Multifamily Housing Trends 2020 with Neal Bawa on the Data Driven Real Estate Podcast

Neal Bawa, a multifamily real estate investor talks about the changes he’s experienced with Grocapitus, MultifamilyU, and selling his technology company to get into real estate investing.

From the family pariah to the most popular data geek at the party, learn the data-driven approach he uses to identify the best up-and-coming cities and neighborhoods for real estate investing in the single-family and multifamily real estate space.

Neal shares his journey from constructing commercial to investing in single-family homes and back to commercial real estate. Now managing 2,000 commercial units nationwide, Neal talks about multifamily and commercial trends in a post-Covid world. Who will be the winners and losers in the game of real estate?

Show Topics

• 00:47 How Neal Bawa went from technology to real estate
• 03:15 If you can build in this state you can build anywhere. Name that state.
• 04:33 The journey of commercial construction to single-family investing
• 05:11 Why Neal’s family disavowed him in 2008
• 06:04 The one piece of data Neal was looking for on real estate in every city he was considering
• 06:48 The power of technology, Zillow, and a hacker
• 07:46 How the real estate data turned into a day trip to Madera, CA and the big discovery
• 09:03 Why a builder had to sell a property that cost $180,000 to build for $90,000
• 09:43 An amazing deal on ten new rentals with a huge problem and how Neal solved it
• 13:25 The biggest mistake was listening to one particular “expert”
• 14:38 Does being data-driven in real estate investing keep you out of emotional investing?
• 17:38 Creating a 3,000-city database on city data trying to find the data on where to invest next
• 19:04 The accidental real estate data educator
• 26:09 The five key data points that matter most in identifying a great city for real estate investing
• 27:22 Why looking at city metrics and data isn’t enough to select your next investment locations
• 27:54 Why neighborhood data is more powerful that city data alone
• 30:00 Correlation between poverty and delinquency and retention rates in real estate?
• 30:59 How student housing impacts real estate data
• 35:06 The concept of the corridor and identifying the next investing location
• 35:38 The Corridor of Opportunity and Neal’s three favorite hot real estate markets
• 37:20 What makes a great city for real estate investing?
• 37:58 The concept of compression and path of progress for real estate
• 40:15 Secondary markets and issues with them being the last to appreciate in a boom, the first to go bust, and the last to come back
• 40:54 The potential long-term positive change coming to real estate because of Covid-19
• 42:52 Where money from the retail meltdown with gravitate toward real estate
• 43:26 Volume of people that may exit big cities like San Francisco
• 46:04 New York landlords are offering two months of free rent for new tenants.
• 47:12 What comes first, a great city culture or people moving into a city?
• 50:18 Could Chicago go bankrupt?
• 53:10 How to select the right real estate assets in a city
• 53:25 Three real estate types that may have unique issues due to Covid-19
• 54:35 Student housing could do well during Covid for one key reason
• 55:11 The one asset class that will thrive as retail suffers
• 56:31 Will Amazon’s investment in robots impact our need for more industrial real estate?
• 58:54 How Covid is driving suburbanization and decisions businesses are making
• 1:00:33 Is Covid impacting Opportunity Zones investments?
• 1:02:42 An important risk factor to watch when investing in an opportunity fund in an opportunity zone
• 1:04:33 What is the one thing that keeps Neal up at night?
• 1:07:32 Neal’s favorite sources of macroeconomic information.

Show Transcript

Aaron Norris [00:00:02] Everybody, welcome to the Data Driven Real Estate Podcast, the podcast for real estate professionals dedicated to driving business success using data. I’m Aaron Norris. And today we are here with Neal Bawa. He is with Grocapitus, founder of Grow Cabinets, a commercial real estate investment company. He negotiates and acquires commercial properties across the US for nearly 500 investors with a portfolio of over 2000. You’ll also serve as CEO of multifamily, an apartment investing education company, and you can even catch his work on you to me. So welcome, Neal. Nice to see you.

Neal Bawa [00:00:35] Thanks for having me on the podcast, Aaron. It’s so exciting to be on a podcast that has the word data in its name. It’s like, wow, I think I’m a fit for this. I think I’m a fit.

Aaron Norris [00:00:44] Yeah, yeah, yeah. You know, a few things about data and technology. So let’s back up a little bit and talk about your background. So it’s not in real estate. It’s in technology, right?

Neal Bawa [00:00:54] It is. I mean, you know, most people that get into real estate start, you know, with either private lending or maybe they do a fix and flip or maybe they, you know, buy a rental. In my case, I got into real estate in reverse. My first project was a six-million-dollar new construction, custom-built Apple-style campus that my tech company built for me, for us. So, I mean. And the way it happened was, you know, I’d been running a company for 12 years and it had grown by leaps and bounds out. You know, our staff count was up 20 X from when back when I started. And we were doing so well that eventually, the CEO of the company and the senior partner I was a junior partner with said we are not going to be renters. We want to be landlords. We want to do this ourselves. And I’m like, yes, that’s really an awesome idea. And he’s like, you’re going to build our new campus. And I’m like, all right, I haven’t even done, I haven’t even rehabbed my own house where you’re talking about. I don’t know anything about this. You can’t we can’t build anything from scratch. No, no, no, no, no. Don’t worry about it. I know a lot about it. I’ll mentor you any day. I mean, he knew tons. And so, you know, basically, that started this 12-month timeframe in 2003. It was nightmarish. What I went through it because we were running this company that was growing 30 percent year over year, which already is very hard to do. So eight to six-year on a company and then from 6:00 PM to 2:00 AM we’re real estate guys planning and building a campus from scratch while running our company. And I have to tell you, I bitched and moaned and I complained in every way possible for 12 months. And I haven’t started I haven’t stopped thanking Paul for the last 16 years. I mean, it was such an incredible learning experience. I look at these indicators. They’ve been buying multi-family for ten years and they don’t know how to build one from scratch. Right. And I have that experience of actually knowing things like, you know, what is the air conditioning and cooling flow for a particular area where the fire door required requirements? I mean, there are a million things in the background. People know that there are some rules, but they don’t know why these rules exist. And so I had the incredible fortune of starting my real estate journey with this. It’s almost like a master’s degree in real estate construction in real time. You write lab-only notes. No, no theory. Right. And so that’s how I got started. And then it just sort of, you know, the ball was sort of rolled from there.

Aaron Norris [00:03:15] Was the building in California as well?

Neal Bawa [00:03:18] It was. Which meant that it was twice as hard to do. Right. So it was in Fremont, California, which is Silicon Valley. And, you know, there like just as you’re done with their book of rules, they’re like, oh, but we wrote this new book last week. Wait, wait. We’re going to send it to you now. Right. So yeah that’s California for you. So one of the biggest things I learned from that and by the way, we ended up building six campuses. Right? Right. That was kind of just the beginning because it was such an explosive success for our business to build a custom campus for our needs. It drove our business like real estate, which usually doesn’t drive technology businesses. But in this case, it did. And so we ended up a building or partially building six different campuses. As we were building those out, you know, I learned that it’s a terrible idea to be building anything in California. So while I love California, I live in California. Now, when I’m building, I’m building a 240-unit building, 117 units. They’re all outside California because there’s so much easier to build and the risk is so much lower. So, yeah, those are going to California. Just don’t like building here.

Aaron Norris [00:04:20] A lot of public builders would say the same thing. And we were talking to John Burns about that two sessions ago. So I don’t blame you, but the commercial is how you got started. Did you… How long did it take you to make the switch?

Neal Bawa [00:04:33] Well, I did a weird switch, so I went commercial, then single family, then small multifamily, then very large multi-family. Right. So it was kind of four steps. And I’ll tell you, my story, actually that part of my story is interesting. So I love telling that so. So I see all this stuff that’s happening with this commercial building. I see the depreciation. I’m like, this is insane, man, that the benefits and real estate are almost like cheating. Right. This is the first time I’ve really been exposed to this. And guys like me, the big fat tech salary people. Right. We’re making a lot of money. But not keeping a lot of money, right? We’re giving 50 percent of it away to California, to the Feds. And so all of a sudden I start seeing the depreciation benefits are like, oh, this is awesome. Right. And so by the time I get to that point where I have the money to invest in it, it’s already late 2008. So the world’s falling apart. All sorts of bad things are happening. My family’s telling me that I’m the world’s greatest idiot for looking into real estate. I’m like, no, no, no, no, no, numbers, numbers. And they’re like, what numbers are you? You’re an idiot. Don’t buy real estate. Right? So my family pretty much disavows me because they know that late in 2008, all of my evening time is spent doing research into real estate. Right. All like data stuff. And I keep throwing Excel spreadsheets at them and they keep throwing four-letter words at me. Right. So this kind of goes on for a while. And eventually, they’re just they just stopped talking to me. And I’m like, look, I don’t think that these guys get the numbers. The numbers are like, incredibly powerful. So what I do is I’m like, I need to get numbers. And, you know, I don’t know if PropertyRadar existed back then, but I didn’t I couldn’t find the data. So I’m like, I’m going.

Aaron Norris [00:06:03] What were you looking for?

Neal Bawa [00:06:04] What I was looking for was a very specific piece of information. I heard that when real estate goes up, it goes up way far further than it should. Right. Bubble when it comes down. I’d also heard that it goes down too far. Right. It goes down beyond where it should. So it’s a natural sort of up-and-down thing. And so I was like, I need to find a piece of data, which is what I need to know every city in the US. What was the 2005 peak price? Or maybe 2006? And what is the 2008 December trough? Right. So what is that Delta? Because delta shows me which cities in America are good to invest in. Now, there are probably ten, or fifteen better ways of doing that. But back then, I was just beginning. Right. I didn’t know what I didn’t know. But that was actually a pretty good way of investing in 2008. So what I do is I go to this Ukrainian hacker on Upwork.com. Right. Which is called something else back that I think was called Odesk or something like that.

Aaron Norris [00:06:56] You’re right.

Neal Bawa [00:06:57] Right. So I go to this guy and I’m basically like, there’s this website called Zillow, and I want you to basically spider their thirty-three hundred cities. And somewhere in there, there’s a graph which shows, you know, their peak and their trough. And I want you to basically get that data and put it in Excel. And I was like, you know, it’s probably gonna take this guy a month. Well, I got my lesson in the power of technology because twelve hours later, an Excel spreadsheet with thirty-three hundred cities arrived in my, you know, in my Excels. The first thing is I’d like God. Please don’t send the FBI to my door for, you know, crashing the Zillow website. And luckily, luckily, we didn’t crash it. Right. But he must have been on it all night to get that much data out in a single day. So all I did was, I mean, this is where the power of data really started to to to, you know, amaze me. And it’s never stopped amazing me. So I click on the button that basically shows the max fall right from 2005 to 2008 and ends up being a Californian city. Right. So I’ve never heard of this city. It’s one hundred and forty-four miles from my home in Northern California, Madera, California. So I Wikipedia it and it turns out that it’s 20 miles north of Fresno. Basically, a lot of the people that live there work in Fresno, and so on and so forth. It’s got it’s an agricultural area with lots of farms around it. And I’m like, okay, Madera, California. So if this happens to be a Friday, so I jump into my car. It’s Saturday now. I’m driving a hundred forty-four miles. I show up in Madeira and I spend the entire day talking with people. And real estate agents in Madera are developers and brokers. And here’s what I learn. I learn that all of these homes that are being sold in Madera are brand new. They were all built in 2005, and 2006 by Kaufman & Broad. Right. One of the big, you know, big dude manufacturer builders. And what these builders did is basically when these homes were ready, they had all these agricultural workers working around, they call them in. And did these no-income show loans basically fill out? They sold 5000 of these homes. And now pretty much that entire section of the city was empty because all those workers by 2008 had figured out these are not going to go up, they’re going to go down. So they all left. Right. So a section of Madera was brand new that even the roads were dark black. Right. There were all new. It was mostly empty, like 90 percent plus percent empty. So I go and see a developer and I say, how much does this home cost? I mean, it’s available to me. If I want to buy ten of them, I can buy them for ninety thousand dollars each. He says it costs me one hundred and eighty thousand dollars just to build it. So I’m like, but how can it then be selling for 90 thousand? He says they’re not worth ninety thousand, Neal. But you don’t understand the problem. There’s only one problem. There are no tenants. If you had tenants right now, if you could figure that out, you would be very, very rich. Right. And I’m like, that really stuck with me. So I’m like, I’m driving back a hundred forty-four miles and all the way. I’m like, how do I get people to come from twenty-two miles away? Right. Twenty-two miles away. Do they get all these people? There are all these beautiful homes. So the next morning I call up a bank in midair and I tell him, you know, I want to buy ten of these properties, but I can’t. I’m going to put them in. Track. And then I need a timeline. I need time. I need 60 to 90 days. And the banks are, like, really friendly back then. You know, they’re in so much trouble. They’re like, oh, yeah, sure, sure. You know, put ten of them in a contract for you and you can kind of walk around and do stuff. OK. I’m like, this is great. So then I drive the next Saturday to Fresno, which is 20 miles further than Madera. And I go there. I see an agent. I sit down with him and I say, I want to buy a property in Madera, but in Fresno. But I don’t want it to be new. I want it to be old like twenty, twenty-five years old. Not like falling apart old because I am buying it. But like, you know, not one of the newer properties you have in Fresno. So it’s like, no, no, no, we’ve got better deals on the newer side. No, no, no. Please don’t give me any new ones. I would reason I want an older property for a reason. So the guy says, OK, we go and buy this property, you know, in like three or four days it’s done. Hundred and ten thousand dollars. Old nineteen ninety-four property. So then I go back to the Ukrainian hacker. Remember the Ukrainian hacker that hacked Zillow for me? So I go back to him and said, I have this home that I now own in Fresno. I want you to give me an astonishingly large number of tenant leads. And he’s like, why do you want so many kinds of leads? Do you want you got one property? I’m like, no, no. I actually have ten more properties to sell. I need a huge number of leads. So the guy basically does all of his hacks. He goes to all these websites like show me the rent dot com Kosi and, you know, all these sites that we haven’t even heard of. And he uses all his hacks to basically put that one address in like fifty-five different ways. Right. So normally you can only put one address one way. But he figures out like here if I had a semicolon, I can add the property again. If I, add an asterisk here I can add it again. And before I know it, I’m receiving like my email box is just filled with hundreds and hundreds of leads. So then I realize, there was no way I can process these leads. There are too many of them. So I go back to the Ukrainian guy and I say, Do you have any people that can get on the phone and process leads for me? Like, no, Ukrainians don’t speak English. Well, you know, but there’s this Filipino lady that we hire from time to time. She’s really good. So I go off to the Filipino lady again using upwork.com, and I hire her eight hours a day. We get her an American number. That is kind of a Madera number. And we tell her, hey, you’re going to basically process all these people. And she’s like, OK, what’s my pitch? Well, pitches this. Well, that Fresno one is leased out. Right. So sorry you were too late, but we have ten brand-new homes. Beautiful. They’re not three bedrooms, they’re four bedrooms, and they’re four hundred dollars less. Right? And people are like, really? That’s awesome. Yes. But they’re twenty-two miles away in Madera. Oh no. I don’t want to go to Madera. I know I’m a Fresno person. So if somebody said no. Right. Our pitch was we would offer them a twenty-five dollar gift card to go just to Madera to check this home out. And, you know, no other obligations. And if they said no, we would then bump it up to fifty bucks. Right. And if they said, yes, we would immediately schedule an appointment and save our twenty-five bucks. So she does this all day long, calling all these hundreds and hundreds and hundreds of leads at this house. And Madera is getting a little bit of bait and switch, but I’m offering something much better. Right. So 30 days later, without me having purchased any of these properties that are all in the contract. Right. All those people from… have I visited, all those Fresno people have basically gone there once they go there, they realize that nobody’s ever lived in these homes. They’re all brand new. They’re beautiful Kaufman & Broad, makes very good-looking homes. And so I have 10 tenants. And on day one, I have an astonishing amount of cash flow because you’re buying these things for ninety thousand dollars. The tenants are paying you, you know, whatever, twelve hundred bucks. And at the end of it, I mean, I couldn’t believe that I’d actually pull this off. But I did. And I made the greatest mistake of my life right there. I listened to my loan broker. He said you can only buy 10 homes. So I only bought 10. What he should have said is you can only get conventional loans on 10. This other guy over there will let you buy as many as you want. That one statement kept me from becoming a mega-millionaire because I swear to God, I would have had a thousand of these things by now if I had known. But just 10. Right. And I still own like nine of those 10. And I went on and managed to, you know, get my mother-in-law to buy them in my name. And so I kind of did build it up beyond 10. And so I still owned most of these. And so that’s how I got into the single-family side of things. Right. So that’s, how did that go backward from commercial to the single-family part of the story?

Aaron Norris [00:14:38] Now, being data-driven to that keep you out of your emotions, even though your family was searching for letters words at you in 2008. It felt really scary. Is that how you stayed out of the emotional component?

Neal Bawa [00:14:50] I think that the data-driven side keeps, you know, keeps you sane. Because obviously, if my family and all these experienced people are telling me that I’m an idiot, it is going to affect me. Being data-driven doesn’t mean that I’m a robot. So I’m thinking maybe I’m wrong. But then when you look back at the data and you look at, OK, where people two years ago, three years ago, five years ago, that we’re buying all these homes compared to where I am today. The data was basically saying, your situation is you can’t lose. You may not win, but there’s no way to lose in this situation. Right. That there’s no way that you would if you’d rented these homes, you couldn’t lose. And so eventually, my family, of course, came around to it. They went out to Madera. They bought a bunch of homes. They are now all on them. But in fact, it was interesting and it was definitely terrifying, you know, to kind of take that leap of faith and especially do it for Tannebaum.

Aaron Norris [00:15:42] And it’s very scary when the family starts to listen to you and now all of a sudden you’re everybody’s favorite guy on the holidays.

Neal Bawa [00:15:48] Oh, yeah. I mean, a year later, they were all beating me up for not letting them in. You know, before they did. It’s like now things are too expensive. Neal, you should have gotten us in before.

Aaron Norris [00:15:57] Oh, brother. In me 2009. Oh, yeah, that’s terrible. So let’s go there. So you went to residential and then you went into multifamily.

Neal Bawa [00:16:08] Yeah. And there’s an interesting story there. So what happened is, you know, I’m doing this stuff on data. And I really begin to understand that there are not enough people dealing with data and real estate because, you know, being a technology, you’re used to like data sources being very clean and very available. And people are doing different things. You know, PropertyRadar was starting up and, you know, housing alerts were there. And some of these places were pretty expensive. What I. So I came up with this concept that, you know, I want to be like a Wikipedia of data. I want to just give it away. I don’t want to have, like, a business model attached to it. I just want, you know, to give it away. And then that initial idea morphed. And so eventually I was like, I don’t wanna be the Wikipedia of the data. Because real estate data, because it’s too much work. I’m too lazy for that. So what I said is, what I want to do is I want to put together an investing toolkit, something that’s straightforward and simple, that makes it easy for investors to figure out where to invest. And I want to give that away. Right. And initially, it was just because back in 2008, and 2009, I was very heavily influenced by Wikipedia and Craigslist, two models of basically, you know, giving stuff away. Right. Craigslist could have sold to eBay for two billion dollars. And they said, yeah, but, you know, you know, you can make everything paid. Everything’s free right now on Craigslist. So they didn’t then that influenced me. So I was like, I have to find a way to build like an easy toolkit. Right. And then start giving that away. So I start doing my research. And as you can imagine, I go back to the Ukrainian hacker and this time we basically start getting the data set. So we start pulling data sets from the Department of Labor website. We’re pulling them from Zillow. And basically, anybody that has open data, we’re just pulling it all together and creating this 3000-city dataset. And then what I start doing is I put it into the statistical analysis software. I’m like, I’m going to just crank this and keep throwing things into it and seeing which things affect profit the most. Right. So it’s like I’m going to throw in population. Does that affect profit, and population growth? Oh, yeah. There’s an effect. But how much does it affect it? Okay, I’m going to pull the population out and I’m going to throw in job growth. How much of a spike in profits occurred there? Then I’m going to throw in crime. I’m going to throw in schools. I’m going to throw in home price growth. I’m going to throw in poverty levels. I’m going to throw in all these different things. And then I’m gonna figure out which ones of those matter the most. And then I’m going to take out the stuff that’s redundant, like schools matter. But if I take schools out and keep the rest of them in, does it still show me the same data? Should it still show me the same good cities in the same neighborhoods? So I ended up taking some stuff out because the other stuff that was in there was already giving me the appropriate result. So I think this went on for a while and we basically started doing it. And while I was doing this right, somebody approached me because I was running this technology company was a technology school. I had large classrooms. They came in and said, we want to open a Meetup. And this is like 2010. Something like that. And Meetups were a brand new thing back then because a company had just opened up. And so they’re like, yeah, we want to run a real estate Meetup. And you have classroom rights, you have Internet access, and projectors. I’m like, come on in. You know, I’ll show up as well. So initially I show up to these six o’clock Meetups, which are one hundred and fifty feet from my office. Right. A very convenient and start learning. And then eventually one day, you know, I start talking about all this jambalaya that I’m doing with that with this statistic stuff. And I start talking about people there in the room who are really interested. They’re like, why don’t you present on this? I’m like, no, no, no, I’m not a real estate guy. So they’re like, who cares? I mean, you’ve got something interesting to present on it. So, you know, next month they don’t find a speaker, which happens a lot with Meetup. So they basically a day before they call me and say, why don’t you just talk and, you know, just tell people about what you’re. People and I are like, you know, four or five people are going to show up. But they had sent it out with a description from me and like 50 people show up and they’re all like nerds like me, like total geeks, like a bunch of dorks in the room that are like, wow, this guy’s doing something interesting. So I tell them this, that the rules that I’ve come up with and what, and somebody in the room said, you know, you need to give this a name. So eventually I called it the Real Focus System. You know, five minutes of work and we call it this Real Focus System. They’re like, what do you want to do with it? Do you want to create a company? I’m like, no, I don’t want to create a company. I just want to give it away. And so, like, that’s great. So that goes well. And then somebody that was in the room realized that I was giving it away and called me on to, you know, his Meetup. So I went and taught at his Meetup in San Jose. And before I knew what people were calling me for conferences. And these days, of course, it’s podcasts. But, you know, back then it was conferences. And so eventually I gained some notoriety as this data geek guy that goes around talking about data. But he does it in an interesting sort of way. So people like it and he points to cities and neighborhoods that are appropriate for real estate investments and others that are not. That was my focus. And so, I mean, it just sort of between 10th 2010 and ’13, this sort of kid just kept snowballing. And I started keeping a database of all the people that were coming to my Meetups in that database, kept building and building and building. And by the time 2012, 2013 came around and I really got into multifamily and, you know, from a professional perspective until then, this is all, you know, while I’m running my tech company. But I. But well, we sold our tech company in 2013. So I was like, OK, what’s next? Right.

Aaron Norris [00:21:35] Right.

Neal Bawa [00:21:35] I have this huge database of people that I’ve never done anything with. For years. People have been saying, we’d like to invest with you. I’m like, no, I’m a tech guy. I think you can invest with me. Right. And now it’s like maybe I should invite people in. So I start doing projects from the very beginning. Multi-family seemed more interesting to me than single-family. And when I did that, those people did want to invest with me. They’d like the geek approach of looking at cities and neighborhoods. And so that transition actually became fairly smooth. So one site we bought our first multifamily. It’s been a long time. Two hundred thirty-seven units. You know, things just got rolling. And now we’re about two thousand units in multifamily, about five hundred investors, about 270 million dollars. So now we’re adding asset classes and we’re adding industrial. We’re adding public storage. We’ve added student housing, looking to add senior housing at some point. So it all seemed really planned, but it was completely chaotic as it happened. So that’s the name of the next piece to it.

Aaron Norris [00:22:36] I’m just thinking about how helpful are you building the grant from the ground up commercial in the state of California? And then what a great transition. I mean, you are. That’s the hardest part; ground up. So getting in the multi-family now, were you building new multi-family or were you renovating?

Neal Bawa [00:22:53] I should have started with new multifamily construction, but I didn’t. I was afraid that because I mean, some of these projects were 20 or 30 million dollars. So the first four that we did were not ground up. They were just value-adds. We were buying old multi families and improving them. But the last five projects that we’ve done, three of them have been ground-up multifamily construction. So eventually I ended up where, you know, where I started in a different sort of professional fashion. But, yeah, that’s where we ended up. And that Real Focus System sort of blew up to the point where one day somebody came in and said, you know, this thing is really powerful. But all this Meetup stuff, it only gets you fans in the San Francisco Bay Area. Sure. You get some through podcasts, but if you want this system to go national, you need a platform that’s really big. So we walk around asking people, you know, what’s a big platform if you want to give something away for free, like a system that allows you to figure out the best cities in the United States. And I think 30, 40 percent of the people came up with this website that gets 100 million hits a day called Udemy.com. Right. Take this course, make a video out of it, add some labs and stick it on you to me dot com and give it away for free. And I’m like, OK, that sounds like a good idea, right? Again, maybe if there was a podcast back then, maybe you are. That’s what I would have I would have done. But I want the Udemy route. And initially, I’m like, you know, if I get a thousand people a year, I’m gonna be really, really pleased. And now there’s right now there are six thousand people taking the course. Right. And it became the most popular real estate course on udemy.com simply because it was always free and there was no pitch right at the end of the course, of course, there’s no tool kit, there’s no next step, there’s no if you do this, you will get X, Y and Z. That there it isn’t there. In fact, what’s funny, Aaron, every week I get one email at least saying so at the end of this you didn’t tell us what to buy. And I’m like. This was meant to be a gift. You got it. You don’t have to come back and talk to me about it. Udemy doesn’t even give me your email address. So I don’t know how to talk to you. Right. So it’s interesting how it became very popular. And the big thing that came out of it was that the national conference circuit then sort of accepted me. So I started teaching at conferences last year. We did about 18 conferences. This year will do more because they’re virtual. So there’s just more conferences this year.

Aaron Norris [00:25:23] Yeah, it gets a little crazy having to do all the conferences. And I Survey Real Estate at the Norris Group I was asking some of these people who were serving in leadership roles at the National Associations, and I think it was Pat Combs’ was her name. She said one year she gave up three hundred days of her life to travel or something like that when she was chair of the National Association of Realtors. So, yeah, if you want to be on tour a lot. But you’re saying Udemy, when was the last time? Are you continually updating the content?

Neal Bawa [00:25:52] I update it once in a year. So it needs a post-Covid update. So that hasn’t happened yet because the biggest thing with Covid is so. And then let me tell you a little bit about the course itself. And that’s that’s an easy way to answer your question. So what I discovered after all this massaging of data in this statistical software was the five things that matter at the city level were population growth. Job growth. Income growth. Home price growth and crime reduction. Right. So, once again, population growth, job growth, income growth, home price growth and crime reduction. Right? And one could say while their schools there, there’s poverty level. But what I found was if I was ending up with a mix of cities and then I would throw in more stuff and end up with the same mix of cities. Well, that would make the private product more complicated. And my goal was because it is free and always meant to be free. I want it to be simple. It’s like you should be able to pick some random city that you’ve never heard of, apply the system in less than 10 minutes and be able to say things like Fort Myers has really low population growth, but it’s you know, it’s got decent job growth. But five miles away, Cape Coral has phenomenal numbers, much better than, you know, Fort Myers. You should be able to say that while never having talked about Cape Coral or Fort Myers. So that 10-minute benchmark meant that I had to give up on being truly comprehensive. I didn’t have every single metric that helps job growth. But the key ones that started that, that were driving profits. The key one where those five and then over the years, people came back and said, your system is incomplete because this only counts at the city level. And all great cities have lots of crappy neighborhoods. So you need to basically design a second set that’s designed for neighborhoods. So then we went back and updated the Udemy course and built an entire new section that had five benchmarks for neighborhoods. Right. So so we did that to me, to be honest, the neighborhood section was more powerful was because you can really I mean, you can you know, you can go into a great city like Phoenix and a mile and a half from Phoenix is the county jail. I can tell you I wouldn’t be seen there after 5 PM I mean, that’s a really nasty area. So the the key thing was I was telling people here’s a bunch of map benchmarks that allows you to compare cities that you shouldn’t be investing in, like Detroit with cities where that you should be investing in like like, you know, a bunch of cities in Utah or bunch cities in Idaho. Right. But I’m not telling you where in that city to go. And so eventually it took a lot more work. But we what we managed to figure out five metrics for neighborhoods as well and others the same or different, that some of them are the same. So the the neighborhood metrics and our goal was basically cash flowing investments. So we weren’t trying to basically be the end-all of real estate. We’re trying to say, you know, by that time I had a pretty big audience and my audience was into cash flowing real estate. So instead of giving them a just a fixed numbers, I gave them ranges because, for example, I said the median household income in your neighborhood should be between $40k and $70k. OK, for you to invest in it. And they’re like, well, what happens if it’s higher than seventy thousand? Is that a bad thing? I said no. But once you go over seventy thousand dollars an income, that’s a B plus neighborhood. And because there’s so much appreciation and a B plus neighborhood, your cash flow is going to diminish down. Right. So if you want cash flowing neighborhood, that is your range at 70, sort of peters out beyond that point, you’ll have trouble making cash flow work. And if you’re an appreciation based investor, if you’re rich, you don’t mind sitting on it. Stay above 70. That’s fine. But the system also is showing people exactly how to figure out the 40, 50, 70 range of, you know, income for each neighborhood. How do you. Go and figure out this information for a neighborhood, right? All of that was part of the system. It was part of the course. So we did that then. We did poverty level. We found that any time in any neighborhood in the US, if the poverty level is above 20 percent, the delinquency spikes and the retention rate falls a lot. Right around 20 percent. So with the rule that we said was try to stay below 50 percent on the poverty level side. And you’ll see Long-stay times and you’ll see low delinquency. So delinquency seemed very tight, the poverty level, because if people are poor, they’ve only got this month’s money in the bank. This month’s rent. So anything happens, like the car breaks down, they don’t pay rent. Right? So you want to stay away from that. And so you don’t want to go into areas with high poverty level, even if the rent growth there is very high. So stuff like that was part of the neighborhood system and the neighborhood system really made us take off. I mean, it just people just absolutely adored what we were doing and they were coming back and giving us feedback. Some people went and corrected our system and came, and you made a mistake here, and we, we corrected that. Then we had to issue an update for student housing, because if you are if you have a neighborhood that student housing, all of our numbers were wrong. Why? Because students incomes are at zero. Right. So we were basically there were all these perfectly good neighborhoods that our system was saying are crap. Right. And obviously, our system was wrong and we had to basically come back and say students. Well, you know, here’s this place where you go and you check to see how many student, what percentage of the people living here are students. And you’ve got to adjust for that. Right. Otherwise, you’re just going to miss the boat on some of these really nice areas. So those sorts of things. But it was all, you know, community-driven, e-mail driven people kept sending e-mails. Now, if you go to you know, you to udemy.com, we have five hundred five star reviews. So I saw that yesterday, an astonishing number of reviews to getting people really enjoyed it. And so, yeah, it sort of that really helped me get into the multi-family side because people would go to you to udemy.com, take the course, and then they would basically ask the inevitable question, thank God. Which was so Neal, what are you doing in terms of investment? And by this time, I could actually say I am investing in real estate. Right. But it was no longer like the free stuff for tech, you know, that that had been happening. I actually had something to offer. And so I as I said, as I started telling people about projects, I started getting more and more investors. So it became a fairly large size.

Aaron Norris [00:32:21] So is. And so that’s clearly the genesis of Multifamily University.

Neal Bawa [00:32:26] Yes. Because people then eventually said, but you’re a multi-family guy and you have this system called a Real Focus System that really has nothing to do with multi-family. And I was like, no, this system works equally well for single-family and multi-family. But the truth is, it only looks at one aspect of multifamily. It doesn’t talk about asset management, doesn’t talk about the legalities of multifamily, doesn’t talk about like the 50 other things that you need to know about multifamily. All it tells you is where to buy multifamily. So it was very incomplete. Right. So we were like, OK, so let’s design a Web site called Multifamily University. And what we’ll do is we’ll take people that are like superstars in multi-family. They know 10 times as much as I do. And we’ll call them in and do like these deep dove long webinars, some of them two hours long, just teaching content. And these people are amazing that they’ve given it away. I have never paid a speaker a dime and speakers are not allowed to do pitches on our platform. So I’m not ever really fully sure what they’re getting out of it. Maybe it’s just branding. I don’t know. But they come in and they do these amazing events and we do about 40 to 50 webinars a year. And about seventy-five thousand people sign up for these webinars. Right. So it’s just it is crazy community and everyone’s giving feedback. Our Facebook group is about to hit 10,000 people. It’s phenomenal. I mean, yesterday, the day before yesterday, somebody posted a question and he received ninety-one responses to that question. Right. Probably 10 of them were even good. Right. But it was nice that the community does that now. So it’s not, Neal, that has to answer all these questions. There’s just so many people knowledgeable that are in there. So …

Aaron Norris [00:34:09] You know that’s not normal right. Like that is extremely difficult to build a community that will do that. So kudos to you.

Neal Bawa [00:34:14] Yeah. And I think here’s the weird thing I learned from that, Aaron. The best way to build a community, I think, is to start with everything except the goal of building a community. I think that some of the communities that haven’t been built from the very beginning, their goal was we are going to build a bunch of people together in one place. I felt like that wasn’t a good goal. I felt like a good goal was we’re going to find some really awesome stuff that nobody knows about and put it in this one place and make sure that people know about it. And I think that built a better community than you usually, you know, than you usually get.

Aaron Norris [00:34:50] Content first. You’ve always…

Neal Bawa [00:34:52] Yeah. It was a very content-driven approach and. We built that, kept building on it, Multifamily University, went beyond the concept of the Real Focus System, it just became one aspect of it. And then we started doing data reports. We started writing about areas in the US that people didn’t know about. Like, for example, we got into this concept of corridors, like I’m very fanatic about corridors. People talk about this city is great and that city is great. I don’t think that’s right. I think what really happens is at times in the US, certain corridors which are always along freeways become powerful. And of course, there’s some cities in there. So three years ago, when somebody I know named Bruce Norris started talking about Florida, I published and this was in twenty seventeen, you can Google it, an article called The Corridor of Opportunity. Right. Or Neil Bawa’s Quarter of Opportunity. And it defined a space that was one hundred and forty-four miles. And it started from above Orlando. So northeast of Orlando, running through Orlando along four, going through Lakeland, hitting Tampa, turning south, heading down to words, you know, Bradenton and a little bit further. And then a year later, I updated it to extend the corridor further from Bear Bradenton through Sarasota. Now ending in Cape Coral and Fort Myers. And then I then the final iteration of that quarter was I started calling it a web because it started to spread beyond the freeway to the villages and to other places. Like it basically started going north of Freeway four and south a freeway four and became a web. Right. And then we started we found a second corridor. It was in Utah from Logan to Springville, passing through Salt Lake City. And now my favorite corridor today is fifty-nine miles between Austin and San Antonio, passing through New Braunfels and San Marco. So we will start writing about this like geeky stuff. And we gathered this community of geeks. They’re like, oh, this is really great. And some other people like this is the most boring shit ever.

Aaron Norris [00:37:03] I am excited. I want to find out how to participate. This sounds amazing. No. You said corridor way. So is it… it’s like you’re reading off my notes. I haven’t even I have this long list of questions to think that we’re all over and it’s perfect. It’s exactly…

Neal Bawa [00:37:18] Sorry, I bounce all over.

Aaron Norris [00:37:20] It’s great. What makes a good city? What makes an excellent corridor? What triggers that. Aha. Moment for you?

Neal Bawa [00:37:27] Well, I think a lot of times it’s compression. So if you look at I say Lakeland might be a better opportunity than Orlando and Tampa because of compression. So the corridor is usually defined by two anchor cities. Right. So in this case, it’s Orlando in the east and it’s Tampa in the west. And then the corridor then starts to extend. So from Orlando, it’s now extending up north toward Jacksonville. Not quite all the way, but, you know, maybe another 40 or 50 miles and then from 10 by its extending downwards towards Cape Coral and Sarasota. What I find is there’s usually one city, well, two cities that are compressing. So San Antonio is only about 60 miles from Austin. And what we at what I’d learned was the San Francisco Bay Area sort of became this compression area and entire sections of freeway became cities like cities just got plopped in. Right. So Concord used to be a city and Freemont used to be a city. And then in between, there wasn’t much. And then cities like Dublin appear, cities like Danville sort of appeared over the last 20 or 25 years. So we realized that when you’ve got to anchor cities, the area in between gets filled in and that area is much more profitable. Right. Than the cities themselves. So, you know, and then there’s the secondary concept. Sometimes you don’t get to cities in a corridor. Sometimes it’s a primary that is becoming so powerful and creating so much profit for real estate that it drives its growth down in the direction of some freeway. So here are some examples. Right. So Denver is really driving the growth of Fort Collins and Colorado Springs. Right. It’s the driver. The San Francisco Bay Area is responsible for Sacramento’s growth. Right. Right. You know, Tacoma benefits from Seattle, Olympia benefits from Tacoma. So what we started realizing is that what was happening as a city was actually driving the growth of all the other cities around it. And the bigger opportunity was always in the smaller cities. It wasn’t in the large ones, because by the time you heard about the large ones, 50 million other people had to. So you were usually late. So it made sense to figure out where does the growth now flowing like today? I don’t feel like the right place to go to is Phoenix. I think it’s Tucson because so much money has been made in Phoenix in the last four or five years that those people are like I you know, I bought something for a hundred thousand, sold it for two hundred thousand, bought it for $200,000, sold it for $400,000. I don’t think it’s going to double again. Where should I take my money and go? I live in Phoenix. Well, the answer is I should go to Tucson and buy it for $200,000. Hopefully it’ll become $400,000 again. Right? So I think that if you use data to figure out these compression cities, you start seeing patterns that are really amazing and you can get really crazy returns. Absolutely nuts sort of returns.

Aaron Norris [00:40:15] Now, that really works when you’re in a sort of like a bottom of the market. Do you have any concerned? And this is some of the research that The Norris Group, when I was there full time, did a lot of. So as an example, in California, you had a lot of people. Affordability became an issue on along the coast. So they would end up in the Inland Empire, in the Bay Area, they went to Sacramento because they got priced out. But when the market returned, those were typically the first to give back and they were the last ones to come back. Right. Any concern there?

Neal Bawa [00:40:46] To a lesser extent than five years ago. So. One of the I’m going to say something that for a moment I’m going to apologize and say, look, what I’m about to say is going to sound incredibly heartless to those that have lost lives in the last four months. One hundred thirty-five thousand people have died because of Covid. But it is my belief that over the next 10 to 20 years, people will see Covid to be a phenomenally beneficial defining event in the history of our country. Because what had really happened to America and to most countries in the world was that growth worldwide is slowing because of our ridiculously bad use of real estate ridiculously bad. We’ve crammed, you know, 50 percent of the world’s population into two percent of the landmass. We say that we don’t have space, which is nonsensical. Ever see a map of the of the US at night from space? Only about three percent of it is lit. Clearly, we have all the land in the world, but the problem was the jobs. The problem was the jobs were concentrated, especially the well-paying jobs were concentrated in certain areas. And so you had basically this one-hour free trade radius around that. And that was the bubble of the US. That’s ridiculously, crazily inefficient. Right. And nobody’s really addressed that until Covid all of a sudden addressed it. And what Covid did and what will be people will write books about this in their time to come is covered, took 20 to 30 years of growth in virtualization and compressed it into three months. Right. Right. And it did the same thing for e-commerce. So it just, you know, e-commerce is up 77 percent compared to last year, usually grows about 10 percent a year. So we got seven years of e-commerce growth in the last four, four months, seven years. Right. This is just absolutely astonishing. Absolutely mind-blowing. So right there, by the way, if you understand, what are all the things that need e-commerce, and what does e-commerce need? Like logistics, and warehousing. Right. So you just in four months got 77 percent of growth? Well, we didn’t create new warehouses. We didn’t create new logistics. So guess what’s going to happen in the next five years, you’re going to have a supply-demand crunch because of a retail meltdown. That money is going somewhere so well, it has to go to bear housing because warehousing is one-third the price per square foot. And that’s what people need today. Right. Warehousing to deal with this explosion in e-commerce. Now, in the same way, you apply that comment that Covid is creating a liberalization of the work anywhere, live anywhere paradigm. We’ve been talking about people leaving the San Francisco Bay Area. You know, Bruce has been talking about people leaving and going to Florida. Yes, but how many? Hundreds of thousands. Yes. But what? What I believe is about to happen is that hundreds of thousands are now going to become millions. And when it becomes the millions, it actually changes real estate. It changes the way that we’ve been doing real estate in this country because it then forces CEOs to do what Facebook and Twitter did, which is if you don’t want to come back into the office after Covid is over. You don’t have to. Right. And I use the word be forced lightly, Aaron, because what Covid did, which was its greatest gift to humanity, is it forced 10, 20 million CEOs to get to learn Zoom to get webcams, to get high-speed Internet at home, clean up the background and do virtual backgrounds like this one. Basically, it forced them to do everything that was needed because the CEOs were the ones that were preventing this work-from-home model. They were the ones that were big. You know, there were a few that were good at it. So it’s not everybody. But in general, if you look at a million CEOs, they were the problem. And we took 20 years of that mindset shift in the minds of CEOs and be forced it into three months. So in my mind, going back to Europe, is huge. And five years from now, I guarantee people will talk about this, that Colvert did this. Kovik resulted in this. Sorry that I’ve moved this Mike back here. And but today, what this means is that I am not as worried about secondary markets in the US crashing and burning because job diversification is now a reality. And it’s it’s actually going to accelerate in the next five years. And if job diversity accelerates, then the smaller cities don’t get hurt as much in the next recession as they would have in the past. So this is a paradigm shift, right? I do not believe that this thing where a recession happens and jobs come back to the center is going to happen. Yeah. In this recession or the next one. We actually haven’t seen job losses in some of these smaller cities in the last four months.

Aaron Norris [00:45:46] So if you were a city in a secondary market. You might be advertising aggressively to primary markets, trying to get people out your way.

Neal Bawa [00:45:57] You might not even have to do that. I think people are doing it anyway. So there are videos. Watch them on the Internet. New York has an eighty-five percent growth in apartment inventory in the last four months. Eighty-five percent jump in inventory. That’s catastrophic. Rents are now the average apartment owner is offering two months free. That’s the norm. Right. So that market is going to suffer because there’s a huge number of people that are all of a sudden free to leave. And yes, we know that seven out of ten of these people will come back. Maybe it’s eight out of 10. But you know that two out of 10 for such a large number is also an extraordinary number. And that creates a massive amount of change. It basically pivots the situation towards smaller cities. And I think that’s a multi-decade pivot. That is the key lesson to learn from Covid.

Aaron Norris [00:46:51] Very interesting. So in this city, the metrics you gave me, are population growth, job income, and home prices. And crime reduction. I’m thinking about how that relates to how can you tell what is a good city. And you sort of built it into that. So I was going to one of my questions was, what makes a great city? Is it a smart city? Is it a city investing in really fast Internet? Is it somebody with a great entertainment mix? But I guess if you’re looking at these things, they’re doing something right.

Neal Bawa [00:47:21] Usually what happens is if you do those five metrics right, and there’s a bunch of cities that do really well on those metrics. You know, Salt Lake City, for example, Provo, Utah, does really well. Orlando does really well, or at least it did until about four months ago. But when you see those metrics, people think culture is created first. And then because culture is created, the jobs come. That is a very popular myth. I think it’s nonsense. What I found is jobs are created and that creates culture. So you look at Austin, Michael Dell built, you know, started Dell there in nineteen ninety-four, and that built, you know, Austin story. And then five or 10 years after that, they started doing that big show south, southwest, south by Southwest….

Aaron Norris [00:48:08] SXSW Conference, yeah.

Neal Bawa [00:48:08] Right. And that started to build that show, started to build Austin’s culture. But that happened 10 years after the jobs came in. Now, if you take that example and apply it to a bunch of other cities, you’ll start to see that their culture develops as they go. Silicon Slopes, I mean, the astonishing culture that Utah and Provo have was not there. I mean, a lot of this culture wasn’t there 10 years ago. And a lot of the jobs moved because they started Adobe started to move jobs from the San Francisco Bay Area to the Silicon Slopes because they realized that their universities are phenomenal and they’re, you know, one-fifth of the cost of our universities here. And so one company, I think Novell started that move. And then it was followed by Adobe and now basically just everybody. Right. So Facebook, Amazon, and Google all open billion-dollar locations there in the last six months. So I think it is not culture that that makes a great city. It’s these fundamentals that make a great city. And then the culture grows. It automatically grows and some cities do it better and some don’t do it as well. And I think, for example, Austin now has developed a really cool culture and so is Tucson. Tucson has a very artsy scene.

Aaron Norris [00:49:18] Now, I have to go back and see when Austin got weird.

Neal Bawa [00:49:22] Yeah, that’s right. I tell people Austin is a cheaper city in California and they look at me for a second and then they’re like, oh. Oh, yeah, right. It’s like, yeah, they think of it. I mean, because they’re like, no, it’s the most expensive city in Texas. Like, no, it’s not in Texas. It’s in California. It’s really cheap. Right. And you look at it that way and people are like people get it. It’s like, so Austin has room to grow. Yes. It has decades to grow because it’s competing with California.

Aaron Norris [00:49:49] My sister just moved there. Yeah. I totally understand. I was there for the first time last year. I was by a hotel where they had the fruit bats under the bridge is very strange after living in New York for seven years. I did a stint in Minneapolis. I spent a lot of time in Chicago. I like big cities. It’s gonna be interesting to see the winners and the losers. So there’s no there’s nothing that you’re looking at like, oh, hey, they’re talking about a mass transit system and a train that’s eventually going to reach there.

Neal Bawa [00:50:17] I used to do that. I’ve stopped doing it because to be honest, what I found was when I came up with a list of powerful cities, especially the post cities, every one of them was doing those things. Like I mean, you look at Salt Lake, they’ve just filled finished building a phenomenal train system. They’re doubling the size of their airport. They’re building an entire inland port that is larger than the size of Manhattan right now. That’s one example. But if I was to take like ten of my favorite cities and I’m probably not investing in six out of these ten, I just love their demographics. They’re. All doing great things. So the great things didn’t lead to cities doing well. Cities doing well led to great things, right. And the opposite is also true. So one of my all-time favorite cities in America is Chicago. Right. Phenomenal city. One of the great cities of the world. Right. Not just of the U.S., but I tell people that it’s a horrible thing to be investing in Chicago right now. And they basically say why? And my answer is that great cities build great works in Chicago seems to be consistently failing at building new great things. And the second thing is they’ve managed to get themselves into a situation. And there’s a little bit of jest in this. But but but get this. And this was pre-Covid, right? Pre-Covid. I said Chicago and Cook County, they have three choices. Bankruptcy in two years. Bankruptcy in three years. And bankruptcy in four years. Those are their three choices. Right. When you have only those three choices and nothing else is possible. Why would I want to go and invest in these great cities? I’m going to wait until that bankruptcy happens. Stockton cleaned up its act. Orange County cleaned up its act. Chicago being one of the great cities of the world will clean up its act. I’m just going to wait until the bankruptcy before I add Chicago to my list, cause today it’s horrible. And just in the last four months of Covid, Chicago and used to have a D grade on these sites that rank cities and their stability. It’s gone from D to F. They’ve lost two billion dollars in four months. And now we’re at the point where enough within a few, I think two quarters or three quarters, they won’t be able to pay interest, just interest on their loans. So that has to be a full stop. If you cannot pay interest on your loans, you can only do one thing. You can create a Ponzi scheme and get more money so that you can pay the interest and now you have new interest. So you have to get even more money. You know how that ends, right? I mean, that’s where it is. Chicago is months away from Ponzi scheme, right?

Aaron Norris [00:52:55] Well, let’s talk about Covid-19 and asset class. Now, we’ve talked a lot about cities and selecting neighborhoods. How do you go about selecting, well, first an asset class and then we’ll go to Covid-19 and maybe there’s a little bit of a mix. But you are diversifying your mix. So how do you go about asset class in those great cities?

Neal Bawa [00:53:14] So the first thing I look at is what asset classes are benefiting, right? What’s happened? Right. And I’ve always believed in self public storage. But when I looked at public storage in the last four months, it hasn’t done well. So I’m basically saying the data doesn’t suggest that public storage is doing well because all that new construction of public storage, some of which was not documented because it was mom and pop, is basically pulling down rents. I looked at multifamily, multifamily did the family did pretty well in the last four months. But I’m a little hesitant because it seems to me that multi-family received a very large boost from the unemployment benefits. So I want to see how multifamily does for two months after that the benefits expire. Right? They’re talking about bringing them back in a much tinier fashion. You know, we might get 200 dollars a week, but that’s still too low of a number for people to pay rent. So I want to see how multi-family does. And as I’m looking at different asset classes, I’m looking at senior housing. I’m not so sure, you know, would you if you’re if your grandma was in one of these big-box facilities with 200 other agent people, would you leave her there or would you just move her to your basement? So to me, until a vaccine, a strong vaccine, not a weak vaccine, but a strong one is found, I think senior housing is going to have issues. I think it’s a good asset class, but it’s going to have issues. Right. Student housing. I think I was wrong on that. I predicted student housing doom back in April. I said students are not going to come back. Turned out I was wrong. The enrollment nationwide for student housing for fall is as strong today as it was a year ago. And the biggest reason that we’ve now learned is students are fed up with mom and dad. Mom and dad won them out and they want to get out of mom and dad’s house. Right. So that that four months of basically just being trapped in the house with mom and dad means that students have really wanted to go back to the university. So that was I was wrong on that one. I think soon housing might do well. But I think the biggest one is industrial. I keep saying this. You know, e-commerce, 10 year, 10 percent year over year is normal growth. Seventy-seven percent means that we’ve gotten seven and a half years of growth in four months. That growth is going to create supply shortages. We need a billion square feet of industrial in this country. We have to because keep in mind, we’re about to lose at least 500 square feet of 500 million square feet of retail. Right. This is a swamp. It’s not a net new gain. It’s a swamp. Money goes from one place to another place. Right. Retail is going to see an absolute meltdown. I don’t think hotels are going to be as bad as retail.

Aaron Norris [00:55:55] Yeah, I can see that. I know John Burns was on the show a couple of weeks ago, and we’re talking about mall owners. And Amazon has clearly been targeting malls are in perfect placed positions really well located in cities. But I don’t want our local mall to turn into an Amazon facility. So asking about mixing up the inventory, senior housing, apartments, more entertainment. And then it just so happens here in Riverside, in Moreno Valley, a neighboring city. They’ve been talking about the World Logistics Center. Highly controversial, very political. And I’m really concerned about the jobs that, everybody likes to promote the jobs. But I know I mean, Amazon has been investing in robotics for years. I am obsessed with robotics channels and I see industrial how tall they are. And I can see how far the product goes. But in the corner, there’s this one picture of an Amazon warehouse where floor-to-ceiling, it looks like five stories tall. Do you think because of robotics that we’re gonna need as much industrial because robotics will fill the gap and be able to help us with that problem of they’ll be able to fully utilize the entire aerospace and industrial?

Neal Bawa [00:57:00] I think robotics is the greatest threat to our economy in the short run. I mean, it is incredibly dangerous. But if you think about it, I’m more bullish on industrial because of robotics. Think about it. Robotics give you incredible salary advantages. Now you have these thousands of robots that are running around two million square foot warehouses that are mostly empty right now. It isn’t my job to provide jobs for my, you know, my citizens. I am not a politician. Right. And I don’t lead a city. It’s my job to provide returns for my investors. So from a socio social perspective, the rise of robotics is terrible for people. Right. You can now have a two million square foot facility with only one hundred workers where 20 years ago there’d be 5,000 people working there. Right. I get that. But, Aaron, why is that bad for industrial? It’s good for industrial. Because what we’re doing is we’re swapping space for people. And people, salaries are always more expensive than space on a per square foot basis. If you take five thousand people and cut it down to two hundred, that’s forty-eight hundred persons worth of saving is massive compared to the one time investments and the robots. So the robots are here. They’re here to stay. And it accelerates from here on. That’s why I think industrial is a very powerful story. Does it have a colossal bad impact on our employment numbers in the US? Yeah, this is just the beginning. Remember, Covid also accelerated e-commerce, which means it accelerates robotics, it accelerates all of the stuff that’s happening there and makes things a lot worse, actually. So there’s going to be a lot of unemployment issues related to that.

Aaron Norris [00:58:48] Are there any other Covid trends that you see coming out in either residential or commercial.

Neal Bawa [00:58:54] Yeah. One of the trends that I see is people are not just going to move from places like New York and Los Angeles to places like Phoenix or Salt Lake City. That’s gonna happen. But people are also going to move back to the suburbs. If you had to go into the office four times a week, you wanted to be 30 miles from work. But if you had now I have to go back to the office once a week or twice a week. You’re going to be in a 50 or a 60-mile radius. So we had this movement back in the 2005, 2012 timeframe where people were beginning to go urban again and then starting to 2016. It started to go the other way where people were beginning to go suburban again. We started to see vacancies falling both in suburban multifamily and also in suburban office. And today’s suburban office has the same vacancy as Central business district. Downtown office. Right. So things have adjusted to the point where it’s come a long way. There was a huge gap between the two. And it’s now the same. Why? I’m not sure if people are falling jobs or employers said, you know, I don’t want to pay four dollars a square foot. I’m going to go pay a dollar twenty in a flex industrial building in a suburb that allows me to open a location. Right. So maybe they went first and then people followed them. Or maybe people said, we’re going to, we can’t afford the central business district, you know, home. So we’re gonna go out there again. And then the job sort of followed. But whatever happened, it happened. And so in 2020 and February before Covid, we were already seeing this push back to suburbanization. And then covered just massively, massively accelerated the suburbanization.

Aaron Norris [01:00:32] Interesting. OK. Opportunity zones. I know that’s something that you’ve talked about are still excited about them. Any impacts of Covid?

Neal Bawa [01:00:42] I think I’m more cautious than I was in February. And. And the reason for that is the premise of opportunity zones was that government is going to give you phenomenal tax benefits so that you and a bunch of other investors highlight you and a bunch of other investors are together, are going to put lots of money into opportunity zones. And because you put money in and they put money in, there was an all ships rising effect and lots of money was made. The area went up in value. And everyone was happy and everyone made profits. Right. Nobody really talks about what happens if that premise wasn’t true. And you were the only one that ended up investing in that opportunity zone and other people invested in other opportunity zones, not yours. Right. Well, in that case, you built a class A asset in a Class C, distressed area with low incomes and no population growth. Right. Well, forget about the tax benefit. You are at risk for your principal.

Aaron Norris [01:01:37] Right.

Neal Bawa [01:01:38] So there’s both of these ways of looking at this. So I’m very cautious about opportunity zones because opportunity zones that really needed to, it’s a good idea. But to grow, it needed fertile ground. It needed the economy to be strong in 2019. And it was in 2020. It wasn’t 2021. It’s not going to be and maybe not even 2022. So I think there’s gonna be some crash and burn stories that are going to come out of that area. But at the same time I think that there are going to be certain opportunity zones where it’s going to keep going. I just think that the outlook is not as bright as it was four months.

Aaron Norris [01:02:14] It was very cloudy going into opportunity zones. I didn’t see cities marketing the two different. You could be a business in an opportunity zone and you can be a developer. I didn’t see any cities doing a really good job communicating that, at least here in California. They tried. They started the websites. Whoever was leading the charge disappeared in 2019 and worked for the federal government. And it just sort of fell apart and it got quiet. So it’ll be interesting to see how it pans out. And you bring up a good point. When people have raised money in an opportunity zone, you have a lot of people in bed together for 10 years. A lot can happen in 10 years, though. Not all of it good.

Neal Bawa [01:02:51] Yeah, I feel like the developers, there’s too many developers that people are giving money to that have never held assets. And so one of the things when people ask me, who should I give money to an opportunity zones? Neal, you only have one project, it’s been years. It’s been funded. You don’t intend doing any others. My advice was, make sure you only give money to developers that by their nature, hold assets because ten years is two recessions, maybe three. If you give money to a developer and that developer has basically gets fed up with the property they’re going to sell. Now, not only do you lose your profits, you also lose your tax benefits. Right. So it’s a double whammy for you. So make sure you’re giving your money to people that have asset management companies. They have employees managing assets because 70 percent of developers don’t manage anything. They feel good enough. They feel stuff and they sell stuff. And often they’re there. So, you know, so much of a hurry, they don’t even feel it. They give up that money to somebody else. They just basically sell empty buildings as soon as they’re done with them. Right. And which always strikes me as stupid, because if you just filled it up, you’d make a lot more money. But then their whole model is, no, I’m done with this. I don’t want anything to do with it. Somebody take me off, take it on my hands, go fill it yourself and I’ll give you that that extra delta for it. When a developer thinks like that. To be in bed with them for 10 years, with you going in with one of the biggest recessions of all time. Doesn’t sound the best opportunity out there.

Aaron Norris [01:04:21] No, it doesn’t. And I was just thinking about all the taxes that can change. The cities trying to plug the gaps. It could be a messy decade.

Neal Bawa [01:04:29] It could be. I mean, and one of the key things, Aaron, is and people say, you know, I was on the Realty Mogul podcast and Jillian Helman, Realty Mogul CEO, asked me, you know, what keeps you up at night, Neal? And I said, you know, so far with Covid, things are being OK. And, you know, the government response was very, very strong on the fiscal side. Very strong. And so it’s been OK. What keeps me up at night is helping a world-changing black swan event like this occur and a domino not fall. So Gillian says, what do you mean by domino? So I said, we have all these deadbeat countries that have been in deep trouble for a long time. Japan, Italy, Greece, we have deadbeat economies in the US that are in trouble. Parts of New Jersey, Cook County in Chicago, we’ve all these places that were one domino away from just falling apart. Right. And then this happens. Right. They were already in deep stuff. So in my mind. What hasn’t happened yet, but is a certainty to happen, is that a big domino falls. People are like, yeah, but Greece went bankrupt. The world economy didn’t stop. Greece isn’t in, Greece is a fraction of one percent. What if Italy goes bankrupt? Italy is more than one percent of the world economy. The shockwaves would be colossal. Cook County is a $500 billion dollar economy. The economy of Greater Chicago is bigger than most countries in the world. So to me, this is not like Stockton or Orange County just declaring bankruptcy. Those are localized events. This is something that shakes an entire country to its core. And if it happens with Italy, it’s going to shake the Eurozone to its core. So to me, those dominoes are ahead of us. They cannot possibly have happened yet. But in the next six months, I think a major domino falls. Black Swan on top of a black swan. Yes. To me, there’s a secondary Black Swan that’s going to be caused by this primary black swan. And you can’t really call Cook County a black swan, right? I mean, there’s 500 articles written about the fact that their options are basically about when they’re going to declare bankruptcy and how to do that legally, because unfortunately, they have issues with how to declare bankruptcy. Right. But at some point, it just cannot happen anymore. And I mean, even economies like California, Aaron, I mean, the deficits that were piling up month over month are just staggering. It’s decades of deficits that were piling up in months. So there’s major challenges to deal with here. But I think major challenges mean major opportunity. I mean, right now we should be doing, you know, looking at buying, you know, foreclosures if foreclosures don’t exist. Maybe we should be doing these options, all that stuff that worked back in 2008. It’s going to start working in about five to six months. So there’s also a lot of opportunity there.

Aaron Norris [01:07:22] All right. Well, to round out because we’ve hit the hour mark. What do you like to follow? I’m just curious, what do you read your fate? A favorite data-driven sources. Where do you go to?

Neal Bawa [01:07:32] Well, on the macroeconomic side, I like to read John Mauldin. I think he’s he’s phenomenal. His newsletter that comes in every week is just an incredible place to go. There’s Real Vision TV. Those guys are pretty strong as well. So that’s I like to read the macro because it affects everything that we do on the real estate side. Obviously, I read everything that your your your dad has written. You know, that’s kind of he’s my go-to guy on the data side. And then I follow a guy named, I wish he kind of was more a little more flashy as names Engel Windsor. And he runs local market monitor. And Engel has now won the Crystal Ball Forecasting Award three years in a row. So we’re casting local market monitors very strong. So he just he’s not flamboyant enough, you know? He needs some lessons from Elon Musk. And he needs a Twitter account.

Aaron Norris [01:08:25] There you go. OK. Well, if people want to get in contact with you, how am I. How should they go about doing that?

Neal Bawa [01:08:31] I think the best way this two ways. They’re both symbols. First one is it is my extreme good luck and bad luck to be the only Neal Bawa on the worldwide Internet. So if you’re typing Neal BAWA, the first like two hundred articles are all about me. So if someone’s flaming me, you’re gonna find it very quickly. And then the second way is Multifamily University, which is multifamilyu.com. That’s multi-family by the letter you dot com. We do 40 plus webinars. You can like him. You’re going to like them. They’re different kinds. We just did one where we talked about how the real estate market in the last 10 years is being entirely driven by the banking system, not by fundamentals, but by the banking system and what it does. So that was a very interesting webinar. We got lots of kudos out of that. We do these kinds of crazy deep-dive things. So check it out. Multifamilyu.com.

Aaron Norris [01:09:18] I really appreciate your time today. This has been really fun. Thank you for listening to the Data Driven Real Estate Podcast. You can find show notes and links to some of the resources mentioned in the show at datadrivenrealestate.com that joined the community. And you’ll be forwarded to our community where you can even ask questions for upcoming guests, ask questions of current guests. We monitor there and we’d love to meet with you. Please don’t forget to like favorite subscribe and share on any of your favorite platforms and helps us out a great deal. Thanks for listening and we’ll see you next week.