How to Reinvent Yourself When the Market Shifts | Brandon 'Rockstar' Rooks

The MORE Show

The episode features Brandon 'Rockstar' Rooks discussing his transition from a $100 million land entitlement business to private lending and

Key takeaways

• Brandon 'Rockstar' Rooks is pivoting his business model toward private lending and distressed debt as land entitlement timelines have extended from 18 to 36+ months.
• Regulatory fees and municipal requirements can now account for approximately 25% of the total delivered price of a new home.

Main topics

• Real Estate Market Shifts
• Land Entitlements

Notable quotes

It's not okay to not divorce the business model that hasn't worked in the last three years and you still think that it's going to work over time.

Conclusion

The episode provides a blueprint for resilience, suggesting that inves

Transcript preview

Speaker 1 (0:00) You've got to be able to open your eyes to other markets and areas and figure out how to get the right relationships. Again, find somebody there that does what you do and figure out how to partner with them and then bring capital to them. Speaker 2 (0:12) Dan Martell posted, it's okay to have a business fail. It's okay to have to start over at the age 40. It's not okay to not divorce the business model that hasn't worked in the last three years and you still think that it's going to work over time. Speaker 2 (0:36) What is up, The Moore Show family? As always, we maximize opportunities in real estate. That is what Moore stands for. And our guest today has done exactly that. I'm excited. This is his second time here on the podcast. And we're going to talk about the economy, what is changing. Because in his prior life, I mean, just a year or two ago, he spent a decade building a company that did 100 million raise. for land entitlements. And currently he's adapting, he's iterating, he's doing the right things as the market has changed. We have Brandon Rockstar Rooks is here. What's up, buddy? Speaker 1 (1:14) I'm glad to be here as always. And am I going to see you next week? Speaker 2 (1:18) You are in Dallas at the boardroom. Speaker 1 (1:20) Yeah. Speaker 2 (1:20) Yeah. Speaker 1 (1:21) Yeah. Good deal. Speaker 2 (1:22) Brandon and I are part of boardroom for those that don't know that is a, you know, some of the highest players in the space in all different verticals of real estate. And so if you have interest in that, go ahead and reach out to my team and there can be some invites, but yeah, I'm excited to do that one. There's, you know, I just told you off camera, I just got news today about some, and I won't, and I'll leave companies out and I'll leave it like, The lending is getting weird. The lending in business is getting weird. And I'm very interested to hear after a decade of building a business, specifically raising $100 million, going all in on land and entitlements, working with some of the biggest builders in the space that we all know. Let's talk about what that business was, right? And then where I want to take the episode is obviously, how are you pivoting? What are you doing? What are you seeing? Why are you pivoting the way you're pivoting, right? So give us a little background on what you did over the last decade. Speaker 1 (2:18) So started working with some smaller operators that I just pre-sold all of their new construction renovation built for rent product. And it got to a point where the numbers didn't make sense for me to pre-sell those properties to my network of investors. I didn't like the cash flow and the cap rates. We all went through that, right? And that was about 2017 when things started changing. If I can't deliver a 15 % average annualized return to my investor, I'm not interested in the product. And so they're like, well, can you at least raise capital? There's plenty of people still want to buy these workforce middle-class housing and investment properties that are perfectly fine with lower returns. So we started a capital raising to help them acquire ground and acquire scattered lots so that they could take full-scale development ground. put in all the entitlements, get all the permits. They never actually did infrastructure. Speaker 2 (3:15) Then Speaker 1 (3:15) they would sell to the biggest national builders in the country. Speaker 2 (3:19) And Speaker 1 (3:19) this is primarily in the Southeast, Carolinas, Florida, Georgia, that area. We had a little bit of stuff in Texas. And that was going stellar. I mean, from 2017 up until really kind of like the fourth, late fourth quarter of. 2024, we started to see some problems. Before Speaker 2 (3:40) we dive in, I want to talk to you about LFS Capital. If you're looking to build passive income through multifamily real estate, LFS gives you access to exclusive apartment investments that aren't available to the public. If you want to diversify beyond stocks and create real cashflow, visit LFSCapital.com to learn more and to get on the investor list. I personally invest with LFS Capital and they have been incredible to work with. Their team is top notch. I get passive cashflow distributions to my bank account every month, and I'm always in the loop with what's happening with the apartments I'm invested in. The best thing is I don't have to worry about managing tenants or dealing with repairs. The team at Ellevest handles absolutely everything, and my income is 100 % passive, and that's just the way I like it. So if you want to build wealth and passive income without all the work and additional risk, visit Ellevest.com. Now let's get to the show. Speaker 2 (4:33) Now, I want to I want to pause you for a second. Let me let me lean into a question I think is obvious, but I'm going to ask it anyways. Why would the builder need the middleman to go acquire the land? Why do they need you to go do that? Right. Why can't they just go acquire the land and then do it and then entitle it and put in the infrastructure and do the whole thing? Common Speaker 1 (4:53) question. The biggest national builders in the country don't want the land on their balance sheets. They don't want to carry it. It's debt that they carry. So they look for operators, land developers. Typically what they want is a developer to grab ground, put the infrastructure in, and they could just buy the padded lots. That's their ideal play. But when you're the biggest builders out there, you know you've got to put some of that stuff under contract that is fully entitled and you may have to self-develop. And so that's the play that we worked on. And we took that from. Ground one, which was a little three million acre, I mean, a three million dollar parcel that we picked up that was going to be ninety nine townhomes up in Charlotte, North Carolina. We bought it for three. We did very little work because actually it was a bank owned deal that we took. So Speaker 2 (5:40) you're you entitled the ownership was in your company's name. Speaker 1 (5:44) Yeah. Well, in my borrowers. So I lent to my borrowers on that project. Speaker 2 (5:50) And then so who are your borrowers in the entitlement process? Who borrowed? Speaker 1 (5:54) That was the BRD Landon Investment. Speaker 2 (5:56) Okay. So smaller shops, not big corporation names that everyone's going to be aware of. These are smaller shops that you lend on with the very specific. Speaker 2 (6:07) of buying it to entitle it to sell it off. Speaker 1 (6:10) They would do that. And they turned around and flipped that to Ryan Holmes about nine weeks later for 6.2 million. So that's how much profit margin is Speaker 2 (6:21) in Speaker 1 (6:21) entitled dirt, right? Huge profit margin. Now, also, we built that from that first project to a pipeline of 56,000 lots in five states in about five years. And but here's where the problem started happening. A lot of these builders wanted these large parcels of ground. Hey, we got to have something we want to lock up. Building is good. We're going to need 500 homes there. We'd like to take it down in 100, 150 lot tranches. And that's kind of where they were going. But they still wanted to secure it and lock it up. And then COVID happened. And then COVID had this huge dynamic shift. Where all these people could now work from home. So they're moving away from all these expensive cities and areas of the country. Going down to places like Florida. There's no inventory. So they're paying $30,000, $40,000, $50,000, $60,000 over asking price. Speaker 2 (7:17) And Speaker 1 (7:17) then guess what? And all this COVID shit kind of like falters out. Rents were skyrocketing. Prices were skyrocketing. And then all of a sudden, all these national companies realized that they're work-from-home people. Speaker 1 (7:33) Their productivity went to crap. They started calling them back home. So your productivity is crap. You either find another job or you're coming back to corporate office. So now people are trying to unload their properties in Florida and they're upside down. And by the way, just about two weeks ago, I read a report. One in seven homes listed for sale in America are in the state of Florida. One in seven. Wow. Speaker 2 (7:58) So I live, I just must live in like the golden pocket. Like I literally like my neighborhood, this area is the pine crest area. It's just, it just keeps going up in value. Like you can't find anything. So everything sells at a premium. It's insane. We Speaker 1 (8:15) have that in every state, you know, there's always those little pockets, right? So, but that's a pretty interesting fact. And so anyway, the builders overbuilt. In a lot of markets, in those markets for workforce, middle-class housing, which we all know had about a four to 5 million unit shortage in America, right? Well, guess here's what happens. Late 2024 interest rates for mortgages didn't go down. They shot back up. They were expected to go down. They didn't. All of a sudden, we've got a war that's causing a problem with gas prices. All of a sudden, we've got AI taking over and it's making buyer confidence low. A lot of people are worried about losing their jobs to AI. So Lennar – and this was a few months ago. I don't know what the status is now, but they're sitting on 33,000 finished homes they can't sell. All the builders are spending most of their profit margin on discounts and incentives to try to unload these homes. Now it's caught up to companies like D.R. Horton and some of the other big boys. Speaker 1 (9:15) Here's what it did to us. We have all this money lent to our borrowers. Some of them take the full ground, get it entitled, sell it to the national builders. A lot of the times they would just put the ground under contract. They would cover all the cost of getting it to full entitlement, which that process used to be 9 to 18 months. Because of all the city municipalities and regulations and government and state and all this stuff, they started just delaying and squashing it. Now it's 36 months, if not longer. Speaker 2 (9:50) To get land entitled? I mean, does that depend on size of land? Speaker 1 (9:57) It's just – it's corporate BS. You know that the delivered price of a home today – about 25 % of it is all in regulatory fees and bullshit. Speaker 2 (10:08) Wow. Wow. Speaker 1 (10:10) It's, it's just more and more crap being packed on, you know, you got to meet this, you got to pay this, you got to have this 25 % of the price of a delivered home. Yeah. All in just regulatory bullshit. And I apologize for not allowed to cuss on this show. Speaker 2 (10:22) You are. We're normal people. We're normal people here. So, okay. So then you're seeing where's this pivot then is because you just basically told me there's there's individuals now that are just essentially locking it up, finding the time in during due diligence to go pay for it to be entitled, never actually acquiring it. And you get cut out. Is that what I'm hearing? Well, because you're not funding the deal now, so they don't need your money to go buy the land. Speaker 1 (10:54) Yeah, and now they can't move the ground. Now, we've got a lot of money out, and actually Rockstar is in a position where we've got the borrowers, but they're not moving product or they're having – their product demand is way down. It's losing