Transcript

Aaron Strauss: You are listening to the Dealmakers’ Edge with A.Y. Strauss, diving deep into stories behind commercial real estate leaders. The Dealmakers’ Edge highlights the stories, successes, and struggles behind major commercial real estate investors. You’ll get a behind-the-scenes look at commercial real estate leaders and their unique edge. We hope you’ll follow along for regular episodes highlighting exceptional voices of the commercial real estate, industry and beyond.

Today’s guest is Justin Ehrlich, a Founding Partner of Churchill Real Estate. Before founding Churchill, he completed over $3B of debt and equity investing and the development of over one million square feet of luxury mixed use projects in Manhattan and California. In addition, Justin has invested capital on behalf of several institutional clients and served as a developer partner for several Taft Hartley pension funds. Before his development career, Justin was a Vice President for Broad Street Advisors on their capital markets team. He holds a B.A. in Business Administration from Boston University and an M.S. in Real Estate Finance and Investment from New York University.

Aaron Strauss: Justin, I want to welcome you to the podcast. I’m excited that you’re here. We’ll start off with you giving a couple minutes of your background, your overall biographical sketch.

Justin Ehrlich: My name is Justin Ehrlich. I grew up in Long Island. I have one sister who lives in California and my parents also live in California. I currently live in the West Village in New York City and I have three boys – twin 15 year olds and a six year old. I went to Boston University, the School of Management, and graduated in the year 2000. Thereafter, I went to NYU at night and got my graduate certificate in real estate investment and finance. That was the beginning of my entrance into the real estate business.

Aaron Strauss: That’s terrific. I know you started initially in family business and then you started at Eastern, but maybe you’ll walk everyone through how the first few years started for you in commercial real estate?

Justin Ehrlich: While I was going to NYU at night, I worked during the day for my father, who was in the interior, exterior, and holiday decoration business doing sales. It was extremely antiquated. He basically did not allow anyone to have computers or cell phones. It was basically just landlines and going on the subway to meet clients to sell to them and provide services and holiday decorations. It was a very old school mentality. It was not what I was used to graduating in the year 2000 with computers and all different types of technology coming online. I said, this is not what my future is going to be, I’m going to try out real estate. And then I went to Eastern Consolidated, where they gave me a blue book and made me buy my own laptop computer and said, go try and get owners to sell their real estate. I really didn’t understand real estate, so that was basically a shock, but it was a nice entrance into the business. Thereafter, I got a job at a company called Broad Street Advisors, which was a real estate investment banking firm that took on large assignments from JP Morgan, Deutsche Bank — portfolio sales. From there, I really got into analytics and started understanding properties and where value was created or where value was. That really enabled me to understand the basics of real estate.

Aaron Strauss: Terrific. I know when you were there, we discussed around 2008, 2009 you went through some stressful periods like everybody else who was in real estate at that time – which only made you stronger. I want to walk through how the crisis hit you.

Justin Ehrlich: I went into partnership after Broad Street Advisors with a college friend of mine. This was around 2007 or 2008. Before that, I left Broad Street. I went to work on my own and was basically syndicating deals. We ended up buying 5-7 West 125th Street, which was a very large plot of land right off the corner of 125th and 5th. We were going to do a mixed use project with retail as well as hospitality above. It was going to be approximately 400,000 square feet and 30 million of equity in the deal, as well as approximately 30 million of debt. Our takeout financing, only for the bridge portion for the acquisition, was Lehman Brothers. When Lehman crashed, our financing went away as well as basically all other financing. We ended up having to give that back to the bank, which was extremely difficult because it was really supposed to be my first major deal. It taught me a lot of lessons about a lot of the unknowns and trying to be fully capitalized when going into a project.

Justin Ehrlich: Right after that, I went into business with my college friend, and we got the backing of several Taft-Hartley pension funds. At that time, nobody had capital. We were allocated approximately $300 million of debt. It would take us into certain ratios, which would allow us to get very high up into the capital stack. We bought literally $1billion worth of debt and took over those assets through bankruptcy, foreclosure – whatever the mechanism was, and executed the business plan. We really did very well.

Aaron Strauss: Fantastic – and fast forward all the way through today. You’ve really built Churchill into a dynamic, multifaceted platform. Can you describe the Churchill platform generally?

Justin Ehrlich: When I started Churchill in 2013, Serabh was a good friend of mine for a long time. He worked at a private equity shop called Onyx, and I wanted to step away from development and just start getting into less risky investments. In 2013, you had a lot of banking regulations like Dodd-Frank, Basel III and a lot of the banks were not lending short-term bridge mass construction, especially to all the foreign capital that came in and backing inexperienced developers. We really had our pick of the litter in 2013. It quickly outgrew the depths of our pockets, and we brought on partners like Blackstone, Angelo Gordon and many other very large institutional accounts. We put out approximately $1.5 billion from 2013 to 2018. We pivoted our business tremendously in 2018, which was a time when we had a warehouse line from Man GLG which is the largest publicly traded hedge fund in the world. The guys there that managed our warehouse line wanted to leave because it was just too bureaucratic as well as they didn’t have equity there. They asked Serabh and I to back them in a residential business purpose lending platform, doing like fix and flip loans — all short duration loans for non-consumer-based housing. We backed them, and we’ve grown our business today. We manage a little over $4 billion of capital for institutional clients. We do everything from warehouse loans to residential lenders that focus on business purpose lending, non-consumer ground up multi, bridge multi, fix and flip, one to four family townhomes, condo inventory loans, basically anything short duration. Additionally, we do 30-year debt service coverage ratio, fixed product with prepayment penalties. For both products, we aggregate to securitize either in CLO or securitization. In that business, we’re buying approximately $250 million of short duration paper per month and either putting it into a CLO or trading it and making a spread. We have our asset management business where we manage a few billion dollars and we put that capital out into warehouse lines. We lever up lenders up to 75% or 80% of their loan amount at rates anywhere slightly sub three all the way up to four, depending on the credit of that respective lender. We only allow these lenders to make great returns.

Aaron Strauss: I know the platform is working because we’re actively working on extending one right now. Tell me more – obviously the platform is really built, but tell me about your use of tech. I know you have some proprietary software you’ve built in-house. You’re leveraging some interesting capabilities. I think that’s really put you on the market in a way that other competitors may not be. What can you tell us about that?

Justin Ehrlich: We have offices in New York, Charlotte, Tokyo, Florida and California. My partner Travis down in Charlotte graduated from the SAS Institute. He is a SAS coder and worked on and enhanced tremendously the risk management software at Wells Fargo. He then took that software development to Man Group and built the 2.0 version of Wells Fargo. Now at Churchill, we have the 3.0 technology. This technology does investor relations, asset management, and helps us with credit. We have information from all different sources since my partners, Travis and Derrick, were some of the first people in the residential transitional lending space. The amount of data that they have over the past 15 years of working in the space is tremendous. They’ve been following this data and continue to put it into this technology. Our ability to underwrite deals as well as do credit and give people opinions on value is extremely quick. We’re extremely responsive, we’re extremely transparent with our investors. We’re also able to make excellent credit decisions to make sure that we’re just lending at the right values.

Aaron Strauss: Going back, I want to also speak about your edge. You are a tried-and-true New York developer. You’ve seen multiple cycles, you’ve built a tremendous platform, you’re raising a family, you’ve got everything happening in your life, and it must be insane. How do you manage the daily mental aspects of your success, and what drives you every day to manage this massive amount of responsibility as a fiduciary for a ton of capital? How do you manage yourself? How do you get in the right headspace to do your job properly every day?

Justin Ehrlich: I think it’s in my DNA to wake up and want to perform to the best of my ability. I had a grandfather and father that were my mentors, and I watched them and how hard they worked. They always put everything into every day, which was inspirational. I also just love winning. I’m a very competitive person and I really love being the best at what I put my mind to, and I really am passionate about what I do. Having said that, my family always comes first, and I really try and make as much time as I can to be with them, eat dinner with them at night, show them that I’m there for them. However, when I’m working, I put in 100% into my business and my partners and all my coworkers. We share the same morals, values, drive, and we’re all here for the same reason – just being the best company in our respective fields.

Aaron Strauss: I can vouch for that. I’ve been in your office and there’s that energy in the space. It’s obviously a very strange time for commercial real estate and you’re coming at it from interesting angles. If someone wants to get in the business today, what are you saying to that person graduating school or taking their first job as a broker or trying to take down their first asset? What are your words of wisdom for their career arc if you could do things differently or how would you talk to that person about getting into the market?

Justin Ehrlich: We have young graduates that come to us all the time and they ask the same exact question. My response to them is you must find someone that’s going to spend the time with you to train you and really spend the time to mentor you. You don’t just take a job for the salary; you take it for the education in the beginning. So, yes, obviously, we all need to put food on the table and provide shelter for ourselves. However, the amount that you can learn from someone who’s willing to really focus on you and teach you is tremendous. So, I would say, don’t look at it for the salary. Look at it for the education and what this place can provide and what the person that you’re going to be working for can provide you as well because I think that’s the most important thing getting you to the next stage of your career.

Aaron Strauss: Perfect. Speaking of the next stage of your career, you’re extraordinarily active today. What do you think five years from now you’ll be doing? Just focusing on whatever the investment thesis is at that time period?

Justin Ehrlich: Yeah, I think we’ll continue to really focus on the residential space in the business. It’s very scalable. We’re under-housed in the United States and people are always going to need a place to live. I think I see in five years that we’ll have better sources of capital. We’ll be tapping into the public markets and just finding more efficient ways to do our business, and hopefully that translates into us being more successful.

Aaron Strauss: Great. Do you have anything else you’d want to add? Any tips or tricks or words of wisdom for anybody else out in the market listening to this?

Justin Ehrlich: Just put in the hard work and I think you’ll get there.

Aaron Strauss: Very inspiring. Thanks for making the time. Awesome chatting with you today. Thank you for joining The Dealmaker’s Edge.