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Show Summary
In this conversation, Jeff Potter discusses the complexities of navigating the real estate market, including challenges related to construction costs, investment strategies, and the importance of integrity in business dealings. He shares insights on adaptive reuse projects and the necessity of being well-financed in a fluctuating market. The discussion culminates in valuable lessons learned throughout his career, emphasizing the need for careful risk management and adaptability.
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Investor Fuel Show Transcript:
Jeff Potter (00:00)
So thishas happened to me. So I tell you this expert witness business because it’s happened to me firsthand and just happened to me recently on a $50,000 investment where what my trust was sold was literally air. And it was a long-term relationship and I shouldn’t have trust the person.
So everybody learns, right?
Kristen (02:02)
Welcome back to the Real Estate Pros Podcast. I’m Kristen and I’m here with Jeff Potter, is the CEO of HM Investment Advisors. He’s a licensed general contractor for over 40 years, licensed real estate broker for over 40 years, and he is now an expert witness for real estate. I’m so excited to get into this. There’s so much to cover. Thanks for being here, Jeff.Jeff Potter (02:20)
Thank you, Kristen. Nice to see you.Kristen (02:22)
So let’s talk about how you got into this industry. You’ve built such an impressive career for yourself. How did it start?Jeff Potter (02:27)
Well, it’s an interesting story and it goes like this. I grew up in Bakersfield. We were farmers. I went to Los Angeles, went to USC, came back Bakersfield farm. My girlfriend lived in Newport Beach. I moved to LA. I went to work for a gentleman named Ed Olson that owns Superior Gunite and Red Diamond Constructors. It was the largest gunite contractor in America. I knew nothing about construction. I got a shovel. I got a chalk line. He says,dig this one, when you get done, dig another one. I became his protege and I was super blessed. He mentored me. And what happened next is he was a pioneer in what’s called self storage now, but it’s called mini storage. He asked me one day to go with him when I was about 23 years old, I was tired to get my nose sunburned out in the field, dusty. He says, you want to go bed on a piece of property, I want to build another mini storage.
I said, sure, Ed, but I don’t have any money. And he goes, don’t worry, I’m going to loan you some money. And I said, well, OK. I went along. He loaned me 25%. He bid. He happened to be the winning bid. It was $400,000 for a site in Commerce, California to build this self-storage or mini-storage. Within a week, public storage called Ed and said, hey, Ed, how would you like to sell your position in this contract to buy this site? He goes, maybe.
says, we’ll pay $100,000 to go away. Ed saw me later in the day and he goes, public storage wants to buy this site and pay us $100,000 to go away out of the contract. You’ll make $25,000. $25,000 when I’m 23 years old, a long time ago, it was a ton of money. And I had zero money in it. Everything was borrowed and I hadn’t even borrowed the money yet. So the addiction started there and that’s what started me.
And then I got to build my first self storage for Ed when I was 23 years old and I was kind of off and running.
Kristen (04:27)
That’s amazing. mean, that’ll do it, having a story like that. When you transitioned from, you know, being the, you know, having a mentor and then kind of doing it yourself, what did that feel like? How did you kind of work out the kinks there?Jeff Potter (04:43)
Well, the mentorship was paramount and I learned a lot from Ed because I mentor people and that’s how I give back. If you go to my LinkedIn, I’ve mentored people from being a lieutenant all the way down to Hispanic women that really didn’t speak English. They’re trying to get in the real estate business. And I meet a lot of them through Professor Anthony Orlando at Cal State Pomona where I guest lecture for his classes in real estate and finance. Having mentorships paramount.I was really lucky Ed Olson was my mentor and I’m really grateful for everything he did for me.
Kristen (06:06)
Yeah, and when you’re looking for that mentorship, think a lot of people really want that to scale. What do you look for in people to mentor you? How do you have a great partnership?Jeff Potter (06:19)
It’s like a bank, Kristen. You gotta put something in to take something out. everybody has their own style, but my particular case…I would do anything Ed needed. I would pick him up early in the morning. I’d drive him to meetings. I just wanted to listen. I’d see him with bankers. We’d go to large construction sites. He’d tell me, don’t do this. Don’t do this. ⁓ Having a mentor that’s willing to trust you, it’s all about the relationship and the integrity. And you have to prove yourself all the time that you’re worthy.
Kristen (07:00)
And also know in yourself that you’re worthy. Also have the right mindset to know that you can do it.Jeff Potter (07:09)
So my secret, I have a young man, Mohammed Mike, that worked for me, and I used to tell Ed, I’ll handle it. So I’m mentoring Mohammed and I said, hey Mohammed, just say I’ll handle it. And he does. I wasn’t the smartest, but I worked like a rented mule, and I showed up on time, and I was dependable as best I could.Kristen (07:19)
Yeah.Absolutely. And then so you’ve kind of gone on and you’ve made this incredible career for yourself. How have you been able to scale? What are your tips for scaling in a thoughtful way?
Jeff Potter (07:45)
You have to have debt, equity, and good financial relationships. Scaling’s hard. How I saw Ed scale was a very large line of credit where he would go out and buy self-storages off his line of credit and then refinance them, grow it that way. My formula for my companies and my relationships have been more traditional through debt and equity sources, limited partnerships, joint ventures.Kristen (08:11)
Absolutely. And how are you going about identifying the best deals? I know that that’s a big thing that you also help others do.Jeff Potter (08:19)
Best deals.The deal train comes by every day. You don’t know if it’s the best deal, it’s good deal, bad deal, you just don’t know. You have to look at a lot of them, but I really think it’s about a developer, and we’re developers, and ground up developers mostly.
You really have to have relationships with the real estate brokers. I saw Paul Sablok today in downtown LA. I’ve known Paul for 40 years. And literally when I see him in the gym, we make a deal and it’s a handshake. Again, it’s about integrity. So how do you find the best deals? In my opinion, the best deals are off-market deals. Going to sellers directly, going to land owners, going to property owners.
and looking in a market, but trying to find a property that’s not listed by a real estate broker.
Kristen (09:20)
And you yourself are a broker, when did that come in in the process?Jeff Potter (09:25)
I was, I got a 1980, I became a real estate bro, got my license and having a real estate broker’s license is kind of like having an arrow in your quiver. It’s part of your toolbox. And the same with getting a general contractor’s license. I had learned how I learned the real estate and development business was with a shovel, getting my nose sunburned, getting sweaty from the ground up. And I think that’s been invaluable to me.We built a number of our own projects, but after a while we realized it was better not to take that risk, that component, give it to somebody else to handle. And it required less staff. But again, it’s good to have this tool.
Kristen (10:45)
Absolutely, you’re kind of like vertically integrating within your own business. Yeah.Jeff Potter (10:48)
Exactly.And then you don’t get stuck if you have a problem with your general contractor. If you have to come in take over your own project, you’re licensed to do it, no problem.
Kristen (10:57)
And how do you build out a team around you? What are the best, because I feel like hiring people is usually the hardest part once you start outsourcing some of the tasks. How do you make sure that the people around you are, you know, aligned?Jeff Potter (11:09)
Great question. In our case, we have long-term relationships. We’ve used some of the same architects over and over and over again for decades. Same with general contractors, phase one environmental specialists, civil engineers. I really look for design build program. So we want all four corners of our real estate development and our investment to be handled at one time.I’ll usually hire a general contractor to build it for us and bring in all the MPNE, civil soils, coordinate them all, get a fee. So there’s no bus in the program. That’s my best practice for our company.
Kristen (11:51)
Yeah, just having people that you trust. And it seems like networking is such a huge part. It’s kind of the cornerstone of everything you’re doing. What are some ways that people can go out and meet people?Jeff Potter (11:57)
HahahaThere’s professional organizations and I highly recommend people join, you know, NAOP, learn about AIR, the Builders Association. If you’re in the home building, there’s a lot of building associations. There’s a lot of commercial associations. And then through your school, universities, things of that nature. Being a broker is kind of a cornucopia of opportunities because
You’re always being hit up by title companies, insurance companies, warranty companies, looking for business. So just put yourself out there and you’ll get it back. I wasn’t very smart, but ⁓ I was really ambitious and that kind of helped me out.
Kristen (12:45)
Yeah, and you probably have really good people skills and I think that you’re probably able to read the room and work well with people. Yeah, so tell us about, you know, for the past couple years you’ve been an expert witness. I think that’s so fascinating. What kind of got you into that sector?Jeff Potter (12:52)
Thank you, that’s kind of you.I love this business. It’s fantastic. Bike sure happens, stands like, Kristen, everything in life, you all of sudden this opportunity came up. A friend of mine that’s an attorney, he’s a litigator, came to me and he says, Jeff, you know a lot about real estate. I have this case, I represent the shopping center owner, and they have a tenant that hasn’t paid their CAM charges, which is common area maintenance charges, and it’s a triple net lease.
Can I hire you as an expert witness? It’s getting ready to go to trial, and we’re at a point we have to designate our expert witness. I said, sure, Sean. I’d love to do it. He engaged me. I read all the documents because you have to, one, be qualified to be an expert witness, education, experience, background, and some other documents you have to provide. And then you have to read all what the case is about, do an analysis about it, write your report, present your findings to…
My client is the shopping center owner, not the attorney. And I always look for solutions if possible, if they’ll let me. And I’ll say, hey, here’s a way to settle it. And in this particular case, the tenant said that they had signed a lease and their CAM charges were a one-time charge that they only paid at one time when they signed the lease, not every month. And they owed years and years and years of CAM charges. was a huge amount. And the lease said that
prevailing party would get their legal expenses and that was a huge amount so they lost and my client won.
Kristen (14:38)
Wow. I mean, that’s so interesting. I feel like there’s a lot of time put in to be an expert witness in these kinds of things.Jeff Potter (15:27)
It’s really detailed and it all depends on your presentation. Sometimes you just get a big box of documents and you’re told what the scope of work is, what the legal initiatives are. And then we ask, you know, what’s your budget? Can you afford to do this? Are you plaintive defendant? And some cases go really good. I’ve had cases where I fired the client in short order because they wanted to do something unethical.and I wasn’t willing to do that.
Kristen (15:59)
Yeah, I mean, I’m sure you have to have a lot of integrity when you’re dealing with these kinds of lawsuits. And it’s just so fascinating. I’ve actually never talked to anyone who is an expert witness like this. When you’re helping people, like, what’s your process when you go through these complaints and you write down your best thoughts of everything? What’s your process? Just taking experience?Jeff Potter (16:25)
Ooh, part of it’s secret.Kristen, part of it’s secret, secret agent I can’t share it with you. It’s our competitive edge in the marketplace. But we’re real finite about it because we have to support all of our thesis and all of our work and our line items and our billings. Sometimes they’re voluminous. I mean, I have a case right now where there’s 11,000 pages of documents so far. So ⁓ that has to be managed.
Kristen (16:30)
Great.Jeff Potter (16:54)
either by our team or by the law firm’s team. Sometimes there’s only a few pages. Sometimes the attorneys say, this is our budget, so we’re spending. But my cases seem to be very complicated and protracted. A lot of moving parts, verifying that facts were actually, or actions were completed to what level and does it support, justify what the suit’s about.Very interesting. It’s kind of like being Sherlock Holmes. You have to have really good deductive reasoning and kind of snip through them and what about this and did this fit this and why. And then of course there’s a financial component. You have to understand financing. Most of my cases have a construction component as well. So that’s an edge for me.
Kristen (17:43)
Yeah, absolutely. And I don’t know if you’re typically seeing a lot of investors in these types of cases, but what are some of the common mistakes you see in these legal cases that can maybe be avoided?Jeff Potter (17:56)
I have seen a lot, I’ve had several cases in the last year and a half where the investors went in blind with the general partner or the managing principal and they lost their investment, millions of dollars. it was two things I noticed over again. The general partner was not authentic, wasn’t,misrepresented what the investment was about, did not give good bookkeeping and reporting, and there was trickery. So there wasn’t the kind of integrity needed. And I think there’s a guy named Jeremy Ball. He lives in the South Bay here in SoCal. I think he’s like the benchmark, the best practice for. He’s got a whole process for checking out general partners before he invests as a limited partner. And there’s a checklist.
People should get his writings and read them. But you really got to do your homework. What’s it about? Make sure that it’s factual. There’s a lot of misrepresentations. And when your money’s gone and then the sponsor goes into bankruptcy, you never get your money back. It’s terrible. So I tell everybody be really, really careful. Do a lot of homework. Hire third party consultants.
Kristen (19:20)
a lot of questions too I’m sure.Jeff Potter (19:23)
ask a lot of questions and go look at it yourself.Kristen (19:27)
Yeah, I’m sure with a lot of these people who are, you know, kind of misrepresenting themselves, a lot of that can probably be unraveled with persistentJeff Potter (19:36)
So thishas happened to me. So I tell you this expert witness business because it’s happened to me firsthand and just happened to me recently on a $50,000 investment where what my trust was sold was literally air. And it was a long-term relationship and I shouldn’t have trust the person.
So everybody learns, right?
Kristen (20:09)
It’s hard to avoid that completely. It’s very hard to get through your career without one person really misrepresenting themselves and getting away with it.Jeff Potter (20:19)
Yeah, I had a mentor named Dan Rabinowitz at one time. Dan was an original tram or crow partner. And he gave me a whole list of questions and, ⁓ you know, and I’ll tell you a part of them were, like, don’t stretch to make a deal. Sell when opportunity knocks, ⁓ be candid with everybody. If you don’t have a positive advantage, don’t compete really logical things, really logical.parables and colloquialisms that are factual best practices, you know, change before you have to. It’s like the industrial market in Southern California. So much industrial was built, markets overbuilt, markets in adjustment. People were buying like cats and dogs from, you know, during COVID that’s kind of subsided. So there’s an adjustment in the rental rates.
pricing as well as the cost of land to develop ground up. So things change and they can change fast.
Kristen (21:22)
Yeah, I’m sure you’ve seen a lot of ups and downs in the market being in the business for over 40 years.Jeff Potter (21:27)
Yeah, letme tell you about one. I bought a business part out of state with a partner. 9-11 happened. Amazing. Market stopped. Didn’t slow down. It stopped. And our financing didn’t stop, and our debt service didn’t stop. Completely blew up our business plan. Had nothing to do with me. It’s what I call third party conditions. ⁓ And we had to figure out how to scramble through and get out of that and pay the debt off with the bank.
That was hard. That’s how you get white hair.
Kristen (21:59)
Yeah, absolutely. And how did you recover from that?Jeff Potter (22:05)
We had the liquidate. Luckily we had a loan that was very secure. It was only 50 % of cost. So the lender was safe with that, felt comfortable, and they worked with us.Kristen (22:18)
Yeah, I mean the market is just so unpredictable and I think a lot of people are a little, they’re still a little confused if it’s a right time, if it’s a wrong time. What are your thoughts on the market? What are the opportunities that you’re seeing that you’re excited about?Jeff Potter (22:35)
I will share with you that through other entities I control, we’re investors in mobile home parks, cell storage, retail, triple net investments, kind of a whole compendium of different asset types. Real estate’s local, one side of street’s good, one side of street’s bad. Going home side of the street may need a great shop on, but the other side isn’t. I don’t have a crystal ball right now. I feel like the feds have to makesome decisions. I don’t think lowering interest rates is going to move the commercial market much unless you’re a REIT and you’ve got lines of credit and you lower your debt service. We’re seeing real problems with some of my investments on cash distributions to the partners as LPs because debt got so expensive on the refinance. They went in at a cap rate that was lower. Cap rates have risen. The debt’s cost.
cash flows dried up, that’s one. The other experience is insurance is through the roof. It’s been a real, real problem on destroying deals. ⁓ Deals that are really hard, I know I backed out of a deal where it was a value-add apartment deal in Houston, Texas. ⁓ And the sponsors really didn’t have the depth, didn’t have the cash in their pockets to carry it. I told them that this deal doesn’t go well and your renovations.
and you can’t retain it quickly, you’re have to carry it $10,000 a month a person. I got my 10,000, you have your 10,000 and that happens. So these kinds of issues, it’s all about a well qualified, well financed sponsor and then can you go through the vagaries of the marketplaces and the ups and downs and survive? It’s a long term game.
Kristen (24:23)
Yeah, I think that’s a really good ⁓ takeaway that you have to be in it for the long haul. You have to be able to adapt to what’s going on.Jeff Potter (24:32)
No question you have to adapt to the marketplace and the marketplace could change on you really quickly. Look, Fannie and Freddie, Fannie Mae wants to come out with a 50 year term mortgage. Will that help people affordability index? Absolutely. It’s got to get approved, but we’ll see what happens. It was just like during the depression or a long time ago in the thirties when they came out with a 30 year mortgage. So.It’s to help the affordability index and housing is super, super expensive in my opinion. And the income ratio to buying power is just out of control. I don’t know how people do it.
Kristen (25:10)
Yeah, absolutely. Especially, I mean, in California where you’re located.Jeff Potter (25:15)
Yeah, California is very arduous at best.Kristen (25:21)
Yeah, well, I mean, definitely some optimism there, some good pockets of the market. seems like you’re doing a lot of great adaptive reuse projects.Jeff Potter (25:32)
Well, we have one right now where we intend, my partners are handling this, a shopping center to rezone it for industrial and distribution. And we’ll see if that all happens. It’s all about having the right tenants. And are the tenants financeable for the bank? And then once you get your short-term financing and you do your renovation,Can you stabilize the rent so you can go back and get a longer? In our case, we’d look for a life insurance, life code, and loan, something like that. So yeah, and it’s legalized gambling. It’s a tough business. It’s not for the faint of heart. And a lot of things can go wrong, and tenants go broke, and all of a sudden, the company says, we’re going to let 30,000 people go in our company, and things change.
Kristen (26:20)
Yeah, yeah, I mean, definitely unpredictable. To kind of wrap all this up, what’s a piece of advice that you wish you learned earlier in your career that you can share with us today?Jeff Potter (26:33)
take less risk, be really careful, and ⁓ keep your work, do the best you can, integrity, integrity, integrity.Kristen (26:42)
I think that’s a great note to end on. We’ll tell everyone where to find you and where to find H ⁓Jeff Potter (26:49)
potterexpertwitness.com and we’re on the internet, we’re on YouTube, LinkedIn, social media. ⁓ Thank you for your time, Kristen, this is really great, enjoyed it, hope to see you again.Kristen (27:01)
Wonderful. Thank you so much and thank you everybody for listening. Hope you got a lot of great information for your own business, some inspiration as well, and we will see you back next time.Jeff Potter (27:04)
Cheers.Thank you, cheers.
