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Hey, hey. Welcome to the new episode of Commercial Real Estate Talk with Steven Arne, where we hope to have compelling, interesting, and informative conversations with iconic figures in the commercial real estate industry, mainly throughout the Western us. Uh, and we have a great show today. Our first repeat guest, John Mcne, uh, head of Mcne Partners. He owns a, uh, portfolio of shopping centers, mainly around Northern California, has dabbled it a little bit in office in multifamily as well. And we're gonna get his take on what he's been doing since our last show with him in May of 23. But before we start the show, let me bring in my co-host Arnie Garfinkel, head of Allstar Group. Hey, Arnie, how are you today? How you doing, Steve? I'm doing good. I'm doing good. Uh, you know, the Allstar group, I started in 1995, uh, and we have, uh, three, four events coming up. Uh, this year. We got, uh, April, we're doing our big event, uh, commercial real estate lending conference. Uh, where's that? That one is in Long Beach, April 23rd In person. Excuse me. In person, right? Oh, yes, yes. Uh, three of the four of us, we do in person. We do an online event in June. Then in August, we're bringing our lawmakers forum to Orange County. Uh, so that should be something different. Excellent. And then, uh, we're gonna close out the year with a, uh, networking event up in the Bay Area, so, uh, that's what we got going this year. But you know what? We have some sponsors. Let's talk about them. Well, Before we get into that, let me tell 'em the audience about Rent tv. Uh, now in our 25th year, the news and media company for the real estate industry, our, we've got our news website, rent tv.com, daily news stories about commercial real estate deals and transactions. Our email newsletter, e-blast business, uh, we do conferences as well. Our next conference is May on March 26th, our Greater LA Conference. We'll have 20 speakers, five different panels for office retail, multifamily, industrial, and finance. Get a lot of great feedback on these conferences. And we have the review, this video website, the platform where you're watching this video, this searchable, uh, video platform for the real estate industry. So, got a lot going on with Red tv, a lot of momentum coming into this year, Arnie and, uh, and some great sponsors, uh, who make this show possible. So let's, uh, tell the audience, uh, who makes the show, uh, possible. Why don't you start with the first one? Yeah. Our first sponsor is Fidelity Mortgage Lenders. Fidelity Mortgage Lenders is a private lending company specializing in commercial real estate, founded in 1971 by Chuck Shon. It is known to have unique terms, fast funding, no prepayment penalty, and long-term fixed rates. Call Uncle Chuck or John McClain at 807 5 2 9 5 3 3. That's 807 5 2 9 5 3 3. Excellent. Next sponsor in Southern California. It's, uh, commercial real estate inspectors in SoCal. They're skilled inspectors provide critical, critically needed inspection information in easily understood terms, as well as inexpensively simple solutions. Whenever possible, let commercial real estate inspectors help you protect your deal. Call Tiffany Simington, Tiffany Simington, and book your next inspection today. Numbers on the screen, 8 1 8 9 5 7 4 6 5 4 8 1 8 9 5 7 4 6 5 4. And our last sponsor, RE, uh, amazed, amazing group. They've been a, a, a, a sponsor of Rent TV for a long time, and now they've got their message on our show. It's Chase Partners and, uh, great client of Rent tv, welcoming 'em there to the show. They, many of them are. Many people in our audience will know Chase Partners and David Parker as one of Cal's leading investors and developers of industrial properties throughout the region for over 30 years. Uh, and, and as a longtime supporter of Rent tv, they are now sponsoring the show to help get the word out that they have updated their strategy, focusing on underperforming industrial and retail properties and other distressed properties, uh, with non-performing debt. If you are an owner, lender, or broker, you need fast decisions, a fast close on your property. Contact Chase partners, their info's on the screen, dParker@chasepartners.com, uh, sorry, david@chasepartners.com. That's david@chasepartners.com. I give 'em a call. Alright, Arne, let's, uh, welcome to our show, our, our guest, John McNellis with Mcne Partners. Thank you, John. Thank you for coming in again. How are you today? I'm well, fighting a little cold, but I'm great actually. Yeah. Thanks Steve. Nice to see you again. Yeah, thanks, Arne. Glad to be here. Uh, Well, we've got a lot of catching up to do. So I wanna remind our, our audience that, uh, you should watch our first show with John that we did in May 23, where we discussed hi, how we got started in the business, his early history, and, uh, you know, as, and his highlights over the years in this show. We really wanted to discuss what you've been doing since then and maybe look at crystal ball a little bit about major topics of the day and how things look going forward. Sure. So why don't you take it away. Yeah. With that said, bring us up to speed with your current portfolio in terms of size, number, types of properties and, and the area. I know you concentrate mainly on San, on the Bay Area, but have you expanded at all since we last spoke? We bought a little center in Orange County, and I think that might have been the summer of 23. Yeah. Uh, in the town of Orange. So the, and the dates come and go. So that one was, um, uh, an outlier. Yeah. For the most part, Arne, we stay pretty much in the Bay Area now to bring the portfolio, you know, just to put the cards on the table. And my partners and I, uh, we've been together 40 years. We don't really have successors among our children, so my thought has been for a number of years, we need to kind of cut our portfolio down, but that hasn't been working, you know, we sell one by one. Yeah. So we're still like 30 plus projects, several million feet, primarily neighborhood shopping centers and almost exclusively in, uh, Northern California. Got one little center in, uh, the town of Orange and another one in Lake Oswego, uh, Oregon, but, and one in Tahoe. Outside of that, they're all within a two hour drive of where I sit. And, and by the way, your, your, your employees, how many employees do you have now as compared to a couple of years ago? Did you increase, decrease, or keep it about the same? Great question. No, we're down to, there's three partner. I've had Beth Walter and Mike Powers for, uh, over 40 years. Yeah. Uh, we're down to the, so it's the three of us and one full-time assistant. What we've done, uh, we had started this before we last spoke guys, but for the first 30 plus 35 years, we said we need to manage all of our own properties and then live off the management fees. And then as we've kind of aged out, we said, okay, and we need to get to the next phase. And so now most of the, the projects are third party managed, oh, I should take that back. We, we've just added another young, young, young as in 50-year-old guy, guy, Ryan Nicholson, who's going to help us at asset manage, uh, the portfolio. Okay, Good. Got it. Uh, well, you know, when we spoke in May 23, almost two years ago, the mood was pretty sour. You know, we just had the rise in inflation interest rates. Um, so on a macro level now, you know, looking at it from a high altitude, how do you gauge the business climate now in general, and then also in terms of real estate investing and for your tenant growth? Yeah, let's stick with real estate. So it's where I actually know a little bit, you know, the, the rest of it, I'll just be throwing stuff against the wall. Well, it does Trickle down to the tenants. Yeah. So since we've spoken guys that this will kind of bring it home, uh, you know, we're primarily retail. So the last three retail deals that I did, tied them up, long, escrows, kind of put them together on paper that is worked through plans with the city, worked through letters of intent, and in some cases, leases. And then I looked at it and said, you know, this is too thin. I can sell it in pretty much right after I buy it. Uh, and to, you know, to younger guys using other people's money often, or with other motivations. So we actually sold, uh, three, our last three development deals. Now that said, just this past Friday, I bought a two acre piece in, uh, Clovis, uh, for you listeners who, who aren't from Fresno, that's a little town, just a nice little town, by the way, just south of Fresno. Uh, we're gonna put a Chick-fil-A there. Hmm. Okay. And you didn't ask the question, but the answer is, I think right now, as far as ground up development in retail, my world in California, the only thing that really works is ground leases to fast food restaurants. Uh, or you know, where your, your risk is. And, and hopefully with a lease side there, you're only taking kind of a cap rate risk on sale, but not taking construction risk and you're taking kind of limited interest rate risk. So that one, uh, we will develop, but we'll probably sell as well, you know, back to my, uh, overarching desire to have fewer rather than more assets. Right. Now It sounds like you're, you're reevaluating and you're buying and you're selling. And, uh, what it sounds like to me, and, and please expand on this, you're seeing more opportunity in the ground lease, and that's kind of where now, is that the direction you're heading right now? Uh, and or is that just something that, uh, came about and you said, huh, this isn't a bad idea. You, I'm kinda like an old grizzly bear in a salmon stream, you know, and just kind of sitting there lazy and every once in a while and you 90, you know, we see 20 deals a day, right. And Right. You just let 'em go by, let 'em go by, let 'em kind like, uh, one of those dating apps, I don't know which way you, you go, but left, left, left, right. But every once in a while, whoa. Uh, no, it, it, there's no, i I never have any grand strategy. This was, wow, this is a great piece of dirt. I know Chick because we work with Chick-fil-A. I know they'd like the deal. I'm gonna jump on it. Uh, and it, it also works, uh, when, so if you say, Hey, John, what works right now, I would say if I were a young developer and ambitious by existing stuff ground up, as far as I can tell, it just isn't working here in California. You know, I don't know about the rest of the country, but I, no, interest rates are, are high everywhere, and I know construction costs, costs, Yeah. Are, are still way up. And, you know, thanks to those fires in Southern California, and, uh, there's, and then, uh, I don't wanna get political, but if, if you start deporting all the construction workers, uh, that is only going to add just tremendous cost and, and delays to our business. So good time to buy existing stuff because, uh, these outside factors are kind of creating a moat, if you will, around existing stuff. You know, less new competition coming in. You know, let's talk about the fires for a minute, because, you know, we just recent in Southern California devastation, okay? And of course, uh, a few years ago, you had that same devastation up there in northern California in paradise with, with the, uh, uh, campfire. Um, now there they have to go ground up. I mean, it, there, there's no choice. Now Mo most of the direction is to single family right now, and then they're gonna deal with the, the, uh, commercial structures later. How would you deal with it? If one of your properties was involved in something like that? How would you look at it and what would you do? If, let's just say the big center that went down in, in, uh, Palisades was one of yours up in Northern California? I think the commercial's gonna have to wait until the residential comes back. Uh, uh, you know, in in our world, uh, the, the big supermarkets will cut deals guys, uh, in, in greenfield areas, you know, and, but the deal will be, we'll, we'll sign a lease, but we don't have to start until you get, uh, a population of 5,000 or something like that. You know, the, they just need the, the bodies, uh, there. So I think, um, I, I, I think the commercial will have to lag the, I think there's an opportunity for, you know, it's gonna be so terrible, even if your house wasn't burned down. It, it's, yeah. It's gonna be a b***h to, to fix. I think a lot of people, this is, I heard this yesterday, I don't know if it's true, but someone told me that Orange County House prices have jumped almost 40%. Uh, all those people with money from Aldean and Palisades, they need someplace to live. Boom. And they're moving down there, and they'll be selling those lots, uh, you know, the, uh, you, the three of us probably would too. He'd probably say, screw it. I don't want to go through that, that whole effort. So I, I think there'll be a lot of money to be made there, uh, in those neighborhoods, but it, it'll take a long time to rebuild. Yeah. It's gonna be years before, and, and it looks anything close to what it was before. Yeah. No, it's, it's a tragedy. Yeah. Right. Well, you know, sticking on the topics, and we'll drill back into the real estate in a segment st sticking on the other topics. You know, I'm a big fan of your writing, and since we're getting into, you know, you, the, the, uh, I, I, I did publish a novel since the lab. Well, we can get around, get Into novel Briefly, but Yeah. You know, on, on your writing about the community and the, and the business writing, um, you know, one of the questions we're gonna ask you is, and I think it's part and parcel with the fire discussion, but more related to the pandemic, what's it gonna take to, you know, bring these downtowns back? You know, in California, I, I know you're more lo you know, with Palo, Palo Alto and San Francisco, but you see the same thing in downtown San Diego, downtown la you know, what's it gonna take to, you know, reuse these great, some of these buildings have great bones, you know, and it's, um, what's it gonna take to bring vibrancy back? Okay. I was thinking about that. You know, I was like, what am I gonna tell Arne and Steve as I was stuck in traffic this morning? And, you know, as it turns out, guys, I have on the side, I've been investing in, in tech startups, uh, for, for a while, and then sometimes taking a fairly major position and sometimes being on the board of, of directors. And so I, I'm on the board of a, a tech company now, and, and a shareholder in it in Southern California. And so when, and you have quarterly board meetings, and so when this all started, they said, oh, yeah, no, this is great. It, it's okay if we work remote guys. It's cool, you know, we, and I said, oh, man. So as a shareholder, I was okay as a landlord, I was saying this, these guys are killing me. And then, um, same thing. Next quarter, next quarter, and then about, I don't know, 18 months ago, I'm kind of dozing during this board meeting, and then I look up on the, on the screen and what do I see a space plan for office? And the CEO says, it's not working. We gotta get these guys back to work. You know, you know, uh, you need to collaborate. Mankind is a lot closer to say, termites or, or ants or, um, bees than we are to, you know, uh, solo tigers out there. Right. We, we've gotta get everybody back to work. So this tenant went into a really fancy building in, in San Diego where the landlords had set it up so you, you rent less space, but then you can also rent the common areas, you know, when you need everybody in and they're back three days a week. I think what's gonna happen, you know, business is very competitive. I think the businesses that put their foot down and say, you have to be back five days a week, will have a competitive advantage. You know, kind of like Darwin, uh, and those that don't in the same field are going to get lapped and get eaten up. Mm-hmm. Gradually it comes back, you know, the old John Coltrane that they say it'll kill you, but they won't say when, you know. Right. I don't know when it comes back, but, uh, it, it, I'm, I'm sure it's going to come back. Um, but, and then, you know, as we were laughing about before we started, just coincidentally, I published an article today. I, I think a key step in coming back is forcing the damn cities, uh, and all the ones that I deal with to get all their employees back to work. I mean, this is outrageous that these public employees, uh, I don't know where they are, but, but they're not here. And, and it's, it is a double whammy for us in real estate, because we need the planning department, we need the building department, you know, we need everybody in order to move our projects along. And as far as I can tell, and, and guys, you, I never do research for me, it's just anecdotal, you know, talking. But, but everybody says the same thing. What used to take a couple months, you know, to, to get a, a ti uh, tenant improvement, uh, approval, which we shouldn't need in the first place anyway, now takes months and months. Yeah. I've got a tenant in one of our office buildings right around the corner, uh, who's been paying rent since, oh, about October. But still, ha has trouble getting his permits, you know, it is just, it's terrible. So, You know, you're amazing. You answer our questions before we even ask. Sorry, that was gonna be my next question, but continue. I'm Sorry, it must be the drugs, but I get The, you know, the point about having all the, all the people downtown, you know, how it affects all the other, uh, uses. Yeah, yeah. It's so on. Yeah. On the one hand, they're hurting us in our efforts to, to, to get everybody back to work. And on the other, those employees aren't here. Uh, and San Francisco, you know, my, my former hometown, 35,000 public employees, uh, San Francisco, the city is the number two employer, uh, in the city. And, and the way it's going, you know, where it's basically been, uh, irritating and antagonizing business, it's gonna be the number one employer soon enough. Just getting those 35,000 people, you know, back to, to work at their desk, be a huge boost for the economy, you know, for the, the sandwich shops, the delis, the, the dry cleaners, they need to do it. Um, And then all the services will come along, and then the restaurant. Exactly. Everything else. Exactly. You lose that, you know, and, and the other thing that I was gonna ask you in relation to that is the, uh, the challenges of owning a property right now. So in addition to the government red tape and the tis, uh, the cost of insurance right now is starting to really make an effect on whether residential or commercial be because of these fires. It all kind of comes back into it, but, um, you know, it's becoming more and more difficult if you don't have those tenants in there. You're right. Uh, uh, I, I think, you know, I, I went to Berkeley, so it, it's, it's hard for me to take the, the, the, the side of the insurance companies, but I, I am taking the side of the insurance companies Yeah. That they, they have not been able, particularly in California, to charge enough. Uh, and people keep building in these high risk areas, whether they're on the beach and they get flooded or, or whether they're in the, the mountains and they get fires. I, I think, in fact, I guys, I made a decision, so we have, let me count this one. I think we have four shopping centers in fairly heavily wooded towns, Scotts Valley, Hillsburg, right. Uh, and oh, up in Lakeport. And so over the last half dozen years, each of those centers has been shut down, nothing burned, because, you know, there, there's kind of a asphalt mode around them, but the towns have been shut down. So actually made a decision. Somebody said, Hey, there's one up in Quincy, I think it was some little Wobe gone town, sorry, Quincy in the Sierra Nevada. And I went up and looked at it and said, no, I'm not buying any more, uh, shopping centers that are in forested areas, you know, the, the, the insurance rates have to go way up. They should, which means the values will come down. You know, your insurance triples, that means your net operating income comes down. It means the property's worthless, but it should be worthless. You know? It, it's not the, what really drives me crazy is this public insurance. It's where, you know, if, if you want to, so the Russian River, I don't know how familiar your guys are with the Russian River, but the damn thing floods pretty much every year and every third or fourth year. It floods a lot. And, and ev and I think it's the same guys, you know, who, who who are standing there are the kind of these old retired hippies who, who live along there saying, gee, I don't know what I'm gonna do. Well, dude, this has happened like two, five times, why don't you just move, or, or, or build up higher, you know? But public insurance allows people, uh, to build where they shouldn't. Anyway. I, I would And, and how, how do you, are you able to pass that, I mean, most of your tenants are on triple net in the retail centers, right? How do they deal? No, you can't. The the tenants don't care. Yeah. If, if I'm a tenant, you can say it is a gross rent, or you can say it's triple net. The tenant, all the tenant wants to know is what is my total cost? Right. Uh, and, and the tenant in, in my world's pretty easy. And the retail, because tenants can only pay a, a certain percentage of their sales, you know, before they go broke. Uh, supermarkets, one to 2%, uh, uh, jewelers, maybe 10%, you know, restaurants may be six. So if your costs are going way up and their sales aren't, uh, the only thing that can, that can happen is you have to lower your rent. Yeah. And then the values go down. But that's, that's life. You are not entitled to, to, to hire rent, just be, uh, Well, in, in that aspect. I mean, I've seen a number of restaurants close to me going out, and they, they said that we try to work with the landlord, and we can only afford so much, and he let them, and that that thing would sit vacant for months, years. And they also did it with the minimum wage, the Increase. Yeah. And it's like, why don't you work with them? I agree. It's, it's below market, but you gotta a tenant in there that, you know, I, I don't understand that philosophy. And you, you, as a, an owner, how would you look at that? Yeah. Well, one of my friends, this goes back 20 years ago, and he was, I was having this very conversation and he said, John, you're an occupancy war. And, and by that, wait, what he meant was that I will lower my rents to keep my tenants in place. I don't like vacancies. I, I think it's, I, you know, this whole, um, the retail vacancy tax Yeah. The idea that the landlords, and there are some really dumb landlords out there. Yeah. There are some, but most landlords, by definition, are pretty good at simple arithmetic, you know? Right. Uh, and, and they're, they're pretty greedy and, you know, or at least they're concerned about money. So most of them, if you say, dude, keep it empty for a year, uh, and, and you'll get 10% more on a five year lease, well, that's not gonna work. You know, you've just lost it, that, that rent for a year. Yeah. Unless you have a crystal ball and you know exactly the way the economy's gonna go, you know? Yeah. And, and if you have, if you have a crystal ball, and then you should not be in real estate. Exactly. Wall Street. Wall Street, a lot more money there, You know. So it sounds like from what you're saying, but maybe we pull back a little bit, that's something is, but it sounds like you're telling us that rental rates in the retail sector are pretty much flat right now, or are you seeing general growth or, or de decline in rental rates in general in the retail space right now? Let, let's get a little, uh, into the weeds. Let's parse it a little bit. Right. Uh, we have two primary, uh, types of retail. We have neighborhood shopping centers, uh, say Hillsburg, for example, or Brentwood, uh, northern ca, not the good Brentwood, the northern California Brentwood. Right. Or Brentwood. Uh, but we have centers that supermarket anchored 10 acres, a hundred thousand feet supermarket, uh, gas station, Starbucks, usual. Those centers are running nearly full. Uh, and depending on the center, we are able to push rents a little bit there. Uh, they're doing, they're doing great. The other part of our, well, if you get A vacancy, you might get like a 5% bump, 10% bump or something like that. Yeah. But just little, just less yesterday just to prove a deal. We're, we're keeping rents flat. And, uh, I, I don't think, uh, retail sales are up that much. And so literally, um, who was it? I'll, I think of the tenant in a second, but we looked at their sales and said, okay, the most they can afford is 15% of, uh, of sales. And, and they asked for, um, a flat rent on the renewal. I, I said, yeah, sure, we'll do that. You know, that's, that's an advantage. We have o over, um, say office or industrial, you know, we understand. And, and we do multiple deals with the same people. The other part of our portfolio, much smaller, thankfully, is our mixed use, uh, portfolio. And that's primarily here in Palo Alto. And, and what I'm talking about is like a four story building or, uh, three floors of office, ground floor, retail, uh, the three story building, ground floor, retail. Those guys, uh, the mixed use, uh, retail it or heavily urbanized retail is suffering just as much as, uh, the office. 'cause our office buildings, we have three office buildings here in downtown. They're all fully leased, but they're may be 15% occupied. Uh, you know, that seems to be changing, but until the, the urban retail needs a daytime population, and until that, that comes back, so I took, I had a Lululemon move out of one of our buildings, uh, and I replaced it being the tenant. I said, who hasn't got his, uh, final permit yet? Will cut the rent by 30%. And again, that was just, just market. Yeah. You have to differentiate. Yeah. You gotta, you gotta be ahead of the curve. Right. Certainly the difference between the urban and the suburban, for sure. Yeah, definitely. Now, cut. When we last spoke, there were a couple of stuff that you, you were, were buying all cash. Um, and with interest rates the way they are right now, uh, are you seeing a more of a, and that could be one of the reasons why you're not buying as much. Are you trying to stick to all cash as best you can? Or do you still look for, for financing, uh, on some of these projects? Well, again, back back to my idea of, gee, I, I need to sell more than I need to buy. Uh, what typically, Arne what we've done is we'll buy for all cash, right. And, um, use our own resources or a line of credit. Uh, and then we will, we won't, we don't bother with construction loans. You know, let's say we buy something 5 million and put two or 3 million into it, and, and then if we're going to keep it at that point, we'll put on debt at the end or, or it, or we'll sell it. Uh, but we're pretty much, we've always been kind of in debt adverse. Uh, I think our overall, uh, loan to value ratio on the portfolio is below 20%. Wow. And actually, the last, in the last couple years since we spoke, guys, I think we have paid off three or four loans and just said, screw it. We just, uh, we'd rather own this free and clear. Yeah. Because the, the rates start to spike on us. And if you're, if you're paying seven, this is, uh, a high classic problem, I guess, uh, if, if, if you're gonna pay seven or 7.5% and you're only getting 5%, uh, on your, your money market accounts, well, you know, let, let's just, uh, be able to pay off the loan. Right? Yeah. We've done that a couple times. Well, on, on the, on your most recent transaction, uh, uh, the Chick-fil-A, that's, uh, you're building, uh, a freestanding building from, Uh, yeah. I, I, I just paid cash for that. And the construction too. Uh, ground lease, remember Steve ground Lease, they buildings, They're building. They Building, right. Okay. For all you, uh, young developers out there, get someone else to take the construction risk. Yeah. No, I forgot. You told me it was a ground lease. Right. Uncle John says, whatever it costs, give them a fixed contribution. Same thing on tenant improvements. Mark just a guys, here, I'll write you a check. Quarter of a million, million dollars, whatever it is. You do the work, you take the construction risk. And, and with most fast foods like that, they've got the capital to do it. And you gotta a tenant in there. Uh, right. Almost not quite, like, too big to fail. But I mean, you, we've known that can happen. Uh, but, uh, you know, you get a, a Chick-fil-A, a McDonald's, a Burger King, or any of those, you, you know that they're gonna be there for a while. You got a solid tenant in there. H How did you find out about that site? Did that company through a broker? Through a broker? Uh, that's one of the great parts about retail guys, you know, the, uh, it, it has its downsides. And if you're gonna get into retail, I think it's something you really need to specialize in. But because we keep doing repeat, repeat, repeat business, and we deal with the same people year in and year out, uh, the, um, the real estate reps for the tenants, they move, uh, jobs all the time. They, they'll, they'll, they'll jump from Safeway to Starbucks to Ross or whatever, but they don't leave their trade areas because their, their value to their employers is their geographic knowledge, uh, and their local contacts. So we deal with the same people year in, year out. So we heard about it, uh, through a broker, and then we were already dealing with Chick-fil-A, so it was kind of, yeah. We just jumped on it. Nice. And then figuring out value, I guess with a ground lease, it's fairly simple compared to if you were undertaking everything, you just take the present value of, uh, your, your payments over a period of time and Shazam, it's there. Yeah. Yeah. Well, these, uh, Chick-fil-A's McDonald's, Starbucks, they're, they're like loaves of bread in the supermarket. They're fungible, you know, you, you sell 'em, they sell across the country. The cap rates range maybe 25 basis points. So you say to yourself, let's make it up. Uh, that Chick-fil-A, and I think they sell somewhere in the fours, but let's say it sells at a five cap, uh, today. So, and let's say it's gonna be 18 months between the time you get the lease signed and time they open, and you want, let's say you wanna sell it when they open. Yeah. So you say to yourself, as long as my purchase price is, is at a better yield than that, you know, let's say, uh, what we try to get at this 200 basis points 2%. So if I bought that on a, a, a seven, uh, return, and I'm selling at a five, that, that's what I'm trying to do. So basically, you, you know, how much that loaf of bread is gonna sell for in 18 months, if, if things don't go crazy, you know, like the, the egg thing right now, just to pull that metaphor. So if, if you know what's gonna sell for $2 million, if, if you bought it for a million, uh, it's a home run. If you bought it for 1,000,008, you're gonna do okay. Right? Yeah. And that's, and, and the fact that buying all cash with a ground lease is a no brainer. The problem with ground lease is sometimes is getting the financing, uh, you know, there, there's certain lenders that just won't even consider it. Um, and then they start delving in so deep that it takes so long to get those things approved. So yeah, I mean, that's, that's a different advantage and something that, you know, uh, you Yeah. Let's talk about financing guys. Yeah. Yeah. So it, it, it, it's either it, it comes in two flavors today. Either it's unavailable or it's too expensive. Right. So, uh, if, if, if I were trying to start all over today, what I would do, and if we're trying to buy properties, is find sellers desperate enough to sell, uh, who carry paper. Uh, you know, I'd say, I'd say, you know, and, and we have sold, I, I don't mind, uh, selling and carrying paper, uh, but particularly if I really want to get rid of a project, it is, you know, we'll carry 2, 3, 5 years where you carry for, what you could do as a seller is say, yeah, I'll carry today for, uh, two years, three years at at 5% or 6%, or maybe just match your cap rate, and then it'll, it'll jump to market, or there'll be some penalty so that the buyer has to pay you off. Uh, and on the other side, if I were a buyer, I, I'd be looking for a, a seller financing and Yeah. Those, that's, that's where deals are getting done right now. Yeah. And by the way, the, the, the rate that a seller will get is gonna be pretty close to what you're gonna get from a regular lender, maybe a little bit higher, but you don't have to deal with all of the, uh, the scrutiny, uh, that comes with going to a bank and so on and so forth. Right. Yeah. Come, we sold a little, um, another ground lease deal that we did. We sold it last year. It was a oil changer, not as glamorous as Chick-fil-A, but, uh, the local buyer couldn't get financing. It was too, it was a really small deal. We just wanted to get rid of it. So, so we, we carried the paper for 18 months. Uh, so hopefully he'll pay us off at the end of the year that that's, I think the deals that are getting done are, are largely getting done that way. Yeah. Just because it's, it's, otherwise it's so expensive and the lenders are so gun shy, you know, understandably. Good point. Right. I think there's gonna be a lot of movement in the, in the lending field. It's more arnie's expertise, more than mine. But Believe me, that's, that's quite a challenge on the lending side, believe a lot of Maybe new funds, I mean, there's a lot of capital on the sidelines, right? I mean, there's, Well, there are a lot of lenders that wanna lend, but they're very picky on what they wanna land, and they gotta get a certain return. And it, it's, it's, it's still a little like this, you know what I mean? It's, it's not quite lined up yet, and Right. I agree. Even the lenders right now are kind of in a wait and see, let's see what happens with the new administration and let you know. And it, it's still the same thing. You gotta get your return on the money and, and if they're not getting, and that's why we're seeing a lot of the mezzanine and the private money lenders doing, which they always have been, but they're becoming more forefront in the market right now. Right. You're right. It's, it's a good time to be a hard money lender. Exactly. Private money they Yeah, yeah, yeah. Private money. Yeah. You know. Well, you know, I, I'm looking at my questions and I, you know, I think we're, we think we've had a pretty good conversation, uh, Arne, uh, I think I, you know, I think I want to hear No, I Wanna hear about Scout's Honor, think on, outside of Real Estate Scouts, honor is the new book. So tell us, There is one other real estate topic, though, before we have Well, no, but I, I wanna hear about Scouts Honor first, then we'll go back to the real estate and end with it. But yeah, Here it is. All right. So if, if, if we were in college together, you know, smoking and joint, and, uh, for the record folks, I, I did inhale a lot. You haven't been on my social media, John lately. Javi, where did that come comment come from? Anyway, if we were 20 years old and you said, Hey, John, what do you want be when you grow up? Uh, if you, you said a developer I'd, I'd say, what the hell is that? You know, somebody works for, for, for Kodak? No, no. I would've said, uh, yeah, I, I wanna be a famous author. And so, uh, it took me, uh, but I also had a practical streak, and I had no talent. So I went to law school, became a real estate lawyer, and then kind of rolled into real estate. And, but I always wrote on the side and, uh, you know, for a social club, I, I would write stuff and, and then I wrote that book, uh, making it in Real Estate. This one. Yes. This is the one, this one has been quite successful guys. It is now taught from, geez, from Stanford to Cornell, and It's a classic. It's a, yeah, it does quite well. You Went to Stanford, right? No, we went You went to Berkeley. Berkeley, Yeah. Yeah. I, I would've gone to Stanford, Steve, but they checked my grades and Well, you brought Up Cornell, which is my alma mater, so I just thought, thought I threw that out. Oh, yeah. I'm, I'm, I'm big at Cornell. I, I've done a number of Zoom classes before I, I like Cornell. But anyway, uh, I really wanted to write a novel. And then just to kind of it, I, I had written the first draft of scouts when I was about, you know, 40, almost 30 years ago. Uhhuh and I, I thought it was brilliant. Uh, and then I centered around and everyone's just said, oh, John, this is great. You need to rewrite it. And I rewrote it, and then they said, oh, this is really great, but you need to rewrite it again. So I said, screw it. And I threw it into that closet. Yeah. Literally, this, this book thing. I, I threw it into that closet and forgot about it until, uh, COVID came along, and then one of my mentees told me she was writing a novel, and I said, oh, I've got one. I handed it to her. This is a true story. She, she said, let me read it. And I said, okay, sure. Uh, and it's this big fat book, right? Uh, and two months go by. I, I totally forget about it. Uh, and she comes back and she says, I have a present for you. And it's, and she, she gives me my manuscript back, and I said, yeah, what's that? And it's, uh, Stephen King's book on how to write. Oh, great. Uh, but anyway, that, that, that was Covid and things were quiet. So I, I was able to, you know, to write this book. And it's about, uh, it's, it's what do you know? Is it, have you guys looked at it? If you Yeah, I, I, I kind of read the, I I haven't seen the book yet, but I mean, I read about it a little bit, but, um, no, I, I, I see it. I mean, but I mean, how is that in relation to the, uh, the other novel you wrote, the O'Brien's, uh, um, law is this O'Brien's Law? Yeah, they're, they're, they're, they're totally different. O'Brien's Law. Uh, you know, my friend said, John, that's your, uh, I guess I can't square anyway, that, that's your expletive deleted autobiography, because again, I, I don't like doing research. So Brian's law was about this, uh, young happy go lucky, uh, lawyer who thinks he's a good lawyer, but he is terrible at it. And it's more comic, and it is, uh, somewhat of a murder mystery, but it's, it's kind of a romcom meets murder mystery. And it, it was fun and it was easy to write. Uh, scouts Honor is a different story. It's about a kid who, um, two years before the book opens, going great in his life. His father is set in the late sixties. His father is a career, uh, Navy pilot who's in Vietnam. Uh, he's, he's got a happy family. His father gets killed in Vietnam, his mother, he loses his mother. The kid goes from being a straight A student, um, water polos star, hopefully hoping to go to Annapolis to living on the street. You know, he's, he's homeless. And when the book opens, it's two years later, and he's this really smart kid he's working at, at a resort, uh, full-time, trying to save money, uh, to get back to college, because he wants to follow in his father's footstep. He wants to be a naval aviator. Uh, he wants to go to Vietnam, but he's gotta have a college degree. So he, he's working, he's living in his van out outside of this resort, and it's in San Diego, uh, and saving all his money. Along comes a bad kid from the old neighborhood who says, and this is Roy, as the bad kid, a little bit older, he says, Hey, Eddie, let's run a little pot across the border, uh, you know, and I'll pay you a thousand bucks. And Eddie says, no, no, no. Circumstance leads him to do it. What he doesn't realize is that Roy is setting him up to be the fall guy, while Roy steals 50 kilos of Coke from the Colombians. Eddie has to shoot his way out. He's, he is about to be killed by crooked cops. He has to shoot his way out, change his identity to run across the country. I'm telling you the whole story here. Yeah. We don't have to read it now. Thanks. Don't have to. He started getting sucked into it, so Yeah, don't tell me the end. Yeah, I won't tell you the end. But he, he goes to be Vietnam, changed his head, puts on fake glasses, goes to Vietnam, and, uh, and a marine rifle company. He joins the Marines, and I'm sure you guys know, the scout is also called a point, man. It's the lead guy in a platoon, hits the most dangerous position. So, uh, he, he's an excellent scout. He does several tours. The, the names, he's so good at it that the name scout becomes an honorific, like your, your Lordship or something like that. So everybody calls him Scout, he comes back, uh, and he's, the, the book is called Scout's Honor, because that's the thrust of the book. He becomes wildly successful. He goes to, to New York, becomes one of the, the richest office developers in the city, but he's haunted by his, There's a real estate hook. See, you, you, there's A real Yeah, yeah, yeah. He becomes a very, very successful developer, but he's haunted by his past. How, where, where did the idea for this book come from? How did you think of this? I don't know, Steve. Just come with head. Yeah. But that's great. I Mean, that's a great story. You know, like I said, I'm starting to get sucked into it. Um, amazing. One day, I, I was really sick. And it, I'll tell you how the, the, the germ of it is really simple. The, the, the question is, what would happen to a really good kid, you know? And he's an Eagle Scout too. Yeah. And to a really good boy who loses everything, whose world is turned upside down, would he, uh, would he fall, fall into crime? You know? And, and if he did, how, how would he, how would that affect him in, uh, you know, would, would he go totally to the bed? Would he come back? And, you know, that that was the question is I, I had a, and when I was a young lawyer, I had a client who said that people are about, he was very cynical guy. He said, people are about as moral as they can afford to be. Mm-hmm. And I thought, you know, there, there's, unfortunately, there's truth in that. Right. Anyway, well, that's great to, you know, have you come up with that. So, alright, Steve, Let's get back to real estate. Yeah, sure. One last, and I know it's not like what you focus on, but it's such a hot topic and there's so many ways, you know, it could go, and we touched on the downtowns, but, but I'd love to get your thoughts, you know, given the, the way you think about I issues in the world about the office to multifamily or perhaps cultural or quasi retail type of uses, uh, you know, it's such a hot topic now. Is is it something you've thought about, uh, not necessarily as going into it, but in terms of just a topic that you, uh, opine about and, and comment about, you know, for others to take action on it. Is that a topic that you've been considering? No. So you're asking what do I think of the idea of converting, uh, office buildings and into residential Yeah. Or possibly other types of, you know, sort of retail, sort of cultural, but more multifamily, I guess is the real hot, hot button. Yeah. So as, as you guys know, and I'm not sure your listeners do, I, I write a monthly column for the San Francisco Business Times, and I actually address this and, and I took a deep dive into it, talk to contractors, talk, talk to developers, you know, and in short, unless you have exactly the right building, and, and that usually has to be an old skinny building with light on, you know, uh, uh, a skinny rectangle of, of not that many stories with hope, preferably on corners of, you know, light on three or four sides. It doesn't work. And e even then, so I wrote a piece on this, uh, uh, there's one guy, Oz Erickson, who, who's done it in San Francisco, a really smart guy. But, so I went through it with him, but the, uh, the credits the cities would have to give, uh, and, and, and no left leaning city would ever do this for a developer, right. They, you would have to so vastly underwrite it, uh, that it just doesn't work. I, I frankly, I, I think it's a bad idea, you know, uh, and I, I've seen it done in New York City where you take, you know, a big classic, uh, office tower and core out the middle of it because, you know, the, if a floor plates 40,000 feet, where does the like and air come from in all these units, right? It's like a bowling alley apartment Put on back to office space. Now it's kinda, you, you might fill that spot for the, for the reason it was built, reason it was intended, right? So I think a lot of, a lot of cultural institutions, a lot of schools, museums, things like that could end up taking advantage of some of the lesser values, you know? Yes. Schools, A school might work, a museum might work, but I, I don't think it, it, I don't think it works for, uh, for people to sleep in. You know, it, it's, it's really tricky and it's really expensive. It is, frankly, it's probably more cost efficient to tear that the building down. Uh, and so some of these office buildings, they have a negative value. They're, they're not, it's, it's the land value minus the, the cost to remove the building and, and then build. Uh, so I don't know that, that, that's why the, the office market is in such total disarray. Right. Well, you know, I, I did, I I did feel the need to, to get your take on it, but I think we're, we're, uh, running outta timem. I think we're, we're good on, on the other issues. Are there any other issues? Well, I, I, uh, I'm glad we, we had this time to catch up and, uh, yeah, it's Fun. Is there Anything we left on the table that you wanted to get across? I think we covered everything. Nah, Will save for the third, the third one in a year and a half. Yeah, sure. Yeah. I, I'm, you guys are fun. I, I'm delighted to do it. Well, Well, She, a lot of great information. I, I found A lot. Yeah, no, it's, it's, it's more than just a real estate developer and, and we're getting a little bit more insight into what makes John tick. Um, you know, and, and I think that's important. And, and believe me, um, uh, the fact that you, in real estate, you kind of have to have a second thing to think about, uh, because certain days it just is maddening. So, So, so many things outta your control too. Exactly. So, uh, I love, I love the fact that you're an author and you write books and, and they're in a completely different, but you bring it back to real estate somehow, which is great. See, I like that when you get into the weeds on how you do the deals, you know? I love that. Yeah. Yeah. No, no. And that's, that's, thanks for opening. Maybe that's his next book, but you know what he told us he was writing this, this other novel mm-hmm. Last time. So I'm glad to out. Yeah, no, it's, it's, it's fun. Uh, yeah. I, I don't think life's not all about making money. I, I, I think doing deals is a lot of fun. Uh, yeah. It's like a New York Times crossword puzzle, but it's not the be all and end all. And, and, uh, you know, no rich guy through the course of history has ever well thought of, uh, let's say Midas, uh, uh, Rockefeller, unless they, they do something with their money useful to, you know, uh, unless they give it all away, you know, who cares? You know, the, yeah, it's fun making money, but you gotta give it away and, and you gotta do something else. It's, it's not, you know, business is not the be all and end all. It's true. I Like it. That's the drop the mic moment right there. Good Way to end. Thank you, John. Thanks John. Catching up. Take Care. My pleasure. Luck. Thank you Deals. Take care. You've been watching Commercial Real Estate Talk with Steven Arne, sponsored by commercial real estate inspectors, fidelity Mortgage Lenders, and Chase Partners.