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Ep. 11 – Investing in Land: High Risk or Hidden Opportunity?

Dalton Elliott (Speaker 1)

Welcome to the Real Estate of things podcast. I'm your host Dalton Elliot, John Curry, thank you so much for joining.

John Curry (Speaker 2)

No worries pleasure. Pleasure to be on here.

Speaker 1

It is great to have you. I met you over the summer down at a conference in South Beach certainly worse places to be and as the cold weather comes upon us, I miss the warm embrace of South Florida. You are the co-founder and CEO of Setanta development capital, really residential development capital firm based in Charlotte, North Carolina. Did I get that I nail the name Setanta?

Speaker 2

You did so talented, and that's, you know, I tried to pick a name that was that was Irish. And as you can sort of tell from the accent and not a native and but also try to get something that Americans can actually pronounce. So we've had a few people calling us Santana, which you know, sadly, not a legendary guitarist, but Setanta. That's got it. He nailed it.

Speaker 1

He would be a good addition at the company Christmas party though Santana comes to play at the Setanta Christmas party.

Speaker 2

Absolutely, absolutely. We get sort of black magic woman going there, you know, it will be perfect. Okay. And I guess obviously finished with smooth. So it'll be, you know, something forever.

Speaker 1

We had just made sure I get an invite this is, this is an idea in the making, especially in the age of tech companies and startups. I feel like I always run across awful sounding names with ridiculous stories. But your firm is an exception. I like the name. It's cool sounding name. But there's also a legitimately interesting story behind it was it I did some Wikipedia digging and the origin is an Irish warrior.

Speaker 2

Yes. So Setanta is the sort of the birth name given to an Irish folk hero. So it's a story called The Tom the cat raid of Cooley, and it's a couple of 1000 years old. So it's the same as sort of the Odyssey ran that same sort of time. And it's a story that gets its tone. So for example, my, as I said, I'm from Ireland, originally, my, my grandfather used to tell the story, and we gather and fire to local pub plus games. And you know, we would, you would tell it over like four or five nights, and, you know, never, never the same story always vary, but always had sort of key elements. One of them is the story of this child, as sort of the Achilles sort of born with supernatural powers at strength. And it's the story of how Santana then becomes cool. And witches are the lead hero in the story. So it's a, again, it's a fascinating story, where it sort of overlaps with what we do is my co-founder, and Robert Davenport, who's sort of a lot of the brains behind or the for what we do. And we came together to form this platform. I was looking for something that had a Irish name. And so and I liked the name Setanta. And I like, that's that story. And then the, the other main principal character in this story is Queen Maeve. And Rob's youngest daughter is named Maeve. And being opportunistic. I was like, you know what, we could call it two times up. And it'll be you know, Irish for me and may for you, and, you know, sort of kill two birds. So I took advantage of, of, of Rob's goodwill to you, you get an Irish name for it.

Speaker 1

I love it. I love it. So let's dive right into it. You and I chatted a little bit prior, and I have kind of a genuine knowledge gap. And a lot of this, I think, you know, I kind of cut my teeth in the private lending space building out a mortgage broker program for Lima one capital. And every once in a while, we would get a deal that would come in the door, that would just be completely outside of our box that we couldn't do anything, which is not something we touched. We do and we did we do new construction, right ground up kind of foundation up the vertical piece of it. But what was always crazy to me is how hard it was to find financing option for people who came to us were like, Hey, we're good. If you have property that is fully plotted, utilities run, everything's good to go. It's pristine. Now we need to go up need to actually build the structure. Everything before that. It seemed like there was a financing deadzone I would talk with some folks that have been in the space for double digit years. Hey, do you have an outlet for this? Do you know somebody and Atlanta in Southern California every market it was kind of the same? It was like ah, you know, we know that this gets financed somehow because people aren't doing all this cash, but we don't really know anybody who does it. So I give that backstory to say in my mind the picture of foundation up, I understand I know it well, but everything before that is kind of a black mystery box. So I guess start off Enlighten me. Why is it such a unicorn? Why is land AMD? Such a unicorn?

Speaker 2

It's an excellent question. And the short answer is it shouldn't have been, you know, it's the often-told joke in our industry is that, you know, land is a four letter, and it just scares people. And it scares people because of, you know, a couple of things. And we can't discount. Oh, 708. And I'll try and be short, I could, I could go on and on about this, as our employees can tell you I do on a daily basis. But oh, 708 is one of the greatest misremembered crises. It's sort of seen as a, we over develop land, we over built homes, which, which we did, but that's what our industry does, and let you in on a little secret, we're going to do it again, we will over build, we always over build, we've over built in the 80s, in the 90s, in the 90s. And we haven't over built yet only because of the sort of misremembering of, Oh, 708. But that's normal, what harmed things in Oh, 708 was Wall Street and sort of financial instruments that were reused there. So what you ended up happening was this credit crunch that just both led to a huge bubble, and sort of fed into it, but then also, through various administrations and very various policies, just decimated the industry, just holidays, the developer underclass. So that's a very large part of it. But then there's also there's always been traditional skepticism towards land. And the, the part that makes me laugh is, you know, it's very, it's simple to get plenty of fix. And flip lenders, as you guys know, well, you know, obviously, one of the one of the leading groups in both out and vertical, but there's a lot of a lot of competition. And, you know, there's, if you actually haven't finished loss, you know, there's a lot of competition for getting that vertical side of things. And when you sort of pivot into build for wrench, there's lots capital for stabilized homes, and on the for-sale side, you know, mortgage rates, while they're taking up slightly, are still at levels, you know, unbelievably low levels, you know, compared to historic norms. So every aspect of housing has low rates, lots of competition, and then the most important part of housing is land, you cannot build on you cannot build without land, and then somehow, where the sort of the ugly stepchild that nobody really wants to, to address and when I push back on people, the number one thing I get told is, well, you know, land, it's very illiquid, you know, if, if, if nobody wants to buy it, it's very, very hard to do anything with it. And, you know, the two sort of thoughts, that is one, anything is illiquid, if nobody wants to buy it. So it doesn't matter what asset class you have, nobody wants to buy it. It's illegal. But secondly, compared to an office building that could be empty, or a retail strip model, it could be empty. Land is land, and I can have a picnic on it. I can graze animals on I can grow something on it, I can put in for planning for a different type of use it. So what's bizarre is I sort of see what people say about oh, lambda t liquid, and there's nothing else you can do with it. I'm like, it's no more liquid than anything else. And anything, the maintenance office, and the many different uses I can use for it means that, quite frankly, I'd rather have $100 million invested land than I would in office. And in fact, I do.

Speaker 1

Yeah, what as you're describing this to me, I have like a left-brain right brain thing going on part of me, like seven years in this space. Like what you're saying, rationally makes sense. I understand it. And I'm like, Yeah, of course, land is the basis of everything, no matter what type of property like structure sits on top of it, or maybe nothing sits on top of it. Maybe it's farmland, like you said, that's the one side it's like, oh, it makes complete sense. And then the other side is this deep, dark Pandora's box of scarceness. And like, I don't know, this land. I don't know. I don't know. It's just that like conditioned in the industry, like you said to be this to steal your phrase, I guess a scary little stepchild that nobody wants to touch. So how do you how do you break into how do you convince and I'm not entirely you know, how do you start a business on the land development side of the fence this ultra-niche? People see it and run?

Speaker 2

Yeah, not so that's really good question. That's actually the most important thing to understand about our platform, is to understand our origins and as I said, my co-founder And Rob Davenport is instrumental in that story. So I sort of, you know, I was in Ireland, and I was thinking, what did America need more of so became a lawyer, and, you know, was over here doing, you know, real estate transactions and in Oh, 708. And mainly commercial, you know, as we all did, we sort of pivoted to work at opportunity. And that led to a lot of land, land foreclosures, working at that, as well as sort of, you know, opportunities that came from my partner, Rob, you know, he was more on the hands-on development working for developers, and then obviously, throw seven away also sort of pivoted to helping banks helping equity shops, and we overlapped at a private equity group. And that's very important, because what it meant was, we were both at a private equity group that at a time when there was very little money in this space, that was betting on the fact that, you know, land development and home building was here to stay, and that there was a place for it. And that, you know, we could understand that. So we, we learned a lot of stuff there. And on the equity side, you know, as the as the attorney, I was tasked with, you know, telling our sponsors, you know, because the equity doesn't like the share, right? So the equity, we want to put out as much money as possible, and as little debt on it. So, you know, I would be I would get loan obligations from our borrowers who say, well, what if we put like 30% on or 40% on anything, so that we don't have to pay our equity, you know, 20 30% returns. And, you know, I was told in a non-adversarial way, like, let's just see if we could just not do this. And it was very easy to say no to I would contact the borrower was going Have you read this term sheet, these terms are awful, the rates too high. If you sneeze incorrectly, you lose the land like it's, it's the hardest of hard money. And that process, the two things for us. One is, we were already doing 90 95% of deals, sometimes even 100%, for a sponsor that this was maybe our fourth or fifth deal with them. So the idea of going that high up, the costs are didn't scare us. The second thing was I was looking around and seeing that there was very, very little good competition, there are very good lenders in our space, but there's not enough of them. And I realized that if you could go out there and carve out a little niche for yourself, you know, you would have people falling over themselves, and to give you, their business. And you know, again, you still have to earn it, you still have to work hard for it. But that's what we that's what we discovered. So when we created Setanta adapt platform for developers, there were two things that we wanted to make sure that we were answering correctly. The first one was, what would we me and Rob, what would we have said yes to when we were on the development side. So making sure that I don't ever ask somebody to do something that I wouldn't do, make sure the loan documents are fair, the whole process is fair. So simple things like if somebody says they have a two-year project, we give them a three-year loan. If they say the first law take is going to occur in February. That's great. I trust you; I believe you. Guaranteed will, however, let's not make it a default until maybe October November, like let's give ourselves some padding, because the next deal that has the first uptake occur, as scheduled, will be the first. So that's you know, that's the first part of this is that what would we have said? Yes. And then the second part, and this is not, you know, it sounds like it's a joke, but because we had been in this industry, we been part of a joint venture then put out over a billion dollars in this space, you know, we were able to go through people across the country in different markets. And that's a very simple question. What do you hate most about your lender, and as long as it didn't impact our security, at least in my opinion, we would do it? And you know, there's some of those are simple things like, make sure we fund within 10 days, some of those are more fundamental, and people think we're crazy, but we just don't have interest reserves. You know, we don't believe that an interest or Reserve does any benefit other than put us on holiday with a borrower as to how long the project's going to take. You know, we also try to limit our fees, you know, we'll charge you know, typically will charge a point. And that's it. We don't have any exit fees and the annual fees and the servicing fees and a draw fee. And you are just simple things like that. So why did we get into this space? Well, we kind of fell into it through where if residential development happened in oh seven away to the fact that myself Rob came through that was very important. But also, we just looked around and we saw that this is an area that the market has and continues to miss price, the risk. So as long as they you know, as long as big institutions are not wanting to play in this space, we're happy to reap whatever we can.

Speaker 1

Yeah, you. You kind of built up a lot of your business around one of my favorite questions. My day job is director of sales and customer experience. And I feel like everybody likes to ask what do you love about us? What do you love about us? But to me the most important Question is, what do you hate? What just makes you pull your hair and teeth out, get absolutely frustrated. And then that's where you start. And if you start overcoming those, and you whipped off a million of them, that's how you create a customer experience and a product that, that that's your competitive advantage, right? You fixed all of the problems in that space in your ecosystem, it's going to speak for itself, right?

Speaker 2

Oh, absolutely. I mean, sometimes we forget that, that hate is as strong as an emotion, perhaps even stronger than love. And, and let's be frank, it's very few borrowers who love their lender, it's very hard to get to get someone to love you, and you're charging them double digits on their on their loans. But it's very, very easy to get them to hate you. And I think that that's, you know, so if we're looking at those strong emotions, you know, given that it's so easy to get the hate one going, if you can steer from that, or, and I do this, I'm very cynical, and but you know, what people hate about our competitors. And then specifically, you know, lean into that on our on our phone calls or meetings. Now, we actually don't do this. And oh, did they do that? Oh, yeah. But no, we don't. Yeah. So like little things like that, that then will steer people, you know, in your in your general?

Speaker 1

Yeah, big fan of that line of thinking. So I started my career as an underwriter on the long-term debt side. But everything I looked at always had a property sitting on top of it, we you know, we have at least one new construction financing for SFR. But again, that's that it's not looking into a forest of trees and saying one day, this land will be ready to develop on top of, we're way past that point. So can you kind of walk me through, I guess, a, is there really a material difference? Whenever you're valuing, you know, a quarter million-dollar SFR, that's already built up just got finished, versus a tract of land that is completely virgin, untouched, and you're going to go build 250 homes on it. So is there a material difference? And if so, what are the differences when you're looking at it from a valuation standpoint?

Speaker 2

Well, yeah, so there's certainly there's, there's differences, and what we sort of see is, you know, where is the is the risk, and, you know, we sort of again, look at it, perversely, we sort of look at it the opposite way. So whereas everybody sees land development, as being the riskier option, let's, you know, sort of take sort of an example of, you know, 250 finished homes. And, you know, as you're saying the land to develop 250, I would argue there's a, there's a different, at least a five-year different risk cycle. So on those 250 homes that you're buying, you're putting out the full amount on that they will and you're fully documented. And hopefully your assumptions are correct, if two years in the market fundamentally evaporates or changes, or if some of your assumptions were hideously wrong, oh, you're stuck with that mistake. And yes, maybe you can try and get out of it. But you were pot committed, you put your full of money in, and now you're sort of writing out the consequences. Let's take the exact same example. But us we bought the land, so maybe, to, you know, to develop those finish laws for 250 homes, the lot price, land price, maybe $2 million, and the entire project is going to cost us you know, 15. So 2 million of acquisition, maybe other millions of getting it there. And then 12 million of sort of development over phases. Well, if the market bottoms out in two years’ time, I don't have my full amount in there, I've only got whatever I've developed over that period of time. And I can make a pivot into rental pivot into sale, I can do something different with it, I can put the project in mothballs and see what I can do with it. So when we look at that, you know, we're looking at that, that opportunity and saying, okay, yes, there is risk that a builder isn't going to buy these lots, and there's risks at the home price, you know, to build these homes is going to be astronomically expensive, but those are all risks that we can sort of ways over time. But if there is a fundamental, you know, nobody wants this product anymore, somehow, we've invented a new way of living, that we don't need homes, you know, then it's, it's, you know, we can still pivot into something different and put the project in multiples, which you can't do when you have single family rentals already finished. So interestingly, whereas that product is considered less risky, so he's getting sort of made single digit returns on its loans, and ours are getting almost double that. I would argue this is how we built our thesis is that I'm actually taking less risk. I'm allowing myself to be able to pivot and change direction at any, any type thing and that's some people will hear this and say, This guy's absolutely crazy. It's land we want what is he doing? There's, there's only one thing you could do with land and that's built on as I've already mentioned. There are other things you can do. And again, the key thing to remember on a $15 million development, your project projected peak is probably only going to be $70 million. Whereas on a $15 million property acquisition, you've got $15 million out the door day one.

That's a compelling argument. Yeah, maybe

Speaker 2

we should stop, we should stop doing this. I don't want other people to enter our space. Forget everything I said, it's very, very risky. And nobody

Speaker 1

will keep it secret. I think it's just my mom and my sister and my wife who listened. So we're good, John, no worries. So that makes sense on the valuation perspective and the risk view, quickly align into your side of the fence, the ability to pivot there is something that you don't have whatever, you got a bunch of homes on top, the supply chain issues, let's touch on that 8000 pound gorilla, just got a mountain bike, it took over a year to get a bicycle effectively, it doesn't matter what you're trying to get right now, get in line, and it's gonna be a minute I have a friend who got a Toyota Tacoma took two months to get it in the door, everything no matter how big or small is taken forever. How has that affected your business? How has it affected the loans that you have outstanding? What are you seeing?

Speaker 2

Yeah, so it's, you know, one of the benefits of what we do, right, is that we are we're taking, you know, Roland, though, you know, for our platform, you're required to be entitled, but, you know, if you're an amateur and you're looking at a Latins that is unentitled in the land that's entitled, looks the exact same. So we're taking picking a big green field, and we're putting in the infrastructure. So not to say that supply issues don't impact what we do, because there's certain materials, minerals that are needed. And obviously, you know, as we're putting in asphalt or concrete, depending on the stage, you know, as we're doing grading, or, you know, we have machines that are necessary to do that work. But we don't have the same issues that homebuilding has, because, you know, we're not as material intensive, as that it's, for example, there's very lumber that's needed in developing lots. However, it would be foolish to say that that means that the supply issue doesn't in fact, impact us at all, because it absolutely does it impacts when builders want to buy their lots. And, you know, that's the builders are, are in a game or in a in a bind right now, where they're trying to decide, do they take advantage of this market, which means sort of build as quickly as possible. But that means maybe over pi overpaying for materials, which means that your margins are a little bit lower, but your velocity is higher, or instead of returning to space, that is, if you're spacing it out? What does that do to lot takes that you've committed to taking if you're supposed to be taking 50 and a quarter, third quarter, you know, but instead, you only want to take five or five or 10. So it does have the potential to impact us. And right now, we haven't seen it impacting us because it our projects are too early in, which is a benefit, again, of land development, which is the loans we closed today, you're delivering lots in a year's time, fingers crossed, a lot of these supply issues are resolved by that or at least there's a new solution to the more an alternative to and so that's, again, one of the benefits to, you know, the length of time it takes for us to do stuff. But, you know, we do anticipate that there will be a little bit of pushback from builders, and that's just something we're going to have to work with to, you know, understand, like if they're still going to take 30 Lots, but instead of taking 30 In March, they want to take that 10 in March 10 and April and tenant, may we just need to make that decision. Does that make more sense? And in general, both with our borrowers and with the builders, we want to be good partners. So we're not looking to you know, the benefits of coming through the development world that myself and Rob came through is we absolutely positively do not want this land. We do not want to leave in the hopes. We're developers who let you know, we're not we're not banks, you're trying to understand development. But that also means that we're not so gung-ho that we're like, oh, great, we'll just foreclose and double our profit on it. No, we're gonna try and do everything we can to make it work with our borrowers. Because we know we really, really, really do not want to become developers. It's

Speaker 1

a sign one of the good signs of a good honest lender, which is like, like, I want to do this project only if this makes sense. Only if it seems like you're going to be successful, because I do not want to take on projects. I don't want to have to, you know, turn my accountants into project managers and give them hard hats and boots and send them out and about to go manage across the country.

Speaker 2

Yeah, it's the benefit of knowing what that actually entails. So because we know what's involved in doing it, and it's good, right? So it means that we know we can do it. It means that if we have to take over project if we have to take it in internally, we can do that without farming and we're not running around and panicking. But again to your point like we're very straightforward the ideal scenario for us is we give you money you give us that money back plus interest we give it to you again for another project rinse repeat that's that is our as our dreams.

Speaker 1

I like it we just have to figure out for not this is not your company thing this like the horizontal development industry they didn't have a good PR guy. Alright like now rehabs are on HGTV I was I was in Charlotte, your neck of the woods over the weekend and just flipping through at the hotel late at night and a rehab show was on absolutely passed by I'm like, That's the day job. I don't want to watch that when I'm at night. How do we get how do we get horizontal development on HGTV TLC sexy enough?

Speaker 2

But listen, I can tell you the benefit of being Irish is we know the value of land. So there's, there's many there's many of a family a few that has been followed over land. So and was always sexy in our you know, it was a, I'm the son of a farmer and the son of the daughter of a farmer. And my mother would constantly say, you know, they're not making any more of it, you know, you know, so it's all about, you know, the, the scarcity of it, and the ability to have it. So if there's a there's a, there's a wonderful play, it's an okay movie, but it's a wonderful play called the fields with Richard Harris, who most people that would know is the original Dumbledore, but you know, for, for some of his older genius of an actor, but one of his loves, it's all about a little field in Cary. And, you know, he’s renting it and the owner of the field wants to sell it and, you know, a big burly, you know, obnoxious American comes in and overpays for it. And you know that the rest of the field is the or the rest of the movie is the disastrous consequences that comes with that. So, you know, we're, you know, if Netflix wants to give me a couple of million dollars, I can definitely, you know, find a way of making Land, land safe. It's in our blood,

Speaker 1

we'll put it in a call to read, we'll get you on the production docket. He said something at the very beginning that I want to unpack a little bit. And perhaps there's a history lesson in there for me, which is that we always overbuild you said in the 80s, and the 90s, and the 2000s. Walk me through that, that kind of maybe I don't have enough history knowledge on the real estate space to, to make any sense of that, that it's a cyclical thing. It sounds like

Speaker 2

yeah, residential development is probably the most cyclical off of investments. And it just has a sort of tried and tested, this keeps happening. And it doesn't just happen in America, Ireland has gone through several booms, the United Kingdom has gone through several booms, Japan never really recovered from the room. And right now, we're seeing what's happening in China, which is going to play havoc with the economy over the next two, three years in a in an indirect way. But it's, it's all predicated on the same thing, which is, you know, we all need a place to live, right, we have not yet decided that we're just going to roll into sort of wardrobes. And that's where we're going to sleep, we want to have a place to live. And certainly in you know, a lot of countries and cultures, specifically America, and you've got that I want to have my own home, I want to be able to do things I want to have the freedom. And you know that owning a home or renting a larger unit affords me so that's, that's something that's baked into the culture as well. But when you combine that with the fact that it costs a lot to build, it costs, you know, and that value is an early increase. For a lot of people, your home is going to be the first entryway into actually earning equity investing making a return on your investments, maybe you move to a second home, but you never rented out your first home. It's the gateway drug for the mom-and-pop investors around there. So but what that then leads into is sort of as you sort of pointed that, then least the TV shows around the culture around the talking about it. And everybody wants to get in everybody wants to you know, see what they're doing. And it's just a traditional bubble. There's nothing necessarily unique about it, except for unlike maybe the stock market bubbles, or to the bubbles, you know, in the in historical times, everybody has some connection to a home, they’re renting it, they're owning it, their parents were living in, you know, everyone has a connection to home. So it makes it more pervasive, and it makes you feel wealthier when you have one and you have your neighbors, and everyone's values are increasing. So that gives a level of intoxication, and we always think that we're this time is different, but I remember in Oh 809 saying to the bankers in the space, you know, we will never make the same mistake for at least 10 years and That's sort of the way I like to think of it is we'll never make the same mistake until we or we'll find a new mistake to make. But yeah, absolutely, you're looking at 8384. And housing oversupply coupled with the interest rate, madness, obviously, the 70s didn't have as much of it, then you have, you know, the savings and loan crisis of the early 90s. You had, you know, and then what was interesting is, in 2000 2001, you had the stock market fall, which should have led to sort of a recession, but didn't, because all that money sort of pivoted said into residential, which then led to a much, much bigger bubble in sort of, oh, 506 or seven, but then, you know, obviously, peaked with oh six with a Bear Stearns fund, and collapsing and then no seven, which, you know, we sort of really that it was things hitting the fan and always with Lehman, so, you know, we've got just sort of that history. And I think the reason we haven't seen that now is because this from Oh, seven pricing, you know, homes that sold in oh seven, really only started getting their value back in 2019 2020. That's an awful long recovery, very, very unusual variety of different factors that came into it, mainly one being that there wasn't just enough developers or land supply. But what that ends up meaning is that we haven't hit it yet. And I do still think we're five or six years away from hitting it. But we're human, we are going to overbuilt we're going to get we're going to convince ourselves that this time, it's different. And, you know, the important thing for us is, you know, I like to say that I've got principles that are you know, ink, not pencil, you know, so we sort of have our little Canaries, and when those you know, stop singing, I hope that we have the discipline to take our chips off the table, and maybe we're wrong. But this industry has shown us that if left to our own devices, this will continue to cause problems, I guess, to give you a cleaner cut, clear answer is house prices are gone up 19% year on year, rents are going up 10 to 20% year on year per market net. If you had been underwriting to the 2018 model, and you keep to that rate, this is all gravy. And then when things come back to normal, you're doing fine. But what you'll find there's going to be a certain submarket there that saying, Well, what if this actually is the new normal? What if we can actually get these rents this time? What if entry level housing in Charlotte to be 450 to 500,000? What eventually level in Greenville where you guys are and we do a lot of work? What if entry level there really is 404 50? And that becomes your baseline and that's where you put all your money in? Well, when the normal comes, that's when was the famous, famous Warren Buffett? You know, comment is, you know, the when the tide goes out, that's when you discover, you know, who's still wearing the bathing shorts. So, you know, it's that that's what we see is there is going to be overbilled we believe, based on what's happened over the last 4050 years.

Speaker 1

Yeah, that makes sense, especially when you lay it out over that, that historical timeline. And it's almost to the clock that it seems to happen. So talk a little bit about Setanta, right, like what does what does your strike zone look like? What's the beautiful center strike zone with a World Series upon us? Beautiful center strike zone deal looks like?

Speaker 2

You're talking about that game rounders. Right? That's the ball. Yeah. And now it's, we're, we know that there's a gap for lenders in the ad space, I think the hardest thing is for us to try and stay disciplined. What we want to do is we want to be in the markets where people are moving to, I mean, want to be delivering the homes that people need. So that's entry level, next stage, perhaps a stage above that we don't want to be in the luxury home area, we don't want to be in the custom home area, not because we don't think there's a need for that, in fact, I think there's a huge need for that. And I think there's a huge gap in the sort of executive luxury rental market as anyone who's ever tried to rent a home, you know, for 3000 square feet or more, in any market can tell you there's a there's lack of that. So I don't I'm not knocking that as a as a model. I think it's very real. But this is more of a philosophical thing. We want to be doing as much good as we can. And we want to be able to give people you know, as many people a start into homeownership as possible and the best way of doing that is by being able to provide affordable housing. So it's, it's the area that we want to be in and there's a there's a capitalist you know, greedy, selfish pence that as well, which is, you know, those are the areas that you know, are less impacted by interest rates because, as some people drop out of buying it, others sort of come into it. So, you know, there It's not completely selfless. But at the same time, we do like to be in that area. And we do think that sort of fulfills a big ESG component, as well of, you know, sort of making sure that we're giving something back to sort of this society that's out there, you know, and making sure that we're having a positive impact. As far as what you know, what our strike zone, you know, we want, we'll do loans as low as 2 million. And we recently, just last week, we closed the $73 million deal. And previously, we've closed a $40 million deal in the DC market. But we've also, this is what I like about our platform is, you know, that the same week that we close the $73 million deal in Greensboro, we closed an $11 million deal in Houston. This week, we're going to be closing a three and a half million-dollar deal in North Carolina as well. So I like the fact that we're not, we're not only wanting to do the bigger deals, which everybody's chasing, we recognize that it's actually more difficult to get a $5 million loan than a $50 million loan. So we'll do as low as two from a land development, that typically is going to be a minimum of 18 to 20 units, and we'd like it to be contiguous. And then we don't really have a limit on what we can do, as long as it fits within what our borrowers are able to do. We want our borrowers to have some level of experience. But we also understand that, oh, 708, wipe date, and a lot of experience in this space. And so you know that you're, by necessity going to have to work with younger developers, and we don't hold that against them. And you know, we're looking for people that we can do repeat business with, we don't do rovos or exclusivities. But we want to make sure that if we do a good job, and we do what we say we're going to do, I want to know that I can get yours, there's more business to get and that, you know, that's really our key point. And one of the things I'm most proud about is, you know, we're on our fourth and fifth deal with some borrowers. We're actually if folks haven't Charlson ever gets certain plans, approved for our borrowers, it will be doing our eighth and ninth deal and with certain borrowers. So we love the fact that we're getting that repeat business. And it's, you know, we, we want our land to be entitled, we want it to be under contract to a builder or to build for rent or self builds, if it's a private developer, and we'll what makes us different is we do 85%, LTC. And that's where we start, we started at 5%. And we're only going less than that if there's a big deposit. Or if our borrowers for whatever reason, have equity that they want

Speaker 2

to earn some more on or they want to just keep the interests are down. But you know, by and large, we're starting at a five and you know, where we want to pivot into this where we know AMD very, very well, we like it. And we've understood it, we were not scared by it. We had flirted with did we want to sort of be in the vertical space, because there is sort of a, a gap there specifically for Bill for rent, where traditional banks who maybe were only financing five starts a month, are now having understandable heartburn during 15 to 20 months. So your understanding of velocities is important. So we flirted with that. But then we very quickly realized that we know and sort of the funny thing is, this was conversation sort of started us talking to leave one, which is, you know, that all the things that you don't know about land development, or scare you by land development, or make you wary, we shared the exact same sentiment to vertical and it was it was a wonderful conversation with yourself and with your colleague, Josh Craig, like all that stuff, he's gonna we understand that it's the last part that we don't have any to do it. So it quickly seemed that it would make sense that to take advantage of this if we could sort of team up with someone who knew the vertical side, you know, to sort of complement our Indies.

Speaker 1

Yeah, I remember the first time Josh, my colleague and our report up to Josh at Lima one first time he mentioned didn't mention by name, it was so early stage, but so we're talking to land a indie company based out of Charlotte perked up because of everything you and I hashed out in this conversation here. Like what a unicorn financing outfit, really, and one of the more beautiful symbiotic relationship. So if we specialize in something that you, you know, don't have an interest in because you specialize in something the same is true. on your end, you do what you do, you know, well, and it's something that just made sense from the get-go. It's one of those partnerships that you don't have to expend a lot of brainpowers seeing how it works and benefits everybody and being able to provide an end-to-end financing solution of, hey, you have you know, land that's entitled, and you need to go from A to B to then go from B to fully vertical. That option is out there. And that's, that's one of the tougher things to piece together financing wise. I think arguably in the entire real estate investing sphere, at least in, in this country, so it is a beautiful thing. And it only helps it are an hour and a half, two hours away from us. So some good southeastern headquartered outfits, hashing it out,

Speaker 2

that's certainly and it's a what was great about it is if you know, the response that we've heard from the market response, we've heard from our own borrowers and from talking to your borrowers, is really that it's, it's not just that it's a one stop shop, or as I like to say it's a two stop shop for one option. So it's up to two different groups to get sort of a one facility, but what's great about it is, and because we're experts in our area, we're not necessarily compromising on what we don't do, or do know, and, you know, not casting aspersions on any other groups, because I actually don't think that there's many are any that really can offer, you know, soup to nuts, land acquisition, to finished home and beyond, because obviously, you guys also do on the rental side and stabilized financing as well. So, you know, there's very few people to do that. But you, we can bring our areas of expertise, so we can bring the expertise to the AMD side, and then smoothly transition it behind the scenes to you guys. So you can sort of run with it on the vertical side. And, you know, the borrower is getting both the benefit of the of our experiences, but also actually our experiences so that we're not, you know, you're not trying to work out, is this normal for AMD? Or should I, you know, over? Course, correct. And we're not taking undue risk on the vertical side, or similarly, and being too cautious, because we don't know what's industry norm. So it's, it's a very, very good fitting, and it you know, it sort of is, is natural, you know, I do try to find, and it was great, when I spoke to Josh, you know, you find somebody who sort of shares your values has similar ideas that, that you have, but also that you can sort of, sort of have a true symbiotic relationship where you're, where you're not actually competing with each other, really, for anything at all in this relationship. Certainly not. And it goes back to when I was a, I was a kid, you know, I, you know, I sort of trained myself to eat the chocolate candies that other people didn't, because that meant that whenever I went to somebody's house, you know, there was always, you know, an excess of the who's typically orange cream and coffee cream. But, you know, that said, you know, that that sort of my mindset is, you know, goes back to why we're even doing land development if I find something that nobody wants to do that I like, and then I can sort of team up with other people so that we can go through the whole 10 together it's a wonderful thing.

Speaker 1

I love that. It reminds me of in college how I got into bourbon, right? I realized that if you have beer in the fridge that's just going to mystically disappear like the fridge taxes the beer every day that goes by there's less beer in the fridge. You're like what I'm drinking a drink you know college drink couple and then two times as many are gone the next day the mystical thing but that bourbon would sit on the shelf and nobody would touch it and it was an acquired taste for me I don't know if there's anyone here like drinks a bourbon and immediately is as a late I don't know we'll say 21 But in college and this is delicious stuff like it was definitely an acquired taste and I remember we had a snowstorm down here you know if we get if we get two inches of snow the state shuts down. Same thing with the college campus and there were a couple of days that we were kind of confined more or less to the to the apartments and just a plentiful supply of bourbon eventually, so people broke down and we're like, it's alcohol we got to we got to drink it we don't have any beer we have no other options so it became a scarcity thing but I like the candy and bourbon corollary there

Speaker 2

but certainly I mean if I can just say obviously, I'm a big fan of bourbon, and but I'm a bigger fan of Irish whiskey and if you like bourbon, Irish whiskey is a natural progression. We don't have any of that. There are some PD Irish whiskeys but we're very, very much on the smooth side. Not at all like scotch. I'm not a Scotch drinker and you don't like Scotch love Irish whiskey and you know there are many brands, but you know Redbreast if you can get yourself a good bottle of red breast at 12 or 21 It's well worth the investment. But again, I'm the unofficial whisky Ambassador certainly in the in the Charlotte market. I'm always pushing on people and typically after we've closed our second deal with you, and you know a bottle of whiskey should be making its way to you and so I

Speaker 1

love it and if it is a bottle of red breast 12 It is incredible. I also not a Scotch fan just don't like it bourbon, a friend of mine Akali here. I think he got gifted abala Redbreast 12. And I was just naysaying it. I was like, this is this non-American swill. There's no way this is good. And I love it. I always keep a bottle on rotation. Redbreast 12 I think is a spectacular, if you like bourbon, maybe you don't like scotch, you're looking to get a little to the other East Coast, then you can't get a better recommendation, the price point on Redbreast 12 was beautiful as well. A great, a great value. One thing I hate about really hate we're invoking those strong emotional words again is how some bourbons over the last six, seven years to date has become so hard to get ahold of things like Blanton's, you just go down the list Eagle rare bottles that on the shelf, eh tailors another one of my favorites that are in that 40 to 60 price range. They have higher tiers, but their base bourbons are not anything crazy, but impossible to get. We have a total wine near us. And you know, you have to spend a bazillion on wine, my wine spend gets me the chance to enter into a lottery to then win a bottle of one of 25 different ones and fingers crossed. It's just become a nightmare to keep particular bourbons in stock in the hole.

Speaker 2

No, no, no, that's ridiculous. And actually, I forgot that you guys have the benefit of not being in a regulated state like North Carolina, the great state of North Carolina. But the Yeah, if I can give you another recommendation is yes, you can get in and in until one it is three swallows its powers, three swallows it's made by the exact same people who make Red Berets. So it's the exact same people sort of like the you know, the Blanton's and you're we're they're all sort of made out of the same Buffalo Trace distilleries, but maybe the exact same people typically bottle knock you back by 40 $40. So three swallows powers will use by 40 to 45. You know, and it's, you know, it's just gonna it's an Irish single Pottsville. So it is different than the traditional whiskey it's different than Jim's and you know, it's a special it's a unique whiskey style that the Irish brought in when the English and at the time that they were the colonial power, and they brought in attacks on moles, malted barley, and really to impact on the Scots and the Irish and the Scots being the Scots just, you know, roll over interpret. Whereas the Irish be more creative decided, well, what if we did half molted half on Moltres therefore already paying half the tax and they experimented with it until they find something that tastes good? And that's what right versus so Redbreast is actually not like, scotch or bourbon at all. It's half malts, half a molasses,

Speaker 1

prototypical the Irish trying to figure out how to evade taxes for hundreds of years was

Speaker 2

no I would say the Irish trying to deliver you know, good, affordable products you know, boats in the 1800s to

Speaker 1

go that's the good PR spin do it. While we're on this topic, if you'll indulge, if you were confined to only being able to have one bottle on tap at your house, from here till Kingdom calm of alcohol, what would it be? My mind is eh, Taylor, small batch. Like I just the taste just hits all the points for me. I have I have some they have a higher tier bourbon if you would, but I think that's something I drank it just a particular time in my life a lot. And really, it just hits the mark for me, what's yours if you only had to pick one.

Speaker 2

So for me, I sort of have a obviously I'll cheat and sort of pick two but like one I've already mentioned, which is Redbreast of anyone i And I love that now, in Ireland, you can get that for about 140 150 Euro maybe $175. for some bizarre reason, I don't know why it's three to $400 in this in the United States. So it's a very, very good value at that price. Not at that the US price, but it's absolutely delicious. It's again, it's single and it has that sort of caramel chocolate toffee J switch which I am partial to, but if not Redbreast 21. And I would go for the Middleton berry profits. And again, similar single It's but it's more of a blend of different age statements. So it can be as low as 12 as high as 30. And it just blenders to just an excellent sort of perfection. So If I'm stuck with that, you know, and I get that's gonna be a higher end bottle. And if I have to pay for it myself, I'll probably go from the powers you know with the with the 4045 year and our bottle. But if somehow the whiskey gods are just reinstalling this every day, then you know the berry Crockett will be that.

Speaker 1

I love it. I love it. Yeah, the who's footing the bill that does have a way of swaying opinion one way or the other. For sure. Yeah, you don't want to, you don't want to only have one option, and it's a four $400 bottle and that's all the soil you have in the house. Like we have problem, expensive habit. I can think of no better note to end on than alcohol. If people want to get in touch with you it's Setanta dc.com. Is that right? Yeah.

Speaker 2

So tenanted development capital. So the website is Atlanta, DC, D for dogs E for cats.com. And, you know, and me and Rob are the two best people to get a hold of we take sort of our borrowers very seriously and importantly, so John Doe, Jen, that's the time to DC comm rob our OB, at Stanford, DC, calm, you'll, you'll get us and you'll get our attention. And, you know, we've got a great team with us in Charlotte. And, you know, we'll, we'll hand it off. But we, we certainly like to spend you know, those initial conversations with our borrowers and make sure it's a good fit. We've got the same philosophy, you know, we've will turn down deals if we don't think that there's a long-term play here. We don't want to be somebody you know; I was stuck. Nobody else would answer my call. Take it if it you know, we want someone who we can actually build a relationship with. But yeah, that's, that's the best way to get home.

Speaker 1

Beautiful. John, thank you so much for carving out some time to chat with me. I learned a ton and I have a new shopping list for Total Wine this weekend.

Speaker 2

It's an absolute pleasure. I've been listening to the other podcast, I think it's been very, very interesting. It's a nice diverse, listening, I got you know, anywhere from sort of saving reg D to understanding that, you know, the acid favorite asset is the one that makes you money. So, you know, it's been a very interesting and, you know, podcast series, I'm honored to be a part of it. And you know, best of luck with it and can you know, continued good success.

Speaker 1

You're far too kind. I greatly appreciate that. John, thank you so much. No worries. I've seen pleasure. Thank you so much.

Speaker 1

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