In this episode, Ash Patel discusses property management and real estate investment strategies with Mike Zucker, managing partner of Peak Properties LLC. They cover Mike's journey from starting in property management to managing over 8,500 units, focusing on achieving high ROI and low vacancy for real estate investors. Mike shares his approach to property management, the importance of adapting to market changes, and strategies for maintaining and increasing property value.
Key Takeaways:
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Adaptability and Comprehensive Service: Mike Zucker's extensive experience in property management and real estate investment has led to the management of over 8,500 units, emphasizing the importance of adaptability and comprehensive service in achieving high returns on investment.
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The Value of Perseverance in Real Estate: Starting from the ground up, Zucker's journey from managing a six-flat building to overseeing a vast portfolio of multifamily and commercial properties showcases the value of perseverance, hands-on experience, and strategic growth in the real estate industry.
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Strategic Property Management for Success: Peak Properties' approach to property management focuses on maximizing occupancy and minimizing vacancy through proactive measures, detailed analysis of operational costs, and strategic investments, demonstrating the critical role of effective property management in the success of real estate ventures.
Mike Zucker | Real Estate Background
- Managing Partner, Peak Properties LLC
- Leads a team of over 150+. Together they manage multifamily and CRE properties, valued at over $3B.
- Based in: Chicago, IL
- Say hi to him at:
- Biggest Learning Experience: "In good times and bad, smart interest rates and smart debt rule the day."
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Transcript
Ash Patel (00:01.821)
Hello, best ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Mike Zucker. Mike is joining us from Chicago, Illinois. He is the managing partner of Peak Properties LLC as third party property managers. They help real estate investors in commercial real estate and multifamily achieve top return on investment and decreased vacancy. Mike's portfolio consists of over 8,500 units and more than 500 multifamily buildings plus commercial spaces throughout the Chicagoland area. Mike, thank you for joining us and how are you today?
Mike Zucker (00:47.919)
I'm great, thanks for having me. I'm not sure if you said magic partner or managing partner, but I'll take them both so it'll work.
Ash Patel (00:55.727)
It's that New Jersey accent that comes out sometimes. Managing partner. Mike, if you would, can you share with the best ever listeners a little bit more about your background and what you're focused on now?
Mike Zucker (01:08.174)
Sure. My background, I mean I can fast forward, but I've been in the industry almost 30 years. Started literally in the basement of a building in Chicago's north side. Slowly and surely worked our way up to from a six flat to a 20 unit building to a 30 unit building to a 300 unit building. We take care of everything as I'd like to say soup to nuts. And right now in Chicago where it's negative 15 degrees out. We have a lot of frozen pipes where I literally just got the hot water going in a building that's about 100 units in Chicago's Gold Coast neighborhood.
Ash Patel (01:46.149)
Was that entire 30 year career in managing properties? Was it in acquisitions?
All the above?
Mike Zucker (01:55.062)
The, so the way, so if I go back 30 years, that would be I was 25 years old. I had a number of different jobs and it went from delivering cabinets to delivering pizzas to the big constant that I had is that I was renting apartments on the weekends and I was hired by a property management company and that didn't work out and one of the clients that I was renting apartments for said, hey have you ever thought about starting your own management company? I went home at night, wrote down all the pros and cons and the pros barely outweighed the cons. Literally, barely. And then the next thing you know, literally, I was sitting in the basement of a building at 2500 West Pensacola and I was in the property management business.
Ash Patel (02:39.849)
Property management is something that people outsource because they don't want to deal with it. How is it something that you have been doing for this long?
Mike Zucker (02:53.206)
Well, first and foremost, property management is not for the faint of heart. It is, and it has definitely changed over the course of time. Where now we are in the situation where it is immediacy. And people want things now. When starting back 20, 30 years ago, it would take a day, a couple hours, everything was okay, but now everything is needed now.
So, to answer your question directly, yes, the entire period of time I have been involved in property management, but we've done some investing, we've done some rehabbing, we've done some general construction. So all of that is looped around property management, but property management is the one constant that we have. When times are good, property managers are needed. When times are bad, property managers are needed. It pays the bill. You won't get rich in property management, but every day is different. Every day is a challenge.
Every day something new is happening and if you don't find yourself busy in the property management world You are definitely doing something wrong and for me for my self-induced ADHD I like staying busy and that's why I enjoy property management
Ash Patel (04:02.493)
Mike, you see some of the returns that these operators are making. Have you been enticed to try to take down a hundred unit building or, uh, change lanes from being a property manager to also being a syndicator or hands on manager?
Mike Zucker (04:23.266)
So that's a great question. We are actually, I have actually, so as the story goes, I'm going to take you a little ways back. My first job when I was a property manager, I was, one of my jobs was being the accountant and I was reconciling checkbooks and writing the checks and at the end of every month the biggest check went to the owner of the building. I would pay the gas, the water, the electric, the insurance, the taxes, you name it, the maintenance and repairs and that enticed me.
So don't get me wrong. When I say I'm not involved in ownership of buildings. I own about 10 to 15% of our portfolio. So if you and I went to college together, I would come up with, and I would find a six or a 12 unit building for us to buy, if you had some money, because I had actually none, we would come up with a fair split, and then I would end up owning somewhere between 25 and 35% of the property once you got all your money back.
So, I do have an ownership interest in a number of buildings. When it comes to the bigger buildings, the hundred unit buildings, my background was I'm not a gambler and I'm not a huge risk taker. So we do want to syndicate and we do own a number of larger buildings, but I am so scared and nervous about losing someone else's money.
I'd rather lose my own money before I lose someone else's money. So I see all the syndications that are going on and the one thing that I ask for when a syndicator comes to me and asks me to invest is something that no one else does is I actually ask for their underwriting. And when I look at their underwriting, I can't believe that people are actually investing in these deals. And then I see the returns and I see the fees that people are charging and it's absolutely absurd. So I come from a place of a little bit of negativity for the syndication world.
But now that we are slowly branching into it after 25 years where I feel like I've really established my name and people can trust, which is what it's all about, that when they give their money to me, I'm going to treat their money as if it's my money, even more dear to me than my own money itself, then I think that is the next evolution, as I like to say, peak 2.0, where I've empowered a number of people in my office to take over the management role and I will always be there for them. And we are going to start going out and doing some bigger deals.
Ash Patel (06:47.585)
Man, after hearing that, I want to invest with you. I love that. And Mike...
Mike Zucker (06:54.038)
Well, I appreciate that. I really do. But the God's honest truth is that I was just always so nervous asking someone for a check for $25,000, $50,000, $100,000, $150,000. I know people that stroke checks for millions of dollars and I have friends who are nine figure guys. I've always been a great wingman. If you want me to jump on your private jet and we're going to go hang out in Las Vegas for the weekend, great. I'm there. You want to go play pickle or paddle or go rafting or go do something fun, I'm there. You wanna go to a Chicago Bulls game, I'm a sports fan, I'm there.
I just, I always treat my friends as if they were my friends and I never wanted someone to be judged by their money. Whether you had a dollar, a million dollars, or a hundred million dollars, I'd always wanna treat someone the same and I'd expect them, those are the people that I wanted to do business with. I would say to people that, you know, at my funeral, hopefully my postman as well as CEOs of major corporations will be at my funeral.
Ash Patel (07:50.641)
Mike, I had a similar mindset struggle in that I was so scared to take other people's money. And what changed for me was I realized a lot of my high net worth friends were investing in horrible deals in bars, restaurants, marijuana companies, all kinds of crypto schemes. And they weren't getting any returns on these investments and they worked very hard for their money.
So what changed for me and what made me feel okay with taking their money was when I learned that I'm doing them a favor by growing their money, by taking their money into an investment and actually showing them investments that return capital. Right? Because a lot of people that are not in our industry, they don't have the expertise in knowing what a good deal is. They can look at the underwriting that you looked at and think, wow, this is incredible. Let's go all in.
So you have to realize you're doing them a favor, right? By taking their money. Are you on board with that mindset right now or are you still struggling with that?
Mike Zucker (08:59.386)
A great podcast but you're a better psychiatrist so I should be paying you for that advice but I am subscribing. I do subscribe to that advice and I do appreciate that and I just don't want to give falsified outsized returns and right now when the market, when you can invest in a bond that's paying you 6.5 to 8.5% and the deals that we're doing are cap rates at around 6% it's arguably the same.
I want people to know that we're in it for the long run. And the issue that I've always had with IRRs and prefs, someone lends me, if you invest in my deal and you put up $5 million and it's an 8% preferred return, you say we're gonna hit an IRR of 15, for example, when you're paying $400,000 a year on that $5 million, that's a lot of money and that adds up fast. So what I like to say is I don't wanna be forced to sell. I want our interest to be aligned.
So we're in it for the long run. It's a 7 to 10 year hold. If someone comes to us and says that they're going to buy a building from us in 5 years and we're going to make a boatload of money, great. But maybe we won't sell. Maybe it will be for our kids. But with my investors and with the people that I have relationships with, again, I don't want to make it seem like I don't own any real estate. I own, like I said, pieces of probably a thousand units ranging from 6 to 90 unit properties, but in every one where I'm the general partner, we are not worried about selling.
And if the building's running a little bit short, what's nice is that the loans are not so outsized where no one can stroke a check and cover the shortfall. That's also a really nice thing. When you see all these people that are having all these issues right now, you know, I just read yesterday something where the general partner can no longer fund, you know, the 300 unit building. And he's that he's built and he made his tons of fees and he's turning it over to the limited partner per section this and section that of the operating agreement. I will, I am hoping that...
I'm not just hoping, I'm anticipating that none of our deals will be in that position based on our investment thesis where we're not going to be over leveraged, we're going to be smart with our operating expenses, and we're going to be smart with how we rent the units. And you know, once the, there's a saying in Chicago that, you know, it's heads and beds, but I mean it's not just a saying, but it's, you know, there's an ask for every saddle. It's like if we have to rent a unit for a little bit under market, I don't want to be constrained by a private equity company or someone who's telling me that we need to give away two months free to boost the NOI when that really won't make a difference in six months from now when the summer months come and we have to get as long as we have some income coming in.
So as long as we're on the same page, that's one thing that I'd like all of our investors to be before we do a deal together, is that we're all involved and we're all, we all have the same strategy and mindset going forward. I have invested in other people's funds, partially just to learn how they do business. And everyone where I was supposed, every deal that I'm in where I was supposed to get a quote unquote 8% preff, I'd say maybe 40 to 50% of the time I'm getting it. And right now with high interest rates because it was a syndicator or it was a friend's kid who's putting together a deal.
I don't think they've ever seen an interest rate market where interest rates were above 5 until now.
Ash Patel (13:16.921)
Yeah, and you and I who have been around forever, you could foreshadow that these low rates and the underwriting that had the rates going even lower and the cap rates going lower was crazy. You're seeing a lot of that unravel today. What's your perspective on the deals that are going underwater, syndicators in trouble, and just blood in the water?
Mike Zucker (13:45.082)
Similar to what, my opinion is similar to what everyone's saying. So I don't want to sound like a broken record, but cap rates, well, I think they're stabilizing a little bit right now, but as a whole, I do feel that there will be some issues. Obviously, the office market's going to get hammered, and that's not what we're here to talk about right now, are the conversions. But in general, I think 2024, I think the Fed's going to hold off on raising interest rates for a while.
I think it's going to be a little bit harder to get to the 2% inflation number. I did a little bit of research before this interview and I was looking at the price of eggs, the price of milk, and the basic commodities that doesn't seem to be going down. So I think higher for a little bit longer is going to be the mantra.
Blood in the water, it depends on the market. I could tell you right now that Chicago is the best kept secret because of all the issues that people perceive Chicago to have. It depends where you're at in regards to crime and taxes and this and that and the other. The good parts of Chicago are great. The food scene's never been better. The employment base is strong. All the Midwest kids are coming back to live. Okay, yes, we do have a little bit of a tax problem, crime is way down, but you don't hear about that. You only hear about it in the areas that you don't want to go to.
People make it sound like Chicago's Beirut, but in the good neighborhoods, the biggest issues that we're having is that we have a basic Econ 101 supply and demand issue, and where there's no supply, there's demand. So our buildings of our 8,000 or 9,000 units, the majority are on the north side of the city, or they're on college campuses, so we're pretty full. And we have no issues with collections either.
Ash Patel (15:32.018)
Alright.
I can't tell you how many people I've had conversations with that said, we don't invest in Illinois or we don't invest in Chicago or we don't invest in Cook County for those reasons. So thanks for sharing that. There are some opportunities there that no one's looking at. Mike, you mentioned you made a list of pros and cons back in the day. I can think of a lot of cons of being a property manager. What are the pros?
Mike Zucker (16:03.014)
The pros in property management is that Now it depends on what period of life you're in also so mind you I was 27 28 at the time so one of the pros that I had was that it was a steady income because I had absolutely zero money and That property management is consistent. So no matter what when good times and bad times, the property will pay a management fee because someone needs to be responsible for collecting the rents and paying the bills.
Some of the other pros of property management is that every day is different. Every day is a challenge. When I look at property management, you learn about accounting, you learn about marketing, you learn about maintenance, you learn about customer service. You can learn the mechanicals of properties, you learn about roofs, you learn the entire building envelope.
So from my perspective, if you want to be in the real estate world, there's no better place to start in property management because you're going to learn the nuts and bolts. I can operate pretty much any building, commercial, residential, retail, office, industrial, just based off of my knowledge that I've learned in the apartment building and the property management industry. I think it's a great place to start. And if you want to change careers in three to five years, it's a skill that you'll never lose.
I mean, once you have it, you have it, and you'll always be valuable. Go on Indeed, go on LinkedIn. Look how many people are looking to hire property managers right now. I don't think it's a position that AI can replace.
Ash Patel (17:38.393)
Mike, if somebody hires you, do you choose to be full service or if I need you just for in a limited capacity, do you have a preference on how your services are provided?
Mike Zucker (17:53.106)
We are full service only with one exception. And you know, we're very, Chicago is very market specific. Every market, you know, you're in Ohio, or I'm not sure where all of your investments are. People invest all across the country. But we are, you know, we're, the one extra service that we do provide is that we have in Chicago, it's called a lease up. And there are a lot of new buildings that were built or someone's rehabbing a 40 unit building right next to Wrigley Field, there's something called a lease up period.
So we offer lease up services where we'll come in, we may not be doing the management, but we'll come in because we have the leasing company and you might be a smaller individual or a smaller company or someone from out of state who needs a little bit of help getting the building filled up. What would take someone 6, 9, 12 months to fill up? We could arguably fill up in three to six months. So we offer that as a service to outsiders knowing that we won't retain the management.
Ash Patel (18:55.549)
What's the secret to expediting that lease up?
Mike Zucker (19:02.538)
Um, the secret, well if I gave away the secret, I don't think I'd be giving away my business. But the real secret is response time. Is that we have agents who we assign territorially. Again, I'm in Chicago, so we do business in Denver as well. So I can speak pretty well to the Denver market. But sticking to Chicago, the Wrigleyville neighborhood or the Lake U neighborhood or the Lincoln Park neighborhood. Those are three very specific markets. So we have special marketing that's designated that hits the right users in the right markets and we're able to attract the right people. And once we get a hold of someone, whether it's through Zillow, Apartments.com, Organic through, we have our own CRM software that we use as well.
Once we get a hold of that individual, we keep them in our web of properties and we try and have them lease from us in one of our properties. We're not forcing them to make, we're not forcing their hand to make a decision. If they don't like anything that we have to offer, we'll show them 100 different properties. But ideally, when someone comes to us, our response time is immediate because of how we compensate our agents.
And that's all they do all day every day. They don't have to worry about the processing. They don't have to worry about the application. They don't have to worry about the lease signing. Once they bring this person in, it's their job to guide them through it, but we have all the back office stuff covered for them so they can focus on doing their job.
Ash Patel (20:46.897)
With margins being reduced now in pretty much all asset classes due to the economy, a lot of operators are bringing management in-house, property management in-house. Is that something you recommend operators do?
Mike Zucker (21:04.306)
You know, it's a very interesting question because we, and it's a great question, because we talk about margins all the time. That's a big topic in our office. I think it depends on the operator, and it depends on their intestinal fortitude if they want to do the management, and I think it depends on the size of properties, the amount of properties that they have, and if they want to be in the property management business.
My advice for someone, and it depends if they inherited the building. I mean, we could talk about all different sizes of buildings. So I'm going to address this question as if it's multiple, as if there's two ways. If you're over 100 units, you 100% need a third-party property manager if your focus is on buying real estate. Because property management will take up way too much of your time.
The amount of time you spend being a property manager, you can go and find one deal that's 100 units and find someone to do it. I understand that people may wanna bring it in-house. You know, they'll have to learn. It's not easy, I understand it. But 100% if you're just buying a 100 unit building that's in a different market that you're not familiar with, even if it's in a market that you're familiar with, I think it's a great thing to have a property manager.
If you're starting off small, six, 12, 15, 18 units, there's no better way to learn the business than cutting your teeth on your own. You meet all the vendors, you meet the tenants, you understand how the boiler, the elevator, the sound system, the apartments, the appliances, the boilers, there's no better way to learn how it works than doing it on your own. But if you have multiple properties, we have many clients that are family offices that may have say 15 or 20 buildings and now it's in the second or third generation, and one of the, and one kid's a doctor, one kid's a lawyer, one kid is a movie producer, just, I'm just throwing things out. None of them live here. None of them want to live in Chicago. Then they for sure need property management.
But the one thing that we are doing to increase margins is we're outsourcing a lot of our business. What happened with COVID is that we discovered that everyone can work from home. And actually people in our office were working from home before COVID, because that was just the way our office were built. We're fortunate to have employees that have a long tenure. And so if someone started off with us when they were married or not married, then they got married, then they started having children, we had no problem with people working at home. That was a zero issue for us.
I've never had an issue because we're very employee-centric, but now what's happening is that maintenance coordinator who would just bring in maintenance calls who is now working at home, we're able to track how many work orders are taking in per hour. We're able to track their key strokes. We're able to understand their productivity.
So all of a sudden if we have a $40,000 or $50,000 employee plus benefits, plus, when you keep adding it up, if we can offshore that position for 40% of the cost, we have been doing that slowly but surely. So that's one way to increase your margins. And I'm not the first one to do this. It took four or five years for me to convince some people in our office to do it. I know people that were doing it before me, and I think that trend is just going to grow.
Ash Patel (24:28.641)
Mike, what are the typical fees that you charge?
Mike Zucker (24:35.898)
It's pretty simple to be honest. We charge a percentage of the collected gross income we charge a percentage of renewals recharge a percentage of whatever a Unit is leased for so for example if the unit is leased for a thousand dollars We have an agreement in our contract for how much we're going to charge the owner Anywhere from 50 to 80 percent depending on a variety of factors, and then we pass through, it depends on the size of the building.
We have something called the technology fee, which reimburses us. It's a zero-sum game because it just reimburses us for our software, which is unbelievably expensive. That's something that people need to know if they get involved with Yardi or Epfolio or Rent Manager. So there's a lot of expenses and a lot of risks that come with having a property management company. Like my three biggest expenses go, it goes payroll, payroll taxes, health insurance, then Yardi, which is our software company.
So our fourth biggest expense is our property management software. But our expenses, they're pretty simple. And just there's some reimbursements. We have four or five key expenses and just some reimbursements. If the building's a really big building, 100 units plus, and we have to have staff on site 24-7, we get reimbursed for them as well.
Ash Patel (25:54.665)
Do you help operators focus on, sorry, do you help operators forecast capital expenses? So you know, a boiler, a roof, exterior maintenance, a lot of times these things come as surprises, but it'd be nice to know how much life is left in each of those high ticket items.
Mike Zucker (26:18.058)
Great question. I love that. I hope a lot of people in your audience are hearing this, but old buildings are not getting younger. They're getting older. And long-term capital improvement planning is crucial to our business. I'm not saying everyone heeds our advice, but we work with a number of engineers for not a very large cost. We'll go to your building once you own it and put together a long-term capital improvement plan, and it basically covers the building envelope including some of the major systems.
And this way you could properly plan out when should I replace the roof, when should I do the masonry, what's happening with the fighter escape, how are the porches, how are the windows, then how is the boiler, is it galvanized plumbing or copper plumbing, how many years are left in the elevator. It's not an expensive exercise to go through but it's an exercise that it's worth every penny so you have an idea of what you own and what you're getting yourself involved in.
Ash Patel (27:22.777)
Mike, what are the biggest mistakes that you see property managers make?
Mike Zucker (27:32.506)
You can always change, so someone, I've been asked this question before, so the biggest mistake you could change is you could always, it's almost a life lesson too, you could always change a no to a yes. But you can't ever change a yes to a no. Once someone hears yes, it's in their mind that you are going to do that for them.
Can you be out in our apartment in five minutes? Yes. Well, maybe the answer is no, I'll get out there in the next hour. Can you reduce my rent by $5? Yes. But they forgot to contact the owner. Can you do this or that for me? Yes. That is a great life and property management lesson to be learned. Gosh, there's so many that I can go into.
Some of the other mistakes that you make is that sometimes you can be too conservative. Is that rents may not be only going up 2%. It's okay to budget 3 or 4% in this market right now. Or it's okay to try and shave an expense here or there. It's okay to not be uber conservative on your forecasting for the following year.
Some of the bigger mistakes, going back to the envelope question, is that not being prepared. Where you think you can keep putting something off, you think you can keep putting something off, then all of a sudden that hot water boiler that you've been putting off for the longest time fails. Or someone commits to another mistake because you have too much what I call detrimental reliance on your vendors. Where your vendors say that they can handle something and they can't.
So you really need to do your research on your products, on your people. What are the big P's? People, products, promotion is when you go into renting. So those are just, you want to just have all your I's dotted and your T's checked. As long as that's in tune, you should be okay.
Ash Patel (30:47.857)
Mike, there's been some lawsuits on collusion and you know, some of the big software players are being accused of predatory practices because they're adjusting rents based on data that they have access to with the properties that you manage. Do you adjust rents every day, every month, every week?
Mike Zucker (31:28.938)
We, so I know exactly what you're talking about in regards to those lawsuits. And there's lots of things that I agree with and there's lots of things that I disagree with. And I think that this lawsuit, I'm not sure if it was settled yet or not. I don't know how much merit there is to it just based from my reading of the lawsuit. And I can tell you about what we do in a minute because it's really garbage in, garbage out.
So all these software slash pricing companies, you're only as good as the data that's being entered. So I don't believe that data was being falsely entered, and I don't wanna speak out of line, because I don't know, because data is being scraped from websites, and it's being scraped in a way where it's a monetized based pricing, and there is a point in time, it's definitely slowing down right now, but if you were in Austin, which was one of the hottest markets in the country, and it was Grey Star, and Lincoln, and Village Green, and all the big players, they all use the same software.
What may make it seem like collusion, but it's really supply and demand. And if people are willing to pay a certain price for an apartment, and there's no apartments available in the market.
That could drive up the prices. I think, so I have some questions about that. So for us, we do not use for the majority of our buildings amenity-based software because it's best used, the best practice is when every single unit is the same. So if you're in a hundred plus unit building and the only difference are the views or the floors, but it, that's where you can, if you could see the lake from the 20th floor but you can't see it from the, from the fifth floor and you're facing the back, that's where amenity based pricing really comes into play or it comes into play for how much time, like if you're gonna rent it for six, nine, 12, 15 months, it'll be a little bit more money for six, a little bit less money for 15 because the turnover costs are less.
For us, our units are all so different across the board and our owners have such different motivations for owning real estate where some of them have no debt, where they just want to be occupancy driven. So they want to be 10% below the market and be 100% occupied. They're very happy with that. Where we have some owners, where we have some institutions, where they want us to use the amenity-based pricing, we have absolutely no issue using it and we're very proficient in it. So coming full circle, I think amenity-based pricing is appropriate when needed. But we do not use it for maybe 20% of our
Ash Patel (34:22.877)
So your pricing is dynamic in that if you're down to your last two units out of 100, will you raise rents on those
at times?
Mike Zucker (34:34.538)
It depends. So if it's, yeah, it's 50. If the old, it depends what time of month it is. Right, if it's December and no one's moving and it's an old school owner and he has no debt on the building and every unit in the building, for example, has been rented for a thousand bucks, he may say, Mike, just get this thing rented for 900. I don't care. I don't want it vacant, you know, over the winter.
In other cases, I have clients that would say give someone two months free and push the rent as high as we can because we want our NOI to be as high as it can because we're shooting for a refinance in nine to 12 months from now. So there's so many different variables that we're dealing with, and this is why property management, for me, is an exciting business, is because there's all these different factors that you need, there's so many different decisions that need to be made just for the most basic decision, just as plugging in a rent. The one thing that we, we always, we have a couple things that we push in our office.
And one of them is, don't be a robot. Think out of the box. We have a moniker that we use that's called Embrace. We empower, we motivate, balance, respect, accountability, communication, education, where we preach this all the time, where we want people to understand that they are not robots, and you will not be fired if you make a bad decision. If that owner wanted to get 1,100 bucks, but you only rented it for 10.50, okay.
If that's a mistake and the owner wants the $600, we'll give it to them, but you're not going to lose your job. The only way to get better is by making mistakes.
Ash Patel (36:11.141)
I agree with you. I had a guest recently who I copied his phrase and it was creativity wins in commercial real estate. And I think that's so true.
Mike Zucker (36:25.43)
I couldn't agree with that more. Creativity wins, change wins. I think change is, you have to be willing to change. I mean, so many people can be stuck in the sand, and I get it, I'm one of those people too, but you have to embrace change, because change is always coming.
Ash Patel (36:43.589)
Yeah, and you know, back to real quick, the topic of that lawsuit, I agree with you. I think it's frivolous and it's no different than there's an app called GasBuddy that shows you gas prices in real time of every gas station and whatever radius you choose. So why are those gas stations allowed to change their prices based on real time data? Right. So I think the collusion thing is pretty silly.
It's just a frivolous lawsuit in my opinion.
Mike Zucker (37:16.646)
Yeah, I mean it's like I said, it's just scraping data. The way it works is Yardi is so powerful and these AppFolio, it's literally, they're just, it's not, I mean individuals are entering in their rent rolls, but at the same time, I don't think these property managers are entering in, they're not falsifying numbers to make things seem higher because institutions or private equity people or funds would get into way too much trouble doing it. And also, unless there's something, with the AI, with the data scraping that someone knows who's a lot smarter than we are, I know it's doable. I know it for sure could be done. I just don't think they were doing it. I think these people are too big and have too much other stuff to worry about.
Ash Patel (38:00.697)
Yeah, and again, the collusion thing is if you and I were property managers and we own 10% of the market and we colluded to artificially raise rates versus supply and demand dictating the rates. So yeah, I agree with you on that. Mike, when you see property managers, what's some of the lowest hanging fruit that they have to increase their operator's revenue or expenses or cut expenses?
Mike Zucker (38:35.178)
Okay, the lowest hanging fruit. Okay, so I thought you were going to say what's the lowest hanging fruit to become a successful property manager and that's return an email or communicate. But to turn it around, so you're saying what's the best way to raise someone's NOI?
And that is to go and when someone, again it all comes down to the size of the property and where the property is located. There's so many variables but the first thing that I would do is when we tackle a property and we're assigned with a project to take over a property is that, hang on for one second, hey Florin, how long are you going to be here for?
And good things as I know is there to prove. You are there.
Do you want me to stop by? Okay, give me a few minutes. Okay, okay, six away. I'm in a building right now, like I said, where it has no hot water, and this one guy, we have a tenant who keeps calling the city, calling the city, calling the city. It's like I gotta, we still have plenty of time. Don't worry about it.
Ash Patel (39:42.913)
Yeah, we'll wrap this up. Okay.
Mike Zucker (39:47.726)
No, no, it's all good. It just happens to be negative 10 in Chicago. Okay. The answer, so to change your question around is what's the best way to increase an owner's NOI? The first, the lowest hanging fruit would be to come in and re-examine all the contracts. So when we take over property, the first thing I like to say to someone is I want to be able to earn my management feedback. And so how can I do that?
Well, you have fixed expenses, controllable expenses and you have non-controllable expenses. So I'll go take a look at what I consider to be the non-controllable expenses and see okay do we have any sort of contracts on these non-controllable things and I'll try and make them controllable such as garbage. Can I renegotiate that contract? Can I renegotiate insurance? Can I renegotiate gas? Electric in some neighborhoods water.
Then I'll come and look at the turnover crews. Hey, what are we doing for this? Can we put in KPIs where if someone is, if the NOI is increased, not just that the owner wins, that the property manager can also win as well. Where if you could hit certain metrics, if the owner is okay, if I increase your NOI for example by $100,000 over the course of a year. If you were to put a cap rate on that, that's a lot of money. So if that person goes to refi, that works
can we have the property manager participate in key performance indicators to help them earn $2,500 on that $100,000 savings that they brought to the table.
So for us, on the expense side, in order to increase someone's NOI, that's the first thing that we look at is we go and look at all the contracts. And then we go and look at all the rents. And we try and mark to market. We wanna see where is, are you renting for you know, are your rents too high? Are they too low? Listen, we don't want, you never want your rents to be too low, that's obvious, unless you have the owner that's owned the building for a hundred years that just wants to keep the tenants and doesn't want to have turnover costs. And turnover costs are a real issue. At least in Chicago, or pretty much nationwide, I just read a stat where every time someone moves, it's somewhere between $2500 and $3500 to turn an apartment. So that's a lot of money, and that adds up really fast.
In Chicago, that would be a leasing fee of $1,500 and throwing another $1,200 or $1,500 of painting, cleaning and miscellaneous repairs to an apartment. Across the board, we try and keep all of our maintenance and repairs, people do it by door, by percentage of growth. So I'd say we try and keep our expenses somewhere between 3 and 4 percent of the total gross income for maintenance and repairs. That's our goal. But we put a price per door number and a percentage of expense number.
So we're really the devils in the details. So we like to know our painting this year cost how much and why? Our maintenance repairs cost how much and why? Why did we have so much turnover? Why did we have so?
Why was our gas bill too high? Why was our water bill too high? Why was it too low? What's going on with our insurance policy? What happened with the elevator? So really, a good lesson is, for some of our people who are new to the business and we're training, I have them spend, you know, at least two weeks with me, just so they can get into my brain, which I have no, no matter what level you're in our office, you could be in leasing, marketing, accounting, management.
I like having someone be with me so like I said they can get into my brain and then I teach them how to study spreadsheets and then we'll take a look at a building whether it's 60 or 600 units and we'll go over this year compared to last year. Or what's even harder is putting together a budget when there is no prior year. When you're forecasting out because it's a new construction building we have to put together a budget there's certain we're able to we have enough knowledge for being in the business for such a long time that we're able to have a really good grasp of what things should cost and will cost.
Ash Patel (44:25.865)
That's great advice on the KPIs. Mike, I'm very grateful for your time. Right now, we're in January of 2024, and we have crazy wind chills and low temperatures across the Midwest. So on the news last night that Tesla supercharging stations were not working because it's too cold. What is your world looking like today in terms of tasks, phone calls and fires that you have to put out?
Mike Zucker (44:55.597)
No matter where you're at in the USA today, if you're having weather, cold-related problems, these are the days where it's not a fun business to be in. I just saw that Nashville is negative one, and I spoke to someone there this morning, and they don't know what to do. Being in Chicago, we're kind of used to this. We've seen it, we've been here before, but nevertheless, like I said before, old buildings do get older.
And the tasks that you have to do is you have to prepare and communicate in advance. We knew this storm was coming. We knew the snow was coming. We knew the wind chills were coming. We were on top of it. We sent out emails, flyers, you name it. We sent out automated text messages. But inevitably, you know, the best laid plans sometimes don't always come to fruition.
And so for that building where we thought we had everything taken care of, someone left the door open in one of the retail spaces, the pipes froze. Sure enough, the entire tier of pipes froze. So now we're defrosting pipes. The building that where you thought the heat exchange, you know, you had the serviceman put, you know, put in a new heat exchanger, it failed. So that's the one thing about this business, especially where weather's a little bit tougher on the tough days.
It's tough, but the sun will come up tomorrow. There will be, you know, you gotta compartmentalize everything, don't take it personally, and know that it's gonna be okay.
Ash Patel (46:34.461)
Do you have in-house tradespeople that are on your payroll or is everybody outsourced?
Mike Zucker (46:43.205)
We have no in-house trades people. That is actually an area of our business that we've thought about many times going into. But everyone is outsourced. We have give or take a dozen individuals for each particular trade, depending on how busy they are. For example, on a day like today, if we only had one HVAC repairman, we'd be screwed. We have literally dozens of relationships with outside HVAC tradespeople that we keep busy, where they're prioritizing getting us taken care of.
Where I know this is an area where property management companies make money and I always hear the same retort that, well, you know, if we put in a new boiler, our boiler people can do it less than the boiler company if you were to third party it. I don't know. I think at the end of the day it comes out to be the same. It's just another way of making some fees where I don't believe in nickel and diming. We just want to do a good job and move on. There's other ways to make money.
Ash Patel (47:50.361)
I agree with that philosophy. Mike, again, thank you so much for your time. Are you ready for the best ever lightning round as we wrap up this call?
Mike Zucker (48:00.278)
I am ready for the lightning round. I don't know what's gonna be asked, but I'm gonna wing it and I'll go for it. Let's go.
Ash Patel (48:05.791)
All right, let's do it. What's the best ever book you recently read?
Mike Zucker (48:12.009)
I am reading three books right now. I'm reading Zeckendorf. I'm reading Nazi Billionaires, which is kind of a disturbing story that we won't go into right now. And I am reading Pickle is Life, because I'm a huge pickleball player and I love racket sports.
Ash Patel (48:35.473)
Mike, what's the best ever way you like to give back?
Mike Zucker (48:41.521)
I love giving back. It feels so much better to give than to receive. I am a volunteer coach and teacher and mentor for so many different organizations. And now that I'm an empty nester, I spend an inordinate amount of time at local high schools that I'm involved with, coaching basketball, tennis, and all types of sports. To me, sports is the ultimate equalizer in life because as a former basketball player It doesn't make a difference if you're black white tall short We're all out there for the same goal And I'm going to pass you the ball and our goal is to put the ball in the hoop and our goal is to win the game.
Ash Patel (49:26.149)
Mike, how can the best ever listeners reach out to you?
Mike Zucker (49:32.065)
Best way to get a hold of me is email and that is mzuckerpeakproperties dot nice.
Ash Patel (49:44.049)
Mike, again, thank you. I'm incredibly grateful for your time today, sharing knowledge over a 30 year career, giving us your philosophies and just so many great nuggets of advice. And I know you've got so much going on right now with this weather. So again, thank you for your time today.
Mike Zucker (50:02.565)
Thank you so much, Ash. I really appreciate it.
Ash Patel (50:05.649)
Best ever listeners, thank you for joining us. Oh, sorry, real quick. Let me just do the outro. Uh, best ever listeners. Thank you so much for joining us. If you enjoyed this episode, please leave us a five star review. Share this podcast with someone you think can benefit from it. Also follow subscribe and have a best every day.
