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Transcript

Aaron:

Welcome everyone to The Dealmakers’ Edge. We are super excited to have Larry Taylor with us today as a guest. Larry is the founder and CEO of Christina, a real estate developer, manager and sponsor based in Malibu and focused on investing in several ultra-prime submarkets in LA. Since starting it in 1977, Larry has served as CEO and is responsible for the company’s leadership, strategy and vision.

Larry, we’re so happy you’re on today. Great for joining us. Thank you again.

Larry:

It’s my pleasure. And I appreciate the opportunity to be a part of your show. I feel honored, actually. Thank you so much.

Aaron:

Of course. And your story is fantastic. You really have a wonderful success story and you’ve built a great track record, brand, and business. And for our listeners, our job today is really just to get it out of you and to allow your story to be told, which is terrific.

Larry:

Well, it’s a very interesting human story, really, because my parents were Holocaust survivors; immigrants that wanted desperately to immigrate to the United States. But for a lot of reasons, the United States was closed to the immigration of Jews to America unless they had relatives or organizations that would underwrite them. And so my parents, who were both Polish, were liberated and were in relocation camps in Germany, where they lived for seven years before they were able to immigrate to the US, largely because a religious institution—a synagogue in Pittsburgh—sponsored one family, which was my parents and my two sisters who were born in Germany. And so, there was an opening for a tailor and a dry cleaner in a small town in Pennsylvania called Uniontown. And that was enough for this organization to be able to say, “We’ve got the guy a job and we’ll support them and get them situated.” And so, my family—before I was born, a couple of years before, 1952—emigrated from Munich to Uniontown, Pennsylvania. So you can imagine what a transition that was for them. For me, I was born in 1954 in Uniontown, and I grew up with Italian Catholics pretty much in a town that was dying already because the coal mines were giving out in that location. And so it was a very kind of an odd place to be with parents that didn’t speak English in an environment where it was. If you ever saw the movie The Deer Hunter, it was very much like that town. I can only remember that it was depressing.

Fortunately, my mother, who was born and raised in Warsaw, loved the concept of being in a big city, and she wanted to move to New York City, where she had a couple of girlfriends who survived the Holocaust that lived there. And my dad was pretty happy in a small town because he grew up in a small village in Poland. And so he kind of made some friends and started his own business. He had his own little tailor shop and dry cleaners, and he kind of liked it. And they became citizens in 1956 or ‘57, which made them feel really good about being Americans. And then one day he hopped a train, 1959 or ‘60, and came to Los Angeles, where some of his surviving friends from where he grew up in Poland had emigrated after the Holocaust to Los Angeles. And he came here, and he was stunned by the success that these survivors had been able to achieve in just maybe 12 to 14 years that they’d been here, plus the weather and the lifestyle.

So we basically packed our bags, sold everything, and moved to Los Angeles. And for me, I remember looking through the rearview window of my father’s 1960 Blue Rambler as we were leaving Uniontown, thinking “thank the Lord, I’m getting out of this place.” So we ended up just driving cross-country in a non-air conditioned old American Motors car. But we made it to Los Angeles and I was shocked.

I had never seen anything like it: blue skies, palm trees, wide boulevards, and ultimately the Pacific Ocean. I was just mesmerized, but because of the way that I was raised in the small town, which was a tough town, and in order to be able to survive, you had to be pretty streetwise, and you had to be pretty tough. I mean, this was not an easy upbringing. So, I come to Los Angeles and I’m about ten years old and I meet other ten-year-olds who have grown up in the land of good and plenty, and they’re like children. And I’m like, I’m a grown-up at ten.

And I was living with my two sisters and my mom and dad in a two-bedroom, one-bath[room] apartment on Ogden Drive. And I was sleeping on the couch and the girls had their own bedroom and there was only one bathroom. And I simply said, “I’ve got to get out of here.” And I picked up the phone and was looking in the Yellow Pages for names of realtors. And I called a realtor and I said, “I want to buy a house.” I was 11. He answered the phone and I told him what I was looking for, and he drove over.

And I’ll never forget it was a 1966 Oldsmobile Toronado. I was kind of always into cars, I was building models as a kid. I thought, “Wow, this is cool.” And I told him what I wanted, and he sat in the car with me and he said, “Now why would you want a single-family home when you can buy an apartment building with an owner’s unit, and in the owner’s unit you can have three bedrooms and two bathrooms, and then you’d have maybe nine or ten other people pay your rent.” And I went. “I don’t want to live in an apartment building. I want to get out of an apartment building.” But then he explained to me that you could live in the apartment building, just like as a home. And then you have all these other people that will pay you rent. And then you could live for free. And I went, “Well, that doesn’t make any sense, but tell me more.” And he said, “Yeah, well, you get a loan to buy the property and then the tenants pay the rent and you use that money to pay the loan.”

Aaron:

You were 11. Having this conversation with a grownup. Is that, right?

Larry:

Right. I go, “Let me get this right. I borrow the money, I buy the property, I live in it like it’s a home. Other people give me money and I use that money to pay the loan….So I borrow it and someone else pays it back? That cannot be true.” And he says, “Well, it is true.” And it just so happened–I always believe timing is everything. I think there is something to be said about intellect and capability and really having good ideas. But if timing isn’t with you, you’re screwed. Well, the timing was great because we were at a very low interest rate environment at that time and loans were assumable and the market wasn’t particularly strong. This would have been in 1965, ‘66.

The average price of a single-family home in that area was around $25-$30,000. This was an apartment building that was like $75,000. There was an assumed loan with a desperate seller that required only $7,000 down. But my parents only had $5[,000]. So I said to my dad, “Why don’t you go to one of your friends that has money and maybe he’ll loan it to you?” And the friend told him, “I love you, but I’m not a bank. Go find it yourself.” Okay, that was a hard knock. But I did suggest that we go to a bank that’s no longer around called Security Pacific Bank. And we put up the $5,000 passbook that my dad had and got a $7,000 short term loan, bought the building, moved into it, and our quality of life improved substantially.

Aaron:

So just to recap, you were 11 years old.

Larry:

12 by the time we moved.

Aaron:

Right, 12. So 12 years old, just moved to California, and you structured a real estate deal and bought an apartment building at 12 years old. Not a bad start.

Larry:

The quality of life improved dramatically. Now, I had a bathroom and a bedroom and I was super, super happy. But I always felt that this wasn’t good enough. And I started off with this very, very challenging life in the small, poor town. And I came to Los Angeles, and I saw people who were speaking like my parents spoke kind of with an accent and not really being American-ish, and they were living in homes with swimming pools and driving Cadillacs. And I made a decision at that age that I never was going to be poor because I didn’t like that feeling.

And so after a couple of years, I just thought, “Wow, this is kind of cool and it’s an apartment building, but we should really get a house.” So I sold that building, made $30,000 profit, and bought a house for $30,000. So then we got a house for free. Now, I was 15 years old and at that point in time was 1969. And I said to my dad, “I’m tired of you commuting to work every day and making no money. Let’s just open a business.” He was 62.

And so I rented a store in what is now The Grove in Los Angeles, the old farmer’s market, and I built a tailor shop and dry cleaner–and to just put things in perspective, that was July 8th, 1969. The rent was $185 a month for the store. I bought all the equipment, and I had the racks built. I had a plumber build clothing racks out of pipe. And in our first or second week on a Saturday, we did $500 in business.

Aaron:

All while you’re just like in junior high school at this time or maybe high school. Right? Also, while you’re…

Larry:

15 I was in high school, I think already. And that business actually was very successful, which I built that business up while I was in high school and was very fortunate enough to get to be on a program in Los Angeles which was called for if you had to work, you could go to school for 4 hours and work for 4 hours. And I used to work at my dad’s business, and I built the business up. And the quality of life for my family went up. But the time came to go to college and my parents couldn’t afford to send me to a college. So, I ended up going to a state university, which is now called California State University, Northridge. But it was a state college then called Valley State, and the tuition was $81.50 a semester, which kind of fit the budget. And I was 15 when I got out of high school. So when I started college, I had just turned 16, but I had been driving since I was 12 because I used to drive my mother to work so that she could earn a $1.25 an hour and get Kaiser Permanente health coverage for our family. So I used to drive down Fairfax Avenue and bring her back up every day. That’s all I do is drive down the street and back. So here I am driving to college.

I’m 16 and I just take my first batch of classes. I mean, I’ve got a business law class and an accounting class, and in my accounting class I took it 7 a.m. because I had to be back at my dad’s business at 11 or 12. So I had to squeeze my college time in between seven and 12, or seven and 11. And the guy that’s teaching the class is like this super cool guy, you know, maybe 26 or 27. [He’s] got a master’s degree from UCLA. He’s a PhD or not a PhD; he’s got a CPA, has his own accounting practice. And we used to kind of like park next to each other early morning because there were very few 7 a.m. classes. And the great thing about college versus high school was that you didn’t have to go to class, you just showed up for the exams. And so after driving for like three weeks and leaving my house at six in the morning or 5:55 a.m. to get there by 7 a.m., I realized I’m not really learning anything in this class. This guy is so cool, but all he does is tell stories and I’m not learning anything. In chapters one through seven of Accounting 101 were teaching you how to balance a bank statement. It’s like, who doesn’t know how to balance a bank statement?

So I showed up for the midterm, took the test, didn’t find it particularly challenging, left, came back a week later to find out the grade and the professor says, “Well, I’m having a problem because one person in the class did very, very well and the rest of the class did very, very poorly. So if I grade it on a curve, everybody’s going to fail.” And he said, “Larry Taylor, is he in the class?” And I raised my hand. He goes, “You stay after class…”

Aaron:

Larry, I have to interrupt you. You ever heard of Doogie Howser?

Larry:

Yeah.

Aaron:

I’m just wondering, because you seem to have a medical career for Doogie Howser, started early a little bit, but mainly insanely precocious from a real estate perspective. Throwing that out there….

Larry:

You can’t make this up. This is reality. So he says to me in this office, “You remind me of myself.” And I said, “Why?” And he said, “Well, when I was a student at UCLA, my nickname was ‘The Phantom.’ I never showed up to class, but I scored really high on my exams. So I want you to be my teacher’s assistant.” Okay, cool. Now I get to be a TA and kind of grade other people’s papers and things. And then the following semester, I signed up for his class. I went to the class and there was a different professor. So I said, “Well, what happened to Professor Nass?” And they said, “Oh, he’s not at the school anymore.” So I looked him up and I called him and he called me back and he said, “Oh, I forgot to tell you…” (like he was going to tell me) “but I’m now the assistant dean of the School of Business at USC. I go, “Oh,” I said, “Great, congratulations.” He goes, “And you need to be here because you’re way too smart to be there. You’re just surrounded by a bunch of returning Vietnam War vets and a bunch of girls who are looking to meet guys and guys who were looking to meet girls. But if you want to be in public accounting, you’ve got to come to USC because it’s the number one school in the nation for public accounting. We produce more Big 8 CPA partners than any other school in the country, and the classes at the school are taught by the professors and the authors that write the books at every other business school in America uses.” I go, “Well, great, and I want to live in Beverly Hills. But, you know, I don’t have the kind of money to go to USC.” He goes, “Let’s go to lunch.”

We go to lunch at the faculty dining room. And he says, “You know, University of Southern California has over 75 different scholarship programs. I’m sure you could qualify for one or more of those.” So I went back to his office. I signed a bunch of applications, and one week later I received a full university scholarship to USC. [It] changed my life.

Aaron:

Great. And maybe we’ll fast forward a little bit. I mean, after that, you did work in public accounting for a little bit, right?

Larry:

Seven weeks. Kenneth Leventhal and Company which merged at one point with EY.

Aaron:

Which is a tremendous tenure I should mention: seven weeks. You probably picked up everything you needed for your whole career in real estate.

Larry:

But the problem was that I had already started my real estate company two years earlier. So I started what is Christina when I was a junior at USC. So I was 18 and my offices were in Century City, but I didn’t want to disappoint my parents and not get a real job. And I didn’t want to disappoint Ken Leventhal because I grew up with his son and his nephew. And it was always meant for me to go into public accounting and go to work at Kenneth Leventhal because they specialized in real estate. They were the leading real estate CPA firm in the country.  

Aaron:

I know you’ve had some very interesting interactions with Jerry Buss early in your career who said something along the lines of, “If you invest in the West Side [of Los Angeles] and the areas you’ve invested in, you’ll never lose.” And I think I remember reading you took that to heart. Tell us about that.

Larry:

Yes. I had a friend who was working for Mariani Buss & Company, which was the business that Jerry Buss and his two coworkers–I think at JPL–they were all engineers, aerospace engineers, and they had been syndicating apartment buildings and putting all their aerospace colleagues into these real estate investments for the benefit of getting tax losses to offset their ordinary income.

And they had a few thousand apartment units at that time in their portfolio. And I met Jerry Buss when I was visiting a friend of mine at his office and got introduced to him and he took an interest in me and he said, “Joseph tells me you’re in a real estate business, now. What do you do?” I said, “Well, I buy an apartment building that I think is undervalued, and then I look at how I can improve the building and raise rents, increase value, and then sell it.” And then he goes, “Then what do you do?”

I go, “Then I buy another building.” He goes, “Well, how many buildings do you do in a year?” And I go, “About 0.8, because it takes me usually more than a year to do this and then sell it.” And then he goes, “Then what are you doing?”

“Then I do another one.”

He goes, “Well, that’s linear. Now he has a PhD in mathematics. So I guess that was a term that made a lot of sense to him. But then he said, “Well, that makes no sense. Let me show you how we do it.”

And he gave me his private placement memorandum, which was a five-page document with a staple in the upper left-hand corner. And he said, “People invest in real estate for a lot of different reasons. And I’m looking at him like, “What other reason could there be than making money?”

And he said, “Some people like cash flow and some people need tax benefits and some people are more focused on appreciation. And no matter what, everybody needs a manager; somebody’s got to do this. And so, what we do is we buy the property, we manage the property, we redevelop the property, we sell the property, and we get 20 percent of the profit, loss, and cash flow of every deal.” And I go, “For no money?” And he goes, “Yeah, we don’t put any of our own money and the investors put the money in and that’s syndication.”

And a bell went off in my head because I had met a guy named Sam Freshman who wrote this book in 1972 called Principles of Real Estate Syndication. Sam’s alive. He’s a lawyer. I met him when he spoke to my class at USC, but I never really put two and two together.

And Jerry goes, “Now, if you did five deals in one year and you got 20 percent of each deal, wouldn’t you own a building for free for every five buildings that you syndicated?” I go, “Yeah. That kind of works. I like that.”

And then we charge a fee to acquire it, a fee to manage it, a fee to finance it, [and] a fee to sell it. And he looked at me and he said, “There’s a couple of things you need to know.” And I said, “Tell me.”

And he said, “Number one: If you make money for an investor, they’ll never say thank you. Break them even, they’ll never invest with you again, and if you lose their money, they’ll sue you.”

Aaron:

Sounds like a good business.

Larry:

“Number two is the only way to not lose money is to only buy the West Side [Los Angeles]. Because if you buy the West Side, the West Side properties are always coveted. They’ll always go up in value because there’s always more demand than there is supply.”

“The third thing you have to figure out is where the hell you’re going to get your equity because we get it from all of these aerospace engineers, but you’re going to have to find the source.”

And those were the three ingredients to being successful as a syndicator. And I took them at face value, and I syndicated my first deal probably within three months. The capital that I found, appropriately so, was–this is the entertainment business here, and when somebody makes money on a film, that’s cash, and they’ve got to do something with that cash.

And one thing they needed was tax benefits and the depreciation amortization losses gave them great write-offs against their ordinary income. And because I was on the West Side and most of the entertainment industry was on the West Side, business managers loved the concept of having them invest in properties that they could see. And so, for the next 19 years, that’s what I did.

Aaron:

Amazing. And 40+ years now without a single loss to investors. Is that correct?

Larry:

That’s 100% correct.

Aaron:

That alone is a miraculous statistic. Miraculous. So you’ve definitely found a way to hit those fundamentals, have a tremendous eye, and a vision for finding those properties, managing those properties, and just tremendous integrity around how you go about your business. And I guess Jerry was right all these years later, so that strategy worked out well.

Larry:

Yeah, he became a great friend as well over time, and I shared in a lot of the glory of the NBA and the Lakers. And I’m still a lifetime Laker fan and a lifetime season ticket holder at center court.

Aaron:

So that’s amazing. Yeah, you really got to see the growth of that dynasty back in the Showtime era. Maybe you could talk a little bit about, you mentioned your love for cars and you were driving at an absurdly young age. I know you’ve really developed that passion tremendously. Maybe you can talk a little bit about that.

Larry:

Early on in life, at my first semester in college, I met an Indian professor who practiced transcendental meditation, and he taught me to meditate, and he taught me the benefit of spirituality. And he had this theory called the threshold level of satisfaction. The threshold level of satisfaction for me was when I turned 16, I knew exactly the car that I wanted. And I bought it, which was a 1970 Mercury Cougar Z7 convertible, which I still own today. I also was very impressed with a fellow by the name of George Elton, he and his partner, George Calzadilla, founded a bank in California called Imperial Bank, which is now Comerica. And the first time I went to his home, he was living on the beach. And I couldn’t imagine that people could actually live on the beach. I was 18, so I decided that I was going to live on the beach and have this convertible.

And so, by the time I was 21, I was living on the beach and had my convertible and I had reached my threshold level. But I never stopped loving cars. And so in college I was in this very high profile institution with a lot of rich kids that were driving these fancy 911 Porsches. And I wanted to get something to be kind of cool, even though I had my other car.

And so I was looking around, and I would start buying old Porsches for like $1,500 bucks. But it was cool. And I started collecting them and I’d buy them and keep them. And over time I just built a collection of Porsches. And then I got into Mercedes, and muscle cars, and Cadillacs, and Bentleys, and Rolls-Royces. And I never really had an aim to do anything except buy what I like. It’s pretty much the way I roll in real estate. I buy what I like as long as it’s on the West Side….

In the automobile world, I’m known as “the most well-known unknown car collector.”

Aaron:

Rumor has it your collection rivals or surpasses Jerry Seinfeld.

Larry:

I have more cars than Jerry, but he’s got some pretty, pretty significant cars.

Every one of my cars is drivable at any time.

Aaron:

So maybe you could talk about just for somebody getting into the business today. Obviously the same tried and true principles you’re applying will be timeless, but there’s different challenges in every cycle, every market. If you were having coffee with somebody today who’s getting into the syndication business looking to build a reputation and a brand like you’ve done, what are those things you would tell that person in that meeting?

Larry:

Real estate is a cyclical business, and it’s unlike the stock market, which has very, very significant ups and downs on a regular basis. Real estate cycles are long and curvy, and the good news about that is it’s not hard to understand where you are within the curve.

Number two is real estate is all about location, location, location. No matter what, product type is not as critical as location. And once you determine that location that you’ve zeroed in on that has demand—that meets the metrics of why people want to work, live and play there—know every square inch of that location.

Fundamentally, success starts with that. If that is ignored, failure is around the corner.

Look at the cycles. Understand where the macro is, determine the location, know that location, become expert in that location, and don’t worry about interest rates, the cost of money, the availability of money, equity. Those things are not as significant. Those things are just part and parcel of every real estate transaction.

So never underestimate how the macro will affect the micro.

Aaron:

So good, solid advice. Anything else that I could have or should have asked you that I would have liked to have been asked.

Larry:

Well, I think I can talk ad nauseam about real estate, because that is my passion, my true passion. And I think that, you know, we’re going through a very challenging time right now. And through chaos comes opportunity. And the greatest opportunities are probably right in front of us right now. And there’s talk every day about the Fed and inflation and interest rates and geopolitical problems, wars.

I’m a veteran. I mean, I’ve been through recessions, depressions, the Vietnam War, other wars, interest rates. I was a borrower when prime was 21.5% I was a borrower when Prime was 3.25%. I was a borrower when the Fed funds rate was 8.5%. I was a borrower when the Fed funds rate was 0.25%. And so looking at where we are today with our latest brilliant Federal Reserve, which generally never gets it right, and it’s not because they’re not smart people, it’s just because of the politics that goes into all of the things. Right now, we have a world that’s addicted to low interest rates. We have a stock market…I’m looking at the screen right now, that’s up another 341 points today, which makes absolutely no sense in some respect. But the stock market has a life of its own.

Right now, I think what people are missing is that in the last ten years, in an environment of excess capital, free printing of money, low cost of money, tremendous availability of money, we have seen the greatest inflation in the history of mankind, or at least my lifetime. The Dow Jones Industrial Average going from 6,600 to 37,000 in a span of about 12 years is incredible inflation. The real estate prices have skyrocketed in the span of the last ten years. Jewelry, art, collectible cars. I could go on and on. Asset inflation has been out of control, and yet the Fed measured inflation by consumer prices. What consumer prices actually were either on a decline or at least even or not inflating significantly?

And we have a Fed that up until Bernanke was only looking for zero inflation after Bernanke, who his greatest fear was deflation. We had a Fed that was actually encouraging inflation at least to 2%, but everything was measured on CPI and the world became more productive. We were able to produce goods and services cheaper, and so we saw no inflation per se in food and significantly in energy and in consumer products. But we weren’t really looking at true inflation that was happening in the asset side.

I believe across the board assets are far overvalued and inflated and I think we’re staring into the future of a top-down diminution in values, in stocks, in real estate across the board. And the thing is that as these interest rates, which are unprecedented, increases nothing like this since Volcker, you know, it takes a while for this to move through the system.

But I’m a founder of a number of different banks, so I understand banking from the inside out. And here’s the deal: If you borrowed money in 3.5 percent and you got $100 Million loan, that loan is maturing this year. And you go to the bank and you say, “I want you to renew my loan.”

They’ll say, “We’ll renew you. It’s no problem. It’s five and a quarter, but we can only loan you 70 million.”

And you’re going, “What do you mean you’re going to leave 70 million? I got $100 million line.”

“It’s no problem. Just pay us down by 30 million.”

Well, generally speaking, that borrower doesn’t have the $30 million and that’s how the dominoes will start to fall. And I was with bankers last night. We had this discussion.

And so I think that is probably the topic of most interest because, yes, conceptually, when you’re in an inflationary environment, real estate as a leveraged asset is a great place to be. It’s already happened. It’s already happened. And so when you couple that with the pandemic and how it has changed how people shop and how people work, retail is going through a transformation. Office buildings are going through a transformation. And these create incredible opportunities. This gets me incredibly excited. It is like it’s like timing is everything. So with the eyes open, not shut, with the understanding of really what’s going on in the world, I think this is a fantastic time to be in this industry.

Aaron:

Well said. And I think with that, it’s a good time to wrap. But I wanted to thank you again, your insights, your story, your energy. They’re all terrific and fabulous. I’m sure that our listeners are going to take away a ton. So I really want to thank you again for being on today. Larry, it was wonderful to see you and to have you on.

Larry:

My pleasure, Aaron. Thank you for inviting me again. And I’ve enjoyed the opportunity and thank you so much.