Overcoming Challenges in Real Estate Development: A Personal Journey

John Harcar (00:01.887)
All right, hey guys, welcome back to our show. I’m your host, John Harcar, and I’m here today with Dan Shabel. And what we’re going to talk about, besides his journey in real estate and business, we’re going to talk a little bit about his efforts in capital raising. We’re going to talk a little bit about the state of the retail market. Sorry, guys, had a little brain fart. State of the retail real estate market and what his outlook is.

Remember guys, at Investor Fuel, we help real estate investors, service providers, I mean really all real estate entrepreneurs, two to five X your business. We do that by providing tools and resources to grow the business you want as well as live the life you wanna live. Dan, welcome to our show.

Dan Shabel (00:46.062)
to be here, John.

John Harcar (00:47.187)
Yeah, I’m excited to talk a little bit more. I enjoyed our quick conversation pre-recording. And I want to talk about capital raising. think that’s something that a lot of people a lot of times might even are afraid of, that word. But before we talk about that, let’s kind of jump in. Tell us about your background, how you got into real estate, business, and kind of what got you to today.

Dan Shabel (01:08.238)
Sure. I was a litigation attorney. My dad built a small shopping center. I kind of got the bug, started doing leasing for him and eventually jumped over to the business side in 2000. I’ve been a broker. I’ve worked for landlords. I’ve done tenant rep, things of that nature. I’ve done a lot of development.

you know, having kind of a full circle experience of, you know, legal business, start of the project to the end of the project kind of set me up for, you know, becoming a developer. And in September of this year, I joined, I partnered with a guy named John Facciano, who has been a developer for 25 years. so we are actively, we have

20-25 deals that we’re working on that are primarily two buckets. And the first bucket is retail. We have lot of experience with retail. We have a couple of retailers that we’re working with to do build-a-suits for. so those are harder deals. And then we have a second bucket, which seems to be kind of exploding, where we’re working with a national home builder.

And after the great financial crisis, they can’t own or they typically don’t own unimproved and unapproved property. So they bring in a developer. get, you know, approvals aren’t already in place. We, you know, we get the approvals and then we do the horizontal development and sell them the lots. They are this particular home builder that we’re working with is voracious because I think there’s a shortage of homes.

I think at this time because of post pandemic, the market for existing homes has gone so much that you can afford to build new homes that will compete with existing homes. So we have probably, I don’t know, 15 plus deals that we’re working on with them that are not only just residential, but they’re kind of mixed use, which includes some of the retail stuff that we’re doing.

John Harcar (03:34.731)
Okay, got it. If you’ve watched any of my podcasts, I like to go back. I think there’s so much value in people’s journey and especially with the people listening to us that might be in the starting of their journey. So you mentioned your father and you were doing some leasing for him. So he had some apartments, he had some rentals. What did he have?

Dan Shabel (03:50.956)
No, he had a small shopping center, was like a little 8,000 foot shopping center and then he expanded it to 28,000 feet to 36,000 feet. I was working with him as an attorney, but then I started doing, going through leases and kind of negotiating with local tenants on the leases and understanding it. And candidly,

John Harcar (03:53.16)
Okay.

Dan Shabel (04:18.88)
It was a lot more attractive to me than getting up knowing that I was being paid to argue with people as a litigator. I probably 11, 12 years. So I started out as a litigator and then gradually moved over to real estate, did a lot of leasing, did some, you know.

John Harcar (04:25.611)
What kind of law did you practice?

John Harcar (04:33.374)
Okay, and what type of law?

Dan Shabel (04:45.858)
loan work, some purchase agreements, some JVs, and things of that nature. But I quickly realized that my strength was on the business side. I was competent as an attorney, but what my passion was was on the business side. So it was not easy, but eventually somebody gave me a chance. It was a company called Cosmo.com.

and this was back in 2000, they were kind of ahead of their time. Amazon had invested 50, 60 million in them and you’d go online back in 2000, order and they would deliver in an hour. Yeah, it was crazy. They were doing videos and kind of, know, munchy foods, things of that nature. They expanded to some, you know, consumer goods and

John Harcar (05:35.371)
crazy.

Dan Shabel (05:42.606)
They just didn’t realize that what they were was more of kind of a door dash or something like that as opposed to kind of a retailer which had inventory. know, so they didn’t make it. I jumped over to Jones Lang LaSalle, did office tenant rep for their tenant rep group, eventually went over to company called Fameco Real Estate where I met my partner John Facciano, who was a partner there.

John was doing investment sales. I started doing investment sales with John as opposed as well as as well as tenant rep and a lot of landlord rep. And we developed a project in New Jersey with with the supermarket. And you know I kind of I was a partner in that deal. And so we kind of caught the development bug back then. It was probably 2007. It was right before

the crash. remember, I had to do we had a deal. This deal, it was the first deal, maybe the only deal I ever had that closed early. The buyers had a 1031 and their their financing was going to dry up. It was right when everything hit the hit the fan was like right around the summer of 2007. And they ended up closing a month early to preserve their their interest rate because

John Harcar (06:47.671)
wow.

Dan Shabel (07:05.558)
interest rates were being hiked 100, 150 basis points. From then on, I worked for some developers and worked for a small developer at about a million square feet, did a lot of leasing and a lot of problem solving on the development side. And then I moved over to a company called MCB based out of Baltimore and did larger developments.

We had several large developments, but one kind of the keystone was one in Drexel Hill, Pennsylvania. We kind of knocked it. was 260,000 feet. We knocked everything down except the PNC bank, did a while convenience gas, got approvals for 120,000 feet of self-storage, moved an existing supermarket that was 50,000 feet and old.

John Harcar (07:53.045)
Mm.

Dan Shabel (08:03.97)
made it a 72,000 foot beautiful kind of state of the art supermarket. And originally we were trying to do office. We couldn’t really get an office tenant. So we went to apartments, had about 172 apartments that were approved. But a hospital, before we started the apartments, came to us and wanted to do the office there. So we ended up doing a 60,000 foot office and another 20,000 feet of retail.

So that was kind of one of the keystone projects that I worked on.

John Harcar (08:34.442)
Okay.

John Harcar (08:41.099)
And so in all this time, you’re just kind of learning. I mean, you never really had a formal mentor per se. I know you mentioned your partner, John. I guess that could be maybe classified as a mentor, right? But I mean, you’re just plugging along. mean, what type of mindset tools and things are you using to just keep focused on to your next growth or your next stop, I guess you could say, your journey?

Dan Shabel (09:03.566)
Great question. think anybody who wants to get in development, have to kind of, you have to know every, I always joke that a developer doesn’t have to know everything about everything, but they have to know something about everything. So, you you have to know property management, but you don’t have to be an expert in it. But, you know, there’s certain things like leasing and kind of obtaining entitlements and understanding the financials. Those you have to be.

You have to be at the top of your game. But you have to know a lot about everything. And what I would do is, I like to smile when I say this, but I would glom on to anybody doing a development deal and just try and suck as much information out of them. I did work when I was a broker for a preferred developer for tractor supply. And I became very good friends with the developer from the

the client and you know I just I just obtained as much information as I could kind of faked it till I made it and you know having been a litigation attorney I was pretty comfortable on my feet so I didn’t have an issue with kind of going in front of a board and making a presentation so it kind of gave me a foundation for that but you know you make mistakes and you have to realize that

No development goes without any problems. And I think I boil it down to four things. It’s about relationships. You create your network, as I’m sure you’ve done with your company. There’s project management. So how do you keep things organized? How do scope, schedule, budget?

You have to be able to solve problems because problems come up every day. And then in the end, it’s all about persistence. You have to be willing to just work this out. think the hardest thing for most developers, we tend to be that guy, the guy had a heart attack and we’re pounding on his chest for an hour. And the hardest thing is for us to kind of say, all right, this deal’s not gonna work. And there’s some guys who are great at that.

John Harcar (11:26.133)
Yeah. Yeah.

Dan Shabel (11:29.23)
and they just know. But sometimes your greatest attribute could be your biggest detriment.

John Harcar (11:36.459)
Sure. What do you think are some of the biggest challenges that you’re facing right now in your business?

Dan Shabel (11:42.968)
Well, I think the uncertainty in the economy, you know, with the tariffs, et cetera, is definitely, nobody’s really saying this, but debt costs are still pretty high compared to where they were pre-pandemic. And, you know, the pandemic, I think, just escalated the cost of construction. So to do new construction has probably cost 50,

percent more. I mean, it could be as much as double. I know for the retailer we’re working with, we used to use, you know, 90 to $120 a foot, you know, to build a new construction. You know, their sticks and bricks are $230 a foot. Now, we may be able to push that down a little bit, but I mean, that’s a huge. And then also, was a guy I used to work with at MCB.

Southern gentleman who’s been in the construction business for 40 years and he always used to say well you always get hurt in the dirt. So site work where we used to assume it was 150 to 200 thousand acre it’s now you know 400 to 750 thousand acre. So that and then kind of dovetailing in what we were you know transitioning into kind of the retail aspect that’s been a major problem because

The retailers got used to paying, you know, a junior anchor got used to mid teens, low to mid teens for space. There was a number of vacant boxes available. But if you talk to any broker now, they’re saying those boxes have either been filled or converted to another use. So there’s not a lot of vacant space.

which would lead one to believe that as part of the cycle that you’d start doing new construction development. But it’s really tough to do new construction for rents under $20 to $25 a foot. So we’re at that kind of point where is there gonna be some capitulation, I think, on the part of the retailers. The developers are just saying,

John Harcar (13:58.326)
All

Dan Shabel (14:07.714)
we’re not going to develop and lose money. if you’re not willing to pay 20 bucks, give or take, a foot in rent, we just can’t, even if you have a zero basis in the land, you just can’t do it.

John Harcar (14:09.92)
Yeah.

John Harcar (14:22.271)
Yeah. So is that kind of some of the trends you’re seeing now? mean, are there any other trends in the industry that you’re kind of keeping an eye on?

Dan Shabel (14:31.022)
I mean, I think there’s always new food concepts that are coming out. But I think really the trend is how are the retailers going, the national retailers going to convince Wall Street that they’re able to comply with their new store openings that they projected when there’s really not a lot of space.

John Harcar (15:00.341)
Yeah.

Dan Shabel (15:00.904)
And I give the retailers credit. They’ve been very disciplined in terms of how much rent they’re willing to spend. But this retailer that we’re working with, I mean, is willing to pay north of $30 a foot for new construction. Still, we’re having difficulty making the numbers work with just doing a single tenant deal like that. We’ve got to add. And then you have to, I think also the challenges for new construction.

convincing landowners that A, your property is not worth anything unless it’s approved. And that takes time, especially in the Northeast. It takes more time than a lot of other places. And B, that the land is the last thing we price. So we understand the revenue, we understand the cost of the construction, the site work. And in the end, we plug in a land cost that

that meets, and now with the increased interest rates, where it used to be able to, you could build to a 7 % yield on cost. Now, you really need to be looking at somewhere around an 8%. I mean, maybe for great credit, you can push that down to a 7 and 1 But it’s just, so you’ve got an increased hurdle rate for the yield on cost because of the cost of construction.

John Harcar (16:14.027)
Yeah.

John Harcar (16:27.711)
Yeah, no, that makes a lot of sense. I mean, are you guys, so what are you doing right now with your business? Are you throttling back? Are you just going full bore? I mean, let’s talk about exactly what you guys have going right now.

Dan Shabel (16:37.646)
No, we are like, we’re a full bore. We have cultivated this relationship with the National Home Builder. I mean, it just seems like every week we have one or two new deals. Some people don’t like those type of deals. There’s definitely, because the sticking point is that they’ll put up an eight or 10 % deposit.

which they would lose if they cancel. But their contract is they pretty much can cancel the deal at a certain point. What I’ve been told is that with the exception of the great financial crisis, they have not canceled deals because if they’re not building and selling homes, they’re not gonna, I mean, that’s their source of revenue. It’s not like they’re a retail REIT that has

hundred shopping centers where they’re rental. They need to keep churning these new houses. we have been getting in deals, you know, I’m telling you, mean, just so often and because of our relationship, you know, we’re able to, there’s one owner that we’re talking to who has five or six parcels and we’re working on a big deal to kind of buy them all. you know, and it also kind of, we’ve got a couple of deals where we’re,

where we’re doing both the residential as well as the retail component.

John Harcar (18:15.947)
Cool, very cool. Overall, these businesses all this time, all your years, what has been your keys to success?

Dan Shabel (18:24.802)
I mean, I think the four things that I talked about before, mean, think relationships are probably one of the most important things. People, I mean, I’m an attorney, but I think the real key is that somebody’s got to be comfortable enough with you on a handshake. Because no matter when you start negotiating a deal, at a certain point, there needs to be a modicum of trust.

that you’re going to do what you say you’re going to do. then I think following up on the details is really important. find that if you don’t follow up on the details, and it’s not to say you lose the forest for the trees, but they’re kind of like these hanging chads that just get tangled up. So you have to kind of keep them organized and just make sure that

that in the end you think you’re all finished and yeah there’s two things that you forgot and you really just have to keep track so checklists etc. and just making sure everything’s finished up.

John Harcar (19:33.163)
If there’s folks that are on here, and I appreciate you coming on and sharing all this information. If there’s folks on here they maybe want to talk to a little bit further, explore other things with you. How can they get in touch? What’s the best way to get a hold of you?

Dan Shabel (19:46.478)
Sure. My email is dsha, that’s D-S-H-A, B as in boy, E-L, at T as in Tom, S as in Sam, V as in Victor, T as in Tom, G as in George, A as in apple.com, and my cell phone is 856-816-2737. We have a number of deals and we’re…

you know, we’re really looking to raise capital.

John Harcar (20:18.283)
Guys, if you are looking to get in any deals, if what he said resonated with you, please reach out. Dan, once again, thank you so much for coming on here. Yeah.

Dan Shabel (20:27.714)
One other thing, our website is tristateventureslp.com. It’s all one word, tristate, T-R-I, stateventureslp.com. Thank you very much. John, it’s been a pleasure.

John Harcar (20:38.399)
Perfect. Yeah, I’ll put it. Yeah, thank you. I’ll put all that in the show notes guys. I hope you enjoyed the show and we will talk to you on the next one. Cheers.

Dan Shabel (20:46.094)
Take care.