and then we ultimately end up with a brand new building full with high paying tenants and we have zero of our own capital deal. We have that equity bump that we created.
How many of the investors who did private notes for you are now investing in your syndication?
All of them. That’s a little strange because it’s a different classification of investor generally. Maybe not. Usually, I’m seeing a different demographic age-wise. Some of our older investors prefer the note route because it’s guaranteed and they can plan for it. Whereas younger investors always want the equity and the upside. They all converted from notes into equity and opportunity we have currently.
The reason I want to bring that up is for people tuning in, whether you’re an active or passive investor, to realize that Brian clearly was in this for the long game. By getting investors on early on, even on one-off deals, you start building a relationship with people and those relationships grow. They have friends who have friends that continue to invest. Now you have this new development that you are raising capital for that investors are already coming in the door, which now is not the easiest time to raise money, especially probably for ground-up construction. There are a lot of posts and things online out there about some concerns with multifamily or these types of deals. Like any business, there are good deals and not-so-good deals. It boils down to the sponsor and understanding what they have to do. Would you agree with that?
I would completely. The deal matters, especially the ground-up development. It’s our first time syndicating. There is some trepidation there by investors who aren’t familiar with our company. In the end, everyone who funded their investment is doing this because they trust me and my brother who is my partner. They trust us as a company and they know our track record, which is way more important than the actual nuts and bolts of the deal we’re executing on.
You could have the greatest deal ever but if the operator doesn’t know what they’re doing, that project is not going to go very well. On the flip side, if you have an experienced operator like us, even a marginal deal, we can make pretty great because there’s a lot of leverage you can pull along the way. If you are managing it properly, you can turn those on-paper average deals into home runs in the end through operation.
Somebody made an interesting comment once about using a real estate analogy to be like a pilot flying a plane. Anytime you’re up in the air, you want an experienced pilot who knows what they are doing, not somebody who just read a book yesterday, and then all of a sudden, realizes they are syndicating. I had someone call me the other day. We primarily invest in mortgage notes. The person called me saying they want to start a fund. I said, “Have you bought notes before?” “No. Can you teach me how to buy notes?” I’m like, “You’re trying to start to fund something you have no idea? I’m sorry. Politely, I don’t have time to talk about this right now.” You mentioned your business partner is your brother. How is that? I love my siblings, but I would never go to business with them. How is working with your brother?
It’s great and challenging at times. Unlike normal business partners, when they have disagreements, maybe they split up and go their own ways. When it’s your brother or your family, you are forced to work through those issues. I’m not somebody who shies away from direct confrontation, probably to a fault sometimes. My brothers are very much the opposite of that. Us being brothers works well, especially since he’s very different from I am personality-wise. I constantly force those difficult conversations on the front end, which makes things uncomfortable, but in the end, we have a better result because we work through it.
In any business partner, there are going to be hard conversations, but it’s better to have them earlier than later and then let it boil up and steam over to other things. You talked a little bit about the ground up. I know your mission is to try and provide properties that are in very good condition at attainable prices. It seems like, based on the success you’ve had, you have a very good track record of that.
What is your secret sauce? What is one of your differentiators of how you’ve been able to be successful? That is a challenge that a lot of people try to provide. It is managing. Especially when you have investors, you’re trying to manage, “I need to make money but also make sure I keep it occupied, find balance, and keep it in good condition so you have low maintenance. How is that balancing act?
A lot of it starts on the front end, which educating ourselves on the business or construction on how to buy on underwriting. We’re fairly conservative in our underwriting compared to most. I’m pretty much of the mindset where I won’t even look at a property unless it makes sense on paper so I don’t have that emotional reaction to it or start trying to force the numbers as we all have before. You get that spreadsheet in front of you and it’s amazing. I’ve dealt with bankers before who joke that they’ve never seen a proforma that wasn’t correct.
You start playing the spreadsheet game. On the front end, we buy right. We make sure we have a cushion in our construction budget and we’re conservative in our future rent rejections. That allows us to finish projects and make them look new. We have to make sure we can do everything on the front end and still have that product in the back end, where an attainable rental amount is possible, and still check all of our boxes for returns. In the end, it’s still a business. We’re still trying to hit certain metrics.
We just want to do it in a way where we have a product that we’re proud of and that we can present to residents. In some way, keep it attainable. I use the word attainable because affordable is the word people use for government-back housing. We’re not doing that, but we’re also not creating A-plus space. The way to look at it is in our market, even for our new development, we’re pricing out apartments at $2,600 a month. That’s a 2-bedroom and 2-bath brand new apartment.
How many square feet on average?
They’re about 1,200.
It’s $220 a square foot roughly.
It’s a pretty decent size, but there are other new developments in our market. The same apartment might cost $3,200 or $3,300. We’re trying to exist in that B-plus to A-minus space. It has less volatility in that space. You don’t get that compression when maybe the economy goes south or those A-plus type apartments start dropping down to A-minus and B-plus. You’re still high enough where you have a tenant base that’s high quality. I like the joke that you want tenants who are concerned about their credit scores. We’re still in that phase. It’s that young professional. It is our resident avatar.
It’s interesting because I’ve worked in a multifamily space for a long time and see a lot of people who like to own or operate that trophy property, which it’s great to have your name on it, own it, and have all the amenities and everything that goes along with it. The moment that economy starts to soften and then you have to start dropping rates, all of a sudden, your proforma is based on $3,200 a month and now you got to go down to $2,700 to $2,800.
Typically, most operators refuse to try and get down there, to force it because the numbers don’t work at that. That’s where you get yourself in trouble. People go to renew it at least and like, “We’re not budging in.” Next thing you know, guess where they’re at? They were at Brian’s place. They’re renting them from you. I’ve seen that happen a lot. With those rental units and so forth, do you still have your own property management company as well?
We still manage all of our buildings. We started managing third-party for other investors, but only if that’s a short-term rental. We do that only because we have a skillset internally with our management team to handle that type of asset. We have fifteen of our own. The revenue potential of a short-term management agreement is much greater than that of a long-term. At that point, it’s worth our time and energy to do so, but we’re very selective in how we do that.
You mentioned something that our audience will crackle at. You mentioned the proforma. I’m an investor as well and I’ll look at a proforma where it’s the rosiest of roses where every star and planet has to align for what somebody puts on paper. You also mentioned the other component of looking at it arbitrarily because I don’t care who you are as a real estate investor. There is some point in time when you tried to force those numbers.
The deal just doesn’t pencil and then you’re like, “Maybe I’ll get a little more aggressive here and there,” but I would tell people don’t. You have to stick to your guns and be more conservative because it gives you a little more float. That’s what’s going to lead me to the next question. What assets do you buy? Are they tired landlords, landlords that have failed to operate properly, or a mix of both? Where do you find a lot of your products?
It’s a mix of both. Due to the nature of the products we’re looking for and we usually force value through construction, we find ourselves buying properties where usually they’re local landlords. They’re not very sophisticated. They’re still operating good properties. What I find oftentimes is they’re not reinvesting in apex expenditures. They might be fixing things that need to be fixed. That can only get you so far.
If the place was built 40 or 50 years ago and you don’t ever replace the kitchens or bathrooms, at some point, the building is tired and worn. It automatically becomes a C-minus building even if you’re doing your best efforts to maintain the tenant base. You’re just going to get a deterioration of the residence and the timeliness of those rent payments. At some point, a company like ours comes in, rips the Band-Aid off, and does massive renovations to bring that asset up to the standards.
I used to look at some smaller multifamily and it is very similar. The challenge I’ve always found is to look at it and then you need to put the new windows in. The exterior needs a lot of maintenance. The heating needs to be redone. Some of them need new roofs. Everything that needs to be done that doesn’t bring in an extra penny needs to be done. People put in, “We’ll go throw a new floor and we’ll paint the inside. We’ll put the lipstick on the pig,” but anything of substance doesn’t get done. That’s a great opportunity also for somebody who’s looking to buy where you can get in and probably pick something up that is a little distressed to fix it up to push rents a little bit as well.
To your point before about how we buy and how we’re trying to provide tenants, also internally, we’re trying to make sure we have enough cushion so that we can make all those improvements you mentioned. We don’t want to manage an asset that has a 25-year-old HVAC system or needs a new roof. We’re going to go in and make sure we do all that stuff on the front end. Oftentimes, we’re talking to brokers about acquisition opportunities.
They’re like, “It just needs paint and flooring. You can increase the rents by 100% a month.” Sometimes that’s true. Most of the time, it’s not. My rebuttal to that is always, “I can do that and I can achieve the rents, but the roof is still 30 years old and the HVAC is worn and tired. When am I going to replace that?” They never want to factor that in because it doesn’t affect the rental rate to a great degree, but it’s stuff that has to be done. If it’s not being done, somebody has to pay for that.
Switching topics a little bit. One of the challenges in the space also has been getting bank financing. With your acquisitions and your sticking in one market, I’m guessing you probably have very select lenders you go to and have relationships with. Have they changed any of their standards for lending?
Yes. Primarily, we’re using one local credit union. We like credit unions a lot because they charge very little in fees and there’s no prepayment penalty when you exit, as we always do when the building is stabilized and we try to refinance it. Coincidentally, that bank was merged with another credit union and the management team is all different. That all happened within the last few months. We brought on a former commercial mortgage broker. He’s doing a heightened finance role for us where he’s working almost like a fractional amount. He’s overseeing all of our books.
Mostly, he’s sourcing all of our debt. He has relationships with every single bank in the market because he was a commercial broker for 5 to 10 years. He’s getting us financing now on some of our deals that I wouldn’t have been able to get on my own before through relationships. Given what you said about how hard it is to get financing, having him on board and bringing him on was the best thing we possibly could have done as a company.
It’s interesting you mentioned that because it is something that never popped into my head. That is seeking people who have volume, trying to find new relationships, and get new funding because funding sources come and go and could dry up. Having somebody who has all that experience, network, and connections is pivotal and key because he’s also probably providing you with some additional deals that other people might not or might struggle to find financing, especially since a lot of people are going to that one credit union.
To give you an example, we’re working through the final stages of financing and competitive term letters for our ground-up development now that we’re about approved through the municipality. One of the terms for sourcing is a consortium of three local banks that he puts together on his own. I’m like, “I never thought thought to do that.” It’s three local banks that have maxed out of maybe a $3 million to $5 million loan. He was able to get them all together and now they’re working in tandem. They might be the most competitive term sheet that we get. I never would have the time, resources, or connections to put that thing together.
I was at a conference. It was a bank special asset where a bank had distressed assets, properties, and stuff. That’s what they’re talking about where these participation loans are. I heard of them but never thought about them. It’s exactly what you said. Several different lenders will come together. Nobody wants to give the entire deal. Each one will want to take a piece either based on size or risk. One of them will still take the lead, but they have other banks participating, depending on a lot of those deals. If you make it work, people said they get much better term sheets on those types of deals because it’s also less risky for those banks. In today’s interest rate environment, every quarter point or eight-point counts.
I’m glad that I’m not the only one who has never heard of that type of lending scenario.
That’s our primary business. We buy debt. We do some private lending and stuff. It’s interesting to see some of the creative ways and things that can be done in the space. As we wrap up this episode, I like to ask people one question. What do you believe has been one of the biggest factors for the success that you’ve had to date in the business? Is there one or several things that stick out that you think led to the success of your company?
To a great degree, it’s self-education on my part and absorbing every and all piece of information I can possibly find that has to do with real estate investing and landlording. Back when I started in real estate, I was not necessarily an avid reader. I would read here and there, but nothing serious. Now and since then, maybe for the last eight years, I’ve listened to thousands of podcasts and read hundreds of books. I think I’ve read every single book on real estate that is available. It’s critical to do that because when you’re reading the information or listening to a podcast, you might listen to it and you are like, “That’s informative,” but there’s no real takeaway.
Six months from now, I could be looking at a deal and something will click that I read or heard before. I’m like, “I can use that right now. This makes all the sense in the world. This is going to secure the deal. This is going to make or break a transaction. This is going to help me hire this key person.” It’s helping me hire my finance guy when maybe two months before I needed them because I had that in the back of my mind that I was going to need him at some point.
The education piece is huge, especially if you’re going to go into this where you’re going to eventually turn into the syndication or raising a fund and you’re going to try to extend your credibility to raise capital from limited partners. You’re doing yourself a disservice and your limited partners if you’re not engrossing yourself in every piece of information that you can find on the subject matter. That doesn’t mean you want to get into that analysis paralysis phase, but it does mean that you need to be self-aware to know that you don’t know everything and you constantly have to keep that education wheel rolling. You’re putting yourself and your partners in the best position you can.
It’s interesting you mentioned that because I was very similar. I wasn’t an avid reader until I started doing my own more entrepreneurial things. I would read a book. It’s like, “Good book. I take some notes on it.” A lot of times when you’re reading some of this stuff, you don’t also know what you don’t know or you don’t know where some of the key takeaways are, but you remember certain things. All of a sudden, something will come up and I’ll be like, “I remember I read a book. Which book was it that commented on this so I can go back and look at the situation where this something happened?” I’ll be like, “Here it is.”
Especially as you grow a business like you have when you go from single deals up to syndications. You may have read a syndication book five years ago and it’s like, “Great. I know what a syndication is.” All of a sudden, once you start putting one together, you go back to some of the things that you looked at in the past or re-educate yourself. That’s important for people. I agree 100% with that. If people want to reach out and learn more about you, your projects, syndications, or what you have going on in general, what’s the best way for people to reach out to you?
Our company is pretty active on Instagram. They can reach us @GreenSpringsCapital or they can send me a direct email at Brian@GreenSpringsCapitalGroup.com. I’m always happy to talk about real estate investing. I’m engrossed in this business like most of us are. I have no problem talking about real estate for hours on end. Send me a message and we’ll connect.
One last question. It’s more of a curiosity for me. Where do you see yourself taking your business in five years?
We have it pretty well-mapped out. We’re on EOS.
You are an EOS person as well. Do you have The Level 10 meetings and everything going?
A lot of them. The ten-year goal that we set up a few years ago was to get to 1,000 apartment or rental units as we term them. It could include mobile home parks at some point, but to run 1,000 of those, which in our market will equate to somewhere between $200 million and $250 million in total assets under management. To get there, we know that we need to buy 35 to 70 established apartments that we can redevelop every year. We want to start a new ground-up development each and every year as well. We layer those on top of each other. If we do that, in eight years, we’ll be at our goal.
You got that all mapped and planned out. Our goal is eventually the same thing, around $200 million to $250 million. We look at that as a nice sweet spot to be in. You have a property management company. That’s a little bit different. I never want to manage 100 people and then pick up from that same point. That is great. Thanks for joining us on this episode. For the people tuning in, make sure to check out their Instagram for what they have going on. Enjoy the rest of your week.
Thank you.
