Derek Lobo of SVN Rock Advisors
Derek Lobo of SVN Rock Advisors interview transcript, by Alan Olsen for the American Dreams Show:
Alan Olsen: Can you give us your background of how you got to where you are today and start with your educational experience and the entrepreneurial model that that you built here?
Derek Lobo: Well, you know, I guess the first thing is I’m an immigrant. So that kind of formed your mindset a little bit. I moved to Canada when I was eight years old. And so so that so I arrived eight years old, you know what I mean? into, you know, into Canada, so that that formed you a little bit differently, let’s say but, but then I but then I got educated here. And it came from, you know, a lower middle class family. My father was an aircraft mechanic, we had six kids, right at 1200 square foot house, you know, one bathroom, every everybody relates to that, right? But back in the day, nobody had, you know, seven bathrooms the way people have now and things like that. Anyway, so I you know, I wasn’t a great student, I was an okay student, I managed to get myself through college, and I studied something called metallurgy, which is the engineering of steel. And I worked for Canada’s largest steelmaker. But what I realized very early on in my career was that, you know, you weren’t really going to make a ton of money having a job. But I noticed all my steelworker colleagues had lots of money. They make good steelworker wages. So I started syndicated syndicating limited partnerships, and buying small rental properties. That’s how I got started, I found myself working in this large company where my coworkers I’ve money I didn’t, they were looking for a young guy to kind of go find some properties, do the work to buy them, manage them and renovate them and things like that. So that’s how I kind of got into the business. But that got me into the apartment business. Right. And I could have I could have done anything, right. But I got into the apartment business, I started recognizing that this was probably Alan, if you think of it probably one of the largest industries in North America, right? About 30% of North Americans rent, right? They spend about a third of their income in rent. So you do that that’s got pretty much got to be, I think the largest industry in North America, the rental business. And so once I arrived in that business, I just started looking for opportunities in the rental business and gaps in the marketplace. Does that make sense? Yeah.
Alan Olsen: Tell me about your first deal. When you said you got into the apartment business. What was the first deal you did?
Derek Lobo: Well, the I guess the first deal i did was probably about, I don’t know, 20 to 23. I bought a house and I converted it into a triplex. Okay. Alright. So first, I mean, I still I still drive by that property, I drive my kids by fondly, right, I lived in the basement as a bachelor, I rented out the side, you know, the first floor on the second floor. And then when I got married, you know, we moved into, you know, another unit. And as I had kids, we kind of converted it back into a house again. But that was, I guess, in a sense, my first deal, right, I brought the money from my brothers and sisters who were all younger than me, you know, to buy the house. And that that got sort of sort of whet my appetite towards rental income, and realizing just how powerful it could be from a cash flow standpoint, from a tax standpoint, and so on. So that’s how I got in the business, let’s say, right, then after that, I started to syndicating limited partnerships.
While I was working full time in the steel mill with my, you know, wealthy steel worker colleagues, and so I got up to about 100 units in total that we bought. And then and then something interesting happened, the jurisdiction that I’m in, in, in Ontario, we have rent controls, lots of people know about rent controls now with the current, you know, pandemic situation and so on. But, you know, there was no guide for apartment owners to take their building through this rent review process to raise their rents. So I decided to write a book on the topic. I mean, it could have been anything, I wrote a book, I just happened to be in the right place, right time, I wrote a book on the topic. And it was amazing that I just hit the market at the right time with this book. And I had sales of $100,000, when I was in my mid 20s, let’s say, right, of this book, which I self published. And it wasn’t the self publishing, that was the revelation to me, it was the apartment industry and how wasn’t that sophisticated compared to other forms of real estate, like an, you know, an office real estate? If I’m renting to a to a large company, they expect a certain level of service because they’re renting, you know, offices in New York and bonus areas, and Paris and in Toronto, but in the apartment business, it’s very local. It’s only as sophisticated as sort of the guy down the road. Does that make sense? So I found an industry that was huge, but not very sophisticated. So I thought to myself, that’s the business I want to be in. I didn’t want to go to Microsoft, and try and turn it around, right? There were geniuses over there. But in the local real estate industry, you can make a difference by bringing best practices and things like that to it. So it was a combination of Understanding the business at the grassroots level because I was an investor, and then understanding it as a, as a as an educator, because I wrote the book on this topic related to real estate. And then one day somebody, and then I started helping apartment owners lease up their building. So one thing led to another. Does that make sense? So as an owner, I wrote a book, then people said, Well, you’ve written the book on the topic, why don’t you help me with what you wrote about? And then I go help them. Then finally, one day, someone said to me, why don’t you just come and do it, instead of talking about it and writing about it. And so that led to the progression of different services in real estate. And I wound up basically doing lease ups of distressed apartment buildings all over North America, all over the US. So I’ve worked in, you know, the 10 Canadian provinces and 17 US states, going into distressed properties and turning them around. But then something interesting happened. I started getting calls from real estate brokers saying, will you come and lease up this building, so they became my sales and marketing people, because they couldn’t sell the building with vacancies. Make sense? So they were bringing me into the lease up. And then I started thinking, Oh, my gosh, I looked at how much money I was making, and how much the broker was making. And I thought, well, he’s making a lot more money than me. So then I went on a little bit of a quest to find the best, the best in class real estate broker. And I started visiting different brokerage organizations in the US and looking at the brokerage model. And I came across a brokerage model that I liked a lot. And at that point, open up a brokerage firm, and became an apartment broker. And then as an apartment broker, I took that same track record of writing, teaching, speaking, and you know, and executing into brokerage. So now I write, speak, educate on the topic of commercial real estate in the apartment sector and brokerage, but the majority of my income comes from actual brokerage about 20 staff and the the, I guess the the thing I synthesized, from looking at all the different brokerage firms is that the business everything is more complex now, right? Nothing is the way it used to be 10 or 20 years ago. So the loan broker working just doesn’t work. You need a team of people, I need database people, I need technology, people, marketing people, right, admin people, salespeople, but working as a team is so much better than the old real estate model of the lone wolf going out there and finding the deal. You know, what I mean, and doing doing all the parts of it. So we take a team approach to brokerage.
Alan Olsen: So Derek, when you’re evaluating your model, you have the brokerage model, you have a property management model. You know, what is? And there’s a lot of people that do this. So you, are you representing a certain group of investors? Do you take anybody’s money to say, Hey, you know, there, you like to come in? And be?
Derek Lobo: A great question, I think that’s a key thing to do here is to focus, right, so my client is, and then let’s, let’s stay on the brokerage side, because that’s the majority of our revenue. And that’s the real opportunity. My specialty, is selling apartments from first, second and third generation original developers to institutions. That’s that that’s my business, okay. And so that the first generation, sometimes the developer, the actual guy who builds it, okay, and that’s where the consulting comes in. But the other part of the business is for second and third generation people who’ve, you know, whose parents have built large empires, now they’ve taken it over, right, but then they’re still all of a sudden, they’re stuck being three or four brothers and sisters, then there’s 14 third generation people, right? So oftentimes, you know, people have different visions of which way they’re going, they’ve got to sell the portfolio, or they’ve got to sell parts of the portfolio to cash people in cash people out. So I would say, my client is the seller, the buyers and institution, nice people, but they’re kind of nameless, faceless, because they change an institution and certain pension fund. What I’ve been dealing with for 20 years is that eight different people in the acquisition managers position, but that family is always the same, right? So that’s who I focus in on is understanding the family dynamics of real estate ownership. And that’s different than the institutional owner dynamics of owning real estate. Makes sense?
Alan Olsen: You got a tough market, especially when you get down to that second and third generation.
Derek Lobo: What you know something about the family office? Yeah, yeah, yeah, yeah. Yeah, absolutely. But and you’ve got to treat everybody with, you know, respect, right. But people have gone in different directions. Some become doctors, some become lawyers, some have become film producers. Some are still stuck in the day to day property management grind. Right? So yeah, yeah. Yeah. It’s, it’s, it’s it’s probably more psychology and sociology than it is real estate.
Alan Olsen: So Derek, you’re in Toronto based out of So okay, so but you do across the border transactions in other countries, or,
Derek Lobo: You know, the apartment business for whatever reason has stayed rather provincial in Canada, you know it. Yeah, in the US people go across state lines just way quicker than they do here thinking as to the size of the geography, and it’s, it’s only, you know, 35 36 million people over a much larger area than the continental United States. So I focus mainly on the Ontario market, which is a market who’s about you know, 12 million people, something like that. But there’s enough business in here for for sure, for several apartment brokers, and certainly for a boutique brokerage firm like ours.
Alan Olsen: How big are you right now? And how big do you want to be?
Derek Lobo: You know, I’m in this program that you know, all about called the Strategic Coach. And so, I’d always set the goal of making a million dollars on one check. Okay, because, you know, that exercise the biggest check, yeah, right, or the largest check. So I remember being in the class, and I wrote down, I want to get one check of a million dollars, and I visualized that I could never get that consulting. It’s impossible. That’s when I realized I gotta be in another business to get a million dollar check. That’s how I thought, Well, one way to do is to leverage the consulting in the brokerage. So when I got that $1 million check I had since I left the Strategic Coach, but I photocopied it. And I mailed it to them, saying, hey, by the way, thanks for the largest check exercise. And he wrote me back and he was just starting the the 10 times program. And so it was perfect timing, I just got this check in, I’d given him the credit for giving me the idea to do it. He says, Hey, I came up with a 10 times program. So I signed up for 10 times program. And that’s how I met you. Right. So i think my goal then was and it seemed impossible at the time, is to take that up to 10 million. Fair enough. The one check the one check. You know, I’ve had a few more times, I’ve gotten more than halfway there. Right. So yeah, so how big do I want to be? You know, it’s a good question. I think as long as I’m engaged and fascinated in what I do, right, then those larger checks become, you know, mental constructs as things I want to go for in the future. Whether I hit that $10 million, check, let’s see. Right. But I kind of suspect I will, because it’s sort of like a memory hook in your mind. You kind of place that thought, okay, I want to get that. And, and, and you know that then it’s there. So you’re looking for those opportunities. So that makes sense.
Alan Olsen: How has the pandemic affected you? And your business? Well,
Derek Lobo: Yeah, so I’ve been standing where I’ve been standing here for nine months. I come in the office every day, not not a lot of people are here. But I have number one, I think it’s taught me, I always believed I had to be in front of people, I would drive you know how to drive or blah, blah, blah, you know, I you can once you have a relationship with someone, I think you can have meetings 70 80% as effective on zoom. And now I can have six, eight a day, right. Whereas I could only do two or three a day. And I’d be exhausted at the end of the day after going here going there all over the city and all over the province. So I think number one, it’s taught me a lot about communications. It’s, and then the other thing it’s taught me about is, I think for the people I’m talking to who usually the beneficial apartment owner is about transparency. Because you know, when things are tough, people are always more honest, people are always more open. And I find that my hotel clients who own hotels are completely transparent, cuz it was so bad for them. That there’s nowhere to go. But you know what I mean? Yeah, yeah. And and so, I think I found the, the, the zoom and the and the riverside FM and, you know, these medias, you know, very valuable. I found being prepared for the conversations and you know, adding value, asking good questions, valuable. And you can find and execute business without meeting people. I guess the the biggest lesson that I’ve learned personally, yeah, I always thought I had to be there. I had to be in front of them. You know what I mean? I realized that, with the technology change, as well as the cultural changes, the clients accepting, you know, you’re doing a zoom meeting. It’s been it’s been pretty powerful. Yeah, we had our second best year ever in 2020.
Alan Olsen: Interesting,
Derek Lobo: That have been locked down for nine months of it.
Alan Olsen: Yeah, there’s a lot of tenants I’m sure that are struggling with employment in, in in So how has that overall affected your business? with digital going on? And,
Derek Lobo: Yeah, yeah, so it certainly put pressure on my client who’s the apartment owner and the property manager. But one of the first things I did when COVID hit was I started doing webinars strategies during the shutdown. We didn’t even know what to call it at that point, right, codependent. But right when it started, we started doing webinars, advising owners how to approach it, right. And so that was interesting, because that wound up creating a bit of a following. And we had probably 5000 unique visitors come to, you know, the webinars that we’re doing every couple of weeks, just no charge, just advising apartment owners on what to do. And one of the pieces of advice that I gave them, I said, this is an extraordinary opportunity to build a relationship with your tenants. Because landlords never call tenants and say, how are you doing? Is everything okay? Do you need any help? Right? This was an opportunity, really a historic opportunity to do that, where the tenants knew you weren’t calling, like, either they were paying the rent, or they weren’t, you know what I mean? They either had the money or they didn’t, and most people who had the money did pay, I’ll say that 100%, right, there was really not a people thought, Oh, well, 10 into a game, the landlord of the system, we really didn’t see that. Now that might be different in other parts of the country, but in you know, in the Canadian marketplace, that wasn’t the case. So I said to apartment owners that this is a wonderful opportunity to take that not historically tense relationship between landlord and tenant, and, and improve on it. And you know, many people did that. Many people did that. And if they didn’t do it in 2020 2020, one’s a do over, you get another chance,
Alan Olsen: You know, you optimistic for this next year.
Derek Lobo: I think that there are in everything, there’s polarity, and politics, in business, in religion, in government, everything is becoming polar. Right? So I see a group of people who are saying, it’s gonna be the roaring 20s. Right. And then there’s some people saying zombie Armageddon, right. I don’t know. I mean, I, our head is in a fog, right, right now. And it’s like flying in an airplane in a cloud. At some point, it’s going to drop below the cloud. And it’s going to be clear. I’m not sure whether we’re gonna see Ireland, the beautiful green grass. I’m not sure whether we’re gonna see the desert with the Grand Canyon cracked open, right? Or I’m not sure what they’re just gonna drop down and see the Pacific Ocean with no end in sight. Um, I think that they’re going to be winners and losers, right, that people are going to adapt. And I think that entrepreneurs have adapted better, because they’re used to change. They’re used to stuff going wrong, right? I think it’s been harder for younger people. It’s been harder for working moms at home, right to work. So it’s really it’s really vary the outcome i think is going to be on I think the outcome is going to be mixed. People who will do well, and those who won’t,
Alan Olsen: But it’s your ideal client.
Derek Lobo: Usually, probably a pickup truck. Right? Mostly self made. Never knew was going to be this big. Well,
Alan Olsen: Let me ask Let me ask it another way. You want a person selling a $80,000? condo? Or do you want someone in a larger transaction? In other words, what is your sweet spot?
Derek Lobo: Yeah, no, my average deal size right now is around 60 or 70 million. Yeah, so we’re selling so these pictures behind me here? Like we’re selling apartment buildings like this, for portfolios like this.
Alan Olsen: Okay. Okay.
Derek Lobo: Yes, yeah. So my average apartment guy is up. If it’s the newer stuff, it’s a first generation developer, right? built it, the risk of building and stabilized and sold it. Or then there’s the other side of it, where it’s the second or third generation of that same guy. And now, the time has come that they have to go different ways. Fair enough. They’ve kind of been getting along, but things are changing, technology changing, the demands are changing. The capital stack is changing, right? Things like that. So it’s generally I have decided to do larger deals, we don’t do smaller deals, and we don’t do houses or duplexes or anything like that. Yeah, generally larger apartment buildings.
Alan Olsen: Yeah. Derek has a person reached out to you for more information?
Derek Lobo: Well, you can just go on YouTube and put my name and Derek Lowe live. I’ve put a ton of videos on there but just Derrick.Lobo@SVN.com is a good way to reach me.
Alan Olsen: All right. So Derek, appreciate you being with us today. And, and any insight for 2021 how people should face the future here.
Derek Lobo: You know, I think you’ve got to stay flexible. Right? Your mind has to be looking around all the time. You know, even just driving home some days. I take a different route home. Just you don’t know what’s coming. Stay Flexible, stay open, be brave. Don’t be afraid of asking other people what you should do. And I think for my for my children, I just say, this is an extraordinary time.
This transcript was electronically generated and may not contain the exact words used.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
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