Interview with Bruno Muscolino - Square Development
We recently talked with Bruno Muscolino, of Square Development. We discussed the best and worst parts of developing in DC along with our market predictions.
BA: Good morning everyone. I'm Brian Athey, President of Congressional Capital, and I'm here today with Bruno of Square Residential. We're going to do a little interview today at one of their projects. This is a 4 unit project at 2150 Florida Avenue. As you can see it turned out beautifully. Bruno, why don't you tell us a little about this project and what you like about it.
BM: Well this project is in a part of Dupont that's a great location. We are a couple of blocks from the circle and the metro station. It's at the intersection of Dupont and Kalorama. I mean Jeff Bezos' house is like a five minute walk from here. So its a great location. That was one factor. The second factor that we really like about this project is that it was an "easy one" in the sense that we just split every single level into a different unit. We didn't have to do anything too fancy like extend the back wall or go up. We were limited by historical renovations.
BA: Yeah that actually helps when it's all sort of interior and you're not having to go up and that kind of thing. So you've talked about this project being easy. Tell us about a hard one. What's a hard project?
BM: Actually, I have a project right now where we have a situation with the neighbors who are giving us issues with the chimney. You know when you have the plumbers, the sheeting and the neighbors, its just a mess. That, you know, issues with the neighbors is the hardest part to get through in this business. As far as construction I mean, you've got to watch out for, you know, acquisitions basically. If your acquisition is right, then its easier. You make your money on the purchase, not the out sale.
BA: That's true,. You make your money on the buy in this business. And it is true that if you have difficult with neighbors, it can be a challenge. What I've found over the years is that if you have a bunch of projects at once, some of them just seem to be snake bitten or tough and some of them are easy like this one sounds to be and hopefully it all works out well.
BA: So how did you get started in the business?
BM: So that's kind of a funny story. I was a software consultant for about 10 years. Totally outside of this real estate field. Then a friend of mine who was actually doing some basic development, so I started investing with him in my 401K. I did 1 deal, 2 deals, 3 deals and then eventually I was like, "Why can't I do this myself?" So I started doing flips in PG County actually, of all places. Two flips in PG County and then we moved to DC flips. Then we did our first condo conversion and now we have a few going out. No more flips, just condo conversions. The shift was mostly due to risk management. Its a lot easier to do one flip than doing a building but there's a lot more profit in a whole building, which some people cite, right, there's quite a bit of future equity to be able to capitalize on any downsides.
BA: Plus if you have a building which is a four unit and it doesn't go well, you can rent it out, convert your capital gains, and end up selling the units down the line, which I've done in the past. So what's your favorite thing about the business?
BM: Acquisition actually. I love acquisition. Well, acquisition and everything. The thing I hate the most actually is dealing with contractors. Sometimes they're very difficult to deal with. Coming from a background of working with professionals, having to work with some people who sometimes are not responsive or reliable it's the hard part of the business. BtUt when you get a good project manager, all that headache goes away so I love it all right now!
BA: Oh good! Well, that's good to hear. So what do you like the least? I think you answered that. The neighbor stuff?
BM: The neighbor stuff. Well with the neighbors it depends, right, it depends on the neighbors. And a lot of people are just good people who want to get peace. And sometimes, they have their own thing, what they want to do with their house. You gotta do what you gotta do, they gotta do what they gotta do. But its basically like with any relationship. Any relationship you get with them and it gets much easier. That's the thing. It also has to do with the owner's position I think. So for us, we're going to start extending the chimney pretty early on. That way we don't have to deal with any of those issues down the line. Because when you do underpinning, it gets loud, its dangerous, they get upset and it gets more difficult. They stop enjoying cooperating during construction and they just try to get something out of you for the inconvenience.
BA: Yeah what I tell people to do with issues like chimney extensions, things you have to work out with a neighbor, really try to do it upfront. I mean even before you buy the property if you can get a study period to deal with chimneys and other issues. And try to figure out a way to work with the neighbors so that it's a win win for everybody. You know really, the best borrowers of mine who have had good experiences with neighbors just the view that, hey look, it's an imposition to people and if I can be generous with them, usually good things work out.
BA: So how many projects do you have going on now?
BM: We have about ten.
BA: Ten? Wow!
BM: I mean, including the ones we are just selling. We have four, we are selling four condo conversions. We have three in the pipeline - three or four. And then we have another two that, yeah about another two that we are in the process of designing and we are about to acquire two more.
BA: Good! That sounds good. So what is your goal for 2021 and beyond?
BM: Hopefully as many units as we can. I mean, as long as they are great purchases. It's not a matter of just units. It's more a matter of trying to find the numbers that work the best. So we have about 70 units in the pipeline so hopefully, the best hopes are to double in the next year. That'd be awesome. I don't know if we can, if that'd be realistic. But, you know, if we could get to 100 units, that'd be awesome.
BA: What's your view of the market? Do you think it'll be strong in 2021?
BM: Yeah, for sure. I mean people are going tow ant to spend their money they're going to want to do vacations. I've been thinking about it and DC's going to be a prime tourist location again. it's going to be very strong for rentals. For rentals as far as tourism. I think people, you know, people want to come back to the city- that's my gut feeling. You know, who wants to live two hours away from work? Because I think work is going to start shifting to a more remote model but there are things that need to happen in the office sometimes. And I think its going to be a thing with part time in the office and part time home. But I do think the real estate market in DC is going to be very strong. Especially government workers, right? There's a lot for security, communications, support working on site and they're going to want to, they're going to want you on site.
BA: I think so too. With interest rates being low for the foreseeable future, and people wanting to come back into the city and people wanting to have fun and be around each other. I think the market will be really strong this year.
BM: Yeah. At the end of the day we are social creatures. So we want to go to bars with our friends, have a nice dinner with the family. Whatever you want to do like that, I think it's more difficult to do if you're in the middle of nowhere.
BA: Oh, I know. Well, listen, thanks for your time.
BM: No, thank you!
BA: Let's do this again in the fall and hopefully not have to masks on. Hopefully everyone can get through COVID safely. I hope you all enjoyed, and we'll talk to you soon.