The Pomp Podcast - #1134 Omar Morales On Selling $3B In Real Estate In South Florida

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Omar Morales is an associate at Bricadia and has been part of selling $3 billion of real estate in South Florida. In this conversation, we talk about the math behind deals. We talk about some of the biggest players, why people continue to move to South Florida, why multifamily is so interesting to him, and why being a broker over a principal is where Omar wants to be. I really enjoyed this conversation with him, and I hope you guys enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors.

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Starting point is 00:02:43 All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Omar here with me. You've sold $3 billion worth of real estate in South Florida, and a lot of people think it's over. like prices are down 10, 20%. Uh, the fed is acting all crazy. Are people still moving to

Starting point is 00:03:17 Miami? It's like, well, shit, let's just talk about it. Um, I think a great place to start is like why South Florida, right? I don't think that's a place that many people historically were like, if you're a young person who wants to have a great career in real estate, like, Oh, move to Miami. Uh, talk a little bit about like why South Florida has always been so interesting to you. And like, why did you stay here rather than go to a New York or a California or something like that? Yeah, absolutely. So first of all, thank you for having me. This is a wild, pretty crazy to be here and obviously know some of the people you've interviewed and being here with them it's just like wow okay i'm not at that level but i'm getting there and uh why south

Starting point is 00:03:50 florida so for me personally it was just family my family's here and i'm from honduras so it was close by so it just made sense and a lot of success is luck based uh i feel like you'd be fooling yourself not real too yeah oh yeah you you're one on that you're like it's not luck it's like you worked for it right no no it's probability you okay uh probability we can go at length about this i'm big on luck i'm big on luck and gratitude it's just like fake no dude this will be a now this will be a podcast about luck and gratitude i'm out of it luck is a psychological concept if you and i walk out of here and i'll get hit by a car uh-huh right you're unlucky bro no you may be like i was unlucky because i got hit by the car but i may be like yo i was lucky because i

Starting point is 00:04:28 survived yeah it's all psychological it's probability probability of like hey you were walking there you get hit by the car whatever it's mathematical concept is probability okay so the probability okay so here i'll go back for it i'll take the word luck out of it not that i agree not that i agree not that i agree but just to appease you and to talk about real estate and to talk about south florida probability versus luck is is bifurcated yeah so for me my parents had the problem probabilistically we're like let's get out of honduras and let's get into miami i came to miami and i was like this place has everything i think i need right including family which is the most sort of pressing part so basically when i was graduating i had offers

Starting point is 00:05:03 to go do investment banking in New York and Chicago and things like that. The reason I stayed again was for family. But what I ended up realizing very quickly was Malcolm Gladwell talks about this and David and Goliath about being a big fish in a small pond. So pretty much when I got an internship at a hedge fund, which is a huge breakthrough for me, friends of friends connected me and at the hedge fund, it sort of opened my eyes and gave me sort of like the in to be able to get into real estate and financial investment at a high level right but what i noticed was that this hedge fund could not find hard-working talent young in miami because to your point which what you just asked is like why miami right like why

Starting point is 00:05:46 not new york chicago and all these things so for me that became a huge like boon to my career because very quickly once i got into real estate private equity and now brokeraging my name sort of started coming around a lot because i instantly started dealing having doing deals with these big players um and i was the sort of only one of very few young guys working their asses off day in and day out um so that for me was like kind of what got me to where i am today which we'll talk about but i think the reason why people like south florida and the reason why it'll continue growing is because for the first time ever you're seeing this demographic shift which i think is so interesting it's florida historically has been a retirement community that's why people

Starting point is 00:06:30 come here right now you've got downsizing baby boomers whose kids are out of the house all over new york the northeast i mean across the country and they florida has historically been the place where they go right what's interesting now is now their sons that are 19 22 27 listening to you or um what's the pen floor the pen gaming guy um dave portnoy dave portnoy dave portnoy like they're in they're in Miami, they're in South Florida, they're here. So for the first time ever, you've got the two largest demographic populations, both having a reason to come down here, right? So that's huge. And for me, I see it where, hey, the kid wants to come to Miami to work in Miami and live in this sort of paradise. And their parents are moving down here too. So now the whole family

Starting point is 00:07:17 is getting back together in Miami or Fort Lauderdale or Palm Beach. So for me, that's extremely unique. Real estate has always been, and I'm sure you've had guys and people probably listening to this real estate is a tried and true asset it's very similar to bitcoin in terms of like hard you can't make more of it things like that um good inflation hedge so they're not you're not making more real estate and in south florida you've got a 13 mile stretch between the everglades to the west and the atlantic ocean to the east so you've got limited land and you've got millions right of people wanting to live down here yeah it's getting expensive and it'll keep it'll continue to get expensive but when you're talking about that you can get a two-bedroom apartment in the

Starting point is 00:07:59 middle of the city in brickle for 500 grand 600 grand that in new york has to be one two one five million dollars and like easy like not like an impressive one just to live there right so like we're still half priced and a lot of these employers are coming down here so that for like many other reasons i could dive into like the demographics i think is super interesting the weather uh tax-friendly climate the demographics so no demographics is that both the downsides think the older baby boomers and the younger guys both want to be here it's not just one or the other now right it's like hey my md my managing director at my shop is moving to palm beach i want to go and live in fort lauderdale and take the bright line up and down work so now you've got

Starting point is 00:08:38 both of them coming down here right so for me to have friends that go to harvard warden mit stanford and for them telling me that miami is a target destination blows my mind and that's only starting right because what i think is most interesting about population migration that a lot of people i think underestimate is that whenever you see a trend in anything in crypto and investments or whatever the trend may be you think okay are you going to get reversion to the mean or are you going to get perpetuating sort of like network effects right is it going to continue and i think population migration has perpetuating self-reinforcing network effects, where the more people move down here, the more people want to move down here, the more they wake up in the

Starting point is 00:09:27 blistering heat, whether it be out in the Midwest or in Baltimore, Maryland, freezing their asses off one winter day, they open up their phone and they've got you in Miami, they've got Portnoy in Miami, some actress or model or book writer or whatever it is, Ken Griffin in Miami, they're like, holy shit, everybody's going there. And then their parents are like, hey, we're looking to buy a house in Fort Lauderdale. Right. So for that to just continue trickling in, I really think Miami is in the first inning and it's it's we're scratching the surface of what the city is going to become. So a lot of people, when they think of real estate, they think of single family homes or apartments. You deal with multifamilies for the most part. Talk a little bit as to like

Starting point is 00:10:06 why is multifamily in south florida so interesting and like why are you so focused on that part of the market absolutely so again here i'll use the word luck i fell into multifamily by luck but probabilistically a lot of people were buying multifamily so when i broke into real estate i by the probability was that there was more people buying multi than like hotel office retail things like that so i fell into a shop that did multifamily as i was learning and cutting my teeth with it. I'm like, holy shit, this is a really good investment. So the reason why it's so good, it's because COVID came, right? And hotels completely stopped, right? Office, work from home completely stopped. Retail, e-commerce completely, not completely stopped, but took a big

Starting point is 00:10:52 hit. So all these asset classes within the real estate umbrella have really seen some hard times and residential has too, but it always comes back because as long as you get good real estate at a good location somebody's going to pay to have a roof over their head that's never going to change you need somewhere to sleep right hotel is different economy hits a recession people travel less right same thing with office retail and other asset classes so the three big asset classes which have weathered a lot of the storms and and had have been like a hedge for inflation real estate naturally is is multi-family industrial and self-storage for different reasons multi-family for me was one where like i understood why i wanted to live in brickle versus coral gables

Starting point is 00:11:39 and why somebody would rather be in delray beach over pompano beach or fort lauderdale or you know yeah other locations in south florida so for me it's like okay i kind of i can sell this and i can pitch this and i believe it because i'm living and breathing it and for you for example with like crypto which you're really known for it's like you live and breathe crypto like you understand the coins and the tokenomics and like what these people are thinking so you're like pot committed so your confidence in the investment like just like flows through you so for me that was multi-family and to answer your question about residential which is like single family homes mom and pop stuff to multi to multi-family which is like an apartment building like the people that follow

Starting point is 00:12:23 grant cardone look like he buys apartment buildings and stuff it's if you buy a house you've got your biggest expenses outside of real estate and real estate taxes and insurance your biggest expenses are um capex capital expenditures right so like a roof an air conditioning unit things like that so in a house you've got one roof one tenant right that roof goes bad like that's going to be a bad year for you because that tenant's paying you two thousand a month but the roof goes bad, you owe 30 grand, 50 grand, whatever it could be. So in a multifamily building, you've got a building with 80 units, 80 different tenants paying you monthly, or 150 tenants, you know, we've sold 600 tenant buildings, like 600 unit buildings that only have six roofs, have eight

Starting point is 00:13:13 roofs, have two roofs. So basically, this big ticket item is sort of cushioned by the amount of people paying you. And then if your tenant leaves in a single family home, you're going to see no income for the next month or two months or three months, depending how hot that market is at any given time. Within multifamily, you've got 800, call it 100 people in your building. One leaves, another one comes in. Two leave, another one comes in. You literally need like 20 people to say, hey, I no longer want to live in this building at any price point that you can put in front of me for you to start like thinking, okay, I've got a loan, I got to pay down, right? So it's such a safe investment it's so resilient and it's got all the benefits that real estate generally

Starting point is 00:13:55 has that it's like the hottest asset class within real estate so i fell into it by luck or by probability and it's just been a wild ride i'm sure you could i mean i even want to ask you i'm like you i'm sure you you stumbled upon bitcoin years ago probably earlier than most and the more you read on it you're like holy shit this is really cool oh my god this is really cool and And then as you're like, guys, guys, and you're like telling people and kind of waking people up and shaking them to it, you're more and more pot committed as you're doing it, right? Of course. So for me, it's been, call it seven years now that I've just been helping people invest in multifamily in South Florida. And now, yeah, it's been $3 billion of sales, mind you, with a team.

Starting point is 00:14:39 So for me, it's me and five teams, two of two of which is me and five team members, two of which are like support analysts type roles and then three, which are like client facing and closing deals and trying to like negotiate contracts and stuff. Got it. You guys are brokers, brokers, correct? When most people think of investing in real estate, they think of like some rich billionaire who wants to go and put their money into the real estate. And the the principal gets all the glory. But what's unique about you all is that you're brokers. You're actually helping people buy and sell. And you don't want to be the principal in a lot of cases based on conversations we've had in the past. Explain, like, why do you like being the broker?

Starting point is 00:15:20 Yeah, it's a unique perspective, I think. I want to see where I start. So, yeah, because there's a lot that goes into it. And I think I need to start high level. So people listening, because it's nuanced differences, right? I think the general takeaway for me was it's actually a Warren Buffett quote that says, profits come and go, but fees never falter, right? If I'm selling a building for $100 million, call it, let's say I'm making $1 million in commission, right? If that building falls to $80 million value, I'm making $800 grand, right?

Starting point is 00:15:55 If it skyrockets to $120 million, I'm making $1.2 million. and you know with a team of five people it ends up being a very lucrative sort of investment when you're splitting those those those fees um i'm in there i'm at a shop called brocadia which is the brokerage house and they get some of that fee but what ends up happening is it's like a time irrelevant investment if that makes sense where you could be the smartest guy in the world smartest fucking person if you bought real estate in 2006 and raised a bunch of money because you wanted to have a three-year flip into 2011 2010 like you lost a bunch of money and in the investment world especially when you're dealing with bigger properties if you lose money once i mean you

Starting point is 00:16:44 probably speak to if you like your your spigots dried up like you're like you're done you know So for me, brokeraging has this financial term is called sharp ratio, which is basically like the volatile, the volatility relative to the marginal return on like how successful you're going to be. Typically, it's an investment. So it's like, yeah, this investment might make me a little bit more money, but I could go broke or I could go bust or make a little bit more money. So that's a bad investment. Right. The reason why people want to be principals and BGPs is because it allows people to look at a billionaire like George Perez or Stephen Ross or maybe more local people like David Martin and stuff like that and be like, wow, I want to be that dude. Right. And I'm like, dude, for every guy that's like that, there is a hundred thousand people trying to be that dude. A. B, I've talked to those guys. I've sold deals to them and for them. I've sold deals that they've built and I've sold it for them. These guys, it's, it's realistically like looking at a Tom Brady or Cristiano Ronaldo or LeBron James and being like, I want to be that

Starting point is 00:17:58 dude the reason i say that is because these guys on a saturday night midnight sunday morning 7 a.m they're like calling and they're they're what i don't know if this is like a bad term but like i don't think they'd mind it if i would tell them they're like deal junkies they fucking love real estate and like finding the deal cutting the deal and making it happen so for me it's like i see that and i'm like okay like that's my competition if i want to be them right brokers which i think a lot of the people listening to this could probably relate a lot of people make fun of brokers those guys don't know what they're talking about they're always selling me numbers that don't really match up and and they're just like sleazy car salesmen and for me i'm like

Starting point is 00:18:43 that's the playground where i want to compete i want to compete against a guy that's got like a poor reputation and can't add two and two right so by playing in that space and now for me especially in South Florida multifamily, when we're selling $100 million buildings, there's five shops that do that. Nobody goes to a random mom and pop broker and says, hey, I want, I want, George Perez isn't going to go to a random Joe Schmoe and says, I want you to sell this building for $100 million. He's going to go to a shop that's got the clientele and the network that can sell $100 million buildings. And those shops, there's five of them here. Bricadia is one of them. So for me it's like all right i'm competing against five dudes last year especially when the market

Starting point is 00:19:26 was red hot we sold a 308 unit building in sunny isles price ended up getting close to call it 130 million dollars give or take we had 24 offers in writing of different groups across the country really there were international folks new york folks everywhere that basically said i can pay close to $130 million for this building. 24 groups that are backed, have the track record. Out of those 24 groups that actually gave us written LOIs for this asset, there was 500 phone calls that we had.

Starting point is 00:20:01 And there was an extra 50 people that were like, I can pay 110 million, I can pay 115 million, but I can't get to 120, 125, 130. So for me, when I'm selling one of these hot assets that you want to own in a prime location in a primary market, I see the competition. it's a thousand fucking people with a lot of money that are very smart and well backed then i look at the brokeraging side and it's like people that are just trying to like make a quick buck or very

Starting point is 00:20:28 short-term focused and have largely a bad reputation as an industry so being that like one bright light you know amongst many gives i think me the leverage long term to kind of be where i want to be and then that relative to hey i'm also not taking any risk right i'm not taking any risk so i could have a great year and may call it two million dollars i could have a bad year and only make 100 grand 300 grand that's that's the bad part about brokeraging so for me that's from a career perspective why why it makes sense there's other things to touch on but i want to pause like how much uh like how much do brokers get paid fee wise like does it vary yeah it does vary a lot So that's another good question, actually.

Starting point is 00:21:11 So when you sell a million-dollar deal, you can charge, you know, call it a 3% fee. Like a residential deal, people would charge 3%, and both real estate agents get paid 3%, so it's like 6% total. Correct. Yeah, exactly. So for me, it's like, hey, million-dollar deal, $60,000 is going to go to brokers, right? When you go to an $100 million deal, you don't go and it's not a $6 million fee. Like many things in life, it's like the bigger you get, it doesn't really get more complicated. sometimes it even gets easier because when i'm selling a deal from blackstone to related or whatever it is it's like they've got their stuff buttoned down like everything's single file line

Starting point is 00:21:47 when you go and sell a two million dollar deal from a mom and pop that's owned it for 20 years it's like oh the guy on the left my tenant over there yeah he pays me cash on a napkin every other month and i'm like how do i how do i pitch this to a guy to buy it so fee wise it varies i want to say generally speaking you know between a five million dollar deal or a hundred million dollar deal you're making anywhere from like 400 grand on like the low end to like a million dollars on the high end like a million dollar fee is like special it's unique and you really knocked it out of the park for your client and like a nuanced deal right a cookie cutter deal that's like hey it's a beautiful building people are going to love it you're going to sell it like the client

Starting point is 00:22:31 knows that he's giving you a easy sell for the most part and they're negotiating and and they'll negotiate like hey do you want to sell a big sexy building in brickle like i know you do right so like instead of and we're not going to go and charge them a million dollars it'll be you know call it half a million or whatever it is and then there's a lot of things that go into it like client relationship is it the first time you're going to work with this guy if it is you want to be a little more lenient on pricing to kind of win over the business longer term things like that but typically you're making you can ballpark at 500 to a million dollars per closing um yeah you mentioned earlier some people uh ken griffin stephen ross uh george perez what makes

Starting point is 00:23:08 these people special like what why are they so good at you mentioned earlier like being a deal junkie but what else so the overarching actual like the nuance that i've noticed in all of them is they are hyper hyper responsive crazy if you have a deal that they're looking for you send them a text you send them an email and they are responding within seven minutes it could be friday night it could be sunday morning so i think it just goes back to like okay if they're that incessant about like just responding and getting in front of you i can't imagine behind the scenes how much more they're studying and talking and doing all these things so doing a deal with them is different from like knowing them personally but it's it's

Starting point is 00:23:57 it's that it's i i can they're like foaming at the mouth for real estate right and i think if you think of someone like michael jordan right it's like whether he had a fever whether he was sick whether he was ever he was going to practice he was giving his a thousand percent every time at practice his teammates gave him a hard time because it was such a hard ass at practice but he's just like he's foaming at the mouth for this like opportunity day in and day out and i think our economy sort of like self-selects where it's like you have to be that way to be the one percent not financially but be the one percent in an industry if you want to be the one percent in soccer in crypto and twitter in media you just have to live and breathe your product and it's

Starting point is 00:24:38 exactly what they do it's for me it's inspiring honestly it's you know i graduated with that sentiment like i want to be these people and like realistically i see their life and i'm like wow i mean i like multifamily i like south florida but i also like hanging out with my friends right so and i don't think that's a wrong thing but it's just like having that perspective i think is is good and and that's kind of what what makes them them right and it's sometimes i mean like a 32 year old much younger that doesn't have their prestige and all those things yet and i'm like dude this guy's got what it takes and i'll tell them i'm like dude i know you're young and this is your second deal but like you're killing it you're gonna go far like let's keep in touch

Starting point is 00:25:17 because I see in you what I see in these 45, 55, 60-year-old people. Are there any people like that that you can name? Like that you're like, watch this person? Just pick one. Now whoever you don't name is going to be mad. Yeah, that's what I was thinking about. I'm like, now there's going to be 10 of those guys that are like, dude, come on, you named this guy and not me?

Starting point is 00:25:40 I'll pass on that. I'll pass on that. Yeah, that's a tough one. You told me that there's this book, The New Kings of New York, I think it's called. So explain a little bit of what happened in New York and like why are some of these people now in Miami? Do they think they can just kind of run back the playbook or something else? Yeah, so I think New York – and I can't really speak to it. I wasn't someone that lived there for a bunch of years and I don't know all the politics and stuff like that.

Starting point is 00:26:02 But it's an older city, right, especially when you compare it to Miami. So the New Kings of New York, that book specifically, talks about a lot of like sort of like the new titans that are there now. So Stephen Ross being one of them, Zeckendorf, Harry Macklo, all these guys that were fighting for and bidding and winning 500 million, $2 billion buildings. What I like about that book is that they're talking about New York. And as I'm seeing and reading about this cast and crew, they're, if not all in Miami or in South Florida, they're making big plans to come over here, right? Even Mack Lowe had an investment in Dayland that came out in the newspapers that I think he either funded or was going to fund. Stephen Ross has made a huge splash over here. So what I think is interesting about Miami, where going back to where we're in the first inning relative to New York, is Miami is a new city.

Starting point is 00:27:01 Very, very new city. And you go back. Oh, you'd like this. It'll be a good question for you. You go back 100 years, right? so we're in call it 2020 right you go back to 1920 you go back to 1920 and there was this guy named carl fisher and if you've heard of fisher island yep that's carl fisher he was selling waterfront lots in miami beach an acre on the water in miami beach for guess how much money

Starting point is 00:27:28 50 bucks wow it's actually a really good guess yeah yeah what is it 500 500 for an acre yeah on the water in miami beach right fast forward the austin martin residences site in downtown miami that's on the water is like a hundred million dollar acre for land ken griffin that just bought um 2.5 acres on a parking lot next to jade uh ocean right here it's in brickle it's a water it's a 2.5 acre waterfront lot in brickle 363 million dollars which is 150 million dollars the acre. $50 he was selling waterfront lots for on Miami beach. Miami beach is it's, it's insane. So what's interesting is because South Florida is so new to a hundred years old tops, the infrastructure is also very new. So you've got people like, um, West Edens,

Starting point is 00:28:26 a fortress investment group that's funding the bright line, right? That's starting right now. go and try to create a bright line in new york right because the metro is what old and smelly and dense whatever it may be it's already there you're not moving new york you're not replacing and i can't speak to this technically but like you're not replacing the insist the existing infrastructure in new york why is west doing that it's a capitalistic pursuit like they're gonna make money on the bright line it's or is it a philanthropic i think a little of both i think when you get to his level of wealth you're not you know maximizing profit isn't like the end all be all it's like hey i hope it pencils but like i want to do this for you know the people

Starting point is 00:29:10 in the country and it could be an ego i don't know the man personally yeah um but yeah it's definitely and i think you could read about it it's like they're losing money you know day in and day out and pretty much so if you look at downtown miami where the bright line starts down here they have a whole mixed use project around it right so they've got office towers that blackstone now owns it's a good example Blackstone goes and leases 40,000 square feet of office space in downtown Miami six months later they're buying the building for 250 million dollars right so again this is starting to happen right and then when Blackstone owns and Brookfield asset management and all these players so going back to Wes Edens he basically I believe is now selling like

Starting point is 00:29:54 park line uh aside from the office buildings that he built there that he sold there's apartment towers that ended up selling recently for like 450 million dollars so he's creating the nucleus with the bright line then he's selling the assets to then continue funding the bright line because he wants to create like the largest private railroad you know public transit um uh system in florida so i'm sure there's a lot of intention as to why he's doing it but he's going to open the aventura right now it's it's you can bright line from miami to fort lauderdale to west palm beach right he's opening the aventura station either this month in december or january it'll be fully open and then he's going to have orlando he's going to have tampa so going back to just

Starting point is 00:30:48 like how how early of a city florida is in south florida specifically it's like we can see what chicago boston new york did right or did wrong from a urban planning perspective and like mitigate those issues this episode is brought to you by masari your days of spending hours scouring the internet for quality crypto insights are over masari is your one-stop shop for all your crypto data and research needs. With Masari Pro, you gain access to exclusive industry leading long form daily research reports, daily crypto news, advanced asset screeners and curated sets of charts and protocol metrics. You can try Masari Pro today and listeners of this podcast will get 25% off the Masari Pro membership by visiting www.masari.io backslash pro and entering promo

Starting point is 00:31:37 code POMP. Again, that's Masari.io backslash pro and use promo code POMP. Navigate the market with confidence with Masari Pro. This episode is brought to you by Exodus. Accessing Web3 across multiple networks just got a hell of a lot easier. Exodus is one of the most popular crypto wallets for mobile and desktop, and they just added Chrome and Brave web browsers to the lineup. The new Exodus Web3 wallet is a multi-chain browser extension that lets you safely navigate web3 and defi apps on ethereum solana and algorand from one wallet manage mint and sell nfts on multiple networks in one wallet you can swap solana and eth tokens natively right within the extension and if you ever hit a snag world-class customer service is available 24 7 more of your

Starting point is 00:32:21 favorite chains are on the way so run don't walk over to exodus.com slash pump to download the exodus web3 wallet right now again exodus.com slash pump go check them out today this episode is brought to you by compass mining the world's largest marketplace for mining hardware and hosting with compass everyone can mine bitcoin you can do it at home or in one of their 23 hosting facilities around the world all you need to do to start mining your own bitcoin is go to compass mining.io today again if you want to get into bitcoin mining go check out compass mining.io today let's break down a deal like let's say someone wants to buy a hundred million dollar deal, how much money do they have to put in? How much of it's debt? Uh, are there other

Starting point is 00:33:03 considerations? Like what, what goes into a hundred million dollar, uh, multifamily purchase? Yeah. So a lot less than most people think. Okay. Explain. For sure. So when people say I own a hundred million dollar deal, you know, that's not a hundred million dollars that they could sell and then have cash equivalent in their bank account. So I'll explain to you what's called the capital stack, which is like, okay, you've got an a hundred million dollar deal. How does that break down? So call it 60% of that is a loan from a bank. So someone's lending you 60% of that asset. So call it $60 million comes from a bank. Then you've got $40 million of equity, which is the remaining capital that you've got to fill up. Out of that $40 million, let's say this acquisition

Starting point is 00:33:48 was happening by Pomp Capital Partners. You've got to now raise $40 million of equity. Typically, you raise that, you do 90% by limited partners. So you go out and raise 90% of that money and you fund 10% of it. So out of that $40 million, you're funding personally $4 million and you're going to go raise $36 million, right? The interesting thing is that then the personal Pomp Capital Partners, $4 million tranche, that could be us here in this room each putting a million dollars, right? So it's four guys that got together $4 million within Pomp Capital, who then raised $36 million, who then got from a bank $60 million for this $100 million building. And then typically how it works is from an investment standpoint, the $60 million,

Starting point is 00:34:48 the bank has like the safest return but no upside the limited partners that come in for 36 million dollars they've got like the second safest return and some of the upside right because they're taking more risk and then us four in this room putting a million dollars each have the most risk but the most upside what is when you say uh the lps have some of the upside what does that look like so typically in real estate investments they'll promise you like a six to eight percent return a year in your money so out of that 36 million dollars that could be one person giving you a 36 million dollar check which will be a big institutional group or you can go and find 36 one million dollar checks right what you're promising to those people is like hey if you

Starting point is 00:35:38 give me a million dollars, I will return to you 6% preferred return. And then once we sell the asset or refinance it and have a capital event, and we get all this money back, once you get your full million dollars back, and your 6% return or 8% return, whatever it's negotiated, that's accrued to you, then we go and split the funds, instead of 9010, which is how you came into the deal, 90% LP, 10% GP, instead of 90, 10, then we'll go and split the funds 80, 20, up to a 12% return. Then once we've given you a 12% return, every dollar that comes in after a 12% return, we're going to split it 70, 30. So how it looks like when you have an investment that has a 40% return, right, is your million dollar, our four guy million dollar investment goes and becomes a

Starting point is 00:36:32 four, five, six, seven equity multiple, right? It like escalates really, really quickly while the LP sort of like tapers off a little bit because the more money we're making them, the high, the more upside we're getting from it. The higher percentage. The higher percentage. So typically it's a six to 8% preferred return. That's like, you're getting that yes or yes. And then after that, after a 12% return, you get a little bit less of the upside. After a 20% return, you get a little bit less. It's all how you structure it. And most of the individuals who are running these firms, are there other fees that they're charging, uh, in terms of, uh, it, obviously they're going to get their carry or it was the 20% or whatever. Uh, they're going to probably

Starting point is 00:37:14 get some management fees, uh, but on like individual deals, are there fees as well that they end up taking or like, how does that work? Yeah. So there's like deal level returns, which is like, Hey, that's what the asset is going to give us. And then there's like net to investors. So your typical fees is an acquisition fee, an asset management fee, a property management fee, and then sometimes a disposition fee. So those are your typical fees. I want to say largely, because I know you're going to ask, what do those fees look like and where should they be at? So largely, call it an acquisition fee will be 1% to 2%. It obviously varies if you're buying a billion-dollar asset versus a $5 million asset.

Starting point is 00:37:51 But typically, an acquisition fee, which you pay to the sponsor for closing on that asset, is 1% to 2%. Why are you paying them that 1% to 2%? Because, yes, they're closing on this asset, mostly with your money. But to close on this asset, they went and underwrote and looked at 150 properties. Of course. With people that they were paying $150,000 a year in salary to fly out to Florida and fly out to Fort Lauderdale and fly out this. So 1% to 2% acquisition fee. typically also like a one to two percent asset management fee which this is like doing k1s and

Starting point is 00:38:25 a bunch of back-end things that gets paid you do a three to five percent management fee right three percent for these larger 300 unit buildings five percent to these smaller 50 unit buildings right because it's more nominal it's nominally less dollars and then you've got disposition fees hey we're selling this thing now we get that's like 50 basis points if they even add it so typically what you see doing it what you see sponsors doing is if it's their first deal they're be the most lenient with fees because what they want to build is a track record so i'm invested in a deal um with a partner where they're like hey this is our first deal i knew them from a while back because they used to be x blackstone type guys so i'm like these guys are

Starting point is 00:39:12 very sharp very smart but they're sort of being lenient on fees because they need to build a track record so they were doing like a one percent acquisition fee it was a one percent asset management fee a three percent management fee and no disposition fee so i'm like okay these guys are as sharp as a blackstone guys and they're basically charging me no fees right and they're just on the upside of the opportunity itself great as that group's grown i think they bought over a billion dollars worth of real estate last year as that group's grown and more and more people want to give them money they start having more leverage to be like hey omar we're raising money again in case you want to come in on this deal but now it's a two percent acquisition fee two percent

Starting point is 00:39:51 disposition like and they'll go and do more market rate expenses because now they have the leverage they have people that want to give them money yeah it's all uh supply demand all supply and demand how should people think about uh they get pitched all the time whether it's technology products whether it's individual uh gps on the internet whether it's somebody that they got introduced to by their friend or whatever uh that's raising money for a real estate deal like how do you underwrite who uh you would give your money to or who you wouldn't like what are things that uh you look for what are red flags what are things that yeah like okay this this is a signal that this person knows what they're talking about it's definitely case by case but i think

Starting point is 00:40:26 my number one thing is track record it's like let me see how many deals you've purchased and how those deals did and then also you want to see how much experience do they have in that sub-market, right? Generally speaking, you want to do business. If you want to get exposure to multifamily assets in South Florida, you want to do it with a team that's done five, 10, 15 deals here successfully. You're probably less inclined to do it with a team that's like very successful in Michigan, but is now doing their first South Florida deal. We had a client once where that was sort of what happened. They were out of towners and they were doing a deal in Coral Gables and they put one of their leasing agents that couldn't speak spanish because they're from michigan and

Starting point is 00:41:10 they don't know this and they were like do it like the buildings around us are killing it and ours isn't doing so hot and i didn't find out for them but i found out this was the issue their whole staff didn't speak a lick of spanish if you've been in miami you got to speak some spanish spanish is actually the language of south florida english is a nice to have actually though yeah i'm not joking yeah yeah you order your food in spanish yeah it's interesting some people like it and the People that don't, you can go to Fort Lauderdale or Palm Beach. We've got it all in South Florida. So that's one example of something to look at,

Starting point is 00:41:45 which is like, okay, what's their track record look like in the specific sub-market? Another thing is fees. I just spoke about them. Obviously, if they're charging you crazy, outrageous fees, it's like, wait, no? That's another thing. But realistically, you want to have someone generally,

Starting point is 00:42:00 like Pomp, if you're investing in multifamily in South Florida, yeah you get a confidential private placement memorandum sent to you it's kind of like hey nudge nudge wink wink omar have you ever heard of these guys and i get that question all the time and i've sold a lot of multi-family in south florida when my friends send me these investments and i'm like i have never fucking heard of this person in my life and they don't have a website and i've never seen like that's when you're like red flags are popping out once you're dealing with like it i think venture is very similar right where it's like yeah stripe great company hey omar i want to like pump can you get i got 50 grand can you put in stripe for me you're like

Starting point is 00:42:40 yeah good fucking luck like you need series i don't know whatever you need to have access that's where it gets very interesting being a broker where i have access to the best gps the best sponsors who are always over allocated on their investments. If they need to raise $10 million, they're going to find it. Because for the last 15 years, 40 years, they've made money for their investors. So what I do is tell these groups like, hey, can you carve out some money for me? Or can you carve out some money for my friend? The reason they do that is because we're the ones that sell the deals to them right so when i'm selling a deal to xyz firm we could have sold that deal to the other guy that maybe had the same offer with the same deposits and the same terms

Starting point is 00:43:30 but we really told the seller like hey this guy is like he's never done us any wrong he's a great guy that guy yeah it's the same terms on paper but like we don't really know him we've never dealt with them right so the sponsors also want the brokers that are sort of controlling these deals in in some respect right at the end of the day the seller has a final say wants the brokers on their side and when i get a deal that's like under the table like hey i don't want you to market this but i need you to close this deal for this price i call my top five guys my top 10 guys those top five guys those top 10 guys give me like private access to their investments and for me personally like omar funds go to those guys which are like over allocated tried and true charge

Starting point is 00:44:14 market rate fees and have a huge track record yeah that makes a lot of sense what are like the biggest risks that people should pay attention to risks um like there's like outright fraud and that type of stuff correct yeah i was gonna say but like that's hard to sort of gauge a track record is a good way to gauge for that um and the actual investment yeah like if you're doing a multi-family investment where like the two or three things you're like okay these are the risks that i always check for. Yeah. So if somebody sends you a package which says, hey, you should invest with us, look at this investment that we have under contract that we're going to close on. The number one thing you should probably look for, and this is a good red flag and any real estate guy will

Starting point is 00:44:50 tell you this, but people that are, you know, a lawyer or a doctor won't know this, is look at the cap rate, right? Which is like the yield that you're going into on this asset. Look at the cap rate, call it, it's a 5% cap rate that you're going into this investment. Look at their projections going forward and look if they projected that they're going to sell it for a lower cap rate, which is more expensive, for a lower cap rate than they're buying it at, right? So if I tell you I am buying this at a five cap and in five years I'm going to sell it at a four cap, what makes it a five cap and a four cap is the market. It's Jerome Powell right now. It's the Fed, right? So you want to bet on somebody that the operations of the asset is what's paying your

Starting point is 00:45:35 money not what the 10-year treasury is going to be four or five years from now so you want to make sure that the exit cap is higher than the going in cap so that's like a specific example and like that's like generalized would be like you can make money whether the market's up or down they're going to do things with this property that will improve its value and so therefore even if you're in a worse economic environment it's still a good deal yeah i mean there's deals right now that i invested in that were purchased out of four cap and now the market's closer to a five cap so like the asset value has gone down on paper but the two thousand dollar rents that they're gonna renovate the units to then charge three thousand dollars they're renovating those units and they're

Starting point is 00:46:17 getting three thousand dollars whether the paper value of the building is up or down so my eight percent is getting paid quarterly right and that's what i care about i can't control what the eggs what the cap rate's going to be right it's like if i tell you hey the p.e ratio of the stock is five p.e ratio and when we're going to sell it's going to be 20 p.e ratio i'm like all right well are you changing it from a industrial stock to a tech stock like how are you doing that shit yeah it's like you're not and then when you think about a young person who wants to get into real estate like what's your best advice for them i do this a lot because on twitter and stuff like that i think you definitely want to real estate is competitive barry sternlake i don't

Starting point is 00:47:03 know if it was barry sternlake the starwood capital or david rubinstein of carlisle group but one of them two had like a commencement address for speech and they basically said like i look at where all the harvard graduates and warren graduates that could have their pick of their litter of where they want to go to the mbas and like that industry that everybody wants to go two is the one that I think is overvalued and like due for a crash because that's what all the smart, cool kids want to do now. And the reason I mentioned that is because real estate is like a competitive, tough group, like industry to really make good, like, you know, hundreds of thousands of dollars for the average folk is great money. So it's going to be competitive. What's interesting

Starting point is 00:47:43 about that is to break in is going to be hard, right? Unless you come from a great school and you've got the background and a connection and all that stuff. To break in, it's going to be hard. But if you figure out a way to break in, I got into real estate in a very atypical way. I was a B student with no internships and I fell into this thing. But I called hundreds of people that I read on The Real Deal, the South Florida Business Journal. And I'm like, Mitch Simberg, who runs our entire Florida team, is someone I called in 2015 for advice. And then fast forward seven years and he's like the guy that runs a team that I'm working with. So advice that I would give to a younger person is like, get book recommendations that get you into real estate

Starting point is 00:48:24 that will talk about real estate and read these books or look at videos on YouTube about real estate and how these people are making money. And if you're doing that and it's not piquing your interest or your curiosity, quite frankly, like pivot and go, go do something else, go do something else. Cause it's so competitive in here. I tell people, I'm like, dude, if you're failing to break in, even if you manage to break in, you're going to have a really tough time making a lot of money in this industry because there's a lot of people that found, figured out a way to break it. And those are the people you're going to now be competing with. Right? So I think it's self-selecting that way, but advice would be that for me, when I was not in real estate, I reached

Starting point is 00:49:07 out legit first job in real estate company called Lloydy Jones Capital. I reached out to the CEO, founder of the company ignored me obviously reached out to the cfo ignored me obviously reached out to the director of acquisitions ignored me obviously reached out to every vp analyst i could find nobody replied nobody nobody the intern riley the intern reached back out to me like hey bro yeah i would love to grab lunch go grab lunch with this guy i come with like my manila folder and resume seven eight years ago in case the conversation goes well conversation goes well i give him my resume he gives it to the guy they're calling me in for an interview like a month later and i'm like okay this is great i get in there they weren't even looking for someone

Starting point is 00:49:52 they legit we're like we're not hiring but we think you're great like we like your energy as i was walking out of that room true story as i was walking out of that room i look at the bullpen where the analysts were and there was an empty desk with two computer screens that were black and i'm like who sits there and the founder ceo chris finley is like nobody it's empty and i was like i could i could sit there and just help you guys out doing whatever whatever it is you're doing i'll help and he's like seriously he's like we're not looking for anyone like we're not we can't pay you and i was like don't pay me for the first three months at the time i was living with my parents which is fortunate and all these things but i was like you don't have to pay

Starting point is 00:50:27 me a dollar i'll go over there and just sit and learn and then three months from my quote-unquote start date we'll talk about paying me something if you think it's worthy if not i'll do what i'm doing now and just go look around and try to find a job guy loved it was like oh great like when do you start and i'm like i'll be there monday it was like a thursday or something like that monday i show up and i'm there at the office i was in at five six in the morning i was out of there at eight o'clock at night i wasn't getting paid a dollar but it put the fire under my ass which is like the only way i'm going to stay here is if i prove that i can be very valuable to this company i spent nights reading loan documents and jv agreements and stuff like that that we all had

Starting point is 00:51:04 access to it i'll just learn the business and yeah you you know the rest is history three months later the guy's giving me a full-time offer i'm learning the business there i'm cutting my teeth and then here i am you know does he invest in deals now that you would do you should go back well that's yeah it's a great point so now i see him so now my team we haven't sold deals to him but my team has financed deals that he's got in like fort myers and stuff like that and when i run into him he's like omar like how's everything going bro guy loves me right and he sees my success and he's just like dude i knew you were like you were a badass you were a shark you know and i'm just like thanks i appreciate it like you really helped me out so like if you're not doing

Starting point is 00:51:40 by the way we have this deal do you want to buy it by the way that's that's my whole story i'm like are you are you in the market for something yeah yeah 100 i love it where can we send people to find more about the team like brocadia itself is like a pretty big uh yeah it's a national company yeah but how did they find the south florida team um south florida team honestly i i'm happy to be like the source right um which you can find me on twitter instagram text email whatever it is where do most people go through twitter i think twitter is where i've started what's your twitter handle so it's at omar morales m-o-r-a-l-e-s yeah do people hit you up on instagram on instagram dude a lot because you know what you know why really because i swear

Starting point is 00:52:22 and more more I don't want to say like real players or whatever but like yeah basically I I will post pictures because the thing is that real estate is very visual industry right so like Twitter's really good for like tech and crypto and all these things software engineers and it's great for real estate so a bunch of big fish on Twitter but on Instagram what I've noticed helps me the most is like if we follow each other like a 55 year old founder of a company and I him and i follow each other now i am looking at like the fact that he likes tennis and the fact that this and the fact that that so it like grows a relationship and then i slide into the dms but instead of like back in my single days being like a girl or whatever i'm like sliding into the

Starting point is 00:53:03 dm of some like sponsor and i'm like yo let's play tennis let's hang out and it sort of like humanizes the relationship and i've now done deals with people that i've met on instagram literally they're like oh yeah i see that you're doing a bunch of stuff and we meet for coffee and then you know we go and close the deal on twitter actually there was a guy that dm'd me on twitter that like six seven months later i was selling a hundred and ten million dollar deal to on twitter he dm'd me and i reached out to my team and i'm like this guy looks pretty real pretty legit so this i can shout him out it's max sharkansky from try on properties his last name is literally shark kansky this guy is a max will legit text me at four in the morning and then we'll be texting

Starting point is 00:53:46 at 11 o'clock at night about a deal he'll reply at four in the morning and i'm just like max bro go to bed but like these are the type of guys that i'm like dude this guy is next level if max is like yo do you want to invest in my deal i'm like please i'm like take my money you know it's crazy so max is a max is a shark sharkansky yeah he's the best that's an amazing name that's dope yeah no and i introduced him to this other guy now the cio of true america his name is matt ferrari So I was like, all right, I got to introduce a shark to this Ferrari. And it was a great conversation. The guys are both studs.

Starting point is 00:54:17 It's people that you sit in the room with. I'm sure you've been in the situation where you're just like, holy shit, like these people are fucking smart. Yeah, that's every room. That's the only room you want to be in. Yeah, I'm dumb. That's fine. That's me here.

Starting point is 00:54:28 I'm like, I'm hanging out here. I'm like, all right, this is pretty cool. I just saw real estate. Awesome. All right. Well, listen, thank you so much for coming and doing this. I think this is super helpful for a lot of people who are interested in real estate or trying to understand how deals work, how the broker versus principal and kind of that trade

Starting point is 00:54:40 off uh and then also like why south florida uh so anyone who wants to reach out to omar omar morales on twitter and uh maybe slide into his dms on instagram as well whatever you want to yeah and we'll definitely do this again in the future perfect i appreciate you having me here thanks so much for listening to today's episode i really hope you enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to transition into a brand new job in the bitcoin or crypto industry we've got you covered head over to thecryptoacademy.io. My team and I have been working with the top HR teams in the industry to develop an intensive three-week training program with over 50 live events. We teach you

Starting point is 00:55:18 exactly what you need to know to break into the industry, including live interview prep and resume review. Our students have been hired at over 75 of the world's best Bitcoin and crypto companies. Go to thecryptoacademy.io to learn more. Again, that's thecryptoacademy.io. If you enjoyed today's episode, make sure you share it with your friends and I'll see you all for the next episode.

The Pomp Podcast - #1134 Omar Morales On Selling $3B In Real Estate In South Florida

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