Bruce Stachenfeld: Purpose, Vision & Conviction — The Driving Forces for a Leading Boutique Law Firm

Welcome to Episode 9 of Offshoot with Bruce Stachenfeld.

Bruce is a NYC-based lawyer running a boutique firm of 40 lawyers.  From a difficult start in 1997 to now, Bruce has found his power niche (consummating joint venture equity deals) and become an effective leader to his “pure-play real estate only” team of lawyers.

Bruce is at least 20 years my senior and has brings a ton of experience and wisdom to the conversation.  We could have carried on for at least another hour. In this episode we only got through half the material I had hoped to cover, but, Bruce is super busy and I’m thrilled he shared this time with us.

Listen in for some of the nuggets that Bruce shares, and how he brings them to life, for example:

  • Drive your business with a purpose and a vision.  Let that become real for clients and employees (not just something on the wall of the conference room.)
  • Ranked by importance, focus on: Employees, customers, shareholders.
  • Their growth mandate for talent:
    • Attract
    • Train
    • Retain
  • His leadership journey from brutal (potentially inappropriate) honesty to leading with vision and conviction.
  • Buying where there’s less pressure and less appreciation for the nuance of a space, like retail.
  • How securing JV equity is like “playing chess in the future” and a space where relationship skills are critical. The business, personal, and legal issues all come together in a contract that won’t be needed until things go sideways.
  • Recourse as the hot potato, how it gets passed, and how joint venture equity and banks look at it.
  • Old retail vs. new retail, and the difference between them.
  • Virtual offices will fail, there’s no glue to keep the culture together and keep the man or woman inside the skillset happy and satisfied.
  • Outperformance may become less and less of a focus in the real estate space as “real estate as an asset class” comes to roost. Average is going to become the dominant benchmark.
  • Where A.I. will begin to have an impact in commercial real estate.


Kevin Choquette:

Welcome, listeners, to episode nine of Offshoot, with Bruce Stachenfeld. Bruce is an NYC based lawyer running a boutique firm of 40 lawyers. From a difficult start in 1997 to now, Bruce has found his power niche, consummating joint venture equity deals, and become an effective leader to his pure play real estate only team of lawyers.

Bruce is at least 20 years my senior, and brings a ton of experience and wisdom to the conversation. We could have carried on for at least another hour. I literally got through half the material, I hope to cover. But Bruce is super busy and I’m thrilled he shared this time with me and you.

Listen in for some of the nuggets that Bruce shares and how he brings them to life. For example, drive your business with purpose and a vision. Let that become real for clients and employees, not just something on the wall of the conference room. Ranked by importance, focus on employees, then customers, then shareholders. Their growth mandate for finding talent, attracts, retain, train. Their growth mandate for talent, attract, train, and retain. His leadership journey from brutal, potentially inappropriate honesty, to leading with vision and conviction, buying where there’s less pressure and less appreciation for the nuance of a space like retail. How securing JV equity is like playing chess in the future in a space where relationship skills are critical. The business, personal and legal issues, all come together in a contract that won’t be needed until things go sideways. Recourse is the hot potato, how it gets passed, how joint venture equity and banks look at it. And old retail versus new retail, and the difference between them.

Virtual offices will fail. There’s no glue to keep the culture together and keep the man or woman inside the skillset, happy and satisfied. Finally, we talk about artificial intelligence and where it might begin to have an impact in the commercial real estate space. I hope you enjoy the conversation.

Hello, everyone. Thanks for tuning into my conversation with Bruce Stachenfeld. Bruce, also known as the real estate philosopher, he’s the founder, former managing director, and now chairman of Duval and Stachenfeld, a New York City based real estate, only legal practice with about 50 lawyers, serving all aspects of the real estate industry nationwide. It’s from this station that he provides the email newsletter, The Real Estate Philosopher, which enjoys over 60,000 subscribers.

Bruce is also an author with, If You Want To Get Rich, Build a Power Niche, to his credit, and a new book on the horizon, The Real Estate Philosopher’s Guide, which I believe will be released this fall.

Bruce has a unique industry vantage point. He works with some of the smallest real estate shops with a little more than a gleam in their eyes, to some of the largest real estate institutions in the world, and everything in between.

He also spends time in the hallways, if you will, of New York City, which seems to be Mecca for all things capital and capitalism. That arena provides an incredible playground for Bruce’s mind, where his curiosity, free thinking and powers of observation find plenty to devour.

Bruce established his firm with Patrick Duval and Terri Adler in 1997. He received a JD from Harvard Law School in 1983, and a BS from Tufts University in Massachusetts in 1979. Bruce is a student of business in real estate. He is married. And he is completed at least one Ironman, The World Championship in Kona in 2007.

Bruce is the first guest I’ve had with whom I don’t have any preexisting relationships. So Bruce, I’ll try to stay on my best behavior. And welcome to the show.

Bruce Stachenfeld:

Well, Kevin, thanks for having me. That was a really nice introduction. And the thing I brag about the most in the world is it was two Ironmans, but full disclosure, I didn’t do very well. So, I’m not much of an athlete. But thank you so much for having me on your show.

Kevin Choquette:

Yeah, the pleasure is all mine. Thank you for taking the time. And I think if you complete an Ironman, that’s enough. Most people on the planet can’t really make themselves take that kind of pursuit seriously.

But look, I’m very excited to speak with you. I’ve been able to read some of your material. I’ve been following the newsletter for I think, 18 months or so. I know you’ve got a deep expertise in real estate, finance law, and even marketing, which I think is a really unique thing for a lawyer. So, I’m really looking forward to see where that conversation goes. Bruce, to start with, could you just tell me a bit about yourself and Duval and Stachenfeld?

Bruce Stachenfeld:

Sure. I’ve been a real estate lawyer in New York City since 1983, which is a long time to do anything. The law firm that I’m the chairman of now is called Duval and Stachenfeld, almost 25 years old. The thing that is interesting about it is, we do one thing. We are a real estate law firm. We’re about 50 lawyers. We call ourselves the pure play in real estate law, to make it clear to ourselves and our clients, this is what we do. We’re only about 50 lawyers, but one of the largest real estate law practices in New York City.

Our clients do just about everything, from ground up development. They buy and sell all different kinds of properties. We represent them in lending and borrowing. We’re probably most known for our joint venture/corporate real estate practice, which is everything from simple joint ventures to complicated platforms, to opportunity zone funds, and pretty much anything else.

The thing that that is best about our firm and that makes our clients the happiest is really this. When we focus on one thing, the real estate industry, it’s a very powerful help to our clients. When you think of the law being a lawyer, it’s what’s called a personal service business. And what that means is every client has different needs for its lawyer.

However, there’s been one thing that we’ve seen over the years that all of our clients want, every single one, and the irony is, it’s so rarely that the lawyers deliver it, but every single client we have, no exceptions, wants a lawyer or a law firm that really understands their business. At the end of the day, clients aren’t out there to create legal work. They’re out there to get something done in the business world.

A law firm that understands the business is very valuable. That’s the reason why we decided we’re going to focus on one thing, which is real estate. And we’re all over the industry, as well as the legal. And we provide a lot of value to the clients that way.

Last thing I’ll say is, as far as I can tell, we are the only pure play real estate law practice left in New York City. Every other pure pay real estate law firm has long ago since died out, been acquired by a big firm, or just disintegrated one way or another.

We’re the only one left. And being a math guy, if you’re the only one, there’s only two ways you could be, you’re either the smartest or the dumbest. And I certainly hope, that it’s the former, but that’s where we are today. Anyway, that’s a quick summary of the law firm.

Kevin Choquette:

And how is it that you personally came into real estate law? What got you started down this path?

Bruce Stachenfeld:

Well, when you get right down to it, virtually nobody grows up. When they’re asked in high school, “What do you want to be when you grow up?” And they say astronaut or beachcomber, but they don’t say real estate lawyer.

I still remember the moment when I got into real estate law, because it was just burned into my memory, even though it was just a happenstance at the time, I started my career at a law firm called Shea and Gould, which was a litigation powerhouse. It died off, almost 30 years ago now. But I started as a litigator. And I did not like litigation because litigation is fighting over the spoils. I don’t know, it just didn’t throw me. So, I guess, to be real honest, I hated it.

And so, I went to the managing partner, I said, “Hey, could I join the corporate department.” And the managing partner, I still remember talking to him and he said, “Well, Bruce, we don’t really need anyone in the corporate department right now, but why don’t you join the real estate department?” And I still remember him saying that and me saying exactly these words, I said, “I don’t really know what those guys do.” And I didn’t know what they did, but I joined the real estate department, and I literally fell in love with it immediately. And it has been, I’m not saying every day has been a day in paradise for my whole career, but I have loved being a real estate lawyer now for, God, it’s getting close to 40 years. And that’s a long time to do anything.

Kevin Choquette:

Yeah. And it looks like in ’97, you and Patrick, and Teri, decided to branch out on your own. What led to that? What had you decide to put up your own shingle, and go your own way?

Bruce Stachenfeld:

I would love to say, your readers probably think is, I always wanted to do whatever where it was, and this was my big chance to conquer the world. It really was more just running away. When I was at the firm before that, I was at a major law firm called Mayer Brown and Platt. Now, I think it’s just called Mayer Brown, a very good firm, but I just couldn’t make partner there. They didn’t need a real estate lawyer. And I was going nowhere. So, I fled, before I got fired, eventually. I fled Mayer Brown and formed a predecessor firm called Shapiro, Shapses, Block and Stachenfeld. I had three good partners, but we really just didn’t have the same business goals.

And my practice by then had just exploded, the joint venture area, which is still my bread and butter, 20, I don’t even know how many years ago, even today, that’s the focus of what we do. It was exploding. We were working around the clock and we needed to hire people. And I called my friend, Pat Duval, and I said, “Pat, I’m thinking of starting a law firm. You want to do with me?” And I think, Pat were a little more of reflective, he would’ve said, “Can I think about it?” Or, “My wife…” I don’t know. But Pat just said strangely, he said, “Okay.”

So, it’s kind of funny. We started the firm in 97. Terri at the time, was a junior associate. And today it’s hard to think of Terri in that capacity because Terri is now the managing part of the firm, runs everything. And my joke, which is actually true is, she used to work for me, now I work for her. She’s the boss. And I have changed my role to become chairman. And that’s the chain of events that led to Duval and Stachenfeld. So, it was just like wandering around. And then, we started the firm. And even at the beginning, we were just frantically running around, desperately trying to not screw things up, because we had too much business, and we didn’t have enough people. And over time we started to get our act together more.

Actually, a funny story. I don’t want to bore your readers or your listeners, but I do remember the first firm meeting. By the way, am I allowed to swear on this thing?

Kevin Choquette:

Yeah, absolutely. I have two small children. I’m finding it very difficult to curtail that part in my vocabulary, but here is one place where you don’t need to worry about it.

Bruce Stachenfeld:

All right. It’s not that bad. But I remember that, I started the firm and I’m basically running, I’m the managing partner. We’ve been in business for about two months and we’re like we’re working 20 hours a day. If you ever saw the movie, The Firm, that guy was not working nearly as hard as we were. And I’m not exaggerating. Every minute, I would go to a hotel for an hour’s sleep and come back.

So, somebody says, “Bruce, we really should have a firm meeting.” And I’m like, “Why?” He’s like, “We just should.” I was like, “Okay.” So, we got in a room, there were about, I don’t know, nine of us, 10 of us. And we all sit down at the table, everyone looks at me, and I was like, “What am I supposed to do?” And I realize I’m in charge here, we’re having a meeting. And then all I could think of was, “Well, you should always be honest.” Okay. And so, I said, I can still remember my words, “We’re completely, totally fucked.” Is what I said. “I don’t see it getting any better. I think we’re just going to get fucked worse.”

So, that’s how I started out as a leader, maybe not the best leadership skills. I think, I panicked everybody, and hopefully I got better over time.

But the thing that actually is useful advice, I think is, we did something that was dramatically different from other law firms. In this, we realized a long time ago that clients come and go, whether you like it or not. The client could go out of business or their business needs can change. They may not need you anymore. You can’t do anything about that, except obviously, try to do a great job and get more clients.

But the one thing that you can’t afford to lose are your lawyers. Because if you lose your lawyers, you have nothing left. So, we came up with a mission for the firm, which I call ATR, attract, train, retain talent. And we realized that it was actually more important to nurture our lawyers, our key people, and it was the clients. And it wasn’t that we didn’t care about the clients. We loved the clients to death, but we followed Starbucks’ mission statement, which was employees first, customers second, shareholders third. And we kind of stumbled into that. But once we realized that, it really became the heart of the firm and it was really the reason we’ve been, I don’t want to jinx it, phenomenally successful.

We have super lawyers, which are the backbone of the firm. Another reason that the clients like the firm. And it’s really simple business advice. If you treat your employees, your partners, your team, super well, they’ll treat your customers even better. And that’s really been, if there’s any single thing that has really been the heart of our success, I would say that’s it.

Kevin Choquette:

And early on, I can imagine that notion having some resonance internally, but maybe being difficult to sell and to get the lawyers to, “Hey, I’ve got a potential new hire. I think he’s a real talent. He fits the company culture. I’d like to bring him in.” How do you get them to drink the Kool-Aid on that front end? Right? The hiring process to me is always two-way sales. They’re selling you. And at the same time, you’re trying to sell the vision and the company on the early days of that. Now, you’ve got decades of experience, and 40 or 50 people who can vouch for. I suspect doing what you say, how are you successful in getting people to buy in? Or were you?

Bruce Stachenfeld:

Oh, how were we? Oh, it’s a great question. I’m trying to think back in the old days. I mean, at the beginning, we really didn’t have ATR. We didn’t have our firm values and culture. We were just a bunch of, I don’t want to think we’re idiots, but a bunch of desperate people trying to do a great job for our clients who had too much work. We were just running around frantically. In hindsight, I don’t know why anyone would’ve been foolish enough to have joined us, to be really honest. It’s like, why would you come to this place? The guy in charge looks like he hasn’t slept in a month, smells like he hasn’t bathed. You have to be insane to come here.

And I think probably what attracted people, because it’s a great question, I haven’t really thought about it. I don’t know how I sound, but I’m a very genuine person, and I’ve a lot of passion and love in me. And I think people felt like there was something good about what I was doing. And then they also looked around and they saw people like Terri and others, and they say, “Wow, these are some really good people here. And you know what? Maybe things are a little crazy, but this just might be my kind of crazy.”

And so, we ended up getting enough people to join. And then over time we put in place values and our hedgehog, which I could talk about. And then it took off from there. And once we realized we’re onto something, it all really became about the people. And as managing partner, I guess, I had a good load star.

I remember that, actually one of my partners said to me, something like, “Bruce, all the assets of this company go down the elevator every night. Your job is to bring them back.” And I realized that that was my job, more than anything else was to make it, so that the talent at the firm didn’t leave.” And if I pulled that off, everything would be fine. And I really focused on that during my years as managing partner. Obviously, my role has changed as chairman, but that’s been the heart of what I did. And as far as way back when, I’m really honest, I don’t know why anyone was nerdy enough to join us, but I’m glad it happened.

Kevin Choquette:

Your story is bringing back something. I spent a lot of time in these kind of entrepreneurial circles and working to hone the craft. There’s a gentleman out of Canada called, Cameron Herald, who is the chief operating officer, COO, coach. And he has a video of a guy in a big park, live music concert setting, who’s like out back in the left by himself and just getting down, dancing like crazy. And at first, everybody is laughing at him, and there’s a few people. And then one person joins in, and then two people join in. And fast forward, five minutes later, the entire place is going nuts because one guy started dancing. So, it sounds exactly what happened. Bruce is out there, has a vision, has a belief, and got the boogie going and you got people to join in. That’s fantastic.

Bruce Stachenfeld:

I like that analogy. I’m not sure, the way I dance is pretty pathetic, but maybe you’re right.

Kevin Choquette:

Well, it’s perfect with the video. I’ll send it to you when we’re done. It’s hilarious. So, what’s happening in the business now? What are you guys seeing? What challenges are you facing? And perhaps, appropriately also, separate and distinct, what challenges are your clients facing?

Bruce Stachenfeld:

Well, I guess it’s the same thing all at the same time. So, COVID hit, whatever, it was 18 months ago. Business was booming for us and for our clients, everything was moving along, and then COVID just beat the heck out of everybody. Most of our clients just stopped doing business. When you think about it, there just wasn’t much to do, other than if you were an owner, try to talk to your lender into not foreclosing. If you were a tenant, try not to pay a rent. If you were this, that, everybody just tried to get through it. And I think what probably people realized that, “Look, it’s temporary.” Now, I think we all hoped it was six months temporary, and it’s now creeping on to close to two years temporary, but everybody realized we’re going to get through it. And it’s just a question of time.

So, for the law firm’s perspective, I mean, we make our money when our clients do something. And we get hurt when they don’t, because there’s nothing to do. So, we struggled the last 18 months because business had slowed down. What we should have done is just lay back, get into great shape, and had good time going running or something. But instead, we worked really hard to try to change the outcome as best we could.

So, starting, I guess, it’s almost about exactly 90 days ago, it seemed like somebody rang the bell, and it’s just about every one of our clients started to get busy, and started to do things. Whatever they did before, they’re starting to do again, whether it’s leasing up their buildings, whether it’s buying things, whether it’s lending, whether it’s developing, whatever, everything just came on with an explosion.

And like probably every other law firm in the city, we moved from not enough business to too much business in literally 90 days. The biggest problem that we have today is trying to find superstar people to join the firm. And if any of listeners know really fantastic lawyers that want to be part of the pure play in real estate, call me, call me, call me. And that’s our biggest challenge.

Now, as far as our clients go, and I’ve been saying this all through COVID in my Real Estate Philosopher articles, COVID is a red herring. Now, it’s a big, big, big red herring, of course, but it doesn’t really change the nature of the business that people are in. One way or another, you have to have a business that is going to create some value, an upside or you’re useless. All right. And there’s different ways to create upside. Developers have visions, mega players like Brookfield and Blackstone have economic heft. Different parties around the capital stack have different ways of creating value. And if you were able to create value 18 months ago, you should be able to do that going forward. And if you weren’t, what might have happened in a weird way, you might have got lucky that you got kicked out of the system and you’re not in business anymore. And you now have to do something where you are creating value.

Now, the things I see our clients doing now, the areas that are hot, industrial, is just off the charts. Obviously, there’s been a sea change in retail and how goods and service are provided, and distributed. And retail has hasn’t died out, it’s morphed. I don’t know. I guess, I would say vaguely, it’s some sort of combination of distribution, of fulfillment. And retail is all morphing into one thing.

But a lot of our clients are either developing, buying, or investing in, or lending in industrial. I suspect it’s the hottest asset class right this second. Probably tied with it, is when that wasn’t even an asset class really five years ago, and people were doing it, but it really didn’t become, I don’t know, a basic food group, is what’s sometimes called SFHR or single family home for rent.

There has been an absolute feeding frenzy on this among, I don’t know, I can’t say all of our clients, but a incredibly large number of our clients. And at heart, it’s a simple business, right? You buy a home and you rent it. Now, obviously that doesn’t really work economically. But if you buy a hundred homes, 500 homes, a thousand homes, 10,000 homes, or something, economies of scale take hold. And the risk award is probably really, really good, because you own the house. There’s a reasonable amount of debt and you’re renting it out. And there’s enormous demand for this. So, we’ve seen an enormous amount of client activity in that area.

Clients also still love good old multifamily. They’ve been buying that a lot. Now, the areas that have been whacked and the more, I don’t know if they’re either aggressive, intrepid, creative, whatever souls, are three areas that got hammered over the last 18 months, and are now making various degrees of come back. One of them is hotels. There was a lot of clients looked to buy hotels. Maybe I guess, I wasn’t totally surprised, but not that many transactions happened at first. They’re starting to happen now. And the reason probably things didn’t happen at first is, it was too easy to price it. The hotel was throwing off 10 million a year, multiplied by 10, the hotel should be worth a hundred million dollars pre-COVID. Now, there’s no hotel guests, it’s throwing off zero. It’s actually losing $5 million a year, but you do the math. You wait three years, it’ll be worth 10 million a year. Again, how much do you discount? Anybody can do the math. And people were looking for incredible bargains. And the sellers were desperately trying not to do it.

So, not that much happened in hotels. But hotels now are becoming an area where there’s an enormous amount of interest in our clients in buying it. Other area is retail. What’s that famous quote? Rumors of my death have been greatly exaggerated. That’s what I would apply to retail. Rumors of its death are greatly exaggerated. People still want to go to stores. And I think really what’s happened, and I’ve written extensively on this in my Real Estate Philosopher, is that stores that really had no reason to exist, sorry to pick on say JCPenny, but stores that really didn’t have any real reason why they were there anymore, those have died out. But stores where there is a reason, they’re doing real well. Obvious like the Apple Store. You have to make an appointment now to go to the Apple Store, but technically that’s retail.

The last area I’ll mention is development. It was a four letter word. I know it’s longer letters than four but it’s pushed in. It was a four letter word over the last year and a half. But it’s starting to come back as people are starting to realize the locations are not going to die out, people are going to disappear into the countryside and never be seen again.

So, development is starting to rebound. And there’s a lot of interest in it, because it’s one of the few areas where if you’re good at it, you can outperform, because it’s not so easy to price. Anyway, that’s a big picture area of what clients are doing, but there’s a zillion tendrils that come off of that.

Kevin Choquette:

Yeah. And we’ll pick into a couple of these, just to see where they go. Back in the Great Recession, Colony America and Waypoint Homes, and a few others out there that I can’t recall, the branded names. But Blackstone was one of the big buyers, and same with Colony. And back then it was aero to rental, now it’s build to rent, but the idea was buying and aggregating single family homes for rental. Back then the play was very much distressed assets, take it off their balance sheet, put it on ours. Don’t even really worry about cashflow. Meaning, it’s going to appreciate back to something close to historical norms. And when you’re getting it at a 60% discount, it’s not terribly important as to whether or not it’s providing a four or five, or six cap yield on cost.

But I didn’t think from that time period that build to rent or SFR rentals was an asset class that had any staying power. I thought it was a moment in time. And that as asset prices appreciated and the economies of scale of multifamily came back to normal, that build to rent and SFR rental would die away. I’ve obviously, been proven wrong. That’s all by way of background. And wonder if you guys had exposure to that space back in ’09 to 2010, when that business was scaling, and what your thoughts on it were back then, as opposed to now?

Bruce Stachenfeld:

I don’t think I’d even heard of this as an asset class until probably, I don’t know, four or five years ago. So, I think the answer is I had no thoughts whatsoever on it, because I never heard of it. Sorry, that’s not the answer you’re looking for.

Kevin Choquette:

No, no, no, no, that’s fine. And then, you’ve done a fair bit of writing on being counter cyclical, and you just touched on retail, which I think is probably as good an asset to pick on and a time period to pick on as any. There’s a lot of, just run from retail sentiment in the marketplace. And it seems to be that there are fewer discerning buyers who can appreciate the distinctions you are making. It’s a little bit of baby with the bath water, right? Just no retail. We’re not interested.

We’re not doing retail. I’m in the capital markets all the time, and there’s sort of a synopsis you just gave of like, okay, industrial, B to R, multifamily, and where appropriate, maybe hotel and some development, but no retail, is the kind of thing that I’ll hear regularly, or no office. And I know you’ve written about office as well. What are your thoughts about, right now and the opportunity to be counter cyclical? Because I think you really do have to have some conviction and some insights to lean into retail. I mean, sure, if we go buy an Apple Store and sell it at a three cap, well, yeah, we’ll do that, but there’s a lot of other stuff on the periphery that I don’t think is being appreciated at the moment.

Bruce Stachenfeld:

So, I have written a whole bunch of articles on retail. And I’ve had the same theme now, I think it’s even pre COVID, that the word retail, it got two parts to it, and it almost should have two names like old retail and new retail, or something. I was mentioning before, stores that have no particular purpose anymore. I mean, if retail means that you buy it or you lease a location, you have a shelf, somebody puts something, you buy something to stick on the shelf for a dollar, and then you try to get someone to walk in and pay you $3 for it. If that’s all you’re doing, I think that’s probably a dead business. Sooner or later, it’s a dead business, if that’s all there is to it. I’ll call that old retail.

Then there’s new retail. And new retail is just something that’s different. It could be like a store. I don’t know if you’ve ever been to Untuckit. I mean, it’s a little bit of silliness.

Kevin Choquette:


Bruce Stachenfeld:

It’s just shirts that they claim are better, Untuckit. It looked like shirts to me. The store is packed. People just like the idea, and it’s doing really, really well. Go figure that.

But new retail, which is something that draws customers in, has some reason that’s interesting about it or a product, or that’s maybe exclusive like the Apple Store or whatnot. These stores can do extremely well.

So, the reason I think if I were going into the real estate business, I would go into retail, is this, just like you were saying a minute ago, a lot of parties say, “Well, we do office. We do this. We do that, but we don’t do retail.” A lot of parties don’t do retail. And if you think what that means, it means that they’re turning up their nose at new retail because they’re afraid of old retail.

And I would say that a discerning, a party that wants to do the old adage, buy low, sell high, should, could be analyzing retail locations, whether they’re, basically any kind of retail location and looking at the type of tenants that are there, and possibly concluding like new retail is fantastic. It’s one of the best things you could own. And old retail is something that either has to be repurposed or just closed up.

But since so many players are saying, “I don’t want anything to do with any retail.” I think it gives a, a good risk reward to the parties that are open to it. And I’ve seen clients in my world, I will not mention names, that I think are the real smart thinkers, the ones that are not afraid to challenge assumptions. They’re going into retail. They’re buying things. They’re looking for things. They’re all over it. So, I happen to think retail is possibly one of the best places for somebody, it’s really, a thinker and an analyzer of data points to be looking at.

Kevin Choquette:

And you’ve also written a bit about New York City. And I know early in COVID, you were calling for the power V. And I think it’s okay to lump this in somewhat loosely with office. And I think your sentiment was office is not dead. But how do you see both of those asset classes? Because office is also one where, pencils down, a lot of people are just, we don’t know what at urban office is going to do. We don’t know that we need to be involved in that asset class until there’s more clarity. We might see that work from home is going to have a meaningful, lasting impact on structural occupancy rates, et cetera, et cetera. What’s your guys’ view into that space?

Bruce Stachenfeld:

So, I’ve stuck my neck out, way, way out. Okay. Way, way, way out. I’ve written numerous articles saying that office is not dead, it’s just impaired. My book, which is coming out, as you said next month, my Real Estate Philosopher book, I make a bunch of predictions for the future in the book. I also go back on the articles I’ve written before, and give some analysis of how they could be used today.

But one thing I’ve been saying all along is the office is not even remotely dead. Sure, people want to work from home. Oh my God, is that like a new idea? I mean, people have been saying that for like ever since there was an office. I’m sure people wanted to work from home. And employers said, “No, you can’t work from home. You have a job, and it’s over here.” So, I mean, this is not some strange thing.

Now, right now, of course, because of COVID, everything is topsy-turvy, sooner or later COVID will end. I mean, it may end at worse. We can’t do anything about it and we got to just live with it. And people die and that’s awful. But what are we going to do? Stay home forever. We can’t.

So, COVID will end at some point, hopefully in a good way with people being vaccinated and becoming more like the flu, which we tolerate and have tolerated forever. If you believe that, then it’s really a question of push, pull. Employers, all want their employees back in the office. I can tell you, our law firm, I mean, the whole point of attract, train, retain talent, try retaining talent is sitting at home, 200 miles away from the office. There’s no culture. There’s no point. There’s nothing. There’s no reason for any business to exist, if it’s just a bunch of people flung all over the place.

So, I’ve spent a lot of time thinking about it. It doesn’t mean I’m smarter than everybody else, but I just don’t see any other outcome than that people will go back to the offices.

The change that I do think is happened, is something that started before COVID and will keep on going, is that, yeah, work from home is something that will gradually grow over time. It used to be maybe, you couldn’t work from home unless your baby was sick or something. And then, a lot of people maybe work from home on a Friday. And so, maybe it’ll end up that there’s some businesses, no work from home, some businesses, one day a week, others two days a week. But I don’t really see very many businesses that are going to thrive, that don’t have a place where people come together and do things, and that’s the office.

So, the worst place for it right now is probably New York City, maybe San Francisco. I don’t know it as well. But places where there’s real problems like public transportation, maybe a little more emotional panic in some locations than others. And those places are taking longer, I personally predicted to get back in the game. But sooner or later, and I think it’s pretty soon, everyone is going to be back. And once everyone is back, if you’re not back, you’re out of the game. You’re sitting by yourself somewhere and everybody else is thinking, “How can we get along without you? You’re not here. We don’t really care about you anymore. You’re gone.” So, that’s my prediction for what’s going to happen. As to say, I stuck my neck out, and I’m pretty sure I’m right.

Kevin Choquette:

Yeah. And Willy Walker and Peter Linneman on Willy’s, he does like a webs… What does he call them? Wednesday Webinars, I think. And Peter, the well renowned economist, a bit tongue in cheek, but they say, “Hey, office, isn’t dead, because we have spouses and we have children.” And I think there’s a really valid point to be made, even with the distractions and things that come with the office and the troubles of getting to and from the office, and all of that, getting out of the house, getting away from your spouse, getting away from your children, getting into a place where theoretically you can find the head space to focus and be really productive, I think all underscores what you’re saying.

But I do want to go the other direction, because I have friends, 80 to a hundred person, accounting consultancy. They made the decision a hundred percent last year, work from anywhere. They sold the office. Everybody is virtual. They are literally scattered around the country. Now, people moved to Hawaii, to Florida, to Wyoming. Their business is thriving. And it’s not entirely different than yours in terms of being a professional services firm. It’s probably less esoteric, and that accounting has more, it’s either right, or it’s wrong, and less probably interpretation and creativity than law. But what do you think of those firms? Are they a grand experiment destined to fail or do you think there’s maybe space for both?

Bruce Stachenfeld:

I’ll bet you $10, that that specific firm, don’t give its name out, will be nonexistent in five years.

Kevin Choquette:

That’s great.

Bruce Stachenfeld:

That’s the best.

Kevin Choquette:

That’s Interesting.

Bruce Stachenfeld:

I may be wrong, of course. There’s always like a zillion exceptions that proves the rules. And there’s a zillion different ways for a business to thrive. But an accounting firm is similar to a law firm. It’s got customers, it’s got clients. It’s got to get business. It’s got to have something that it’s providing. Maybe they’re lucky they got one mega client that will keep them going, but sooner or later, that client will disappear, because clients do come and go.

How are these accountants going to trust one another? How are they going to go out drinking one night and find that one of them sick and needs help from the other one? And the other one gives the help, and they’re brothers for life or sisters for life. How are all these things going to happen? The answer is, they’re not. One guy is in Wyoming, one guy is in Missouri, one guy is in New York. They are a marriage of pure convenience. If anyone of them is doing really well in his or her location in Wyoming, all of his friends at other accounting firms in Wyoming are saying, “Hey, man, why don’t you come over here? Who the hell are these guys?” And everyone else is your drinking buddy in Wyoming. “Why are you staying with a bunch of people you hardly know? And then how are you getting more people? And who would want to join an organization like this?”

I mean, the only way this thing stays together is if the economics of each person are better than they could be everywhere else. And mathematically, that is not going to happen most likely. So, I’d say the odds of that business surviving are low. So, that’s what I think. Now, I’m wrong a lot. I have to admit that. But I don’t see how that business survives.

Kevin Choquette:

That’s interesting. We’ll have to fast forward and we’ll talk in five years, and see. I won’t mention the firm. It’s a good friend of mine. I’m very curious about his and others, who have made the same executional choices.

Bruce Stachenfeld:

There was a law firm, I’m spacing the name, and it did exactly this business model, and it was grown like crazy. It was like the greatest thing in the world because the lawyers worked at home. There were no office, no overhead, and they could provide cheaper services to the clients. The clients really liked it. And it was just killing it. And then all of a sudden it just blew up and disappeared in like two days. I forget the name. You can look it up. It was just, I guess, pre-COVID. It was not a COVID destruction. So, that doesn’t prove anything, of course.

But I think a business like an Apple or a Google where they own the thing that is being sold, the widget, that has a much better chance of survival with people spread all over than an accounting firm or a law firm, or professional services organization where you don’t really own anything, except the relationships that you have with your partners and with your clients. Anyway, that’s my two cents on it.

Kevin Choquette:

It’s super interesting. Not that you own the people, right? Meaning your talent. But if you do own anything, that would be it. And so, anything that puts that at risk, maybe not the best idea.

Bruce Stachenfeld:


Kevin Choquette:

I’m going to go back to some of the areas of practice that you mentioned, because the listeners here, many are developers or value add, or opportunistic investors. A lot of the work that we do is around joint venture equity. It sounds like that’s right over the center of the plate for you in terms of core competence. I’m not exactly sure how to lead into it. I have a lot of experience with raising JV equity. My view of it is that securing debt financing is like getting somebody to go on a single date, maybe even a blind date. It’s not that hard. Getting joint venture equity done is like making a marriage. And you’ve got personalities, and very finicky buyers, and a very slippery process, that’s fraught with pitfalls where things can fall apart.

I just want to give give you the mic, if you will, and let you share whatever thoughts you have around trials and tribulations, and pitfalls of JV equity. It’s a very esoteric and very difficult space. And it sounds like you’ve made a strong niche there. So, I’m curious what you might want to share.

Bruce Stachenfeld:

Sure. Yeah, it is a fat pitch over the plate. So, our firm, to the extent we’re famous, it’s in the joint venture space. Nobody is counted, but I would suspect our firm has handled several thousand joint ventures. I mean, if you figure, I don’t know, several hundred a year for 25 years, it gets into the thousands. It is a very, very interesting area because it’s tricky. I liken it to playing chess in the future.

And what happens is, one party, either the business person or the lawyer, has done like two or three ventures, the other party has done like 200. The person with the expertise will take the other one to the cleaners. The other one won’t even know it until, God forbids, something goes wrong. And then everybody rushes to the documents. And that’s when one guy says, pardon my French again, he says, “Oh my God, I’m totally fucked.” And the other guy says, “Oh, thank God, everything is in order.” And without sounding, however we sound, our clients are always the latter, because this is our bread and butter.

The thing that’s interesting about the joint ventures, there’s the legal and the business. They blend together. And it really is a bit like a game of assuming things will go wrong in a certain, all different ways. Making sure that if they do, you’re not victimized, you’re not in a position where you’re being held up by your counterparty, et cetera.

So, it’s a space, my whole firm has built over time. I started it. Terri Adler, as I mentioned, that runs it. And I have, I think it’s like seven partners that really, really, this is the heart of their practice. And it’s an enormous competitive advantage for our firm because, I’m not saying there’s no other firms that can do this, but we really are the best of the best in that space.

Now, the other thing that I’ll say about the space, and this is something else that we’ve done, that it’s very powerful. And I actually, I think the things your listeners might find the most useful is this. Over time we developed a special value add to our business model, which is six words, and it’s this, help our clients grow their business. And this was something that we started to learn over time that, whether we liked it or not, clients often commoditize lawyers, and they say, “Lawyers or lawyers are all the same.” They don’t really think that. But there’s a lot of that at heart.

And what we realized most of our clients, not all, but most of them really want, it’s to figure out how to grow their business successfully. And when we started thinking that way, it was like an epiphany. And it became really the heart of what we do with our clients. This is the area I personally spearhead. There’s two parts to it. Okay? The simpler part is just basically creating connections between our clients and other clients. The simplest one is say, one client has a pile of money and the other client has a deal of some sort, usually a joint venture, and is looking for a JV equity to put that deal together.

So, we just started realizing that and we started introducing people. The more we did, the more people called, the more, it really took off like a flywheel, if you will. And I don’t know, nobody has counted it up exactly, but it’s somewhere between three and $4 billion of deals have come out of just these introductions of people that need capital. And these range from sometimes investments in platforms, actually investments into the sponsor, or they’ve had investments as preferred equity kind of debt, or they’ve just been plain old, common equity in a simple, straightforward joint venture space.

So, half of it has been around the idea of just introducing, say JV equity to a party that needs it. And then the other half of the building business is like businesses at one level, and trying to figure out how to help it get to the next level. And often there’s a capital constraint that’s needed, either a different kind of financing or a different kind of way to get capital, which could be a JV. It could be a fund. It could be even crowdfunding, which is percolating at a really high pace nowadays.

And so, the thing that we came up with on that side is what I call the smorgasbord. And it was basically a smorgasbord, so to speak of different ideas that are not mainstream, to get capital to real estate players, whether they are little baby players that just have a gleam in their eyes, sitting in the garage with no money, but they have a dream of something amazing, or they’re major, major players trying to get bigger.

So, all of this swirls around the joint venture space, because the spice more and more for our clients and for us, is the recognition that you bring one thing to the table. Like let’s say you’re a visionary, brilliant developer. You can see things that others can’t see, but maybe you don’t have a big pile of cash just sitting there and you have to figure out, well, what is the best way for you to get money? Are you going to raise your own fund? Are you going to just find like a rich party that gives you money? Are you going to go to an opportunity fund or a core fund, or core plus fund, or value add fund? Are you looking to a family office, high net worth? Are you going to do a crowdfund? Are you going to get higher leverage? But there’s all different ways that you’re going to try to figure out how to succeed.

And most of the time, let’s say maybe, Carlos Slim with $100 billion, they just can buy something. You’re going to need teammates. And the teammates, one way or another, are joint ventures. So, it has been the hardware practice. It sounds, Kevin, you’ve done a lot of this too. And you’re right, it is a marriage because at the end of the day, these two parties, they negotiate their document very carefully, but they are trusting that they’re going to be good to each other when something unforeseen happens, which does. And not everything was works out the way people want.

Kevin Choquette:

Yeah, that’s perfect. I mean, you just put up like 15 things that we can drill down into, but point of clarification, is it typically the case that your law firm is representing the funds and the folks that may have done 200 JVs, or are you also representing, or maybe it’s a proportionality question, that upstart developer, who’s got the site tied up, he’s got a great vision for the product, he’s found the right general contracting team, and he just doesn’t have the capital to execute?

Bruce Stachenfeld:

Well, we started out mostly on the side of the money, and then over time it ended up that now it’s on all different sides. I’d say it’s still maybe 65%, 75% on the side of the money, and 20%, 25% on this side of the sponsor. We realized that since we’d done so much on the money side, that we were really by far the best choice for developers.

Kevin Choquette:


Bruce Stachenfeld:

We know what every single party has ever given anywhere, and what’s market, what’s not market, but you can get anyway, every little trick and angle, how to get basically money from the parties that give you money. And that’s a very, very valuable commodity. So, more and more, it’s getting more and more, it’s not 50/50 yet, but my guess is over time we’ll end up, half the time we’re representing the sponsor and half the time the money. And we completely go both ways. And it’s a game, it’s like chess in the future.

Kevin Choquette:

Yeah. I think that’s a perfect analogy. Do you guys play in the space of credit enhancement at all? Because a lot of times what you’ll see, well, let’s just zoom out. This industry, one of my complaints, observations, however we want to frame this, is that there’s an undo, I think an over-focus on what’s the net worth and liquidity of the developer, sponsor, this in particular for development or any kind of value add or opportunistic deal, and what’s their ability to bring a creative debt financing to the benefit of the LP equity. As opposed to, we work and a guy who’s a great sales person, a great promoter, a great visionary. I’m not sure if there was ever a single dollar put in. And that’s true in hundreds, if not thousands of other tech enterprises, where it’s the team, it’s the vision, and there’s no capital, and there’s no liquidity and net worth focus. So I wonder how you guys view that. And then are you ever in the space of doing credit enhancement to help some of those under-capitalized borrowers get through that part of the business?

Bruce Stachenfeld:

You obviously had done a lot in a JV space because you put your finger on one of the trickiest issues. And it’s bedeviling. So, you’re a sponsor. You’re trying to do deals. You’ve got a great development. You’ve got a great project. You’ve got all the pieces you need. It’s a hundred million dollar deal. You want to borrow 60 million. You’re going to get 40 million of equity. You scraped together the four million somehow, and somebody else is going to give you 36 million, 90/10 say joint venture. It’s all beautiful. Okay.

But now the lender says, “Well, you’re building this thing, I need a completion guarantee. I need a balance guarantee.” All different kinds of guarantees. And the poor developer is like, “Well, yeah, I’ll give you that.” And the lender is, “Oh, wait a minute. You need to have a $50 million net worth, if this is going to work.” The guy is like, “I just started out, I don’t have $50 million. What am I going to do?” So, yes, that is a problem that percolates all over the place. Now, if you think about it, it’s another game, if you will.

Recourse is a hot potato. As lawyers, I always advise my clients by far, the number one issue, if you’re the lender, insist on it. If you’re the borrower, do everything you can to get out of it. Okay. So, it is the most critical issue.

Now, if the developer just doesn’t have the credit support and the lender is just not moving, well, think about it, there’s only really two outcomes. One of them is the deal is dead. And the other one is the LP has to step in there.

Okay. So, the LP is going to say, “Okay, I will put up the guarantee.” So, what does that mean? Well, the LP is saying, “Well, wait a minute, I’m going to be taking it out of your hide, Mr. Sponsor.” How can they take it out of their hide? Well, sometimes the LP will say, they want better economic terms, because they’re saying to the sponsor, “Look, without or credit, this deal doesn’t go anywhere. You have this promote. Your promote should be worse now because we’re the ones that are basically putting our credit on the line for your promote.” Okay?

And in addition, the LP might say something like, “Well, wait a minute. If I’m putting this guarantee there, I need to have control of the joint venture. The last thing I can have is I’m the schmuck.” Sorry, if that’s a swear word too. “I’m the schmuck on the hook to the lender and you’re running the show. Sorry, Charlie, that is not going to happen.”

So, those are the kinds of things that go on. And of course, the sponsor is not just going to roll over on those issues. He’s going to say, “Well, wait a minute. You think you’re so cool, Mr. LP, but without me, this deal wouldn’t have happened. I figured the whole thing out. I put it all together, created all this upside. And you know what? There’s a lot of other LPs out there that are not going to beat me up so much.”

Anyway, the games begin, and there’s three parties playing, the sponsor, the investor and the lender. And as you rightly put your finger on this, is a real issue for the developer that does not have a huge net worth to stand behind these guarantees.

Kevin Choquette:

Yeah. You’ve definitely spent a lot of time here. So, somewhat tangential, because you’ve written about this as well. What is happening, I think at the fund level, and in particular, the mega funds, which seems to be kind of, there are fewer and fewer players that are larger and larger? Is that career risk? And this is in my words, but something I know you have written about, is driving decisions into a sort of predictable and uniform direction. And everybody is buying IBM, which is to say, industrial, build to rent, multifamily. Everybody is using their conventional structures because the downside for this professional money manager who hasn’t invested any capital here, but has an incentive compensation structure is they lose their job. The upside is, well, you did what you were supposed to do.

And to me, when you see this homogenization and rarefication of, if there are fewer investors, doing larger deals that look more and more similar over time, it becomes very difficult to get the kinds of things we’re talking about done, whether it’s a smaller deal with an emerging manager, who’s lacking on the balance sheet net worth and liquidity, or it’s a little bit edgy in terms of the location. Or maybe it’s even a tertiary market, where you actually have enough data to prove that, “Hey, it makes sense to build something in Spokane.” I’m just making this up. “Because there hasn’t been a multi-family apartment built for 30 years. Let’s do it.” But all of those things, as they deviate from the middle of the fairway, become a lot harder to get done.

I just wonder, what do you see in that space? What do you think of it? We’re talking about being somewhat countercyclical. Like to me, this is really obvious. There’s a whole bunch of stuff. I think the stat is, 50% of the buildings in the country are 50,000 feet and less. Well, that means 85% of the funds out there aren’t ever going to touch them because they’re too small and they can’t write a big enough check.

Bruce Stachenfeld:

Okay. Not totally sure what you’re-

Kevin Choquette:

Yeah. I’m not sure there’s a question there.

Bruce Stachenfeld:

Look, maybe this is the interesting part of what you’re talking about. And I don’t take credit for this. A guy named Howard Marks of, I think it’s Oaktree, really, really brilliant guy, has written some very interesting books. But I think where you’re heading on this is that, what he says is, the first thing that any player in the real estate business or maybe any business business should decide is, do you wish to outperform? And if you think about it, everyone might, “Of course, I wish to outperform.” Well, wait a minute. When you think about what does outperform mean, it means outperform the average. Okay?

And how do you outperform the average? Well, the thing you have to do to outperform the average, so you have to be different from the average, right? Because the whole point of the average, it’s like buying an index fund in the stock market, you’re saying, “Look, I don’t want to underperform. And they’ll take away the risk of output, or the upside of outperforming, because I just want to be average and not take any real risk of deviating from that.”

But once you said, “I wish to outperform.” You now take the risks that you might underperform because you’re different. And there’s only two mathematical outcomes, out-performance or under-performance. So, then Howard leads you through the thinking, well, once you decided to do that, what are the implications? Well, as you were just saying a minute ago, if you outperform it, probably get a bigger bonus, a hug from your husband and your wife, and feel pretty good about it. But what happens if you underperform, your business folds, you’re out of a job. I mean, it could be horrible.

And if you start thinking about the risk and the reward, the bonus and the hug is not as much good as losing your job, is on the bad side. So, you might say, not only yourself personally, but the company that you work for might say, “We don’t wish to take the risk of outperforming. We want to be a hundred percent sure we’re average, because everything will be fine.” And if you have a wealth manager, that’s what he or she is saying to you right now. Okay. They don’t want you to get pissed because they underperformed, because then you’ll take away their money. Instead, they want to convince you that average performance is where it should be.

So, now in real estate, I think it’s heading that way. And the reason I think it’s heading that way is, I think it’s now three years ago, maybe four, real estate became a separate asset class, whatever that even means.

Kevin Choquette:

Yep, 2015. It was 2015, I remember it.

Bruce Stachenfeld:

Okay. It used to be stocks and bonds, and alternatives, which is like gold and stuff. And real estate was part of alternatives. And that meant your wealth manager says to you, “Well, Charlie, you should have 40% in bonds and 30% in stocks, and 10% in alternatives.” And he would look at you knowingly and you’d say, “Sounds good to me.” And then he would tell you, “Well, the alternatives are a basket.” Usually that’s the word, a basket of blah-blah-blah, of which 6% of the 10% is in real estate. And you’re like, “I don’t know what the hell that is. But all right, fine, buy some real estate.” Which was probably a public read or something like that.

Now, when it became a separate asset class, your wealth manager says to you, now it’s like, “Well, Charlie, 40% stocks, 40% bonds, 10% in alternatives in a basket, and 10% in real estate.” Then you’re like, “Oh, real estate. What does that actually mean?” Well, then you start thinking, well, what does somebody that really doesn’t know about real estate, where are they going to put their money? Well, they’re probably going to put their money in something that throws off a steady cashflow, so that it’s just fine, right? They’re not going to be buying a development project with risks and rewards. They’re going to buy Blackstone’s BREIT, that’s going to throw off 6% or 7%, super safe, and there’s nothing wrong with it. Or they’re going to buy Vornado, a publicly traded… They’re going to buy something like that for diversification purposes.

So, where I see the real estate industry heading is not so different from the stock market over the next, I don’t know, two, three, five, ten, twenty years, you’re going to see a lot of what you might call index funds-ish kinds of things in the real estate space. And you’re already seeing more and more of that. And then there’ll be the parties like the developers, the visionaries, the thinkers, the creators, what they will be doing is buying those little buildings that you just mentioned, maybe buying five or 10, or 20 of them, packaging them up, and then selling them once they’re all done into these diversification purchasers.

So, the advice to the people say, listening here is, one you don’t want to be doing is fighting with the diversification players, because they’re going to have a different risk reward profile for their money. They’re going to want average performance. They’ll take lower returns. You will not be able to get cheaper capital. So, you don’t want to be fighting with them for deals, because you’re going to lose. They’ll pay more than you will.

But instead, what you should be doing is figuring out how to either manage that money, raise money from these diversification purchases, put it together, get good fees, or sell to those diversification purchasers, because they will be the ones paying the top dollar on the development that you created and crafted. And it’s a little long-winded, but I think that’s targeted towards where I think you were heading with your question.

Kevin Choquette:

No, it’s exactly where I was going. And you’ve also written about finding deals versus creating deals, right? And I think the point, well, it comes into focus here as well. If you’re out on CoStar or LoopNet, or your local MLS system, and you go, “Oh, look, a hotel, let’s see what we can get it for.” Well, it’s going to price to perfection. You’re not going to find anything even remotely near above average returns. And you might argue that because it’s so widely distributed, you’re going to find below average returns.

This ties into some of what you’ve written, I think in finding ways to create deals, maybe for example, I’ve never thought of this until right now, it’s laundry mats. Maybe you’re going to go buy an aggregate 600 laundry mats because you know Blackstone would be happy to have that diversification in their REIT at a four and a half cap, because that’s what they’re selling into the public markets for that guy who’s doing 60% bonds, 30% or 20% stocks, and 10% real estate, and 10% other. Right?

Bruce Stachenfeld:


Kevin Choquette:

I’m going to back up a little bit, and I really appreciate the mission of Duval and Stachenfeld to help our clients grow their business. I know you have some affinity. Well, first of all, you’ve written a book about power niches and creating monopoly power in a tight vertical.

It appears you might also be a Jim Collins fan, who has gone into great lengths to explain the hedgehog. I’m wondering if your mission is tied into a vision and core values, and how Jim Collins, also might inform the thinking and leadership from the early days of, “We’re completely F-ed.” To, “Now we’ve got a mission.” Does that also go with vision and core values? Do you guys know your hedgehog? How does all that tie in? Cause my sense from picking at the edges is that you’re pretty steeped in all of that.

Bruce Stachenfeld:

It’s funny you bring back memories. So, as I said, at the beginning we were roaming the plains, frantically trying to survive through the misery that I don’t know why, I actually did it before the firm started. I’d written down a statement of values for a law firm, and it was very emotional and lovey-dovey, touchy feely, if you will. I actually wrote it before the firm even started.

Lawyers are entitled to respect, do the right thing, even when it hurts, things like that. And I’d written these things down. And when we started the firm, maybe after my first firm meeting, I had said, we really should look at these values and talk about them, and adopt them for our own or change them. And everybody should have input. And it was like, “Oh, it sounds a great idea.” And then we all got busy. And so, the values get thrown in a drawer.

Fast forward, about three or four more years, I think it was like 2000. I don’t even know what it was, like 2002 or three or four. I stumbled upon a book called Built to Last by Jim Collins. And it talked about, what he calls visionary companies that outperform for long periods of time. And there’s all sorts of stuff in there. But one of the things he says is that visionary companies have values. They have a statement of purpose. It’s different from, “We’ll just try to make money and see what happens.” They have some reason to exist. It’s cool.

So, I’m like, “Oh my God, we have values. We must be a visionary company. Oh my God. Oh my God.” So, it’s pretty much exactly what happened. I inflicted the book on the whole firm. This is when people would still do what I said. They won’t listen to me anymore. But in the old days, if I said something, they would do it. So, I forced everyone in the firm, who was there and everyone who joined the firm to read Built to Last.

And then we spent a lot of time, I can’t remember the exact year, probably 2005-ish or something, we spent a zillion hours on our statement of values and purpose, and everything else. And it’s still on the website. And we really created our constitution for what the firm is going to be about. And this is the heart and soul of the firm. It’s all touchy feely, singing Kumbaya and drinking Kool-Aid, pick your metaphor. But it was our reason to exist through the financial crisis, through COVID, through everything else.

And then there was something special that people want to be at the firm, why? I mean, and everyone may have a different reason, but there’s something that feels good about it. And that good feeling is from the values. Somehow it resonates and it talks to people. That’s kind of part of it.

And then the other thing was the Hedgehog Principle, which Jim Collins talks about in Good to Great. And the Hedgehog Principle that he talks about, is great companies, he say, figure out what is their Hedgehog Principle. He defines three characteristics for a Hedgehog Principle. It has to be something that drives your economic engine, something you’re passionate about, and so that you can be the best in the world. And I’m going to add a fourth, even though Jim Collins, probably has his reason for not. But fourth, I would say is you don’t decree it. You find it, because it’s already there. You already have something, and you look inside and you say, “Wow, that’s what it is.” And it’s been there all along. You discover it.

And our Hedgehog Principle we realized was, maybe to our surprise that we seem to care about people. Somebody’s cat is sick, the whole firm is in morning. We look out for our clients, help them build their business. We’re the ones that the client, literally their business folds, they come in the office with us, till we can help them either start a new business or find a new job. We care. And so, is that a Hedgehog Principle? And we thought about it. Yeah, it is what drives the economic engine because it’s what keeps the lawyers and the clients here. Are we passionate about it? You bet, we are. We have hedgehog committees. All clients get hedgehogs. It’s like all we talk about. Are we the best in the world at it? I don’t know if we can say that, but it is where we are.

And the Hedgehog Principle, which is evidenced by a hedgehog. I can’t show you because this is a oral podcast, rather than a video. Every client gets a little cute little hedgehog. You can look on the website, it’s right there. And we say to them, “Look, this is your hedgehog. And this is, it’s really a commitment. And we’re going to look out for you, obviously in good times, but even more in bad times. When things go wrong for you, we’re going to be there a hundred thousand percent of the way.” And the clients, they laugh. They make fun of the stuffed animal and everything. But they also know that it’s very sincere and it’s very special, and very powerful.

So yes, I’m a Jim Collins fan. There’s no question. I have all of his books autographed, because one of my friends is friends with him. And if you ever come to the office, you can see the books, see the hedgehogs and have some fun.

Kevin Choquette:

How else do you guys practice those core values and getting them into the design guys, if you will. It’s one thing to put them on a website and say, “Oh, these are our core values.” But it’s another, well, I’m reflecting on Tony Hsieh, Zappos, and I believe they have like 22, which seems exhausting. But it’s on the name badges and key card access for all of his employees. And I think they had some recurring events and quizzes, and things, where people just, you had to know the core values. How do you guys get them from this… Well, you’re self-titled the real estate philosopher, right? A lot of philosophy has never put into practice because it’s fairly esoteric. How do you bring it to ground? How do you get it to be living in your team?

Bruce Stachenfeld:

That’s a really good question. It’s very, very, very hard. And if there’s anything that I think we can be better at it is that. The values become more important when things are going badly, people realize that, look, this is what keeps the of float, if you will. But there’s really no simple… Well, I guess there is a simple thing.

For the values to flourish, the most senior people at the company have to be absolutely passionate about it. They have to live by them, not 99% of the time, but a hundred percent of the time. I mean, or do the right thing, even when it hurts, do the wrong thing, just once, it’s game over. Other people have to participate in that and have to be, not just listening, but participating in as well. You have to talk about it all the time.

The Zappos, I think, or Zappos, I think I read about key cards, just things that make it clear, like it’s everywhere here, “This is what matters.” Management has to be behind it and rewarded, or the opposite. People that don’t fit with the values have to leave the company. They just can’t stay and mess it up for others. I mean, it’s got to really be that whole ethos of the place. And it has to be recognized that it’s the most important thing. And the way I put it, without the values, we’re 50 lawyers, sharing office space, until somebody gets a better offer, that’s it. There’s nothing else that really matters. Why are we together? Like you asked before, what do I own as a lawyer? Oh, I mean, all we really own is the desire of other people to stick around in the firm, right? I mean, that’s it. Or they go down the elevator and don’t come back.

So, the values are absolutely critical, but it’s a huge commitment of the management to live by them, talk about them, espouse them, pound the way at them, and even drive people nuts over them. And then everybody starts to realize like, “Wow, we’re serious about this.” And they don’t even realize it, but they’re so proud of it themselves, because they recognize that when the partners are meeting, it’s not meeting how to screw people, it’s how to do the right thing, even when it hurts, a hundred percent of the time. And they’re proud to work there. And then they’re thrilled. And then it becomes this big growing love bomb. I don’t know. I know I’m being a little-

Kevin Choquette:

No, no, it’s actually all on point. And I have a question. I don’t want it to be too leading. I think you said you have six or seven people, who are really excellent and committed to joint venture equity. And you’re talking about having to a certain extent, a heart-centric legal practice. I’m curious how the personalities of the people who are in the JV arena aligned or misaligned with that, are they tacticians or are they relational? How do they show up in that space? I don’t want to tease it out too much because I’m just curious. What kind of people Excel in putting together joint venture equity?

Bruce Stachenfeld:

Both. It’s really difficult. It has to be absolutely both. I’m not sure it’s a question of brilliance, but you have to be able to play chess in the future and figure out everything that could possibly go wrong, and make sure you’ve covered it and protected your client. At the same time, you have to be a relationship guy or girl, because if you’re basically a dick, okay? And you’re noxious, rude, condescending, or other unpleasant behaviors to the other side, that gets translated into the belief that, well, your client is probably the same way. I mean, they hired a dick, the client must be a dick. I’m trusting these guys to do business with. And I think I’m doing business with a dick, I don’t like this. This is not a good feeling for me.

So, if you’re not a relationship person, you blow it. Instead, it’s like just a way of saying no. And the other side asks for something that you can’t give, or your client can’t give, I mean, the obnoxious way is to say, “Nope, next issue.” I mean, which is humiliating to either side. And the relationship way to say it is, “Look, I understand why you want that. And you know when I’m on your side, I really push hard for it myself, because I know how important is to you. We can’t quite give you that, but here’s something that we could give you that I think could be helpful to you.”

So, the second makes the other person respected, feel really good and recognize that we’re trying to be harmonious together. And the first one is more like, “I’m going to stamp you out like an ant and treat you with contempt.” And so, it is both skill sets are critical.

I’m proud to say that my partners who’ve made it through the training and everything else, they all have that it in depth, or our clients wouldn’t want to have anything to do with it. It wouldn’t work.

Kevin Choquette:

Yeah. And that’s exactly what I thought you would say. I was hoping you would just stumble into it, which I think you did. To me, that is the heart of placing joint venture equity. Everybody can get through the chest, the technical part. And in fact, this could be a segue into artificial intelligence, which I know you’ve also written about.

Look, I’ve got in our Salesforce database, every time we put a project against the capital source, it’s a unique member of the database. We’re just about approaching 10,000 connections between capital X, Y, and Z on project Q, and all the other projects we’ve worked on. So, there’s starting to be an abundance of data, probably nowhere near enough for regression algorithms and things like that to begin to fill in the blanks.

But what I see is that your response of, “Hey, I understand what you’re asking for. And in fact, when I’m on your side, I asked for the same thing, but let me help you understand how that’s going to land for my client.” Those kinds of emotional intelligence, those kinds of personal interactions just seem like a hundred percent front and center core value proposition to getting these kinds of things done. Okay. We’re going to take a quick break and be right back with Bruce in just a moment.

Hello, everyone. Welcome back to our conversation with Bruce Stachenfeld, hopping right back into it. Artificial intelligence, what are your views of the things that might be out there that would put you out of a job, that would put me out of a job? I’m the marriage maker. You’re the guy that actually has to make the documents work.

Bruce Stachenfeld:

Artificial intelligence, it’s a really good question. And the irony, my daughter works at Google in their DeepMind division, London, which is one of the top AI places on the planet. And we talk about artificial intelligence all the time. Now, from the lawyer’s perspective, it’s probably good. We’re probably be one of the last areas to be supplanted by artificial intelligence, because it’s all about thinking and creating, and bobbing and weaving. You would hope that AI will have ways to go before they replace these lawyers.

On the real estate side, it’s interesting. There are players that are starting to try to figure out how to do it. It’s starting out with as much… I mean, machine learning or artificial intelligence, it depends on algorithms and multiplying things that look similar to create predictions about things that will happen.

I would guess, companies like Zillow and things like that are probably the best examples of AI-based business, because there’s like millions and millions of houses, you keep plugging them in. And every single house, I’m sure Zillow is wrong on, but it’s probably close enough that people can start relying on it.

So, now you start thinking about the commercials space. And I do have clients that are starting to do this. What they’re doing is they’re trying to buy very small pieces of property. Like you mentioned earlier, buildings that are smaller than say, 50,000 feet, they trade for what? 500,000 to 10 million, depending on where they’re located, or something like that. And they don’t really fit the bill very easily for clients with money, or developers because it’s just too small, and the transaction costs and everything else wipe out the upside.

However, if you’re using AI and you’re saying, “Well, you know what? We’re going to buy 500 little buildings that cost two million each, it’s a billion dollars, and we’re going to do virtually no diligence on any of them, except maybe getting an environmental report, and make sure it’s not on a Superfund site, we’re just going to buy it. Okay. And we know statistically that it’s probably worth a billion or two, as an aggregate, but each location, we really can’t tell. Those are the kinds of things where AI is going to be very, very valuable in terms of assessing probabilities and looking at things. And I think you’ll see a lot of that.

I would suspect AI will have the least impact, where you would think, which is like development. I don’t know how AI helps a developer. Maybe it helps in reducing costs or something. But I mean, the whole idea of figuring out like this is building that could be built here, if we tear down that building, and there’s a politician that hates it, and this guy likes it, yelling and shouting at that guy, and begging and pleading here. And who the hell knows how you get that project going? I don’t think AI does much in that area.

Kevin Choquette:

Yeah. That’s great. So, look, I’ll leave. I know we’ve got a hard stop coming up. So, I’m going to give you a swing. If you’ve got something you’d like to leave with a mission of helping your clients build their businesses. You’re obviously working with the entrepreneurial set on a fairly regular basis, whether they’re they’re bootstrapped or entrepreneurs within a much larger organization. Any message you want to send out there for the entrepreneurs listening in?

Bruce Stachenfeld:

Sure. I have two messages. First, buy my book. It sounds like [inaudible 01:20:36], but it’s not. It’s a really good book, and I’m not just saying that. It’s really got all my brain power in one place. And I think, especially if you’re starting out or you’ve been around a long time, what I’ve tried to do is really think about things and challenge accepted assumptions, and try to come to different conclusions that are useful. And I think you’ve been very smart here and teasing them out of me. But I do think it is a unique book. There’s nothing else remotely like it in the real estate world. It’s great for your son or daughter, that’s thinking of real estate. And it’s great for you if you’re the CEO of your business, just thinking about like what to do and whatnot.

The other message is, if you’re a sponsor out there and you’re looking for capital of any pretty much any kind, call me. I have a very, very large number of clients with capital, all different kinds, little family offices, writing small checks of a few million, sovereign wealth funds, writing checks of several hundred million, and everything in between. And there may be a really nice connection that could be made.

Kevin Choquette:

That’s great. Bruce, thank you so much for taking the time. If you want to reference the website, any other place where folks might pick up the upcoming book, The Real Estate Philosopher’s Guide, anything like that, feel free to offer that up, and then we can give it a wrap.

Bruce Stachenfeld:

Okay. Well, look, thanks so much for having me. I hope some of the things I said were useful to your listeners. And I’m honored very sincerely for being here, and thank you.

Kevin Choquette:

Yeah. Thank you, Bruce. And thanks to all the listeners. And I have to say this, if you like the podcast, get out there and give it a review. That seems to be the catalyst to grow things. Thanks again, Bruce. And I appreciate you coming.

Bruce Stachenfeld:

All right. Have a great afternoon.

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