The U.S. faces a severe affordable housing shortage, with millions of renters paying more than 30% of income on rent. In this in-depth conversation, Jeffrey Jaeger, co-founder and principal of Standard Communities, shares his journey from brokerage and institutional real estate to building one of the nation's leading affordable housing platforms - managing over 30,000 units across 22+ states and targeting 50,000 by 2030. Jaeger breaks down the Low-Income Housing Tax Credit (LIHTC) program - how it leverages private capital through tax incentives to finance new construction, rehabilitation, and preservation of affordable rental housing. He explains the mechanics: developers qualify projects, investors receive dollar-for-dollar tax credits plus depreciation, and the model delivers low default rates due to strong demand, conservative underwriting, and built-in guarantees. The discussion covers:- Starting in multifamily brokerage and spotting asymmetric opportunities
- Transitioning to principal investing during the 2008 crisis
- Building Standard Communities through public-private partnerships
- Navigating distress, tax credits, bonds, and essential housing
- Scaling via new development, acquisition/rehab, and asset management
- Using speed, knowledge of regulations, and talent to outpace competitors
- Future focus on systems, processes, AI for document analysis/underwriting, and downside-protected growthA must-listen for real estate professionals, investors, policymakers, and anyone interested in how private capital addresses America's housing crisis. Chapters
Chapters:
0:00 – Intro & Housing Crisis Stats (7.4M+ Unit Shortage)2:06 – Jeff's Background & Early Career in Brokerage
Chapters:
3:52 – From Pension Fund Advisory to Principal Side
Chapters:
8:17 – Spotting Brokerage Alpha & Early Lessons
Chapters:
10:48 – Founding Jackson Square Properties (15,000 Units)13:40 – Launching Standard Communities in 200716:02 – Navigating 2008 Crisis & Shift to Affordable
Chapters:
19:04 – Mission-Driven Model & Public-Private Partnerships
Chapters:
21:46 – Explaining LIHTC & Affordable Housing Basics
Chapters:
27:04 – How LIHTC Works: Tax Credits, Equity, & Low Defaults
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32:29 – Capital Stack & Developer Incentives
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37:32 – Standard's Three Business Lines (New Dev, ACT Rehab, Essential Housing)42:36 – Competitive Edge: Speed, Knowledge Asymmetry, Scale
Chapters:
46:18 – Recent Fast Close Example (San Jose Workforce Conversion)50:01 – AI & Systems for Deal Research & Underwriting
Chapters:
54:27 – Converting Market-Rate to Affordable: Process & Alpha
Chapters:
58:33 – Becoming the "Homebuilder" of Affordable Housing
Chapters:
1:03:03 – Advice for Young Professionals: Education, Mentorship, Revenue Streams
Chapters:
1:09:51 – Generational Opportunities in "Non-Sexy" Businesses
Chapters:
1:15:50 – Vision for Standard: #1 Developer, Top Talent, Advocacy
Chapters:
1:18:56 – LA Housing Challenges & Policy Frustrations
Chapters:
1:25:43 – Closing Thoughts & Call for Change
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7.4 million homes underserved in terms of housing in the country. Whoa. Right? And what that translates to is that 50% of renters in this country pay more than 30% of their income on rent. Jeffrey Jaeger is the co-founder and principal of Standard Communities. And for over 20 years, he has led more than $6 billion in real estate transactions, helping build one of the 50 largest affordable housing portfolios in the US with over 30,000 units across 22 plus states. My boss is here, the seller is here. This broker's paying for everything. Like somehow I'm on the wrong side of this transaction. Yeah. Right? And then so I go, I pull up closing. I'm like, "Oh my god, you just made It was like $480,000 in a single transaction." You got to really learn the fundamentals of the business, and then you need a mentor.
I was like 24, 25 saying like, "Hey, I want to have to be a an even partner with you guys." And they were kind of looked at me like I was crazy. So I got, "We sold about five or six billion dollars worth of real estate last year." I'm running through these brokers' numbers and I'm like, "What are you doing with all that capital?" The idea was always if we found good deals, we'd find money. They tell you it's $20 million deal. You look, there's a $17 million loan on it. And then we would run the numbers and we're like, "This deal's worth
11." What is the hardest part about this? Like why were you guys so successful in growing to as big as you are versus someone else? I mean, it was This episode is supported by Citizens Private Bank. Citizens believes your attention is a force. It's built your world, your vision, your legacy. But wealth brings financial complexity that can consume the most valuable asset, your focus. That is why Citizens Private Bank, now in Los Angeles, gives you a dedicated team with one point of contact who understands your full financial picture, including specialized real estate financing. I'm a client myself and I have been impressed by how seamlessly they bring everything together with thoughtful,
Let Citizens focus on your wealth so you can focus on your world. Connect with a banker at citizensbank.com/novacancy. Member FDIC, Equal Housing Lender. This episode is with Jeff Jaeger. It was absolutely incredible. Jeff is one of the smartest people I know when it comes to affordable housing. His company, Standard Communities, owns 30,000 units across the entire country and wants to get to 50,000 by 2030. We talked about where affordable housing was when he started back in 2001 to where it is today and what that entails in today's current environment and where those dollars are coming with a government and then where it's headed in the future. And we talk about the whole step of the way and how you potentially can take advantage of the current situation so that when the opportunity comes, you can make the most [Music] of it. I learned a ton in this episode.
In brokerage. In brokerage. It was one of those things where I grew up in Sacramento, Northern California. I had some family friends who were in development and did some affordable stuff. And then I had some other family friends who were brokers who introduced me to brokers down here cuz I wanted to live in SoCal. So, I interviewed a bunch of shops and this was right out of college, 21 years old.
like 2017, 2018. Yeah, I graduated 2017. So, this was June of 2018. And Matthews, they're like, "Yep, come on in. You're going to call Koreatown and here's a phone and make some dials." All multifamily? All multifamily. And only in five zip codes.
And that was it. So, I started in investment banking and then investment banking {slash} investment advisory work for a pension fund advisor. But then a couple years in, I met a couple of guys and joined on the principal side of couple guys who owned a brokerage company. So I got I saw it a lot behind the scenes. And I sat like in the bullpen with like all the brokers. had a brokers and a principal side. They had they had spun off. The guy that I I started working for at the time was the first broker who had really spun
Oh, no way. And at the time like it was very controversial. George had sued them and you know, it was like and they won their case and opened up their brokerage
Yeah. And that just that Marcus & Millichap mindset of like, you know, kind of wearing both hats of like I you know, like I'm George obviously owns a bunch of companies now as principal and also as Marcus & Millichap, you know, they had bought a number of deals through the RTC days and so had this kind of smaller real estate portfolio that had a fantastic basis on and had found some really interesting niches on the brokered side that translated into deal flow. Got it. And so once they found kind of like the types of deals that really worked Uh-huh. then they started buying those themselves or finding guys they were brokering to to say, "Hey, I'll bring you the deal. Let me do 50% or whatever it might be at the time." So saw that.
I saw a bunch of guys covering like in San Francisco is like one guy who I always remember I asked about Korean cuz he I remember getting hired and he literally picked up speaking Chinese in Chinatown and like over the course of like 10 years became like really fluent in Chinese and like built this niche of like he was like a powerhouse of like four to 10 units in Chinatown and like control I was like a Caucasian broker like controlled that market. That's crazy. Um and like you know, basically dominated there. So like I I saw a lot a lot a lot of that coming up in the business.
A lot of respect for that hustle. I'm my goal is now to learn Korean cuz that that would be badass. So I just whipped out some fluent Korean. So you started out in in private equity. Walk me through kind of I guess from then to to where we are
today. Yeah, so so I started you know, kind of working doing pension fund advisory work in which we had a number of clients. I was working as an acquisitions analyst doing I mean anything from hotels, like we worked on
This is like 2001. Okay. 2002. We worked on like the Mondrian at what was the now is the Maybourne. Okay. But like the Mondrian hotel deal before that was done, it was a land entitlement play in Beverly Hills. I remember working on that. I remember, you know, working on the twin kind of towers here in Century City as office deals. Right? So, we did everything. I mean, it was at the time yeah. That's awesome. Lend Lease Real Estate Investments. It was this conglomerate of basically different pension fund and insurance capital that they were pooling and buying and it was a great job, great learning experience to learn all products and like how to So, you guys were buyer? Buying? We're all buying. Got it. Right? And asset managing. Got it. On behalf of like large institutional owners. And our job was to basically find acquisition opportunities,
bring them to an investment committee, and then the committee would work with the portfolio managers that managed different accounts and say like, "Okay, you guys think this apartment deal's interesting." Two portfolio managers, one for a value add fund, one for a core fund, one for like a separate account for like Ohio teachers would speak up and say like, "I think that's all a fit." And then we would have an internal mechanism to say like, "Okay, that deal gets allocated to this, you know, pocket capital." But you were just seeing so much We saw every real estate transaction possible across every sector. I mean, it was like the best place to start Totally. as someone getting out of school. Then that got merged in with Morgan Stanley and kind of merged into the investment banking platform. And I sort of peeled off when that started happening.
I remember sitting There was the the head of the the office. I remember him coming in for a speech as we were doing the merger together. And he's like, "Here at Morgan Stanley, you know, we don't break people, we just bend them." Right? And I and I was like coming in from like 2 years out. I'm like, "Okay, now I got to go from the pension I'm seeing all product types doing, you know, kind of what I think is the most ideal job on the planet for learning real estate. And then you're going into doing pitch books and investment banking and like really more hardcore analyst work. And for me, I just felt like it wasn't going to be the right fit. And so I had met a couple of guys through that process on on a deal. I remember specifically it was a deal we bought in Rancho Cucamonga.
GPI was the seller. Okay. We were the buyer. We went to the closing party and the broker who took us on a golf outing up in Santa Jose and had paid for I mean it was a I I forget the hotel, but it was a incredibly luxurious hotel. Great golf outing, great, you know, wine and food. And I'm looking at this closing party and all these people he's invited. I'm thinking to myself, I'm like, okay, my boss is here, we're on this thing, the seller is here, this broker is paying for everything. Like somehow I'm on the wrong side of this transaction. [Laughter] Yeah. Right? And then so I go, I pull up to closing, you know, and I can't find his fee, right? So I call the title company and I pretend effectively to be the the seller. Yeah.
I'm like, hey, you know, like I just, you know, can you you know, I was like, I'm working with the seller, can you send me a copy of the seller's closing statement so I can look at it, you know, etc. So they send, you know, a copy of the closing statement and I see like there's the fee right on the sales side. I'm like, oh my god, he just made it was like $480,000 in a single transaction, you know, and I'm at my salary level at the time, I'm like, okay. And then I started doing the numbers at the time in 2001, 2002, the condo craze was going on in California. And so there was a there was a moment for like 3 years Yeah. where every single thing you could find as apartment building, if it had a condo map on it, it was like liquid gold. Done. Right?
And you were people were paying two caps and, you know, three caps for these things, right? And the guy that had had brokered this transaction was also doing a ton of these condo deals. So that's what I said, like, how much in transactions did you do last year, total volume? So the guy, we sold about five or six billion dollars, you know, with the real estate last year. And I'm like, I'm running through these brokerage numbers and I'm like, what are you doing with all that capital? Yeah. And he's like, well, we're investing some on the principal side We're trying to find apartment deals. And I'm like, okay, well, I would like to work with you guys, you know, on on the principal side. And so he brought me in to meet with the guy who had owned the brokerage company, okay, at the time.
And the and the company was called the Royal Codes. And so I came in there and met with Tom Codes, and we hit it off. And he said, you know, why don't you come in and asset manage, you know, my stuff. But it was a very entrepreneurial environment, very
much a brokerage mentality. to say, if broker and then running his stuff, it had to be like a brokerage office. Yeah, and I and I came in like I remember the first day I came in like he had someone who was asset managing his stuff already. And he never told him that he had hired me. And I came in and I'm like looking for files, trying to And he's like, what are you doing here? And it was a really awkward, you know, day or two as when we first started. And so that that all got sorted out. And pretty quickly as I kind of started managing their deals, I said, hey, like the real concept here that I want to do is I want to go buy deals.
I want to use you guys' track record of what you've done, which has been really successful, and the story of the fact that you guys have the brokerage shop, so we have a pulse on the market, and let's go buy a ton of deals. And so I helped raise outside capital and organize an actual company. So we founded the company together, which is a company called Jackson Square Properties. Okay. That's in the Bay Area. We bought about 15,000 units from like 2000 3 to maybe 2006,
Like or were you really I mean it was like a really incredible opportunity. I remember Tom sitting me down and saying, hey, when I was 22, you know, someone gave me the opportunity to, you know, kind of start a business or run a business. Yeah. And so I'm a big fan of, you know, young hungry guys who can do that. I I mean, looking back, I had, you know, definitely, you know, not enough knowledge to be able to run a platform at that time. That's a lot of years. But, he allowed me to just I just sat in his office and was like a sponge. So, like, I would sit in his office for most of the day, do joint calls with him when we first started, and then at night I would work. And I would work till like, you know, 11:00, 12:00 o'clock at night.
I'd get up in the morning, do it again, you know, every single day. And just trying to like I mean, there were so many great stories that like I think for anybody who starts a business, you got to really learn the fundamentals of the business, and then you need a mentor at some point. And that was like my mentorship time. And things, you know, about leverage in real estate I when when I say leverage, I don't mean debt, like just getting pushed around. Totally. And how those things fall, how litigation works, how that, you know, kind of factors in. You know, I I remember a specific story of, you know, one of the guys that he worked with, you know, serving us with a lawsuit. And, you know, he you know, he would call and, you know, he would say to Tom
like, you know, "Hey, just cuz we're, you know, in litigation, doesn't mean we can't do business together." You know, and like it just you and I like these things like blew my mind at the time, right? And so I think that was a really good learning experience. And so, I worked there for a number of years. I really, you know, as I grew that business and 2007 happened, Scott Alter, my partner at Standard now and, you know, also best friend, who run the business together, we were both in San Francisco at the time. And so, Scott was at Stockbridge, which is a major private equity firm in in the Bay Area, and helped to the beginning stages of that firm. Mhm. And so, when 2007 7 was happening, we kind of saw the writing on the wall like, "Okay, there's going to be some really interesting opportunities coming."
We both weren't sure whether to take advantage of that through our current shops. I went to those guys and I kept saying, you know, "Hey, I I I'd love to you know, I I want to be more of a partner and, you know, I'm doing I'm running the business, etc." They, you know, there was a big age disparity between me and the guys at Jackson Square.
like 24, 25 saying like, "Hey, I want a path to be a, you know, an even partner with you guys." You know, and and they were kind of looked at me like I was crazy. And so it just it made sense at the time to to, you know, kind of decide to go out on our own and start our own thing. Um so we started in 2007. We opened up shop for Standard. We moved down to LA. We felt it was going to be way more entrepreneurial in LA than San Francisco. San Francisco's really controlled by a lot of old-line real estate families. And so when I think about interesting deals that would pop up, LA had a ton
Did you What was Okay, give me the plan. You and Scott are like, all right, we're going to start a company. Did you go and pre-find money? Did you go Like, what gave you the confidence to say, "Okay, we're going to figure this out"?
Yeah, you know, I think that's It's a really good question. We had a lot of debates when we first started. Scott definitely felt like we needed to have a deal in tow, we need to have income coming in. And we were a little bit in different places because Scott was leaving a really high-paying, great job. Mhm. But it was a it was a job. Right? And when I had started Jackson Square, you know, I had done a bunch of deals and I was getting distributions. And so whether I had left or stayed, that was staying in place. Right? So Scott was very much pushing at the time saying, "Hey, like we got to have something if we're going to go start this business." And so we sort of met in the middle, you know, and said, "Okay, you know, when we first started, we said, "Okay, let's try and do,
you know, some consulting work and figure out how we can get this thing started." And the idea was always if we found good deals, we'd find money. Mhm. Right? And so we just kind of came with that mentality of like, "Let's not make it about like having to do a bunch of things first. Mhm. Just go find good real estate, it'll find a home. And we did some odds and end things when we first started to just keep the lights on. Sure. But, really what happened is 6 months after we started, Lehman blew up, right? And so, like, we knew it was going to get bad, and we went in thinking there was going to be opportunity. And then all of a sudden, it was so bad that everything froze. Yeah.
So, we were talking to brokers, talking to people, and then all of a sudden they're like, "We can't sell." Right? Cuz I mean, it was you're working on a deal, $20 million deal, right? And yeah, you you get they they tell you it's a $20 million deal. Yeah. You look, there's a yeah, $70 million loan on it. And then we would run the numbers, and we're like, "This deal's worth 11." Yeah. Right? And then it's like, well, you're talking to the guy who's representing the seller, and they've nothing to sell. Yeah. Right? So, then there was just it just sat there. Wow. For like for a moment in time. And so, then we had panic attacks for the first 6 months like, you know, what are we actually going to transact on? And really, I think that's, you know, where we first dove in, we started buying distressed loans.
Is where we first you know, kind of And and also at the time in the affordable housing market, Fannie and Freddie were the largest buyers of tax credits. You know, they're probably buying 60% of the tax credits across the affordable housing space. And that all stopped come 2007. And so, when that happened, the tax credit market also in affordable housing ground to a complete halt. So, we then were kind of retooling and thinking, "How do we take advantage of the situation?" We knew it was a generational opportunity to get in there. Mhm. And it was just how do you enter and kind of figure out your your entry play entry way point. So, we looked at we were trying to buy tax credits, you know, from different groups. We were trying to buy distressed loans, you know, anything we could get our hands on.
So, we actually started on the distressed loan side, buying a portfolio of distressed loans. And and and really from there, we bought probably 20 or 25.
The money at first was coming from basically passing the hat, friends and family. The first two that we did were we bought a distressed deal in Venice, California. Yeah. And then we bought two, I remember two apartment buildings in Manhattan and Harlem that were like, you know, they were like three, four million dollar loan sizes. And like Scott and I bought those mainly ourselves with a partner. Okay. Uh that was our management partner. And so, you know, didn't need a ton of outside capital. Totally. And then we started we did a few deals with some institutions as we got bigger. And then the market just shut off like in a day. And we're calling banks and nobody selling us deals. And we realized that what was happening was that the government had stepped in to bail out all the banks, right?
And so all of a sudden they didn't have to sell paper anymore. Got it. And that's when this light bulb went off for us of this wave of, you know, the the the government involvement in multi-family. Mhm. And over time, I mean, if you look back from even, you know, kind of World War II on, it's been this slow progression of housing being this quintessential, you know, infrastructure effectively in the country. And, you know, governments, local governments, and state and federal have been getting more and more involved as as that's been progressing over time. Yeah. And so we sort of just this light bulb went off for us of like, "Hey, we need to focus on figuring out how to get involved and effectively on the affordable housing side." And we we felt like that's where the funds were going. That's where the national interest was going.
And the government needed a partner to help deliver on its mission of affordable housing. And we wanted to be that chosen partner for, you know, either the state, city, or federal government in delivering that housing. And so we retooled our mission, you know, and really focused on building a mission-driven for-profit national developer. And from there, you know, kind of it really has been all about scaling, you know, standard and then we've started a number of other businesses kind of along the way as well, but they've all been sort of, you know, offshoots and tangential to what we really viewed as that core philosophy of public private partnership and, you know, kind of figuring out where to align ourselves in bringing private capital into what the public was looking to
or So, we did. So, I I I can't remember So, they were primarily market rate guys, though. Okay. And the 15,000 units we bought, 90% of it was all market rate value add, you know, housing. Yeah. The The deals [clears throat] that they had done previously, when I kind of went and scrubbed their track record and said, "Okay, we're going to go pitch to institutional capital." Yeah. And I looked at what their most successful deals were previously,
I started pulling up these old kind of tax and bond deals. It was pre tax credits, Right. but they were these kind of older structured the bond deals and they had figured out really and, you know, how to read those documents, understand what you could do with the bonds. A lot of the developers did not understand that and so they were arbing on that system of finding as a broker these deal that these deals that came with tax and bonds. They would buy them and then restructure the tax and bonds. And so, I learned that business from Tong Yeah. of tax and bond side. And then when I was there, sort of just picked up the tax credit side, which was another layer on top of that, but they had never done tax
25. Well, I mean, I always say like, I mean, if if it's not being explained well, then someone doesn't understand it. Got it. Like clearly. It's I you know, honestly, it's really not rocket science at the end of the day. And I mean, you do need to have a bit of a structured finance background to understand some of the stuff that we do in the space, but, you know, really, I think if you if you come at of the tax credit side to start with, I think it's harder than coming out of it and learning the tax exempt bond finance side of it okay and then layering the tax credits on on top of it. So towards the end of my time at Jackson Square, I did a couple of large deals that we had converted an 800
unit market rate deal both of the suburbs of Chicago that we converted from market rate to tax credit further than it and those were really successful and so I left on that note of those being really successful and knowing that business and so a lot of the people we first really dove into the affordable space were people that I had met and connected with through those couple of deals and were willing to kind of work with us as we did the affordable
stuff. So my mom's going to be watching this. Okay. And she doesn't know about real estate at all. Explain LIHTEC, explain affordable, explain to the lay person, right? And I'm I'm I know what I'm talking about but even I have a trouble understanding this. Can you please explain like capital A affordable?
Totally. So in this country you may or may not have heard this but we are suffering from huge affordable housing crisis, right? So just to throw some stats and some numbers at it, right? We're statistically they think that we are about 7.4 million dollars 7.4 million homes underserved in terms of housing in the country. And what that translates to is that 50% of renters in this country pay more than 30% of their income on rent. You said 50%? 50% more than 50%, right?
Where they're paying more than what is typically thought of as 30% of your income in rent, right? And so that's a huge drain on the economy, right? So you have you know they estimate like in California it's drained you know 60 70 billion dollars out of economic growth in California based on people being economically burdened in their rent and you have the percentage of renters has continued to go up especially in this cycle, right? In which you know coming out of 2007 we just haven't built as much housing and interest rates going up now housing costs just incredibly expensive. I'm sure as a young person looking at buying a home a mortgage does not look like a pretty instrument at the moment. And so most people are preferring to rent these days. Yeah. And those numbers even though they're slow and they tick up by you know, we
go to being a 62 63% you know, renter nation that those small percentages are huge in terms of the numbers that are driving into rent which drives up rents. Mhm. Right. So just start with that context, right? Yes. And so the low-income housing tax credit program, I think in order to understand it properly and a lot of these things you really have to see the history on it, right? So you know, you can look at what it does today but really like where did it come from and what was it in reaction to? And it was in reaction to prior to LIHTC housing which was created in 1986. Okay. So that program came in in in I'm sure you've heard in being real estate like the tax law changes that happened in '86 where they got rid of active
versus passive losses and people used to be able to like write off entire buildings totally everything else, right? So at that time they passed the LIHTC
And and earlier from the '60s you had really HUD was the big player within housing and was doing effectively Section 8 programs for both subsidy and also financing on building projects. So if you wanted to build an affordable housing building, right? You you got a rent subsidy contract for your building in which you were guaranteed so I'm going to a a market like Stockton and I need to build this tower to build you know, high density housing. I have no idea you know, that someone's going to actually rent this thing as so HUD would say look, we'll make sure you know that you have renters cuz we're going to provide subsidy and we'll pay you a thousand dollars a month you know, in rent these units and we'll give you your mortgage to build it. Wow. So that program was the most successful program that's created housing in this country.
So, most of the high-rise affordable housing that was built, you know, built millions of units in this country from the '70s. So, like the brownstones in New York is like A lot of those were built using this program, right? Anywhere you see like a housing tower, you know, and you'll see a lot of them like in K-Town, there's some like concrete, you know, buildings in the '70s have like a subsidy component. So, there's a number of them like one of ours that's there is is under this program. So, that that program ran really from the '60s to the '70s, right? And then Reagan came in and said, "Hey, we're going to end this program part of tax reform and cutting, you know, trying to cut the the federal budget and giving more power to the individual."
And that's when they switched from subsidies on the buildings and the first time they said, "We're going to give you a Section 8 voucher and you as a tenant can now get a voucher." And that happened around like in the early 1980s. So, I I kind of put that context there and they also had done tax-exempt bonds right? At the time, which were a huge subsidy when interest rates were at 15%. And you said, "Okay, you no longer have to pay tax on your mortgage and on the interest that you're getting." So, a bank might say, "Hey, instead of lending you at, you know, 10% or 12% and paying tax on that, I'll lend you at 7%," right? "But I don't pay any tax on the interest I receive." And so, that was a huge subsidy on the difference between 7% and 12%, right?
So, as interest rates have been declining since the '70s pretty steadily, which we've all gotten the benefit of in in real estate, that subsidy has been getting smaller and smaller. So, today you have a loan that's at, you know, 4 and 1/2% I mean, back in 2001, 2002 they were making loans at 3%, right? There was nothing to subsidize from a tax-exempt standpoint. I mean, maybe they would do it at 2% versus 3, but it really didn't make much of a difference on on the buildings. And so, that was really that subsidy was getting smaller and smaller. The HUD programs got cut and they saw a huge drop-off in the early 1980s in housing starts. And so, to combat that, they passed the low-income housing tax credit bill. And the idea was to use the IRS to incentivize private capital to go in and build affordable housing.
And so, really what it is is as us as the developer who builds the housing, it qualifies for a program in which somebody who's paying who is a taxpayer of the US government can effectively invest into our deals and in lieu of paying tax, they receive benefits for having invested in our affordable housing deals and they get a credit off their
Okay. Got it. Um and so, it is a write-off. It is It is They get to get depreciation on the investment as well. Wow. Okay. And they also get the tax credits back. Better than a write-off though, it's dollar for dollar. So, if you owe a dollar of tax, you get a dollar credit, you know, back off your tax. And you get to depreciate it? And you can depreciate your investment as well. Wow. So, what a lot of people don't understand, you talk about selling tax credits, Yeah. they're not actually selling tax credits. They're just investing in an affordable housing project. Good. Got it. the depreciation that comes with the investment into that building. Got it. And they also get the tax credits that, you know, kind of flow with that. Okay. And so, that that business has
really, you know, become a huge industry over the last, you know, and and it's matured. And so, it's it's There's now, you know, obviously billions of dollars that flow into that space. And also, I think banks realized pretty quickly the default rates in affordable housing are slim to none. On the tax credit space, I think we're under 0.2%. Really? on tax credit investments. So, when they when banks look at this and they prioritize, you know, kind of what types of investments they want to make in low-income communities, you know, low-income housing tax credit deals are always at the top of the list because the loss ratios are so much less than we're making in other areas and it's so tangible, right? Like they get to see that project that they got to invest in. And banks are also required to invest in low-income communities. Got it.
So, you know, there was the old issue again historically of redlining, right? Where they would borrow from low-income neighborhoods or not borrow, they would they would get deposits from low-income neighborhoods and then they
And so the community reinvestment act, which is again late '70s, set up this perfect recipe for banks to use low-income housing tax credits as their preferred means of investing into low-income
Got it. And the program now is become the most successful driver of affordable housing. It's led to millions of homes produced in the country. It I think it does probably 90 9% of new affordable housing that's constructed in this country is done and is a model now for other countries cuz we we now I I helped, you know, or I help and I was on a call this morning like helping in the UK Mhm. and other markets where they're they're envious of what we're doing in the US in in the amount of private capital that we've been able to bring into the space. Because they're providing these credits, but they still need private capital to invest in these deals. And then with that, you leverage that with debt capital that's on these deals.
And so for every tax credit dollar that's given, you know, it's probably five to one in terms of private capital that's coming in to finance those deals.
So, the default rate is so low. It's one of the reasons that affordable housing is just become this resilient asset class that that people feel, you know, has an attractive return but also has this downside protection. You know, your rents are based on the average mean income in the area and they're restricted. So, a lot of times, you know, for the most part the rents are a huge discount to the market rents that are in the area, Mhm. right? So, there's usually waiting lists, huge demand for those units if they're especially they're mostly quality units and so the demand side's never a problem. So even you know ups and downs in the market and and I've been through them obviously you know the light tech space really doesn't see much of an impact. They're underwritten pretty conservatively in terms of debt service coverage ratios coming out
of the gate and the tax rate investors spend a lot of time you know kind of vetting these deals to make sure that you got the right expenses in there. They're not over leveraged and you have you're locked into these when you build these light tech deals for 15 years. So you can't sell these things for 15 years. You got to make it for that 15 year period and the last you know kind of two components to what make it really safe from a light tech investment standpoint is that the there's also a number of guarantees that are intrinsic in the business that the tax credit investor they're looking to invest and buy tax credits. They don't want to take the risk of the real estate so they look to the developer. And also their syndication partners that they're going through to make sure that they're made whole
if something were to go wrong and those investors or in developers because they're also playing for the upside on the property in the back end are you know very you know willing to provide one of those guarantees and also the investment that's needed if something were to go sideways to make sure that like you know hey like we're going to fund this you know operating costs you know negative for 5 years cuz at the end of the day we're going to own this real estate all ourselves right? Got it. And it's the advantage of these deals and having the the upside going to the private developers and which the private developers are incentivized to really make sure these things stay afloat and that the tax credit investors just continue
Okay so you get the government right Or private investors to invest in your deal, right? You're the developer, you're like, "Hey, I want to build 100 units."
I'm going to get money from a bank who's going to finance, let's just say 60% 65. I'm going to have investors come who are going to buy the tax credits, who are going to come and do another what? 20, 25%? You're You're putting in what? 5%, 10% equity?
No, typically I see so that the equity provided by by the the tax credit investor is typically the the total equity that's needed on the project. Okay, wow, this Although it's changing. I mean, the industry is evolving at this point in which, you know, I think that the stronger groups might provide some equity into those deals. Okay. And we do, you know, in kind of in the right scenarios, but a lot of times, you know, as a developer, you're providing guarantees though. So, you also there's no one there to backstop when there's cost overruns. Got it. So, you have a credit buyer who's providing the equity to build that real estate, but should there be a mess on you know, you don't like on typical deal you might have LPs. Yeah. Right? There's no LPs here to write a check.
It's a big personal guarantee. and you're building, you know, in our case, you know, we're building $100 million projects, right? And so, if you've got cost overruns by a million, $2 million, which can happen, you know, the developer is there to make sure that that you're But But from a cost a source and uses standpoint, Yes. the sources and uses are put together between, you know, the debt that's financed on the project with the LIHTC equity that's coming on the
deal. Okay, this is even sweeter. Okay, so, you get the debt to come in at 65. You get the investors to come in at the rest of it. So, it's 100% financed not with your own money.
Then you are running that property for 15 years. You know, at the end of 15 years, that ownership then reverts to you the developer and you own that fee simple.
Well, the debt's still on there, but you Yeah, go ahead. housing tax credit investor typically has a percentage of that upside of the back end. Okay. Right? And in the market today, like that's somewhere between 10 and 20%. Okay. And so, they will take 10 to 20% of that back end, but then 80 to 90% is reverts back to the developer
at After the 15 years. Correct. So, you basically if you build a $100 million property and in 15 years worth 200, then you own at a certain point 80% of that at quote-unquote the the equity cuz you have debt, right? Well, you're you're you're putting your market rate hat on, right?
So, the way I think about it is you you have restricted rents. So, your rents are never going to go up the way you're thinking like this property that's 15 million is going to be worth 200. They're restricted for 55 years? 55 years. So, at the 50 At the end of 15 years, they're for all intents and purposes still very restricted for the life. No one's putting value on that, right? So, so really what's happening is you're going to build the I I the example I give is you build that $100 million project, right? That $100 million project might be worth, you know, 90 at the end of the day. Okay. Right? And, you know, $70 million of the debt, right? Becomes 10 at the end of the day or becomes 60 at the end of the day cuz you amortize down $10 million, right?
So, now you have the difference between 60 and 90, right? And you have the opportunity, if you're able to maintain that value at 90, to have that upside as a LIHTC developer in 15 years from now. Got it. Right? Got it. And, you know, I it's it's smaller numbers today when you net present value that back by 15 years cuz it's a long time to wait, Sure. but the numbers in 15 years can be substantial based on that time value. So, you're putting the long game. you and you and you really have an incentive as the owner to act like an owner and invest in the project and to I think it's a great thing for the residents because, you know, we really like investing in the CapEx and the you know, kind of curing deferred maintenance and and all
the other things that go with long-term stewardship of property because at the end of the day, like we believe there there's going to be value there on the back end. Got it.
Okay. We have a sponsor for today's episode, and that is AI for Siri Collective. 25 listings at the moment. We're closing four or five deals a month. It's been incredible. So, if you want to learn, if you're in commercial real estate, how to use the AI in your business, whether you're a property manager, a broker, an investor, really anyone, we have a huge group, we're 400 people in this community, and the website, if you want to go check it out, is aiforsyricollective.com. So, appreciate you guys. Now, back to the episode. And so, there my understanding, too, cuz what's this thing about burning off LIHTCs credits, and then you reissuing stuff? Cuz there's a couple of people I talked to who's like, that's their business model. If tax credits are burning off, then they go and try to put new tax credits.
That's just So, yeah, so that would be development. That's that's It's really redevelopment. Okay, redevelopment. So, okay, so let's back up for a minute. So, we have in our business, right at this point, we have three different lines of business. Okay. Okay? So, we have and they're they function standard. This is standard communities. We have three distinct groups, right? And that might help break down the way we see the industry and the way these opportunities start to fall. Please. So, we have a group that does new development. Okay. Does LIHTCs deals, right? And so, that we do that, and we can go into why I think that's really interesting, and we do that all, you know, across country. Yeah. And that's kind of the model that we use for the the new development that we just talked about. We have a group that we call acq rehab. Okay. Right?
Acq rehab is where we use tax credits to renovate existing apartment buildings. Okay. Right? Some of those may be candidates that have exited the LIHTCs program. Some of those may be market-rate units that we think we can convert into LIHTCs. Okay. Right? So, there's any number of there's probably like three or four different types of opportunities, and the what you're alluding to would kind of fall into that bucket Okay. of a project that's come out. And it really depends on the state it's state by state. Depends on state priorities. So, we're super sensitive on the rehab space, right? In which, you know, every state needs to prioritize new construction affordable housing. So, if there's a constraint on resources, right? Those dollars need to flow into new construction affordable housing, or they need to make sure that there's enough. At the same time, any building they lose that's existing
affordable housing and it doesn't stay afford- you know, existing affordable housing starts to become run-down enough that it may need to get torn down or condemned at some point in time would be a loss of that housing. They're going to have to replace with new construction. So, you kind of got to need to monitor the door of expiring deals and also the door of building new, right? So, any state from a policy standpoint is thinking about those two things in that balance. Got it. And so, we kind of our position with those two groups, we work on both, right? And and we work with different states to try and figure out what their state mandate and priority is and where we can be successful at scale in helping them kind of either preserve housing or bring new housing. Got it.
And some people, you know, focus just on that one niche of like, "Hey, we're going to recycle these deals every 15 years." Some states that opportunity shuts down because they say, "Hey, you know, there's still 45 years left on that regulatory agreement. We've got to prioritize that new development deal over here." And you know, for us, we realized, you know, maybe 5 or 7 years ago that we really needed to be multifaceted to work with states. And again, we want to be, you know, state's trusted partner that, you know, I mean, I think we're you know, potentially the largest I think we're the largest developer in California
of the LIHTC program. Really? In terms of owner of units of LIHTC at this point, right? And so, Damn. I think that as we, you know, kind of sit down with different officials, we need to be able to have that conversation and say, "Look, like, you know, this deal needs to get rehabbed, this deal needs to get built, you know, there's different components to all this and how do we kind of satisfy all these things? And then the third group that we do is really an asset management business, what we call essential housing. And essential housing is where we bring private capital in that isn't using the LIHTC program to invest into opportunities to create new affordable housing or preserve existing affordable
it's all going to be capital for the most part, it's capital A affordable. So, that's some sort of NOAH would be something In my mind, I think of NOAH housing as the rents are affordable, but there's no restriction on it. So, we're always typically doing something with some sort of government restriction in place on it. Yeah. And those deals are a lot of what we're focused on there or there's a lot of generational opportunities right now of guys that are retiring from the business, right? You know, we're talking about like the you know, kind of how you came up in the business and I came up like those guys now are at the point where they don't have heirs They're too rich, man. They don't need to do this stuff anymore. They don't want to work in affordable housing and their heirs don't want to work in affordable housing.
And it's a it's incredibly necessary, you know, and the mission is is super important. And so, we want to be the home where we can take on those portfolios, those companies, and take them out or take them on. So, we've done a number of portfolio transactions at this point and we've really raised a large amount of institutional capital from either, you know, kind of pension, sovereigns, you know, and and other kind of private equity partners to to kind of invest into those opportunities where we can successfully hit our mission objectives, right? Which is, you know, really delivering at scale, you know, safe and dignified housing for all. And two, we can show that there's a an attractive return in it as well. Right? And so, they're doing that. So, it I would say that, you know, kind of you know, brokers often ask like, "Oh, like
Like where does that go?" You know, and and to be honest, like my job now is much more cultivating these teams. Got it. And and building our our brand and focused on how we how our different teams are are properly tooled to take advantage of all these different opportunities that are coming in through those different channels. So, it should come through these team and should be one of those types of
Like what is the What's the hard [bleep] Like what Why is not everyone doing this? when we started Yeah. there was no affordable housing industry, right? I mean, it was it was just like it was it was certain types of deals, there were certain programs out there. It wasn't organized, right? And there was an asymmetry of information. And I I knew when I first started, right? And and you can appreciate this, I'm sure, from the broker space, right? It was like the LoopNet and and the tech space, like I started in 2001, right? Was just coming of age. Yeah. So, I heard all these stories from these guys that I started with in the business that were saying, "Hey, I remember when I showed up at the courthouse steps and no one else was there and I just stole that property for X, Y, and Z."
I knew that was never going to be my like it just was not going to be my story. Yeah. Right? And so, I'm like, "Okay, how do I have that same asymmetric How do I take advantage of that same asymmetric asymmetric information Yep. and find interesting opportunities? And then the affordable space just was like ripe for, you know, as you said, super complicated, people weren't understanding it. And so, you know, we spent tons of time you know, kind of dissecting the documents and for me just like learning and it obviously is way before ChatGPT. Yeah, right. It's easy now. you're just like reading regulatory documents, talking to anybody you can talk to. And these light bulbs are going off like, "Wow, I didn't know that program existed. I didn't know that program existed."
When you get in there, you realize and you start to become a historian of like, "Well, that was done from, you know, 1980 to 1983." And this program was done from '85 to 87 and this program, you know, etc. And so, I think learning all those and creating in that knowledge base has become our superpower of we really I think that we move with more urgency and speed because of that skill set than anybody else in the space. So, you call us on a deal and our team should be able to assess and understand what they can do with that program and that what is normally very complicated for other groups to figure out Mhm. extremely quickly. So, a prime example of that, we just closed a month ago. We I'm really proud of a conversion that our essential housing team did.
We did it's about a thousand it was about a thousand unit deal, 950 units in the in the Bay Area in San Jose. That is a Mercury deal Greystar was selling. We jumped into the the marketing process and we were able to convert able to convert that to workforce housing that serves people that are 80% Wow. average median income or below and we closed that deal from start to finish in 35 days, right? Wow. So, we worked with the, you know, a CS CFMA was our partner on that transaction. Okay. And, you know, kind of helping us put together the regulatory agreement to benefit these these uh these residents and also renovate all these amenities that are at the project and and it's going to be a great thing for the community, great thing for the residents. And, you know, we were competing against market rate buyers.
I mean, the last comp that had sold had sold for same price per door, same cap rate. Bay Area is somewhat beat up, right? And these market rate buyers are moving fast in 45, 60 days. And so, we went to all of our partners ahead of time and said, "Hey, we've got to move on the same speed and urgency that a market rate buyer can do. We need to offer hard money deposits day one and be ready to go and close." And so, I mean, hats off to the team Damn. and the fact that, you know, our partner Vistria was, you know, amazing on that and being able to get to the finish line in that 35-day period really was like but that's what differentiates us. So, like being able to jump in and perform on those timelines and like know the space and know how we're going to
put together there's a structured finance angle to that and and we worked with with Freddie Mac on that to do that. Yeah. You know, I think it's makes it really unique. And then the last thing I'll say is you know, I think at this point, you know, we're not a young You're a You're a whale now. I I I don't know a whale, but 30,000 units. So, we we've we've gained size and scale, right? And there are projects that we can take on at this point and that we do with our partners and like I said, the tax credit investors, they're they're super worried about, you know, they just don't want to lose their tax credits. They want to invest with partners that can make sure that that's not going to happen. And we've done, I mean, at this point, you know, it's probably like 75 tax credit deals, right?
And and we haven't lost an investor dollar on a single one of them. Jeez. We have had cost overruns and they've seen the way we act and the way we honor our commitments and see those transactions to the finish line. And I think that's a buffer. So, Yeah. the startup group that's coming in saying, "Hey, I want to do this tax credit deal." One, you know, we're okay going non-refundable on deposits and taking on risk because we know the business so well. Two, you know, we're able to backstop things financially that, you know, a lot of upstarts in
It's so fascinating to me because that I look and and I've talked to people too and they're like, this is just my personality, but I like to find different ways asymmetric, my favorite word in the and people know this if you listen to this is alpha. I love the word alpha, right? Where's the alpha in the situation? How can I take advantage? What's the information asymmetry to to try to make something work? And it sounds like you guys found that. It was the perfect combination of experience, timing, and the age that you were at where you had the energy energy to go and actually make this stuff happen that culminated into you guys becoming as big as you are, which I I would I want to say, I mean, 30,000 for a private affordable, that's got to be top five, right?
Yeah, I think we're up there in the top five. I mean, we're definitely the fastest growing. Yeah. So, I mean, where our goal in the next few years is to be the number one affordable housing you growing faster than the other people? I think we're still I think it's that still same hunger we had from when we first started, right? And Scott and I are both firing on both cylinders. We're bi-coastal. Scott's in New York. I'm in LA. And I think it's it's one, I think we're the way we've split into our teams and we're firing on on full cylinder on three fronts. Most all of our competitors have picked one lane, two lanes, right? Got it. And the fact that we've got those three is a testament to the quality of those teams. So, like Scott and I is like I said before, our job at this point
is and we've said this and Scott really said this, you know, coined this first, but we're in a talent war. Yeah. Right? And so, our job is we want to get the best talent that's in affordable housing or even outside affordable housing Mhm. and bring them in and educate them on affordable housing. So, I spend a lot of my time helping and training people that are really successful in other careers Got it. learn the affordable housing space and come in and then launch a career within affordable housing. And we want them to work at Standard and help grow the platform at
Standard. What kind of skill set would be your A player? Like what kind of what kind of personality, I guess, and skills do you need to improve your business the most? Yeah, you know, at this point we have needs in a lot of different places, right?
So, you know, when I think about the future of what we need right now, you know, we're really focused in the next year on systems and processes and procedures in our growth because I think that we're trying to grow with scale, but we're also trying to grow with intention. Mhm. Right? So, you know, it's one thing to just like buy units and, you know, kind of rinse and repeat. And I think that with intention as we grow, a lot of that has to do with, you know, how do we get quality access to data at scale available to all of our team that's on the ground making decisions so they can, you know, act on that data super quick, right? And that's some of that's
AI. Some of that but you can't really do AI successfully. I mean, everybody's talking about AI, right? But you can't do AI unless you have the data and you have the system set up to be able to build on top of, right? It's a great tool that is like on the icing on the cake, right? And so we're really trying to, you know, focus on that foundation. And so I think that we have a number of people that have joined us recently that have a consulting background and that have worked at some of the top major consulting firms that have really been focusing on helping companies grow at scale. And you know, processes and procedures. That's a that's a huge Yeah, like the McKinsey's of the world.
Exactly. I try to do that with my my companies. There's I mean, my business companies, whatever you're going to call it, but it's hard, man. If your brain doesn't click that way, if you're not like the spreadsheet person that has to track everything and do this. Like I'm a sales guy. I just want to go out there and, you know, get deals done, right? But it's so important when you realize that, wait, I had to do this and then you have a bunch of, you know, 100 employees, 200 500 employees, I don't know how many you have. This if this person doesn't know this piece of information, then it causes this to have a bottleneck and it like clogs the whole wheel, clogs the whole system.
Totally. So, I don't believe you in terms that you're not building AI systems because you're too smart, We are definitely building AI systems. Okay, what are you building? But we are we are building, you know, you have to focus on that first layer
first. What's the alpha? What's the alpha? You got to give me the alpha. Like what what what do you I I guess how do you envision what are the systems that you think if you guys can build are going to give you a an advantage?
Yeah. Like what what is that in terms So, yeah, so a few things that we're really focused on right now is is I think that we are focused on how do we access So, affordable housing deals
Yeah. I mean, you have 40 files in a particular deal. right? Maybe 70, right? Each one is 75 pages, right? Crazy. So, the number one complaint that we have across the company is the time it takes for an employee to get access to information about a deal, right? So, you're a new asset manager, you're trying to dive in, you're dealing with the property manager, trying to understand like what the rules are. And it takes you 3 days to research all the documents and get back with an answer. And that's even if you have a real background in affordable housing. And, you know, you, you know, know how to do the research, right? Understand. Yeah. And so, what we're trying to do is get that time frame so in a matter of minutes you can type into a system and it'll tell you everything you need
to know about a particular deal. Yeah, it seems like your business is even more perfect for the AI tech because it is so complex and it's so much data that needs to be aggregated and then disseminated in like a
simple Yeah, the issue the issue is that like AI sometimes lies, like, right? So, like Yeah, you can't have an asset manager make a critical decision based on AI that, you know, Is that is wrong. Hallucinating and doing that. we're spending a lot of time testing the system. We're investing a lot in how we create a proprietary system to kind of research and go through our documents and, you know, kind of have like a chatbot type system Yeah, yeah, yeah. with the docs. So, that's that's one place we're super focused. We're also trying to get access, I mean, I think there's a lot to do, we're not there yet, but there's a lot to do on the underwriting side. Like, I would think for your business Yeah. right? Like, you can figure out rents, you can figure out expenses, pretty simple for buildings and kind of come through and Yeah.
go to to value. Yeah. You know, I think that on the development side, that sort of makes sense from for us from a data standpoint just because you're dealing with raw land, what are the restrictions, how do we, you know, what does it cost to build? And we can kind of figure out where we think the most optimal place to build is. I think that the, you know, really again, the nuances, though, for our business are figuring out these these public-private partnerships that pop up in different places, right? So you go to a you know, a particular state and they're super focused on solving, you know, we want housing that serves 60 to 80% of the average median income and we've developed a program that is going to exempt real estate taxes, right? It's really hard to use AI to get in and figure out how to take advantage of
I got a software for you. I'm not going to say it now cuz I think it's too valuable, but you're really going to like this. Yeah. There's a system that that I think is going to be super valuable. But that No, that makes total sense because you you're you're like the opportunities pop up randomly, right? And so your team has to go and figure out where that opportunity just was created and then be able to go and act on that and help
the system with that and quickly. typically with a market buyer in that market, right? So you know, one of the opportunities we're thinking about a lot of right now is there's a lot of distress on class A new construction Yeah. especially in you know, overbuilt markets, right? Okay.
Okay, can you explain to me So how would like the the deal in San Jose, right? How does it make sense? Can anyone go and convert a building to affordable? Like what is the process of taking a market rate building and converting it into affordable?
What has to be true for that to be Yeah, so you have to work with a government agency Okay. to record a regulatory agreement on the property and work to secure some sort of government financing that goes with that regulatory agreement that allows you to qualify for a property tax exemption and then you have to know how to work with the state uh well, through the county and the tax assessor to effectively show the affordable limits and which residents qualify for those limits and that you've done the proper paperwork and certification and once that happens, you can qualify for a real estate tax exemption and then you got to put together your debt and equity, you know, capital stack that may be more advantageous because you're doing something mission driven. And so it allows you to get slightly cheaper capital to put that together and etc.
So, it's really a number of different, you know, kind of groups and and again, yeah, I, you know, I would say that theoretically anybody could do what we're doing. The question is like can you do it in 30 days, right?
So, we see a lot of guys who start in the business and, you know, they end up on more of the NOAH type assets, right? And they've got them in contract for 6 months and the sellers are willing to wait cuz they're really the top market and from from our standpoint, for me, like being mission-focused, we're not hitting on those NOAH assets. They're already NOAH. They're already affordable rents. Like we're not adding anything new to an innovative to what's happening in this country in terms of, you know, creating and making a dent in that 7.4 million, you know, household units, right? So, what is the I guess like
what's attractive to you about this or what what obviously besides the alpha, like how do you make money at the end of the day? Cuz you said you're private, so you're trying to get returns for your investors, too. Like what's the what is the how do you know a deal's going to make sense for you to to go after?
And and So, I mean what we're really focused on right now, it's a great question. And like what we're focused on right now is, you know, I think the benefits that also come from
Okay. Right? So, think about most efficient developer in this country. Yeah. Bar none is the home builder. Yeah. Right? So, Lennar, DR Horton's, right? DR Horton built, you know, 250,000 homes last year,
right? And they probably at 100 bucks a foot and at 80 bucks a foot or something crazy like that. Right? So, like and then everyone's like, oh, well, why can't we build affordable housing at scale?
You're like, well, there's someone's building at scale. It's the home builder, right? And at those, you know, 100 bucks a foot, right? Yep. So, the the affordable housing developer, right? I mean, if you're building 5,000 units in a year, you're probably the number one affordable housing developer in the country, Yeah. right? And, you know, 2,000 units in a year, you're like at the top five list, right? So, and then what happens is a lot of these deals get sucked into, you know, where you're going multi years of entitlements in these urban locations, right? You've got layers of financing that are coming in place, and when you get done, it's not repeatable, right? Because you've got some weird shaped parcel in Koreatown that you built your affordable housing deal on. Maybe you got it done, maybe you didn't, right?
But at the end of the day, the next call you get from that same councilman to do the deal Koreatown, it's a totally different site, right? Totally new construction risk, right? Over and over. So, for us, what we realize is that for us from a monetary standpoint and kind of making profit for us and our investors, right? Like that just is not a scalable model that, you know, is something we can do at size. If you want to do one deal every five years, like and that some people, that's their mission, that's great. If, like I said, we're trying to really make a dent in that, you know, kind of $7.4 million number, what we're trying to do is basically become the home builder of affordable housing.
And so, what that means is we're trying to drive to that 100 bucks a foot as close as we can in affordable housing, and we want to use the least amount of government subsidy possible. Okay. And we want to deliver as quickly as possible because in development, time
So, we want to deliver as quickly as possible, and then we want to be known with all the agencies we work with that like when you work with Standard, you're working with somebody who's looking for less dollars, Mhm. can move super quick, and is coming with creative out of the box thinking and capital solutions to be able to do that. And then for us, you know, as we develop these deals, you know, we obviously earn developer fees and we earn, you know, kind of back end as we talked about on these different deals, but we want to do that at scale and create that over time, and that's kind of how we're doing
So sick. And you're 40s, yeah? Like it's just it's super cool to see people pushing the boundaries because I think I'm 29 and I see a lot of people in my industry, right? And most of the brokers are there's there's a bunch of young ones and there's a bunch of old ones. And then all the owners are super old, right? There's not a lot of young owners who own at scale because especially when you're doing market rate like all the guys who own bought in the 70s. Probably they were doctors and lawyers Yeah. and they had the depreciation stuff. Doctor Lee, Donald Sterling, you know, like Jerry Buss. All these super wealthy guys who bought them for depreciation and then have rid rode the appreciation
and now they are you know, billion dollar portfolios. Like those are opportunities are not there for people like myself where I can buy a building for $12,000, right? Yeah. A 10-unit apartment building for $12,000. It's not and and not as excuse, but it's just a different time in in this era.
So, I think that you're right. I mean, I think in Koreatown and West Hollywood and these areas where these guys built at the time that were areas that were forgotten. I mean, Koreatown 30, 40 years ago was like
I mean, it was nothing. You could buy you know, stuff for extremely cheap and it's gentrified and you know, Dr. Lee's done it and built an incredible portfolio. I have a lot of respect for those guys. Yeah. And I think that you know, but that opportunity in those markets is not there anymore. So, you say that Does that market not exist, you know, in other areas? I think you look if you look at the city as a whole, people have I think blinders in terms of as they look at the city and you look at you know, socio-demographic issues that are happening in different areas which is like block out certain areas, right? All of South LA. Yeah, right? It's like yeah, it's a straight shot to the beach. It's like fairly close, Yeah. right?
You know, I there's not a lot of people that want to go deal with managing deals in South LA, right? For sure. Like what is the price per door and what do you have to deal with in terms of Yeah. crime, etc. But like in 40 years from now, like is that going to be dramatically different than like, you know, what grew in Koreatown? I don't know. But Got it. that it's, you know, that's I'm just giving one particular situation. That's very think that you can you can follow those, you know, kind of demographic trends and, you know, kind of decide where you kind of want to stake your claim over the next 40, 50 years. Some of those guys have just lucked out. Yeah. I also think that I and I talked about this a lot cuz we have couple other businesses that we've started that
are in the public-private public-private vein. We have a private equity business as well. Oh. In which we invest in small-to-midsize businesses that serve underserved markets as well. And so sort of like we we work on housing so much in certain communities. Got it. And then Skyline Investors, which is the name of that firm, also, yeah, we realized we need to create jobs, too, if you really want to make a dent in these communities. Yeah. And so, you know, when I look just but like our thesis overall is the fact that you have a lot of these guys that have made a lot of money over the last, you know, 30, 40 years. Mhm. And generationally, you're going through the big wealth transition. Yeah. Yeah, that that's happening in history, right? It's never has this much wealth gone from one generation to the next. Yeah.
And the sexy businesses, the kids want to take over, are happy to run, etc., right? The non-sexy businesses, the harder businesses, like I think that you're going to see a lot of opportunities on those types of businesses in which the heirs aren't going to take them. And if you are a young person today and you can find opportunities to, you know, kind of get your foot in the door on those types of businesses. And I mean, there's things all the way from like the trash business to the, you know, to the manufactured housing business to the, you know, kind of I mean, a lot of affordable housing fits into that category, right? And it's, you know, you're doing, you know, a lot of times you're doing really essential work. Yeah. Right? I mean, a a community cannot function without trash. Yeah. Right?
But at the same time, like those businesses are probably going to transition at some point and provide opportunities for a new generation of young people that can do it better, smarter, more technology, you know, etc. And, you know, hopefully at more scale. So, if you're 21 years old, right?
So, I'm I'm with you on that. I figured your your personality type is one where you're just like, let's how can I improve? And and you get ideas from different things. Like, that's why I love studying history cuz my favorite podcast is not my own. It's the one one called Founders because he just studies great entrepreneurs. And I get to learn and see like, oh, I could do that with my business. Where If you're 21 years old Yeah. where would you be looking? Where's the alpha? What would you go do? Would you go buy a plumbing business, a roofing business, a property management? Would you go try to do a
different thing if you were at 21 21 I I got to go back to I think it's it's really important to to focus on that education, right? I think that, you know, no matter what happens in your career, ups and downs, like you got to have this confidence like when we've been through parts of the cycle that are, you know, that are tougher and rougher. Like, you got to know that you fall back, that you you have a proper business training to fall back on that like you feel like you're not going to be like, well, my plumbing business didn't work and now what do I do with my life cuz all I did was like plumbing. Yeah. Right? Got it. And I think it's really important as you come out of school to focus on that first business education that professional education of like
you know, what does it mean to like run institutional level shop? Mhm. Right? And I see that a lot from kids that have, you know, they go out of school they come out of school they work at a brokerage shop for a couple years and then they come in and they want to work at, you know, a a different level. It's hard for them to adjust Yeah. to an institutional framework where you got to go to investment committee and there's a process for buying deals Totally. etc. But you got to see what that's like, right? And and know if you want to grow something at scale eventually Yeah, you're going to deal with a capital partner who's going to have that process, right? that's what you got to Um and then two, I think you got it I think mentorship is so important still.
I think you got to find that person and it could be for me it was just a couple years out of school, but you got to find somebody that's going to teach you the ropes of like of the you know, the jungle world of running a business, right? Which is you know, a lot of people and we deal with a lot of founders in the in our private equity business as well as you know, I think just friends of mine that have started businesses will tell you that like starting a business yeah, I had the business plan, right? But the starting the business part is like just like there's a lot that goes on like how you comp your team, how you you know, kind of you know, what you decide on from your office space to you know, There's so many factors.
that go into running a business on top of all that. So I think you got to have someone who where you've seen that and you've seen that like a style it doesn't you have to repeat it, but I think you got to get a little bit of time to get that mentorship. Okay. And then I think you're ready to start sussing you know, the opportunities, but then you've got a better lens to view opportunities as they come
Where what industry, what opportunity do you see as maybe the next maybe it's not here yet, but it will be. Obviously everyone's talking about AI. That's like the biggest thing, but that's tech. That's like you know, Yeah.
Yeah. That's not me. Most people I don't think they're going to be tech people, but they could use it. Is it is there a new you think affordable is going to continue to go big and you'd say okay, let me go learn and understand and find some alpha in this affordable. Maybe it's I want to go grow the biggest property management company cuz I'm going to use AI to be more efficient. Like have you thought about that?
Yeah, I mean I think that one of the other things that I talk about this a lot with people with you know, I do certain teaching and whatnot and and and I think that starting a real estate business in any of these sectors that we're talking about, you have to think about what your revenue source is going to be because making investments is not a revenue source. Right? And so, too many young people today are like, I just want to go buy deals. Right? Like that's a cool deal. I'll buy that deal. Right? And if you're on your own and yeah, maybe you've saved up, maybe you've got other means of supporting yourself, you can buy three or four deals, right? And pretty quickly you get to an inflection point after like six deals where you can't asset manage all them and also focus on sourcing deals.
You got to hire your first asset manager, right? And you got to make that call of like, okay, the salary level of an asset manager is X, right? Am I making enough on ongoing basis in this business to hire that person? Definitely not. I got to do new deals to make acquisition fees to pay for that current person, right? And it's like you quickly realize that like just doing the investments themselves, it's really hard to scale and grow a business when you're waiting for five, seven, 10 years for these deals to play out and to make a promote on the back end. And in the meantime, you know, you're trying to just make it off acquisition fees which most partners are like, you know, hammering you down on and like they're just constantly telling you you're taking too much in fees and you got
to pay the you know, keep the lights on, etc., right? And so, you know, the question is like then you can go and you can do like you can be a specialist. You got to do perform a service in real estate, right?
So, what I would advise is that like whatever space you want to go into on the real estate side, you got to pick your channel of where you can provide a service on top of yeah, it could be brokerage and also buying deals. But then you're generating revenue on the brokerage side and then buying deals. Got it.
Correct. Cuz you got to you got to count on for the first couple years not much cash flow. Nobody buys real estate. I mean, very rarely do you buy real estate unless you're flipping it, you know, next year, right? Yeah. So, you got to be in it for the long haul, and you got to have something that you're doing to you know, for us, that was developing affordable housing. Yeah. And so, we're developers in in that in that regard. And you got the fees. Yeah, and at this point, we're now like a GC. We have an architecture company. We have like, you know, we have a lot of different business lines that in that space. But, I think for anyone starting in those spaces, you got to think about that. And if you're thinking about, you know, like I said, on the private equity side, I think there's a number
of businesses right now that are again, you know, generational opportunities where owners don't have heirs that are in the business. The businesses are worth a lot. They're looking for people to help them run and manage it. And I would be looking for, you know, some of those opportunities to get a mentor comboed with an opportunity to, you know, kind of potentially take on and and kind of grow that business. Specifically within the real estate space, I would say that I think that there are I think there's definitely interesting opportunities within affordable housing. I think it's a, you know, becoming a mature sector that, like I said, has a ton of institutional capital
Um I think that's one of the more interesting spaces right now. Yeah. I think manufactured housing is still really really interesting. I have I've owned and actually started a mobile home park management company.
I really want to do mobile home parks cuz I we a couple years ago we started calling. Yeah. And I had never I was just apartments. And like, as a broker in LA, I just get effed off. Like, no, da da da.
And then I would call these mobile homes. And I don't even know if I want to put this on here cuz it's it's crazy. Dude, it's like these people have owned these for 50 years. It's Jo- Joan and John. And they're like, "Yeah, you know, I don't really know what it's worth, but I'd sell it. You know, what do you think?
It's always going to be housing. those things were all built as temporary housing, right? And they they kind of like again, it's that history, right? Where like they put them on drainage ditches in different places. They didn't think they were going to be permanent. Yeah. And they became, you know, permanent. Especially in California. Cannot get another one entitled today in California. No. Cuz of the property taxes. Yeah, and I think there's a lot of like other auxiliary businesses that like if you think about developing HOAs using modular, it comes real close to building manufactured housing, but you can do it under a structure of like, you know, kind of with effectively a mobile home. Yeah. And create kind of an HOA type framework. Got it. There's a couple of Newport, right, that do that? There There are older ones that have done it, but I'm talking about like new construction.
Like where you did like a master plan community and, you know, if you think about you're selling a a home normally, you know, let's say you're in California, your your starting home prices are going to be in the Inland Empire what, like 750 and a million bucks, right? And so you might say, "Hey, we're not going to sell you the land. We're just going to sell you the modular home that's on top of it, right? And we'll keep the land. It's under some sort of ground lease structure." And so therefore the home's like 350. Right. But you got to pay Yeah. X amount on an annual basis Got it. to finance the land, right? Like there's some interesting models in that space that I think, you know, are yet to be Yeah. kind of played out. There's regulatory hurdles for sure. But I think some of that's pretty interesting. Okay.
I want to switch up a little bit because I admire the way that you think and I can tell that you have processes or maybe it's comes naturally or you've you've learned this, but you clearly know where opportunities are and think about this and reflect and try You're pretty seems like you're very courageous to go and act and do some stuff. How Do you have a process for thinking? How do you think about challenges? How do you think about overcoming situations that Yeah. most people just can't overcome?
So I think that I bounce a lot of stuff off a lot of people, right? And and Scott who, you know, is best friend and also, you know, kind of co-business owner, right? Like we talk probably three times a day and we're constantly bouncing stuff off. So, I think having a really good partner and being able to kind of go back and forth, you're able to shape ideas. I can't tell you the number of times where I call him and say like, "Let me just spitball with you on this." And he's like, "No, that won't work. That won't work. You know, this is interesting." And we come at it from different sides and and and I have a number of friends and I have a great wife who, you know, we talk about ideas and things like that and and she's great, too.
So, I think talking about, you know, with a number of people is really helpful to get that sounding board sounding board. I think that never be scared to like discuss your ideas with people unless you're worried they're going to steal them. Got it. But if you're in a trusted environment and creating that trusted environment, I think it's really important. Totally. I think and I also think that a lot of times, you know, we're not doing we're not the first to do something, Mhm. Okay. right? But we're a lot of times the first to do it with intention and scale. And so, we'll see something and then say, "That's really interesting.
etc. Got it. So, you're always thinking and that's where the systems and stuff come into play cuz you have to you have to be quick to be able to close a deal on time.
have to watch like today, there's just massive amounts of capital coming through the big I mean, the private equity firms, right? Like when I started in the business, you were if you were asset managing 20, 30 billion dollars, right? You were really big. Right? Those same companies like Apollo in the last 15 years have gone from like 30 billion of assets under management to like 500 billion. Right? Like the amount of capital that's plowing into the Blackstones, the Apollos, the Ares, etc. And they've got top-level talent. They can hire the best talent in the business. And so, we are competing in effect from a talent standpoint with those guys and also from an idea standpoint, right? They decide they want to come into affordable housing and we need to be responsive to that. We need to understand what's happening and we have to understand the space fundamentally
better than those guys that are coming in quickly trying to just get up to speed and they're incredibly smart. Yeah. And so we're constantly, you know, thinking about that and how we kind of stay that one step ahead.
100%. Gosh, it's so fascinating. We could probably talk for like this 45 hours because this is just so interesting to me and I think it I think affordable in general and just industries that are not that are opaque in some sense, right? There's so many different regulations. There's so many different things. You have to know everything for it to align and you have to have a skill set and then you have to have be really good at negotiating and you have There's so many skills that are stacked on top of each other. They're like I think the barriers to entry make it very difficult which is a great place to be in if you can have those skill sets and clearly you guys have built that. The last thing I want to ask you is like in 10 years, right? years from now, where do you want to be?
Yeah, I mean I think, you know, and kind of going back to what you're saying, I think the really important thing is you look at these different other people look at these new opportunities and in different business pieces is we're constantly focused on that downside protection. And we started the business and one of the things that was so attractive to me about affordable housing was that downside protection. So in my last business, right? We did market rate housing across the country and you had to be a student of of of all the demographics and and choosing like is Phoenix going to grow faster than Vegas?
Like where do I want to pick for my rent growth, etc., right? And in the affordable space, look, like I don't want to have to be the smartest guy in the room from a demographics and rent standpoint, right? And I know where my baseline kind of income is and then I can kind of layer on with the structured finance angle how to make it really creative. So I think as people look at different businesses, you really want to focus on two people like swing for the fences, thinking they're going to get this like home run, and they're going to make a ton in like, you know, 20, 30, you know, or you know, like 30 months, you know, or so. But like for us, we're trying to build a a resilient business that lasts beyond Scott and I, you know, kind of in the future.
And you know, it's really, I think, you know, and I look forward 10 years from now, right? Like I I I know our stated goals. We want to be the number one affordable housing developer in the country, right? We have a internal goal that's 50,000 units by 2030, okay? Right? And so I know those are kind of the easy ones out there. I think that in 10 years, I think where I want the company to to be is I want our teams to be really I want to have top-tier talent across the industry in each one of our teams, and I want to be driving to create new solutions across those different teams. And I think Scott and I continue to be kind of focused on that team-building aspect and brand ambassadors for the business. And also, I think doing a lot more advocacy and teaching work on
affordable housing in general. Like I have a passion for how we do housing here and how that compares to how they do it in other countries as well. So I can see, you know, kind of spending a lot more time on on just kind of, you know, just focusing on our housing expertise and how we do that. Is that Is that Is that what gets you up in the morning? I I love, you know, kind of Yeah. I mean, I love businesses in general. So I could talk here for hours, too, about like different businesses and what I find interesting. I just I find housing and housing policy really interesting. I'm surprised that you haven't asked a lot about LA all the time housing. It's like being in creative.
Well, because I'll tell you why. Because it's just very frustrating. It feels like at a certain point, what can be done when everything every time that I turn we turn around, right? These owners like something else is coming at you and you try to overcome it and maybe you get 80% of the way there, but something chips at your knees and they're just like chopping chopping chopping because there's 13 people that are making the decisions for the whole entire city and county. And it's like how is that even possible? And the people that they represent it's not an equal share of different demographics. Like it's it's one demographic that's making all the decisions for the whole city. How can that make any sense from democracy?
Like it's not it's not democratic. encourage you to do more on your podcast to speak on that front cuz I just I'm very vocal about it. Yeah. I think as someone who's a housing expert, like the city has really not been super pro-housing and I mean I know a number of developers that have been building affordable housing in Los Angeles for years. They no longer want to build in LA in terms of affordable housing. I mean you have this week I don't know if you saw this week they're trying to raise them, you know, kind of a required minimum wage Yeah. On residential construction against 10 units or more, right? You know, up to 2 $32 and and the argument they're making is that they need more workers, right? And so they need to raise the wage to get more workers to come, you know,
and and so when you really pull back the onion and you think about it, there aren't that many votes that are that are putting a lot of these council people in office, right? And I think it's really important that people one vote, two understand you know, the numbers that are there. I mean it's 5, 6,000 votes are swinging the elections in some of these locations. And a lot of the folks that are in that, you know, are backing the current candidates that are there are well-funded. And there's really good, you know, kind of networks on the ground in terms of funding. Mhm. I think we've seen in San Francisco recently Incredible. It's really incredible some of the turnaround. I was just up there, you know, 6 months ago and and I was like, I mean, from when I went there 2 years ago to 6 months ago it's like mind-boggling.
Wow. There's a I'll make a shameless plug. There's an organization called Vibrant LA Okay. that's, you know, really kind of focused on pro-business Yeah. in LA and and really kind of educating people on various candidates. I like it. Um and so if you you know, kind of look out for them and kind of they'll kind of tell you who you know, which candidates are kind of pro-business versus and it's not for sure a political No. stance. It's it's really about like who's who's in it to benefit the city at the end of the day, you know, kind of a pro-business standpoint which I think benefits everybody. Again, if you translate the numbers on housing to the drag on the economy from not having housing, it is way more significant than all these other, you know, kind of pieces of legislation they're trying to push. It blows my mind.
Have you been there in the evening? No, and I I don't even want to be close to it. I drove by the other day on the way to a tour and I'm like, how can a city stand by and let this be just there? Like it it is people are smoking crack like literally on the sidewalk. They're they're selling drugs.
People are sleeping everywhere. There's It is chaos. It is like It's lawlessness. It's lawlessness and it's in the middle of our city in a a landmark that should be the center for like and they're trying to do these things that clearly like supply and demand it's just it just works, right? And so it it very frustrates me. I get it. I understand the moral, you know, they they hide behind the moral situations for them to help the renters. I think you should help the renters and I think you should help the renters by making the rents less. And how do you make the rents less? You make it easier to build more
housing. Well, look, there's all sorts of policies, right? And I just I don't think that we've done a great job of educating the public Yeah. and also our own city council Yeah. right? As to what the real issues are, right? And so I think everyone can hide around an affordable housing crisis, which there is one. Yeah. You know, do they, you know, kind of, you know, bifurcate? There is there is a section of the populace that and and we house some of these people we try and house some of these people that are not properly in a mental state to be housed Yeah. and to stay in housing, right? And so how do you bifurcate and deal with that issue that's there Mhm. when you have, you know, you have tremendous drug usage, etc.
Which being on the street can lead to more drug usage and it's and it's all cyclical, right? But, you know, we clearly need to build more housing Yeah. but you clearly need to, you know, kind of organize you know, kind of the system in such a way to be able to give people two options to say, "Hey, you can get help." right? And you go down this door you get help Mhm. right? And we either find you housing, we find you, you know, if if we don't deem you suitable to be able to get into housing, you can go here and then get into housing, get clean first, Yeah. But you got to choose to go one of those two directions right? Or there's another option that is more intense and you're not able to just sleep out on the street and go wherever you want, right?
And you're seeing, you know, what's what's interesting I think is you're seeing in communities across the country and we do this nationally speak to it, but like the countries that got hit areas of the countries that got hit first with the opioid crisis, they have set up this infrastructure for dealing with this, you know, kind of, you know, this influx of cheap methamphetamine, etc. And and so they have a more stringent system you know, in in in some of these local counties and jurisdictions in which they're saying, "Hey, you know, you either get help Yeah. get yourself in housing Yeah. or you you know effectively go to jail. Yeah. right? Yeah. And at jail at any time, if you raise your hand and you're like, "Hey, I want to help. I want to get clean." you come out, Yeah.
And it's like it's crazy to me that like they're they're seeing real positive outcomes happen. Totally. Which now they've got recovering addicts that are getting jobs, Wow. coming out, becoming functional, getting in housing, etc., right? But you can't I mean 101 in in AA, right? Is like you don't just like give like you know you don't just like on MacArthur Park and be like, "Hey, you want some more crack?" Yeah, no, you don't just you don't just continue to give in AA if you have a relative who's you know kind of a problem. You have to have some sort of like hard door to say like, "Hey, you got to do X, Y, and Z." Yeah. Right? And so I just think that I'm all for compassion Totally. we try and do that with our services and everything else. And we need to bring services all these people. Uh-huh.
And we're in no better place to do it than in our housing. But just LA I think it's become really challenging cuz it's just gone And San Francisco went way too far outside and they're kind of coming back. Yeah. Hopefully, you know, more housing getting built in San Francisco and and you know kind of more projects. So
We're going to have to do a round two and talk more about LA because I can tell you're passionate about it. I'm passionate about it. I think there's a lot that can be done and I think there's a lot of people who watch this who can be a help and actually make a change in the current
reality. Yeah, but here's your watchers or voters and I think they're they're the people that are going to influence these elections and are putting these people in and I just encourage like the taglines on initiatives and things like that. They're just so deceptive. Like when you get in and realize what they're actually passing. Yeah.