How 25 year old Martin Varsavsky raised 12 million dollars
"Tribeca was a ruin then, but I just knew it would become the great neighborhood that we know today"
Martin Varsavsky was born in Argentina but moved to New York to escape the regime. His father died when he was just 24 years old, leaving him with ‘more debts than money’. So young Martin Varsavsky set out to make a huge deal: to buy an old loft building in Tribeca – then a rundown neighbourhood – pimp it and rent it.
You can see him talk about the building here. The video is in Spanish, but you can click on the little keyboard icon in the lower right corner of the frame for the subtitled version. The subtitles were provided by Eduardo Huarte, founder of Innubu and a Whiteboard contributor (thanks, Edu!).
For those of you who don’t have time to watch the entire video, here’s the transcript:
“I’m in Tribeca In New York, Lower Manhattan. And I will tell the story of the first business I did in my life. Well, the first major deal I made in my life.
I did it while I was in college. I was studying and my father had died. And my mother insisted that I had to find a job. But whenever I went to a job interview, they always asked me questions like: “Where do you see yourself in five years from now?” To which I always said, “Well, at least, as your boss.”
So they didn’t give me the job. But while I was looking for bad jobs, I had a business plan to buy buildings in this neighborhood, Tribeca, and transform them into lofts. That was in 1985. This neighborhood was very poor, not like now. This was an area in which a squared foot cost $60, not $6000 as it is now. I will tell the story of that building over there.
The building is 120,000 squared feet and I bought it in 1985 for $6M with a group of investors. The story goes like this: Sorry, $600 per squared foot is what it was at that time, and now $6,000, 23 years later.
My father had died when he was only 49 years, and his mother was still alive…The $150,000 that I had inherited from him were quickly gone in expenditures for all his responsibilities, that I paid… Well, let´s say I inherited more debt than money.
But I inherited a very good education too. My father was a brilliant man who had great ethics and a way of teaching me that helped me a lot in my life. Not only in business but also in all other things.
Anyway, I had a good vision about neighborhoods. I thought this neighborhood that was a ruin would be just what it is now, a very special neighborhood, with hotels, art galleries… So I made a business plan to renovate the building. It cost $6M and the renovations another $6M. So I had to find $12M in 1985, when I was 24 and was finishing my MBA.
I made my business plan and went to look for investors. At the same time I went to find a management team to make this work because although I had already made other works and was already working on this since I was 20 this was a big work and I did not think I was going to get the money. Then I found Leonard Kahn that was the real estate portfolio manager of the city of New York.
He worked for the government and earned a government salary – which is a low salary. Incidentally, I never understood why people in Spain want to work for the government. In the US, people work for the government as a public donation for a few years. In Spain people work for the government because a secure job is more important than professional satisfaction. Though I suppose there are some government jobs that are good.
Anyway, Len Kahn had a high responsibility job and did it very well. I told him I wanted him to manage my real estate renovation firm. He said: “What’s your business like?” I replied that I did not have a business yet but when I did, he could have a third of my business! He would also have had to manage it and get a good salary.
All this on condition that he had to accept to be in my business plan. And if I raised the money, he would come work with me. He accepted.I wrote him into my business plan, saying that the manager of the company would be the famous Len Kahn, who manages the property portfolio of the City of New York.
Len also told me that the building I wanted, that we’ll see now, was available. When Len talked to me about this building, which is 11th Street Beach with 32 Varick Street, when he told me it was available for $ 6M, I put it on my business plan.
I made a business plan to renovate the building that was not ours. I then said that if I could get $600,000 to get a contract for the 10% payment within 90 days. And in 90 days I could get bank financing. I could get someone to put $10M and we put $2M.
I made a plan that had to put up $600,000 and then had to put $1.4 M more. And so the bank will lend $10M. This was all very hypothetical because we had no building, no loan, we had nothing! The Beginning in life is like this. With nothing.
Then I went to see investors. I saw many investors but they said no. Because I was very young … no, no, no, no …And after so many people told me no, I finally found a family that said yes. This man, Manuel Madanes, who incidentally was a friend of my father – my father had done some very interesting work for him. He was very sad because my father had died, so in a way, this deal happened because of my father. Although, it’s not because someone is a friend of your father that they will give you $ 2M.
I’m talking $2M in 1985 – that’s like saying $10M now. Inflation has not been so high, but real state inflation has been. So I went to see this man, Manuel Madanes in Texas. It was supposed to be the big moment: him giving me the $600,000 for the deposit to buy this building …
But unfortuntately on my way to Houston I forgot my wallet. I went to Houston to negotiate the deal with him and had no money – not even to take a taxi from the airport to the hotel where he was. I took a bus, and finally got to walk. I arrived sweating because in New York it was cold and in Houston it was very hot.
Sweating, I went into the bathroom; I freshened up a little and went to see Manuel Madanes. A great man. We negotiated the deal and gave me a check of $600,000. I was too ashamed to say, “could you give me $600K plus $20 more for the taxi?” So I walked down the highway carrying the check of $600,000 and took the bus to the airport, with with only $5 in my pocket.
Next came the great difficulty of finding $10M in bank financing. That was terrible. We made it a day before losing the $600,000, because no one wanted to finance the deal, because I was 24 and some other issues.
But finally, thanks to Len, we got the money. I remember that was the day I turned 25 years and also completed my MBA. They financed $12M in 1985 and had this building. We fixed it up and made it what it is now.
Then unfortunately we could not buy the land that is in the middle. (points to another building on the corner). So they put that building on it. Our building has 120,000 square feet and we rent them to a few companies until 2013. In 2013 it is going to become a condominium building. The building we bought for $6M then is nwo worth $60M. Most of the gains were for investors but also I have an important part as well and Len. This was a business in which I put $25,000 in the year ’85, and has been giving me $30,000 monthly rent, since ’85. It is very profitable.
I say this because some people have accused me sometimes that my businesses are not profitable. Indeed, Jazztel is not profitable now but others are profitable, like this one. Every time I look at it I remember that 25-year kid that was full of hope that went to Houston and forgot his wallet.
And this was the great story of the first business I did in my life.”
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