Re-Engineering Real Estate

26-07-2023 • 26 min

Today’s guest is Armstead Jones.

Armstead is a Strategic Real Estate Investing Advisor at Real Estate Bees with over ten years experience in commercial real estate. Join Sam and Armstead in today’s episode.

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Intro [00:00:00]

Armstead Jones' background and journey in real estate [00:00:56]

Approaching city council and government for project funding [00:03:23]

The housing market and recession indicators [00:10:39]

Foreclosure and delinquency rates in multifamily properties [00:11:41]

Office vacancy and the future of remote work [00:19:11]

The concept of mixed-use buildings [00:21:32]

The example of Crosstown Concourse [00:22:50]

Closing [00:23:48]

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Connect with Armstead:

Instagram: https://www.instagram.com/imaginethinktank/

Linkedin: https://www.linkedin.com/in/armsteadjones/

Web: https://www.imaginethinktank.com/itt-store/p/re-engineering-baltimore-real-estate

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Armstead Jones (00:00:00) - Is once the community has bought in. Then the politicians are bought in because the politicians serve the community. Right. The community is going to bat for you. They're supporting your project. Everything down to when construction starts, you know, those nosy neighbors will make sure people aren't breaking in your house, right? So you've engaged the community, you talk to them, you went to their meetings, you studied their plan. You've actually put together a thoughtful response and a proposed project to them. And then they're able to then go champion that for you to kind of make it easier.

Sam Wilson (00:00:35) - Welcome to the How to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Armstead Jones is a strategic real estate investing advisor at Real Estate Bees with over ten years of experience in commercial real estate. Armstead, welcome to the show.

Armstead Jones (00:00:56) - Welcome. Thanks for having me, Sam.

Sam Wilson (00:00:58) - Absolutely. The pleasure's mine. Armstead There are three questions I ask every guest who comes on the show in 90s or less.

Sam Wilson (00:01:03) - Can you tell me where did you start? Where are you now and how did you get there?

Armstead Jones (00:01:07) - I started with an idea in my apartment that I could use real estate to build wealth. Then I decided I need to get an education for building wealth. So I took a job paying less work in the state housing department in the state of Maryland, and then also then went and worked at the economic development arm for the city of Baltimore. Learned everything I could, real estate. And that took me to where I am now. Currently doing large scale projects, residential, commercial, transit oriented development, land development. So, you know, it's taken me a very long way.

Sam Wilson (00:01:42) - Wow, that's really, really cool. What are some of the things, some of the skills you learned in the state housing Department and what was the other other job you said?

Armstead Jones (00:01:52) - Baltimore Development Corporation, we call it BDC.

Sam Wilson (00:01:55) - Okay. I bet you learned a lot about the way to navigate those organizations from the private. Now that you're on the private side.

Armstead Jones (00:02:06) - Well understand. I understand what we call both sides of the table. Right. So understand the government side of it that helps push through economic development projects that can add jobs and tax bases. Um, and also that, you know, there is a need for affordable development as well. Not all individuals can afford market rate or luxury. So what it also then showed me is how the money moves. Um, you can't just go to the government with an open hand and say, give me, give me, give me. There needs to be a P3 or a public private partnership and needs to be some leverage on your end on why you need this money from the government. And normally it's what I call the it would not happen, but for this investment from the government. So, you know, when you start to look at those things, you can identify what it's just a straight market rate deal that you don't need any government kind of subsidies in. And then what deals need help. They need get financing.

Sam Wilson (00:03:08) - Got it. Got it. What were what were some of the when you walked away from that? Some of the things that you see that people typically get wrong when they are approaching the city council or whoever else it may be when they have a project in hand.

Armstead Jones (00:03:23) - Several things. One, they've never talked to the community, right? You can't do community development if you have not engaged the community. Um, second they come in with. I know what's best for the neighborhood, right? It's never about what I know is best for the neighborhood. It's about working with that neighborhood because they might have a nonprofit or a CDC that can leverage grant funds that can help you with your project. And thirdly, some people come in and just throw money, right? Yeah, I'm going to do this. This is going to happen. But I want the government to give me money. Why? Like you're not making a compelling, compelling argument on why the government who are the stewards of taxpayer dollars giving you money for a project that essentially does not need it? Um, and that's that.

Armstead Jones (00:04:14) - But if not for statement, right? If not for the government to step in. You won't get the desired outcome of jobs, right? This office building, convention center, you're building arena. Right. If not for the government stepping in and doing it for the long term investment. Right. The 20, 30 year projection of jobs and taxes and piggyback taxes. Um, and a lot of people just come in with the thought, well, my project doesn't work, so need money from the government to make it work. And that's not how it works at all.

Sam Wilson (00:04:49) - Right. I can only imagine one of the things you mentioned there was talk to the community. What does that mean? What's a practical way to do that?

Armstead Jones (00:04:55) - Um, first thing, you should attend a community meeting. Um, get to know who's in your community. Who are you serving? Right. Those residents know people. So if they're, you know, if there's a master plan, you should go to whatever area you are.

Armstead Jones (00:05:11) - You should go to that planning department and find a master plan, vision plan, urban renewal plan, and look at it for the neighborhoods you want to work in, right? We would like homeownership on this strip. We would like commercial on this trip. And nine times out of ten, those master plans are prepared by third party individuals that are architects and traffic people. And they're they're literally telling you the best places, right from a 10,000 foot view of what you should try to do in these areas. And then those community people then get engaged and they're like, yeah, we want houses here. We want to we want a grocery store here. Okay, well, if grocery stores are, then your thing. You didn't set up a time to talk to the community association about what you propose to do. Right? Always use the word proposed because you want them to feel like they are engaged with you and they are helping to make those decisions in those communities as well. But if not, you know, you go in and you don't do that, it you know, it will it will ruffle feathers and it will slow down because the the rolling ball effect or the snow, you know, the the snowball going down the hill, it's once the community has bought in, then the politicians are bought in because the politicians serve the community.

Armstead Jones (00:06:30) - Right. The community's going to bat for you. They're supporting your project. Everything down to when construction starts, you know, those nosy neighbors will make sure people aren't breaking in your house. Right? So you've engaged the community, you talked to them, you went to their meetings, you studied their plan. You've actually put together a thoughtful response and a proposed project to them. And then they're able to then go champion that for you to kind of make it easier.

Sam Wilson (00:06:59) - That's really, really good advice. And there's very few people actually I've had on the show that probably have as in-depth, in-depth of an understanding as you do as to how that functions. I mean, because that's it's it sounds like it's as much art as it is science.

Armstead Jones (00:07:17) - Yeah.

Sam Wilson (00:07:18) - Exactly, exactly. Figuring out how to do this. And and I think one of the things I hear in all of this is that you just need to budget in a lot of patience in a lot of time.

Armstead Jones (00:07:28) - Correct development is different than investment, right? Say that all the time.

Armstead Jones (00:07:33) - So my company outside of real estate bees is a imagine think tank. We do development, but we also do investment. Right. Development is the concept that I see a vision and I'm going to carry that vision on my back and tell us complete. But I'm the first person putting in sweat equity and money equity, and I might be the last person to see my money back right? This return that I got. But it might take 2 to 3 years. But you know, just using numbers, you saw a deal, you put 50 in and three years from now it's worth, you know, I don't know, half a million of better. Right. But you didn't realize that profit until then. Investment is passive. You're trying to either by cash flowing assets or you're someone who buys and then fixed eventually. But, you know, that's why you just got to you got to know which one fits better and development just takes a while. So anybody starting a business and you're doing real estate development, get some rentals.

Armstead Jones (00:08:34) - I mean, I'm not the biggest fan of singles all the time, right? Especially if you're trying to do other things. If you're managing those yourself, you know how to do the work yourself. You're personable yourself. Great, right? Get you a couple of those. Make that your full time, you know. You know, you'll never work a day in your life, but you know, if you're investing, investment is the concept that my money needs to now work for me.

Sam Wilson (00:08:58) - So no, I like that. I like that a lot. You know, there's a lot of things in the economy right now. People are worried about. There's talk of recession. There's talk of this. There's, you know, just a lot of uncertainty. What does this look like from I mean, are there some leading indicators maybe of a changing just kind of changing grounds? Are there permit polls? Are there like what do you see on the I guess, more on the on the city planning side of things that could be leading indicators or lagging indicators? I guess either way you want to look at that of kind of where we are.

Armstead Jones (00:09:31) - Um, so there's a couple of pieces of data that you can look at. I know we've seen massive layoffs, but these aren't from the companies that kind of employ the middle to lower market. Um, these are your financial firms. Your tech firms. These people were making six figures. Hopefully they got a nice nest egg. They probably realistically have 6 to 12 months worth of money sitting around to cover themselves. So we're not looking at a rising unemployment number because those same individuals who had that kind of capital or probably investing in or, you know, trading something or doing something else to make income currently. Um, you'll see and I'm saying this in Baltimore, permits are slowing down, right? So the reason is because everybody's finance was locked in before the Treasury started hiking rates. So now they're going back and have the, you know, what they call a horse trade, right? Like horse trade and get a new term sheet. And now that interest rate on that new term sheet has made, you know, the debt to service ratios, you know, unbearable.

Armstead Jones (00:10:39) - So you're going to have deeper pocket people having to go out further. Right. Waiting for the market to turn. But we're not going to go into a recession. I think the Treasury and the Fed did. Correct. Right. Like they they raised interest rates to catch up to inflation. We've now caught up to the supply chain issues we were having in 2020. Right. So mostly right outliers here and there. You know something, a spike. But, you know, building materials are pretty much flattening out the labor cost because permits are slowing down. So labor is getting cheaper. I see subs going to primes and saying, hey, um, you know, you got some work next month. Oh, remember, put in that bid for this. I can take 10%, 15% off of that. If you give me the job now, I'll take it. Um, so you're seeing some of that, But there's no recession, right? A recession indicates a slowdown for, um, continual periods, right? Continual quarters.

Armstead Jones (00:11:41) - We haven't seen a slowdown. We have seen people putting people with capital of putting their money back in the bank, and they're waiting for everybody else's tsunami to rise. Right. So they have the money to kind of buy everyone out. I think what we'll get worst case scenario on the real estate side is that you'll see a lot of these class-A and even newly value added class B apartment multi families. Start to get foreclosed on. Delinquency rates are going up. People had a lot of money saved on Covid because they weren't going anywhere. Just ordering Amazon. Right? Maybe some GrubHub, maybe some Uber eats type stuff. Now everyone is back to vacation, right? They're buying clothes. Think about the clothing market. Slow down. Because why would I buy clothes if I got to sit in the house? Right? Like I'm not purchasing things. So now people are spending money on consumer goods. They have less savings. We're seeing delinquency rates go up. And a lot of these multifamily people haven't landlords or property owners haven't really given people mercy.

Armstead Jones (00:12:45) - They're just like, Oh, we can get it right now because there's a housing shortage. So your normal transition is you get an apartment one day, you make a decision to buy a home, whether it's because you got married or you're ready to own one. And people can't buy homes now. So multifamily has just been jacking up their rents. Right? Where are you going to go? Where are you going to go? And we're going to hit a point where people can go somewhere. We're going to see the multifamily wash out. So my thing is, anything over 120 units, you need to start realizing what you can do to set yourself apart in the marketplace. You're.

Sam Wilson (00:13:22) - That's really interesting. Would you say that even even in light of the Fed hiking rates and in light of the fact that the residential housing market is still apparently fairly hot?

Armstead Jones (00:13:35) - It's still fairly hot because the number one thing and we when was at the State Housing department we did a research like project on this. Right. What makes people buy homes.

Armstead Jones (00:13:47) - Right. And it's normally life changing decisions. I moved for my job and I want to buy home where I'm moving to. I got married, so we're buying a home. I had kids. We need more space. So I'm buying a home. I got divorced. I need less space. Right? I need to buy a home. I'm living with my significant other whether we're married or not, and we separate. I need to find somewhere to live. I end up buying a home. Right? It's normally life changing decisions that make people do that. And people. People who have it and who are still financially sound are still in the market looking for great opportunities for their American dream to buy a home with the white picket fence. But we have limited inventory. So because of that, the prices still can remain high. But you're seeing days on market increase, right? When we were in 2027 to 14 days, you had multiple offers, you had people paying over list price and then covering the difference in the appraisal and the list price in cash.

Armstead Jones (00:14:51) - We won't see those days ever again.

Sam Wilson (00:14:54) - Right? Yeah, that was that was a wild, wild time. Let's go back to I guess we talked a little bit about, you know, the the Class A and B, you think that's going to suffer? Because I'm just see if I can articulate what you said. You said class A and B is going to suffer because they've been raising rents so much over time or so much recently that people are going to start looking for other places to go. But how I guess maybe I missed this in your answer. But if the residential housing market is still hot, it seems that that would then feed that class A and B value add multifamily property. Does that make sense?

Armstead Jones (00:15:32) - So you what you're saying is those individuals should be moving their homes. All right. Right.

Sam Wilson (00:15:37) - Right.

Armstead Jones (00:15:39) - There's a lack of inventory. And so as soon as the Fed raise rates, I'll give you a case study. Someone in Maryland before the Fed raised the rates and they were given out these two and 3%, you could afford a half $1 million home in the county right now that the rates have gone up.

Armstead Jones (00:15:59) - You're saying payment is probably 400 to $600 more depending on how expensive to home is, Right. Right. That affordability gap when it comes to a monthly payment kicks a lot of people out of contention for the half $1 million home now. So now you have to find a 400,000 or 350 and it has less bedrooms. You already have three kids. You need a five bedroom, you're looking at a four, you're hesitant, you can do it. You could pull the trigger, you could become that that property owner. But a lot of people are now very picky. Right. They're like, Oh, don't even like white cabinets. And I'll be paying way more than I have to. And it's not even in the neighborhood I want, but this is the only inventory in the market, so I'll just sit on my hands until I find what I want, right? So it's not feeding it quick enough. So what you're getting is people are like, all right, I really can't afford this rent, but I can't afford to go anywhere, right? So if they can't go anywhere, they end up staying.

Armstead Jones (00:17:02) - But, you know, delinquency rates go up. And once we do figure out that levy that opens the door. All the property owners are going to do for the foreseeable future is give away one month free, two month free, $500 gift card, some beats, headphones. We'll give you free parking for three months. Right. They stuck concession in you right. To make it seem like it. But essentially they're hurting so they're giving away what they can in order to market and advertising people.

Sam Wilson (00:17:33) - Right. Right yeah and we haven't even in the stuff that we own, we haven't seen that yet. But you know, that's that's certainly something to keep keep our eyes on. We start seeing that happen happen on a on a more widespread basis.

Armstead Jones (00:17:49) - Are they above 120 units.

Sam Wilson (00:17:52) - Yes. No, that's a that's that's mistaken. One one's I don't own much multifamily on two multifamily assets but one's 106 and one 246. So yeah, one one's above it.

Armstead Jones (00:18:04) - Yeah. The 106 would probably always be okay that 240 unless it's just in an area where there are no units like in Baltimore.

Armstead Jones (00:18:10) - At one point we had 5000 apartments in the pipeline to be delivered. Right? So it's all about market saturation. So depending on where you are, if you are the asset in that submarket, you're fine, right? But if you if you're competing and you need to figure out what your edge is, that's when people start doing the month free, the two months free. Come get this gift card. They just try to market themselves differently than all the other product around them because it's too much competition.

Sam Wilson (00:18:41) - Too much competition, something else to look for. Absolutely. One one last thing I want to chat about here is since since you seem to have a front row seat to all the different asset classes and how they're performing and of course, you know, again, being being part of the state housing Department, I'm sure you saw a lot of really unique things. What where are we with the office vacancy? I mean, everybody I'm talking to you from New York City to I mean, all the way across the country, office is generally vacant.

Sam Wilson (00:19:09) - What what are we going to do about that?

Armstead Jones (00:19:11) - Um, office is going to be vacant for the foreseeable future. Um, one as a business owner, now that I know that my employees can be emailed at 6:00 after work hours because they're on their computers and their home. I don't care if you take an hour and a half lunch break. Really don't care, right? Do whatever you please. Right. I now don't also need this monument to myself of office space in my kingdom where I've hired, you know, my throne of of individuals. Right. So now everybody can hop on a zoom. Uh, Microsoft teams, We can come up with action items. I don't care if you do those action items at 10:00 or 11:00 at night. Right? As long as it's in my inbox by eight. Right. Long as you're on the call by 10:00 the next morning so we can discuss it. Right. We're starting to see that functional and flow works without having a brick and mortar location. With that said, we've built a lot of monuments, right, to a lot of wonderful people who have created jobs and help with economic development.

Armstead Jones (00:20:17) - Right. Help people put food on the table. So we're going to see a lot of conversions of those spaces, right? You're going to see, um, and that was a concept and I can't remember the name of it, but you do a mixed use building, but mixed use in a sense, like. You got affordable housing or workforce housing and with some market rate housing and with some office space and with a community center or a restaurant on the top, some commercial at the bottom, a maker space, you're going to take all these different pieces and they have a model for this. In Philly, they took an old school and they gave every. Every business got a classroom. Right. Every business then could sell out of their classroom. But because this building, it was half 1,000,000ft² of some crazy number. Right. They also then use the the ground floor as like a marketplace. So Fridays, it was activated. Saturdays it was activated, Sundays it was activated. And all of the same tenants who you had up here are coming down here to sell their stuff and they're bringing people to the building.

Armstead Jones (00:21:32) - And you're mixing up the uses, not just this is a Bank of America building. They've taken 60% of it. There's a law firm here, an accounting firm here, a title company here, know it's going to be a mixture of uses in one building, right to the point where you could take an office building and you could produce the stuff upstairs to be brought downstairs to ship out loading docks. Right. Like we never thought about the concept that you could reuse that building and repurpose it. We just didn't need a whole bunch of land and some tractor trailers and you need manufacture and need some rail. Not everything needs that. Right? Right. Like we talked about manufacturing of raw material, like we're talking making t shirts and stickers and, you know, products that can be sold in the local economies. Right. Same way we see the coffee boom. Right? Every city has a signature coffee shop and several in some places, and they all get picked up by Trader Joe's and all the grocery stores and all the corner stores and mom and pops.

Armstead Jones (00:22:35) - Same concept, right? Producing these items locally, using these buildings, repurpose them. And then you've got workforce housing. Oh, wow. I can work where I live. It it you know, it goes back to that concept. Live, work and play.

Sam Wilson (00:22:50) - Yeah. No, that's a really cool concept. There's a there's a project here in Memphis that is called the Crosstown Concourse. Same idea. It was an old. Well, this is a massive undertaking, but it was an old Sears distribution facility. The same idea what you're talking about. I mean, there's everything from a school to doctor's offices to, you know, there's there's workforce housing, there is a condos there, there's swimming pools, there's workout facilities. I mean, you name it, It's I mean, you really if you didn't ever want to leave the concourse, you really wouldn't have to. I mean, everything you want is right there. So it's kind of cool. It'd be interesting to see, you know, as people as people pick up this inventory in the right markets and turn it into into higher and better use to things such as what you're describing.

Sam Wilson (00:23:34) - Absolutely. Love it. Armstead it's been a pleasure having you on the show today. If a listeners want to get in touch with you or learn more about you, oh, and there's one more thing I forgot to ask about your book. You can tell us about that as well. What's one of the best ways to do that? And if you can tell us a little bit about your book.

Armstead Jones (00:23:48) - Uh, elevator pitch on my book, Re-engineering Baltimore Real Estate. I'm an engineer by trade, so always re-engineer everything. I do like to kind of back into it. So the book just gives you resources. If you were to develop in the Baltimore area, why you should develop in the Baltimore area with strategies you could put together, and then from there, you know where to go out, who to pick, um, those kind of things. So just an introductory guide to kind of helping you get started. Um, that book is available on my website. Dot imagine think tank.com, um, also available on my Instagram which is imagine think tank.

Armstead Jones (00:24:35) - Um same thing for Facebook. Imagine think tank. Um, and you can just it's a digital download you go download it. Um, feel free. If you got questions, you can always contact me. I'm one of those people. You got a question or two? I have no problem answering it. But if you need an essay worth of questions, I will send you my consultation link. Um, so that you can ask me all you want. Um, I do consulting work a lot, so, you know, all the way from hedge funds to pension funds. You know, they need someone to kind of explain to them the Baltimore market at a high level. That's exactly what re-engineering Baltimore real estate does. It explains it to you bare, bare bones. What Baltimore real estate is, why you should invest, what are you looking for? And here are all the resources that you have available to you in order to get that done.

Sam Wilson (00:25:24) - Fantastic. Armstead, thank you so much for coming on the show today.

Sam Wilson (00:25:26) - Of course, we'll include all of that there in the show notes. I do appreciate your time.

Armstead Jones (00:25:31) - No problem. Nice to meet.

Sam Wilson (00:25:32) - You. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.