Turning Dirt into Dollars: Real Estate Private Equity & Land Development with Alice Chen

Christian (00:00.681)
Welcome back to the show. We have a special guest here, Alice. She is a partner at Pender Hastings Capital, a leading real estate private equity firm with funds in both Canada and the U S she actually, her fund specializes in investing in top tier land developments who transform raw land into buildable lots for national home builders. She’s a former and a attorney and an award winning entrepreneur and investor featured in Forbes, the global mail and the wall street journal.

We’re going to dive into the world of real estate, private equity today, land development and what it takes to succeed in this high stakes industry. So Alice, welcome to the show. Why don’t you introduce yourself to the audience? Tell a little bit of your background, how you got here and we’ll get started.

Alice Chen (00:44.224)
Okay, thank you for inviting me onto the show, Christian. I’m so pleased to be speaking to the group at Investor Fuel. So I started out my journey as a lawyer in Canada. So I practiced corporate law in Vancouver, and this is at a big law firm. So I worked on IPOs, I worked on securities offerings, due diligence and all that good stuff.

But I’ve always been very entrepreneurial. So I knew that I wanted to be in business. I just didn’t know exactly what kind of business. So 15 years later, I’m now here speaking to you. I’m a serial founder, co-founder of businesses. I’ve operated businesses, exited businesses, and along the way have been an investor as well. So because of my couple of exits, I’ve had some personal capital to invest.

And so I just grew this passion for investing and I actually built most of my personal wealth through investing in private equity. So that’s an area that I’m very, very passionate about. I really believe that the ultimate goal is to go from being an entrepreneur that’s scaling the active business towards the path of becoming a professional investor because those are two different skills.

Some are transferable, but really two are very different skills. So I’m happy to talk to you guys today about what we do at our firm and our current investment thesis.

Christian (02:16.16)
That’s awesome. That’s awesome, Alice. So I’m curious to know, mean, what inspired your transition from being in law to real estate private equity?

Alice Chen (02:25.64)
it’s actually quite a natural transition because I, I was always very entrepreneurial, as I said, but growing up, you know, with Asian parents, was kind of like, had to follow one of the prescribed path. You either become a doctor or you become a dentist or become a lawyer. And so I kind of, chose my path to go to law school, but with the mindset of a one day, I’m going to use this skill set that I acquire, from law school and, practicing law towards.

business. So I knew business was my ultimate goal. I just didn’t have a very clear understanding of what that business was. And I mean, in today’s fast changing world with, you know, the technology advances and macro economic factors changing rapidly, it’s really hard to forecast exactly what you’re going to be involved in as a young person. So I’m glad that I kind of left the path open, but really focused on acquiring a very solid skill set. which

You know, you know, being having been trained as a lawyer, it’s a great way to learn how to negotiate deals. Great way to be able to digest a huge amount of data in a short time and then synthesize patterns and the understanding how to apply that in different situations. But I was always very, you know, driven to to do something in business. And so it was just a natural segue. So I knew that, you know, after

working as a junior lawyer at a big law firm in Canada for a couple years and being sort of thrown a couple files on Friday afternoon or right before my trips by the partners. I knew it was my time to strike out and do my own thing. So hard to believe I was 16 years ago. And since then, since I quit my legal job, I have not worked a day since. I love my work and…

It’s fun and it’s just, you know, the best of times. It’s the most challenging of times as you guys know, but it’s the best of times.

Christian (04:26.592)
That’s amazing. I appreciate you sharing the allies. So let’s talk a little bit about your fun, right? I knew you’re fun in the U S invest in best in class, you know, land development. You turn raw land into buildable lots for national home builders. So why don’t you talk a little bit about that.

Alice Chen (04:41.88)
Sure, so I don’t know if you guys know, I mean, I think everyone living in the States knows that there’s a huge housing crisis. So on any particular day, we’re anywhere short from two to four million single family homes, right? And so people need homes, like homes are kind of the foundation of our existence. It’s so important, it’s where families are formed, it’s where…

You can go home to your sanctuary after hard days of work. So that’s so important. And there’s meaning in providing homes for people. So we’re very much short. So this shortage of housing sort of stemmed from the last financial crisis, so circa 2010 around that era. So there’s just been this pent up demand, but not enough supply. So we’re talking about anywhere again from two to four million.

of housing that’s short and people need housing, right? So whether it’s for a young family, a new family that’s formed, could be from elderly people that’s downsizing, empty nesting. It could be from people that are splitting up. So therefore, it goes from one household to two or multiple. And so we are just in such a shortage. And so we’re talking about, we…

As a fund, we invest in best-in-class land developers in the country that turn raw land into finished loss for national home builders. So who are the national home builders? There’s DR Horton, which is a public company. They’re probably the biggest home builder in the country. And at $35 billion annual revenue, guess how many homes they can build a year? Take a guess.

Christian (06:26.432)
don’t even want to take a guess. I bet it’s a lot. Yeah. Yeah.

Alice Chen (06:29.102)
Yeah, so you would think, you know, maybe a couple millions, right? No, they build under 100,000 homes a year at $35 billion of annual revenue. Yeah. And it’s a company that’s huge, you know, huge market cab is backed by Warren Buffett. And, and so if you think about it, our land developers work with customers like the D.R. Horton, like the Lenar, you know, Pulte, like all these large companies could be private too, but they’re very skilled.

Christian (06:38.782)
wow.

Christian (06:53.386)
Mm-hmm.

Alice Chen (06:58.754)
But all of them building at once at their maximum capacity is still gonna take them 10 years to catch up to that supply shortfall. So when you’re going into an investment thesis, you wanna think about is there a big enough of a problem that we can solve and we can solve for the next five, 10 years. And I think this is a very worthwhile problem that’s going to not disappear. It’s gonna stay, it’s gonna be here for a while.

Christian (07:19.232)
Mm-hmm.

Alice Chen (07:27.18)
So that’s essentially the market that we operate in.

Christian (07:30.698)
I love that. love that. So let’s talk about a bit about, you know, maybe some economic cycles, right? Interest rate fluctuations, as you know, as you were just speaking about, things are definitely changing, right? That could be impacting, you know, land development. So I’m curious to know how do you mitigate risks inside of this?

Alice Chen (07:48.046)
Yeah, that’s a great question. And I’ll just give a little bit of an intro about our firm and also how we work. So we are a firm that has strategies both in Canada and also in the US because we’re a group of Canadian partners. And I personally relocated to California during the pandemic. So I’ve been in the States for the last five, six years. we as professional capital raisers as well as asset

allocators or capital allocators, we spend a lot of time studying different strategies and we spend a lot of time studying different geographies. So what makes sense for one geographic market does not necessarily translate to another. So for example, in Vancouver, which is our, you know, kind of first market home market, we have six funds covering 12 multiplex development projects. So that’s a subset of multifamily where we convert single family.

home lots into a multiplex. So could be a fourplex, could be a sixplex. So that’s what we do in Vancouver. But that strategy may or may not translate into different markets in the States. So in the US, we spend a lot of time looking at different things. In 2022, my business partner, James, spent all the entire year in Texas looking at value at multifamily. But of course, that strategy became

not as desirable towards the end of 2022 as the interest rate height, right? So that really just made a lot of deals don’t, you know, cancel. And so we moved on to studying different strategies. So then we looked at other things and we eventually landed at this thesis of land development because one, you know, we believe that the market is huge.

Christian (09:18.912)
Mm-hmm.

Alice Chen (09:39.146)
It’s going to be a problem that’s worth solving for the next five, 10 years. And also we just believe that it’s an area where if we align with the best in class operators, we can really excel in and we can grab a really huge chunk of the market share.

Christian (09:57.057)
That’s very cool, very cool. So let’s talk a bit about some advice, someone that’s looking to get into what you’re doing, right? Real estate, private equity, getting into land development, someone that’s just getting out of the gate, what type of advice would you give to somebody maybe trying to their feet wet and just get started in this industry?

Alice Chen (10:17.806)
So what’s interesting about land development, the way that we work with the national home builders is that it’s actually pretty hard to get into as an operator. And you meant you asked me a question about risk and let me just go into that part a little bit more. So what we do is we actually get calls from national home builders or, when we say we, I am talking about us along with our operating partners that actually do the land development.

So we get calls from the D.R. Horton’s or Lenore’s of the world. And then they’ll say, hey, we’re looking to build 500 homes here, a thousand homes there at this site. And then they have a very data-driven approach. Like they have all the data to make those type of market calls as to where to build. So then we answer the calls or we answer the calls to participate in the bid.

And then we want to do the job of either doing land entitlement or horizontal development. So land development is really two parts. It’s either entitling the land or after that land is titled, what you want to do is then you want to horizontally develop. So as opposed to develop, you know, vertical development, which is building homes or building towers, we’re building roads and we’re building other infrastructure for.

the raw land to turn into finished lots for the national home builders to come in and start building their homes. So, so for both components of the land development, the way we mitigate the risk is that, let’s say, you know, let’s take the case of horizontal development. We buy the entitled land from let’s say DL Horton, knowing that they want to actually develop in that specific site, right? So they will say,

This is a piece of Entitled Land. Please buy from us. This is the price. But once you’re finished with the horizontal development, we’re going to pay you $70,000 per lot. So we have that contract signed at the outset before we even begin day one of work. where can you find a business where the exit is actually built in at day one? Can you imagine?

Christian (12:35.296)
You can find it, let me know.

Alice Chen (12:38.446)
Yeah, so we love this strategy because this doesn’t happen very often. I mean, I rarely see that. you know, having been a startup founder in technology and consumer patching goods, I wish that there was such a thing where, you know, the exits built in, but there’s no such thing. So we love this strategy because the risk is mitigated by our land developing partner having signed this contract with the ultimate customer, you know, the national home builders.

And not only that, we add on that assurance of risk mitigation by shopping the deal around. So even though we have that signed contract with DL Horn in hand, we will often go and actually line up a secondary and tertiary buyer that might be interested in the same lot. Because, you know, we try to stay with very short duration projects. 14 months to 30 months. So these are very, very short duration.

investments, but because things are changing so rapidly in the world right now, it’s hard to forecast what may happen, right? Macroeconomically in three years. So we want to make sure that three years from now, when the when the projects are done, it’s going to be like, you know, someone’s going to buy it, right? And someone’s going to buy the Optima optimum price. And at the same time, you might be glad to find out that these national home buyers, they actually

will pay a deposit throughout the project timeline. So let’s say if the project’s two years, they actually have a take down schedule. So they will pay a deposit, like a 10 to 20 % deposit of the sale price. Yeah, so every 50 lots that we release, they’re going to pay into that. So their skin is very much in the game, you know, from the beginning. So that’s why we love this land development thesis.

Christian (14:15.69)
getting.

Christian (14:29.632)
That’s incredible. mean, this is definitely sounds like the way to go currently right now, the way the market is going. I mean, that’s awesome. So Alex, why don’t we talk about that too? mean, how can people get involved with you? How can people work with you inside of your phone?

Alice Chen (14:35.896)
Yes.

Alice Chen (14:43.394)
Yeah, so I love talking about this stuff and I love, I’ve taught many master classes at different masterminds about private equity structure, as well as passive income generation and about the, you know, the path to growing your asset base. It’s all about kind of growing and accelerating the growth of your asset base. So yeah, so I’m happy to, you know, take one-on-one calls.

Christian (14:50.794)
here.

Alice Chen (15:08.852)
And as you know, I have a QR code that has my contact info. yeah, so I’m happy to share that when it’s time.

Christian (15:16.768)
Awesome. Absolutely. We’ll definitely share that in descriptions as well, as well. And that’s awesome Alice. mean, it definitely sounds like there’s a ton of opportunity, you know, with getting involved with this. mean, as you know, there’s so many other different real estate investment strategies out there from creative finance, you know, going into, you know, section eight, you know, storage facilities. So I’m curious, right? I mean, there are so many different vehicles that you can get involved in with real estate. So I mean, what

How does investing in land development compare to all of those other real estate investment strategies that I was just talking about in terms of your risk and return?

Alice Chen (15:55.566)
I mean, you know, it’s there’s a lot of ways to make money in real estate, of course. And so I kind of put things into two buckets. So the one bucket is if you like to operate in real estate, you want to actually have a real estate business that you want to scale. I would say continue to do that because that is your source of an active income. But once you have that, then I think the right thing to do is to again, diversify from.

Christian (16:00.97)
Mm-hmm.

Christian (16:11.008)
Mm-hmm.

Alice Chen (16:23.414)
just solely relying on your active income into a passive investor as well. Like I said, two different skills. So get involved with different funds. I like funds more than syndications because syndications is typically one singular asset, right? So funds are more diversified. It’s typically more than one assets and typically possibly more than one operators. So I think get involved in funds and as an investor, your check size doesn’t have to be very big, but

just get started and to learn about the structure of these offerings. Ask a lot of questions, ask a lot of questions about the investment thesis and that’s how you learn. It’s a little bit like learning how to ride a bike and that’s how I personally learned as well. So 12 years ago, I began investing my own capital into mostly,

you know, the alternative investment class. So a lot of private equity funds, some venture capital funds, different real estate syndications. And so that’s how I learned as well. So I would encourage that. So that’s, think that’s the right way to get, get started. So keep your active business, keep scaling that have that source of income stabilized and then start to acquire the skillset of an investor.

Christian (17:35.712)
That’s amazing. I appreciate you sharing that advice, Alice. I know the audience is going to definitely take so much value from that. So I know you have your QR code, but also you would you like to list out maybe your email. We’re going to drop that in descriptions as well, but maybe you can just list out what your email is on here. Maybe your website and things like that. How people can work with you.

Alice Chen (17:51.564)
Yeah, for sure. Yeah. So my email is HN at PHC funds.com. that’s a CHEN at PHC funds.com. PHC stands for Pender Hastings Capital funds.com. That’s our website address as well. And let me just flash my QR code so you can see. Let me try that. Okay.

Christian (18:12.596)
Yes, let us flash it.

Christian (18:16.97)
Just remember guys, you can pause the video just to get this QR code. Don’t miss out.

Alice Chen (18:22.444)
Okay, let me see if I can do that.

Alice Chen (18:39.926)
Okay, I think my system is not letting me share, but I will make sure to send my QR code to you so that people can contact me.

Christian (18:47.54)
Perfect, yep, Alice. What we’re gonna do is we’re definitely, you know, take a screenshot of that and edit it inside of this video, guys. So we’ll definitely be sure to add that QR code so people, you know where to go. Awesome, but Alice, thank you so much for, no, thank you for making the time. I definitely learned a lot myself and now I’m even interested in this. lot of stuff I did not know, but this is the whole point of, you know, being involved in working with experts, right, in different industries. You just never know what you can learn.

Alice Chen (18:56.47)
Okay. Okay, thank you so much for having me.

Alice Chen (19:05.998)
Thank

Christian (19:14.165)
You never know what can work with. You never know what opportunity can come along. So guys, definitely be sure to check out Alice. I appreciate you all tuning in. And as always, have a great rest of your day and we’ll see you on the next episode. Take care, everybody.