Valuing Land for Development: Andrew Brewer's Unique Approach

Today’s guest is Andrew Brewer.

 

Andrew is a Real Estate Developer and a Buy & Hold Investor

 

Show summary:

In this episode real estate developer Andrew Brewer shares his journey from stationary engineering and facilities management to real estate development. He discusses how his background has equipped him with valuable skills and insights into asset management and construction. Brewer emphasizes the importance of continuous learning and understanding the concerns of property owners. He shares his strategy as a developer, the challenges of remodeling versus new construction, and his approach to valuing land for development projects. He also highlights the necessity of taking calculated risks for wealth building.

 

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Stationary Engineering and Facilities Management (00:01:43)

Experience Working on a High-Rise Building (00:04:13)

Lessons Learned from Construction Defect Litigation (00:06:14)

The skill set as an owner and investor (00:10:15)

The difficulty of remodeling vs building new (00:11:21)

Valuing shovel ready projects (00:18:28)

The risk of investing (00:19:27)

Valuing land and potential (00:20:20)

Factors in determining offer price (00:22:09)

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Connect with Andrew:

Linkedin: https://www.linkedin.com/in/andrew-brewer-b6b042125/

Facebook: https://www.facebook.com/andrew.brewer.irongall

Web: www.irongallinvestments.com

Web: www.distance3development.com

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → [email protected]

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Andrew Brewer (00:00:00) - What the owners look for. What do investors look for? What makes something a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building. What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.

 

Intro (00:00:35) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:48) - Andrew Brewer is a real estate developer and they buy and hold investor. Andrew.

 

Sam Wilson (00:00:53) - Welcome to the show.

 

Andrew Brewer (00:00:54) - Hey, thanks for having me. Absolutely.

 

Sam Wilson (00:00:56) - The pleasure is mine. Andrew. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

 

Andrew Brewer (00:01:05) - Um, so I started, uh, I grew up in the San Francisco Bay area, so I guess I started there. Um, I actually started my career as a butcher. Uh, I did that for eight years through high school and college. Uh, when I graduated college, I moved into stationary engineering, uh, which is facilities management of large commercial assets. And from there, um, I moved into, uh, running my own company and developing real estate. Uh, where I'm at right now is I run my own company and I develop real estate. And what was. I'm sorry, what was the third question?

 

Sam Wilson (00:01:40) - Where did you start? Where are you now? And how did you get there?

 

Andrew Brewer (00:01:43) - Uh, how I got here is I, you know, I did a lot of reading, you know, listen to podcast, read books, went to meetups, like, did that whole kind of route to educate myself about the ownership side of real estate? Uh, and I developed my skill set through my W2 job as a stationary engineer.

 

Andrew Brewer (00:02:01) - Uh, and then also by doing projects, uh, both by myself and with partners, uh, kind of mushed all of that knowledge and everything together to start my own firm, and here I am.

 

Sam Wilson (00:02:12) - Wow. That's a lot. A lot of moving pieces. I'm curious, what is stationary engineering? I've never heard that term, and that's, uh. I'd love to get a little insight on that and how that shaped what you do currently.

 

Andrew Brewer (00:02:25) - Definitely. Um, so stationary engineering, contrary to most people's first opinion, is not creating new types of paper. Um, it actually is the the other definition of the word stationary, which means like stationary as and it doesn't move. Uh, and that's um, that's as opposed to in that industry, marine engineering. So when you're dealing with like large boats, battleships, cargo ships, things of that nature, all of those ships have systems that, you know, keep that ship running. They have generators, boilers, filtration systems, um, all that kind of stuff which run, you know, the power for the ship, for it to move lights, you know, anything like that that's needed on a large ship.

 

Andrew Brewer (00:03:09) - Now, all of those systems can exist off a ship, and often they exist in buildings. So when you are a stationary engineer, you are doing all of that applied engineering work, but in a stationary facility, as opposed to a facility that moves. Um, so a stationary engineer could also be called, uh, like a facilities maintenance person or, you know, something like that. Uh, the engineering portion of it generally comes when you're dealing with a large systems like high pressure boilers or things of that nature, which is a little more in-depth and requires a much more specialized skill set than just, you know, swapping out. You know, light fixtures or something like that, which is something that, um, which all facilities maintenance people do. But it's only the engineers that get to work on the actual, like, big systems because something like, uh, a high pressure boiler, I mean, that could explode and kill people. So you need to know what you're doing. It can't just be some rando that comes in and starts working on it, uh, so that, um, that's that job, um, where I was working.

 

Andrew Brewer (00:04:13) - I mean, they have these in all types of buildings. Um, the facility I worked in for a number of years, uh, was in San Jose, California. Uh, it was a high rise building, 27 storeys, um, composed of 197 residential units and then eight ground floor commercial spaces. So it was half of a city block, that one facility, um, because it was a high rise. We had a lot of, uh, singular systems in the building, um, on a lot of apartments, like garden style apartments. When you think about the Hvac system, generally, you'll see like a roof, and there's just like a whole bunch of condensing units all in a row along the roof. You know, when you're in a 27 story building, you've got less roof area. You can't just fit a bunch of condensing units. You have one system for the entire building, uh, which would be a cooling tower or a chiller or something like that. And then that is supplying, um, you know, refrigerant and cooled water to all of the 197 Hvac units that are in there.

 

Andrew Brewer (00:05:13) - So it's a very different system that you have to work with. Um, so that's that's the building that I worked in. I started there as a utility engineer, worked my way up to the assistant chief engineer of that facility, um, and worked on, you know, everything in that building heating and cooling, electrical, plumbing, uh, you know, even some structural work, cosmetic stuff. Worked very closely with, uh, the HOA board and the property manager to keep that facility running. Um, keep everything running on budget. Um, you know, there was a there was a lot of it was kind. A mishmash of, you know, property management, maintenance work, asset management, facilities maintenance. Like we kind of did it all because we were actually a relatively small team for that facility. Um, and that's, you know, that's really how I got a lot of my hands on knowledge. Um, while I was there, I also acted as a consultant for construction defect litigation lawsuits.

 

Andrew Brewer (00:06:14) - Uh, so I did that. And, you know, basically that's suing developers and builders for, uh, defects in their construction. Um, and so, you know, so I did that as well and then participated as a project manager in reconstruction projects. You know, like if you win a construction defect litigation suit, generally there's a large settlement. That settlement, if it's used properly, is used to remediate all of those problems in the facility. So that's, you know, basically a huge redevelopment project that then has to happen, which in a high rise, as you can imagine, involves a lot of work being done suspended on lifts many hundreds of feet above the ground. Um, which is not always super fun.

 

Sam Wilson (00:06:59) - No, but would you say that that is where you really, um, you know, figured out how to become a developer?

 

Andrew Brewer (00:07:08) - Uh, that was instrumental in it. So, um, doing that job, um, I didn't actually develop anything from the ground up, but the process of, you know, redevelopment, working on those lawsuits, um, that all gave me a lot of background knowledge.

 

Andrew Brewer (00:07:24) - So, you know, as I'm developing properties now and building properties, I know exactly what's going to put me in court at the end of the day because I know what to look for. I know where common mistakes can pop up. I know how, um, how serious those things can be if you don't do your due diligence as a builder. Um, and a lot of this stuff can be relatively mundane. It's not something that people think about. Um, you know, I'll give you a good example of that. One of, um, one of the big issues in this facility I was working in was, uh, was plumbing problems. And, you know, it turned out that that one of the issues was the builder used, um, the wrong kind of rubber and a lot of the gaskets and seals and it, you know, the water source in that area, you know, had certain, you know, certain things. And it's very hard water in San Jose. It's very similar actually, here in Austin, Texas, there's just a lot of calcium in the water.

 

Andrew Brewer (00:08:23) - And, uh, you know, those minerals that were in the water reacted poorly with, um, with that type of rubber, I guess the chemical composition of that rubber, and it degraded it prematurely and led to just leaks everywhere. And, you know, as, as I'm sure you know, you know, I mean, you got water will do wonders for your, your flooring and your sheetrock and, and everything. So, you know, the the leak itself may not cost that much to fix, but having to remediate, you know, a big leak cascading from the 20th floor all the way down. I mean, that's a lot of damage. That's hundreds of thousands of dollars of damage for a single plumbing leak. Um, so those things get amplified. So I kind of saw that in real time, like, oh, this is bad. These can be millions, tens of millions of dollars in damages if you don't build this stuff correctly. So that's really informed. You know, how I've approached development is making sure that, you know, I take all the steps to not get sued for that, you know, to protect my investors as well.

 

Andrew Brewer (00:09:22) - When I started developing, um, you know, I have a partner here in Austin that I develop with, um, he actually grew up, uh, building spec homes with his parents. His parents had a spec home building company, and they would go out and, like, buy land, subdivide it, build houses. So he and I had very complementary skill sets. He knew, you know, like, hey, this is the specifics of like, land development. And I had the point of view of like, hey, this is what it takes to do this with a large commercial facility. Um, because the process of doing, you know, redevelopment or reconstruction, I mean, you still have to go to the city, you still have to pull permits, you still have to get approvals. You know, you still have to work with contractors. A lot of that is very similar, even if it's not like exactly apples to apples. Um, but, you know, I mean, pulling a permits, pulling a permit, you know, that that doesn't change whether you're doing it for a new build or redeveloping something.

 

Andrew Brewer (00:10:15) - Um, so I learned all that through my job, and, uh, and that really informed, you know, what I'm able to do now, um, at that same time that I was doing that, you know, that's when I was doing, you know, a lot of reading. I still do a lot of reading, but I was doing a lot of reading then listening to podcasts, going to networking groups. Um, and I was investing myself just on the side outside of my job in smaller single family stuff. Um, and so I developed that skill set as an owner and as an investor. Like, what do owners look for? What do you investors look for? What makes them? Being a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building.

 

Andrew Brewer (00:11:09) - What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.

 

Sam Wilson (00:11:21) - Absolutely. And I and I would I would say that just from an outside perspective, the remodel indoor remediation side of things is 10 to 1, the difficulty of just building something new.

 

Andrew Brewer (00:11:33) - It is. Um, that that's definitely true. You know, my dad, uh, my dad was a carpenter and a staircase builder for a time, uh, back before I was born. But, you know, in another life, he was that. And, you know, like, as we talk about that kind of stuff. Now, you know, the thing that he's always said to me, which I found very true in my career, is, you know, when you're remodeling, um, or, you know, he would say it's so much easier to build new than to remodel, because when you remodel, you're fighting for inches and you got to find them somewhere.

 

Andrew Brewer (00:12:03) - If you're building new, you know, you can just add inches and it's really easy. Um, so that with him just saying, like, yeah, you're always fighting for inches, that is just kind of always stuck in my head. Um, it's part of the reason I like new development more than more than rehabbing stuff. It is a little easier in some ways.

 

Sam Wilson (00:12:20) - Absolutely. I would, I would the only the only thing that I would argue on that front is that your speed to market could be potentially faster on a remodel than maybe on.

 

Andrew Brewer (00:12:31) - That's definitely true. Um, you know, I have some folks, you know, that I know that are able to, you know, they buy property or maybe we're able to exit it pretty quickly, you know, especially during like 2020 to 2022. You know, it's like, hey, I'll buy this apartment complex. I'll renovate 20% of the units, get some higher rents. It's proof of concept. Turn it around and flip it. I've got an exit in 6 to 8 months.

 

Andrew Brewer (00:12:53) - Put that on their resume. Like, look, I've got all these exits now with me, it's a little more challenging when I'm developing a property. I can't really just, uh, in six months be like, well, I built some of the framing. I'm going to flip it to you. Like people really expect you to finish it. So. So my holds end up being a bit longer because I actually have to stick with them from all the way from the beginning, all the way through the end.

 

Sam Wilson (00:13:13) - What's your what's your plan on the development side of things? I mean, I see, you know, the there's there's developers that get it too completed, partially occupied and then punt it. But in your bio there, you said you're a buy and hold investor. What's your what's your strategy on that front?

 

Andrew Brewer (00:13:30) - My ultimate goal in every project I do, I guess I'll say aside from single family home subdivisions, because I, I don't want to compete with, you know, D.R. Horton or Lennar or anything.

 

Andrew Brewer (00:13:40) - I will entitle lots for them, but I don't want to build the houses, um, for my townhome and multifamily projects, my goal is always to buy raw land and title it, develop it, build it, and then hang on to it forever. Like that's what I want to do. That doesn't always work to do it that way. Uh, there can be deals found at any stage in the development process. You know, I have bought shovel ready deals. I have bought raw land. I have bought land that was already zoned, but not, you know, entitled or developed. Um, I've bought land that, you know, wasn't even annexed into a city with no utilities. Um, I can come in at any point in the development process, and I have, um, it all depends on, you know, how the how the numbers work out. You know, like, if somebody wants way too much money for their entitled land or their zone land or whatever, like, I'm not going to do that deal.

 

Andrew Brewer (00:14:37) - If somebody is offering like a great deal and I see a good way to make, you know, investors a lot of money, uh, then then I may buy something shovel ready. But ultimately I would like to, you know, extract as much value as I can. And you do that by doing the entire process, you know, from raw land all the way through, holding the final asset. At the end of the day, I'm going to do what is best for the investors, which sometimes is to sell. If there's a crazy good offer on the table or, you know, if there's a feeling that, you know, maybe the next phase of a project might not go so smoothly, maybe there were some recent, you know, changes to the zoning code or changes to, you know, the building codes or maybe you know, somebody in, you know, a local municipality that is, you know, Anti-development just got elected. You know, I, you know, I might say, like, uh, might not be the best thing for us to stick with this project.

 

Andrew Brewer (00:15:33) - We could probably get it done. But the risk, you know, may not outweigh or, um, may outweigh the, the rewards at this point. So I'm always very cognizant of, you know, what's going on in the area, what's going on with any project. If we have to exit, or it makes sense to exit to minimize risk or protecting investors investment, like I will absolutely do that in a heartbeat. Um, but ultimately, I, I want to just hang on to stuff. You know, that's there's so much time value of your money in real estate. Like, you know, real estate goes up over time. You know, if you get a good asset at a good price, you know, it can make sense to just hang on to it, you know, as opposed to trying to repeat the same thing every couple of years.

 

Sam Wilson (00:16:17) - I mean, outside of the constraints of, you know, like you said, elected officials coming in that are anti-development things like that.

 

Sam Wilson (00:16:23) - What what else is there that might prevent you from holding something long term?

 

Andrew Brewer (00:16:31) - Um, other, you know, other things. There might be, uh, construction prices going up, like if this is if this is entitled land that we haven't built on yet, you know, seeing, you know, supply chain issues or, you know, just prices on certain items kind of go in going super nuts in the future. That would definitely, you know, factor in might want to, you know, offload a project if it looks like it might not be feasible to build anymore. Um, if there was, you know, some, some kind of negative press in the area where the project is not necessarily elected officials, but, you know, if I don't know, you know, we're trying to build some apartment complex on some street and like, you know, suddenly, you know, some, you know, some gang moves in, you know, down the street and suddenly there's a bunch of homicides like, uh, maybe, you know, this might not bode well for the neighborhood in the future, you know, might make sense to try to offload this before the situation gets worse.

 

Andrew Brewer (00:17:33) - If it looks like there isn't a strong response to that, um, you know, things, things of that nature, um, I guess I would say would be reasons to offload. Another reason would be a really good offer on the table. You know, somebody comes in is just like, hey, I'm going to offer you a stupid amount of money for this thing. Like, okay, well, you know, if I, you know, can like two x my investors money in like a year because some guy really wants to get into this area. And by this project, I mean that might be a good thing if it's going to take me, you know, five years to two x their money, they might be very happy just cashing out right now. Um, I might prefer to hold it, but I mean, you know, it's mostly investor money, so, you know, you got to do what's best for them.

 

Sam Wilson (00:18:14) - Right? Absolutely. They got one other practical question on that front, which is, you know, how do you how do you value shovel ready projects when you look at that? Like what's that process? What does that process entail?

 

Andrew Brewer (00:18:28) - Valuing shovel ready projects is really hard.

 

Andrew Brewer (00:18:31) - Um, valuing land is really hard. Especially entitled land. Um, but for a shovel ready project or, you know, entitled land, the way I do it is I try to back into a value based on the final completed asset value and what I think it will take to get there. So factoring in, you know, cost of construction and holding costs, you know, time, um, you know, time to build all that kind of stuff. You know what I think you know, the rents or the sale prices might be, uh, when it's completed. You know, I kind of back that off put in, you know, what a, you know, a good market return would be for somebody to invest in that project, you know, a good risk adjusted return. Everything I look at is a risk adjusted return. Um, you know, this is investing there. There are risks. You know, you don't get a 20% IRR on your money without taking some risks, like, you want no risk.

 

Andrew Brewer (00:19:27) - Go stick your money in a savings account and get 0.1%. Like that's the risk free option. But it is not the option that builds wealth. Um, not to say that I'm careless with money, but you know I do. I am upfront with my investors that like, hey, like there is a risk here if you know, if you like, you know, are betting on this money to like pay your medical bills in the next six months, please don't invest it with me like I don't want to be, you know, I don't want to be put in a position where, you know, you where I've disclosed that this is an illiquid investment and you need the money in six months, and then I'm looking like a jerk. Um, but, you know, anyway, back back to the point of valuing land, you know, put in a reward, put in. You know what my profit needs to be for me to do the project, factor in all of that stuff and kind of back into like, okay, so this is kind of what I could pay for this land.

 

Andrew Brewer (00:20:20) - I guess it's a very similar approach to what a lot of, um, buy and hold investors do where they, you know, you know, if they're not looking at the actual value of the property based on, like, you know, the rent roll or something, but they're looking at the potential of what the property could be and buying on that number. That's really what I do. And coming to a number on, uh, shovel ready land or entitled land, I, you know, I, I really develop kind of my top number at that point. And then I kind of go to the market and see what is land trading for, you know, are there any other entitled projects that I can look to potentially as a basis for comparison? Oftentimes there's not, um, or not something that would be a true, you know, apples to apples comparison. I'm often having to extrapolate from a different, you know, type of project. You know, maybe if I'm looking at, you know, hey, this this is an entitled project for 200 units.

 

Andrew Brewer (00:21:15) - The only other comp I can find in the area is a project entitled to build 16 units. Like, kind of hard to make a comparison there. Um, so, so there are a lot of estimates. Um, but. You know, if I see that, you know, the price that I'm willing to pay is far over. You know anything else that's listed in the market? You know, I'll go with that lower number. Like, hey, let me lock up something that, you know is more in line with the market. If the market's asking way more than you know, than my number says, uh, which, you know, happened here in Austin for a couple of years, you know, people were just paying stupid amounts of money. I don't I don't know how they justified prices, uh, that they paid. Um, you know, I may, you know, lob in an Loi just to kind of see if there's any response, not really expecting anything. You know, if they come back and want to be reasonable, that's fine.

 

Andrew Brewer (00:22:09) - Um, but I have, um. You know someone someone that I spoke to about, you know, putting in offers and, you know, what he said was, you know, if your offer price is off by more than 10% of their ask price is probably not going to go anywhere. Uh, you know, you can ask, but, like, don't sit there and be, like, betting on getting a favorable response. Um, so, you know, that's kind of how I try to value stuff and, and look at it there.

 

Sam Wilson (00:22:36) - Fantastic. Andrew, this has been a blast having you on the show. I've got like 500 more questions that I want to ask you, but unfortunately we are out of time. We've learned so much from you here today, especially as it pertains to kind of what your thought process is on the development side of things, how you view projects from a, uh, what did you call that, a construction defect litigation lawsuit perspective? I mean, that's that's a skill set that very few people have have been part of those, uh, calling in as a witness on a very specific part of that process.

 

Sam Wilson (00:23:08) - And it's, uh, yeah, it's very interesting to see see those go down and kind of how that works out. But you've got you've got a just an amazing background and uh, yeah, a wealth of knowledge there. So thank you for taking the time to come on the show today. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?

 

Andrew Brewer (00:23:23) - Yeah. So people can find me on Facebook or on LinkedIn. Um, those are the two platforms that I use the most. Uh, or they can visit my websites. I've got two real estate companies, uh, here in Texas. Uh, one is Iron Gall Investments. So you can visit er on JL investments comm or distance three development. That's dot distance. The number three development.com. And you can shoot me an email. Uh I've got two emails either Andrew at Angle investments.com or Andrew at distance three development.com.

 

Sam Wilson (00:23:58) - Fantastic. Thank you again for your time today Andrew I certainly appreciate it.

 

Andrew Brewer (00:24:02) - Definitely. Thanks so much for having me.

 

Sam Wilson (00:24:04) - Hey, thanks for listening to the how to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.