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Show Summary
In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Ari Rastegar, an investment manager and developer based in Texas. Ari shares insights into his extensive experience in real estate, discussing innovative projects, the challenges he has faced, and the importance of strategic investment. He highlights the potential of 3D printing in construction as a solution to housing shortages and emphasizes the need for resilience and risk management in entrepreneurship. The conversation concludes with information on how listeners can connect with Rastegar Capital.
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Investor Fuel Show Transcript:
Ari Rastegar (00:00)
I think everybody should wrap their head around at one point is that compounding of how little things compound, how wealth compounds is very powerful. And at the beginning, when those that are out there starting to save, making their first investments and seeing something that hopefully is making a decent return, call it 7 % a year, 8%, 9 % a year if you’re lucky, which is notthat easy to come by. So if you find a great financial advisor or great ⁓ manager that can get you those returns consistently, I think it’s very powerful. if you look at how those returns compound in the first year, second year, third year, fifth year, 10th year, it doesn’t seem that substantial. But over the course of 10 years, 20 years, 30 years, what appears to be a small compounded return becomes exponentially powerful in those later years.
is very important. What I didn’t entirely understand or appreciate properly was how debt can also do that in the negative way. So positively, you talk about positive compounding of going to the gym or saving that certain money, watching those cash flows through your rental properties or through your passive investments grow, that can also happen with negative habits. So when most of the loans that were being written, really, I think 90
percent of the commercial real estate loans are on floating rate loans. So when rates were zero and you were getting a you know a solid loan at call it four and a half percent.
looks great on paper, but thinking about how that rate could escalate ⁓ wasn’t as much an advantage point.
Michelle Kesil (03:16)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil And today I’m joined by someone that I’m looking forward to chatting with, Ari Rastegar who is an investment manager and developer in the Texas area. So excited to have you here today, Ari.Ari Rastegar (03:35)
Hey, thanks for having me.Michelle Kesil (03:36)
Of course, I think our listeners are really going to take something away from how you’re approaching, developing, investing, and creating new communities and projects. So we have a lot to dive into.Awesome. So first off, for those not familiar with you and your work, can you share what your main focus is?
Ari Rastegar (03:57)
Sure, so we’ve invested in 38 cities, 13 states, seven different asset classes. Our company ⁓ is based in Austin, Texas, where I was born and raised. And at the moment, we’re developing a series of very large tracts of land, one in Kyle, Texas, which is just south of Austin, north of San Antonio. We’re doing some pretty innovative stuff around with 3D printing and robotics of some of the houses. We donated 11 acres to the city of Kyle to build a new elementary.school on that site that actually opened this year which is really exciting. We’re doing 1400 apartments all within this master plan community that we bought we zoned we entitled. That’s pretty exciting and we have you know about 15 or 20 other projects from industrial facilities to a new boutique office building we just opened in downtown Austin. ⁓
apartment complexes, it’s hard to keep track of all of them, but some really, really cool stuff. We’ve been asset allocators investing with other managers in various cities that we don’t have subject matter expertise. We’ve been developers in places that it makes the most sense to. ⁓
to be able to create value. So for us, it’s about finding amazing pieces of land or real estate in growing areas and then looking at it through a different lens, whether through rezoning, whether through value add.
on apartment complexes or quite frankly, completely looking at it from a different vantage point like we did in Dallas across from the new Texas Stock Exchange. We’re building one of the tallest buildings ever built in that uptown area. There used to be a little nightclub that, funny story, didn’t let me in because I had dirty shoes 20 years ago. We went back and bought the building, went through an eight-year zoning case, and we look forward to breaking ground this year to build a residential high-rise. So some really, really cool stuff.
Investors are mostly public pension funds, insurance companies. But we built a pretty substantial kind of accredited investor base, which I’m very excited about because a lot of time these types of investors don’t get to participate in institutional quality deals. So this year we have a big mandate. One of the reasons I’m talking with you, I think, today ⁓ is to give people the opportunity to be a part ⁓ of projects that are usually too large, where the allocation pieces are too big for ordinary investors.
And for a kid like me and nobody from nowhere that was delivering pizzas and flipping burgers not too long ago, it’s exciting to be able to offer those opportunities to people that are looking to grow their net worth, grow their retirement funds, and be a part of very cool stuff.
Michelle Kesil (07:25)
Amazing. So many exciting projects that you have in the works. I’d love to know how you got started in this business and yeah, how your trajectory went from the beginning to where you are now.Ari Rastegar (07:39)
Well, ⁓ definitely was not all candy canes and lollipops, I’ll tell you that much. ⁓ But I was very fortunate to meet a ⁓ very senior level real estate executive through my wrestling coach. And I was a mediocre wrestler at best, but my coach and I have been very close ⁓ over the years. And his cousin is the president of one of the largest real estate brokerage houses in America, reallyone of the biggest in the world based out of New York City. And I had this idea for an entertainment company many, many years ago. And this was right around the time after 2008 when the world came to an end. a lot of real estate people found themselves kind of bored, not knowing what to do. So we built this large entertainment company that, ⁓ thank God, ⁓
didn’t work out or else my life would have taken a different route. I actually wrote a book about it. It’s called The Gift of Failure. So that failed. But I ended up coming to one of my true passions, which is around real estate development, building communities, and ⁓ kind of jumped straight into it right after that business ended.
while I was in law school, incidentally, I borrowed $3,500 to build a little single-family home as if law school wasn’t annoying enough. I figured I should also start a construction business, which we built a single-family home. We ended up selling it. And I got my first taste of what it meant to really take a piece of land, take a vision that was in my head, put it on paper, and then watch it come to life. that, that,
that realization was infectious of being able to build, really build something. And I took a couple detours, went into some other businesses. Those didn’t work out. And it took me back to ⁓ working with two very, very ⁓ just really talented developers and investors. And I helped them put some money together for certain deals. ⁓
They went in those deals, they made money, and we thought that we could continue to do it on a bigger scale, and that’s exactly what we did. And being from Austin, we were able to catch the Austin wave before a lot of other folks did. So we bought some great stuff that probably wouldn’t even be for sale anymore and shared that vision with some great investment advisors that ⁓ invested with us, some local investors, some international investors, and we were able to… ⁓
we were able to start buying, zoning, building, and that’s where we are.
Michelle Kesil (10:18)
Amazing how exciting that things were able to really expand in that direction for you.Ari Rastegar (10:24)
Well, I mean, it’s funny hearing myself say it out loud. That’s just not really how it all went because, you know, in 2020, we had you know, we had COVID, pandemic that shut the world down. had interest rates hike 500 basis points faster than they ever have in the history of modern economics. You know, so these past five years have been very, very difficult years in general. So looking backwards, I think, you know, it’s you can see an upward mobility of growth, no doubt.But I think it’s important for anybody that’s out there building any kind of business to know that there’s going to be some very strong headwinds. And I love the definition of an entrepreneur I heard many years ago of it’s like jumping off the side of a cliff and building a plane on the way down.
So being prepared to have resilience and being prepared for things to really go wrong and learning from those and finding that problems are the gifts that we grow from is so much of how this is because as you build a business, you also have to build yourself because the person that it takes to run a massive, massive business is not the person that starts out on the journey. And so I love the real estate analogy for being able to build something and see the structure in front
in
of you when it’s done, seeing families move into it, seeing business move into it and thrive and prosper, but ⁓ understanding that we need to also build ourselves in the process and reinvent how we see the world ⁓ is mission critical to becoming a professional investor because you need to become a professional personal developer as well ⁓ as a structured developer.
Michelle Kesil (12:00)
Yeah, absolutely, that’s so true. I’m curious, you mentioned things have been challenging and there have been obstacles. What is maybe one of the obstacles or challenges that you’ve overcome? And now you have the lesson and looking back in hindsight, you wish you had known before.Ari Rastegar (12:17)
There’s so many it’s hard to really understand. I’ll say one that.that
I think everybody should wrap their head around at one point is that compounding of how little things compound, how wealth compounds is very powerful. And at the beginning, when those that are out there starting to save, making their first investments and seeing something that hopefully is making a decent return, call it 7 % a year, 8%, 9 % a year if you’re lucky, which is not
that easy to come by. So if you find a great financial advisor or great ⁓ manager that can get you those returns consistently, I think it’s very powerful. if you look at how those returns compound in the first year, second year, third year, fifth year, 10th year, it doesn’t seem that substantial. But over the course of 10 years, 20 years, 30 years, what appears to be a small compounded return becomes exponentially powerful in those later years.
is very important. What I didn’t entirely understand or appreciate properly was how debt can also do that in the negative way. So positively, you talk about positive compounding of going to the gym or saving that certain money, watching those cash flows through your rental properties or through your passive investments grow, that can also happen with negative habits. So when most of the loans that were being written, really, I think 90
percent of the commercial real estate loans are on floating rate loans. So when rates were zero and you were getting a you know a solid loan at call it four and a half percent.
looks great on paper, but thinking about how that rate could escalate ⁓ wasn’t as much an advantage point.
And looking back, I think if we would have really understood, although it was a black swan event, as quickly as the rates did rise, it’s never happened before, but planning for the unexpected is also how you manage risk. And so there’s a point that ⁓ I think looking back, we can look at better moving forward as planning for things
that even if they haven’t happened before, managing risk with even more vigilance that we had in the past. And so when you look at rates that were at 4 % on a deal, there were cash flowing, call it 9 % a year, I’m just using an example. Well, if all of a sudden that raises 5%, which it did, and that same loan is at 9.5%, those cash flows that you thought you had all of a sudden start to dissipate. And so I think one of the most important things
is about becoming a professional investment manager, managing money for some of the smartest, whether firefighter pensions or insurance companies or ⁓ very large investors out of New York that are our clients, you come to see that the way they diligently manage risk is what separates them from being amateurs. And I think early in my career, being very grandiose, looking for what these big returns could be, buying things, building them, you have a level of bravado that needs to be tempered with risk management.
And
so knowing that that debt, once it goes up, can also compound negatively, I think is very important. So as you start to buy these projects, you start to become a professional investor, understanding the other side of that coin while still being optimistic about the world can be better. Because if you’re a professional investor, you ultimately are saying, I believe I can wake up one years, two years, three years, four years later, and the world can be better, certainly from a return expectation standpoint.
We should also find a way to be wildly realistic and understand how leverage can leverage us to greater returns, but it can also leverage us into failure if we’re not careful.
Michelle Kesil (16:46)
Yeah, absolutely. I think that’s important to differentiate that and to have that understanding. So what are some of the investment strategies that you have found the most success in? Or are there specific strategies that you kind of have as preference when you’re working with the different developments that you’re involved in?Ari Rastegar (17:10)
Sure. ⁓Well, I think there’s kind of high level strategies that start kind of top of the funnel and then as you start to go down, they become very focused. I think ⁓ looking at high level macroeconomics of the national averages and things like that, I think are absolutely worthless now, especially when you invest in niche neighborhoods. And New York City is a great example of a microcosm of saying, you look at one property on one street, you go one avenue
and the economics are completely different, ⁓ better or worse. And I think that it’s very important now more than anything to understand the deal that you’re in and understanding the economics of that particular project, that particular neighborhood, to really gauge and analyze what the potentials are, ⁓ upside in and downside. And what I mean by that is I like to start with population growth, being able to look at do I believe in this country?
United States. Yes. Okay. Then do I believe in the state in Texas? Yes. Why? Here’s the GDP. Here’s the growth. Here’s the population. Here’s the jobs. Here’s the taxes. And then narrow it down into Austin. Do I believe in Austin? What do I see in Austin? And then narrow it down even further to a particular district. The Mueller district is an example. And then narrow it down even further to that street, to that neighborhood, to that particular project. But then all of it at the end of the day has to do with people. Has to do
with where people are working, where they’re living, where they’re employed, where they’re having fun. And so I look at population growth and why reasons people would want to be in all these different areas from the top down. And if I can figure out a reason why people would want to continue to be and grow and work and live and entertain within that particular district, within that particular area, that puts up our sensors to say, OK, let’s start looking a lot closer and say, can we buy this at a discount to replacement cost? What’s the value of this?
land, can we actually add value whether through rehabilitations and new maintenance and upgrades to an existing property or can we change the zoning and look at it through a completely different lens and say this used to be a commercial project but maybe we can rezone it for apartments and after you look at that population growth and you look at those reasons those human reasons to be in that area then we figure out can we actually add alpha to that project and from there that’s when the magic starts to happen.
And that’s when some of our analysts, much smarter than me, start to really crunch the numbers in a meaningful way to see if we can ⁓ really do something very meaningful for our investors.
Michelle Kesil (20:33)
Amazing, yeah, it sounds like you guys are very deliberate with the way that you are approaching things.Ari Rastegar (20:38)
We’ve definitely been called worse before, so.Michelle Kesil (20:41)
I’m sure. Awesome. So you mentioned earlier about doing the 3D printing development. I was very curious about that. Can you expand on what that looks like?Ari Rastegar (20:49)
Sure.Yeah,
know, the building, the nature of building has been desperately needed innovation for years. The way we build a house hasn’t changed in 30, 40, maybe 50 years, quite frankly, and the timelines it takes to get permitting done, to bring the necessary equipment in, the different vendors or contractors, experts in plumbing, electrical, roofing, that whole system and the supply chain that it takes to do it is just too slow.
low in this world of AI and technology and the hyper growth. So we’re looking at a time where innovation needs to come into this industry to lower down costs to bring. And we’re almost five million houses short in the United States. To think about how big of a number that is. In Texas, 500,000 houses short. So the typical house that you would see a builder build would take six to nine months to build, let’s say. Well, with the advent of 3D printing for this type of starter home, so to speak, a two bedroom,
or a three-bedroom, two-bath type home that you would see a young family moving into with 3D printing can be done in six weeks. And so if it can be done in six weeks, and then you can start to use robotics to do it, you can start to lower the cost basis where a lot of people have been priced out of ⁓ buying these initial houses for a variety of reasons that we can talk about another time. ⁓ But I’m very interested in how can we do this quicker, faster,
higher quality because then it starts to be very interesting if we can do something at a higher quality and quicker and the cost is lower and so that’s what we’re really starting to explore and there’s some great companies out there that are doing it that we’re starting to partner with we’re starting to build our own infrastructure to do it in-house and it’s just a very exciting time to be able to see the in fit the efficiency and the productivity curve improve so exponentially which will create so much value for so many
people.
Michelle Kesil (22:50)
Yeah, amazing. That’s so fascinating how you are using this new level of technology and to create more efficiency. How does it work in terms of cost with the 3D printing? Is that also something that gets lowered?Ari Rastegar (23:04)
Absolutely, mean the cost gets lowered from a material basis from where the mechanisms are actually some things are printed on site some things are printed and then brought in and so absolutely, you know the labor That goes into building is usually one of the largest line items and all sorts of construction. It’s one of the reasons why Construction in New York City has really been stalled over the years is because the the minimum cost for some of the workers is is too highfor what the building needs, not necessarily too high for what the workers deserve. That’s a different conversation. But for the financial nature of building some of these buildings, the labor can be very expensive. So if there’s ways to do that with robotics, whereas some of that labor is mitigated and lowered, and then subject matter experts in plumbing or electricians, which are desperately needed, one of the biggest bottlenecks to building data.
data centers in certainly in the United States are experts in electricity. know, the electricians alone is going to be, I think, one of the most high valued ⁓ job positioning and expertise needed, desperately needed in this country and is halting or delaying some of the growth that goes around data centers in general. But in this particular instance, if some of the robotics can mitigate that labor cost and have more safety, quite frankly, because a lot of the accidents
that happen on these construction sites that people could fall victim to could be mitigated. There’s a way to be safer for people and more cost effective for the developers that are building them and ultimately create better value for the end user and the families that are occupying these houses and turning them into homes ⁓ is a very exciting thing to ⁓ start to work with. And there’s a lot of things to work out. It’s not perfect by any stretch of the imagination, but being able to weigh these different options and see
where the different benefits can be, see where the risks could be, and start to massage them and understand them is definitely a time of innovation and the time of ⁓ great productivity potential that we’re exploring very deeply.
Michelle Kesil (25:17)
Yeah, amazing. Thank you for sharing that insight. That’s definitely something that’s quite unique and hasn’t been talked about so much.Well, before we wrap up here, if someone wants to reach out, connect, learn more, where’s the best place for people to find you and to connect with you?
Ari Rastegar (25:35)
Sure, they can find us on the social media platforms at Rastegar Capital, our website, or rastegarinvest.com, one of our landing pages that really explains a lot of the stuff we’re doing from an investment standpoint. But what we’ve done, I think, ⁓ is pretty public and those that we can help. I hope that they come to our sites, and I hope that they find a time to speak with one of the people on our team, because that’s a very big part of our business is ⁓using technology to educate is great, but when it comes to investing people’s hard earned money, we like to take a very human approach to that process. please sign up, fill out one of our forums and have somebody on our team talk with you and see if there’s a way for us to help you.
Michelle Kesil (26:20)
Perfect, well, appreciate your time, your story, and your perspective. Thank you for being here.Ari Rastegar (26:25)
Thanks for having me.
