Michael was in a position that required him to research comps for the company’s deals. He was having trouble finding relevant comps, so he started working on a solution. Enter his company, CompStak, they provide comps nationwide from brokers, appraisers, and research people in real estate brokerage firms to anyone who uses their platform. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“The way you differentiate yourself is through your creativity” – Michael Mandel
Michael Mandel Real Estate Background:
- Co-Founder & CEO of CompStak, the nationwide provider of commercial real estate data and analysis
- Has provided 2 million comps on 700k properties totaling 10 billion leased SQ. FT.
- Based in NYC
- Say hi to him at https://compstak.com/
- Best Ever Book: Shoe Dog by Phil Knight
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Michael Mandel. How are you doing, Michael?
Michael Mandel: I’m doing well, thank you.
Joe Fairless: Well, I’m glad to hear it, and welcome to the show. A little bit about Michael – he’s the co-founder and CEO of CompStak, which is a nationwide provider of commercial real estate data and analysis. The company has provided two million comps on 700,000 properties, totaling ten billion leased square feet. Based in New York City, New York. With that being said, Michael, do you wanna give the Best Ever listeners a little bit more about your background and your company’s focus?
Michael Mandel: Absolutely, sure. Before starting CompStak, I was a commercial real estate broker. I was working [unintelligible [00:01:39].15] in New York City. I did office leasing transactions, representing both landlords and tenants, and I did data center deals throughout the country. I started CompStak out of my experience as a broker, because when I was a broker – as probably many brokers who listen to your show could attest – I would spend a lot of time trading data, specifically trading lease comps when I’d get a lot of leasing work… And I was doing that over the phone and via e-mail, and most notably, in our weekly market meeting that we had every Monday morning. Really, it was sitting in one of those market meetings for hours, as we’re trading random comps for other random comps, I realized “This is silly. We’re all sharing this information in the industry…”
I would be calling up other brokers frantically on Sunday night, trying to get information to share in the Monday morning meeting, just so I could sit around this table and hear about deals that were largely irrelevant to what I was working on. And the thought was “Well, all these brokers are trading data… Why don’t we build a database where everybody can put it, so you could find what you need, when you need it?” And that’s what we did.
We basically took that offline process of people sharing information, creating a credit system, where brokers, appraisers and research people can earn credits for sharing data on CompStak, and then use those credits to get other comps back out. So it took what everybody was already doing offline, which was basically tit for tat (you give a comp, you get a comp), and we’ve put it online and made it even more fair. I think that was really well-received in the industry, because it’s just a much more efficient way of doing things.
Joe Fairless: Well, yeah, I love that approach; I love that story, too. It was like an a-ha moment, where you were doing it offline and there was no real system, so then you’ve created one… And props to you, because it’s one thing to be in the middle of that madness initially, and it’s another thing to think “Oh, well this would be a good idea”, and then it’s at a whole other level to actually act on it and do it. What are some challenges you came across during the acting on it and doing it part?
Michael Mandel: Well, there’s constant challenges, and we continue to have challenges… There’s nothing about being an entrepreneur that isn’t challenging. But I think what it came down to is I think people have a conception “Oh, you build a tech product, and then everybody just uses it, and it’s an overnight success.” The truth is that for most tech companies you spend a lot of time doing things manually, and just grinding away until things start to work, and until you sort of hit the flywheel, where it works by itself.
In our case, we were trying to create a marketplace, and when you’re building a marketplace, you’ve got a real chicken or the egg problem. People don’t wanna use CompStak unless there’s valuable on there; but you need the people to get the data, but you can’t get the data without the people… So it was a challenge, and basically, initially it was just me — I remember a distinct memory, sitting at my couch in my apartment, calling up every broker that I knew in the industry and saying “Hey, I’ve got this new thing. I’ve set the login for you. Here’s your login. I want you to send me some comps to put on it.” And getting them to log in and send comps, and then every week calling through the same list of people and saying “Hey, you haven’t logged in this week. Why haven’t you logged in?” or “Hey, you haven’t sent me any comps this week? Why haven’t you sent them?”, until eventually people just started doing it on their own, and finding value on their own. I had to really manually hand-crank that machine to get it going.
Joe Fairless: I have a whole lot of respect for you in that regard. So you got the machine cranked up a little bit… Once you had more people who were on there, what are some major things you’ve tweaked or optimized with the site or the process, that looks different now than originally?
Michael Mandel: Well, we’re one of those companies that what we’re doing is fundamentally still the same as what we were doing in the beginning. We haven’t pivoted; it’s still the same model. I would say we’ve made the interface a lot better, we’ve added analytics to sit on top of this data to allow you to really do some interesting things with it… We’ve added a lot of new ways to search the data and filter it and find what you’re looking for. We’ve had to build out tremendous infrastructure to allow us to process all of the data, because when we started it was just my friends in New York giving us comps, and now we’re bringing in over 50,000 comps a month, each one with anywhere from 15 to 50 data points within it; so we’re bringing in millions of data points a month, and we’re getting all this stuff in scanned PDFs, Word documents, Excel spreadsheets… So there’s been a lot that we’ve had to do on the back-end to scale our infrastructure to be able to do this.
At the end of the day, what’s the most valuable to our members is the data. The data’s gotta be there, and it’s gotta be comprehensive, and it’s gotta be high-quality. There’s a lot of bells and whistles on top of it, but that’s not what drives the value. The value is the data, and that’s what we’ve always focused on.
Joe Fairless: And I’m purely guessing here, but I’d like to guess and then you can tell me what the answer is… My guess is that you’re going to make money through a version where people can pay to get access to this data, so it’ll be free for the brokers and people who upload the stuff, and then for people who aren’t participating in the sharing system, if you want access to that, then you pay. Is that the business model?
Michael Mandel: Actually, it’s very clearly delineated. We have CompStak Exchange, where we have brokers, appraisers and research people in real estate brokerage firms who share data on CompStak, earning credits for sharing that data, and can use the credit to get other data back out. And that is a free platform, it’s been free for seven years, and will continue to be free. As long as you give data, you can get data. And actually, those members cannot pay for data; they have to give to that.
Joe Fairless: Okay.
Michael Mandel: And then we have CompStak Enterprise, where we sell subscription access to our data via our web platform; we also have API deals and integrations. On that site we have some of the world’s largest institutional real estate investors and lenders using that data to make real estate investment decisions and to lend on commercial real estate. Those are — I’ve gotta think about which logos/names I’m allowed to mention… There’s companies like Wells Fargo and most of the other [unintelligible [00:07:50].28] People like Blackstone, and Tishman Speyer, and Brookfield, and SL Green, it is major insurance companies, it is pension funds, sovereign wealth funds… A lot of major institutions that use this data to make their investment decisions and to lend on commercial real estate. And lots of other use cases, too; we have hedge funds that trade on the data, we have insurance companies that do property and casualty insurance underwriting using the data… So there’s lots of interesting use cases of this.
Joe Fairless: Did I hear you correct, you have 50,000 comps a month coming in?
Michael Mandel: Yeah, over 50,000 comps come into the system a month.
Joe Fairless: Okay.
Michael Mandel: And that’s growing constantly.
Joe Fairless: And did I also hear you right, you’ve been doing for seven years?
Michael Mandel: Yeah.
Joe Fairless: What point were you out of the woods and you were no longer having to manually call people and it took off more organically than having to hand-crank, at least?
Michael Mandel: Sure. Well, we still do hand-crank. Some markets we don’t have to do any hand-cranking. In New York City, which was our first market, we can do nothing and the thing will just probably go on forever, as long as we [unintelligible [00:09:03].18] the data. Every lease comp in New York City, we get an average of ten times, and we get a lot of those deals the day they take place, because there’s a competition for people to be the first one submitting and earn the most credits for submitting comps.
But we’ve consistently been launching new markets, so our database now spans from New York City to Honolulu, Hawaii, Anchorage, Alaska, Sioux Falls, South Dakota… We’re in every state, we’re in every town, so in some of those newer, smaller markets we still have to hand-crank, we still have to call up the local people in that market and get them engaged and get them sharing data. But there is a strong network effect, so over time you have to do less and less of that in a market. That’s why we have right now eight people at CompStak managing 20,000 members. If you look at that in contrast to a company like CoStar, which has 1,800 researchers, effectively cold-callers, calling for information… So our corollary, our exchange team is the one to do that business development work and to build relationships, but they don’t have to call everybody, they just have to call some people and they just have to make sure those relationships are strong, and people wanna contribute… But our members are the ones that are contributing the data and doing that work.
Joe Fairless: Why would a successful broker who can afford to pay for a service like CoStar participate in your platform when they have to do some work, versus – their time is valuable, so instead they choose to just pay for something like CoStar and not have to do any work for the data?
Michael Mandel: Sure, most of the brokers on CompStak do pay for CoStar and use CoStar, but you can’t get this data on CoStar. Part of my experience in starting CompStak is that I used to use CoStar every day when I was a broker, and I used it for listings, but we could never really rely on CoStar for lease comps, because the reality is that everybody wants to share their listings with CoStar, because you want your listings out there, but when that same researcher from CoStar would call you and ask you about the terms of the deal for that listing you just took off the market, you wouldn’t give that to them, because they’re not offering you anything in return for it. They’re not incentivizing anyone to share that information, so people just don’t share that with them.
So the end result of that – they just don’t have good quality lease comps data… I don’t know that it’s 100%, but it’s probably close to 100% of our members on the Exchange side who trade data also use CoStar, and they use CoStar for listings… And a high percentage of our Enterprise customers use CoStar for listings too, and I think CoStar absolutely is the place we wanna go for listings. They have amazing market coverage, particularly for for-lease listings, but for lease comps that wouldn’t be the case. And now for sales comps – we now capture sales comps data as well, but it’s a similar situation; CoStar is able to get the publicly-available information and the information people are allowed to share. You’re able to capture things like NOI and cap rate from our members, because they’re incentivized to share it. That’s really the differentiator. CoStar is very good for the things they are very good at, and we’re very good at the things we’re good at.
Joe Fairless: Mm-hm. That’s huge, having accurate NOI and cap rate… Is there a checks and balances for the accuracy of the NOI cap rate?
Michael Mandel: Sure. I think it’s a broader question, which is just sort of like “How do we maintain data quality across the board?” And that’s obviously tricky for any data company, certainly for a crowdsourced data company… But the way that we go about it – we actually used to have analysts review every comp that came into the system, and they’d call up the brokers into the deal, or they would call up the person who submitted the comp and try to get more information… Obviously, that wasn’t scalable, so what we’ve done is we’ve built pretty sophisticated machine learning on top of the process, where — in fact, I wouldn’t really call them machine learning algorithms, but basically data science work that is used to look at the decisions our analysts were making in a manual fashion, and to automate those decisions. So we were able to pretty efficiently find outliers in the data and clean up the data and normalize a lot of these versions into master records, and then instead of having analysts look through every comp, we actually flagged certain comps for greater review by our analysts.
We also have a community regulation piece, so our members earn credits for updating incorrect data and lose credit if their data has been updated by someone else… And we have the fact that we get every comp multiple times, and every time we get it there’s another opportunity to validate the data.
But I would say the best testament to the quality of our data really is our customer base, because when you go and pitch a Tishman Speyer, you walk into their conference room and they expect you to show them all of their own deals; you’ve gotta have their deals, and those deals have to be accurate. If they’re not, they won’t sign a contract. So I think that that’s really a testament to the quality.
Joe Fairless: Very true. That’s a great point. In some databases I’ve seen some pretty whacky stuff on my company portfolio’s deals… I’m like “That’s not right, but I don’t care. I’m not gonna correct it”, because in some cases it’s beneficial that they have it so grossly inaccurate.
Michael Mandel: Well, you’re probably not eager to sign a contract with that company.
Joe Fairless: Yeah, exactly. Exactly. It’s quite the company that you have… I find this fascinating from an entrepreneurial standpoint, and also being in the industry. Your typical clients – you mentioned a couple times lease listings and lease comps…Are you referring to a certain asset class when you’re mentioning this?
Michael Mandel: For our lease comps we cover office, retail and industrial. And for sales comps we cover basically everything but single-family homes.
Joe Fairless: Okay.
Michael Mandel: And then we cover related property information for all of them.
Joe Fairless: Okay. When you take a look at some of the data that’s been accessible and been updated, do you all put together any reports on surprising things, or industry trends, or market trends based on the data, or do you always wanna keep that data behind closed doors for the members?
Michael Mandel: We certainly do, on occasion. We don’t do it very often, because when you’re a startup and you’re resource-constrained, you have to figure out how best to deploy your resources… And frankly, it takes a while to write reports and get them out there. We are now significantly building out our team, and we’re actually building out a new team here at CompStak that we call CompStak Intelligence. We’re gonna be putting out a lot of content – market reports, but also daily little tidbits on interesting things we’re finding in our data, and we’re gonna be publishing that over e-mail, and writing blog posts… So you’ve hit on something that is actually a real priority for us this year. I actually just interviewed candidates to join my team today, and I’m very excited about it, because we have such a unique dataset, and we think that we can create some really special thought leadership leveraging that data.
Joe Fairless: Based on your experience in the industry and as an entrepreneur, what’s your best advice ever for real estate investors?
Michael Mandel: Well, I guess I’ll be biased here and say my advice is that you should leverage data to do your job exceptionally, and then you should leverage creativity to really make a difference. I think that data has become table stakes in this industry. You’re not gonna win a deal, you’re not gonna make the best investment decision because you’ve got better than somebody else, or at least you shouldn’t; you should make sure you’ve got every piece of data you can available to you, so that that doesn’t become a variable for you. And then, the way you really differentiate yourself is through your creativity, going above and beyond that data to make your decisions and to focus on how you make your investments and what you do. But if you’re not doing the fundamentals of leveraging every piece of data that’s available, you’re really missing the boat.
Joe Fairless: Great point. Thank you for that. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Michael Mandel: Oh, boy… I hope so.
Joe Fairless: [laughs] Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:17:10].18] to [00:17:58].02]
Joe Fairless: Alright, what’s the best ever book you’ve recently read?
Michael Mandel: Well, I’ve just read Shoe Dog, by Phil Knight. I don’t know if that’s the best ever, but it was a really good read. My latest book that I’ve just picked up is The Sales Acceleration Formula, by Mark Roberge. He was the head of sales for HubSpot, and I’m excited to read that one. I just saw him speak and he was great.
Joe Fairless: What’s the best ever transaction you’ve done, either through CompStak or as a broker or as an investor?
Michael Mandel: Good question. Well, the funny thing is the best transaction that came to mind is one that blew up on me. When I was a broker, that would have been the best ever… No, but I’m excited that —
Joe Fairless: What was it? Tell us the story of that.
Michael Mandel: Oh, man… I had a massive data center deal I was working on. It was an off-market deal, and it was a two-million-dollar commission on a data center deal in Manhattan… [laughs] And we lost the deal because another company got wind of the deal that we were doing and came in from under us; they had better credit than my tenants, and basically the landlord did the same exact deal with another company, that had better credit than my tenants.
Joe Fairless: Oh, man… You’re smiling about it now, but I bet you weren’t then.
Michael Mandel: Oh, I was not… It would have been a game-changing deal. But frankly, had that deal taken place, I don’t know that I would have started CompStak. I would have been sitting on a lot of money, and I maybe would have said “You know what, I’m gonna stick with this brokerage thing.” So maybe there is a silver lining in it.
Joe Fairless: What’s the best ever way you like to give back?
Michael Mandel: I have two kids, so I don’t do a lot of kicking back. I’ve got a four-and-a-half-year-old and a one-and-a-half-year-old. But lately I just got Peloton Bike in my house, a spin bike, and it’s awesome.
Joe Fairless: I said giving back, not kicking back…
Michael Mandel: Oh, I thought you said kicking back… That’s funny. [laughs] As far as giving back, I spend a lot of time talking to other entrepreneurs, I try to help people getting their businesses off the ground, and particularly people in real estate tech. I try to be as helpful as I can to help them figure out how they can build their businesses, because I’m happy to support the ecosystem.
Joe Fairless: Real quick, do you like that bike?
Michael Mandel: I love the bike. It’s great. The bike is awesome.
Joe Fairless: Best ever way the listeners can learn more about your business?
Michael Mandel: Just go to our website, compstak.com, and check it out. They can also e-mail me; I’m michael@compstak.com. I’m happy to chat.
Joe Fairless: Michael, I enjoyed our conversation. I loved hearing about your entrepreneurial journey, how you were in the middle of a process that was unnecessary and you identified it as being unnecessary. And not only did you identify it, but then you did something about it and have been doing something about it for the last seven years with CompStak… So that is relevant for anyone, regardless of what we’re working on.
Then also having your one-two punch of you’ve got to have the data, but then how do you leverage it creatively? That’s so applicable to business and everything else. You’ve got to have the core assets or tools, but then what do you do with them? How do you leverage those tools? Well, we all have access to those tools, or we could have access to them if we’re resourceful enough, but then what do we do with them? I love thinking about business that way.
Thank you so much for being on the show; I enjoyed learning about your company. I hope you have a best ever day and we’ll talk to you soon.
Michael Mandel: Sure thing. Thank you, I really appreciate it. It was a lot of fun.
