February 4, 2025 · 53 min
With Ari Kahan — Founder, California Landmark Group
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Los Angeles Real Estate Development Guide: Expert Insights from 100+ Property Developer Discover why Los Angeles apartment development is uniquely challenging and profitable in 2024.
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Los Angeles Real Estate Development Guide: Expert Insights from 100+ Property Developer Discover why Los Angeles apartment development is uniquely challenging and profitable in 2024. Ari Kahan, a veteran Los Angeles real estate developer with California Landmark Group, shares insider knowledge about building and investing in LA apartment buildings. Key Topics in LA Real Estate Development: - Los Angeles apartment building regulations and permits - California real estate development strategies - Commercial real estate investing in Los Angeles - Multifamily property development process - LA housing market insights 2024 - California property investment opportunities Expert Discussion Includes: - Step-by-step guide to LA development process - Commercial real estate investment strategies - Los Angeles building regulations explained - California apartment building development - Urban development opportunities in LA - Real estate market analysis 2024 Featured Guest: Ari Kahan California Landmark Group Portfolio: 100+ properties nationwide Los Angeles Portfolio: 35+ apartment buildings Expertise: Multifamily development, urban development, commercial real estate Host: Taylor Avakian The Group CRE Los Angeles Apartment Building Specialist Email: [taylor@thegroupcre.com](mailto:taylor@thegroupcre.com) Listen for expert insights on Los Angeles real estate development, commercial property investment, and apartment building strategies. Keywords: Los Angeles Real Estate, Apartment Buildings, Commercial Real Estate, Property Development, LA Housing Market, California Real Estate Investment, Multifamily Development, Urban Development, Real Estate Developer, Commercial Property
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welcome back to the podcast no vacany with Taylor vakey and I'm here with one of my great friends and esteemed real estate developers in Los Angeles Ari Kahan Ari thanks for being here man thanks for having me Taylor I'm excited um you are one of the most active and esteemed developers I would say in Los Angeles over the last 20 30 years in terms of this four five story apartment complexes in the city would you say
so yeah I mean most of our product today is in is in the seven to eight story range we've kind of had to learn to go up over time and density bonus has started to allow but we're we're definitely certainly in Greater Los Angeles one of the more active developers of
multif family for sure and how many uh buildings do you guys have right now
um we're somewhere close to 100 um but they're they're all over the country you know they're not just in Los Angeles we have in Los Angeles proper there's probably somewhere in the range of 35 to 40 buildings geez and when
did you get start going out of state like when did that transition happen because I I believe you just started in
Los Angeles yeah we began in Los Angeles in 1987 and um obviously that's actually before I was born um but the company began in 1987 and we have been building for some time and we started out as a condo developer actually prior to 2008 all we built was condu because that was super hot in like the 90s and yeah I mean re really uh to be perfectly honest it's because we couldn't afford to keep the buildings like that's really what it came down to it's the the math the math of keeping a building is different than the math of selling a condo yeah um you know buying existing apartment buildings um is a whole different business which we also do um but building new construction the the economics of building new construction uh it requires staying power requires uh a different uh investor sentiment and a desire for
cash flow rather than you know big short-term irrs with the hope that you're going to get some irr the next one yeah um which is it's always a funny debate because I've actually sat and done the math of you know over a certain period if you constantly exit an exchange whether or not you're better off what is the than holding so um without getting into the numbers because I haven't done it in a little while be honest I did this like four years ago okay um but effectively it works until it uh exchanging works until it doesn't and if you have one bad exchange or one less you know less a creative exchange five years down the line you often times are worse off than having not exchanged all the other five times um it [bleep] up your whole exchange timeline it [bleep] up the whole thing you basically you
get reset whereas you know if you have an asset that's obviously this this doesn't work for every asset this is for Irreplaceable institutional quality assets um that continue to grow over time now keep in mind Los Angeles over the past five years we all know has not been growing um you know majority of the country has you know had a huge Spike over the past five years but ultimately is having a major pullback in terms of this is for multif family rents um you know other Industries have a little bit of different headwinds everything there's always an up and down in retail and an up and down in industrial and you know certain markets work certain markets don't but ultimately multif family um if you if you own proper multif family in super well-located areas where the politics don't get
your don't kill your value yeah um it's it can be a creative to hold especially if it's Irreplaceable real estate so
you're saying that buying and holding in Los Angeles historically barring a crazy change regulations which we've had a lot but up until today if you would have bought in 1980 and held really good real estate until today it'd be better than buying renovating selling buying renovating selling from a risk
return perspective from from a cash flow perspective from a cash flow perspective yeah really well well well let me let me clarify the past five years have been not great yeah everyone knows that um and you know would it have been a creative to trade into other markets if you if your timing was great sure it's a creative but then you're you know half the time that you're when you are a a when you are a Trader when you're constantly moving and you constantly are exchanging there's risk there's significant risk in each exit needing to be perfect to to make sense you know you you you un unless you have the next de unless you're always somebody who has the next deal tied up secured figured out before you actually trade the property you know if you're reversing effectively or some version of a
reverse or you know something like that that can be a much more I mean that that can work but if you miss if you miss just one time you've you've shot yourself in the foot we hate or at least personally
I'll speak for myself personally as a broker when someone because I when I'm talking to owners hey find me my exchange property first and then I'll sell and like you hate to hear it because you're like ah okay this is a waste of time they're not motivated which they're not right but um it makes sense because there is a ton of risk in the exchange process and you've heard the horror stories of people you know selling a building and giving the taxes back or buying a terrible deal and it being a worse off investment so I get the I I totally get that and it makes sense from it's like um you know selling stocks and stuff like I think they said if you just dollar cost average and like you know deposit a 100 bucks a month versus trying to time the market you're
going to outperform because there's uh you know 25 days within a 10-year period that make these returns crazy and if you didn't have Pro money in the Market at those times you the returns would have been significantly less correct it's kind of the same thing with rents
and growth it and and this isn't necessarily everywhere there's a few factors in California in particular and not just Los Angeles we all know that you know Ula has complicated things and it's decreased probably cap rates by maybe 100 to 50 100 50 to 100 basis points compared to the rest of the market but Prop 13 is what makes California unique um and so with Prop 13 in place it isn't a creative that that's that's what
makes the math work because you it's the property to own for you as someone who's owned it for a long time is more valuable than a new buyer because of the taxes because the taxes reset
correct often times with your basis you know it all it all depends on what your basis is like if you have a basis that is exponentially lower than you know property taxes and your and your cash flow different your cash flow driven so if you're if you're in that situation and you look at the new cash flow that you're going to get in the New Deal upon stabilization half the time you're you're worse it's hard it's very hard to do that math when you have a really great property tax basis because that property tax basis basically makes up the difference of cash flow that you would otherwise get so it's it's it's nuanced this isn't for everybody this isn't in every scenario this isn't a one-size fits all um you know there are a lot of areas that are this doesn't work for um but it works it does
work in in certain instances certain
instances are you guys um bonus depreciator like when you because you do a lot of development and stuff and clearly when it's these are multi-million dollar products and effectively there's a lot to be able to depreciate to then save on income and do some you know paper math do you are you guys of the belief to do the
bonus appreciation yeah I mean to the extent that we that that it's needed you know to the extent that you need to offset income if you have if you can cost Sega building and it makes sense you should you should pursue it how many of the deals that there are risks just to be clear what are the risks well people people just don't think about recapture because if you ever do have to sell or if you know if you have a more complicated structure or if you have some sort of institutional Equity Partners or things of that nature um it becomes real um the the the the the recapture becomes real the potential for recapture becomes real because you know you you when you when you trade you there's certain metrics you have to meet with equity and debt Etc so you gota
you got to just be you got to be careful which properties you choose to CAG and or bonus depreciate as you say um depending on what the equity wants to do Post event correct post yeah exactly do you want to hold forever do you want to exit like it's it's nuanced it's what's the business plan what's the strategy how do you how do you pin it all together um and so but but I do think it can be an incredibly creative tool I also think that that's probably one of the ways that the incoming presidential Administration is going to Kickstart some development because I believe and I might be incorrect that there was some sort of program relating to convenience stores with grown it was like gas convenience stores it was over 50%
of sales from either it was either gas or convenience you could do like
100% correct which spur a huge 7 in 71 exous 7-Eleven exactly it's and it's burned off so it's not there anymore but I could see them easily
using that as one of the many tools that they could use to Spur some real estate growth in this country cuz I mean there's been a lot of stagnation in a lot of markets in a lot of sectors um and I could see I I know that there I mean well I don't know personally yeah but I know I could see it being very much something that that is focused on in the coming years
yeah yeah I think uh they want to do stuff to Spur I mean Trump's a real estate guy so I imagine him wanting to make real estate and the wealth and growth through that process a little bit more creative as as we've been using um is the primary breakdown of your guys investors mostly institutional or mostly family office and family and friends and stuff like that for the deals that you guys do what's the typical breakdown for
your SES I mean we will we will work with institutional Partners um on a case-by casee basis the majority of what we do is uh private Capital why why why
choose private Capital over going to a pension fund or a Reit or you know these Capital allocator funds like why why go
the private Capital route well if you can you always should and that doesn't mean that you necessarily can I mean the the it's much more difficult to raise from private Capital than it is to raise from institutional groups institutional groups have uh more stringent guidelines and more control in the process and often times their needs not often times they they have a fiduciary duty to represent their Investor's best interest or their fund's best interest or whatever that quasi Middle Ground is between those two factors their fiduciary duty does not pertain to you so that means they can make decisions based on needing to do things at a fun level or at another level well above where you know we're we're
playing and those can have detrimental effects to your business plan the economics of the transaction um so there's just a good amount of uh complication that comes from having partners with that level
of control can you give me an example of maybe some complications or issues that would arise from something like that I mean the the quickest thing is
someone who could force they could force a sale so you know uh there are there are Force sale Provisions that that a lot of times institutional Partners will have major what's called major decision rights so sale refinance uh stuff of that nature so those are kind of the big bucket list items that if it's the the economy is low but they need they you know they have a run on their stock or whatever whatever the reason is they need to dump assets to basically you know stabilize themselves you might be that so it's just it's nuanced and listen there's there's always just like any Market there's good ones and there's bad ones we don't do business with the bad ones we do business with the good ones and the good ones are are really respectful and uh they they try to do things the right way but at the end
of the day they they still have a fiduciary duty to a do what they need to do on a fun level and B to maximize their returns to their their investors as they see fit not necessarily to be concerned about your economics so to the extent that you can raise private Capital you should but it it's much more difficult um it
takes much more time relationship based lunches networking like it's um it's much more intensive because you don't have that one huge multi-billion dollar fund where they're allocating hundreds of millions of dollars for you to go like hey here's your 250 like go spend it it's okay aill ion from this person 500 from this person you know 150 depending on how low you do your C your minimums which do you guys have a minimum on your Investments
typically yeah I mean generally we have a a minimum of 250 um that's that's that's our lowend so then would you say you have anywhere between 30 to 50 investors on a deal yeah yeah very possibly depends on the deal I mean it's all it's all nuan it's but that's a lot of people you got to manage that's a lot of relationships there's a lot of relationships um I mean we we because our return thresholds are higher than most people's return thresholds of what they're looking for just to be perfectly honest I mean we we're we're a very outside of the box thinker in that we can unlock value in ways that most people can't but our own underwriting still has to get to a a substantive threshold of return and so um with that comes the um what are What are the the examples
of um the out of thebox thinking well I mean just the way that we underwrite the way that we look at deals the way that we uh put together a uh the build literally as simple as the building layout if you lay out your building differently in a way that people don't really think about like little Nuance tricks here and there you can actually significantly maximize value most major institutional developers have a set of floor plans they will give the set of floor plans to their Architects and say Here's your 10 unit plans that you're allowed to use figure out how they fit if they don't fit that's it we're very much like we have buildings that don't sack sometimes we have buildings that you know very unique out of the-box things that seem on a creative but they add 50
basis points and that 50 basis points might be what makes the deal work or not work
um so you're maximizing the space maximizing the the noi or the potential noi for a building by not being restricted to a certain set of plans you guys can get created with it yeah I
mean there's that there's more unique financing structures like where we do tax credits so we do affordable housing we we don't do a lot of that but we've done we've done it um you know there's always there's always unique structures that we're working on we're always exploring what's new out there um new on the financing side on on um the building side you know we we we haven't actually built a modular project um in the past 10 years I mean there was one that was built a long long time ago but that's not really relevant um but um we are we explore it we look at it we're always looking at 12 different ways to slice something um you know we we look at tearing down parts of buildings and keeping the other half of it and unique little Nuance things that are end up being a creative that people
don't understand the nuances of and how they can be a creative and it's just it's a it's a constant game of cat and mouse and understanding what the city is going to do understanding how the city interprets things understanding what is by right what's not by right what is discre you know what what they have discretion over what they don't have discretion over there's so many so many nuances to the development side of the business you know on the on the non-development side of the business we're we're always on the try to be on The Cutting Edge you know looking at Noah deals naturally curing
affordable housing yeah what's the story with Noah what's what's I I keep hearing that more and more and I wanted to ask you too on where you think the future of multif family existing in development is because it seems like the more and more that people are thinking about what's next it's affordable it's uh you know Section 8 it's it's tax credits it's these things that are pushing the Divide from the wealthy and the not as wealthy because we're having this housing housing shortage and so where do you think the future of um housing
is headed it's a great question um I the question is where right so the political headwinds in California are certainly in the direction of more housing is good but at the same time certain parts of California there's definitely a perspective that all housing should be affordable housing and there's a fundamental misunderstanding of supply and demand um and how rents work and it's which is amazing in today's day and age because you could literally look at 20 different cities of examples of Austin to all the other cities in the country that are massively oversupplied that have huge declines in rents and and there's a direct correlation between Supply and rents and
um there's a there's a real there's a real focus on displacement in California as the enemy of uh the enemy of housing effectively just housing there's a perspective that new housing a causes displacement not even by you know actually tearing down housing but simply by having new nicer things in certain neighborhoods gentrification gentrification exactly so there's this perspective that new housing in certain neighborhoods drives rents but there's no place that this could not be more obviously not true than Silver Lake there has been so little housing built in Silver Lake look at the rents look
at what's happened to that neighborhood people have been pushed out like it's a perfect example people have been pushed out over the past 20 years that was you know 20 years ago that was not the safest neighborhood yeah um and and now it's a super gentrified neighborhood 3500 bucks for a
one-bedroom Bungalow yeah for a one-bedroom Bungalow what and then you look five minutes over at Korea Town and it's $2,200 for a one-bedroom in a new construction building yeah so it's it's so obvious that new housing doesn't do that so the war against displacement I understand it I get it it's so much easier to sympathize with somebody who's there right then and I do sympathize and I do those people need to be taken care of at the same time the priority needs to be making way for everyone who's coming so that we don't end up in a situation where not just those couple people are displaced but the whole neighborhood is displaced because that will happen if development isn't allowed to to move forward and that's that's what has happened you can see example
I mean there there's hundreds of examples of this so it's like putting
Band-Aids on bullet WS bullet holes right like the immediate true problem is solvable you just have to they're they're they're going surface level they're not going deeper into what the actual solving the problem is because it looks from a political standpoint as um righteous Andor doing the right thing and looking up for the underdog and all this stuff but in reality it's actually hurting those people more because if you were able to make it easier for people to build or or have more housing then the rents actually come down and it becomes more livable and they don't get kicked out and yeah that's it's so interesting how the political landscape and just being in California because we deal with it a lot like it's it's a big Hot Topic because things are constantly changing so you have to be on top of it I
mean recently and I think February of in the next month uh the chip ordinance which is the new housing plan for the city of La is officially being rolled out what uh we talked about that because I was part of the Uli Housing Council and we sat down and chatted with them about this is a good thing this is not so good thing this isn't going to improve things I know you sat down and and talked with them too and you're pretty tight in with the city what is the city doing or what is the city not doing that um they should be and what do you think
the implications of those are um the the city the city is in a very uh tight spot it it's it has a lot of Masters to please there's a lot of different voices and you know often times the loudest voice gets the most Credence um and the city has done a the chip the chip program is actually it's a good program to the extent that it's applicable um and that's kind of a nuanced thing and one of the you know I I always uh I actually I say this so often I get quoted I got quoted on a panel recently about this but I always I always say the city giveth and the city taketh away like it's you know it's that's a good one that's a good
quote it's uh it it's they give you just enough that you get excited and then you look at how it's implemented and you kind of uh you Sugg your shoulders you you you get a little disheartened but but there are good parts of it and and and they worked very hard on it and I and it's I actually think it's it's it's generally it's a good program to help streamline sites give me an overview of like what is changing effectively the the most important part of the chip that you need to understand is that projects that fit within the Box can go straight to building and safety and the ones that fit within a larger box can have a more discretionary uh a more administrative process than without hearings and other kind of complic ated factors so
um overall the CH the chip program is it's designed let me back up 5,000 ft for one second the city doesn't have the ability to exempt you from squa um the state does state legislator legislature can can have exemptions from squa so ed1 is a perfect example ed1 is not a creation of the city it is and it isn't ed1 took three or four State Legislative exemptions from squa piled them in a box added in DWP uh added in DWP uh cost reductions added in Expediting which just means that your process is faster which
every project should be faster anyway and they put it all together with a nice bow ed1 was not like the the exemptions from squa and the ways that you get out of all the other ordinances those are state laws that they're layering in the chip program is another version of that so a lot of people don't understand that the city can only do certain things the city cannot wave a magic wand because they get sued and so often times you know they will they will lately the CH the city has done a very good job of putting together these programs into a box that is usable the Nuance is is that development doesn't fit in a box and if you look at uh San Diego has a program I
believe it's called um community housing or something I forget what it's called but San Diego basically has a program that's effectively form-based zoning um and it's it's pretty incredible you know it makes things way simpler you can kind of build what you want as long as you stay within a certain box that's what's needed in the city of Los Angeles city of Los Angeles has so many Antiquated uh CPI and overlays and specific plans and all these other things that don't get solved by the chip program so like the chip the CH if you have one of those your your Project's basically discretionary MH even if you stay on menu now there's you know there's there's there's ways there's nuanced ways around it but they don't really work they don't really
pencil they're not really a creative um and so it's it's it's really it's really there's some great people at the city who really work hard to put these programs together and make this stuff happen and I I think that the a directive needs to come down because I don't know if you know this but when the city of when the state of California passed the enhanced density bonus program where they increaseed B bonus density from 35 to 50% not the double density bonus but when they increase it from 35 to 50% that that portion of it um when they did that the city of La already had a a value capture ordinance in place um which basically had a different schedule and it had enhanced affordability and as a result the
city basically said we want we want to be exempt and they forced through an exemption on uh from that 50% which I think that they and now I believe that that's that's no longer the case but at the time and this was a different Administration a long time ago they put this they put in place this exemption from the uh from what made a process by and I think that they've realized now that byright is the single most important thing in the world and and they do a great job of tying it up in a Blow and putting it all together but I think that it needs to go further I think that there needs to be signaling to the state level that that's what is wanted here by right uses for um Sorry by right entitlement and zoning and um I think that the city the city is going
to this is this is a long drawn out process it's never going to happen quickly whatever we want it's never going to happen quickly but at the end of the day if the city can show their support for State Legislative legislative initiatives particularly ones that don't have strings that basically make them unusable I think that there could potentially be more changes at a state level um than that they would really be helpful and really help the housing crisis we're in now everything I'm saying by the way is Will negatively impact my personal pocketbook everything that I'm saying being easier to build if they truly made it as easy to build as it is in other parts of the country a our housing crisis would be over tomorrow and B the rents would go down
it would just happen it's it's it's what would actually happen if we had a free market here what makes it and a creative place to build in California is this regulation and the people who get can navigate it who figure it out it's a creative and it and and it it's it's beneficial in that way so it's really interesting because you know at the same time I want this city to be an amazing place and I want to make money in the process I'm I'm I really enjoy what I do but I'm here to to be successful and it's just a business um but I still I still just fundamentally believe believe that the right thing to do is
to have more of a free market that that gets the job
done yeah that actually actually pushes things through and and solves issues instead of just pushing papers around because yeah like you said there is uh there is this barriers to entry which I think is for a lot of investors in Los Angeles too people see La and they see the rents and they're like oh I want to invest there and then they get their ass chewed because they don't understand the nuances of the city and then they go and you know Scurry between their with their legs between their tail and get out of here so then the people who understand Los Angeles yeah stay LA and it's this barriers to entry where if you don't have the knowledge you don't know people you don't have connections like it's very hard to get stuff done here
and that that almost is a benefit to to not having it change too much um because then it becomes easier for competition so I just to break down context with people who love and understand the process of building a house or building apartment buildings but don't really understand when we're talking about H the reasons why it takes so long and why it's so expensive in California can you break down the process and timeline of a development from acquisition to completion like what are the state is and why is it long in LA versus
other places sure so um the enement process today in the city of La is two years um for the anonin alone now you can dual track your permits um you can dual check your permits and for the very Nuance for the for the people who don't understand what we're talking about what is entitlements entitlements is your that you are allowed to do something so you own a piece of land and that and the the city of La has zoning on that land and the zoning on that land is are a series of rules and regulations that say you can only build a two-story tall building and it can only be X th000 ft based on your lot area Etc um there's a whole series of rules and regulations so entitlements are your ability to build buildings that are not zoned
for it so if you are looking to build an eight-story building and it says the building should be two stories then you need an entitlement otherwise you are entitled to build on a byright basis based on the zoning so you're effectively already entitled if you if you are just building what written on the piece of paper already you're already entitled you don't need any changes and so the chip program actually for sites that fit within the Box um does a good job of giving you a more byright process for the entitlement and I I actually spoke at the zyman center uh which is the UCLA uh Center about this um but they It's UCLA real estate Center so the UCLA real estate Center had did a study about how much it
would expedite how much it would expedite housing if entitlement was byright and there was a whole study of you know if you cut the timeline down from two years to you know x amount of time what are the positive benefits to how many additional units will actually be built in a timely manner and it's in and the study is is probably accurate um you know there's no guarantees but you see it in in you know you you see the desire to do it in programs like ed1 now I don't know how many ed1 deals are going to get done I don't know how many of them actually pencil I think the majority of them don't personally yeah but at the end of the day um you know some of them do if they're in good locations and you know parking's less of an issue or if
you figured it out or if your site lays out right it can work it's not a perfect program um but it's it definitely you you definitely see entitlements entitling in the city of La being by right is the single single biggest impediment for most people who are looking at La because they don't understand what they can do they don't know that they can get it done they are worried it's going to take forever um and so people people just don't do
deals as a result is the reason that it takes forever because it's a lot of waiting like I imagine what and I don't I have never filed or done entitlements I'm just the one who sells stuff for you guys to go and do entitlement so I I just know it takes two years I don't know the actual process of what has to be submitted and the feedback is the reason it takes two years because you submit paper saying here's what we want to build it takes a city three months to get it back to you then then they come with changes and then you go back and say okay here's our changes here's what we've agreed to is it this back and forth process that takes a long time what is the actual like what's happening in that
time so uh there was a law passed called s sp330 in 2018 and S sp330 said that the city had to respond to you within certain time periods so once your application is filed they have to get back to you within 30 days and let you know if there are any changes on your project and if they don't get back to you by that time they are no longer allowed to make additional comments now that law is not being followed in a variety of ways one of the main ways that that law is not being followed is that I and I believe hcd which is the state agency has opined that this is illegal um but what's happening and not just the city of La but other cities
do this too um is that there are a series of pre-application forms so those timelines that were passed no one is following them and the pre-application forms take longer than it used to take to go through the process because you used to just submit everything all at once and then they would review it and they and each department would be working on it and they get back to you and they'd work on it and so a lot of the metrics that people look at of how things are being sped up are based on SP sp330 performance which means it starts the day the application's filed but the pre-application filing programs are a complete Nightmare and they add a extreme amount of time to the process and so there's you have to submit all these pre-applications then you have
to submit your application and each time you have to go through one step then the next step and the next step and the next step it's not all happening all at once and that's really the fundamental problem is that the the development has a lot of fees and and just to back up the 10,000 feet developers are basically paying the cost which means it's coming out of land owners Pockets because the price of land goes down um and they're paying the cost to get their projects through the city and the city wants to be efficient because the city has overhead and they have set costs and they have ways that they want to do things and they got to manage they they're a business right effectively you know it's it's and and so when the city wants to bifurcate the process
in a way that is efficient for them and they set up their formula that doesn't mean it's the fastest way that doesn't mean it's best for the for getting the project done that's not what they're about they're they're I mean not that they don't care about those things but they have to run a business and they have to run it efficiently and they have real reasons for doing things the way they do at the same time I don't know a developer in the entire world that wouldn't pay more in permits and fees if the city actually let you just submit everything and then they then they all process at once and even if double work was done or triple work was done I would say 90% of large scare developers if they could save time the cost of that time is so significant it's it's
it kills deals so if if they could save time and they could pay for xed review they would is the reason that it
kills deals because of the interest that is being acred on the loans that you're getting yeah it's the interest
that's being accured on the loans and then the pref that's ticking so like a lot of a lot of people don't underwrite the pref go go into that so basically you have you have debt and equity and your Equity taking away is a cost people don't think of it that way it's particularly when they're underwriting deals because they look at it as well when we exit it gets swept here etc etc um um but your your your your Equity has a cost too so your whole cap stack has a cost which means if you take a percentage on your whole cap stack and you actually factor that into the value of delivering the entitled site there's you're you're paying more than you think so if you can tie sites up today and get entitlement time and you know actually have a
little more time to get things done and not have to close right away you know release release money upon entitlements Etc which a lot of actually deals are happening that way today um that's that's the best way to do it because then you don't have to come out of pocket you still have to come out of pocket probably million dollars to get entitled and then whatever other fees there are Etc um so it's just people don't think about their all-in cost in that same way interesting so
basically to to break it down and simple my my brain math let's say you raise money from investors you're promising an 8% return over
you know five years right of the lifetime day one when you take that money right that 8% starts ticking and you have to pay that back eventually when there's an accident or a sale when something like that happen so that's acre consistently while you're not making any money right nothing's happening you're just waiting correct to be able to get the green light and so that's where the costs are associated with that so I don't think you're going to have an answer to this but I just I want to know your thoughts on this because because um it's very interesting to me in seeing where we are in an age of Technology with artificial intelligence and AI do you think there's a world because basically what developments are is like a bunch of check boxes like the city says hey here's what you can do right if you
fit in this box or fit enough of these boxes in then e effectively we should give you the green light to go and do it right with these AI systems and the way they can process information and if the city says here's our AI like if all the green lights chick check you're approved shouldn't there be something like that that would be in place because instead of this manual back and forth of humans having to look over something and then oh shoot we didn't have this paperwork wouldn't it make more sense to have a A system that already has all the rules and regulations already knows everything and you can almost like as a developer put your plans in and it'll read them say hey sorry this isn't work like you got to do this or if you want to do
that then you got to go through the human process of doing it you know what I
mean yeah I mean I'm I'm sure that that will come eventually um and I and and I believe that that will make a lot of sense for certain parts of the process and I think that there will be kind of maybe an initial go through that that if you can fit in the Box great and then if you're not in the Box you have to have human processing so the majority of our projects are not in the Box because it's pretty much never a creative after the money doesn't make sense the deal doesn't pencil if you're in the Box the deal doesn't pencil if you're in the Box the majority of the time got it the majority of the time because you know this isn't 20 years ago land owners are not for lack of a better term dumb
they know what they have it's pretty easy to figure out what stuff is trading for around you there's a lot of every day there's a lot of brokers who constantly cold call you and tell you crazy numbers and then you get that number stuck in your head and you're like oh I heard 10 million your property is worth five some broker was blowing smoke and he's now that $10 million numberers in your head and even though Ula has come in and the market has tanked and interest rates have moved you can't get over 10 because that's what your brain thinks and and meanwhile everything has gone against you and and you just you don't move so it's it's staying in the box is is complicated and that's why I have always have such a problem with and I know
it's not the city's fault necessarily but I have such a problem with the fact that there that there is a box now the San Diego program that form based zoning form based zoning is as close as you can get to not being in a box it's it's literally a box but it's not a box so form based zoning is basically you can build whatever you want you can you can as long as you stay within this exterior General footprint you're good so that kind of stuff is is um it would work great for this what you're talking about but the nuanced projects that are more complicated Etc um in in cities that have uh density restrictions and uh you know minimum unit sizes this isn't just La by the way this is all sorts of other cities um uh minimum unit sizes there's all sorts of other uh
elements of it it you need a slightly for lack of a better term discretionary process you need a you need a you need the ability to to do deals to make things happen so um on
a more timely note and I don't know if you've looked into this or have been aware of what's changing with the this zoning and the squa because I was doing a research the fires are going on right now and have just occurred in Los Angeles we're filming this in January what um what is going to happen happen with that from a development perspective I hear Rumblings of up zonings which seems crazy to me like what is actually occurring with development or what's going to have to happen with development with this craziness that's going on
with with the fires so um again the city follows the state so we lost our house in the wolsley fire in 2018 and we had to rebuild and effectively the way that you rebuild is you have to stay within 110% of the previous footprint and uh that applies to height and uh lay uh your layout Etc and various other things and so that's the as long as you stay within that box you can move everything around on the inside all you want um and you should be able to rebuild just as you were unless the state not the city but unless the state comes in and says and and mo by the way most of this there's there's a couple issues this is really pertaining to the coastal
to coastal zones because this has so much to do with the coastal commission who has exorbitant power over a whole series of different things that basically gives them you know cart blanch to do what whatever they want um there's no such thing I mean any sort of byright zoning um any sort of like density bonus like state state law that is allows affordable housing to be built which is literally one of the two mandates in the coastal commission it is not applicable in coastal commission as a byright process like the mafia you can do it you can do it they won't tell you you can't do it you're welcome to do it but doing it doesn't give you what the only reason to do it which is SQL exemptions and SQL streamlining and byright nature you still have to go through the coastal Commission so
that process is a scary process for a lot of people and for you know understandably and it's a process that particularly in the palace AES which is the largest swath in of the city that was hit because a lot of the other areas are not within the city limits of Los Angeles so um those those areas the I don't think there's going to be upzoning personally um a it's it's uh it would be a massive uh political Hot Potato um and it's in it's it's a lot of it's within Coastal which is subject to those rules and discretion now the city again has put together streamlining on top of the state laws that are in place for stuff like this got it so the city is saying we will streamline you we will streamline your project which is a
huge win for all the people who are affected and we've been doing our best to help people wherever we can it's been it's been this is a terrible terrible tragedy um and to the city's credit the city is working to expedite projects major housing projects um that are close to the areas that are affected that are large housing projects that could bring a lot of units online and make sure that those units are able to go to people who are displaced by these terrible tragedies and you know who have lost their home homes and and and are their their lives are totally upended so um you know I I I I appreciate that the city's doing that I I I'm not going to comment on you know the fires themselves and and that whole Fiasco and and uh at the end of the day I think that
our objectives are to move forward and to really hopefully put ourselves in a position to rebuild la in a amazing way the parts that have been tragically lost and and hopefully it will serve as an example for the city of what Expediting all projects can look like and what letting getting people through in a in the right way will results in and you know and and allowing that hopefully hopefully it serves as an example that the city can then expand upon and start to use a framework for all housing in LA and all projects because all projects and housing should be treated like this this should this should be the a lesson for us so you think within five years the houses will be
back no no I think there will be houses back within five years but I think that some there will be a lot of people who haven't rebuilt yeah and there's a lot of people who aren't going to rebuild and who will you know kind of wait it out to sell and and there's going to be unfortunately you know for those who who do rebuild I would say the good a good portion of their neighbors are not coming back their Community is destroyed um and yeah and those that don't come back their their timelines are are up in the air yeah you know some of them some of them have a need to sell some of them need the capital others don't and um others will hold on and and for a long time the scars of this thing are going to be there I mean there are there
are still Lots in Malibu from BL fire you know there's there there's there's all sorts
of uh stuff like that that's going to continue to exist I do hope that
we can take a tragedy and turn it into a um something that's positive like you said and be able to learn from this and and make it a creative and help us get to the goal of having more housing because I think like you said that's take take something bad and turn it into something great um there's a huge opportunity for the city and us to be able to do this so before we wrap up um I want to know what is in the future and what's in store for you in the future in terms of what's next for you what's next for California landmark like what are you excited
about sure um I mean there's there's there's obviously a big real estate feature ahead of us and um I hope that multif family development in the city of Los Angeles gets to stay a part of that um there's going to obviously need to be some big steps made not just by by the city of La but um by the state and by other people that solve some of these self-made political crisises we have um in particular UL because because that that is a uh a landmine that will kill this city MH um and so we are certainly looking we still we're still looking here but we're definitely looking elsewhere and we're definitely looking across the state across the country for uh both
market rate and affordable opportunities we look we're looking at industrial we look at retail we look at um a wide swath of different we're a very opportunistic group that really tries to make a lot of different things happen and for us that's never going to stop um the question is you know where where are we pointed and we would love to be pointed back at La we need some help so um to the extent that anyone from the city is watching this um you know we we're we're here to help um and we we always love to get involved um we really need some help to bring uh developers like us back
so we we need people like you building incredible housing here in the city Ari I appreciate it thanks for coming on man pleasure and I'm excited to see what you guys have in store man I always love seeing the new stuff so thank you
thanks for having me Taylor appreciate it thank you for listening to
this episode if you enjoyed the podcast it would mean the world to me if you could rate US five stars on YouTube Spotify and apple podcast it really helps us get our name out there and helps us get fantastic people like our guests to share their insights and knowledge with you again my name is Taylor ven I specialize in the sale of apartment buildings in Los Angeles in Southern California and I look forward to sharing more of these conversations with you see you in the next
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