Andy: All right, Mike. Well, not many opportunities that you get to actually interview your boss. So this is fun for me. But as we kind of kick this podcast off, we'd love to know a little about your background and what were you doing before you started Cypressbrook.
Mike: Well, thanks, Andy. Well, long before starting Cypressbrook, I grew up here in Houston, southwest part of town. I went to Strake Jesuit High School and then to Rice University for college. I ended up going overseas for graduate school for a couple of years and then ended up in Dallas in the early 1980s working in the private equity business. And while I was there, I read an article about the Trammell Crow Company in Texas Monthly and got interested in the career path that they offered, where you would start out selling for them, in this case leasing office space or warehouse space or something like that, and work your way into an ownership position. And so three years into my career, I interviewed with them and was given an opportunity to work for them down in Austin, where at the same time I got married to my wife, Brooke, who we've now been married to for over 40 years. We moved together to Austin. We were there for about three years and then migrated up to Chicago with Crow. Crow in the late 1980s, excuse me, basically their leadership in Chicago left, a very large position for the company. 20% of their assets were up there. So they were looking for guys that were willing to go up there. And so we were there for about six years and had a wonderful time. We liked living in Chicago. And then by the mid-90s, Crow was going through one of its many metamorphoses. And so I started looking around for a new opportunity. I was attracted to a family office here in Houston, working for an individual who made a little bit of money for himself and was interested in investing that. And we worked there for about a year and a half. And frankly, it had not gone very well. He just didn't understand exactly what we were supposed to be doing every day. And so I went to him after a year and a half working for him and said, hey, look, you need somebody who maybe has a lot more aptitude to do this job. Why don't you sort of look for somebody that would basically occupy this seat, and I'll start looking for alternatives out on the street. And so a year after that, so two and a half years into working with him, he found somebody to take my chair and fired me. So I was then out on the street sort of wondering what the next gig would be.
Andy: Very good. Well, I've pretty much heard it a couple of times, but even now I learn to be more deft. So that's fun. All right. So you are out on the streets looking for your next gig, and tell us how you got to start Cypressbrook.
Mike: Sure. At that point, we had four blondes at home, three daughters and one wife, that wanted to eat every day. And so I needed to find a way to make a living. And I started doing a little bit of investment banking, helping a guy sell some businesses and such. And pretty quickly realized I was no Goldman Sachs. They were really pretty small deals, and this wasn't going to make things work. But I had a wonderful network from the Crow Company, both here in Houston and really various other places around the country. And so I started working with a group of guys that operated under the name Cypress Realty. And I was at that time sort of operating under the name Estherbrooke, which is a family name. My wife's middle name is Estherbrooke, and one of our daughters as well. It's been a longtime name in her family. And so I ended up sort of amalgamating those names, Cypress and Brook, to become Cypressbrook. And even in that era, frankly, over 30 years ago, basically having the domain was pretty important, and it was just getting to be important, I guess. And so I was able to kind of secure that domain. And so that's how we started operating under the name Cypressbrook. And I could pretty quickly gravitate back into the real estate business and such.
Andy: Very good. Very good. Tell us a little bit about those early years and kind of how the company has progressed all the way to today.
Mike: Sure. Well, initially we were mainly in the office-industrial shop. We had lots of office buildings. We built some industrial buildings. We recruited and built a nice little brokerage team, which we still have today. We still have six or eight full-time brokers out there, sort of in a Houston-centric business, out sort of chasing local services and such. And again, for the first really dozen years, '96 to '08, we did pretty much all office-industrial. We did some single-family land business where we built a curb-out, master-planned community, I think. And all of that went pretty well. But everything changed the weekend of September 13th of '08, the weekend when Lehman melted down at the beginning of the GFC, the Global Financial Crisis, or whatever you would call it, which was by far the toughest downturn of my career. We were quite fortunate because, well, every asset that we had went under some level of duress. By January of '09, so just four months later, everything was in safe harbor. And in fact, that weekend here in Houston of September 13th, it was also a weekend where I think it was Ike rolling up from the Gulf, and an office building that we were managing at the time that had I-10 in it ended up, it was two 10-story towers, and one of the towers lost the roof, which successfully basically, the elevator shaft proved to be a very good downspout. And so literally every single floor was inundated with water. And so we had to move 50 tenants out. And again, all that happened in September. By January, all those tenants were back in. That building was back up and getting into a nice position, nicely cash flowing. So really in January of '09, we had one developer on the team, and now we have three and a half. And he and I were literally twiddling our thumbs. We were wondering where the world was going to head. And we were fortunate. We had pretty good balance sheets so we could borrow. Our assets were in good shape, so we were interested in looking at new opportunities. And that's when we decided that we thought the most likely, the most fruitful business in Houston, Texas coming out of the '08 downturn would be apartments. They had been overcapitalized in '05, '06, and '07 with CMBS or Wall Street money. And by '08 the occupancies were down, the rents were down. And it was clear there was going to be a lot of distressed market, also probably unique for me in my career. And I now say that we are actually sort of midway to two-thirds of the way through the fifth downturn of mine since I started Cypressbrook, the seventh since I got in the business. And that would have been about the third or fourth. I mean, yeah, third or fourth in total, or the second or third since I started the company. And it was by far the worst, partially because it was the senior part of the capital stack. It was the banks that were really screwed up. And most of the time it's usually the equity that kind of gets screwed up. In this case, the banks were not functioning the way that we had gotten used to them and such. But anyway, we decided that probably the most likely opportunities would be in the apartment business. And I didn't think that we knew enough to do it on our own. So we went with two other outside partners and in 2010 started buying deals. By 2014 the group of three of us had grown to a group of six principals. We had some issues in the partnership at that point, of which the biggest flashpoint issue was four of us wanted to do ground-up deals, and two of the guys didn't. They both went their own separate ways. And so four of us continued on. And the year after that we did our first Ariza-branded deal. And so since 2010 I've now been GP or co-GP of a little over 12,500 doors of apartments, with many of them bought early and built more recently.
Andy: Very good. Very good. Well, you know, if you go on your company website, cypressbrook.com, before too long you will get to our kind of company motto: Speed, Skill, and Stewardship. So I'd be curious to hear more about the background and how you came up with that and kind of what it means to you also.
Mike: Well, 25-plus years ago when we were kind of getting started, we pulled the whole team together and we were trying to decide what we wanted to become. And so really those three words just, it really became sort of our mantra. And the idea that we would provide services with speed, skill, and stewardship. And each of those give a little bit different connotation. Speed really is we get whatever it is done today. And in fact, we've won a lot of business because we work very quickly. But also just in general, in our apartment complexes or whatever, we ask our maintenance guys to return their calls and get their things fixed that day. And so we try to move with a good pace. In fact, I think it was Jim Collins' book Good to Great that describes that good companies have a bias toward action. And so that's a little part of that. We have to kind of move along. Even if we're not making a perfect decision, we make a decision and move on through it. Skill basically is just simply that we have some level of competency in whatever it is we're doing. Our accountants putting together the numbers, our property managers understanding how to operate those buildings, our developers who do the most complicated thing that we do, how to pull together a project, how to entitle a piece of land, how to finance it, and all that stuff. So we have some level of skill. But probably the most defining element is the third one, stewardship. That actually is a biblical concept. If you read in Luke's gospel or Matthew's gospel the parable of the talents, where basically Christ gives the example of three different stewards, each given a little bit different amount, and they were expected to make good use of what they had. That particular element hits us more than anywhere else when we ask families to invest with us in these projects that we're doing. We invest a lot in every project that we've done, just like our investors do. And so when we accept someone's money, we want to take it really seriously. Stewardship does have other components. When we secure entitlements of a particular project, in a sense we're being stewards of what the community has enabled us to do. So we have to be stewards of that. When we borrow money from a lender, we clearly want to be good stewards of theirs. But again, it is riddled in various parts of our business, but most critically when it comes to taking investors' money, we take that really seriously and invest and use their money the way they would want.
Andy: Yeah, very, very good. You mentioned the last half of the company's history is in the apartment business, and the more recent part of that history has been ground-up development. And so you've built under the Ariza name. So where did that come from and how are we leveraging it as a company?
Mike: Yeah, great question. Again, we started actually doing ground-ups a couple years into the business, but we were doing them under various different names. And in 2016, we were starting a project in Temple and we thought it would be helpful to have a brand name that we would build the company around. We kicked around a variety of different ones, and Ariza emerged as a relatively simple five letters: A-R-I-Z-A. And we did go and actually trademark that. It's a trademark of the U.S. Patent Office and everything. And really with the idea that we could build sort of a suburban garden-style high-end project, a resort-style pool, a nice amenity center, a good sort of exercise facility, granite counters, and things that basically would be nice, that anyone would feel comfortable living there. And so it begins sort of with the bricks and sticks, if you will. And our first one, we've now been operating for just over, less than a decade and such. But also that our team would provide exceptional service to the clients and the tenants in the project. And kind of with the idea that if you were our tenant in Temple, Texas, and you moved to Corpus, Texas, or to Houston, Texas, or College Station, that you might be inclined to kind of stay with the Ariza brand. So we're hoping that would kind of differentiate ourselves with the tenants. And then also probably with the investors, maybe most of all, that investors would want to own a piece of. And so we spent a long time sort of building a brand. We're very thoughtful about it. And it's kind of our name, our signature on the doors, the Ariza name.
Andy: That's great. That's great. Well, we talked a lot about the company's history, and you've got a very strong track record and accomplished a lot during the last 30 years. And just curiously, hear your thoughts on the future of the business and specifically kind of our upcoming pipeline.
Mike: Sure. Well, over the last decade or so we've been doing two, two and a half deals a year. Frankly, it's been a little more challenging here as our markets have ended up. And I kind of feel that the market slowdown in the apartment business really started in '23 or so when a lot of product came on the market. And really a lot of product came on in the markets that were the healthiest ones, that were growing the fastest in population and jobs: Austin, Nashville, Huntsville, Alabama, and everything. And probably all of our markets felt it to some degree. And so a lot of excess supply. And then of course that's happened in tandem with interest rates going up. And by spring of '23, basically a year into it, interest rates got back to sort of more normal levels, kind of levels I had experienced most of my career, and then went quite a bit above that and came down and now kind of have gone back up. So they always move. But basically the business has been under some level of duress. But I think that our team now, with our sort of three and a half developers, we could double the capacity of the company. I think our management team has the expertise to be able to kind of easily manage twice the size operation that we have. And so I think a lot of the opportunity here is to simply be prepared and to take advantage of those markets as they heal themselves. We've got in the hopper now two or three deals that we hope to do later this year, early next, and just really finding the little slivers of opportunity. We're in a very big market and we're a very small company. And so we can find opportunities like that. And so that's really what the hope is, to kind of be an expert at that and such.
Andy: That's exciting. Kind of once again, just looking back into the history, what would you say you are most proud of in building Cypressbrook?
Mike: Well, I think we've been fortunate to retain a lot of really good people. I mean, we have, I'm getting ready to do our annual reviews, and I'm interviewing people, some of which have been with us well over 20 years and 25 years. And so we've been able to retain a lot of really good people. And we've got a bunch of young people that are doing more recently that I think are really talented and have a lot of opportunity, and Cypressbrook would be a great talent platform for them to really sort of work the rest of their careers. Also too, one of the things that's been really fun: of our roughly 300-plus investors or so, we have a dozen to 15 or so that are now second-generation investors. And so in this case, pretty much all dad invests with us, and dad has kind of encouraged them. The kids are getting, making a little bit of money and such, and it encouraged them to invest with us. So I think that says a lot, that dad is telling them to do that. And so hopefully we can grow that second generation into another kind of group that invests with us for another couple of decades.
Andy: Yeah. Well, you kind of touched on this a little bit here, but how would you complete the sentence: The future of Cypressbrook is...
Mike: Well, I think it's going to keep our head down. We kind of keep working the program and really providing exceptional service through speed, skill, and stewardship.
