Mark Updegraff is the founder of Updegraff Group Realty Services, a suite of companies that broker, manage, and provide GC services, as well as Raze Capital, a commercial real estate syndication company. After getting laid off from his job making $70,000 a year in tech, a poor experience with a realtor prompted him to become a real estate broker. From there, he began purchasing distressed assets, eventually scaling into larger assets, including multifamily syndicating.
In this episode, Mark discusses his tech background, how he follows local trends to position himself for short-term appreciation, and his approach to choosing and retaining employees and partners.
Mark Updegraff | Real Estate Background
- Founder of Updegraff Group Realty Services and Raze Capital
- Portfolio: $40MM AUM
- One- to four-family rentals
- Multifamily
- Mixed-use
- Commercial
- Industrial
- Based in: Rochester, NY
- Say hi to him at:
- Best Ever Book: The Fountainhead, by Ayn Rand
- Greatest Lesson: Kindness will fuel your business growth more than hard work or luck.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Mark Updegraff. Mark is based in Rochester, New York. He's the founder of Updegraff Group Realty Services, a suite of companies that broker, manage and provide general contracting services for real estate. Also the founder of Raise Capital, a commercial real estate syndication company. Current portfolio of all assets under management is around $40 million. That includes residential multifamily, commercial multifamily, mixed-use, industrial and other commercial properties. Mark, can you tell us a little bit more about your background and what you're currently focused on?
Mark Updegraff: Sure. Thanks, Slocomb. Thanks for having me on the show. I'm really looking forward to it. So my background is actually in tech. I came up to Rochester, New York to go to RIT; I was pretty deep in the tech as far as photographic and imaging technology, and I came out and I got a job in industry, and the pay wasn't exactly what I was hoping it would be being a college grad, so I went back to school and got another degree, thinking that coming out with a master's degree would be a lot better... So I come out, I get my master's degree job, I'm making $70,000, which in Rochester at the time was a pretty good salary for somebody with my experience level... And I had been working at a company in a tank, when they bring all these new grads and they don't know exactly, where they're going to place them who they're going to work for... And they pretty much gave us free rein and they said, "Go find some scientists that you resonate with, and start helping them on their projects."
So a lot of my peers were shy, and they'd had stand in their cubicles, but I really jumped out and took the opportunity to meet as many people as I could, kind of like a big networking event... So there was really no pressure, because we could float around and find who he wanted to work with. So I inserted myself on a number of really cool projects, I ended up going out to Arizona, and we got to launch a high altitude aircraft. I was in charge of the payload, so I was on the ground with the computer, directing the camera what to look at... So that's kind of irrelevant with the news of the balloon floating over the US, spying on people... But we've been doing this for years. So I worked on that project.
And one of the scientists that I really resonated with did MATLAB programming, which is a mathematical language, and that's what my focus was in school, so we really hit it off. He was doing spectral imaging, which was also my focus, so I spent a lot of time in his lab. And I noticed when I went down there that his lab was always empty. It was just him. And he was responsible for a $500 million contract that we got from the Department of Defense every single year; a massive contract, probably the biggest contract we had at the time. And I remember going to manager meetings, and talking about my career, and developing and basically everybody was saying "You've got to come up into management if you want to make any money. If you stay an engineer or a scientist, you're pretty much gonna be plateaued." And I really enjoyed the science side of things, I enjoyed debugging the code, and helping him work on his principal component analysis, and figuring out all these ways -- we were pretty much trying to protect the troops. So if the troops were going to go in a certain area, our aircraft could fly over, it could see where the disturbed Earth was, and we could say, "Hey, we're pretty sure there's an IED that's buried under the ground there. Don't send the troops." So it was a pretty important program that he was running. And through several conversations with him about what I could expect as a scientist - he had been there his whole career - he pretty much told me that he was never going to make more than $100,000. He was in the 90s, $92,000 or something, and he had been there for 20 plus years. So it was pretty disheartening that he had spent his whole career and really wasn't earning that much money.
I had built up a small rental portfolio at the time, maybe half dozen to a dozen units, and I don't know if our conversation, if he took it to heart, but he ended up leaving and going to our competitor, Raytheon, and when that happened, we lost that contract, that $500 million contract. I have a feeling nobody could pick up the pieces when he left. If you know anything about coding, debugging a mathematical language is next to impossible, unless you're the one that wrote it... Even if it's coded really, really well, with comments and stuff, it's still very, very hard to debug. So when that happened, I was laid off with one of 2000 people, all with similar backgrounds and more experienced than me... And getting a job in Rochester was pretty much impossible in my field. So my wife loves her career, she's been in it for a long time, she's in the medical profession, and I went to her and said, "If you want me to stay in this line of work, we're going to have to relocate."
And we didn't really know what to do with the rental properties that we had purchased. That was another layer of complexity. So I told her that I would just pivot into real estate for the sole reason that I didn't like my realtor. And it's not that I didn't like him personally, but he was kind of not good at his job when it came to me purchasing 50k to $100,000 assets that I was going to cashflow; he was more interested in selling the 300k to $500,000 house to the first time or second time homebuyer, where he could make a little bit more commission. So I went and got my real estate license, and I went over, I signed up for a local broker, they tried to get me to recruit on a team and take half of my commission, I politely declined that offer... I basically told myself, "I'm going to try this, and if I'm not any good at it, then we'll figure something else out."
So I jumped into the field of real estate. I was still purchasing distressed assets, I was leading a crew of three skeletons, maybe four or five guys, as 1099 contractors. I would direct them every day. And I ramped my sales up over the years. My first year in the business, I only did about 1.5 in real estate sales. By my second year it was 3.5, by my third year I was over six, and then my fourth year I was honing in on $10 million... And it really got my broker's attention as to what are you doing to produce all this success in the real estate space... And I told him, I said "I'm not doing anything that's special, I'm simply paying for advertising on sites like Zillow, realtor.com." But honestly, Bigger Pockets was a pretty good source for me for leads, and it was kind of like one of those underlooked sources, where I was willing to get in the trenches and work for people like myself, that were just grinding it out, looking for these 50k to $100,000 units, that they could get rents of $1,300 to $1,500. So it was a pretty good cash flow model. And then also people looking to do the BRRRR method became very popular, as prices rose around everybody, and they locked into some good prices, and there was some good value-add opportunities.
So I just hunkered down in that space for a long time, and I built a management company up around me, at the same time as I built a brokerage. When I told my broker that I was going to start managing, he pretty much kicked me out of his firm, so I was forced to start my own brokerage firm on the sales side. We decided to get another license for the management side just to keep those companies completely separated... And then as we grew, one of our struggles was controlling contractors - timelines, quality of work... So we started doing that in-house as well, and just building that very slowly alongside the other two companies.
So we've always overstaffed, I would tell you... There was definitely a lot of pain at the beginning as far as overhead, and then revenue coming in... So I'd tell people that are starting out in the business "That's just one thing, that you've got to pay your dues as you get started, until you get to a point where you can scale."
Slocomb Reed: And now that you have a sales, brokerage and management company and a general contracting company, you scaled into larger assets and have been syndicating commercial real estate including multifamily since when?
Mark Updegraff: I've always kind of dabbled in it, your JVs at first, and then more formally... So I would say I've always been kind of active in that space... And I more look at things as like, "What opportunities can I find?" It doesn't matter to me what the opportunity is; if I find a good opportunity, I'm gonna find a way to make it work, whether it's through a JV, a syndication, or if I'm going to try to pull it off personally.
So that's pretty much how I've operated over the years, and the relationships that I've formed along the way have grown with me, so I've got some pretty strong partners behind me... And that's the way that I've operated in that space as well. They pretty much trust my underwriting, constantly networking, and picking the brains of people that are in different asset classes, if I'm thinking about getting into that asset class, and I do a lot of due diligence before I dive in.
Slocomb Reed: Mark, with as many facets as there are to your real estate career... We're recording in the middle of February 2023, and there are of course a lot of interesting things happening in the market, in the economy, in the world... Where are you seeing the most growth in all of the facets of your real estate? But what I really want to ask is Where is the most low-hanging fruit? Where is opportunity or great deals - where are they the easiest to come by for you right now?
Mark Updegraff: I think everything's gonna be pretty hype- localized.
Slocomb Reed: Sure.
Mark Updegraff: So when you talk about opportunities, it's going to vary by market... But I'm typically looking for different types of trends. So what I've been successful at here in the Rochester market is I follow price per foot pretty closely; I know what a full retail trade is going to look like, and I do it in different asset classes. It doesn't necessarily have to be housing; it could go across the board. But I'm looking to position myself in an area that has been repressed in value for some time, but it's on the border of some areas that are getting some revitalization, or maybe have some strategic improvement development projects coming up...
So in the city of Rochester, for example, we've got what's called an inner loop, and our downtown city, center core is circled by this expressway that a lot of other metros put in. I think it was like the mid '60s that they did this, or maybe early '70s... And it really cut the urban fabric. So you've got an expressway that's really unneeded for people to be able to supposedly pop on and pop off, to be able to get into downtown areas... And we're very progressive in this way that we're filling it in. So we've filled in the first quarter of that, it was probably a mile, a mile and a half of real estate, where they stabilized with the city, RFPed or request for proposal, to various developers... And then different things have been erected - mixed use hotel, some of the local businesses, like the Strong Museum of Play has expanded... And it's really bridged the gap between some class A residential neighborhoods and our center downtown.
So now the next phase is going to be an even larger swath of real estate, probably six miles, that goes from where they stopped, all the way over to our other interstate. And there's going to be a lot of opportunity for people that are willing to go into these areas a little bit early, and purchase some of the real estate at bargain basement prices... And I think a lot of people just don't have the foresight or the stomach to do something like that. But I'm okay with it, I've seen how it's played out on the first segment, I pretty much called that, and the values have, in some cases doubled, tripled their initial values.
So the next segment is probably a little bit more risky, and that's the bridge between the infill and the existing neighborhood. We're not bridging into a class A, we're bridging into a class C or Class D... But I still think with all this new commercial [unintelligible 00:12:17.26] the city infrastructure, and the push that the downtown's making to bring back jobs... We recently got the news that Constellation Brand, a major employer is going to relocate their corporate headquarters to downtown; the city has got a lot of things planned for downtown as far as like rock the river way to bring the river back to life...
So if you can follow these local trends, and you can get ahead of them, you can really position yourself in an area where the prices haven't seen any kind of speculative boost; it's so far out in the distant future that people really aren't even thinking about it, but you know that it's going to happen when the commitments are made. And we're also getting a state park in our city, which is pretty cool...
So looking for those types of plays, and then also looking for the fundamentals of what the trades are on a price per foot basis, and being able to categorize those on average. So I'll section off blocks of maybe the city into an average zone, where the price per foot is averaging, say, $100 per foot, and then if you cross this border, now the average is $110. And so if you can kind of compartmentalize the area that you're doing business in into these different segments, and you can have a pretty good feel, after you've driven the streets, as to how they all interplay, you can purchase stuff that's "speculative", that's on the edge of an area that has a higher average. And that's been huge in positioning myself for appreciation over a shorter-term investment, of like a two to five-year horizon... Where most people say, "If you park your money in real estate, and you want to make some money on appreciation, you're in it for the long haul." I feel like I've found a pretty good system where I can shorten that duration pretty significantly, as long as I monitor the fundamentals of the values real carefully, and I have a really good handle on why I'm making these delineations on the map. What is it about this particular track that makes it a segment, if you will.
Break: [00:14:08.28]
Slocomb Reed: Mark, it's of course great advice to follow the trends in the local market and make sure you're putting yourself in front of them, and it's clear that you have highly detailed knowledge of what's going on in your backyard in Rochester. I want to ask the same question a little bit differently. It is a minority of our Best Ever listeners who are active investors, especially who are active investors and service providers. I'm partially asking selfishly; I don't engage in sales transacting as much anymore, but I also have a property management company and a general contracting company. Within your service provider companies, are you seeing low-hanging fruit type opportunities popping up recently in any of those spaces?
Mark Updegraff: Not necessarily. No. I think it's pretty much business as usual. We've had so many increases in pricing, from labor... I don't know about your businesses, but my wages have gone up significantly since COVID, just to keep people from leaving, and then to attract new people we've had to make some pretty generous offers to get them in the door. So when you add that, plus your increase in pricing on materials, which we all know the margins are inflated, we're trying to fight some of that and get pricing back down... But the consumers - they don't want to absorb all those costs on their end, so we're being pretty careful in our pricing. As we adjust our pricing, we don't want to scare everybody off and have them looking for somebody else to perform the work.
In the construction field I feel like there's less vetting that happens by the general public when they're hiring a service provider... And because we dot our I's and cross our T's, we have a pretty high overhead workers comp and general liability, and builders' risks, and all these different policies that we carry... So no, not really much low-hanging fruit right now.
Slocomb Reed: That's interesting. Not the answer I was expecting, but that makes a lot of sense. Mark, it's clear that you've seen success in a variety of activities within real estate, services you've been able to provide in real estate and also in your investing... What have you found most difficult recently, or where have you lost the most money?
Mark Updegraff: My father raised me -- my father is a businessman, and he's a man of a handshake, and that's kind of how he raised me. If you shake somebody's hands, you're gonna do what you say and say what you're gonna do. Unfortunately, there's a lot of people out there that aren't handshake people, and you might have a good feeling of trust going into it, and that might let your guard down to the point where you're not dotting your I's and crossing your T's, just because you feel -- I don't know how to really describe it, but every once in a while I'll do something stupid like that, where I treat somebody more like a friend in business, and then it ends up biting me in the butt.
So I think that's something that you should really look out for - treat your business like a business, and don't make exceptions when it comes to working with certain people. I think that's one place that I've overlooked over the years. And loyalty is also something that you really need to treasure; if you can find somebody that's going to be loyal, make sure that you take care of them. It's definitely dying out, especially in the younger generation. I'm almost more prone to hire older people at this point in my career, because they tend to be more loyal than the younger people.
Slocomb Reed: When you say older and younger, can you put numbers on those ages?
Mark Updegraff: Sure. I'm talking about people that are almost close to retirement, where you might think -- my first perception when I was hiring this type of demographic, that they're nearing retirement age, maybe they've got 5 to 10 more years of work left in them before they're going to retire, was that they are getting older, they're probably going to be physically weaker, and maybe mentally more checked out, because they're getting closer to retirement.. But they tend to be the people that are the most loyal, the most outspoken, they give you the best referrals... And that helps you bring more motivation and more people in your organization, versus the people that are in their, let's say, 30 to 40s. They have the mentality that the grass is always greener somewhere else, that what they're bringing to you is worth so much more, and you should really bend over backwards for them. That's kind of the mentality that a lot of the younger generation takes, and they're willing to just turn their back on you, and walk out the door, with no regard to the future of what that might mean for them professionally. Things like no two-week notice, and just a general disregard or disrespect.
I pride myself in taking care of people when I bring them on payroll. I never lay people off, even if we go through a slow time. We're a very cyclical market in Rochester, in that when the winter hits, there's a lot less work to do than during the spring. Then in the spring, you can't have enough hands on deck. I don't hire people that I can't bring through the winter, and make sure that they haven't been paycheck so they can feed their family. So I make that commitment and I take it to heart. And it kind of rubs me the wrong way when your employee will be the first one out the door, as soon as spring gets here, because somebody offered them something that sounds a little bit better, and they haven't even vetted whether it's sustainable, or who the person is that's making this offer is.
So I've seen people leave, I've seen them try to come back when they've realized... I've seen it all. So I just really value people that are loyal, and that take the time to do the due diligence upfront, and to really know what it is that they want, so I can help them achieve their goals as they helped me achieve mine.
Slocomb Reed: That makes a lot of sense. I am experiencing a lot of that right now as well. On that note, Mark, are you ready for the Best Ever lightning round?
Mark Updegraff: Sure.
Slocomb Reed: What is the best ever book you've recently read?
Mark Updegraff: So I'm rereading The Fountainhead. And I always try to give listeners something that's a little bit off the beaten track... It's definitely about real estate, the main character's an architect... And it's just a fantastic book. So I'd encourage anybody that wants something that's a little bit different and isn't another business book, and they just want something to kind of clear their mind and give it a little reset, to check out The Fountainhead. It's a great book.
Slocomb Reed: Nice. What is your best ever way to give back?
Mark Updegraff: Because we're in housing, we feel like helping the homeless population is probably where we should focus. And that's pretty much what we do. And I know homeless might now be a non-PC term, but I forget what the correct term is. So what we do in our organization is we try to have fun events to raise awareness, but then also raise money. So we'll do like a silent art auction every year, and you'd be surprised that we can actually get better donations from starving artists than we can from the general population that have normal nine to five jobs.
So the artists have been very generous with their works, and then we'll make it a fun event, we'll bring all of our previous clients out, we'll advertise it to the public, and then we'll auction off the different artworks for charity, specifically for St. Joe's House of Hospitality; they house the homeless here in Rochester. My family and I try to donate our time to go over there and help in the kitchen. And then outside of the Rochester community, we've been involved with some mission work down in Honduras, as time permits. I haven't taken my children down there yet, but as they get older, I'm looking forward to giving them some of the same experiences that my parents gave me over the years.
Slocomb Reed: Mark, similar to a question I've already asked - what is the biggest mistake you've made as a real estate investor, and what is the best ever lesson that resulted from it?
Mark Updegraff: Biggest mistake as a real estate investor... I'm very, very conservative when I underwrite properties, so I would tell you that, for the most part, I haven't bought anything that was just stupid. And some people might call it a mistake, but if I find an opportunity, I'm going to seize it. And if it's got to go on the back burner for a little while, I'm okay putting it on the back burner, because I know you only make money in this business when you buy. So you've got to buy right. And yes, there's going to be holding costs, if you have an asset that's not doing anything, and it's on your back burner. But it's all going to depend on your personal cash flow, your tolerance for risk, and I think some of my best investments have been those where I didn't have the capacity to fully take them on at the time, and I had to put them on the back burner, and bring them onto the front burner over time.
So my whole career has been this shuffle of get whatever I'm working on off the front burner, and finish up my back burner. And I always keep something back there simmering, so I'm ready to go as soon as my project is up.
Slocomb Reed: And what is the lesson there?
Mark Updegraff: The lesson is, I would say, to go with your gut. You have to know your numbers, you have to make sure that you can afford to take that model... But I'm willing to invest some of my cash flow on the future of my company, and knowing that it's not going to have an immediate return. So you've got to be able to seize opportunity when it presents itself. Some opportunities are going to be better than others. Location can't be changed in a real estate investment. So for me, some locations are so strategic and so important when you have this longer-term horizon, that if they're presented to you, it might be the only time you're ever able to capitalize on it. So if you can pull it off, go for it.
Slocomb Reed: On that note, Mark, what is your best ever advice?
Mark Updegraff: You lock in all of your profits based on your purchase price. So that's probably the most critical component of any deal, is what you pay for the asset. So having some really strong underwriting behind you when you are going to purchase something, and just make sure that you purchase it right, because that's going to lock in your profit.
Slocomb Reed: And last question, where can people get in touch with you?
Mark Updegraff: They can go to Raze Capital; it's r-a-z-e, like you're going to knock down a big giant stack of capital... Razecapital.com.
Slocomb Reed: And that link is in the show notes. Mark, thank you. Best Ever listeners, thank you as well for tuning in. If you gained value from this episode, please do subscribe to our show, leave us a five star review, and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a best ever day.
Mark Updegraff: See you at the conference.
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