Adaptive Reuse and Asset Management with Gary Lipsky

Gary Lipsky, President of Break of Day Capital, is a real estate entrepreneur who has a focus on Multifamily Syndication. In this episode, we are going to talk about asset management and investing and adaptive reuse. Gary shares his vision on upcoming opportunities, knowing the market, and focusing on one thing at a time.

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Adaptive Reuse and Asset Management with Gary Lipsky

Shannon Robnett  00:45

Hey, everybody, welcome back to Season Two of the Real Estate Run Down Show today I have the huge pleasure of talking with a friend of mine, a guy that I’ve gotten to know kind of in and around things, you know, we live, we live kind of close together, we work kind of in the same markets. We both are dashingly. Handsome, as you can tell, but my friend Gary Lipsky is with me and Gary, I want to welcome you to the show.

Gary Lipsky  01:10

Yeah, thanks for having me. It was great getting to know you the last few months.

Shannon Robnett  01:14

Yeah, you know, the thing that I that I see is, you know, you’ve done what, a quarter billion dollars, I think that’s what we were talking about a quarter billion dollars in real estate, You’re no spring chicken to this game. And yet, we’re seeing turmoil in the market again. But you know, tell me, take me back through your whole experience here. So we can kind of get some context of, of how you’re going to be approaching the next couple of years or the next couple of months. But tell us a little bit about where you came from, and what you’re doing and what your what your superpower is really.

Gary Lipsky  01:48

Yeah, you know, I’ve been an entrepreneur my whole life, I’ve navigated tough wars through 2008, I wasn’t in real estate full-time, at that point, I was just kind of dabbling with it, but I owned a business at the time. And you know, dealt with, you know, lenders cutting off your credit line, and, you know, didn’t know if we were going to survive that and you know, that business and, you know, making, you know, managing your cash flow and managing your team and navigating through that is, is not easy. But, you know,  you build those systems, I’vebeen through, you know, trials and tribulations. And that is really important when you get to a period like this, to, to know how you’re going to navigate those waters, and how you got to keep, you know, checking your systems, evaluating your properties, and making sure they’re all stress tested and managing your cash flow and being very, very proactive so that you’re not hit, you know, and, you know, oops, I don’t have any more cash flow to pay the bills like that should never ever happen. Like, you should always be ahead of the game.

Shannon Robnett  03:05

But what, Gary, what I’m hearing you say is it’s experience that has taught you that, right? That’s not something you can get off the shelf, right? I mean, it’s kind of like when you go into battle, you’ve got the experience, people telling everybody else what to do. And the less experience you have, the less authority you get. You’re just kind of out there. But but we’re seeing that same thing, as I’ve never seen this before. When people are saying that it scares the heck out of me for the rest of everybody. Because we’ve got people like that. And there was a lot of people like that in oh five and oh seven that helped us make oh eight, right. So at the end of the day, when I get to the conversations with people like yourselves that have actually executed they’ve done the hard work, whether it’s in real estate, I would argue that that business is harder than real estate, because real estate kind of, in a lot of ways, manages itself when you look at it, you’ve got you know, 300 units and an apartment complex. You don’t have 300 employees like you would in a business but what is your what are you really looking at over the next 12 months? And what business skills did you learn in your previous life? And now that you’re going to be able to deploy as the Swiss Army knife of No, no, no worries, man, I got this.

Gary Lipsky  04:21

Yeah, you know, you know, it’s all about how you approach things because there’s opportunity in every up market and down market, but it’s managing risk. And so what you have to do is you have to be you know, we’ve always been very conservative in our underwriting but build in the software model into your underwriting and, and have buffers along the way. I mean, this is the same way we’ve been underwriting for years and approaching things. You’d never want to do a deal if it’s razor thin, it’s just not worth it. You always want to under promise and over perform and nothing  goes perfect and no having that mindset that nothing will go perfect really sets you up

Shannon Robnett  05:07

Hey, wait a minute, are you admitting to everybody that none of your deals have gone perfectly?

Gary Lipsky  05:13

Heck yeah, that’s true.

Shannon Robnett  05:15

You’re not supposed to let the secret out about what GP really means. Right? I thought that meant going perfect. That’s not what that means.

Gary Lipsky  05:23

We had a deal that was absurdly phenomenal to our investors. And man, that was, that was probably our hardest deal we dealt with from before we bought it to run it to selling it. I mean, we face many, many obstacles, but it’s pushing forward and problem-solving and working with your team and being proactive. And that’s how you, that’s how you get a good deal to be great or a bad deal to be good.

Shannon Robnett  05:53

Right. And, you know, that’s the thing that I think a lot of people and we saw it in a way, right? I saw people just kind of throw up their hands and go, I have no idea how to solve this. Here. It’s yours. Right? I was touring with a lender three months ago. And they were already seeing stuff in Houston, where the banks were getting keys back, right. Three months ago, it wasn’t near as bad as it is now. And you’re looking at it going. What was the problem there? Well, I think it was exactly what you’re talking about. It was that lack of tried and true through the fire leadership. And I think you’re going to continue to see a lot of that, where investors are going to realize that the the GP, the people that they partnered with in the syndication, needed a lot more experience in real world entrepreneur getting your head caved in, getting back up tomorrow and going back to work for some unknown reason. Other than I just can’t let this end this way.

Gary Lipsky  06:54

Yeah, unfortunately, I think there’s gonna be some shakeout in the next 12-24 months and bad GP’s are giving good GP’s a bad name, because they just focus on churning deals, churning deals, and not managing interest rate floating, cash flow, all these things that when things don’t go perfect, you’re gonna pay a price. And it adds up quickly.

Shannon Robnett  07:24

Yeah, you know, and I’ve seen that I’ve seen underwriting come across my desk in the last, you know, 120 days from other people going, Hey, would you take a look at this for me? And I’m sitting there going, why would you even consider a four and a half percent exit cap rate? Right? Why? Well, we’re buying it for less than that. I’m not talking about how stupid you are going in, I’m talking about how, how long do you think that this market is going to stay for you going out? You know, and when you start to look at that, and you start to, you know, and we’re seeing a lot of what you just talked about people exiting a five year deal in an 18 months, because the NOI looks great from a percentage number. But if you look at the deliverable on what the real ROI is, it’s not a 2x. Like they talked about, right? They talked about Give me your money for five years, invest with me for five years, and you’re getting a to x, we’re seeing a lot of these people live out a deals and go Dude, we got you a 50%. But the NOI is 1.3x. Right? Or not the NOI sorry, the ROI is at 1.3x. Right? And so you’re seeing that where they look great on paper, but just like you said, Gary, they don’t understand the fundamentals enough to realize that you just gave up a great deal. Yes, you did. You didn’t give a guy $30,000 back on his money. But what are you buying in the next 12 or 18 months where you could have continued to grow his capital, which is really what he trusted you to do?

Gary Lipsky  09:01

Yeah, absolutely.

Shannon Robnett  09:03

So, now that we’ve just established that there’s gonna be blood. And, you know, the funny thing is, I mean, all through our careers, whether it was you know, in real estate or not, we’ve had catastrophes we had, you know, 911 we had the Gulf War we had, you know, we had 2008, we had you know, cerveza sickness, we had all these different things that have that have come along, that have been challenges, but that’s what entrepreneur, I think it means it’s like an Indian word for really stupid, that we’ve translated to tenacious or something like that as far as entrepreneur but when you really look at this, Gary, what do you see the next 12 months look like for your business? And how are you going to uniquely position to take advantage of the next 12 months?

Gary Lipsky  09:57

So I’m always glass half full So I’m looking at it as an opportunity, you know, I’m seeing debt that is going to cost me about 2% more, but I’m seeing deals 20-25% off not all deals, but some deals that are sent off market. So for me, that’s an opportunity, I’m willing to, I’ll gladly take that discount now. And when I go to sell it, when the market is better down the road, hopefully I’ll be able to not only force appreciation, but take advantage of pricing going back up, there’s a lot of pricing discovery right now. Maybe there’s going to be some people that are going to be forced to sell to get out of, you know, a floating rate deal that’s expiring, or they can’t meet the loan covenants. So there’s opportunity, but obviously, we’re not going to be aggressive, we’re going to be conservative in our underwriting, wait for the right deal, we’re not forced to do a deal just to do a deal just to cover my overhead. You know, I’d rather sit on the sidelines for a year, year and a half, which I’ve done before, waiting for the right deal. So, you know, we’re gonna, we’re gonna keep underwriting keep evaluating the deals, talking to brokers, and when there’s an opportunity, we like, we’re gonna we’re gonna seize upon it.

Shannon Robnett  11:19

You know, and I think that’s what a lot of people you know, that’s where the FOMO has kicked in. And the next thing coming is a casket. Because really, you had to get in there, you had to do it, you had to do it, well, now you’ve done it, right. And you’ve done it on a such a colossal scale, it’s not like you bought a single family home, that you can stomach on your own, you’ve got you’ve got huge, huge responsibility when you’re talking 2030 $40 million deals. And when you’re looking at those, and you’re going, I gotta get through this, my underwriting is, you know, of the opinion in the mindset that I have to provide this protection. I think that that sends a huge message to your tribe, to your people to to the people that you’re working with that, you know, this is why I like Gary, because he’s not just running down the street going, Oh, my God, it’s for sale, we have to have it, right? Or oh my gosh, it’s 20% off well, 20% off of 30%, overpriced is still not a deal. Right? So 20% off of where it should be. And 2% better or worse pricing on your debt means that we’re gonna be about the same NOI as the higher price and the lower debt. But now, this is a good deal. And it works. And we can take advantage because yes, at the end of the day, like you’re saying, we cash back out to real dollars, right? When we get all done, we’re cashing back out to real dollars. So if we can catch that price, decline now, hold it till the surge comes up, and the pricing goes back up, and then cash out at that point. You’re just watching the ebb and flow of the tide? And we’re seeing, there’s always been great opportunity with that, right? 

Gary Lipsky  13:00

Yeah, absolutely. And, and so, you know, we’re another thing that we do is we don’t chase deals all over the country, we want to be experts in a few markets, right? The brokers, we have all, you know, 1000s of data points. So, you know, we’re making very informed decisions, if it’s in another market, I don’t know what’s going on in that market. You know, I can read all the data, but I really need to study the market for a period of time for me to, for me to be able to really know that market.

Shannon Robnett  13:30

You know, and I think that that’s important, because people have chased all over. And then you look at, you know, you gotta deal in, I know, like two songs, one of your markets, right? You got to deal with Tucson, then you got another deal in North Carolina, then you got another deal in Pittsburgh? How in the heck, do you have any comparisons with that? Whereas if you focus on it, like you do, like I do, right? I’m in two markets, right? And I’m very close to both of those markets. And I know those markets very well. So at the end of the day, I can make sure that these things happen in those markets. And I’m good, right? So when I see what’s happening, and you’re reacting to your intimate knowledge in the market, how are you seeing that as adding more value to your investors? Is it because you can dial in tighter and you’re really familiar with it? And you really know? Or is it that you’ve become a major player? Or are you getting some discounts on your management? What is it really that happens? And why are you to be so profitable to be laser focused?

Gary Lipsky  14:38

So a deal we’re going to close next week, a broker called me he sold me a deal two blocks down the street, so he ran over some numbers on the phone. Immediately. I was interested because it just made sense. It was a discount from that property that I bought. It was a lot more land. It was a some nicer property. Certainly we underwrote it, and then I toured it. And this was a deal I didn’t have to, I didn’t have to battle anyone else for shakily, off market discounted, I know that I know I’m getting $450 Rent bumps two blocks down the street. So I know I can get it here, I could probably get more because the rents are lower. And I there’s more, more of a blank canvas I can work with to add more amenities and stuff like that. So just something like that we can, we can jump on right away because of that, because of the relationships and because of the market experience,

Shannon Robnett  15:35

you know, and you did something I just did too, you know, so I’m assuming that that broker is your broker on this deal on both sides, right? So the guy, the guy already closed the deal with you, he knows you can get it done, right? He knows that that’s not going to be an issue for you, then he knows that if he brings you the deal, he’s going to get both sides, right. So he’s looking out for himself. But that works really well. And you have that relationship that you talked about. So he goes, dude, I can make two phone calls, and have this deal done. Or I can put it on the market and deal with 90 people asking 10 questions, or I can deal with Gary asking the same 10 questions. I can make my life simple. And I can make twice as much. Right? That’s intelligence. But it also in that brokers defense, he did exactly what the owner said, get rid of the property. Right. And so I think you’re gonna see, definitely now, you know, because you and I didn’t know what this whisper thing was three years ago, right? What’s this whisper? Well, the Whisper is where we think you should write your contract and then go from there. Right. But these, these are the ways that things happened in multifamily before. And it was that relationship, right. And it was that intimate knowledge where you can on the phone, you know, 90% of the questions to ask, you know, 80% of the problems you’re going to run into. And now all you need is to physically put it to paper and walk the property to fill in answering the questions. I bet Honestly, even though you probably wrote your contract with 1520 30 days of due diligence, I bet within 72 hours, your complete due diligence package was answered. Am I wrong?

Gary Lipsky  17:18

Oh, yeah. I mean, we knew running without even looking at it. Yeah, go on Google. Google Maps go on the property. You know, I, I’m gonna throw in, you know, a few 100 For reserves, you know, based on, you know, how we typically underwriting? I mean, we were right, right on, you know, a couple of couple of tweaks, but yeah, we,

Shannon Robnett  17:36

Yeah, exactly. That’s the value, right, instead of trying to underwrite Charlotte, learn that market and spending time there, and then go to Texas and do that one, and then, you know, be focused. And I think that that is a huge benefit and has served you well, right. Now, how long have you been looking from the time that got brought to you till the time you close? How long? How long was that window?

Gary Lipsky  18:03

I mean, we underwrote it like that day, I probably flew out there two days later, I don’t I don’t mess around. Like when there’s an offer out there that I like, I’m like, I don’t want someone else moving in in front of me. Right? We jumped on it immediately.

Shannon Robnett  18:17

So six weeks, eight weeks?

Gary Lipsky  18:21

Oh, by the time we signed the contract, there was probably like a week?

Shannon Robnett  18:25

Yeah, so you’re gonna be closed and done in less than 45 days? Is that what I’m hearing? You know,

Gary Lipsky  18:31

It’s funny, it’ll be about 60 days, because the seller was the, he’s buying another property. So we are waiting on him. Right for him to get him the contract. And the other deal where our contract was done, within days, it took them like three weeks on the other side. So we’re moving forward doing everything we needed to do, knowing that he was going to get it all worked out. And we were set to go.

Shannon Robnett  18:59

Well, the other side of that is, you know, the broker has got the least amount of work applied to a 60 day period. And now he knows there’s two for Gary zero for the other guys. He’s, you know, you’re building that relationship with his broker that he’s going to now go. Gary, can you do another one? Right, he’s gonna go back to his network, he’s now going to become your guy. And if you’re trying to spread that over five or eight or 12 markets, you’re not getting anybody’s attention unless you’re writing a billion dollars worth of deals a year. And, you know, there’s some people that can do that. That’s not most shops. So let’s, let’s turn this around. I want to ask you a couple of very specific questions and feel free to tell me you are not going to answer that. However, I want to ask you what has been your biggest acquisition so far?

Gary Lipsky  19:49

We did a $59 million deal a few months ago. 248 units and Tucson, B plus property. That’s doing we’re like 98% occupied, we keep raising rents been doing phenomenal.

Shannon Robnett  20:05

Awesome. And then what is your largest? Or what is your most successful exit so far?

Gary Lipsky  20:13

Yeah, we sold one six weeks ago, that was over 3x. And under 20 months? Yeah. It was just perfect targeting Tucson as well

Shannon Robnett  20:26

see what she what I’m saying? I’m saying boys and girls, he’s staying in the same market, because he knows what’s happening. Right. That’s, that’s phenomenal. That’s phenomenal. So what was the secret sauce of that? I mean, obviously, I think that one surprised you, is I don’t think you underwrote two or three acts. Yeah, no. Secret Sauce.

Gary Lipsky  20:47

Really good asset management, finding a solution where others didn’t, because this was we assumed their loan. And we basically were like, the last man standing when we when we bought this and December 2019. Other people found out they didn’t want to assume the loan, we said Yeah, well, also in the loan, give us a million dollars off. And so that was great. We got a great price point. And, and there was a lot of challenges along the way, it was definitely a bit rougher than we thought their guns, drugs, we got some COVID turnover. But the market was fantastic. You know, we kept raising rents and the market was fantastic. We, we improve the resident experience, we put a lot of money into capex and, and timed it time to write we week. It would have been actually even more if we if we sold it like 60 days earlier, when we got into a little bit of stormy weather. But yeah, I mean, you know, this is a unicorn deal. You know,

Shannon Robnett  21:56

yeah. Well, you know what, though? I mean, look, you can’t get lucky like that. If you’re not taking swings, right? If you’re not, if you’re not out there doing the deals, you’re not going to have those what the reality is, you’re gonna get those because of great underwriting, you’re gonna get those because you’re able to solve the sellers problem. You know, I mean, like you said, the seller had a specific thing, I want you to assume my loan, what I’m what I’m reading into that is that there was a heavy prepayment penalty. Right? Yeah. So you solve their problem, you took away a little bit of their profit, but you solved their problem, and it was better off for them. You now had a loan in place, everything was working, then you dealt with, you know, the guns and the drugs. I’m, you know, I think you have a different definition of drug testing than I have. I mean, you know, you guys were probably, anyway, now, but the funny thing is, is you can’t get lucky. Like everybody says, Well, that was a unicorn deal, Gary, good for you. Well, you couldn’t have done that if you hadn’t solved the problem in the beginning. Right. And that comes back from everything we’ve been talking about in this episode of experience as an entrepreneur, right? Solving the problem is really what this journey is all about. And if you can’t do that, there’s no point in continuing to attempt this. This multifamily or small business or whatever it is, because really, at the end of the day, you’re making money by solving people’s problems, right? Yeah, absolutely.  

Gary Lipsky  23:23

You have to be creative. You have to be proactive. And you have to keep standing up every day you get knocked down. 

Shannon Robnett  23:31

So let’s switch gears. I want to go a different direction. I want to ask you a couple of questions. What is something incredibly cool that most people don’t know about you? What can you tell us in this interview?

Gary Lipsky  23:44

All right. Well, it’s in my bio, but I don’t think a lot of people know I actually co-produced a few low budget independent films in my 20s.

Shannon Robnett  23:54

Like, Swamp Thing thing for March.

Gary Lipsky  23:59

You probably never heard of them. One was called boost with Jennifer Tilly, Joan Rivers, Robert Klein. So some well known names. 

Shannon Robnett  24:06

I wouldn’t call it I mean, maybe low budget because she didn’t have much money, but she had some big names. Yeah, yeah. Wow. What was that? Was that your business before the movies? 

Gary Lipsky  24:17

Well,  I’ve had a number of different businesses. I’ve had a number of different lives and college. I own a restaurant delivery service. We started during the break, like DoorDash and whatnot. And then I started getting involved in film work and did that. Coincidentally, I was running a script with a buddy of mine who had a music education company and I was having a child at the time. And so he introduced me to a school and we started, they said, I needed some sports programs. So I said, I’ll get you some sports programs, you know, I needed to keep that cash flow coming in. So I started doing that and grew that business to over 700 employees and 100 independent contractors, we’re working with 9000 students on a daily basis throughout Southern California, going after school programs, Outdoor Edge leadership development, and so that at the end of 2016, to get into real estate full time, I had been investing, but I didn’t want to have one foot in. And in one business, one foot on the other, I wanted to really commit and learn and excel in real estate. So I sold that other business. And I’ve been cracking on real estate ever since.

Shannon Robnett  25:32

You know, it’s funny, too, because really, a lot of what we do is syndicators in it, where a lot of that came from, was from the film business, from the film industry. In fact, that’s it’s funny, the reason I wanted to bring that up is because one of the people that taught me how to syndicate came out of the film business, he was a fundraiser in Hollywood for other films. And that’s where I learned most of my syndication was that where you kind of learned how to raise capital, or was that just purely from production co-producing part of it?

Gary Lipsky  26:02

You know, it’s a little bit of being creative and solving problems, you’ve got to make the day you know, so you’ve got, you’ve got to film, let’s say, 10 pages in this day, no matter what. And we’ve got to make the day in, in, in, in real estate, we’ve got to figure out problem solve, you know, there’s no, there’s no crying in real estate, figure it out. Let’s move on, you know, working with with different people. And that was the biggest skill set I learned is that creative problem solving, getting it done no matter what.

Shannon Robnett  26:35

Well, and I think that’s probably what we should call this episode is, you know, how to find the value in the deals by getting it done, right finding what is, what is motivating the seller, what is what is, you know, you guys need sports programs, I’m having a kid, I need cash flow, right? I mean, all those things as entrepreneurs, I think that’s what a lot of people don’t quite grasp is that we’re not here to be on a smooth paved road, if you want that grab a government job, right? We’re here for the bumps, we’re here for the problem solving. And so, Gary, I really appreciate you being candid with us. And letting everybody know that GP does not mean goes perfect. And that there are other lives that people have. So anything, any closing comments you want to share with my audience, I’d love to hear?

Gary Lipsky  27:28

Well, I guess, you know, if you’re going to invest, make sure you’re investing with an operator that is strong and asset management that has, you know, strong entrepreneurial skills and you know, it’s invest with the operator, not necessarily the deal.

Shannon Robnett  27:44

Yeah, you know, that is very true. And the next 12 to 24 months, like you said, are going to prove that point as to who the operators are, who the general partners are, that are strong that this understanding can get things done and get things across the finish line, come up with solutions where others can’t. So guys, I hope you got as much out of this as I do. Gary, I want to say thank you for being with us today. And thank you for tuning into the real estate rundown guys. Don’t forget to like, share, and subscribe to the real estate rundown wherever you get your podcasts, leave a review. I’d love to hear from you. I will respond. And if you want to get a hold of us, send me an email at [email protected]. That’s everything for today on The Real Estate Run Down guys. Thanks for being with us.

That’s a wrap for today’s episode of The Real Estate Run Down. Let these newfound strategies pave the way to start a successful career or a profound rebranding. If you loved everything you have heard, listen to more conversations at And be sure to leave a rating, share it with your friends and subscribe. Until the next episode!

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About Gary Lipsky:

Gary Lipsky is a real estate entrepreneur who has a focus on Multifamily Syndication and currently has $161MM AUM. He is the President of Break of Day Capital, whose mission is to positively impact the lives of their investors and the communities in which they invest through the highest level of transparency and fiduciary responsibility.

Gary is the host of the Real Estate Asset Management Podcast, where he speaks with various experts in the real estate industry to help educate asset managers. Gary also is the best-selling author of Best In Class, and founder of the Asset Management Summit.

As a successful entrepreneur, Gary has built several companies, co-produced 3 independent films and started a non-profit. This experience provided a great foundation for his multifamily career.