I graduated from Penn in 2004. I had no job or any prospects to speak of, so I moved back home to LA after spending a summer in Philadelphia fruitlessly looking for a job.
Back home, I saw that the majority of my high school class had become loan brokers at names like New Century Financial, Countrywide, and Washington Mutual.
I grew up in the San Gabriel Valley, which among other things was famous for suburban pot farms, and I also noticed that a not-insignificant percentage of my high school class had gone in the marijuana business.
One guy I knew from high school told me point blank that he liked the mortgage business because it “was like drug-dealing: you give people a fix, and they keep coming back for more. They can’t resist.” I remember that he used to drug deal in high school, too. I guess he had chosen the more lucrative route.
It’s hard to express the sentiment of that time. Everyone was getting rich off real estate.
I remember the fact that some of my friends who hadn’t even gone to college, were giving no down payment loans to people and making $20,000 a month, did give me pause about how the world wasn’t the way I had learned it to be.
But I liked the idea of real estate because it was tangible. My senior year at Penn, I had interned for the largest campus housing landlord, and they all seemed like a bunch of easy-going, Philly wiseguys. I liked that.
When you graduate from Wharton, half the class goes into banking. I heard stories about how you worked 120 hours a week in banking. And I didn’t like that.
And with a lack of prospects, no interviews, and no jobs to speak of, I made the decision to go into real estate.
At first, I thought I might like going into the public sector. I interned at Senator Feinstein’s office in San Diego and researched the economic impact of military bases. The internship paid no money, so I worked as a picker in a t-shirt factory part-time. In the other remaining time, I surfed.
But most importantly, I rented a room from a woman, who I’ll call Lucy, who had no discernible job.
My lasting memory of her was of her sitting on a couch, eating ice cream, and watching tv – both when I left for work, and also when I came home. And it was during one of her ice cream-eating sessions that we struck up a conversation and she mentioned to me that she was in real estate.
When I asked what she did, she said she bought houses. She had three already, she said. It was so easy, she said. She was planning to buy a few more. Because all you had to do was take out loans and wait for the prices to go up. In fact, her agent was one of her best friends and later moved in to my room when I moved out.
Midway through the internship, I decided that the public sector was not as fast or impactful as I had imagined. I wanted to see some action.
So, I applied for a job at Marcus and Millichap, the real estate brokerage. Almost immediately, I was invited to an info session where I was witness to a presentation that should be enshrined somewhere in the historical annals.
My lasting memory from that presentation was towards the end when the agent put up a slide.
The slide was a grid whose rows were Years 1-5, and whose 3 or 4 columns represented duds, high performers, and rockstars. In the cells were numbers that represented the incomes that each of these categories of people in the world, stood to make at Marcus and Millichap.
I noticed that the duds started at $80,000 and climbed their way north of six figures in the second year. The rockstars started in the mid-six figures and were making millions by year three.
These numbers all sounded great, and I decided to sign up. But there was a catch. Unfortunately, they said, the job was commission-only so they recommended that you have a savings fund of at least six months to live off of, while you “learned”.
This sounded a lot like school, so I passed on that opportunity and told myself the numbers were probably all fake, anyway.
I moved up from San Diego and stayed with a friend who was in his final year at UCLA. There, while looking for jobs, I opened the newspaper and spotted a posting with Marcus and Millichap in the El Segundo office. It was paid.
That paragraph makes me sound ancient, but trust me, there were online job posts and applications back in 2004 too. Maybe it was dying out, but still. That’s just how things happened.
I interviewed and got the job. My salary, if you can call it that, was $12/hour with no benefits, and my job was to maintain the internal database.
At the end of 2004 and during 2005, money was falling from the sky. And that’s what the theme of those years was: money. Money, so much of it, that numbers became meaningless. Hundreds of thousands, millions, and NBA superstar money, being earned by agents in their 20s and early 30s for essentially, making phone calls.
And before you get the wrong idea, the money wasn’t going into my pockets. I was still at $12/hr. I was poor enough and without benefits that sometimes in restaurants, if people at the tables next to me left food untouched, I would eat it. Sometimes after they left, and other times I asked nicely.
My job at the Harris Group of Marcus and Millichap was to maintain and ensure the integrity of the database of leads. This meant a lot of searching online through other databases to validate information. It was boring, so I quickly asked for other things to do.
And so over the next year, while helping maintain that database, I also helped underwrite and package deals totaling maybe more than a billion dollars in nominal value.
For a long time afterwards, this entire experience working on the “sell-side”, so to speak, at a real estate brokerage, made me skeptical almost to the point of cynical, about actually investing in real estate.
In my naivete, I first thought that the prices we were going to sell buildings for, were what they were worth. So I pored over rent rolls and looked up market averages for rates and prices. What I learned instead, what that there is no such thing as anything actually being ‘worth’ anything. The sales price is what a broker wants to sell it for, and all the numbers surrounding it are the supporting props that have been artfully arranged to convince you that this price is the right and true one.
And if you think the price is too high, based on the market comps, you are entitled to your opinion, and may be mathematically correct – but if someone else comes by, who is using a tax advantaged scheme to roll out of a previous property and is under a time crunch to park their funds in something else and so snatches up this expensive property, at or higher than listing price because of a false perception that they are competing, then…what was it actually worth? Who’s right? You or them?
On our packages, we sometimes photoshopped gangsters out of the roof of some of our building photos, and photoshopped luxury cars into the streets in front of them. And sometimes I would discover mistakes I had made in the modeling, much later – and it didn’t matter, because the deals had already sold anyway with the buyers scarcely looking at the cash flow.
During a bubble, money becomes divorced from the effort required to earn it. In our office, there were agents who worked an average of two hours a day, three days a week. There was one who was making a million dollars a year from having landed a single big-time client on a lucky phone call. And sometimes these agents would go into the offices of the harder-working agents and steal leads off their desks and make six figure commissions.
Even though my job was to maintain a database of leads, that last reason is why sometimes people sabotaged my work by trying to pay me on the side to not do my job, or to give them contact information for their own use. In reality, not many people wanted me to share the hard-won contact information for potential leads across the whole office. They wanted it for themselves. This is when I learned about misalignment of incentives.
I don’t want to give the impression that no one in the office worked. The Harris Group was named after Greg Harris, who was and probably still is, a legendary superagent. Greg’s stare was of the laser beams shooting out of his eyeballs variety, and he was always on the phone, always in that rapid-fire staccato voice that hammered poor clients down out of their illusions of paying less for a building than it was ‘worth’.
One of my lasting impressions of Greg is a time I walked into the men’s room and saw, under the stall doors, someone sitting on the toilet with pants around his ankles, doing a real estate deal at full volume. It was Greg.
His work ethic was legendary, and when he was first starting out, I heard he hired interns even younger than he was to drive him from his home to the office at 4 am – no one else was up at that time, except the elderly landlords and investors who he would be calling, and who would remember that he had been the first to call them that day.
And this is also when I learned about money. They say money makes you more of what you already are. That is true.
I also think money, in some deep way, also reveals your deepest held beliefs.
The agents in our office were split into two camps. The ones who worked two hours a day, bought nice cars and homes, partied mid-week in Ibiza and Miami, and had no compunction or even deep thought about living through a bubble of historical proportions.
We had other agents who made just as much money but who were deeply terrified of the state of the world and felt that something was deeply, utterly wrong, and sought to serve penance for it, in a way, by working even harder. These agents, I think, sometimes felt guilty. Like when they did deals that caused market rents for an entire town to double.
But if I really think about it, the two camps weren’t so different, fundamentally. The first camp spent their money as soon as it came in, like they were laundering it. Perhaps from feeling like it wasn’t really theirs.
During this job, I also learned about the power of sales. Selling is storytelling, and sales is an art form that needs to be taught in school, because the basis of our shared reality as humans exists as a series of beliefs and stories.
I learned that during a bubble, the best salesmen are the people who deliver their message with absolute conviction, no matter how outrageous it is.
Actually, the more outrageous, the better to catch your attention. Because during times like that, peoples’ beliefs are being tested. And during periods when peoples’ beliefs are being tested, they want to listen to people who sound like prophets.
At the time, real estate cap rates of 4-5%, even on trophy properties, were considered unbelievably low. And sales prices of $200,000/unit on multifamily residential were considered high. In any case, the actual figures don’t really matter.
What matters is that the best agents in our office were the ones who could talk about cap rates of 4% and prices of $250,000/door as if they were universal constants like e or pi – and often, I noticed, the less the agent actually knew about market conditions, the lower his doubt, so the higher his conviction, the higher his credibility, and the higher his closing rate.
Meanwhile, those who overanalyzed (like me), stood by in disbelief. In times like those, the best storytellers don’t even need a firm grasp of English. Just belief.
And my last point is that when you’ve worked around people in real estate for a long time, you’ll pick up a pattern of speaking.
This pattern of speaking is whereby crazy claims are stated boldly as to make others doubt, waver, to ultimately put them at a disadvantage. This is a variation of the anchoring effect/bias.
This technique absolutely ravages weak souls, conciliatory/nice people, and those who are unsure of themselves. Let’s say you’re trying to sell me a car and we meet, go through the pleasantries, and after I look at your car, the first thing I say at the top of my lungs is that I’m going to offer 20% of your list price for it because the bumpers of your car model cause cancer.
Now if you’re inured to this type of speaking then you’ll just shake your head no or tell me to GTFO.
But if you’re a nice person, or out of practice with this type of aggression, you’ll start doubting yourself. Your initial reaction to the 20% was shock and disbelief, but you’ll start thinking…maybe I did price it too high. Your initial reaction to the cancer claim was the same, but now you’re thinking about it – maybe the metal or the paint in it does cause cancer, but the incidence of cancers from bumpers is very, very low. What you’ll do is start to explain this it depth and try to argue it logically. Now you’ve lost because you’re playing my game.
You’ll try to bring reason into, and analyze/dissect a fundamentally illogical and absurd claim. Congratulations, you’ve lost. The discussion will go into the finer points of airborne carcinogens and colors – and you’re in a hole because you’re tacitly implying there may be some truth to the cancer claim instead of making ground in the other direction. And with the doubt of the price lingering over your head, the price will slowly creep down to my target.
I mention all this because this was the prevailing way we all talked to each other in the office, whether discussing foods, sports, real estate, or even pets, the latter of which actually led some people to start believing that such a thing as a pig-dog (a cross between a pig and a dog), existed. And this is the way of speaking that during a bubble, or times of distortion and change, lead people to believe insane things, like that prices will keep going up forever.
The only way to counter this technique is to: a) recognize it immediately, and either b) counter with an equally insane, but opposite claim so the discussion grounds still stay somewhere in the middle, or c) drop it and walk away.
I also note that our current president (who is a real estate guy, by the way) has taken this technique all the way to the top. He says outlandish things and has the other side/media actually take it seriously and try to refute his claims by logic. If you do that, you start playing the other person’s game so you’ve lost.
As I see it now, the Democrats seem to have stopped their full-fledged losing campaign, and moved from c) the outraged dismissal phase, to b) full communism.