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In this week’s episode of THE FINANCIAL COMMUTE, host Chris Galeski welcomes Mikey Taylor, President of Commune Capital, to discuss California real estate.

Here are some key takeaways from their conversation:

• Mikey discusses the difficulties of real estate development in California due to heavy regulation and entitlement challenges but points out that these barriers create less competition and more opportunities for growth in property values.

• They highlight the housing crisis in California, exacerbated by a lack of construction post-financial crisis. Even though there has been a significant hike in interest rates, California real estate prices continue to rise (more so than other states) because of the severe shortage of housing supply.

• Mikey explains Commune Capital’s unique fundraising approach through social media platforms like TikTok and Instagram, constituting a major part of their capital. He emphasizes the importance of financial education and his passion for spreading knowledge through social media.

• Finally, Mikey touches on his role on the Thousand Oaks City Council, where he uses his real estate experience to address challenges imposed by state-level regulations.

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Watch previous episodes here:

Ep. 83 Why Google Advice is Usually Wrong

Ep. 82 How to Manage Risk Amid Geopolitical Unrest & Inflation

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Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, joined by Mikey Taylor of Commune Capital.

Mikey, thank you for joining us.

Thanks for having me.

I'm excited to talk to you today because you've got a broad background, right? You're a retired pro skater. You launched a brewing company, Saint Archer Brewing. So you understand marketing and, you know, brand development. You're also a big real estate investor and you're on the Thousand Oaks City Council, so you're busy.

I have four kids, so we're busy.

I'm so excited to talk to you about today because you invest in real estate. We don't currently invest with Commune Capital, but you have an interesting take or viewpoint on investing in real estate and geographically where you're most excited about investing. And I thought that our clients should hear from you because you have a different take than a lot of other investors.

So let's start there. Why are you so excited about California real estate?

Okay, so I think it's probably important to just state out front I am more of a contrarian thinker with everything I do. The brewery, it was against the grain. And so I find more comfort in opportunities that I believe everyone is missing. If I'm doing the same things everywhere else, I get uncomfortable. But that's not the normal trend for investors.

So that's kind of you know, we set the stage. California, when I say I invest in California and I'm all in on California, people think I'm nuts. I mean, I speak across the nation, they think we're crazy. But this is basically my thesis that California is so difficult to do anything in right is heavy regulation.

It's red tape. The politics aren't great. It is not easy to do real estate here. And so what that ended up creating is what I think is one of the greatest opportunities that we've seen, which is the state of California has one of the most extreme housing crises we've ever seen. Right, right. So basically, if you follow what happened post-financial crisis, we stopped building.

There are 2 million units needed in the state. And when you ask investors if they're building here, what do they say?

They say, no, it's too expensive.

But what they don't tell you or maybe what I believe they're missing is when you have 18 to 20 people bidding on a home or putting in applications to rent, and you only have one unit available. What happens? Prices go up. So what we've seen is rent growth continues to go up.

Appreciation continues to climb. And then you look at the other markets that everyone's been so bullish on. Right. You're you know, Sunbelt states, Texas, and everybody where all the dollars seem to be flowing. They're not having that same experience right now.

Right? A lot of operators have had to stop their dividend payment to hold cash because now they have concerns that they won't be able to get out of their bridge into permanent right, or they're having to have concessions to get occupancy back up.

So I like the idea of one investing where other people are scared to invest. And two, I look at the state policy almost as a mechanism that keeps competition out. The barrier to entry is so high that when we look around, there's no one else competing.

So your biggest sort of challenge is raising the capital to go execute because you believe in the strategy, you believe in the economics of it, and you know how to navigate sort of the challenges of getting the permits and going into flying.

Well, I would say raising capital is like when I talked about going against the grain, our company raises money differently than most people. Like we raise the majority of our money from social media. It's direct to the investor. It's Facebook, Instagram, TikTok. Right. And that's become maybe 85% of our capital stack. So it's not necessarily the capital that's difficult.

It's getting projects to the finish line here. Right. There's such thing as entitlement fatigue with developers in California. you know, for example, the last project that we closed on the owner was seven and a half years in on getting his entitlements right. It's just that's brutal for us. It's typically 2 to 3 years. Most investors won't go through that.

Yeah, that's a long process. And you know, time is money in many cases. I was talking with some other real estate developers recently and they said, Chris, right now, you know, in this area it's cheaper. It's more economically favorable to buy an already existing building, do value add and then turn around and move on than it is to build ground up.

Like what is your view of you know, that viewpoint versus ground, that construction? Because if we have such a big housing supply we need more ground up.

Okay. So I think it depends on the asset class you're talking about. We are really big in storage and we do adaptive reuse. So big box retail like Kmart and Walmart's into storage in that instance. Yeah, it makes more sense in a lot of cases to do that than build multifamily. Different scenario, right? One I don't personally love the idea of going in and buying a class C property and then trying to drive rents up.

I would rather just add new units, but the debt market is so challenging right now that you don't have enough room. I don't believe in basically putting on the bridge that drives your value up and then qualifying for your permanent financing on a value add. I just don't think it's there for us, it's like when you buy a distressed asset with no income coming in, we can get it at a discount.

And then we're focusing on what we call yield on cost. Or do you know what the cap rate that we're building it to is? And on that metric, yeah, it makes sense to do.

So if you're, if you're a, an owner of real estate here in California, I mean, you're hearing some other pockets across the U.S with interest rates higher that, you know, prices have come down a little bit. But if you're an owner in real estate here in California, you feel like that value's pretty, not secure. I mean, we don't have a crystal ball, but you think that it's likely to maintain its value over time and increase because of the lack of supply.

And I think right now is probably one of the most, you know, it's so interesting what happened in California this last year. When you think about how significant the rate hike was, we should have seen real estate crash right? Yeah. What happened to single family in California?

Prices went nowhere but up.

Because supply is so bad.

Bingo. So basically, you know, if we're talking about what's best for the total population, truthfully, we want to see corrections. Like we want to see these moments where we're undersupplied so prices go up, and then developers build. What we do is we overbuild and then all of a sudden it, you know, you have to start giving concessions, and then prices crash and then you can't build.

Right. That's kind of the normal cycle. The challenge is when you're 2 million units short, that cycle doesn't come. And so, you know, is it not good for a big percentage of people in California? Yes. Like home prices have become too expensive. Rents are climbing at a rate that is not normal. But unless our state does a full 180 and goes, we're open for business and we're peeling back all this red tape.

Well, I'm not sure we're going to fix it.

Yeah, it's it's a challenge. Like I love the fact that you touched on, you know, how you invest and think differently than others. I mean, we try to make that part of our DNA as well. You know, we invest beyond traditional stocks and bonds and mutual funds for clients. We have a different outlook on how or why we invest or protect capital.

So that resonates with us a lot. Tell me a little bit, because we also joke around giving financial advice and competing with the internet for that. You know, you, have created a tremendous brand, a great following. I love the educational components side of things, of, telling people why you do what you do. What are the challenges that you face with giving internet advice?

Yeah, I would say there's a couple things. When I started the brewery, you know, it's alcohol. Alcohol's regulated, right? When I went out of the brewery, when we sold and then started this firm, the amount of regulation that was basically in this field was unlike anything I'd ever seen. Right? So I felt like I went from, in some cases, being an entrepreneur to, like, just plugged into corporate America.

Yeah. If you have a chief compliance officer to review everything, it was a different beast.

Hey, can this video work? No. Change this ad, this disclaimer on everything. But it is what it is. I would say the frustrating part on my end is I'm competing, in a sense, for attention on social media with groups that are probably doing things they shouldn't be doing. They don't have to worry about regulation, they don't manage people's money.

They're just giving out financial advice, which you shouldn't be doing. They're not advising, right. But they're so small that I think they don't realize and no one's coming after them. So it almost feels like, you know, what we talk about in an industry that's completely, you know, decentralized, where there's no regulation, the competitive side of capitalism will drive you into kind of a place you don't ever want to be.

That's kind of what it feels like in some regard. Like, I feel like my hands are behind my back because everyone else is getting more attention because they're saying things that they should be. But you know, now, flipping into the positive, I was blessed by somebody coming into my life and teaching me just the foundational stuff. Here's a budget, here's how to build your credit, and here's how to pick what assets you should be investing.

I mean, it changed everything for me. And so I wanted to take what I was given. And basically, you know, magnify it out to whoever I could, whether you wanted to invest with me, whether you want to take that information and go on like a DIY path, or maybe, you know, you had a client with a firm like yours and like, I just want to I'm interested in how he says.

And now I get to ask questions to you guys. Like, I just want people to have it and then choose what they want.

Power more people with the education that you've been blessed to correct. And I also think you like red tape because you like to invest in California, and then you're also being challenged by the legal.

Yeah. So that's the thing about skateboarding. It's skateboarding so hard that I think I got used to it or maybe not used to it. I think I enjoy having challenges in front of me and having to figure it out. Like, truthfully, when things get too easy for me, I get bored. Yeah, like after we sold Saint Archer, we all stuck around for a little bit.

It lost its interest. Yeah. You know, I enjoyed building. Yeah.

Yeah, it's really cool. And so how did that take you down this path of becoming a Thousand Oaks City Council member as well? Like, I mean, you're able to kind of not only see it from an investor standpoint, from a building a business, having employees seeing an opportunity for investment here in the state that that you live in and love them.

But now you also see the red tape that that's put through, you know, from the cities. Now you're part of the city council. Like what are your thoughts? What's your viewpoint there?

Yeah, that's been an interesting one. I think it's the first because I come from the real estate side, and I'm used to being on the other side of the planners or city council. Now being behind the, you know, city side, I think it's added a lot of value to our town. Like, you know, I'm able to articulate things through the experience that we constantly go through that I think unless you're a builder, you just don't realize it.

So I'm hoping that I've kind of added value in that regard. you know, since a lot of it is actually is is a state it's a state thing, right? Like there's been a big shift, like if we really like, tie this thing, you know, tie the knot to bring it full circle. The reason, really, that we got into this housing crisis is because city councils, city council, people were being elected to stop any type of growth.

Right? Like the Nimby movement is what we call it. The state would tell cities how many units they would need to build because we have population growth and the city would go, okay, sure, and never do it right. What our current governor did, which I have to give him credit for, it is, I think, for what he's trying to accomplish.

It was a good move. He created what's called the builder's remedy. And the builder's remedy basically allows a developer to tap into this program in cities where their housing element is out of compliance. So now basically the state says Thousand Oaks, you have to add this many units. Santa Monica, you have to add this many units.

And now all of a sudden they're in compliance, right? If they're out of compliance and the builder taps into builder's remedy, now, you have in Santa Monica what you're seeing apartments can't go over four stories. And, you know, somebody is going to build a 15 story, like, 2000 unit apartment and the city is trying to stop it. I don't think they're going to be able to.

So it's actually kind of changed a big part of the dynamic in California is it, you know, pertains to how we're going to build, but a lot of the stuff that we're kind of challenged by is the state saying, do this. And, you know, we know how our city works and we know it best because we live here.

And how do you move through that? That's the challenge.

And look, I agree with you. And any time you're having to deal with, you know, cities and entitlements and permits, I mean, we just we since Covid, we've had a shortage of execution on the time frame and there are challenges that are there. I love California and seventh-generation California. And so I always like to talk to people who are excited about the opportunity in this space.

Mikey, thank you so much for sharing your knowledge or your wisdom on why you're excited about California. The challenges that we face today. You know, the ways that we potentially get out of it.

Yeah, I appreciate it.

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