14 Jul July 14, 2020 – Corp RE Dan Genzel, Lawyer Mark Shaiken and Constitution Writer John Feerick
“The audio file was removed when we switched hosts. Sorry. The cost was prohibitive. If you need the file, contact us and we will send it.”
Dan Genzel is a commercial real estate investment expert having closed hundreds of transactions. He’s highly accomplished in developing customized investment strategies, sourcing and analyzing real estate investment opportunities, structuring profitable real estate deals, and closing transactions. Dan has personally acquired/developed over 30 multi-million dollar investment properties with a value approaching $100,000,000; borrowed and repaid tens of millions of dollars in loans, and has raised millions in equity. With both an accredited education and one earned being in the trenches over an accomplished career in the commercial real estate industry, Dan mentors business owners and affluent investors. He teaches entrepreneurs and investors how to use commercial real estate investments to make insecurity a thing of the past and achieve both the wealth diversification they’ve been searching for, and the legacy they’ve dreamed of.
Mark Shaiken is a survivor of a decades long career in the corporate bankruptcy trenches. He sat for 10 years on his law firm’s board of directors and was a member of its strategic planning committee. He holds his B.A. from Haverford College and received his J.D. from Washburn University. He holds seats on art boards, sits on Habitat for Humanity – Metro Denver’s audit and finance committee, and is a member of the Downtown Denver Partnership’s obility and Housing Councils. He now measures his life by what he gives, and enjoys that immensely. Mark is also the author of And… Just Like That: Essays on a life before, during and after the law, which presents observations on his life before the law, his forty-one years in the law, and his life after he left. He has now started his next book Fresh Start, a bankruptcy novel.
John D. Feerick – Author of That Further Shore
John Feerick is a Professor of Law at Fordham University School of Law and has served as school’s eighth dean from 1982-2002. As editor-in-chief of the Fordham Law Review, he wrote an article about presidential succession, which later served as the foundation of the 25th Amendment to the Constitution; an amendment Feerick helped draft at the invitation of the American Bar Association in 1964. His efforts led to a Pulitzer Prize nomination and established his reputation as one of the sharpest legal minds of his generation. Prior to entering academia in 1982, Feerick was also a labor and employment attorney in the law firm of Skadden, Arps, Slate, Meagher & Flom. He is the recipient of many awards, including the Law and Society Award from the New York Lawyers for the Public Interest, the 1999 Citizen Achievement Award from the New York State League of Women Voters, the American Irish Historical Society Gold Medal, and the New York State Bar Association Gold Medal. John Feerick has also authored several books, including That Further Shore: A Memoir of Irish Roots and American Promise, where he shares his inspiring story, from his humble beginnings, to serving as President of the New York City Bar Association and chair of state commissions on government integrity.
Highlights from Dan’s Interview
So let’s start with the story of how I got my very first deal. Back in 1998, I was a commercial real estate broker at the time. Essentially, that business is all about working for free for a very long period of time. I just came to the conclusion one day, across the closing table for me, that my client just wasn’t that much smarter than me. I was doing all the work putting these deals together and they were reaping all the rewards. In the back of my head, I said, someday I got to do this. So I came across a property in my office one day that I couldn’t get any of my go-to guys to take down. I didn’t know why, I really liked the deal. I essentially took my blinders off and put the deal together. I called as many people as I knew, I would say about a dozen friends and clients that I had. I said, I really like this deal, here’s why. There was a new bank that was looking for business from me, and I said, I’ve got a really good deal. I’ve got about six people that want to provide equity. I slammed a deal together, it was about a $1.2 million deal. They were willing to do it based on my track record of achieving results for my clients, maybe not necessarily them, but just the track record that could slide across the table to them. That deal worked out really well in the end, we were able to negotiate a 10-year lease with the tenant. I would say in about year three, we sold it.
The feeling that I got walking out of that closing was unimaginable and it’s something that I’ll never forget. I got in my car, went back to the office and said I am going to do a bunch more of those. So I went on for another couple years to both broker real estate deals for people and also look at doing more syndications. Eventually, I concluded that this is a full-time opportunity, so I became a commercial real estate investor that no longer did brokerage deals.
As far as what I look for in a deal, I think it’s all depending on the demand drivers that are moving forward with the real estate. Me personally, I like to find opportunities where I can infuse the human and financial capital, and then turn the property around. In other words, the value-add investor. I’m not the type of investor where I go to buy the Walgreens that is sitting around the corner that has a 20-year lease, and I’m just going to sit there and collect money in my mailbox every month. I want to roll up my sleeves, add value, buy way below intrinsic value, and then increase the NOI and sell it to a different type of investor.
Let me tell you, finding something way below intrinsic value, it is all about relationships. So it is getting together and aligning yourselves with the opportunity providers that do have the deals. In most markets, those are commercial real estate brokers. Even though there are some markets where it’s more owner-controlled, I would say for the most part, that you should have relationships with a few different commercial real estate brokers, again, depending on the product type that you wanted to go out and buy. If you’re an entrepreneur, for example, and you have your widget manufacturing company that maybe one day you started in your garage, and then as you grew your company, you took more and more square footage, and you might have been in perhaps an incubator type building where there were multiple tenants, when you get to the point where your growth is uncontrollable to some extent for your landlord because you cannot simply take more space, I think at that point, it makes sense for entrepreneurs to go out and look at buying their own real estate. They control their footprint, and then that is a hidden deal that is right underneath their chair.
Now, the entrepreneur can buy it outside of the business and have this as his insurance double-down retirement thing, where his own company pays off the mortgage of his property, and in the end, he owns both separately. You should have a single-purpose entity. The thing about that is commercial real estate is a phenomenal estate planning tool. Because if you were to go and sell your company, whether it’s maybe your children would buy the company from you, that is a great asset to own long-term. You simply execute a long term lease and you enjoy the benefits of owning real estate and control it.
If you asked me today, Dan, what can I do tomorrow to go out and start finding a commercial property, what I would do is I would go tell you, go drive the market that you want to be in. Do yourself a favor for your first deal, let’s get it as close to your backyard as possible. Because you know those demand drivers, you know the trends, you know the demographics. Then what I would tell you to do is to go drive the neighborhood and start calling off of signs, even if that property is just not that appealing to you, because you’re going to form a relationship with that broker or the owner. Then you can start the conversation and say, “Hey, I saw your sign on 123 Main Street. Tell me the details.” Then you start that conversation, you find out the brokers that are hustling that they want your business, and then you say, “After further thought, this just isn’t going to work for me. What else do you have?” Because brokers in many cases are very location-specific. In other words, they tend to stay in one specific location and work that market. Then once they get past the point of you’re a credible buyer, which is more than half the battle for them, because keep in mind, they’re working for free until you close a deal, they want to know that you’re real.
I will say I’ve been through a few of these cycles of ups and downs in real estate. Everybody thought the sky was falling in 2009 and 2010, and the banks behaved irrationally. But what happened was everything recovered. Sure, your value might be down on paper, but I’ll tell you what, it recovered hugely in this last cycle. So if you’re a 27-year-old and you own some real estate, you have a long term-vision I’m assuming, everything is going to work out; it always does, it goes in cycles. But you’ve got to survive the pain of that cycle. If it’s your company and you’re paying the rent, I assume you’re going to be able to continue paying rent. If you have some tenants, you have to work with them if you have issues with them. But as long as you are understanding that things will get better, that this Coronavirus is not going to be around forever, there is no need to panic. I think now, there is an opportunity right around the corner. So now is the time to keep your powder dry, and to look for a good entry point into commercial real estate. This is the best buying opportunity for a millennial because it’s so much different than the last recession. Because there were much bigger economic issues that were following that recession, where I think this is obviously a black swan event that nobody saw, that everybody’s businesses just stopped. I think we see things are starting to get back to normal.
In a normal distress purchase, you would wonder what’s wrong with this property, whereas now in a distressed purchase, you’d be like, that poor guy got really slammed and I’m the beneficiary. But I think everybody has different motivations to sell, I wouldn’t really dwell too much on trying to understand why somebody is trying to sell. Because in investment commercial real estate, in effect, what you’re doing is you’re buying the leases, you are buying the future cash flow. So you have to understand, how intact is that cash flow going to be, and how likely is that tenant going to be to survive?
You have to understand the value of a long-term contract in real estate. I’ll give you a specific example of a property that I own right now, which is right across the University of Wisconsin. I have a moat around this property because this university just continues to get bigger and bigger and bigger, and I have more and more and more people driving by Main Street there that want to visit my tenants in the shopping center. These tenants have been around with me since 2005 when I bought this property. There was no recession in 2008, 2009 and 2010 with this property, because once they get in and they develop customers, they are never leaving. They’re going to be long term tenants and my kids someday are going to deal with this property. Because it’s real estate, you can’t replace this property. So what’s important is long term leases, good locations, and you’ve got to understand what your demand drivers are, why do people watch your real estate? In that case, if you want to be across the University of Wisconsin, you want to be the Jimmy John’s, you want to be the Anytime Fitness, you want to be the Cost Cutters, you want to be the Verizon, the Domino’s Pizza, there is no other choice besides my property.
Finally, I want to talk about my website. So MultiplyCapital.com is my website where people can go to learn more about commercial real estate investing, and really answer the question, is it right for me? With most entrepreneurs and small business owners, the answer is probably, and it merits further discussion. So I have some offline training that’s available on-demand, and it’ll tell you the why and how of commercial real estate investing, and why you are really one small deal away from financial freedom. Because once you invest in your first deal, you’re going to keep coming back for more. Even if you have $25,000, you can absolutely start a small deal. My first commercial property was $99,000, and I sold it to my attorney for almost $300,000. The only thing I did was I took a vacant building, and I put a tenant in it.
To find out more online, you can go to DanGenzel.com or you can see more on MultipleCapital.com, it’ll reference back to be in my story. You can check me out on LinkedIn and Facebook.
Highlights from Mark’s Interview
The bankruptcy thriller is coming, that’s still being typed out. The book that came out, And… Just Like That, is sort of a memoir of my life before, during, and after the law. It’s a series of essays on what it was like before the law and law school, the decision to go to law school, what it was like in large law firm for the four decades, the decision to exit the practice of law and how that works, and then how my afterlife, as I like to call it, has been going.
I decided to leave law because I thought that almost 40 years was enough, that would be the simple answer. I never really intended to be a lawyer, so it’s somewhat remarkable that I lasted for decades. I never intended to be a bankruptcy lawyer, which is a pretty contentious practice area, so also somewhat remarkable that I lasted 40 years doing that. I think it’s just something that every lawyer thinks about an awful lot during their career, have they had enough, is there something else they can do? Lawyers surprisingly tend to dream a lot about things that they could do besides being aware. For me, it just all came together and I got the guts up to end my law career and move on.
As I like to say to people, I had Lord knows how many midlife crises of my life. So I was always thinking of other things I could do. Most of my dreams were either not great dreams or even pipe dreams, but dreaming of other things to do is certainly something that I spent a good deal of my career doing. For example, at some point, I thought I would leave the law firm and just teach law at a law school. That’s not that easy to do, because there’s not actually that many law schools in the United States. So that oftentimes carries with it a move. In other words, if a law school a thousand miles away decides to offer you a job and you want to be a law school professor, that’s where you have to go. I solved that problem by teaching at the University of Kansas Law School for 14 years as an additional job to the law firm. But that was one dream. Other dreams that never came true were playing the guitar in the E Street band, that one didn’t happen. But it’s okay to do that, it helps you focus on what you’re actually good at, and apparently, I’m not good enough at guitars to do that. At some point early on in my life, I guess I started doing all this dreaming as my folks moved us all around from place to place. One of the things I thought of would be cool would be if I got bit by a radioactive spider, I could become the next Spider-Man and swing between Manhattan’s tall buildings. So the spider bite never happened, so that dream didn’t happen either.
If you ask me if we’re about to see the great bankruptcy swap flood of all time, I think so, it’s happened before; the question always is to what degree. Back in the 80s, much of the country was doing fine, but the oil belt collapsed when the price of a barrel of oil went below $10 a barrel. So the oil industry pretty much drained out through the bankruptcy process. That was a Texas, Oklahoma, Kansas, Colorado phenomenon, and we were in Houston at the time, I was practicing as a bankruptcy lawyer there. That was remarkable. We used to say down there that everybody who could file a bankruptcy petition had, it was just incredible. Then in 2002, the Dot-com bubble burst and many of the startup internet companies ended up going that path, many of the telecom companies went that pass. I can come back to that as perhaps a view of how bankruptcies will go this time. Then 2008 through 2012, with the Great Recession, lots of companies ended up having to file bankruptcy.
So it is what we do in America, it is the safety net that Congress and society provide to companies and people who are struggling. But not everybody reorganizes, and 2002 is a good example of that. The telecom industry had a big shakeout and lots of companies filed, but not a whole lot of companies survived that. So it’s easy to file bankruptcy, it’s a little bit like the Hotel California; it’s easy to check-in and it’s not that easy to checkout, you have to have a business plan to get you out. The law will implement the business plan but it won’t give you the business plan, so you’ve got to have some way. The hospitality industry right now is a really good example, and there is some tick-up in some of the smaller hotels filing. Without cash, bankruptcy can’t help you, and without guests in a hotel, you don’t have cash. So the hit that COVID has placed on cashflow is remarkable, in a bad way. Companies of the middle market size, so well smaller than Hertz and Neiman Marcus, whether they can file? Yes. Whether they can organize? Unclear, because the ability to find credit and cash is very difficult in normal times, let alone now.
I wish I was smart enough to know what the recovery will look like, I have found myself reading those articles each day. As you know, people talk about the B or the U or the W. I am curious as to what the shape of the recovery is going to be, whether there is going to be some drug that will either cure, reduce the impact of, or prevent COVID. There’s not a lot of data of that you can go to, to read up on that. So really, those are the two articles that I tend to read these days to try to manage the information, and that is the shape of recovery and the progress that the scientists are making.
So whether to file bankruptcy or not is a tough decision that typically is made by finding a good bankruptcy lawyer and sitting down with them and walking through options, because it’s a very complicated and very time-consuming process. It’s a burden on the management, which could be mom-and-pops, all the way up to a more significantly sized company with a board and senior management that’s going to have to make that decision. Right now, it looks like the lenders are working with their customers: the debtors of the world. Therefore, the need to file bankruptcy because you’re being pressed by a lender who has perhaps gone down the road of starting a foreclosure proceeding or a lawsuit, may not be quite as prevalent. Lenders are giving out extensions and workout agreements, as they’re called, but that’s not going to go on forever. So if you’re in the midst of working with your lender, that’s probably the best time to go start talking to a lawyer, plan out what would happen if your lender stops working with you, and begin to work on what a business plan would look like; how will you survive in reduced cash flow, and try to stretch that out for as long as possible in my usual view, before filing. You don’t want to file too late, but you don’t want to file too early.
I don’t know how many creditors are angry at the moment. Of course, they want their money, but if I’m the debtor and I don’t have money, so then we have to go to plan B because I can’t print money. So if I’m a restaurant, to pick a really brutalized industry right now, I’m a good restaurant, people in the community love my food and my service, and I’ve gone from 100 to zero overnight, which is what happened, and the lender gets mad, what’s the lender going to do, repossess chairs and tables? God bless if they do that, but that’s not a method by which lenders get paid. Most lenders of any size know all of that, they typically have a separate group, oftentimes called Special Assets, and those people, all they do is deal with trouble credits. Their charge typically isn’t to swoop in and take everything, because they won’t realize much of anything that way. But if that’s the lender that you have, an angry lender that’s being unreasonable or irrational I would say, then you need a bankruptcy lawyer because the bankruptcy code will prevent the lender from doing all of those things. But you still need a plan because you can’t file bankruptcy without money. So if you’re a restaurant and you have very little cash flow, that’s going to be a tough Chapter 11. If you’ve begun to recover so you have patrons coming in, and your lender isn’t giving you the chance to build back up your business, then you probably are a bankruptcy candidate because you can park in bankruptcy for a while, while the business returns.
To break down the type of bankruptcies, Chapter 11 is reorganization. Some people call it corporate reorganization, but it can be used by individuals, as well as partnerships, corporations, limited liability companies, and alike. The idea in Chapter 11 is to ultimately reorganize. I typically put reorganize in quotes because that could mean selling your business to someone else in that industry that isn’t suffering as much, and using the proceeds to pay your creditors. Chapter 13 is exclusively for people. It used to be called a wage earner plan, they don’t call it that anymore because you don’t need wages, you just need income, which could be retirement income. That’s a chapter where a person who’s struggling can file bankruptcy and repay his debts over a three to five-year period of time. Oftentimes, you find the Chapter 13 population made up of people that have lost their job, gone from cash flow to no cash flow, and health events that were uninsured in the modern era. Chapter 7 is just a straight liquidation. An independent trustee is appointed to gather up assets and sell them or return them to secured creditors, and then distribute money in a distribution scheme that’s in the statute. That’s also for individuals or companies. Then there’s a Chapter 12, which is a farmery organization, as in agriculture; cows, pigs. There have been some fish farms that have filed Chapter 12, but the traditional would be crop or livestock. As far as bankruptcy, you need to understand if you’re a small business owner, that it’s not a panacea, it is a safety net. But that it has some holes and you can fall through.
So let me give you one of the essays from the book. I try to stay away from talking about the judges I appeared in front of over the years, you sort of learn to stay away from that kind of thing as an attorney because you’ll be back in front of that judge. I guess I got into the habit of accepting whatever the judge’s personality was moving on. I remember having this long discussion with a geology friend, a really good friend of mine is a geologist, we were having some beers in the bar. I had gone down the path of feeling sorry for myself that here I was, still a lawyer, and I kind of got into it in these little incremental windows. Here I was 20 years later, and I hadn’t figured out anything else that I could do or do as well as I was doing as a lawyer. So I told him that I thought I was a huge pain in the ass, because all I did was complain all the time. Remarkably, or perhaps unremarkably, he agreed. So we had this long discussion about why so many lawyers are unhappy and discontented, and why they are such a big pain in the ass so regularly? We didn’t really reach any conclusion other than, I think after about the second beer, it became clear that it wasn’t limited to me. But it was bothersome that geologists were content to me, and therefore not viewed as such big pains in the asses.
And… Just Like That: Essays on a life before, during and after the law is now up for sale at Amazon, of course, Barnes and Noble too. It may have made its way at this point to some book retailers, although at least here in Denver, they were all closed. So you wouldn’t have been able to go to your independent bookstore and buy it. It’s on iTunes. So it’s available pretty much widely.