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 (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.