Investing across state lines seems like a big risk, but Josh Eitingon and his team have proven that it can be done successfully.
Josh Eitingon is the co-founder of DXE Properties where he serves as the acquisitions and financing lead. He was 25 when he syndicated his first 20-unit property in Cincinnati. With his acquisitions/analyst background, he’s able to scale his company, and their latest project is a $180 million development out of state in Seattle. Listen in as he shares his strategies for analyzing deals, investing and managing his business remotely, and more!
[00:01] – [09:39] From A $175,000 to A $180 MIllion Deal
- Josh tells us about quitting his W2 and finding his first deal
- Raising capital through promissory notes
- The advantage of having an acquisitions/analyst background
- Buying rougher C-D class properties vs brand new developments
- He breaks down their deal across the country and how they made it work
[09:40] – [14:47] Challenges in Management and Financing
- A mistake in property management that cost him time and money
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- Here are the lessons he learned
- Should you consider bridge financing?
- Josh talks about his partner and the obstacles and opportunities in their $180 million development
[14:48] – [17:06] Closing Segment
- What is Josh curious about right now?
- A book that Josh recommends
- Reach out to Josh!
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- Links Below
- Final Words
Tweetable Quotes
“If you see something going sideways management-wise, operationally, you’re better off pulling off the band-aid sooner rather than later and rather than trying to fix something that might be unfixable.” – Josh Eitingon
“Ultimately, we’re chasing a story. As much as I like to say we’re doing anything at a next level. That’s a lot of the value that we bring to us and our investors, that’s the backstory of the deal.” – Josh Eitingon
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Connect with Josh through the DXE Properties website and follow him on LinkedIn.
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Want to read the full show notes of the episode? Check it out below:
Josh Eitingon [00:00]
I think inflation is probably our biggest risk. Right now. There’s a lot of controllable things. And then that to me is the uncontrollable one. I think what I would cite is just the demand and the same challenges that we’re having every developer’s having. It’s just slowing down builder. And it’s just reading more demand.
Intro [00:19]
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 [00:30]
Josh Eitingon is the co-founder of DXE Properties, a real estate investment company. He focuses on acquisitions and business optimization. Josh, welcome to the show.
Josh Eitingon [00:40]
Thank you. It’s good to be here. Thanks for having me.
Sam Wilson [00:42]
Hey, man, pleasure is mine. Three questions I asked every guest who comes on the show: in 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?
Josh Eitingon [00:50]
Started 2012, a roundabout way, but I am out of New York. I was introduced to a property manager in Cincinnati, Ohio, liked each other. He ended up sort of being my boots on the ground, found an interesting short sale opportunity $175,000 I syndicated 20 units. And it was a suburb of Cincinnati. And that was basically my first deal. It was held for like a year and a half the property management did the renovation oversight, and we sold it. I don’t know. Yeah, it was probably less than a year and a half later, and I was stuck. I was 2012. At that time I was working for a software company was like. Oh, real estate’s the best thing ever. So I was committed in my mind to get over to the real estate side, save that software company for another year or two, left to where real estate investment company as an acquisitions guy, slash analyst I learned a lot there was really on the ground and was able to touch a lot of different parts of that business, ultimately peeled away from them. After five or six years, really, I think better learning and understanding it and co-founded DXE properties. My current partner, Donato. And my most recent project is actually a big deal. It’s $180 million development in Seattle, we’re building 410 multifamily units on top of retail. There’s a lot in between. But that’s the then to now in terms of where we started and where we are today.
Sam Wilson [02:12]
Wow, let’s talk about that first deal for a quick second, you indicated that you syndicated that deal, how does the $135,000 deal support even the document preparation for syndication?
Josh Eitingon [02:23]
I don’t know that I totally did. There’s lot of takeaways, but a lot of the things I had going for me at the time, one, timing of the market, I didn’t even know enough to know how good my timing was. But I did raise money for that deal in the form of promissory notes. So it was really a syndication necessarily. But that allowed the economics to make a little bit more sense that I paid everyone 9% and then was able to realize the upside on my own. It’s difficult, like you’re alluding to, to really syndicate a deal that size, and there’ll be anything left in it.
Sam Wilson [02:55]
Right. Absolutely. That’s awesome. Let’s move on from that. And let’s talk about your five or six years. But as an acquisitions slash analyst, would you recommend that path to someone?
Josh Eitingon [03:05]
Yes, enormously, there’s no way we would have been able to scale the way we did, and have done as a company had I not had that background and direct experience, not just learning like the numbers side of it, or the mechanics side of it. But really just understanding the relationship building, the people, nurturing, cultivation part of the business, that was really the fuel to allow, I think us to go it’s different. Everyone’s starting at a different point in their life. I was 25 or 26, saying, let’s make a career change, no kids, no wife at the time. So it’s easier for me to do that and take that path. But I think if you’re younger, getting into the business, the more traditional path, I think, well, it could take time and maybe be frustrating that way, really arms you to do a lot more later, I think.
Sam Wilson [03:51]
What were some things that you saw that you said, Hey, we’re not going to repeat that when I go out on my own?
Josh Eitingon [03:57]
I think a lot of it probably deal profile. And that’s taken some time. It’s not that first deal that made me realize, hey, this works. But I think getting outside of the rougher C class space and getting enamored by higher cap rate deals that, on paper, make more sense. I think we like a lot of syndicators have been saved by some of the market, maybe getting into some rougher deals and coming out, you know, with the big smile on the other side. I think now we’re still buyers at the end of the day, and we’re going to try to be buyers, even though it’s all competitive. We want to chase quality and a story behind that quality.
Sam Wilson [04:32]
Yeah, that’s interesting. Do you think if I’m hearing you right, is that the people holding or buying rougher C minus D class properties are taking on more risk maybe than what they were seven, eight years ago?
Josh Eitingon [04:44]
Certainly, we’re in different markets, you and I but still I buy a low three cap C Class deal to maybe take it to an operated at a five which is probably optimistic these days. There’s no way I want to take that risk on that profile deal and we saw it from COVID. Not to say we’re going to have that same outbreak or whatever, but that flash dramatically impacted those profiles kind of based in terms of service workers losing their job very quickly, often being week to week, month to month type tenants, those who want that were impacted, whereas I think even a slight step above was much better insulated to weather a storm or blip.
Sam Wilson [05:23]
Right? How do you feel on the other end of the spectrum, you guys are building brand new, was that, 200 or 210 units of multifamily on top of retail, I mean, development has its own inherent risks as well, how do you feel like when you contrast those two, how and why do you feel like what you’re doing is a safer bet?
Josh Eitingon [05:41]
I’m nervous about it. Don’t get me wrong, but I’m nervous about everything these days. I don’t think you should be buying anything and not be nervous about it at any point in time. It’s probably healthy. So it’s concerning, I think inflation’s probably our biggest risk. Right now. There’s a lot of controllable things. And then that to me, is the uncontrollable one, I think what I would cite is just the demand and the same challenges that we’re having, every developer’s having, it’s just slowing down build-up. And it’s just reading more and more demand. So this was a deal that likely we would not be doing were it not for the story. It’s something that we’ve been working on for years and years, we sort of made a bit of like a land bank type of play, and I think got lucky with the land that we do own and are developing on. But generally, I think development while it definitely carries higher risks, we are seeing more development than we have in the past, because we had the conversation with ourselves about just replacement costs. And if you’re buying a B class steel for 180 200, something a door, and you build it for 200 Something a door makes you scratch your head. So as much as I realized the risks where we are being pulled that way more and more right now,
Sam Wilson [06:48]
Talk to us about the story behind this, if you can, behind this deal.
Josh Eitingon [06:53]
In Seattle. Sure. So do you know Seattle?
Sam Wilson [06:57]
Roughly.
Josh Eitingon [06:58]
Okay, Seattle, a big push for them. It has been like a light rail expansion project, it started down at the airport continuing into downtown, and it’s sort of spread off from there, east-west north, the North light rail has been trying to get traction for a long time in terms of its approval. Finally, in the last few years, it was approved, but they receive state funding. And we focus on one of the likely approval towns that were coming. And we put options, there’s a cul de sac of eight homes put above-market options to buy these houses that were all like pretty rundown houses for I think they’re all a year plus. So it gave us some flexibility to just see what was going to happen. I think we got lucky and bright as part of it. But they ended up choosing not like… our town directly adjacent to our site, which we were hopeful and expecting to happen. And as part of that, they had to up zone that area to really I think allow for and complement the growth that was going to come with the light rail. So these single-family lots went from single-family lots to something that we could build up to 12 stories on. So you know, I think more than anything, as our hedge, our land base is so so low there that we just feel very comfortable pressing forward, even at this time.
Sam Wilson [08:13]
You guys are in New York, you already have a footprint there in Seattle?
Josh Eitingon [08:16]
We do. So a good friend of ours who is out of New York also now is from Seattle. So that’s what pulled us over there. Admittedly, it’s not what we know, especially well, when I was on the acquisition side, I was all focused in the southeast. So there’s eight or nine cities in the southeast that I know very well, Seattle, we were hanging out too. And we were chasing that story. Ultimately, we’re chasing a story. As much as I like to say we’re doing anything at a next level. That’s a lot of the value that we bring to us and our investors, that’s the backstory of the deal.
Sam Wilson [08:48]
And that’s true. I think with any of us, you know, there’s a lot of things I’ve been involved in, and I’m like, Wait, how did I get here? Well, it’s just… called you and said, Hey, I’ve got this interesting deal, you know, in such in such a location, let me tell you about it. You’re like, Oh, that’s really smart. I love it. Let’s go. But without that local knowledge, that’s what I was getting at was like, how are you finding eight homes, rougher homes and you want to put options on them. That’s a really nuanced buy, you know, for a guy living on the other side of the country.
Josh Eitingon [09:16]
It would not have happened, were it not for our friend that’s out of New York and his family’s in real estate, has the ties out there and pull this out there. But it’s difficult, like, you know, whether you’re starting or trying to take a leap into a new market, it is a challenge. I mean, newer, way larger companies than us do it all the time. And even for them, they have the same growing pains breaking to new market, building the same team and efficiencies and all of that, it’s a challenge.
Sam Wilson [09:40]
What’s been a mistake that you’ve made that has either cost you in time or money or both?
Josh Eitingon [09:45]
It’s probably on the property management side, maybe being slow to remove a property manager. I think now with a little bit more, we’ve definitely seen that with greater size you do get a better caliber of managers to choose from, but particularly when I was starting with somewhat smaller deals, and your manager options are more like the, you know, small company guy that’s jumping around from place to place and as a small team and still figuring out himself, I think the takeaway was that if you see something going sideways management-wise, operationally, you’re better off pulling off the bandaid sooner rather than later and rather than trying to fix something that might be unfixable.
Sam Wilson [10:24]
Yeah, there’s a quote that I’ve often said, but it’s hard to implement, right? Because you think you can course-correct? Yeah, the quote is, often when’s the right time to fire somebody? And the answer is the first time you think about it. I’ve never had that not be true. Like when it comes to staff, when it comes to property managers or something else. It’s like, you know, you internally know there’s a compass somewhere inside of you, that goes, this is not working, and it’s not ever going to work.
Josh Eitingon [10:47]
I like it. I’ll cite you every time I use it. But I do like it.
Sam Wilson [10:51]
Right, and it’s kind of a harsh statement, you know, but it goes hand in hand with that, you know, the time and money mistakes. The first time you thought about it, and you probably were never wrong, from that point moving forward until you removed them like, oh, man, I’m so glad I finally got that done.
Josh Eitingon [11:02]
I agree. And especially now when it’s like, so difficult to find good people that you’re like, you’re sort of reluctant to remove anyone at any point in time, because it’s just, you don’t know what you’re gonna get on the other side of the coin. It’s a balance in that way. But I think with making a change from property manager as a whole, on that side, I just say rip the band-aid and reset, and it’s probably healthy.
Sam Wilson [11:24]
Very healthy. Yep, absolutely. Love it. How are you guys handling your financing right now?
Josh Eitingon [11:29]
We do everything. Last year, we assumed a HUD loan, we have agency financing, Fannie and Freddie we have bridge debt, which has been mostly like just bank debt fund type bridge debt. We’ve done local bank financing. So I think touched at all, we’ve even done insurance company financing. You know, right now, I think what’s most attractive, obviously, rates are going up quickly. So that’s something to be mindful of underwriting for hedge for all those things. I think that what we’ve seen in the last year has certainly been that bridge financing has been super aggressive. And it almost precludes going agency, at least for most of the deals that we’ve looked at just because of the flexibility to be able to exit from bridge financing versus agency.
Sam Wilson [12:10]
Is there a lending product that you see is risky?
Josh Eitingon [12:13]
I guess historically, you would say bridge financing, even after I just said how much I like it right now, I think that it’s still profile-driven. My argument always for bridge financing is you can exit it, it’s easy to exit. Whereas in some cases with agency financing, if you have long-term and yield maintenance, you know, you might be in a situation where you can exit in two or three years. And if that was bridge, you wouldn’t be able to exit. So you know, you could argue that what’s traditionally thought of as the safest type of financing may not be
Sam Wilson [12:44]
Right. Yeah. And certainly with the tailwinds that we’ve experienced here in the last few years, a lot of people have paid a lot of prepayment penalties. And, you know, if they were in a shorter-term debt situation that cost them a little bit more on the front end, you know, they’ve been able to exit and save 10s of millions of dollars on prepayment penalties. So it’s a balancing act.
Josh Eitingon [13:04]
Yeah, you know, I don’t grant it, it’s way above my paygrade. But you would think that Fannie or Freddie would try to compete a little more, and perhaps lighten their exit penalties or do something to just make it that much more attractive. I think they could pull back a lot of the bridge business that they have since lost.
Sam Wilson [13:21]
Right. Yeah. And that’s just the market filling the gap, which is, you know, what the market should do when there’s an inefficiency there. Talk to us a little bit about your team. I mean, building $180 million development is no small feat, especially across the country. How are you getting that done?
Josh Eitingon [13:35]
Yes, so, I’ve obviously mostly talked about myself, but my partner’s background is really strictly development, mostly high rise development, but it’s really exactly what he’s done. And in terms of background and path, he took a much more traditional real estate path. He went to college as an engineer and then he went to grad school for a real estate development from NYU, and then works for developers and contractors that are all real estate focused. I sort of bounced around a little more. So you know, we’ve really compiled a team out there to be able to do this, and it’s a team of 12 different individuals, but we have a consultant that’s directly working for us. That’s really our boots on the ground to I think facilitate taking it through today through entitlement in a way that we can’t do as efficiently day to day. However, I will tell you, it’s by far the most time-intensive of anything that we’re involved in. We have two standing calls with full team which is 20 plus people at this point every week. And then on top of that, there’s just a lot of weekly activity and we haven’t started we hope to break ground middle of next year. So it’s time in certainly time intensive but you think this is a project just because of its uniqueness and what we’re putting together. We’re super excited about it just elevating us as a company.
Sam Wilson [14:48]
That is awesome. Absolutely love it. Last few questions for you. Tell me something that you are curious about.
Josh Eitingon [14:54]
I assume you want a real estate-centric answer right.
Sam Wilson [14:58]
Show is yours, man.
Josh Eitingon [14:59]
You know, something I was talking about this morning with my partner here on maybe the more optimistic one than then to not always but, you know, he was rattling his mind for what’s going to cause the reset or how to prices reset. I don’t want to say we’re rooting for a crash, but a little shake up a little bit of hesitation in the marketplace, we think would be healthy. So that’s what I’m very curious about. I have no clue what’s going to do that. It’s probably not something that I could live off. That’s what I’m scratching my head about right now.
Sam Wilson [15:28]
Right? Like, if we have a correction, does it help commodities prices? Or does it drive them higher? You know, if it does that, does that reduce demand if commodities prices fall, and so we’re, you know, it’s now we’re worse off than we were before? Who knows? The great thing to be curious about I love that what’s a good book you’re reading right now?
Josh Eitingon [15:43]
Not really reading any good books right now. I was just gifted a masterclass. I don’t know. Have you heard of those? Sort of like, Yeah, we’re excited to listen to some of those. A book that I always like suggest, which is something I read early on, that’s always stuck in there for some reason was Powerhouse Principles. Have you heard of that? It’s Jorge Pérez. He’s like, he was one of the founders of related companies down in Miami, and was sort of like from nothing to building a behemoth company. And it’s a combination of high level and also getting in the weeds and good, easy read, if you’re looking for a suggestion.
Sam Wilson [16:17]
Absolutely. I love it. Josh, last question for you. If your listeners want to get in touch with you, what is the best way to do that?
Josh Eitingon [16:22]
The best way is through our website, dxeproperties.com. And you can contact us or schedule a time on our calendar and always happy to connect from any perspective, whether it’s someone getting started or wants to get involved with us directly or just wants to connect. Love to do so.
Sam Wilson [16:37]
Awesome, Josh, thanks your time today. Do appreciate it.
Josh Eitingon [16:40]
Thank you, Sam.
Sam Wilson [16:41]
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.
