Sarah Kruer Jager: Working with Great People, Relentlessly

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Show Notes:

Welcome to Episode 17 of Offshoot with Sarah Kruer Jager.

Sarah came into her family business, not by design, but via circumstance.  Since joining the firm, she’s become an absolute powerhouse in the commercial real estate industry and an epic role model for those aspiring to get into the juiciest part of the apartment business.

Sarah’s team of 14 stems from a decades-long family partnership, and punches way above its weight.

In this open conversation she portrays a lot of the attributes that feed her success and Monarch Group’s continued progress.

Listen in as she covers:

• The family adversity that brought her into the business and navigating that bittersweet time.
• Monarch’s mandate to get every deal right while building assets to own them long term.
• Creating alignment in their team through a lean and mean culture along with financial incentives.
• Staying in your niche and avoiding style drift.
• How tumultuous times in real estate often bring the best deals.
• The importance of investment conviction when uncertainty is high.
• Avoiding a merchant building reality by:
  • Putting real skin in the game.
  • Working on complex sites to secure a great basis
  • Keeping time on your side.
• The importance of great relationships and teams.
• Getting out there, taking risk, and “showing up” to learn and grow.
• The importance of taking care of yourself so that you can take care of others.

Transcript

Announcer:

Welcome to Offshoot, the Fident Capital podcast with host Kevin Choquette. Offshoot is a curiosity-driven conversation that features a wide range of real estate business professionals. In each episode, we unpack the knowledge, vantage point, and domain expertise of our guests. Then, we move beyond the facts and figures and dive into the personal habits and mindset which allow them to be high performers in their respective field. This podcast’s objective is simple: supporting entrepreneurs, fostering relationships, and uncovering meaningful conversations that positively impact business.

Kevin Choquette:

Welcome to Episode 16 of Offshoot with Sarah Kruer Jager. Sarah’s coming to our family business not by design, but through circumstance. Since joining the firm, she’s become an absolute powerhouse in the commercial real estate industry and an epic role model for those aspiring to get into the juiciest part of the apartment business. Sarah’s team of 14 stems from a decades-long family partnership and it punches way above its weight. In this open conversation, she portrays a lot of the attributes that feed her success and the Monarch Group’s continued progress.

Listen in as she covers the family adversity that brought her into the business and navigating that bittersweet time; Monarch’s mandate to get every deal right, while building assets to own them long-term; creating alignment in their team through a lean and mean culture, along with financial incentives; staying in your niche and avoiding style drift, and how tumultuous times in real estate often bring the best deals, and the importance of conviction when that uncertainty is high; avoiding a merchant building reality by putting skin in the game, working on complex sites to secure a great land basis, and keeping time on your side; the importance of great relationships in teams and getting out there, taking risk and showing up to learn and grow; and finally, the importance of taking care of yourself so that you can take care of others. I hope you enjoy the podcast.

Welcome, everyone, to another episode of Offshoot. Today we’ve got my friend, a longtime professional acquaintance, Sarah Kruer Jager, a partner of Monarch Group, on the pod. Monarch Group is a private real estate investment and development firm based in San Diego that’s focused on entitlement, development, and acquisition of institutional quality apartment communities in the Western US. The founding partners’ aggregate entitlement development and direct property investment track record encompasses over 19,000 residential units. Sarah joined Monarch in 2005 as a founding member of the Monarch Private Equity Funds. She works closely with the founding partners to set the strategic direction and overall day-to-day business activities for all of Monarch’s wholly owned and joint venture investments. In that capacity, she leads the acquisition, pre-development, finance, asset management and disposition functions, as well as manages relationships with Monarch’s community and capital partners. During her tenure at Monarch, Sarah has acquired, developed, and sold over a billion dollars in real estate investments including over 7,800 residential units.

Prior to Monarch, Sarah worked at UBS Investment Bank in Chicago in the Mergers & Acquisitions and Diversified Industrials Group. Sarah graduated from the University of Michigan School of Business with a Bachelor of Business Administration and received her MBA from Wharton School with a major in finance. Notably, Sarah’s time at the University of Michigan was courtesy of a four-year full tuition athletic scholarship for the Division I Varsity Women’s Golf Team. That fact, which I’d never known, really helps me understand why I’ve been completely bludgeoned to death a few times I’ve been on the golf course with her. Sarah, welcome to the podcast.

Sarah Kruer Jager:

Thank you, Kevin, for having me. I guess there’s no mercy on the golf course.

Kevin Choquette:

It’s the classic thing where the golfers are really quiet about their skills, “Oh, yeah, I play a little bit.” But, thank you for doing this. Thank you for taking the time. I appreciate it.

Sarah Kruer Jager:

It’s great. No, it’s an honor to be with you. I feel like you and I do this every time we talk anyways, just kind of BSing about everything going on in the world and views. So, I guess we’re making it official now here.

Kevin Choquette:

There you go. Recorded for posterity. So, to start, could you just tell me a bit about Monarch Group in your own words? I know I gave the sort of elevator bit, but how do you think of Monarch?

Sarah Kruer Jager:

You covered quite a bit of it. I guess what I would add to that, we’re obviously a local San Diego-based, multi-generation, local business. You talked about what we do, we’re apartment developers. I guess what I would add, a couple things, I think most important off the bat, I was born and raised in San Diego. My partners have been here together, building apartments for over 50 years. This is our hometown, and we care a tremendous amount about this community or invested in it in a lot of different ways beyond just work.

I think, as a part of that and a part of the passion and how much we love our business and what we get to do day-to-day, we’re really committed to hopefully being a part of the housing solution, because God knows there are a lot of things we got to do to continue to build a lot more housing and a lot of other things that go along with that, that I’m sure we’ll talk about. But I guess that’s what I would add. We’re a family business. We love what we do. Love working, again, with government, public sector, private sector to be a good partner. And hopefully, again, delivering some much needed housing solutions being a part of that.

Kevin Choquette:

Very good. The last guest I had on, he is just starting an investment management company. It’s called T2. From the outset, he’s been articulating that it’s a kind of multi-generational investment, which I find surprising given that I think they’re only six or seven years into the venture. I wonder, when the founders got this going, did they have that kind of idea, that it was going to be multi-generational?

Sarah Kruer Jager:

You know, I don’t know. It’s a good question for them. The way Monarch started was really coming out of… I think so many businesses, big and small, start when times are pretty awful in the world. My dad Pat, my uncle Tim, who’d been building apartments together since the late ’60s. My dad ended up in San Diego through the Navy after Vietnam, didn’t finish college, came out here through the Navy and started building apartments. My uncle kind of came out and followed him. And actually, another one of their brothers came out. Kind of family business, again, since late ’60s, early ’70s. And fast-forward, they formed Monarch in ’96, ’97 coming out of the Gulf War recession, which was pretty awful, and formed Monarch with Rod Stone and his son Ryan, who had just come back from Atlanta. Again, pretty crummy time to be doing things. Very different world, Kevin, than where we are today. Our business obviously has become very institutional over the last couple of decades.

Back when they started Monarch, not that long ago, going out and finding pieces of dirt for 20,000 a unit in San Diego, people thought they were crazy. And this was in really nice parts of town. A lot of the institutional capital, et cetera, wasn’t there the way we have it today. So, they’ve seen a lot of cycles, been through a lot of things, but for Monarch, again, coming out of Gulf War recession, fast-forward. So, it started actually, it started as a multi-generation business with Rod and his son Ryan in a lot of ways.

I think maybe that back of the mind, but I think at the end of the day for them, and we can talk about how I ended up here, because it was in a very roundabout way. It was not intentioned, like I guess everything in life. But I think it’s the icing on the cake, if you will, that the family has kind of stayed together and we’ve got an amazing team that obviously goes well beyond that. But it’s an amazing thing to get to do what you love every day with the people you love. And that’s a combination of family and non-family.

Kevin Choquette:

Absolutely. When Pat and Tim started building apartments, I just want to understand, is there a distinction between building as in general contracting or were they developers at that point as well?

Sarah Kruer Jager:

They were developers early on. When my uncle Tim came back, he’d finished school at University of Michigan and also gotten his master’s in architecture. So, he was kind of an architect by background, really became a builder himself. We’ve always had kind of an affiliated GC entity, fully vertically integrated. But they started out as developers, going out, raising the capital, taking all the development risk in a very different time in terms of how deals were capitalized and amount of equity and so forth that was needed. But out of the gates, they were always developers.

Kevin Choquette:

That’s great. I didn’t realize you guys were yet another Navy person who’d decided not to leave San Diego. There’s just a couple of them around. Well, look, you mentioned it, your day-to-day. My perspective is, you’re basically running the place, but I obviously don’t walk the halls of Monarch, so I don’t really know that. But what does your day-to-day look like?

Sarah Kruer Jager:

Right now there’s five key partners. So, I run the business day-to-day, but with all of them. And we all bring very different perspective to the table, and we’ve all worked together now for God, I don’t know, 18, 19 years at least that I’ve been there, and if not longer. So, there’s a collegiality, there’s an amazing culture. Everything is very blunt and I think sometimes it’s kind of messy, but that’s how we are lean and mean and nimble, and hopefully you’re making the right decisions as we decide how we allocate our capital, evaluating risk, et cetera.

And then, as we move through the lifecycle of the deal, I spend a lot of my time, I guess from a day-to-day, yes, kind of running the business and everything from sourcing and capitalizing the deals that we ultimately do, taking them through, putting the team together, running them through the acquisition, the pre-development, the entitlement phase, working with the community, working with our capital partners all the way up the capital stack, and really sort of ultimately hopefully teeing them up successfully to hand them over to our construction team.

Probably a little bit less active through construction, but we are still very, very hands-on. And nine times out of 10 we are the affiliated GC. So, very active in that. And then, I guess I kind of jump back in and get more active again post-construction. So, asset management, we used to have a property management firm that’s maybe the one piece in terms of the vertical integration that we no longer have, but we’ve had really good success partnering with best in class property management companies, whether that’s an institutional partner that has a management platform or a third party that we’ve done a lot of business with. But again, still being a very active owner day-to-day on the asset management, overseeing the property management piece and all the other things that come with operations and permanent financing, setting those projects up for the long haul after we get through all the crazy, crazy on the entitlement and development.

Kevin Choquette:

I think you and I would’ve talked about this before, but for years I’ve had this vantage point that developers are, for the most part underpaid. And I know that’s not necessarily a popular opinion in the broader population, but for the risks that are taken on and the kind of complexity that you just detailed from inception to acquisition, entitlement, right-sizing your capital stack, putting together your team of consultants, finding the right property managers, doing the capitalization, doing the capitalization on refinance, managing all of the expected, unexpected, and even the not expected, there’s a ton of risk. But in all of the attributes that you just went through, which part of it is today proving to be the hardest to navigate? What’s the part that is holding back Monarch Group the most?

Sarah Kruer Jager:

There’s a lot to break down there, Kevin. Let me answer your question, but then I want to come back to kind of put it into context for folks that are listening, because you and I talk about this all the time, the developer as an entrepreneur and what that really looks like and framing that. And maybe I’ll start there and then I’ll answer your question, but exactly what you said, right? This business today is incredibly capital intensive. Land is not cheap. Costs continue to rise, obviously you’ve got to go get debt, you’ve got to put a lot of equity into projects. And in terms of framing this, our sweet spot as a company is doing, call it three to five, what I’d call institutional size quality deals at any given time. So, call it sweet spot, 250-ish to 300 units, ground-up development.

And so, on each one of those projects, as you alluded to, we got to go out, buy a piece of land or get some time through long option to take it through whatever that entitlement period looks like, that will cost on a project of that size in terms of, and there’s a lot of different costs, but the vast majority of it’s getting those plans done, getting the construction drawings done and teeing the project up. And that can cost a couple million dollars, easily. And we haven’t even talked about the time component and some of the things that can happen to slow you down there, but that’s a couple million dollars out-of-pocket off the bat, above and beyond whatever that land cost is, which could be in the potentially tens of millions, depending on the structure.

So, before we’ve even put shovels in the ground, we’ve got to navigate, and this comes back to a lot of things, that particular site, the zoning, how quickly you can move in California, which is where we’re focused. But you’re easily out-of-pocket, best case, a couple million dollars before you have generated any return, even put a shovel in the ground. And then once you get past that, put a shovel in the ground, which is a nice milestone. And what you were saying a second ago, now you’re putting your construction financing in place, you’re putting a lot more equity into the deal. You may be taking the land down at that point.

But on these projects again that are roughly, call it 250 units, that’s kind of north of 100 million, probably, easily, all-in based on where land costs and development costs are today. And so, at that point you’ve got what could be $60 or $70 million at least of debt, and depending on the world and all kinds of other factors, we talk a lot obviously in our business about guarantees, completion guarantees, potentially repayment guarantees. So, imagine literally signing your… and these are not things we like to do, but we’ve done historically on a limited basis. But I think for folks who haven’t done that, it’s imagine if you were going out to buy a home, basically signing on the dotted line so that down the road, God forbid you couldn’t make your mortgage payment, the lender could basically come back after you to repay that personally.

So, not something we like to do and obviously a bad word in our business, but to your point, there are all types of risks, both capital structure, the deal itself. And then I think the biggest thing that’s probably often overlooked, so again, now you’ve got millions of dollars, and in our case as a private company, we’re utilizing our capital and our balance sheet and that’s our money. So, we cannot make mistakes. We’re very much aligned, I guess is another way to put it. But I think what also gets overlooked, we’ve got the deal itself, the team, I think all of this, at the end of the day, like any business, starts and ends with the team, and that’s us.

We may have a capital partner, we’ve obviously got a partner on the debt side, we’ve got a whole team around us that we’ve built, the design team, the consulting team, and I think that’s where it starts and ends. But you also look at all the things, Kevin, that we don’t control in the macro economy. And there are lots of things. You may have the best deal, the best team, and the world can change. We’re obviously living it right now and have been over the past 12 or so months. Things can change very quickly. And so, I think we spend a lot of time, again, the team, that matters tremendously, but making sure that as the deal structure itself, because again, we’re cherry-picking a couple deals.

We’re not a huge volume shop. We’ve got to get every deal right. It’s our money, we’re tying it up for the long haul. And so, as we talk more about this on the risk side, but there’s so many things that I think, unless you are in our business day-to-day, there’s so many things that we do not control. So, you can execute and do all these things right, and you may hit the cycle at the wrong time. You may have a capital structure where you’ve got to be out of a construction loan today where the world is. And so, again, there are just so many things that we do not control in this business that can really come back to hit you really hard, again, if you’re not, and this is much easier said than done, but really setting deals up for the long haul in terms of how they’re structured, as well as having a lot of time and money, kind of solves all problems at the end of the day.

Kevin Choquette:

And so, in all of that, going back to the original thing, and apologies for giving you such a massive thing to swing at, is there one element of the myriad of challenges that come to the developer that you guys feel is the most impeding of your forward progress at the moment?

Sarah Kruer Jager:

I’d say, today, it’s quite an interesting time. The last decade plus, if you were in our business, it was very hard to really screw things up. You had free capital, free money, it was hard to do things wrong. None of us have a crystal ball, but I think today experience matters, having that capital, having that balance sheet, taking a long view, maybe being a little contrarian. I think the experience of having been through cycles and having conviction and belief in the markets and what you’re doing, looking through and past this is really important. It’s hard, especially when it’s your money.

But I think today in terms of I guess what you’re asking me, what’s slowing us down or giving us some pause, I just think from a macro standpoint, and none of us ever have a crystal ball, but it’s really, really important, especially times like this, to have a view in terms of where we believe the cycle is going, where we are, and obviously how that’s going to impact any type of investment opportunity we’re looking at. Today, and this is the benefit of having partners who’ve been doing this, Kevin, for over 50 years. We’re all constantly learning, never seen it all, but it’s sure nice to lean over to Rod who’s, by the way, a lot of folks in our business basically haven’t been in this business to see rising interest rates, and to lean over to Rod, who’s kind of lived through the ’70s and 18% plus interest rates, and as we’re kind of thinking about things.

But I think right now it’s just hard as we sit around and talk about some of this and talk to a lot of people in our business far, far smarter, it’s very hard to have a view on where this is all going. It’s very unclear. By the way, even if you do, we’re probably wrong a lot of the time. It’s like the good old proformas, Kevin, that we grind on. If there’s one guarantee, we’ll be off in every element two, three, four, five years from now. So, I think that’s hard, just having a sense of where we’re headed. It’s very, very unclear.

And then from a macro standpoint, and I think a lot of our business doing a lot of entitlement work, doing a lot of public, private, working with government, I think the regulatory environment, making sure that in the markets that we operate, this is more regulatory kind of policy, but that we’ve got obviously this massive housing crisis that we’re dealing with. But just being a part of that, being a part of that conversation as an industry, but making sure that the pendulum doesn’t swing too far one way or the other on certain things, that could have a real impact in our business like that is probably another one where we spend a lot of time.

Kevin Choquette:

Perfect.

Sarah Kruer Jager:

And actually, I’ll throw in one more thing, sorry, I’ll throw in one more thing because this is just a wacky time. Construction financing, and talk a lot more about the why, but I think it’s going to be really, really hard. It doesn’t matter who you are, big company, small company, huge balance sheet, whatever, great deal, great sponsorship, everything kind of right up the fairway. I think it’s going to be very, very challenging for the next couple of years to get construction financing on any one deal, let alone if you’re a bigger shop, five or 10 deals. And that’s not a good thing for a lot of reasons, but especially here, as we look in our backyard, we’re obviously facing a massive housing crisis and digging out of a big hole and you don’t have to look back much further than GFC and how housing production dropped off.

Again, this is going to be a bit different, but I think as we look at the environment and what’s just starting to happen, I don’t even know that we’re in the first inning of this thing with what needs to work through the banks on the commercial side. And we’re going to see some losses in multi as rates have reset, but I think it’s going to be very, very hard to get construction financing over the next couple of years. And as a result, we’re going to see a very material potentially dip in production, which is not a good thing.

Kevin Choquette:

You’re putting a ton on the table here, which I love and it’s exactly how I knew this would go, but you’ve already sort of given more than sufficient evidence that you’ve got mastery over this. But right at the beginning you said, “I never really planned to be here.” So, how the heck did you end up at Monarch? And we’ll come back to the macro and managing the political construct and all of that.

Sarah Kruer Jager:

Very bittersweet, Kevin. I grew up in San Diego, was incredibly fortunate to get a scholarship to go to University of Michigan, got to study business undergrad and play golf. And honest to God, I thought… Remember back to when you were 18, 19 years old, obviously worldview is pretty narrow. You kind of know what you know, but there are all kinds of things that you don’t know yet, even though you think you do. And I got to Michigan and I met who’s my husband, this was, God, how long ago now? 20 something years ago, 22, 23 years ago. But I met my husband Jason there, which changed my life, I guess for a lot of reasons.

Michigan, that whole opportunity to get out of San Diego, whole new kind of life experience beyond just school. Golf, by the way, is obviously an individual sport and I would argue a very, very selfish sport. And to take that into a team environment was something that I carry with me to this day from a leadership and team standpoint that gets, I think, in a good way, just sort of drilled into your head at Michigan. The team, the team, the team. But anyway, so I get to Michigan, I met my husband there and he was in grad school, finished before I did. I think when I got to college, all that I knew was golf and I thought I would play professional golf and that’s kind of where my mind was. And that changed as I saw that there was this whole other world out there of things to do, and that golf could be beneficial. I could still play for the rest of my life and it could come in handy in business. And so, just a lot of things changed kind of over that time.

But I followed Jason to Chicago after I graduated and worked, as you mentioned earlier, doing investment banking out of college at UBS, and amazing experience. I don’t know that I thought I would do it forever, but it was a way to pack many, many years of work into a few years and just learn the nuts and bolts of how you value things. In this case it was companies, but very applicable to real estate and lots of other things. And I think from that experience, I was super fortunate. I don’t know, we could talk about all this stuff all day long, Kevin, but I’ve been very lucky in life that it’s not the company, the name on the door, it’s the people that you always come back to. And I worked for an amazing group of guys who, stayed in touch with to this day, who taught me a hell of a lot.

And part of that, after I got there, my older brother, JP, passed away very suddenly of a brain aneurysm. It’s kind of whatever, it’s one of the worst things you could ever imagine outside of being a parent and losing a child. And so, I came back to San Diego, obviously was with family and it changed everything. I ended up staying at UBS about another year. But that, Kevin just, it changed everything, just in terms of life perspective. My brother was in his early 30s at that time, gosh, I was 22. And through that, and again, very bittersweet, but that was really it, just wanting to be closer to home, closer to family.

And around that same time, so this was kind of ’04, ’05, the market was red hot, the guys at Monarch had built quite a portfolio of apartments forming the company like we talked about, coming out of the Gulf War recession. And were basically selling everything to condo converters and trying to figure out, love the business, what do we do next? So, there was this incredible business opportunity as well, but again, very kind of bittersweet and a lot of it was driven by JP passing away.

Kevin Choquette:

That’s horrible. I hadn’t heard that story. Sorry about that.

Sarah Kruer Jager:

Again, I don’t know a better way to put it into words, but that’s what brought us back. So, obviously think about him every day and there’s a lot of good things that came out of that, but I don’t think I would’ve been back here otherwise.

Kevin Choquette:

Yeah, it brought you back home and it got you in the family business and I guess… well, you’ve mentioned it several times, the team. And I believe there’s about 14 people at Monarch, in the hallways, in the office, driving the business. And then you mentioned you guys are either a lead or affiliate GC to sort of control or heavily influence the vertical construction. So, you’ve got guys out in the field as well. Through all of the cycles, going back to what you just said with Rod and kind of hyperinflationary times with high interest rates and the inevitability of this whole marketplace, looking at data at the same time and making decisions in unison, individual decisions in unison that basically create these cycles. There’s inevitably difficult times and really good times, and scale in the face of that kind of macro phenomena is sometimes difficult to reconcile with. Do you stay small, do you scale up? How have you guys thought about weathering cycles and the size of the team to be built to endure and to be able to capitalize on opportunity when it shows up?

Sarah Kruer Jager:

That’s a really good question, Kevin. There’s obviously, and you see this every day, we both do, there are a ton of different ways to set up companies and to be successful. For us, I think what we’ve figured out, and there’re probably a million different things we’re not good at. I can tell you a lot that I’m not good at, but we’ve kind of found a mousetrap and talk a little bit about how we’re set up, that has worked really well for us and we’ve stuck to that. We’ve been really, really disciplined about staying in apartments in Southern California, the couple things that we know inside and out and live and breathe every day and not… And this was again, just our comfort zone and where we felt was our sweet spot, staying small.

You mentioned we’ve got about 14 people. I bet you every single one of those, outside of our associate, who’s now been with us for a couple of years and hopefully will be with us for the next 20, we’ve all worked together for 20, 25, 30, even more in some cases, years. And really, again, back to the family business where everybody aligned has skin in the game. And for us, that’s worked. So, again, our sweet spot, staying in the markets and the product type that we know really well, know the politics, know how to work with government, all those relationships being very important, wood frame construction, that is all that we do. We haven’t gone concrete Type 1, so in a lot of respects have kind of stuck with what we know.

And from a size standpoint, we like being able to, again, if we’re doing, call it those three to five institutional quality deals at any given time. And those Kevin, could be at different stages. So, we could have one deal that’s literally finishing construction right now. We could have another that we’re starting that could take a couple years before we put a shovel in the ground. We could have a few more things in the pipeline. So, they’re all kind of at different stages, but that’s kind of our sweet spot.

It allows us to just have, I guess the most optionality or flexibility so we can put our balance sheet to work in those deals, we can bring in partners and we do that more on a one-off basis tied to each deal, but it lets us set up just for us what we believe is the best structure and not getting too far over our skis. And that comes in a lot of shapes and sizes, but in terms of not getting over our skis in terms of risk and capital, not getting over our skis in terms of all the stuff that happens on the construction side. And then I think just from a people and a time standpoint, making sure that it allows us to be incredibly hands-on, all of the partners.

Again, we all love this business. We’ve got a whole team, but we are incredibly hands-on too, all the way around. And so, when you’ve got a few deals like that, you can be intimately involved every step of the way. And I think that plays out through the whole life cycle of the deal. But I think one of the things we’ve found and we’re really proud of is, every single project that we do, because we are so hands-on every step of the way, I think it really shows up in the quality. And we’re looking at these things as long-term owners. And I think that’s another huge piece of this, Kevin. So, as the business has become a lot more capital intensive, much more institutional, it’s maybe a little bit rare to see companies like us who, we’re really trying to set up each one of these projects so that we can own them for the long haul.

And times may change, it’s not like we fall in love with the real estate. We may still sell some things from time to time, but in each one of these projects, it’s a tremendous amount, especially in California, to get all the way through finding a great project, taking it all the way through the entitlements, all the risk that comes with that that we talked about in construction, getting them leased up. We kind of get there and you want to reap the rewards of all these things that you put a lot of time and effort and obviously take a lot of risk to kind of get to the other side. So, we’re trying to set things up in a way that allows us to really hopefully pick our timing, but to be longer term owners.

Kevin Choquette:

Before we move into that, because the whole capitalization and capital stack and building to own versus merchant buildings is something I think we can unpack. You had just mentioned creating alignment. I have a friend who’s part of a wealth management shop up in Seattle, and one of his mantras is, “Tell me how you’re paid and I’ll tell you how you behave.” And it proves to be true over the long-term. In the near term, it may not, but over the long-term it does. How do you guys create alignment in the team? I’m not looking for obviously keys to the kingdom or anything that’s proprietary, but do you have any thoughts about how to get people aligned with long cycle deals? I would imagine from A to Z, you can be, well, let’s assume that it’s an asset that you stabilize and sell. You could still be five to seven years from inception to sale.

Sarah Kruer Jager:

No, and that’s what’s crazy, Kevin. We’re literally finishing a project right now, I was telling my son, who’s eight, that we all started working on when he was, and this is how I remember it, but when I was nine and a half months pregnant with him. It’s crazy. Totally crazy. No, but I think to your question, I guess I’d come at it two different ways. The first is just from the, and this is more maybe the soft, the qualitative piece, the culture of our company, which I think starts and ends with what Rod and Ryan and my dad and Tim created and hopefully kind of carrying through. When you’ve got a shop of 14 people, we’re lean and mean, everybody’s wearing a lot of hats. Everybody is pulling their weight.

But I hope we’ve created a culture, and this is kind of the leadership piece at the end of the day, where I think you see, and this has certainly kind of come through to me and why we love this business, there’s a real authenticity from the top down. We love this business. We’re incredibly passionate, Rod, et cetera, he could be doing other things. He loves this business, inside and out. Every day is a new day, a new challenge. You’re always constantly learning, being challenged. So, I think just capturing that in the culture, and there’s just this, I was just going to try and boil it down, this authenticity of leadership and really having a passion and just being, we’re incredibly relentless, Kevin. We’re nice, but we’re incredibly relentless.

So, I think that piece of it, and then you take that and you combine that with, I think what you were getting at, which is not complicated, everybody’s got to… sort of working on the deals that have a piece of the action and there’s alignment. And in the case of the partners, we’ve got real material skin in the game. So, not only are we, I think, hopefully there’s a lot of alignment within the company itself, but when we’re working with other partners in whatever shape that may come, there’s an incredible alignment there in that partnership as well and all these deals because of that.

Kevin Choquette:

Yep. Look, it’s worth saying, it’s June, 2023. So, let’s go back to the conversation on the macro and what we were saying, “Hey, what’s difficult about the current timeframe? What’s the biggest impediment to possibly moving forward?” And your comments were like, “Hey, it’s kind of hard to have a really strong conviction to a particular viewpoint, given how much uncertainty is in the marketplace.” So, for priming the pump here, we just did the debt ceiling, projections are that US debt hits like 50 trillion by 2030, and we’re at like 26 trillion now. We all know COVID put $9 trillion into the system. I guess 29% of the money supply showed up since 2020. I guess maybe some of that’s coming back with the quantitative tightening, but maybe inflation peaked around 9%. There’s still $17 trillion of cash at the banks, just excess. Well, not necessarily, three and a half trillion more than trend lines still sitting out there.

The bank deposits are down. But I did a little research down like 500 billion, which in the scope of 17 trillion isn’t huge, but the loans aren’t repaying because refinances are difficult and costly and it’s better to stay with the debt you have. That’s slowing production. We’ve got what, three banks that have failed. So, everybody’s looking for deposits if they want to have a banking relationship with you or extend you a loan. The 10-year Treasury was 2.5% a year ago. Now it’s like 3.75, but was up to 4% just recently. And Prime a year ago was 3.5, and I think today we’re at 8.25.

To say it’s a difficult time is a bit of an understatement. What’s interesting though is, there’s not the kind of distress that we all saw in The Great Recession where it was clear we’re moving to risk-off, and looking at that paper was probably better than looking at the asset. And I don’t know that we’re going to see that kind of thing now, but knowing the direction to go, and you made a comment on construction debt and the scarcity there, but what are your thoughts on the macro? Where are we going from here? Where are cap rates going? What kind of construction’s happening? What’s going to happen with the office? What’s going to happen with… There’s a million things we can go from here, but…

Sarah Kruer Jager:

Yeah, there’s a lot there. Kevin, I don’t know anyone, I don’t know about you, who 12 months ago, back to how you teed this up, would’ve said, “Hey, fast-forward 12 months, we’re going to have… SOFR’s going to be north of five, Fed will have moved rates 500 plus basis points.” You kind of look back, the pace of that change has been pretty damn rapid.

Kevin Choquette:

Very.

Sarah Kruer Jager:

It’s obviously caught our entire economy off-guard, let alone our industry. So, in terms of where we go from here, again, and this is the humility, I think what our business instills in us, because none of us have that crystal ball. We got to have views, we got to make decisions, we got to look at all this. But again, I think this is, I was talking to Rod about this the other day. In terms of the different points and the cycles that we’ve experienced, and I think you got to go back way before this too and really look at history. There’s a lot to this. You learn some lessons, even though it’s always a little bit different. This one’s pretty damn hard to… it’s complicated and hard to see a forest through the trees and to analyze. But I guess my personal view, I think the Fed is very committed to staying the course and that it’s going to be sticky, and they’re walking obviously a very big tightrope here.

I don’t know if we see stagflation, but I think in terms of how we’re looking at things, I think rates will remain somewhat elevated for the next little while, whatever that is, the next couple of years as the Fed really taps down on inflation. And that may really hurt in some places, but my sense is, they’re going to stay committed to this, even if we do dip into recession. But in terms of what that means for our business, I think we’re still, Kevin, and this is what’s unique maybe to our business, things take time, as these cycles play out and evolve.

We would expect, I think you talked about the banks and what’s happening on the office side. If you talk to anybody, that’s not an area that we know well, we’ve done some entitlement of office, but I think that’s a very, very hard place to be. And if you talk, there are a lot of very, very smart office owners, investors, developers. I just think it’s hard to say what that market and what that industry looks like over the next two to three years as it evolves post-COVID. And so, I think with that, what you alluded to, I don’t even know that we’re in the first inning of what’s coming there with all these loans that are maturing, that it’s just this perfect storm of obviously massive interest rate movement that’s happened very quickly, debt that’s got to be taken out over the next couple of years. And you can see all that, and the wall of maturities, vacancy way down. We’re already starting to see pretty large buildings and very big owners handing back the keys in big cities throughout the country.

And as you know too, all this takes time. Go back to the micro, there’s an office building in downtown, whatever it may be, or suburban, whatever it might be, that may get kicked over to special servicing, that this stuff takes months and months and months to kind of work its way through the system to the other side. And while that’s happening… And that’s just the banks, you’ve also got major institutions who have exposure and may not be marketing to market on a daily basis, but they’re doing that. They lag a little bit, maybe 60, 90 days to the market. And so, all that’s going to take time as well. And I guess zooming back up to the macro, but until those institutions, whether it be bank or an institutional investor realize those losses and kind of rightsize their books, there’s not going to be a lot of lending capacity in the system, and equity, right?

Kevin Choquette:

They’re going to reserve for those losses and put a bunch of resource on them and try to minimize their exposure.

Sarah Kruer Jager:

Exactly. Exactly. And to your point on that, and back to, I guess our world and where we’re focused on the construction side and the production, if you’re a bank, that’s, again, as you said Kevin, you’ve got a pretty good view looking forward on your balance sheet of where those losses may be over the next two to three years. This isn’t just tomorrow, but this is looking forward over the next couple of years. You’re reserving capital. You may not be lending on the construction side at all because of the capital that you got to allocate there. You know this better than I do, but to go out and get any given construction loan today, just conventional, there are different ways to go about this, but that’s now, at least from a bank, that’s obviously lower loan to cost, loan to value and probably 8.5% money, give or take. Even if you’ve got a willing lender, there’s still liquidity there, but it’s very hard to make those deals pencil, based on where land costs are and construction costs.

Kevin Choquette:

Yeah, let’s drill into this though. So, let’s go 18 months ago. Let’s say we’ve got our 200-unit projects and we’re full speed ahead. I’ll use your example. We maybe already own the land, or maybe we just have it under contracts. We’re now $2 million into it to get to permit-ready. And 18 months ago, we would’ve borrowed, let’s just say tight spreads, kind of frothier market, I don’t know, SOFR 250, SOFR 275, right? And SOFR was 0.5. So, you’re talking about getting 3.5% money. And if you size to the takeout, which at that time would’ve been, let’s just say 4%, maybe even sub-4%, you probably could have got LTC, let’s just take a swag at it, maybe 75% LTC can get taken out by the then in-place perm debt.

And so, your return on equity looks great, your cap on costs as a function of capitalized interest, lower capitalized interest looks more attractive. And now you come to today, all your underwriting is completely out the window. So, SOFR’s at 5.5 or 5.2, whatever it’s at today, and you’re probably instead of SOFR 250 you’re probably SOFR 275 to SOFR 350. So, exactly what you said, now you’re at 8.5 and you might be sizing your perm to a 5.5% rate, which means 60% LTC’s probably going to be pushing it. And more to your point, the banks are just going to be like, “Well, look, if we want to put out money, let’s take the most attractive risk-adjusted returns and we’ll offer you 50 or maybe 55.”

That’s a completely different investment profile for the equity. And yet, if we’re talking about San Diego, for example, you’re still in a supply-constrained market. You still, well, we could talk about costs later. I think that’s enough. Do you move forward? Do you move forward when the world changes that much on you? And it’s like, “Right, so we thought we were going to put in 25 points of equity, instead we’re going to put in 45 points of equity.” Do you still hold on the overall investment thesis or how do you…

Sarah Kruer Jager:

Yeah, what you just described, maybe it’s more than a triple whammy, right? You had between spread and your base rate two and a half, three times has gone up significantly, which you could have never forecast, especially this quickly. And that not only affects your cost of capital, but now your leverage is a lot lower on top of it. It’s quite something. Honestly, Kevin, I come back to, you got to look at this from more of a macro, but always come back to the deal itself at the micro level, it’s very much going to be a case-by-case basis. And that’s what we’re seeing play out now, is this all, again, we’re not even in the first inning of this thing, right? This is going to take time.

But you’re on the front lines of this, you talk to folks on the equity side who are doing a lot of the capital raising to the extent developers have time, time is your friend obviously, and having capital. So, kicking these things out, trying to, if you can’t start today, can you start a year or two from now and buy some time? Whatever that looks like. That’s easier said than done, especially if you own a piece of land and there’s a carry cost associated with that. But again, even in San Diego, by the way, that’s one of the best performing apartment markets in the country right now. So, the fundamentals look great, as you said across the board, just given that a lot of these, and we’re talking over big institutional deals require institutional capital, require a very large construction loan.

And if you are sitting today, ready to put a shovel in the ground, it means you started that deal a couple of years ago before the world dramatically changed. And so, all those things you alluded to, that’s how you were underwriting it. And so, is your capital partner still there? The bank financing is going to be very different. We’re kind of in triage right now, but again, because of that, I don’t know that a lot of these projects get off the ground right now, and I wish there was an easier way to say this, but it’s very much, I think it’s a case-by-case basis.

There are a lot of great institutions, again, who’ve partnered with us and a lot of our peers in the industry who, you may have, and this is what’s crazy, Kevin, but you may have a great deal at Main & Main in San Diego or wherever that market is that still underwrites in this new world. But that equity partner, for example, may be dealing with all that stuff we just talked about. They may have redemption cues, depending on how they’re set up and if they’ve got a fund. They may have office exposure. They may have lots of other reasons that have nothing to do with that particular sponsor, that relationship, that deal, that you got to go back to the drawing board.

Kevin Choquette:

Well, there’s another quality there too. And this maybe can be our segue over to the conversation of institutional, but a lot of times when back in the day, I think you guys had some exposure to, actually, it doesn’t matter, let’s just say an institutional investment bank. You’ve already made the distinction earlier about our money, and the institutions, unless you’re talking about a family office or something very close to that, you’re talking to a professional who’s building their career and has, in my opinion, a lot more downside in making a call to make this kind of an investment.

Let’s just stay with the example I outlined. And they say, “Yeah, let’s go. Let’s take the 45 points of equity alongside Monarch Group. I think it’s a good time to do do it.” There’s a lot of exposure for them to do that now, when there’s uncertainty on cap rates, the levered returns are not as attractive. I think that’s another reason this becomes difficult. They’re not as convicted as somebody writing their own check because it’s not their money. They’re really worried about, at the end of the day, getting fired.

Sarah Kruer Jager:

Yeah. There’s a lot you could go there, but you look at where the world is, all the uncertainty. I was just talking to somebody about this more kind of anecdotal, but I think this is kind of right along the lines of what you’re saying. LA, that market, very volatile right now. You’ve got Measure ULA that passed and kind of went into effect a few months ago. So, there’s some regulatory stuff still coming out of COVID. A lot of things happening there, but you’re seeing, and again, this is very handful of deals because we’re not seeing a lot of transaction volume given that we’re kind of at this crazy crossroads right now. But if you’re that guy or that gal at that institution, that asset manager or project manager who’s making… that deal person who’s going to investment committees, sort of putting their neck on the chopping block at a time like this, LA right now, there’ve been some deals that traded a year or two ago that folks thought were great trades.

And it’s kind that catching a falling knife, that I’m just making up a number, that may have traded at 150, now it’s 130 and maybe it’s going to be 110. And these are on core deals, by the way, this isn’t even on the development side. So, if you’re that person in that institutional shop, is now the time to be sort of putting your neck out for something like that? It’s maybe easier, and maybe it’s the right thing too, to do nothing. Sometimes it’s better to do nothing for a little while. And so, I think you’re seeing that play out.

Kevin Choquette:

I think that’s exactly what’s going to happen. Let’s do nothing because there’s just too much uncertainty, which only further cascades into what you were saying, which is, there may be a macro pullback on all the stuff on the front end of the pipeline, the development side of the business. Do you guys have a view on cap rates right now in terms of… Obviously, there’s upward pressure when your perm rates are up 5.5, but we also have inflation, and if you think being in hard assets is a good place to be in an inflationary environment, then what does that do to cap rates?

Sarah Kruer Jager:

I think the context matters, right? Do you need to sell right now? Are you selling in this environment? Again, I think just talking to a lot of folks who are kind of on the front lines of this and very market-specific, especially as we’re seeing more supply in certain markets versus others, I think maybe we see a little more divergence, but there’s no question that if you’ve got to go out and sell a class A multifamily deal today in a primary market, Jesus, rates may have moved 75 or more basis points from where they were a year ago. I’m sorry, cap rates. And so, values, given all this stuff, Kevin, you walked through in terms of the debt, et cetera, et cetera. But values are down arguably kind of 15 to 25%. And that really, again, depends very much market-by-market.

I’d say though, the outlier, we’ve seen this a little bit, but again, there’s just not a lot of deal activity because if you don’t have to sell, you’re not going to. But for those A++ location deals that are just irreplaceable in great markets, there was one that traded not too long ago here in San Diego. You’re still seeing sub-four cap rates, but that’s very much an outlier. I think if you’re looking at stuff today, just to say in our backyard here in San Diego and you had to sell, you’re probably looking north of 4.5 to 4.75 cap. But that’s the real question. Do you have to sell?

Kevin Choquette:

Yep, totally. Let’s talk about institutional, and in this business, I think you and I would agree that term’s thrown around pretty loosely and with a lot of different implications. You just brought it up in terms of institutional equity partners. To me, I kind of see it as two things. One, it’s a certain style of products and management, be that on the capital side or on the asset side. And two, it’s associated with longer-lived entities with a robust enough infrastructure that it can kind of hold, refine and distribute knowledge, usually for a competitive advantage. I think of a Goldman Sachs or something. If you get on that platform, there’s enough information in it that it’s got a feedback loop that’s improving its competitiveness on the regular. With that, I see you guys as an institutional shop. I wonder how that word lands for you and what’s it mean to Monarch? I guess even more importantly, would you agree?

Sarah Kruer Jager:

I don’t know. I don’t know, Kevin, that’s an interesting one. I guess we’ve been super, super lucky, fortunate to have incredible, call it “institutional equity partners,” and on the debt side as well. And again, I just keep coming back to it because it is our whole business, is relationships and people. And so, whether it be a Goldman Sachs or other partners we’ve worked with, who are a lot bigger than us and have obviously much larger balance sheets, tremendous experience. Again, we’re seeing things, I guess what we bring to the table, where there’s this great sort of marriage and partnership, we’re obviously very focused within a few geographic markets in our backyard here in Southern California on multi.

And what’s great about a lot of these is, you teed up these institutional partners who have obviously a much bigger platform, a lot more breadth across CRE, across different funds, different products, et cetera. There’s a wonderful wealth of knowledge there that we get to tap into and more of that kind macro perspective. But I don’t know, I guess maybe we fall somewhere in between, but it comes back to these partnerships that we have with those bigger institutions. And maybe that’s why you would describe us a little bit that way. But we’ve just, again, been very lucky to have repeat business with a handful of partners who, again, are much, much bigger than us, and so much of this, obviously this business, very, very cyclical. You go through the ups and downs.

We’re kind of in one of those right now and we’ve certainly been there before and we’ve had incredible partners, again, much bigger than us, who had lots of other things going on, who could have… we were the little fly on the wall if you will, but hung in there with us and came out the other end, obviously very, very successful. It’s just kind of back to those long-term relationships. So, I guess some of that makes sense, but-

Kevin Choquette:

Well, I’ll go a slightly different direction. If I were to define you guys as a scrappy, smaller development company, where that might typically lead to problems, is that the managers, principals, however you want to label it, and it’s not typically, but I’ll just say I’ve seen this happen. You might be enamored with hotel or you might do a large master plan land entitlement deal on a couple hundred acres, or you might try to do an adaptive reuse of office to apartment.

And sort of echoing what you said, your own mousetrap, SoCal, multifamily, wood, the right size for us, the right number of investments, the right size of team so we can remain hands-on. That to me, is what makes Monarch feel institutional. The rigor that you guys bring by just staying in that single lane over and over and over. Nobody’s telling you to do that, right? A lot of entrepreneurs chase shiny stuff like, “Hey, that looks interesting, let’s go do that.” I don’t know. Any thoughts on that?

Sarah Kruer Jager:

Don’t get me wrong, Kevin, you know my partners too. We love to do deals, but the fact that it is our capital, we are taking a lot of risk, just inherently in the business that we’re in, it’s forced us to be very, very disciplined and very, very picky. And so, if that equates to, I guess when you say institution, there’s an institutional knowledge for sure that, again, I’m lucky I get to tap into, that goes, Rod’s been doing this well over 50, and they told me to stop counting at 50 years, but a long, long time.

So, if you want to call that knowledge, that real experience, which is again, having been through a lot of cycles, been through a lot of ups and downs, learned a hell of a lot of lessons and come out the other end time and time again, but taking nothing for granted in terms of going forward. Sure, I guess we’ll take it, but there’s a partnership there with those institutions and I think why it works so well, maybe we bring a similar mindset based on that discipline and based on kind of who we are and our setup and our culture, but we couldn’t do a lot of the things we do without those bigger partners.

And so, where we’ve kind of found a sweet spot with that and these relationships, yes, these are much bigger companies in terms of dollars and people and all the stuff you would look at on the surface, but there’s still, in terms of the people that are there, that have been at those companies for a long time, there is still, I would say a very similar kind of scrappiness and sort of entrepreneurial bent, if you will, to the folks that we’ve had a lot of success working with.

Kevin Choquette:

That’s cool. There’s an alignment in terms of your thinking over how to run the business.

Sarah Kruer Jager:

Mm-hmm.

Kevin Choquette:

I’m going to go back to merchant building and your mention that Monarch is trying to build to own. So, this is an evergreen conversation in my role in the business. Guys will say, “Hey, we really want to build this to own it for the long-term. How do we do that?” I was actually having the conversation yesterday, and a much smaller deal, but we’ll just keep the conversation in terms of points of leverage. They have an attractive cap on costs, so they may be able to get say, 70% LTC, and then they’re like, “Yeah, but we just want to refi everything out so we can get all our equity back and hold the asset and go do another one.”

And then, of course we go back to the conversation we just had, which is perm loans are 5.5%, you’re not going to get all your equity out. And then they pretty quickly come to the conclusion, “Well, let’s see, if I sat and just clipped my portion of the cash returns, it’s probably akin to seven or nine years of cashflow if I were to just sell the asset at stabilization.” And so, they sell, they pay their cap gains tax and then they do it again, and all of a sudden you’re a merchant builder as opposed to somebody that’s able to build, stabilize, and own assets for the long-term.

I know you guys have been successful in doing that, and I think in doing it in ways that are, you’re not reinventing the wheel by any stretch, but they may be a little atypical for guys who find themselves in the situation I just described and kind of don’t really have any other choice than to build, stabilize, and sell, and then do it again. So, I just wonder how Monarch thinks about structuring your capital and it’s not the right thing to sort of call it redemption rights, but being able to find partners that allow you to participate in a meaningful way in the long-term ownership, as opposed to getting shoved to the back of the bus and having this sort of synthetic drive to just ringing the cash register to exercise the waterfall to actually get paid. How are you guys navigating all that?

Sarah Kruer Jager:

Kevin, you teed it up really well, and you see this every day, right? It’s really hard to do. 20, 30 years ago you might be able to go out and get some crazy amount of leverage, put very little equity into a deal, obviously land costs, hard costs, et cetera were not anywhere near what they are today. So, it was a different model. Obviously today, much more capital-intensive business to build any one of these 250, again, institutional quality size deals, very, very expensive. It’s hard to do, for a lot of reasons. I don’t even know where to start. For us, I think maybe where you left off there at the end, it comes back to, again, if you’re able to put, you got to have a balance sheet behind it, and some of this is, we’re only doing a few things.

We’re not trying to do 100, but basically putting real meaningful skin in the game because this all comes down to control and how you make decisions. So, again, we may be 100% of the deal. That simplifies things quite a bit because it’s our partnership kind of calling the shots. Where we’ve got institutional partners, historically, we’ve put a lot of skin in the game as well so that we’re kind of side-by-side. Again, the less you put in, the less… all the things you alluded to, the less decision-making controls and rights you’re going to have on all those major decisions. So that’s, I think a big part of how we’ve been able to do it, but it’s really hard in practice because again, every single one of these deals needs a lot of capital. So, I think the sweet spot for us or how we’ve gotten there, it takes a few things to line up, but it starts with having the balance sheet and the capital, going out and finding these deals.

And this is maybe just our DNA, and again, there are a lot of ways to do this, but we want to go find something that we can get into early. It may be really messy. That could be a greenfield, brownfield site, could be environmentally-related, could be entitlement-related, but public, private, whatever that looks like, it can come in a bunch of different shapes and sizes. But where there’s a lot of work that’s got to be done, that just kind of narrows the universe of competition. And if we can get in there early through relationships that we’ve had for a long, long time and work through all that, get time to potentially take the land down, that helps to get to that goal of owning long-term. And then, I’d say another big part of that is just having a great, if you boil it all down, it’s having a really, really good land basis.

Kevin Choquette:

Well, that’s exactly what I was going to say when you said complexity, getting into those deals early that are complex and working through all of that may equate to having an attractive land basis because what you could sell isn’t what you bought.

Sarah Kruer Jager:

Yeah. I would combine that great land basis with time. So, having the ability to be patient, having time in terms of how that deal is set up, and then again, time and money solve a lot of problems. So, having that capital there, ready to go. And it’s funny, as we look back, whatever, I kind of look back over a long period of time, and this isn’t always, it sort of works out this way, but I think the most successful deals that we’ve done, when you look back, have always been actually in kind of times where we are right now, where it’s very, very hard to see the forest through the trees, very, very hard to have conviction and a view on where things are headed from a macro standpoint.

There’s just lot of stuff flying around, a lot of risk and very, very hard to get things off the ground. But some of those projects that were literally next to impossible, that folks told you you were crazy or whatever, it just seems like this contrarian, being a little countercyclical, doing things and being a little more active for the right reasons, when everybody else is frankly licking their wounds or maybe doing nothing, have turned out to be some of the better deals. But it’s pretty scary to hit the gas and go and put that capital to work and take all the risk we talked about when there aren’t a lot of folks around you doing the same thing.

Kevin Choquette:

And as one of the other guests I had on the show said, “Vintage matters.” What you’re talking about is, we may be entering another year or two where it’s a good vintage, right?

Sarah Kruer Jager:

Yeah, it could be. There’s obviously a lot of unknowns, but the one, and it’s the only good piece because again, there’s a lot more housing that we need to be producing. Maybe we see costs come in a little bit, Kevin. We’re already starting to see this a little bit anecdotally, and that would certainly help this whole sort of equation that we’ve got to plug and puzzle we’ve got to put together to get any one of these projects off the ground to really make them work. So, that would certainly help. But I don’t see a lot getting built, for all the reasons we’ve talked about, over the next couple of years.

Kevin Choquette:

We just had a client come back with costs, and it’s the first time in a couple years that their proforma held. They went out to hundreds of subs and it actually held. So, hopefully that’s a good sign of things to come. Let’s move over to the personal side because I want to respect your calendar and let you go at some point here. You have personally been involved with 7,000, 8,000 units, $1 billion of capitalization. You’ve gotten into a lot of the history on how you got there, but you’re also very capable. And to me, I’ve known you right since the beginning, which I didn’t know some of that history in terms of where you were and how you come back to San Diego when you and I met, but it was right at that ’04, ’05 time period. What do you attribute your success to?

Sarah Kruer Jager:

Oh, God. There are a lot of things, Kevin, but again, I think it starts and ends with just relationships and people. Actually, you teed it up perfectly. It’s people and relationships. My mom and my dad were really amazing about this, just kind of not talking about it, but just setting a great example for how you treat people and how that comes back in spades, especially when times aren’t good. And so, it’s funny, I was thinking about this earlier, I was getting ready for this, but it is funny. You and I met through ULI Young Leaders probably right around the time I’d come back to San Diego, and I’m literally having lunch tomorrow with Tony Youssef, who was in that same group, Kevin.

Kevin Choquette:

Nice.

Sarah Kruer Jager:

And I talked the other day to Kelly Souza, who’s now running everything from Wells Fargo ESG nationally. It was quite a group of people, and just showing up for, I think, again, if we could boil it down, it’s relationships, people, and just showing up for things. Especially in our business, you were asking, we were talking a little bit the other day about failure, which I don’t know, it’s all kind of a frame, but just not being afraid to put yourself out there, whether it’s showing up for that cocktail thing that kind of sounds really whatever at the end of the day, or after a long day, or going after a big project, maybe a little bit outside of your wheelhouse.

But I think just showing up for things and being fearless, believing in yourself and having a lot of support around you and not being afraid to ask for help. And all of that comes back just to having really good people around you. And so, I’ve been very lucky in I guess some different chapters of life, to always be surrounded by some really solid people who let me kind of run far enough, but also help pick me up when needed. So, I think that’s probably the single biggest thing is relationships and people.

Kevin Choquette:

That’s cool. I’m going to go way back to the beginning. It was something you just said in passing, but you said you have a small team at Monarch and it’s very blunt. And I heard that, and I wonder how that might tie into this, that you’re talking about right now, relationships and how you guys all relate to each other.

Sarah Kruer Jager:

I’ve been there now, I think it’ll be 18 years this summer. And my dad and my uncle aren’t as active, I learned a tremendous amount from them. I continue to work with Rod and Ryan, my partner, Masis, the rest of our team, but Rod in particular, and Ryan, and it’s been on its merits, not family. They’ve been as good to me and just set an example of what leadership looks like, and just again, the passion for the business, Kevin, that you can’t put into words, but that they live and breathe every day. They’re phenomenal people and they’re the most phenomenal partners you could ever ask for. Things have been crazy. I’ve been really good, by the way, not to curse. This is [inaudible 01:12:07].

Things get crazy from time to time, but we always together find a way through it. And so, I think a lot of it comes from Rod kind of setting the tone and the culture. We are small, we’re scrappy, we’re entrepreneurial, but we also can go toe-to-toe with the big boys and girls. And those are the types of really, really high quality institutional projects that we build. But we like being kind of lean and mean and being able to, again, times like today where a lot of folks may be just sitting on the sidelines waiting to see how things shake out, that we can do some things while that’s happening and take advantage.

Kevin Choquette:

But is there an aspect of that bluntness that’s like a cultural thing? I’m just trying to tease out what that shows up as. So, maybe it’s language and bluntness, right? Like, “Hey, what are you guys effing doing over here?” I’m just curious. It sounds like it’s a meaningful component of the recipe. Maybe I’m wrong, but…

Sarah Kruer Jager:

Yeah, and and it’s probably a little bit easier when you’ve got a smaller team versus a big shop in some ways. But we’ve got a wonderful group of people who’ve all been together for a long, long time, and we’ll hopefully continue to be together for a long, long time, who are very much aligned and all love what we do. So, it’s fun. As crazy as our business is, we have a lot of fun doing what we’re doing most of the time.

Kevin Choquette:

Very good. Well, look, you’ve got two kids. I’ve got two kids. You obviously have a lot going on with all of the projects you guys are managing, some of which are very large scale. What about the end of the day? How do you step back from all of this and balance being a mom and being a friend and being active civically and running a business, kicking up your feet, relaxing? Does that happen? When it happens, what is it that you do?

Sarah Kruer Jager:

Kevin, you’re more in the throes of this right now than I am. My kids are a little bit older, but I know it’s hard. I don’t know. I don’t like the word balance. I’m not sure that exists anymore. But I do know at the end of the day after… every day is a little crazy. Just coming home, it’s just very grounding to be surrounded. I’ve got an eight-year-old son and a six-year-old daughter and my husband, and obviously extended family and amazing, amazing friends who just put so much into perspective. These kids, it’s really scary actually, Kevin, because my kids are still small too, and I’m just wondering what’s coming next, but I’m getting some pretty heavy questions lately.

The meaning of life and dah, dah, dah. It’s hard at 8:00 at night when your brain’s fried to have a good answer and can’t kick the can with them. They don’t let you off the hook. So, I don’t know, it’s just showing up and being present and making the most of the time. I’m on the road quite a bit. I know you are. It is hard. It’s hard to be away from your family and your kids. You don’t get that time back. And so, it is hard kind of juggling that.

Kevin Choquette:

Look, you mentioned Kelly Souza. Obviously, what I’m about to say won’t strike you as anything surprising, but the commercial real estate industry is one that’s, I don’t want to say dominated by men, but the vast majority of people who participate in it are male. You are obviously a very high-performing professional who happens to be a woman, you’ve got a daughter. I wonder how you think about women in real estate. I know there’s some groups out there. I don’t know if those are good or bad. I guess I don’t have any opinion one way or the other, even though my tone might’ve suggested otherwise. I wonder how you think about women coming into the industry and being excellent. And it’s usually my experience that the women who are in it are a cut above, but you’ve had to sort of live through that and build a career in it. What kind of trials, tribulations have been there, and how do you think about it for your daughter if she’s the third generation that might come into the biz?

Sarah Kruer Jager:

That’s a really good question. I want to ask you the same, actually, but let me answer this because I know you’ve got a daughter too, and I know you think a lot about this. I guess where I would start with that, Kevin, this is super meaningful to me. My mom and my grandmother, who’s no longer with us, have really, as women in business were really out ahead of their time, kind of chipping away at that glass ceiling, not in real estate. But that’s what I guess grew up around at the dinner table. And what I saw every day, my mom walking the walk, not talking about it, and doing really amazing things with her career, despite a lot of challenges. She was one of the first women at Harvard Business School, one of the first classes to have women at Harvard Business School. And on from there, just a pretty amazing professional career and one of the few women. So, really for me, kind of set the bar that anything is possible.

And I was also very lucky for a lot of reasons too, but I think a lot of it starts and ends with my mom, just this idea that you could do whatever you want, whatever you set your mind to, and work hard and treat people the right way, et cetera. But you got to find something that you’re really passionate about and go with that, whatever that looks like. And so, Kevin, this one’s definitely near and dear to me because I’ve been in the industry now for almost 20 years between when I was doing banking and this, and there are very few women, and by the way, not just women, but just minority.

Again, just the overall diversity, I think you’ve got to look at, whether that’s race, religion, gender, sexual orientation, that could take a lot of forms. But this has been shown time and time again, that we still have tremendous amount of work to do that teams, companies, et cetera, perform better when you’ve got diversity front and center and the views and the perspectives, et cetera, that that brings. In our business, we’ve got a long ways to go and it’s hard, actually. I talk to my mom about this all the time, that her generation, and there are a lot of other amazing women I talk to in our business too, who’ve been at this for a lot longer than me and us, Kevin, and there’ve been some changes and there are a lot of good things, but we do have a long ways to go if we’re being honest, especially when you look at in our business, the women who are kind of what I would say, touching the money, making investment decisions.

And so, we do have a long ways to go, but it’s going to come from all of us sort of pulling people forward. And again, the overall diversity piece, having people at the table from all walks of life, creating room at that table. Whatever, we’ve talked about this, but I’ve had a lot of interesting experiences, especially when I was younger. I was the only woman in the room in a lot of cases, and maybe that’s a little bit of fuel to the fire and sort of motivation. But today, you talked about Kelly, there are some really amazing women in our business doing some good things. We need a lot more of that. And again, a lot more of diversity all the way around. It’s good for our industry.

Kevin Choquette:

Is there a bit of that that you just touched on, which is for those who might doubt, like, “Oh yeah? Let me show you what I can do.” Does that show up for you? Because I know for me, sometimes being contested is a good thing.

Sarah Kruer Jager:

Yeah, I’d be bullshit. Okay, here goes the bullshit. Yeah, and that’s about it, so you can bleep me. But yeah, of course, Kevin, I’m a competitive person, very competitive.

Kevin Choquette:

Exactly.

Sarah Kruer Jager:

I’m very competitive and we’re all different. But yes, that’s how I’m wired.

Kevin Choquette:

I love it.

Sarah Kruer Jager:

But by the way, but to your point on all that, again, back to my partners, I’ve had a lot of people who’ve always believed in me regardless of gender, skin, et cetera, et cetera. Very much kind of a meritocracy, which is pretty damn unique and something I really appreciate. But having people around you, in this case, they were guys, but who believed in me and didn’t see all that stuff, and it was about performance.

Kevin Choquette:

That’s awesome. All right, shift a little bit, and I don’t know where this goes with you, but for me, I don’t get to do this every day and for reasons that have to do with three and five-year-olds and other things that are just my own distraction. But I try to have daily routines that I use to get my head in the game. And I figure if I can get my head in the game on the daily, then I’ve got a better chance of having a good year and string together a few good years and things start to change.

And those are sort of, I don’t want to call them a checklist, but some things that I’ll review in terms of what my goals are for the quarter, for the year, and who I want to be as a father and things like that. And then, perhaps meditation. But things I try to do at the top of the day to set the arena and then carry on. And exercise is a part of that, just because it keeps me sane, lets some of the demons out. But I wonder for you if you’ve got any things that you do on a recurring basis that you attribute to your own personal performance?

Sarah Kruer Jager:

Just growing up, I always played a lot of sports, was always very active. And I guess as I’ve gotten a little bit older, Kevin, and we still got a good run in front of us, but just as I’ve gotten older, and the kids have been a big part of this, is just obviously love being active too. But I think over the last couple of years, just recognizing you can work, work, work and grind, grind, grind, but if I’m going to show up as my best self, whether that be as a wife, as a mom, a family member, obviously at work as a partner, I got to take care of myself too. And I’m in this for the long haul. It’s a marathon, not a sprint.

So, I think we always continue to evolve and grow, and lots of work to do. But I’ve gotten a lot better over the last couple of years of, I say this, it’s meant with humility, but sort of putting myself first, how I take care of myself. And for me, what you said, you and I could ski all day long and all the outdoor activity, but that for me is also, just really helps fill me back up and think and get away. I don’t know, there’s so many… And just taking care of myself physically.

So yeah, exercise is definitely a big part of that, whether that be out there ripping around, trying to keep up with you and all the guys on the mountain or just hitting the gym or whatever that looks like. But just kind of mixing that up on that front. But again, just coming back to this thing of, if I’m going to do all these other things really well, I got to take better care of myself and show up as my best self.

And so, maybe being a little bit more just kind of intentional about that, making more time to do some of those things that help me, wiping that out versus grinding away 100% of the time, which I definitely did that really well for a long, long time. So, for me it’s a lot of exercise, physical stuff, and the meditation piece you mentioned, I’m still trying to get that one more consistently into the routine, but I’ve been doing some breath work and a little meditation in the mornings. Not as consistent as I need to be, but super, super helpful. But that’s it. And then, spending time with the family too, right? Getting away from it.

Kevin Choquette:

Yeah. Well, what you mentioned, of having the kids be that source of grounding, right? I have a tendency to think the world is very complex and get kind of lost in my mind about whatever I’m thinking about. And last night we’re sitting and playing Old Maid. Old Maid, are you kidding me? And watching my daughter really freak out about the fact that there’s two cards and one of them is going to be an Old Maid and the other one, she’s going to win the game, right? It’s just priceless, because it is what our life is about at the end of the day. So, that is beautiful.

Sarah Kruer Jager:

All of it, Kevin. I started about you, my memory’s terrible sometimes so I’ve started to write down some of the crazy stuff my kids say to me. It’s comical, and it definitely lets you forget pretty quickly. They said to me the other day, because we’ve been seeing a lot of family the last couple of weeks, school’s out, and my mom and dad divorced a long, long time ago when I was young. And so, they’re hanging out with Grandma and Grandpa, and one of them literally said to me, “That’s your mommy and daddy? How were they together?” I was like, “Oh God, this is [inaudible 01:25:38].”

Kevin Choquette:

Why didn’t you ask them?

Sarah Kruer Jager:

Oh, my God. Exactly. That’s exactly what I said, Kevin. Oh, my God. But just stuff like that, I was just like, “Whoa.”

Kevin Choquette:

You have left a lot behind here, but I wonder if there’s anything explicit you might want to offer to the entrepreneurs. Clearly, you are on that path, have been on that path, continue to be on that path. The idea of the developer as entrepreneur. The audience here I think is very much skewed that way, real estate people, and I’m sure there’s more than a couple people listening who are at the job, wondering about what’s on the other side of the fence, or they’re early in their career, or maybe they just got blown up, thought they were the king of the world and hit some adversity. But any advice or insights you might offer to the entrepreneurs out there, other than what you’ve already said, who might be listening?

Sarah Kruer Jager:

This is an amazing business. I think what’s always struck me is, and just being surrounded by some great people who have been doing this far longer than me, just the fact that you can do this business until, I don’t know, as long as you want. And yeah, we fall down, you get back up. Obviously, it ain’t for the fate of heart, but this is a phenomenal business, Kevin. There are amazing people in this industry. I think just again, surrounding yourself by people who share that passion, have integrity, and are going to be there with you through good times and bad.

And then, just to keep at it, to be relentless. I think that’s a lot easier to do when you love what you’re doing and there’s a real passion there. But this is an amazing business you can do for a long, long time. And again, I think we talked about it, but just showing up. I think having good people around you and not being afraid to show up is a huge part of it. And put yourself out there. We’ve all failed, will continue to fail, I’m sure a lot. But I know for me and a lot of the folks that we work with, I don’t know, I don’t like the word failure to be honest, but just those are the biggest times where you grow.

Kevin Choquette:

Totally.

Sarah Kruer Jager:

You got to pick yourself up and you learn all kinds of stuff about yourself that you got to sit with and kind of work through.

Kevin Choquette:

It’s the same as the kids. You hurt yourself and you think, “Hmm. What did I just do, and can I not do that again?”

Sarah Kruer Jager:

Constantly. So, I just think, we all inside have a healthy level of fear sometimes. And I think it’s just the stuff, again, by putting yourself in a situation where you’ve got really good people around you, who support you no matter what, that you keep putting yourself out there because good things will absolutely come of that.

Kevin Choquette:

I dig it. Sarah, I think I’ve gone over a lot of time. I apologize for that. And thank you very much for taking the time. I’m going to close it up here and give you the mic if you want to say anything in the end here. But anybody who’s listened this far, thank you for taking the time. Please go to your app and rate the show. My guys keep telling me I have to remind you of that. And Sarah, thanks again for joining us. If you want to leave anything on Monarch Group’s website, or obviously people have Google so they can find it on their own, but I’ll give you the mic and then we can sign off.

Sarah Kruer Jager:

Oh, thank you, Kevin. It’s been fun. This is like you and I just chatting, so a lot of fun. I hope it was helpful to folks out there. And you teed up, Kevin, too, perfectly. It kind goes back to, I remember when you and I met at ULI and all that stuff. It’s a lot of amazing relationships came out of stuff like that. So, just very, very appreciative to be here and look forward to doing this kind of stuff and hopefully projects and all kinds of other things for a long time to come.

Kevin Choquette:

We’ll see what the next 20 years brings.

Sarah Kruer Jager:

Hopefully 40, right? Come on.

Kevin Choquette:

Right, exactly. All right, thank you Sarah.

Sarah Kruer Jager:

Okay, thank you. Thank you.