“Go and develop those relationships early on, because they’re going to be the ones that are going to help you.”

-Michael Wayne

 

Michael Wayne is a co-founder of Detroit Riverside Capital. He serves as the head of project  management and is responsible for construction management, capital management, and  investor relations for DRC  projects. Prior to co-founding DRC, he served as an associate at Grant Thornton, LLP in their Transaction  Services Group. Michael has a passion for innovating and creating through his love for entrepreneurship. He has  created, funded, grown, hired-for, and sold multiple businesses in industries ranging from healthy  vending to photography. Michael holds a Bachelor’s of Science in Entrepreneurship & Corporate Innovation from Indiana  University Kelley School of Business.

 

In this episode, Trevor and Michael discuss:

  •   What got Michael into real estate investing and how he got started.
  •   Ground up development and what it looks like.
  •   What made him decide to do a ground up project.
  •   The status of the construction industry and the price during the pandemic.
  •   What does the financing aspect for ground development look like?

 

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PODCAST RECOMMENDATION:

Bigger Pockets | The Apartment Investing Journey | The Real Estate Syndication Show

 

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Email us: Trevor@podcastingyou.com

Full Transcription Of Today’s Episode

Trevor Oldham  00:46

Hey, everybody, welcome back to the real estate investing exposure podcast. Today on the show, we have Michael Wayne. He is the co-founder of Detroit, Riverside capital. He serves as the head of project management and is responsible for construction management, Capital Management and investor relations for the DRC projects. Prior to co-founding Detroit, Riverside capital, he served as an associate at Grant Thornton, and their transaction Services Group, well with the firm helping clients to quantify and analyze the future impact of acquisitions, or dispositions on their businesses, with the focus on human capital management and IT systems integrations. He’s also built, analyzed and implemented forecast models for clients looking to restructure their businesses. Michael has a passion for innovating and creating through his love for entrepreneurship. He has created, funded, grown, hired for and sold multiple businesses and industries, ranging from Healthy Vending, to and from photography. And he also holds a Bachelor of Science in entrepreneurship and corporate innovation from Indiana University, Kelley School of Business, Michael, super excited to have you on the show today.

 

Michael Wayne  01:54

Awesome, Trevor. Happy to be here, man. Thanks for having me.

 

Trevor Oldham  01:57

And Michael, for our audience out there is turning into the show today in the first learning about yourself. For the very first time, I love you to walk our audience through your real estate background and sort of how you got started into real estate and what that journey looked like.

 

Michael Wayne  02:11

Sure thing. Yeah, I appreciate that. So my start in real estate was not too dissimilar from a lot of people in terms of how I actually got the ball rolling on learning about the business. And I’ll get into that in a little bit. But I think what really got me into real estate was my passion for entrepreneurship. So a lot of people say that passion about entrepreneurship, but that’s because now it’s sort of in Vogue. I’ve, I’ve been an entrepreneur, really my whole life. I mean, I was a lemonade stand kid, when I was seven, eight years old, I was the lawn mower at 12. I started a lawn care company, hired employees and had a crew of five guys working for me before I was 16 years old. So I’ve been very, very entrepreneurial, since a very young age. And I think that’s driven from my family background, my dad, both my uncles, my grandpa, all on one side of the family are all entrepreneurs who have all built and sold businesses. I’ve been a product of that environment my whole life. So I think that’s really where the desire to get into real estate stems from that perspective of entrepreneurship. So to make a really long story real short, basically, when I was in school, I was running a business, I was studying entrepreneurship. And it wasn’t exactly sure what I wanted to do post grad whether I wanted to go right into starting a new company, whether I wanted to continue to grow the one that I was working on there, or whether I wanted to get a quote unquote real job as people say, the nine to five WTO. So I decided that the W two was a good step for, you know, the post grad life. I can move to a big city. I can live with a bunch of my friends, have a lot of fun, you know, make a consistent income and not have to worry about the entrepreneurial grind, so to speak. So that’s exactly why I did spend about 18 months living in Chicago working for Grant Thornton, as you mentioned in the intro, I was doing transaction advisory. It was awesome. I was flying all around the country, I was helping our clients, you know, go through these acquisitions or mergers or dispositions or whatever the case may be. It was a blast, and I really really enjoyed it. I was living in an apartment right downtown on the 30th floor and had a cool view. I was with my best friend, right? And so what sane person would leave all that behind to go and start a business and work 12 hours a day? Well, no one because um, it was a totally insane decision. And, I’ve never been happier that I made that decision. So basically, I left that job behind and subleased my apartment, I moved back to Michigan and started to pursue real estate full time. So that wasn’t without good reason, I guess I should say, by that point we had already found and closed on our first ground up development project. And so I knew that I had at least the runway of that project to quit my job for and support myself in the interim while we built that first job and so fast forward now 18 months, and that project is just nearing completion. We’re getting really close to CFO, about 57% of at least already from the residential side and we expect to fully lease it within 3060 days of opening. So that project you Today in knocking on wood has been a huge success, both being on budget and relatively on schedule, when you consider all of the COVID delays that have been a real bottleneck for the construction industry, so I guess my my entrance into real estate, you know, from a fanatic perspective, in terms of learning about it was a lot of podcasts, a lot of books and a lot of conversations with people. But I think the more interesting aspect is why I really got into this business and how this plays into my passion for entrepreneurship. And from that perspective, there’s really no better business.

 

Trevor Oldham  05:31

I think that’s an excellent overview for the audience. And now that you’ve been going to the real estate side, you have this ground up project, what has that experience been, like, you know, diving into that, and, and I guess, really building that development?

 

Michael Wayne  05:45

Yeah, it’s been a shit show. Lately, it’s been a total shit show, a good one, I’ve learned an insane amount. I feel super knowledgeable about the construction industry as a whole in the development business. And I finally feel like I have a grasp. But 18 months ago, I didn’t have any of that. And I knew absolutely nothing. And so it’s been one hell of a transition to go from that level of knowledge to the one I have today. It was challenging. It was scary. It was nerve racking, it was anxiety inducing, it was not easy. It’s the hardest thing I’ve ever done in my life. To put it bluntly, I mean, so how has the process been challenging, but in that same breath, extremely rewarding, and I’m very, very happy to be where I’m at relative to the Jordan project. And some of the other projects that we’re looking at, I’m just super excited and pleased with a new career and just really loved the real estate business.

 

Trevor Oldham  06:33

And for the ground up project, what made you decide to do that, instead of saying, going out there and, and purchasing, you know, let’s say, a 20, unit, apartment complex, what made you lead more towards that than something that’s already been built? And then you could potentially go in and do a value add.

 

Michael Wayne  06:48

Of course, while using a little, I guess, comparison here. So how many people do you know that are doing that? How many people do you know, looking for 20, to 40, to 50, unit apartment buildings that they’re looking to buy, renovate, raise rents? Probably quite a bit, exactly how many people you know, build ground up? Not that many. So that’s really why there is way less competition in the development space, there’s a significant amount of additional work and risk. So that’s really the trade off. And that’s why in the existing asset space, there’s lower barriers to entry, so you get a lot more people playing in that space. But in the development space, it’s a whole nother world of barriers to entry that you have to think about and worry about. And not a lot of people take the time and effort to figure those things out. And so naturally, we’re playing in a much smaller sandbox, I guess, an equally sized sandbox that has a lot less people playing in it, and then in the existing space. And so I should clarify, though, that now looking back on it, that’s why we’ve stayed in the development business. But originally, that wasn’t what drove us there. What drove us there at first was that when we were first looking for our first deal, we were looking for something of value add and wanted to do that just the way that everyone else does. To get that started, we didn’t intend to set out to start building. It just so happened that the very first deal that we’re just about to finish now that that project was brought to us in our pursuit of a value add project and not knowing a thing about value add nor development, we said, What the heck, let’s give development a try. And you know, I’ve always been passionate, very passionate about construction, I have an interest in it, I’ve always, you know, I’d spend a Saturday when I was 10 or 12 years old building a skateboard ramp, but it would you know, because I just enjoyed that process. I always tell my mom, like when I was really little three, four or five years old, I did my mom drive me to construction sites. And I’d sit there and watch the digger trucks as I called them in those days. So it’s kind of a fun full circle moment when our project was getting bulldozed. And they had the excavators out there. My mom sent me a picture and said, What do you think of these digger trucks?” And so that was it. It was a fun kind of full circle thing. To go from watching them as a kid to them, watching them build our project and build their future.

 

Trevor Oldham  08:58

And then from the construction side of the business, you know, with the pandemic, and, you know, seeing that, you know, let’s say the price of lumber has gone up, you know, quite a bit over the last year or two. Have you noticed when you’ve been building this development, have the construction costs gone up since you first started? Is it within budget? What is sort of that aspect of it, just given that, you know, prices seem to have increased rather rather rapidly? In the last little while?

 

Michael Wayne  09:24

You got it? Yeah, so timing is really important when considering the answer to this question. So when we first started to bid and to build this project, it was in a pre COVID environment. Well, the bidding part was so we already had all of our contracts for the most part, all the main ones, the lumber, the masonry, the drywall, the MVPs, cultural plumbing, all that stuff was already bid and already awarded in terms of the contract. So that was helpful because when you award a contract, you’re committing to doing a job for a certain price and so at that point, even when the costs of their goods or their products increased, they had already committed to us that they were going to deliver the scope of work for us for a fixed price. Now there were certain examples like in lumber, for example, we did get hit with like a 40. Nothing was like 60,000 $60,000 change order for lumber costs increases. And so relative to our total lumber package, I’m gonna say that that was somewhere around a 20% increase. But when you look at what lumber actually did, in terms of its underlying futures, it was up 400%. So to only pay 20%, more relative to a 400% increase in the underlying commodity was pretty good. And that just has to do with where we’re at on the supply chain. So we can buy lumber from people that the average person can’t buy lumber from, because the average person isn’t buying $720,000 with lumber. And so that helped us to get better pricing, because we’re going up the supply chain, you know, if we were buying at Home Depot, then we’d be paying for x. But if we’re buying from our wholesalers or lumber suppliers, basically then cost increases aren’t as bad. So that one was one that was a bit of a surprise. But, you know, overall, the project is on budget, and it is going to finish that way, knocking on wood. And it really is just a testament to our construction manager and to our team for keeping the car on the track, so to speak, as far as the budget is concerned. But a lot of it has to do with the fact that we bid this project pre pandemic, and that was super helpful. Now in terms of future projects that we’re looking at now, in a post pandemic world, we sort of sandwich the lumber issue pretty well. Like when we bought Jordans lumber, it hadn’t spiked yet. And we’re about to buy lumber again for another project. And now it’s come back down. So lumber futures as of today are at 520. At the height of the pandemic, they were at 70 1700. So that 529 is 1700. So they’re more than three times what they are now. So they’ve already come down that far. And actually in the last day or so it’s spiked back up 15%. But point being that the future prices have restored to a more normal level, which indicates to us that it’s still prudent to design and spend money on the approval and entitlement process for new projects, knowing that that lumber prices coming back down, and that we’re going to be able to hit much more affordable levels. And our lumber prices now won’t ever be as inexpensive as it was pre pandemic because that’s just that’s inflation at work right there. Like it’s just never going to go back to lower. But it has significantly decreased once again. And that’s what still allows us to build these projects.

 

Trevor Oldham  12:34

I think that’s definitely an excellent example. And then when it comes to the financing aspect of it, what does that look like? Did you have to raise outside investor capital? Did you do bank financing? I’d love for you just to walk our audience through how that sort of process worked when you’re building up from the ground?

 

Michael Wayne  12:49

Totally. Yeah, so the financing was built around a $9 million budget. So the total project costs about 9 million. we leveraged that with 80%. So we got seven, two from a bank. And then we needed about 1.8 from private limited partners. So we had a network of like high net worth individuals that we just knew one way or another, some family, friends, some friends of friends, some just random contacts that we had. But basically, we’re able to line up 12 of these individuals, and they invested anywhere from $25,000 chunks up to a $350,000 chunk to make up that 1.8. So across 12 people, we raised 1.8 million of varying size subscriptions. And then we built a return profile around that amount of capital. And then we built ourselves a little incentive to do it as well. And so the financing process was shockingly one of the easier parts of the Jordan project, like in fact, like probably one of the easiest. And that’s just because it’s a really, really good project and a really, really good deal. And as first time sponsors on that project, we had to give away the farm when it comes to the return potential. So we really juiced up it like we were projecting a 27% IRR for investors. Talk to any operator out there like you would never get investors to 27% IRR because you’re giving them too much like your market doesn’t demand a 27% IRR right now. You can sell projects at anywhere from 15 to 20% IRR all day long. So on Jordan, we were projecting 27. And that was net to investors. And that’s really a product that was our first project. We needed them to trust us, we needed them to really justify the risk associated with coming on with first timers. So that’s how we were able to make that financing process so easy because we really gave them a really big piece of the pie. And it’s something like that’s gonna work out well for them. Well, I can touch on that in a minute. But we’re looking at a sale potential, we’re looking at refinancing and it’s likely that even inside of a three year window that we could hit some of the return projections that we were targeting in five years in two and a half or three.

 

Trevor Oldham  14:57

I think that going over those numbers will definitely be super helpful for our audience. And now let’s say you’re working on this project, and it’s nearing completion. Do you have any other projects that you’ve been working on or other projects on the horizon that you’d think you know, that you’d be interested in doing?

 

Michael Wayne  15:11

Totally, yeah. So we have, let’s see, 14 and 36 is 50, sweet, $50 million worth of construction in our pipeline right now across three projects. One’s five and a half, one’s like nine, and then one’s about 36. So the five and a half is the one that I just got out of the page turn meeting for with our architects and our construction manager. And that one, the architecture is done, the site plan is approved, the financing is going through approvals with the lenders, right now we have all the capital raised. So we’re just about ready to hit the Go button on that. And we’ll probably start construction on that, like the week after Labor Day. And then the next one is a 200 unit development, it’s located in a neighborhood something on a neighborhood like a city or township somewhat close to where our first project is, that one would be built at 27 acres, three story common halls, and 200 plus units. And then the coolest part about that project is we actually have bought 12 acres worth of land on that 27 acres that we don’t need to build on at all, we don’t need to build a parking lot, we don’t need to build the units, like we can still fit the 200 units just on about 10 and a half acres in the center. And that’s gonna allow us to build a 12 acre nature preserve for our residents. So when it comes to amenities, that’s going to be probably the best one of this particular site is that people will have 12 acres worth of walking, hiking, biking, running trails, that’s connected to their apartment community. So we think that’s pretty cool. And then we also have a six and a half acre parcel on the front end that’s closer to the main road there, that we’re probably going to outlet and sell off to a retail developer to build some retail there. So that’s the big honcho. And that you know, up to 15 million, that’s 36 of it. So those projects are really important to us. And then the last one is a little 22 unit, luxury townhome development. So this one is right in the downtown of a quaint but very affluent suburb of Metro Detroit. And it’s on the last vacant piece of land in the entire village. There literally is not a vacant piece of land and the rest of his village besides this parcel, and certainly not one this big, and certainly not one downtown. So we’re really, really excited about that one, because we’ll be building a first of its kind, townhome development, an area that basically has zero luxury apartment communities. And that one will have, you know, rents in the three, four and $5,000 range. So we’re really playing to the very upper echelon of that market. And that’s a market that can totally support those rent levels and drive a lot of demand from it. So that’s really our main pipeline. And in fact, as of yesterday, we decided we’re not going to look at a single new deal, until we get those three through the process. So we put a, we said September one. So it’s like a 38 day hiatus that says Don’t even mention another project. That’s not one of those three, and my partner and I agreed on this, because you get to a point where you’re, you’re the squirrel chasing the shiny objects, you know, the skull chasing the nut, like you, you have these three great pipeline projects. But then a new one comes in and you’re thinking about this one, and then all of a sudden, you spend half your time trying to add another project to the pipeline, rather than just executing on the business plan of the first three that are already in there. So that’s our pure focus now is to finish Jordan, which is our first project and then close these three projects. And in doing so it would obviously be about 15 million worth of construction, it would bring our total unit count to just over 300 of units developed. And then, you know, it would certainly present a significant opportunity for us as a company to then have capital on hand to then go and deploy in other projects after that. So really, really important that over the next 12 months, we get these three done.

 

Trevor Oldham  19:09

That definitely makes sense. But Michael, I want to be respectful of your time today. I have a couple of additional questions to ask you before we end our interview today. And the first question I wanted to ask you is that Do you happen to have a favorite real estate or business book that you’d recommend for the audience to check out?

 

Michael Wayne  19:26

You know, I’m, I’m not a reader. I’ve never been a reader. I hated reading in second grade and I still don’t read today. I get too bored. So I’m an auditory learner. I learned everything from podcasts and videos. So I got a lot of, you know, real estate podcasts out there that I listened to, obviously some of the main ones, the bigger pockets, the apartment investing journey. And I was actually just on Whitney souls podcast the other day, the real estate syndication show, I believe it’s called. So all those are great resources. And obviously you’re in the real estate podcast business so you understand this, but that’s That’s really where a lot of my knowledge came from just about real estate in general. As far as development goes, there really isn’t a call them an influencer or a content creator, around development other than maybe like Kevin Holliday, I don’t know if you’ve heard of him, but he’s an awesome resource. He focuses specifically on attainable housing and affordable housing development. He’s really the only other developer that I’ve seen, be active on social media, but certainly provides a lot of value there. But mostly on the development side, where I learned from was our consultants. So our general contractor or architect or engineer, all of those people have been instrumental in teaching me about the development business. And, you know, if I had to give any advice to anyone seeking to join the development business, it’s to go out and find a contractor and architect right now, like, the first thing you do, you’ll go find a project, like, go find an architect and engineer, and get comfortable with them, and then use them as you’re pursuing the first project to get their input to gain their insights. And you can’t just, you know, you can’t just show up and say, hey, I want to start building apartments, you got to show up with some kind of vision and have a have a pitch that says, You know, I want to do xy and z, and I want you to be a part of that. And like, I’m young, and you can really be an instrumental part of my business, and so on, so forth. So go to them with a plan, but I’m saying go and develop those relationships early on, because they’re going to be the ones that are going to help you to sift through the bullshit when you’re looking for your first project, and see exactly how we did it. But looking back at how we did it, that’s how I would do it now.

 

Trevor Oldham  21:35

I think that’s perfect. Excellent advice for the audience. And the last question is, where can our audience find you?

 

Michael Wayne  21:40

Absolutely. Yeah. So for a long time, I just posted on my personal Instagram. And then I figured I need to give all my high school and college friends a break on my real estate content. So I recently just made a real estate focused Instagram account, so you can find me at multifamily Mike on Instagram. And then on our website, WWE dot Detroit, Riverside capital. com, that’s gonna contact us. That’s for anyone under the sun that wants to contact us. If you want to work with us, you want to show us a deal. If you want to be a vendor to us, you want to sell us something, just contact us through that website portal, it comes straight to my inbox. I’ll see it. And, you know, I guess as an overall topic, like anyone listening that wants to learn more about development, or maybe as you know, some kind of way for us to mutually benefit each other. Feel free to reach out. I’m super open to having conversations with new people and learning from new people and collaborating with new people. And so don’t be a stranger. I’m happy to connect with anyone.

 

Trevor Oldham  22:39

Thank you. I’ll make sure to include that in the show notes of today’s episode for the audience and Michael. Thanks for hopping on to the show

 

Michael Wayne  22:45

today. Awesome. Thanks, Trevor. Appreciate it.