November 19, 2022

JF2998: The Ins & Outs of Land Entitlement Deals ft. Elsa Nguyen

Elsa Nguyen is the CEO and founder of Sunrise Equity Group, which focuses on apartment syndication. In this episode, she shares why she was drawn to land development opportunities in Florida, the various steps that go into executing a land entitlement deal, and the level of detail that can go into creating a land development construction plan. 

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Elsa Nguyen | Real Estate Background

  • CEO and founder of Sunrise Equity Group, which focuses on apartment syndication.
  • Portfolio:
    • 200 apartment units
    • 225 units in pre-construction & development
  • Based in: Fremont, CA
  • Say hi to her at: 



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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Elsa Nguyen. Elsa is joining us from Fremont, California; her company is Sunrise Equity Group. They're apartment syndicators. Current portfolio consists of 200 apartment units and 225 units in pre-construction development. Elsa, can you tell us a little more about your background and what you're currently focused on?

Elsa Nguyen: Yes. Well, first of all, I just want to thank you, Slocomb, for the opportunity to be on your podcast today.

Slocomb Reed: Of course.

Elsa Nguyen: It's a pleasure to be here. I came from both an accounting and real estate background. I worked in accounting for almost a decade, and I had a real estate license at the same time, but worked very much part time. And after 10 years in accounting, I figured out I did not like to get stuck behind a desk, eight to five, and I wanted to do something that I love to do, which is real estate. So I went into real estate full time since 2018. I started my first syndication 2019, and that was a land development deal for a hotel. So it wasn't even apartments. And fast-forward in 2020, beginning of 2021, I learned that hotels might not be the best asset class to go after at the time, so I did some research and jump right into multifamily real estate.

Slocomb Reed: Gotcha. So you started with syndicating a land deal for hotel development... Within that general partnership, what were your responsibilities?

Elsa Nguyen: I worked as CFO of the company, and I owned a third. I was a GP on that one, and owned a third of the GP equity group. So I look after deal findings -- that was Northstar Developments. So I looked after the deal finding, I underwrote the numbers, basically looked after all the financial aspects of the company.

Slocomb Reed: Gotcha. So you're not necessarily in acquisitions or in capital raising; your responsibilities occur primarily while the business plan is being executed?

Elsa Nguyen: Actually, no, because I was a licensed real estate agent, so I was actually out, actively looking for deals as well. I under wrote the numbers, and I was actually very much heavily involved in the capital raise for that deal. Me and my partner at the time, we brought in 4.5 million dollars for that deal... And I didn't even know, that was quite a big raise for our very first syndication. But you know, I live in the Bay Area [unintelligible 00:03:18.20] with $250,000. I'm like, "Okay, let's go for it." And we were actually able to fully raise -- we have 26 days close of escrow once we got under contract, so we were able to pull it off in 26 days. It wasn't amazing.

Slocomb Reed: Wow. So you were 1/3 of all of that.

Elsa Nguyen: Pretty much. Yes.

Slocomb Reed: Gotcha. Elsa, if it's possible, I'd like to go back to our pre-COVID mindset... Your first syndication deal was a land deal to develop into a hotel. You're based in the Bay Area. I'm in Cincinnati, Ohio. The narrative that's going in my head that I imagine is also going in the heads of a lot of our listeners is, "Well, yeah, if you want to get into commercial real estate in an area like the Bay Area, you've got to start with something like that in order to get serious returns, because returns are so compressed for standard asset classes." That leads me to ask though, where is that hotel deal?

Elsa Nguyen: That one was in San Jose, and that was a 15-minute bike ride from the Apple headquarters. And it just fell in my lap, to be honest with you... I started out with an LP for another hotel developer in 2018, and that's kind of how I got into that hotel development land entitlement. And it was a lot of money in there, if you know much about land entitlement. We had no intention of building it out. We just wanted to purchase the raw land, work with the city to get the zoning approved, and then we'll turn around and resell it to a developer right away. So the spread is getting that approval.

Slocomb Reed: Is that what actually happened?

Elsa Nguyen: Yes. Actually, that property is currently in contract right now, and unfortunately, right before COVID, right before we got the approval - it took us a year to get the approval, but we had three LOIs. So I'll tell you the details - we got in contract for that one for 6.5. And me and my partner, we went to every single hotel conference that we could have had, and we got three LOIs, anything [unintelligible 00:05:29.06] $11 to $12 million. And we never got to close because of COVID. Everybody withdrew. We are actually currently in contract right now for over $9 million, and it wasn't even from a hotel buyer; it was from a multifamily group.

Slocomb Reed: Oh, wow.

Elsa Nguyen: So it was natural appreciation, just for holding the land for a period of two years, even though the use has slightly been changed... But you could see [unintelligible 00:05:54.02] a lot of value in it.

Slocomb Reed: And let's be real, the issues that you faced were things that were completely outside of your control in this regard. So I don't want to dwell on that... I want to go back to the questions I'm asking myself. And the question I'm asking myself is, "What does it take to find a lucrative deal in the Bay Area?"

So you're an agent, you were doing deal-finding, you were involved in acquisitions... Was the conclusion you came to that finding raw land, getting through the entitlement process and selling it to a developer was the best way to invest limited partners' capital and get a decent return within a few years? Why is it that that's the conclusion you came to?

Back then it was, because honestly, that's the only thing that I know, at the time, until after COVID, or until COVID had passed. Then I started researching other real estate classes, and I stumbled upon multifamily, and I just fell in love with that, because there's a certainty of the predictable return, rather than the land development... Yes, there still be a lot of opportunities in there, but you're not gonna see any return until the project is successful. Whereas with multifamily, I can go out and buy an apartment, and I still get that rental income if I do it properly. If I underwrite a numbers properly, I know that there is that predictable return. So I actually shifted gears over from land development at that moment in time over to buying apartment buildings with investors.

I just recently got back into a land entitlement again, but I'm not actually focusing in the California market, I'm actually out in Florida doing land entitlement, because the land is so much cheaper over there, and I could buy it for a fraction of what I would pay here. So that really minimized the risk with my investors. So I know if I purchased the land outright, there's always that possibility. You just never know when you work with a lender... But if I could raise money and purchase the land outright, if anything happened, I'd still own the land. So we minimize a lot of risk that way.

Slocomb Reed: So the way that you mitigate risk by investing in raw land in Florida instead of there in the San Francisco Bay area is that you're purchasing outright with the same capital that it requires to put a downpayment and get financing on land there in California?

Elsa Nguyen: Correct.

Slocomb Reed: Okay. I wanted to push back on you and ask why it was less risky, but that answer is just so obvious. So COVID hits, apartments perform exceedingly well... You transitioned into apartment syndication for the sake of the stability and the growth that you see in the asset class during COVID.

Elsa Nguyen: Correct.

Slocomb Reed: You then decide to go back to land development deals. Can you tell us a little more about what it is that you saw in land development opportunities in Florida that pulled you away from the stability of apartment indications?

Elsa Nguyen: Yes. So the truth is that I'm still doing apartment syndication; I just happened to come across a developer over there in Florida organically. And once he learned that I have entitlement experience out here in California, he offered me a position in the deal if I could help him do it. So we looked at a piece of land over there, 20 acres for a fraction of what I would have paid here in California, and the numbers that the proforma projected, the returns is just phenomenal, and I couldn't say no to that. So I jumped right back in. He does have experience in land development, and he had gone full cycle a couple deals already. So [unintelligible 00:09:46.25] building on, and he needs partners to help him take down the deal, so that's when I came in.

I still love land entitlement. I think there's still a lot of money in there if you know how to do it and if you do it right. So the offer that he brought to me, I just couldn't walk away from.

Slocomb Reed: Elsa, we have a very sophisticated audience for the Best Ever podcast, and a large audience. They are mostly familiar with apartment indications; that's what the vast majority of our audience is engaged in. Let me give a quick summary of my understanding of how land development deals work, and then let you correct me where I'm wrong, just to make sure that I and our audience understand what it is that you're looking to do here.

So when I hear that someone's doing a land entitlement deal, what I'm hearing is that raw land is being purchased; whatever raw means is not necessarily the primary factor in the business plan here, in the strategy. What you're doing is acquiring land, and then getting all the government authorities engaged and approving a business plan or a construction plan to allow for some sort of lucrative development to happen on that land, likely without ever actually making any improvements or breaking ground. What you're going through is the process of dealing with all of the various government entities to get plans or a plan or a zoning approved that will allow a developer to come in and execute on what they're already great at, with the land that has already received the approvals necessary from the government. Is that correct?

Elsa Nguyen: Yes, that probably covered 50% of it. So the city --

Slocomb Reed: Please tell me the other 50%, please. I wanna hear this.

Elsa Nguyen: So there's a group of [unintelligible 00:11:39.04] that we work with, and the city is one of them. So we would be working -- I mean, [unintelligible 00:11:45.17] in order to minimize the risk, I do not want to go against anything that the city says no to.

Slocomb Reed: Of course.

Elsa Nguyen: So if the city says, "Okay, you can put 10 properties per acre on this piece of land", I'm not going to go and ask them for an exception and try to do 12. Does it makes sense? So that's one. If they tell me the height restriction is 60 feet, I'm going to keep it under 60 feet.

So the first vendor that I would reach out to is the architect. So the architect would come in, I'd show them what it is that needs to be done, and then they can draw the plan. Then we're going to bring in the civil engineer, we're going to bring in a [unintelligible 00:12:25.11] that we're bringing into and we work alongside with the city to come up with the ultimate plan. And there will be a lot of back and forth going between the vendor team and the city. And it takes six to nine months; sometimes it could take up to a year. And if you try to modify the plan or if you try to ask for an exception, I've heard that people could take up to three years to get it approved. So we want to minimize the risk by trying not to change any of the rules that are already set out in the general plan.

So with that being said, there's a group of people that we work with, and that's where all the fees -- when we do the entitlement, we have to raise an extra fee on top of paying for the land, which is for the entitlement fees. The city is only a small portion of the fee, but the majority of them would probably be paid to the architect, or the civil engineer, or the [unintelligible 00:13:20.03] consultants. This is a group of people that we work with alongside.

Ultimately, we get everything approved, take it out to the final hearing, and that's when we may have to show up to that director hearing, whether in person or on Zoom, and then the director is gonna look at everything and that's when they decide whether to give us the final approval or not. And that's correct, typically I haven't taken anything vertical; so all we do is the planning, the permitting. Just the horizontal work. And once we have all that, we wrap it, we pack it all up, and we'll take it to a developer. It could be [unintelligible 00:13:56.24] it could be any builder, or a broker can market it for us, and we just tell them "Here's the approved plan. You can purchase that and go ahead and build it according to whatever that's already established here."

Break: [00:14:12.05] to [00:15:21.19]

Slocomb Reed: Focusing on the entitlement process, my question is how detailed does your construction plan have to be? The reason I'm asking is that I can see where selling to a developer is highly appealing to the developer, if you can get a plan approved without a lot of details, and you give them the ability to come in and figure out what it is they want to build. Let's say you have an acre, and you decide you're only going to put 10 units on it, and they're going to be below 60 feet, and you just leave it at that. "These will be residences, there will be ten of them, and they will be below 60 feet. Please approve me." I can see a developer coming in and having some creativity and being able to use the systems, the skills, the infrastructure they already have in place to get into that. Whereas if you have to get approval for exactly how each of those 10 buildings will be laid out, and not just how tall it is, but what brand of windows you'll be using and where all the electrical outlets are, I can see a lot of developers having concern about that, because they probably already have a method of doing what it is that they want to do, so they would want the flexibility to be able to do things their way. So that being where my question is coming from, Elsa, understanding that every locality will be a little different, what level of detail do you have to take a plan to in order to get through the entitlement process?

Elsa Nguyen: That's a very, very good question. So with the work that I've done there in San Jose for the hotel, the city of San Jose was very difficult, and we had to go back and forth, and it even came down to the level of what kind of plant we can use. So we were suggesting that we're going to put the [unintelligible 00:17:05.18] They said "No, that is not an approved plant by the city of San Jose, so you cannot use that." It doesn't mean that they cannot change where to put the electrical outlet. Yeah, they will tell you where to put that; you cannot put that in front of the building. What kind of window do we use? If we're going to be using the one that are going to push out to the street - you know how you have those doors that kind of roll up, the new one? And it may take the sidewalk space. That's a no. But if it's the window where you can roll up and down, then that's okay, because now we're not invading the sidewalk space. So it really depends.

Slocomb Reed: Elsa, let me ask -- this is not my space. Apartments are my space. When you have to get to that level of detail where the city gets to dictate what plants get put in, and what kinds of windows are being used, what does the process look like? Find a developer who wants to build the thing that requires granular detail to approve - what does it look like to get that buyer?

Elsa Nguyen: It wasn't hard for us to get LOIs from developers once they see our plan. Now, that doesn't mean that whatever the city had approved, they cannot be changed. So, say we can do 125 units there, and they go back and they ask for 130 - [unintelligible 00:18:23.23] But if they can do 125 units and they want to change the structure inside of the buildings, it's already dictated how big the square footage is going to be and what does it look like, and you're gonna have to go with the architecture drawing that they approved. However, I believe you can always modify it, but it would take time. If the developer wants to change anything, they're going to have to spend some time to go through that process with the city again.

So everyone is different, but I haven't experienced any pushback from developers who have come to us and once we show them the approved plan, and they walk away, because they don't approve the design that we had came up with, if that makes sense.

Slocomb Reed: It does. I interrupted you; you were giving an example specific to San Jose... Are you experiencing the same level of detail from the city where you are in Florida?

Elsa Nguyen: Not yet. So as of now, we are probably five months into the process, and as far as I understand working with my partner, we have not experienced any pushback yet. And it could have been that we haven't gotten into the final stage yet. That is when there's a lot of back and forth. But right now we're about two thirds of the way, so we're getting there... But I know as far as I know the city, we [unintelligible 00:19:46.14] and the city is very collaborative, which is kind of nice. They want new housing over there. They know that they need more apartments, so they are rather cooperative with us. I have not experienced any pushback yet.

Slocomb Reed: When you're fully through the entitlement process, and you're getting ready to sell, do you ever feel compelled to stay in the deal and get it developed yourself? Or is there just not as much profitability in the actual construction of the buildings you've had the plans approved for?

Elsa Nguyen: That's a very good question. So that will be a yes and no answer. I prefer to sell, because I want to stick to the business plan. If I tell my investors that this is a 12 to 18 month hold period, I want to stay with the business plan. The only time where I would consider to bring in a partner and build it out was with my hospitality project, and that's because of COVID. So we were sitting there, staring at the approval, all the LOIs were withdrawn, and we were asking ourselves, "What do we do now? Do we continue to find a buyer? Or should we just go ahead and build it out?" That was the only time that me and my partner was considering building it out. So we kind of changed our marketing a little bit and started to look for partners to take it out with us. But as far as my multifamily, the two projects that I'm working on right now - no, I have no intention of holding it; we just want to flip. As a matter of fact, we have already started putting the marketing piece of the package together with a local broker to get it out as soon as we get the approval.

Slocomb Reed: Gotcha. 12 to 18-month hold period before you sell. Why is that the business plan, instead of getting the building developed yourselves?

Elsa Nguyen: We don't want to deal with the uncertainties of costs, with the materials expenses; materials are super-hard to find right now. Construction costs... There's just so many variables that we don't have control over, and we have to project it out maybe three, four years out, and that's just not part of our business plan. Our business plan is to buy land, get it entitled and sell. So that's kind of just what we try to stick to.

Slocomb Reed: That makes sense. It's a very different ask of your investors to say, "We will hold your money without any sort of periodic return for 12 to 18 months." That's a very different conversation than "We will hold your money without any return for five or six years." For sure.

Elsa Nguyen: Exactly, exactly.

Slocomb Reed: I get that. I personally tend to lean towards the -- I don't want to say higher risk, higher reward; I want to say more complicated, higher reward. Fortunately, in all my apartment deals I've bought right, and I was just saying this with another guest... I've been fortunate to buy right, meaning that at any step along the way I could have sold the deals I was working on for a profit. The moment I bought it, mid-renovation, at the end, when I've done cash-out refis, instead of selling... And so I tended to prefer the more drawn out, more complex deals, so long as I know there's always an exit of selling along the way. You can't really sell a half-constructed hotel though, can you?

Elsa Nguyen: Well, you can sell it for cheap...

Slocomb Reed: Well, yeah, that's not what I mean...

Elsa Nguyen: You can sell anything as long as it's the right price. The price is right. [laughs]

Slocomb Reed: Spoken like a true agent. I say that; I'm an agent myself. Well, Elsa, are you ready for our Best Ever lightning round?

Elsa Nguyen: Oh, absolutely. Yes, I am.

Slocomb Reed: Great. What is the best ever book you've recently read?

Elsa Nguyen: That's a great question. Tax-Free Wealth by Tom Wheelwright. That's probably one of the best books that I have read recently.

Slocomb Reed: What is your best ever way to get back?

Elsa Nguyen: I don't know if I told you, but I am an immigrant to this country at the age of 13, and I grew up in Vietnam in a very, very poor village over there... So I grew up, I had like one pair of shoe and three pairs of clothes. That's how poor we were. And there were days when my parents were at sea, we didn't have food to eat, so we have to go to the neighbors and borrow some rice... So I have a heart for small villages like that, and just go back and help the people over there that are still behind... So I do have a nonprofit organization that I established with a few other partners in the multifamily space, and we just tied money into that organization and we take that back to the villages, and partner with those people over there just to distribute free meals to them, and also give them free medical supplies and medicines and treatments. I work with a local hospital over there... So we partner with them, and a bunch of doctors gather together, and we give free treatments, free food, free medicine to the people who live in those villages.

Slocomb Reed: That's awesome. Elsa, in your commercial real estate investing career, what is the biggest mistake you've made, and the best ever lesson that resulted from it?

Elsa Nguyen: That would probably be the very first LP deal that I invested in. Back in 2018 I invested into a hotel development deal, and I lost all my capital. That was a blessing in disguise for me in a way, because I felt that the money that I've lost in that deal taught me a very big lesson about how to become a better sponsor, how to vet better deals, and how to do it better than that developer, who basically he lost all of the investors' money on that deal.

So the lesson I've learned from that is that, as a limited partner, you need to really vet your sponsor carefully, and know what you get yourself into... Even though not all sponsors are created equal. So I've learned that we need to know what we're doing, whether you are getting to a deal as a limited partner or a general partner, we all have to do our homework.

Slocomb Reed: That makes a lot of sense. And what is your best ever advice?

Elsa Nguyen: My best ever advice is start early. Don't wait. There's abundance, oceans of opportunities out there, and real estate is an awesome, it's a wonderful asset class to create wealth... So if you are sitting on the sidelines, thinking, stop thinking; just dive right in and do some research and do it right away.

Slocomb Reed: Last question, Elsa - where can people get in touch with you?

Elsa Nguyen: People can find me on Facebook, LinkedIn, and - I don't use Instagram. And then my website, I don't know if I'm allowed to put my link in the Facebook's profile, but they can definitely find me on there.

Slocomb Reed: Absolutely. We'll put those links in the show notes, Elsa. Thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five-star review and tell a friend about this episode so that we can add value to them as well with our conversation about land entitlement deals. Thank you, and have a best ever day!

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