Taylor Avakian
welcome to the podcast my name is Taylor ven I'm here with my esteemed guest today Danny mens Daniel mens Danny I got a hot one for you how many units do you own and what is your assets under management currently well it's great
March 19, 2025 · 53 min
Why Institutional Investors Are Leaving LA for Business-Friendly Markets | Daniel Mense
With Daniel Mense — Managing Partner, KH Equities
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How are investors adapting to California’s challenging real estate market? Daniel Mense, managing partner at KH Equities, breaks down how his firm scaled to 1,000 units and $300M in assets, why he’s…
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Episode show notes
How are investors adapting to California’s challenging real estate market? Daniel Mense, managing partner at KH Equities, breaks down how his firm scaled to 1,000 units and $300M in assets, why he’s shifting focus to the Carolinas, and the challenges of navigating rent control, affordability regulations, and market volatility in Los Angeles. Learn how investors are: - Expanding beyond California to business-friendly markets - Structuring creative financing deals to scale portfolios - Converting market-rate apartments into affordable housing - Understanding the risks of rent control & eviction moratoriums - Securing institutional funding for long-term real estate success Featuring insights from Daniel Mense on where the smart money is moving and how he’s planning to double AUM to $600M in the next year. 📈 Connect with me: Website: https://www.thegroupcre.com/ Email: taylor@thegroupcre.com X: https://x.com/TAYVAY_ LinkedIn: https://www.linkedin.com/in/tayloravakian/ #RealEstatePodcast #InstitutionalInvesting #MultifamilyRealEstate #RealEstateStrategy #MarketTrends #AffordableHousing #InvestmentOpportunities #PropertyDevelopment #LosAngelesRealEstate #BusinessFriendlyMarkets
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Episode transcript
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0:00–10:00
Daniel Mense
to be here thank you for having me uh C equities my firm we have about a thousand units uh roughly valued at 300 million um here in California and
Taylor Avakian
the Carolinas and how many what What proportion of you are you in Carolina versus
Daniel Mense
California it's about 5050 really yeah
Taylor Avakian
when did I didn't know that because you you were I mean I know you were going out there that started a couple years ago four or five uh 2021 21 is when you started to go by out out of state and I assume that was because one you're an opportunistic entrepreneur and you saw the the writing on the or an opportunity there but was there any sort of hesitancy with what's happening with Los Angeles and the regulations and and things like that was it harder to
Daniel Mense
get your business plan done for sure um Los Angeles California definitely doesn't like to make it easy on landlords to do business um and capital 2 was just getting skittish about uh at Le are our cital being so heavily concentrated in California and they wanted some more more diversity and kind of access to where all the growth is going which between sunbell Marcus the southeast you just saw a ton of migration out there so um you know coupled with the fact that doing business out there is much easier regulatory environments a lot more stable and easy to understand um demographic growth all of that it just uh it made sense to start diversifying out of California and we started taking a heavy look and a number of markets in
Daniel Mense
the Carolinas um caught our attention Beyond just the fact that they were good strong growing markets but because we're un affordable as well the affordable regulatory uh environment out there is quite favorable for for what we were looking to do so that just you know kind of Confluence of factors made those markets Prime for us for people
Taylor Avakian
who don't know when you say that it's easier to just do business right or to to manage a properties what exactly is easier what what what about the process is easier I'm like scared to answer this in fear of no I mean some council person in listening to me evictions like you know uh raising the rents the regulations like I assume that's probably so
Daniel Mense
what they are sure so yeah look the the the biggest concern right investors operators have with California is that the regulatory framework can change on a dime right and and like that that is that is what makes a market most difficult to invest in because it's impossible to underwrite like you cannot underwrite a rent freeze right you cannot underwrite an eviction moratory right and and that completely throws your underwriting on its head so you know taking it to the other side when you look at markets like Texas or Florida Carolina that are more business friendly one aside from having a lower cost of doing business from from our perspective as Californians business friendly also means just it's a much more stable environment from a regulatory and
Daniel Mense
legal perspective right like we we know what we're getting into and and the way the legislatur is ran out there there's just typically very little variances in new laws being passed got it right um so you the the the you know the outlook on how you're going to run your property largely is consistent with where you are today of course things are changing and they may they may put new laws into place that can create some degree of of difficulty but but by and large you kind of know what you're getting into and then obviously coupled with the fact that you know you're not just taxed up the Wazoo on every little thing that you do also just in in that of itself um creates just a a a a more you know Pro business environment now obviously on some level that that's still gets
Daniel Mense
priced into the deal so you know how much benefit you're getting from it um you know it's you're you're you're kind of paying for it in another way if if a place is is more Pro business but for the most part right when I refer to Pro business business friendly it's just the the the regulatory environment is a lot more stable and and generally speaking I I would say you know these these markets are I'll venture to say like respect property rights right so if you own a property like you own the property you're not beholden to some greater Authority who decides how your property should be ran and what's fair and what's not right um and that makes it a
Taylor Avakian
lot easier to have a business plan and honestly for you because you're a real estate private Equity Firm technically I believe um you have investors and so if they're going to invest their money with you they want to feel confident that you feel confident and the business planning can go and execute on that business plan and so it sounds like the ability for you to have less unknowns or uncertainties coupled with the fact that those markets are growing um and your experience here in Los Angeles that it kind of leads you to a no duh and at least let's try this out and figure out if it if it's a good fit I know a lot of investors and you probably know the same people who went to Texas and uh and Texas kind of kicked their ass a little bit I think there were a lot
Taylor Avakian
of uncertainties and unknowns that they were not expecting from a typical California property property taxes one being one a big one uh utilities expenses are 50 60 70% sometimes in those buildings um what is the typical I I assume value ad but give me the like you buy a building for I don't know $100 door how much do you put into the units and what is the increase in the rents that you typically see in
Daniel Mense
in North Carolina um so looking out there you know you buy something I mean we're we're typically going to spend let's say anywhere between 8 to 15,000 a door okay you know for like the The Last At Last asset we bought we we paid around 130
Taylor Avakian
a door um and at 15 how much does that cost in La for the same level of Rena like 300,000 with the bi outs included yeah uh like like 30 like double yeah I
Daniel Mense
would say you know it's a 2X again I mean the the properties in the in the Carolinas those are very those are affordable properties um so capital A or or lower case a a lower case a you know buying market rate converting them to Affordable and quality qualifying for various uh uh State incentives so um is that like Section 8 or no no no no I mean we're you know we have a lot of Section 8 renters sure typically we're just we have to rent our property rent the units to people who make a certain Ami or
Taylor Avakian
less got it and you get incentives or tax benefits or something basically got it um and you get also you know
Daniel Mense
favorable financing and that's kind of how you kind of engineer these deals to make sense but um you know we're going to spend call it 8 to 15,000 a door on uh doing renovations I would say we're not you're you're you're not going to the like let's just say if it costs double to do it in LA it's not like for like right we're not we're not going as far because Los Angeles I mean you probably see just a bigger pop yeah I mean you're just your your rents are just higher yeah so um it naturally will will mean mean you could spend more dollars and and uh it be justified out there I mean we're seeing great rent growth but yeah around you know we're going to spend 8 to 15 and we're looking for you know at least a 20 25% pop on our
Daniel Mense
rent okay to go spend that okay um and that's
Taylor Avakian
pretty consistent like there's there's not you're the vacancy rate the the time on Market I know California people we have a housing shortage and I think the average vacancy right now is somewhere in the 95 to 95 a half% occupancy rate so four four and a half 5% vacancy in the Carolinas are you similarly um or
Daniel Mense
is it 92 91 I would say you know I I I mean 30,000 foot view hard hard for me to say our markets you know we're we're more predominant like Workforce or markets [Music] um we're pushing our rents a little bit um still staying in line with like the affordable um you know we're now seeing I mean look we're not so far off let's say 93 94% occupany and we're you know again we're we're pushing on our rents um and there's some more there is aspects of the fact that of what we do because we are looking for a specific demographic to have to there need to be a certain Ami um it sometimes can be a little bit more take a little bit more
10:00–20:00
Daniel Mense
time to to find the right render or find a render that qualifies um but overall it's pretty it's pretty good it's it's it's been holding up pretty well you know we haven't really felt the brunt just because of the asset class that we're in which is more like class BC of all the new Supply coming online right which there you've seen a big uptick in in vacancies rent concessions and so forth he just had so much class a product coming online which you know I I mean obviously he's going to put downward pressure on existing Class A but because our rents are so far below I mean typically we want to see I would say a minimum of a 20% discount to class A rents if not you know 30 40% got it we're not we're not we're not going to really feel the impact of all that
Daniel Mense
class a um product coming online so you know I'd say what what what is a little trickier at least specifically with the buildings we have um is bad debt right it's even even though you can it's it's much easier to evict tenants right in in markets other than California we still you know you you you are carrying a higher level of bad debt got it than what than what I'm seeing on our properties in California got it and
Taylor Avakian
and you have um a very interesting background in terms of how you got into the business and what you did before you have this financial engineering Corporate Finance background I guess you would say which probably affects the way that you look at deals how you get creative with deals how you structure them with equity and debt and all that fun stuff can you tell me a little bit about uh that background and then how that's portrayed itself and how you approach deals in your investing sure
Daniel Mense
um so I was working in uh Financial advisory over at KPMG prior to getting into real estate so you're nerd uh I'm just kidding brother you want to call me that no no no you you you're good with numbers yeah yeah comfortable with numbers um so I was doing valuations over there um a little bit of Consulting um just you know doing tons of underwriting on various prop on on various uh companies across a wide variety of Industries um so you know I re real estate was not like an industry that I had any particular affinity for or family was in it um it just was an opportunity that came along that uh I jumped into at the right time in 2012 um but you know
Daniel Mense
just having a degree of comfort with numbers um you know outside of just kind of doing your traditional value ad multif family which you know for for all the love that I have for the space is is super super basic it's a very you know simple uh mathematically to understand value ad multif family is like if if you have you know the the math level fourth grader you can do value ad multif Family yes um what I liked about what what where I kind of shifted I started shifting away kind of from value ad multif family because in my opinion it's largely commoditized right and and the difference between one operator to the next in terms of execution I mean you can go online and again this is not to like knock anybody and we do the same and it was a great business for the
Daniel Mense
last decade um it's it's all the same right they just may use different adjectives for describing cabinets or what it is they want to do but it's all you know it's it's the same we won't say pig
Taylor Avakian
but you know yeah but lipstick on the pig you're it's the same Playbook yeah you know do this do this this it comes
Daniel Mense
down to who who has access right to Capital at the right time and who sees the deal first at the right price relationships and it's relationships that's what separates a successful operator from a not you know someone who's not necessarily being that active what I liked about you know when I I started to kind of look I would say around like 17 18 um when I when I went off on my own um started looking at other spaces within multif family of where I can kind of utilize my my Financial background to give myself some sort of edge in the marketplace you know beyond just hitting the phones and trying to get a deal before the next operator gets the deal and you know affordable housing capital A was where I started to look because there is it's a bit more more esoteric of an industry right like a lot
Daniel Mense
of affordable housing comes down to how you structure the financing right and then understanding tax code and and so forth not that I'd really get the tax code side of things but there's more barriers to entry you know I mean just anecdotally I can tell you when we used to like you know compete on properties here in La I knew it was time to start looking in you know at at another space when I was competing against you know soccer moms and soccer moms are great but I would about question you know the whether or not they should be buying multif family buildings and doing this and you know they were also I mean when we were selling properties you selling it to people that clearly you know had this was like their first foray into the industry and as a seller it's like you love
Daniel Mense
nothing more of course that yeah but like you look at that and you're like huh here and and you know so I started kind of you know looking elsewhere where I can still kind of uh you know use the the the industry knowledge I have within multif family but kind of coupling that with my financial background to you know go start start start looking at deals in a different light other than just like great I'm G to you know slap in my shaker cabinets granted countertops and be like I'm a genius like look what I can do so that's kind of where um I started pivoting and looking more at more into the affordable housing
Taylor Avakian
space can you explain can you define capital A versus lowercase a I know it's a term that everyone uses but sure so I
Daniel Mense
mean capital A affordable is what we all know as like low-income housing tax credit deals like right which is um which basically our our our apartment buildings that get financed using tax credits and other public uh uh subsidies to go build um and then that all you know cap often times that would also these properties come with Project based vouchers which are basically having Section 8 vouchers attached to the property rather than looking for individual people who have section 8 vouchers but that's attached to the tenant right so it's like the coveted you know Holy Grail of of affordable housing to get Project based vouchers and I mean within that space it also breaks down to different types of contracts but by and large when you
Daniel Mense
have a project based voucher attached to a property you know it's it's just you know it's basically like an ATF it's just a money printing machine um so why because it's basically the government guarantees you the rent right and all you need so so typically you know if you're renting to a Section 8 tenant right what happens is is you put your unit up for lease and someone you know comes and says I want your unit and they say I have a Section 8 voucher with me and you know normally those Section 8 vouchers track with Market rents right and the Tenant pays a very small proportion of the overall rent so you know you're getting most of your income paid for by the paid by the government right the tenant covers a very small proportion however you can only get that to
Daniel Mense
the extent that a tenant who has a Section 8 wants your unit right with a Project based voucher now your building holds all the vouchers so all you need are people who qualify at the right income levels to come in and then your building basically gives them the voucher got it now there's just you know TP like just given the the lack of Supply availability of units how much income levels have grown by over the years um there's a lot of people that are qualifying that otherwise can't get still access to the to tenant based vouchers because they're very competitive to get but now they come to your building you you hold the vouchers so you you as long as you know I mean there's still a whole sure band you got to go through with the tenant
Daniel Mense
to make sure they comply but once all of that's done right you your building gives them the voucher and the government is steps in and starts paying so that's like what everybody's trying to get and I mean getting getting uh project project based vouchers they call them pbvs right for building is or buying them it's just ex you know you're you're paying you're you're paying up for those got it um
Taylor Avakian
so and that's a level of security basically and in the asset and knowing where your income is going to be right because then you can calculate your noi um and and feel confident at least in the numbers and I know for litec cuz I I underwrote a couple litec deals and litech is such a niche unique space because it's almost like this financial engineering situation where there's value in these vouchers that and correct me if I'm wrong but basically you have value in these these um tax credits that then you can sell to someone for let's say 90 cents on the dollar right then they get the difference
20:00–30:00
Taylor Avakian
in what they pay versus what they can go use that direct which directly reduces their taxable income or their tax burden right yeah so instead of like having a write off where you can take 30% off of the value of something it's 100% on your taxes like 100% right off sign essentially right yeah I
Daniel Mense
mean look in in in essence a tax credit is it it's just like what it sounds like so like you know a company like Google gole right it's just printing money they want to shelter income you know in in theory they can go uh buy these tax credits from an affordable housing developer they'll give the developer money whatever however you know however it layers into the capital stack and then in exchange they can now get this write off right that money that they're giving to the developer effectively becomes a write- off on their books I mean it it's a degree more complicated than that in essence it it gives the the tax credit investor yeah right a write off and it gives the affordable housing invest the affordable housing developer the capital to go build a project got
Daniel Mense
it and this happens before they build the project well yeah you need to secure like the full Capital stack before you can start building so I mean but that's you know tax credits are layered in with uh recycled bonds traditional financing right I mean there's it's not a a tax credit deal does not get financed with 100% tax credits got there's you know three four other stacks of capital that come in before it um to finance
Taylor Avakian
the whole project got it and and then once that's complete right because my understanding was once that's complete then it starts printing money because of the basis of it or what what aspect of it no so definitely doesn't print money per se but but you know what I mean what why would someone want to do this
Daniel Mense
it's that specifically like a builder who's doing a tax credit deal largely is going to be looking at the fee so you know developers can take up to 20% of the project cost as a fee right now if you're building you know $50 million project you're taking a $10 million fee wow right now that doesn't get all paid up up front there's mechanisms in there to ensure that you know the developer um performs that the project performs before it gets paid out but effectively I mean you're so long as you know what you're doing right and I these the big boys definitely know what they're doing they understand the whole process how to operate like you're you're all but guaranteed that fee right got it so you know that's really where the incentive comes in for the developer got it um majority um you
Daniel Mense
know because these deals are so highly structured from a from a debt standpoint you're there's there's virtually little like free cash flow that comes out that cash flow is going every which way to pay off bonds lender um so as as developer you're you're effectively seeing Zero cash flow from the deal maybe you could be a proper you take a proper fee see if you could work on some other fees along the way but that's not where you make the vast majority of your money the you know most of it is coming via these developer fees that you can bake in to the deal and you know I it's it's it's not that you don't care how much a project costs but on some level you want the project to cost more yeah it's like Cost Plus um because then you're taking a percentage of it and so long as
Daniel Mense
so long as it underwrites and pencils like you're like fantastic I'll take 20% of of of a larger number off yeah oh that's so interesting that that's how it's done now we look to buy you know existing Lite projects yeah um and and in those instances is that typically underwrites or or I would say like the the process in which we're we're looking at a deal would would closely follow that of like a market rate deal where you know we're looking for upside we're looking to see where if rents are you know below the the net Max rents which you know is whatever is prescribed for that area of like what the affordable rent is um and then you can increase the voucher limits is that how that works no so well again so vouchers are completely independent separate from tax credits got it um
Daniel Mense
you could buy a tax credit deal that has a project based voucher with it but you could also just buy a tax credit deal that's just you know has you know you're just renting to low-income tenants without any vouchers got it um so you know buying an existing live te deal you're you know you you're really looking you know you're going to look at kind of your traditional metrics your cash yield your irrs your return on cost and and making sure all of that aligns with whatever it is you know whatever hurdles you need to be hitting versus your tax credit like ground up deals where it's like okay you know is the fee worth it for what you know
Taylor Avakian
we're building here got it and and um you are known for doing very interesting creative uh projects and and one that we talked about previously was you would bought a $75 million deal with only $700,000 $700,000 of equity can you please explain that to me oh yeah so
Daniel Mense
um this was a project up in the Bay Area in uh in Pacifica so this was an existing market rate site um that our goal here was to convert to to Affordable okay um so we had to go negotiate uh a regulatory agreement with the city to to to be approved to convert this to to Affordable um and then in in doing so what that effectively uh allowed us to do was um qualify for property tax exemption and as well as this like extremely highly highly structured financing um deal that we put together so um once we had executed we got the the the green light from the city that you know they were going to back us
Daniel Mense
to um convert this property from market rate to Affordable and and in addition we also were approved to build another 42 more units on on on the site um we were able to we we secured uh an Institutional lender who's got you know I mean a number of these big big uh Banks out there have you know their their arms that are focused on like affordable lending so uh they brought they came on board with like 90 90 something percent 92% of the total Capital stack okay um which was structured out as like a senior a b piece some pref equity and [Music] then we were able to secure Facebook
Daniel Mense
who brought in another six s% of the total Capital um basically leaving us with a 1% right holy um and all of it's basically
Taylor Avakian
structured as debt okay why does that make sense or how how does the how does that math make sense from from you like why would
Daniel Mense
you do that deal I mean if I I mean I'll I'll put it back on you if I said you can own this property right you don't have to put any money into it it's all non-recourse debt right so you know zero zero kind of yeah recourse to you like what's your down yeah there really isn't now first of all I love my my my lenders on this and Facebook they're awesome and trust me of course we love you yeah Mark the Project's fantastic and it's going to do great but um you know look at the end of the day the fundamentals of a deal is ultimately what prevails here right it's not just oh because you're getting a ton of money just go buy something and hope for the best yeah we came into this with the first idea
Daniel Mense
with with with with with the premise of this is a good deal right um you know there there we found a lot of ways to add value here that the rest of the market just wasn't wasn't
Taylor Avakian
underwriting um so was it on Market or was it it was yeah it was marketed so you so okay that's that's what I wanted to dig into so you saw an opportunity where others didn't because when something's on Market a lot of people see it that's my job as a broker is to go and market and make everyone possibly who can see this or possibly buy this to buy it right that's my job so you were this was not a secret and were you having to compete on this or did you see something where you said okay we can do this this and this that only your specific knowledge or primarily specific knowledge of being able to engineer it like that that's what allowed you to win the deal and
Daniel Mense
and feel confident in it yeah yeah for sure I mean it was it was a heavy lift um I'm very happy we did the deal but it was just not without its bumps and bruises along the way yeah to find to get it fully stabilized um but yeah I mean you know the deal made sense at the pricing that we were at uh simply because we had so many levers that we could pull to drive noi Beyond just the way the broker was marking and the rest of the buyers were were were looking at it right I mean was just being Market as a simple value ad deal you know go and push rents and you know the yields and everything
30:00–40:00
Daniel Mense
really didn't make sense now we I mean we probably could have got a little bit of a better deal yeah but um nonetheless even at our numbers you know looking back on I would still do the deal 10 out of 10 times and I wish I had you know a bunch more deals like this but um
Taylor Avakian
is that debt um like 10year money because what I'm trying to figure out now is okay let's say you you do all this stuff you increase the noi you're still the the Jep the owner on this right and there's a huge amount of debt and so uh the way that you typically structure stuff with your investors your LPS is you 8020 75 30 whatever but you got to make sure that the the debt gets paid off when that loan comes due was that loan was there something significant about the loan where had a longer time horizon or are you confident when that loan comes due that you guys are going to be able to then refinance out
Daniel Mense
like the the back end of it I follow um I mean given the equity check on this we just we did this ourselves I mean there wasn't any need to raise money here but um as far as the way the debt was structured and what gave us the Comfort to to kind of take on this heavy of a load was I mean we we're borrowing at 5% um it's an interest only loan fixed for seven years so you're a magician dude that's crazy that is crazy God I I'll say lucky in terms of being able having the lender can you find me one of those Danny I'll invested you right now dude holy crap and we've done some other deals with with the lender and and they're they're fantastic right in terms of you know they're they're committed
Daniel Mense
to their mission um of of of impact investing of creating affordable housing and working with operators who who you know look there's nothing wrong with making money but you know they want to ensure that they're aligned with guys who who care about the communities that that they're investing in and can deliver a um a product that not that that they would just be proud of but where the people live they want you know they they want the residents to be happy they want them to to have a sense of pride of ownership they come back to their units right so that that that's a big thing for them and you know there's not not that there's like specific requirements but you know that is something several times a year that you know we're talking to them and showing them all the
Daniel Mense
things that we're doing for the residents might that it's it's not just like oh yeah look we fixed this toilet when they had an issue right but res resident events um you know offering them different uh incentives I mean look now credit reporting is a requirement but before it was a require ironment you know we were offering that to them for free and eating the cost got it right um
Taylor Avakian
so you're you're you're doing right by these tenants you're not in this just for the smash and grab money play um even if you could effectively make something like that occur because you're in this for the long term right and and we talked about this and and I've known this about you too is you know you want the tenants to have an experience that is not one of um how we how should we say like slum Lord you know like when you're in the affordable housing space yeah there's a stigma around having this kind of like you know the cheapest Renovations the least amount of money that you got to put into it because you're trying to maximize what your income the cash flow you're getting from it but you've clearly taken a different approach to that which seems like
Taylor Avakian
people who are willing to invest in a company like that and and provide money for you to go and execute a business plan like they appreciate that and so that that that is approach that you've taken and it seems to have served you
Daniel Mense
very well yes um look there there's there's a bunch of there's a lot of affordable developers out there that are are fantastic operators and we pull from you know different playbooks to you know look to incorporate into hours on everybody's there to just like you know skimp on sure on repairs but but yes I mean when when you have this kind of built-in sealing on rents you do have to be careful with how every dollar is spent you know if you're looking at a market rate project you know go increase $25 you know 20 increase your rent by $25 a month and that can capture kind of whatever over o you know cost overrun you had on on on a unit turn um affordable housing you're definitely kind of limited um or just there there you just have to be a degree more mindful of of how your dollars
Daniel Mense
are getting spent But ultimately um you know I think residents and and Staff feel that feel when when you care about the property right which is um I mean largely thrown by how much you invest back into it yeah um but there's there there is an Roi on that right it's it's a much harder to quantify um you know than than like you know okay if I spend 10 bucks I'll get $2 more in rent it's okay fine you you very very clearly can calculate that out but there's no question you know I would say qualitatively that you know we see what when you have higher resident satisfaction and employee satisfaction like things run better right like collections are better you
Daniel Mense
know vacancies are down you know you when when when when a tenant leaves like the unit is in better condition right so I I would venture to say that you know the employees and the residents reflect how the property owner treats their property right if they care like typically it's not like this is not just covers every it's it's not a blanket statement that every tenant is going to Care employees get to care but they feel it and and the bad apples they they eventually like look we're I I say we're you know we're we're we're compassionate but you know we're we're very strict about you know ensuring that rules are followed yeah right it's it's important because it doesn't take a lot for a building to go sideway with just a few bad tenants right so you know we'll we'll give you
Daniel Mense
a shot at trying to rectify whatever you know situation may have arose but you know once once you've you know a after that like you're out yeah you know it's just we we don't have time for people who like who who don't who don't appreciate good residents and
Taylor Avakian
and management you run it like a business man you run it like a business you want you want the business to be running uh smoothly and the tenants are a part of that business and so if someone is you know uh squeaky wheel you got to you got to fix that that squeaky wheel question um I another crazy thing that we talked about before is kind of some of the ways that you've figured out incentives and one of them the things that I want to talk about is this office cont office contest for $5,000 like what you told me about this and I'm like oh my gosh that's so genius um what's the story behind the five,000 office contest and and why did you
Daniel Mense
do it um so this is like height of pandemic we're uh we we're building out units and our distributor for our our electrical equipment just was just could not get us our equipment I mean they delayed us I we we we ultimately still never even bought from them but I mean we were delayed like two years like we are already now ready to go to install all of uh the switch year and they basically told us we have absolutely no clue when the when the equipment's going to arrive seens is just like all backed up it's it's a disaster so I went into the office and I went to a the employees and basically said whoever can find the switch gear gave them like the full
Daniel Mense
equipment list um in the next 72 hours they'll get paid $5,000 and within I think it was like 24 hours three guys came back and like we found it all they sourced it from like four or five different suppliers around the US got everything and and and basically the project was able to move forward but I mean I love that any developer will know that the biggest um killer of all deals is time when you're when you're building like it is just to it's just it's a mad Dash to the Finish Line right I mean timing you we see now right timing is so critical and you're developing yeah right you get caught in the wrong part of the cycle like you know it's it's it's the difference between a project being successful or being you know
Daniel Mense
going bankrupt yeah so you know that was just one of those things that I mean you we can easily underwrite the $55,000 as the cost of the deal yeah um but it was I mean we looking back on it I would have paid a lot more but right
Taylor Avakian
that creativity I mean that's that's what you need like when you're an operator and you're up against situations that sometimes feel like they're out of out of your control I mean this is a a clearly appr proven thing where maybe they're not as out of control as as you think sure it's you get creative with
Daniel Mense
it there's there's probably generally like a solution to every issue yeah in in real estate um have you always been creative like that like uh maybe
40:00–50:00
Daniel Mense
I mean you just when your backs up against the wall you just you know it it it can really unlock a lot of you know just every idea becomes a good idea at that point yeah you know whatever we can do whe whether it's creativity or desperation right you're just like I I need this done right and you just start throwing out any idea I mean you know I I I don't know whatever other ridiculous idea I had behind that one but I'm sure I had like a list of 20 other things like if okay this fails like now what yeah what we do luckily but um you know it did teach me a very good lesson about incentives right with the right incentives um you know things get
Taylor Avakian
done my favorite Warren Buffett quote or maybe it's Charlie merer excuse me my favorite Charlie Munger quote is if you want ants to come put sugar on the floor and basically it's like with the right incentives which is bringing me back to this point of housing in Los Angeles and it's it really really does bug me because clearly the incentives are not aligned with the way that um people say that they want housing they want affordable housing clearly you went to North Carolina maybe they're being more incentivized to do that but they're disincentivizing investors developers people like yourself wanting to invest money uh provide housing improve the units build units because the incentives aren't there there there's genuinely so much risk associated with being a part of the city at this point in time
Taylor Avakian
that it it doesn't make sense when there's better opportuni somewhere else and that's that frustrates me a lot um but are are you still buying or looking for opportunities in Los Angeles like
Daniel Mense
is that still a market that you want to invest in I mean we just closed on a on a ground up deal we which is uh ground up as in you're going to build it yeah uh end of congratulations so we're going to 69 units in Granada Hills not 70 it had to be 69 for a very specific reason we told the architect no not 69 units has to be that um yeah I mean one just taking a step back to kind of what what La is doing I mean I ironically everything that the city's doing is making housing more and more costly and you know making existing buildings more valuable I mean they're just creating so many barriers to entry for for developers to come in and build that you know all everything that does get built is just going to continue
Daniel Mense
to go up in value and then just with all the red tape that's involved which I mean you know the city now is trying a number of different initiatives like the ed1 and some other streamlined processes to to kind of help push things along but you know it's still like you know instead of instead of moving Mount Everest like you're moving you a smaller Mountain like still moving a mountain yeah to get these projects done um you know so so you believe in Los Angeles I mean yes right I mean we're still we're still pretty heavily invested here yeah um I think fundamentally right I mean unless you think Los Angeles is going to start to lose just massive amounts of people like it's it's so dense there's still a lot happening here it's one of
Daniel Mense
the largest economies in the world like I mean God God forbid like we'd have to have a lot of wildfires and a crap ton of earthquakes that are just going to like completely make La utterly uninvestable and he just like we can't even live here anymore yeah right but there's still a lot of I mean La is like so dynamic in terms of the employment base the demographics of people um it has a there's just there's a lot happening here that um you still have you still have a lot of capital even though maybe a lot of institutional Capital has fled still a lot of money here right it's a super liquid market so you know I think what we're seeing is definitely a thinning out of of of buyers and competitors which we're happy about
Daniel Mense
um and you know I mean if if you look back on Los Angeles like the greater LA area I mean we we've been through a lot and you know somehow we keep on managed to grow and and things just you know continue to move forward and values have gone up you know over time yeah you may get the you know the blips up and down um throughout the years but largely speaking it's kind of you know the upward trending graph that you know so long as you can kind of work your way through these tougher points you should hopefully get to a place where you know you you'll you'll see that return
Taylor Avakian
um where are you looking for opportunities so what are that what are the LA opportunities that you would like to invest in and buy I mean we've you
Daniel Mense
know we just closed on this groundup deal in Granada Hills um we invested in a portfolio um of housing units in South La MH uh last year we did a we did a business loan we kind of yeah yeah tell me about that um so you this kind of just speaks to the I I don't know the the enterprising Jew and me that Sun as long as there's like money to be made kind going to look at it uh got approached to uh invest in a business we couldn't invest Equity into the business for a number of reasons so um in said we we decided to give um the money as a business loan but you know the operator had a
Daniel Mense
fairly substantial real estate portfolio so you know went to him was like let me let me look at the portfolio because you know if if I can get comfortable with the real estate as collateral then like I'll give you the business loan as far as I'm concerned like I'm basically just you know in I'm looking at your real estate is really the collateral thing so we're able to get comfortable with it and we we we we gave the operator um his loan um basically go build out the business and so you know that that was uh kind of far away what we do but also still within like the the sandbox of where we play which ultimately I you know looked at the business I think the business was super interesting but it was still the underlying collateral was real
Daniel Mense
estate yeah um there's that but as far as what we're looking at I mean you know we just we put out an offer on we're seeing a lot of non-rent control you um non RSO stuff coming up in La now um which is which I think has some compelling uh metrics to them that we we'll see where they shake out I mean obviously it hasn't helped that rates have kind of blown out over the last couple weeks here it's definitely put a wrinkle on on getting deals done but again if you can you know
Taylor Avakian
the if there's money to be made Danny will play ball you will play ball right yeah because you'll do you'll do any I mean you'll do the value ad you'll do the section A stuff you'll do a business loan you'll do groundup development like you're you have a specialization in finding ways to make lemonade out of lemons it feels like um and at least seeing a way to have that be the case right and and in a sense all wrapped around real estate where there's
Daniel Mense
that comfortability realing right that's kind of what I would say say the Common Thread between all of it is ultimately the underlying um commonalities that you know it's it's it's underpinned by by Apartments I mean can can we look at have I looked at office and all that like yeah back in the day we invested at the last company I was with we we literally touched on every asset class and and you know looked at all different parts of the capital stack and we're just super opportunistic with how we approach so you know there's a lot of you know that that lens through which I you know I look at opportunities that I brought from that company here it's like okay look yeah if there's if there's something interesting here and I would say that's largely just for LA right I'm not looking at anything else other
Daniel Mense
than really value ad um multif family when I when I go outside of the greater LA Air but kind of Los Angeles being my backyard and really I I kind of know every Market more or less that um where we would invest it's it's a it lends itself to being a little bit more broad ranging as far as what I would look at but you know I still kind of stick with our core competency of just looking at multif Family Value ad ground up um and then you know whether that's market rate or affordable it's just a function that's just underwriting and just kind of placing the deal into the appropriate bucket where we can extract most
Taylor Avakian
value from yeah and make and make everything uh make sense for you your investors and so I'm curious to know um what is the next five five 10 years look like for KH equities for you guys like in a perfect world right magic wand our plan and what we're trying to do what does that look like for you um Blackstone move over schwartsman get out of the way John Gray yeah you and your running LinkedIn videos which I'm a fan of by the way John you're can welcome to come on the podcast and speak yeah we're taking resumés soever you want to submit but but you you guys obviously want to continue to grow and grow in the housing space um and just kind of keep doing
50:00–1:00:00
Taylor Avakian
what you're doing yeah I mean I
Daniel Mense
would love to you know we're like I said around 300 something million um today I definitely want to grow we're looking to grow our investor base to you know have more more insti you're taking more investors yeah um you know i' I'd love to double our a this year MH um to 600 million yeah you know I would say let's go the next 3 to five years hopefully be at about a billion dollar of AUM right around there um and you'll be my friend man that'll be sick dude I Love It of that's I'm been own it another story know we're going to be levered up 99 yeah you know hey the $1 of equity invested in that billion billion dollar Corporation right there man that's that's what matters so yeah just we're just looking at a billion dollar Enterprise Value how
Daniel Mense
that's comprised with you completely we don't need to worry about that um but that's that that's the aim there you know got I mean look we're a super lean team um
Taylor Avakian
how many people six of us oh geez yeah so you guys you guys run
Daniel Mense
real efficient maybe too efficient if you ask the employees but um you know I mean it's it's look right now has been a very challenging environment overall right yeah we're getting squeezed on every line item imaginable um rents largely rents have been been holding up but nonetheless right it's just it's it is a tougher environment um so yeah we've you know you just you got to get more more bang for your buck on on everything you do and you know all the resources you're investing in you you you just need to see a greater greater return on them you know whereas back in the day you know just like money was free I was like oh who gives a damn like yeah we're going to make money just hire whomever we want pay a person whatever they ask and
Daniel Mense
call it a date cuz you know this this buyer is going to pay me a two cap for my real estate like let's just try to get as much of this going as we can now it's it's a completely different market and you know a lot of big operators that I've been talking with I mean they are tightening their belts substantially um they got to get creative you got to get creative and it's just it's just all Hands-On deck approach and and you know you you've really got to scrutinize every line item I mean I not going to say that they they didn't do that I mean we've always done that right I mean we're constantly looking to you know maximize you're freaking the sheet man you're freaking the sheets sure I'll take that yeah it's good
Taylor Avakian
it's and it's important and and some of the best I study entrepreneurs and uh successful business people and they're always to the penny they know where things and efficiencies are and how they can lower the cost as much even if it's by a penny so you clearly have done that I know uh as the lean team you are you have a call um coming up yeah is that correct yeah it's a running already late okay well hey Danny I want to let you get back to your call run your team this is incredible thank you very much
Daniel Mense
for coming out here dude this is awesome let's go