Main Street Business

How Transforming Distressed Real Estate Can Skyrocket Your Wealth ft. Josh McCallen!

• Mark J Kohler and Mat Sorensen

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Can identifying and leveraging underutilized properties truly unlock significant value? In our latest episode, we sit down with Josh McCallen, founder of Accountable Equity, to uncover the secrets of transforming distressed real estate into thriving business ventures. Josh shares his journey from a traditional middle-class upbringing to becoming a major player in the real estate and hospitality sectors, detailing his impressive feat of raising $54 million from investors. You'll hear firsthand how strategic planning and the synergetic integration of business operations with real estate can lead to substantial wealth creation.
Excited to announce that Josh McCallen will be speaking at our Alt Asset Summit on October 24-25! Don’t miss out—secure your spot now: https://altassetsummit.com/

Speaker 1:

And this is where real wealth can be created, because if you can find property that someone hasn't determined the highest and best use of it yet, or found it yet, you can get it at a discount.

Speaker 2:

So this is that Ray Kroc moment where I watched this asset I thought of as a business. I thought, oh great, the more you grow the business, the more profitability and therefore the success of the enterprise. Well then I watched underwriters come in and cross-utilize the revenues of the enterprise. Well then I watched underwriters come in and cross-utilize the revenues of the business and the dirt value, and when they combine the two, our value jumped.

Speaker 1:

Welcome everyone to a special episode of the Main Street Business Podcast. This is Matt Sorensen. I'm joined by Josh McCallum today. He is an amazing guy, very insightful, and I'm excited to get some words of wisdom out of him today Now. An amazing guy, very insightful, and I'm excited to get some words of wisdom out of him today.

Speaker 1:

Now just a quick background on Josh for those of you that don't know him. His company's called Accountable Equity. He does a number of different projects that we're going to dive into today and I want us to say this succinctly what we're going to talk about today and why Josh is so great on this topic. We're going to talk about Main Street businesses on real estate. How do we combine the power and value of real estate also with Main Street businesses? Josh employs over 450 people between his different companies. They manage thousands of acres. They have businesses on real estate. We're going to talk about that. Dig into it 200 million in renovation projects that they've done. They like to buy distressed real estate. I know that he's talked about that at our Alt Asset Summit before and then also he's raised $54 million from other investors so people can invest in Josh's funds. It's accountable equity, I guess the average investment amount there $54 million, 430 investors is about $75,000. So, Josh, welcome to the Main Street Business Podcast.

Speaker 2:

It's a pleasure to have you here.

Speaker 1:

It's an absolute honor, buddy. Thanks for having me Love it. Well, Josh has been, like I mentioned just moments before. He's been a speaker at our first Alt Asset Summit. Very well received I don't know if you know that, but very well received. Everyone likes Josh. He's smart. He likes Josh, he's smart, he's got great things to say. Good guy. But he's going to be at the next one too.

Speaker 1:

That's our Alt Asset Summit coming up October 24th and 25th in Scottsdale, Arizona. Make sure you're there. We'll have another amazing speaker, not just Josh McCallum, but a lot of other great ones. I'll be speaking. It is my event, so I got to squeeze myself in here. Mark J Kohler is going to be speaking. My amazing business partner, Pace Morby speaking. We got Veena Jetty. We got a lot of great speakers we're excited about. So get over to altassetsummitcom so you can meet Josh in person and get some wisdom about how to build and grow your wealth. Okay, Josh, let's dive into it.

Speaker 1:

Today we were chatting a little bit before we got on the show and we want to talk about the connection of Main Street business owners and real estate. Why don't you lay that out for us? That kind of thesis, so to speak. I think the most tangible example people know about was captured in the movie the Founder right About McDonald's, where there's this like seminal moment in the movie where you know, Ray Kroc, the founder of McDonald's, is in, I think, with his lawyer, or is there someone else he's meeting with, and they and they bring this point of you're not in the hamburger business, you're in the real estate business, rather than them going out and leasing properties. Mcdonald's went out and bought the real property and popped a business on top of it. So that's a good little foundational point here. But why don't you dive into this and why you want to talk about this and the power of that first? And we're going to dive into specifics.

Speaker 2:

Sure, sure I mean. The backstory quickly is I did not see it this way until the years of getting around educators. At first I was, you know, grew up with the normal middle-class, even sub-middle-class life, so I just thought you work hard and that's how you make a living, and later in life worked for family offices, built a resort business for them after building luxury homes as a business for a while. Then the recession, post-recession, we started pivoting into distressed hotels and at first we thought of them as beautiful houses where you can rent rooms, kind of like fancy motel, a fancy multifamily in a sense right. But later there's been an evolution of our thinking and I'm excited to be around guys like yourself because I didn't quite understand at the time. And for those listening today, I'm sure many of you like me are part of directed IRA and you know how to do private lending. You could be active in that. You probably know how to buy properties. What's interesting is those were that's how I thought of the world too until about 10, 15 years ago, where we helped turn around a resort for my family office. I was the president of it and you know we're sitting there. I'm working my butt off to make sure, we grow. We're growing, it's hard, it's hard work. We're adding revenue streams restaurants, beach bars, weddings and now, all of a sudden, it's becoming quite profitable.

Speaker 2:

And then this seminal moment happened to me where we refinanced. So this is that Ray Kroc moment happened to me in 2016,. Uh, where I watched this asset we we thought of, I thought of it as a business, you know. I thought, oh great, the more you grow the business, the more profitability and therefore the success of the enterprise. Well then I watched underwriters come in and cross-utilize the revenues of the business and the dirt value or, in that case, beach value and when they combine the two, our value jumped.

Speaker 2:

You know, to give you ballpark numbers, when we took that first distressed property at the family office, it was, you know, probably valued around 8 million by the time I got there to help it. You know, come up with new ideas to create revenue. When we refinanced, it was worth 37 million. It was only three years later, so I don't know how to put that into words, matt, but that was my seminal moment, where they re-evaluated the price of the asset based on the business we had built, even though you and I know I hadn't built a $37 million business. Yet later it became a very. It had, it was in the process of becoming quite profitable, but it wasn't doing $37 million. But when you combine that with real estate, the appraisers gave us this tremendous cap rate compression and, all of a sudden, real opportunity for wealth creation.

Speaker 1:

Yeah, so is it because of the success of the business though? I mean, maybe unpack that for me to help me understand that. Was the property improved? Is there more utilization of the property within there that you weren't utilizing? You can build more. I remember I had a client that was part of a group buying a ski resort and, just as an example here, this is a business on real estate and he's like dude, the ski resort does not make money, it is a loss leader for everything else around it. That's right, because we develop and sell out all the homes around it at ridiculous prices that no one would pay $500,000 for a quarter acre lot, except that it's next to a ski resort here, or a million bucks for an acre. You know what I mean? Yeah, and so there's some tangible value from what was happening around that. But maybe dig into this or some of your examples of how does that work?

Speaker 2:

Why did the real estate go up. Yeah, thank you for asking that. Yeah, so we'll one second left on that original story. Then I'll tell you about another story and I'll answer your question, because you just described the vortex. There's this kind of vortex of business and real estate. Sometimes you get analyzed by outsiders. We're talking about the vortex there's this kind of vortex of business and real estate. Sometimes you get analyzed by outsiders.

Speaker 1:

I like it, josh. We're talking about the vortex. All right, I love this. It's a great, great word.

Speaker 2:

It is. It's the vortex where a business on real estate might become real estate development play, which is what you just described. Okay, but that's a little different than Ray Kroc in a sense. So we'll come back to Ray Kroc in a minute. But how did it all come about?

Speaker 2:

We were hardcore entrepreneurs and we thought of that hospitality asset as rooms we renovated. You asked me did we renovate those rooms in my first asset as a partner, as the president of a company, yes, and we invested a lot of money. We made them great and we looked at it a little bit like real estate developers. Actually, we said if the hotel business isn't our favorite business because we were new to it at that time, then at least the units themselves could be sold as individual condo units and as a real. So we were evaluating multiple exit strategies.

Speaker 2:

We came to find that if you really maximize a business in a piece of real estate and you get that cap rate compression where appraisers come in and say you have real, tangible assets here, they'll start looking at them from a replacement cost point of view. Then they'll start saying that but they're generating cash and profitability. And then they take that cash and profitability. Let's say they bring in 3 million to the bottom or to the EBITDA, if they call it that. They drop that much to the bottom. They will then take that and reverse. They'll do a division process. Let's use a very high cap rate of 10 to make it simple. They'll take the $3 million, divide it by a 10% rate of return and they'll say that the business is producing the $30 million valuation lift.

Speaker 2:

So let's go back. How do you create 3 million in profit? That is the recipe of wealth creation that the ultra wealthy use and that that's where they start looking at businesses for their uh, you know the? How much EBIT do they produce? Sounds good on one level. You're like, oh, that's the profit for the owners. But even better than that is if you can, if you can get recapitalized based on that. So lots of fancy terms there.

Speaker 2:

Let's break it down. Yes, we spend a lot of money on the building, but by building the business, revenue streams and that's I'm called I, you know, I call myself Mr Revenue Streams. The more I can put into a single asset, the more can drop to the bottom. And what's interesting is if you pro forma, or if you build a model and say if we do really well with three great revenue streams and the money gets to the bottom, then we could add three more revenue streams in phase two and even more of that dollar at the top will hit the bottom. So you're obviously fighting to get as many dollars to the bottom as you can after you pay your bills and then you start to really compound profitability appraise values. So I think I over-explained that. Maybe help me break it down, matt.

Speaker 1:

No, no, I was taking notes as you were talking there, which was great. I was taking notes as you were talking there, which was great. It means I'm like in learn mode over here, so okay. So let me summarize in this way I think is you took that distressed property and tried to find out the highest and best use of that property. Because if you get the highest and best use of the property, get it better performing, find the additional revenue streams that not only creates more revenue for the business but that drives value of the real property that's underlying it.

Speaker 1:

And I think the same would be. You know, people think of, of multifamily, just kind of to pivot here for a second um, or even a short-term rental, you know, and a lot of people will buy those and they're like all right. Well, as a short-term rental let's even just take that Like on Airbnb, for example. Like if someone was buying that property as their house, it's only worth a million dollars. But if someone's buying it as an investment, it's worth one and a half million because of the return it can drive, the income it can drive.

Speaker 1:

You've taken a highest and better use of that property than it just being someone's residence or a long-term rental. But that's also requires a little bit of a business, right. You've got to do something on the property and you're charging for Wi-Fi. You've got all these little add-ons you're doing. You're like, oh, do you want a chef to come by? You've got all these little revenue centers and the multifamilies. It's like we're going to put in a laundry facility, or we're going to put in a laundry facility or we're going to add in these amenities that you actually pay for that create revenue.

Speaker 1:

And so I think I mean these are just some like easy examples I kind of see in just working from real estate to then think of it as a business. I think you work the opposite direction of this was a hotel business, right, and it happened to have real estate which is providing great long-term wealth and value creation for you. But I think the key in any of it is what's the highest and best use of that property, and this is where real wealth can be created, because if you can find property that someone hasn't determined the highest and best use of it yet, or found it yet, you can get it at a discount.

Speaker 2:

That's right. That's right. And for those listeners that know we were talking a little bit about Marcus Milchap's chief economist, john T Chang, and those who know him, you'll know how succinct he is. He talks about this as a major opportunity in today's market. Where again, buying something that another guy I can't remember, the book where they call them Rembrandts in the attic? Oh, that's right. Vern Harnish.

Speaker 1:

Rembrandt in the attic.

Speaker 2:

You want to buy a business that has Rembrandt art in the attic, meaning the business is whatever, it's just renting rooms, in this case of a hotel. But what if we add a gorgeous barn that gets featured in Instagram millions of times as the premier Eastern Shore Maryland wedding venue, and now, all of a sudden, that barn itself might produce four or five million of cash flow because it's beautiful. But again, we bought a hotel. So now we overlaid this extremely exquisite, high-end experience and we're getting and this is what we do today Right, you know.

Speaker 2:

So some people say are you in the wedding business? Well, sure, we're one of the biggest in the country in the wedding business. Premium weddings are our specialty, real, really, you know. It depends how you find us. Sometimes people find us.

Speaker 2:

I say it's like eating an elephant, you know, or biting an elephant. Are we the front of the elephant, the ears? We're real estate developers, we're entrepreneurs. We specialize in resorts that have lifestyle amenities, which then feature weddings, really, really well. And then we do all the other things too Great, usually farm-to-table restaurants, beach bars, even boat and amenity rentals. And when you start layering all that on, more and more per dollar drops to the bottom. Then you go back to the bankers or to equity and you say, see, we've changed the value by a lot and that's why so many investors join and find value in this. It's relatively even though I'm making it sound complicated, it's easy to understand why. Because Matt Sorensen has eaten at a restaurant, matt Sorensen has rented a boat, matt Sorensen has rented a room and maybe he has a relative who had a wedding, so you kind of understand the model. Oh, I just had a wedding two years ago.

Speaker 1:

Not cheap, turns out.

Speaker 1:

They're not cheap, not cheap, and I'll bet you've got to play on the flowers, probably, maybe the band that gets there, you get a little cut. I mean, I don't know. There's probably a lot of revenue opportunities. You've got the wedding planners that can get a fee or the I don't know how it all works, but I just see tons of profit centers in that business. Of course, the wedding venue sells the rooms in the hotel. But I do think it's also interesting in where you've gone, because there's barriers to entry in doing like a first-class wedding venue. Right, they want a hotel and rooms somewhere there. Right, they want a central location. They want the catering business easy to be there. Right, you have that. Right, isn't that part of it? You guys are selling the catering food.

Speaker 2:

Yeah, that is, we do sell you the food, and that is different than so. There's a person listening today, right now, and you and I and they're thinking about buying a barn on a farm and doing weddings. That is a model that has good upside. Yeah, um, it has a certain limit to its upside because you don't have as much revenue capture. Ours is the full solution. And in the full solution, here's solution, here's the special sauce.

Speaker 2:

Okay, matt, the weddings are typically $47,000, just for the food, beverage and space. We haven't rented you anything on top of that yet and, no, we haven't even gotten any other proceeds yet. Your daughter is renting, buying this contract in the year 24, but she says I'm not getting married till 26. Ironically, I'm not that kind of guy. I got married relatively quickly, but a lot of people get married like a year and a half away.

Speaker 2:

What's amazing for our model, like what we've been able to kind of hopefully perfect here, is they're putting this is very common in the premium wedding market they're putting 25 plus percent down today. So if it's $50,000, they're putting, you know, they're putting in 25, they're putting in over $15,000 in today and that money now becomes a deposit that has a contractual obligation to finish the payments right. So it's really interesting on a cash flow model that actually capitalizes the underlying operating business years in advance, stabilizes the business planning, and there you see why we've had traction. But again we looked at it like a business on real estate and I think that's the compelling part that I always say. This is the holy grail of real estate investing is if you can really maximize a business operation on there. And then, of course, if you put a portfolio together, you can actually get even a better valuation for appraised values.

Speaker 1:

Okay, let me kind of try to break this down for everybody, because I think your specific example is awesome. I love, like the distress hospitality play you've done thought about it like a business found different revenue opportunities that were there that were being neglected or others don't execute on. Well, and then but let's talk about this in general for someone looking at a business or a real estate deal or whatever and I, like you're, like, I'm thinking I'm an entrepreneur at heart. That's really what it is. And how do you find value like that? Maybe walk me through. Like the first resort you bought, I know you got like a golf course, or you got like a winery, you know on one of your locations, like, but like, how did you start finding these things? Did you have a clear plan when you bought it? Did you stumble into some things?

Speaker 2:

So I'll reverse engineer it and I think people can take from this. You know different ways. You can go about it Ms Investor or Mr Investor, you could look at it as one asset that so we? Our first project we bought together with partners through Accountable Equity was a distressed historic resort winery and we looked at it. We said why is this a safe investment? Even though it had been passed over, it had gone into bankruptcy, it was still operational. We said the appraised value, the purchase price we're paying, was less than the underlying dirt value. And you say, well, why is that a case? Well, it's because it had an operating business as integral to the. It was a golf course, hotel, winery, renting venue.

Speaker 2:

And guess what? The buyer pool for that type of distressed asset was small. This is what John T Chang was interviewing me about. He's like if you come with that entrepreneurial expertise, then the things that were holding real estate buyers back become an opportunity for you. But what had happened in this scenario is because the operating businesses needed expertise, we were able to come in and pay below dirt value. And I always say back then, when we bought it, it was 2018, golf was on the downside, yeah, and so I would tell investors back then I'd say great news, they're throwing the golf course in for free, because I think we paid the value of one of the assets a hotel but we got 160 years intellectual property and we got a golf course and a winery and all that. So I said good news. You don't like wineries? We got that one for free too.

Speaker 1:

We just bought a hotel.

Speaker 2:

That was my pitch and I said see, these were my determining factors that you could use. Miss Investor, as long as you feel you're buying something that's distressed and you feel you have a low basis strategy, then I feel like you have some safety in your model, and so that's how our models are built and that's why distressed has always been part of our acquisition strategy. Our favorite type of distress and this is great advice for anybody listening is maybe less physical distress and more operational distress is maybe less physical distress and more operational distress If you can find an owner who's tired and like. I was referencing this John T Chang interview where he was asking me about our model and he said you're in several sweet spots as an economist. You're buying assets that are owned, usually by boomers or older that are physically tired.

Speaker 2:

They were the operators because they never captured scale, matt, that's the other secret to our success is we grew with an intention to scale, and so if you're going to do our business as a sole investor, you're probably going to be the one who sells the wedding, feeds the people and cleans the rooms, or you and your relatives, and that's what we like to buy. We like to buy those, and so then we're going to come in, we're going to. You know what? The number one limiting factor when you buy one of those properties why you get them distressed is the owner. You might say, well, maybe they just aren't caught up to the time, matt, but really what I find when I negotiate with those people is they limited growth because they actually counted revenue growth as burden, and you know what I'm talking about.

Speaker 1:

Yeah, more money, more problems.

Speaker 2:

No, I'm just kidding. More traffic. There's only so much of me. I was looking at a property in the mountains near the Smoky Mountains, and the family who owned it literally won't have any more events. Because they say, well, how could she come in anymore? She's already working full-time. That's how they determine whether they want to keep growing, whereas we say, well, why not just do it like McDonald's? Why not create some structure? Why not let the growth maximize, and then we'll infill operational expertise?

Speaker 1:

Yeah, and I do think, going back on what you said, your favorite type of distress less physical, more operational I totally believe that and that's just in a lot of clients we've helped buy businesses lately is it's not just the business itself that's in distress, or the idea or the concept or the product or the service, it's the execution and operation of it that is failing.

Speaker 1:

Whether that is the baby boomer that wants to be out and is done with it, that had this limiting growth belief, wasn't willing to reinvest in the business to get it to scale, wasn't willing to bring team in and really pay for top talent to help grow and scale that business. Maybe it's the second generation, frankly, I just came from a family office conference and I was like kind of like every other speaker. I was just like ugh, they're talking about Gen 2, gen 3 people that just inherit all this wealth. And I was like man, this is not my crowd. Where's the Gen 1 ones that were creating the wealth? Because Gen 2 and Gen 3, they were talking about what do they do with the business and the family wealth? Do they give it away? Do they actually work, do they not? And I was like these are weird conversations and I'm like those are the people you probably want to be buying their business from. That's right.

Speaker 1:

They lose sight of that and they're not hungry to go and grow it. So but I do think that just got a couple of tangents there. But I think there's tremendous opportunity in operational excellence and just operating a business profitably making better decisions, getting better team, getting better culture, finding revenue centers and products or services that can be offered that weren't before, and even just not turning down business, like you said. It's crazy.

Speaker 2:

They did they would turn it down, and actually I find that in many of those there's two things I'd love to add onto your comment. Let's hit the Ray Kroc comment for one minute and then we'll come back to the ski resort, because both of those are the two other ends of the spectrum. So the Ray Kroc story, the movie founder such an interesting movie, that pivotal moment where he's at the bank, nobody will give him money to make cheeseburger debt. Right, there's no cheeseburger debt out there, but apparently there's real estate debt out there. So then what he did was arbitrage and he said well, if you'll give me real estate debt, I'm here to build the cheeseburger business. And you said it was never about cheeseburgers because you know I think that's an adage it was really always about real estate. It was, and he was backed into that corner. But he was here to perfect, executing cheeseburgers and maximizing that. So that's a little more like us, right, we're looking at the real estate as the awesome component that attracts hundreds of investors, and it's easy for them to see that we're fighting inflation, we're changing the underlying asset value, and it's easy for them to understand. But we're over here saying what if we get great at the Ray Kroc stuff too. And what if we keep doing that? And that's probably why we've had stickiness with our investors. And it keeps growing Because they're starting to see both. They're seeing beautiful properties that are now featured all over the internet and publications and everything beautiful properties that are now featured all over the internet and you know publications and everything. They're like man, I own a beautiful thing, just like we all want to own a beautiful, highly regarded piece of real estate. But they're starting to get excited about the revenue streams. So that's the Ray Kroc thing. I'll put that off to the side.

Speaker 2:

And what was key to Ray Kroc's thing was scale. Now he used the franchise modeling. I'll tell you here this is a. This is a hot take, matt, and I need advice and wisdom from your audience. We're in that vortex now another vortex story. We're not probably going to go down the franchising model, matt, but we have a growth goal. Every time we've grown, we've either operationalized things better, defrayed higher executive costs or had better marketing lift. So we believe we'll have 25 special properties in different pockets and regions in the next 10 years. We're up to, hopefully, four right now and growing. But how are we going to get there? And we're either going to start partnering with local operators and either put them into a partnership with us, almost like franchising, but really it'll still probably be us. But they can get a piece of a lift, kind of like. That's the Chick-fil-A model, by the way.

Speaker 1:

Yeah.

Speaker 2:

Chick-fil-A model and the McDonald's model are quite different. You don't really buy a franchise at Chick-fil-A, you kind of like co-profit share. That might be a strategy for us. We're looking for advice from Main Street Business Podcast.

Speaker 1:

But the other thing let's talk about the ski resort Matt. Okay, I want to come back to that other one. Ray Kroc there and the Chick-fil-A model too.

Speaker 2:

Okay, yeah, we'll dig in on that. Then you know what? We'll come back to skis, we'll come back to skis later.

Speaker 1:

Go ahead. Okay. I think there's limitations on growth, right. Sometimes it's capital. You can raise the money. You got real estate. You figured out how to execute and take down properties. You know how to find good deals. You know how to get the distressed properties. You know how to create the revenue, growth and the profit centers. You know the formula on it, right. But just like some of the problems we were talking about with people that had these properties before, you do have limitations on your ability to scale and and yourself and the impact you can provide. When you got 10 employees to you know we got 140 here in a way, I do between different companies You've got 450, like, your ability to make impact as your team is that big just decreases so much, and that's why you see a lot of small business owners. They can't get past 10 employees and a million or two in revenue. They just get stuck because they haven't figured out how to scale and they're back there trying to hire people at entry-level wages to go run and operate a business and grow and scale a business. For them. It's just never going to happen, and so I think you do need to look at other models A lot of people are like. This is just a little tangent.

Speaker 1:

I think a lot of people are very interested in like venture capital. I was because everybody had like stock options right, and it's like you know he's like 20 year olds and 30 year olds that are like programmers. You know all these like 20-year-olds and 30-year-olds that are like programmers that became wealthy because they had stock options. Do you know how many of those programmers hated their job? Do you know how difficult it was, how many nightless hours they had, how many problems and issues they had to work through and all the scaling and growth? But why did they stay? And a lot of people are like the culture the culture was great. I've and a lot of people like the culture the culture was great. I've talked to a lot of these people over the years. No, it wasn't, it was a grind man. It was a grind. Why did they stay? They had significant skin in the game through the options or the. They were part of that profit.

Speaker 1:

You know creation and I think for a lot of businesses that really want to grow and scale past small business, you need to start thinking like that, whether you have some profit sharing component for your key executives, whether it's a stock option plan, long-term incentive plan, significant bonuses based on growth and success of the business tie them along to your success and I think that's how you retain those people, because it does get hard and sure. We want to have a great culture. You want to be doing the right things that make the business fun and successful and a great place to work, but at the end of the day, people are trading their time to make money and if it's significant and you found that person and this is another thing I found a lot of people in smaller businesses and these are clients. Over the years, that office manager in your business was probably worth $150K a year. Now I know outside of them working for you, they go back out and they can't get a job for $70K or more. I know that, but you paid them $70K, so they left. Why did you not value them more? They worked for you for 10 years or whatever. They were super valuable in your business, and so I think people need to assess their talent a little better and it's an investment and I think this is kind of like I like to call it.

Speaker 1:

It's like the valley of death. You got the vortex. Josh, I got the valley of death. Okay, this is for business and scaling is you have to get through this phase when you're going from small business to a bigger business where you can afford top talent Right, and that means you're not taking money off the table. That's right, like even in directed. I'll just be transparent. You know that was a fast growing business. We're hiring a new employee a month. We have tremendous success. I got an amazing executive team. We've done some of those incentive things I mentioned.

Speaker 1:

But even though the business was profitable, I didn't take money out for the first four years. I didn't take any money off the table because I reinvested every penny back in to be able to grow it, to get team and to build, and so I think, but you've got to get through that quote unquote valley of death. So align, I think, their interests financially with yours. I think that's important and valuable and I think be willing to forego some short-term profits for long-term wealth, because if you can get through the valley of death now, the business's profit has grown enough where it can afford top talent, people that can make the same or similar type of impact you thought you could make, but you just can't do it at a larger scale, and so I don't know that'd be my only input there. I want to still come back to your real estate developer comment, but and that's right Like, why are the Chick-fil-A's so well run?

Speaker 2:

you know, yeah, so my understanding from interviewing a Chick-fil-A GM who I was like, could you teach me this model? Yeah he. I said how much did you have to invest? He said nothing. I said what? I think it was like a couple hundred dollars or something, pennies. He had to pay for his own training and I said how does this work then? And he goes.

Speaker 2:

Well, you know, I'm paraphrasing Ultimately he is a profits interest. He's not the equity owner of that property. Okay, and if he does well, he might get a few more. But and he could, if he does well, he might get a few more, but the real estate, the business, is actually Chick-fil-A's. Now, what they do, that's really curious. Though this is interesting and again, I'm not a legal scholar on this Somehow that person had to create their own LLC and hire all the people, so the employees were that person's and I shouldn't be speaking so official on this, but it caught my attention that somehow he's tied to the success of the people, so he's highly invested in the people he hires. He then gets, you know, override on the, on the business, so he's highly incentivized to grow, grow, grow, grow. Um, but you know, and I believe he has some kind of upside benefit to the value creation he creates. But my understanding is that's why they don't have to invest much, because they benefit while they're there in profit share. That is similar to the model we're doing with our GMs now. Yes, that is similar and that's kind of what I'm strategizing for growth.

Speaker 2:

But whereas Ray Kroc said, no, you buy it, we'll keep perfecting all the money you're giving me to the franchise business, which was a lot, I'll continue to make better technology and better process and I'll run the commissary and send you a bunch of French fries pre-cut and you're going to pay me for that extra, you know. So he picked up all those revenue streams, which is the genius of franchising, but you probably didn't know how to make cheeseburgers before you bought that franchise and now you're probably bringing in a million dollars of profit off that location. So, ray Kroc versus Chick-fil-A, who knows? Yes, this is the scalability, and you said it beautifully that your goal is to invest in the people and have impact like you can when you're in the room. How do you do that? And I will tell you that's been a journey of that's why we're.

Speaker 2:

We've joined organizations like uh, you know, masterminds and just mentorship, you know, and I think that, as a CEO, that's that's our calling now is just is to learn how to serve better, and it's a lifetime journey and I think when you meet those kinds of CEOs you really bond with them. First gen, they're usually first gen right, cause they know they have to grow. And then we could talk about skis. If you want to, I'll tell you how that works. Yeah, give me let's.

Speaker 1:

I totally agree on that. I just think this is a good scaling lesson. We've kind of delved into this. I know you mentioned Vern Harnish before. Anybody that has a great book Scaling Up. Is it one of his books? I know he's written some others. Is it one of his books? I know he's written some others. But a great guy. I'm learning how to grow and scale a business. He's got whole programs and things like that on it.

Speaker 1:

I joined YPO, young Presence Organization, which has been a great one. You have to get in before you're 45. I'm 44, so I just squoze in, but that's a great organization. I mean, the people in my forum run very huge businesses and it's good to get insights from them about what they're doing. But I do think as you're growing and scaling, your number one job becomes building team, like recruiting, building, maintaining team, getting vision and direction yes, and all that.

Speaker 1:

But really it's about getting people that can execute on everything, because this that increases your organization's ability to succeed. It really comes down to execution and people. Once you have the strategy, you have a good business and a great strategy and a great product or service, whatever it is. But so many businesses have that and fail because they just can't freaking execute on it. We don't have a lack of good ideas. We have a lack of ability to execute on the good ideas, and that takes great people. Okay, let's come. Let's hit the real estate one, if you don't mind, because I want to squeeze that in here. I know we're getting here towards the end and, by the way, josh has his own event. We were mentioning one of the resorts you bought that has the winery and the golf course.

Speaker 2:

Isn't that?

Speaker 1:

where your accountableable Equity Learn and Grow event is going to be at.

Speaker 2:

Yeah, this is that whole interesting philosophy we've had is that the investors are partners and so, yeah, we always do these learn and growing experiences, kind of like what we said with Vern Harnish. We find that first-generation wealth builders, even if it's just a million, two million dollars they may not be able to buy a football team or anything, but they need direction. That's why they go to alt summit, the alt investment summit. How do you choose where to worry about liquidity? We're not to worry about liquidity. Worry about growth, worry about safety, all those different questions. Um, so what we do is we get together relatively often, almost four times a year, as investors and we put on these great open forums and we bring other people in to share their wisdom.

Speaker 1:

And thank.

Speaker 2:

God, we got you baby. We got Matt Sorensen to be the keynote on August. 24th is the Saturday. You can also come on the 23rd, and it's in New Jersey. So all us East Coasters finally have an event. So many of us have to go all the way to the West Coast to go to cool events with you. So, yeah, you'll be speaking on. We'll have several fun events while you're here Awesome, all right, and that is at the Renault Winery. Okay, we got to link that in to the description here.

Speaker 1:

What's the website URL? Just people get it.

Speaker 2:

It's accountabequitycom and it's like right on the homepage. So, yes, come join us, it doesn't cost much. We break bread, we do fun things Nice and we meet each other. Really the best part of all these investment events you go to like in October, when we'll all be with you, is really the peer to peer conversation and, of course, getting to have some new content. But please invest in your people around you and listen and take some of their journey and put it into your life. Now I do want to share with you the ski resort thing. Okay, yeah.

Speaker 2:

So, matt, that's the other reason people do resort development and redevelopment is so that they can have a bite at the apple of changing the value of the real estate in proximity to their asset the value of the real estate in proximity to their asset. This is so, this my life. Another pivotal moment was in 2014. I'm sitting at a major conference and it was it's all about. It was before short-term rentals were a thing. It was still. The vacation clubs were still a thing, and I got to meet the head of Regis St Regis Resort luxury places. Actually, oh, is it St Regis? Yeah, st Regis. Ofort luxury places Actually, oh, is it St Regis? Yeah, st Regis of Utah Park City. They were building it.

Speaker 1:

Yeah.

Speaker 2:

And I got to meet the CEO of their club, because they also have like a fractional ownership club and I got to sit with him for a coffee and I said I got to ask you I just read on the Internet that you're spending a billion dollars building a resort hotel on that ski hill. How can you ever make a billion dollars back by running a hotel? And he says, josh, it was never about the hotel, it was about the homes. And so the point was they're building these epicenters so that they can leverage and create value on the real estate and really compound it and create that arbitrage. They might've bought it for a hundred thousand dollars a lot, now they'll sell for a million dollars a lot, like you said, and then that capitalization will come in and either de-risk the hotel and then the hotel becomes a perpetual annuity to them, right? So that model is I always call phase two of all of our properties, matt.

Speaker 2:

And what's really fun and this is, I think, a really great way to do this if you're going into business in this space is to have a pro forma based on the main street business and have the main street business be able to pay investors in debt and have that create value, that can create recapitalization.

Speaker 2:

And then, if you're lucky, you get another bite at the apple by doing one of those ski resort neighborhoods and so all of our properties come with undeveloped land and we spend the first five to 10 years and we were very patient about this of seeking permission and entitlements, building great relationships with the community so that there can be a whole nother capital event. But we never put it in the pro forma and that's because we say we don't have the entitlements yet. We know the town is willing to talk to us but we don't have them. So all of ours come with that ski resort strategy but we don't put it up front because it does take time and you really can't rush that. But we are in discussions at all of our properties with partners on that.

Speaker 1:

Yeah, I love that and I think it's interesting when certain developments go in, you know value around it increases and there's other real estate investors, I know that like chase certain things. Like a Whole Foods is going in, they're like, okay, well, we do retail, that's gonna. You know there's gonna be a parking lot, we know we can get a retail strip mall right here. You know it's like, and so a lot of I've had clients over the years that chase that type of stuff because the value around it goes up. I'm like why doesn't Whole Foods just buy the real estate next to it or whatever is developing that? But maybe they do, Maybe they do, maybe they do.

Speaker 1:

Yeah, so great insights there. I mean my mind was spinning about just different plays, not just real estate. I mean it could be car washes and things like that, where, well, what goes next to it? What's the service they want next to it? How do we change the face of real property and improve it and add value to it such that what's around it becomes more popular and more valuable? It has a higher and better use, whether that's more commercial or retail or nicer residential?

Speaker 1:

I mean, even when you're talking about the hotel thing, I mean it's like I went to a business meeting, a business trip with my wife and her business in the Four Seasons in Cabo. The executive has a house at the Four Seasons in Cabo. Guess what they did? They rented 50 rooms for four nights for the major leadership of the company to stay at the Four Seasons Resort. So there's like synergistic things of it too. With that play, not just the real property adding value. There's a lot of profit but that brought back business into the hotel and resort.

Speaker 1:

So I think you said it right and Mark and I, my business partner Mark and we have a lot of things we've done together, a lot of the business we've done. There are synergies to it. It's synergistic of the next thing we do. It's not just its own standalone thing. There are synergies from it and it's what creates more value to us and the other businesses, let alone the one new thing we might be doing. All right, josh. Well, I feel like I've taken enough of your time today and I don't want to get too much out, because I need people to come to the AltAsset Summit to see and meet Josh in person Again. That's October 24th and 25th in Scottsdale, arizona. Josh's Learn and Grow event with Accountable Equity is August… 24th a Saturday.

Speaker 2:

You can make it a day trip or you can make it a 23rd and 24th.

Speaker 1:

Okay, cool, I'm going to be there and looking forward to it. I get to be on property on one of Josh's place and I think we need to do one of our own events out on the East Coast. Actually, please do, let's maybe look at this one. I was trying to figure out airport times of people commuting in, but all right, well, josh, thanks so much for being here again. Accountableequitycom is where you can learn Josh and things he's up to, and we'll see you guys next week in another amazing episode of the Main Street Business Podcast. See you then. Thank you, buddy.

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Mark J. Kohler

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