Speaker 1: 0:02
I’m Colter DeVries, owner of Ranch Investor Advisory and Brokerage Services. I’m an accredited land consultant with the Realtor Land Institute and proud member of ASFMRA.
Speaker 2: 0:13
The Ranch Investor Podcast is the most downloaded and informative industry-specific content that intrigues while entertains.
Speaker 1: 0:21
Tell me about Cushman Wakefield and Matt Davis. What’s your background? How did you end up with Cushman Wakefield? What are consultants and what do they do? Why does Steve Jobs hate consultants?
Speaker 3: 0:38
That’s a question I probably can’t answer, but I can definitely hit the first ones. Cushman Wakefield is a large commercial real estate firm. Global firm Went public a few years back. I started with a small company called Burnham Real Estate back in 06. I’m doing more local street brokerage what I would call some leases, some owner-user sales, some small private client investment sales of commercial retail office product. Then in 2010, I partnered with a guy who was later in his career, had been a land broker his entire life. A lot of greenfield development for sprawling suburban residential in the greater San Diego and Southern California region. So partnered with him in 2010, and he retired just in end of 21. I had a great 10-plus year run with him and was able to learn from him. I’d say he’s one of the best, but been in the business 35-plus years, cut his teeth in Midtown Manhattan with IBM and sales for them back in the day Just a really polished expert in the space. We recognized that in San Diego we were out of land. We got Camp Pendleton to the north Ocean to the west, mexico to the south and Desert to the east, mountains to the east before the desert actually. So there wasn’t a lot of land that was going to happen in San Diego other than infill and we wanted to do bigger, larger, more complex projects. So we started looking outside of San Diego for where our business was going to go. So over the last decade we kind of built a business that I’d say has four general business lines. Today we do a ton of work in Hawaii in partnership with some folks there in Honolulu, but we work on all the major islands there. We do a lot of renewable energy work across the country. So we work both with principals and developers developing renewable energy projects everywhere from Hawaii to New York. We do a lot of farmland in the west, so primarily California, in the desert southwest, moving now more into the Pacific Northwest as well, as we see a lot of demand for kind of climate resilience and water security. So we do a lot of farmland. We love the agricultural business I’d say that’s probably our fastest growing sector and then we get involved in some really unique assets. So the kind of fourth is kind of all the other stuff that doesn’t really fit in anyone’s wheelhouse 8,000 acres of timber we sold earlier this year up in Northwoods, new Hampshire. We’re selling a golf course outside of Princeton, new Jersey, right now that is owned by the heirs to the Johnson and Johnson family. So we just get involved in a lot of really unique, complex assets that we can kind of come into, peel back the layers, really understand the different components of value and how to appropriately position it in the market and get it sold.
Speaker 1: 3:35
Those are the fun ones.
Speaker 3: 3:36
Those are the fun ones.
Speaker 1: 3:37
Those unique, complex, difficult.
Speaker 3: 3:40
I tell people, if it was easy we wouldn’t get the phone call.
Speaker 1: 3:43
Yeah, and that’s I mean. Probably part of the reason why people generally hate consultants and brokers is because we have proprietary type information. We have a trade where that’s a specialty to be able to crack those nuts, crack that shell on those complex ones, and people have to pay for that and they don’t like the idea of outsourcing that. A lot of people you know want full control. That’s private property rights. It is all about control. And when you have to pay some other professional to come in and tell you how to do your job, that doesn’t feel good.
Speaker 3: 4:23
Well, I tell, I mean we deal with mostly landowners, but I’d say 80% of our business is probably working for sellers. So the bulk of our business is helping landowners figure out a transition right and the drivers of that transition are unique client to client. We ask the question what is a line consultant? What do we do? And I think some of the things we do really well and maybe not unique to us as a team, but I think accredited land consultants through RLI and the accredited ad consultants through ASFMRA, the American Society of Farm Managers and Rural Appraisers do well is we take that step back and we kind of ask the client what are you actually solving for? You called us because you want to sell or you want to understand your value or something you know. Aside from that, what are the actual drivers of this conversation? And, if we can understand what their actual goals are, what are they actually solving for? Like, we just sold a large farm for a guy who had a mother and an aunt who are in their 90s and they’ve had this large farming asset in the family for generations and he wants to diversify his investment to secure the cash flow for them, because the cash flow from this asset from the tenant is what’s funding their living expenses, and so having it tied to one asset was a little bit concerning, especially with things going on in the Colorado River and droughts and things like that. He was concerned that that cash flow may be at risk and so we started working with him and then, through some health stuff and things like that, we decided to pull it off the market because he just wasn’t in a space to transact at that time. And then we started talking with him again about OK, the market’s down a little bit. Drought on the Colorado is raising concerns about the buyer pool shrunk, economy shifting. Maybe now is not the right time. And we kind of felt like value is probably down 10% to 20% and from what we really felt the value was the asset, and so we were kind of talking around, not selling and just holding in, waiting for a couple of years. And then, as we really dug in with him and understood what he was solving for, it’s like wait a minute, you’re looking at moving this money into net least assets. Diversifying across multiple assets. The market has impacted those assets as well, so the return expectations from investors have gone up, so you’re actually buying those assets at a discount. So, even though you’re selling at a discount, we can help you buy at a discount and you’re going to double your cash flow. So you’re going to double your cash flow, diversify your investments. You’re going to accomplish all your goals. And so, yeah, we’re selling in a little bit of a discount. But is peak value actually what’s driving this decision? And the answer was no, and so we were able to accomplish all of his goals and really, the money he left on the table from peak value, he’s going to make up in a couple of years from the increased cash flow. So it ended up being an absolute win for him. And I think that that’s the kind of conversation we try to have with our clients is to really understand what we’ll be solving for, and if we really can get inside their head, then we can come up with a strategy to actually accomplish that.
Speaker 1: 7:30
So what would be the threshold to justify bringing a consultant that you come with costs? Are we looking at a minimum 5 million type project or?
Speaker 3: 7:43
Yeah, it’s case by case. So we’re primarily transaction based, success fee based commission. We have some accounts that we bill hourly, but for the most part we’re success fee based, and so we just really have to look at what’s the commitment we need to make to help this client accomplish our goals. Is it a fit for us? Is it a space where we want to be? What’s the saying If you try to be everything to everyone, you end up being nothing to anyone, and so I think that’s important, because we do a lot, but we do have to keep a focus on where can we actually be most valuable? So, yeah, generally 5 million plus, but we do. I mean, I’ve got a couple million dollar plus or minus deals we’re closing right now, just at the end of the year, and they were kind of low hanging fruit. They’re in a market where we’re transacting, so it just makes sense to try to get them done.
Speaker 1: 8:35
Everything that everyone reminds me of a mailer, and I shouldn’t be so critical of my own peers and my own industry, but I received a mailer from a local real estate brokerage team husband and wife that they said they specialize in residential, farm and ranch, commercial and industrial. And I was like, well, which one is it you specialize in? All of them?
Speaker 3: 9:05
It’s impressive. Yeah, that’s the thing I have to remind myself is that everything we do is land. That’s the saving grace with our crazy business plan, but the diversification does allow us a lot of stability. I mean, I think where a year like this or the market volume is down, transactions are down. We’re having the best year we’ve ever had, and the reason is is because we were able to pivot 16, 18 months ago. We had some residential development, some master plan community stuff that was falling apart because the market was shifting. Interest rates were going up, home builders were walking away. We recognized that that trend was likely to continue through 2023. And so we kind of leaned away from that business. We still did some of it, but advised a lot of our clients hold don’t. Now is not the time to go to market. Let’s get through this. Things will stabilize and we were able to go focus on renewable energy or things where there is transaction activity. Renewals right now is insane. It’s like the Wild West and Inflation Reduction Act had a lot of tax credits and benefits. That’s driving a lot of that. So affordable housing is another one. Still have affordable housing deals going. Where government money flows, deals happen. So it’s kind of being able to bob and weave within our business plan year to year to make sure we’re moving where the activity is.
Speaker 1: 10:30
So when do you bring in a consultant? Is it after the purchase? I bought this land, or I have the land. Or hey, matt, I’m thinking, my wife and I, we have this five year goal that we would like to get moved into the outskirts of Boise, idaho, or Bend, oregon, and we’ve got this development that we would like to live in part of it and develop out the rest of it, but that’s five years out. Like when do we bring in a consultant and say here’s what we’re looking at. Is it? Boy, I’ve got the money right now. We got to do something the next 12 months. I’ve got the land. I’m chasing a market. This thing’s about to fold up on me. Help me get out before I lose a few, a few thousand dollars in market value. What is it? When do you come in and engage?
Speaker 3: 11:29
So for me personally, sooner the better. You know. I’d love to hear from somebody when they’re first thinking about whatever it is they’re thinking about. I mean, one of the examples I can give is we’ve had many clients where you know family asset held in trust you know, prior generation passes away. Now it’s time to liquidate the asset. They step up in basis and they want to dispose of the asset. They call us and they say, hey, we got this land, it’s prime for development, let’s sell it. And we say, okay, you know it’s going to be a multi-year escrow to allow the buyer time to get entitlements and complete the approvals for the process. So they know what they’re buying. That’s driven by their equity. It’s driven by risk associated with entitlements. It’s driven by time, value of money. You know the cost to carry it. If they were to buy it now and they go no, no, no, we want to liquidate it now, we go okay, well, that’s like a 40% to 60% discount based on all those factors. And so really the right time to engage us was two or three years ago, you know, or whenever, when you kind of had visibility of this shift coming that we could have gotten ahead of it, and then we can help them kind of devise a strategy to maximize value and a timeline that works for them. So I feel like the best thing we can know is what they’re solving for as soon as possible, and then we can help. You know, either let’s talk in two years, or let’s talk in a year or let’s get going right now. You know that’s a. We just had a conversation yesterday with a lady that owns a bunch of farmland and she’s got solar interest and she wants to do the deals and then sell the farmland a couple of years from now, and so we’re helping her kind of figure out how to structure deals now so that she’s in the best position to go through an orderly liquidation over the next few years.
Speaker 1: 13:12
So how do you? How do you address these challenges? You have clients that have a lot of options. Like you said, there’s renewables on the board today, transitional real estate you said greenfield, multi-multi-housing, affordable housing and maybe at some point housing becomes saturated and it’s not as lucrative. The margins aren’t there. How do you sit down and decide boy, I don’t care what we do with this land and I don’t care the timeline, just make me the most money. That’s one of the.
Speaker 3: 13:55
I think that’s one of the unique aspects that we bring to the table being land experts. As a land expert, especially when you’re dealing with transitional land where it’s moving from one use to a higher and better use as the market shifts, and that could be, you know, from agriculture to renewables. It could be row crop land to a permanent crop. It could be, you know, greenfield or farmland to houses. You know, it could be any number of things. Part of it is looking at it holistically and because we’re land experts and not industrial experts or industrial, commercial, residential, like your friends up there that are experts in everything you know we compete a lot with. Like we just pitched on an industrial asset, a six and a half acre site on the port, and we were pitching against guys that are purely industrial and they’re very good at what they do. But we came in and said, look, it could be industrial, could also be renewables, could be this, could be that. And we’re able to look at it from a higher level and think about the different potentials, beyond kind of the myopic focus of the guy who’s trying to, you know, sell to an industrial developer so they can lease it up so that they can sell it, you know, et cetera. They’ve kind of had their their lane that they’re focused on. So we try to take a bigger look at it, further back, test a lot of things you know we’ll call renewable energy groups. Say what do you think of this site? Does it have any legs? Yes, no, okay, we got some feedback. Now we can start to develop a strategy around that. So we tend to be slower on the front end. When we’re working on an asset, we don’t just throw it up on the MLS and let the phone ring. You know, we’re, we’re looking at it, we’re making phone calls, we’re kind of strategically reaching out, gathering feedback and Intel from the actual, you know, potential potential buyer pools, and then we can sit down with a client and say, okay, here now we have better information because as much as we’re the expert, we’re the expert because we have access to people that may have interest right, and so we can. We can connect those dots and then, once we understand where that interest lies, we can develop a strategy and a process to to maximize their value, whether it be, you know, going to a full blown marketing campaign, sometimes it’s just, you know, making 20 phone calls because we we know who the active buyers are. We just talking with a guy who has a geothermal lithium asset, um out in the Salton Sea, you know, and it’s like, okay, well, there’s, there’s five groups, you know the one. I want to call them all and see if there’s any interest and and solicit feedback, and then we kind of know the land and we can figure out next steps from there.
Speaker 1: 16:27
Yeah, and that’s, I mean, that’s really the biggest piece of consulting, isn’t it Is beating the bush is, if you’re going to explore, you’ve got these paths path A, path B, path C uh, you, you have to really explore your options, that decision tree within each of that, and that’s, I mean, that’s why you outsource that task is there’s a lot of phone work that goes into beating the bush and just scratching and saying, hey, I’ve got this 20 acres. Uh, what do you think it’s worth? What’s the least value? What could you do? Um, that, that is for people who appreciate their time. I mean, that’s that’s why you pay a consultant is they are going to bring an objective opinion that is not myopic, as you mentioned. So how does one get into this? I mean, it seems like you kind of have to be a master of all or a jack of all trades, master of none. How does one become a consultant, do you? Is it just as simple as getting an MBA?
Speaker 3: 17:30
Um, no, I, I think it’s, it’s, uh, it’s time on the street, right, it’s, it’s, it’s doing the legwork to really learn it all, and and and, to some extent also focusing on on whatever specific niche you want to focus on. I mean we, as you know, we come a lot of across a lot of folks at realtors, land Institute or ASFM, ra that are maybe really focused on agriculture and that’s what they do. I’m working on a project in Illinois right now where I called one you know, one of our colleagues from RLI and he said cool, I’m not your guy. You know, this is, this is my space right here, regionally product. This doesn’t fit in that. You should call this other guy. And I think that’s um, knowing where you fit within this whole business opportunity, that the entire spectrum that’s out there is important, and saying no is important because, again, we’re not one size fits all. And um, and how do you become an accredited land land consultant or a consultant in general? Um, in the land space? Um, it’s, it’s a, it’s a labor of love, I would say. I mean, I laugh and I tell people that one of the beauties that I see in my business plan with our team here is we really don’t have that much competition we, there aren’t that many people doing what we do, with the way we do it, the scale we do it. There are very capable local brokers, um, but we can step into a market a lot of times and disrupt that Um. But because the, the, the lead time of what we do, you know, again, it’s not transactionally very active. We don’t. We’re not listing a house thrown in on the MLS. 30 days later it’s an escrow boom. We get paid, we’re onto the next one, um, the, the about the fastest we see revenue from the first time we engage with a client is 12 months. So it, you know you got to have a bank account to start out, you know, or you got to step into a team that’s got an existing book of business and um, or you got to just grind it out and and find revenue wherever you can find it or have some other means. So it’s a really I think it’s a really challenging space to enter into Um. It’s one of the things I like about it is the, the you know I think the barriers to entry are pretty substantial and it takes a long time. I mean it, uh, you know again, started in the business in 06 started in land in 2010. I originally thought I was going to be a developer, so my background was a real estate degree planning. You know, focus. Um, I’d worked with a city to learn planning and land use and the entitlement process from their side while I was finishing college. So I I had a good background in land and development but, um, it kind of took a few years in my career to get back to where I was really putting that to use. But I, I mean, starting 2010, I still, I mean, I’m still learning stuff today. You know, I I definitely don’t feel like I really had to get a handle on it for at least, you know, until at least 2015. That was basically nine 10 years in the business.
Speaker 1: 20:29
At that point, Well, let’s talk about some. These are going to be one-off tangents and somewhat technical, somewhat not evergreen. This episode might get dated really quick. But let’s talk about this trend of billionaires and, like the tech titans, creating cities. What’s going on with that? What is the deal with? They’re going to create these, these utopian societies. One of them is in the desert. You know someone’s got one in the desert and then you got the group that includes what I think is one of America’s greatest thought leaders, that tech investor out of San Francisco.
Speaker 3: 21:19
Flannery Associates one outside the military base.
Speaker 1: 21:22
Yes, yes, flannery Associates. Yeah, and that is gosh dang it, the ball guy. What’s his name? I don’t recall, it’s out of my head, but yeah, I can’t remember either. But what’s the deal with these new cities trying to pop up? Why not just fix what’s already, what’s broken?
Speaker 3: 21:42
Oh, I’m sure there’s some value to starting with a blank canvas. I imagine and this is pure speculation on my part but I imagine with with a certain amount of wealth and freedom comes kind of some altruistic goals right of putting that capital to use in a way that you feel is going to you know better society. But I mean you can go back and this has been a trend that’s played out forever that I can think of. I mean, disney was trying to build, you know, cities of the future. I think Ford yeah did some stuff as well, and so I mean, there’s always been whether it’s industrialists or just high net worth individuals from one industry or another trying to think about how to do it better. And if you think about it, that’s probably how they got to where they’re at right is they figured out how to do it better in one space and they generated immense wealth through that and and now they’re looking to replicate that or to enjoy it and something that is a passion project or or or other other driver. You know again, kind of coming from the planning background originally, and how I approached real estate and development. Planning is important. I heard once that you know, planners had their heyday in the industrial revolution when they separated coal driven industries and you know heavy polluters from residential and they’ve been trying to relive that glory ever since by separating everything from everything. And and with that comes you know the commute that I enjoy every day and and everything else. And now we’re looking at infill and we’re looking at mixed use and we’re looking at kind of bringing these uses back together. And so you know the pendulum swings right. We’re just we’re, we’re, we’re trying to, you know create a better better system at this point, but we’re probably just recycling some of the old ideas that we used to have.
Speaker 1: 23:37
Yeah, I mean, I was going to say it seems like the new trend because I watched a lot of those YouTube videos about planning, zoning and how to, how to optimize and maximize brown fields and gray zones, and mixed use is definitely one of them, and I can speak from experience that when you submit an application to your city for an ADU, it gets personal. People lose their minds, your neighbors, you find out what their true colors are and it gets super heated. Do you ever, in your job, in your position, do you ever have to show up to some of those city meetings, those city councils, and, oh my gosh those are horrible.
Speaker 3: 24:24
Not only do I show up to them, sometimes I have to speak at them, or sometimes I have to call council members in advance and, you know, plead the case and try to make the argument where, say, if it’s a board of five, you got to count to three. Right, you got to get your free votes to get a project through. So a lot of times, yeah, we absolutely do that. Yeah, I mean pitchforks and torches, right, I mean that’s one thing Zoom has been good for. Is it separated some of that from the physical sense. But community opposition, you know, is we as a society. Many regions have looked at stopping or limiting sprawling development. Right, california is a good example of that and I think, yeah, specifically, which is where I live and so I know it well as a regulatory body they basically stripped all the density from the rural areas and dumped it back in on the urban areas. So great, we need less sprawling infrastructure. So now we just need to maintain and set a developed new infrastructure and we’re going to intensify our existing communities and we’re going to focus it on nodes and villages and things like that Makes a lot of sense. The biggest challenge with that is, instead of sprawling development where you’re impacting some rural landowners, farmers, whatever ranchers, who are sparsely populated and few in numbers. Now you’re, by design, putting intense new development into an existing community that, again by design, is going to change the character of that community, and we have to accept that. That is a reality of the regulatory environment we’ve chosen as the preferred path forward. And with that is going to come intense community opposition from folks who like the community the way it is today, and that’s an unfortunate reality of the regulatory path we’ve chosen. And with regulatory action there’s always winners and losers, and most of the time there’s winners and losers. And so I think the folks that want the community to stay exactly as it is today are going to be the ones feeling like they’re the losers when a new big development comes into that vacant lot or underdeveloped lot in their existing community. I take a perspective of cities are living, breathing things. They’re either growing or they’re dying, and so while change is hard, rooftops, people bring services and services bring an exciting, very diverse community and town center or whatever it is. And then so I mean the little city I live in. I’ve seen it change immensely over the last 10 years, and it’s because of new housing being developed. So we’ve got new restaurants, new shops, new things that are catering to this new demographic of people and more people that are coming in, and so I think it’s a positive. Doesn’t mean it’s not hard, doesn’t mean it doesn’t negatively impact some people Traffic, there’s always noise from construction, there’s all kinds of real impacts.
Speaker 1: 27:33
Well, and this is more of a philosophical, I mean, this is what we get into, what we see from all perspectives being presented at a community meeting is so it’s Mark Andre and who’s leading that buyer group for this new utopian city outside of San Francisco? And Mark Andre, I think he’s one of the thought leaders of our generation. I think he’s he is the Henry Ford. He’s right up there with Elon Musk. He’s he’s insanely ahead of his time of what he understands with, with the world. But what I see, some of some of that city he wants to create is California Elk habitat and I don’t know California that well. I would imagine Elk habitats pretty rare and I would. I would imagine that it’s special and this is just subjective, but I would think that something that’s going to come up is is a Starbucks more? You know, is that better than an Elk habitat is? Are these, are these nice new millennial mom family homes? Are they? Is that? Does that create a better life than than the natural ecology? Is that really what we should be striving for and managing for? And this is just completely philosophical and subjective map. But you see and you know, this gets into sprawl and I think our generation is. We are critical of sprawl and we are looking for a better way. But then you, like I, drive down the road here in Montana and there’s a brand new mini storage out next to Rock Creek. And they did that in the county because there’s no zoning and regulation and I’m a big advocate of free markets. And no regulation and no zoning, like well you’ve got to. You have to accept both sides of that sword. If you want, if you want free markets, you can’t drive past the mini storage and cuss it.
Speaker 3: 29:41
You can. You know that’s your call. Yeah, I mean, I think, is it better? I mean that’s all a matter of perspective, right to the folks live in there using that Starbucks. I’m sure they think it’s better. So, those of us that enjoyed the El Cabotette and like hiking out there or whatever it is, no, it’s the worst thing that’s ever happened to us, right, I mean? So again, that sword cuts both ways and I think it’s really just depends on which side of the aisle you’re on, is it? As it relates to that development, I always joke that that mastermind communities and developments like take the name of whatever it is that they replace. So it’ll be like, oh, glenn, you know, or whatever, and it’s like that’s the beautiful thing that used to be there that they bulldozed to put in, you know. So whatever meadows or, you know, elk meadows or whatever. It’s probably all this thing. But, yeah, is it better? I think that’s a matter of perspective. I think the we need housing. You know we have to house our population and we need a variety of housing products, and I don’t know that there’s any one silver bullet on how we solve that, but we do need to build and it probably means some level of sprawling development and some level of infill development. And as someone who you know, like you I try to spend at least 10 days backpacking the Sierra every year. You know I like to get out and enjoy the natural environment and get out of this that we spend our lives in, you know, most days, and so I like to see that protected. And you know, for better or worse, we’ve got California environmental quality act which, as part of the development process, will require mitigating, you know, adverse environmental impacts and so you’ll see, you know they’ll look at habitat, they’ll look at things like that as part of a development, and you know they’ll determine that this many acres of whatever critical habitat are being impacted by this project and they’ll have to go offset that somewhere else. So put something else into conservation to protect it into perpetuity, and so you do get kind of a balancing effect. Again, you’re still losing something, but you’re also protecting something else.
Speaker 2: 31:59
That won’t be lost later.
Speaker 3: 32:02
So there’s some level of balance in the system, but it’s an imperfect system.
Speaker 1: 32:11
I’m going to continue philosophizing with you. Let’s do it. But to me that sounds more dystopian. If you’re going to take, let’s just say, 10,000 acres near the coast and you’re going to develop it for a master plan city community and then you’re going to offset that with per into perpetuity, a conservation easement in the hinterlands, for hours from the coast, and you’re going to do that with, you know, 30,000, 50,000 acres, whatever the equivalence is, you’re creating a more dichotomy between the hinterlands and that dense area they’re. They are becoming further and further culturally from each other Because you have just created these economic conditions that separated them even more. I think it’s becoming dichotomous.
Speaker 3: 33:09
Yeah, I think to some extent there’s a requirement that the offsets be mitigated or the impacts be mitigated with similar habitat in the region. So there is a nexus or a proximity obligation there, but to your point you know, mitigation being just one piece of it. Yeah, there’s absolutely a dichotomy that there’s a divergence right between our urban areas and our rural communities, and we’re seeing that play out across the country. We’re seeing it play out in California. I mean, I’ve had pictures out on ranches in California that I show my friends or I post on social media or something and people go, wow, where is that? You know it’s Central California. And they go wait, really that’s in this state. But you know they live in LA or something, and so all they see is like this dense urban environment. They don’t even realize that there’s 30,000 acre ranches in California, you know, but they exist and it looks like another state to them because they haven’t gotten out of their little myopic urban bubble.
Speaker 1: 34:10
Echocamber of, yeah, culturally, and economically where that divide is becoming wider, even though geographically it’s, you know it’s the same distance. But I would say culturally, economically, and I have no data to support this map. This is completely All anecdotal.
Speaker 3: 34:31
Yes, Look, we see it in Even in our industry. So I’m heavily involved in Realtors Land Institute on a national level in the government affairs committee, which I chaired this year. I’m heavily involved in the California Association Realtors and our local association, specifically because their impactful lobbying and government relations bodies that matter to our clients or focus on issues that matter to our clients, and in one of those is water, and so I’m like the lone voice many times talking about our rural communities, land, agriculture and the impacts of water. And it’s so interesting to hear people that are primarily focused on residential real estate that talk about like well, we should just get the water from the farmers so we can build more houses. And then, you know, it’s like my hand goes up and they get totally tired of hearing from me and I’m like hey, remember, we focus primarily on private property rights and protecting those as an overarching kind of driver of how we interact with these types of regulatory changes and they’re like, oh, yeah, but water is really the issue at the Farm Bureau and I’m like water is part of the bundle of rights, right, do you remember your real estate classes? Like water is absolutely what we do and in protecting those rights for the landowner, regardless of what we think the greater beneficial use of that asset may be like, we should be protecting those rights and that landowner should get to make the decision on what they think they want to do with that asset. And it’s an important piece of what we do and, as we deal with scarcity and natural resources, it’s going to be a greater piece of, I think, what we have to deal with on a regular basis in our business.
Speaker 1: 36:24
Absolutely Well. I have one more, one more technical subject issue to cover with you, just to hear what you’re seeing. It seems like with the increase in borrowing rates, yet cap rates have not adjusted to reflect the increase in the cost of leverage, and I don’t know why. Supply and demand if you might be able to get into that but so you have an increase in capital, cost of capital, you have an increase in the cost of materials, land, labor, resources, so you have a decrease in margins, profit margins, and it seems like I don’t know if you’re seeing this and if you are consulting with your clients to financialize some of these tangible hard assets and turn them into paper, turn them into owner financing, contract for deed, lease purchase options, mezzanine capital, mezzanine financing is. Are you starting to see a shift, a wave of mezzanine kind of come up and start replacing some of these projects that just couldn’t get done because the margins weren’t there, the cap rate, the leverage, cash flow margin isn’t there. Are we starting to see in your business a financialization and people moving to paper rather than tangible real assets?
Speaker 3: 38:00
I think you hit a lot of factors there. I think, starting with the last one, I’ll hit it from the perspective of when we talk about cost of capital and maybe owner financing or some other creative structure, lease to own something that provides some level of benefit or incentive to a buyer, that’s coming at a cost to the seller. The reason they’re doing that is to get a higher value. But if they’re providing debt, it’s got to be at a lower cost than what’s available on the market or there’s zero incentive to the buyer In the exception of debts in some cases just generally not available. When we’re talking about availability of debt, then that would be a plus, I think, for a seller. They’ve got a way. Is taking this loan and the risk that comes with that better than liquidating at a lower value and rolling that into another asset that’s seeing some level of increased return or similar decrease in value? Or do I pay my taxes and go by treasuries and a pretty high risk free rate of return right now and keep it liquid? I think that’s a reality of where we’re at right now is there are assets out there that generate a healthy return, that provide flexibility in the near term? That’s a long way of saying, yeah, we’re seeing some of it. I don’t know that it’s a primary driver. I think this is a time anytime we see a shifting market creativity becomes more important, Whether it’s lease to own, whether it’s multi-year escrows to give buyers time to work through a process where they think they’re going to get through this uncertain shifting period where debt’s going to stabilize and we’re going to come back to a more reasonable market, or there’s going to be more demand from home builders in the future and they’re going to be able to step into that and fill a void. I think it’s just kind of figuring out. Each asset is going to be unique. Each asset class is going to be unique.
Speaker 1: 40:14
Well, that’s just the inside information I was looking for. I had to wait till the very end of the recording to get there, matt, so I appreciate it, no problem. Well, thanks for coming on. How can people who are interested in either becoming a consultant, working with a consultant, what Cushman Wakefield does, what Matt Davis is up to, how can they get in touch or follow you?
Speaker 3: 40:38
and how are you reachable? That email’s best Matt Davis at Cushwakecom. So, mattdavis at cushwakecom, I’m always available, happy to help give anyone guidance if they’re thinking about the industry or just have a question on an asset. A lot of what I do is just connect the dots and get out of the way. We get a lot of inbound interest from people in different markets and it’s just getting them to the right folks and it’s not something I can help with, but we just get employed in the right direction.
Speaker 1: 41:11
Matt. I will give my own personal testament to Matt and Cushman Wakefield. I referred a friend network up here who’s also a real estate professional to work with them. I joined in on some of the introductory calls that Matt had for a master plan community here in Montana, billings, montana. That was transitional real estate way out of my understanding and my knowledge, as well as the other professionals. That’s why I had them engage. Matt, I was very impressed and it was one of those going to be over $5 million deals, highly complex, multi-year and the amount of risk going into that, capital at risk and highest and best use alternatives. It was very complex and I was delighted and very pleased at your engagement with this client. I highly recommend people work with you and talk to you if they have these projects and just want to commend you on how you worked with that friend, that peer of mine. It was very rewarding and exciting what I got to listen in on. I appreciate that. Thanks, matt Again. Any other way people can reach you or recommendations you have, please just follow him on LinkedIn or contact me and I can put you in touch. Matt, thanks for coming on. The Ranch Investor podcast.
Speaker 2: 42:49
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