#299 - Artem Tepler - Co-Founder @ SCHON | TEPLER Partners - Developing Real Estate and Living the American Dream

Chris Powers: Welcome to the Ford podcast. I'm Chris Powers. And on the show, I talked to some of the most fascinating minds in business and discussed important topics in real estate, entrepreneurship, investing, and more to learn more, visit the Fort pod.com. That's the Fort pod.com.

Oh, man. Sometimes you record an episode, and it's an instant classic. The episode I just did with Artem Tepler is one of those. Man, he has such a good story. We talked about his immigrating to America when he was nine years old from Siberia, and just a lot of what he dealt with growing up and what that looked like, what it looked like to grow up in Siberia, what it looked like to immigrate at a young age to America.

And you can hear in his voice how appreciative he is for this country. And if you've listened to this podcast enough, I also love this country. And so it was just a breath of fresh air to start. We talk a lot about the business that he's built. He is a developer in LA and has built quite a portfolio, hundreds of millions of dollars worth of apartments there.

He's now expanded into Texas. We get into a lot of the nuances of how he runs his business and how he's become an expert in construction. And then we talk about what he's seeing in the market and the next few years of his business. And so this was a great episode. I know you'll enjoy it, and thank you for continuing to listen.

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Artem is welcome to show. 

Artem Tepler: Oh, it's great to be here.

Chris Powers: It is a true pleasure you got your zens in. 

Artem Tepler: I got my zens. 

Chris Powers: Get your coffee.

Artem Tepler: I know people will hate online, but this is the best thing I've discovered in the last two months, and I'm not stopping it.

Chris Powers: Why is it the best thing you've discovered in the last two months?

Artem Tepler: I don't have to drink as much coffee. It gives me energy.

I'm not foggy-headed. I think clearly; it just makes everything just better. And if you take a lot of coffee, you're just jittery; if you listen to Humour Man, he gives all the benefits of nicotine. Yes, it's addicting, but so is my testosterone for the rest of my life.

That's addicting, too, so I must take that for the rest of my life. And I'm just a better human being for it, and I will keep doing it. 

Chris Powers: I love it. And you take it, and you will pop one and get on the treadmill for an hour. 

Artem Tepler: I'll pop the treadmill throughout the day. Just eat them, and it just makes me think clearly.

As a kid, I used to take Adderall, and that helped me focus. And I think this is a better medication for ADD and focus. I could sit there and do spreadsheets with it, which I hate doing.

I could sit here and do spreadsheets with it, with a coffee, get zoomed in. Have energy, I could go on a carb diet, and I haven't been doing carbs for the last two months, and I've lost close to 30 pounds, and it's been amazing. And I think it's all because of Zens. 

Chris Powers: He's coming in straight from LA down 20 pounds, zen in zen, and lip focused.

And we will start this conversation in Siberia, where you were born and immigrated here when you were nine. Please give me some context; I've never been to Siberia. I couldn't even point it out on a map. What was it like growing up there? And then I want to talk about what's it like; what does the United States mean to you?

Artem Tepler: When we were growing up, there was no social media. There was no anything. So you grew up with little, even though we did well because my dad conducted business, which was illegal in Russia. He was buying and selling cars from a prop for profit, and he would make more money buying and selling cars than people would make in three years worth of work.

And he almost got put in jail for it. My grandfather was high up in the military. My mom's dad pulled him out of jail when he got arrested for buying and selling cars. What America means for me is just a land of opportunity where you can grow and scale your business without worrying about going to jail.

You can make a profit; everything is possible here. If you work hard, it is the land of opportunity. And I look at it; your chosen business doesn't matter. If you choose to get into the top 1% of that business, whether car washes or anything, if you choose to get into the top 1%, the more money you move around. I think you just posted it.

The more money sticks to you. And as long as you're moving a significant percentage of capital around, it sticks to you, and you focus on that. And a lot of that is marketing and sales.

Chris Powers: Why is it in Siberia? It's illegal, or why is it illegal to make a profit there?

Artem Tepler: The communist government ran everything. They assigned you a job. They told you what to do. And there was a waiting list for years to buy and sell cars. People's time would come up, these coal miners, my grandfather was a coal miner, and they wouldn't have the money to buy it. So he'd take their spot, buy the car, bring it to another part of the country, and sell it for a profit.

And it was illegal; it was called the Russian word speculate, and it was a speculator, and it was illegal to speculate on things and make a profit. 

Chris Powers: And if your dad had been caught, what would have happened to him? 

Artem Tepler: He was caught, got put in jail and for, and my grandfather was in charge of basically in Siberia is high up.

A colonel was responsible for where everyone's kids got sent into the army. So he had a lot of connections, and connections do everything in that environment. And it was, who do you know to get you out? And he got my dad out of a couple of jams. 

Chris Powers: So, in America, you drive down any street.

There are car dealerships everywhere. Everybody's selling, making money. The car dealer at the club is always the guy playing golf and having fun. In Siberia, you're selling cars. You're going to jail. 

Artem Tepler: The rich people worked in the government and were connected to the government.

And it was all weird way how they made it. Profit, and there were no car dealerships and that's when he returned to Russia. Everything after the nineties got utterly organized, but his skill set was never that of a car dealership because he would do a couple of cars that you buy and sell. So his skill set never developed to go to that level. So he struggled after the fall of communism, and then he got into taking over companies and stuff like that over there. And we can talk about that later. But to me, he was just the guy who started his grandfather as a coal miner and kept pushing and pushing.

We started in Siberia, and you couldn't even buy houses. You had to trade houses. So he traded his way into Moscow, which is how you would do it. He had to divorce my mom on paper, marry some woman, move into her house, take over her house, divorce her on paper, and pay her money to have a house in Moscow.

And he traded up from Siberia to another city and then basically two blocks to the Red Square by the time we moved. He made it to the top of what you could make in Russia. And at that point, he thought he was rich. He had bags of money. My mom was holding, but by American standards, there's nowhere near rich. 

Chris Powers: That's like the Russian 10-31 exchange.

Artem Tepler: That's what it was; you had to; literally, the government gave you a house, and then you had to trade your houses with people. And you had to pay them extra money, and you needed help to move wherever you wanted. So you had to marry someone to move from one area to another.

And it's pretty wild. 

Chris Powers: And then how are the oligarchs looked like from an American perspective? You see, these oligarchs, they all have huge yachts and planes. And I counted that. How has that looked upon from your position?

Artem Tepler: It's looked upon, honestly. I look at it like the whole country in 91 just got torn apart.

And there are a couple of guys that the government-owned everything and everyone connected to the government took over all the major industries. There's like the nickel guy, the metal guy, the oil guys, and they were all somehow connected to the people in power, and they consolidated their power and took over all of that.

In America, that developed the industries there. It was just taken from the government. It was all the resources of the Russian country that were given to those people. 

Chris Powers: So in communism, like, what do communists value? Like at the top? What is the top brass of the Russian government value in people?

What makes a good citizen? 

Artem Tepler: He was everything the government tried to organize. And if you saw, the DMV and government need to do an excellent job organizing anything. So the government shouldn't be running a country, and they do everything inefficiently. And everything could have been done more efficiently.

But everyone was equal before social media, and everyone lived in these almost projects. So there were high rises with no fancy facades outside, but everyone was equal. It was very safe when I was growing up. I remember being six years old, getting onto buses, riding to different areas, something I can't even imagine doing in America, but it was very homogenous in Siberia.

Everyone looked the same; it felt pretty safe. And I had almost a Tom Sawyer-like experience of just going on bikes, fishing with my grandfather, riding a motorcycle with a side cart, no helmets, with three of my cousins on there fishing. And it was magical, but it felt like a different life.

It feels like a different planet, and I've gone back since then, and everything almost looks like America back then. There was nothing in stores when you went in. I remember waiting online. Chiquita bananas came in, and I waited online as my mom sent me for probably hours, and I got to the front of the line, and there were only the crappy shitty brown bananas at the bottom.

So I got those, ate them, and then got so sick. I couldn't eat bananas for a decade till I started. I was putting them into my smoothies. And only then did I readjust to being able to eat bananas anyway, from that one experience of eating bananas, waiting online for them for years.

Chris Powers: Oh my gosh. All right. So then you're nine. Dad comes home, or how did the plan to immigrate to America come to be?

Artem Tepler: So my dad was just a curious guy. And at a certain point, my mother's Jewish. My dad's Orthodox Christian, and there was a massive line outside Moscow. My dad pulls over, and he's what's this line for?

Everyone's we're waiting for visas to immigrate to America. So he's like, all right, that sounds good. He's always a guy who tries to do better in life. And then he took his spot, and then we found out that my grandmother's brother immigrated to Highland Park, New Jersey, after world war two family was killed in the Holocaust. My grandmother wouldn't even tell anyone because my grandfather was in the army, so he didn't want, she didn't want anyone to know. Then he found this out, so somehow he sponsored us, and we came here as Jewish refugees, and the Jewish community helped us out. They gave us hand-use-down clothing and just paid for it.

Like six months of, I think, living expenses paid for English school, paid for my mom to go to, I don't know if they paid for my mom to go to beauty school because my mom cleaned houses at that time when they came here, but it was really, they just helped out. So we came here as Jewish refugees. My dad rode along as an Orthodox Christian because my mom was Jewish.

And we had to go through all the experiences of discrimination that my family experienced. I didn't experience it at nine, but my mom has experienced it when people say, Hey, go back to Israel. My grandfather was able to get as high as he could. And it was pretty remarkable how high he got up being Jewish.

And I think it was because he was in Siberia, and there were no Jews. So he had an option, and they're like, you're being shipped off to Siberia. And he's like, I'm staying in the army. He's either left the army or went to Siberia. So he got shipped there.

And then my mom and dad married, and in Russian passport, when you're born, Jew is in your birth certificate. So it says my mom's Jewish on her birth certificate when to register, and my dad said, you're Jewish. And my mom's, yeah, is that a problem?

He's no; I just never met one before. And it was one of those he didn't know. 

Chris Powers: Yeah. Is he driving home?

Artem Tepler: Sees this, gets a line, and applies for it. We get it, and then we're moving. 

Chris Powers: How is that like days, weeks, months, years?

Artem Tepler: It was probably a year process, but I remember when we were moving, it was happening during the, basically, the overthrow of Russia.

So we were moving in August, it was 90 or 91. And literally, the whole country's falling apart. They don't know. We're like trying to get a flight out. We're on standby. Are we going to go or not? We had a couple of moves. To the airport, a couple of back. So I finished three grades, and Belarus for my mom and dad got separated.

She moved with her family back to Belarus. I did first, second and third grade in Minsk. Then we moved to Moscow, and from there, it was, I remember, as a little kid. I'm watching Commando, Arnold Schwarzenegger on TV, watching movies. And at a certain point, they're just like, we're moving. And, when we moved, it felt like I came to another planet, and it was like a dream.

And I thought for probably a year that I would wake up, and this wasn't real. The world was so different when you walked into stores; everything was complete. It was such a completely different reality from what I was used to. And it's pretty magical. America's fantastic; people must understand if you visit a third-world country.

Now, if you go to Cuba or something, Cuba is the closest thing; it's a time capsule. I've gone to Cuba through Mexico, and it's probably other than it's a lot older, and they have all Russian cars, and they're all old and run down. But it reminded me of there. There are no advertisements anywhere.

There are no billboards. There's nothing, and that's how Russia was. 

Chris Powers: When you got here, and you said you were living in that dream, you said the stores were packed, what other things, again, you're nine years old, but I'm sure these memories are like deeply ingrained in you what other things were like, I cannot believe this is my life now?

Artem Tepler: The most challenging thing was they put me into a Jewish school where half the days in Hebrew, half the day in English in fourth grade, and they tried to force Hebrew on me half the day while I still didn't know English. So that was a bizarre experience, and they tried to force religion, which I was supposed to do instantly; I knew being Jewish was bad in Russia.

You're supposed to hide it. And I went to a place where people were yarmulkes, and they were very proud of it. And I'm like, where? Take it off. And I was just; it was ingrained in me that you don't show it. And that was a harrowing experience trying to learn English and Hebrew half the day. And that was challenging.

And then fifth grade, I went to public schools, and that's it. It was just way different. 

Chris Powers: All right. And we'll get to what you're doing today in a little bit, but this is good stuff. What do you think your life would have looked like? Had you never come to America? What would you be right now?

You probably wouldn't have a Zen in your mouth. 

Artem Tepler: I probably wouldn't have a Zen in my mouth. I might, but I'll be honest. I went back there, and I have a stepbrother there. Now the world looks very similar. He lives in Moscow, and they have everything we have. So it could have been okay. Or if I grew up in the nineties, which are very violent times, and I would have been a teenager, I could have been dead.

It could have been good. And I looked at all the developers. There was an emerging country I could have made in business, but business is done entirely differently. It could have gone either way. I could have been very successful in business, or I could have been dead. 

Chris Powers: This isn't a political question, but given your experience and that a lot of the way we view what's going on in Russia today is a storyline, do you have an opinion on what's going on? Is this reminiscent of where we were 30, 40 years ago, where things are collapsing? Is this always been the strategy? Do you have an opinion on that? 

Artem Tepler: On what's going on with Russia and Ukraine today? Yeah, I firmly believe what's going on in Russia and Ukraine.

And I think Putin had his red line. I think NATO expanded to his door. I think people weren't listening to his red line. And I think, unfortunately, and when we were there, Ukrainians were our cousins, brothers, and everything else. And I think America, since 2004, has been influencing them to rip away Ukraine from Russia.

And I think this is what there was. I think there was a revolution in 2014 that America sponsored, and I think, after that, there was a pro-Russian leaning president; they overthrew him, and then they started discriminating, and there was a massive kind of pogroms on, which is just attacks on Russian ethnic Russian people and the Eastern part of Ukraine.

They're all Russian speaking. They consider themselves Russian, western they didn't, and that country is divided by how USSR divided. And Crimea used to be a part of Russia for hundreds of years. And then, somehow, Khrushchev gave it to them.

It was closer to Ukraine. They're like, and you manage it. But it's always where we used to vacation when we were younger. And that was always Russian territory. It's a Russian military base. I think Putin strategically for him; it was just like he can't have NATO there. And to me, it's the reverse Cuban missile crisis.

Chris Powers: So what ends up happening? How does this end, and why? Why have we given him $75 billion? 

Artem Tepler: I don't know what they're giving $75 billion. They're trying to make Russia weaker. And after the sanctions on Crimea, they took away everything. But from what I've seen and what I've heard, it's making Russia stronger because,

They started manufacturing all the things they used to import. Now they just switched their trade. They pushed Russia closer to China. And in general, the Russian economy has many natural resources. They're just reorienting from the West to the East. And I think they never wanted it.

Putin just wanted to negotiate as equal partners. I don't think he was ever respected as an equal partner. In his 2007 Munich speech, he said, like Ukraine is the red line, you're not going to be able to put weapons at our border, and how he lined up right before this whole invasion, he had an exercise right at the border.

He never wanted that, they're scared, and in Russia's defense, we look at it. There are 30 million Russians that got died in World War Two. I believe America didn't enter it until 1944, so there were Russian Jews. Everyone was killed, and every time Napoleon invaded Russia, it was invaded through Ukraine territory for him.

He needed that as a buffer state for the safety of Russia. And They didn't respect it, from my understanding, and if he's going to take Ukraine, he will keep pushing forward. Nothing in Russia's history, like in recent history, shows Russia wants to expand and grow.

But he said it for their security, and not everyone thinks it's just Putin. It's all of the Russian elite think the same way. They've been worried about NATO expansion to the border. And you remember the Cuban missile crisis? What happened? Imagine China going to Canada and taking over Canada and setting up their bases, either in Canada or Mexico; that's what's happening.

Chris Powers: I just learned more about that whole situation than I have in the last year. That's super interesting. 

Artem Tepler: And it's the saddest thing because we were the same people when I grew up there. They were just cousins, and anyone that I knew met from Ukraine, they're like, where are you from? They're like, and I'm from Russia.

Now they're all from Ukraine. They're not from Russia anymore. It's the saddest, most tragic thing, seeing how many Russians and how many Ukrainians and I look at them. If I had been there, there's a chance I could have been drafted into the army if I had been born there. And I see it from the Ukrainian perspective because, from their perspective, Russia is invading their country, and they're defending their people, which is something there's great nationalistic pride that you want to defend your country.

And I completely understand it. But I don't look at Ukraine as a free country that was dependent on one side or another; they're just this tiny country. That's a weird buffer state between superpowers, and unfortunately, this is a fight that's going on and what happened; it's tragic; I see it, and I feel for the Ukrainian side, and I feel for the Russian soldiers that don't want to be there.

And I watched the videos, and they're all speaking the same language to each other. They all look the same, speak the same, and it's just the same people attacking each other for your politics; politicians are doing trade with one side versus another.

So it's just tragic for all the families. 

Chris Powers: It's terrible. War is terrible. If Russia takes Ukraine, then from your perspective, what happens?

Artem Tepler: I think they're going to. That is what's going to happen. It's now they had the Minsk agreements; the politicians came in.

They said they were never really going to honor. It was to buy time, so Putin needed more trust in America. So, in the end, this will be done and negotiated on Russian terms, how it will end, and they've probably taken so much. They will take so many resources; the river is right through it.

I forgot. It's the Dnipro River. It's going up there. I don't think he has any urge to take the western part of Ukraine, where people speak more Catholic. But the eastern part, where if you look on the map, how they vote, where all the Russian speakers are, he's going to end up with that.

He's going to end up with Odessa, and he will end up with a lot of territory, and there's no taking back. There's no taking back, cry me. There's nothing; Russia has a lot of nuclear weapons, and unless you want world war three, I don't think anyone wants that, and it's just going to end up like that.

Politicians need to come to terms and negotiate. And he's always saying, I watch in Russian, he wants to negotiate. His thing was he needed an agreement that they would never join NATO. Written down, and he doesn't want NATO bases at his borders. 

Chris Powers: Which would be, to our extent, the same as China setting up bases on the Canadian border or Mexican to America; that's how Americans think about it.

Artem Tepler: And Americans think NATO is this just anti-war coalition, and he doesn't view it like that. I understand why it was there when Russia was a communist USSR. I get it, I think America didn't want communism to spread anywhere, and it's a poisonous ideology.

I wouldn't want it to spread anywhere in America, but now it's not that anymore, but Russia is still the bad guy. I know that there are levels of it that I don't see. We only see such a small percentage of it; it's just that I benefit from watching propaganda from both sides, the American and Russian sides.

And I get to see it from the two points. And Putin has been consistent in his statements through the years. And he's saying what he said in a 2007 speech in Munich. He said it; this is our red line, and people didn't believe him. 

Chris Powers: That's interesting, Golly. I was going to say that you were a black belt when you were 13, and you said you're a fighter, and maybe we'll lead into what you're doing today. Two exciting things popped up: you got your first black belt when you were 13, and I think you're working on a second one.

Artem Tepler: I'm 13 years into Brazilian jujitsu and can only dedicate so much time to my dad's cancer business. If you're young and going five, six days a week, multiple times a day, you get it in five years. The average time for hobbyists like me is 10 to 15 years. So I'm two years into my brown belt and probably have another two years.

I trained with the Michael Jordan of Brazilian jujitsu, like elite ten times world champion, a son's a world champion, and I'm two years into it, and I probably have another two years to go to black belt. But it's one of those things where I'll be honest, my body just at 40 hurts. Now, thanks to TRT and ice baths.

I can recover a little bit, but it's one of those things where some people are like, I love it; I can't wait to go. No, I'm committed, and every time I go at night, I'm like. I'm going to go against some 20-year-old. That will roll you up; it will be hard; my school has no easy roles.

People travel from all over the country to train with this guy. So you get some killer 20-year-olds that are in shape. And even though they might be a belt or two lower, They're 20 years younger, and it's not the same. 

Chris Powers: That was interesting because two investors I respect the most are on their jujitsu journeys.

I've been to New York a few times over the last year. There are dojos that many of the wall street guys go to midday. The question is, why do jujitsu and the type of business we do collide? What about jujitsu makes business people interested in it?

Artem Tepler: I'm already thinking about my black belt speech I will write there. And I've been thinking about it since I was probably a white belt. There are so many similarities that go like a lot of it is just problem-solving. And a lot of it, I think, in business, we all start as white belts, and they say in jujitsu is a black belt, a white belt that didn't quit.

So you start as a white belt. You need to find out how ineffective you are as a man at fighting. And you go in there, and I was, it was 190 pounds is hefty. And I went with this 140-pound kid, and he just literally had me in an arm bar. He had me in a triangle like it was; I didn't know how ineffective I was as a man at fighting.

I thought it was cause I did taekwondo as a kid. I was like, Oh, I can fight. And I just had no idea. And it's the chest with your body that you move. But the beautiful part is that you can go, and you start at a level, and then you're around people the same level, and you have people above, and it's the same thing as in business.

You learn, and you move up different belts and levels. And I always compare real estate to different belts. As you start, you might be wholesaling houses and starting for a broker. I don't want to say brokerage, but let's say you're wholesaling houses, and then you're doing flips.

It's like a white and blue level. And then you're moving up, and you build a custom home, which might be purple belt level. And to me, everyone could define different spectrums of it by different belts, but you always see people operating at a higher level. And I always wanted the black belt level in jujitsu.

And I always wanted a black belt level in business, but the exciting part is that. Once you get into jujitsu, you realize there's a massive spread between black belts, like there's such a vast spread of guys in real estate. Someone could be a millionaire worth 1 to 5 million, and then there's guys 250 million and a billion in real estate, and there's this massive gap between kind of black belts, and I always just wanted to go to the highest level and compete with the best.

The thing about it is you have to sacrifice certain things in life to achieve. So I must give up the idea of ever being elite in jujitsu. I'm trying to get the black belt, but being elite of a black belt takes a certain amount of level and sacrifice that I'm not there. I'm unwilling to pay it because it would have to come at the cost of sacrificing business and the guys that train midday—a lot of respect for them.

But when I'm done training, I train at midday on Saturday. I'm dead for the rest of the day, like training at night; you fall asleep afterward. But if I train in the morning, it completely drains me of all the energy. And I look at it like, it's you remember street fighter two, there's like a life force you have.

It's one of those; if 80% of it gets drained right in the beginning, you don't have that energy to give to business, which is number one. I always kept it. Business always came first, and I would attend every business meeting. For jujitsu, anytime I didn't have it, I always stuck to my training schedule three or four times a week when I was younger.

Now, I try to get in two or three days a week.

Chris Powers: I love it. All right, let's start in LA. I know you. Your real estate career started in Jersey. Let's talk about getting to LA, and you can talk about what you got done in Jersey, but to the extent, the meat of your career started in LA. Why'd you go to LA?

Artem Tepler: My career started in 2004 when I flipped my first house. I found an investor dealing with pre-foreclosures, sending out letters and postcards. I found a lot in Coral Gables, Miami. I got a guy to put up; it turned out to be a double lot, which I didn't even know what it was, but it was at the border of Coral Gables.

So I did the wrong comps. I took comps from literally right outside of Coral Gables. I showed him, I was like, this is what it's worth fixing up about 400,000. The guy was thoroughly beaten up. He sold to us for 300,000. We sold it for 530,000; the guy put up the money. And three months later, he wired, it was like 96,000, 97,000 to my bank account.

And I was like, I was hooked at that point. I broke down as my first deal. And I cried because I thought, Oh my God, I have this figured out. I needed a mentor. I had nothing. I just had books, sales books, real estate books. And it just became a reality. I Broke down and cried. If I do this ten more times, I'm a millionaire.

I was like, this is amazing. So I just literally, it was just like, I haven't broken down and cried like that. That was like one of those peak emotional states where I was just thankful to God that I got to this place. I was able to achieve this with no mentor. And then, after that, I did a couple more deals in Miami. I made six figures that year gross, and then I decided, okay, on average, the houses at that point were way higher in New Jersey. So I moved back to New Jersey and turned up the marketing, and I did a lot of those banded signs that we did everywhere, and I had every four-way intersection plotted out, and I would make sure at least 20 hours a week banded signs would go out and then I would just field phone calls.

And I did about 50 deals; half and half were flips, and half were wholesale deals. And at that point, the deals that I bought, I was the ninja guy. I was no income, no jobs, and no assets. And they were giving me loans. I would buy four houses at a time and be able to borrow more to fix them up.

And then, in 2008, I got caught with a bunch of houses, and I went from living in a fancy apartment in Hoboken, New Jersey, overlooking the Manhattan skyline, driving S-class Mercedes, to the world-changing overnight. And I kept moving from each one of my rentals on the futon to pay the rent.

I was able to get rid of it. And I lived in an attic of one of my rentals. Now they call it house hacking for me. It was just like, I just rented it out. All the rooms and fixing the attic for myself, just sitting there, wondering what happened to me. I was like, what happened? And no one would buy houses because they were it; everything was going down then.

So I didn't know what to do. So many people I know left real estate, and those that stayed became successful. The people that left they're just in some sales job. And I just doubled down and got punched in the face by life. It was just all I thought. I was just on top of the world.

I was beating all my friends, and it was just like, just a vast first knockout. And I was like, all right, what am I doing? So at that point, when I was driving around, I saw this 300-unit building being built, and I just did the math. If I'm making 30,000 per house flip, this guy's probably making 30,000 per condo.

I just did that quick math. I was like, how do I do that? How do I become a real estate developer? And I didn't know any real estate developers. So I started looking it up, and NYU had a program for real estate development. I thought it was going to be like plumbing school. Like you're going to go like. Get your master's, and they will teach you real estate development.

So I took out more loans, went to NYU, and lived in New York for a bit; New York is not fun when you don't have any money. It was at a point where I was just broke, eating Subway sandwiches and just exercising, drinking a lot of Red Bulls, and trying to get through this.

Living there was a pleasant experience, but I'll tell you, New York is not fun with no money. There's nothing to do when you're broke, and it's the disparity you see. I was like, I can't even afford a condo here. When you look at these significant buildings, it's overwhelming. How do I ever develop myself here?

So my thought process was. I will be like, and it came out 400,000 of debt between some of the real estate and school debt. And I was like, all right if I'm going to be broke, I'm going to get a job somewhere, and I'm going to flip houses on the side. It was either Miami or Miami has this culture.

People start going out at 1 a.m. You have dinners at 11, go out to one, and then you're out till six, trying to shift the day over. I was like, I can't do that anymore. I had one friend in Los Angeles who's been trying to get me to move out for a long time. So I moved to Los Angeles, and he was an actor.

And then he booked a TV show for seven years and moved to Atlanta; I didn't know anyone except for him at the make-all-new friends. And I was looking for a job, and the best thing that ever happened to me was being unable to get one because you'd reach out to people.

They're like, Hey, we just laid off people with 10, 15 years of experience. You have a fancy master's degree in real estate and this entrepreneurial experience. You don't have actual real-world experience to get into it. Some guys, like, I might be able to pay you 30,000, and my monthly was like 5000 at that point.

I was like, I can't do this. What skill set do I have? I got my broker license. I'm like, I'm just going to start flipping houses and look for partners, and I talked to many people, and then it just happened across my business partner. We got introduced to randomly on the beach. We were playing volleyball.

One of my buddies was like, Hey, you're both young. You're both in real estate. You should talk. And then he had access to some capital from his father. We did a deal, and then we did about 50 houses together. And from everything from flipping homes in Compton, Inglewood, and all the places I used to hear about in rap songs, they were affordable that we could hit with minor price points to 300,000 purchases.

And we started there; we moved up to building two-and-a-half million dollar custom homes. And at that point, we did three custom homes. It was about 6 million worth of custom homes, and we lost 500,000 in profit in the process, but at the same time, we bought three lots. And on those three lots, we made over 8 million building apartments.

So then we dropped the custom homes and then started moving to apartments. And since then, we've built close to 30 buildings, about 250 million apartments in LA. And we had to learn construction. We kept getting screwed over by contractors. At one point, I decided this was our weak point.

So I'm 30 years old. I'm going to be doing this for the rest of my life. We have to solve, so how complicated is construction? And I'm like an expert test taker. So I took the test with all my experience from flipping houses. They gave me a GC license, and I just started building, and the whole time I was building the 1st building, I was like, I can't believe they're letting me do this.

I was like, they're really letting, I'm getting away with it, and you confidently ask the banker, "Can you do something? Yeah, absolutely, no problem. I have the most excellent subs; you stay confident the whole time. I'm like, I really can't believe they're letting me build this building.

I was like, I know nothing about construction. So we didn't even know to pull in the residential. You don't have to have plumbing plans approved and commercial. You have to have plumbing plans approved. So we started this building, and we funded the loan. We started doing the foundation, and my plumber's like, where are your approved plumbing plans?

I approved plumbing plans, and then we had to get them approved, and we figured it out, and that building we built, we're all in two and a half. 2. 6 Right now, it's worth six and a half. We still own it; that building pays for the rent and not the rent of my mortgage for my house.

And the first two buildings that changed my life, which is why I talk about commercial real estate could change your life. For the first time, that building gave me a base salary of nearly 10,000 a month. And I wasn't able to live from deal to deal. There was so much stress and anxiety, which I give so much respect to brokers, everyone that lives deal per deal.

Once that went away, I could not worry about survival and thriving. And then we double down. And no one wanted to do more significant buildings, but we needed to learn about this whole co-GP world or anything. We were like, how are we going to qualify?

We still need to get our first loan. My business partner called 40 banks, and one bet on us. We met with the CEO of the bank; Paul's dad owned the bank, and Paul's dad went with us to the meeting and convinced this guy to take a bet on us. He's like a bet on the younger next generation.

And Paul's family helped out a lot. They took out a second mortgage to guarantee our construction loan. It was almost self-funded. So they didn't give us that much. And after that, getting loans became easy because now we had the net worth requirement to borrow those.

But we shared the same liquidity and net worth across all the buildings. Some chief investment officers would see that we were doing that, but many of them just wanted to get money out the door, and we would call many banks. And we did a lot of small two to four-million loans simultaneously, sharing the same liquidity.

And we went and just did that. So we guaranteed over a hundred million in construction loans. I just went for it, me and my business partner are just aggressive. People are like, only sometimes, personally guarantee construction. I was like, Oh, I don't know how you're supposed to do that.

So we just personally guaranteed that we just went for it. And it's not for the faint of heart. You have to have relationships with people. Things went over budget. We guaranteed that money from other people that we used to borrow money to flip houses for, we'd lend it to the projects, so the projects are finished up, and we finished them.

All of them have been successful. We've never lost money on any of our investments. We'll talk about some of the later ones during COVID that weren't as successful, but it wasn't our part. It was just the timing of it all. And they still made money, but it wasn't the IRRs that were hitting before when you have 30% cost increases and everything else we'll get into later.

Chris Powers: So you went from being a ninja. It is the first time I have heard that. No, what is it?

Artem Tepler: No, no income, no jobs or assets. Ninja loans.

Chris Powers: I love it. You moved up the definition of subprime. I was the definition of subprime. I took zero money down loans when I was 18 to buy rental houses. And in hindsight, it was like, I was just like, I can't believe everybody doesn't do this.

I didn't realize then. We're taking this zen break. I didn't realize at the time that's how the world worked. I was 18. Somebody said, "You can go countrywide and get this loan, and this is what you tell. And I was, as soon as it all, the math clicked. I remember the first thought I had was, Man, everybody should be doing this.

Artem Tepler: Like the brokers, they told you to tell them what you will make this year. The CPA tell them you get a letter from CPA, what you're projected to make, and they would give you a loan.

Chris Powers: The irony was they were like, how will you make the money?

I will buy this house and flip it. You got to give me this loan so I can get the money to prove what I will do. 

You mentioned that you lost half a million bucks building some custom homes. I had a similar experience, not necessarily losing that much money, but the custom home business being brutal and then having developments going on at TCU for student rentals. It was like, okay, this is a much better life. Was there anything you took away from the building? How did you end up losing money on building a lot of it?

Artem Tepler: As I was a GC on them too. So it was just jumping out of a plane and trying to assemble the parachute on the way down.

So we needed the subcontractors. We didn't have anything. We didn't know the order to do anything. And then I hired this broker. And I was like, can you refer me to a designer? And the designer was great in her design, but she put a glass atrium in the middle of our building, and the glass eight, half the building was glass.

And that was a lot of money. That was an extra, probably 200,000, that didn't need to be in glass on one house. So we bought it like one customer, and we bought it for 800,000. I projected a two 6 million exit price, but between how long it took us to build it and how long it was on the market for six months, it was just our investors.

The interest made money, and we didn't make any money, and the other two houses were smaller, and what you realize is when you see people like, what do you build per square foot? Someone told you what you build. And we had a 1500 square foot house. And then we have a 1700 square foot house and then a 4,000 square foot house.

And we use the same price per square foot at measurement, but there's still a 30,000 kitchen appliance set in there. There's still the same roof footprint on the 1700 square feet and the foundation. So the smaller the house, the more expensive price per foot it gets. And that's where the estimates were off.

But I learned a lot about construction and learned a lot about estimating, and I knew I was going to get it back. I built my house and created a million of equity, taking all those lessons. Like I was going to come back to homes and conquer that 500,000 back, and I had just finished my house, and it was the same thing.

I posted how I sourced it. I got a VA, And Tijuana, he cold-called I3000 houses that were beaten up in the neighborhoods. I wanted to be in, bought it for one to put about a million bucks into it. It's worth about three to a thousand afoot. And when I created that equity, I thought I could refinance a hundred percent out of it.

And then the rates shut up, and I didn't get a chance to refi out of it. So there's still some money stuck in there, but at least I created that money. I knew I would return to custom homes and make that money back. It just took a decade to get back there and apply those lessons. And there are, Literally, standard-size windows.

Everything's out of wood, imported hardwood floors from China; I took all those lessons and applied them, but it took a decade. 

Chris Powers: You got it back, and real quick, you hired a VA and just told that VA here the neighborhoods, here's some, I don't know, software where you can get.

Names and numbers, and I would like you to contact them.

Artem Tepler: Yeah, contact them and be like, Hey, would you consider selling your house for the right price? And my fiancé she's a real estate agent that works for me. When she got pregnant, she gained a lot of weight. So she was walking two-three hours a day with a stroller in the neighborhood.

And I taught her right down all the houses, like what a little crapper beater looks like. And I told her to write them all down and plot them out. So literally like people like driving for dollars, she walked all the neighborhoods, plotted them out, and followed up with this guy for six months, every two weeks.

Can I follow up with you? Can I follow up with you in two weeks? And then, for tax reasons, he was ready to sell at year-end. And we should have talked about the price. I paid him a hundred more, which I wanted to buy for, but it turned out great. It's still. I bought it for a lot of the lot for 12.

I thought it was worth about 11 at that point, but then Covid happened, and everything shot up, and we bought it right at the beginning of Covid and tried to do construction during Covid dealing with the city where city employees don't work from Covid. It was just really hard. 

Chris Powers: Okay, we're returning to construction and the company, but you just opened up a window to talk about this one story you must tell. You've told it on Twitter, but you're just got to say it verbally, which one you talked about that you just bought a house from somebody.

And in 2005 and 2006 in New Jersey, I'm reading verbatim, the actual owner of the house we were about to purchase was tied up in a carpet dead in the basement, and his tenant killer was pretending to be him and selling us the house. So we're going to take a sidebar real quick. You have to tell this story because only in real estate could things like this happen.

Artem Tepler: Oh, so we thought we got the smoking deal. I forgot the city's name, and it was just a no-brainer. I was like, and there's so much money to be ready to be made. I had all the money lined up, and we were going; I had a partner on the deal, my friend, and we were ready to go on the closing day.

He's I'm going to go pick that guy up. And he went to pick him up, and the guy started acting weirdly. And my buddy's, I think he's like crazy. Or he like killed the owner or something. And I was like, he didn't kill the owner. I was like, and there's no way. He's pretending to be someone else.

So my buddy just called the cops, and it ended up that these two guys had a drunk fight, and I guess one of the guys rolled up the guy in the carpet in the basement. So when my business partner at the time was touring the house, he was touring the basement with the actual owner, the real owner was in the carpet rolled up in the basement.

The fake owner was selling the house pretending to be this guy. And that would have been a considerable title issue if we had closed it, and thank God it never closed because I don't know how long it would have taken to work through that title issue, But it was; literally, I posted in the article from it the guy got arrested I think he's out of jail now for all that and it was just a pretty wild Kind of story.

And I didn't even think about it. I'm like, Oh, you go and do business. Some things like that happen, and you keep it moving. 

Chris Powers: All right. Now we're back in LA. We had to take a quick pit stop there. Describe how the company looks today; how would you describe the firm today?

Artem Tepler: So it doesn't look like anything. What I want it to look like, what I want it to look like is your company, which is a company that builds real estate, but right now, my business partner and I do a lot of the heavy lifting and have a team in construction. We look for the two most important things: deals and capital.

My business partner and I do that. We both look for deals and look for capital. Now We split up our roles. He's from Mexico City, somewhere flipping houses. He was dealing with construction because he spoke Spanish. When I took that real estate exam, I put myself into the place of doing construction.

So I run construction. I estimate the projects. I have had a project manager. Just let them go. Once, we had fewer projects; right now, I have eight superintendents at the time, a project manager, and then I had my assistant, who does the bidding. I look over the numbers, estimate them, and then we build them.

He handles the pre-development, getting the permits with his assistant, and then handles all the property management. And we've done it basically from our first building, which like you, in hindsight, it might've been a mistake, but now we've grown into it. We have Vas four Vas in the Philippines that help with property management during COVID.

We broke out all the activities that can be done virtually and moved them over to the Philippines. We have a couple of leasing people in the office. And then we have two acquisition guys, their job is to cold call property owners, but now institutional sites look for deals the same way we did houses were applying the same model.

I can't beat the Texas developers with all their relationships. But I could beat the local brokers because I could approach the brokers, not the brokers, the property owners, and say, Hey, you could sell it to this broker, but why would you want to pay commission? We would buy this; you don't have to pay a commission.

And what I do is I tell the guys, I was like, Hey, you'll keep a hundred percent of the commission on that deal. And we give them 10% of the promotion we make on the deal. And that's basically how we're set up, and how we're going to keep growing is sourcing deals directly. In LA now, everyone knows us.

So deals come to us. We don't have to; I've done direct mail and gotten deals through direct mail. We've done cold calling in LA. There are so many deals that brokers bring us that need to be listed on the market that I can't get this listing. They know we'll take care of them. We're both licensed brokers.

We would never do anything to jeopardize their commission. So we have deals brought to us in LA. If we need to turn up the marketing in LA, we could turn it up, but here we do that. So That's how we're set up. There's a property management division that my business partner runs. There's a construction and development of fundraising.

We're both in charge. 

Chris Powers: All right. Construction's like, and I'm not saying you're a thing. It's a lot of people do construction, but you're vertically integrated, and you self-perform. And so, it would be prudent to discuss why you all self-perform instead of outsourcing.

Artem Tepler: We'll start there; when we were trying to outsource flipping houses, these guys would be suitable for a little bit, and then they go wrong. Or they're like, you got three, four projects would go in them, and they're Ponzi scheming, and they finish two of them and then walk on the third one.

So it was always a problem. And then, when we went and approached GCs. The number that we gave, we spoke to one developer, as he built for one 60-foot. I didn't know per gross per net. He's just like one 60-foot. And then we got quoted two 50 per foot from some other guy. And this guy built in a year.

And this guy's, it's going to take a year and a half at least. So we self-performed just because we thought it was. We were going to be the best way to go. It wasn't like we didn't know about the GC fees. I learned about GC overhead. We would like you to start. We told people we only make money once they make money.

It's going to be 50, 50. We'll take 50% of the upside. And a big chunk of our deals was like that. It's nice we created a bunch of equity, but we needed to learn about it to build a business, hire people, scale, or anything. So we started. 

How do people pay overhead? And then, I learned about general constrict general conditions in construction. You were supposed to charge overhead to pay the office and general conditions for institutional guys. A lot of it comes out to about 70% of hard costs. So then there's profit, which is 5 to 6%, depending.

Bigger deals, institutional guys here in Texas charge about 5%, and they may have 150,000 a month in general conditions. So they go in, and we learned about that, and I was like, there's got to be coaches out here somewhere. So I took out our construction coach.

Chris Powers: He's on Twitter.

Artem Tepler: I told him to go on Twitter and cron. And the problem is. He's good at helping people build construction companies, but construction has short timelines. Ours are like 3 to 5 years. So ours is like trying to turn a Titanic. So anything I wanted to institute, I couldn't do it.

So he's more of an actual business coach that I was able to bounce ideas off while I was pivoting during COVID to Texas and everything else he's helped out with a lot, but what he helped out is he's Hey, if you want to compress these timelines, you. At the same time, every sub is busy cause you're relying on other people; you have to bring specific trades in-house and have people do that.

I'm not going to manage the labor. So right now, my father-in-law works with us. So, we've my father-in-law now. It's market rate labor for there. He doesn't know how much it's going to cost him. But you'll make money if other guys are making money at this. And he's a licensed GC now, and he's framed a 28-unit building, framing a 30-unit building, and it works well because we have an unlimited labor access pool where we could throw bodies at it and do it faster.

So I'm hoping to compress the timelines, and he's doing more than that. He will do drywall, finished carpentry, trim, and everything where you need help getting people on-site. Now it's not going to be an issue because it's in-house. But I don't deal with it. I pay him what I used to pay other people.

And I have historical costs on all the numbers. It should be fair to our investors, basically market value for that. But now, if I need, I'm like, Hey, throw five, ten more people on it. Let's speed this up. That's what's going to happen. And we are getting to that in the last year.

Chris Powers: You get asked by many folks who are maybe just getting started or not. Some people fall into construction as the third-party contractors are bidding too high, and they will do it cheaper, or it's almost like they feel like it's part of the business.

If most people ask, "Hey, I wanted to start developing apartments, do you tell them, "Hey, you should do the construction yourself? Like, how do you answer that question?

Artem Tepler: So it depends if you're in the guy coming from the institutional world and you get a co-GP, and you start doing institutional deals, the talent construction is all at the top.

You can be something other than a GC at the institutional level. And in Texas, I'm not planning on being a GC. You use an institutional GC. They could provide so much information that you don't need to do it in the middle market space. It's just a mess. The GMPs don't mean anything. I just spoke to a developer who got a GMP with a guy.

His costs went up 30s change ordering them. There are liens. It's just a huge problem. And GMPs mean something other than something with middle levels, like low-level subs, this middle market space. So we do everything cost plus. If you have, and LA is a competitive market, your investors will make all the money if you use the GC.

Nothing wouldn't be left, and they pad the numbers and add so much there that I think in L. A. All most of the local developers that I know, the big guys, they all self-perform construction, the most prominent local developers, or they own the construction company and might, You know, those guys get paid some money, whatever. Still, you're either owning the GC, the most significant local guy, or you are the GC.

Chris Powers: Why would I not compete with you in la? What do you know that I don't know? 

Artem Tepler: Oh, you could compete. There's so much room for everyone. We're in a housing shortage, so I'm open to it. 

Chris Powers: On construction specifically, you've got 12 years in that market. And to be fair, not calling out LA super challenging city just in general to build. You've seen Texas; maybe you'd say it's as hard to build in Texas.

Artem Tepler: Sub-institutional is pretty straightforward. It's a buy-right project. If you're under 50 base units before bonus density, you're not subject to environmental lawsuits.

An environmental lawsuit is where you need to know how long it will take you to get a project entitled. I have a developer buddy. He bought a site in 2006 but still needs permits. He's hoping to break ground. This year, there's a 300-unit site that first started getting in time in 2004.

They're doing the foundation now. It could be a 10, 20-year process to get a deal permit ready to do a two 300-unit project. And. I don't have the time. I'm like, later on in my career. 

Chris Powers: What are they doing for 15 years? Just sitting?

They're not working on it every day, are they?

Artem Tepler: Fighting lawsuits, every community group fights it using a sequel, which is California environmental quality act. And they sue, you're just fighting lawsuits, and the challenging part is the land is being sold at a price that literally.

That's not priced in, and then when there are entitled deals, I know what they're paying for them. And many of those developers are just doing them for the fees. They're not. A lot of them need to hit the promotes. Some do; my buddy works at a big firm; they've made money, guys that entitled land, but sell it a hundred if you get land that likes 30,000 per buildable unit.

But I've seen when we paid 60,000, 80,000, and got the same rents. And they're selling land at 150 000 per unit. I was like, and there's no money to be made. So there's money to be made just in titling deals. That's a whole other deal. And if you have patient capital, family offices can do that.

But the issue is that they passed the measure JJJ in the last couple of years, where if you do a zone change or a variance, you have to use union labor to build those projects. And if you use union labor, you would have to give me the land for free for the numbers to pencil. So that took a lot of deals out of there.

And I don't think right now where we are; we want to focus on doing sub-institutional deals. Our goal is to do. 100,000,000 of 30,000,000 deals, 3, 4 deals per year. Smaller ones in L. A. Build and keep; in a decade, we hope to have a billion-dollar portfolio of new construction apartments in L. A and then do one deal in Austin, one in Dallas, and maybe one in San Antonio. 

Two, 300 unit projects per year and get that going in Texas, and then next market after that, I'm looking at Florida. I want to return to the Fort Lauderdale house on the water. That's when I was running and dreaming about my dream life; it always had a house on the water in Florida with a boat out front.

Chris Powers: I love it. Yeah, I was in New York the other day, and I was walking by, and you don't see this as much in Texas, or I've never seen it, but there were all these people. They had an inflatable rat; it was 30 feet tall, in front of this building with a bunch of union workers picketing. And we're walking by, and I was with a strip mall guy.

And I was like, what's the rat? And they're like, they inflate this thing, do it all over the city, and put it in front of projects that didn't hire union workers. And they're out there passing out flyers, and they're mad. And I'm sitting here thinking, okay, even if the cost wasn't the issue, I couldn't imagine getting these people on the entitlement, and the rage was like, Oh, my gosh.

Not only do you have to pay them more, they seem very upset. I couldn't imagine having them on a job. 

They call the shots.

Artem Tepler: They do, but I don't even think they're the union workers. They're just guys hired to pick it for the union workers. 

Chris Powers: That's fair. It was the first time I had seen something like it.

Okay, on construction real quick. And then I want to talk about what a perfect LA deal Kyle, comes together for you in a little bit, but how do you measure success in construction? There's obviously on time and on budget, which never happens. Even the best people can't do it.

And somebody came in and said, how many change orders? Somebody asked how many change orders you get per project. That's different from how to measure it. From your view, how do you know you're getting better at construction or getting worse at it? 

Artem Tepler: So, our first project we finished in 13 months. The second project we finished in 16 months. Now my business partner and I looked at the average project everyone underwrites for 22 to 24 months. And we looked at our size projects from when they get permits to when they get C F O. It's becoming 32, like 31, 32 months, and a lot of it has to do with inspectors one.

Back then, you failed the inspection; you called the inspector the next day, and he redoes it. Now there could be a week they could roll over the inspection. So setting the timelines, everyone, you must hold your subs accountable. The battle is to get them to show up; if they do, they play these games.

If they should have six or eight people there, they'll send you one or two guys. They'll send one or two guys to another project. And they ignore your phone calls. And they balance you, and the problem is getting the labor there. Your question is, how do you know you're getting better at construction?

It's just a never-ending, almost like battle with trying to get subs to show up on time. And then that's the battle. It's just taking it to the finish line. And then you're battling the utility company to give you power. Cause you could have buildings that are completed and then wait six months to get energized.

And it's just the constant like DWP Department of water power, and they're a nightmare to deal with. And it's a huge challenge; the challenge is just getting to the end. And if you look by timelines, we've gotten worse after 30 projects, but then I look at a guy who's been building, there's one of the top local developers probably done a couple of thousand units.

He used to finish these projects in 12, 14 months, and he's also taking 28 months. And I'm like, and I look at him, my business partner is you should have Monday morning meetings and do this. I was like, did he get worse at construction? I was like, and he's taking twice as long. And I'm like, he's got all the scale power, everything else, relationships with the subs, and even though we use a lot of the same subs, I was like if he's taking twice as long.

We're going to take twice as long. And a lot of that is just bringing trades in-house, I think, and getting labor at the job, but getting bodies there. But you can only do it if the subs are stretched out; this is when they're making money. They're taking on too many jobs, and you need to know.

And they'll play this game. They'll show up. They're like, and this isn't ready. And then they'll leave. And it's something I could have all the work or fix and then don't show up again until a week later. So it's just a constant, never-ending headache and battle.

Chris Powers: And that’s why I asked; the goalposts are moving and the same everywhere. Every contractor or developer I talked to is, and I used to. It got 10% longer yearly to do it progressively because subs’ busier entitlements are taking longer. And again, it’s like what happens at many big bull markets.

Everybody’s fat now. And in 2009, 2008 subs saw a sign in the yard, and they’d be calling you. Hey, do you need a foundation?

Artem Tepler: Concrete guy had 40 people. They’re doing the concrete foundation. Something that takes us four or five months.

Now he did in a month and a half, and because, at that point, he wasn’t busy, he wanted to get paid as fast as possible. So he just had unlimited labor, and I track that Fred has a construction unemployment number. And at that point, it was like 12, 14%, 20% construction on unemployment.

At that point, when there’s slack in it right now, it’s about 3. 4. When there’s construction labor slack, you could get jobs done faster. It’s just a word historical low, and everyone’s busy. So you must adjust your expectations, and everything works out in L. A.

Pre-COVID, everything was taking longer, costing more, but the rents were also increasing and offsetting it. So you’d make the same amount of money. You move up higher in the capital stack, but now the rents started dropping off, and during COVID, the construction costs jumped up, and now they’re not making as much sense.

So we did a lot of 1 bedroom and were all in at 350 to 370 per unit. All in everything. And they were worth about 500,000. Now, the same project, you could be all in it for 70. That’s worth 500,000. One bedroom costs almost as much as two bedrooms to build. And two bedrooms, you got about a thousand more rent.

You could still build two bedrooms and be all in it, like a little over 500. And then be worth six 50 to seven 50, depending on where the rents are. So the more significant project works, and now they removed the parking requirements. So if you do a smaller kind of studio type of apartment slab on grade, which they have here, with no parking, those deals still pencil, but only a few people want to risk building apartments without parking.

Chris Powers: Yeah. So the follow-up question would be if the metric. Can you get subs to show up on time and do the job in this environment? How do you get people to show up? Is there a magic bullet? And you can’t say we’ll pay him more.

Cause in projects doesn’t work. You guys have a track record; you’ve had these subs for a long time. You have relationships, but is there a silver bullet for getting folks to show up, or is it just a dogfight every day? 

Artem Tepler: It’s a dogfight every day. If you perform some trades and have, you’re more in control of guys that could source the labor.

That’s the only thing I’ve been able to come up with, and we’re testing it out right now, but no, you can’t do it. And when you bid out a project, you have your kind of low-cost guy, and the guy crushing it in concrete is one of my good friends and everything else.

But he’s also doing 300 unit projects right now, and you’re different from what he grew up with us in the business, but he did the most significant projects. And now, we’re still not the priority when you’re doing a concrete job. That’s whatever for 300 unit building versus a 30-unit building. So you’re still fighting that battle, and there is no magic bullet.

And when you choose a sub, all you know is that some guy is coming in a bit higher. You wonder if he’s going to do it faster. You know he’s more expensive to start, you don’t have a relationship with him, and you need to know how many change orders will come from that guy.

Chris Powers: All right. One more question on construction, and you’ve been pretty vocal about this on Twitter; you’ve gotten good at ordering from China. So one way to like. Fight the good fight is figuring out a way to get materials better. 

Artem Tepler: So I did that for my house and guest house. I have yet to do that for apartment buildings.

And you could order the materials, but now you’re, let’s say, I ordered windows from China. Now I’m taking on all the liability for all the windows. And I’m, if I deliver them a cost, I take on all the risk. I don’t get paid for it. Our investors probably get 80% of the savings.

We take on a hundred percent of the liability, so I don’t do it; I have only done it for my house, and you can import, as I ordered, great Harvard floors that would be seven a foot. They came in 250 per foot delivered, and they looked amazing in my house. And I did the furniture, and I’m doing the backyard furniture.

And I did this by folding doors that each door came in at 15,000 kinds of bid out. I did two folding doors, and they were 15,000 a piece, and they cost me 2,500. A piece was delivered. I saved 25,000 doing there. I would do that for my house, but unless you have a separate company making money from that, we don’t have that disclosed to our investors.

So I’ve never done that for our apartment buildings, and it’s just if you’re going in and it has to go down to that level, it’s just not worth it. And I’m like, the material is such a small part of it, the finishes that there’s not going to be savings that you could do it. You could do it to control the supply chain and other things, but it won’t move the needle.

Chris Powers: Fair enough. But then, one quick question. Could any average Joe call China if they want to do their house, or do you have some connection to do it? How’d you do it?

Artem Tepler: I went on Alibaba, and you, Alibaba is like the Amazon for manufacturers, and you go in, and I look at the companies that have been around for 7 to 10 years.

They show how much volume they do and where they mainly sell to. And then you’re just talking to people through WhatsApp, and it was just a  gamble. It was a risk; I took one of the verified people. And I was like, all right, I’ll risk 5,000. What’s the worst that could happen? I lost 5,000 and potentially saved 25, and it worked out great.

And I posted those sources. These are the people that I used to work out great. I posted on my blog, and I posted the hardwood floors. They turned out great, but it’s a risk you don’t know. But if someone’s ordering a lot, like top guys, I know people get on the plane, go to China, and check out the factory.

Like one of them, someone called me up from Twitter. They said they import stuff from China so that their Chinese people check out the factor and think this harbor place is legit and they’re perfect. So they’re ordering stuff for their house, but there needs to be a magic bullet.

If you’re going to do this for a while and want to do that, you take a trip to China, develop those relationships, and you could bring in, and it’s simple. There are many people in the import-export business, and they’re not geniuses. 

Chris Powers: All right. Let’s take LA, where you’ve done most of your work, built some tremendous and profitable projects, and your website’s awesome.

And I’ve looked at a bunch of them. Let’s start with, and I want to know if we’ll get there. I did want to talk about Compton and some of those things, but I do want to talk about the multi stuff. So let’s walk through how a project comes to be and how you think about all these neighborhoods.

LA is freaking its world in and of itself. So how do you find deals? What does a great deal look like for you? 

Artem Tepler: What a great deal looks like for us, and it’s changed because the laws have changed in the last ten years. So we used to be able to buy a triplex, knock it down and build 13 unit building, provide a triplex, and then.

Knock down a triplex, build a 13-unit building, and have one affordable unit. Now the city has changed. If you’re knocking down a triplex, you’ve got to bring three units as affordable. So a lot of those deals need to be fixed. They did the same thing for basic duplexes. And if you want to build a 10-unit and it’s 20% affordable, the numbers need to be revised.

So the ideal deal is that they’re pushing everything to commercial sites to develop or where they’re single-family homes leftover, which is a little. So we don’t do any zone changes. We don’t do any variances. And we use one kind of bonus density that they have their state built one eight, one eight, which is a state bonus density bill.

And then, there are TOC transit-oriented communities. And there are two different types of bills, two different entitlements with transit or oriented communities. It will take about a year and a half to two years to get plans to build your project from start to RTI ready to issue permits.

And SB 1818, we used to get in 7 to 9 months, probably taking 12 months right now because you don’t with SB 1818, just state bonus density. You don’t have to go in front of the planning department to see it. You must go before the planning department adds about six months to the timeline. And we use 1 of the 2, and it’s just right.

You find the site, go to your architect, and you’re like, the way I look at it, I look at apartments like pizzas. Please show me the massing study that you can do. What’s how can we do it? Then you break it up into slices, which are apartments, and you break it up.

It’s you figure out how much each costs, how much you could rent each one. And then I often notice you need more parking where we were historically. So first, you design the parking in Los Angeles and see how many cars you could fit that determines how many units. It used to be able to do that just went away since the beginning of this year.

So then you’re always designing, we used to design for parking, and that determines how many units, and it determines how you take the massing, and you slice it up into how many units. And a lot earlier, we left a lot of F. A. R. On the table because it wouldn’t make sense to build a 1200-square-foot one-bedroom. After all, you’re not going to get that extra rent, and you can’t build a two-bedroom because now you might have to go two levels of underground parking, and that becomes exponentially more expensive.

And that’s where knowing the costs of everything comes in, and you’re plugging in the numbers as you’re building it. I’m estimating the cost and looking at the price per unit of the wooden box. It had always stayed within, like when we were building within 5 000 of each other. You’re just adding electrical, which used to be 9, 600 per unit.

And now it’s like 17,000 per unit. You’re adding the plumbing, which used to be 11, 000 per unit. Now it’s 15,000, 16,000 for one bedroom, 21,000,  22,000 for a two-bedroom. And you’re just adding all the little pieces, drywall per unit appliances, kitchen stuff, per unit framings, price per gross square foot floorings per gross square foot.

Paintings per grocery foot, you add all that up, and then you figure what you’re going to, it’s going to cost, and then you figure what rent you’re going to be. And then you design it, go in, and then change the facade a little bit. The rest of the inside was the same for ten years.

We just built the same, almost identical product over and. That’s how you do it. So the ideal deal is no zone change, no variance, and it just works. 

Chris Powers: Okay. What matters about the neighborhood? Does it have to be? Do the sites have to be walkable to something?

Artem Tepler: So there are specific neighborhoods at one point when we were doing this pre-COVID, we needed about three 50-foot rents.

Now it’s more to make the numbers pencil. We would do it in areas where you can get certain rents. So specific neighborhoods penciled and certain ones that didn’t, and you could be two, three miles outside of where things pencil, and they no longer pencil. So our area that we focus on when brokers call up, they’re like, what are you guys looking for?

We’re like west of downtown North of the 10, South of one on one. Those areas where we thought we could get our rents and make numbers work. Some people built outside those areas. I wondered how they made the numbers work on those—and now, being in the business. I know many of those guys don’t make the numbers work, and they don’t make the numbers; they don’t make a profit.

Or if they do, they might be a family office where they’re okay being all in at 10% less than what the building might be worth. So they can hit different return thresholds than we do. 

Chris Powers: And real quick, when you said affordable. What does affordable mean out there? So you said that ten years ago, you could build 13 units, and one had to be affordable than had to be three, but what is the definition of affordable in LA?

Artem Tepler: So there’s meager, moderate income. So everyone always goes to the lowest. With SB 1818, you go for a meager income. And it was for a one bedroom that we would get 2,700 its rent covenant. There’s a deed restriction for that unit. We could only rent out specific AMIs, totaling about 700 bucks monthly. 

 Chris Powers: Okay. Then back to the location. You’d given geography, but if you get like really micro, did it matter if it was on a corner, next to jobs, next to a supermarket, or it didn’t matter? 

Artem Tepler: So we plotted out, we thought we were building our first building in Korea town, and I thought there’s going to be young professional Koreans that are going to be in there.

And it was entirely only some people we plotted where they work. They worked from Pasadena to Santa Monica. So there was, it was almost there’s L. A. It is just chronically supply constrained. If you can build a building, you will rent it out. You can work less hard on unit designs and anything else.

You’re just creating Boxes for people to live in; you make them friendly, you put excellent finishes, and they rent out the beauty when you’re doing a house. I was like, I said, I wouldn’t do a house on the main street. I wouldn’t do a house next to an apartment building where the whole building looks down in your backyard.

But apartments you could put up anywhere, on main streets. And usually, there they are on the main streets. And there’s some multifamily kind of high-density residential kind of orders kind of neighborhoods. So anywhere where you could get. Okay. It is done, will rent, and will work if you deliver it at the right price.

Chris Powers: Are you always trying to max out the number of units, or is there a better strategy?

Artem Tepler: Always maxing out the units, but we weren’t maxing out the FAR because the parking limited us. So we could have done. One thousand two hundred square feet, one bedroom, but we limited it to 750 to 900 square feet because building that extra square footage or a one-bedroom is not going to rent for significantly that much more.

And we’ve built at one time; we built 600 square feet, one bedroom, and 900 square feet, one bedroom in our first three buildings. And we were leasing them up. They both rented for the same price; It’s just that. The 900 ones rented faster, and these rented a little bit slower, but this one’s always filled up.

And once they’re filled up, they’re always filled up. 

Chris Powers: What’s FRA? 

Artem Tepler: They are Florida area ratio.

Chris Powers: Okay. So you want buildings, many units, and less square footage.

Artem Tepler: I could have done another five to six thousand square feet on each one of 11, 000 square foot buildings by it was three to one FAR, and we were building 11, 000 square foot buildings. We could have done 15 to 16 thousand square feet, but we needed to utilize it more. 

Chris Powers: All right. So you find a site, you’ve gone done your massing study. Do you all use the same architect every time?

Artem Tepler: We’ve gone through a bunch of architects. The ones we started with that I took from another developer differ from those we’re finishing. I have an architect that I like, and she got pregnant, and she went on maternity leave, and we’ve gone through a few other ones. One is a nightmare I haven’t dealt with yet, so I don’t know.

I am still determining how it’s going to turn out. We’ll see once we get to the site and look at the plans because they’re designing many. They’re still old school. They look higher end architects, all design and Revit and 3d. These guys all design an auto cod, and often, the plans don’t match when you go on-site, and we’ll see how many kinds of issues there are.

But we have our kind of go-to architects and try to reuse the same consultants. We’ve had the same structural engineer on all our projects.

Chris Powers: What’s more important, the architect or the structural engineer, or maybe there are better questions than that?

Artem Tepler: both are important, but as long as you get standard-size windows and standard-size doors for your project, and you don’t get a very expensive facade, the structural is probably more important.

Chris Powers: Okay. And to confirm, when does your structural start working with your architect? Are they working together at the beginning of the plan?

Artem Tepler: They’re working in tandem. At a certain point, they give the outlines of the units to the structure. He starts working on a structural, and then they fill out the units.

So they’re going in tandem. First, the architect starts, and then a month or two in, the structural starts, and you have them finish in tandem. 

Chris Powers: And real quick, what makes a good and lousy architect?

Artem Tepler: A good architect takes direction and is a developer’s architect.

They’re not sitting there trying to have their vision come to life. Through your dollars, they’re trying to sit there and make a cost-effective building that looks nice, but that’s not a work of art, and a lousy architect wants to win awards. And I’m sorry, but I don’t think you could win awards and design cost-effectively.

And when you’re dealing with tight margins, if you’re doing a condo project, and there’s a huge spread, you could have some money to spend on the facade of our buildings. We did the front facade, maybe 15 sides, and the rest was just a stucco box. 

Chris Powers: And you have a look at your buildings.

If you look at your stuff, you could tell you built it. 

Artem Tepler: Yes. But through the years, it’s evolved. And honestly, the way I do it is I look on Instagram for photos, and I tell my architect that I want this 1 to look like the facade, like this picture from Instagram, and then they do it.

So I have a modern farmhouse now everyone was doing. I have a black building that we were doing. I was like in a black phase for a little bit. I have had one. So I change it up on the facades, and it’s a little money to change up the facade. 

Chris Powers: All right. Let’s discuss what you’ve referenced several times, like COVID hit.

We know that, but I’m picking up that things change once COVID hits. What has COVID done to the multifamily development market? And the one thing I didn’t hit on. And you could weave this right in if there was a lot of rent control that became or a lot of moratoriums and things.

I wonder if that impacted you, but talk about your business like in a post-Covid world.

Artem Tepler: When Covid hit, everyone worked from home, and I don’t believe the city employees worked from home. They were just on vacation, not answering emails. So you could only get some things used to coming in.

You come in if you have a question or need something modified. You would get it, and it would stamp it and get it going. Everything just slowed down development. It would quarantine five-day plans between departments and stretch out the timelines. You couldn’t get anyone to pick up the phone.

You couldn’t get anyone to answer. The subs would always call out and say, ever all my, like the excuse was everyone always had COVID during COVID. So that was the excuse. COVID became the go-to excuse for everything. All my guys have COVID. One guy got COVID. So no one could show up. The inspectors always had COVID they couldn’t show up.

So everything got prolonged, delayed, and just dealing with city employees working from home. Working from home doesn’t work, and I do not believe in it. It could work for certain professions and motivate certain people. But there’s a reason that we had middle management. To manage people that can’t manage themselves.

And a lot of people in the government fit that position. And I, at one point, had to email my planner, city attorneys, and council people, and be like, is this guy on vacation, or is he working? And putting pressure on him and the mayor’s office on the same email got him to reply, but it was just weeks of sending emails, just no replies.

So it was challenging. Doing business during COVID timelines extended the electrical panels, and the switch gear couldn’t come on time. So all those supply and chain issues, things you could order and would arrive, didn’t arrive. So we would have buildings that would be completed, but we couldn’t get power and then couldn’t get switch gear.

And by the time we switched gears, you got to wait for DWP. So the timelines got extended, and there was when you got fully completed buildings that you’re paying interest on. And lately, the interest went up its pain. So like the latest deals, I can’t say we’ve hit the same kind of IRRs anywhere near.

Chris Powers: And what were the factors that killed the IRR interest rate and construction costs?

Artem Tepler: Construction costs went up 30% during COVID. 

Chris Powers: It’s more construction costs and more interest.

Artem Tepler: More construction costs, more interest on the construction costs, and your buildings are fully completed.

Now you’re paying more interest on fully completed buildings. And then when you’re dealing in substitutional space and even institutional space of speaking to framers on an institutional deal, their framers just walked no one would honor those contracts. So even at that level.

We have a project where we bid out right now, and we’re going through, bid out the windows. They were 100 000 for a project when they came in. They’re like 180 000 for the same windows. So they went up 80% during just the windows, no guard. And that happened, and no one honors their contract like at that level, because at the end of the day, they’re like, sue me, I’m not going to take that.

And in fairness to them, they’re not in the commodities trading business. So they can’t be expected to take that hit. So the developers took that hit, and we were borrowing money to finish more projects and finishing them up. And then everything’s costing more, taking longer, And it’s challenging.

Chris Powers: So, real quick, when you build new construction, where the moratoriums on no rent increases, did that impact your buildings, or are those just for certain types of buildings? 

Artem Tepler: So it was just for existing when we were building; it didn’t affect the ones that were under construction, but the ones we had going on, we couldn’t evict tenants, I think it was like three years, and that’s over.

But you couldn’t evict tenants. Tenants weren’t paying at a developer buddy. We’re his whole building that decided to strike and not pay rent. And he still has to pay his mortgage. She still has to do that. And this government was telling people not to pay rent. You don’t have to pay rent, but the mortgage company still wants you to pay.

We never got it; it wasn’t our tenants who had high credit ratings and their higher-end tenants. So we had some delinquencies, but it wasn’t that much that we couldn’t, like, not service cash flow. So we didn’t have any of those issues. We did have a lot of rent that needed to be paid. And then, my business partner announced property management.

They had some programs where you could apply for the tenant, and they would reimburse you for some or part of the rent. And sometimes they’d send the money to the tenant, and the tenant would cash that check and not give it to you. So the whole thing was just a mess. 

Chris Powers: So what happened once they released it?

Did a lot of tenants get evicted? Did they owe a backlog of rent that they hadn’t paid? What was the kind of after-effects of lifting those?

Artem Tepler: We didn’t have that much. If we’re just, we just got the tenants out that didn’t pay, and we’re happy to take that hit and move on.

In LA, the eviction process is so complex that you’re going through only part of the eviction. You’re settling for the eviction court. So you’re paying them a certain amount to move out; we deal with high-end tenants with high credit scores. So you must make at least 70 000 a year, and we take at least 650.

So we don’t have those issues as much as maybe someone was dealing with lower-end tenants. But you would take that hit with the lower end, but we didn’t have that many issues. 

Chris Powers: You can still turn their credit into a credit agency. So at least it dings their credit report. So it shows up to the next person they try and rent from.

Artem Tepler: If you don’t Like, I hear Nap folio, you could turn that on where they could report that we weren’t doing that right now. And I just spoke to my business partner. We might start reporting credit. But at the end of the day, you permanently settle before the eviction with them. They’re moving out.

So then they don’t have an eviction that hits their credit. 

Chris Powers: Alright, I have to ask this one question that came in on Twitter. It said, if Artem were to merchant build apartments on a 50th percentile site to basic acceptable standards for affordable housing, then sell to the government at an acceptable profit, what current price would that be as compared to the approximate 750k unit it costs the government to build affordable housing right now?

Artem Tepler: I would like to know if 50% affordable, a 50% site. I didn’t know what that meant. Either site means, but I’ll tell you this. So the government builds affordable unions. They build the shittiest product using union labor in the most expensive way possible. So they’re coming in at it’s not even seven 50; it could be seven 50 to a million bucks depending on where.

And the city bought two of our buildings for 30 million, and we were all in 350 per unit on those. And they bought for; they bought them for something like 430, 440 apiece. So they bought them for half the price that they’re building them. So the smart thing would be to buy buildings for market-rate developers. Still, there’s a law they can’t go into contracts with them because if they have to use union labor, it is allowed to build completed projects and get funded, but they’re not allowed to go into future contracts. The intelligent thing would be to sub it out, but the unions have a stronghold in California and keep that from happening.

So we’re building apartments right now. Just bid out a two-bedroom building—nice part and neighborhood. You’re between 500 and 550 per unit if you pay 100 000 per land per door. Okay. And we’re all in at that amount, and they’re all in at 800 000 to a million non-profit. 

Chris Powers: So when you’re saying we need more affordable housing at cheaper costs, you have to use union labor that doesn’t tend to.

Artem Tepler: And on top of it, they’re also building.

Why do you build affordable units and Santa Monica near the ocean? At the same time, you can’t get the land cheaper, provide housing in cheaper areas, and deliver more units in cheaper areas. The whole thing it’s just a bureaucracy. It doesn’t make sense. And Like I said, like back from Russia, the government doesn’t do anything efficiently, and the architects on those jobs, they’ll probably charge for X because no one’s paying for it’s the government that’s paying for it.

Chris Powers: There’s nothing better than a  government contract. All right. Markets are wacky, interest rates are up, and costs are up. Rents have gone up less. You’re in the business of doing deals. What’s it going to take? Where do you sit right now? What is? The next few years look like this for you.

Artem Tepler: We’re trying to look at that.

So we should have our Texas site entitled in the next two months. It’s a 400-unit project in East Austin and probably solves those five, nine, and six years on cost. A year ago, that deal would have been a hundred percent quickly get funded. All the private equity shops now want to be six and a quarter, six and a half.

Some might say there are seven and don’t want to do development. I don’t know. You have to let the project sunbathe a little bit. There are still family offices that are still playing in the space. They have different mindsets than institutions. So we’re looking at here: people from South America want to get money out of there.

They’re still putting projects in American deals. So we’re looking to fund anything we can; the problem is that many families we dealt with after what happened during COVID are investing across the country. They hate California. As I’d say, 80% of the institutions we talked about hate California, mansion tax, ULA tax, which used to be half a percent transfer tax.

Now it’s 6%. So if you’re building with a 20% margin and you’re taxed 6% on a gross sales price, that’s 25% of your profit gone. So all the institutions just. I want to touch Los Angeles once that gets repealed, and it’s challenging. So we still believe in Los Angeles long term because there will be less online supply.

And there are still about 50 000 people that are moving into LA. It’s still that glamorous city like New York that everyone wants to go to. So we will see much rent growth in the next ten years. So we want to build and keep it, but it can’t be an IRR-driven kind of today. You can’t underwrite an exit and go in.

So it’s just a different set of investors, a different set of underwriting. It has to be like Moses type of money where it’s long term you build it. I have a site ready, almost ready to go. It’s 28 units. We’re going to be all in at 560 per unit. I am still determining what they’re worth now, but pre Covid they would have been worth seven pre-rate runs up.

With today’s rates, they would have been worth 760 per unit. Who knows? Because the only trades that are happening are distressed ones. People who have to sell and those who don’t have to sell aren’t selling, but long-term, we’re very bullish on LA. It’s significant if you can add supply, it will go up more than anything else, but it’s tough to grow what you said. You have a business. You built a business that.

Like actually does deals. My business partner and I still do deals. So to grow that type of business, we have to be in the institutional space with more extensive fees coming in to hire the MBAs to do the deals. And we see that at the opportunity in Sunbelt markets. I see it in red states. And I want to do business only in California and the blue state again; it needs to be simplified and more straightforward.

There’s too much brain damage, Texas. I ended up in Austin, like the California of Texas. And my site was bordering Austin and Travis County. So I had to deal with both Travis County. And Austin during COVID. So it was slower than I estimated the project to be. Someone’s, Oh, you can get it done in a year and a half.

It’s going to be about two years. So we’re there, but at least there’s no threat of environmental lawsuits and legal fees that could take ten years. So we’re bullish on Texas. I think Texas looks like what California did after world war two, where there’s just a lot of industry, a lot of people moving, people could live here and have a friendly lifestyle with an average kind of income, and you could have a house, you could send your kids to good schools.

That’s not possible in California. So our goal is to build a Dallas office, have that be our headquarters, and start a Texas division focused on institutional deals there. Keep what we go in there, build about a hundred million projects per year, just building, keep not merchant build, and then truly build a business that develops.

You talk about that ideal of building an actual company where we were dealing guys with a bunch of helpers where I want to build an actual company. And people are like, Oh, you have to hire people smarter than yourself. And I was like, and you need a lot of fees for that. And we didn’t have any fees coming in.

So that’s the goal for the next ten years. 

Chris Powers: I love it. That’s an excellent way to bring this home because listening to your story is where we started this conversation. Undoubtedly, what you’re trying to do is one of the easier things you’ve done in your life.

And so, if you are a DFW first and listening to this column. I would love to have you in Dallas or DFW developing this. This conversation was excellent. And I appreciate you coming on today. 

Artem Tepler: Thank you. I appreciate you having me. It is fun. 

Chris Powers: I hope you’ve enjoyed this episode of the Fort podcast. Follow us on your favorite podcast platform or hop over to YouTube to watch full video episodes.

Suppose that’s what you prefer. For more information, you can check out @thefortpod.com.