Brad Barber, September 3, 2015
Wonderful post on real estate. The only area I have more expertise in than markets and currencies is in real estate. I have received so much positive feedback from people around me from what we discussed about markets and currencies and related madness that I thought it would be fun to give some people a view into all areas of real estate. I didn’t learn the markets until my HS directed me in after the crash in ’08 because I was too busy gettin’ frauded out elsewhere. I once asked an amazing boss I had how he was so great at what he did. He said, “Cause I’ve already fu*$ed everything up a couple of times.” I have no plan on how to write this one but I know that I have fu*$ed everything up a couple of times. I throw this to winds of change.
The Scylla and Charybdis – Real Estate Journal of an American Sheep
One of the most treasured gifts for humanity that transcends all time and space is a sense of home. Along with love, art, music, and humor, it is a sacred right of creation. For some the feeling is much more encompassing of the whole project than others, but it’s always nice to have a feeling of home. The dark knows it and is flaunting it right in front of humanity’s face that the sense of home has been hijacked. Love is always trying to be replaced with something to fill the bottomless pit of need. Art and music have been turned against the human race. But you just can’t quite replace a good sense of humor and that is why you can always tell in the laugh (or lack thereof) of a sociopath. Speaking of sociopaths, it may be a good time to talk about real estate and my personal history owning, managing, developing, and learning from getting bashed on the rocks a few times.
The only school I went to after high school was a music school in Los Angeles to further my study in drums. There is nothing like learning Latin drums from Efrain Toro to expand all hemispheres of the mind and body. Watching him keep four different rhythms with four different limbs was quite an experience. I opted not to go college because I knew I would party myself to death and not learn anything. I like to bash my head against real things so it hurts really bad. They don’t tell you on paper how bad it’s going to hurt.
I built my first golf course as an assistant superintendent at a course in north Scottsdale. It was a full remodel of an old-established club near the amazing Pinnacle Peak golf destination zone. I probably didn’t deserve the job, but I was white and willing to learn and that was more than they could find. I was put in charge of 25 Hispanic workers who were directly there from Mexico. I was 19 with barely the ability to tie my shoes and most of these guys were 40 to 50 and had been through hell. They were some of the most amazing people I have ever worked with and their wives made the best tamales. You always had to look out for the rope tied to the workers cart because a rattlesnake they had caught would be there kept alive so that they could kill it later. You don’t want to spoil the meat. I earned respect immediately because I had taken four years of Spanish and one of the feisty guys, Fidencio, tried to give me a hard time. I responded by saying, “Quieres mi verga en tu boca?” and the whole room fell apart. Good times. Besides that, they truly deserved to be my boss.
A few of my best friends for life came from this time and area as the quality of people around this project were amazing. Besides a few cranky old members, there were a lot of amazing members who ran some of the most successful businesses in the world and some staff that were world-class. There was a certain accepted morality about what and how we did things and you knew most everyone was trying for a greater cause. That was about 20 years ago and it has been nothing but downhill in quality from there.
I next went to work for the one of the most brilliantly simple and intelligent humans I have ever met. He was only 25, but his family had been involved in building all of the most successful projects in the area for decades. He hired me because I knew his father from next door in Scottsdale and I was the only one he could find to be his assistant who was younger than him with experience. I was 21 and he and I were put in charge of $15 million or so to build a golf course for one of the largest home builders in the US. I had over 35 employees and in charge of overseeing indirectly a hundred or so more.
We built a course right in the middle of building what was, at the time, the single biggest master planned community ever built. I was a part of building an entire city. I learned to take the water coming out of the tap in the new house all the way back to the pump station that maintained the pressure. The Vermeer Rock Saw was fun to watch cut the utility channels in the horrific soil. We worked with Rainbird on developing computer software that used weather stations and satellites to work to get the exact water per inch that needed to be replaced in each blade of grass that was lost due to ET (evaporative transpiration) as each sprinkler head was placed with GPS and individually wired to operate to its maximum efficiency. I could go on forever with working with nutrients and chemicals and fertilizers and equipment and machinery and mechanics, but my favorite part of the process came when I asked my boss how he knew what to put on the turf and he said, “I listen to the grass.” Great advice.
I once sent an article called the Asshole Factory to Dr. Stankov who published it. This company was developing the epitome of it. The people were all different from I was used to growing up and working with and something started to change. The VP’s flew in on helicopters instead of taking a 20 minute drive north of corporate in Phoenix and when they arrived, they made sure everyone knew it. All efforts were put on the golf holes that went along the show trail to the model homes and the rest they really cared little about. The head VP once had us spend around $75,000 to get the largest crane available to put a tree over a lake and hand dig a spot for a new tree to “spruce” up her opinion of the view. This is the same one that asked if we could “tape some leaves” to the Mesquite trees to thicken them up. Arizona trees aren’t known for being very thick. Then came the personality tests.
We took one major test that showed them our future development possibilities and personalities. I think I finished the test in a group all by myself and it definitely wasn’t the group that was going to be CEO one day. To steal a great quote, I think it said I should be a firewatcher. The structure was designed and being perfected every single day how to funnel the power-hungry assholes to the top and weed out those that would oppose the implementation of power. The rest would just do their thing to get paid. Finding people to get any decent work done was also turning near impossible. We fired two people for every worker we kept for a long time to get staffed. The representation of the human race that was showing up for entry level jobs was very disconcerting.
As should not be a surprise, the company went bankrupt after I left in the 2000 market upheaval and was taken out by another public home builder. The company had been gutted and the assets stripped as well as being heavily over-leveraged underneath while I was stupidly working 115 straight days at a time for at least 10 hours a day. I did it because I loved it and I learned how to figure out every process back to its point of origin from this experience. The day we first played the golf course after two years of that madness was an amazing day. Now I look back and ask what the hell was I doing building a golf course for a bunch of sociopaths in the middle of a desert where grass doesn’t even belong, while piling in 25,000 homes for a bunch of zombies. It’s all perception I guess.
I got a new drivers license a couple months ago. For some reason, with the automatic mail update of my last renewal about 7 years ago, I still had the picture from my Colorado drivers license from when I moved here in 1999. You should see the difference in my picture from when I was 24 and now that I’m 40. One is so full of hope and promise, and the next looks like someone who has seen way too much. I blame the last 15 years of real estate for the look on my face.
I moved back to Colorado because I couldn’t handle the weather any longer and something didn’t feel right with the work environment. I was about to get paid large to take over my own projects but I abandoned the ship. The snakeoil salesmen and headhunters were all over me to move to their projects and suggested so very secretively behind my bosses back, but I couldn’t take it. I did so with no degree. Almost every single person with incredible real world experience was now being required to go to turf school or some other institution to get “degreed”, so the general managers had their asses covered. This is when the paper started to take precedence over performance. Bankers and lawyers love paper and it always looks good on paper. That way you get held responsible to the impossible. How many wonderful meetings I’ve had putting stuff on paper filling out the make-believe of what people wanted to hear. I’ve leased massive shopping centers on paper in meetings, but never found a tenant.
I spent the next few years remodeling houses with my father to sell and to rent as he owned a lot of real estate. He didn’t trust his three sons capabilities, much as my other two brothers were non-committal musicians and he hadn’t seen me at work in Phoenix. In fact, the last time he had dealt with me my hair was way too long and I smoked more weed than I had brain cells. I think he started me at $6.50 a hour plus free housing, but I was just glad to be in the mountains again. I had my Jesus phase teaching myself to build cabinets and zen out on woodworking. I think I whittled the Holy Grail once, but I lost it. Sorry. I learned all aspects of residential construction. Man did I put out a couple really crappy tile jobs. Get the right kind of underlayment, you dork, or it will fail. You used that kind of grout with marble? WTF were you thinking? Oh great. You used Glidden for primer? Now we’re going to have to paint 7 coats to cover up that cheap garbage. One of my favorite times was the Russian plumber that worked for our good friend PT. He told me hot in Russian begins with a C, so the guy always got the hot and cold lines mixed up. He lasted about a month or two. Funny thing is that isn’t true, but I still told the story for years. Turns out he was just a terrible plumber.
9/11 happened and it barely changed my world as a finely tuned sheep. I knew something was wrong, but I did nothing to change my life and question any deeper than the provided story. I took over management of two of our largest properties just around that time. One was a 64 unit apartment complex and the other was a medium-sized shopping center. The next stretch of managing apartments turned out to be the single worst time to manage apartments in a long time in the US. The Fed blew the housing bubble and any decent tenants left apartments in droves.
By ’05 I was praying for convicts to show up and lease to improve the standard of tenant I was dealing with. I watched people who I knew were barely getting paid $8/hour go buy houses. I always tried to help the existing tenants as much as I could and they just dumped and dumped and dumped their problems and destroyed the apartments behind them as they disappeared. By the end of managing those apartments, I knew 95% of the time how their tenancy would play out by phrases and sentences that would repeat in patterns in their interview process.
I knew something was wrong, and I didn’t bother to read a thing. We did actually sell the property a little later when it was full, but the company that bought it went bankrupt in the ’08 crash. The commodity boom went nuts into ’08 and the price of natural gas skyrocketing destroyed apartment owners that covered utilities.
The shopping center was much more exciting as this was part of the retail expansion of the housing boom. We were getting calls from brokers every day to sell it. The funny part was that we never really filled up much space. The town of Lakewood allowed 2 million square feet of retail space to be developed and also gave special tax incentives to build two Super Walmarts. Any small mall owner was being obliterated and having their tenants stolen. Three things prevented us from selling into the most incredible time to unload a shopping center in history: Ignorance, greed, and a perfectly designed tax code. My dad wanted to fill more space and didn’t want to pay any taxes. I told him to sell, but I didn’t back myself up with any true research.
The tax code for commercial real estate is designed perfectly to one day take you out. When you sell a property, you have to invest in a like property within 6 months to avoid taxes. No one wants to pay taxes and it’s never a good time to buy when it’s a good time to sell. This doesn’t affect the big boys much as real estate is truly just one giant money laundering operation for the ultra-wealthy, but it sure makes mincemeat of the smaller investors. Almost all commercial properties are leveraged and almost all have adjustable interest rates to protect the banks. The bottom tiers of real estate are designed to sheer the sheep.
I have two acquaintances that I now know to watch as the bubble indicator friends. They are fittingly growing marijuana now, but they started their own loan agency in ’04. We would go play golf and all they would do is laugh about how much money they just made on a deal while they were slicing drives into the woods. They produced loans for the subprime lenders. They filled out the applications for me on residential properties we bought and I don’t even know what it said. I know they gave loans to every person they knew and then some. I used to call them friends. The appraisers they used were even better. “What do you want the house to be worth?” “How much money to you want to take out of the deal, we’ll just put down a price that accomplishes your goal.”
Now we get to ’05 and ’06 when the Fed starting to crank up interest rates. They had just allowed the entire housing industry to be loaded up with subprime borrowers before they rose rates at least 17 consecutive times. There is no way that this was not an intentional plan to shake down the population and force them into the next phase of the rental plan. Bush removed the short selling uptick rule in the markets and the burning down of the subprime restaurant began.
One of our properties of vacant land in the mountains all of a sudden got in someone’s way. We were contacted by the developer that represented Big Orange Box home (a hint of Home Depot) improvement. They had failed to get the votes in a nearby town and they found us. This parcel had previously been in negotiations with Walmart and several other grocery stores, but had ended in a severe dispute with the town. As they say, the only thing more corrupt than federal government is city government. My father and his partner had rightly sued and won a suit against the city when they changed the zoning on our property overnight without notifying anyone to stop the deal and they never forgot it.
This is really when I started bashing heads with the big boys. I had done a few leases with national Dollar stores and some credit unions, but this was how it all really worked. To get to Big Orange (or Home of D Po’) as I call it, you had to go through the developer who contacted us. He found every site for them and always bought all the land around the developments before any one knew what was happening. Talk about inside job. He found sites for several of the biggest tenants in the world. The number of fees that went to paying lawyers in this process was unbelievable. Long story short, they signed a long-term lease with us but never built as the economy rolled over and the numbers in neighboring stores still never recovered enough to this day.
Big O went to the plan of paper after 2008 that is what is a huge part of the hollowing-out of the US. They saw, or were in on the fascist corporate takeover, that spending money on additional stores wasn’t going to happen ever again. They started closing underperforming stores and then spent a huge amount of cash flows on buying back their shares to start taking themselves private. This worked great and was business smart for all of the initial companies, but it has since degraded into every bankrupt company with corresponding deadbeat CEO in the world. Home of D Po’ used cash flow. Now they issue debt to accomplish the same goal and then the new accounting rules don’t count share purchases on the books the same way to show up. Pure leverage fraud on the entire financial world.
In the process of partnering-up with the developer as he bought out some old partners of ours, I went to the national conventions with him present and was introduced to everyone who represented anyone decent. I had been to the national conventions before, but I never talked to anyone who “mattered.” In fact, the best part was that they always met in front of the doors where the large meetings were held, they would have a quick laptop presentation, get some agreement done, and then head to the bar. Everyone else was paying to play and it’s only gotten way worse.
After selling the apartments, we rolled the gains (1031 exchange rules again, should have walked) into a passive shopping center investment in Kansas. The managing partner had done a great job on a couple of other projects and my dad was friends with him. He had fraud written all over him, but he hadn’t done anything wrong yet. His office and presentation was so professional. We went and looked at the property and it was right up our alley. It was perfect to fix up and flip and the market was hot. Boy did we get the lesson of a lifetime in understanding the micro and macro with this one. We didn’t look at the rest of the city and we didn’t know what dire trouble the entire real estate industry was in. The property was the only kind of properties available at the end of a business cycle and this was the only garbage that was left. We had to buy something and this fit the bill.
This is where we got Trump’d, so to speak. We had no idea how desperate all the banks were to be like each other and the funding bank, Compass, got sloppy because they were being left out of the game. They lowered their standards everywhere and they let our managing partner slide in so many areas just to get a deal funded and fees paid. We got Trump’s by our partner as he pulled the old classic take your cash out through fees move. We only said we would do the deal if he put his own money to ensure performance. We even watched him transfer the funds. He then proceeded to pay himself the largest fee in probably history in relation to the size of the project. We only found out later.
He put together several deals all over the West and got many investors into these deals. In the bulk packaging process, he made agreements beforehand with an architect, contractors, and several other people who all cashed out on the process first. None of the deals he made in the last three years up to ’08 stood a chance as all the equity was long gone. This is how Trump and any person who makes themselves billionaires out of nothing with no product gets it done. Take any money out up front and let the rest roll. If it loses, the investors take the pain. If it works, you are God.
The main reason I ever got interested in the stock markets after this process was because of the direction of HS, but I promised I would never get caught uninformed again and I promised I wouldn’t let any one I know be uniformed again. That’s why this money printing is so brutal and the delay in the ascension process. You only look like a pain in the ass actually informing people of anything unless they really are awakened.
I noticed that the liquid markets of real estate in the stock market were giving warnings a couple of years in advance of the problems I next ran into. There were warnings everywhere. There were great people everywhere talking about it and I never heard a word from all these so-called “professionals.” I next found a program to backtest the entire market for 40 years after studying all the best I could find, and the rest is history. Not until I read “Chapter 11 of the Evolutionary Leap of Mankind” did I truly know I found home, but that’s a whole other story.
Next came the ’08 Armageddon. I remember the look on the banker’s faces as we flew to Kansas to go look as the funding seized up. I remember eating lunch with everyone as the Dow plummeted hundreds of points. The steak I ordered was so juicy. The amazing thing with real estate is its perception. The same can be said with just about everything, but the change in value when you put a pencil to paper on a project is all perception. Suddenly a vacant space becomes a liability instead of a future Whole Foods. I watched a property go from being valued at a possible $25 million with every one wanting to lend money no questions asked, to a vacant money pit with a stalled out construction process being valued at $ 8 million and millions underwater in a few days. It was all paper.
Here’s where not being a sociopath has its downfalls. We took over management of the project and tried to right what was wrong. The tenants were left hanging so we bundled up more money with a couple of the other investors to stabilize the project and get Compass to loan more money. We should have run but we couldn’t. The best part of this is our managing partner lied to everyone and we are still trying to collect IOU’s for all the other money. We didn’t know at the time all the lies involved in buying the property so the partner was still involved. We just took over management.
This is where I learned forensic accounting. I tracked everything back to the source and I was blown away at what truly took place. The level of fraud and lack of fiduciary commitment was unreal, but the biggest problem was that it was everyone. I plugged on to try and make the project work. Boy was that a mistake.
The city built a stadium in the downtown like every other town started to do and they put public funds to revitalize downtown. Public funds were then used to lure tenants to the downtown area and we lost 30% of our tenants to this. Then we lost a huge government tenant to a guy who was best friends with someone in the office even though our space was built out and exactly what they needed. We were getting “good ol’ boys’d.” I went and met with the biggest named lawyers in town to see what help I could get to generate support. They told me there was nothing that would get done and that most likely I would get “good ol’ boys’d.”
Suddenly it was time for the annual fire inspection. I was handed a bill for $235,000 worth of work that needed to suddenly be done. I know the company doing work had a few barbecues with the chief if you know what I mean. The great part of this one was that there used to be a terrible tenant in the basement floor of the old Sears building where he had a toy train club. A lot of people would gather there one night a week and run trains because there was so much vacant space there. They never paid a single penny on thousands of square feet and used a lot of power. The in-state manager finally kicked them out, but the tenant knew the editor in the town newspaper. They ran a scathing article on our project that was never deserved. Our managing partner never bothered to respond even though he knew about it. Brutal.
Next came lawsuit with the lawyer representing the ADA (Americans with Disabilities Act). This was my personal favorite. It was an old property so we got sued for ADA access to all areas. The list they came up with would have cost over $500,000 in repairs. We pulled a permit on construction so the managing partner and architect were supposed to take care of this. So was the building department. Crickets. I ended up settling the suit by paying the lawyer $50,000 and doing about $20,000 in repairs. The handicapped barely got anything done for them.
The tenants I dealt with here gave a view of the world that was a horror show. I negotiated and dealt with the largest Dollar store in the world after I had done deals with the second largest. One lease I signed took 9 months to negotiate every word. I dealt with the biggest rent to own store, video rental store, and one of the largest shoe stores. Then I had a DMV and a county care clinic. Government leasing and negotiations are legendary. I don’t even know how to describe it. The one thing that started to repeat over and over and over again was the pattern of the boys in charge. Their voices all sounded the same over the phone. I started to deal with the head of Citibank’s special assets division on another property and he sounded the same as the guy at mega Dollar store. The two that showed up to fine our Chinese restaurant for a small grease spill sounded the same and threatened us the same. This is where I first was thinking about sociopaths and cloning or seruming of some sort, but that’s a whole other story.
The County Care clinic was a so surreal to watch. Loads of zombies would stumble off the bus and meander down the hill to the clinic for whatever their treatment was. Loads of ’em. All day. Barely any life in their face. The other Dr. next to the County clinic talked to me about his special mix he was loading troubled people up with. He had such a grin on his face as he rang the hyperdermic register in their arm. Whoa man.
We finished the construction which no one thought we’d get done and I take satisfaction in that. Even though we ended up losing an unreal amount of money, we did what was right and the construction head sent me the best bottle of scotch I ever had. I pulled the plug on the project as I could see the cash flow was going to run out. I received a call the next hour from special financial management in town that represented the bank and they demanded I send them everything immediately including bank accounts. They wanted to make sure I didn’t run with the money. That was the foot I got in the ass out the door for dedicating my life to saving the project. Seeing how everything works everywhere was the gift.
At this point I found my way to the bottom of the pyramid. I found what was taking place and found my way to the Universal Law. I then proceeded to sell one other center because my father was on the note if it failed. With what I saw coming, it was bound to. The process took care of itself for me and the phones always rang at the perfect time to get us out and on our way. We went from passing on $5 million in profit years before to just paying us a few bucks for the years of effort.
The parting gift at this last center was priceless. It had an old laundromat, and of course, some of the chemicals used showed up in a drill test as we went to sell the center. The guy said we came in just under the state levels but we had to drill deeper to make sure. It would only cost another $15,000. I asked why he didn’t drill deeper the first time but he of course put it off on the State (probably his drinking buddy). This reminded me of the time a contractor friend told me that the inspector never passed an inspection unless an eight ball of cocaine was present. Good times. So I asked him what was to make sure we would pass if we drilled the test with him and not someone else. On the phone with a couple of brokers, he had the balls to guarantee we would pass the test if we paid him again. I laughed and took it as a proper goodbye.
The realization I finally came to in the real estate process at that time was that it was designed to turn me into an asshole. With debt levels, you treat the tenants like idiots and they actually respond better that way. I couldn’t take it. I will not bow before thee, Xerxes. I have a bum knee.
That’s really the point of all of this article is for people to be able to let go of so many things that may be affecting them and regrets from what has happened to them. The systems are designed to take all your stuff and they are designed to turn you into an asshole. Now they are trying to take everything. All the stormtroopers who think they benefit are next on the list. All the asshole property owners that charge too much as they take out too much debt are about to get taken out. The whole real estate world is about to get confiscated. A few trillion in debt is about to roll over in commercial real estate in the next two years and there won’t be any one to fund it. That’s how they’ll take it. They always do.
I have felt the last few years like Linda Hamilton screaming to the children to run as the nuke bomb goes off that she knew what was coming in Terminator 2.
All the best people I know have been run out of all of the darkest places. The assholes have been funneled to the top. The rug is now being pulled. The energy can no longer support what has been and will never be again on our planet. I know I missed a ton and I rarely check back on what I write. It is what it is.
The sense of home shall not be commoditized ever again on my watch.
Thank you and good night.
With love and light,