John Drachman
We have a massive housing crisis in California. I think the average renter pays 52% of their
May 13, 2025 · 1 hr 11 min
The Truth About California’s Housing Crisis – And How Smart Investors Profit with John Drachman
With John Drachman — Co-founder, Waterford Property Company
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How do you go from leasing broker to co-founding a firm with over $2B in real estate? In this episode of "No Vacancy", Taylor Avakian sits down with John Drachman, co-founder of Waterford Property…
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Episode show notes
How do you go from leasing broker to co-founding a firm with over $2B in real estate? In this episode of "No Vacancy", Taylor Avakian sits down with John Drachman, co-founder of Waterford Property Company, to break down how he’s leveraging tax-exempt bond financing, institutional partnerships, and entrepreneurial grit to tackle California’s housing crisis. Learn how John: - Went from broker to principal, building a top-tier firm - Acquired market-rate assets using creative public-private financing - Navigates California’s tough regulatory and affordability landscape - Uses relationships, cold calling, and capital strategy to scale - Teaches real estate entrepreneurship at USC’s RED program Whether you’re trying to break into the industry or scale a platform, this episode is loaded with real-world insight on ownership, development, and public-private dealmaking. 🔔 Don’t miss out on the latest trends and tips to maximize your property's potential: https://www.youtube.com/c/TaylorAvakian 📈 Connect with me: Website: https://www.thegroupcre.com/ Email: taylor@thegroupcre.com X: https://x.com/TAYVAY_ LinkedIn: https://www.linkedin.com/in/tayloravakian/ #NoVacancyPodcast #RealEstatePodcast #MultifamilyInvesting #CapitalMarkets #AffordableHousing #RealEstateStrategy #CaliforniaRealEstate #BrokerToInvestor #WorkforceHousing #HousingCrisis
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Episode transcript
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0:00–10:00
Taylor Avakian
income towards rent. It is almost anemic the amount of activity that we're getting. And these are six 6 and 1/2 7 cap deals that genuinely we're hearing crickets on.
John Drachman
My sense would be things will change. Things are not static. When you look at that basis, I go, I don't know where you can get such a discount to replacement cost. California is approving new housing permits at a much lower rate. What you're really doing is you're impeding any new supply because why would a developer build in Hollywood when they can buy for that
Taylor Avakian
cheap? John, welcome to the podcast.
John Drachman
Thank you very much for having me.
Taylor Avakian
Appreciate you being here. So, of course. Um, tell me how you buy this building because
John Drachman
I heard there's some bonds involved. Yes. Yeah. Uh it's a very interesting story.
Taylor Avakian
So uh and for context real quick, we're sitting in your building.
John Drachman
Yes.
Taylor Avakian
In Long Beach.
John Drachman
So we're in downtown Long Beach. We're at a project called Ocean Air. Uh Larars's Multif Family Group built this project. It's 216 units. You know, ride on uh Ocean uh kind of in the heart of downtown Long Beach. Um you know, as we were talking before the podcast, I mean, this is really sort of Maine and Maine because we're right near Pine. you know, Ocean and Pine is sort of the main and main of Long Beach. Great asset, great location, really built a beautiful asset. Um, so I I'll try to make a long story uh short. So, in the kind of let's call it February of 2020, right before CO hit, um there was a group up in Northern California that was acquiring existing market rate housing uh in partnerships with uh what we would call joint powers authorities. So these are governmental agencies in
John Drachman
California that we had dealt with before because uh we do a lot in the affordable housing development uh space. And so uh a group uh up in Northern California had figured out that if you had a joint powers authority take title to an asset based on um California law, the constitution of the state of California, you can get a property tax exemption. And so they figured out a structure where you could raise taxexempt municipal uh bonds uh to acquire existing market rate housing uh in a structure where the joint powers authority would take title to the asset. Um the city would have to opt into this program, but you could sell those bonds and get a property tax exemption and thereby you would finance 100% of your acquisition of the project.
John Drachman
Uh and through that mechanism, you would dramatically lower your operating expenses. You'd have no equity. So you you you'd lower your cost, right? Um the let's call it the cost to op, you know, the the cost of the capital. Uh and then you could lower rents. And so you could deed restrict rents to between 61 and 120% of the average median income. And so I mean, as you well know, in California, we have a massive housing crisis, right? Sure. In California, I think the average renter pays 52% of their income towards rent, which is, you know, the HUD would tell you you want to be between 30 and 35%. So, it's a massive issue. Massive issue. We never build enough housing in California uh to keep up with demand that we've had. And so, we heard about this program uh through a broker. A broker had called us.
Taylor Avakian
Good for him, man.
John Drachman
And said, "Hey, they actually were the broker who sold the project." Okay. Uh and said, "Hey, look, we did this deal. We have no idea how this group put together this capital. Kind of don't know how it all worked. Uh but um you know, my business partner is really an expert in affordable housing finance. Yeah. And said, you know, you guys, you and John are pretty smart. Maybe you can figure this out. And so um to to use a basketball analogy, we uh you know, went into the lab, my partner specifically, and then COVID hit and so we you know, we had a lot more free time because we're all at home. So really went into the lab reverse engineering how these projects worked. Uh did a bunch of research on the couple projects in Northern California that had closed and we sort of put the pieces together
John Drachman
and it was a really good blend for us because we had done a lot of market rate housing at that point. Um we had done a lot of commercial acquisitions at that point. Um, and we had done a lot of affordable housing and these workforce housing projects, they had a very nice blend of affordable housing and market rate housing because you were buying market rate housing. So, you had to understand how market rate housing works, how market rate sellers work, but then you were also converting it to workforce, not affordable. The affordable housing is really 61% of area meaning comes in below. This is really targeting the missing middle, right? people who make too much to qualify for affordable housing but don't make enough uh to afford market rents. And so we spent a bunch of time figuring it out.
John Drachman
Um we got connected to CSCDA who is a joint powers authority in California who was thinking about doing these programs. We had done work with them on affordable housing bond financing in the past. Um they connected us to Goldman Sachs became our bond underwriter and we started underwriting projects. We had a relationship here with the seller uh LAR um and um we you know had a great relationship with the city of Long Beach. City of Long Beach had a mandate uh from a a housing report they' put out a couple years earlier to create more workforce housing. And so uh we were able to uh put the building under contract, go through the city, get their approval to join the JPA, participate in this program, and then we went through a process with Goldman Sachs to go sell the bonds for this. And so we acquired it with 100% financing.
John Drachman
Um we get paid uh fees on the deal. Um our technical term is what they call project administrator. Okay. Um so it's uh that's kind of how it all came.
Taylor Avakian
Why couldn't LAR do that?
John Drachman
So the bond investors traditionally like to know that there is a separate group coming in and they don't they want to make sure that there's an appraisal done that there's a there's a new group coming in to acquire it. and LAR would need to partner with a government entity and those government entities want to see a new group come in. So, usually the existing developers couldn't do them themselves.
Taylor Avakian
Got it.
John Drachman
Okay.
Taylor Avakian
And what's stopping you from doing this with every deal?
John Drachman
Uh, so I would say interest rates. So, clearly, you know, part of the reason that this worked is I think our pricing on our bonds here on I mean, we got 100% financing at about 3.75%. if you blend in the total coupon rate of the 35-year tax exempt bonds because at the time you these are unrated um high yield bonds. So with um and but they're tax exempt right um so when you look at that space you know this was at the time when treasuries were nothing right and so we were offering a premium to that uh and there was a lot of liquidity in the market in the bond markets there's been less liquidity uh as of late um and the other issue is that you know those bond investors which the groups who invested in this are that you know the the really large
John Drachman
bond investors that exist in the marketplace um you know, Vanguard, uh Franklin, New, PIMCO, these groups that have huge portfolios odds. And what they liked about these deals is they were higher yielding. Um and so they can blend that with what was really anemic rates for uh rated bonds, which would be treasuries and California bonds, whatnot, governmental bonds. And so, you know, now as those rates have risen, the rates on these have risen as well. And so it's just not financially feasible. Um because you know candidly um you know at the time we were doing this specifically like if you looked at this project you know market rate buyers were not really interested in institutional California product back call it the second half of 2020 through the first half of 21. Yeah. This is when we had a lot of the co eviction moratoriums. It was just it was kind
John Drachman
of a choppy market. And so we buy on a 35-year horizon with these deals. And so we were able to underwrite past what we thought was going to be a short-term situation. And so the market rate buyers really weren't there. Market rate buyers came back, these got deals got harder to pencil. Yeah. And even though pricing is down, uh, you know, kind of throughout Southern California, you know, when you look at the fundamentals of Southern California, the multif family markets are still very strong. And so the deals unfortunately just don't pencil right now.
Taylor Avakian
So you you said the the deals the fundamentals are strong.
John Drachman
Yes.
Taylor Avakian
But yet so many people don't want to invest in California anymore. Why do you think that's the case? That's a really interesting question.
John Drachman
I I think there to me the regulatory environment and I I here's what I would tell you. If you look at San Diego, you know, San Diego has had strong activity. Pricing is still very strong. There's still a lot of interest there. Orange County, there was a a large project that just sold to an institutional buyer in Irvine for 4 cap, right? Um, all cash. And so, um, I would tell you that I think when you hear, and you know this from living here, Yeah. it's it's hard for people outside of California to understand that like there's a whole host of different places in California. I think institutional capital doesn't necessarily want to be in LA County, San Francisco County. M um and and maybe you'd also kind of lump in Oakland there. I think institutional capital when you look at the landscape will
John Drachman
go to Orange County, they'll go to the Inland Empire, they'll go to San Diego, they'll go to Ventura County, right? They'll go to these other markets. And I think a lot
10:00–20:00
John Drachman
of it's political risk. So I think what San Francisco, you know, um some of the markets up in the Bay Area, you know, some of the counties up there, LA County did regarding the eviction moratoriums. It it created massive issues because what it did is it in dramatically increased risk from an NOI perspective. We dealt with that even in our workforce housing projects. We have probably I think close to 200 units in LA County and you know we dealt with a lot of bad debt issues. There were a lot of bad actors on the tenants side that those stories haven't really gotten out. But I could give you a litany of those stories.
Taylor Avakian
and they have a a G Wagon, right?
John Drachman
And they're not paying rent for So, one of my f favorite, it's not favorite, it's not the word, but one of the stories I had is we have a property in Glendale. It's a workforce housing project. We had a tenant show up to the management office, say, "Hey, can you watch my unit going to Hawaii for two weeks?" The manager said, "You owe $50,000 in back rent." She said, "I don't have to pay that." Right? And so, I mean, I have a litany of stories about that, people taking advantage of it. And so unfortunately when you are an institutional landlord consistency of NOI is really key. Precoid LA County had the lowest amount of bad debt in the country. You know during CO it had the highest. So it switched and so I think people institutional capital was specifically attracted to markets in Southern California because it's hard to develop.
John Drachman
They had strong demand and there's stability. Right. The other thing we have we have Prop 13 protection. Yeah. So we have massive stability in property taxes. Having starting to invest in Texas, I will tell you that's a huge benefit in California. So all those things lent California to be this institutional market that everybody really liked. But all that regulatory change, you're even seeing it today. I mean, they LA County put an eviction moratorium related to the fires. Yeah. All of that has really turned off the institutional ownership group. I will be honest with you. I think there's no better market to invest in in the United States than LA County right now for the very reasons that I think, you know, when people are selling, you might want to think about buying. And I think that people have they're focused so much on the negative that they
John Drachman
don't realize that there is very little supply that's going to get built. Oh, yeah. 14,000 residential units just burned down in LA. Mhm. Our portfolio in LA County is about 90 a little over 98% leased. Yeah. And with no not a lot of new supply on the horizon. So, and I think the regulatory environment is going to get better. I'm optimistic there. Um and I think that um my my sense would be we're at sort of that inflection point. Um but there is a lot of investors who want nothing to do with California.
Taylor Avakian
What Okay. So, you you mentioned that you think right now LA County is one of the best places to invest. What are you investing in? What would you invest in?
John Drachman
I think, you know, I saw a deal. It's probably the best deal I've ever I've seen in a while. Um um Gary Lehold um bought a deal in Hollywood, brand new class A project. Well, it was built like I think it was delivered 2021. Yeah. Uh for I think $338,000 a unit, right?
Taylor Avakian
Was that the view?
John Drachman
Yeah. Yeah. Um, you know, the replacement costs on that 550, right? Yeah. And when you look at that basis, right, and you think about, you know, the fact that you look historically like I I I yeah, I actually talked to him about this. Um, I said that was a phenomenal buy. And I I would I joked with him. I said something to the effect of like I never invest with other people, but like I would
Taylor Avakian
have invested in that deal, right?
John Drachman
because it's just you know at a basis like that you can't go wrong and look does Los Angeles have its challenges for sure I mean obviously I mean it's been massive right however I look at us on this day and it's beautiful and there's still a lot of um strong demand drivers here and my sense would be you know things will change right things are not static um and when you look at that basis I go I I don't know where you can get such a discount or replacement cost. Yeah. Where what you're really doing is you're impeding any new supply because why would a developer build in Hollywood when they can buy for that cheap. Yeah. So, it's this self-fulfilling prophecy that I look at. There's also been some buys in downtown LA FBA's made where you look at it, you go, you're
John Drachman
blocking anyone from building new supply based on this comp. So, you're protecting yourself. sort of the exact opposite of what I saw a lot of syndicators doing, you know, and I've been very, you know, vocal about this on LinkedIn in markets like Phoenix and Vegas where you saw them paying 250 a door, $250,000 a door in 2021 and two and you're going replacement costs like $275. You're inviting competition. You're going to be your own worst enemy by continuing to pay these higher prices. The opposite, I think, is true in LA. And so, it's going to put a huge um, you know, dash on new development. Uhhuh. And we just lost 14,000 residential units, right? Tragically. And I I can tell you that is our demand has gone through the roof because of that.
John Drachman
And we we're the largest I think we have the largest amount of units in the city of Pasadena, workforce housing units. We're 100% leased in um we're about 1500 units there, right? Um, and so I mean it's it's extremely sad with the fires. The correlary is, you know, you're in a market that was already supply constraint. You just took 14,000 residential units, whether they're homes, apartments, whatnot, condos off the market. And so, um, in in my opinion, um, you know, the juice is worth the squeeze in LA, even even though I know it looks really dire right now and it looks really tough and there's a lot of landlords who are really upset about this latest eviction moratorum, which I can understand. Um I I my my my sense would be when you study the other markets around the country um I I think this is a great place to
John Drachman
to look at if you have the ability to think five to 10 years. Yeah. Long term.
Taylor Avakian
Long term because it's it's uh we haven't I was just having a conversation today this morning with another broker and he was talking about his best year that he'd ever done and it was in 2022. Yep. And basically he was telling me he's like we could sell anything. We put it on the market it would sell. Right now, we have deals personally listed and and from other conversations with brokers that it is almost anemic the amount of activity that we're getting. And these are six, six and a half, seven cap deals that genuinely we're hearing crickets on.
John Drachman
Yes.
Taylor Avakian
And so it's it's interesting to me when I talk to you and you're like this is a great opportunity. Yes. However, a lot of these smalltime syndicators or these guys doing these, you know, six to 50 unit buildings, they're like, "Ah, I don't know, you know, I needed it for 25 BIPS less."
John Drachman
Yes. What's going on?
Taylor Avakian
Why do you think there's a disconnect between the institutional and and to lead and follow into that is you said a four cap in Orange County?
John Drachman
Yeah.
Taylor Avakian
Right. Why would someone buy a four cap in Orange County when they can get a five and a half, six cap in Los Angeles?
John Drachman
It's the regulatory risk. So I think, you know, when you look at Irvine, you have no risk in Orange County. You don't feel you're going to get any risk with bad debt. You don't feel you're going to get any bit, you know, risk with eviction moratoriums.
Taylor Avakian
But are they underwriting because you're getting a 4% they're all cash 4% yield. Are they anticipating rents growing up?
John Drachman
I think they when you look at a market like Irvine, you would say they feel like there's going to be stronger rent growth there. You've got the Irvine company who dominates that market so uh so much that it's actually really hard to buy class A product in a city like Irvine. There's not as much opportunity. Got it. And so I think they view that as as core a real estate as possible. And by the way, like uh if you saw this project, I would strongly argue it is core multifamily.
Taylor Avakian
Got it. And so my sense would be it's that's a set it and forget it, right?
John Drachman
You're going to be 95 plus% leased. Irvine has, I don't think, ever dipped below that in a long time. Um, you know, the Irvine company controls so much of that supply. So, it's a unique submarket, right? Um, and I I think they're willing to do that. I think in LA, it's the regulatory risk side, right? People were so scarred from the CO eviction moratoriums and having such hard, you know, that the relationship between your tenant and yourself in LA County, it's just different. It's hard. Um, and when you're a landlord, when you're an institutional landlord, you're a private landlord, that's not a fun place to be in sometimes. And it's it's really hard. Now, you and I talked about the fact I teach at USC and what I always tell my students, just because something's hard, sometimes you want to lean into hard because that's where opportunity can
John Drachman
be when other people don't want to. But it is very hard to be a landlord in LA County. It's extremely hard to be a landlord in the city of LA. Yeah. Um if you think about the this eviction moratorum related to the fires effectively what the county is doing is saying if somebody was impacted by the fires landlords you have to subsidize them potentially. Now, there's ways in which they say if you apply, you have to apply for assistance and there's assistance out there, but they're really putting the onus on landlords, which
Taylor Avakian
is completely unfair, right?
John Drachman
And so, um, people just are are sick of that, right? And they're sick of how hard the last 5 years it's been
20:00–30:00
John Drachman
since co started, which literally, by the way, it started like 5 years ago, which is crazy, right? But it's been really hard to be a landlord. And people are sick of that. Yeah, when you go to markets like Dallas or you know some of these other markets where there's a lot of job growth, there's a lot of population growth and it's you're not worried about any regulatory risk, right?
Taylor Avakian
Um and so is that something that you teach your students at SC? Because what so what class do you teach at SC?
John Drachman
Yeah, so I've taught a bunch of different classes in the masters in real estate development program.
Taylor Avakian
Um the MRAD.
John Drachman
The MRAD. Yeah. Very well known for. Yeah. and I I so I graduated from the program in 2009. Um the last three years I've taught a uh real estate entrepreneurship class. Okay. So it's basically a class to graduate level students who have some level of real estate experience who are in the MRED and and my goal is to teach them about okay you want to be an entrepreneur.
Taylor Avakian
What does that mean? How do you raise capital? How do you put a business plan together? How do you put a business plan together on a deal? What type of structure should you look for? How do you recognize opportunities? is how do you underwrite projects?
John Drachman
How do you do back I do a lot of back of the napkin underwriting, right? And really, it's about all the things you need. And it's, you know, getting your first deal. It's like getting your first deal, right? And and how how you would capitalize and how you should think about it. And I bring in a lot I bring in a decent amount of guest speakers too, um, entrepreneurs, people from the capital side to really talk about, you know, what it takes to, um, to to start a company and to raise your capital and to put a business plan together and do all those things. So that's the class I've taught for the last, you know, this will be my this summer will be my I third I think third or fourth time teaching that class.
Taylor Avakian
What have you learned from being a teacher?
John Drachman
It's a great question. Um, you know, I've what I always say is I think I learn just as much as the students because I remember a student once asked me this question saying, you know, professor, you mentioned a double promote. Like, can you explain what a double promote is and in my head I knew what it was, but I couldn't articulate it. And I tried and I did a bunch of word salad was like like it just wasn't coming across well. Well, and so I was like, "Okay, from my standpoint, I think um I have to go back and I researched it and I came back, I go, this is exactly what a double promote is." And so I remember I was like, I taught myself how to articulate them. And the students at SC are really smart. And so, uh, if I say things, they'll challenge
John Drachman
me, they'll push me. And so one I I I've learned uh um probably more about real estate because you have to articulating something and not just having in your head that's teaching it. You learn it better is is is teaching it for two. Two I have a tremendous amount of respect for teachers. You know when you're teaching you're somewhat on stage. Yeah. And to put a lesson plan together it's I I've you know I think about some of my teachers that um you know and coaches I had growing up. I go wow it's a lot of work. Um, so I have a tremendous amount more respect for teachers. So I've learned that for sure. Um, and I've also just learned that, you know, you hear a lot about the millennial generation. You hear there's just all this talk. Then you're in front of these students and they're awesome, right?
John Drachman
And they want to learn and they're so interested in real estate and they they they really just want to grow their careers. And so I get a lot of energy from them. And so it's, you know, it's it's been an awesome experience for me. um to be a teacher and yeah, I teach in the summers and I I really look forward to it now. It's a lot easier now that I have the lessons plans set up out too, so I know what I'm going to teach. That was hard the first couple years, but I I really look forward to it. And it's really the students energies because I think that, you know, there's a lot of people that are, you know, younger that, you know, want to be successful that want to be in real estate. I think this is a great business.
John Drachman
And so when you're around that type of energy, it's just infectious.
Taylor Avakian
I have a lot of uh young people come and ask me a brokerage and hey, should I be a broker? All that kind of stuff. Um because I've I've had enough success in the beginning where they've seen, okay, this is what it could look like potentially.
John Drachman
You were a broker.
Taylor Avakian
I was. And you are in front of these students if they come to you and say, "Hey, what should I do to get into real estate? Should I be a broker? Should I go work at a big firm? Should I be an analyst? Should I go and work at a development shop?" like what advice personally?
John Drachman
Yeah.
Taylor Avakian
Do you feel and not from like this but I guess how would you approach that question?
John Drachman
You know, it's a great question. Um I had a a mentor of mine I met through my dad uh who was a self- storage developer who when I was thinking of getting into real estate right after college, he broke it down really succinctly to me and he said there's really there's like five really five areas where you can get started in real estate. You can't really start as a developer. Yeah. Because when you think about development, it encompasses so many things. Yeah. For instance, we were talking about this project, right? If you think about how we put this deal together, it encompassed a whole host of different skill sets that we needed to be able to put together. And so, his point was there's there's ways to get started. So, one was brokerage, right? You can do investment sales brokers or leasing brokerage.
John Drachman
It's where a lot of people start their careers in real estate. You know, brokerage firms are always looking for sort of h, you know, young and hungry people to come in either cold call, do analyst work, do grunt work. There's always a need for that. So, you can start in brokerage. You can start being a financial analyst. So, you go to work for a bank, you can go to work for an equity fund, you can go work for a brokerage firm and just crunch numbers all day long and learn the numbers, right? You can you can go do that route. You can go to law school and you can become a real estate attorney. and you know, real estate law, uh, and you know, real estate's all about contracts, written contracts. There's a lot of legal aspects of real estate. So, you can go that route.
John Drachman
You can go the construction route, right? So, you can go be an on-strike construction person and go work. I mean, obviously, you're probably driving through downtown Long Beach. You saw a couple projects on, you can go be a superintendent for a contractor and learn the construction business. That's a could be a big part of real estate. And then really his last point was you could go be on the property management side, right? So you can go work in property management. That's a very important skill for real estate, understanding how properties actually run from a P&L perspective. And those are really and each one of those areas generally speaking will hire young people, right? Um now the law being an attorney, the one challenge with that is, you know, you got to go to law school. So that's probably the longest. Yeah.
John Drachman
But all those positions will generally hire what I would call as associates, right? People without experience that they can go train. So what he said is within those, you know, his belief that the two best areas for the fastest career success was either financial analyst or brokerage. I would agree. Um and so but then it comes down to your personality where you think you could be successful. And he's like, "Do you like sitting in front of a computer, John, or do you like talking to people?" I'm like, "I like really talking to people. I like being around people." Yeah. He's like, "The challenge when you're financially analyst, you can sit in front of a computer screen all day long." Um, so he his advice to me was he thought brokerage would be the best.
John Drachman
Then you go into should you do investment sales brokerage or should should you do leasing brokerage. You know, I chose leasing brokerage more so that was the job that was offered to me at the time and I had I had to get my foot in the door. You're doing um and so um you know there there's you know there's a there's a lot of pluses and minuses about those different brokerage types. Um would you do debt? So, so what's interesting is debt and equity brokerage which when I got into the business back in like 2003 2004 was not as prevalent right that is a much more prevalent brokerage business to be in. I have said this on LinkedIn I would tell you I think being a debt or equity broker from investment sales debt or equity or leasing I think debt
John Drachman
and equity would be what I would tell somebody to go into. Same. And because I think what's interesting, unique about it is you're going to learn when you learn debt really. You're learning real estate too cuz it's a component you have to understand.
Taylor Avakian
You have to underwrite the deal. You know where the money's come really. And sorry to interrupt. Like I'm I'm passionate about this too because I'm so far deep in the investment sales world of multi family, but I've recognized through the debt process of there's so much that goes on besides just I'm a conduit, right? getting a buyer and seller and putting it together. Debt is actually and equity is really making the deal happen. And I've had so many clients of mine say, "Hey, you have any LPs for like we just got this deal locked up. We're trying to raise money." I mean, if I had LPs, I think I would have unlimited money because there's so much need for that kind of kind of uh service skill. And then on the debt side of things for what we do in the investment sales, if
Taylor Avakian
you're lucky, right, you work with some syndicators or some value ad guys and they'll they'll buy it, they'll renovate it and sell it with you in a
John Drachman
couple years.
Taylor Avakian
But most people, most sales and the people who pay the highest where I do business, which is Los Angeles, is typically these mom and pops buy one deal every seven years and and they're not selling. It's going in the back pocket in the portfolio for the grandkids. And so I don't have that natural recurring revenue where when you're doing debt or equity, you got a refinance that's coming up. You got you got to either sell it or do something else. And if you bring the equity in it, you bring the debt, you have your investment sales team work on it. You like you can there's so many ancillary and value ad that debt brokers
John Drachman
bring thousand%. The other thing it so that's what always intrigued me about leasing. So when you do let's say office industrial retail leasing you're usually doing 5 to 10 year leases and so what you know is you're if you're in that business longterm you almost call it annuities where it's like hey you put a client in space for 5 years after four years you call them and say it's time to renew there's going to be a transaction that takes place and you know instinctively like there's a transaction taking place
30:00–40:00
John Drachman
and so you can be I remember you know cold calling tenants a little bit more bold like you got to figure something out like your lease And by the way, like the landlord pays our fees. So like why wouldn't you be represented?
Taylor Avakian
Why?
John Drachman
It makes no sense not to be and but you know instinctively like even in a bad office market which we're in right now. Let's say vacancies go to, you know, 20% in a subm market. Still 80% of the buildings are full. You figure everyone's signing fiveyear leases. Like there's still transactions taking place, right? And so that's what always intrigued me about leasing where debt brokerage specifically on multifamily, let's take it. I've been always more intrigued with always thought that was a great avenue to enter is let's say you do agency debt. Well, if I want to get agency debt as an LP, I have to go to a Walker and Dunlop or Bcadia, a CB cuz you can't go direct to those groups. So actually like it's almost better because you're like you need me and so that conversation is different and so I felt like if you
John Drachman
can be in debt and equity brokerage as that business has really evolved and it was so nichy when I started um now it's really become a much more full-fledged business specifically in multifamily understanding how debt works understanding how equity works huge right because for you if you had those LPs I'd probably tell you what do you need your syndicators for? You go do it, right? And so I think to learn that space, my opinion, that's where I would advise somebody coming out of school. Um, I think that's a awesome space to be in because you're gonna you're going to learn a lot and you can take I just feel like there's a lot more transferable skills and even in a tougher market like this like people are still refinancing, people are still doing things and so from a income standpoint, I think you can build a little bit more
John Drachman
durable income and you can learn more specific knowledge that I think could benefit you long term.
Taylor Avakian
As a as someone who transitioned from the brokerage to the principal side, you probably get a lot of cold calls.
John Drachman
Yeah. Um, you know what's funny? I don't at all really. I I get it's the irony is I get very Is it because you've eclipsed
Taylor Avakian
the the mom and pop where people and look, you know, as humbly as possible like you're a big doc, right? I don't I don't you own thousands of units where a young guy who's historically going to be
John Drachman
cold calling. By the way, I'm going to say this. I'm going to get a thousand called up. No, but uh you know what? I don't I get some like It's not that I get zero. I definitely but but um I I get Yeah, for sure. I think you probably have. Um I get some. It's probably harder to reach me now cuz like my my office line at work, I joke like nobody calls office lines anymore, right? So like if you call me and I don't really publish my cell phone that much, so it's a little bit harder to get a hold of me. Um, but I don't get I mean I get a lot of emails about 7-Elevens trading in Tuscaloosa, Alabama if I want to buy it, which I'm always like, "How do these people know me on these list?" But I don't get
John Drachman
as many cold calls as you would think. The real irony is I get nobody stopping at my office, right? And so like when I started in brokerage, you know, I was doing office leasing and some industrial leasing and the way we call it walking buildings, right? So, traditionally cold calling in leasing brokerage, specifically office industrial, is sometimes you do it on the phone. A lot of times you just go I'm literally staring an office building right behind us in downtown Long Beach. Like you would go and you would we call it knock on doors and you would go in with your card and say, "Hey, you know, who's the decision maker? I want to talk to that person. I want to see who represents you." And so you do a lot of cold calls because the other thing is when you cold call an office building like I'll when
John Drachman
I started in the business uh at Grub and Ellis you know this was 2004 um and yeah end of 2003 beginning 2004 and um the the mortgage the subprime mortgage got it boom was going on. So there all these subprime mortgage companies. So you'd walk a space and you would see like 20 people in a 2,000 foot office and you'd be like you guys are in way too much space. So you you see that, right? Like you you you you notice it and then you're like, "Okay, there's you need to expand, right?" And so it's it's really helpful. And so that's how I started, right?
Taylor Avakian
And people are not doing that now.
John Drachman
No. And so the other thing is like I would cold call real estate companies, be like, "Hi, I'm John." Like I know you probably don't need somebody to represent you. Be like, "Is the owner here?" Right. Yeah. And it' be like a development firm and hey, I want to learn about how you do development. And I remember like people love that like somebody showing up. I don't think I've had somebody cold call me like physically.
Taylor Avakian
Yeah.
John Drachman
Maybe once since we started. And I'm always like and the irony is there was a guy who did who's now at um is he at Arcadia or is he at CBRE? Um and I helped him get an internship and I still see the guy with the Basking Group. I helped him get an internship there and he's always thankful about it. I'm like, "Well, you showed up in my office." Um, right, Thomas. And I'm like, my standpoint would be I never get that. And I've never like if somebody showed up at my office to be like, "Hey, I want to talk to you, John, about real estate or deals." I might I might be in the middle of something, but I know for myself, I'd be like, "Talk to my assistant. Let's get a time. I appreciate you showing up here, using that foresight. I'm happy to sit down with you."
John Drachman
Phone calls and stuff like that. What's hard is like I get so many email, all that stuff. It can get drowned out. Yeah, but even so, like I don't get as many cold calls.
Taylor Avakian
So, like, okay, you the really good broker's got a really good deal. I got a really great offmarket deal, John. How do I get a hold of you where you need to see this deal if you have a thousand emails in your inbox? You're the phone. I don't have your cell phone. I'm like, how do I make sure that you see a deal that I think you want to buy?
John Drachman
So, there'd be two there'd be two ways to do it. One, you'd you'd put a great subject line in an email to make sure it goes through. And two, you'd call me, you go then you'd hit zero. Probably goes to my assistant and you'd go, I've got something I really want to talk to Jonathan. Yeah. Because that's the she's a quote unquote my gatekeeper. Totally. And you know, she'll say, okay, no problem.
Taylor Avakian
What is it?
John Drachman
She'll take a note down and she'll hand it to me, right? And so I think it's that if you feel like you have a good opportunity, you feel like you want to get in front of somebody. This is all going back, by the way. You're bringing up all this stuff from my Grub and Ellis University days. Uh for those who are listening, Grub and Ellis was a real estate big real estate company I worked for that went bankrupt. But we used to do this Grub and Ellis University and they used to bring in um it's a guy by the name of Dave Hibbert. Dave Hibbert was a sales trainer. He was a former manager at Grub. He did sales training. I love that. He was classic. Um for anybody who's listening who ever took sales training from Dave Hibbert, you know, I'm wearing long socks today.
John Drachman
That was Dave's big thing. He used to bring people on stage say, "Show me your socks." If you had short socks on, he's like, "You can't ever have short socks. you could be somebody could see that. You always want long socks. So, I still to this day wear them. Me, too. I have them on right now. Yeah, that's right. And so Dave would do live cold calling, right? And he he had his office in the Irvine Spectrum and he would do a live cold calling with you. It's really intense. And you'd be calling tenants, right? Most of the time office tenants and his whole thing was like, how do you get you got to get something in front of the decision? So like don't just he he would his big thing was you can call the person direct and if you got to voicemail zero who's this assistant
John Drachman
I need to talk to him here's this put a note on his desk it's really important um and so that was his big sticktick right he thought get the note on the desk and then he would be go show up at the person's office got it he was one of those people like don't accept no for an answer and figure out a way to get in front of that person and if you're persistent you'll do I I think it's gotten to a point where that kind of old school style, if I was giving broker advice, I would be like, "Yeah, you can go make 50 calls to people, send 50 emails." If you spent the time to research where somebody's offices, and you showed up to 10 people's offices, I would think you'd have way more success. And if you were persistent that way, my because what
John Drachman
I saw from cold calling is it's really easy to hang up on somebody. It's really easy not to answer an email. It's really easy not to answer a phone call when somebody's in your office. Like it's really hard to be addicted that person, right? Because you're t right you're you're talking to them and you're like okay that's if you call me it's like ah whatever, right? Um go to voicemail. It's technology has worked that way. If you're in my office, you're dressed well, you you present yourself well, you're like, you know, John, I'd love just five minutes of your time. It's really hard to me be like, "Man, you came all the way to my office and you just want five minutes." Yeah. And maybe some people, look, everyone's different. I'm more the person who' be like, "Yeah, of course." Or, "Hey, why don't you come down tomorrow?
Taylor Avakian
Why don't you let me help you and let me see what you have?
John Drachman
Let me spend some time."
Taylor Avakian
Do um so from tell me a little bit about the transition when you switched from going from the brokerage to now going on the
John Drachman
principal side.
Taylor Avakian
What did that look like? When was was this the first deal that you did or what?
John Drachman
Give me the No, no, no.
Taylor Avakian
Give me the Give me the timeline.
John Drachman
No, no, no. Um, so, so when I when I was in brokerage, I had a really bad experience with a client um where we got totally screwed, which every broker deals with. Yeah. Totally screwed on a deal where we were representing a was an office tenant. They wanted to buy an office condo, which was all the rage in Orange County at the time. This was like 06. And um we showed them one. Uh we had represented a buyer of another small condo next door. So we knew the comp. Like we had done all this work and literally it was the case of like
40:00–50:00
John Drachman
this client like wife's best friend's husband was a broker and was like, "Oh, that price is too high. I'll represent you. I'll get you a better deal." Even though we had represented the building next door. And so um the client goes dark and the the developer of this office condo calls me. me. He goes, "Hey, John, like this group just submitted through a new broker. You had already submitted. Like, I don't know what to do." And I was like furious. And he's like, "Look, I'm going to agree to a deal. It's the same deal I gave to you, but like they're saying this group represents them. I'm sorry." And I remember I was so upset by it. And um went and show showed up, you know, with I had a partner on the time who showed up at the guy's office. By the way, this is old school. Yeah.
John Drachman
Showed up at the guy's office because he wouldn't return our phone calls. showed up at his office and um uh kind of barged into his office. I remember this. I think I was like 26, full of cousin Ber and we showed up at this guy's office. Uh what was it? CSC Engineering. I still remember it.
Taylor Avakian
Oh my gosh.
John Drachman
Or SCS engineering. Um showed up at the guy's office and we were like, "What'd you do?" And he was like, "Look, you guys are young guys. Like this guy's more experienced." I'm like, "You got the same price we agreed to. We represented the group next door." And I remember my the guy that I was working with at the time just sort of ah that's just welcome to brokerage and uh my partner on that deal and I was I was really pissed off. Yeah. And um that's when I was like I don't know if I have what it takes to be a broker because when you're on the principal side like I don't think somebody can screw you like that. I just I don't know. I was good at finding stuff and I was good at it. Um um and I I was did really well and um but
John Drachman
that's when I was like my eyes got opened up like I'd really like to be on the principal side.
Taylor Avakian
Yeah.
John Drachman
Cuz the developer in this case he didn't get screwed. He sold the pri right and I was like he didn't get screwed and he had all the control. Right. Someone else's destiny. Someone else's destiny. And so u around that time I had heard about the Emmer program at USC. I started doing research on that. I started talking to people. Uh, I was always big, especially in my 20s and 30s, I still am. I love talking to people, but I was really big on informational interviews and trying to get in front of people. And I asked them about this program. I said, "That might be a great program for you." And so, I made the difficult decision to go back to grad school. I was doing well at Grub and Ellis.
John Drachman
Um, but I made the decision to go back to grad school USC because I thought that would be a great pivot point. And that's where I think graduate school, when I tell people, they ask me, should I go back to graduate school or not? I go, if you're looking to make a pivot, if you're if you're like, I'm doing this, I want to keep doing this. I'm like, I don't know if graduate school is the right for you. To me, it's when I'm a broker. I want to move to the principal side. I leverage the USC program to go do that. And it kind of puts some space into, you know, cuz a lot of people I would talk to, it's like, oh, you're a a leasing broker, as my mom called me, a leasing realer. Um, and so, uh, a rental agent that it gave me some space.
John Drachman
So that's why I made the decision to go back to school. Now I went back to school fall of 2007. Literally the world I I started in the NBA program cuz I did the NBA program at SC started on a Monday. If you go back and look the credit markets, it was like August 12th. Mhm. That there's a Friday when the credit markets on debt for subprime mortgages froze. Like literally there's like you can go back and look at this. I started grad school on Monday, the following Monday. So the world kind of fell apart, right? And so but that was the transition that I needed that that was the pivot point I needed to go to the principal side. And through that program, I got connected to uh a man by the name of Will Smith, Wilbur Smith, who runs a company called Green Law Partners.
John Drachman
They're an owner operator of mostly industrial and office assets uh in Orange County. When I got out of school, took me about seven months to find a job, but finally I landed a job with him as an acquisitions and asset management specialist. Um, and this was end of '09, beginning of 2010. And we were buying distressed, mostly distressed office and distressed, by the way, if you can believe this or not, distressed industrial. Wow. Um, throughout um, uh, California and Arizona. Okay. And so I joined them at the end of 2010 and or, you know, end of 2009. And that was my foray to moving to the principal side of the world. And that's when I really learned about I leveraged my um leasing skills to do you know value ad office where you have to do a heavy amount of asset
John Drachman
management but I learned all about raising capital and debt how equity partners look at trans projects how you oversee property management and leasing brokers how you execute business plans and so I was there almost five years and my challenge was I always tell people this I'm a I was never a good I never won any coaches award Uh, I think I'm a kind of a shitty employee because I was always the type where like I think I know better. And um I having been a broker, having been an independent contractor, once you get used to it, you're running your own P&L, right? And I think that's one of the best that, by the way, that's another great part about brokerage is you're really running your own small business.
Taylor Avakian
Good business.
John Drachman
You know, I remember going to my manager at Grub two years in like, "Hey, I'm going to go on vacation for a week." He's like, "Okay." He's like like, "Do you need to sign something?" He goes, "No, you're an independent contractor." like I just care what you're like, are you covering your desk costs? When I worked for him, what where I struggled was I I'm just not a great employee. And you know, there would be projects where I'd be like, I don't think that deal works. He's like, well, I want to I want you to underwrite it. And you realize, as my dad would say, if someone's signing your a check for your salary, you do what they say.
Taylor Avakian
Yeah.
John Drachman
And so it was probably three years in when I realized like I want to do my own thing. And I eventually left in uh August 1st of 2014. Okay. Um and my goal was to do value ad office and industrial because acquisition that's what I known what I was going to do and that's where I had built specific knowledge. I had built some core skill sets. Um and I felt like I you know as I tell my students I felt like you would invest money with me even if I was newer in a value ad office because I could articulate the business plan. I could show you. I had the relationships to execute. I had the expertise, right, to execute and I had the knowledge base to really exert and experience, right?
John Drachman
So, I had the the kind of the core skill sets where you go, John, you know what you're talking about. You've been doing this a while. So, at that time though, I've told this story multiple times. I had known my now business partner Sean Rosson. Uh we had met through a young professionals real estate group that NAOP put together about four or five years before then. He was a uh affordable housing and market rate housing development um specialist. That's what he had done throughout his career. He had sold land. He had done market research for residential projects. He had worked for a developer. He had gone off on his own about a year before me and was doing affordable housing development and market rate development and entitlement projects throughout California. And um we had talked over the years about potentially working together and finding an office building that
John Drachman
had excess land that we could build a parking structure on and entitle a project title the excess land surface parking for multif family. Him and I always just got along really well. We're both very entrepreneurial, different but entrepreneurial. And we went to lunch and I was telling him what I was doing and I was like, "Hey, I'd found this office space. I need somebody to share it with me." I had gone down the road where I was maybe going to partner with somebody when I left Green Law, but then it ended up not working out. And I said, 'I need somebody to share office space with me, like what are you doing for office space? And he said he was in his executive suite. I'm like, I think this would be cheaper if we shared space. So we we went after lunch. We looked at the space.
John Drachman
He called me the next day. He said, "Yeah, let's share office." So we signed a one-year lease on an 850 foot office space. Wow. And in that space, basically, we realized that let's start talking about deals. And that's kind of how it came together. And so my forward this leads me to it's long-winded I know. Yeah. But it leads me into how I got into multif family. So about six months into us sharing office space. I was doing acquisitions. Uh you know I had acquired a couple office buildings. Um Sean was doing his projects. We were out to lunch and I asked him the question. I said you know and a lot of times great ideas come from just asking questions. What would you be doing if you weren't doing affordable housing development and you know these market rate housing titlement projects, land development projects?
John Drachman
He's like, you know, I' I've always thought and I worked on a business plan in school to buy sub institutional multifamily and supply constrained markets where new supply is really driving rents and you have this older product specifically in Southern California. We have all this 50s60s and 70s product that was built um that you could draft off of that and if you could go buy a deal, really improve it that there would there was a great business plan around that. And specifically, I've been in Long Beach now about five years. I've been living here. I see all these older apartment buildings that I feel like there's a ton of value ad potential with and Long Beach is changing and it's really improved after co after the GFC. I said, "What's stopping you from doing that?" He's like, "You know, I don't know how to I don't have the capital partners.
John Drachman
That's a different capital source. I don't know." I go, "I've got a bunch of capital relationships that I've developed over the years. I think would be highly interested in this." He's like, "Well, let's look at it." I go, "So, let's go look at it." And so, uh, I always joke is we met with a couple of them. They all said the same thing. It sounds interesting. Show me a deal. And then three weeks later, Sean called me. He goes, "Hey, we got a deal tied up." I go, "What? What do you mean we have a deal tied up?" He goes, "Well, you know, I had to tie up this deal. I He had found it through Sean's a great hustler through a relationship to a broker, got connected to a 14-unit deal literally probably about a mile from here." Wow. And, um, we had to raise about
John Drachman
$1.2 million of capital. Uh and uh I went to the people that we had met with uh and the bulk of it came from four people.
50:00–1:00:00
John Drachman
Um and uh we did some friends and family too and we raised the capital and we bought a 14 unit value ad apartment project.
Taylor Avakian
How many days of DD did you have?
John Drachman
We had 30 and we had to go hard on a deposit and then we had 15. We got 15 days to close and we eventually negotiated another 15. Okay. We closed with debt.
Taylor Avakian
So you had 30 30 days and then another 30 days to close. So 60 days total.
John Drachman
Correct.
Taylor Avakian
And so you had to raise all the money.
John Drachman
Well, what the irony was when Sean called me, the clock had already started because the one thing I learned from multif family is when you do these car contracts. In multif family, it's like buying a house. Yeah. Where you go under contract when you make an offer. Yes. Which when I was buying office buildings, you were negotiating. You were doing all this stuff. I was like, "What? We got to put And so we had to put up I think we had to put up a $100,000 deposit, Sean and I." So we did it. Now, it wasn't hard, but it was like I was like, "That's my bank account." Yeah. And so, uh, we went and tored it. Um, and Sean had done the math in his head, and I agreed with them, and the whole deal came down to could we get these much higher rents
John Drachman
at the project that we thought once we remodeled it. And so, um, it was, yeah, it was mass chaos. I mean, we're building investment model like it was it was chaos. Um, and but we we felt there were a lot of merits of the deal. Um and if we felt very strongly, we articulated a great vision of how we could hit these rents. Yeah. And so, but it was Yeah, it was mass chaos and then uh we had to go hard on a deposit, but we had raised
Taylor Avakian
the capital and then that deal led to I assume that deal worked out and you said I we can do this.
John Drachman
So, what ended so the story I've told before so we buy it and our investors are like can you get these rents? We're like yes. And I literally remember walking out of the meeting with Sean. like we can get these rents, right? He's like, "Yeah, I think so." I'm like, "Okay, we're going to try, right?" And we bought the deal. We had a vacant unit. We had found a construction firm. Like, we put all this stuff together like quick um and just hustled. And we found this contractor through a referral who ended up being a contractor we did a bunch of business with and was awesome. Wow. Um and we found him. They looked at the project and um they told us how much a unit would cost to rebuild. And we had a we had a renovation budget. So we renovated a unit, right?
John Drachman
We were going to redo like all the common areas and all this stuff. And my point was like, let's renovate a unit and let's see. So we had underwritten$,450 in rents for a one-bedroom apartment. The existing rents in place were about a,000. It was a pretty big jump. Yeah. So, we renovated this unit um and we did everything we thought we were going to do and it turned out really well and we we we finished it on a Thursday and our the management team we had hired listed it said, "Let's see how the activity is this weekend." Sean calls me on a Sunday. I'll never forget this. And he says, "Dude, we got $15.95 for the unit." I go, "What?" I go, "I thought we were listing at 14.95." He goes, "No, I switched to the last minute. Let's go 15.95 and if we have to offer concessions, let's see."
John Drachman
He goes, "Literally person tooured it. We just signed a lease at $15.95." I was like, "Oh, wow. That's awesome." Right? So, you know, put together an email, call our investors, like we got 15, we got way above what we thought and they were excited. And literally the seller, a group owned two 20 unit buildings across the street. That same week, a broker called us, said, "Hey, I know you just bought this deal. Would you be interested in the 220 units across the street?" Um, and we're like, "Yeah." like we think we can get these rents. We'll pay the same per door. Sure. And we ended up buying we went to our partners and we said look we can get these rents right and they believed us. I think you know we one lease. So we ended up buying 40 units across the street and that was then it kind of
John Drachman
a way it went and um that was my foray into multif family. So what I tell people is you know if you make a transition one of the easiest things to do is we started really small right? Tell all my students this. I I tell them you can raise a million dollars of equity. You would be shocked. I in I go in this classroom. Yeah. There's You would probably think where would you go ask the people in this raise your hand in this classroom.
Taylor Avakian
How would I get a million bucks?
John Drachman
I guarantee you somebody's dad, somebody's uncle, somebody in this class, somebody knows somebody. You can do that. And so, you know, we started really small on the multif family side, which actually ended up being awesome because we cut our teeth on smaller deals, really learned a lot about rehabs, construction, how markets work.
Taylor Avakian
Um, let me ask you something. Um, how do you ask for money from someone? Because that to me, I'm not scared at all about co cold calling anyone. I'll go into anyone's office. I'm a glutton for just people saying no to me. I love it. I'm a masochistic. But asking people for money feels like it's like this internal, you know, like I, oh, I need a hand out.
John Drachman
I need something.
Taylor Avakian
And I know it's not. I know it's not. But what is the structure or the way that you would tell someone, hey, you have a deal. Y here's how you go actually get the money.
John Drachman
So here's what's funny. I would tell you where I struggled to motion brokerage was cold calling because it was like and this was I think office leasing, industrial leasing is a little different because like if somebody has four years, you don't know like at least at least in when you're doing investment sales like nowadays too especially like you can look up on coaster like when do they buy it, what do they pay? you know, stuff. A lot of times you're like, I don't know if they they literally just signed a 5-year renewal, so like this person's dealing with stuff. They're also like their office lease is not that important. So, you get rejected a lot. And you kind of feel like a schlub. Uh, a lot of times I've found raising money a lot easier. Now, first thing is, do you have a good project?
Taylor Avakian
Do you have a project that makes sense?
John Drachman
If you have a project that makes sense, like the deal I talked to you about in Hollywood. Yeah. Right. If if I had that deal tied up, I would call people. I'd be like, "Just give me your bank account. Like, you're gonna put money into this. Just don't ask questions." Yeah. Because for me, when you have a good project, you know, people with money want to make more money. So, if you're selling, you're not really selling them something. Like, people like talking about deals. I found it's a much easier conversation. Do you um you know, uh do you do you want to put money into something? Yeah, I'm always interested, especially people with money, they're always interested in looking at opportunities. So then it's about being able to evaluate stuff and finding the right opportunities and having confidence that you can execute. So I think where you know you should
John Drachman
think about if you're struggling in that it might be more the struggle for yourself of I know deals but like do I know value ad? Do I know I can execute a value ad strategy? If I'm buying a 14-unit deal, do I feel confident enough being able to execute? When we raised money for that 14-unit deal, you got to keep in mind I had raised money and been a part of a lot of value ad commercial transactions. Much more complex, much more. We're remodeling lobbies, we're redoing bathrooms, we're doing big TI projects. I mean, I had worked on a 100,000 foot 20-year lease with the FBI. We had to build them a parking structure. I had to build them a skiff space that is, you know, which I could go into and like I had to build them basically like a
John Drachman
like a space that had this fence around it outside the parking structure outside the building that a Mac truck could drive through and couldn't hit it. So very complicated type stuff. So for me, I'm like remodeling apartments, not that hard. Um, and so I had a lot of confidence in that. My sense with you is where you might be struggling is you might not have the confidence to go, you know, I don't know what I'm doing. And um when you're in brokerage, the nice part is somebody buys it, you step away. You don't have to worry about it anymore. When you're on the operating partner side, like you're in it. Something goes wrong, you're in it. Tenants stop paying your rent, you're in it. And that is a a level that, you know, I'm not trying to get into you personally, but you might not feel as comfortable with.
John Drachman
So then you ask yourself maybe that's blocking that right because you're going I don't like when you raise money from somebody it's a sacred trust. Probably one of the reasons I'm so vocal on LinkedIn for the people who have really I think were acted really inappropriate this last cycle on the syndication side and raising capital from mom and pop people to do deals like you knew that was a bad deal and you just collected fees because it's sacred. like you you you take somebody's money and you tell them I'm going to invest it like it's I I feel you know much like that money is my money don't want to lose it I have an attitude of like don't lose um don't lose their money figure out a way out of it treat their money like it's even more important than yours so there's a lot
John Drachman
of that that goes into it so you have to have a lot of confidence you have to have a lot of ability to think to yourself like can I do this right do I feel comfortable taking somebody's money Because like once you do, it's not like brokerage where it's like, "Oh, building didn't work out. I'm sorry. Not my problem." This is okay. You're in it, right? And there's a lot of difficult conversations that can come of that. Um, and it's it's just Yeah, it's a lot.
Taylor Avakian
Do you think the best way to build wealth in real estate is through the ownership side of it, or do you think that if a person's made to be a broker that they can do the brokerage side because obviously there's less risk associated like to get wealthy?
John Drachman
Yeah. Yeah. To get wealthy. Yes. In real estate. Yes.
Taylor Avakian
What do you think the best path forward being an operating partner?
John Drachman
It's the to me being a joint venture operating partner. The way to create wealth in my opinion what I tell my students you have to figure out a way to take a dollar and turn it into $10, right? Uh and then you have to take $10 turn into 100. You take 100 and you have to turn it right into thousand. So that's the way to create wealth. The other way to create wealth is sustainable income streams, right? And so the challenge with brokerage is, you know, it's not a sustainable income stream. you're only as good as your last deal. So, you have to always be hustling. If you think about, you know, uh take this project, right?
1:00:00–1:10:00
John Drachman
You we get asset management fees from this deal. Yeah. We got an acquisition fee when we closed. We get ongoing asset management fees uh and some other fees related to this deal, right? I can hire people um to from my team. I've got great people on our team I'm really fortunate to work with who can do a lion share of the work, right? So, I can outsource it, right? Um, but you know, I'm the owner of the company with my with my co-founder Sean. So, but we're getting paid, right, to do that. And so, if you if you if you think about it, there's things that happen here. I mean, I I I handle all our asset management for our firm. Um, so I know what's going on, but I'm not dealing with the day-to-day. Yeah. And so, I can be here having this conversation with you and I'm
John Drachman
making money. Yeah. Right. And I think that's a really powerful thing. And so I think really trying to um create wealth, you've got to think about how do you create sustainable income streams and how do you also, you know, take a dollar and turn it into 10. So if you think about value ad projects where we would invest $50,000 into it, we'd get an acquisition fee. So let's say we really have $30,000 into the deal and we'd earn a $300,000 promote, right? Because we'd buy it, fix it, sell it. Yeah. you just took 30, you turned it into 300, right? And so, um, if you can go do that, that's also how you can build wealth because you can build your nest egg, right? So, I think if you were going to stay in brokerage, you know, my thing would be, okay, brokerage can be a great business, right?
John Drachman
But it's a great business for somebody who is not having to hustle each and every day for a deal. So then it's talking about how do you bring in junior brokers, how do you do stuff, how do you create a team, how do you do things where you can create sustainable revenue for yourself while not having to do everything and then you know you go build up a team and then some firm shows up and pays you for that revenue, right? Well, then you took if you start, you know, if you start a brokerage business, doesn't take a lot of money nowadays, but if they pay you for it, so you just took a dollar and turned it into 10, right? And so I I would think in my opinion, if you want to create wealth, I I think you know, real wealth is
John Drachman
created by equity and owning something and having a piece of something and sustainable cash flows. And so that's what you've got to think about.
Taylor Avakian
Yeah.
John Drachman
So being a sole person in brokerage I is that um a a good way you you can do well. I mean I know brokers who have done very well. Yeah. Um but I've known a lot more people that have done well you know on the joint venture operating side of the business. Yeah. Because they've either been able to create sustainable revenue streams or they've had big pops where they're taking a dollar and turning it into 10. And so, you know, for somebody like, let's say yourself, you know, I would say you you want to think about how
Taylor Avakian
do you, you know, leverage other people? How do you leverage something and turn it into something?
John Drachman
And that's really where you can create wealth in our business.
Taylor Avakian
I was asking in general, but I you speaking directly to like I love that. I felt like I had a I had a therapy lesson. I appreciate that. Um I know we got to wrap up soon. So before we wrap up, um I want to talk one more thing and I think to end it really I'd want to know John for you like what's next? What are you excited about? Where do you see the future of Waterford? Where do you see the future of yourself?
John Drachman
Yeah.
Taylor Avakian
From a time perspective because that's all we got. You realize the older you get, the more it's time. So what does that look like for you?
John Drachman
You know, it's it's interesting because like it's obviously it's kind of a weird market right now. I've said this like it's and where it's weird is so different from the last big cycle that I was in which is the GFC where we were in such a bad economic recession. Yeah. Um you know this one we necessarily haven't been. Obviously at some point we maybe could go into one. I don't think even if we did it would be close to the GFC. I mean that was really hard. But this cycle is also weird from the standpoint of you have different product types that are functioning very differently from each other. Everything's been decoupled. You have markets that are performing very differently from each other from the regulatory risk perspective like we talked about. And so it's a very interesting kind of hard time.
John Drachman
I think where I get excited is that you know just like the GFC I just had this conversation with somebody. If you think about our business, our business is a younger person's business. takes a lot of energy, right? It takes a lot of drive and motivation. What happens in these cycles is there's a shift at the top level and there's a I've I've already seen this shift happening where you're seeing brokers move shops, people doing things and all this change is happening. That's what gets me really excited is I candidly don't know where this market's going to be in 5 years. I think Waterford is going to continue to lean into affordable housing and workforce housing. when you're a joint venture operating partner, you know, I think this business is also going to a place where you have the big huge CBRE to use brokerage CBRE JL Newark.
John Drachman
Then you have the barbell on the opposite side where you have the more niche players on the brokerage side and you're seeing that on the equity side. You have the Blackstones, the Starwoods, the KKRS, right? And then you have the niche groups who go we do self storage equity and and so this this this market's getting bifurcated. And so I think for us we've really leaned into you know workforce and um affordable housing. And that's more because we know we can't be all things to all people. And I think being niche focused is is sort of the niches are where the opportunities are, right? I think Jonathan Grace said they had a skit about this like alts are the the new reality. And so, um, that's where we've leaned in.
John Drachman
But where I get really excited is like I like it when I don't know where we're going to be in 5 years. I like it when there's all this change because change leads to opportunity. And it's one of the things where I've been so vocal this cycle on LinkedIn. For me, the last cycle there was no LinkedIn. And so when the cycle hit, you know, as a younger person, I think I was, you know, 27, 28, you know, in grad school, it was like you weren't hearing a lot of what was happening. And it was sort of like you felt very alone and and I also felt I was you know not depressed but it was a really hard because you were like man the market sucks. I thought I had done all the right things and I what the irony was
John Drachman
it was the best thing that could have happened in my career and if somebody just did say hey John change can be good there's going to be all this opportunity that comes from all this dislocation and a lot of older people are going to get out of the business and you're going to have this path and runway from 2010 to 2022 if I would have known that in 2008 2009 I would have been way happier and that's why I've been so vocal on LinkedIn Yes, this change is hard. Yes, there's some groups that are getting crushed by it. But I actually get really excited about it, right? And I I think, you know, on a macro level, when you think high level, I don't know what's going to happen in 5 years, I have like you asked me about office buildings.
John Drachman
I have no clue what's going to happen to office buildings. Yeah. With LA multif family, I have a sense, but I actually really don't know. And I get really excited about that, right? because I look at that and go, you know, in 2019 and 18 when it was like everything was up and it was hard. You know, this it's hard, but it's in a different way. And it's like I'm excited to see where we are in 5 years. And I'm excited to see the new equity groups that get formed and the new players that get formed and the new opportunities. And so that's that's what really gets me excited is and now as we've gotten farther into the cycle, we're closer to that change, right? What was really hard about 22, 23, even 24 is like, well, we're not in a cycle, everything's fine.
John Drachman
Now, it's people recognize, okay, it's here. And so, you're starting to see more distressed trades. You're starting to see more stuff happen. And that gets me excited, right? And and who knows where we're going to be in 5 years.
Taylor Avakian
I I I literally couldn't agree with you more. It's um and I think it's part of who we are as people because I look forward to difficult challenging things because I know I'm willing to deal with the pain that comes with hard things. I look forward to knowing that no one else is willing to do what I'm willing to do to make this happen%. And so when that opportunity presents itself, when that challenge, the the the the changing of the markets, when things start dislocating, I get excited because I know that we're going to do me, you know, you we're going to do whatever it takes to make sure that we can
John Drachman
take advantage of course of this change. Yeah. Well, you have that mindset, right? We talked about this on our pre-call. You have a mindset that says, right, and that's what it really takes in real estate. You have to have this mindset that says, I will push forward. And what I love about real estate is we were talking about like sports, right? You think about LeBron James. Obviously, he's an unbelievable basketball player. Was at the Laker game last night. I mean, he's crazy. He's 40 years old. Yeah. He was born with some gifts, right? He was born with some physical gifts where I never would have that. When I think about real estate, I think about the people that are successful. I know men. I know women. I know all ethnicities. I know I know short, tall, skinny, fat. I know every like there's there's a whole range of it.
John Drachman
I would tell you there's a universal thing though. The people that I've known that are really successful, they have that grit mindset. U they have that mindset of exactly how you just described it where I would tell you hearing that from you, I go, I got no worries that you're going to make it through this cycle and thrive in the cycle. And it's that mindset of I'm going to just keep grinding. I'm going to keep going in the face of adversity. That's what I learned during the GFC. I got a lot of confidence from being able to make it through a cycle. Sort of a badge of stripes, right? So to speak, or
1:10:00–1:20:00
John Drachman
badge of honor. And I think those are the type of people who make it in this business that look at the challenges and go, "Okay, I'm gonna make less money. I'm going to do this, but you know what? I'm going to show up. I'm going to give the same effort and I'm going to keep grinding." And some days it's going to feel like I'm pushing a huge boulder up a hill. But you know, at some point, like you have that self-confidence to know, and there's the historical precedent to know, trust me, at some point the ball will go down the hill and at some point you'll be rewarded with that. And so that's where I get excited about this market is because I know it's going to weed people out. Uh and it's going to create these opportunities and it's going to take that grit to be able
John Drachman
to get through it. But you know, I've done it before. We'll do it again. And you know, to people who are younger who are going through their first cycle, I say this all the time, like my advice is just one day at a time, keep going, figure out a way to survive, and you will make it. You will thrive. And at the end of every bad market, there's a great market. And so, and you sometimes don't know that, right? In 2009, I just wish somebody had told me that because I was so down in the dumps, not realizing there was going to be this great 12-ear cycle in front of me where I was going to learn and grow and make money and do all these things. So, it can be hard when you're in the eye of the storm.
John Drachman
But, if you have that grit mindset, I think there's going to be a lot of opportunity. And I'm just I'm excited. Like, it's it's going to be fun. And who know again, five years from now, we can have this conversation and go, who knows where we'll be. So, I'm excited.
Taylor Avakian
John Jac everybody. John, thank you for being here.
John Drachman
Of course. Thank you so much for having me. Awesome, dude.