#358 - Phillip Huffines - Co-Founder @ Huffines Communities - The Art Of Building Award-Winning Master Planned Communities

Chris Powers: Philip, welcome to the show. 

Phillip Huffines: Well, thank you, Chris. It's quite an honor to be here. Let me tell you.

Chris Powers: I'm excited to have you here. It's been an honor to get to know you. As I told you, I was going to start with how you got into land development, but we have to get a few things to pick apart first.

Phillip Huffines: Okay, sure. 

Chris Powers: The first is how you got into land development. But before that, why did you get kicked out of military school when you were 15? 

Phillip Huffines: Oh, that's a good question. Still a sensitive subject. As I told you 50 years later, you wouldn't necessarily think you'd still be a little shy about that situation, but yes, it's boiled down to it.

I have a problem with authority, okay? I like to make my own decisions. And when other individuals my age or even slightly older told me what to do, it was not because I respected them but because they had somehow gotten that authority, usually by brown-nosing the higher-ups.

And when they would tell me to get down for pushups or push me around and stuff, I would be rebellious about it and didn't belong in military school. I like the discipline and learned a lot. I learned from that experience that there will always be authority, and you must respect it.

It doesn't mean you want to live with or deal with it. But I learned that I wanted to make my own decisions. 

Chris Powers: Why did you go in the first place? Did your parents want you to go? 

Phillip Huffines: Somewhat, that's a good question. It was because I've always been fairly independent, even as a child or 10 teenagers. I wanted to make decisions, and my parents told me what to do.

So, that was an opportunity to attend a boarding school. It was up in Indiana to get far away from home and live my life. When I was 14 and 15, I failed and came home, and they called us. I called my parents on Christmas Eve and said, your son cannot set foot back on this. So it could have been a better Christmas. That was a long time ago.

Chris Powers: Okay. So you got done at 15. Didn't you work at Getty Oil or Getty before entering the business? 

Phillip Huffines: Yeah. My brother Don and I have a twin brother. And a lot of people don't know that. And the reason that's important to mention is that it's common.

We get around twice as often. So when you look just like someone else, someone says, Oh yeah, we met so and so. I said, no, I don't think I've ever met you. And it could be more comfortable. And so we've had a little bit of a problem for the last 65 years with names and keeping up, but we deal with it, and he's my partner in everything, and I'm his partner in almost every deal we've done over the last.

You know, 50 years. Well, he's the idea guy, and I'm the implementer. And so we're in high school. It's 1976. And what happened in 1976? Well, it was the bicentennial. And so we said, okay, he said, well, we're going to sell fireworks. There's going to be a lot of people buying fireworks for the bicentennial.

And we're 17. So, we found a location that takes a lot of work. Research all the rules and regulations, get a state license and learn about the city ordinances that try to prohibit it. So we did that for about five years, and we would grow the business. We had multiple locations and did it all through college.

Well, not all through midway through college and would hire people. And that's where we learned. Because we learned about city ordinances and government control over certain things and barriers to entry, which was important in the fireworks location, who had the closest location to the biggest city usually got the most business.

Chris Powers: And how long did you do that? 

Phillip Huffines: Five years? So, junior year, senior year in high school, first-year students, sophomore year, and junior year in college. 

Chris Powers: And you all have stayed working together your whole career. 

Phillip Huffines: We did, and we used that earnings that we earned, and it was pretty profitable. It was profitable to buy a rented house in Austin.

That was our first real estate endeavor, and we rented it to students and sold it a few years later.

Chris Powers: The student housing in Austin; you should have held that one for a while. What did you buy it for? I can't imagine what you paid for that house. 

Phillip Huffines: It was a little postage stamp house.

If you leaned very hard against the wall, it would collapse. So we spent a lot of time repairing the house personally. 

Chris Powers: All right. So you get back up, and it's the eighties, and before we get into Huff, go ahead.

Phillip Huffines: Yeah. You asked about Getty Oil. Yeah. When we were in college, Don and I sat down several times, and we'd get a magazine. It was Texas Monthly at the time, listing the wealthiest Texans.

Yeah. And when we reviewed that, it was obvious that they were in real estate and oil and gas. That was the two industries in Texas at the time. So I said, Oh, look, I'll go into oil and gas, and you will go into real estate. And that's what we did. 

Chris Powers: Okay. So, how did you pick land development and get into building master plan communities?

Phillip Huffines: Okay, that's a great question. My brother was always in real estate and land brokering and handling it. And I was fortunate that my father was successful in business. So I had that as a role model, and my brother and I grew up in Greenville, Texas. Most people don't know that.

That's where I went to elementary school junior high. And he was a cowman, and he liked cows. And so he had a piece of property up in Carrollton. It was all floodplain where he would raise his cows and had it for 50 years. And so I came back from Houston and said, Dad, let's look at somehow Entitling this property; when we say entitled, that means zoning and getting things ready to go for development that was encroaching or not encroaching, but coming.

I worked on that, and it was 900 acres in the floodplain, which was a big-time problem. And so it took a lot of work, and we were, it was the last levy project that the Corps of Engineers ever approved in the Dallas Fort Worth area. So we built five miles of levy, sold bonds, and did all this stuff, which is a learning experience for all master plan community land development. My brother Don and I love Land because it's a blank canvas. How creative can you be? What can you create? And so that's why we got into it. And then also too, it's, it's not easy to price, cause a lot of people don't like land.

And because in the eighties land devalued 90%. And so that was quite a learning experience. 

Chris Powers: Okay. Then how do you price it today? If it's not easy, what's your secret sauce? You don't have to give up the whole bag, but what do you think about valuing land? 

Phillip Huffines: All real estate is valued by its future cash flow discounted down the present ballot.

And whether that's an office building, a retail center, whatever it may be, what's the cash flow? And if you buy an office building or you buy, we want to talk about something other than office right now. That's not good. That's a dirty word; that's not good. But if you buy anything that's income-producing.

Then you've got a choice. You decrease expenses, or you got, or the only thing you can do to increase your sales price is cap rates fall, or you can decrease your expenses or increase your revenue, so that's not super creative for us. We want to develop. So we'd like to be the ones who create the value, take the land and create value.

The secret sauce is we try to; let me tell you what a master plan community is. That's the best thing. We only built subdivisions. Yeah. There were thousands of subdivisions in the Dallas-Fort Worth area, but not that many master plan communities. So, okay.

Number one, the competition's less. Now you go to Houston, Florida, California, and everything's a master plan community. 

Chris Powers: Right. What's the difference between a subdivision master plan community and a subdivision master plan community? 

Phillip Huffines: A subdivision is in just lots, horizontal infrastructure, and then a builder comes in and puts houses on it.

A master plan community is usually a much larger property with amenities, including swimming pools, golf courses, and many restrictions. HOAs are usually very active with full-time staff, and we focus on social fabric with our HOAs. How do we have? For instance, in one of our communities, I added up: once we have a refrigerator magnet refrigerator with all the dates for activities and 41 or 2 different weekend activities.

So everyone can pick and choose. We are the best at social fabrics and the DFW area. And creating HOAs are active. We have committees; some are in if individuals are familiar with their HOA docs, but most are not because 70 pages are fairly restrictive.

The purpose of the documents is to outline the governing structure of how the community will operate. So we put in their term limits that the board has to get off. We don't want it run by people who have professional HOA careers. So I will put some of the dues as a percentage of what the dues are to the HOA, and hours are anywhere from a thousand to 1500 a year, not very expensive.

And that comes with all the landscaping maintenance and pools, swimming pools, sometimes lifeguards, et cetera. However, a certain percentage of that has to be spent on social activities and marketing the community in perpetuity. So that it creates value, oh, this is interesting. I tell this to cities when it is; cities have code enforcers.

Code inspectors. And they go out and say, oh, your weeds are too high. And they give you a ticket and stuff like that. I tell the city managers that we meet with them cause we build cities; by the way, we've built about 20, 000 single family lots over the last 30 to 35 years, which is 40 to 50,000 people and our communities will have anywhere from, 1500 to 3000 home sites, and it'll take anywhere from 10 years to 20 years to build them out.

We don't call them code enforcement. We have the HOA individuals who go out and check for landscaping. Mainly landscaping. Or they'll paint their house purple or something. They're not supposed to do that. They put yard art. No yard art. We don't like yard art. in the front. You can do anything you want in the back.

So we don't call them code enforcement. We call them value enhancers, so their job is to create value. 

Chris Powers: Okay. So if you're taking a, like, what's in that HOA doc, there's probably a lot of lessons you learned over the years that you're like, okay, don't do this. Do more of this. What's something that you should not invest in when doing a master plan community, and what's something that you should invest more in when you're doing a master plan community?

Phillip Huffines: Well, Chris, that's a great question. An individual looking to create a master plan community can be small. With a lot of, like, a high-end custom home market. Yeah. We don't sell to custom home builders over the years. Very, very rare. Mainly production builders.

And that's because the financial model is very sensitive to the sales velocity. Got it. So we only sell; we built everything horizontally. We don't build vertical, which is the houses. We did it one time, and it could have worked better. So we just built horizontally and sold it mainly to production builders.

And when I say production, builders can start 50 homes a year up to 200 or 300 and have good credit. And so without that velocity, when we have those kinds of lots that, 2000 lots, we'd be there forever. Custom builders are very slow because it takes them a year to build a house year and a half, and you have to sell retail to a homeowner so that the production builders can build a house in six months.

Chris Powers: When you're doing all these lots, there's probably a ton of production builders at one end. What's the selection process? How do you figure out who's going to be in which communities? 

Phillip Huffines: It is difficult because certain builders work better with other builders, and some builders are not invited to the party because of how they operate. Some builders work on larger profit margins than others. Some builders work on more velocity and less profit margin. And you asked about the secret sauce. So here's the secret sauce: I will take the secrets. It's not that secret.

We started in the business. We got our start from the RTC because we went broke, and we would go to these auctions, and RTC is a resolution trust. Do you want to hear all this? 

Chris Powers: Oh, yeah. It's all good. 

Phillip Huffines: All right. Well, when everybody went broke in the eighties and the young people, you're still probably too young to remember that the government was foreclosing on all the property because what happened and how the government got the property was they took over the banks.

Okay. So, the banks went broke. The government would take over the banks, and they would have bad loans and bad assets. Often, the banks were eager to foreclose on their loans and take back the property so they could resell it. Well, they realized that there are better ideas than that.

They didn't want to be in the real estate business banks. The government created an entity to take all these bad loans and all these foreclosed assets, mainly real estate, and put them into one entity. And that was the resolution trust corporation. And the best thing the government ever did was say it's a three-year life.

After three years, we're selling all of this because you knew there was a bottom. No one wants to catch a falling knife. So they always say, where's the bottom, where's the bottom? And I take this, economist and his name's Little Man. And he's got the greatest quote, and I don't, I want to bar, he says, greed will always surpass.

So everybody's waiting to get greedy, when it, where's the bottom. So, the government was liquidating all their assets. We didn't have any money, no money whatsoever. My brother and I'd go to these auctions, and there were live auctions and sometimes sealed bids, and you'd put your offer down.

But they would always give you 60 days, just like today, you can buy a PC, set your 60-day load, 30-day close, or something like that. During those 60 days, we would run all over town to Syntax, Pulte and all the production builders and say we were buying lots. And so we would go to these savings and loans, which no longer exist.

Your audience, some of them listening to everyone, no less savings. And so they'd be selling these assets. And they'd be huge, like 500 lots subdivision. And so we would flip out to send text, 200 Pulte, 100 and try to keep some free and clear. And that's how we got our start in the single-family lot business.

And then, we bought acreage with partners, and then we would develop that acreage and get into the master plan community business that way. 

Chris Powers: Okay. But what's the secret? 

Phillip Huffines: Well, we tried it. We have the same lot prices as the competition. Other builders go down the road and buy lots at the same price. Still, with greater amenities, a better HOA, more landscaping, and more marketing, we can market the community that others don't because we charge a marketing fee to the builders.

And so we get them now on social media and have websites and all that like everybody does, but that was it to have a better product at the same price as the competition. 

Chris Powers: Okay. We will use this as the time cause you said some of these deals take 10 to 20 years.

So, I want this conversation in a way that's this ongoing timeline. So, you have to find a piece of land to buy. You all are just in DFW. 

Phillip Huffines: Correct. Now, we've had property in Austin and others; we had a couple of ski resorts at once and did all that. But mainly, DFW is correct. 

Chris Powers: But right now, there's only so many big blocks of land around the Metroplex. You probably know of all of them. So, what is the process of buying land? How long are you after a piece of land before it's under contract? Is this year in the making, or is it just a listing that comes up, and you make a bid or is it? Is it both?

Phillip Huffines: It's both; we seldom win the bids. And there are a lot of reasons for that. We've learned over the years, even in the 08 and 09 period when there was a lot of property for sale. We seldom win because our experience level is that we know the problems with the property and then how long it can take.

And we usually don't have partners. We don't have any partners, so it's our money. Yeah. So we have to be very cautious. And we know that. The bumps in them, we call them trap doors and other people in the business don't because they're generating fees. If I'm a free builder, my job is to find a deal as fast as possible, get investors, drive a bunch of fees and develop the property.

And we usually don't win those, those bids. We, so we find off-market property. So we would get ownership maps out. Over the last 20 to 30 years, look for landowners who look for large tracts of land and contact the landowner. And, like you said, it could take a year. It could take two or four years to talk them into eventually selling the property.

Chris Powers: Is there a minimum size you'll buy or a certain sweet spot of acreage you're looking for? 

Phillip Huffines: No. We should buy at least two or 300 acres. And we can buy it. Like we recently have acquired. Now we're up to. 2, 000 and we'll combine another 500, adding on 2,500 acres in Middle Otheon Grand Prairie.

Chris Powers: Why is 200 or 300 the magic? Is there anything magic about that size? 

Phillip Huffines: It's a lot of work. And without what 300 it's, so here's the math. It's about four units, four houses per acre, three to four. That would give you enough synergy to support an HOA. For example, with the swimming pool without a thousand homes, it is challenging to have the dues where they need to be so that you can support a nice amenity package. 

Chris Powers: Okay. So the size is one thing. Are there, what are just other kinds of boxes you're looking to check on a piece of land like it's out of the floodplain, it's near infrastructure, good school district, like, how do you know you've checked all the boxes? What are those boxes? 

Phillip Huffines: It's more, we can overcome many problems. We ended up buying the problem property. We've bought like. Two different large tracks that were next to landfills overcame that. The one that comes to mind the most is Viridian in Arlington. Oh my gosh. Talk about problem property.

Oh my gosh. We had to move like 5 million yards of dirt. It was all in the floodplain. It was next to strip joints. It was next to a landfill. And my wife said, no, mom is going to come by a house here and drive by those Places up the road on one 57, and I said, Oh, I think we can overcome that. You had to be an optimist in this business.

It was so bad. Seagulls were coming off that landfill next to us and landing in the lake we were building. And we had to rent Falconers. So they can hold the Falcon. So we've had a lot of challenges over the years and. The edges. And when you get urban property, large tracks left over, they're left over for reasons.

And those usually have the most potential for appreciation. They've been picked over. People have gone broke on them. We're the third owner of this Viridian property, and everybody had gone broke before us. And so to answer your question, the boxes are really, what can, what's it going to cost?

To get the property ready to go and entitled and ready to go. And what can we sell the lots for? What kind of volume can we create? And then we discount back. 

Chris Powers: And you're selling what I'd call more affordable homes. You're not looking. Are you doing multi-million dollar developments, or is everything priced affordably?

Phillip Huffines: It's usually 1st or 2nd-time buyers or 3rd-time buyers. But not the big million-dollar mansions. We have some of that, but our bread and butter is different. 

Chris Powers: Are you working? Do you offer incentives of any kind to the state or the city? Yes. 

Phillip Huffines: Oh, great question. Absolutely.

And that's why I want to ensure your audience knows that. There are various incentives for Triple P's public-private partnerships. Many of us are leaders in North Texas in public-private partnerships. So that's our secret sauce also.

Chris Powers: How does that whole process work? 

Phillip Huffines: Oh, that is a challenge. In the late 1900s, the Texas legislature set up Highland Park University Park municipal utility districts. Some of the first sub-master plan communities were municipal utility districts. And it's because The cities weren't established.

They couldn't finance infrastructure. So, a developer finances the infrastructure and builds the sewer plants. For example, we've built sewer treatment plants with elevated storage. We call them water towers. We do all that. And we get reimbursed through the sale of bonds. We create a government entity, and there's a board that the homeowners elect.

And then there's a tax on the property, and they sell bonds. The district does and reimburses the developer for the infrastructure. 

Chris Powers: So you do muds. 

Phillip Huffines: Yes. 

Chris Powers: Do you do anything else? 

Phillip Huffines: Oh, there are a lot of acronyms out there, including MUDs, MMDs, PIDs, TURFs, and TIFs.

Chris Powers: So, do you have a full-time? It's more than just general counsel or somebody on your team constantly working on that.

Phillip Huffines: Yes. 

Chris Powers: Do you have to stay updated with legislation, or has it all been the same for the last few decades, or is there always something new? 

Phillip Huffines: Always something new being added. And the legislature in Texas creates cities and the authority that cities have.

So, it's natural for any governmental entity always to want and gain more power. And it's the same for individuals; that's a fairly addictive drug power. And it's very, very rare that you see individuals who are not addicted to that drug once they get it.

Cities are constantly battling developers for various reasons. And so the legislature says, Hey, whoa, wait a second, slow down, let's make the, make the, let's level out the playing field. And so, the most recent legislation was effective last September. And the legislature only meets every two years.

As they told the cities, these cities are now getting the picture. The cities have a lobby group. And they use your and my taxpayer money when we pay our city, property, or sales taxes to hire lobbyists. They use it through a group called Texas Municipal League, TML, and they spend 20 to 30 million dollars a year lobbying in Austin to get more power and to protect the city's turf.

That's ticked off a lot of Republicans and people who say that's just not right. You can't use taxpayer money to pass laws to limit what developers or individuals can do. So, in the last legislative session, the legislature passed a couple of laws that cities are just wigged out about. I mean, freaked out.

I mean, Going to court and, you can't do that. Well, of course, legislators can do anything at once. So good luck on that. It can be challenging, but all cities have boundary city limits, depending on the city type and size of that boundary. And outside of that boundary was what's called extraterritorial jurisdiction.

Cities have the authority to regulate certain things in that ETJ. And so they were exceeding their authority and forcibly annexing property. So four, two legislate, four years ago, the legislature said you can't forcibly annex property anymore. Cities would go out and back in the '70s and '60s, 1960s, 1970s, and '80s; the cities would strip down highways to give speeding tickets, right?

So, the city revenue could come in; they would annex just the highway. It was a state highway. So the state said, no, you can't strip annex anymore. So that stopped that. Then, the city would go out and get many speeding tickets. And the state said, no, no, no. Selma down near San Antonio was 70, and 90 percent of their city revenue was speeding tickets.

And they said you can only have up to X percent of your revenue from tickets. All of these things in the cities would set speed limits that I'm just dumping on cities right now, and they would set speed limits at 20 miles an hour and around the corner. So they gave more speeding tickets, and the state said, no, you can't go below 30 unless it's a park or school.

So the state's constantly reeling in these local governments. And so, and back to where you were, the state said, okay, landowners. Landowners, you don't have to be in the ETJ of that city. If you don't want to be, you can annex yourself from the city's authority in that area. And that's a big deal now, with cities fighting that and landowners saying, okay, I'm out. I don't want any part of the city.

Chris Powers: When you're doing these, are there already established school districts in these areas, or are you coming in, going to help establish a school district? 

Phillip Huffines: Wow, that's a great question. It is like, So sometimes, and I'm not sure when, Chris, but sometimes in the 1940s, I think, maybe it was the 30s, the state had, and I always wondered this, and I figured it out, we figured out, you said Dallas independent school district for an independent school, all of them are called independent.

And what is that about? Well, of course, why wouldn't they say school district? Yeah, well, early in the 20th century, it was school districts by the county, this county, that county, and for some reason, the legislature changed it, created these, and divided the state up a hundred percent. There are no gaps in school district A meet school district B.

The Rock wall runs into the Plano school district, and the school district boundaries flow. Follow creeks; they follow county lines; they follow used-to-be old city limits lines. They follow property lines completely across the board. They could be anywhere. So, no, we don't create school districts, but we work very extensively with the school district.

And we help them with architecture. Because sometimes they could be more creative. And we have a theme going on in the community. We say, well, whoa, whoa, wait a second. You can't put that here, but we would like to work with you. And we'll sometimes pay extra. Sometimes, we give them the land.

Sometimes, we sell it at a discount and help them be more creative in their thought process, especially with landscaping. They're not big on landscaping. 

Chris Powers: It's landscaping big. Is it critical? Why?

Phillip Huffines: Well, if you ask realtors, a street shaded by big trees will always sell for more than a street that's not really.

So we look at sidewalks. Our sidewalks are 5 feet from the beginning of our business 30 years ago. Now, all the cities require 5 feet, which is 5 feet wide. Then, you can walk side by side in 5 feet. 6 is better than 4, but you cannot. So one person has to walk in the grass unless you buy yourself, so that's how it came about.

Chris Powers: You've thought through these things, even one foot of a sidewalk, all the details.

Phillip Huffines: I didn't tell you we will get into it. That's our secret sauce to our level of detail, which is just crazy. And anyway, yeah, it's too much. It's too much because you can't do other deals. If you're bogged down in the weeds, right? But what do we talk about?

Chris Powers: I asked you about landscaping and just asked how important it is. 

Phillip Huffines: Yeah. Oh yeah. We talked about the schools. So we work with school districts extensively, and like in Viridian and that community, we, HGB, is a school district, and it was their first multi-level school district.

They had an elevator in elementary school, which was a big deal, but they were very creative. They worked with us. We're very fortunate to have a school district that was open-minded in 2012 and 13 and has excellent schools. It's 1 of the best schools. Oh, I got to tell you this about Virginia.

And this is cool. I found this out just the other day. I was at a function, and this guy approached me and said, did. What is the assessed value? We sold it in 2016. We had partners, we started it and bought it in 206 and went through the worst part of the recession, did all that. And that's another story.

But so we sold it in 2016. Partners said we're lucky to make this kind of money. So we're out, and we didn't have a choice. And I said, no, I haven't heard, because some other people took it over. When you started Viridian, he said the assessed valuation of that floodplain land was 8 million.

I said, oh yeah, fine. He said that was 2009 or 10. He said, you know what it was last year? I said, no, I don't know what this is. My wife said 2. 1 billion. So we're, I said, I will put that on our website. That was cool. All right, well, then we work with all of the school districts.

Chris Powers: Yeah, we won't skip over that story.

So you bought this land in 06, and the world's humming. How far along in the project were you in 08, 09 hits? And do you stop the project, or do you keep building through it? 

Phillip Huffines: We never had started. We're still in the entitlement process. When I say entitlement, that's sometimes hard for people to understand.

What does that mean? And what that means is. The governments and local governments control every aspect of land in their city. And when I say every aspect, that's how you develop it, what the road widths are, the thickness of the pavement, landscaping requirements, zoning is the big one, and whether or not you can create these acronyms we talked about, the PIDs, the MUDs, and all of that, all of those tax public-private partnerships.

And so we had to go through that process with Arlington. And what happens is it takes a long time for the cities to trust you. You have to build a rapport, and they've had so many developers come in, especially on this piece of property when 2 others come in and promise the world, and both went broke and never delivered.

So we are always under promise and overdeliver. So our reputation is important. So when we go to another city, They can say, Oh, look what Huff Hunts has done. They were great developers; they over-delivered. And so, that's important to us. So that's what took two or three years.

And then in 2010, at the very depths of the recession, we didn't have any, no banks for loans and money for real estate, but we were able to sell bonds upfront, which is like, in there, this is a public improvement district bond. And it'd only been done a few upfront in the city. Some individuals we know who are in the bond business came to our office, and good friends of the family came and said, don't do that.

What are you doing? I said, well, we're going to do it. It's going to be successful. The interest rate on those bonds for the audience is fun. It was about a six-month window, and rates just jumped up. What you sell them, and you've got it. It's the public bed. People bid on the bonds, and you must take the low interest rate.

It was 9. 75 tax-free. And I said, man. So I said, I told my mother, I said, she's, it was a widow at the time. And I said you need to buy some of these. My mother-in-law bought some. And so anyway, it Turned out to be a great deal. 

Chris Powers: It's incredible. All right. So you, you bought, you buy a piece of land.

How long does it typically take to get entitled? Over time, the government will be getting longer and longer than it used to be in the eighties and nineties. But as we sit today, how long do you spend on entitlements and designing the whole thing?

Playbook for each one already where you're just moving puzzle pieces? Or is each one a fresh start? 

Phillip Huffines: Each one's a clean canvas. Because of access points, whether on the freeway or where it's located, how do you get to the property? Where's the center hub of the community going to be located?

All of those are unique to that specific piece of property. So, and sometimes we do smaller lots, sometimes we do bigger lots, sometimes they're rear entry like alleys, sometimes they're front entry with the streets and the garages on the front. And the entitlement process with the city. Normally, it takes at least 18 months to two years.

Chris Powers: And then the planning with the architects. 

Phillip Huffines: We usually do that at the same time. At the same, the land plan and architecture, because the city wants to know how it will develop. So you have to do that kind of. And you work through that as you go with the city and what they want, what they don't.

Chris Powers: What's the ratio of like costs, amenities, and public spaces versus costs and lots? Like, are you always trying to hit that number? Is it different for each one? 

Phillip Huffines: Different for each one. NPCs master plan communities spend anywhere from 10,000 to 20,000 per lot on amenities. So we are in the middle of 15 to 20.

And that's everything. The main Boulevard's landscaping is the entry feature, like in our community. We just opened last year and had a grand opening this year. Saltera and Mesquite. We built a tree house. And that's unique. Look, Don and I are not widget builders. We don't want to do it if someone else has done it.

And I advise anyone looking to get into business. You must be unique if a person thinks they will get into business and beat the competition. It would help if you had a niche; somehow, you're doing something different. It's because there's, there's, there's a lot of fray out there.

There's a lot of competition. So there's a tree house. We hired tree house masters that used to be on TV, yeah. And I didn't. I had never seen the show, but everybody talked about it. So they came, and we had this giant, which we still have. It's a 48-inch, 50-inch. Red oak native. I mean, it's just giant. And I said we've got to do something special with this tree.

So they came out and designed this tree house. Treehouse was 650,000. And then we spent another 500 000 in the park around it, put a bridge across the creek and everything. It's just gorgeous. And that's part of an amenity, you asking about that. And so we designed this promenade to go from the clubhouse.

Across the lake that we built, of course, we stock them with trophy bass because we think fishing is a great family exercise, and we have in some of the communities we have Zepco comes out and gives out rods and reels, and we have prizes. We put a tag on the bottom of the fish and let some go. If they catch the tagged one, they get all the prizes, like a TV.

Chris Powers: I've never heard of that. You can tag fish. 

Phillip Huffines: Yeah. And let them go. And then the fish guy lets them go the day two weeks before. I said, don't feed them. Yeah. 

Chris Powers: Oh, great. How much does the entrance matter on these things? Because people put a lot of money into the drive-up. 

Phillip Huffines: Entrance is a big deal for us. Some communities don't. It's the thought process in the last five or six years; amenities make it low-key and exclusive, like four seasons, and then people can show up. Yeah. Yeah. You don't want to. Yeah, I'm more of the blaster. I want people to say, be proud when they drive in, as I've so for 30 years; we try to make sure that everyone remembers they're in a master plan community in this name; for instance, on all the mailboxes, we put the logos on every mailbox. And all the street signs are custom. They have a logo on every street sign which says the street. It takes forever to negotiate with the cities. Well, you have to use our street sign. No, we're not using your street sign. You're not using that little metal pole. These are custom rod iron poles, and they all look good.

So, we put water at the entrance of our communities. So that there's this calming, you take a deep breath when you arrive in one of our communities, there's a water fountain blowing water, and there's an entrance, and they take pride in that their home. 

Chris Powers: I freaking love it; I was looking at your communities the other day; I think Heartland was one of them, and you have this huge sign over the entry that says Heartland. And I remember talking to a developer years ago, and he just said something. He's like, there's something about human nature that when you drive under it, you feel like you've entered a new world. There's a huge value in having something that goes over the road.

And he showed me all these examples. And now every time I drive through something where it's just like a sign, once I get to the other side of it, it's like, yeah, I feel like I'm in a new place, even though I was driving under, a sign. 

Phillip Huffines: And usually from that moment on, there's extensive landscaping like a resort. 

Chris Powers: So I asked earlier, but then there's a pool and amenity center, tennis courts, and pickleball. You got to be doing pickleball. 

Phillip Huffines: Pickleball is on fire. Stays on fire. And so in the new communities, we're putting in eight and two covered pickleball courts.

Chris Powers: Do you do golf courses or not? 

Phillip Huffines: We initially returned to Rowlett and Water View golf course. 

Chris Powers: Why'd you stop? 

Phillip Huffines: Well, first, the idea on a golf course, if you're a developer, is that you'll get premiums on the golf course, which make up for some of the land; the land is about 180 acres.

You've got to give up a lot of communities, NPCs, give up floodplains. And then the golf course floods. We at Viridian bought the golf course next to us, Riverside, which is inexpensive. The idea was to bring it up into the community, across the river, and all that. But we've done golf courses.

The premiums could be better. Many people don't want to live on golf courses because of the balls and people in their backyard and things of that nature, but it does establish and give you a bell cow, so to speak, for the community. We did it with the city of Rowlett in 2001, 2000, 1999, 2000.

It was successful. It's a city golf course; we paid for it and donated it to the city. But the amount of land you have to give up is usually not the numbers don't usually work. 

Chris Powers: Yeah. In programming these things. So you've mentioned lots of events, and the HOA runs everything. Do you have an events business or a hospitality company that comes in and runs all these events and ensures they're executed flawlessly?

Building lots of buildings, infrastructure, and a vision are two things. It's another thing to coordinate all these events. You're working on two different kinds of things there. 

Phillip Huffines: True, the management companies. I have experience with the events and run them. And so we'll, in our communities, have the minimum business size, but three or four to five.

Eight people in the heartland. There's stuff in 2015. So they can segregate duties and keep people in, maintain people too, and we have community social clubs committees. And so I'm smiling about it because I thought it was fun. I told the social chairpersons.

So, the H. O. A. Management company that you have social chairmen for, and they're, and you have to appoint them, and they have to write an article for the newspaper every 6 months. And, of course, they have to take photos of every event. Everyone likes to see themselves at the event, a photo, right?

And with their kids dressed up with costumes and color and everything. And so that's a big deal because they get the budget, the social committee gets to spend money. So, a lot of times, it's all managed by the homeowner.

Chris Powers: And they get to come up with the events?

Phillip Huffines: Right. The management company guides them. It helps them and takes care of the stuff they don't want to do, but it's mainly volunteers.

Chris Powers: It's amazing. I've never really been in that business. It is like the tiniest, tiniest microcosm, but I used to own rentals in college, and one of the things we would do in the leases was bring pizza during finals and then deliver pumpkins during Halloween.

And you couldn't believe how that was a needle mover to sign a lease. It's like, wait, you'll bring us pizza and pumpkins. And I remember thinking, man, you don't have to do it; you have to be thoughtful and think about the person in the building, as I can imagine. Most of your life is spent putting yourself in that person's shoes and Thinking about how their life and raising kids will unfold. That's cool. 

Phillip Huffines: It is cool, fun, and the greatest joy we get. We would sit down, and I would go to parks and see what the kids play on, not our stuff, but the city's parks, different parks, and what type of equipment they like. 

Chris Powers: So you bought the land, you've planned it.

How many sets of plans do you go through? I mean, you've done this now for 30 years. Is usually the product what you envision first? Or is it still like, I can't believe this is what we ended up with? I thought it would be different. 

Phillip Huffines: You mean after we build the roads? 

Chris Powers: Well, I'm saying while it's on paper, cause you're probably walking the land while you're buying it, envisioning what it's going to be, but then you might go into planning, and it's flipped around or you all at a point now where you, you pretty much know what you're getting as you go into planning.

Phillip Huffines: I'm laughing because we have this project in Grand Prairie, with 2000 plus acres, and we had it all planned.

I am 100 percent ready to go. We're talking to builders about buying. We got our entitlements from Grand Prairie. And two weeks ago, we said we had to change the plan. And the team at the office says there's something final at Huffines once it's final. And it's only final once it's almost under construction and we're designing it.

So it's always getting better when we make changes. We're making changes for the better, and most developers don't do that because most developers are on a tight timeline because of the IRR, right? You've got to have that IRR and every month, it's going down, especially in this business because you've got.

Two years of zeros. We don't have partners. How can this be better all the time? That's all we ask. What would make this better? 

Chris Powers: Okay. You don't have to share a specific; I know it's a private project, but to the extent you could, maybe at a high level, like what would you have seen after planning the whole 2000 acres that with two weeks to go, you go, we got to change this.

Is it an amenity? What would you have spotted two weeks before that? 

Phillip Huffines: It was an unnecessary road that cost 10 million dollars. And we could get the same benefit with another road also going in. The other road needed to serve a purpose. We had a lot of townhomes planned for that property.

And townhomes right now are dead. No one wants to build townhomes because home prices escalated after COVID, right? And so, to make things affordable, you had the stair step, small houses, small lots, and then townhomes. Townhomes are a starting product for a lot of people. And two things happen to townhomes.

One is they get more expensive to build and more expensive on the insurance. It would help if you mentioned that. So insurance has gone. Sky high, and so the insurance costs in townhomes for the HOA dues because they have to have a separate do HOA takes care of the townhomes, the roof, the common areas, the side of the building and everything to have a separate insurance policy, separate dues for that and it got expensive.

So a homeowner can almost be detached in a 30 ft. White House for the same monthly payment as a town. So that's it. We had to eliminate that change, and the amenities changed because we've got another contiguous track. Part of this property is in another city. It has a big 100-acre lake on it.

And we can get to work with us. It's been 2 years, and we haven't had it, but it will work for us in the future. We're going to move some of the amenities in that area. 

Chris Powers: Okay. And just for anybody listening, and I used to do development, not near like this, but when I hear taking a road out of a plan, that's already baked, some people might be thinking, Oh, you go to the plans, make an edit and a week later, you're back to good.

What does it take to make a change of taking out a road? Is this weeks, months, years? 

Phillip Huffines: It'll set the project back at least four months, three or four months. 

Chris Powers: You are a developer. Cause only a developer is like, yeah, it's just three or four months. We're going to take the road out and get going.

Not having partners is especially advantageous. You can be thoughtful. 

Phillip Huffines: Could not do it. We've had partners. No. And our business is there's cost overruns here. There's we save money over there. And when these private equity guys come in and give us their pitch and proposal, we'll fund you.

But this is how we operate because they want cookie-cutter. It's just the nature of the business; we look at those docs and can't do that. I mean, they have all kinds of docs, and we had partners in Viridian, and of course, we went through a very bad time, 08, 09. And so they were constantly pulling out the partnership doc and reading it.

I told you guys, " Look, if you're pulling out a partnership doc, I want to be separate. That's just it. I'm not. I don't know what it says, but we were careful about what we signed. But look, if you have to try to interpret all 99 pages of that partnership doc, what's the right thing to do?

I said, let's sit here and work it out. And that's different from how somebody from Boston and the East Coast operates. They just, It's not. So we say, okay, we're done. 

Chris Powers: I had a gentleman on the other day from New York City; I asked him, I'm like, part of the sport of real estate in New York is getting lawyers involved; it's like part of.

Phillip Huffines: Yeah. Well, we're out on that. 

Chris Powers: Yeah, that’s not how we do it in Texas. Okay. How long does it take to put in the infrastructure? Are you putting it all upfront, or are you phasing it in over that 10 or 20 years? 

Phillip Huffines: Phasing it in, of course. Yeah, so we'll like in what we call Lake Song, that community down in Grand Prairie.

Yeah. We'll build 500 and 600 home sites all at one time. And that part goes in all at once with the amenities. We'll add the basic part of the amenities as we go. 

Chris Powers: You're in these things for 10 to 20 years. 

Phillip Huffines: Yeah, it's most of them. 

Chris Powers: I don't even know what to ask about that.

That's just a long time to be involved. Are you less and less involved as time goes by, or does the job change as time goes by? What are you doing in years like 10 to 20? 

Phillip Huffines: Oh, that's great. I just never thought about it that way. It's just to me to us. It's like it becomes a business.

You got Phase 10 and Phase 9. And then we planned another amenity over here like another pool or the school's going there. So we continue to expand. And get builders to build the new sections. 

Chris Powers: To get a school, do you go to that school district and say, Hey, we're building 3,500 new homes here.

It would be good to put a school here. And you already have the site form. How does it work to get a school in your community? 

Phillip Huffines: Well, to get the actual construction of the school is different than we work with them on the site. So, we're planning this site. Does this site work for you?

And they'll say yes or no for whatever reason. And some of the new school districts, like Middle Oath Ian, one at the time last year, got a new superintendent. So it changed, but they wanted a middle school. Elementary, middle, and high school are all on one site, which we'd like because high schoolers can then go, tutor the elementary school kids and be part of that whole process.

They are not isolated. Their age or grade level, but anyway, the bond issue failed. Yeah, so they, that failed.

Chris Powers: But are they building the schools on your land, or do they buy the land? 

Phillip Huffines: They buy the land.

Chris Powers: Okay. Do you always know that when you're buying a certain size property, you have to plan for a school that the city will have to buy a school site from you? Or does that come as you're planning?

Phillip Huffines: It comes as we plan, and the school districts are independent of the cities. Yeah. Some cities work more closely with their school districts than others. Yeah. 

Chris Powers: Okay, let's talk about the market briefly. What's it like right now in your world?

What comes to mind when I say what's happening in the market? 

Phillip Huffines: Well, it's like when we went when I first sat down before we got on the air; this is a great time for our business. Master plan, community, single family, lot development. It is a great time.

Isn't it? I'm not ironic, or it's just weird. You have fairland rates, but there is such a pent-up housing demand. And what's happened, of course, as you've heard, and I'm sure you've heard on your show from other participants, that no one wants to give up their 3 percent mortgage, right?

So, the existing home market is locked up, and it takes a lot of work to get someone to sell their existing home because what will they do? And so that, for instance. I want to make sure I got these numbers. And in 2018, new homes accounted for about 14, 15, and 16 percent of new home sales.

Now it's 30% because you can't buy an existing home. No one's selling. And so that's helped our business. Also, if you look at home builder stocks, I know you have many guests who keep up with equities, and home building stocks have doubled or tripled in the last two to three years.

So they're flush with money and cash. And so they're making a lot of deals to prepare for the future because they can do that. Home builders are publicly traded and even private. And so in our business, normally we would sell, say, 400 lots, say, pick a number, four builders, and they would shoot, and they would buy 25, 50 at the first when we finish construction, and they approve everything, they buy 25 or 50, and then over the next year or two, they would buy the other 50, as they sold houses.

Today, they can come in and buy 100 150 for cash. We finish the construction; they take them down. Or even more advantageous to our land development business, they'll buy 50 acres and build the lots. We'll build them for them, but they pay for it. The capital and the MPCs are massive requirements, the capital requirement.

We have to borrow money to build the lots, borrow money to buy the land and borrow money to build everything. Then, our income comes in incrementally as they buy their lots. 

Chris Powers: What's their incentive to buy 50 raw acres, and have you do it for them? Why wouldn't they wait? They get a discount for buying it.

Phillip Huffines: They get a discount, and that's the competition pushing the deals. So, to be competitive in the marketplace and get a lot of positions, that's the only way many developers will sell it now.

Chris Powers: And for the most part, most of the big builders won't. Hold raw land or land on their balance sheet for long.

They will want something finished or something active. How'd you know that? 

Phillip Huffines: Yeah, that's correct. And so they've come up with ways to do that. Yeah. And it's called land bankers. So they will buy the land from us, then finance it with a land banker and pay them a pretty high interest rate to do the same thing we used to do: hold the land. And develop the lots.

Chris Powers: Do you prefer or care about working with a private home builder versus a public, or are they all different? 

Phillip Huffines: Privates have a lot more flexibility. Publix can put down up to 20 percent in earnest money by gap accounting principles. So your audience knows earnest money.

We buy a piece; you tie it up with 18 percent down. Privates can put 30 to 40 percent down. And we'd like as much earnest money down as possible so that if something happens on a macro event and they want to get out of the deal, they got a lot invested. So it makes it more difficult.

Chris Powers: What does a typical lot takedown contract look like?

You explained that they might take 400; they'll start with 50 and then continue. How does that contract usually read 20 to 30, 40 percent up front for those first 50? And then they're, as soon as they close that, do they have to put 20, 30, 40, 50 percent down for the next 50? 

Phillip Huffines: It works like this.

So if they're going to buy a hundred lots from us, it's a public, so 20 percent earnest money. 

Chris Powers: On all hundred. 

Phillip Huffines: All hundred. And then we get the loan, build the lots. Put in all the streets, infrastructure, water, and sewer amenities, turnkey it, and deliver all hundred to them. And then their contract will say, I'll buy 25 upon completion of the initial construction.

And then six months later, I'll buy another 25, 90 days later, another 15, 90 days later, another 15. Their earnest money we hold until the end. 

Chris Powers: Got it. 

Phillip Huffines: So, because of all our profit in this business, the profits are a third, third, third, third in the land, a third in the development, and a third profit.

Chris Powers: What does the 3rd and the development mean?

Phillip Huffines: And the infrastructure cost to build everything is about a 3rd of the cost that the builders pay us. Our cost of goods is in the land, and then about a 3rd or 40 percent now construction costs go up in the construction of the lots and the infrastructure.

Streets, all that stuff, water, sewer, water towers, and then the 30 percent profit. So our profits are at the end of the deals, and that's why private equity is seldom in this business. And many people don't like the business, but the multiples are strong. Strong, but the IRRs, they're okay.

Because you can't turn it quickly, but the multiples are huge because you lever into it.

Chris Powers: The demand is, as far as you can see. For example, builders will take any lots they can get because there's no existing home selling. 

Phillip Huffines: Well, it could be better.

Chris Powers: Yeah.

Phillip Huffines: we still have to go out and sell it and convince them that this is a great spot. They know the marketplace very well, and what most of these builders will have, Chris is that they'll have 15 to 30 different subdivisions built in the DFW area. Well, I want to give this data point to you as you asked about land, and DFW is a big market.

I've measured it. It's about 85 miles across West Fort Worth to Royce City, East, big market. North South's big. But DFW, and for the last several years, since 06, has averaged about 40,000 single-family detached units being constructed, home building permits for single-family detached. And for easy math, it's about four per acre.

So that's about 10,000 acres. Ten thousand acres is about 15 square miles of land going under rooftops yearly, about four miles by four miles yearly. Boom, boom. So if you look at a map, DFW and these Googles, you can go back in years on the map, and you can see how the growths occurred; that's why one reason we like land.

Because it will be built, it may take less than five years. It may be 10 or 15, and it usually keeps up with a real rate of return. That's greater than you can get elsewhere. So, at a nominal rate, you'll always get a good return.

Chris Powers: So you'll land bank and get ahead of the game. Would you, 10 years, sit on stuff and wait, or is most of the stuff you're working on, you're trying to get going as quickly as you buy it?

Phillip Huffines: Both will buy small deals requiring little capital. As we call it, legacy land we've owned for 10 to 20 years is leftover pieces from an MPC, and not all MPC land will be a single family. Some could be commercial or retail around the highways or perimeter. That's the last to develop.

And so we've built apartment complexes on legacy land, and that's all paid for. It's free and clear, and our niche and how we kept out of bankruptcy in the eighties and nineties is that we would keep something free and clear. That was our mantra: sell what you can and keep something free and clear.

Don't have any debt. We learned that net assets can be the clothes you wear. 

Chris Powers: How did you almost go bankrupt in the late eighties? 

Phillip Huffines: Oh, that's easy. Well, young and cocky and making a lot of money out of college. And we had that fireworks money and rental house money. And we thought we were super smart. 

My father was very successful. We didn't grow up wealthy. We didn't think of just the upper middle class; he had banks, so the banking industry in the early eighties grew. He sold one of the banks to one of the public and. Then, 86 hit, and 86 was a double whammy oil; the oil fell to 10 a barrel.

The federal government passed new rules and regulations on the part, limited partnerships and the ability to deduct. So real estate shut down, oil shut down, and that was two legs of a three-legged stool. And so then banks started getting in trouble. Savings loans were lending long and borrowing short. So, I got the mortgages to buy a house from saving most 30-year mortgages, and they would fix it 4%, mainly six back then for decades, with an average interest rate of six; it's only when the Fed has been.

Subsidizing interest rates in the last 10 years, and that's why we're in so much trouble. We will be with this debt because we have yet to pay the market rate. That's a different story. But so the bank started getting in trouble, and the federal government didn't like Texas. Texas was cocky. The state as a whole, foiling gas and bumper stickers and stuff.

So they started auditing the banks, and in those days, this was a long time. I want to avoid getting into it, but the long day, long story short, it was; you had to mark it to market. So, the assets would start falling in value. And as they fell in value, the next one would fall in value and the next one and the next one.

And so the banks didn't have enough capital. And I want to tell you a story. So, my father was in banking and was the majority owner of the Bank of Dallas. It's a good mid-sized bank. And down in Oklahoma, the loan started going bad, and we were riding horses one day, and his best friend was here.

And he said, was on his best friend said, my father's name was Jerry. He said, jail, I know the feds are asking for more capital. He said, don't put it in. He said that's not a good idea. My father and I were sitting there, walking and riding horses. And he said, Paul, I got to, he said, we've got friends, we got investors, we got shareholders, we got to take care of, he goes, it's not going to work.

My father did anyway. And it busted him badly. So we lost all the banks, pledged all the banks we had at that time, 10 percent of the Cowboys. We had real estate and, so that was my job really to come down to Dallas and help renegotiate all that debt, figure out how he's going to, he's 65, that's terrible.

And so he kept two dealerships and then rebuilt everything. 

Chris Powers: I can see in your eyes. That was a tough time. Did it come out of nowhere? 

Phillip Huffines: No, there were warnings. It was a warning, but what can you do? There's little you could do in those days. Everything was a personal note, a personal guarantee.

And so that's when that's our paradigm. So that's what we were in our late twenties. And we said we're never signing personal guarantees. Nothing is doing it because no one controls a macro event. Oh, wait, it was a macro event. We saw that coming in 06 and 07, we went to Florida, checked out home builders, and tried to get them here.

And we would go to these MPCs. Chris and I were standing at this, you are here table, and there were like 1000 lots or 1500, these big giant master plan communities. And I'm talking to a couple standing there, and I said, well, you guys will buy a house and all that. Oh yeah.

Well, what are you looking at? Well, this is our fifth house. Fifth house. Why are you buying five houses? We're investors; flip them, and you don't live in them. No, so I asked the salesman what percentage of the sales were investors. And they said, Oh, almost all of them. I said this is not going to last.

Yeah. Right. Because there's no stability in that for that exact reason. So we came back and had investors in a couple of deals. We said we're selling all this. Don and I didn't have investors in our MPCs at the time. We sold them all in 06, 07. And then everything fell apart, but their investors wouldn't sell.

So we had to deal with those problems, properties, and problems. So we learned not to take personal guarantees on that. That's how we survived away. That's how we survived. There are many recessions, and it's hard to find lenders. It is a lot of times. 

Chris Powers: How long did that period last? Was it at 86?

It didn't start getting like, how long ago is a long time?

Phillip Huffines: It was a long year until 93. 92, 93, and 93 started turning around. So it was a five-year, seven-year process for Texas, which was a long time, but there were opportunities there. So, we took advantage of them and bought many assets that were way below replacement cost.

Chris Powers: In your neck of the woods, it's good. It's humming right now. You talked about debt more broadly, and Texas is a great place to be. Is there anything that you're very plugged in around Texas? You're just obviously in this game for a long time. You've been through multiple cycles.

Like, is there anything you're seeing that keeps your eyebrow raised? Is there a certain data point or signal you're paying attention to? It is more a macro question than just DFW, which differs from Detroit or L.A. But what are you looking for? 

Phillip Huffines: Yes, there are. We're concerned. We're always concerned. Like I said, our paradigm is from the 80s. So we've been dark clouds. Wake up a dark cloud, an optimistic dark cloud. I'd say. We're very, very fortunate. All of us in DFW are to be in DFW. DFW is the best market in the United States. Real estate, and for many businesses in the United States, is the best place to be in business.

So, you're in one place where you want to live, be entrepreneurial and have opportunities to excel and be wealthy. It's DFW, so we're fortunate; Dallas has created 150,000 jobs in the last two or three years. That's more than any other city, even New York.

So, and they're Five times the size of four times. So we're very fortunate. But what keeps us up at night is how we mitigate macro risk and can still take risks locally and at macro events we're concerned about. Of course, interest rates are a big factor. The market calls them black swan events.

I call them, I don't call them black swan events. 

Chris Powers: What do you call them? 

Phillip Huffines: Like vultures. They're circling, waiting to eat the carcass. The black swan is a nice animal. Not nice. When that black swan and that vulture landed in, oh, hey, it was at the epicenter of that crisis, which was housing, right? It was people buying houses.

They shouldn't have mortgages. They can't afford it. So that, that tear broke down, but it's different now. There's more equity involved in most loans, whether apartments or subdivisions, so much equity is involved. So it's going to help cushion a blow if there is one. However, there is always a macro event like the war in Ukraine, the COVID, those types of situations.

No one can predict, but you must be prepared if one hits because no exit land is a highly illiquid office. I mean, ideals retail, whatever. If income is being produced and even if your tenants leave, There's liquidity there at some point, which may be a year or two away, but there will be some.

Land is not that way because there's no income. There's only value to it once you create the value, which is why we like land to create value. But that's where the profit center is in development. So what keeps us up? We're, I'm worried about the political environment. 

Chris Powers: It's an election year. So, you talk to many people in the real estate industry. What are you doing? They're like, I don't know. It's an election year. We're going to wait and see what happens with the election. I'll end it. Let's end it on this; let's end it where we started. So you said the most important word in the dictionary is profit. Why? 

Phillip Huffines: Well, as I told you before, before we went on air, I'd been active with junior achievement, and I love the organization. It teaches free enterprise. How to capitalism and in, in, in our public school system, mainly in the lower income areas and in underprivileged areas because they have no idea.

These kids have no idea. They're graduating from high school, and the program starts at grades one through 12, and they don't know. How to get a job. They don't know how to interview. They don't know how to look someone in the eye. They don't know how to shake hands, so I tutor and go into the classrooms, and we practice these things; one of the things I talked to him about is why things exist the way they are when you look out the window.

Why is this street here? Why are these houses here? Why is this table here or the clothes here or your shoes? What causes all that to occur? And they, they, they don't know. Not involved in, I, they know they're just going through life. They're at 17, 18 years old. And I said, there's one most important word in the dictionary: profit.

I said everything exists in society for a profit, and the profit makes things go. Profits are everything from labor; when you sell your labor, you sell your time; that's a profit. You have to make a profit, or you won't do that. So I'm trying to get them to think about money. Think about what they're selling, what they have in life, and what it will take to start your own business.

And they figure it out pretty quickly. I asked what happens when a business doesn't make a profit. What goes broke, Mr. Huffines? Well, what happens when it goes broke to all the employees? Well, you fire them. And then where do they get a job at the next business? What if that business doesn't have a profit?

So they got it, and I asked how the government exists. Taxes: Who pays the taxes to the people and businesses, and what if there are no businesses because they didn't make any profit when there are no taxes? And so what happens to the government? There's no government, so they can put the pieces together and understand anyway.

So it's a fun exercise for them to put it all together. 

Chris Powers: And what's the last exercise you give him on is 100 dollars a week, right? 

Phillip Huffines: So I asked him, I said, guys, what's it cost to wake up in the morning, put your feet on the ground? And, oh, I don't know. I said, well, what's your break-even? And they said I don't know.

So I said, we're going to figure it out. So how much are you going to make? Say, tell us 20 bucks an hour 50. Tell me we go through this. Variable calls fixed costs cost about 50 bucks a day to break even 55. So you're going to have a roommate in your apartment. You're going to pay; you're going to buy one.

You're going to rent a one-bedroom. How much is one bedroom? How much are the two bedrooms? No one. Quizzes them. How much are car payments? How much is the insurance? How many miles is it to your work? Is it 15 miles? And how many miles to the gallon do you get? And you get 15 miles to the gallon, and you're going to spend four bucks to go to work, and you spend four bucks to come home and make 10 an hour.

That's a loser. So you're going to take the bus, and some of these kids are getting it, and they're on Trump for neural. One guy kept saying, well, I know I can, I can ride the bus. And so they're figuring things out. And, well, one thing I thought was funny. I asked where your cell phone was. Everybody's got a cell phone.

Is that a variable cost or a fixed cost? Fixed cost: They all said that is 100% what you must have, and you can turn away many things. Cell, that's right. You got to cell, you got to have a cell phone. And they're probably right now, but that's been happening for a while. It's a lot of fun, and then they'll ask him who their partner is in life.

Cause we put there, how many hours a year do you work? There's 2, 000, 2, 100. And if you get overtime, about 10 percent of the class knows what overtime is. The rest don't. And you get overtime. How much time and a half is that? So we put that up on the board. That's their revenue divided by 12, and then they get four months.

And I said. Well, okay. So that's what, who's your partner for life? Well, I don't have a partner. Yeah, you do. Your partner for life wants 20 percent of your gross revenue forever. And don't cheat this guy. This guy's got all the power in the world to get what they owe, what you owe. And that's the government IRS.

And they just, they just. Never even think about that. So now they're down to 80%. And then we go from there, and he said, Oh, back to your question. And I said, the next thing you'll take out of this budget is a hundred dollars because if you take a hundred dollars every month for the rest of your life, You invest in yourself and earn 10 percent on that, put it in IRA, over the life of the equity market, you can probably get 10%.

You know, that's just a round number rule of 72. You'll get a double in 7. 2 years and have about eight doubles by the time you're 75. And sooner you start, you'll retire for 1. 6 million in today's nominal dollars, 1. 6 million. And all you've saved is 1 200 a year for 60 years, 50 years.

That sounds good. It's pretty good. Inflation is a problem, but assuming your rate of return is Taking that into account. 

Chris Powers: All right. Last question. Have costs leveled out in your world? Are they still creeping up?

Phillip Huffines: Good question. Costs have leveled out. 

Chris Powers: That's good. Have they crept down at all?

Phillip Huffines: We've seen some bids for pavement water and sewer coming down from what we estimated, but they need to use our contingencies. Pavement is still going up, and some of the concrete pipe is, but there is no cost for coming down in the development. Now, not steel, verticals, not, yeah, horizontal.

Chris Powers: All right, Philip. Thanks for joining me today. 

Phillip Huffines: Chris. It was a pleasure. I'm sorry. I talked too much.

Chris Powers: That was amazing.