Real Estate Nerds 15: Best Deals

Raising Capital and Running Investment Pools

Joel Block

Hedge Fund Manager

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New and seasoned investors alike spend a lot of time worrying about capital. But according to today’s guest, once you learn how to raise capital, you can raise capital for anything. Venture capitalist Joel Block was raising capital initially for real estate. But once he learned how to tell stories and put the package together, he fell into venture capital transaction, which he raised about $10 million for–a path that led him to selling financial service packages on Wall Street. After selling that business to a Fortune 500 in 1995, he started investing in other companies and has been involved in about 40 different transactions since. When the market crashed in 2010, Joel saw opportunity where other investors saw disaster. He went back into real estate and started buying, which was ultimately a profitable decision. Joel says he now takes everything in stride. He joins our host and real estate attorney Scott Smith on this week’s episode of The Real Estate Nerds Podcast to talk about venture capital, real estate syndication, and investment crowdfunding. He shares some of the best deals he has experienced in his career so that listeners can copy the habits that have led to his success.

Joel Block’s Best Deal: A Lesson in the “Show Business” of Negotiations

Scott welcomes Joel onto the show. The two investors discuss Joel’s transition into real estate and the legendary best deal of his life. But it wasn’t without its issues. At one point, they were considering backing out, but were able to recover and profit through skillful, deft negotiations delivered in a style that rivaled the Ringling Brothers in terms of theatrics. Learn the details below or by tuning in.

[1:00] Joel started out as a CPA but wasn’t totally fulfilled. While he wasn’t a fan of the tax work, he enjoyed reading partnership agreements and was drawn to the real estate agreements. He met a partner and decided to go into real estate for himself. He fell into venture capital and quickly learned an important lesson: “Once you learn how to raise capital, you can raise capital for anything.”

[1:54] His experience in real estate gave him the skill set to develop and sell a financial services company.

[2:45] Scott asks about how Joel originally got into his best deal. The deal he’s talking about was early in his career, which he believes in common: “I think some of the best stories happen early in your career, because everything is extraordinary then.”

[3:11] Though he’s been a part of many great deals, including the sale of the firm that enabled him to go into real estate, he’s here to discuss his best real estate deal.

[3:30] After quitting his CPA job at Price Waterhouse, Joel started a property management firm. A shopping center in suburban Los Angeles needed to be improved, and had very low rents. The owner contacted Joel and he agreed to buy the property at only 26 years old. This deal happened in 1987.

[4:19] He bought the property for $2.2 million. They had to get mortgage from the bank and investors on board: “We had nothing. All we had was a little teeny line of credit from the bank, only about $25,000 between two of us guys.” They signed the contract, and Joel had only done one deal with his partner prior, and this was a far bigger deal.

[5:00] Investors laughed at him. Joel realizes in retrospect why:  “Here’s the thing about young people: You’re too stupid to know any better, and that’s actually an advantage because you’re not afraid.“ But they were afraid, and started to look into reasons to back out, considering they’d just spent all the money they had on the deal. His seller, the older woman who had received his $25,000 by contract, was certainly not going to give him his money back either.

[6:00] Scott and Joel had a funny exchange about this situation. Scott: Damn, grandma took you to school! Joel: Yes, we absolutely got schooled by an old lady.

[6:30] Joel and his partner went back to their office, discouraged. They decided to call an inspector to check the property for asbestos, a hot topic in the late 80s. The inspector found trace amounts, but since there were no standards at the time, the investors were able to schedule an emergency meeting with the seller, her attorney, and all other parties with a stake in the deal to discuss this finding.

[7:30] The investors played up the drama: “We had to put on the best show we could put on. All you have to do is go to a Ringling Brothers circus as a kid to know everything you need to know about show business…We were determined we were going to bring a 3-ring circus to this deal, because it was a really big problem.”

[8:30] The 25 and 26 year old partners told the attorney point blank that they couldn’t buy the building because of the severity of the problem. He made it clear that he couldn’t be held liable for everyone in the building getting sick from asbestos–and absolutely floored the attorney. Fortunately for the young investors, this particular attorney had just gotten his ass kicked in an asbestos case days prior.

[9:30] Joel can only assume that the attorney. When they returned to the room, they informed the attorney the asbestos decontamination would cost at least $400,000. The attorney agreed to give it to them, reducing the property’s total price to $1.7 million.

[10:00] Because of this courageous negotiation, the property ended up being incredibly profitable for the two investors.

[11:00] Scott is impressed by Joel’s brave tactic and asks if this is common for him. Josh  replies: “I’m a professional negotiator. It’s what I do…I look at the situation and deal with it in the way that it needs to be dealt with.”

[12:00] Scott points out that the attorney slipped up by not being familiar with what “trace” asbestos meant. This was in part a product of the time, but proved to be a critical error. The asbestos was under 1% and was unlikely to create the dramatic results Joel implied.

[13:15] While the two investors wanted out of the contract, the asbestos negotiation motivated the seller to do whatever it took to sell the property to them. While Joel and his partner originally just wanted their $25,000 back, they ended up getting a great deal.

[14:15] Scott and Joel discuss the value of “go big or go home” negotiations. This situation informed Joel’s book for entrepreneurs, which you can find out more about below.

The Takeaways: Be Courageous, Creative, and Resourceful

Joel and Scott wrap up the show by sharing their personal greatest lessons learned from Joel’s story.

[15:05] Scott shares the lesson that resonated most with him from Joel’s story: “The excitement of getting into a deal, in this case maybe the wrong deal, can really be turned around with some unconventional tactics.

[15:30] Joel shares that if you want to use other people’s money, you should protect it like it is your own–among some other tips for generating capital and creatively funding investments.

[16:30] Joel shares some of the resources he has available for investors learning to generate capital, create a serious real estate investment business. He also extends an invitation to his Symposium this year, with our host Scott Smith has intended. Scott noticed the wealth of insights into business models and the value networking with the individuals there. This is not a sales experience, but a networking opportunity to expose investors to some of the best in the field and take advantage of their knowledge.

Connect with Joel Block

Connect with Joel Block through his website, www.BullsEyeCap.com. If you’re interested in attending the Symposium discussed at the end of the show, you can learn more about it an dsign up at  DealMakingSymposium.com.  Joel also offers many excellent products based on his experience in the real estate and venture capital industries. If you’re pursuing financial freedom or a more efficient real estate business, definitely check out his book Stop Hustling Gigs and Start Building a Business. That book happens to be on our host Scott Smith’s personal reading list, and could make a great addition to yours if you’re ready to kick your real estate business up to the next level. Listeners can also check out Joel’s podcast to hear more of his insights.

Listener Resources

Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.

For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook.

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Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions. Schedule your personal consultation now. If you have questions about our content or suggestions for future episodes or guests, reach our podcast team at [email protected].

About Joel Block

Money business insider, Joel is a long-time venture capitalist and Hedge Fund manager who addresses audiences from Silicon Valley venture firms to Wall Street bankers on capital formation and most recently, on Investment CrowdFunding. Twice annually, Joel hosts and headlines the standard-setting Real Estate Syndication and Hedge Fund Symposium, helping CPAs, attorneys, investment bankers and asset class specialists to organize and run investment pools. Having organized and invested in over 40 deals, and having advised on hundreds more, Joel is a resource not only to the private securities industry, but to attorneys and courts of law who seek his expert opinion. And though he doesn’t admit often, Joel is also a CPA.