S.E.C. Real Estate Observer

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I got a big check today in my California mailbox that came from a closing in Massachusetts. It was the result of an investment made (together with S.E.C. Tom Peterson of Glendora, CA) through the son of an S.E.C. member I had met when he was about 10 years old. It was a buy, lease/option-back, of a property we never saw. I hadn’t seen the kid since he was 14 or so (he’s now 23), but I knew some things from having been at meals with him in his family home when doing deals with his S.E.C. father all those years ago, knowing his athletic prowess, as proudly broadcast by his father through email, and having some basic deal knowledge from being in S.E.C. since 1963. The investment worked as it was designed for all parties. The deal was made based on an email broadcast by the dad to S.E.C.s about the need for a refi for the son of his college housing. The deal design was not what was asked for, but S.E.C.s always have a way to accommodate all objectives to get to the solution that fits for everyone.

The success of this transaction reminds me of times when charter S.E.C. member Kenny Johnson (former president of the Oregon Real Estate Association) used to call me when I was 28 (81 now) to make sure I would be at the next S.E.C. meeting. I would say, “If I get the one I’m after and two more to close, I’ll be there!” He would say, “I sent you $1,500 yesterday to make sure you are coming, so I’ll see you there,” and he would hang up. I had made my first interstate deal with Kenny’s wife (an S.E.C. member) that began a 23-year joint venture (because the commission was real estate). I ran the limited partnership and would call Kenny to say I had a deal in escrow for our venture, but I needed $10k cash to close. He would send the cash. A week later he called to ask, “What will it cost for the new roof?” I said, “What new roof?” He said, “I have never gone into a new property that didn’t need a new roof the first thing.” I said, “This is a land deal, no roofs.” He just went along with my proposals because of S.E.C. trust. He called one day and said, “The limited partnership agreement you made me sign at the beginning calls for a ‘jackpot’ at 22 years. It’s been 23.” In dividing up the spoils, I got some land in Eastern Oregon that Kenny was famous for trading off. It was a “going to the barn” move for him as part of the S.E.C. process of finding the mechanics to solve everybody’s issue. Many times during our relationship, I would ask for a loan of some amount, and he would deposit it for me that day, and I would sign a note a few days later and mail it.

I still have 2 x 40 acres of Eastern Oregon “you can’t find it” land of Kenny’s that one of you S.E.C.s needs to transaction for me as part of my “going to the barn.” One of the formulae that needs more use is the borrowing of deal catalysts. If it takes the addition of a commodity not in hand to complete a negotiation, borrow it. Put the deal together with the parts that are needed. S.E.C.s can get you the parts needed that you don’t have on hand. If you need to borrow some flexible value land, “You know where to come!”

Last winter I was RVing in the Palm Springs area and playing golf with Tom Peterson, S.E.C., who keeps a $500k RV there. I asked him if he had any gold. He said he didn’t, but wanted to. I wanted some quick cash for a deal, so I sold him some gold that was in a safe deposit box 700 miles away. That night at a couples dinner he gave me a check for most of the gold; we signed a little napkin deal, and I spent the cash the next day. Later, he sent the rest of the price of the gold. A month ago, I was headed to Mexico to visit old friends, and I stopped overnight at Tom’s to deliver his gold. I had to buy dinner as delayed compensation.

If you cocktail with S.E.C.s enough, you will hear a thousand stories like these as proof that getting to know each other makes solutions easier. The old adage that “Deals that need to be made will get made between S.E.C.s.” is still true. There have been some member rejects, however, for violation of “the trust.”

To monitor how well the true exchange education has been passed down, you will be responding to a poll of the amount of transactions you have made in the last 2 years that included less than 20% cash for anyone’s equity in the deal. Maybe we are missing a lot of deals.

Can you explain all of the 300 S.E.C. formulae contained in Bob Steele’s book? Do you know “The Sturgis Dornbush Formula”? (He was an S.E.C. who ran banks in South Dakota.) Have you used the Colby Sandlian “disappearing cash” catalyst for a multiple exchange process? Have you used vacancy as an asset? If you ever really understood the uses of land leases, you would never recommend a junior note to anyone. Can you make STONE SOUP?