Aaron Yassin is the director of operations and design & planning at Hive Developers, which develops ground-up condominiums in Brooklyn with a focus on sustainability, energy efficiency, and design.
In this episode, Aaron shares how his company maintains profitability in one of the most highly regulated markets in the world when it comes to ground-up construction and multifamily. He also discusses the design elements that are driving the future of development and the major risk factors you have to consider before entering NYC as a developer.
Aaron Yassin | Real Estate Background
- Director of Operations and Design & Planning at Hive Developers
- Portfolio:
- Consolidated into a few LP positions, including Hive Developers’ own projects
- Based in: Brooklyn, NY
- Say hi to him at:
- Best Ever Book: You Are the Brand by Mike Kim
- Greatest Lesson: Know the obstacles to developing in a city like New York before you start, such as how to navigate troublesome neighbors and how the process works with the Department of Buildings.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and today I'm joined by Aaron Yassin. Aaron is joining us from Brooklyn, New York. He's the director of operations and design and planning at Hive Developers, which is developing ground-up condominiums in Brooklyn, with a focus on sustainability, energy efficiency, and design. He is also a real estate investor who has recently consolidated his portfolio into a few LP positions, which do include Hive Developers' own projects. Aaron, can you tell us a little bit more about your background and these projects you are working on right now in Brooklyn?
Aaron Yassin: Well, first of all, I want to just thank you very much, Slocomb, for having me on the show today. The Best Ever podcast is certainly the gold standard, and it's a great privilege to be here with you. You're also a great interviewer, so...
Slocomb Reed: Well, I accept all compliments. Thank you.
Aaron Yassin: So just to dig into my background a little bit... There's a lot of territory we can cover, but I'm coming to the position that I'm in now and into the real estate space with a fairly unique background. I'm an artist at heart by passion, and also by training. I went to an undergraduate school at the School of the Art Institute of Chicago, and I also have a graduate degree in fine art from American University, and I've produced a lot of art over the years, and had solo exhibitions in the US, and also internationally. Simultaneously to that, I've also had some other positions too, the longest of which was working as design director for Fine Art and Design Studio in Manhattan, where I managed some very significant public art projects and other design projects. And we had some pretty high-profile clients, including Saks Fifth Avenue and Tiffany and Company, and some private individuals. I really got a chance to work with some top-quality architects and designers in that capacity.
While I was doing that though, I was also getting started and continuing my real estate career, which I really got into because I was looking for a place to live, and also looking for a place to have my studio. I think I just landed in the right place, at the right time, where I could tell that the prices were right, and I had an opportunity to start getting into some real estate deals, and I just took advantage of it, buying a couple of properties in Jersey City. And that kind of got the itch going, and I could tell early on that if I could acquire a property and actually develop it, that that would really be a direction that I wanted to head toward.
Slocomb Reed: The condominiums you guys are building in Brooklyn - is this your first ground-up construction project?
Aaron Yassin: No, we're working on the third project currently. Two of them are in process, one of them was completed some years ago, which is in a fantastic location, close to the water in Williamsburg. It's another neighborhood in Brooklyn; fairly well-known for people that know Brooklyn, but the location is excellent, and the project came out really well. It's a rental building, and rents are extraordinary, but it's also because the building, as I'm discussing, how we lead with design - that's a project that really led with design, and it's proven its value in the numbers, as well as just the feeling that people have in renting and living in the property. So we're now working on two other projects, and we've moved from that neighborhood, and we're working in Bushwick, Brooklyn right now, which is really an up and coming neighborhood. Somewhat established already, but I think it can really become a strong center of the arts community, not just in Brooklyn, but in New York City, and a lot of people from all over the world are really coming into the neighborhood.
Slocomb Reed: Aaron, I have to remind myself that a lot of real estate terminology in New York City is just different from the way that we use the same words and the rest of the country... Like, duplex meaning it has two storeys, and not two live-in units. When you say condo, or condominium, are you talking about residential units that will be occupied by tenants, or by owners?
Aaron Yassin: By owners.
Slocomb Reed: Gotcha. So with your previous properties, most investors I know who have engaged in landlording to any degree in New York City very quickly leave, because of how heavily regulated it is. Why are you building rentals in Brooklyn?
Aaron Yassin: Well, I think it's a very strong rental market, for one, and I do understand that there's concern... I hear this about New York, and specifically also California as two states that are very tenant-friendly. Since I started, it's moved more in that direction, and I think you're right in terms of terminology; there's definitely different ways in which apartments break down, and in terms of the types of apartments and types of leases.
I've rented for a long time, I've had hundreds of tenants, and I can tell you that most of them have been very good tenants. There's been a couple of bad apples in the group, but I still believe that if you properly vet your tenants before they move into the apartment, and before you sign the lease with them, which is really your opportunity to do it, chances are, by and large, 95 plus percent you're not going to have a problem. So if you do, it can take some time to address it, but there's still a very strong upside with rental projects if they're properly underwritten.
Slocomb Reed: I've heard within New York City that if you're going to get into rentals, it's advantageous to focus on premium living spaces, if not luxury. And I imagine that's because the prospective tenant base is easier to navigate given all the regulations that are tenant-favorable in the event that there's a dispute or rent isn't getting paid. Am I on the right track here? You called the rents at your property near the water extraordinary.
Aaron Yassin: Yes, I would say that that building qualifies based on what you described; certainly the level of tenant in that property, as well as some other properties that I've rented have been similar. We're talking about individuals that have a higher income... The typical metric that we work with here is income should be 40 times the monthly rent to start with. And then of course, to really check the tenant out - if I have a broker do it, which you might have involved sometimes, the amount of paperwork that's submitted is extraordinary. I've tended to look for a few less documents, but to really focus on credit check and focus on ability to pay the rent. And for those tenants that are professionals, that are making a higher income, that meet the credit requirement, which I think is a really, really critical metric, then the chances of having issues is fairly low.
Of course, there are other properties in other parts of the city where you're going to deal with different issues. And there are different owners that are willing to take on those issues; not a position that I've gotten into myself. It takes a particular type of landlord to focus on some of those properties. And that's a much longer discussion, because clearly in urban areas there's a lot to discuss in terms of landlords and tenants and regulates and how it all works... But I think a lot of those landlords can get a bad rep. Some of them deserve it, others don't necessarily deserve it, but we can kind of table that to a different discussion.
Slocomb Reed: Last question, and then I do want to transition the conversation... 40 times the monthly rent as annual income. What is the average monthly rent in the properties that you've developed for rental, built-to-rent?
Aaron Yassin: Say, $4,000... Are you talking about a $200,000 income?
Slocomb Reed: Yeah.
Aaron Yassin: Yup. You'd be surprised, we've got a couple that's renting that apartment, and they're both making - wouldn't be surprising to have two people, one's making 90k, one's 120k or 130k, or it could be significantly higher than that. And there's hundreds of thousands of people, or millions in New York that have incomes like that.
Slocomb Reed: Let's transition the conversation here. I want to go big picture and then get into your current condo construction. First of all, why Brooklyn?
Aaron Yassin: Oh, that's a great question. Well, I think Brooklyn is the most exciting place on the planet. So I can just start with that. If you look at what's here in Brooklyn, it's in my opinion - as you can see, I'm a huge cheerleader for the borough... It's astonishing what you get, just from slicing through all the layers; the types and the depth of culture that we have here is extraordinary. The diversity is unbelievable. The number in depth of different neighborhoods, with different people doing different things is unrivaled. Also, when you look at some of the metrics that you want with a really healthy urban environment, it's highly walkable. There's fantastic public transportation; there's great park systems, including some of the newer park systems along the waterfront, that are exceptional. Also add to that beaches on the South Side, and Coney Island, and Brighton Beach, and Prospect Park... Institutions like the Brooklyn Academy of Music, and the Brooklyn Museum of Art... You've got really incredibly robust environment for growth, and community, and the kinds of things you want to live around. You've got everything at your fingertips that you could possibly imagine. And not only everything at your fingertips, you can go 10 minutes away and you're in a completely different neighborhood, where you have everything else that you'd ever want at your fingertips, that's completely different than the neighborhood you're in. There's no place that I've been in the world like it.
Slocomb Reed: My limited experience with Brooklyn has been almost completely positive. That said, I'm going to play devil's advocate here... It is also a very highly regulated area for construction; your acquisition costs are going to have to be fairly high. Everything you do in New York is going to be more expensive than doing it almost anywhere else in the world, much less the country. Looking at condo construction, these units that you will be selling - all of the complication, all of the additional expense of working in a place like Brooklyn, is it all just wiped out by the higher property values, the higher prices that these condos will go for when they're done?
Aaron Yassin: Well, I think that's a great question. Because it's easy to think, "Oh, it's impossible to do work here." Certainly, there's complications; it's more difficult, no question about it. But I think in any real estate deal, investment, project that you're going to get into, you've got to start with really rock-solid underwriting. And that underwriting needs to factor in everything that you would want to include in it. Your acquisition costs, your construction costs, your soft costs, and you have to have proper comps, and make sure that your exit strategy is clear and solid. And when you do that, then you know you're headed in the right direction. And there's certainly plenty of opportunity to do that in Brooklyn, and in the New York City Market.
Slocomb Reed: Why have you transitioned from build to rent, to build to sell?
Aaron Yassin: That's a good question, too. There's two factors to it. And one of them does have something to do with some of the regulations in the city currently. I mean, this gets a little technical. There's been long-standing tax abatement programs in New York called the 421A; it's just a name, fancy numerical acronym for tax-advantaged savings for doing certain types of construction in certain locations. That was providing incentives that worked well for rental projects, and it ended last year. And there's not been another one that has revived that yet, although they've come and gone and come and gone repeatedly, and highly likely one will come back at some point, because the city clearly needs more rental units. So that's one issue just from an underwriting standpoint.
On just a project-based standpoint, building condominiums to sell really aligns with the kind of core values that we have as a business, where we can create really beautiful products for an end user, and then continue to do that on new projects. So we want to create buildings that have a much more thoughtful level of design; we want to create buildings that are built better, that are more energy-efficient, and we want to pass those qualities along to the end user. And then we want to do it again with another project, so we can build more of this model building, and then we can build those in and around Brooklyn, and people can see what's possible.
Slocomb Reed: Tell us more about this model of building. You were describing some things to me before the interview; you called it a superstructure.
Aaron Yassin: Yeah, a superstructure is just a type of structure for the building. So that goes into the structural engineering. And again, of course, there's different code requirements in urban environment. And even some of the newer codes have eliminated combustible materials on the exterior of buildings. There's been some fires in the last couple of years; this is something that not just New York, other cities have taken a look at, and they've eliminated combustible materials. So you're going to build differently in New York; you're not going to have wood frame construction. It's to flammable; although, as an aside, I love cross-laminate timber, for anyone out there who's familiar with it. Beautiful, sustainable product. But we can't do that yet in New York, so we're going to build a different type of building. And there's a few different ways that you can do it. A superstructure involves using cement blocks or concrete. So you have a very, very solid building, that's also going to provide a certain quality for the owners once they move into the building. It just gives you something different than a wood frame construction. It's a starting point for the shell of the building, but there's a lot of other components that go into a project from a design and planning standpoint. And I can jump into that a little bit more if we can take a couple minutes on the question. How does that sound?
Slocomb Reed: Well, we may end up going there, but new question here... When does the project complete?
Aaron Yassin: Well, we have two projects currently in process. One of them should be finished hopefully in about 10 months from now, and the other one 14 to 16 months. One is eight units and the other one is 10 units. Although the 10-unit building is about a little less than twice the size is the eight-unit building.
Break: [00:16:01.12]
Slocomb Reed: Understanding that we're recording in the middle of 2023, a pair of questions here... How is it that you design ground-up construction in a place like Brooklyn to the demands of a 2024 ir 2025 Brooklyn homebuyer? And what are you expecting the price points on these units to be when you're done?
Aaron Yassin: Those are both very good questions. So the second part of it is a little easier to tackle, and it kind of frames the first, so I can start there. In the local market where we're building, we're looking at exit prices at a price per square foot to be somewhere between $900 and $1,100. So of course, for people in different markets it's going to sound very high. But those are actually more reasonable price per square foot numbers in New York City. It does get a little lower than that, but actually not too much. So if you're looking at a one-bedroom apartment - so the eight-unit building has mostly one-bedroom apartments - they will sell somewhere between $500,000 and $550,000. But of course, you have to compare what the rental price would be, because that's what someone's going to be paying if they're going to go out and rent a comparable unit.
Now let's look at how we're going to build, and how that's going to appeal to the buyer. You're gonna get with a new construction building in New York - let's just say it's just strictly built to code, and there's not a lot of thoughtfulness put into it; you're still going to end up with a higher-quality building than you would if you're going to rent or purchase a co-op, or a unit in a woodframe building. It's just a requirement based on code. So how can we take that three steps further?
One of the things that we've made a very specific choice about, even though it's not a requirement based on the size of our buildings, is we're only building all-electric buildings. So we'll have no fossil fuel in the project. We want to be ahead of the curve on that, because it's the right thing to do, and there's no reason that we need fossil fuels.
In addition to that, from an energy efficiency standpoint we're going to use triple pane uPVC windows, which are highly, highly energy-efficient. We're going to use mini-split systems most people at this point are familiar with, but we're going to use units that will allow the end user to put a higher-quality air filter in the system. Something that's very close to a HEPA type air filter; there's going to be continuous fresh air circulation through all the units. That's a requirement by code, but that also makes the environment within the units a much healthier environment.
We're also using a new type of electric water heater, and it's called the heat pump water heater. And believe it or not, those use only 30% of the amount of energy as a regular electric water heater. They're that much more efficient. So there's layers of things that we're doing to make the buildings much more energy-efficient. And on top of that - and it's not just the icing on the cake, it's kind of the core of how we approach projects, is the quality of design that we bring to projects. And it's about a level of thoughtfulness in all of the details, and creating unique spaces that just have an amazing feeling to them. It definitely starts with having clear, open spaces that are clean, very large windows that let in an extraordinary amount of light... Having outdoor spaces when possible with all of the units, which we're actually going to get in the 10-unit building - all the units will have outdoor space, believe it or not, even in Brooklyn; having some nice common spaces, and really focusing on some of the details in the units. Having eight-foot doors, having beautiful tile in the bathroom, and beautifully-crafted kitchens... And having all of that as part of the experience of the building, along with these other components of the sustainability and energy efficiency just brings a much higher-quality product to the market, and it just makes it stand out.
Slocomb Reed: In your recent projects, Aaron, what has been your biggest struggle or your biggest setback in their construction?
Aaron Yassin: That's a very good question. It's a question that a lot of people ask, "Oh, you're doing new construction. Isn't it impossible to do it?" There's certainly a perception. Because there are, of course, some very notable projects that have stalled out, there's lots of different things that happened... Although when I see a project that's really stalled out, I just know being in the industry, I know there's a lawsuit going on. So it's not just some other factor, it's about the partners that can't get along anymore.
I think some of the biggest hurdles for a project to be successful are really understanding your site conditions and understanding what you can build, for one, and really dialing that in prior to really focusing on drafting your plans. [unintelligible 00:22:45.19] code, right? Were you gonna jump in with something?
Slocomb Reed: I'm hoping to hear some examples here from your own experience.
Aaron Yassin: Okay, so some really hardcore examples... There can be problems with the Department of Buildings. And that can significantly delay plan approval, and it can be hit or miss. Generally, it moves smoothly, but if you have a miss, it can delay your projects by months. So that's a risk factor.
The other risk factor, which a lot of people may not think about, are just neighbors. You can have a really unruly neighbor, and they can really make your life difficult while you're building. And you can imagine in some of the more premium locations in Manhattan you have neighbors that just don't want you to build anything next to them.
I've heard examples where they've had to pay them hundreds of thousands of dollars just to sign an agreement to get their project moving forward. That's even after many months of delays. So I think between those two, that's where you really have some of the biggest risk factors. If you can line up all your capital, you can purchase at the right acquisition cost, build at the right price and overcome those other problems, you're going to end up with a really solid project at the end, and it's going to do well.
Slocomb Reed: Along those lines, Aaron, let me ask, outside of New York City, where have you developed ground-up?
Aaron Yassin: I've only worked in New York for ground-up. There's some projects that I'm contemplating outside of New York, and yes, to some degree, I expect that there it'll be a little bit easier... But you start with the hardest place to work, and then move down the ladder from there... [laughs] That's how I approach things. It's a definitely unique approach.
Slocomb Reed: The reason I'm asking as we transition and wrap up this episode, I'm wondering what advice you have for people who have ground-up experience in other parts of the country... If they decide they want to get into New York City, or even into Brooklyn, what are the due diligence items specific to where you are that they may not be familiar with or they may not be expecting? For example, like you said, the relationship with neighbors who may not want new construction and needing to buy them out or pay them off in order to be able to build - is that really a thing everywhere in New York? What other things would I not anticipate on my way into that market?
Aaron Yassin: Well, I think that's a good question. And I know other people that do development work, and I've heard stories of unruly neighbors even in rural parts of the country. So I don't think that that's specifically unique in New York. It's just that you can have more neighbors; the small properties. You might have five neighbors instead of one, so it can be a slightly higher risk factor.
I think that for people that want to get into the market in New York - and that can go the other way too, because I've got some comments that approach it from the other position as well... You really need to understand how you have to build in the city. And that has to do with the code requirements for building, and also the zoning. And without hiring proper professionals that understand what's required, and that can educate you so you know what you need to do... And also, you may need education yourself, because if you've generally been building kind of stick-built construction, you're going to need to do it differently.
So you need to make sure that you understand how you can build, what you can build, and what the process is, step by step. What you need to do the file plans, who files the plans, what's the requirement for approval... And there's a few other pieces that are significant in the process, that just don't exist in other markets. In some places you can just have an engineer go to whatever municipal agency that deals with building permits; you don't even need a licensed architect. A licensed engineer can get your plans approved, in some cases. So here, you need more consultants. There's also other applications that you need to file relating to utility connections. So you need to understand what all of those requirements are, so you don't miss anything. So you're going to want to hire people that can do the work and properly educate you of what needs to be done, and make sure you do it in the right order, at the right time. Because if you don't, you're going to lose a tremendous amount of time. And building in New York, as it is everyplace else, but certainly in New York with the money at stake, time and delays can really kill your project. So those are the things that I would advise just from a project management standpoint.
Thinking about doing work outside of the city, I really am obviously a strong advocate for how good quality design improves the value of anything that's built. And I think any end user appreciates a higher level of thoughtfulness in their home. If you walk in the door, even looking at your home, whether it's a single-family house, or a multifamily, garden style apartment, and you just love the way it looks from the outside, and you open the door and that same feeling continues, and there's a quality to it that just makes it feel like the place you want to be, and you're really happy with it, everything is better. Your quality of life as the renter, as the owner, is just going to be better. And if you think about it from an operator's standpoint, when you have that experience from your end user, that's certainly going to drive your bottom line and increase it.
Slocomb Reed: That is excellent advice. Last question, where can our listeners get in touch with you?
Aaron Yassin: Yes, you can go to DesignDrivesValue.com. We've got downloadable material there, and an opportunity where you can stay in touch with us, and then we'd love to have you on our newsletter, and you can see what it's like - because we send out updates about our projects in Brooklyn, what things look like as we're building, before we start building, once we do the demo, and as the building goes vertical, and you can see what that process looks like. And it's a pretty exciting process.
Slocomb Reed: That is exciting. Aaron, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a Best Ever day.
Aaron Yassin: Thanks, Slocomb. It's been great to be on.
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