A Real Estate Career: Lessons Learned (2010-2012)

The optics of business school are great because being a student gives you a halo – you appear to be “studying”, hard at work, transforming yourself.

Whereas if you took two years off to just actively look for, recruit, and interview for jobs in a new industry it would raise eyebrows, if you instead pay vast sums for the privilege of doing so, while paying even more in opportunity cost / lost income, it is more professionally accepted.  Ironic and backwards, but that is the imprimatur of business school.  That’s what people pay for.

Also, it’s a good two year break that looks good on a resume.

I entered Haas because I wanted a break.  I also wanted to be close to home, and the counties where Property Tax Advisors was appealing cases.  I wanted to be on the West Coast, because most of my consulting clients were in Asia – and I would have to fly there from time to time.  In case it wasn’t obvious, I still wanted to work part-time.  And also, to seal the deal, Haas gave me a scholarship, which combined with what Gary still owed me, made it an all-expenses paid, tax-free, two year vacation.

But I don’t want to make it seem like I didn’t take the whole experience seriously.  I did want to learn.  I wanted time to read books again.

The first thing I did when I arrived on campus was sign up for Mandarin classes, which I took with undergrads.  And then I signed up for some advanced real estate classes to try to figure out WTH had just happened in the world.

I took real estate classes every quarter.  And I read books on real estate history outside of it, outside of the classes.  At the end of it, I’m not sure I came very much closer to understanding the mechanics of what had happened, but I did gain an appreciation of how fragile things are in the world.

For our final project in a real estate financing class, we had to analyze a CMBS prospectus (commercial mortgage-based security), you know, those products that had helped bring down the global financial system.

I remember little about the product except that its supporting document was about two hundred pages.  Five of us pored through it for weeks.  All of us had come from real estate development, banking, or brokerage backgrounds.  One of us actually had a real estate lawyer for a father so we ended up asking him about the finer points.

But the prospectus was written so as not to be comprehended.  It was written in legalese, even though it was describing what should have been a fairly straightforward series of waterfalls in Excel.

And in the end, it couldn’t be modeled, because it was worded so ambiguously.  It was another lesson in what I had long suspected, which was that in business, maybe a small fraction of people know what they’re talking about, and the rest are just pretending.

I guarantee the bankers selling the junk we tried to model were in the latter camp.  Some of them were probably in business school at the same time as me.

Business school was also an opportunity to experiment.  I tried out different careers.  I interned for a hedge fund manager in San Francisco.  The first time I had a conversation with him, my mind almost exploded.

We began talking about a gold mining company, and his process of thinking out loud led the discussion into energy consumption requirements of the world, and caloric intake of Africans.  It all had a logic, but it was just beyond my grasp.  Just like, say, a college lecture that is beyond your head will make you fall asleep, this conversation had all the trails of making sense, but it was beyond my comprehension.  Struggling under the mental strain of it, I had to go home afterwards and just lay down for a few hours.

They say investing is the last liberal art.  It is the best cross-disciplinary, systems thinking training that anyone can get, I truly believe that.

In the summer, I interned for GE Capital Real Estate, the first big company I had ever worked for.  It also turned out to be a mistake.  Not the company or job itself.  As part of the Global Valuations Team, for the first time, I worked with people who were all exceedingly kind, competent, and able to regulate their emotions.  I had never worked with such nice people before.  I also had a boss that summer who was the best boss I had ever had up to then, and since.  She was patient and a great communicator.  I saw in all the ways what I had been missing by working only at small shops and with extreme people.

But at the same time, in order to take the job, I turned down offers from a resort development company (US-based), and a Mongolian conglomerate that wanted me to help them create a business plan for yurts, in Ulaanbataar.  There is no way I would have that kind of opportunity again.  It was a mistake to turn down adventure when I was still single and should have taken those kinds of “risks”.  It remains one of my regrets.

But the job was a revelation to me in other ways.  I came away from the internship and my classes at school with a more profound realization about the world.  Mostly, about the fragility of it.

You could see this clearly because GE Capital was such a high-level investor and manager.  By high-level, I mean that they invested in properties that were worth hundreds of millions of dollars, and purchased portfolios that were in the billions of dollars.  When scale gets that large, numbers become abstract.  When you’re evaluating a portfolio of hundreds of properties, the individual properties themselves also just become pieces of paper holding different lease terms and cash flow logic, encumbered by loan contracts that are themselves just other pieces of paper.

I looked at the stack of hundreds of pages we were poring through, which represented the several billion dollar portfolio we were buying.  And that was it.  Although we weren’t buying the pieces of paper, the pieces of paper held the agreements that held this entire thing together, all the terms and clauses and logic that would be transferred, on other pieces of paper, from a different owner to us, moved like you would a large boulder, carefully, so that at the end, someone could print out another, similar stack of papers with our name on them instead, and magically all the obligations and claims would belong to someone else.

Yet what was contained on these stacks of paper allowed us to borrow more money against it, allowed us to engage service providers and managers to service it, and served as the basis for the valuation of our company.  All around the world, balance sheets were being rearranged, title was being rewritten, people were moving, getting hired, fired.

You might note that this is just a larger scale, of the same type of transaction you would undertake when buying a car or getting a loan.  It’s true, but just think about those transactions too.  Do you ever read every word in a contract?  Do you really know every implication of every clause in a contract?  I doubt 99% of the world does.  Similarly, there were things in the contracts of our portfolios, and the leases, that if you read them carefully were questionable, or ambiguous at best.

But the whole thing was wrapped together by a system of trust.  Trust that people down the channel, the title officers, the lenders, the managers, the agents, the lawyers, everyone, was doing their jobs correctly.  No one at GE Capital was going to have time to review every single line.  Internally we all had to depend on each other, and us as an organization also depended on our service providers, suppliers, the governments and cities in which the real estate was, etc, to do their jobs.

At a scale that enormous, no one person has the whole complete picture.  And if you telescope out to the national economy, the world, it’s the same thing.  No one person has the complete picture.  It’s held together by trust.  And when that trust breaks, the system breaks.

And that, I think, was the main lesson I learned at GE Capital, and probably the main lesson of the financial crisis for me.

After my summer in Connecticut, I moved again.  Business school offered a semester abroad.  And I was going to study abroad in Hong Kong.

Living and studying abroad has been the source of some of my deepest relationships and experiences.  After studying abroad in Hong Kong, I decided I would have to live there.

Also, one night while eating hot wings at a place that prided itself on the scoville (spiciness) levels of its food, I found myself dry heaving, tingling, and in tears after half a bite of their vaunted apocalypse wings.

I began rubbing my eyes, which was a mistake because for some reason the XXL-killer-apocalypse-suicide hot oil had spread to the back of my hand, and now I couldn’t feel my face anymore.

It was at that moment, with fluids draining out of my face, that a girl in a white and black dress walked in smelling of spring, and sat down with me and my friends.

A few years later, she would become my wife.

A Real Estate Career: Lessons Learned (2010)

Almost exactly when The Year of Reflection had ended, I received a call from an old contact, Tim.

He wanted to know what I was up to these days, and whether I might be interested in helping him out.  Over the phone, I couldn’t really process what he was saying.  He spoke of taxes and property values excitedly.  I know how that sounds.  But yes, he was excited.

From what I could make out, it was evident that this was an opportunity that had risen because property values had crashed.

One thing did stand out, though, and that was the word “ridiculous”.  Tim was using the word “ridiculous” quite liberally to describe the situation, the money, and the job itself.

If there was anything I had learned about myself in my career so far, it was that I was a ridiculousness hunter.  Intrigued, I accepted his invitation to come in and check out their operation.

Indeed, when I arrived at their “offices” in Manhattan Beach, I found the situation a little ridiculous.  The office was a two bedroom apartment off Manhattan Beach Boulevard with no natural lighting, and seven people were working in it.  Files were scattered everywhere, like debris from a bomb explosion.  I met Jason, who worked with Tim in the master bedroom.  Gary, the owner, worked in the second bedroom.  Everyone else worked in the living room.  Files were stored everywhere, including in the kitchen cabinets and in the oven, which no one used.

The operation was one that appealed property taxes.  This meant going down to the assessors’ office of the California counties and argu-, demonstrating that our clients’ properties were not worth the inflated prices they had purchased them for.

Jason, Tim, and Gary explained this to me as I surveyed the wreckage of an office, and asked me when I could start.

That weekend, I moved to Manhattan Beach and came into the office the following Monday.

Bureaucracy causes pain, and pain causes opportunities.  This whole operation was there, because dealing with the county assessors’ offices was a bureaucratic and logistical nightmare.  If my experience at ERA was like being in a time capsule from the 1970s, the assessor’s offices were dated at least a few decades earlier.  They communicated only by phone, mail, or through in-person hearings, the latter of which gave it the flavor of judicial and legal proceedings.

All this is to say the following.

Challenging the roll value of a property in California, in most of the counties, [was] free.  Free.

But like most things taxes, people hired us to do the job for them because they couldn’t understand the process.  Or even if they did, the psychic pain of having to be put on hold and transferred through the various departments of the assessor’s office, having to search for information on values retroactively to the assessment date, or attend hearings in the middle of the day scheduled months in the future, caused them to hire us.

The business was unglamorous, taxing, under the radar, and operated out of a master bedroom with soiled carpets.  And at Property Tax Advisors, we were discreetly generating ~six digit sums in fees, per week.

This is when I learned that a real business eases pain.  A real business is not the storefront, or the colleagues, or business cards, or a website.  A real business is where someone pays you to do something they can’t or won’t do themselves.  At real scale.  And sometimes you can create a profitable business out of something that is already free.

Don’t be afraid of boring businesses.  I’m sold on boring businesses.

The substance of the work was scouring through reams of data, photos, and assembling a case.  The actual analysis didn’t take long, but it was time-consuming, carpal-tunnel inducing, and after working out of the cave of a master bedroom for about a month, I noticed another something.

I was losing a lot of weight quickly.  People have a misconception about Southern California.  They think if you live by the beach, it’s balmy and tropical.  It’s not, especially in the South Bay.  Most of the time it’s under cloud cover, and if you’re not under the direct sun, there’s a sea-cold to it.  I lost 10 pounds the first month I worked there, just from the ambient bone chill.

The cold and the enormous workload brought something out of me that had lain dormant for a few years.  It was time to dust off my Excel macro skills.

Over a few weeks, I made a program that automatically valued our cases at the rate of one every two minutes, which was a vast improvement over the 45 minutes it took to do it manually.

Because in order to win a case, we had to present a preponderance of evidence that proved the house was overvalued.  “Preponderance” meant that often we pulled together hundreds of pages of evidence for a single property, replete with pages of full color photos.  We took this burden of preponderance seriously, and made sure that our cases were also preponderantly heavier, in actual weight, than the appraisers we faced.

Sometimes I could see a visible sigh from the appraisers when they saw the buckets of paper we hauled in during hearing days.  It was a psychological tactic.  Because when I saw those sighs, I knew that we were winning.

And you might think that it’s weird I use the word ‘winning’ in conjunction with something like a valuation.  But I discussed this before; the concept of value is a vague one.

What is value, really?  Value is a consensus arrived at by subjective opinions.  Everyone starts with the same facts.  Your value is what you choose to emphasize and omit out of those facts.

The assessor’s office was biased towards preserving the roll value.  We were biased towards lowering the roll value, to alleviate taxes for our clients.  And it was a clash of opinions and wills.

But whatever side you’re on, bias takes its toll.  For instance, when you believe that values are too low and are going to go higher forever, like a broker does, you’ll start making yourself susceptible yourself to frauds and bubbles.

This is just as true on the other side.  Exhibit A was our owner, Gary.

There are people you’ll encounter who seem absolutely suited for the work they do.  Sometimes this is because when you do something every day, it can’t help but influence the person you become.  And sometimes it’s the other way around.

For Gary, I couldn’t tell if he was always the way he was, or it was the 20+ years in the tax appeals business that had shaped his entire worldview.

To back up, our work involved looking for direct evidence that our clients had overpaid.  Every case needed to be presented as, “our clients made a mistake and bought at the top of the market and everything is worth about 30-50% less.”

And repeating this story thousands of times over a few decades, I can’t help but think it influenced Gary a little.  Because Gary categorically believed that everyone in the world was overpaying for everything.

From $20 million megamansions in Bel-Air to gym memberships at Equinox, Gary opined endlessly on the ways not to get f**’ed, how to not buy at the top of the cycle, and how to save money.

To him, any debt of any kind was idiotic, even mortgages, and he railed against buying any car new.  One summer when I dropped by to say hi, riding a rented Audi (a free upgrade from the Chevy I had reserved, which was out of stock), he had some choice words.

He was the type of person who, as a Manhattan Beach millionaire, thought nothing of sometimes walking across the street to the motel and helping himself to the free continental breakfast, with a wink and a nod to the staff.

Or walking into the gym with free passes and registering multiple times under different names to extend free trials for months.

Or on Tuesdays, skipping a place for lunch because on Fridays, that’s when they had a promotion and it was 15% cheaper.

Or expounding on the exact depreciation schedule of items like sofas, automobiles, cutlery, and researching gas stations miles away, where prices were pennies cheaper than our local one.

At the time, Gary was going through a lot.  The financial crisis had halved his net worth from $20 million to less than $10 million (I know).  And he was in the middle of a bitter divorce.  All this, I’m sure, conspired to make him feel poorer than he really was, but part of it was probably also in his makeup.  The son of a mailman in Hawthorne, he had always looked at the society people in the towns around him like Palos Verdes, and wanted to be them.

But now he was them, but I don’t think he ever felt like them, nor wanted to be them.

He always had some words about the overpriced nature of the houses around us, and the fallacy of the dual-income homeowners who had taken out million+ dollar loans for them.  How can it be worth it to live like that, and slave for decades just to pay off the mortgage on a property, he would rail.  Why would he buy that car when he’s a [enter profession here] and making [enter salary here], he would exclaim.  Why do people feel like they have to keep up?  He would rant for the entire 40 minutes it took to drive to downtown LA for a hearing.

And slowly, I began to take on his mentality too.  I couldn’t help it.

This was in the ashes of the financial crisis, and still shell-shocked from the previous year, I began making it a game to see how frugally I could live.

For a time, I slept on the carpeted floor of my apartment on a sleeping bag because I didn’t want to buy a bed.  I proudly clipped coupons and returned to my old trick of asking people in restaurants if they were going to finish their meals.  I needed to regain those 10 pounds, after all.

The irony, again, is that the year was turning out to be my best yet, financially.  Again.  I was drawing on two sources of income, and making consulting calls to clients in Russia and Arizona alike, stepping outside on the patio.

Anyway, Gary was shameless in a way with his frugality.  And Jason, who handled sales and collections, was just…shameless.  And shameless about his shamelessness.

Shameless people are an object of fascination in our society.  They have their role.  And in our office, Jason was the id.  He was the walking manifestation of the things we wanted to say and do, because he had no filter.

If you’ve ever worked with real good salesmen, you’ll understand they’re a different breed of person.  Until I worked at the Harris Group, I’d never met real good salesmen, even at Wharton.

Jason had more energy than anyone I’d ever met.  This wasn’t drug-addled energy.  This was just raw male energy, like he was a wind-up toy that was just always…on.  If you stood next to him it became uncomfortable from waves of enormous body heat, like some sort of constant metabolism of targets was taking place.

This extreme energy had him going through a hundred phone calls a day, with no let up in pace.

Like all good salesmen, he didn’t care about rejection.  And unlike other good salesmen, he was completely honest.  He was almost honest about everything he believed and felt, and that made him good on the phone.

Being honest and tireless also made him good with girls.  Bear with me through this section because there is a point.

Every weekend he went out and found himself another girlfriend.  He hooked up with a girl who was going door to door selling magazines, who he invited in to his apartment.  He hooked up with a girl who was selling hats on 3rd Street Promenade.  He had hooked up with the woman who he had purchased his used car from, offering a lower price and a steak dinner.

When he was at bars, he was completely straightforward about what he wanted.  If a girl he was pursuing had a boyfriend or a husband, he didn’t hesitate to say the conversation was over.  He didn’t want a relationship, and every Monday, the endless stream of text messages from his weekend romances bounced in, letting up only around Wednesday.

You may or may not condone this.  I regarded this then with a mixture of wonder and grudging respect.  If nothing else, he was honest.

That honesty extended to the office.  He was not above hanging up violently on clients after calling them dishonorable scumbags for not paying, or calling out people within the office for not working hard enough – and he was right.

For him, what was right was right, what was wrong was wrong, and he knew exactly what he wanted and did not want.  And it always struck me, seeing someone so honest, that people do not really respond well to honesty.

Clients who had been through the Jason treatment didn’t pay until Gary called them back and apologized, assuring them that they were not dishonorable but just “forgetful”.

People in the office who were slacking did not step up their game when called out.  They shut down, and resisted the idea that they were fallible.

And the endless stream of girls (I’m using girls instead of women deliberately) who he had warned in advance and made clear all throughout the duration of their 36 hour romance, that he was not interested in anything longer than a weekend, texted him endlessly.

It’s just a point to consider.  People don’t listen to the ‘what’, they listen to the ‘how’.  Jason knew the effect of never filtering himself, but he accepted the consequences and lived as he did.

Also, back to the energy point.  It’s hard to win against or resist someone who has higher energy.  10 pounds lighter and feeling lightheaded from my endless working, I found it hard to ever win an argument against Jason, no matter how hard I tried.  He kept coming.  And I would definitely never even have a chance after lunch, when I was soporific and for some reason he was going the same speed as at 10 in the morning.

It was then I realized that energy levels are an underrated part of success, especially when you’re working for yourself, and need to be cultivated as carefully as other resources like money or time.

The work was interesting, the growth in revenues was inspiring, the money was lucrative.  But midway through the year, I decided it was time for me to go back to business school.  Reasons to be discussed in a later post.

If I had stayed, I would have earned my way into a relatively easy few million dollars over the next few years.  I knew that.  And I still gave up my equity.  To be clear, I did stay involved with the business over the next few years.  It was one income stream.  But I gave up ownership in order to be free, and have time to do my own things.

People ask me all the time why I did it.  And for a long time I found it hard to articulate.  It just never felt like my thing, or my destiny.  It was Gary’s thing.  It was Tim’s thing.  It was not my trade.  Does that make sense?

Also, maybe it was just hubris again.  Still, I believed that I would find that few million dollars somewhere else, in the future.

Finally, maybe because I just wanted more…adventure?

De-Retiring

My wife and I fully bought into the philosophy of early retirement.  Amass enough financial assets that generate income, calibrate spending so it’s under that, and you’ll be free.

But, we knew we couldn’t be completely idle.  Two years ago, we quit our existing jobs and built/acquired a few online businesses, so that we could each work maybe ~10 hours a week and keep our minds fresh.

In the rest of the time, we’d spend time with our daughter, read, exercise, and do things that were fulfilling.

It sounded great at the time.

But it wasn’t.

What happened is that by going into “early” retirement, my mindset shifted from that of a striver, to that of a maintainer (of the status quo).

The shift is subtle but insidious.  After all, when you’ve reached the supposed finish line, how can the mind or body not help but let up a bit?

I’ve found myself approaching things with less rigor, less intense concentration than before.  I’ve found myself waking up later, making all sorts of excuses for myself – after all, I’m retired!  What does it matter?

Your standards slip because they can.  Your work ethic frays because it can.

Simultaneously, because I’m time rich, I’ve been assaulted by Parkinson’s Law, the principle that things take just as long as the time allotted to it.

With so much time, I procrastinate.  I write down three things on my calendar for the day, and sometimes I have one or two things crawl across the page from Monday, to Tuesday, Wednesday…then to Friday without crossing it off.

And sometimes those things are like, ‘mail a letter’.

The good thing is that with so much time now, I spend almost all my free time with my daughter.  So much so, that even despite all the time (mornings, afternoons, and evenings) I spend with her, I still feel like I’m not spending enough.  Because when I have so much time, why not just spend it all on her?

I feel myself making excuses, because I live in an abundance of time and resources.  I feel myself becoming a dabbler in things, like the active management of our financial assets.

But the one thing I have not become a dabbler in, is in physical training with weights and martial arts, six days a week, sometimes twice a day.  This, ironically, even though I’m at the age where I cannot become world class in either.  I find myself being bested in both by kids half my age (sigh) and I tell myself that it is a natural process of aging.

Again, more excuses.

But what I’ve realized from the physical training?  I return to it every day because I long to see progress.

Progress and personal growth are what I miss.  I miss intensity.  I miss (at least some) pressure to perform.  I miss setting crazy goals and hitting them.  I miss doing more than I thought possible.

All these things associated with work – pressure, intensity, rigor, discipline, etc., etc., are things that bring out the best in you.  And why would you not want to be the best version of yourself, always?

I’ve been looking for all of these things in physical activity, which does not seem like the best goal for a man on the wrong side of 35.

Effectively I’ve shifted from a win mode, to a don’t-lose mode.  In jiu-jitsu, you cannot win in a don’t-lose mode.  You will actually eventually lose.

In life I think it’s the same way.  Shifting into this mode has deep effects.  You become dull by just trying not to lose, or by trying just to float on the cushion created by your passive income over your expenses.  It causes you to think and act differently than when you have a livelihood, reputation, and the service of others at stake.

This mindset shift causes a sliding in your standards.  It engenders fear.  Because now you’re waiting for things to happen, instead of being proactive.

While obsessing over not losing is the primary rule for professional investors, as a general principle I am not sure it is well suited to anything else besides a life of mediocrity.

When you’re in a passive mindset, your standards change.  You’re not looking actively for opportunities.  You’re waiting.  This is lethal for a young person.

This philosophy is not for everyone, obviously.  But I don’t think early retirement is for strivers.  And ironically, I think most people who read about early retirement are strivers.

There’s not much I admire about my younger self, but I look back at the kid that was striving and hustling and willing to do what others didn’t or couldn’t do, and I admire that about him.  Now I wonder what he would think about me.  Because in the fog of the last two years, I have definitely not been doing that.

I did it wrong.  What I should have done, and what anyone else should do, is to reframe this concept of early retirement, which we Americans imbue with quasi-religious undertones: a future imagined state where you’re free of toil.

The reality is that many people die when they retire.  And people suffer from anxiety and FOMO when they feel they’re no longer relevant.

The question is not how to retire, it is about finding something that will lead to personal growth and fulfillment, at all stages of your life.

What you should strive for is not to be “free”, or to stop working/retire.  Again, as with many things, the avoidance of a thing is a subpar solution compared to the active pursuit of a some thing.  I.e., not losing versus trying to win (not working versus trying to find fulfillment).

Always strive for something.

What I should have done was to think just as hard about what I was going to do afterwards and whether I’d truly like it, as I did thinking about the financial schemery that retirement would require.

It’s trendy to bash that old chestnut, do what you love.  This has turned into a favorite straw man among self-improvement gurus and Gladwellian pivoters and unsolicited advice-givers.  Instead, “do what you’re good at”, the correctors say.  “Love what you do”, the inversionists say.  “Follow your effort,” Mark Cuban says.  But the underlying sentiment of it all is the same: find work or activities full of purpose and meaning.

The simple fact is that retirement is boring, especially when you do it when you can and should still work.  And you might not like the person you become when you do it early.  People were meant to strive and struggle against something.

Don’t retire, find fulfillment and joy in your work.  Whatever that work means.  And yes, again, I think people were meant to strive for something.

Strive.

I was foolish.  I’m de-retiring.

A Real Estate Career: Lessons Learned (2009)

I started my own boutique, real-estate focused consultancy, in the first week of September 2008.  You’ll notice that’s about the time the global real estate market – and everything else, by the way – came crashing down with it.

A lot of people have described that period as feeling like the world was ending.  It didn’t quite feel like the apocalypse, I never felt in physical danger.  But it did feel like the world order was shifting, that something fundamental was gone.

You can debate all day long whether or not that’s actually true, but for the end of 2008 and during 2009, I was in a state of confusion and loss.

You might think that given what I wrote about my previous job, I was crazy to branch out and start my own consulting company based on it.  Optically it is so.

But I had a lot of good reasons too.  I had cultivated some good relationships with who I thought were solid clients.  One of them, a savings bank that was running itself like a hedge fund, had promised me and my partners a retainer and guaranteed contract over the next two years, worth a few million dollars.

As it turns out, this particular client then went to jail.  I didn’t know yet that savings banks shouldn’t be running themselves like hedge funds.

Another good client of mine, an entrepreneur-turned-developer, wanted me to help them actually project manage the construction of their theme park.  Moving into an actual implementation and development role sounded exciting to me, after being in the world of theory for years.  I believed in this client, because they were one of the only ones that seemed savvy about the whole game – I was and eye-witness to them wrangling about $600 million in concessions for their project from the government.

It turns out a global financial crisis cuts off funding a little bit.  $600 million in savings means nothing when you’ve lost $1 billion in other commitments, I guess.

The third reason was that I felt that being an independent consultant meant I would be my own boss.  Meaning I could work on other projects on the side.  Because simultaneously with some other friends, I was arranging another partnership focused on real estate acquisitions and development deals in LA.

With my consultancy, I thought I would be making millions.  And with my private equity group, I thought I would be also making millions.  Pretty soon, in a few years, I would retire.  It was a neat little plan.

You might notice that even though I believed the world had gone insane in terms of real estate development, I was still fully committed to the field.

This might sound like a paradox, but it was a true blind spot.  I thought that for sure, the projects that the ‘other’ clients were working on were crazy and wouldn’t work, but for sure ‘my’ clients and projects would work.

This is classic bubble thinking, and you could also call it heavy commitment bias, youthful arrogance, delusion, maybe even a form of insanity.

Needless to say, things didn’t work out that way.

2008 closed out with weekly kicks to the face of bad news after bad news.  I learned all the verbal commitments had been worth nothing.  All the projects I had planned became mirages.  My romantic relationships were blowing up.  At one point, I was earning nothing, and it got so bad that I had to move home with my parents.  Back to the San Gabriel Valley where it all began.

At one point, I became so depressed that I decided to write myself a mantra.  It was about a paragraph long, and I wrote it every day for about two months until I felt like I could actually get up in the morning.  I wish I could find it now, which is another reason to keep a journal.

If you talk to people in my generation in the finance or real estate industries, the ones who were a few years into their career when 2008 happened, we are all a little shell-shocked, still.  It was a defining moment, when suddenly the rug got pulled out from under us.

Everyone still daydreams about another financial crisis.  We still think it might be around the corner.  And we have a huge portion of our assets stashed in cash, not equities, just in case something like this happens again.

This is also probably deluded thinking.

But, there are a lot of ironic things that happen in a complete meltdown.  Things reverse in more ways than one.

I gave up on the RE fund.  My partners there, were less serious, than my consulting partners.  And I needed to focus.

But what happened, ironically, was that 2009 turned out to be my best year financially, up to that point.  This, despite working far less.  This is just what happens when you remove overhead.

Despite all that, I didn’t feel any triumph or joy at the end of 2009.  It still felt unstable.  Besides, I was still working and living at home with my parents, and therefore what I was doing seemed illegitimate.

In the years since, I would reverse my opinion on that, but I was still insecure.  What I’ve realized in the years since, is that companies and structure fulfill many needs for people, but one of them is a feeling of legitimacy.  For me too, for a long time.

Being your own boss is not for everyone.  For some people, being able to go into an office, being surrounded by a corporate structure and procedures, and a predictable routine, just feels more stable.  Seeing all the people around you engaged in the same mission drives you.  And the office, the people, and the purpose, give you the sense that you are part of something stable.  Whether it’s true or not.

But all that is what I missed the most when I first quit to become an entrepreneur.  Being your own boss is hard.  You take ultimate responsibility for everything.  You are responsible for the sales, the marketing, the production.  You determine your own working hours, your work-life balance.  All this usually fills you with anxiety.

And the only thing I can recommend for anyone who is thinking about going independent is to install routines and protocols as soon as possible.  Carve out space for the work, away from your personal life, especially your bed.  Create a workplace, whether it’s real or virtual.  That way you will “go to work” and do professional things as a routine or habit, and not just when you feel like it.

Because you’ll only build a business with the accumulated, compound interest of putting in work every day.  This self-regulation was the single hardest hurdle for me.

With more time on my hands and the funds to do so, I started traveling more.

It’s true what they say about memory and learning.  You don’t know what will stick.  In an International Finance course, I had a professor who left us with some words of wisdom during the last day of classes.

I don’t remember much else about the class, except going to him during office hours with a newspaper of exchange rates, interest rates, and other financial news.  My question was that why was the exchange rate moving in the other direction than as predicted by the models we were learning about?

He smiled and just said it was price movement from trading, and that’s when I learned about how there was a force of human nature called trading that helped violate all neat theories.

Anyway, at the end of this class, he wished us well, and recommended that we should visit two places in the world before we died: Machu Picchu, and Angkor Wat.

And so during my consulting jobs, I went to Angkor Wat.  And as he recommended it to me, I will recommend it to you.  Archaeological sites are fascinating for many reasons, but I love them – and love Angkor Wat the most – because of its Ozymandias and memento mori themes.

An ancient kingdom in the middle of the jungle, rich beyond imagination as attested to by the sheer volume and intricacy of its stone buildings, moats, and storehouses.  Grandeur and glory, extravagance, reverence, arrogance, fear, and ultimately, life – you can feel all of these things in the ancient city, where humans once lived under a kingdom that believed it would last forever.  Built by people whose names we no longer know.

Anyway, so you’ll see that the year was a lot of soul searching for me.

And the last lesson I learned is that, whether it’s with yourself individually, or the world around you, in your darkest and deepest times is when the seeds are being planted for future growth.

You should rejoice and celebrate when you feel like you’ve hit bottom.  The journey down to the bottom is the demoralizing, hard part.

The good part – although it’s not easy – is when you’ve actually hit bottom, because that’s when you’re free.  Freer than you’ve ever been.

And likely, when you make it out again, you’ll be a different person.  You’ll be proud of who you became in the process because you’ll have learned how to fight.  And much, much later, you’ll look back at this young, hungry version of yourself in admiration and wonder what happened.  At least that’s how it was for me.

When I think back on this time, I realize that during that year, when I felt like I had no options left, I actually had the most options ever, since graduating.  I could have literally done anything, studied anything, become anything.  A world order had collapsed, and no one would have said anything to me about a career shift or transition into a totally new field.

I could have, but I didn’t.  I was too fearful – what would my resume look like, what would I do to survive, etc.  In hindsight, these were trivial worries.

I did know I wanted something new, something different.  And I would indeed find it in the years to come.

But at the same time, I was also scared to walk away from what I already knew.

A Real Estate Career: Lessons Learned (2006-2008)

Background: before I graduated from Penn, I was fooling around with searches on Google, which was this new search engine that my gf (at the time) turned me on to.  Before that, I was a Yahoo! guy.

On Google, I was typing in any combination of terms I could think of, that would lead to job openings that I thought were a fit.

As you might have figured out by now, I basically failed the on-campus recruiting system process, with 0 interviews and 0 prospects.  The reasons why are a subject for another and much longer post.  So I was on my own.

Using search terms like ‘analyst’ or ‘research analyst’ or ‘economic research’, I randomly stumbled on various consulting companies, think tanks, and research shops.

The particular search terms I used also led me to a company somewhat boringly called Economics Research Associates.  Despite the dry name, ERA was a theme park, resort, and casino real estate consulting company.  They worked worldwide in exotic locations.

It looked exactly like my type of company!  So I applied.

And this is nothing but a story of persistence.  At the time, I was told there were no positions available, but over the next two years I kept in touch.

Sometimes I called them to let them know I was still interested and had “built some skills” [lol].

And other times they called me.  One time a partner called me when I was in a car with a date and I had to drive erratically around and ignore her while doing an impromptu interview.  By the end, I was sweating profusely and not surprisingly, the date did not go well.  Struggles.

Midway through the summer of 2006, a partner of the firm called me and offered me an interview.  The interview led to a job offer.  I said I would think about it (ha!), and “accepted” a week later.

On the first week of the job, they put me in a business class seat and flew me to attend a presentation in Asia; at this presentation, the governor of a large province declared that he wanted to build an F-1 track, a few casino resorts, two theme parks, and twenty-thousand hotel rooms.  Actually, he wanted more than that, and said that the original plans were too small.

So…I had entered the peak bubble zone.

Now to understand what that was all about, you have to understand what ERA did.  ERA was a staid old consulting firm with partners who were in their 50s to 70s.

ERA was started by the original economic consultant to Walt Disney when he built Disneyland in 1955, and for the next 50 years, the firm was the official consultant of choice to any developer, government, or operator who wanted to build or expand leisure real estate operations.

Our job was to validate the financials and make sure the projects would work.  To perform feasibility studies.

That meant that over the next two years, I sat in a clearinghouse of insane real estate ideas.  Again, this was peak bubble.  This meant that every week, we would be bombarded with plans, sketches, and visions of any conceivable leisure entertainment land use you could think of.

If you remember back to this time, this is when Dubai was announcing a new ludicrous project every few weeks, from the Palm and World Islands, to the tallest tower in the world, to malls larger than cities, and mega theme parks larger than Disney World.

But what is less known, is that it wasn’t only Dubai back then.  It was everywhere, from Iceland to Cambodia, Korea, Mississippi, Spain, Cabo, Kazakhstan, Russia, India, and everywhere in between.

Everywhere but China.  China’s time would come after the financial crisis.

I saw drawings of 100 square mile theme parks, sphere-shaped casinos floating in water, and plans for assault rifle-themed or guitar-shaped theme parks.  I saw 100-story buildings in frontier market cities, biofuel farms, and resorts on deserted islands in the middle of the Pacific Ocean.  Every month, someone out of our Europe/Middle East office would send a Powerpoint deck full of pictures for projects in Dubai, with question marks and exclamation points and icons of oil barrels next to them.  At the risk of this sounding like a Ginsburgian “Howl”, let’s stop here.  But you get the idea.

I often think about why there was such a theme park craze during this time.  It seemed like any real estate developer or government was planning one.  I can only posit that it’s because every place in the world had borrowed the Dubai philosophy, which had borrowed it from Las Vegas – build it and they will come.

Before, I mentioned that the Marcus & Millichap San Diego presentation from 2004 should be enshrined somewhere in the Historical Annals.

Equally, any theme park, attraction, or real estate development presentation from this period should also be nominated for the canon.

I shuffled and sat through countless numbers of these: presentations featuring glossy color renderings of buildings that defied physics, and video fly-throughs set to cinematic soundtracks, all meant to hypnotize the viewer into submission; i.e. parting ways with their money.  If you can find them, I recommend sampling the 2007 vintage, which was a particularly ludicrous year.

According to my humble estimate, the total amount of mirages projects being proposed in this manner, coming through our doors alone, totaled more than $100 billion.  Just in Korea, where I was flying almost every month, more theme park projects were being proposed than existed in Orlando.

All this dreaming wasn’t free.  The cost for our services was in the six-figure USD range, so people were dedicating real resources to these projects.  And where was the money coming from?

Who knows.  It was like a spigot in the sky was turned on and the whole world was drinking from it.

Which brings me to the first thing I learned, which was a reinforcement of what I’d been learning since Marcus & Millichap.  Which is that once in a while, the world goes mad.  Actually, the world is probably always insane, and it’s your ability to recognize the lunacy that ebbs and flows.

Also, that there’s no one really in charge.  You think the adults are in charge, but they’re not, they’re nowhere to be found.  No one knows anything.

When I did the analysis for these projects, most of them simply couldn’t work.  It was impossible, unless you extrapolated out economic growth of 10% indefinitely, or you assumed population growth would double, or similar types of leaps of faith.

But, clients simply refused to believe us.  Entire teams of developers had bought into the notion that their fantastic visions were valid, and that they were going to make spectacular sums of money from it.  They had dug in already.  They had hired teams of analysts and drivers, rented out expensive office space, and already spent millions of dollars on designs and licenses and studies.  This is when I truly saw the fallacy of sunk costs at work.

So sometimes clients received our reports and turned it into a negotiation session.  Because they were going to present the report to the government and investors, they needed to juice the numbers past our single-digit return figures.

And it was during this time I realized the truths about Excel that I wrote about in the previous post.  Because they were being used on me.

All clients in some way would argue with us, but some more than others.  One client in particular, in response to our report, sent back a fifty sheet Excel workbook that had reverse-engineered the logic from the study, and plugged in so many variables and cross-linked assumptions that it took me a day to figure out that what they were really trying to say was: the project would make money in the 20%+ range, unlevered, because it would sell out enough villas and golf course memberships in the middle of nowhere, to fund a billion dollars worth of construction costs.

From the outside in, you could see the lunacy.

But maybe from the inside, it’s hard to just reel it all back in, isn’t it?  More on this later.

Also, again, money: money amplifies, it buffers, it can shield and hide a lot of things.  And during a bubble time, money expands like a balloon into cracks and allows you to ignore reality.

Everyone is making extravagant claims, and money allows you to delay the moment of truth.  Another thing I learned related to this.  Times like those breed a lot of crooks and swindlers.  But you don’t know who they are, because during bubbles they can keep financing their schemes and extravagant claims.  As Warren Buffett says about the tide and that only when it goes out can you see who is swimming naked.

It’s only when the bubble pops that you see it clearly.  Anyway, two of my clients from this time went to jail.

Don’t get me wrong.  I think more clients than that went to jail or got in trouble in their home countries.  But these are the only two I interacted with.

I think the common thread between them was that they were both good talkers.  Good talkers and sellers sometimes start believing their own…exaggerations.

Having interacted with both of them for extended periods of time, I don’t think either set out to commit crimes.  But when you start talking about visions that are outside your reach, and money is widely available, things happen.

Your exaggerations spawn fractally, and so do your promises.  It slowly creeps into the future, first one year, then five years, then ten years.  Your sums grow from 5%, 10%, to 50%.

In your own enthusiasm, hallucinating from your IV drip of capital, you start making promises you want to fulfill.  Not promises that you know you can.  It’s a fine line.

After all, what is a Ponzi scheme but an infinite daisy chain of claims that stretch far into the future?  It’s sustained by nothing else than belief, and sold by sellers who can persuasively sell others on their visions of the infinite future.  And cheap money delays and delays.  That’s one of its primary characteristics.

And that’s all I can say about that.

Personally though, about two years into the job, I hit a wall.  The work was not making sense and I was getting metaphysically anxious.

Beginning in 2008, I could see stirrings of economic fallout.  Bear Stearns had failed, and some of the economic news I’d been reading about mortgage brokers made me uneasy.  I had no idea what was going to happen, but I couldn’t help but think that this stuff was not going to last.

It’s hard to express my sentiments during that time.  I keep writing this, don’t I?  In 2007, it seemed like we were having an End of World Party.  Then in 2008, we started seeing the fault lines.

Simultaneously, ERA was getting acquired.  Talks for it started in 2007, and rumors were circulating about the implications.  Mostly about the bad implications, like restrictions and new evil overlords.

So during the summer of 2008, exactly two years after I began, I made the decision to leave and go independent with some partners.

I didn’t know that in the week I quit, Lehman would go under.  Sigh.  We’ll continue with that in the next installment.

To close this out though, let’s talk about what happened to the company, because I learned a lot from it.

After ERA was taken over at a high multiple, and the financial crisis happened, 29 out of 30 partners either quit or were fired.  The once-proud, established firm then just became a carcass of its former self within 2 years.

From the outside, I could see it disintegrating in slow motion.  Inexorably, but still happening.

Honestly, I was quite surprised when I left, and no one else left with me.  This is not me applying 20/20 hindsight.  You could see that 90% of our work was for clients who were chasing clouds.  You could see that there were cracks appearing in the real estate markets, everywhere in the world.

I didn’t know where I was going, but I knew I didn’t want to see what happened, so I left.

A few years later, I worked with an older investor named Larry who mused, often, that companies are hard to kill.  It’s hard to kill a company, he would say, shaking his head, as he talked about his failed businesses.  When he said this, I would always think of ERA.

I left because I thought the company would blow up.  But it didn’t.  It took a while. a year or two, before it all fell apart.  Companies are groups of people, and groups of people who are not nomads don’t just pick up and leave overnight.  Even when from the outside it looked like there was no way this company could survive the Lehman fail and the resulting financial crisis, people still hung in there.

From the outside, it looked like people were huddled.  Maybe out of fear.  Maybe because this is all they knew, and it was a family.  Maybe because from the inside, there was a sense of comfort in seeing that the same people in familiar surroundings.  In peoples’ heart of hearts, maybe they knew – but they didn’t want to face the reality.  Familiar chord, isn’t it?

It took a lot longer to disintegrate than I thought it would.  But its end came, and it was a long, sorry fall.  In its corner of the amusement park industry, ERA was a giant, a monopoly.  And because it was a monopoly, a lot of things had happened to the company over the years.  For one, there was widespread complacency.

For a company that charged McKinsey-level rates, I couldn’t believe that the company still didn’t have a central database or repository of knowledge.  There were relics in our office that again, I should have saved or asked for, because they should be enshrined in the Annals.

Typewriters from the 1960s.  Dewey-decimal card systems for a physical library of brochures, books, encyclopedias, and reports, many of them terribly outdated by decades.  Brochures from World Fairs during the 1960s and 1970s.  Reports and relics from failed Japanese theme parks of the 1990s.  Secretaries who took down dictations of reports and emails/letters by older partners.  On typewriters.  Older partners who off the top of their head could dictate 5 to 10 pages at a time.  Slide rules.  11×18 spread, sheets.  If you don’t know what that last one is, think a notepad of graph paper-like cells in them, except wider – basically like a physical version of Microsoft Excel.  And partners who would take a No. 2 pencil, do a cash flow, and do the sensitivity analysis by writing a different variable at the top and erasing/replacing each individual cell on the rows below it.

The office was a hybrid of a Mad Men set and a modern workplace.  The first day I joined, I introduced myself to a 70-year partner who guffawed, slapped me on both cheeks, and said it was good to have some young blood in the office.

But I mention all this because if nothing else, the company is a case study for the power of a brand.  Having a brand that was present at the creation myth (Disneyland) of the entire industry gave you immense value.

The value helped the company coast through a decade or two in a state of inefficiency.  This was the beginning of when I began to realize things about companies.  Like the fact that a larger a company gets, the more latitude there is for inefficiency.  Again, companies are groups of people.  Is it harder to kill 2 people working out of a garage or a band of 100?  Probability-wise, unless you’re a company like Instagram, I’m choosing the latter.

A brand markets for you while you sleep.  A brand allows you to charge hundreds of percent premiums.  A brand allows you to coast and smoothes over suboptimal product quality – although you shouldn’t do this.  But always do try to build a brand.

But, probably because of its brand, the company had become complacent.  Some of the analyses were trash, frankly speaking.  Some of the partners had checked out, a long, long time ago.

And maybe that was the biggest lesson of all for me.  And when I think about it, it’s perhaps the real underlying reason I left – seeing that complacency in a lot of the people, I realized it’s not what or where I wanted to be.

A Real Estate Career: Lessons Learned (2006)

After about a year at the brokerage, I moved across the courtyard of our office-industrial complex to a smaller shop where I became a monk at the temple of Excel.

In retrospect, before I left, I should have tried to become an agent and at least do a deal or two and actually deeply understand everything from the lead stage to closing.  I understood it better than most, but not as much as I could have.

But I didn’t do these things.

It’s hard to articulate my thinking at the time.  I was naive and arrogant/blind.  I mentioned before that because of the tremendous amount of money some were making, they either felt guilty or like it wasn’t theirs.

For me, looking at the tremendous amount of money others were making, sometimes working 5 hours a week, it gave me the impression that money was abundant, and that to earn it required little skill, and more like random optionality and knowing the right people.

I also should have tried to learn more from the actual hard-workers in the office, like my boss Greg.  But partly because he was never in, and partly because I was arrogant and blind, I didn’t.

So now officially, I became an analyst at Del Mar Equity Partners, a TIC sponsor.  This means nothing to anyone outside of real estate, but it suffices to say we were basically an investor looking for good deals, and syndicating them out to a range of other investors.  Like doing a group-buy of real estate.  And making some money in the process for being the originator.

In practical terms, this meant I moved from an office of a group of 15 young hooligans doing eating competitions, boxing matches, arm-wrestling and push-up tournaments everyday, to a sedate environment where I worked with only two other people – my boss, Martin, and an administrative assistant.

This provided much less pandemonium, and less time devoted to psychological analysis of extreme humans, but things were no less entertaining.

Since agents and brokers around the country knew we were a source of capital, we got bombarded with deals.

Some of these deals showed up unsolicited in the mailbox in the form of postcards and too-good-to-be-true brochures.  Others showed up in my inbox, with rent rolls attached and scarcely any explanation to them.  Some of these deals made sense.

Others did not, like deals where you were supposed to invest, and you got no money or any return for a few years, and then at the end you got an unspecified return on the appreciation of the property.  Like a zero-coupon bond.  Except even riskier, and again, no guarantees on what your principal was worth at the end.

And sometimes people called.  Sometimes I would get calls from guys who sounded like they were working in boiler rooms.  Some guy with a wiseguy accent would call and ask me if I wanted to hear about an opportunity.  Then if I said yes, he would ask me if I was ready, if I really wanted to hear about the opportunity, if I was really ready or not.  It sounded like these fluffers were trying to get me to stay on the line until they called the real closer over, but I never stayed on the line.

Anyway, for the next six months, I became a master technician of Excel.  Not a master real estate analyst, understand: a master technician.  More on this later.

My job was to model out the deals we were getting pitched.  This meant I had to model a few dozen a week.  Now looking back at it, I spent those months doing what I thought at the time was ‘analysis’: filtering dozens of deals a day, modeling them, and recommending the ones that ended up with good returns.

But what I was actually getting good at was not analysis, nor real estate evaluation.  It was Excel.  Partly because of the sheer volume of deals, and partly because of the sheer time I was spending with the program, I became obsessed with Excel itself.

I started slowly by implementing functions like dynamic rent bumps, and probabilistic Monte Carlo simulations on rents when the leases rolled over.  I implemented arrays and quintuple nested functions referring to INDIRECT and OFFSET cells.  I had macros that pulled in information from demographic sources to update assumptions.

It had become my goal to model the behavior and performance of a building, to recreate it in a small file sitting on my laptop.

This wasn’t analysis at all, and this Excel work itself didn’t actually help me become a better investor.  What I was doing was ascribing Excel with an intelligence it didn’t have, and hoping to imbue this construct with decision-making and analytical capabilities.  It was intellectual laziness, in a way.

If I could have this period back again, I would: conduct more interviews, do actual on-the-ground research, talk to owners, brokers, shopowners down the street from the building, in the name of articulating a thesis on different markets/types, and then test these theses continuously.

What I’ve realized ever since, is that in real estate, doing an initial filter on a deal is not some arcane exercise of testing 100 different assumptions.

It’s an exercise in evaluating maybe 5 core ones, like cap rate, rents, growth, supply, and expenses.  A good investor will probably only spend five minutes on the back of an envelope filtering a deal, and if it passes, then spending 95% of the time testing these core assumptions with research.

I didn’t know any of this yet.  I didn’t have a filter system so I was looking at every deal like it was some sort of abstruse puzzle that could only be unlocked with my magical tool, Excel.

What I was lacking was critical thinking, big picture thinking, and thinking from first principles.  Anyone can learn or be taught to become a technician.  Becoming an actual analyst requires you to think.

I didn’t know how to think yet.  I didn’t have a view of the analysis I should be doing, and because I thought that just “doing Excel” was the whole job, I was bored, frankly speaking.

And so I left this job too, six months after joining.  We did two deals when I was there, out of the hundreds I had scoured.  In retrospect, that’s a lot for six months.  But in my naivete, I thought it was too little.

Also, one of the deals was literally nothing more than an off-market property that we flipped within a few months, sight-unseen.  This deal just about sums up both my experience there and the spirit of the time.

I left because in a sense, I thought there was no more growth opportunity for me.  And I believed it for a while.  Only in recent years have I realized it couldn’t be further from the truth.

In any kind of job, there is a wide range of ‘winging it’.  Because I had only worked at small companies and everyone kind of did everything, I thought (at the time) that this prevented me from falling into a ‘winging it’ mentality.  After all, I did what was assigned to me and did it well.  But I was still in a lazy zone.

In any job, there is a level of performing the job that is beyond just doing the job.  This level is thinking like an owner, like you have something at stake.  Thinking like an owner will open your eyes to new opportunities, because you’ll understand the opportunities and constraints, and how decisions are made.

In the years since I’ve worked these first two jobs, I’ve come to believe that unless you start thinking like an owner, you have no real knowledge about your business or industry.

And the way you know whether you’ve grown as far as you can grow in a job is, can you do the owner’s job?  For me, the answer was no, for both jobs.  Therefore I hadn’t tapped out my growth potential.

But back then, I didn’t realize any of this yet.

I quit and for a time I was jobless.  And a little directionless.

I interviewed at a surf company.  I remember walking into their Orange County office in business casual and drawing stares, because everyone else was in t-shirts and shorts.  Talk about a game theoretic exercise: do you dress down for a job interview at a surf company, potentially disrespecting the interviewer, or do you dress up, and run the risk of looking clueless?

Anyway, I didn’t get the job, but the interviewer did give me a new wetsuit as a sort of compensatory prize.  It was a little small for me but thicker than my existing one, and better for winter surfing.

Now we were in the summer of 2006.  After a few months, I was going to be in for a real treat.

A Real Estate Career: Lessons Learned (2004-2005)

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.