Tips from A Major City Zoning Planner by Mike Marshall (HA 41)

Tips from A Major City Zoning Planner by Mike Marshall (HA 41)

Transcript:

Steven Butala:                   Steve and Jill here.

Jill DeWit:                            Hello.

Steven Butala:                   Welcome to the Land Academy show, entertaining real estate investment talk. I think it’s the House Academy show. I’m Steven Jack Butala.

Jill DeWit:                            And I’m Jill Dewit, broadcasting from sunny Southern California.

Steven Butala:                   Today we talk with Mike Marshall regarding the tips, because he’s a major city zoning planner. Mike, how are you today?

Mike Marshall:                  Doing good, how are you guys?

Steven Butala:                   Excellent.

Jill DeWit:                            Great.

Mike Marshall:                  Good.

Jill DeWit:                            Sun came out.

Mike Marshall:                  That’s nice. Welcome.

Jill DeWit:                            Mike’s also in Southern California.

Steven Butala:                   Mike, why don’t you start out, tell us a little bit about your background. And then I know we had you on the show before, a little bit about your background and a little bit about what you do with the city. And then what you’re kind of doing on the side.

Mike Marshall:                  Sure. So I’ve been in city planning for probably about the last 15 years, both in Texas … So I worked for the city of Austin for awhile and then here in Northern LA County, in the city of Santa Clarita. That’s where I spent most of my career in planning, but also land development as well.

Mike Marshall:                  And so planning kind of has two sides. It’s one is long range planning, looking at general plans and 20/30 year plans looking out into the future. And then there’s the current planning side, which is the actual development process that’s going on in the city at that time.

Mike Marshall:                  And so I’ve been doing that for the last 15 years and then on the side started doing some project management outside the city, specifically in the city of LA. And through both experiences you get a lot of experience with zoning and land use regulations. And so you’re able to kind of navigate that probably better than most.

Mike Marshall:                  And so I’ve been able to utilize that as kind of my advantage. You talk about trying to find a niche and I think that’s essentially what happened is the niche found me really through working at the city and everything like that. And I was able to kind of parlay that into an advantage when looking at doing investment deals.

Steven Butala:                   I’ve never asked you this before, what’s a regular day for you?

Jill DeWit:                            Yeah.

Mike Marshall:                  A regular day for me is I get up at 5:00, I’ll go and I’ll … I’ll get up at five, I’ll go work out and I’ll come back in and I’ll do some work on the side stuff for about an hour. Get to the regular city job at 7:30, take a lunch break, do some more side work during lunch, get home in time to do dinner and stuff with the kids. And then about 8:00 do more side work until about 10 or so and then kind of repeat over and over again.

Mike Marshall:                  I mean, just anything that you have to do to make it happen, right? Until the time comes when you’re able to leave and make it a full-time thing.

Jill DeWit:                            That’s what you have to do.

Steven Butala:                   Yeah. Whatever it takes.

Jill DeWit:                            Exactly.

Steven Butala:                   Jill and I started this company or this version of this company really in 2011 and then started Land Academy in 2015. And the whole time in the back of my head I’m like, at some point it’s going to be really nice not to have this crazy schedule. And it just never happened.

Mike Marshall:                  That’s what I’m afraid of. I’ll just fill the space with something else. Let’s just be real.

Jill DeWit:                            Exactly.

Mike Marshall:                  Yeah.

Jill DeWit:                            Exactly.

Steven Butala:                   It’s crazy how much time we spend working. We were talking about it. For whatever reason, this just caught up with Jill and I this week. We’re like [inaudible 00:03:09] too much work. Better figure this out.

Mike Marshall:                  I’ve come to the conclusion that I must like it, otherwise I’m just a sadist or something. It’s one of the two, you know? So I think I must like it is what it really comes down to.

Jill DeWit:                            How much do you interact with the other people in the same positions in nearby cities, and then with the County as a whole? I’m super curious.

Mike Marshall:                  Yeah, good question. Well, just like any other profession there’s a professional organization that kind of keeps everybody connected. So there’s regional and national conferences that you connect with a lot of people. And the community of planners is smaller than you would think, even within a region like Southern California.

Mike Marshall:                  So people tend to bounce from city to city or county to county. And so you kind of end up knowing people all over the place. And again, that’s one of the things that’s come to my advantage as well. So I just have people I can call directly. Instead of kind of going through the front door, I can go through the back door and really talk to people directly that I’ve known for years and get the kind of straight story on stuff.

Steven Butala:                   So Jill and I on our show, we’ve been talking about this mysterious business partner that we have on this mysterious mailer that we did in Los Angeles County recently. And so we’re here to take the mystery out of that. The mysterious partner is Mike Marshall here and the mailer that we did is zoning based. So can you describe … This as kind of your idea, you came to us with it. Can you describe where you got the idea and why it’s so successful?

Mike Marshall:                  Yeah, yeah. Absolutely. I think just over the years in doing development and looking at zoning codes and everything like that, I just ultimately figured out that there was a lot of property that was underutilized. There was a lot of property out there that would have maybe a one to four unit property on there and it can have … By zoning would allow for maybe 30, 40, 50 units on there in some cases.

Mike Marshall:                  And so I just really started seeing the opportunities out there and I started wondering, “Gee, how could we actually go and isolate and really focus on just those ones?” And I had experience with Real Quest through working at the city. And so I would play with that and kind of figure out some of it. And then from there it just really was a matter of applying that to a different jurisdiction.

Mike Marshall:                  So going to the city of LA, city of LA is great in a lot of ways because they have a very robust GIS system, they have a lot of layers. They put a lot of money and investment into it. And so it works really well for this because you get so much information and data from them. And so I just started playing with it and seeing what kind of results would come out of it.

Mike Marshall:                  And then did a test mailer of about … I think it was about 3500 or so, 4000? And ended up getting one out of that one. So that was kind of the first test, so to speak. We bought a small property from a church about a mile from Dodger Stadium and then turned that over. Got a finder’s fee for it and just kind of kept moving on from there.

Mike Marshall:                  So with that I just saw that there was an opportunity and that it could really be expanded upon. And then from there I started looking at other cities surrounding LA. So I started looking at that and seeing what kind of potential there was there. And the same themes started to kind of repeat themselves, you know?

Mike Marshall:                  One city will be better than the next, et cetera. But ultimately the same themes kind of present themselves in that there are underutilized parcels where you can take advantage of that if you understand the zoning and land use regulations and things like that.

Steven Butala:                   I have to tell you, I’m really speaking not to the audience, but this is just opening a Pandora’s box of opportunity with this … This is the first real urban type mailer that I’ve ever done in my career with anybody else and it’s opening my mind to just the possibilities of what I call otherwise unusable property. There’s a lot of urban unusable property that I really now am starting to really see that can be used for stuff.

Mike Marshall:                  Yeah. It really can. I mean, sometimes the zoning doesn’t necessarily kind of acknowledge that or allow for that. And so sometimes what you end up having to do is you have to kind of do a little bit of lobbying. You got to talk to the city or the County and say, “Hey look, here’s these underutilized parcels. The zoning doesn’t allow me to do something with it. How about we work together to either change the zoning or to allow us to do something creative with it to make a use out of it?”

Mike Marshall:                  Because ultimately every jurisdiction does want to see that the property is utilized because otherwise it can just become a nuisance in a lot of instances.

Jill DeWit:                            Right. Do they listen to you Mike? Can a normal person walk in and have that kind of conversation?

Mike Marshall:                  It’s tough. Again, it depends on the jurisdiction that you’re in, but it is hard to go in just blanket and brand new to it and understand what you’re really doing. You could go in and kind of fiddle around and ask questions. And it’s not as though it’s rocket science. It’s just a matter of patience and being able to ask the right questions. And are you going to be able to tolerate that and understand really what’s going on behind the scenes?

Mike Marshall:                  Because you’re going to get a lot of nos at the front. The front desk people or the people that are answering the phones are going to tell you no to stuff because that’s what they’ve been told, and they don’t know any better, and they don’t have the authority to make any decision. And it’s just easier for them to say no and hopefully you go away and never call back. It’s easier for them.

Jill DeWit:                            [inaudible 00:08:43].

Mike Marshall:                  And it happens. It happens all the time. So if you know the right questions to ask and you’re a little bit forward and say “No, I’m not going to accept that, can I talk to your supervisor?” But do it in a way, that helps. But like I said earlier, the fact that there’s people I’ve known over the years, I’ve been able to utilize that and send them just a quick email directly. And that’s been a benefit as well.

Jill DeWit:                            That’s so good. So if you got through to the right place, because this is all about … This is the questions I wondered too. Like I got through the right person, we’re on the same page. He also realizes the value of changing the zoning because what I could do with it and how it’s going to help that neighboring area. How long does it take for that stuff to take effect?

Mike Marshall:                  Yeah. In a lot of cases it takes a good amount of time. It could take six months to a year to go through the process and depending on the type of city that it is, which that kind of sounds weird. But depending on the type of city that it is, there’s certain limitations on how many zone changes they can actually do within a year. And so they want to save those up for very certain specific instances.

Mike Marshall:                  So if it’s like a big project, they want to save those up, you know? And so it could get limiting in that sense. The best case scenario is for you to be able to go in and be able to convince the city that it’s in their best interest to change the zoning and have them change it themselves rather than you change it.

Mike Marshall:                  So if you change it you can go in and pay them money, and put in an application, and go through the six to 12 months or you could get them on board and hopefully they’ll change it and they’ll do it faster themselves. And then it’ll be cheaper obviously.

Steven Butala:                   I think that’s the magic here. The magic here is that these properties, for their current use, the zoning has already been changed.

Jill DeWit:                            Right.

Mike Marshall:                  Right, right. And so I mean, yeah. In those situations where the zoning doesn’t … Where it’s already been changed to allow for something positive, then obviously you want to go in and take advantage of those ones. And in cases where you have vacant parcels that are kind of under utilized, again, you have to kind of figure out why it’s being under utilized.

Mike Marshall:                  There’s a lot of nuance to it to where a zone change would be like the most obvious, but the reason why you ended up having to do a zone change is because somebody is interpreting your proposed use to fit into a very specific category. They’ll have a list of categories. Your business or your use has to fit into one of these categories and if it doesn’t, we’re going to interpret it as though it’s closest to this one over here.

Mike Marshall:                  And so then they’ll put you into that category. And then because of that you have to do a zone change. So if you get creative and you say, “Well, I’m actually not that use. I’m actually something else. I’m more like this because my business operates like A, B, C, and D.” Then you can kind of get a different interpretation and then maybe you don’t even need a zone change at all.

Mike Marshall:                  So a lot of it comes down to, again, nuance and interpretation and getting somebody to be on your side with it.

Jill DeWit:                            I’m going to tell you, I don’t know if it’s because of the deals that we’re doing right now or even just where we live because it’s a big issue out here in Los Angeles with the changes in what’s coming, but I do read that stuff. Based on a conversation we had the other day, and I was pulling up the zoning, and I’m looking, and I saw like a a no height restriction. I’m like, “Whoa.”

Jill DeWit:                            Now I know what you’re talking about with this developer. I’m like, now I see the value there. Wow.

Mike Marshall:                  [crosstalk 00:00:12:16].

Steven Butala:                   … very interesting article in our local paper … I think it was in our local paper-

Jill DeWit:                            Yeah, I was going to bring that up.

Steven Butala:                   … about the required … Oh, go ahead.

Jill DeWit:                            Well, I’m going to let him comment on that. And then I have another followup thing.

Steven Butala:                   Okay.

Jill DeWit:                            Yeah.

Mike Marshall:                  Oh you read an article [inaudible 00:12:31] in another paper-

Jill DeWit:                            Okay. So what it was, it was actually in … It was in Next Door. You know, the Next Door app and everything?

Mike Marshall:                  Right.

Jill DeWit:                            Here we are in South Bay, it covers Manhattan Beach, Hermosa Beach, Redondo Beach. And the media is going out of how many homes they anticipate to have here with upcoming zoning changes to allow for what used to be two, now will be four. Maybe eight.

Steven Butala:                   Yeah. [inaudible 00:13:02].

Jill DeWit:                            Exactly and the locals here are hopping mad because they don’t want that to happen. I’m like, you know what, it makes me so mad. People are going to come anyway. We need to do this. So it’s so interesting to me because we’re all into it because we live here. And how far advanced is this … Are we just now getting what’s going to happen in five years? I mean, at what point does it hit our radar?

Mike Marshall:                  So what happens is or what’s happening in this instance you’re talking about is that the state has looked out for the next like 20 to 30 years and said, based on demographic trends in immigration we’re anticipating that there’s going to be X number of people coming into the state of California. So we know that there’s going to be this need for housing.

Mike Marshall:                  And so there’s something that they’re working on that’s called the regional housing needs assessment and what they’re saying is, is that here’s this total number for the state and we have to divvy that up by region. And so there’s these local area governments in Southern California, it’s called the Southern California Area Government. SCAG, I think is what it’s called.

Mike Marshall:                  And essentially that organization is responsible for taking that regional number given by the state and then they have to allocate that number to all the different cities within, let’s say, LA County area. And it’s based on a variety of different factors and the formula that they’ve been using has been under debate and it’s been fought over left and right, but just recently within the last few weeks, SCAG has come out with their actual formula and now everybody’s getting a sense for what those numbers are looking like.

Mike Marshall:                  And so now you start seeing it in the media and people are getting really upset and they’re getting upset at their local cities, but really it’s something that’s being handed down by the state because the state is looking at that number. A lot of people freak out, and understandable. I get why that is. The flip side of the coin, because there’s always an other side of the coin.

Mike Marshall:                  The other side of the coin is that now there’s this demand for housing and then come in what we’re talking about, now you have developers that want to be building to be able to meet that need and you have all this under utilized property out there that needs to be unlocked.

Jill DeWit:                            And that’s where the three of us come in and we’re happy to serve it up on a plater.

Mike Marshall:                  Exactly right. Yeah, absolutely. Great timing. It’s just going to continue that way. And so when we talk about a potential downturn in housing and people being concerned about that, I understand the mindset, but at least for what we’re talking about, I’m not as concerned because the demand isn’t going away.

Mike Marshall:                  If anything else, if the market turns or even if affordability is worse off, people need housing still and the numbers aren’t going to change. And so the demand is still there. And so it’s just, I’m not as concerned about it honestly. It just means that you … It’s like you guys have talked about before, it just means you have to buy low or you set the buy better.

Jill DeWit:                            You know how we’ve been in city offices where people are walking in with a postcard, and they put it down, and they say, “We need to talk about this assessment here because this guy did this and this guy did that.” They’re all trying to keep it really low. Does this happen in this situation? People walk in and go, “Oh no, we’re not going to be zoned in that way for me.” Does that-

Mike Marshall:                  Yeah. I mean it could certainly happen just because depending on how the assessor places what that mill rate that they have, however they put that on based on the land use, that can be a big difference. So if I’m like a single family home owner on a lot that’s going to be changed and have zoning change for multifamily, then there’s a possibility that my taxes could go up.

Mike Marshall:                  In the city, we don’t really deal with that too much because we’re referring them to County assessor’s office for all of that. But yeah, you get that kind of stuff. That does happen.

Jill DeWit:                            That’s interesting.

Steven Butala:                   This is just fascinating. Do you all the zoning changes happen along this … When it happens within this program that you’re discussing, do they all happen at once during a year? Is it all throughout the year?

Mike Marshall:                  Yeah. It’ll generally be all throughout the year just depending on what kind of projects they have going on. So the city of LA, if they were … Like they’re building the new stadium right now, right? If they had to change the zoning for that for some reason, that’s something that the city would probably initiate doing just because of the economic benefits that come along with that. The interest involvement that they’re going to do that themselves.

Mike Marshall:                  On something that’s a smaller parcel, they’re not going to be probably as inclined to change the zoning. So it’s just an uphill climb to be able to get there. There’s numerous boards and approval boards within the city of LA that you have to go through to get that to happen. So that’s the time that’s involved that we’re talking about. And in general, in terms of making these properties marketable to buyers is just, if there’s not a zone change required, then they’re much more interested in it obviously.

Mike Marshall:                  And the city of LA particularly is notorious for having an older and inefficient zoning code. And because of that, that’s where the opportunities are. I mean, that’s real estate, right? In a lot of markets, the inefficiencies is where the opportunity is. And so that’s the same … And that’s where my connection to all of it was. I saw how inefficient the zoning code was and I’m like, there’s opportunity here.

Steven Butala:                   Fascinating talk, Mike. Before we let you go, do you have any advice for somebody who’s, let’s say in the middle part of the country or Eastern part of the country that wants to take a look at trying to accomplish what we’re accomplishing out here in LA?

Mike Marshall:                  Yeah. I’d say the first thing is, is if you don’t have the desire or the ability to get to learn the zoning code and land use, that’s completely okay. You just got to find somebody else that does. That’s the first thing. So if you have an expertise doing whatever your portion of the business is, focus on that. Let somebody else do this part of it and that’s completely fine.

Mike Marshall:                  But I do think that there are some cities out there, a lot of cities where you can really learn the baseline zoning and do this type of thing and still be successful. City of LA is just a very nuanced and very thick example and that would be the case in probably a lot of jurisdictions or large metros in LA … Sorry, in California for example.

Mike Marshall:                  But I’d say find a partner who knows the land use stuff and then really focus more on identifying the buyers. Focus more on building your buyers list and create that demand so that way when you do hit it right on the mailer that you can really place those deals as fast as possible.

Mike Marshall:                  So I think you have two sides of it, you have understanding zoning and land use, but you need the contact, and the connections with the builders and developers.

Steven Butala:                   Excellent advice. That would be my … I was just going to say that too. Kind of get to know the lay of land and then get the buyers, because the deals are there.

Mike Marshall:                  Yeah. The deals are certainly there and once you just make contact with these builders or the developers, they’re going to be interested. They’re always looking for deals and if you can bring it to them on a regular basis, they’re going to be happy to talk to you. That’s for sure.

Jill DeWit:                            As we’re finding out.

Mike Marshall:                  As we’re finding out. Absolutely.

Jill DeWit:                            We know your time is valuable, thanks for spending it with us today. Join us every Tuesday and Thursday for the House Academy show and if you need is five days a week, you can find us Monday, Wednesday and Friday on the Land Academy show.

Steven Butala:                   Tomorrow the episode on Land Academy, the show is actually called how to turn a hate call into a love call, by Jill. You are not alone in your real estate ambition.

Steven Butala:                   Mike, it was a pleasure to talk to you, as always.

Jill DeWit:                            Thank you very much.

Mike Marshall:                  Great. Thanks-

Jill DeWit:                            I know you’re busy.

Steven Butala:                   I know. Like taking part of your lunch break and I super appreciate it.

Mike Marshall:                  Oh no, not a problem at all. Happy to talk to you guys. It’s great. It was a good time.

Steven Butala:                   Great.

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