Making Workforce Housing Work

- Good afternoon, everyone. I'm Richard Green. I'm director of the USC Lusk Center for Real Estate, and this is "Lusk Perspectives", a podcast about real estate and real estate adjacent things, particularly here in Southern California. I am very happy to have as my guest today Kyle Ransford. Kyle is the founder and managing director of Cardinal Investments, who has done very innovative work, particularly in affordable housing space. And creativity is why I wanted to bring him onto the show because, as I'm sure our audience knows, trying to produce something that people can afford in Southern California is a very challenging thing to do. And I thought our audience would really love to hear about, Kyle, how you've gone about doing it. But first of all, I'm gonna ask you to do what we do with all of our guests is to tell us a little bit about your story, about how you got to where you are right now.

- Yeah, you bet. My story is a bit of an entrepreneurial one. I grew up in La Crescenta, attended Flintridge Prep, went to Cal Berkeley for a year, transferred to SMU. And then after finishing at SMU, moved back to Manhattan Beach in Southern California. And the very first thing I did, I was initially gonna go be a loan broker, and the loan broker I was gonna work for said, "Oh, this is a terrible time. Don't come be a loan broker." So I said, "Whoa, I don't know what to do here." And I can't forget-

- What year was that, Kyle? I'm sorry to interrupt.

- Yeah, no, sorry. That was 1994. So I ended up looking around a bit and cash advancing a bunch. And back then, in college, everybody, they try to get you to sign up for all kinds of credit cards. And, you know, I had about $150,000 worth of credit on credit cards I had collected. So I cash advanced my credit cards and bought an asset from the RTC not too far from USC, actually, on 1200 block on 53rd Street, so a little far south from SC, and rehabbed that and essentially flipped that. And started on my journey of buying property from the RTC in investments in that regard. And then after a couple years, kind of wanted to broaden my horizons and attended USC for business school and got an MBA at USC, then did some investment banking at Houlihan Lokey, formed an internet incubator in Korea along the way with Microsoft as a partner, and then came back to real estate in early 2006 and started buying primarily low income multifamily in Los Angeles. Along the way, we did all kinds of other interesting things, like some islands in Fiji and built some buildings in New York City for a time period. And then decided, well, we could be a better lender, so we formed Bank of Manhattan, or I formed Bank of Manhattan and was the founder and executive director there. And then sold that and did some more real estate here in Southern California. Founded a food company for a while called Chef'd. in about 2014 to 2018. And since 2018, I've been strictly focused on real estate here in Southern California. We maintain a commercial portfolio in the South Bay and about 100 buildings totaling about 800 units primarily in, you know, BNC space in Southern California multifamily.

- So that's a lot that you have summarized in a admirably short period of time. I wanna go back, because I think many people in our audience, given that the median age in the United States is 37, I am quite sure that most of the people in our audience will not know what you meant when you talked about the RTC. And actually, that experience may be relevant in the current environment. So talk to us a little bit about what the RTC was and where you saw the opportunity there, et cetera.

- Yeah, no, it's amazing how technology changes the world in a generation, but the RTC was the formation of a financial crisis. Primarily we had savings and loans and we had banks that had slightly different regulatory issues, and the savings and loans were allowed to be very aggressive, primarily real estate lenders, and so you had a number of them that as the economy changed met an unfortunate demise and the government took over all these assets from these failed savings and loans, they were called, but think of them as banks. And then the government was selling off those assets through, you know, brokers and people that they had hired and put together. But the time in 1994, technology was dramatically different and the ability to get the information of what was for sale and what was there was entirely different. So when I graduated in 1994, in buying that first asset, I bought a computer for $2,000, a Gateway computer for $2,000, which was a big number back then, that had a dial-up modem at 2,400 bits per second. And you could dial into some databases and get real time what was for sale that day, which today sounds like everything would be. But back then, the other choice was to wait two weeks for a large paper book to come out that was the size of a phone book, another thing that's long gone now. And so, you know, we played in those markets that way. I always find that as an interesting anecdote. But to your main question is, that was, you know, government taking over for banks, selling out troubled real estate.

- So I do have to note, Kyle, I was curious myself, so I looked up a week ago whether phone books still exist. And as a matter of fact, much to my surprise, they do. So they're much smaller than they used to be, et cetera, but they do still exist. I don't know why, but there they are. You're also reminding me, when we have new student workers, I always ask them, "Do you know why it was called dialing?" And they have no idea. But I wanna come back to, because it clearly launched your career. So you go out, you take your credit cards, you max out and you buy this asset from the RTC. How did you identify that particular asset? And you told us where it was, but tell us a little more about the nature of that asset, because I think it's gonna reveal something about stuff you do later in life.

- Yeah, no, for sure. Again, you know, I gave you a little bit of an insight into how you could find stuff that was for sale a little bit before and find a deal. And in this time period, you know, there were sort of mass sellers, so there was some dislocations in the market and you could find some stuff. So I paid $70,000 for what was a boarded up three bedroom, two bath craftsman house with a two bedroom, one bath house in the back. And back then for $20,000, you could take the whole thing down to the studs and repair the whole thing ground up with new plumbing, new electric, new kitchens, baths, roofs, the whole thing. And then there was programs through Fannie Mae where you could sell that to a qualified person for about 3% down, and then you could help them with their closing costs. So the game was to buy it for 70,000, invest 20,000, be into it for 90, sell it for 129 to 139 FHA, which cost you about $10,000 to sell it that way, and you made about $20,000 in profit.

- So, and then you pay back your credit cards?

- Then you hope to pay back your credit cards and do it all over again.

- And then you do it all over again. So you netted out, if I'm doing my math properly, about 30, 40,000 of equity when you were done with that deal. So did you put that equity into another property or did you do something else with it?

- Yeah, you know, I kind of apply in the wire in, wire out piece of every time I've ever made any money in real estate, it's usually spent buying the next piece of real estate prior to it showing up in the checking account. So I did that, and then ultimately, you know, did about 10 of those assets, did about five of those a year for those couple of periods.

- And it was all for sale stuff? You weren't holding-

- That was generally for sale. You know, I look back and I sort of didn't have the network or understand right away the looking at stuff and leasing them and holding it for a longer period of time. But about 18 months into that I started to find, say, "Oh, wait a second, I can buy fourplexes and I can buy something a little bit larger, and can we live off the rents?" My challenge at the beginning though was, of course, I didn't have any equity. So I needed to sell it to pay off the credit card. You know, it's like, well, it makes 20% a year. It's like, well, that doesn't do me any good 'cause I don't have the money to do that and I didn't have sort of the rich uncle or understand how to raise money from other individuals at that point in my career. But, you know, so eventually we transitioned more to buy, rehab and hold as we've done with the portfolio, you know, since about a couple years after we started.

- So what was the first time you went out and got outside money to help you do a deal? Do you remember?

- As I was doing that, I had the accountant that I was working with said, "Ooh, this seems pretty interesting. I see how all these are working out. I'd like to be a partner." And so we started a partnership there. So about two years into it, more by happenstance than anything, my accountant saw how well we were doing and decided he wanted in on some of the action. And so then that started to change my mindset. And frankly, I was still learning at that point of what that looked like, what that meant. I had some idea how to underwrite it from school, but, you know, sort of a limited understanding of how to form an LLC and what a splits would look like. And, you know, again, information was so much harder to come by back then. Today you go online and you say, you know, "How do you buy a piece of real estate?" into AI and it spits out all these forms and everything and the information and what you can learn. You know, you can learn in an afternoon what back then took a couple of years of practice to sort of stumble onto.

- Yeah, but that said, AI still can't find that accountant who saw what you were up to and thought, "Hey, that guy seems to know what he's doing. I'd like to put some of my money in."

- 100%. You know, again, like everyone should be super fortunate of the world that we live in today where if you're a go getter, you can go educate yourself and find podcasts, you know, no different than this, and various pieces to gain information. But information is only sort of the entry ticket, you still have to be willing to go do the work, and I think that's gonna persist as we go forward. AI is not taking away, you know... AI, it will be a tool in real estate, I don't think it's gonna be a destructive employer.

- Yeah, well, the analog I give with spreadsheets is, you know, it used to be you'd have 100 guys at 100 desks doing arithmetic before we even had calculators, let alone spreadsheets, and the spreadsheet basically wiped out 100 jobs doing that, right?

- Yep.

- But we still need people to think about what to put in spreadsheets and what to think of. And I think, you know, prompting is going to be the new version of that, is you're gonna need people who know prompt properly, and then know what to do with it on the other end.

- No, 100%. I even remember, like, when we were learning Excel and Lotus 123, as you'll probably remember, that was world-changing into how to underwrite a real estate deal and what one person could kind of do quickly. But we were, like, coming up with formulas in our head to do pivot tables and all these sort of strange formulas you had to memorize. Mm, so now we've just made that an easier way to build a spreadsheet. People will still build spreadsheets. It'll just be built differently and, you know, easier et cetera. So, you know, I don't fear it as much as I think it's very exciting for the next generation to have their own set of tools.

- So that's the mid 90s. So let's fast forward now 30 years to roughly today. So tell us about your, and if you would for now, let's focus on your multifamily portfolio. Your for rent-

- Yeah.

- Tell us what that looks like right now, and then I'd like to talk about it a little bit.

- Yeah, no, for sure. So we have a collection of buildings that, you know, ranges from two units to 30 units or so, two units to 40 units. I think we have 140 now. And have about 80 different locations around Southern California. We've basically chased good deals, so we don't own all the stuff on one street or all in one city and so forth. We've got a collection of buildings around the city. Generally, we've tried to buy in areas that we thought were improving. So we own some very nice buildings in Silver Lake that we bought 25 years ago that when Silver Lake was not considered, you know, it was not nearly what it is today. Highland Park, we have some stuff. We have a fair amount in South LA. You know, we like to try to buy around the fringes of USC. We're not in the student housing business, but being close to USC and other sources like that are always good pieces for investments. And of those 800 units, approximately 400 of them would be Section 8 and low income housing on the subsidy side, and then probably another 200 of those units are low income on the market rate, low income world. And then, as I said, we have a couple of buildings that have been fortunate to be in areas that have improved over time that you wouldn't maybe consider, you know, Silver Lake being an example I wouldn't necessarily call a low income market at this point. But, you know, so generally speaking, we're, you know, been buying, rehabbing and holding apartment buildings throughout LA.

- So let's divide those three categories of the lower income stuff and talk about what it's like to own and manage them. And so let's start with the Section 8 stuff. So first, could you tell us roughly, I'm not looking for addresses, but what neighborhoods is in. And, you know, it occurs to me, I've never talked to anybody directly about this. What was the process of getting certified to do Section 8? Is it worth going through that certification process? What are the pluses and minuses of doing it, other than the fact that, of course, you're allowing people to live in a house and paying no more than 30% of their income for the house?

- Yeah, no, so, you know, there's a number of nuances there. So A, the tenants end up getting certified. So the majority of the Section 8 program now is what we'd call a voucher program, where the tenant is certified, they are allowed to take that voucher to any location that they can find. By law, you're supposed to accept Section 8 vouchers and treat that tenant as you would any other. And then the Section 8 Housing Department, every city has its own housing department. So City of LA Housing Department of Section 8 sets maximums and formulas by what they'll pay rent on. You know, it used to be just one price. A one bedroom was this price all throughout the city. Now they do it by zip code in different places. So you're seeing some what you would call more desirable neighborhoods people taking Section 8 because they can get a higher Section 8 voucher. The interesting part of Section 8 is, you know, you've got a tenant base that's qualified in that way. The pros obviously are that you've got the government as your partner on the vast majority of the rent. It depends on how employed they are too. The point you just made is the tenant pays 30% of their income towards the rent and the housing department picks up the balance. So in many cases, that can be quite large, and you've got a stable source of payment from that. And I sort of often say Section 8 as a tenant base has sort of three components to it. It has people that are working very hard, have a family situation that makes it challenging, maybe a single mother of four, but as an employed single mother of four, trying to make ends meet and so forth, and is a hardworking, wonderful person and trying to contribute to society. It has a group of people that have had a lot of trauma in their life, but are really working through, trying to get through, you know, kinda get through the day, et cetera. And then it also has a group of people that, you know, may have some larger mental issues, substance abuse issues, et cetera that can have other challenges for you as a tenant. And then, from Section 8 and what's going on currently in LA, certainly in the past four or five years, you've got many different flavors of programs that are providing subsidies. So generally speaking, if you're in the rental subsidy business, you're looking at both Section 8, emergency housing, the VA has programs. So there's a number of programs, some of which have their pros and their cons. The big pro is the one that you're looking for is where the tenant is going to... This isn't a program that's gonna run out on the tenant. There's a lot of the emergency housing that gave them housing for two years. It's challenging because those people, generally speaking, are having a harder time transitioning from assisted housing to, you know, market rate paying payers.

- I guess I used the wrong terminology, but I thought as a Section 8 landlord, you had to submit yourself to inspections that a normal market rate landlord just would not. Is that not true? Doesn't HUD have to come?

- Section 8, in this space, there's other spaces. HUD programs is a different piece and a different kind of operation. Those funds are coming direct from the federal government. Generally speaking, those funds have been come by, they help fund you to build a building, and then it is operated as a HUD building for 50 years before it comes off those restrictions. In that case, you're qualifying as a manager, you're qualifying as a builder, et cetera. The Section 8 element piece also does have inspections so that you can't just, you know, quote "be a slumlord." And so before you come to an agreement with somebody on their tenancy, you file the paperwork, they do an inspection prior to coming in, and then they do some annual or quadrennial inspections of the unit to make sure that the unit is kept up. You know, another hurdle of the Section 8 business is the inspections and what comes with the inspections. You know, they're meant to, of course, make sure that a fair offering is coming from the landlord, but as bureaucracy takes over, you know, those can be challenging things. The biggest challenge, frankly, is just the delay of time.

- Well, that's a complaint I've heard from other landlords who have, as you said, you're technically not suppose to refuse Section 8, but they're refusing Section 8 and the complaint is it takes so long to get that darn inspector in here, I have to go two or three months without rent at all, and why would I do that when I can get, particularly in a place like Los Angeles, the right tenant in right away?

- Yeah, generally speaking, that's true. The realities is Section 8 is supposed to pay a rate that is similar to market. What really happens though is you're generally getting 20% more in rent, something like that, 10 to 20% more in rent than you can from a quote, "market rate person." And, you know, the government as your credit is likely better than the market rate credit that you're gonna get in those positions. The challenge is it can take a long time to move somebody in. You know, we've had them last six months at times. Occasionally, it happens in a month, but generally speaking, it's two to three months to move them in. That also kind of prevents people from moving a lot though. So, you know, there's pros, there are some of things that are challenges, you know, it's a little bit challenging for them. They have to fill out a lotta paperwork in order to move. So, you know-

- Well, that's the most nuanced description of the benefits and costs of Section 8 I've ever heard from a landlord. That was really helpful.

- The other very interesting one is that a Section 8 person, if they get evicted, will lose their Section 8. So like any of us, if we had somebody paying for a significant part of our housing, you'd be kind of very careful not to do that. So you have some pieces there and, you know, many of the people are challenged for other reasons, and as you're evicting them though, you're still collecting from the Section 8 department. So while you might lose it on the way in, you have a little bit more credit and security kind of throughout the tenancy. And so, you know, again, as with many things, it's a business onto itself and you gotta kind of understand the nuances and make sure you're taking advantage of the advantages and dealing with the disadvantages.

- So the other category is just sort of what's sometimes called naturally occurring affordable housing, NOAH, so stuff that gets no subsidy and yet is affordable at least at, let's say, 80% of area median income. So tell us about how that works and how you manage to make that work in a place that's as generally expensive as Los Angeles.

- Yeah, you know, when you're buying buildings, there's a difference between the cost to develop them and what they're worth based on the income streams at low income levels, versus when you're buying them, you're looking at finding a price point that's similar. And generally speaking, we've been in the value add business with rent control of buying buildings that tend to have deferred maintenance, tend to have lower paying rent control tenants. And as those tenancies turn over, fixing them up in a nicer fashion to attract the better quality Section 8 tenants. And then generally, you know, we're really focused on putting in air conditioners, washer and dryers and dishwashers and, you know, we've all lived in places without those things. When you live in a place with those things, you don't wanna move back to one without those things. So, you know, we spend a lot more money upfront on our units than most and try to have a longer term tenancy, which, you know, works a percentage of the time. So operating at this lower piece is just to kind of, again, what's the profile of the building, where are the locations? We've got buildings within the same markets that we've said, "Hey, we have a great tenant base here. We don't wanna upset it with the risk of the wrong tenant in this mix." And so we'll, you know, try to operate those tightly. I'm not sure, you might not have had a follow-up question that was more detailed, but.

- Yeah, I guess what I'm getting at is, but you are talking about stuff that you acquire, improve, and then rent out to Section 8, I think I just heard you say. I mean, you have stuff that... Let me put it this way. Is there stuff in your portfolio that has no subsidy at all and yet the rent is less than 1,800 bucks a month?

- Yeah, sure, we have a building we were talking about today, Kansas and 42nd Street, right by Manual Arts High School, not too far from SC, you know, the Coliseum is 40th Street for those folks that might not know, so a couple blocks south of the Coliseum basically, 20 unit single building that, you know, and that market rate tenant there is like $1,300. That's Section 8 tenant might achieve $1,800. You know, we've made the strategic decision with that building to try to be market rate rather than Section 8 for various reasons. But, you know, so in those cases, and in real estate in general today, with inflation, the challenge is it's very difficult to be a value add buyer. So most of the stuff we're looking at today is less add because there's not a lot of value in the add. You know, like it wouldn't be inconceivable to pay, you know, we've got a building, like, in the Pasadena area where we paid 130,000 a door, it cost 150,000 to fix up the units. That's a more of a market rate building. But, you know, even fixing up a low income unit today is every bit of $50,000 and maybe 75, depending on the unit size and what improvements are needed to be made. So when the units themselves are selling for 100 to 150, it gets very difficult to put in that kind of improvement dollars. And I think that's one of the overall challenges that you see in the market today and why the increase in supply has slowed down is, generally speaking, the cost side, and then of course interest rates have hurt the value side as well.

- When you're looking to acquire is, well... How often do you observe property that's just so badly managed that you know that by just managing it correctly, that you can get extra value out of it? So not for-

- 80% of the time.

- [Richard] Oh, 80% of the time?

- It is really hard to really manage something well. In the end, everyone goes like, "Oh, it's mismanaged." It's 'cause it's really hard to manage something well, especially in the smaller building category, where you don't have onsite managers, you don't have economies of scale, et cetera. You know, but even in the larger categories most of management is done by third parties, the incentive structure gets disaligned when you have third party management. So I would argue that the majority of real estate has a management opportunity.

- One of the things that frustrates me sometimes is when you talk to people about real estate, they'll act like it's coupon clipping as opposed to running a business. And in fact, it's not. It's actually hard to do it well. So I'm really glad to be having this part of the conversation. So tell me what other people do wrong that you do right, or is that giving away your secret sauce?

- No, there's no secret sauce in it. Like, the hard part is actually doing it, not not knowing what to do. But for one, we manage everything ourselves. So we have a management team in house versus third party. The challenge when you hire a third party manager is, you know, they take 5, 6% of the rents, you know, so if the person's paying $1,500 a month, you know, 5% is $75. That's not a lotta money to collect the rents, to deal with anything, any phone calls, et cetera. And what ends up happening as a management company, the only way to survive as a third party management company is to either provide no service so it doesn't cost you anything. So just don't pick up the phone when people call and don't go try to do a nice job out there and/or overcharge for anything that you're doing and make profits on the stuff that you're doing. So as an owner, you either get something that is lightly managed and a problem or somebody's spending a bunch of money at your building and less concerned. And, you know, as an owner, you can be involved and so forth. That dynamic changes as you get into institutional real estate and you have 400 unit complexes and so forth, right?

- Sure, of course.

- So, and again, this is not saying anything bad about anybody in property management. Property management's just, it's just hard. Tenants call, tenants have complaints, things go wrong, the check gets lost in the mail, all of those things. When you add up that your employees are, you know, 30 to $50 an hour, you only have an hour a unit a month to spend on that building, and it can go by really, really fast. You know, just driving out to the property, you know, takes two hours, an hour each way in LA, right? So you have to just be, you know, diligent and organized and on top of it. And when the owner's involved, there's a little bit, you know, in our case, we would say when the owner's involved, your incentives are a little bit more maintained. But even, you know, I look at our own stuff and I go, "Yeah, no, we don't do a perfect job of managing." We're certainly trying hard, but managing is hard.

- How many municipalities are you in, would you say, roughly speaking?

- 10.

- 10, okay. So is there a municipality you really like doing business in relative to the others, or is there a municipality you really dislike doing business in relative to the others?

- It's interesting 'cause, well, I sort of look at this and say the opposite of what everybody says. You know, City of LA has all kinds of challenges to manage in it, starting with all the rent control, all the rules, all those pieces. So you have tons of people selling all their LA stuff, running from LA, very concerned about the politics in LA that's going forward, the election that's upcoming and all these things. All those challenges for me create the opportunities of if you're willing to work hard and know how the system works and know how to use the Rubik's Cube correctly, that's where the opportunities are to make some money. So I don't know. It's interesting that you ask that question. There's definitely some municipalities that are a little bit more business-like than others. The biggest challenge in our space probably is police and security in certain cases, certainly in the low income. You know, we've got some real challenges right now. We've got squatters. And if you get a squatter, it's really hard to get rid of a squatter, which is unfortunate for, you know, our society. But then someone goes like, "Oh, well, you know, the South Bay, is that great?" And I said, "Well, the biggest lawsuits we've had from tenants have been in properties in Manhattan Beach." So just because it's a nicer area and location doesn't mean owning real estate doesn't come with a different set of challenges, you know, than in a low income environment. I think you just have to know kinda what the pros and cons are and can you manage to those.

- I was thinking about when Gino Canori, who now runs Related California, tells a story about when there was the eviction moratorium, his problems was not with their affordable housing, it was with the rich guys.

- 100%. You know, just because you're leasing to somebody that has the money to pay, they may still lack the interest in paying and may have more tools or know how to work the system in a different way in order to not pay. And so we've experienced that over time as well. You know, again, the real hard part is like picking the right tenant. We were just having a conversation today about credit scores and low income, you know, and of course in low income, there's people with challenged credit histories, lack of credit scores. And I kind of make the argument that what we really are looking for is good people, and the credit score doesn't necessarily say what a good person is, and you've gotta kinda look at, you know, is this debt from somebody who got sick and went to the hospital, or is this, like, you know, because they didn't pay three landlords and seven credit cards? You know, is this a person that, you know, kind of runs from debts or is this a person that we think, you know, does stuff? But, you know, that's again, a challenge of our business of, like, people wanna act like credit score is this amazing way to select a tenant and my history would suggest not.

- Well, I mean, even FICO basically acknowledges that, because, you know, the score they used for years was called FICO 5, which was the fifth generation score. And FICO 5 made no distinction between whether you had a medical bankruptcy or another kind of bankruptcy. And then FICO did the work and they found out, you know, your creditworthiness in terms of predicting your likelihood of repayment is fundamentally different if it was a medical reason why you went bankrupt or had some other ding on your credit history relative to, you know, you took out a car loan, crashed the car, and didn't pay the car loan back. And so FICO 9, four generations later, reflects that difference, but people were still not using it. So part of it is, you know, adapting to the information. I think you just made a really important point. One of the things I learned from the great financial crisis is how much people wanna stay in their homes, because one of the things we all thought, people would think about mortgages the way I think about that equity was everything, that if you were upside down, you would be ruthless and you would leave. And what we found was so long as people were the actual homeowners in a house as opposed to an investor, and so long as they didn't have an exotic mortgage product that blew up on them, people would do anything to pay their mortgage and stay in their house, even though it wasn't financially rational. And I think it's similarly, if you have a good situation as a lower income tenant, you don't wanna give that up, you don't wanna risk that. And so you're going to be reliable at paying your rent, contrary to what stereotypes might suggest. So all that said, like, if you could change anything about policy with respect to renting in Los Angeles, what lever would you pull to make things better?

- Well, you just touched on a point that sort of I believe that there's a holistic way to end up with a better rental stock for the population but providing some security for rental as well. The short answer is you need more housing in order for housing to become cheaper. That's the supply and demand piece, that's the first day of economics class, and you can't rule that out. So then the next question is, how do you have more housing and how do you give some people some protection? Many people can't stand rent control, think it's a terrible thing. I believe there's some pros and cons of rent control and think that it's a reasonable bargain that if rents go up by 3% a year or relatively with inflation, that we're not throwing these people out of their homes because they happen to be in a home and the area's improved, et cetera. There's arguments to those pieces. But creating more home ownership is where I believe the real opportunity is and what also creates for a better community and society, back to the point you made about when somebody feels like they own their home, they'll do anything to stay in it, and they'll do anything to make sure that it's cleaned up and their neighborhood is nice. And so, for me, the one policy piece that I would love to see changed is the body of law that prevents, and the circumstances that prevents the creation of condos, and I think it's particularly important in Los Angeles and the future of Los Angeles is we've covered pretty much every piece of land that we can. We are experiencing some upzoning opportunities in the way that the states come in in various pieces, but if we can holistic, but we're still not creating for sale condos, so we're trying to get people to build rentals, which we need more rentals, that's true too. However, if we built more condos, you'd have people buying those condos that are in rentals and the rentals would become available. And there is some level, I don't like the word trickle down, but there is some level of the sort of the shuffle of-

- We call it filtering.

- Yes. Yeah. That goes on. And back to your original point of, like, if it's their house, they'll do want to stay in it, which is no different now than most of the time, you pay a little bit more to own the house, 'cause you own it forever and your rents aren't gonna go up and you're gonna save a bunch of benefits at the back end than you do to rent it. So there's a bunch of projects that have been designed that if you could build for sale condos there, they would then pencil, because the for sale condo unit is likely worth three to 400,000. If we take like a two bedroom condo that we would typically rent for $2,000, you know, those are available in the two to $300,000 as a rental, and people would rationally pay, you know, four to $500,000 for ownership, and that would translate into a payment of roughly 2,500 a month, so you'd pay roughly 20% more to have the opportunity to own. But then the difference in the value there, you can afford to build that. So, you know, if it's only worth 300,000 as a rental and it costs 400,000 to build it, I can't build it. If it's worth 500,000 and for sale, people will build for $400,000 with the opportunity to sell 'em for five. So we would grow the potential market to add units. We would grow the potential opportunity for ownership. You know, 'cause also, in the low income space, you know, obviously these folks are challenged to pay the rent today. Their rent goes up every year. When you take out a 30-year mortgage, your rent stays the same as inflation happens. And at the later end, we've all sorta seen our parents and so forth. If you hold those mortgages over time, the initial larger payment all of a sudden becomes a much cheaper, much more affordable payment and, you know, people build their lives and send their kids to school and stuff off of that. So, you know, again, I'm personally very in favor of more home ownership. If you look at the landscape of Southern California, especially, condos should play a larger role in that, but the various laws on the entitlement side, but more so on the insurance side and the builder's risk side are what prevent that from happening today that I think you could have some policy changes that could address those issues.

- So tell us, just give us a little more detail about what you mean about those impediments. The insurance.

- Yeah, the largest impediment is if I, you know, again, we look at two pieces of dirt side by side, let's call it right at USC, since we're on the last podcast. You know, if we build one as apartments, we build it, that's great, we own it or we sell it, away we go. Again, we might be spending $400,000 today, it's only worth 300, so therefore we're not building it today. But if I build that as condos, I have 10 years worth of liability on what's called builder's remedy, builders defect, which again is a body of law with the right intention that if somebody builds this thing really terrible and does a terrible job, they should be responsible. But what happens in order for me to get a loan, I need an insurance policy against that. And the way the legal system works today is, you know, on the ninth year and the 355th day, you can be rest assured that you're gonna get a lawsuit from an attorney, you know, seeking some kind of damages for likely deferred maintenance pieces. There are ways that we could do things where the city has a improved inspection policy part when you build it, 'cause you do get all these things inspected and so forth, and therefore it should be done right. We could spend more money upfront on the inspection of it upfront. As well, you know, in other states you see people require reports so that the building's inspected each year to make sure that the homeowners are therefore dealing with the deferred maintenance and it isn't a deferred maintenance issue. But reducing that insurance cost and reducing that risk, again, the folks that have capital and have assets, generally don't wanna put themselves at in the crosshairs of that kind of risk that lasts for 10 years as a personal piece, and even as a matter of fact that you can insure some of that away, but it becomes very expensive because we allow for significant frivolous lawsuits. This is no different than, you know, the disabled piece where it's significant frivolous lawsuits for, you know, ADA violations that could and should be changed.

- So, Kyle, let's wrap up by just giving the folks out there a little bit of advice. If you were starting out as an entrepreneur today, imagine you're back in 1993, 1994, what advice would you give to your younger self that could be helpful to young people today trying to start out?

- So the biggest advice I give to young people starting out today is, A, if you look at the history of real estate and direct ownership of real estate, it is an asset class that outperforms all others. And the ability for you to go buy a multi-unit, two, three, or four unit property with significant financing and low down payments exists today, go look to buy a two to four unit building, live in one unit, collect the rents from the other three. There are incredible tax savings built into the system, both at purchase, and then ongoing as you do that. And it is an incredible way to quickly get ahead in life in those first three to five years, you know, of your career.

- Well, Kyle Ransford, thank you very much for a nice tour of how to think about providing housing here in LA and for your thoughts about some of the changes we might make as policy changes in order to improve the supply of housing, the availability of owner housing. It's been a very enlightening afternoon.

- Thank you. Thank you for having me.

- It's been a pleasure.