CrowdStreet’s Darren Powderly is joined by Jerry Fink, Co-founder and Managing Partner at The Bascom Group, to discuss how the firm encourages entrepreneurialism through their internship program which turns today’s interns into tomorrow’s clients or partners, COVID’s impact on workforce housing, and why the firm is focused on distressed and underperforming assets.
Darren Powderly, Co-Founder & VP Capital Markets
CrowdStreet
CrowdStreet
Darren founded CrowdStreet in 2012 after identifying the need to radically improve people's access to commercial real estate investments via technology. Over his 20+ year career, Darren has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts. Darren is a driven leader who loves building relationships based on mutual success. In addition to building businesses, leading teams and advising a prestigious list of national clients, Darren has personally owned commercial real estate, syndicated investment groups and developed properties from the ground up.
00:00:03 Hello everybody, this is Darren Powderly. Welcome back to StreetBeats. Today I'm here with Jerry Fink. He is the co-founder and managing partner of the Bascom Group in Southern California. Jerry, welcome to StreetBeats. Thanks for joining us. Uh, please tell us a little bit about yourself.
00:00:19 Uh, thank you Darren, uh, appreciate being on the show today. Uh, quick background in myself. I'm originally, grew up in a small blue collar town in Wisconsin called lacrosse, and, uh, went to the University of Wisconsin to major in electrical engineering, computer science. Uh, went to that program as well as the R O T C program. And when I graduated, um, I want to learn finance and business. And so I went to graduate school at Wisconsin and then I met another real estate student in the gym working out lifting weights. And he said, Hey, take a real estate class as an elective. Uh, they have a great real estate program at Wisconsin. And I said, that's cool, I'll do it. So I thought I'll double major in finance and real estate graduate and just see what, what opportunities, um, come out of it. And then talking to my current partner, uh, David Kim.
00:01:10 We were, uh, friends in college. I had worked with him at Disney Development Company and, uh, and the real estate section. And so Dave sat down and we talked about this opportunity in California, and, uh, we thought it was an incredible time. It was 1995, you know, the bottom of the market, lots of foreclosures, and, uh, and Dave suggests, let's put a business plan together. So we sat down, uh, wrote this little business plan, and this is back before PowerPoint, so we did it on Excel <laugh>. Yeah. So we did on Excel, did a PowerPoint looking presentation, uh, late kind of 95. We both, uh, quit our jobs at, uh, Dave was at Disney, I was at Pacific Life. And, um, you know, started our little company, a little thousand square foot office, um, and, uh, got our start that way.
00:02:02 Very cool story. So Bascom is like the centerpiece. This is the value add apartment owner operating company. You mentioned dozens of affiliates and I, and I was looking at some of that and really piqued my interest. Like what, what, how did you come about, you know, creating, uh, either franchising your brand, which I understand, and I don't know if that's the correct word, in certain other markets like Arizona, New York, right? Sure. And, and then other, uh, complimentary or affiliate companies that you spawned off to do things that are outside of the multi-family, you know, core, you know, pros and cons of that, how they came about. And you, other firms of course, keep everything underneath one owner and they do everything like a conglomerate, but you've taken a different approach of partnerships. Tell us a little bit more about that.
00:02:45 Sure. Well, we felt, you know, the way to kind of encourage success is you get, people have skilled at doing what they're doing and successful, but maybe they work for a big company where they didn't have equity, you know, didn't have the authority, but they were good at what they were doing and, and could have made money if they were allowed to go do that. And so we tried to find people that had the passion, entrepreneurial energy, um, and had an idea that they just needed our capital, kind of maybe some of our Liebership and they could grow the company. And, um, and we always felt the best partnerships are ones where you've got people you enjoy working with, they've got great experience and they've got a vested interest that does well. They can make a lot of money personally. So, and so we try to encourage partnerships where each of the, the, the groups, if they do well, you know, after they pay back our capital or some preferred return, can be a big percentage owner a company. So it's, it's their company, they're running 'em mm-hmm. <affirmative>. And so we try to encourage those things, uh, ventures like that. So all, all of our companies, the principles have material stakes in the ownership. And, uh, we feel like that's the best way where if I go to bat, and I, I know that my partner has a big stake in this company to be successful, probably bigger than my personal stake.
00:04:00 That's awesome. I mean, you guys are really promoting entrepreneurship and, and helping other entrepreneurs. Clearly you're passionate about it and, um, and it seems to be working for you gives you a way for, to diversify, right? Reinvest some of the funds and, and the profits that you make within your core business. So, uh, and probably gets you into some other areas that you otherwise wouldn't be able to do on your own.
00:04:22 Right? Exactly. And I think that's the, our, our view is, hey, can a a couple of partners bring us to a market that we're not in? Yeah. A sector that we're not in. And, uh, a lot of these partners too, which has been fascinating, a lot of 'em worked our company as an intern, right? <laugh>. Hmm. So we have a program where we've had probably over 200 internships, uh, that we've helped mentors these people. And a lot of 'em have been, you know, undergrads, grads, recent graduates, or people are just looking for a change. And, uh, we have kind of this soft landing that come work for us. You know, we'll give you a modest salary, give you a lot of responsibility, and then you can look for something else, you know, once you got the experience. And so if you look at a lot of our, you know, portfolio companies, probably 50, 60% of the principles in those companies started off as an intern or analyst working for us, and they got to see our model and said, Hey, I like your model.
00:05:19 It's been very successful. I want to go do it for industrial, or I want to go do it for office. And so, you know, a bunch of our portfolio companies or partnerships, you know, they're runback principles that were an intern or analyst working for us and, uh, you know, work as an analyst doing apartments, you know, they laughed. They went to work for a w BlackRock or Lehman Brothers or some other company or fortress and got a lot of institutional experience and said, Hey, I want to go do it in industrial. I wanna go do it in office. And
00:05:49 Okay, cool. So let's, uh, let's transition again. We've had a lot of awesome topics. Let's get down to the nuts and bolts of what's going on in the real estate business today. Uh, some of your observations, we've been asking a lot of our guests on Street, StreetBeats here, like, you know, uh, how has the portfolio been performing? And I know you guys operate nationwide and you've got the affiliates, but maybe stick to, you know, uh, your core, uh, multi-family portfolio, you know, nationwide. What, what are you, what have you observing right now? Um, as we head into fall 2020?
00:06:20 A great question. I think that we've all been surprised that, you know, the portfolio as a whole has held up pretty well. And, um, and there's a reason for that. It's been unemployment benefits, employers paying their salary, and then paycheck money that's been, you know, trillions of dollars thrown by the government mm-hmm. <affirmative>. And so I think there's been a lot of money floated out there to keep everyone kind of going through this pandemic. Um, but the markets that we've seen get hit the hardest are, you know, the big urban cities. It's the New York, Chicago, San Francisco, la, uh, Seattle. And it's a combination of two things. One is they're very density, so people, you know, wanna fLieb the dents and go to the suburban, uh, markets where they feel they're safer from the, the virus. Yeah. Uh, and, and two is those markets are all much more 10 friendly landlord, tough meaning tougher rent control restrictions.
00:07:20 You know, you can not pay rent and you can't evict somebody, so mm-hmm. <affirmative>, uh, much tougher on the owner. And, uh, when you give a renter more power to not pay rent or not do things, a lot of 'em are gonna take advantage of that. So, sure. Uh, those big urban markets, um, are suffering the most, you know, the other markets where they have been, I call it good job growth, suburban, uh, markets, lower density, good school systems, they're actually holding up pretty well because most, and especially among the, uh, I call it more professional renter mm-hmm. <affirmative>, uh, you know, for past four or five, six years, everyone's fallen in love with this workforce. Housing is the greatest place to be, you know, there's nowhere for them to go. It's a great asset and we agree with a lot of that, but what's being hit the hardest, um, you know, taking out the location aspect is looking at the profiles of buildings, the professional buildings, meaning the higher income tents, they're all getting paid a salary from their employer, they're actually doing pretty well. Right. It's the, uh, lower grade, you know, workforce housing because you get the dishwasher, the busboy mm-hmm. <affirmative>, people like that, that might have been laid off first economy and, and they, and they don't have an employer paying their salary. So the workforce housing is getting hit the hardest, uh, especially in the tourist markets.
00:08:48 Baskin Grip has, uh, another, another, you know, uh, skill set of yours or something that you specialize in is buying distressed and, you know, buying from foreclosure or, you know, assets that are underperforming. Uh, are you, obviously that's a, that's a great skillset set. Not every firm does that. Most firms buy marketed properties and Sure. You know, so, so how has that expertise sort of you guys to be a stronger buyer coming into this downturn?
00:09:19 Yeah, good question. I think we've, you know, we've learned over the years of 20 plus years of doing this, uh, all the things that can go wrong with the renovation mm-hmm. <affirmative> and how to do it effectively, quickly. And, uh, and the one issue we see happening too is, uh, with this pandemic and this delay in selling is owners are gonna hold back on capital improvements. So right now, people, the idea of doing value add, no one's talking about it. <laugh>. Yeah. 70 months ago, everyone was talking about value add, value add. Today, you rarely hear the term and it's almost like a negative term today, right? <laugh>, you know, again,
00:09:57 I spend money on that. When your rents are gonna drop, you know,
00:09:59 Yeah, the rent's gonna drop, it's gonna get worse or people will pay for it. And this happens in every down cycle is value add stops because people go, the idea of renovating unit raising the rent sounds terrible right now mm-hmm. <affirmative> and people switch to, I'm just gonna turn the unit, uh, offer it cheaply or cost effectively because that's what the consumer wants today. So, you know, most of our renovations, we've kind of paired them back and go, mm-hmm <affirmative>, let's get the unit online, go for a lower price. Because, you know, post pandemic, post recession, people aren't looking for renovating units. They want a, a price affordable unit, and that's where the biggest demand comes cuz they don't know if they're gonna have a job next month. And so everyone is looking for the best deal versus the upgraded units. So, you know, that's what's changing right now is value ads kind of, you don't hear much about it today, <laugh>, but what will happen is owners, you know, won't renovate the units, they won't do the capital improvements, they'll delay it because they feel like they're not gonna get paid for it. And, uh, you start delaying it for six months, a year, year and a half, it'll create buildings with much more deferred maintenance. So I think the value add play will probably start happening.
00:11:11 Well, uh, you continue to stay healthy and strong and take care of your, uh, your team and everybody down there and Fcom and your affiliates. Uh, Jerry, you think, thank you very much for joining us. It was a real pleasure.
00:11:22 Great. Well Darren, thank you and, uh, enjoy the conversation.
00:00:19 Uh, thank you Darren, uh, appreciate being on the show today. Uh, quick background in myself. I'm originally, grew up in a small blue collar town in Wisconsin called lacrosse, and, uh, went to the University of Wisconsin to major in electrical engineering, computer science. Uh, went to that program as well as the R O T C program. And when I graduated, um, I want to learn finance and business. And so I went to graduate school at Wisconsin and then I met another real estate student in the gym working out lifting weights. And he said, Hey, take a real estate class as an elective. Uh, they have a great real estate program at Wisconsin. And I said, that's cool, I'll do it. So I thought I'll double major in finance and real estate graduate and just see what, what opportunities, um, come out of it. And then talking to my current partner, uh, David Kim.
00:01:10 We were, uh, friends in college. I had worked with him at Disney Development Company and, uh, and the real estate section. And so Dave sat down and we talked about this opportunity in California, and, uh, we thought it was an incredible time. It was 1995, you know, the bottom of the market, lots of foreclosures, and, uh, and Dave suggests, let's put a business plan together. So we sat down, uh, wrote this little business plan, and this is back before PowerPoint, so we did it on Excel <laugh>. Yeah. So we did on Excel, did a PowerPoint looking presentation, uh, late kind of 95. We both, uh, quit our jobs at, uh, Dave was at Disney, I was at Pacific Life. And, um, you know, started our little company, a little thousand square foot office, um, and, uh, got our start that way.
00:02:02 Very cool story. So Bascom is like the centerpiece. This is the value add apartment owner operating company. You mentioned dozens of affiliates and I, and I was looking at some of that and really piqued my interest. Like what, what, how did you come about, you know, creating, uh, either franchising your brand, which I understand, and I don't know if that's the correct word, in certain other markets like Arizona, New York, right? Sure. And, and then other, uh, complimentary or affiliate companies that you spawned off to do things that are outside of the multi-family, you know, core, you know, pros and cons of that, how they came about. And you, other firms of course, keep everything underneath one owner and they do everything like a conglomerate, but you've taken a different approach of partnerships. Tell us a little bit more about that.
00:02:45 Sure. Well, we felt, you know, the way to kind of encourage success is you get, people have skilled at doing what they're doing and successful, but maybe they work for a big company where they didn't have equity, you know, didn't have the authority, but they were good at what they were doing and, and could have made money if they were allowed to go do that. And so we tried to find people that had the passion, entrepreneurial energy, um, and had an idea that they just needed our capital, kind of maybe some of our Liebership and they could grow the company. And, um, and we always felt the best partnerships are ones where you've got people you enjoy working with, they've got great experience and they've got a vested interest that does well. They can make a lot of money personally. So, and so we try to encourage partnerships where each of the, the, the groups, if they do well, you know, after they pay back our capital or some preferred return, can be a big percentage owner a company. So it's, it's their company, they're running 'em mm-hmm. <affirmative>. And so we try to encourage those things, uh, ventures like that. So all, all of our companies, the principles have material stakes in the ownership. And, uh, we feel like that's the best way where if I go to bat, and I, I know that my partner has a big stake in this company to be successful, probably bigger than my personal stake.
00:04:00 That's awesome. I mean, you guys are really promoting entrepreneurship and, and helping other entrepreneurs. Clearly you're passionate about it and, um, and it seems to be working for you gives you a way for, to diversify, right? Reinvest some of the funds and, and the profits that you make within your core business. So, uh, and probably gets you into some other areas that you otherwise wouldn't be able to do on your own.
00:04:22 Right? Exactly. And I think that's the, our, our view is, hey, can a a couple of partners bring us to a market that we're not in? Yeah. A sector that we're not in. And, uh, a lot of these partners too, which has been fascinating, a lot of 'em worked our company as an intern, right? <laugh>. Hmm. So we have a program where we've had probably over 200 internships, uh, that we've helped mentors these people. And a lot of 'em have been, you know, undergrads, grads, recent graduates, or people are just looking for a change. And, uh, we have kind of this soft landing that come work for us. You know, we'll give you a modest salary, give you a lot of responsibility, and then you can look for something else, you know, once you got the experience. And so if you look at a lot of our, you know, portfolio companies, probably 50, 60% of the principles in those companies started off as an intern or analyst working for us, and they got to see our model and said, Hey, I like your model.
00:05:19 It's been very successful. I want to go do it for industrial, or I want to go do it for office. And so, you know, a bunch of our portfolio companies or partnerships, you know, they're runback principles that were an intern or analyst working for us and, uh, you know, work as an analyst doing apartments, you know, they laughed. They went to work for a w BlackRock or Lehman Brothers or some other company or fortress and got a lot of institutional experience and said, Hey, I want to go do it in industrial. I wanna go do it in office. And
00:05:49 Okay, cool. So let's, uh, let's transition again. We've had a lot of awesome topics. Let's get down to the nuts and bolts of what's going on in the real estate business today. Uh, some of your observations, we've been asking a lot of our guests on Street, StreetBeats here, like, you know, uh, how has the portfolio been performing? And I know you guys operate nationwide and you've got the affiliates, but maybe stick to, you know, uh, your core, uh, multi-family portfolio, you know, nationwide. What, what are you, what have you observing right now? Um, as we head into fall 2020?
00:06:20 A great question. I think that we've all been surprised that, you know, the portfolio as a whole has held up pretty well. And, um, and there's a reason for that. It's been unemployment benefits, employers paying their salary, and then paycheck money that's been, you know, trillions of dollars thrown by the government mm-hmm. <affirmative>. And so I think there's been a lot of money floated out there to keep everyone kind of going through this pandemic. Um, but the markets that we've seen get hit the hardest are, you know, the big urban cities. It's the New York, Chicago, San Francisco, la, uh, Seattle. And it's a combination of two things. One is they're very density, so people, you know, wanna fLieb the dents and go to the suburban, uh, markets where they feel they're safer from the, the virus. Yeah. Uh, and, and two is those markets are all much more 10 friendly landlord, tough meaning tougher rent control restrictions.
00:07:20 You know, you can not pay rent and you can't evict somebody, so mm-hmm. <affirmative>, uh, much tougher on the owner. And, uh, when you give a renter more power to not pay rent or not do things, a lot of 'em are gonna take advantage of that. So, sure. Uh, those big urban markets, um, are suffering the most, you know, the other markets where they have been, I call it good job growth, suburban, uh, markets, lower density, good school systems, they're actually holding up pretty well because most, and especially among the, uh, I call it more professional renter mm-hmm. <affirmative>, uh, you know, for past four or five, six years, everyone's fallen in love with this workforce. Housing is the greatest place to be, you know, there's nowhere for them to go. It's a great asset and we agree with a lot of that, but what's being hit the hardest, um, you know, taking out the location aspect is looking at the profiles of buildings, the professional buildings, meaning the higher income tents, they're all getting paid a salary from their employer, they're actually doing pretty well. Right. It's the, uh, lower grade, you know, workforce housing because you get the dishwasher, the busboy mm-hmm. <affirmative>, people like that, that might have been laid off first economy and, and they, and they don't have an employer paying their salary. So the workforce housing is getting hit the hardest, uh, especially in the tourist markets.
00:08:48 Baskin Grip has, uh, another, another, you know, uh, skill set of yours or something that you specialize in is buying distressed and, you know, buying from foreclosure or, you know, assets that are underperforming. Uh, are you, obviously that's a, that's a great skillset set. Not every firm does that. Most firms buy marketed properties and Sure. You know, so, so how has that expertise sort of you guys to be a stronger buyer coming into this downturn?
00:09:19 Yeah, good question. I think we've, you know, we've learned over the years of 20 plus years of doing this, uh, all the things that can go wrong with the renovation mm-hmm. <affirmative> and how to do it effectively, quickly. And, uh, and the one issue we see happening too is, uh, with this pandemic and this delay in selling is owners are gonna hold back on capital improvements. So right now, people, the idea of doing value add, no one's talking about it. <laugh>. Yeah. 70 months ago, everyone was talking about value add, value add. Today, you rarely hear the term and it's almost like a negative term today, right? <laugh>, you know, again,
00:09:57 I spend money on that. When your rents are gonna drop, you know,
00:09:59 Yeah, the rent's gonna drop, it's gonna get worse or people will pay for it. And this happens in every down cycle is value add stops because people go, the idea of renovating unit raising the rent sounds terrible right now mm-hmm. <affirmative> and people switch to, I'm just gonna turn the unit, uh, offer it cheaply or cost effectively because that's what the consumer wants today. So, you know, most of our renovations, we've kind of paired them back and go, mm-hmm <affirmative>, let's get the unit online, go for a lower price. Because, you know, post pandemic, post recession, people aren't looking for renovating units. They want a, a price affordable unit, and that's where the biggest demand comes cuz they don't know if they're gonna have a job next month. And so everyone is looking for the best deal versus the upgraded units. So, you know, that's what's changing right now is value ads kind of, you don't hear much about it today, <laugh>, but what will happen is owners, you know, won't renovate the units, they won't do the capital improvements, they'll delay it because they feel like they're not gonna get paid for it. And, uh, you start delaying it for six months, a year, year and a half, it'll create buildings with much more deferred maintenance. So I think the value add play will probably start happening.
00:11:11 Well, uh, you continue to stay healthy and strong and take care of your, uh, your team and everybody down there and Fcom and your affiliates. Uh, Jerry, you think, thank you very much for joining us. It was a real pleasure.
00:11:22 Great. Well Darren, thank you and, uh, enjoy the conversation.