Brett:

I'm excited about our next guest. He's a third-generation resident of Palm Springs and an entrepreneur involved in various fields related to real estate. He began his career as a civil litigation attorney and quickly found his passion for real estate, focusing his skills on sales and development. As a principal of Gilbert Avriette Vacation Rentals, he managed 35+ vacation rentals throughout the Coachella Valley. Gilbert has lots of different names here. He was in the turnkey rental business and let him talk about that since June of 2018. He is now a commercial real estate broker and president of the firm called The Firm Commercial, and he leads a team of dedicated agents with offices in Palm Springs and Palm Desert specializing in commercial real estate sales, leasing, land acquisition, development, and government relations, and our topic today is value-add entitlement deals. Please welcome the show-me album Adam Gilbert. Adam, how are you, Sir?

Adam:

I'm doing very well today. Thank you so much for having me.

Brett:

Lots of tongue twisters there, and I'm excited to talk about building wealth with value-add entitlement deals, an interesting kind of niche topic, which a lot of folks don't have expertise in. But I'm glad we have you on to shed some secrets on that. But before we go there, would you give our listeners and me a little bit more about your background and your current focus?

Adam:

Definitely. As you mentioned, I was born and raised in Palm Springs, which is really where I've created my market and done most of my deals, and Palm Springs is mainly the Coachella Valley, which is about 400,000 full-time visitors or live residents, and then it gets up to about a million people during the season when people come from all over the world to enjoy our beautiful weather during the winter, and so basically, how I got here is I was a civil litigation attorney who was always planning to do that, took my test to be a broker, and started doing some deals on the side, and I was, this is exciting, I get to get out of the office, and I've quickly used my background, and kind of my knowledge of how cities and how entitlement works, to start doing a number of deals that not a lot of people can really figure out, and so I took courses, and I learned and I tried to figure out this process that people have used to make land and buildings even more valuable, and really used it to have a lot of good projects go forward and create some wealth.

Brett:

Amazing run, dive into those secrets here in a minute. By the way, you can learn more about Adam Gilbert at thefirmcommercial.com. Adam, I believe you are being given certain gifts in this life, and some people believe these are strengths and superpowers You know, I think their God-given gifts, and I think they've been given to us to be a blessing and help to others. I'm curious. I want you to go back to high school days, maybe college, maybe early law school days, and I want you to think about maybe one or two gifts that you believe you have ever given? And how do those help, how do you help and bless people today?

Adam:

I'd say the number one is just being able to think outside the box. A lot of you know, everyone has that piece of dirt or that building in their town. You're just sitting there, and no one's doing anything with it, and everyone's asked why you know what, what's wrong with it, and usually, it's zoned incorrectly or there's something wrong, that doesn't allow the proper use to go into that building or piece of land, and so if you can think outside the box and get creative, and convince people of your ideas, you can definitely take something that has little to no value, and then change the underlying zoning to create a lot of value. I'd say thinking outside the box was a really important factor that led to my success.

Brett:

What's the number one secret to thinking outside the box to add value to the land in places that maybe people aren't seeing or hearing about until you're finding it and seeing it or doing that? What's that secret? How do you think outside the box name is a better way to think about when you're looking at land?

Adam:

When I'm looking at land, the zoning and the general plan usually dictate what can go there, and so what I tried to do is I tried to look at the land and say what should go there? That's a completely different question, and so if you know the process, if you figure out what should go there, and it fits a number of factors, will the neighborhood allow it? Will the city be behind it? Will I be able to sell it? Can I then sell it to someone else? You can think about what should be going into place or even predict the future, and really try to help cities and help the community that you live in to put the projects that should be in the proper places.

Brett:

It seems like these city folks would be able to see and map out and do that. I mean, I live in a great city, Roseville, and there I think they're very proactive, very business-oriented, and they masterplan this community, amazingly, but what's the biggest obstacle, let's say, for the city folks, that when you're coming to them presenting the things to help them overcome, why aren't they seeing it.

Adam:

The number one thing that I'll say about people who work in cities is they tend not to think outside the box, they are very much rule followers, and say, hey, this is the zoning, this is the plan, this is what you can do within the confines of the rules that we have, it sometimes takes the developer type to come in and convince them and go through the process, and it is not just something that you can do, in 60 to 90 days. This is a year to 18 months of going through all the right channels to get there, and a lot of cities, their general plans and their zoning is outdated 10, 20, 30 years, and so there's been, I mean, the Sacramento area, there's tons of changes and growth, new people coming in, and so maybe that industrial park should be a school, or it should be a multifamily or retail shopping center, and so if you see those types of changes happening, and you could predict what it's going to look like in the next two to three years, you can start your process and then create some value.

Brett:

It makes perfect sense. We all have different gifts, different strengths, and by the way, we need these real followers, we don't want to beat up on you guys, and gals, like because otherwise, Adam and I and others like us are running amok? The soil contamination, the environment, all the other things that keep these. The wheels on the bus, from falling off. So, it is definitely a working relationship with both sides, for sure. He said that's great. You see the vision. You help to see the vision. You help to see how we can benefit the community, that to the future, of course, tax revenue as well, and then you step two is what?

Adam:

Step two is to start writing checks. You got to start the actual process of drafting a plan. Whatever that is, the first one of the projects I did was rezoning a city block, to put it to a higher industrial use from low-edge industrial use, so that it could be used for cannabis use. Another project I'm doing right now is taking industrial use, and making it low-density residential. Probably less of an impact on the environment and that. The first thing that I do is sit down with my architect, engineer designer, and say, hey, look, this is what I want to do. Let's look at the code, and let's draw out a plan to see what this change could look like. Because if I change something residential, and then even if that's the case, you can only build one house per five acres, it's not going to do you any good. It's not going to be a successful project. You got to draw it out, and then take it to the city and see what they say.

Brett:

Now let's get practical. Give us maybe your best deal within the past year or two, from the kind of give us the ABC of the deal. What was it? What was the vision or the challenges? How did you work with the city? What happened?

Adam:

To make a very long story short, I took a 15,000 square foot warehouse, and what I did is I put an option on it for a year to be able to control the asset so that I can go and get these entitlements. The goal was to get the entitlement, get the zoning change, and get a conditional use permit to allow for cannabis use at this building, and then be able to sell it to a cannabis investor. Before closing escrow, so I didn't have to, I didn't have to come up with the capital to close it. I went through the whole process. First thing at the planning committee, after months of going through all of the Native American tribal leaders and making sure that they cleared the project. I went to the planning commission and they approved my zone change for all uses, except cannabis. They knew exactly what I was trying to do. They had some thoughts on it, and it was, it was three or four years ago.

It was an interesting time when cannabis in California wasn't as you know, it was even before prop 64, and so then what we had to do is take the planning commission decision to go to the city council, but appeal the portion related to cannabis so that it required some lobbying, and then, ultimately could be successful in getting that zone change, and we went and again did plans for how it's going to look like a cannabis facility, getting all the grooms approved, and all the parking and all those aspects, and so now we have this great package of fully approved buildings. But we didn't have any more time, and so what we ended up having to do was, something that we were in the project for 2.1 purchase price. The fair market value was probably about 3.2 is what we could have gotten for it. But we sold it for 2.6. Because we needed to close it in like 30 days, and they had to trust us that we had gotten all these entitlements done. It was still, I think we'd probably invested $100,000 in it.it was like a 5x return. We were very happy about that. Based on that project.

Brett:

That's phenomenal. I would be, too, by the way, talking about building wealth with value add entitlement deals with Adam Gilbert. You can find more about Adam via thefirmcommercial.com that stuff from the commercial outcome. Growing up, there's this movie. It's called the firm Adam. You may have seen it, and this gentleman named Tom Cruise is, I think it's Tom Cruise. He's newly married. He goes to the firm, and he is trying to make it in the business. Being an attorney, and being in real estate, how is your life like Tom Cruises?

Adam:

Well, I do try to be the good one. We're the firm, but not like that firm. A lot of the members of The Firm Commercial are former attorneys; I think we have three of our seven agents. We've got a couple of MBAs. There's a lot of fun that we have in Palm Springs in terms of being a resort community. There's a little bit of the fun life at the firm shows. But, we'd like to get down to business, but we're a small community, and we care very much about our reputation, and who we do deals with because we plan to be here for a very long time.

Brett:

Love that, and thanks for working with me on that one. I just went to Wyoming for a trip, and it's like growing up in the 80s, like Tom Cruise, and there are certain movies that, and not just Tom Cruise like Brad Pitt, couple other guys, where you're like, man, that'd be cool to like, do that thing like those guys are doing, and so when I was in Wyoming, I had never fly fished before and had ridden a horse like once. But suddenly I'm in this cool camp, and it's like the most beautiful country ever. Like there's a river that runs through the camp, and there's like these two lakes and then like the cabins in the middle, and I'm like this as a river runs through it, and so my whole goal the entire week with these guys would be like, hey guys, I just want to be Brad Pitt and A River Runs Through It.just take me through the thing. I'm going to do the fish thing with the flies. Let me ride the horse. Let me just live my childhood dream. Is that okay? They all laughed, and these guys were actual people who know what they're doing out in the wilderness there, and we had fun. If you had one movie to pick at them, that you're looking to live out your childhood dreams? Which one would it be?

Adam:

I would probably either say Blank Check was definitely a really important movie. Childhood to get in that Blank Check and just having some fun. But, what movie do I want to live out? I don't know what will stick with Blank Check.

Brett:

Let's talk about commercial real estate. Let's shift gears a little bit from entitlement deals and representation and the value of that, and being able to help clients create and preserve more wealth and real estate, and coming from your legal background and also looks like your ownership. I think you bring a level of expertise and understanding to help clients. What's the vision for The Firm Commercial? How are you? What are you doing today to help add value and a really competitive world?

Adam:

I think the vision, so we have a vision both for our clients, we definitely want to provide top-notch service and, and help people through it from not only the perspective of a brokerage, trying to get the deal done, but from owners ourselves, and so one of the big things firm, it always shocks me how many commercial brokers out there don't own commercial real estate, and so one of the things that I think my goal is for every one of my agents is to be a commercial real estate owner is to live the life that we're trying to sell and do the deals that we're proposing to our clients. You have a very different perspective when you own a commercial building. You're telling someone what to do, if you've never done it, the same thing with buying a house, even from a residential side. I'd say that's probably because we're very entrepreneurial, entrepreneurially minded for our agents to be able to give a different level of expertise.

Brett:

I couldn't agree with you more. I had the fortune of growing up with my parents and had rentals, our lives and my dad building construction homes ground up and, in the Bay Area, and then we were at Marcus & Millichap as an agent at the time I started my business and cold calling people, and the goal was not only to help them, but it was to get on the other side of the phone, and the way we put that was to own real estate, to be able to create passive and active wealth, get the depreciation to offset the cash flow, and in the top 3% of wealth is one of the cool stats I learned during my time that Marcus and Millichap own commercial real estate. That is the top 3%. If you can get into these headphones, understand that business, you can build wealth on a big scale and be able to give more and have more time and energy freedom. I couldn't agree with you, more on that. Now let's shift to a separate topic. Biden is proposing some big, I call it commercial real estate game-changers. With eliminating the stepped-up basis, limiting the 1031 exchange, doubling the federal capital gains tax rate from about 20 to 40, and, I get this happens. I'm curious, again, since proposals, nothing's passed yet, but being that you've kind of, the government relations side of what you've helped clients with, and on the broker side and the legal side, I'm curious, what are your thoughts on some of the proposed changes?

Adam:

It's definitely had an impact, if I have a lot of people calling me to say, I want to sell this and do my 1031 exchange before the rules change? They're definitely proposals I, my thought on it is that I think it's got a very difficult road to get through, I think these are understandable assumptions when people are making these investments, especially in a time where retail specifically, and a lot of commercial owners have had some trouble with COVID, there's been a lot of protections for tenants, and very few for owners and landlords. There's going to be some pushback there. But at the same time, I understand if you want to sell your asset, get your 1031 in before then, because those are huge changes that can, unfortunately, really chill the market.

Brett:

100% it's very interesting to find out. Though the 1031 exchange, sometimes clients have frustrations with it, and challenges, and maybe even you experienced that. I'm just curious. Adam, from your perspective, what's the biggest frustration your clients, friends, and family have had with the 1031 Exchange?

Adam:

I'd say the biggest frustration is the time limit, and then the property selection. Ultimately, you don't want to have a stepped-up basis on your gains. But you also don't want to get into a bad deal. Nothing hurts worse than a bad deal, and so if the markets are hot and you want to be in a certain area, you're like, I love industrial and, well, guess what, in Southern California, industrial is really hot right now, and it's, the rents are still fairly low. It forces people into bad deals because they don't want to pay taxes, which if there is a correction, then the point could be fairly harmful. Sometimes you have to pay tax or sometimes it sounds like there are other options available, whether it's investing in an opportunity zone or doing some other different things, but the 1031 definitely has its benefits, but it does have its drawbacks.