Real Estate Nerds 62 | Asset Protection for Real Estate Investors : Royal Legal Solutions

Real Estate Nerds 62:
Bad Beats

"Optimism, Financial Crisis and Redemption"

Jorge Newbery
Founder & CEO, Debt Cleanse Group Legal Services
Real Estate Nerds
Episode 62: "Bad Beats"

Are you in some debt or ever worry about if everything goes “belly-up?” Jorge Newberry started his investing career in the 90’s and found his trademark to be picking up distressed properties on fixing them. His optimism grew with his success, until he met his match with an 1,100 unit deal for a distressed property known as “Uzi Alley.” Weeks after rehabbing the property a storm caused damages that his insurance refused to cover. Instead of cutting his losses, Jorge went “all-in” and eventually lost the property after accumulating $16 million in debt. Jorge is now slowly rebuilding and paying off that debt, sharing his wisdom and debt knowledge forward.

Optimism, Financial Crisis and Redemption

[1:00] Scott introduces Jorge and they break down Jorge’s early investing career.

  • Jorge started investing in real estate with a 4-unit in 1992
  • Jorge continued purchasing more properties, owning over 500 units in LA after just a few years
  • Jorge then purchased the Ford Hotel, setting the stage for his “Bad Beat”

[2:58] Jorge explains his original goal when purchasing property: he aimed for the most distressed properties he could get his hands on for cheap!

[5:00] Jorge talks about how this Ford Hotel emboldened him to take on even more troubled properties – he thought he could take on the world! Or so he thought…

[5:25] Columbus Ohio deal: 13.5 million dollar deal for a distressed 1,100 unit complex covering 54 acres of distress. On top of this, he decides to move into “Uzi Alley.”

[7:00] The problems Jorge faced with this bad beat

  • There was a security company that he used which was predominantly white and even had their own “jail” holding house. Jorge fired the white security force and hired individuals who were more representative of the area.
  • Jorge also started a 2-week school to train residents to help with the remodel work. This was a huge success!

[12:04] Within weeks of the renovations being completed there was a devastating ice storm!

  • 40% of the city had no power for 4 days
  • Temperatures sitting at -8 degrees
    • Freezing and bursting water lines
  • No electricity, heat or water on his property

[13:30] Insurance denies the claim

  • Scrambling to sue insurance company
  • Pulling loans on the “good” properties to cover expenses and the law suit

[15:00] City jumps on the opportunity to try and close out the low-income housing

[17:15] Jorge recaps the whole situation

  • Lost the property to the city
  • Lost the majority of most everything he owned
  • Ended up with $26 million in debt, which was personally guaranteed

[18:30] Current projects for Jorge Newberry – how he is paying off his debt one loan at a time

[19:15] Lessons learned

  • Let each building or asset stand on its own
  • Don’t only rely on insurance companies, since they challenge big claims
  • Just because you owe money doesn’t mean you can’t still negotiate lenders down

[20:58] Jorge discusses the issues with insurance

  • Insurance companies understand the longer they make you wait, the more likely you will accept a smaller settlement
  • The painful reality of being in litigation while dealing with the problems that initiated the litigation

[25:40] Jorge explains how he believes each property should be in it’s own LLC, separate from other investments

[27:00] Hindsight: Jorge believes he should have just closed the property as soon as insurance refused the claim.

[28:55] The intense optimism that set Jorge up for his success was also his Achilles heel. He was so confident in his ability to succeed!

 

[31:10] How to connect with Jorge

  • Debtcleanse.com

Listener Resources

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Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions

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