Victor Menasce has been investing in real estate for the last nine years in both Canada and the United States, he has done all kinds of commercial projects, from value add to ground up development. Victor has also raised several hundred million dollars in investments and he is the the author of Magnetic Capital - How To Raise All The Money You Need For ANY Worthy Venture.

Tell us a little bit about you.
I, like yourself, have a tech background. I started my career as an electrical engineer in the microprocessor industry, designing chips for all kinds of different applications. I started out in telecom, 52% of the phone calls in North America were processed by a chip that I designed from the early 1990s onwards and then moved into progressively more embedded applications. Everything from color printers to pachinko pachislot machines in Japan with Sammy Sega, to wireless handsets. I even have a chip in the Patriot missile from Raytheon to all kinds of different weird and wonderful applications. In about 2008/2009, I was traveling back and forth to Tokyo every two weeks we were building a new cellular network for the number four carrier in Japan at the time, and it was burning me out physically and emotionally. That 13 hour flight to Tokyo and back every couple of weeks was just turning my life upside down, I simply decided it was time to make a change and I took a hard left turn of my career.

I saw real estate as one of the best places to grow a new business to create wealth. It lacked some of the pace of technology, but it also lacked a lot of the risks of technology. And we can talk more about that because I know both you and I have that very similar Silicon Valley background.

And real estate not only has all of these benefits, but you now have time to enjoy your life, as I see you traveling the world sometimes here and there.
A lot of what I'm doing today certainly is location independent. And that makes for a lot of choice and a lot of freedom in life. It doesn't mean that I'm not working hard, I certainly am. I'm probably working harder at this point in my life than at any other time. But that's a choice, as always. So, I can't say that there's anyone in the back room with a whip saying, work harder. That's entirely up to me. And that's part of the journey of being an entrepreneur. If you're driven, if you really want to succeed, if you have made commitments to folks and you want to fulfill them, you do what it takes. And that's just my makeup, my character. So, yes, I'll work hard, but it's not because I have to.

I also absolutely love that, being able to be anywhere, working in real estate as hard or not as you want. And yes, you have quite a few projects going on.
Yes, we do.

What are some market conditions that people should be looking for when they're looking at doing new developments?
It doesn't matter whether it's new development or anything. I'm not actually a real estate person per se. I really think of myself more as a business person. When you talk to real estate people, they tend to get wrapped around the axle talking about things like comparable sales and things like that. And that's useful, but it's not the whole picture. I'm a much bigger believer in the fundamentals of the very simple law of supply and demand. If you've an excess of supply and a shortage of demand, you can predict what's going to happen. Prices are going to fall if you have a shortage of supply and an excess of demand. And those conditions are going to persist. You have a really robust market from the point of view of an investor or developer, because there's going to always be upward pressure on prices, upward pressure on rent, upward pressure on valuations. And that's what I look for. I want to find markets, and when I say markets, I really mean micro markets. Micro markets where those conditions persist, they exist. They're not artificial. They're going to be there for a long time for some good reason.

I'll give you a simple example. We're developing right now a portfolio in an area that's just outside the boundary of a national park. And because the tourist attraction is the national park and there's a moratorium on development inside the national park, there's not going to be really any new construction. The visitorship to the national park keeps growing day after day after day, year after year. And prices keep going up. Some of the short term rentals we have just in the shadow of this national park are pushing upwards of $600, $700, $750 a night. And when we went into it, we were thinking that we were going to get much less than that. But we knew that we were going into the market with the right conditions because there was that excess of demand. The shortage of supply. And there wasn't going to be a ton of new development inside the national park.

How do you come across these locations, typically? Is it someone that just mentions it to you, or you come across an article?
It's almost always through a conversation where someone will say something and we'll say, that's intriguing, and then look into it a little bit deeper and see if there's really something there. Not only to see if those market conditions are there, but who else is in the market? Is it a market where it's a closed market and there's only two or three players? Or is it one that is open to other folks coming into the market and adding some capacity. We talk to a lot of investors every day, and I think most listeners of your show would agree that today, there's more money chasing deals than there are in fact opportunities, at least at a decent price. And because there's so much money chasing deals, prices are getting bid up into the stratosphere. Prices are getting bid up to levels that frankly don't make sense. And my calculator works the same this year as it did two years ago, as it did four years ago. And it's funny how for some investors the math changes, and it shouldn't.

So I'm not lowering my standards just because it's 2020. My standards are pretty much the same as they were in 2013, 2014. I'm not buying as many short sales. I'm not buying as many tax sales as I was then. And the opportunities are harder to find, but I'm not lowering my criteria. So I'm still looking for those conditions. And it's usually by word of mouth. You're not going to typically find these hyper local situations sitting behind your desk looking to Google for answers.

And I really appreciate you touching on that. I completely agree with you. I was just analyzing a self-storage property that the owner, wanted $3 million for it at a 6% cap. And at the end of the day, when it's all said and done, we would be losing $6,0000-$7,000 per month. My calculator is also working the same, and things do not make sense today in quite a few markets.
There's so much money chasing that opportunity that you're really facing a lot of competition. It's almost an auction type environment. And as you know, when you're at an auction, sometimes auction fever takes hold and people pay too much. And again, I don't want to play that game.

When you are assessing a particular property, how do you approach it from it being a fit for the monetary goals of the project?
Our focus is on things that are recession resistant, recession proof. I don't want to be subject to the vagaries of a market cycle. For that reason, I won't go into retail, for example, if I have a vacancy in a retail strip mall, that location could be vacant for a year or two if I'm waiting for that perfect tenant who's looking for exactly that square footage. And then of course, you've got to do tenant improvements, you've got to do a build out. So you really are looking for that needle in a haystack type of perfect fit.

What I found is there's really two ways to source these opportunities. One is to find them. The second is to manufacture them out of thin air, to create them. And I find that when you create them out of a concept in your own mind, you're not competing with anybody because they're not in your head. They can't see what you see. And you can create something from nothing that satisfies a need in a market. And in particular, if you have that mismatch between demand and supply, now you're solving a real business problem. We've done, for example, in our workforce housing RV park, we are currently in the process of building a senior assisted living community. This is a complex of multiple buildings, multiple residential care homes where each home specializes in a different aspect. We've a couple of homes that specialize in memory care and dementia. We have a couple of different positioning of different products at different levels of service, and we've designed the home specifically for that purpose. So we do different things and it really depends on what the market needs.

How do you go about finding what the market really means in terms of supply/demand, or inbalance?
Just talking to people, talking to the folks that are the pillars of the community. The folks that are well connected. Some of them are either politicians or have a political history, and I want to be careful with the term politics because that tends to engender an idea of someone's Republican or someone's Democrat, or the right leaning or left leaning. I'm not talking about that at all. I'm talking about someone who is simply well connected with the public service and they have a good sense of what's happening in the community. And if you look in particular at what happens in municipal government, if you look at the minutes of the city council meetings, virtually any community in America, 90% of the minutes have to do with land use. They have to do with zoning, with what's happening in the community. That's what people at the local level do. If they're in municipal government, that's what they do. And it's by talking to folks at that level that you get a sense for where the need is. Sometimes there's a need for which there's no money. For example, you have people say, well, we need affordable housing. OK. Who's going to pay for it? And you get blank stares. That doesn't work. You need the combination of demand and the ability to pay. You need both.

How do you go about finding these politicians, is it through introductions, do you ask your network? Do you Google them?
It's relationships. It's usually introductions. Oftentimes, if you want to get an audience with the mayor, if you want to get the audience with the head of the planning commission, they're busy people. If they have 50 phone messages, at the end of the day, which of the five messages they're going to return? If they don't know you, you're probably not among those five. Usually an introduction helps facilitate that process. And it's not because they're trying to ignore you. They're just busy people and they service the folks that they know best first.

And do you go further and do a feasibility study?
Yes, we do. We focus first and foremost on getting that anecdotal analysis from talking to people. Then, of course, before we make an actual investment, we have to commission a third party independent market study. Our investors would demand it even if we didn't do it. But we absolutely do do that. And it's just a validation of what's happening in the marketplace so that you're not just drinking your own Kool-Aid. You get an independent perspective is what you're seeing truly there. Now, sometimes market studies go off into the weeds. They focus on things that don't matter. Sometimes you have to refocus the camera and make sure the camera's pointing in the right direction. Make sure that you're focusing on the right things so that you get the right market study. And that's part of the process of directing the market study: to look at the right thing.

Once you determine a market as a good fit for some projects, do you continue investing in that market or do you continue exploring?
That's a great question. I would not go through the effort of building a team and an infrastructure in a market for just one project. I've to see a stream of investment over a period of time. So again, I want to see those market conditions persist for a good long time so that it makes sense to make that investment not just in dollars for the project, but in building the team, because that's actually the key part. Money's a little bit of a commodity. You've to find the right team because that's the differentiator.

Is there anything else that our audience should know?
Go to work with experience people, folks that are better than you think you would need. For example, we're looking at a project in my hometown of Ottawa, Canada. And the contractor that we're talking to is someone that we thought was way too big for us. They have 4,000 employees. It's a very large, major multinational firm that does a lot of government projects. They do all kinds of huge projects. And we thought, does it even make sense to be talking to these guys just for a single building? It turns out they have a division that specializes in some of these smaller projects and they pull resources from some of the other divisions. We haven't selected them, but they may turn out to be a very good fit. What's great about working with folks that are at that level is they have seen it all. They really have the experience. So when you ask a question like, what should I be budgeting for underground structured parking on a per square foot basis, they have the number at their fingertips. They can tell you and they can justify it because they've done it enough times. If you're hiring a small general contractor, what I call the two guys in a pickup truck, they're not going to have a clue. They might give you a number, but it's not based on anything. The voice of experience is worth its weight in gold.

So you're hiring them to build that property for you?
Correct. Exactly.

Victor Menasce
Magnetic Capital - How To Raise All The Money You Need For ANY Worthy Venture