JF2132: 100 Years Of Experience With Dean Marchi

Dean is our sweepstakes winner! If you were not aware, we did a sweepstake for the first time ever for a lucky listener to enter for a chance to be on the show with Theo Hicks and ask questions or discuss their story. Dean was randomly picked and is part of a family with over 100 years of real estate experience. Dean focuses on development deals for multifamily and buyers of apartment buildings. 

Dean Marchi Real Estate Background: (SWEEPSTAKES WINNER)

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Best Ever Tweet:

“Focus on every deal your involved in, build up a track record and people will begin to talk about it and you will find investors” – Dean Marchi

TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we are speaking with our sweepstakes winner. So if you didn’t know, we did a sweepstake where you could enter, all you had to do is subscribe to the newsletter and you have the opportunity to be interviewed on the podcast, and we are speaking with our winner today, his name is Dean Marchi. Dean, how are you doing today?

Dean Marchi: I’m great and I’m very happy to be here.

Theo Hicks: We’re happy to have you and again, congratulations on winning the sweepstakes. Maybe we’ll do it again in the future, so someone listening right now can be in your place in the next few months… But before we get into the conversation with Dean, we’re just gonna do a traditional interview, because Dean does have a strong real estate investing background. He’s full time in real estate development, his family started investing in real estate in Manhattan in 1929, so almost 100 years of experience in his family of real estate investing… But Dean bought his first deal outside of his family in 2005, and then did his first development deal in 2009. His portfolio outside of family properties consists of four multifamily properties, two development sites, and he’s also flipped 26 apartments. He’s currently based in New York City and his website is at grandstreetdevelopment.com. So Dean, do you mind telling us a little bit more about your background and what you’re focused on today?

Dean Marchi: Absolutely. So I really only do two things – I focus on either buying apartment buildings or building apartment buildings. And on the buy side, I’m mainly focused on Class B apartments in Class A or B areas where I see some upside outside of the building itself, and we try to do value add and bring our operational experience to improving them… Just focused on cash flow, and we always pray for appreciation. And on the development side, primarily we focus on what we call infill development in hot neighborhoods. So we’re focused on an area in Philadelphia called Fishtown, which has  a lot of similarities to what we did in Brooklyn, the development deals, the properties that we built there – Williamsburg, Brooklyn and Greenpoint in Brooklyn. We have a particular design, focus and style, but those are more Class A properties, exceptionally well located, and we try to bring a little flair to them; we’ve done well. So we’re regional developers of multifamily and regional buyers of apartment buildings.

Theo Hicks: When you started talking about the building – what did you call them again, infill?

Dean Marchi: Infill development sites. So in cities– so we don’t really do, what I would call, suburban walk-ups. Those we buy, but what we build is more of mid-rise apartment buildings in vibrant cities, whether it’s in Philadelphia, Brooklyn or northern New Jersey, where you can walk out the door, get on a subway, get your coffee, come home, there’s a wine bar or restaurant outside your door, that kind of development.

Theo Hicks: Sure. Okay, so you’ve got four multifamily properties and two development sites. So are those four multifamily properties to buy, and then the two development sites to build?

Dean Marchi: Yes, we’ve sold some that we built, and we’ve obviously sold those flips that you mentioned. There are 26 apartment buildings that we bought after the Great Recession, primarily REOs or short sales from lenders who took them back. We fixed them up and put them back into the market, stabilized them and ended up selling them. But we’ve held on to the rental buildings that we’ve built, and we also bought an existing apartment building, about 186 units outside of Baltimore, a suburban walk up as well. So we own and manage and outside of the family stuff, those buildings as well, ten apartment buildings in Manhattan as well.

Theo Hicks: Perfect. So how are you funding these deals?

Dean Marchi: Friends and family in, what I would call, super high net worth. So obviously on the equity side, we’ve only done one institutional deal; I would say more of an institution as opposed to a high net worth family office or just individuals.

So the first deal we did, I raised a few hundred thousand dollars from my parents, my uncle and my cousin’s girlfriend’s parents. So just very typical, sitting in people’s living rooms, raising a few dollars to get the deal done, and up to and including — quite frankly, there are a couple of billionaires who’ve invested with me, because with some humility, I’d expect my parents to give me a little bit of money if it was a good deal, but think of super high net worth people – they have tons of options, and for them to trust me with their money and like the deals that we do, that gives me a lot of confidence and a great deal of satisfaction.

Theo Hicks: For these billionaire super high net worth people, you did mention family office– are they through family offices or are these individual billionaires who are investing you in real?

Dean Marchi: Individual, yeah. There’s one deal that we did that is a family office that acts like an institution. So they’re so wealthy that they’ve set up a team of people to invest their money on their behalf. The ones that, in the past, have invested with us and continue today are people we’ve known through the years or met through friends and family and others who’ve recommended us and referred us. So it’s a pretty broad mix, to be honest. It’s great; it’s awesome.

Theo Hicks: Do you have any tactics, any tips, any piece of advice for someone who wants to eventually work their way up towards having these super high net worth, billionaire family offices investing in their apartment deals?

Dean Marchi: The best advice that I would give anybody is  focus on every deal that you’re involved in; the more successful the individual deal is, the more people around you are going to hear about it. So you build up that track record and then people start to talk about it, and whether it be the lawyer involved in the deal, or the broker who sold it or leased it up, whatever it may be, and you build a reputation. But it’s deal by deal; I don’t think you can leapfrog it; I think people trust in two things – the track record, and the person. So if you don’t have the track record, maybe one thing to do is to partner with somebody who does, and borrow their track record, if you will. Even if you get a small piece of a deal, it’s better because you’re building the track record, and over time, you can point to that experience. The other is that I think that people really do look to the individual. So if somebody likes you and trust you and you come referred by other people that worked with you in some capacity or another, that is really helpful for people, and quite frankly, I don’t think that changes from somebody investing $50,000 to somebody investing $5 million. I think those are the two things that people care about.

Theo Hicks: Something else you’ve mentioned too, and again, you might have the same answer – the track record and you a person, but you mentioned that these super high net worth people clearly have a lot of people wanting money from them. So obviously, I could have a really strong track record, and I could be a really good person… So did you meet these people just naturally, just word of mouth, eventually you got to them? But I would imagine that happens a lot. A lot of people are doing big deals, but not everyone has these super high net worth people investing, so once you’ve got that massive track record, what are the types of things, at least from your experience, that set your deal apart from, say, someone else who’s done the same number of deals as you, but is not attracting that type of money?

Dean Marchi: That’s a great question.

Theo Hicks: Does that make sense?

Dean Marchi: Yeah, it’s a great question. So I don’t do a ton of deals. As I said, I’ve been at this for a fairly long time and I haven’t done 100 deals. I do think that we are able to find better than average deals, and there’s no secret to that; it’s pounding the pavement; it’s driving the streets; it’s making the phone calls. But yes, we find, I would say better than average deals, but again, I just think it’s that track record, and what we try to do is to act like an institution in the middle market. So what I mean by that is, we like to do mid-size deals. So for example, the last building we built was 52 units. There are people who are putting up 800+ units in the same neighborhood. There are also a ton of people putting up four or five or six  or ten-unit buildings. So we like to be as sophisticated in our reporting and our approach to how we design and the team that we hire as the guy putting up 800 units, and make our deals though – because they don’t require hundreds of millions of dollars of investment – to make a deal available to somebody who has $100,000 or as I said, $5 million to invest.

So as I said, it’s probably true that we don’t really bother doing a deal that is, what I would call, an average deal, and beyond that, it’s just relationship management. It’s just the same thing, just talking to people, making sure they understand we have the same problems with our deals as somebody doing big deals or small deals, or the same kinds of deals. They’re not without issues, and we have had, fortunately, a track record where quite honestly, Theo, in the 90 years that we’ve been in the business, we’ve never even been late on a mortgage payment, and we started in the Great Recession, having gone through the Great Recession and COVID-19 related issues, and we’ve never even been late on a mortgage payment. So when I say it’s deal by deal, collectively over time you ended up with a track record of good performance, and we don’t oversell. Thank God, we’ve never lost money on a deal. All of our deals have performed at least as well, if not better than our pro forma. So people trust in that. And I always tell people, any deal that we’re going to do, eventually, something’s going to go wrong. We can’t keep it going forever. But I give them my solemn promise that I will treat their money more seriously than my own, and no matter what comes up, I will have at least three solutions for it. We’ll choose the best one at the time with all the information that we have, and try to make right. So people appreciate that and give us their money. So yeah, that’s it. It’s not that complicated, I guess.

Theo Hicks: That’s certainly perfect advice. Alright, Dean, what is your best real estate investing advice ever?

Dean Marchi: Well, I think there’s three things that I would say. Number one is buy apartment buildings… And not to be over simplistic about it, but Theo, what I would tell you is the first human being who decided to walk out from under the open sky and into a cave found that that was probably better than being out in the open, and I will say that if one day, human beings are living on Mars, I suspect that they’ll want a roof over their head. So it’s one of those essential needs, and I think you can’t go wrong with it… Subject to number two, which is not to use too much debt. I’ve seen people lose buildings, I know people who’ve lost their buildings when events beyond their control, such as the Great Recession or other events – it’s because they took too much debt. So there was a time before the Great Recession where you could buy an apartment building with no money down, all debt. So I would say, be cautious about taking on too much debt.

And then the third bit of advice would be to really think about holding it for the long term. That’s where you have really the greatest return. If I tell you what my grandfather paid for his first Manhattan building and what it’s worth today, it would spin people’s heads, but hold it for as long as you can, and I guess a little bonus bit of advice is try to get with people like you, quite frankly. Learned from your awesome book; wherever you can get with people who have experience in whatever you’re going to do, whether it’s real estate or anything else, that’s a goldmine that quite frankly, I think too many people overlook. Those are my three bits.

Theo Hicks: Perfect. Alright Dean, you ready for the Best Ever lightning round?

Dean Marchi: Sure, yeah. Let’s go.

Theo Hicks: Okay. First a quick word from our sponsor.

Break [00:15:01]:08] to [00:15:50]:04]

Theo Hicks: Okay, I’m gonna do the normal question, but I do have one question that I would like you to answer as quickly as possible, but I’ll get to that one in a second. So first, what is the best ever book you’ve recently read?

Dean Marchi: So without sounding like because I’m on your show, but certainly I would include in that answer The Best Ever Apartment Syndication Book by you and Joe. And one that’s overlooked, if you don’t mind my saying more than one, is Powerhouse Principles by a man, a hero of mine, Jorge Perez. He’s the CEO of Related Group in Florida. It’s development focused, but there’s a ton of good advice in that book. And then the Steve Berges book, The Complete Guide to Buying and Selling Apartment Buildings; those are three favorites.

Theo Hicks: If your business were to collapse today, what would you do next?

Dean Marchi: I would go and do exactly what I have always done. I would go and talk to everybody that I know and start over and do exactly what I’ve been doing for my life. Wouldn’t change a thing, just start over.

Theo Hicks: So the next question I want to ask you – I don’t know exactly how to ask this, but you hear stories all the time of how the one generation makes all the money, and then the next generation maintains it, and then the next one loses all of it…

Dean Marchi: Yes, 100%. I know exactly, yeah.

Theo Hicks: Yeah, you’ve got your grandfather who started the business, your parents are in the business, you’re in the business, all of you guys are successful… So what’s been the main thing that you can think of that has allowed your family to do that and not fall into the cliché trap that I just mentioned?

Dean Marchi: Wow, Theo. Awesome question. Honestly, my whole life, I don’t think anybody ever asked me that, and I think that the immediate answer is that one thing that’s really important to all of us throughout all three generations is that core family. It’s exactly what you said, it’s a business, but first was the family. So my grandfather passed along a lot of really strong Italian principles, if you will, which is where my family is from. Through my father– my father always taught me those lessons and I teach those lessons to my children. And the way I approach the business is that I am giving it and I am preparing what I do to be handed off to the next generation. So we build with incredible quality, we approach everything very honest with our tenants, we really try to honor them and to treat them well, so that when it goes to the next generation, if God Willing it happens, that the buildings, the business is well prepared for that transfer. And of course, I try to pass along every bit of advice that I gather from people like you and others and from my own experiences on to my children and make sure that they understand that they now have the responsibility when that handoff occurs, that they have the responsibility to prepare it for the next generation as well.

And always to remain humble, I think that’s the other thing. Nobody’s bigger than the market; that’s really important too. The way you phrased the question, that oftentimes the son screws it up, if you will, or the daughter goes and blows the business up… I think if you have some humility with what you’ve been given and a sense of responsibility to pass it off, you perhaps avoid some of that hubris that can lead to a business collapse.

Theo Hicks: Perfect. Great answer. I’m surprised no one’s asked that before. I had [unintelligible [00:19:06].25] but I forgot.

Dean Marchi: No, that’s awesome. I appreciate it very much.

Theo Hicks: Okay. And then lastly, what’s the best place to reach you?

Dean Marchi: Probably our website, which is grandstreetdevelopment.com. But my email is dean [at] grandstreetdevelopment.com, or we also have an Instagram page, which is @GrandStDevelopment; those would be the best ways to get me.

Theo Hicks: Perfect. Alright Dean, I really appreciate you coming on the show today. I learned a ton from this conversation. Some of the key takeaways that I got – number one, you talked about some tactics for being able to attract that money from the billionaires, the super high net worth people, the family offices, and at the end of the day, it really just comes down to, as you mentioned, the two things, which is the track record you have and then you as a person. So it’s just focusing as much attention as possible on every single deal to make sure that it is as successful as possible… Because then, once you’re successful, people start talking about you, you start building up a reputation, and it’s a snowball effect where eventually people know, like and trust you enough… And you’ve been referred enough times that you’re able to reach those higher echelons of investors. So you said it’s step by step; there’s really no hack or shortcut or cheat. It’s just going deal by deal and making sure each deal is as successful as possible.

A couple other things you mentioned too, that have helped your track record is, you said you act like an institution in a middle market. So you bring the institutional quality, the reporting and the relationship management; rather than focusing on these thousand unit deals, you do the middle 50-unit deals. Or you mentioned, you got very sophisticated reporting, and then for your family business, in the 90 years of business, you’ve never been late in the mortgage payment, never lost investors money on a deal, have always at least met the proformas… And then I really liked what you said is that you told them that if any issue were to arise, you always come back to them with at least three solutions, and one of those will obviously be used to fix the problem.

We talked about your best ever advice, which is threefold – number one, buy apartment buildings; housing homes are always going to be an essential need. I was just doing a syndication school episode today where they did a survey and asked people, “What’s your priority for paying expenses?” and above groceries, above car payments, above utilities was paying rent. So I could definitely reinforce that. Next was don’t use too much debt, and then thirdly was to think about holding for the long term, because that’s where you realize the greatest returns. And then you also talked about what sets your family apart from other family businesses – the cliché of the grandparent creates it, the dad maintains it and then the son destroys it. You said that it’s really about passing along strong values, and then I really like what you said, which is preparing to hand off the business to the next generation.

So not really taking any shortcuts to make money for yourself now that will screw over your kids in 30 years. Instead, you’re using good quality construction, you’re always focusing on having good relationships with your residents and the people you work with, and then passing along any advice that you get, but also included in that advice is letting your children know or the next generation know that, hey, you need to be prepared to pass it on to the next generation as well. So preparing them early on for that next-level transition… And then just being humble, as you mentioned, as well; no one is bigger than the market.

So again, Dean, I really appreciate you coming on the show. I learned a lot; glad you were our sweepstakes winner. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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