Capitalizing on the Surging Demand of RVs

Today’s guest is Ben Fraser 

 

Ben Fraser is the Managing Director and Chief Investment Officer at Aspen Funds, where he combines his analytical nature with a passion for delivering outstanding client service and strong returns through out-of-the-box investments.

 

Show summary: 

In this episode, Sam speaks with Ben Frazier from Aspen Funds. They delve into the complexities of raising capital and the strategic shifts Aspen Funds has made to adapt to the evolving market. Ben outlines three common scenarios they encounter: providing gap funding for urgent capital needs, facilitating loan assumptions to improve leverage, and offering rescue capital in distressed situations. He explains the intricacies of negotiating with senior lenders, emphasizing the importance of understanding their motivations and the power of being the last money in. Ben also candidly discusses the current challenges in the commercial real estate market, including rising interest rates and an influx of new supply, suggesting that survival through the next few years will be key for investors.

 

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Intro (00:00:00)

 

Ben's Career Journey (00:01:14)

 

Evolution of Aspen Funds (00:02:00)

 

Challenges in Raising Capital (00:03:42)

 

Adapting to Market Changes (00:04:55)

 

Navigating Risks in Real Estate Investments (00:05:13)

 

Building Trust with Investors (00:07:13)

 

Attracting Capital through Thought Leadership (00:10:52)

 

Timeline for Capital Attraction (00:12:13)

 

Current State of Commercial Real Estate Market (00:14:05)

 

Future Opportunities in Real Estate Investments (00:17:57)

 

Conclusion of the Show (00:17:57)

 

Gap Funding (00:18:24)

 

Loan Assumption (00:19:56)

 

Distressed Rescue Capital (00:20:52)

 

Hope for Sponsors (00:23:32)

 

Negotiating with Lenders (00:26:15)

 

Conclusion and Contact Information (00:28:52)

 

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Connect with Ben: 

 

LikedIn: https://www.linkedin.com/in/benwfraser

https://www.linkedin.com/company/aspen-funds

 

Web: aspenfunds.us

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

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Want to read the full show notes of the episode? Check it out below:

Ben Fraser (00:00:00) - There's something like 9 million accredited investors just in the US, right? For any one of us to be successful, I only need like a couple hundred investors. You know, if I want to go big, a couple thousand investors, that's not that many in the sea of accredited investors. And so my mindset started to shift. We started to position ourselves as thought leaders,, to attract capital to us as authorities in our space, doing a lot more content,, getting in front of audiences virtual and in person and starting to kind of build a,, an attraction mechanism to bring capital to us.

 

Intro (00:00:36) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:49) - Ben Frazier is the chief investment officer at Aspen Funds. They're an inc 5000 company, and he's responsible for sourcing, vetting and capital formation of investments. He has prior experience as a commercial banker and underwriter, as well as working in a boutique asset management group.

 

Sam Wilson (00:01:05) - He's also the co-host of the Invest Like a Billionaire podcast. So if you haven't checked that out, go check that out as well. Ben, welcome to the show.

 

Ben Fraser (00:01:12) - Hey, thanks for having me, Sam. Absolutely.

 

Sam Wilson (00:01:14) - The pleasure's mine. Been there. Three questions. I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?

 

Ben Fraser (00:01:22) - Yeah. So you kind of said a little bit. I was,, spent some time in banking as a commercial banker, underwriter. Learned a lot. Got to look under the hood of ultra wealthy borrowers of the bank. And my favorite thing was going to look at their personal financial statements and tax returns. Learned a whole lot. Two biggest takeaways were the most wealthy,, borrowers were business owners and real estate investors. And I thought, hey, that's what I want to do. So an opportunity to join Aspen Funds about six years ago now, I've become a partner and,, helping scale and grow the business,, and running running my team.

 

Ben Fraser (00:01:55) - So it's it's been an amazing ride. And,, just kind of getting started to.

 

Sam Wilson (00:02:00) - That's really cool. What was the opportunity that you saw when you joined Aspen Funds? Like, what was the gap that you said, hey, man, this is something I can fill and this is the direction we can take the company.

 

Ben Fraser (00:02:09) - Yeah, well, I kind of got bait and switch that I like to say in a in a certain way, because I was coming on to be the VP of finance. So as a banker, you know, finance MBA. So I was like, I'm going to go kind of the CFO route, kind of help with the the finance side of the business. So I joined, you know, they'd been going about five years at that point, had only raised about 10 million bucks. So it was pretty small at that point. But so opportunity to help scale and grow something. But then very quickly they said, hey, you know, we actually need help raising capital because that's, you know, really we need to scale.

 

Ben Fraser (00:02:43) - And I'm like, okay, that's not what I really signed up to do. But hey, I want to just help out where I can and, and the and grow. So learned very quickly., I had no idea what I was doing and,, tried all the wrong things. Made a lot of mistakes., wasted a lot of money,, trying to do different campaigns. But fast forward to six years later. We've raised over $200 million in equity from investors. And,, continue doing to to scale up. So it's it's been a fun thing. I have an amazing team. It's not all me. I have about,, six different people that are on my marketing and investor relations team. So we just continue to be able to invest in good people. And I don't do any calls anymore. But still, you know, run that team, right?

 

Sam Wilson (00:03:27) - No, that's really cool. I'd love to hear a little bit more about those kind of mistakes and things that you say maybe you did wrong early on, but before we get there, let's talk maybe about what Aspen was doing then and maybe what it's doing now.

 

Sam Wilson (00:03:40) - Like, how has that changed?

 

Ben Fraser (00:03:42) - Yeah. You know, I think it's important to have an agile business model, especially in real estate and investing, because the tides can change. Right. And what you were doing before,, may not be a good place to be now. And what was really cool at the genesis of Aspen, it was really an opportunistic thing that our, our founders saw, and it was buying discounted distressed mortgages on, on homes. Right. And at that point, coming out of the great financial,, crisis, they saw this opportunity was a great opportunity., but it really launched us. We continue to operate those funds that continue to perform very well, but it's just not the same level of growth that we've seen in the past. And so several years ago, we started to take the same approach that we use to identify really good opportunity sets, really good, what we call macro driven themes. So we're looking at the macro economic picture, trying to find where we think these long term trends are going to kind of carry the next wave and, invest in those verticals.

 

Ben Fraser (00:04:45) - And so we have a few different verticals we kind of focus on and have expanded into a lot of different,, kind of asset classes from there. And, continue to, to grow those.

 

Sam Wilson (00:04:55) - Got it. What about the distressed mortgage business? What's that? I mean, what's that look like today? If you guys were I asked this this is kind of a leading question because I'm, I'm an investor in a distressed mortgage fund that is basically gone belly up at this point.

 

Ben Fraser (00:05:13) - Oh, no. Yeah.

 

Sam Wilson (00:05:14) - It's not good, man. It's not good. I could I got a front row seat on telling you the wrong things to invest in., but it's gone belly up and I'm looking at it going, and they made some mistakes, I think maybe 3 or 4 years ago where they ended up doing. They took these loans and they did worker work workouts. Work around.

 

Ben Fraser (00:05:29) - Workouts. Yeah. Workouts.

 

Sam Wilson (00:05:30) - Yep. Workout. Okay. I'm not in that business. You can tell,, with the borrowers, but they were resetting then, you know, the interest rates at that point in time, like, hey, Ben, cool, man.

 

Sam Wilson (00:05:40) - We can rework your loan. I know you had 100 grand. We bought the loan for 20 grand., you know, we'll reset it for 70, and you can,, you know, you can take the well and we'll, you know, set it at 3 or 4%. Well, now, nobody wants those. They can't resell them. Like the value of those loans is declined to almost nothing because nobody wants to take a 4% or 3% loan on their books because they're not worth anything, because now it's, what, 7% that's going rate something like that? How did how did you guys get around not getting caught holding the bag like that?

 

Ben Fraser (00:06:08) - Yeah. You know, again, being agile not both in a macro sense, but also a micro sense. So as the market kind of matured we had to shift strategy. And so, you know, we we saw that one of the biggest risks would be rising interest rates. And at that point we thought it was a pretty, pretty minimal risk because we'd have low rates for a long time.

 

Ben Fraser (00:06:28) - , but we always risk adjusted our pricing. And we just kind of held to that and, you know, missed out on some opportunities, but just felt like that's, you know, we're taking more risk working with a borrower that is,, you know, not as good credit quality as, you know, you or I. And so we risk price those to,, you know, much higher interest rates. So our yields, our gross yields are generally in the 13 to 15% range., and so we've been able to stay right sized in that fund and still pay our investors their full return and haven't missed in 11 years. And,, have, you know, still pretty good healthy portfolio. So it's, you know, call it some luck, call it a little bit of foresight and just good discipline. Throughout changing, changing times.

 

Sam Wilson (00:07:13) - Right. And I think a lot of people are afraid of that. One of the things that we hear a lot of people say is, you know, don't don't fall prey to shiny object syndrome, which is a real thing.

 

Sam Wilson (00:07:22) - You know, we're investors, they get involved. I'm I'm one of them. I'll be honest. It's, you know, early on, you're like, oh, hey, what about this? What about that? That's really cool. That's really cool. But yet at the same time, there's a right time and place to be like, no, we're pivoting. We're not doing that anymore. Because as you said, very at the beginning that, you know, times change and you got to have to have a, have to have an agile business model in order to adapt with the times. So really cool. Thank you for sharing that. Let's talk a little bit about the early on days of raising capital. You said you spent a lot of money and made a lot of mistakes, did some wrong things. Give us some insight there.

 

Ben Fraser (00:07:52) - Yeah. You know, so I came in with pretty much no network. We didn't have a website that worked,, and no background and raising capital. I'd done some like sales jobs before, so I knew how to like, talk to people.

 

Ben Fraser (00:08:03) - But, you know, that was about it. So my initial thought was, hey, if I just. Go into rooms where there's wealthy people. We have a compelling product, compelling offer. I can convince them to invest with me, right? I mean, it's that simple. Money needs a place to land. We got a good place for it. You know, easy as pie. So we started doing. I mean, it's kind of funny because we go to this this,, conference, and there was this,, kind of service provider that mostly worked with financial advisors, which this is a very common lead generation tool where they go do dinner events, they send out mailers, they bring people to a fancy steakhouse. They do a whole, you know, dog and pony show and convert people to a,, an appointment where you kind of talk one on one and then you, you know, get the assets. So they tried to apply this to,, fundraising. And,, so we tried this and, you know, I went to like a whole week long training of how you do these seminars.

 

Ben Fraser (00:09:03) - And,, we went all all in on it and spend a lot of money and had a lot of success from people coming to their and people that were interested. And then we had a really high conversion rate to appointment. So I'm like, man, this is working. So we just keep doing this while we're working through the the lead pipeline. And then at the end of the day, we did, I think, 3 or 4 of these events, and they're costing us 15, 20 grand a pop. So, you know, we're dropping some change. And at the end of the day, I raised a big fat goose egg and I was like, what just happened? Because people came, they were interested, they wanted to learn more and I couldn't close them. And what was so interesting to me, you know, there's different reasons why people decide not to invest, but the ultimate one was they just didn't have enough trust in us. They didn't. There wasn't enough of a,, comfort level, knowing who we are, what we're doing.

 

Ben Fraser (00:09:57) - And, you know, we had a little bit of a track record, but, you know, this was these were called audience. And so very quickly learned, you know, the kind of idea of, of funnel,, marketing, but also in capital raising, building that trust is so important. And finding ways to shortcut that trust curve is like kind of really became my, my passion of learning how to do that. And so what really shifted was we instead of like my approach at that point was begging and groveling and just any dollar I could get I would take. But, you know, it created this scarcity mindset to where it was like, if I don't close this investor on the phone right now, I don't know when my next investor is going to come and I need the money to, you know, invest in this deal to an abundance mindset of, you know, I think I forget the number that changes all the time, but there's something like 9 million accredited investors just in the US, right? For any one of us to be successful, I only need like a couple hundred investors.

 

Ben Fraser (00:10:52) - You know, if I want to go big, a couple thousand investors, that's not that many in the sea of accredited investors. And so my mindset started to shift. We started to position ourselves as thought leaders,, to attract capital to us as authorities in our space, doing a lot more content,, getting in front of audiences virtual and in person and starting to kind of build a,, an attraction mechanism to bring capital to us. And,, then you build on momentum right where you, you find where the momentum's rolling and you just double down, triple down and,, and just keep, keep going. So it's fast forward. Now, we've raised, raised a lot of money and it's I'm not working any harder. Not necessarily any smarter is just doing the right things. Right.

 

Sam Wilson (00:11:36) - No, I love that. Thank you for sharing that. That's,, that's that's time intensive on the front end. I think putting in those, positioning yourself as thought leaders, putting out content, I mean, what was the,, it's like,.

 

Sam Wilson (00:11:50) - You know, Google ads or something like that. You know, they say on the front end, like you're going to spend the first 4 or 6 months and you're pouring in tons of money in an ad campaign in the first 4 to 6 months of that. There's just very little happening. You don't think, and then eventually, you know, you start to get traction with it. What would you say the timeline is for you? Or you said, hey, man, we put in the hard work that 12 months, 24 months, what was how long do you feel like before you start to really get your feet underneath you?

 

Ben Fraser (00:12:13) - Yeah. You know, I think it's just it has to be a mindset shift where we all want a silver bullet that if I just do X and I invest Y into it, I get out Z and I make all this money. Right. And it's it's never as simple as that. And I think I spent so long trying to find the formula that we could just pour money into that would just give us, you know, new capital.

 

Ben Fraser (00:12:34) - , but it's like the quick fix, right? And it's so much of what we're doing, you have to play the long game. And when you're doing content, when you're building a,, an audience, when you're building a platform, whatever mechanism you choose, whether that's, you know, blogs, whether that's YouTube, whether that's a podcast,, whatever it is, it takes time. And so for us, we started with SEO,, we had some skills internally of being able to,, rank high in Google. And so we started doing that, writing articles and, ranking high in Google for certain keywords and then doing layering on advertising on top of that. And then, you know, that became kind of the first,,, flywheel that we could kind of build off of into other, other things. And so it took some time. It's hard to say exactly when it really kicked off, but I would say we spent. Probably a good portion of a year or two, like with this mindset of we're just going to go hard.

 

Ben Fraser (00:13:25) - We're going to, you know, build this thought leadership platform with results along the way. But I would say at about that kind of 18 to 24 month mark. Everything. Just start taking off, right? Because you get a couple wins, you get on a couple stages and all of a sudden, you know, you just start to attract more and then it's,, this kind of snowball that picks up steam and just gets bigger and bigger and bigger and bigger. And, you know, you just kind of roll with it, right?

 

Sam Wilson (00:13:49) - I love it, love it. Thank you for sharing that. Certainly appreciate it. We've got about nine minutes left here on the show. I want to get cover. Two things. One, I want to get your thoughts on what the current,, commercial real estate market looks like. And then what you guys are really going along in right now.

 

Ben Fraser (00:14:05) - Yeah. You know, it's it's interesting as we stand today, beginning of 2024,, we're sitting on the back end of the fastest,, rate increases in history.

 

Ben Fraser (00:14:15) - And,, the market is still digesting. What does that mean? You know, how how long is this going to be? When can we get our first rate cut, please? Jerome Powell and it's from my perspective, caused a,, a misalignment of expectations to reality. And I think a lot of people are just wanting to go back to the old normal. Right? What we're used to really low interest rates, really cheap money. And I think we're entering into a new normal. And,, I think we're going to have rates higher for longer. What does that mean? I mean, anyone that knows, you know, some basic math and you have smart listeners, but, you know, higher interest rates put a lot of pressure on higher cap rates, which really puts, you know, downward pressure on value. So I think we're seeing,, values being taking a hit in the short term. But we also see a lot of capital on the sidelines looking for places to invest.

 

Ben Fraser (00:15:08) - Right. So I don't think we're going to see the next oh eight., you know, part of that was driven by a banking crisis. And we're not seeing the same level of a banking crisis. It's more idiosyncratic across different types of of lenders that have maturing portfolios., but what I do know is that, you know, coming from a banking background, when when the credit markets tighten and when investors get spooked, it's very difficult to form capital. It's very difficult to go get debt, very difficult to go get raises, raise equity. And investors, they see maybe opportunity or the kind of beginning stages of it as the market kind of resets and goes into another bull run. But I think we're still very early in that. I don't think we have fully reset number one. And number two, it's going to take some time for investors to have confidence coming back into, well, what is the new exit cap rate that we're projecting? You know, what is the economy going to do.

 

Ben Fraser (00:15:59) - And right now what we're seeing from a risk adjusted standpoint is kind of the private credit boom. Right? This is this is the time of the market when private credit, it goes through a really big,, boom cycle because senior lenders are pulling back., a lot of times if it's like agency or CMBS loans that you have on existing portfolios or acquiring new interest rate,, or not interest rate, interest reserves,, that you got to bolster your, your cash reserves that maybe you don't have enough capital to finish your business plan, you know. And so there's credit tightening there. It's difficult to raise capital from a capital call of investors. So you can kind of come in and preferred equity mezzanine debt lower part of the capital stack lower risk. You don't have the same exposure to cap rates continuing to go up or values to drop because you're usually cap out at, say, 70, 75% loan to value. And then on new acquisitions, we're seeing a lot of this loan assumptions are the hot thing right now, right where you can go and assume an agency loan,, at, you know, low rates of yesteryear and,, be able to ride out whatever maturity is left on there.

 

Ben Fraser (00:17:08) - But generally those are very low leveraged loans, especially, you know, at the values a couple of years later. So,, you can kind of come in at that part of the, of the capital stack. You can generally get really strong risk adjusted returns., you know, not quite equity like returns, but low double digits and,, on a net basis and you're way lower in the capital stack. So it's, it's from our standpoint, a very attractive place to be. We think it's going to be an opportunity for at least the next several years., as a lot of these maturing loans start to hit and,, the market has to digest an enormous amount of supply of new,, mostly housing and multifamily,, so there's going to be a lot of turbulence in the market for the next 24 months, and we want to be positioned to take advantage of that.

 

Sam Wilson (00:17:57) - So how does that work? Let's let's assume, I don't know, we're going to make up some fictional situation.

 

Sam Wilson (00:18:02) - Or maybe you can make up a,, change the names for,, identity. You know, no one knows who they are. But what's a situation that you guys have encountered where someone has come to you and kind of walk us through how you guys look at the opportunity, and then kind of how you help the borrower out in that situation, then how you protect your investors. Give me give me kind of some nitty gritty if you can, without obviously telling your stories.

 

Ben Fraser (00:18:24) - Yeah. So I mean, there's probably three situations that we generally see. One is gap funding. So I had a,, a borrower just the other day. They're closing on a deal., they, you know, leverages downs, have to raise more equity. It's really hard to raise equity right now. He had a big investor drop out there going to the closing table. And like 3 to 4 weeks I need a million bucks., so we're coming in. This is a 90 day loan. And, you know, we're charging high interest for this because it's, you know,, it's money that he needs, and we're coming quick.

 

Ben Fraser (00:18:57) - And it's an asset based loan. But in the course of the whole project, it's a very, very minimal cost versus not closing. So we kind of come and help gap fund., and then we get paid off in 90 days that that happens fairly regularly. Another case I mentioned is the loan assumption. And generally loan assumptions like what we're looking at right now, they have a 2.9% assumed rate with another I think it's 6 or 7 years and a really good submarket. You know, it's a I think a 90s vintage property. So it's just it's a great asset. But it's at like 45% leverage., so it's difficult to get your, their equity investors returns. They want at that leverage point. So we come in. We're more expensive than the senior debt. You know we're in the kind of mid double digits total cost standpoint. But it's still a creative to their equity investors who get all the upside. And we kind of get a contractual rate of return. And we bring the leverage up to a, a more normal scenario.

 

Ben Fraser (00:19:56) - , while they can still, you know, manage that a really good loan assumption., and the kind of third scenario is probably the more distressed rescue capital situation. This is,, these are a lot more challenging because a lot of times basis dictates the future, right? If you just bought it at the peak and you levered it up to 80%, and we've seen a lot of deals recently, there's there's there's just no way you're not going to sell it at a loss. I mean, I'm sorry I can't put any more money down at this deal because you're already at today's value. You're over over 100% leverage, right. So those are difficult situations. But there are situations where we're seeing where a lot of these senior lenders and bridge debt lenders are very, very desperate because they have a lot of issues in the portfolio. They get very aggressive. So we can actually go lower in the capital stack. They actually subordinate portions of their senior loan behind us. So they actually stand to lose significant amounts.

 

Ben Fraser (00:20:52) - , if,, you know, if there's a loss in the property before we ever get hit, even below the senior, not all the way below, but somewhere kind of in the, in the,, behind them. So those are kind of different situations we see,, in kind of the needs for the capital.

 

Sam Wilson (00:21:07) - Right. So just and I want to, I want to kind of pick that last deal apart a little bit and see if you can clarify some things on this. What you're finding is that there are bridge lenders out there because obviously a loan is a lender's asset. So they have a loan on a on a deal. And that for whatever that that deal is now in distress. And you guys come to them along with the borrower and say, hey, look, we can help bridge this gap. Yep. Or whatever. Not. I guess you use gap funding on the first deal, but we can we can come in and you in the, in the initial, senior debt holder will now subordinate part of their debt to what you guys are bringing to the table.

 

Sam Wilson (00:21:45) - So you guys are now in position one in order to keep this deal moving forward. Okay. Yeah. For those of you who are listening, he's shaking his head. Yes.

 

Ben Fraser (00:21:54) - I know that's the question.

 

Sam Wilson (00:21:57) - I am just yeah.

 

Ben Fraser (00:21:58) - So, so so the idea on this, this deal in particular, it's,, they. We're doing the renovation plan that a bad property manager drove. Occupancy was low, aided to a lot of cash reserves. They ran out of money to finish renovation plan. They're stuck at like 70% occupancy because they don't have the capital to finish renovation plan. They hit the business plan. They're hitting the market rents. They have a path to stabilization. They don't have any money to do it. The senior lender is saying, we're not putting any more money out because we're out. We're our whole portfolio is, you know, in trouble. And,, we're, you know, they don't want to take it back because they have other deals are taking back. And, you know, that's the last thing they want to do.

 

Ben Fraser (00:22:37) - So we could come in and say, hey, we'll provide the, the, the, the funding to finish the business plan. But lender we need you to subordinate to us in this scenario. It's, it's a almost a 2 to 1. So if we put $3 million out they're going to subordinate $6 million of their senior portion of their loan behind us. So they have to lose $6 million before we even lose a dime of our capital. And that's, you know, last money in dictate terms. Right. And that's just the reality is you can write the ticket and we have all the leverage, because if we don't like the deal, we just won't invest in it. We won't put the money out. And so that's that's where you get a lot of you know getting to cherry pick.

 

Sam Wilson (00:23:16) - Got it. That's really cool Ben I love that I mean that's that's I mean that's amazing one that you get to dictate those terms and come in in that position. I guess there's there's two further thoughts on that though is that what is the hope from the sponsors position.

 

Sam Wilson (00:23:32) - Like what's the hope for them as it pertains to their equity investors? Are they eventually just hoping to just not lose the farm on this deal and make their investors whole as kind of that? This is their this is their their Hail Mary to get out of the deal alive 100%.

 

Ben Fraser (00:23:47) - I think a lot of sponsors in these situations have realized, wow,, we're going to be lucky if we can get our capital back, because a lot of these deals were purchased at historically low cap rates. And when the interest rates have reset and they're higher now, you I mean, they can't even refinance because the refinance would require a huge capital injection rate. We all have cash out refinance, right. Most deals right now are cash in refinances. That's not the direction you want to see cash going. And so it's it's difficult because values have come down. We're kind of I think at the beginning stages of the worst part of this cycle. Right. I think it's over the next 20 or 12 months, it's going to get pretty, pretty gnarly and then hopefully kind of start to rebound up.

 

Ben Fraser (00:24:30) - But if you can just make it through the next couple of years, right, to where a lot of this,, distress of maturing loans is hit the market. I mean, the other kind of big wave that were they're fighting right now is new supply, especially in the Sunbelt markets. We're seeing record number of deliveries of new units because these were all started in the cheap money, you know, part of the end of the last cycle. And it's now all being delivered. And so we have 60% more new supply than the previous record hitting over the next two years. And so you're now competing not only with high interest rates, but now with a new tons of new properties. And they're getting very aggressive and leasing these up. So you just if you can make it through the next couple of years, you can hope to ride out the storm and hopefully values recover a little bit. Hopefully we do have some lower interest rates and all those factors that you can't control, but probably in a better position a couple of years down the road can hopefully at least return capital.

 

Ben Fraser (00:25:27) - And maybe you can squeeze out some profits too.

 

Sam Wilson (00:25:30) - Right? Right. And I think that's, that's I mean, one, I don't wish that on anybody, but it's also just an economic reality. I think a lot of sponsors probably need to take to heart, which is that, you know, the days of yester year of doubling our money in 18 months, which I was,, you know, part and parcel I was a participant in had lots of fun doing it. But I think those days are behind us for the foreseeable future., so, you know, getting being honest with your investors and saying, hey, look, if we do our, the best we might do here is get out alive. So if we can return your capital to you, I feel like we've hit a home run at that point. So that's that's a humbling conversation. But it's something I think we're just going to see more of. The last question I have for you on this, what's that conversation like with the,, bridge debt lender, the, the, the senior lien holder saying, hey guys, we're going to come in as rescue.

 

Sam Wilson (00:26:15) - Like, how do you even start that? I mean, I, I would imagine that that conversation I'm just projecting here. So tell me if I'm right or wrong or how it actually works, I guess is the real question. But that, I mean, it's going to begin with a lot of like no answers in the beginning because like, no, we're not subordinating our debt and like, why? Like, how does that even work out? Like, how do you work your way through the legal and technical challenges of getting this whole sort of a deal done?

 

Ben Fraser (00:26:39) - Yeah, attorneys definitely get get rich in this scenario. So there's a lot of negotiations, a lot of, you know, redlining of agreements. But,, yeah, I mean, it really starts with, you know, knowing where where our box is and knowing what we're not willing to capitulate on. And so it's really a matter of here's your options. I mean, one of the options of the sponsor is. If they don't get the scalpel, they give the keys back to the property.

 

Ben Fraser (00:27:05) - But from the lender's standpoint. What's their motivation. Right. And if there's like we're actually targeting certain bridge debt lenders, I'm not gonna say the names because it's proprietary knowledge. Right. But they have struggling portfolios and we know they they don't want to take back all their properties. Right. And so if they have a certain number of properties or a portfolio that's just struggling, they just want to kick the can down purely from an operational standpoint. Right. They can't take back as many properties because they're going to probably take losses in their capital. So it's understanding what their motivations are and the position they're in. Because in some deals we've seen with this lender, they're actually not in a negative equity position. There actually is a little bit of equity they sold right now. Now the sponsor would lose capital. And so but we don't have as much leverage to work with the the senior lender. And so you know we have to kind of understand the position. And then we've actually just walked away from the negotiating table like two times already on this one deal.

 

Ben Fraser (00:28:04) - And I'm not even sure if we're going to get there. Then just we're talking about a deal. In my head that's, you know, an act of negotiations., but. It's understanding what their motivations are. And because I, I write the last check, I have all the power and all the leverage because I just walk away if I don't, because there's a lot of other deals out there that are looking for capital. And so it's it's you kind of have all leverage in that position, right?

 

Sam Wilson (00:28:29) - No, that's really, really interesting. Ben, thank you for coming on the show today and kind of breaking down what it is you guys are doing currently where you've been in the past. You've given us all sorts of insight, everything from kind of the mistakes you made early on raising capital to,, you know, what you guys are doing now on the private credit side of things, where you guys see the market and just how you guys are positioning yourself for the foreseeable future. So certainly appreciated you coming on today and sharing your insights with us.

 

Sam Wilson (00:28:52) - If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

 

Ben Fraser (00:28:57) - Yeah, you can check out our podcast, Invest Like a Billionaire., and then our private equity firm is Aspen funds at Aspen Funds us.

 

Sam Wilson (00:29:04) - Aspen funds us. We'll make sure we include that there in the show notes. Ben, thank you again for your time today. I do appreciate it.

 

Intro (00:29:10) - Thank you. Sam. Hey, thanks.

 

Sam Wilson (00:29:12) - For listening to the How to Scale Commercial Real Estate podcast. If you can do.

 

Intro (00:29:15) - Me a favor.

 

Sam Wilson (00:29:16) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Joel Friedland.

 

Joel has 40 years of experience as a broker, investor and syndicator in industrial real estate.

 

Show summary: 

In this episode Joel Friedland  shares his journey from starting as a broker to establishing his own firm. He stresses the importance of specialization and building lasting client relationships. Joel discusses the industrial market's growth due to e-commerce and manufacturing but warns of economic downturns. He advocates for all-cash deals, avoiding debt for investment stability, and highlights the competitive edge it provides. Joel compares leveraged investing to gambling, promoting a risk-averse strategy for long-term security. 

 

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Intro (00:00:00)

 

Staying focused on industrial real estate (00:01:57)

 

Market swings and the state of the market today (00:06:18)

 

Types of industrial real estate and market demands (00:09:10)

 

Positioning in the industrial real estate market (00:11:06)

 

Reasons for selling industrial buildings (00:15:24)

 

The no-debt financing model (00:17:53)

 

Competitive offers and leveraging returns (00:21:29)

 

Risk Aversion and Leverage (00:23:45)

 

Gambling in Real Estate (00:24:47)

 

Balanced Portfolio and Risk Mitigation (00:26:57)

 

Conclusion and Contact Information (00:27:48)

 

Closing (00:28:25)

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Connect with Joel Friedland: 

Instagram: @investingwithjoel

YouTube: @britproperties

Tik Tok: @investingwithjoel

LinkedIn: Brit Properties

Web: https://britproperties.com/

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Joel Friedland (00:00:00) - In every downturn when there's been, let's call it agitation of my mental health and my investors. Investment safety. Yeah, it's been because in every case I can prove in every case it's because we had a loan.

 

Intro (00:00:18) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:31) - Joel Friedland has 40 years of experience as a broker, investor and syndicator in industrial real estate. Joel, welcome to the show.

 

Joel Friedland (00:00:39) - Thanks, Sam. It's great to see you.

 

Sam Wilson (00:00:41) - Absolutely great to see you, Joel. I asked three questions to every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

 

Joel Friedland (00:00:52) - Sure., so I'm 64 today. I've been in the real estate business since day one. I've only had one career, and it's industrial real estate in Chicago. I started out as a broker, working for a family that was in the business for decades, and they had 80 buildings that they owned as syndicators, and they hired me as a leasing agent right out of college, and they trained me and taught me, and they were my mentors.

 

Joel Friedland (00:01:20) - And eventually I tried to join the family wasn't my family, and they wouldn't let me in. So I started a business with three other guys and we did the same thing. I've stayed close with that original family. I'm so close with them, actually, with one of the one of the sons that today I'm having a call with my advisory group before I buy buildings. I have an advisory group zoom meeting, and he's one of the leaders of the zoom call, and that's from 40 years ago. Same relationship. Still love him. We love each other and he's brilliant.

 

Sam Wilson (00:01:57) - And that's absolutely amazing. I mean, I don't know if I would put that in the blessed category, like there's there's very few people that can have a single career, not only a single career, but one in a very, very niche asset class without ever looking to the left or to the right. How did you stay on track and avoid temptation to look at other shiny objects?

 

Joel Friedland (00:02:24) - So I have studied successful people. I've studied people who are super wealthy.

 

Joel Friedland (00:02:32) - And primarily families that are super wealthy. And I'll tell you what they have done with their business. They've stuck with it. They don't go. They don't go to the right. They don't go to the left. They just stuck with it. I can give you the stories of about 200 family businesses that I've done business with as a broker and as a syndicator, where they invest with me and every one of them goes back decades. I have a company. We're buying a building right now from a family that started a business in 1935. In Chicago. It's called the. The company in the building is called talk. Often they make you know, have you ever been in a parking garage or a university or mass transit place where they've got those posts with the blue lights, with the phone you pick up or you push a button to get security? Yep. They make those talk. A phone makes that. So these two guys started the business back in the 1930s. And now the the family that owns the building that they've been running the business in.

 

Joel Friedland (00:03:44) - , they are are the grandchildren of the original founder. Why are they so rich? Because they did one thing. Because if you jump around, you don't learn. The ins and outs of the business. When you do something long enough, you learn it. And I'll give you an example, just like a. A metaphor or a or a. I don't know the difference between the, but,, an analogy. So,, my mother had,, kidney cancer diagnosed a few months ago. All right. So who does she go to? She goes to the kidney. Removal urologist. Who's the best in the world, right? You want the best one in the world? Would you go to someone who says, well, I used to do knees and I didn't like that so much, it didn't work out. So I started doing brain surgery.

 

Sam Wilson (00:04:45) - It didn't like.

 

Joel Friedland (00:04:46) - That. So I decided to go into being a urologist. And I've done a few kidneys. I've done it for a couple of years.

 

Joel Friedland (00:04:54) - You know, you could move the frick out of there so fast. Yes, but the person who has done dozens and dozens of kidney surgeries a month, right? Same thing, same thing, same thing. So that's what my mother did. We went, we're in Chicago. She went to the University of Chicago. And Doctor Shalhoub is the guy that she saw. You know what? He removed my dad's kidney 12 years ago. Wow. He's the guy we trust. So. I'm in the same business, industrial real estate in Chicago. The niches, small industrial buildings, class B. With it are occupied by manufacturers that are owned by families. That's my niche. That's it. And there's 16,000 industrial buildings in Chicago. And there's about 20,000 companies in Chicago and industrial one point 5,000,000,000ft². If I can't make a seven figure income by knowing that market really well, I'm a moron. But I'll tell you what. If I go do deals in Tennessee, or I go into the office leasing business, or I go into the retail business or the multifamily, someone who's been in it for 40 years like I have, is going to eat my lunch, right.

 

Joel Friedland (00:06:15) - So I stick with one thing.

 

Sam Wilson (00:06:18) - I love it, I love it. That's that is that is admirable. And I appreciate you, given the insight onto your motivation and kind of thought process behind why you have stuck with that one thing, that one thing has seen, I'm sure, in the last 40 years, many different. Comings and goings of both market swings, of industrial appetite, of tenant, types of lease rates, cap rates, the whole nine yards if you will. Can you break down some of that for us? And maybe at the end of that give us a state of the market today?

 

Joel Friedland (00:06:52) - Sure. 1981, when I started working for the Podolsky family,, there were interest rates out there like you wouldn't believe 17, 17 to 20% makes today's 7% mortgage look like a really good deal. We were in a terrible recession. It rode up after that because there's a recovery after recessions. And then in 1990, we hit another bump and there was a downturn. And through the 1990s it was great.

 

Joel Friedland (00:07:21) - And then there was another downturn in 2001 when nine over 11 happened. And we rode that up. And then there was another downturn, which is the worst 1 in 2008. And now things have been riding for 15 years, all to the good low interest rates, cap rates coming down. You can't blow it in a market where you can borrow at 4% and cap rates keep going down. But that's changed. And now people are struggling because interest rates are all of a sudden at 7% instead of at 4%. And if you had floating rate debt and a lot of debt, you're screwed. So the market's been great. Industrial has been great for four years. Rents have increased 80% throughout the entire market in North America, including Canada. And that means if your rent was $5 a square foot when you started out five years ago with the lease, today it's nine. So it's been booming because of the internet? Because the internet requires warehouses. And because of manufacturing. Because as manufacturing does well, it requires industrial buildings, which are warehouses that they fit with their machines and bring all their employees in to make stuff.

 

Joel Friedland (00:08:35) - So that's that's what the look is today. I think the market's coming down a little today. I think the the economy, the real estate economy is in a bit of trouble. And industrials still doing great. But it's not immune. Nothing's immune.

 

Sam Wilson (00:08:51) - No. Nothing's immune. Certainly I would I would propose that things change as in the especially, you know, the types of industrial maybe that tenants want. Have you seen any shift in the last couple of years on the types of industrial real estate that is, that people are, are leasing.

 

Joel Friedland (00:09:10) - They're leasing every kind of industrial real estate. So if if you drive down the highway in any town, big, big city, small town along the highway, you're going to see big industrial buildings occupied by companies like Amazon, right? Wayfair, like target for their online sales warehouse and for their warehouse for their stores. And if you think about it, every product in the world is made in an industrial building, except for crops that come from a farm.

 

Joel Friedland (00:09:41) - But they are brought to industrial to be packaged and sent out. So there's nothing. If you look around on your background and you've got,, the sign, you've got the wood, you've got the,, microphone. Everything in your office, in your house was made in an industrial building someplace. Yeah, and they have to keep making it. You know, you look in the background here, everything here. There's what's in my office here probably represents 10,000 industrial buildings where products were made that either are parts that went into my phone or parts that went into my lamp. Industrial is everywhere and is necessary. And it's a part of the supply chain. It is the supply chain. Right, right.

 

Sam Wilson (00:10:30) - No, that makes absolute sense. I love it, and it's one of those. It's one of those.. Who? I don't want to call it recession proof, but it's almost my question for you would be is on the,, you know, as demand changes or if the if the man doesn't change, I mean, tell me a guest on that front.

 

Sam Wilson (00:10:49) - I know you said that. Yes. Everything comes from a factory and or an industrial warehouse, but how do you position yourself to be in front of what that demand type is? And or, you know, what customers want? Is that is that a question? Even make sense?

 

Joel Friedland (00:11:06) - Yeah. I don't have to be in the front of it. I have to be in the middle of it. What's that mean? I have to be in the middle of it. I have to be. I have to own industrial buildings in great locations where companies want to be, and I have to keep my tenants. And, you know, you and I talked about this before we buy all of our buildings., all cash, no mortgage, debt free. And I think I've done a little study. There's probably 4000 syndicators in the United States with portfolios over $50 million. And I would say of the 4000, we may be the only one that does all cash deals. Yeah. So when I say I have to be in the middle of it, I have to own buildings.

 

Joel Friedland (00:11:49) - My investors put 25, 50 or $100,000 into our deals. They expect me to know what I'm doing and to protect their money, which is why we don't have mortgages. You can't lose to a bank if there's no mortgage. Right. My tenants expect me to give them a fair deal. And they expect me to keep their roof from leaking. These are net leases. But even in a net lease,, in industrial, landlords are almost always responsible for the roof and the structure of the building. So being in the middle of it means knowing my market inside out and only buying buildings that are desirable for any kind of tenant. No matter what they do, whether they're a distributor or a manufacturer. And making sure that they are in locations where there's a lot of,, population density public transportation in Chicago., we own ten industrial buildings in the city, and with one exception, they are all occupied by distributors and manufacturers. We have one that's a service company., in Florida, for example, there's a complex in in every major city in Florida where they have service companies,, and they have drive in doors so that companies that install shower doors or companies that do sprinkler systems or clean pools, they don't have loading docks and they don't have manufacturing.

 

Joel Friedland (00:13:18) - Florida is not a manufacturing area. Right, right. Pretty much the Rust Belt is. So the Rust Belt is is sort of the East Coast. The the Midwest. And then going out into Southern California, there's there's a lot of manufacturers there, but most of the other markets are distribution markets. So to be ahead of the market, you'd have to have a big warehouse in Nashville. There aren't a whole lot of manufacturers moving to Nashville, and it's a smaller market in Chicago. There are so many companies manufacturing products. I just need to own a building that they all like. That's the key. So it's gotta have high ceilings. It's gotta have good loading docks. It's all about the geometry and the physical makeup of the building. So I don't have to be in front of it because it's a very old line business. All these buildings go back to the 1960s. 70s 80s 90s the last 20 years,, we just buy existing buildings. We don't build anything. So the people who stay out in front of it are the developers who build these giant 500,000 square foot buildings, million square foot.

 

Joel Friedland (00:14:29) - We don't do that. Because we're syndicators, we have to do a smaller variety of business than buying a $200 million complex with one tenant.

 

Sam Wilson (00:14:39) - Right, right. And that's actually here in the Memphis market, which is, you know, a huge distribution market. That's what we're seeing. Sit vacant actually, right now are those massive buildings that there was a boom there for a while. But those massive buildings are the ones that I was talking to a broker here locally about. They said the smaller stuff like maybe, you know, what you're getting into is stuff that's still, you know, in high demand, but those huge buildings just are they're tougher to move right now. So that's, yeah, that's really interesting. Let me ask you this. Why? Why do people sell these buildings? You're in a market that sounds like it has just. You know, unmet demand. So why are people even selling this at all?

 

Joel Friedland (00:15:24) - Now they don't. Very often. That's the problem. There are very few buildings on the market.

 

Joel Friedland (00:15:29) - Are our,, vacancy factor across the Chicago areas? About 4%. Whoa. And people don't move if you're in a in the industrial business. So let's say you're in multifamily or let's say mobile home park or let's say,, self-storage. Yeah. How long does it take one of those tenants to leave? Few hours, right, a few hours. An industrial company that's manufacturing products, that has 40 machines that are screwed into the floor, with 40 employees that have been trained how to use those machines over a period of years. Moving that takes two years from the start. When you think you want to move to actually implementing the move as a two year process. Wow. You can compress it probably to a year and a half if you're really good as a as an owner of a company. But why would they want to move if it takes two years to do it? And it's a distraction from what they do running their business. Also, they can't lose their employees. They don't want to move.

 

Joel Friedland (00:16:40) - They don't want to retrain people. And also usually if it's an entrepreneurial company, the location of their building is right near where they live, so that they don't have to drive that far for their commute. So for so many reasons, they don't leave. And, you know, the cost of moving the machines. This is just one company. We have a company that makes fruit juice concentrates in a building in Chicago. They're in 40,000ft². If they moved, it would cost them $20 million.

 

Sam Wilson (00:17:13) - Right. So they're heavily incentivized to stay put.

 

Joel Friedland (00:17:16) - That's they're not leaving. Yeah. No, no, they're.

 

Sam Wilson (00:17:20) - Not going.

 

Joel Friedland (00:17:20) - Anywhere.

 

Sam Wilson (00:17:21) - I want to ask you a question about your. And thanks for giving me the insight on that. That's that's really cool to be in a market like that and to,, be able to play in that in that space is,, is pretty cool. That's, that's, that's that's a very niche niche market niche kind of type that you're in there in the industrial real estate space.

 

Sam Wilson (00:17:38) - I think that that's fascinating. But let's talk a little bit about your. Financing and or lack of financing model. When did you kind of hatch that idea and potentially tell us why?

 

Joel Friedland (00:17:53) - , I've bought a hundred buildings over the years with my investor groups. And in every downturn when there's been. Let's call it agitation of my mental health and my investors. Investment safety. Yeah, it's been because in every case I can prove in every case it's because we had a loan.

 

Sam Wilson (00:18:21) - Wow.

 

Joel Friedland (00:18:21) - Every time you get in trouble, it's like, how are we going to pay the debt? How are we going to pay the mortgage? Okay. Real estate is a mortgage business. It's a business where you have leverage. Everybody knows that. That's what real estate is. But after 40 years really after about 35 years. So a few years ago, after recovering from 2008, where we did have losses, we lost money on sales, selling buildings that we should have made money on if we had better staying power.

 

Joel Friedland (00:18:52) - . And I look at all of the deals of the, of the 100 deals we've done, we own 19 and we've sold the other 81. And of the 81 we've sold, nine, which is roughly 10% have lost money. Wow. And the common link on every loss is that when things got bad in a down market, paying the debt became very difficult. Banks have no sense of humor. And I've decided that rich people who invest in deals for the long term want safety first. They want to preserve their capital. And I have a group of them that hate losing money and like, steady cash flow. You know what your cash flow is if if you have no debt, it's 100% of your NOI. 100%. There's nothing going to the lender. There is no lender. So an example. We have a building that's,, we're into it for about $2.5 million in Chicago. The company that's in it as a manufacturing company, they make,, welding,, safety products, safety products for the welding industry.

 

Joel Friedland (00:20:03) - The rents 235,000 a year. We have some expenses, but they pay the taxes, insurance, maintenance and utilities. When you take out our expenses, it's $220,000 of NOI on 2.7 million, which is our our all in price. It's an 8% cash on cash return. And we keep paying it because the tenant keeps saying they've been in the building since, I think 1987. They're not leaving. In. The rent goes up every so often, sometimes every year in certain buildings. So the no debt concept for me. Is. My investors love it. They do have riskier other investments, like my typical investor might have 1020 syndication investments, private placements. Sure, we're the only one with no debt. I don't recommend that other people do this. I just do it because for me, it makes me feel safe. I sleep at night and my investors sleep at night, but it's not for everybody.

 

Sam Wilson (00:21:14) - No. Certainly not. I really like that model. I guess the one kind of stand out question in my head is how do you make competitive offers if you're doing it in all cash?

 

Joel Friedland (00:21:29) - You mean offers to sellers.

 

Sam Wilson (00:21:31) - .

 

Joel Friedland (00:21:32) - Oh well we're the most credible seller in town. We don't need a mortgage. We're all cash buyers. So if someone's trying to sell a building to us for $2 million, I say I've got the cash in the bank, I don't need to borrow money. So we'll do our due diligence. We'll spend 30 days doing due diligence. If everything checks out., we'll close two weeks later. I don't need to go to a bank. I don't need to do anything. Just close.

 

Sam Wilson (00:21:57) - Right. I guess maybe the further thought on that is that leverage can potentially increase returns. So what you will have is that people can afford to pay more for it because they're taking leverage on that makes the deal, quote unquote, sweeter. Does that make any sense?

 

Joel Friedland (00:22:14) - It does. And I consider that to be gambling. Sure. It's just it is, it is. It's gambling. And I'm not saying, listen, gambling when you're an entrepreneur and you're in business or you're a real estate investor, you're a gambler to some extent, right? You're even if you read the paper, it's Hines bought this building in Bedford Park, Illinois, and they made a bet on an industrial and Bedford Park.

 

Joel Friedland (00:22:42) - It's a bet. It's a bet, right? So every every time you do a deal with a lot of leverage. If you're stretching to make the deal, and you're trying to prove to your investors that you're going to get them a better return than anyone, and to do so, you need to take a lot of risk by borrowing a lot of money where rates have to stay low, tenants can't leave., the the,, property doesn't need a lot of work. It doesn't need a new heating system. It doesn't need the driveway redone. It doesn't need roofs redone. If you can find the perfect situation and the market's going up. Yeah, sure. You can overpay for everything. We don't have to pay for anything.

 

Sam Wilson (00:23:29) - Right?

 

Joel Friedland (00:23:30) - Right. If someone wants to pay more than us because they're bigger gamblers than we are, we just don't get the deal.

 

Sam Wilson (00:23:36) - Right?

 

Sam Wilson (00:23:37) - I love it, I love the discipline there, and I really I really, actually,, appreciate that because, I mean, you you you know what you want one.

 

Sam Wilson (00:23:45) - The price of what it takes to sleep at night. There is a price to that. And that is maybe that you have less or, you know, lower returns maybe, than what the next guy does that takes on leverage, but that is a price you're willing to pay. And I love that. I mean, and it sounds like your investors love that too, because again, like you own it in cash. Like, okay. So oh well like right.

 

Joel Friedland (00:24:08) - We're we're risk averse. That's the that's the term or risk averse. And today, for example, I'm seeing a lot of people getting in trouble because they had floating rate debt and.

 

Sam Wilson (00:24:20) - They oh gosh.

 

Joel Friedland (00:24:21) - If you're the kind of gambler in real estate that says, I'm going to make a bet, I'm going to bet that if I buy this $10 million complex and I put 7 million of debt on it, so I have 3 million of equity. And I'm buying it for a six cap. If everything goes perfect in three years, I might be able to sell it for a five cap.

 

Joel Friedland (00:24:47) - But what happens if the market's bad rates have gone up? You can't afford your mortgage to even get to the point of selling it. The roof needs to be redone, the parking lot needs to be patched, and now you're in a situation where you're, like, swallowing hard and like, you know that that feeling I have over the years been a casino gambler. You know, that dopamine hit you get when you're playing blackjack. Do you gamble at all?

 

Sam Wilson (00:25:13) - I don't want to say this on air. 20 years ago, in my early 20s, I did. I, I gave that up about 20 years ago. But yeah, in my earlier life when I was younger and had more money to blow and no, no family and kids. Yes, I did at one point.

 

Joel Friedland (00:25:29) - Okay, so I believe that a $10 million purchase with a $7 million mortgage is a form of gambling. Oh, it's not that. It's not that it's wrong. And if you can project the 20% IRR over a three year period.

 

Joel Friedland (00:25:44) - And and make it happen. That means. You bought it for 10 million. It has to be sold for for more than 10 million. Because you got to get your money back and you got to pay the mortgage off. So you've got to get more than 10 million or you lose. So you're betting that the property in the next three years or five years will be worth because you have selling costs. It's got to be worth 11 million just to break even.

 

Sam Wilson (00:26:11) - At least.

 

Joel Friedland (00:26:12) - So you're betting that what you're buying now for 10 million will be worth at least 12 million, or you're a loser in the casino.

 

Sam Wilson (00:26:21) - Right?

 

Joel Friedland (00:26:22) - And anything goes wrong. You're you're staying. Power to get to that fifth year is debatable. And that's why you're seeing so many foreclosures today and so many people selling buildings for a loss all over the place. We just don't want to do that.

 

Sam Wilson (00:26:45) - No. There's no. And that's it. That's it man, I love your approach. Love the way you guys are doing things.

 

Sam Wilson (00:26:50) - I love the the no debt syndication that that that's really, really cool. So thank you for saying it's not for everybody.

 

Joel Friedland (00:26:57) - I'm not recommending it for people who go into syndications like mine, I recommend to them that they go into some risky things with a lot of upside. Sure, because you've got to have a balanced portfolio. First of all, they should own some stocks, they should own some bonds, they should have some cash, and they should have some real estate or other alternative alternative investments. I'm just a little tiny piece of everybody's portfolio.

 

Sam Wilson (00:27:25) - Right? Just a.

 

Joel Friedland (00:27:26) - Tiny piece. And that's all I should be.

 

Sam Wilson (00:27:29) - Right?

 

Sam Wilson (00:27:30) - Right. Yeah, but it's an important piece. It's an important piece. And it's in and it's. And it's a risk., I'm not gonna call it risk free, but it's almost as risk free of an investment as you can get. So, yes, I.

 

Joel Friedland (00:27:42) - Call it I call it highly risk mitigated.

 

Sam Wilson (00:27:45) - Right.

 

Sam Wilson (00:27:46) - Highly risk mitigated. Yeah. Absolutely.

 

Sam Wilson (00:27:48) - Joel, thank you for taking the time to come on the show today. It was certainly insightful. I've learned a lot about your market. I've learned a lot about your work history and career experience. It,, it was certainly great to have you on. And again, I learned I learned a lot from you. I love the way you guys are doing all of your deals in all cash, no debt., that's very, very compelling. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

 

Joel Friedland (00:28:12) - Brit properties. Brit with one t Brit properties.com Brit properties.com.

 

Sam Wilson (00:28:18) - We'll make sure we include that there in the show notes. Thank you so much again for coming on today. I certainly enjoyed it.

 

Joel Friedland (00:28:24) - Thank you Sam.

 

Sam Wilson (00:28:25) - Hey thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.

 

Sam Wilson (00:28:35) - Whatever platform it is you use to listen.

 

Sam Wilson (00:28:37) - If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s Gust is Ben Spiegel.

 

Ben is a experienced portfolio manager specializing in niche lower middle market commercial real estate opportunities.

 

Show summary:

In this episode, Ben Spiegel, founder of Redwood Capital, discusses his transition from investment banking to real estate private equity, focusing on niche lower middle market opportunities. He shares his "asset agnostic" investment philosophy, in-house property management strategy, and his goal to build a premier outdoor hospitality brand. Ben also talks about the benefits of diversifying asset classes, the growth potential in the outdoor hospitality industry, and his success in developing luxury RV resorts, leveraging USDA loans for financing. He offers insights into selecting locations for RV parks and encourages engagement with his firm.

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Intro (00:00:00)

 

Transition to Real Estate (00:00:57)

 

Future Goals (00:02:25)

 

Operating Different Asset Classes (00:04:09)

 

Bullish on Outdoor Hospitality (00:05:14)

 

Luxury Outdoor Hospitality (00:06:51)

 

Financing and Development (00:10:51)

 

Location Selection (00:18:38)

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Connect with Ben:

 

Linkedin: https://www.linkedin.com/company/redwoodcapital

 

Instagram: https://www.instagram.com/redwoodcapitaladv

 

Web: www.redwoodcapitaladvisors.com

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

--------------------------------------------------------------

Want to read the full show notes of the episode? Check it out below:

Ben Spiegel (00:00:00) - I don't think that it is that difficult to specialize in more than one asset class. And I think that when you when you don't subject yourself to specializing in one asset class, it enables you to really have a much more robust deal pipeline that allows you to source many more opportunities and therefore deploy more capital.

 

Sam Wilson (00:00:23) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor. We'll teach you how to scale your real estate investing business into something big. Ben Spiegel is an experienced portfolio manager that specializes in niche, lower middle market commercial real estate opportunities. Ben, welcome to the show.

 

Ben Spiegel (00:00:45) - Thanks so much for having me.

 

Sam Wilson (00:00:47) - Absolutely. Ben. There are three questions I ask every guest who come to the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

 

Ben Spiegel (00:00:57) - Yeah. So I started on the investment banking side of things at Barclays. I quickly moved to the buy side, working at, uh, several, uh, special situations, hedge funds, uh, investing in, uh, distressed and, uh, stress, special situations, bankruptcies and restructurings.

 

Ben Spiegel (00:01:16) - Uh, I was there for about 4 or 5, six, seven years. And then when I, when I started working at those firms, I was smart enough to start taking half my bonus and buying real estate with that. And after being on the buy side for about 6 or 7 years, I was presented with an opportunity to buy a large non-performing loan, uh, and take it through bankruptcy and, uh, restructure it. And when I did that, I decided to leave the buy side, and that's when I started, uh, Redwood Capital, which is a boutique, uh, real estate private equity syndication firm. Um, so I, I have about 75 million under management, uh, right now, uh, fluctuates up and down. Uh, I invest really. I like to call myself asset agnostic and that I invest in everything from medical offices to, uh, to our to luxury RV resorts to multifamily. I don't really have a preference as long as it has, uh, cash flow and I can understand the drivers of it, I will invest in it.

 

Ben Spiegel (00:02:25) - And, uh, basically, where do I want to be? Uh, I want to be five, ten years from now. I want to have 1500 to 2000 pads, uh, under management or under my ownership, uh, in a private REIT that I'm currently forming right now. Uh, and to be a premier outdoor hospitality brand, uh, similar to a, a marriott or a Hilton, but, uh, of an outdoor hospitality style.

 

Sam Wilson (00:02:54) - Man, that's really cool. I love that you mentioned a lot of different asset classes there. Are you guys coming in just on the capital side on those or you actually operating the deals yourself?

 

Ben Spiegel (00:03:04) - No, we're we're we're we're operators as well. We have in-house property management. And uh, actually I just actually was talking to somebody about this the other day. I think that's really one of the most important and overlooked things in this business. I said that, uh, in real estate, if an asset is managed by a third party, it really will never reach its full potential.

 

Ben Spiegel (00:03:24) - Uh, because coming from the private equity world, incentive is being incentivized and having a sense of ownership is everything. So in every deal I do, I give my property manager internal property a piece of equity. And I also put them on a quarterly, uh, bonus structure, uh, that's tiered based on, uh, profitability of, uh, how the building does in terms of if it's clear, certain NOI hurdles, they get an incrementally higher bonus. And I have found over the years that that had the return on investment for that amount of money has been ten x.

 

Sam Wilson (00:04:02) - How what's that process been like, and how does your team juggle all these different asset classes?

 

Ben Spiegel (00:04:09) - So I guess, um, real estate compared to corporations where you have fluctuations, commodity price fluctuations, it's it's relatively straightforward. I mean, you have your revenue, your expenses. Uh, I mean, uh, there's some obviously variables related to the tenant structure, uh, the longevity of it, but I don't think that it is that difficult to, to specialize in more than one asset class.

 

Ben Spiegel (00:04:38) - And I think that when you when you don't subject yourself to specializing in one asset class, it enables you to really have a much more robust deal pipeline that allows you to source many more opportunities and therefore deploy more capital.

 

Sam Wilson (00:04:57) - Interesting. Okay. Very very cool. And the one thing that one focus of yours and you mentioned this here and kind of what your 5 to 10 year plan is, is that you are incredibly bullish on the outdoor hospitality space. You want to grow that side of your business. Can you give us some insight as to why?

 

Ben Spiegel (00:05:14) - Yeah. So just to kind of give you some quick four facts and a lot of people are really aware of. But right now the average age of an RV owner in the US is 32 years old, right? Last year, our 2022 460,000 new RVs were shipped, but only 17,000 new pads were built. The average age of the existing RV destination is over 40 years old, and 92% of which are owned by single owner Mom and pop that do not have the necessary resources to invest back into their businesses.

 

Ben Spiegel (00:05:54) - To bring the, uh, their destinations up to the level that the new generation of RV owner needs, such as even most. Most don't even offer Wi-Fi or cell service on their on their sites. To kind of give you an idea of how behind the industry is and what really, uh, makes things exciting is Covid just changed everything post-Covid, 60% of uh, uh, permanent office worker or office workers are now permanently remote. So you have this whole new lifestyle, this new nomadic lifestyle that's being embraced. And it's, uh, it's really catapulted the industry into a stratosphere that nobody really thought it could ever go.

 

Sam Wilson (00:06:40) - Buddy. And you're specifically focusing though on the luxury outdoor hospitality spaces. What does that mean and why is that?

 

Ben Spiegel (00:06:51) - Yeah. So luxury in terms of outdoor hospitality. Me it's more of an amenity focus. Uh, that it's luxury is it's certainly a lower bar than you would think of when compared to most other asset classes. Uh, luxury basically means you keep a clean site. You have a pool, you have a pickleball court, a gym, maybe a gym.

 

Ben Spiegel (00:07:15) - Uh, we have gyms. And, uh, we like to incorporate a work center, maybe, depending on the location. But, uh, there's two different, really, uh, main kinds of RV destinations. You have communities and resorts. So resorts are located very close to a major attraction, uh, close to Disney World, or they're right on the beach. Uh, and they're able to charge a higher average ADR average daily rate. But the downside with them is you have a lot of higher turnover. Your average day is 3 to 5 days max. So there's a lot of turnover, a much larger vacancy rate as opposed to a community where you're probably located. Still in a very convenient location right off the highway, but probably about 30 or 40 minutes away from like the beach. So I, I only focus on the Gulf Coast, more specifically, uh, Alabama, Mississippi and Louisiana. And, uh, so we're we a community would be about 30 to 40 minutes from the actual coast, uh, right off a hot, you know, a main highway.

 

Ben Spiegel (00:08:22) - Um, it would it still have, uh, not as many amenities as a resort, but but close to it. But the main difference is your average stay is 45 to 60 days. And, uh, you also need less, uh, staff to, uh, run it. So you're, uh, you're basically your your net operating margins are about 60%, compared to about 45 to 50 for a resort. And instead of operating at like a 30% vacancy or 30% vacancy, you're probably closer to an 18 or 20% for a community. So they both they compliment each other. Well.

 

Sam Wilson (00:09:03) - Got it. Okay, that's really interesting. And I guess how far how many of these do you own currently? And has your model evolved as you have bought different resorts over time?

 

Ben Spiegel (00:09:15) - Yes. So, uh, when I first started to get into looking at getting interested in the business, it was during Covid. And at that time, uh, existing RV destinations were trading at all time high valuations. I mean, I'm talking three, 3 or 4 caps for some of these and that were for that were like 30 or 40 years old.

 

Ben Spiegel (00:09:36) - And, uh, what really occurred to me is I could build at a cost per pad, brand new, at almost a similar cost, if not less than what what I would have to pay for a 30 or 40 year old one. So that got me, uh uh, on the path to starting a joint venture with a existing owner operator of RV destinations, who's also a feasibility consultant. And, uh, basically we formed a joint venture and, uh, we went off to start building, uh, luxury RV resorts and communities, uh, in, uh, mobile, Alabama, Biloxi, Mississippi, and even, uh, Gulfport. And, uh, so now we have two we have two sites, uh, combined, probably about 172 pads. And, uh, but we have, uh, we have land under contract to build, uh, 300 pads right now, uh, which is the by far the largest development we've ever done. And, uh, something, you know, really interesting about this industry that kind of even makes this whole dynamic even feasible.

 

Ben Spiegel (00:10:51) - There not a lot of people are aware about is, uh, the US Department of Agriculture has a very unique niche loan program called the Rural Business Development Loan Program, where they will lend 75 to 80% loan to construction cost, uh, to build an RV destination. I mean, think about it. So you're paying like we're in contract on a piece of land for $1.5 million. 40 acres. Uh, you know, about 35,000 an acre, you know, and our construction budgets? 15 million. What kind of lender in their right mind is going to lend you $15 million on a $1.5 million piece of collateral? No. So it's just, uh, without this program, it's just, uh, it's not unless you're a family office with, you know, so much cash that you can afford to fund the whole thing with cash and then refinance once you season the cash flow after, um, the USDA loan credit program is is critical to being able to to build these, uh, in most locations.

 

Sam Wilson (00:11:54) - Yeah. That's a that's crazy. I knew that the USDA had programs like this. I've not ever applied indoor. Um, actually work my way through that process. Especially not on an on a luxury RV destination project. That's, uh. But that's crazy. Yeah. That's crazy loan terms. I mean, does it ever, um, is there any, I guess, any concern as you look at that and you go, oh my gosh, like, we're almost over leveraging and or this is like, I don't know, I guess when you think about that, what are what are some what are some areas of concern. Because this allows you to do things that maybe otherwise wouldn't make sense. Right.

 

Ben Spiegel (00:12:29) - Yeah. Well, I mean, I guess one of the scariest things is you have to you have to show 1 to 1 asset coverage on a full recourse basis. So if something does not work out, uh, they're coming for me or they're coming for us. Uh, right. They're going to.

 

Ben Spiegel (00:12:45) - They're coming for everything. So you have to have a lot of faith in the project you're building. Um, one thing I'd say is that we we usually were never really we never really go above the 75% LTC level. And we have enough experience with our general contractor at this point, uh, that we. We know how the process goes. We know what to expect. We know what the costs are. We're comfortable with the bank. The banks that we deal with that are subsequently secured by the USDA. I mean, how it works is it's a 12 month draw. Schedule a draw once every 412, and then upon completion, it immediately converts to a 25 year amortizing facility. So there's like no refinance. It's it's it's a lot simpler than you think. As long as you can keep construction and think there's no vertical construction. I mean, the only vertical structure you're doing maybe is a single story clubhouse. Uh, you're just dredging. You're you're laying plumbing, electric fiber, and, you know, maybe doing some site work, uh, land moving, but that's really about it.

 

Ben Spiegel (00:13:55) - It's not high risk. You're not building a skyscraper. I mean, in my experience, you know, I've done ground up developments in Malta and in other areas. And, you know, usually the problems don't start. So you start going vertical and. Right, um, you know, so the fact that you don't really have to do any vertical, I mean, not only is your construction time cut by 75%, you know, it's a year versus four. Um, but it's just that's honestly the big kicker that makes it that makes you comfortable with it. Uh, I would not take on those kind of recourse terms to, to build, to build a regular multifamily building, that's for sure.

 

Sam Wilson (00:14:34) - Right. Yeah. There are there are certainly strings attached there. And I guess that when that 12 months is up, that's when that loan starts to a fully amortized fixed interest rate 25 year loan. So you don't really know. In the end, I guess you're underwriting a range. You're like, hey, you know, it could land here, could land there on your final fixed interest rate.

 

Ben Spiegel (00:14:58) - So basically it's usually a, uh, between a 25 and 50 basis point spread above the Wall Street prime rate, which right now is about, uh, seven, three quarter percent. So, uh, it's not it's not very cheap, but it's not insane. It's not like normally you'd have to go to a bridge lender and you'd be paying 13, 14% and three points upfront, and you'd only be getting 40% LTV if you're lucky, even full price. And then the cash on cash returns just do not make sense. So you kind of how are you going to syndicate a deal like that? Uh, the deal, you know, only really makes sense with these loans, so. And but and then there's on smaller and smaller destinations, like I'm going into contract on ten acres, uh, on the beach in, uh, in Long Beach, Mississippi, which is right down, down from Gulfport, uh, west of Gulfport. And, uh, it's going to be about 120 pads. And the development budget, there's about, uh, 6 million there.

 

Ben Spiegel (00:16:02) - You can you can get a local bank to get you to get you 65, 70%. Uh, it's recourse. But, um, uh, you know, you know, relative relatively similar borrowing rate. So you want to be very selective. And also the USDA has a max if you want to go above 25, you can't have more than 25 million outstanding at any one time. So once you hit that $25 million mark, you kind of have to start to, to, uh, try alternative sources, whether that's, uh, talking to a life insurance company, going to other private areas to borrow money once you have proof of concept or your track record. But, uh, they do have that $25 million mark. But then you're all there's ways around it to mix in some SBA or, uh, 500 sevens in there to kind of, uh, dilute it a little bit. There's ways to get around it, but you want to be very careful. It's not something you want to just take on very lightly.

 

Sam Wilson (00:16:58) - No, certainly not. And that that makes sense. And I think the other thing to point out here is I bet there's probably some multifamily investors who are listening to this right now and they're like, wait seven and a half or seven and three quarters plus 50 basis points, and now you're at 8.25% and they're going, oh my gosh, that's unsustainable. But the margins inside of the outdoor hospitality space that just want to point out are probably a lot more robust, maybe, than what you would find in a multifamily project.

 

Ben Spiegel (00:17:26) - Oh, absolutely. And you also have to understand, uh, from an expense ratio standpoint, the taxes down there or nothing. And the reason why you're in that space is you you literally you just own the land. Uh, you don't have any repairs and maintenance. Uh, something breaks in the RV. It's not your dime. If anything, you sign an exclusivity agreement with a repair company, and you take a piece of all the money that they make repairing them. Right? So that's, you know, it's, uh, there's multiple, uh, you know, ways to, to generate incremental income.

 

Ben Spiegel (00:18:01) - And, uh, it is very sustainable at those rates. Uh, man, we're able we're I mean, we're throwing off I don't know if we were throwing off, you know, mid to high teens, uh, leverage free cash flow yields. And, uh, we target a 4 to 5 year over a 4 to 5 year hold, period. Uh, LP equity multiple between two one and 23X.

 

Sam Wilson (00:18:22) - Right. Oh, that's really cool. I love that last question for you here, Ben, before we sign off on this, how do you go about determining what a good location is to build an RV park or luxury RV park ground up.

 

Ben Spiegel (00:18:38) - Absolutely. So there's a few, uh, items on the checklist that you always have to abide by. Um, one, you have to be very close to a major interstate. I mean, within maximum of 1 to 2 miles. And that interstate has to be seeing at least, uh, a traffic count of, uh, you know, 50,000 vehicles per, you know, 50,000 plus vehicles per day.

 

Ben Spiegel (00:19:04) - Uh, number two, uh, you you need to be within ten mile, ten miles of a Walmart. Uh, I that's that's not an industry standard. That's my own. Our personal underwriting. I just feel that Walmart has the most, uh, advanced population analytics software, uh, in the real estate industry. And they're not building a supercenter in an area where the population is going to be declining, um, let alone it's definitely going to be steady if not growing. Also, I, I only choose to build along the Gulf Coast in the southeast where they're experiencing, uh, huge, uh, migration rush, uh, in terms of population and wealth. Uh, they have an abundance of water and electricity to things that are a lot of areas of the country don't have. You can't build a factory now in most areas of the country because they don't have enough water. Uh, you want to see, uh, you want to see the population growing at a certain clip? You want to pay attention to, uh, RV, uh, RV permits.

 

Ben Spiegel (00:20:15) - What? What they're going what's going on with how much they're rising by. And, uh, if you want, you want to be in a good school district and you want to be on a you want you want to have some frontage to a main road as well.

 

Sam Wilson (00:20:28) - That's fantastic.

 

Ben Spiegel (00:20:30) - And then on top of that, you pay a consultant a lot of money to do a robust feasibility analysis to give you an 80 page report just to back all that up.

 

Sam Wilson (00:20:38) - Right, right. So you take all the all the data you have, and then you also pay somebody a whole bunch of money. I love it. Ben Spiegel, thank you for taking the time to come on the show today. I've learned so much from you. I love what you're doing in the outdoor hospitality space. There's not many people who have the courage and the requisite skill set to go out and build new RV parks in the ground up, especially not luxury ones. So I love it, man. Thank you for saying that.

 

Ben Spiegel (00:21:01) - If I can do it, anyone can do it.

 

Sam Wilson (00:21:04) - I doubt that's true, but I certainly appreciate the humility. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

 

Ben Spiegel (00:21:11) - Yeah, absolutely. Uh, Redwood Capital advisors.com and website. Uh, I have Calendly book a call with me. Uh, I'm on LinkedIn. Uh, Instagram handle is Redwood Capital ADV. Um, I'm always, uh, always happy to chat about anything real estate related.

 

Sam Wilson (00:21:31) - Fantastic. Ben Spiegel, thank you again for coming on the show today. I certainly appreciate it. Have a great rest of your day.

 

Ben Spiegel (00:21:36) - Thank you so much, Sam. Thanks so much for having me.

 

Sam Wilson (00:21:38) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.

 

Sam Wilson (00:21:49) - Whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.

 

Sam Wilson (00:21:55) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Clint Harris.

Clint spent 16 years in medical sales, built a STR portfolio to replace that income, and a property management company. He made the jump to self storage conversion projects, and then syndication, and is now a General Partner with Nomad Capital, $120 million AUM.

Show summary:
In this episode, Clint Harris, a partner at Nomad Capital, shares his transition from medical sales to real estate investing, focusing on short-term rentals and self-storage conversions. He emphasizes financial independence and the value of time and location freedom. Clint discusses the slow but rewarding process of real estate investing, the balance between active and passive roles, and the importance of aligning strategies with personal goals. He also speaks on the power of partnerships and leveraging others' strengths.
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Intro (00:00:00)

Clint's journey in real estate (00:01:05)

Lessons from early real estate investing (00:03:16)

Transition to self-storage projects (00:09:39)

Balancing financial and time independence (00:13:07)

Challenges of managing multiple ventures (00:18:52)

Operating Partner and Manager Selection (00:19:09)

Nomad Capital Partnership (00:20:05)

Contact Information (00:21:02)

Podcast Wrap-up and Call to Action (00:21:19)
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Connect with Clint:
Linkedin: www.linkedin.com/in/clint-harris-543265139

FB: https://www.facebook.com/clint.harris.3150?mibextid=LQQJ4d

IG: https://www.instagram.com/clintstagram_nc/?utm_source=qr

Web: https://nomadcapital.us/

Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Clint Harris (00:00:00) - Traditionally, we'll buy a building for a couple million bucks, put a couple million into it, and then stabilize. Value is usually between 13 to $17 million, which means we're sitting at around 30 to 35% loan to value when we are stabilized. So we can refi to 5,560%, pay our investors and ourselves when we do that, and we're paying people out by way of a refinance, it's a nontaxable event because it's not a capital gain. We didn't sell anything, so they're getting a nice return. We keep some money, keep the lights on here at Nomad, and then that gives us the ability to continue the scale.

Intro (00:00:32) - Welcome to the how to Scale commercial real Estate show. Whether you are an active or passive investor. We'll teach you how to scale your real estate investing business into something big.

Sam Wilson (00:00:45) - Glenn Harris has 16 years in medical sales. He has built a short term rental portfolio to replace his income. He has a property management company and now he's doing self-storage conversion projects and syndications. He's also a general partner now with Nomad Capital and has over $120 million in assets under management.

Sam Wilson (00:01:04) - Clint, welcome to the show.

Clint Harris (00:01:05) - Thank you. Sam, great to be here. Great to see you again.

Sam Wilson (00:01:08) - Absolutely. Always good to see you, Clint. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

Clint Harris (00:01:18) - I started building in a career in medical sales. That is a short. It's a young man's game that will grind you up in terms of nights, calls, uh, working weekends, heart problems. I was implanting pacemakers and defibrillators. That is not a Monday through Friday, 9 to 5 kind of job. So that's where I started. Because of that, I actively focused on looking to build an off ramp from that lifestyle to stop trading time for money. Uh, and that got me into single family rentals, where I discovered that it's a very slow way to get ahead. That got me into, uh, buying small multifamily properties and converting them to short term rentals.

Clint Harris (00:01:59) - And that taught me the value of multifamily and the value of asset class conversion that drastically increases the value of an asset, because you change the formula by which the asset is valued. And that led me to, again, a very active profile. It replaced my income. It gave me a level of financial freedom, but it did not give me time or location independence. So in the pursuit of time, location and financial independence, that led me to self-storage, which is where I am now, and general partner with Nomad Capital. We specifically focus on buying big box retail buildings like Kmart's, grocery stores and warehouses, and we convert them from one single big box into 6 or 700 class A climate controlled self-storage units. And it's taking those same lessons. It's it's one property that can be converted to a different asset, where you change the formula by which the value is created, and you create multiple tenants and putting them in place, you're buying for less than the replacement cost. Use vertical integration to leave as much value as you possibly can.

Clint Harris (00:02:55) - And that's what changed my life in a meaningful way. And I left Cardiology behind in in 2022 and, uh, full time nomad and real estate investor.

Sam Wilson (00:03:04) - Man, that's really cool. I love that you you've gone through several iterations of the business, and I guess in what and what year did you start investing in real estate? How long has that been?

Clint Harris (00:03:16) - I started investing in real estate. Let's say I bought my first property as a duplex when I was in my early 20s. I'm okay. I'm 41 now. I would tell you this. I started investing in real estate when I was probably 2324. It was the post 2008 crash era. So between 2010 and 2013, I think my wife and I bought nine single family properties, I believe, um, the reality was there's a big difference between investing in real estate and doing it correctly. I'll tell you, I did it wrong for at least ten years. It wasn't until, uh, I relocated to Wilmington, North Carolina. My wife and I took a promotion.

Clint Harris (00:03:56) - We moved to the beach, and I used a lot of road time to start listening to podcasts aggressively and educating. So I said, I've been doing real estate a long time. I've been doing real estate correctly, uh, since 2018. That was when we first got it right. And we started we unloaded some single family properties. We did some 1030 ones, and we started buying multifamily properties with bad long term tenants, converting them to Airbnbs. And that's really where it kind of took off. And the lesson I learned is, you know, you could have four condos at the beach with four mortgages, four sets of HOAs and four sets, utilities and break even. Or I could buy one quad plex, have one mortgage, one set of taxes and utilities, and net 80 grand a year. So the unit density in that lesson. So I think there's a big difference in investing and investing correctly. And I certainly was not doing it the right way for the first ten years or so.

Sam Wilson (00:04:46) - Well, yeah.

Sam Wilson (00:04:48) - And that I mean, that's kind of the thrust of the show is how to scale. Like it's it's one of those things where and you've made the, the, the progression. I think that so many investors make along the way, myself included, where it's like, oh, wait, like this, just this doesn't work at the single family level. Uh, what were some of the things, I guess, I mean, you because you developed a model, you said, okay, this model didn't work or isn't working the way we want it to. Like getting through those transitions is oftentimes tough. And or people can be accused of shiny object syndrome going, well, here's the next greatest and best thing. Like, how did you work your way through that without feeling like you're just chasing your own tail, trying to find the next iteration of what might work?

Clint Harris (00:05:27) - Well, I did, I think that's a really, really good question. If I'm trying to give you the most condensed life experience that I can that's going to offer the most value to you and your listeners, I would say this with single family rentals.

Clint Harris (00:05:38) - The lesson that I learned there is that if one property is 1 or 2 headaches a year, and then you multiply that by nine, it's it's a very slow way to get ahead. It does not scale very well. And ultimately like it's just not worth your time. The mistake that I made from there, not a mistake. As part of our journey moving into small multifamily properties. And we still own and we have 14 Airbnb properties and a property management company that manages another 80 listings. Which is why I keep talking to you about laundromats, because we got £40,000 of linens a month during the summer to deal with, um, the the issue when I made the jump from that first portfolio that we built and ultimately we took it apart and rebuilt it into something else, here's the important thing I think I was really focused on. The finances. And single families would just way too slow. So the financial independence and the goal that I had to reach in terms of financial independence and cash flow was there by jumping to a short term rental strategy, specifically with multifamily properties.

Clint Harris (00:06:38) - However, when we built that portfolio out to the point where it replaced my income from surgical sales, we tried to turn it over to some property management companies. And the reality was, nobody's going to manage my business the way that I manage my business. Right. So our options were to either unpack that and go in another direction or do what we did, which is build a property management company around it. And it took us two years to do that. And now people look at it and they think that it's passive income. We've got checks rolling in and my properties are being managed at cost and it's passive income. The reality is it's residual income. We just frontloaded the work several years ago, and you don't see all the work that went involved. And now it just looks like mailbox money. And here's the issue that I ran into. Then the goalpost moved my goals for what I wanted to accomplish changed. And I suspect that throughout my life they're probably going to change again. So I'm trying to get ahead of that by talking to people farther down the road and learn.

Clint Harris (00:07:38) - I was focusing on financial independence when I hit that level of financial independence. It did not come with time or location independence. We're all after financial independence, right? And everybody says that they love investing. The reality is, I don't think they love investing. I think they love what investing represents to them in terms of freedom of choice and freedom of purpose. But the way that you build out your portfolio, you could be painting yourself into a corner and pitching, pigeonholing yourself. I have properties, multifamily properties at the beach that cash flow like crazy. But instead of one tenant in each property, I have 8 to 10 tenants per month in each listing. They're paying a lot of money to be there, and they have high expectations and there's a lot of turnover and the messaging and communication and issues that pop up, even with just managing the people that are managing our property management company. It's on the weekends and it's during the summer, and it does not get you time or location independence because you have to stay on top of that.

Clint Harris (00:08:43) - And it takes extra work to create the extra value from the multifamily properties there. And so for me, the goalpost moved because it wasn't really just financial freedom that I was after. It was time and location independence. So if you take a step back and you look at things in terms of scale, the same lessons from value add that were there with single family and leveraging and BR and using the money again is there with multifamily, the importance of residential density and more rental units than you have sets of fixed overhead. And the lesson of an asset class conversion that changes the value of the property? All those lessons are there. But then you factor in, okay, what's going to give me the time independence, the location independence and the financial freedom to get where I want to be. And ultimately, when I talk to the older guys that were farther down the road, for me, it was one of three things. But traditionally hard money lending and lending, uh, cell storage and mobile home parks.

Clint Harris (00:09:39) - And I didn't have $1 million to lend anybody. I didn't have any interest in mobile home parks. I wasn't that thrilled with tenants at the moment because of who we'd been dealing with through our short term rentals and the 85 properties that our company managed. So that led to self storage. Then when I met my partners, Eric and Levi Hemingway, through local networking, they're doing asset class conversion. We went in and did a joint venture in 2021. We bought an old Kmart for 1.5 million. The replacement cost on the big box retail building was 6.5. We put 2.5 million into it. We're into it for 4 million. We converted it to 600 climate controlled self-storage units, and it's worth three times what we have into it, depending. Different projects vary, right. But that was the one that as a joint venture was like, okay, if we wanted to build this cinder block shell, it's going to cost us $6.5 million. But we can buy it because there's very little appetite for big box retail.

Clint Harris (00:10:30) - But it's got the residential density and A1357 mile radius. It's got the vehicle count that created the value for us to be able to move on. And when you talk about scalability, if you buy an asset, no matter what it is, you fix it up and you make it nicer. You increase the rents. The value goes up by 30%. In order for you to a pay day, you either have to wait and get your cash on cash return through the cash flow, or you probably have to liquidate the asset for you and your investors to get a payday. The good thing about asset class conversion is that it can be such a swing in value that it leaves you sitting at a really low loan to value. Like traditionally, we'll buy a building for a couple million bucks, put a couple million into it, and the stabilized value is usually between 13 to $17 million, which means we're sitting at around 30 to 35% loan to value when we are stabilized. So we can refi to 55. 60% pay our investors and ourselves when we do that, and we're paying people out by way of a refinance.

Clint Harris (00:11:30) - It's a nontaxable event because it's not a capital gain. We didn't sell anything, so they're getting a nice return. We keep some money, keep the lights on here at Nomad, and then that gives us the ability to continue the scale. So the lessons from everything I was doing earlier, it's the same thing. I think that's why the importance of people going through the steps of whatever it takes to get them, uh, through their career and learning, just understanding that it's significantly more likely that whatever you're doing right now is probably a stepping stone to where you want to be later versus the destination. And if you feel that way, I think it's easier to always be learning and networking, and that's typically how you're going to get ahead.

Sam Wilson (00:12:09) - I love it, I love it, Clint. That's very, very insightful. I would say there's two thoughts that come to mind when you were talking. One is that real estate is a get rich, slow game. And I think that people oftentimes, myself included, probably, you know, in yester years they've thought, oh my gosh, we're going to do this and we're going to do that, and we're going to do one deal.

Sam Wilson (00:12:26) - Like, you know, Clint is talking about right now, man, we're set. But it's like that's like you said, it's a stepping stone. I think it's a get rich slow game. And the second thought I had behind that was holding with three fingers when I'm already counting the two. The second thought I had behind it is that you were talking about, um, financial independence, then time and location independence. And I think one precedes the other. Like for a lot of people, you do have to initially find the financial independence so that you can then begin thinking about what time and location independence might look like. Talk to me about how you're doing, what you're doing right now, and how that plays into your set desire to be time and location independent.

Clint Harris (00:13:07) - Yeah, that's a great point. I think it's not. You can't scale all of those things at once. You just traditionally you're going to reach a level of financial independence. And then what you do with that money determines whether or not you're going to be able to afford to get your time back and get your, your location independence.

Clint Harris (00:13:22) - So what we're doing now in terms of scalability is last year we did six individual deals. We did two kmart's, three warehouses and a grocery store. This year we've converted to a fund model. So we've got a $10 million fund open right now for the purchase of $30 million worth of buildings that are going to be converted to $80 million worth of storage. So we get a scalability bump there. In terms of working with a portfolio. We just closed the first two properties. We got three more to go, and we can order the materials and get them a lot cheaper. We have different crews that are working at the same time, basically overlapping on different projects. So the overall fixed cost of the properties continues to get lower and lower, which just helps us with that loan to value with the stabilization and be able to refinance and move on. So in terms of that, like that, just we're just continuing to make those small tweaks and move forward. I think I heard something really recently that just impacted me.

Clint Harris (00:14:14) - It was a statement somebody made in passing, and it just it gave me pause. And coming from someone that has an active real estate investment portfolio, small, but I mean, it does well for us. It's one of those things where I have to look on at the return of the property from the initial purchase price we were buying at the beach in 2018 and 2020. We've had massive appreciation, so I've got my return on the property, return on the initial investment, then I've got my return on the equity as to how much equity has grown in the property, and it might be lackluster there, but then there's also, you know, those are fairly active. And then I look at the returns that Nomad is paying out or that you can find across the alternative investing landscape, like if I invested in your, your, your laundromat funds or whatever it may be, you can choose your asset, your operator or anything else. But somebody said recently, you know, I've done a lot of active investing in the past, and I used to look at my return on investment now where I am in my life, I look at the return per hour that I have to spend worrying about it every year, and I can make 50% return on investment.

Clint Harris (00:15:19) - But if I'm an active investor working on something, that's one thing. But if I'm making an 18 or a 20% return with a passive investment strategy and I spend two hours a year thinking about it, or reading the reports or reading the monthly updates or whatever it's like, for me, that is a significantly higher return based upon the amount of hours of my year that I spend thinking about it. And the dude that told me what this was in Colorado for two months, ice climbing up waterfalls and I was like, probably somebody I should listen to. So I thought that was a unique perspective of, at the end of the day, like, it's just it's a testament that goes to show that the older we get. I think our time becomes more and more valuable to us. And it's one thing that you're willing to sacrifice some of that to get your time back. And that can be a slippery slope, because if you built a portfolio of properties with the intention of managing them yourself, and that makes it a good deal, and then you haven't factored in the cost of management or for somebody else to handle those assets for you.

Clint Harris (00:16:22) - When you do decide it's time for you to get your time back and you're trying to put management in place, there's a cost to that, and that's a line item. You have to pay for that management, and that can sometimes take a deal that was a good deal and turn it into not a great deal. And that means it can take an entire portfolio that you've built and turned it into something that it's not a great deal unless you're the one managing it. And now you've just got a job, right? And that's another scenario where maybe you get the financial independence, but you don't get the timer location independence. And without those three things together, you have to have all three to have any kind of independence of purpose where you choose what you want to do. Hopefully it's family or giving or building or whatever is important to you, and fishing or hiking or ministry or whatever it may be. But the ability to make that choice on your own has to have those three components, and sometimes you can scale out in a way that it's at the detriment you're giving one of those up to accomplish the other, and they can be mutually exclusive.

Clint Harris (00:17:23) - And you don't know that until you get farther down the path of building out a portfolio. And then you have to either just lie in the bed that you've made or learn how to unpack it and shift.

Sam Wilson (00:17:32) - That's absolutely right. And it's and I think there's no right answer here is the other other side of this where it's like, you got to figure out what works for you. I will I'm, I got a front row seat to, um, having made some investments personally, passive investments in some deals that just simply aren't working out. And it's, it's a painful like, oh, man. Like, hey, I was looking for passive investing. And instead I put in my, my money into some things that performed well for years. And suddenly they've gone poof. And it's like, oh my gosh, what happened there? So I think, you know, there's a lot of things we don't have time to unpack here, but it is figuring out what strategy I think works for you, which one you want to trade your time for, do you want to actively manage it? You know what? And knowing your operator to I mean, that's one we again, I'm going down a rabbit hole.

Sam Wilson (00:18:17) - We probably don't want to or don't have time to really unpack, but it's something that, uh, you know, figuring out what the right path for you is. And do you want to be that active operator? And if so, just be going into it with your eyes wide open or it's like, hey, man, you know what? This is going to cost you? Time and location dependence is is a price you're going to pay. You have to stay here in order to make this work. So how let me ask you this one quick question. I know we're at the end of the end of the call time here, but you've built out a property management company and now you're working full time with Nomad Capital, you know, running the self-storage fund and everything else that you guys have going on. How do you manage all that?

Clint Harris (00:18:52) - So it's similar to the smartest thing I did, honestly, there was was get out of the way. I'm a visionary and a big picture guy, and I have one of the strengths that I have is I can get people excited about a common goal and help people kind of see the vision of of what we're building.

Clint Harris (00:19:09) - And I can tend to be a little bit heavy handed in terms of wanting to have control of that. The smartest thing I did with our company was, you know, build it out from scratch. The first 18, 24 months, I had an operating partner who's kind of, um, we're doing it together, but he's following my lead with some of the suggestions and softwares and directions that we went. And then we brought on another manager, and it didn't take me too long. It took me longer than it should, but it didn't take me too long to realize, you know what? These people are better operators than I am. So the one thing I will give myself credit for is having good judgment and character and abilities when choosing those partners. Uh, besides that, getting out of their way and let them do what they do, which is better than than what I do. Right? And so again, there's a cost to that. I get owners distribution, but I'm giving up income there to bring in a manager, but I'm bringing in a manager who's better at her job than I am at her job and letting her do what she does.

Clint Harris (00:20:05) - And within Nomad Capital, same thing. I partnered with guys that have significantly better skill set than I do. They're GCS with 35 years of commercial construction experience like I do investor relations, capital raising, education, that kind of stuff. And that's my wheelhouse. That's my background because I was in medical sales for 16 years, and I can have that conversation. And a lot of our investors are white coat physicians that I used to work with. Right. So that's kind of my wheelhouse. But the best thing that I know how to do is identify people that I know, like, trust and respect, and then let them do what they do and try to look for any way that I can to provide value and help. So, um, I know that's not the answer that you're really looking for, but the reality is, like, I've just got other people that are better than I am, and they're people that I, I can trust and and I do. And I'll let them do what they do.

Sam Wilson (00:20:53) - That's fantastic. Clint Harris, thank you for coming on the show today. I certainly appreciate it. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

Clint Harris (00:21:02) - Best way to do that is you can go to our website, Nomad Capital US, and schedule a call with me or email me directly Clint at Nomad Capital US. Or you can find me on LinkedIn or Facebook.

Sam Wilson (00:21:13) - Fantastic. We'll make sure to include that there in the show notes. Clint. Thank you again for coming on the show today. I certainly appreciate it and have a great rest of your day.

Clint Harris (00:21:19) - Thanks, Sam.

Sam Wilson (00:21:19) - Appreciate it. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a.

Intro (00:21:24) - Favor.

Sam Wilson (00:21:25) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us.

Sam Wilson (00:21:34) - That would be a fantastic help to the show.

Sam Wilson (00:21:37) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

 

Today’s guest is Anton Ivanov.

 

Anton Ivanov is a US Navy veteran, real estate investor, entrepreneur, and founder of RentCast.io and DealCheck.io.

 

Show summary: 

 

In this podcast episode, Anton Ivanov, a seasoned real estate investor, shares his expertise on optimizing real estate operations. He advises on the importance of delegation, professional property management, and maintaining a CEO mindset. Anton recounts his journey from house hacking to managing a diverse portfolio, emphasizing starting small and learning progressively. He highlights the need for efficient turnover processes, tenant retention, and aligning rental rates with market trends using tools like RentCasio. Anton's strategies have notably increased revenue without new acquisitions, showcasing the value of operational efficiency and cost management for sustainable growth. 

 

Links: 

https://directory.libsyn.com/episode/index/id/21693881

 

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Delegating and Focusing on Improvement (00:00:00)

 

Introduction and Background (00:00:26)

 

Starting and Growing Real Estate Portfolio (00:01:18)

 

Focusing on Improving Operations (00:02:48)

 

Transitioning to CEO Role (00:03:35)

 

Professional Property Management (00:04:50)

 

Minimizing Vacancy and Tenant Retention (00:09:14)

 

Implementing Systems with Property Managers (00:13:45)

 

Lease Renewal and Rent Adjustment (00:18:14)

 

Vacancy Minimization (00:20:36)

 

Lease Renewal Strategy (00:22:13)

 

Action Items for Revenue Growth (00:25:13)

 

Expense Reduction (00:27:27)

 

Contact Information (00:28:56)

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Connect with Anton: 

 

Email: anton@rentcast.io

 

RentCast

Facebook: https://facebook.com/RentCastApp

Twitter: https://twitter.com/RentCastApp

Web: https://rentcast.io 

 

DealCheck

Facebook: https://facebook.com/DealCheckApp

Twitter: https://twitter.com/dealcheckapp

Web: https://dealcheck.io

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Anton Ivanov (00:00:00) - You know, ultimately you are in charge. It is your business, it is your assets. But you need to be able to delegate and kind of step back and focus more on areas that need improvement, as opposed to just doing everything yourself.

 

Sam Wilson (00:00:13) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:26) - Anton Ivanov is a US Navy veteran, a real estate investor, entrepreneur and founder of rent, Cascio and Diehl Checchio Anton, welcome back on the show.

 

Anton Ivanov (00:00:36) - Thanks for having me, Sam. Great to be here as always.

 

Sam Wilson (00:00:40) - Absolutely. The pleasure's mine. Anton. It, uh. I didn't look it up here ahead of time, I can't remember. It's been a couple of years since the last time you were on the show, so it's great. Great to have you come back on. I don't remember the episode number. So here, maybe we'll include that there in the show notes, in case you want to go back and kind of hear Anton's, uh, first podcast with us, where he breaks down a lot of the ways he built this business and some really other cool, uh, things that he's done there in his real estate investing career, which we're not going to really get into too much today.

 

Sam Wilson (00:01:07) - However, Anton, for every guest who comes on the show, even returning guests, there are still three questions I asked them in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

 

Anton Ivanov (00:01:18) - Absolutely. So we started investing, uh, me and my wife about, uh, it's been about ten years now going on that, uh, we actually started very small. We started with house hacking. Uh, you know, we bought a one duplex that we lived in. One of the units rented out the other. We moved on to some out of state turnkey investing in single family properties. And then most recently, we were buying commercial multifamily in, um, commercial and like, fourplex residential multifamily in Kansas City, Missouri. So we've had kind of a very, uh, more slower growth, I like to say it, but it was more manageable. Uh, it helped us make, you know, some smaller mistakes, learn from them, and then move on to bigger deals over the years.

 

Anton Ivanov (00:01:59) - And we've covered a lot of this with you, Sam, on the last podcast. So, um, again, I'm a big proponent of kind of not jumping into necessarily the biggest deals, uh, if, if, you know, if, if you prefer starting smaller and learn from that. Um, and yeah, we've been super happy with that, uh, lately and kind of what I wanted to focus on this show. We've, we've spent a lot of time on focusing on improving our operations, um, and kind of increasing the cash flow. The existing units we have, we have, uh, 42 units right now spread out across, uh, three places, Atlanta, uh, San Diego, and then the bulk of our portfolio and, uh, Kansas City, Missouri. Um, and yeah, just the market recently has been a little bit tougher. You know, obviously we have still prices are pretty up there. They haven't, uh, softened up, as I would expect them by now.

 

Anton Ivanov (00:02:48) - And then the rates are high. It's just kind of a tougher environment, in my opinion, for acquiring new rentals. So I think it's a great time to focus on operations, because I think it's oftentimes neglected by some investors that just kind of focus on more and more deals, more and more units in their portfolio. Uh, but I think you can get a great ROI in your time and kind of effort by just focusing on what you already have.

 

Sam Wilson (00:03:12) - Man, there's a lot to be said for that, and I look forward to jumping in to getting kind of the nitty, your nitty and gritty details on how you guys have done this. I guess before we get into that, though, 42 units spread completely across the country. I mean, yeah, Kansas City, San Diego, and if you're if you are managing operations, it sounds like you're, you're self managing these properties.

 

Anton Ivanov (00:03:35) - Um, so no. And actually that that takes me straight into our first point is, uh, you know, I look at, you know, when you first starting investing in real estate, you're kind of more I would say, uh, you know, boots on the ground.

 

Anton Ivanov (00:03:48) - You're more involved, especially with acquisition and management. I think it's important as you transition to larger volumes of units, you know, ten, 20, you know, 40 like US units, especially if they're spread out across the country. Um, I think at that point, you kind of stop being maybe like the workhorse of your business, of your real estate, uh, you know, venture empire, if you would, and you kind of start to become the CEO, right? Where you're, you know, ultimately you are in charge. It is your business. It is your assets. Uh, but you need to be able to delegate and kind of step back and focus more on areas that need improvement, uh, as opposed to just doing everything yourself. So one of my, you know, first tips for kind of improving operations at scale, uh, again, is not necessarily doing it yourself, but finding professional property managers. So we've used professional management for all of our units. Funny thing is, when we bought that duplex that we house hack, that was our first property that we bought, we used the property manager for the upstairs unit, even though we lived in the building.

 

Anton Ivanov (00:04:50) - And it sounds kind of stupid, maybe silly, you know, like, hey, why don't you just manage your your right there. It's the unit above. But I had this vision of kind of growing our portfolio to 40, 50 units, and I wanted to start getting experience with working with property managers, kind of seeing how that plays out, which prepared us to, uh, later buy out of state properties that I was not going to manage myself. So I think it's important, you know, I I've met folks who self-manage, especially if they're local. The buildings that they own are local. It can work. But I just think it turns into a full time job very quickly, especially if you have a lot of units. I think you can free up your time. Uh, and if you find a good manager, you know, and kind of work with them. Right. It's it's also another thing I would say about property managers. Uh, it's it's not really a give it to them and forget.

 

Anton Ivanov (00:05:40) - Kind of arrangement, which I think some people expect. Um, and, you know, in an ideal world, maybe it would be. But everybody is different. You're you're different from, you know, Sam from, uh, from me the way you want your units managed. And, yes, a property manager has their own, like, procedures and steps, and they like to do things a certain way. That doesn't mean that you can't go to them and say, hey, look, I know you guys like to do it this way, but here's how kind of I would like to tweak the process. Like, again, you're basically the CEO. You know, they're working for you. You're paying them. Um, and I think as the CEO, you have the full right. And kind of not to micromanage them essentially, nobody likes that. You know, they don't want you to be there just making every little, you know, second guessing their decision and stuff like that. But know if you feel like things are not going the right direction, step in there.

 

Anton Ivanov (00:06:28) - You know, do a monthly phone call. This is what we do with our property managers, even if things are going smoothly, just to check in and see how things are going, any big issues, anything we should be concerned about? Look at trends and let them do the work. Uh, especially if you own out of state properties.

 

Sam Wilson (00:06:43) - That's really great advice, and I bet most people don't do that who are out of state owners is having that monthly check in. Yeah. How do I mean and I also wonder if, you know, how did you convince and or get on the calendar of your property manager saying, hey, I want this monthly check in because I bet some property managers out there that would be like, hey, Anton, it's great knowing you, buddy, but I really don't want to spend 20 minutes with you once a month talking about your properties and go away. So, uh, how did that conversation.

 

Anton Ivanov (00:07:16) - Yeah, well, two things. So I think as you, uh, you know, as you scale your portfolio, the more units you own in a certain area, the more units you have each property manager manage.

 

Anton Ivanov (00:07:25) - Uh, you kind of become a more valued client. Right? So if, if you, if they're just managing one house for you, you're absolutely right. They may just not be inclined to spend as much time with you because you're like one out of 500 or something units. But as your units grow, you have, you know, a dozen 20, 40 plus units. Uh, it becomes much more easier, at least in my experience, to get on their calendar, uh, have them be a little more responsive. Um, and I would take advantage of that. You know, I would. You are a more valued client. They should spend more time with you. Um, so that's kind of one thing. I think it's natural for that to just happen as you grow your portfolio. The second one does come down to property managers and not being able to basically, you know, fire one if it doesn't work out. I had to do this in some of our markets, you know, some property.

 

Anton Ivanov (00:08:13) - There's so many property management companies and some are like you said, they're just like they don't really want to like stir the boat. They just kind of want to collect their cut from from the rent every month. They don't want to talk to you, you know, like they don't want to talk to the tenants. Um, and in my opinion, those are usually not the best property managers. Like, I don't think, again, a property manager should be like, always, you know, shaking things up, but they should be responsive. Communication is like one of the keys that I always looked at in property managers. If your property manager is not responding to your emails, phone calls, whatever, I bet they're not doing that with the tenants. Also, like there's probably some some like communication issues with the tenants and that's what you don't want. Because to me, like how they talk to me is, you know, kind of relates to how they talk to the tenants. And I want a property manager that will talk to the tenants, be responsive, like stay up to date, because that's how you increase tenant satisfaction and retention, which actually takes me to our next point, uh, very, very nicely.

 

Anton Ivanov (00:09:14) - How do you improve operations and kind of efficiency of your portfolio is minimizing vacancy when you have a portfolio at scale, a large multifamily commercial portfolio? What I've found and I've talked to a bunch of investors is vacancy becomes your biggest expense. It's not your taxes, it's not your insurance. It's not your it's it's actually vacancy. If if you have 40 units and ten of them are vacant, you know, that's like a 25% reduction in your income, it becomes huge. So focusing on minimizing vacancies. And there's many different aspects to this right. This it's both basically you know when you do have vacant units, uh, you need to get efficient at filling them. And this comes down to having a very good unit term process. You know, you're not like messing around, finding a contractor doing scopes of work. Like we've got it down to a science where basically we have a portfolio like our bulk of our portfolios in Kansas City. We have a standard list. Like I'm like, hey, here's basically a punch list, right? Here's here's what you go through.

 

Anton Ivanov (00:10:15) - Uh, they we have a standard set of contractors where they agreed on budget and materials. Like, we like to standardize, we paint like, you name it, like it's it's such a well honed process. And again, that's something that's easier to do at scale. You know, if you own a single family here or single family, there is kind of a little more individual work. Like what does this house need when you have commercial units, you know, larger special talk to folks that have 100 plus years. When it's right there. Like I can't be going and doing a personal inspection, or every manager is going to do an inspection, like have a standard set for how you turn a unit. So when a unit does become vacant, they give you the keys. It's like, boom, we done the inspection, boom, we've scheduled the work. We had contractors lined up, you know, a week too. It's it's done. The work is done. We can release it. We already know what we're leasing it for.

 

Anton Ivanov (00:11:04) - Uh, we already have a kind of a marketing plan. We know where to pose these properties. And, you know, with the unit is vacant for a weeks, you know, 2 or 3 weeks, like max, where as a as opposed to sitting there on the market because, again, every month you're not collecting rent, you're losing a ton of money. Uh, and it's kind of like a hidden expense, right? It's not like on your operating expenses, on your CapEx or anything. It's it's it doesn't show up there. But but when you're not collecting rent, that is an expense. So huge, very huge minimizing vacancies. The other thing I will say, kind of where we started with the whole vacancy, is the whole tenant. I call it like tenant retention. Right. Uh, general concept, but it basically involves keeping tenants happy. It's it's a multifaceted thing. It's it's hard to like, point it like, hey, do this and your tenants will be happy.

 

Anton Ivanov (00:11:53) - But having a good property manager like we started talking can go a long way. You know, tenants, in my experience, most of them like they're not like super picky. Like you'll get 110 and out there, that's just kind of a pain in the butt. Uh, excuse my language, but but most people, you know, if if they have an issue, uh, they understand, like, things break, right? You know, dishwashers break, whatever garbage disposals break. They just want good communication. And we've heard that time and time again from our tenants. Like, they love the fact that. So we have like, programs where they can text, they can use a website to submit maintenance requests, like it's easy to get Ahold of our managers, our maintenance departments. And I think that alone can go a long way to like, keeping tenants happy and keeping them in your units as opposed to like you know, always moving out because they just, you know, they ask for something to get fixed.

 

Anton Ivanov (00:12:44) - And it's been weeks before somebody even called them back. Like, that's not the experience you want. So, uh, just work with your property manager, establish some programs that can be very simple, like you don't have to send them gift cards or like, you know, I've heard, like some landlords do, like crazy stuff like that, you know, they'll, uh, send them a birthday gift, send them a Christmas gift if you have the capacity and kind of to do that, like. Yeah, I think it'll be great, you know, at least a little postcard or something like that. But even just the basics, you know, be responsive if they have issues, you know, work with them on the issues. Just be reasonable with the tenants. Uh, keep them happy. Put yourself in their shoes. I think that can go a huge way to to reduce your vacancies.

 

Sam Wilson (00:13:24) - You've brought up a lot of things that I would feel are more on the property manager. Things to do, such as? Right.

 

Sam Wilson (00:13:32) - Having text message, you know, hey, I can text and say, yeah, something broke or this or that. How are you incorporated? Or how are you having these discussions with your property managers and saying, hey, these are systems we want to implement.

 

Anton Ivanov (00:13:45) - Yeah. So that that yeah, you're absolutely right. So I'm not doing these myself. I'm not out there like with my phone number giving giving it to the tenants. No, this is exactly like the first thing I think, you know, having a good, good, good property manager, having a good relationship with your property manager and then finding one that is willing kind of to work with you if they don't have these systems to implement them. That's like one of the keys. And that's why I started with that as my number one point, a property manager at a scale like with a with a larger portfolio can make or break, you know, your basically success, your long term cashflow. So again, it's you know, it's more like an art form.

 

Anton Ivanov (00:14:24) - I can't tell you like, hey, you know, go on Yelp or something like that. Look for these keywords. Find a property manager like it's it's it's been like a bit hit or miss for us. You know, we've we have started with some companies that were doing okay. Then we got to a certain point with kind of our larger volume that we found. Hey, you know what? This is just not working. I would say the best thing that helped us was a I only ask I only find property managers now through referrals. Uh, we haven't entered a new market in a while, but I would never, like, go on Google or Yelp or whatever and just grab a random company. I just think that's, you know, your the chances of you finding a really good one are pretty low. Um, I would definitely. If you're in a new market, you've never invested there before, I would try to network and connect with other investors, property groups, like whatever, find a little circle, you know, little local meetups, and then ask who they use for property managers, find out how big their portfolio is.

 

Anton Ivanov (00:15:18) - Uh, so it kind of matches what you're doing, because, again, a property manager who, like, specializes in single family is going to be different than somebody who manages like 100 plus unit, you know, apartment complexes. Like you need to find a manager that like, fits what you're trying to do. Um, and then again, it's just about establishing a relationship, you know, when you come into it. I would ask him questions. Like, hey, uh, you know, how open are you guys to doing a phone call with me every month? Like, it's it's a question that you can easily ask during, like, your initial vetting process with the property manager. Uh, you know, all these questions like, hey, how do you guys handle maintenance? Like, is it a website? It's just a forum. Like, do they have to call? Uh, so I actually have, I think like a property manager checklist or interview, uh, questionnaire. Maybe we can throw that in the show notes that like covers a lot of these bases.

 

Anton Ivanov (00:16:06) - And it will just should give you a better understanding of how they do things. Because, yeah, you want to find a company that already has a lot of this stuff in place. And really good property managers, they do like they're not going to be, you know, like set and forget. They they will have these programs because it's in their best interest to like the like most property managers don't collect money when the units are vacant. They want to keep the tenants, you know, to keep them happy, keep the owners happy. So a good property manager company is probably going to have a lot of this stuff already. It's just again, a matter of finding one, which is not easy, but it is possible, right?

 

Sam Wilson (00:16:39) - No, I love it. That's, uh, that's very, very helpful finding a property manager that you think you said it. But just to recap, but find the property manager that that matches the property type you're looking for them. Exactly. And has experience in that because there's like like you said, there's it's a wildly different skill set for a 100 or 200 unit apartment complex than it is perfect.

 

Sam Wilson (00:16:58) - Yes, 100 single family homes spread around the city. So that's, uh, that's really, really helpful. Can I go back to. Yeah. The vacancy. Yeah. First thing that you hit on as a way to, you know, improve operations. And of course, you know, I also like what you said there when you said that, hey, you know, you're you're if you're not collecting rent, it doesn't show up as an expense other than your top line revenue number is smaller, but there's not exactly there's not like a line item says, hey, you didn't collect rent and here's how much money you lost. Yeah. Which would be kind of helpful, I would think.

 

Anton Ivanov (00:17:30) - Yeah. Well, we tend to put it up higher like before the operating expenses. Right on the like the NOI worksheet. So.

 

Sam Wilson (00:17:37) - Right. Right, right. Yeah. Somehow it needs to be like above the top line. Like here's your minus for all your vacancy. Right. But anyway, I digress.

 

Sam Wilson (00:17:44) - The question I had for you outside of, you know, uh, quick turnovers, that sounded like one thing that you said that you guys are really, really honing in on is if you have a turnover. Yeah, it's done very, very efficiently. What else are you doing on that front in order? And of course, you know, your second comment which was retention, which is also, you know, part and parcel of minimizing vacancy is keeping the tendency you have. Yeah. Is there anything else on that minimization of vacancy that you guys are actively doing that maybe our listeners could employ?

 

Anton Ivanov (00:18:14) - Yeah, I would say, uh, and kind of this I actually had a third point that this will take us in there nicely. So this is more on the retention side. So again, keeping the tenants happy with simple things like communication, maintenance. Uh, the other thing where I think landlords struggle and we have to is the whole like lease renewal and rent like, like where to keep the rent because you know, yeah, if the tenant is happy, a lot of times, though, it still comes down to what are you charging in rent? Uh, you know, if, if, if you're, like, overcharging them way above market, they're going to shop around.

 

Anton Ivanov (00:18:47) - They're going to move. Right? So, uh, but where do you do it? Or. I've met landlords that are like, on the opposite, they'll be like, I haven't raised rent for this tenant and ten years, you know, and, and and I'm happy and they're happy I think, you know, with that there's, there's a medium right there. So, uh, my philosophy is I do want my portfolio to kind of keep track with the market rents, right, or over a long period of time. So I'm not a big proponent of not raising rent for tenants for like decades. It's just I think there's really no reason to do that. Uh, yes. Maybe you will lose some absolutely exceptional tenants. But if you actually do the math of how much rental potential rental income you lost over the course of, whatever, five, ten years, you didn't raise the rent on them, even if you fact, you'll have a turnover and the new tenant, it will work out better in your favor, in my opinion.

 

Anton Ivanov (00:19:38) - You know. Right. It comes down to a little bit into like your personal philosophy and all that stuff. Uh, but just mathematically, I think you'll do better to keep track with the market rents for your portfolio overall. Now, what we tend to do for, for our own portfolio is we would be a little more aggressive when leasing new units, right? So if we have a vacant unit, we'll do a market analysis. Now by the way I'll do a self, you know uh plug here. So we have a rent Casio platform. Uh you go and rent Casio. You don't need an account uh, if you have a residence. So it's currently only for residential properties like apartment complexes. We don't quite support industrial or warehouse or retail on the commercial side yet, but if you have residential, you know, both small multifamily and larger commercial properties you can plug in and address, you know, the, like the property size type, and it will give you a rental analysis, like a rental CMA report with what the rent should be, what are the rental comps and stuff like that.

 

Anton Ivanov (00:20:36) - So there's like really no excuse with today's tech is. Getting to with not knowing what the, you know, current market rents are and a good property manager should have a like a ping on that as well. Like they should know. You know what what kind of properties would rent for. So basically when we're leasing new units, you know we already had a vacancy. We did a turn especially it's kind of like a, you know, a decent rehab. It's in good shape, will be a little more aggressive meaning like will list it pretty close to what we think market rent is maybe a little bit under, but it'll be like pretty up there. And you know we'll kind of judge rental demand. Obviously that's another thing with kind of working with your leasing agent for minimizing turnover is is like I've seen property managers that will just throw a rental number on there like they think it should rent for, I don't know, 1200. Uh, and then they'll list it and then it's like crickets and, and they just keep the listing on and they keep the listing on.

 

Anton Ivanov (00:21:27) - Maybe they get one showing like. No, like we tell the leasing agents like, hey, if, if, if you list it for a week, you should get like at least five, ten showings, whatever it is, depending on the year. Like you should get interest. If you're not, then it's too high. Like it's it's as simple as that. It's not like your pictures or you know what I'm saying, because markets also change so rapidly. Like you can look at long term trends, which was shown on the Rent Cars website. You can actually look at like zip code and where the rents are going, but they change like too quickly. They're seasonal, you know, there'll be less demand in the winter, like for example, around the holidays. Usually nobody's moving. Then there's like more demand, like in the summer when people tend to move. Right. So you just have to be like really on it. You're leasing agents should be not necessarily you personally, but uh, just do little adjustments and then you get more showings.

 

Anton Ivanov (00:22:13) - You feel kind of the vacancy. So we're a little more aggressive on the leasing of new units. Were a little less aggressive on renewing leases. So we typically do one year leases, sometimes two. But we'll be we'll kind of look at the tenant. And if they're paying their good if their rent is kind of pretty close, like if it's a new tenant, maybe they at least a year ago. Sometimes we'll skip a year. We just won't even do an increase. I'm not a big fan of like just doing $50 a year every year, like something regular. We will actually see what they're paying, what their history is. Uh, what would we lease that unit for? Uh, if it was like, you know, vacant if we just did market rent and if it's within like 10 to 12%, I mean, like 10 to 15, even sometimes 20% within market, we will leave it alone. We will maybe bump it up, but we will kind of always trail the market rent on lease renewals basically by about like 15%, sometimes even more for good tenants.

 

Anton Ivanov (00:23:09) - So we'll kind of keep it up, but we will be much less aggressive. And that kind of gives you a spread. Because if that tenant was to go and be like, you know what, they give me a little increase. Like, I don't know, $100, $150 a month. And what are they going to do? Like think about it. They're going to go and shop, right? First they're going to be like, you know what, I don't want to pay more because it's like human nature. Why would I pay more? They'll go do a market analysis for the same kind of unit type that they're in. And if the market rent is really like ten, 15% higher, they probably won't really find anything that is better than what they're paying. And they'll be like, well, I guess, you know, it's inflation. And you know, people expect rent increases, right? They just don't want to be in a position where like, uh, you know, they feel like you're overcharging them.

 

Anton Ivanov (00:23:54) - So if they go and they find a bunch of other units for leasing for less, or maybe they're just better conditioned leasing for the same. So just put yourself in the tenants position. Again, my preferred strategy a little more aggressive on vacant units, a little less aggressive on, uh, existing tenants and lease increases. Uh, but, uh, you know, find a strategy that works for you. Communicate that to your property manager, like your property manager should be on it. It shouldn't be like, oh, what should I lease this unit? Like we have a process like go to rent cast or whatever platform they like to use, you know, find the rent estimates. You know, look at the tenant. Is this a lease renewal? Is this a new tenant? Right. Like have kind of almost like a workflow checklist whatever that, you know, that they know. Uh, but let them do it, you know, once once they're comfortable with. And we had great success with this.

 

Anton Ivanov (00:24:42) - Like we got our leasing agents and they like it too, by the way. Like, you know, property managers do like systems. They have a lot of units. They kind of they don't want to be overthinking too. But if you get them on a system, I actually found that they're very responsive to it provides like overall a good company. Like they're, you know, they're honest. They want to work. Uh, they like these systems. They, they like that, like, hey, I do do do do this. And my owner is happy. The tenants are happy. Like, we're done. You know, it's, uh, I've, I've haven't had personal issues once. You kind of get them on board with that man.

 

Sam Wilson (00:25:13) - That's great. So we got three action items here. Yeah. In order to. And it all comes. Well, you know, one is minimize the vacancy, two is retain the existing tenants that you have and then three is inside of retaining those existing tenants.

 

Sam Wilson (00:25:27) - Um, you know, it's it's paying really close attention to how your units are priced and when who the tenant is. That's, that's currently there. And or if it is a unit that you're filling. So that's really, really helpful. What has been your. I know you'd mentioned this maybe off air and maybe you didn't mention it on air, but I think you told me that there was a certain percentage that you've really increased the top line revenue to your business without adding more units here, just implementing this strategy.

 

Anton Ivanov (00:25:54) - Yeah. I think I haven't like done the math exactly today, but I think over the last. So we haven't bought new units I think for two years. And it's primarily because of Covid and kind of the market was really up there, you know, with the prices, then the rates start going up. So we've really focused on operations because I feel like as a real estate investor, you always should be focusing on something again, like you're the CEO. Like you shouldn't be just sitting around, you know, collecting your paycheck, which is nice, but, uh, and a great time if you feel like the market is a bit saturated, you know, not not the best interest rate environment.

 

Anton Ivanov (00:26:27) - Focus on operations. We've grown our, uh, top line revenue and our cash flow because of that by over 20% by doing these tips. So by focusing on vacancies, working with our property managers, uh, and, uh, you know, kind of really keeping up with market rents, I think over the last couple of years, we've increased cash flow by over 20% without buying a single unit. And I think unless you're like, really? On what I, what we just talked about, probably almost any investor, any building, any asset can use something from that. And these are just like a few tips. You know, there's obviously like cutting costs and and improving your like maintenance and all that stuff that you can get into. But I would basically look at your, uh, you know, your profit and loss for, for each asset or for your whole portfolio and just work through every number like it starts with rent, then it's your vacancies, you know, then you jump into your expenses and just look at, you know, criticize every number, uh, like, you know, can I increase this number? You know, if it's rent, can I decrease this expense number, like scrutinized, like just brainstorming.

 

Anton Ivanov (00:27:27) - It's actually kind of cool and and, like, fun, in my opinion. Like, you'll be surprised. Like, we've even, uh, this is kind of a little off side, but we've done, like, things like, we went to our utility provider, uh, for trash, like, for trash collection. We said, like, hey, we have all these units, like, we have 30 plus units. You guys are servicing. Can we can we get, like, a 20% discount? And I don't think we got 20%, but we got like 15% discount for like, no reason. Like it's just a matter of just, you know, just asking for it, just brainstorming it. Increase your top line or decrease your expenses and just see your cash flow, you know, balloon without actually increasing units. And then you can apply this over and over again to new units you buy down the road. So it's like you're setting your current portfolio for success, but you're also preparing to basically maximize the profit and cash flow of future acquisitions, which I think is huge, especially like, you know, if the if the environment of the market is a little more tougher and maybe investors are passing over these buildings because they're like, hey, the numbers don't really work, you can look at them and you'll be like, you know what? I can make this work because I have this whole toolkit for improving my income and reduce my expenses.

 

Sam Wilson (00:28:35) - Anton, thank you for taking the time to come back on the show today. This was certainly insightful. I love the way you guys think about property management, how you interface with your property managers. Again, you've given us several just awesome, uh, very, you know, tangible action items, steps that we can take here. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?

 

Anton Ivanov (00:28:56) - Yeah. So check out our I already mentioned our Rent Casio platform. Uh, great for looking up rents and tracking your portfolio. We also have our deal checker platform. That's for for property analysis on new acquisitions. And if you want to get Ahold of me, just send me an email to Anton at Rent Casio. I actually reply, I get a ton of emails, but I reply to all of them. Just may take me some time. If you have questions about our software or about real estate, feel free to hit me up.

 

Sam Wilson (00:29:21) - Fantastic will include that there in the show. Notes Anton. Dot what was it?

 

Anton Ivanov (00:29:26) - Anton at rent Casio.

 

Sam Wilson (00:29:29) - Anton at rent Casio. I know I was messing that up somewhere. That's okay. Thank you again for your time today. I do appreciate it.

 

Anton Ivanov (00:29:36) - Thank you. Sam, it's always a pleasure.

 

Sam Wilson (00:29:37) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do.

 

Sam Wilson (00:29:41) - Me a favor.

 

Sam Wilson (00:29:42) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever.

 

Sam Wilson (00:29:48) - Platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Robert Withers.

 

Robert is an Entrepreneur and Real Estate Finance professional with experience in Conventional , SBA & Private Equity CRE financing.

 

Show summary:

 

The conversation unfolds with an introduction to unconventional loans, followed by an exploration of the scale of real estate podcasts.The discussion touches upon selling brokerages, navigating agreements, and imparts valuable lessons on scaling a real estate business. Throughout the episode, the speakers candidly address challenges in scaling, regional business variations, the significance of relationships, and provide a comprehensive overview of the current state of commercial finance.

 

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00:00 - Intro

03:54 - Speaker, guest journey.

06:48 - Guest's background, transition.

09:31 - Selling brokerages, agreements.

12:45 - Scaling business lessons.

15:54 - Challenges in scaling.

18:32 - Regional business differences.

21:45 - Importance of relationships.

24:50 - State of commercial finance.

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Connect with Robert: 

Facebook: https://www.facebook.com/M1CapitalCorp

 

Linkedin: https://www.linkedin.com/in/robert-withers-602b16/

 

Twitter: https://twitter.com/M1CapitalCorp

 

Phone: (914) 490-8623

 

Web: https://mortgageone.com/

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

00:00:00:01 - 00:00:36:12

Robert Withers

Why lock into a seven and a half percent, 3 to 5 year conventional loan with prepayment penalties when you can take interest only debt at a point they have a point and a half to two points over that. Okay. No prepayment penalty. And if it pencils, meaning if the numbers work, you'll have an opportunity in two years to hopefully lock into long term as cheap as possible interest rates going out for that, you know, for that either five or ten year term that you're looking for.

 

00:00:36:23 - 00:00:58:16

Sam Wilson

Welcome to the How to Scale commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Robert Withers is an investor, entrepreneur and real estate finance professional with experience in conventional SBA and private equity. Robert, welcome to the show.

 

00:00:59:01 - 00:01:00:21

Robert Withers

Thank you, Sam. Great to be.

 

00:01:01:03 - 00:01:09:21

Sam Wilson

Absolutely, Robert. The pleasure's mine. There are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me, where did you start? Where are you now and how did you get there?

 

00:01:10:21 - 00:01:42:18

Robert Withers

Well, okay. Where do I start? I started in the men's clothing business back in 1982. And basically what happened was I had was given an opportunity to be able to jump into the mortgage business because of the expensive men's clothing that I wore. Somebody took notice. So that was a sharp dresser. It gave me an opportunity to be able to get into sales in the mortgage industry in the early eighties and taught me the business.

 

00:01:42:24 - 00:02:14:15

Robert Withers

Four years later, I went into my own business, started my own company after three mortgage companies on the residential side, which I all sold the last one right prior to the to the financial crisis. We took a little time off, reset things, decided that residential mortgages wasn't something that I wanted to do any longer, and jumped into the commercial real estate finance field.

 

00:02:14:23 - 00:02:18:03

Robert Withers

And I've been there ever since. That was in about 2014.

 

00:02:18:22 - 00:02:32:16

Sam Wilson

Got it. Okay, now that's cool. How did you when you sold all three of those businesses this this is getting in the weeds a little bit, but it sounds like you figured out how to do it once. And you said, look, we built one company. Want to go out and just do it again. But how did you get around non-compete or did you just.

 

00:02:33:03 - 00:02:33:24

Robert Withers

I waited them out.

 

00:02:34:09 - 00:02:34:17

Sam Wilson

Okay.

 

00:02:35:04 - 00:02:55:04

Robert Withers

I waited them out. You know. But you know, Sam, it's interesting you bring that up because I. I sold a mortgage brokerage. Now, I don't know if you know anything about our business, but not a lot to sell there, right? There's not a lot of, you know, really good will and maybe some of a pipeline that you may have in it.

 

00:02:55:20 - 00:03:18:10

Robert Withers

The companies weren't huge companies, but they did you know, they did a few million dollars worth of business a year. So they were nice sized companies. My first one was a sale and I was young when I did it, so it was awesome. I sold it for seven figures. I actually sold it to somebody who decided to reinvest the money back into the company so we could go national.

 

00:03:18:17 - 00:03:45:24

Robert Withers

That did not work out. It didn't work out for me. It didn't work out for him. And I wound up buying the company back, which and then developed my second company. So the non-compete wasn't really an issue because of the fact that I kind of waited it out and then was able to buy the company back and take it into my second mortgage company, which I sold and turned that actually into a mortgage bank that we were in several states.

 

00:03:46:08 - 00:04:07:00

Robert Withers

So it was kind of cool. We had a great time. But my, my partner and I had a disagreement in the in the direction I wanted to take it more of a New York luxury market based. And he wanted to do government based business. And we had a we agreed to disagree. It was very you know, it was it was very cordial.

 

00:04:07:10 - 00:04:23:01

Robert Withers

And then my third one, which launched me into my third company, which I shut down really, but sold off some pieces of it, but shut down prior to the financial crisis, non-compete were really never an issue. Timing because of the timing that we took. So.

 

00:04:23:01 - 00:04:42:02

Sam Wilson

Right. Yeah. And if you're listening to this and you haven't sold a business, a lot of times there's going to be restrictions around you getting back into the same business, especially in the same geographic area. If it's a geographically bound company where it's absolute what you can't for three or five years compete in this, you know, whatever the radius is from your business or, you know, and they're all structured differently.

 

00:04:42:02 - 00:04:56:10

Sam Wilson

But that's a that's really cool. I appreciate you giving us the insight there. I think you may have answered this question, but you said in the company that you guys look to scale because the name of the show is how to scale commercial real estate. You guys said, hey, we're going to scale. And I think the principles are the same.

 

00:04:56:21 - 00:05:08:10

Sam Wilson

We're going to scale this business, you know, across the United States. And you said that didn't work out. What were some of the lessons you learned in that didn't work out, process it?

 

00:05:08:10 - 00:05:46:18

Robert Withers

I think for the most part it was two things. We were really more of an East Coast. The leadership team on our company was really East Coast focused. So I found as we talked to people throughout the country, that mindset and how things are done both in, you know, on a local basis and on a regional basis differ greatly from New York to California here and from New York to Tennessee and from New York to the you know, to the northern parts of our country.

 

00:05:46:18 - 00:06:11:02

Robert Withers

So, you know, I think cultural and that not culturally. I think it was just a matter of mindset. And I think the way that we wanted to run our company isn't what we saw. We could replicate well in other parts of the country. So we decided to really stay more on the East Coast. We were licensed in Connecticut, New Jersey, New York, Florida.

 

00:06:12:09 - 00:06:36:09

Robert Withers

And from that part, we were we were successful. And we, you know, we were able to scale, but we were able to scale in what we knew rather than, you know. And you would think, you know, listen, you know, a product like a mortgage is universal, right? It's the same it's a national thing. You know, it's it's it's rates are driven by national for national reasons.

 

00:06:36:09 - 00:07:02:02

Robert Withers

You know, there are state regulations. But for the most part, the markets that buy mortgage loans are national at Fannie and Freddie Mac. But doing a good job in markets that you don't understand is it can be very difficult. And when management doesn't agree with what boots on the ground, well, the flops, the philosophies of each when there's no agreement, it's difficult.

 

00:07:02:02 - 00:07:22:13

Sam Wilson

So I could see that. And that's something that I think until you've lived in various parts of our country, you may not understand. You know, here in here in Memphis, Tennessee, if you get on the phone, even with somebody if I saw you yesterday, Robert, we're going to talk for about six or 7 minutes about nothing. We're going to talk about the weather.

 

00:07:22:21 - 00:07:39:24

Sam Wilson

We're going to talk about, you know, family, all sorts of things. I lose you there, Robert? No. Okay, cool. And I was that you were you were you were still a stone. I was like, oh, shoot. Maybe the Internet froze. But no, we'll talk about a lot of different things long before we ever get to the reason for the call.

 

00:07:40:05 - 00:07:56:15

Sam Wilson

It's just the way it's done. And I'm from Indianapolis. I was born there and we don't really like we pretty much get on the phone and, hey, you know what you need, Robert? What's going on, man? And we get down to business, but here in Tennessee, man, I had to slow down. I'm like, wait, like, if I don't ask and it's just kind of rude if you're just like, Hey, what's up?

 

00:07:56:20 - 00:07:58:20

Sam Wilson

Click like it just doesn't work.

 

00:07:59:06 - 00:08:04:02

Robert Withers

If you're from Indianapolis, right? You were like, right down to business. Now I'm from New York.

 

00:08:04:05 - 00:08:07:20

Sam Wilson

Oh, you guys are even more I mean, you guys are like, what?

 

00:08:07:20 - 00:08:33:01

Robert Withers

We jump a couple of spaces in front of you and it comes down to, okay, we won't even introduce ourselves. And we're pitch and we're pitching a product. You know, we don't get me wrong, I'm not I'm not a big I'm a relationship builder. I've been in this industry for almost 40 years in one way or another. So I didn't survive this way by being transaction, you know, triad transaction related.

 

00:08:33:08 - 00:08:43:13

Sam Wilson

And I'm not suggesting that it's just, it's just a different way of communicate. And if you're not prepared to spend the 7 minutes talking on the phone about nothing, then people are going to think you're rude and be like I don't wanna do.

 

00:08:43:19 - 00:09:06:15

Robert Withers

Business with developing relationships are is you know is something that you know I mean you can start it in 7 minutes, but some of my best clients are ones that came back to me, you know, the second, you know, two or three times we had spoken two or three times transactions didn't work. And then all of a sudden it kicked in and things actually wound up jelling between the two of us.

 

00:09:06:15 - 00:09:08:10

Robert Withers

So relationship building is huge.

 

00:09:08:14 - 00:09:25:23

Sam Wilson

Absolutely. No, I appreciate you giving the insight on that because it's one of those things, even for people out raising capital, it's an important skill set to master. Am I talking to somebody from New York, New York investors? Man, we is down to brass tacks on the beginning. The phone call, I call somebody from Memphis, Tennessee. We're going to spend our time on the phone.

 

00:09:25:23 - 00:09:40:17

Sam Wilson

And so it's knowing and being able to shift even gears immediately when you jump on the phone with those people. And knowing how that works is I think it's an important skill that as you scale your business, that you and your team have to master. So that's a rabbit hole. But I appreciate you taking the time to kind of go down some of that.

 

00:09:40:23 - 00:10:02:13

Sam Wilson

Tell me about your business today. I know you said in 2014 you decided to get into commercial real estate finance and Gilliam saying this is ten years ago now. You know, 2014 was when I think things really started to recover in the real estate markets. Commercial real estate, residential real estate started to, you know, go on that upward curve that we've seen for the last nine or ten years.

 

00:10:02:13 - 00:10:16:23

Sam Wilson

What tell me about the business you guys are in today and maybe give us, you know, if you can, just a quick rundown on what the last decade looked like and kind of how you guys are positioning yourselves now, changing it.

 

00:10:17:00 - 00:10:41:03

Robert Withers

Things have changed a lot from going from an investment market where, you know, we're cap rates were compressed and, you know, they were low and everybody, you know, we had cheap debt. Let's face it, you know, at one point we were looking at 3%, you know, commercial real estate rates that that were trading. So it wasn't hard to get a deal to pencil.

 

00:10:41:10 - 00:11:29:23

Robert Withers

So people were were were trading investment real estate left and right. We work in basically four major food groups or product sets is a better way of describing it. And that is we do a lot of SBA financing for owner occupied clients are looking to finance property they want to buy for their business. We do conventional financing for somebody who's buying a some sort of a mixed use or multifamily product or an industrial product for purposes of investment, we or or owner occupied, we do bridge loan financing which is short term up to three years type financing, which, you know, is in short, short term a great, great tool for actually what's going on right

 

00:11:29:23 - 00:12:15:08

Robert Withers

now because nobody's actually buying into conventional rates because they're high. So putting in a short term solution like a bridge loan makes a lot of sense in many cases. And and spec spec construction, construction financing for the purposes of building a, an investment property, whether or not it's a single family home of a bunch of different homes, you know, you know of it in the case of a of a of a development project or, you know, something that's more like an apartment building, not and we're not seeing a lot of mixed use or multifamily construction going on right now for the purposes of of of in the investment markets.

 

00:12:16:17 - 00:12:40:23

Robert Withers

So we concentrate on those four types of programs here or products here. And from 14 to 23, for the most part, it's been up and down. You know, Sam, it's you know, we started off really, like I said, in a very low interest rate market. So the products were really all, you know, either CMBS loans or they were regional banks that I we don't do a lot of business with national banks.

 

00:12:40:23 - 00:13:06:24

Robert Withers

It's mostly local or regional banks offering great product. And as rates changed over time and an opportunity changed over time, we shifted gears. Last year was our biggest year ever with SBA financing. We did a lot of SBA financing and bridge loan financing. So and quite frankly, I think we're going to we're going to see a repeat of that for 24, as they've been saying in our industry.

 

00:13:06:24 - 00:13:26:01

Robert Withers

Andrew About your industry. Sam But in our industry they've been saying it's survive until 25. So you know what? I think for the most part, you know, we're looking ahead and maybe, you know, going to see some of that investment type real estate come back in 2025. Right, equity investment properties.

 

00:13:26:07 - 00:13:44:13

Sam Wilson

So that makes a lot of sense. We're going to cover, I think, get into some of the more nuanced pieces of this. I'm looking here, bridge debt. You mentioned that bridge debt is a good tool for now a lot of people. And I'm going to I'm going to I'm going to ask you to tell me why I'm wrong.

 

00:13:45:09 - 00:14:00:23

Sam Wilson

So a lot of people have taken on short term debt in the last 2 to 3 years. And from this side of things, I look at it and say, man, bridge, that's a bad deal. It's a bad deal because right now there's I don't know how much what is it? What then? You could probably give me the accurate number on this.

 

00:14:00:23 - 00:14:08:03

Sam Wilson

I'm going to pull this one up and say it's north of $1,000,000,000,000 in debt coming due in 2024 on commercial.

 

00:14:08:05 - 00:14:08:15

Robert Withers

Scale to.

 

00:14:09:03 - 00:14:09:13

Sam Wilson

I'm sorry.

 

00:14:09:24 - 00:14:10:17

Robert Withers

Close to it.

 

00:14:10:23 - 00:14:25:05

Sam Wilson

Right. So in in some of that, I would venture to say I don't have any empirical evidence to substantiate this claim. But I would say that a large part of that is probably bridge debt where it's like, hey, man, we got to get out of this. We don't know how to get out of it. We got to refi somewhere.

 

00:14:25:12 - 00:14:42:04

Sam Wilson

And so we're going to see cash in, revise happening and or assets selling at a massive discount because of the way they structured the debt. Tell me why you say in light of that frame, tell me why you say that bridge debt is still a good tool for now and how do you use it without playing with fire?

 

00:14:43:02 - 00:15:09:18

Robert Withers

Interest rate cycle sent interest rate cycle was lower three years ago when this debt was was originated. So unfortunately, that debt that's coming due is is being refinanced in a higher interest rate market. We've for the most part, if you were to believe the Fed in I have a hard time believing the Fed. But, you know, if you're over the next couple of years, we're going to see that cycle turn around.

 

00:15:09:18 - 00:15:31:15

Robert Withers

I think for the most part, we can agree that interest rates have topped out. You know, there is certain concerns on the employment jobs data side, but for the most part, inflation looks like it's under control. And although take my word for it, I never seen the price of eggs and bread be where it is at this moment.

 

00:15:31:15 - 00:15:51:09

Robert Withers

But for the most part, inflation, if you're going to go on a on a pure core product or service or, you know, in this case a product gasoline, you know, gasoline prices are coming down. Now, you could say that that's, you know, technical in nature. But quite frankly, I think it's a good indicator where we're headed in regards to prices.

 

00:15:51:20 - 00:16:38:24

Robert Withers

So having said that, I think that people who are originating bridge that now like we have a bridge program that's one overpriced three quarters to one over prime you're single digits right why lock into a seven and a half percent 3 to 5 year conventional loan would prepayment penalties when you can take interest only debt at a point they have a point and a half to two points over that okay no prepayment penalty and if it pencils meaning if the numbers work you'll have an opportunity in two years to hopefully lock into long term as cheap as possible interest rates going out for that, you know, for that either five or ten year term that

 

00:16:38:24 - 00:16:49:02

Robert Withers

you're looking for. So it depends on the transaction, but quite frankly, I think is a short term for the right trend, for the right transaction. I think it's a good solution.

 

00:16:49:20 - 00:16:55:19

Sam Wilson

So the so the gamble here is that interest rates do not continue to climb.

 

00:16:55:19 - 00:16:56:07

Robert Withers

Yes.

 

00:16:56:17 - 00:17:01:05

Sam Wilson

Okay. No. And that's I mean, that's as long as you go in eyes wide open. You know.

 

00:17:01:09 - 00:17:49:07

Robert Withers

I think any substantial climb in interest rates, Sam, would hurt this economy, never mind our industry more than than it already has. And I don't think the Fed's willing to take that chance. So, listen, it's as real estate. It's you know, there are there is some risk, right? So this is a risk weighted decision. We're advising certain clients who who have that space in their performer to maybe consider bridge debt now versus convention debt because they're not facing a 2% prepayment penalty on a $10 million loan in 2025, when interest rates could be the I mean, hypothetically lower and much lower.

 

00:17:49:21 - 00:17:50:04

Robert Withers

You know.

 

00:17:51:13 - 00:18:11:07

Sam Wilson

You guys said and that makes sense. I mean, again, you know, for for the right product or the right project at the right time, you know, that's something you just got to weigh your options there. I think that's the conclusion there that that there is this is a tool that for the right fit makes perfect sense that let's talk about SBA 2023.

 

00:18:11:07 - 00:18:22:01

Sam Wilson

You guys said you wrote a ton of SBA loans at 2023. Walk us through that program. I mean, SBA, I'm assuming, is long term fixed. Yes, we.

 

00:18:22:01 - 00:18:23:24

Robert Withers

Buy 25 year. Yeah, 20.

 

00:18:23:24 - 00:18:25:19

Sam Wilson

Five. Talk to us about that if you can.

 

00:18:26:07 - 00:18:56:19

Robert Withers

Sure. So what we found is there was a host, a lot of owners of businesses out there who had done well, post-pandemic. Their businesses were doing fabulous. Listen, let's face it. We what you can question is there's always going to be a debate on it, but our economy is strong. So a lot of small businesses were doing very well and they decided that, you know what, they want to buy something now this is the time to buy it.

 

00:18:56:19 - 00:19:30:15

Robert Withers

Our financials look great. We've got cash. You know, perhaps we're going to wind up being able to negotiate a great deal on the property that they're already in, approached the owner say, listen, we you know, we're interested in buying the property. Interested, or they were looking at property that was on the market for sale. Now, you know, as a seller of a as you know, a retail spot or industrial space or maybe a commercial condo, seller's got to say to himself, you know what, the market's pretty ripe right now.

 

00:19:30:21 - 00:19:56:05

Robert Withers

This is a good time to sell. I mean, you know, where are we going to be in at the end of 2024 in regards to values? Because everybody's kind of targeting that we're going to see a reset and that reset is going to be pretty much because of a total environment type. Look at look at commercial real estate, fair or not, things on a macro basis, you know, they impact the smaller markets.

 

00:19:56:16 - 00:20:23:22

Robert Withers

And what we saw, what people really take advantage of that, you know, they were able to lock in a rate that was. Yes. Higher than they wanted to pay. But they're an owner. SBA gives them up to 90% leverage, which is, let's face it, that's very attractive fixed rate for 25 years. And on the seven eight program, they give you they can give you working capital and they pay your closing costs.

 

00:20:25:00 - 00:20:46:10

Sam Wilson

That's wild. I mean, to win it. Yeah. In fixed rate fixed rate debt over a 25 year period. I mean, it's incredibly tempting because it's the the real estate investors in this in this case, small business owners, greatest hedge against inflation like you can borrow in dollars and repay and dimes.

 

00:20:47:01 - 00:20:47:13

Robert Withers

Thank you.

 

00:20:48:03 - 00:21:07:08

Sam Wilson

It's yeah that I mean that's that's astounding I mean it's getting through I think one of the things like you mentioned, though, one of the one of the, you know, reasons that people don't do it is because they look at that interest rate that they're paying because it's above market. They're looking at that. They look at the length of time they're locked into it.

 

00:21:07:08 - 00:21:11:04

Sam Wilson

They look at a lot of those factors and then look at are closing costs, which can be onerous.

 

00:21:11:23 - 00:21:40:24

Robert Withers

Daunting. But since 5000, they're not paying 5000 in rent and you know, all for their mortgage payment. They may be paying closer to seven because of the interest rate bump, but they're paying 7500 right now, a month in rent to somebody else and not owning the property. And the money's gone. And all they get out of it is a line item on their on their pro forma, on the on their if they have financials and a line item expense on their financials makes no sense.

 

00:21:40:24 - 00:21:56:13

Robert Withers

If somebody is in the position where they can, they have the capital to buy the property that they're in or something that works better for them. This is the time to use SBA financing. It was without a doubt the leading charge product of 2023 for us.

 

00:21:56:18 - 00:22:01:17

Sam Wilson

Right. Because it's one of the last ones that had long term fixed rate debt, the last last minute.

 

00:22:01:17 - 00:22:04:20

Robert Withers

Single digit rate and single digit rate.

 

00:22:04:20 - 00:22:06:12

Sam Wilson

So that's that's amazing.

 

00:22:06:12 - 00:22:20:03

Robert Withers

And really the analysis, Sam, is rent versus own. It's nothing more than that. It's not interest rate, it's not copper. It's nothing else other than rent versus own. Where are the benefits of owning this property versus renting?

 

00:22:20:03 - 00:22:26:19

Sam Wilson

It makes perfect sense. What is the total dollar amount? The SBA will loan any one person or entity?

 

00:22:27:03 - 00:22:27:18

Robert Withers

5 million.

 

00:22:27:24 - 00:22:39:12

Sam Wilson

5 million. Okay. And that's 5 million in cash. Not and that would include that would include the debt against against real estate. Or is that just 5 million does doesn't.

 

00:22:39:12 - 00:22:58:08

Robert Withers

Include any of the other sponsored SBA loans like the I forgot what the till loans that they came out with or the PIP loans that has nothing to do with. In fact we've taken the opportunity, Sam, to refinance those loans out that have to be paid back through acquisition, through SBA financing.

 

00:22:58:13 - 00:22:59:16

Sam Wilson

Right. Right.

 

00:22:59:18 - 00:23:26:24

Robert Withers

That's we're doing that right now on a transaction. We're actually taking out their PE loans that have to be paid off because they were done on a seven year basis, which made no sense. I know this. The borrower may she just made a really bad decision in regards to the the terms of that peep loan. And we're now taking that debt, refinancing it into an acquisition, never mind a refinance, and lowering her monthly payments or cash flow.

 

00:23:27:04 - 00:23:44:04

Sam Wilson

Yeah, we we, of course, you know, had the opportunity to take advantage of those types of loans as well. But I think those are locked in for 30 years at like three or three and a half percent. And I'm like, Yeah, I guess what, we're never paying those down. I'm going to pay that for 30 years. I'll be 70 when it pays off and I will be happy to do it because it a payment.

 

00:23:44:04 - 00:23:59:13

Robert Withers

Is a payment. I don't care what rate it is, I don't care what rate it is. It's a debt. You know what? Why is if you don't need it? I know people who are sitting still sitting with that money in their bank account, but yet they're paying a payment on it. They never needed it. They took it because it was cheap.

 

00:23:59:17 - 00:24:00:05

Sam Wilson

Right.

 

00:24:00:20 - 00:24:05:13

Robert Withers

But they're making it, you know, they they have to they had to start paying it back, you know.

 

00:24:05:14 - 00:24:28:05

Sam Wilson

So very good. Thank you for taking the time to walk us through the opportunity that lies there with the SBA. We've talked about Bridge. We talk about SBA. You've talked about a reset that you think is going to happen across the macro kind of commercial real estate. I'm going to know how to finish out that sentence, but either way, the macro real estate picture is going to experience a reset.

 

00:24:28:13 - 00:24:47:10

Sam Wilson

This is a conversation I had with some bond brokers last night who deal with a lot of CMBS loans and things like that. And they said, you know, what isn't isn't the kind of price of interest rates and or bridge debt coming due? Isn't that already baked in like when people are taking stuff to market and I'm like, I don't know that it is.

 

00:24:47:10 - 00:24:51:17

Sam Wilson

What do you think about that and what do you mean when you say reset? What do you what do you think of.

 

00:24:52:00 - 00:25:18:24

Robert Withers

Values are going to get impacted? Sam That's what interest rates they have to. They always do. So we're going to see valuations and those valuations a lot of for a lot of especially the larger private rate. So I'm going to be underwater. You know, they were going to have $800 million worth of debt on a building that was valued at 1000000 to 1000000002 and now all of a sudden, that's about $800 million or $750 million property.

 

00:25:19:03 - 00:25:45:17

Robert Withers

Right? So values are going to be resetting. And when values reset, there is going to be two ways of looking at it. It's a cash refinance. Right. As you as you spoke about, there's going to be capital calls and some of the even larger players, the national players are not willing to come up with those capital calls. They handing the keys over to landlords, those loans excuse me, to the lenders.

 

00:25:45:22 - 00:26:07:13

Robert Withers

Those banks are going to put that property on the market to savvy investors who are going to do what they're going to lowball the purchases. They're going to wind up settling in regards to the debt, using the the bank to finance it, but yet the purchase price is going to be lower. Sam That's the reset I'm talking about valuation patterns are going to get reset, which is going to trickle down to even in our local markets.

 

00:26:07:20 - 00:26:14:04

Robert Withers

And I think we're going to wind up seeing both opportunity and unfortunately, we're going to see some pain across the board.

 

00:26:14:21 - 00:26:30:09

Sam Wilson

Yep, I couldn't agree more. Robert, thank you for taking the time to come on the show. Today was certainly a pleasure to have you. You are a wealth of knowledge and insight. Give us a lot of things to think about here today as we consider what it means and how we are going to finance our properties here in 2024.

 

00:26:30:09 - 00:26:33:18

Sam Wilson

If our listeners got to get in touch with you and learn more about you, what is the best way to do that?

 

00:26:34:18 - 00:26:55:21

Robert Withers

I'm going to give you a old fashioned cell phone number, which is 9144908623 mortgage one com. You can always go to the website and there's a form you can fill out. And the inquiry comes straight to our, our sales team and, and I'm aware of it. So I'll make sure that it gets taken care of, especially if it's referred by you said.

 

00:26:56:01 - 00:26:59:23

Sam Wilson

Fantastic. Robert, I appreciate it. Thank you so much for coming on the show. Have a great rest of your day.

 

00:27:00:05 - 00:27:01:03

Robert Withers

You two enjoy your day.

 

00:27:01:11 - 00:27:22:21

Sam Wilson

Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts or whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories.

 

00:27:22:21 - 00:27:26:01

Sam Wilson

So appreciate you listening. Thanks so much and hope to catch you on the next episode.

 

Today’s guests are Jeff Patterson and Matthew Bell.

 

Show summary: 

In this episode of the How to Scale Commercial Real Estate Show, guests Jeff Patterson and Matthew Bell discuss the opportunities presented by electric vehicle charging stations for commercial property owners. They highlight the benefits of having charging stations, such as increased customer stay and revenue generation. They also discuss the potential costs and incentives of installing these stations, emphasizing the importance of taking advantage of current incentives. The guests also explore the marketing strategies for charging stations and the potential for partnering with the federal government in developing charging infrastructure.

 

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Opportunity for Commercial Property Owners (00:00:00)

Introduction of Matthew Bell (00:01:04)

Monetization and Regulations of EV Charging Stations (00:06:11)

The payback period and potential costs (00:09:51)

Incentives for EV charging stations (00:11:17)

Solar and EV charging possibilities (00:16:23)

The Efficiency of Solar Power for EV Charging Stations (00:19:12)

Opportunities for Commercial Property Owners (00:19:47)

Marketing EV Charging Stations (00:21:51)

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Connect with Jeff and Matthew: 

Web: https://www.phoenixparkingsolutions.com/

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Jeff Patterson (00:00:00) - There's a reason why, um, companies like Starbucks and, uh, waffle House, which I put in one of my recent LinkedIn. There's an article out there where they're looking at it because they want people to stop and stay longer at their business while their car charges, and they've ran the calculations on how they're going to make more money by people being longer inside their stores. So it's not just about the investment in getting the return of the chargers outside. It's about the additional money you could make inside your business. And depending on what your business model is, um, you know, that could turn out really favorable for you.

 

Intro (00:00:36) - Welcome to the how to Scale Commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:48) - For those of you that don't know, Jeff Patterson was on the show on November 6th, you should go back and check out that episode. That's episode number 866. Today we're here doing round two of the show with Jeff and also with Matthew Bell.

 

Sam Wilson (00:01:04) - Matthew, welcome to the show. If you don't mind, you know, again, if you want to hear, just buy. I'll go back and hear that one. But, uh, we're introducing Matthew here to the show as well. We're going to do a two person or three person episode here today. So, Matthew, can you tell us, uh, just quickly what your background is? Actually what I normally ask Matthew, and I can't help but do it. I'm sorry. In 90s or less. You got to tell me. Matthew, where do you start? Where are you now? And how'd you get there?

 

Matthew Bell (00:01:26) - Sure. Absolutely. Thank you, and thanks for having me on today. Um, so I'm our vice president of business development at Pyramid Network Services. So, uh, I started in telecom right out of school. Uh, worked on the first major build out for sprint. From there, I moved I became outside counsel for Verizon for a number of years. Uh, there I moved to in-house, um, corporate counsel for a large fiber company.

 

Matthew Bell (00:01:50) - Uh, eventually that sold, went back to sprint, uh, for a period of time, uh, and ran national build out there for Network Vision, where we went and, uh, updated 27,000 sites in about three years. Uh, and then when that ended, uh, wanted to do something a little bit different. And that's how I ended up at pyramid.

 

Sam Wilson (00:02:10) - That's awesome. Cool. I know the topic that we are covering here today, for those of you who are interested in what episode or the, uh, you know, round two of this, of this episode is we're talking about electric vehicle charging stations. So maybe, Jeff, you can kick us off and tell us just what that means, what the opportunities are, and kind of how you guys tie into that right now.

 

Jeff Patterson (00:02:32) - Sure. Thanks. Good to see you again, Sam. Um, so everybody's hearing all the the sound out there on the street, and it's in this article on this social media platform about EV car.

 

Jeff Patterson (00:02:45) - You know, uh, they're making this new one, or, uh, California is mandating no combustion vehicles after 20, 35 to be sold. Um, there's a lot to be said, but there's a lot of consumer questions going on. And I know for a lot of investors and commercial property owners, what do I do? Who do I even talk to about this? And that's where Phoenix kind of came in the market of, well, we're talking about cars talking about charging a vehicles, which typically is going to happen in a parking lot. So parking companies seems to be a logical place that you'd reach out to. Um, now for us, we decided to partner with pyramid and s, uh, because of their full turnkey agnostic, uh, services. So, um, instead of me partnering with, just for instance, ChargePoint, which a lot of people, you know, know anything about EV chargers I've seen out there. Nothing wrong with them. Um, but I would be dedicated to one single charge company with pyramid and s.

 

Jeff Patterson (00:03:46) - Um, we are able to work with multiple, uh, charging station companies to offer what's best for anyone out there. And it doesn't just have to be someone who's looking for my particular operation services. It could be a strip mall. You could be a a waffle House, a huddle House, uh, uh, a Walmart, um, the Starbucks, you know, we do everything from start to finish and, um, you know, really are there to help everyone along the process because most people don't know. Where do you start?

 

Sam Wilson (00:04:17) - Absolutely. No. I mean, yeah, if you asked me that today, I'd be like, I have no idea. So you you guys get to plug in and work basically with everybody, you know, everybody from even I would imagine, multifamily property owners. I mean, any property type is really your target avatar.

 

Jeff Patterson (00:04:33) - Correct.

 

Sam Wilson (00:04:34) - That is wild. So what's what's the opportunity for a building owner, say, somebody like me, like, how do we how do we how do we, no pun intended, plug in with this.

 

Sam Wilson (00:04:44) - And I mean, is there monetization opportunities? Is there like why would we even provide this other than just a nice thing to have?

 

Jeff Patterson (00:04:55) - Well, it depends on what type of property you do have. You know, you mentioned multifamily, for example. Well, what type of, um, multifamily project do you have? If you're in our city and you're in places where EV charging is growing? If I own an EV car, I'm not going to come live at your apartment complex if I don't have a way to charge my car. So this becomes very important for you to be able to, um, not lose potential, uh, residents. As you know, you're growing and maintaining your business profile. Uh, similar things would be, um, think about, like, a Whole Foods or. Uh, Matt and then were recently educating me on school buses. Uh, a lot of school buses are going, uh, electric and, uh, pyramid has a platform there. They work with a company, and they installed the chargers for the entire county for the school system to take the school buses.

 

Jeff Patterson (00:05:49) - Electric. Uh, it really depends on where you're at, but there is monetisation options. For instance, no one really charges for free. Um, you know, you plug up, you pay for the amount of time you use and, um, you know, based upon your initial capital investment and what you're charging for therm, uh, you know, like any other investment, there's a break even point and then profitability afterwards.

 

Sam Wilson (00:06:11) - Is there on on that monetization aspect, are there regulations around how much you can mark up that electricity? I know utilities are pretty heavily regulated. I know if you produce and of course, you know, it's the fox guarding the henhouse, but if you produce electricity, you know, via solar, you're going to be limited via contract rates. And as to what that gets sold back to the grid. So conversely, are there limits as to what you can charge at an EV charging station to the end user?

 

Jeff Patterson (00:06:41) - I'm going to turn this one on to Matt.

 

Matthew Bell (00:06:42) - Yeah.

 

Matthew Bell (00:06:43) - There currently are not. Um, obviously, if you're charging a huge amount, there'll be an issue there, but it really comes down to the speed that you're charging at, and I think that's why it's not regulated. So there's obviously a larger upfront cost to install a level three EV fast charger. And the EV fast charger can, uh, charge your car in approximately 15 to 20 minutes. Uh, whereas like a level two charger is more set up, uh, to do it over a few hours. Uh, so again, thinking about the different kind of, uh, location that you're at, whether you're a commercial property, uh, a hotel or something like that, people are going to be there for a longer period of time. Uh, the two hour charge of the EV works a little bit better. Uh, a level three charger is something that, you know, you'd want by, uh, a highway or at a McDonald's or something like that. Uh, people stopping by trying to fill up, grabbing something quick, and then moving on.

 

Matthew Bell (00:07:50) - So I was just going to add in to, you know, I think a piece of this is the question you were asking before was, you know, do we want to be a part of this? Why would we be a part of this? And I think those are great questions to ask. But another another thought about this is that, you know, EV is here to stay. And I think we're seeing it just kind of slowly building. But it's it's not a fad. It's not going away. Um, the last couple of years there's been like between 1 and 2 million, uh, cars produced, EV cars produced, uh, but they're projecting in 2029, uh, which is, is five years from that will be over 6.5 million. Uh, so the demand for this is, is going to be huge. Um, and we've seen just in 2021 and 2022, some of the largest investments from the US automakers as well, uh, they put in over $70 billion to gear up for this.

 

Matthew Bell (00:08:44) - And the cars are are very different. Um, they will recognize some benefits from it as well. And that, you know, uh, an internal combustion engine has over 2000 parts that move inside of it, whereas an EV only has 20, uh, the components in a in an Ice car, uh, an internal combustion engine car, there's over 30,000 components. There's half as many, uh, in an EV car. So beyond just the, uh, benefits, the environmental benefits, uh, that people are talking about, there's a lot to be gained, uh, for the, the automakers to as this process matures. And I think it's going to be something that that people are going to demand and, and require when they go different locations.

 

Sam Wilson (00:09:30) - Right. And I would imagine that the speed of adoption, uh, early on for people placing charging stations is probably like the early bird gets the worm, in a sense, in that because it's not widely spread. It's something that if you if you put these in now, you obviously can can probably recoup your investment much sooner, say, than somebody ten years from now.

 

Sam Wilson (00:09:51) - It's like, you know, scratching their head, going, oh, man, you know what? We should probably put an EV charging station in, you know, because I don't know I don't know what the in Jeff, you mentioned this what the payback period is like. How long does this take. And maybe you guys can speak to what that, you know, potential costs are. And I know, like you mentioned there, uh, Matt, that that, you know, level one, two, three, I'd imagine there's probably different costs associated with that. What are, you know, talking about government and intervention or involvement, rather, what are the incentives, uh, are there incentives available for this sort of thing? I mean, maybe you guys can just give us some insight on that, because this is obviously a world I know nothing about.

 

Jeff Patterson (00:10:29) - Definitely. I wanted to piggyback there real quick on Matt. Uh, last comments, we're just talking about how the automakers are into it.

 

Jeff Patterson (00:10:36) - Well, you also have the big guys like BP, where they are now leveraging and investing their money into lithium and creating their own chargers. So it's not just the automakers. Um, you see it all around in all the industries where they are leveraging and shifting direction, which, um, you know, ultimately means, as Matt said, it's not going anywhere. Currently, there are lots of incentives. That's part of what Phoenix and Pyramid working together, uh, help throughout our turnkey process is, you know, when we get to that, uh, that stage with whomever we're working with, we will help work with you on those incentives.

 

Sam Wilson (00:11:17) - What? What is this? Can you give us a breakdown of of like, maybe payback period. And and I know obviously every installation is different. Uh, but you know, what? Should somebody be looking at from a payback period? And then also from a just, you know, cost of, uh, cost of implementing a system like this.

 

Matthew Bell (00:11:37) - Yeah, I'll jump in on that.

 

Matthew Bell (00:11:38) - So, you know, like Jeff was saying, um, we manage a database, a national database that tracks all these incentives. Uh, and, and this part sounds kind of salesy, but the time really is now, um, to to grab Ahold of these, there are tax incentives, there are utility incentives. There are state incentives that are municipal incentives. There are national government incentives. Um, there's a lot of money out there, and it's coming from a lot of different sources. Uh, and we track all of that. So, you know, even if you're thinking about wanting to do this, um, you know, I would say reach out to Jeff, reach out to myself, um, and just let us run the incentives and see what's out there, what might be a possibility for you because, um, eventually, like, we always see, the money goes away, right? The the the system starts to mature. You get more of these locations out there. Uh, you don't need these incentives any longer.

 

Matthew Bell (00:12:37) - And so, you know, I was telling somebody this the other day, but a few years ago, somebody came to my house and said, hey, you want to put a new roof on? And I said, yeah, I don't think I'm really looking to do that right now. I said, do you mind if I go up there and take a look at it? I said, sure, and he spent a few minutes up there and he said, yeah, I think you're probably gonna need one in the next year or so. And, uh, there's, there's some hail damage up here. Probably get a good portion of this covered. I'm a lot more interested in a new roof at this point. So, uh, you know, I think that this.

 

Sam Wilson (00:13:07) - Is.

 

Matthew Bell (00:13:09) - It's kind of akin to what we're talking about here, but there, there really are, depending upon what state you're in, and we can look it up by the exact address and location, uh, to tell you what's available now or what may be available, uh, in the coming months.

 

Matthew Bell (00:13:23) - Uh, but that that's one of the factors that comes in. So, um, to get back to your a question about the payoff period, you know, it really depends a lot on, um, obviously the upfront expense and, and that can be driven by, you know, a level two charger. You're talking kind of in the tens of thousands of dollars, uh, a level three you're probably closer to. You know, 80 to 100,000. Um, and that just because of the power upgrades that are going to be required, uh, and the equipment that's going to be required, that's a level two is, you know, much more like a trickle charger. And, and people can usually support that with the infrastructure that they currently have. But uh, a level three a lot of times requires a new service. That said, obviously people enjoy being able to charge their car in 15 minutes versus, you know, two and a half or three hours. So what you can charge for that is significantly more.

 

Matthew Bell (00:14:25) - Um, so I think you have to find what fits for you. Um, but we have seen, uh, payback periods in just a few years. Um, for, for both level two and level three, dependent upon customer traffic and pieces like that.

 

Sam Wilson (00:14:42) - Right. So here here's I'm going to give you a little bit of a potential case study. We've got a facility in a small town in Tennessee. And the, uh we're putting solar in. Now, I will say that solar in general, from our perspective, doesn't make sense. Like the payback periods, like 25 or 30 years. I mean, and from a, you know, especially when bringing in investors, most investors don't get too thrilled with a 25 year payback. We break even in 25 years. It just doesn't make sense. But based on where this building is located, the zones it's in and, you know, some some arbitrarily grown or derived government map, it's a 90. We have a 90%, um, between tax credits and everything else.

 

Sam Wilson (00:15:25) - It's a 90% of that solar installation is covered. So our payback period is actually one year, which is you know, that's fantastic. Fantastic. Right. And so, you know, a company like you came to me and said, hey, man, you know, we should do solar on your building. And they said, well, here's how we're going to do it. And then they guided us through the process and they had their grant writer write the grants and blah, blah, blah. And down the road we go. And it was I mean, it was a brainless move, like, of course we'll do that. Is that same kind of thing available here in the EV charging space?

 

Matthew Bell (00:15:54) - Yeah, we actually submitted for incentives, um, at a New York property the other day for just that. And we, we believe it'll be between 80 and 90%, uh, of that that's covered, um, again, but not to set that expectation for everywhere. New York is pretty progressive and and a lot of money available there.

 

Matthew Bell (00:16:13) - California same way. Um, and, and other states are following suit um behind that. But but that's out there. Exactly. For example.

 

Sam Wilson (00:16:23) - Right. Which is, which is, which is really weird because I kid you not, ten miles down the road, another facility would only qualify for 50 because we looked into it as well. And it was like, well, okay. Now once again, solar no longer makes sense because again, it's a 12.5 year payback period. So scrap that one. But we're going to do the 90%, you know, one with uh with no questions. So that that's really great to think about. And on that question, you know, follow along with that is let's talk about solar to EV charger possibilities. Anything like that exist out there.

 

Matthew Bell (00:16:56) - There are. And I apologize, Jeff, I want to give you a chance to jump in here, too. But, um. Yeah. You're good. Um, there are, uh, solar opportunities out there around that.

 

Matthew Bell (00:17:06) - Uh, what we're seeing a lot of those is, uh, battery systems as well. Um, and that's one of the pieces that we try and do when we come in. Uh, we do a lot of value engineering. And that's not only picking the location. If you have a parking garage and you say, hey, we want to put it in in a corner, putting it in the east corner versus the west corner might be a $100,000 difference just because of power runs and, uh, and working across a parking lot or something like that. So those are all pieces, um, that, that we look at inside of that. But, um, the battery backup systems can sometimes help pull in power, and you don't have so much of a demand on the grid at that point. Uh, and you may not need the same level of service upgrade. So we have seen some solar, uh, and we've done a lot of solar projects. So that's certainly something to look at. But, uh, we're looking and utilizing batteries a lot as well.

 

Sam Wilson (00:18:03) - Right. That would make sense because and at this particular installation, because that was one of the things we looked at. And this was a commercial facility. We're just doing direct consumption. When the sun produces, we use the energy. We're not putting batteries at this facility because it the cost of doing so was like an a double or triple it. And it again, it didn't make sense. But I would imagine on the solar side of things, if you're able to set it up solar to where it goes to battery, and then when someone because you know somebody's not charging, you're then recharging the local storage that then somebody can plug into and charge their own batteries and, you know, off they go.

 

Matthew Bell (00:18:36) - Yeah, there's a need on the market right now. Um, that actually is that it is a DC fast charger. Uh, but it it has large batteries inside of it, and so, um, they're still working out a few pieces with it, but you can actually pull, uh, small amounts of power from and you could institute some solar piece to that as well, but you're pulling in smaller amounts of power over a period of time, and then you're offering the DC fast charging speed without having to do that major, uh, electrical upgrade.

 

Matthew Bell (00:19:10) - Right?

 

Sam Wilson (00:19:11) - Right. Yeah. And I can imagine.

 

Sam Wilson (00:19:12) - That that that's not, um, I'm not going to call it sustainable, but that is not it's not going to be an efficient way to do it strictly off of solar. So I'd imagine there have to be a switching, you know, some, some, you know, with being tied to the grid. Plus, you know, using solar as a as a is a is an augment to that, uh, you know, to that grid tie in. So what, uh, what thoughts on this do you do you have Jeff, I know we haven't heard much from you, so I kind of want to.

 

Sam Wilson (00:19:36) - Hear from.

 

Sam Wilson (00:19:37) - You, uh, a little bit more insight on market, on what people should be doing. Uh, anything, anything on that front. And, you know, if you want to share some other stuff you're having asked about, I'd love, love to hear from that as well.

 

Jeff Patterson (00:19:47) - Of course. Thanks. I think it's something everyone should be looking into.

 

Jeff Patterson (00:19:51) - So, you know, we've clearly made the point today that from an investment standpoint, um, a lot of people are shifting that way from car dealers to whether you want to buy an EV charging car or not, unless you might change where you live. Some states are regulating it. So eventually you're going to own a EV car. Um, you know, if you're just an investor, it's an opportunity for you to possibly make some money in the long run. If you are a property manager, you know, is it best for your property? Uh, if you're a property owner, are you talking to your property managers? We look into these things. Is it going to help draw more people to our business to stay longer? There's a reason why, um, companies like Starbucks and, uh, waffle House, which I put in one of my recent LinkedIn. There's an article out there where they're looking at it because they want people to stop and stay longer at their business while their car charges, and they've ran the calculations on how they're going to make more money by people being longer inside their stores.

 

Jeff Patterson (00:20:48) - So it's not just about the investment and getting the return of the chargers outside. It's about the additional money you could make inside your business. And depending on what your business model is, um, you know, that could turn out really favorable for you, right?

 

Sam Wilson (00:21:03) - Right now, that's exactly right. We we are long. One of the things we invest in is, uh, laundry facilities. And so people come, they do their laundry, and I'm thinking I've got several locations of Meccan actually going to shoot you in this podcast is over because I'm like, I wonder those, uh, what the incentives could look like at those facilities and if it would make sense when people come in, you know, they're there for an hour. Uh, and we do see electric cars. So it's, uh, on that. What what is the, um, what's the marketing methodology behind this? What should somebody be thinking about on that front? Is it. And I've never looked I've never even so much has done a cursory review of like, where's an electric charging station? Because I have no need for it.

 

Sam Wilson (00:21:41) - But is it all just on Google Maps, like you say, EV charging station? Like, how does somebody market this to the public to even let them know that they have the station available?

 

Jeff Patterson (00:21:51) - So yes, there's Google Maps Apple map you can log on right now and type in, you know, a blink charge or a charge point. And people who have taken the time have got those charging stations added, but that's not where all of them are. Um, there's actually a national database. Anybody who owns an EV car, um, has access to and can see when they want to charge your vehicle, it'll tell you where the nearest charger is at. Um, so that way you can go and charge up. It's, uh, a federal, um, database that is out there. So every EV charger that's put in gets put in there, and that way everyone can see it. And you can click to map your trip to, uh, Ohio or to Florida, to the beach, and it'll show you which route you need to go to, hit the Chargers and, uh, make sure you can, you know, get there and back and the amount of time you want to.

 

Sam Wilson (00:22:41) - No, that makes that makes a heck of a lot of sense. Yeah. Because that I mean, you need to know where those are. So you can you can plug in. All right. So I've got one more question on this. And this was something somebody approached me with maybe two years ago. They said, hey, you know, we've got this incredible opportunity to I'm going to call it partner, but to work with the federal government on developing charging stations across our highway systems. He would talk to me about that. If you know anything at all about what that looks like, because they're saying, hey, you know, we can go, we can go across call it Tennessee, we can be on I-40. It'll be every 50 miles, and we'll have charging stations, we'll have advertising opportunities, we'll have lot a lot of blah, blah, blah. I don't know all the things because it's been three years and I've slept since then. But you have any insight on what that looks like?

 

Jeff Patterson (00:23:27) - I think Matt would be the most knowledgeable here on that since, you know, he's the day more day to day.

 

Jeff Patterson (00:23:32) - So I'll let you take the wheel there.

 

Matthew Bell (00:23:34) - Okay. Um, yes. And we're involved in some of those. Uh, there are, um, three states that have been, uh, released recently that I know about. Um, and we're kind of in final talks to, to work through that, but, um, but yeah, they're setting those up. Uh, the goal is to be able to get people from point A to point B, uh, utilizing these chargers. And there's, there's huge gaps out there. And that's where a lot of this money's going. And, and that funding is supporting those, um, those initiatives to make sure that, that people can go where they need to go. Um, and, and the second piece to that, uh, and that's something that we, we do spend a lot of time on is, uh, making sure that the chargers are up. So, um, so to qualify for that government money, uh, you're, you have to have a 97% uptime.

 

Matthew Bell (00:24:34) - Um, and currently we don't only not have enough chargers, but, uh, at any given time, about 30% of the Chargers nationally are down. Uh, and there's there's a real issue around that. Uh, and so, you know, part of what we provide to is, is a long term service and training and, and things like that. There's currently um, I don't think people use the phone book anymore. But if you did, if you open that up, you're not going to find your EV charging repairman, uh, listed in there. So, uh, it is new. And so, you know, we do want to create long term relationships with customers, uh, and clients, whether you're just doing one at, at your laundromat or you're doing one all across the country. Um, we want to do the training so that you guys can do some of the basic service. And then obviously it would support on top of that, um, if there was something else that you needed.

 

Sam Wilson (00:25:33) - Right.

 

Sam Wilson (00:25:34) - I love it. Absolutely love it. Matthew and Jeff, what is the best way to get Ahold of you guys? If our listeners want to learn more about what you guys are doing and talk about EV chargers at their facilities.

 

Jeff Patterson (00:25:47) - Uh, for us, you can go to our website. Phoenix parking solutions. Com we have a special EV solutions tab. Click on that. It'll give you, uh, more about what we talked today and a direct access point to get in touch with us.

 

Sam Wilson (00:26:00) - Fantastic. We'll make sure to include that there in the show notes. Gentlemen, thank you for coming on today. I certainly appreciate it. And I learned a ton from you. Thanks. Thanks, Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.

 

Sam Wilson (00:26:25) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Andrew Brewer.

 

Andrew is a Real Estate Developer and a Buy & Hold Investor

 

Show summary:

In this episode real estate developer Andrew Brewer shares his journey from stationary engineering and facilities management to real estate development. He discusses how his background has equipped him with valuable skills and insights into asset management and construction. Brewer emphasizes the importance of continuous learning and understanding the concerns of property owners. He shares his strategy as a developer, the challenges of remodeling versus new construction, and his approach to valuing land for development projects. He also highlights the necessity of taking calculated risks for wealth building.

 

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Stationary Engineering and Facilities Management (00:01:43)

Experience Working on a High-Rise Building (00:04:13)

Lessons Learned from Construction Defect Litigation (00:06:14)

The skill set as an owner and investor (00:10:15)

The difficulty of remodeling vs building new (00:11:21)

Valuing shovel ready projects (00:18:28)

The risk of investing (00:19:27)

Valuing land and potential (00:20:20)

Factors in determining offer price (00:22:09)

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Connect with Andrew:

Linkedin: https://www.linkedin.com/in/andrew-brewer-b6b042125/

Facebook: https://www.facebook.com/andrew.brewer.irongall

Web: www.irongallinvestments.com

Web: www.distance3development.com

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Andrew Brewer (00:00:00) - What the owners look for. What do investors look for? What makes something a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building. What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.

 

Intro (00:00:35) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:48) - Andrew Brewer is a real estate developer and they buy and hold investor. Andrew.

 

Sam Wilson (00:00:53) - Welcome to the show.

 

Andrew Brewer (00:00:54) - Hey, thanks for having me. Absolutely.

 

Sam Wilson (00:00:56) - The pleasure is mine. Andrew. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?

 

Andrew Brewer (00:01:05) - Um, so I started, uh, I grew up in the San Francisco Bay area, so I guess I started there. Um, I actually started my career as a butcher. Uh, I did that for eight years through high school and college. Uh, when I graduated college, I moved into stationary engineering, uh, which is facilities management of large commercial assets. And from there, um, I moved into, uh, running my own company and developing real estate. Uh, where I'm at right now is I run my own company and I develop real estate. And what was. I'm sorry, what was the third question?

 

Sam Wilson (00:01:40) - Where did you start? Where are you now? And how did you get there?

 

Andrew Brewer (00:01:43) - Uh, how I got here is I, you know, I did a lot of reading, you know, listen to podcast, read books, went to meetups, like, did that whole kind of route to educate myself about the ownership side of real estate? Uh, and I developed my skill set through my W2 job as a stationary engineer.

 

Andrew Brewer (00:02:01) - Uh, and then also by doing projects, uh, both by myself and with partners, uh, kind of mushed all of that knowledge and everything together to start my own firm, and here I am.

 

Sam Wilson (00:02:12) - Wow. That's a lot. A lot of moving pieces. I'm curious, what is stationary engineering? I've never heard that term, and that's, uh. I'd love to get a little insight on that and how that shaped what you do currently.

 

Andrew Brewer (00:02:25) - Definitely. Um, so stationary engineering, contrary to most people's first opinion, is not creating new types of paper. Um, it actually is the the other definition of the word stationary, which means like stationary as and it doesn't move. Uh, and that's um, that's as opposed to in that industry, marine engineering. So when you're dealing with like large boats, battleships, cargo ships, things of that nature, all of those ships have systems that, you know, keep that ship running. They have generators, boilers, filtration systems, um, all that kind of stuff which run, you know, the power for the ship, for it to move lights, you know, anything like that that's needed on a large ship.

 

Andrew Brewer (00:03:09) - Now, all of those systems can exist off a ship, and often they exist in buildings. So when you are a stationary engineer, you are doing all of that applied engineering work, but in a stationary facility, as opposed to a facility that moves. Um, so a stationary engineer could also be called, uh, like a facilities maintenance person or, you know, something like that. Uh, the engineering portion of it generally comes when you're dealing with a large systems like high pressure boilers or things of that nature, which is a little more in-depth and requires a much more specialized skill set than just, you know, swapping out. You know, light fixtures or something like that, which is something that, um, which all facilities maintenance people do. But it's only the engineers that get to work on the actual, like, big systems because something like, uh, a high pressure boiler, I mean, that could explode and kill people. So you need to know what you're doing. It can't just be some rando that comes in and starts working on it, uh, so that, um, that's that job, um, where I was working.

 

Andrew Brewer (00:04:13) - I mean, they have these in all types of buildings. Um, the facility I worked in for a number of years, uh, was in San Jose, California. Uh, it was a high rise building, 27 storeys, um, composed of 197 residential units and then eight ground floor commercial spaces. So it was half of a city block, that one facility, um, because it was a high rise. We had a lot of, uh, singular systems in the building, um, on a lot of apartments, like garden style apartments. When you think about the Hvac system, generally, you'll see like a roof, and there's just like a whole bunch of condensing units all in a row along the roof. You know, when you're in a 27 story building, you've got less roof area. You can't just fit a bunch of condensing units. You have one system for the entire building, uh, which would be a cooling tower or a chiller or something like that. And then that is supplying, um, you know, refrigerant and cooled water to all of the 197 Hvac units that are in there.

 

Andrew Brewer (00:05:13) - So it's a very different system that you have to work with. Um, so that's that's the building that I worked in. I started there as a utility engineer, worked my way up to the assistant chief engineer of that facility, um, and worked on, you know, everything in that building heating and cooling, electrical, plumbing, uh, you know, even some structural work, cosmetic stuff. Worked very closely with, uh, the HOA board and the property manager to keep that facility running. Um, keep everything running on budget. Um, you know, there was a there was a lot of it was kind. A mishmash of, you know, property management, maintenance work, asset management, facilities maintenance. Like we kind of did it all because we were actually a relatively small team for that facility. Um, and that's, you know, that's really how I got a lot of my hands on knowledge. Um, while I was there, I also acted as a consultant for construction defect litigation lawsuits.

 

Andrew Brewer (00:06:14) - Uh, so I did that. And, you know, basically that's suing developers and builders for, uh, defects in their construction. Um, and so, you know, so I did that as well and then participated as a project manager in reconstruction projects. You know, like if you win a construction defect litigation suit, generally there's a large settlement. That settlement, if it's used properly, is used to remediate all of those problems in the facility. So that's, you know, basically a huge redevelopment project that then has to happen, which in a high rise, as you can imagine, involves a lot of work being done suspended on lifts many hundreds of feet above the ground. Um, which is not always super fun.

 

Sam Wilson (00:06:59) - No, but would you say that that is where you really, um, you know, figured out how to become a developer?

 

Andrew Brewer (00:07:08) - Uh, that was instrumental in it. So, um, doing that job, um, I didn't actually develop anything from the ground up, but the process of, you know, redevelopment, working on those lawsuits, um, that all gave me a lot of background knowledge.

 

Andrew Brewer (00:07:24) - So, you know, as I'm developing properties now and building properties, I know exactly what's going to put me in court at the end of the day because I know what to look for. I know where common mistakes can pop up. I know how, um, how serious those things can be if you don't do your due diligence as a builder. Um, and a lot of this stuff can be relatively mundane. It's not something that people think about. Um, you know, I'll give you a good example of that. One of, um, one of the big issues in this facility I was working in was, uh, was plumbing problems. And, you know, it turned out that that one of the issues was the builder used, um, the wrong kind of rubber and a lot of the gaskets and seals and it, you know, the water source in that area, you know, had certain, you know, certain things. And it's very hard water in San Jose. It's very similar actually, here in Austin, Texas, there's just a lot of calcium in the water.

 

Andrew Brewer (00:08:23) - And, uh, you know, those minerals that were in the water reacted poorly with, um, with that type of rubber, I guess the chemical composition of that rubber, and it degraded it prematurely and led to just leaks everywhere. And, you know, as, as I'm sure you know, you know, I mean, you got water will do wonders for your, your flooring and your sheetrock and, and everything. So, you know, the the leak itself may not cost that much to fix, but having to remediate, you know, a big leak cascading from the 20th floor all the way down. I mean, that's a lot of damage. That's hundreds of thousands of dollars of damage for a single plumbing leak. Um, so those things get amplified. So I kind of saw that in real time, like, oh, this is bad. These can be millions, tens of millions of dollars in damages if you don't build this stuff correctly. So that's really informed. You know, how I've approached development is making sure that, you know, I take all the steps to not get sued for that, you know, to protect my investors as well.

 

Andrew Brewer (00:09:22) - When I started developing, um, you know, I have a partner here in Austin that I develop with, um, he actually grew up, uh, building spec homes with his parents. His parents had a spec home building company, and they would go out and, like, buy land, subdivide it, build houses. So he and I had very complementary skill sets. He knew, you know, like, hey, this is the specifics of like, land development. And I had the point of view of like, hey, this is what it takes to do this with a large commercial facility. Um, because the process of doing, you know, redevelopment or reconstruction, I mean, you still have to go to the city, you still have to pull permits, you still have to get approvals. You know, you still have to work with contractors. A lot of that is very similar, even if it's not like exactly apples to apples. Um, but, you know, I mean, pulling a permits, pulling a permit, you know, that that doesn't change whether you're doing it for a new build or redeveloping something.

 

Andrew Brewer (00:10:15) - Um, so I learned all that through my job, and, uh, and that really informed, you know, what I'm able to do now, um, at that same time that I was doing that, you know, that's when I was doing, you know, a lot of reading. I still do a lot of reading, but I was doing a lot of reading then listening to podcasts, going to networking groups. Um, and I was investing myself just on the side outside of my job in smaller single family stuff. Um, and so I developed that skill set as an owner and as an investor. Like, what do owners look for? What do you investors look for? What makes them? Being a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building.

 

Andrew Brewer (00:11:09) - What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.

 

Sam Wilson (00:11:21) - Absolutely. And I and I would I would say that just from an outside perspective, the remodel indoor remediation side of things is 10 to 1, the difficulty of just building something new.

 

Andrew Brewer (00:11:33) - It is. Um, that that's definitely true. You know, my dad, uh, my dad was a carpenter and a staircase builder for a time, uh, back before I was born. But, you know, in another life, he was that. And, you know, like, as we talk about that kind of stuff. Now, you know, the thing that he's always said to me, which I found very true in my career, is, you know, when you're remodeling, um, or, you know, he would say it's so much easier to build new than to remodel, because when you remodel, you're fighting for inches and you got to find them somewhere.

 

Andrew Brewer (00:12:03) - If you're building new, you know, you can just add inches and it's really easy. Um, so that with him just saying, like, yeah, you're always fighting for inches, that is just kind of always stuck in my head. Um, it's part of the reason I like new development more than more than rehabbing stuff. It is a little easier in some ways.

 

Sam Wilson (00:12:20) - Absolutely. I would, I would the only the only thing that I would argue on that front is that your speed to market could be potentially faster on a remodel than maybe on.

 

Andrew Brewer (00:12:31) - That's definitely true. Um, you know, I have some folks, you know, that I know that are able to, you know, they buy property or maybe we're able to exit it pretty quickly, you know, especially during like 2020 to 2022. You know, it's like, hey, I'll buy this apartment complex. I'll renovate 20% of the units, get some higher rents. It's proof of concept. Turn it around and flip it. I've got an exit in 6 to 8 months.

 

Andrew Brewer (00:12:53) - Put that on their resume. Like, look, I've got all these exits now with me, it's a little more challenging when I'm developing a property. I can't really just, uh, in six months be like, well, I built some of the framing. I'm going to flip it to you. Like people really expect you to finish it. So. So my holds end up being a bit longer because I actually have to stick with them from all the way from the beginning, all the way through the end.

 

Sam Wilson (00:13:13) - What's your what's your plan on the development side of things? I mean, I see, you know, the there's there's developers that get it too completed, partially occupied and then punt it. But in your bio there, you said you're a buy and hold investor. What's your what's your strategy on that front?

 

Andrew Brewer (00:13:30) - My ultimate goal in every project I do, I guess I'll say aside from single family home subdivisions, because I, I don't want to compete with, you know, D.R. Horton or Lennar or anything.

 

Andrew Brewer (00:13:40) - I will entitle lots for them, but I don't want to build the houses, um, for my townhome and multifamily projects, my goal is always to buy raw land and title it, develop it, build it, and then hang on to it forever. Like that's what I want to do. That doesn't always work to do it that way. Uh, there can be deals found at any stage in the development process. You know, I have bought shovel ready deals. I have bought raw land. I have bought land that was already zoned, but not, you know, entitled or developed. Um, I've bought land that, you know, wasn't even annexed into a city with no utilities. Um, I can come in at any point in the development process, and I have, um, it all depends on, you know, how the how the numbers work out. You know, like, if somebody wants way too much money for their entitled land or their zone land or whatever, like, I'm not going to do that deal.

 

Andrew Brewer (00:14:37) - If somebody is offering like a great deal and I see a good way to make, you know, investors a lot of money, uh, then then I may buy something shovel ready. But ultimately I would like to, you know, extract as much value as I can. And you do that by doing the entire process, you know, from raw land all the way through, holding the final asset. At the end of the day, I'm going to do what is best for the investors, which sometimes is to sell. If there's a crazy good offer on the table or, you know, if there's a feeling that, you know, maybe the next phase of a project might not go so smoothly, maybe there were some recent, you know, changes to the zoning code or changes to, you know, the building codes or maybe you know, somebody in, you know, a local municipality that is, you know, Anti-development just got elected. You know, I, you know, I might say, like, uh, might not be the best thing for us to stick with this project.

 

Andrew Brewer (00:15:33) - We could probably get it done. But the risk, you know, may not outweigh or, um, may outweigh the, the rewards at this point. So I'm always very cognizant of, you know, what's going on in the area, what's going on with any project. If we have to exit, or it makes sense to exit to minimize risk or protecting investors investment, like I will absolutely do that in a heartbeat. Um, but ultimately, I, I want to just hang on to stuff. You know, that's there's so much time value of your money in real estate. Like, you know, real estate goes up over time. You know, if you get a good asset at a good price, you know, it can make sense to just hang on to it, you know, as opposed to trying to repeat the same thing every couple of years.

 

Sam Wilson (00:16:17) - I mean, outside of the constraints of, you know, like you said, elected officials coming in that are anti-development things like that.

 

Sam Wilson (00:16:23) - What what else is there that might prevent you from holding something long term?

 

Andrew Brewer (00:16:31) - Um, other, you know, other things. There might be, uh, construction prices going up, like if this is if this is entitled land that we haven't built on yet, you know, seeing, you know, supply chain issues or, you know, just prices on certain items kind of go in going super nuts in the future. That would definitely, you know, factor in might want to, you know, offload a project if it looks like it might not be feasible to build anymore. Um, if there was, you know, some, some kind of negative press in the area where the project is not necessarily elected officials, but, you know, if I don't know, you know, we're trying to build some apartment complex on some street and like, you know, suddenly, you know, some, you know, some gang moves in, you know, down the street and suddenly there's a bunch of homicides like, uh, maybe, you know, this might not bode well for the neighborhood in the future, you know, might make sense to try to offload this before the situation gets worse.

 

Andrew Brewer (00:17:33) - If it looks like there isn't a strong response to that, um, you know, things, things of that nature, um, I guess I would say would be reasons to offload. Another reason would be a really good offer on the table. You know, somebody comes in is just like, hey, I'm going to offer you a stupid amount of money for this thing. Like, okay, well, you know, if I, you know, can like two x my investors money in like a year because some guy really wants to get into this area. And by this project, I mean that might be a good thing if it's going to take me, you know, five years to two x their money, they might be very happy just cashing out right now. Um, I might prefer to hold it, but I mean, you know, it's mostly investor money, so, you know, you got to do what's best for them.

 

Sam Wilson (00:18:14) - Right? Absolutely. They got one other practical question on that front, which is, you know, how do you how do you value shovel ready projects when you look at that? Like what's that process? What does that process entail?

 

Andrew Brewer (00:18:28) - Valuing shovel ready projects is really hard.

 

Andrew Brewer (00:18:31) - Um, valuing land is really hard. Especially entitled land. Um, but for a shovel ready project or, you know, entitled land, the way I do it is I try to back into a value based on the final completed asset value and what I think it will take to get there. So factoring in, you know, cost of construction and holding costs, you know, time, um, you know, time to build all that kind of stuff. You know what I think you know, the rents or the sale prices might be, uh, when it's completed. You know, I kind of back that off put in, you know, what a, you know, a good market return would be for somebody to invest in that project, you know, a good risk adjusted return. Everything I look at is a risk adjusted return. Um, you know, this is investing there. There are risks. You know, you don't get a 20% IRR on your money without taking some risks, like, you want no risk.

 

Andrew Brewer (00:19:27) - Go stick your money in a savings account and get 0.1%. Like that's the risk free option. But it is not the option that builds wealth. Um, not to say that I'm careless with money, but you know I do. I am upfront with my investors that like, hey, like there is a risk here if you know, if you like, you know, are betting on this money to like pay your medical bills in the next six months, please don't invest it with me like I don't want to be, you know, I don't want to be put in a position where, you know, you where I've disclosed that this is an illiquid investment and you need the money in six months, and then I'm looking like a jerk. Um, but, you know, anyway, back back to the point of valuing land, you know, put in a reward, put in. You know what my profit needs to be for me to do the project, factor in all of that stuff and kind of back into like, okay, so this is kind of what I could pay for this land.

 

Andrew Brewer (00:20:20) - I guess it's a very similar approach to what a lot of, um, buy and hold investors do where they, you know, you know, if they're not looking at the actual value of the property based on, like, you know, the rent roll or something, but they're looking at the potential of what the property could be and buying on that number. That's really what I do. And coming to a number on, uh, shovel ready land or entitled land, I, you know, I, I really develop kind of my top number at that point. And then I kind of go to the market and see what is land trading for, you know, are there any other entitled projects that I can look to potentially as a basis for comparison? Oftentimes there's not, um, or not something that would be a true, you know, apples to apples comparison. I'm often having to extrapolate from a different, you know, type of project. You know, maybe if I'm looking at, you know, hey, this this is an entitled project for 200 units.

 

Andrew Brewer (00:21:15) - The only other comp I can find in the area is a project entitled to build 16 units. Like, kind of hard to make a comparison there. Um, so, so there are a lot of estimates. Um, but. You know, if I see that, you know, the price that I'm willing to pay is far over. You know anything else that's listed in the market? You know, I'll go with that lower number. Like, hey, let me lock up something that, you know is more in line with the market. If the market's asking way more than you know, than my number says, uh, which, you know, happened here in Austin for a couple of years, you know, people were just paying stupid amounts of money. I don't I don't know how they justified prices, uh, that they paid. Um, you know, I may, you know, lob in an Loi just to kind of see if there's any response, not really expecting anything. You know, if they come back and want to be reasonable, that's fine.

 

Andrew Brewer (00:22:09) - Um, but I have, um. You know someone someone that I spoke to about, you know, putting in offers and, you know, what he said was, you know, if your offer price is off by more than 10% of their ask price is probably not going to go anywhere. Uh, you know, you can ask, but, like, don't sit there and be, like, betting on getting a favorable response. Um, so, you know, that's kind of how I try to value stuff and, and look at it there.

 

Sam Wilson (00:22:36) - Fantastic. Andrew, this has been a blast having you on the show. I've got like 500 more questions that I want to ask you, but unfortunately we are out of time. We've learned so much from you here today, especially as it pertains to kind of what your thought process is on the development side of things, how you view projects from a, uh, what did you call that, a construction defect litigation lawsuit perspective? I mean, that's that's a skill set that very few people have have been part of those, uh, calling in as a witness on a very specific part of that process.

 

Sam Wilson (00:23:08) - And it's, uh, yeah, it's very interesting to see see those go down and kind of how that works out. But you've got you've got a just an amazing background and uh, yeah, a wealth of knowledge there. So thank you for taking the time to come on the show today. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?

 

Andrew Brewer (00:23:23) - Yeah. So people can find me on Facebook or on LinkedIn. Um, those are the two platforms that I use the most. Uh, or they can visit my websites. I've got two real estate companies, uh, here in Texas. Uh, one is Iron Gall Investments. So you can visit er on JL investments comm or distance three development. That's dot distance. The number three development.com. And you can shoot me an email. Uh I've got two emails either Andrew at Angle investments.com or Andrew at distance three development.com.

 

Sam Wilson (00:23:58) - Fantastic. Thank you again for your time today Andrew I certainly appreciate it.

 

Andrew Brewer (00:24:02) - Definitely. Thanks so much for having me.

 

Sam Wilson (00:24:04) - Hey, thanks for listening to the how to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Rod Kheif.

 

Rod Khleif is a multiple business owner and philanthropist who is passionate about business, high performance, real estate and giving back.

 

Show summary:

In this episode Rod Kheif, a successful business owner and philanthropist, shares his journey in the real estate industry. He discusses his early start, inspired by his mother's investment, his significant loss during the 2008 financial crisis, and his recovery. Rod emphasizes the importance of mindset, determination, goal-setting, and focus. He also highlights the significance of surrounding oneself with a positive peer group and the role of meditation in enhancing focus. Rod provides insights into the current state of the commercial real estate market, advising listeners to be conservative in their projections and to educate themselves before investing.

 

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The mindset it took to recover from losing $50 million (00:01:54)

 

Importance of goal-setting and decision-making (00:03:48)

 

Pushing through fear and limiting beliefs (00:06:13)

 

The importance of focus (00:07:38)

 

Playing to your strengths (00:08:25)

 

The power of peer group (00:09:15)

 

The Projections and Debt Crisis (00:15:23)

 

Opportunity in the Market (00:16:11)

 

Lowering Interest Rates and Future Outlook (00:17:42)

 

The episode ends (00:23:57)

 

Rod shares his contact information (00:23:35)

 

The hosts thank the guest (00:23:50)

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Connect with Rod Kheif:

Website: http://Rodkhleif.com

LinkedIn: Rod Khleif - https://www.linkedin.com/in/rodkhleif/

Twitter: @RodKhleif - https://twitter.com/RodKhleif

Instagram: @Rod_Khleif - https://www.instagram.com/rod_khleif/

Facebook: Rod Khleif Official - https://www.facebook.com/rodkhleifofficial/

YouTube: https://www.youtube.com/RodKhleif

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Rod Kheif (00:00:00) - It's how do you get anything if you don't know what it is? You've got to create a burning desire or hunger. You've got to want it. That's how you push through fear. That's how you push through limiting beliefs or that's how you get uncomfortable. You know that comfort zone is a nice, warm place, but nothing grows there. And so you've got to push through fear and all that by knowing what it is you want and why you want it.

 

Sam Wilson (00:00:20) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:32) - Ratcliffe is a multiple business owner and philanthropist who is passionate about business, high performance, real estate and giving back rod. This is your second time on the show. It's been a couple of years. I didn't have time to look up the episode number beforehand, but in case you didn't hear rod the first time, go back. Find that episode there on the How to Scale Commercial Real Estate podcast.

 

Sam Wilson (00:00:50) - That was a great episode then. Rod, it's a pleasure to have you back on today.

 

Rod Kheif (00:00:52) - Oh thanks, brother. It's good to see you again.

 

Sam Wilson (00:00:54) - Absolutely, rod, the pleasure is mine. There are three questions, however. I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there in 90s?

 

Rod Kheif (00:01:07) - God. Oh, man. That's a that's a long, sordid story, brother. I started because my mom bought the house across the street when I was 14 for 30 grand. Two years later, she told me she'd made 20 grand in her sleep. And I said, forget college. I'm going to do real estate. And and fast forward to today. I've owned over 2000 houses. I've rented long term 200 of them in your backyard in Memphis. We won't talk about that. And then the rest are in Florida and Denver. But, you know, I now own thousands of apartment units.

 

Rod Kheif (00:01:37) - I lost $50 million in 2008 and nine, and it was a single family that pulled me down. And so what I'm known for talking about on my podcast and at my live events is the mindset it took to have 50 million to lose in the first place. And probably more importantly, the mindset took to recover from that to the success that I'm blessed to have today.

 

Sam Wilson (00:01:54) - Let's talk about that because I think, you know, if we get and we don't have an agenda for this show, I think you and I talked here ahead of time. For those of you listening, you know, a lot of times we'll just kind of hash out some of the high points we want to hit. I think you and I are going to kind of wander all over the place today and have a good time doing it. But one of the, you know, we talked about that on your first episode. So you can go back and listen to Rod's story. You can lose in 50 million bucks. That's a big deal.

 

Sam Wilson (00:02:17) - That's a big hairy deal, not only to build a portfolio of 50 million, but then to lose it. I do want to talk about the mindset it took to recover that. So let's spend a little bit of time there and then compare that if we can, before the show is over, we're going to compare that to where you see us in the market today and kind of how.

 

Rod Kheif (00:02:32) - The proverbial, you know, what's about to hit the fan, uh, there's no question about it. So, uh, you know, so how did I, uh, how did I have 50 million to lose in the first place? And how did I recover? I, when I, when I lost everything I associate with what I wanted and why I wanted it. So, you know, if you come to one of my boot camps, the first thing we do is goal setting on steroids. Because how do you get anything if you don't know what it is? You've got to create a burning desire or hunger.

 

Rod Kheif (00:02:57) - You got to want it. That's how you push through fear. That's how you push through limiting beliefs or that's how you get uncomfortable. You know that comfort zone is a nice, warm place, but nothing grows there. And so you've got to push through fear and all that by knowing what it is you want and why you want it. So you've got to do your goals. By the way, if you haven't done your goals, write this down. Write down rods, links com or text the word links to 72345. If you're driving at the bottom of that link tree, that's got all my social media, it's got my podcast. I have the largest commercial real estate podcast really in the world now we're over 20 million downloads. And and it's because I spent time on mindset and psychology. But if at the bottom of that, Linktree is my goal setting workshop, I do it every year on the first year. I'll do it again January 1st of this year. And you know, how do you get anything if you don't know what it is? Right? And and people spend more time planning a Christmas party than they do designing their lives.

 

Rod Kheif (00:03:48) - And so do your goals. That's designing your life. Have your spouse do it. Have your kids. If they're over ten years old, do it. So again, text the word links to 72345 or go to rods links.com. It's there. I'm not going to try to sell you anything. Just go design your life. So that starts with goals. Then you got to make a decision. And that's what I had to do back then. I decided to get out of my pity party and get my butt back up and make stuff happen. And the Latin word for the word decision means to cut off. Uh, for a great analogy, for a real decision would be if you're going to attack the island, you're burn your ships because you're taking their ships home. It's committed. There's no one foot in, one foot out dipping a toe in the water. It is freaking done when you make a decision. So you got to make that decision. That's the next piece. Then. Then for me, I had to I had to get back up after I made the decision of what I was going to do, which was focus on on multifamily, uh, because my multifamily did just fine when I lost everything, it was the single family that pulled me down.

 

Rod Kheif (00:04:40) - So then I took that first step and I went out there and started buying multifamily again. And that's the next piece. You got to take that first step. And, you know, in this business, I have a lot of students that are very analytical. And if you're analytical, you know who you are, and I love you, but you know how you typically have to check off every box before you make a move? Well, you can't do that here. You've got to take that first step. You know, great analogy for this would be you can drive all the way across the United States at night. Headlight only seen 60ft in front of you. You know you'll make it. Other people have made it before. You may have some obstacles, but it's the same way with your goals. But you got to take that first step, okay? So make a decision. Take that first step because you don't want regret. You know, um, the worst thing in the world is regret.

 

Rod Kheif (00:05:20) - Don't fear failure. Fear, regret. Um, you know, there was this nurse in Australia I may have mentioned on the last episode with you named Ronnie Ware as a hospice nurse, and. Yeah, and you're right, the five, uh, five biggest regrets of. She asked that, she asked her hospice patients. Do you have any regrets? And the biggest regret was not doing what I know I could have done. Doing what someone else, uh, you know, told me to do. Not doing what I know I'm capable of. I can't think of anything worse than that. So no regrets. Don't fear failure. Fear that. And then, you know, it's it's, um. The next thing is pushing through fear and limiting beliefs. You know, when I, uh. So what is fear? Um, you know, f everything and run or false evidence appearing real, I think. Yes, it's probably that for sure, because 99% of what we fear never happens. But it's definitely, in my opinion, face everything in rise because it's the successful people that push through in spite of the fear, um, and limiting beliefs.

 

Rod Kheif (00:06:13) - You know, when I immigrated this country, I got thrown into school. I found out what bullies were for the first time, and my mom proud dutchwoman that she is, sent me to school in these wooden shoes. These are the actual wooden shoes. We found them when we put her in assisted living. And so I got my butt kicked again. And then we had bullies that lived on the end of my street. And, uh, you know, she they chased me home, and she chased them off with a flyswatter. So next day, I got my butt kicked, you know? So I came up with this belief system that I wasn't good enough. I used to ask myself, how can I show them I'm good enough? Uh. And which presupposed that I wasn't. So, you know, a lot of people have these limiting belief systems. I'm not smart enough. I'm not good enough. I don't have enough time. I don't have enough money. I'm not analytical enough. That was another one of mine.

 

Rod Kheif (00:06:51) - There's a reason the acronym for Belief Systems is B.S., because 99% of them are. They have no basis in fact, but we believe they're real. The next piece is focus. I knew I had to have laser focus. The most successful people on the planet have an extremely high degree of focus. And here's the thing whatever you focus on gets larger, and wherever focus goes, your energy flows. But you know you want to make sure you're not focused on negativity. You know, we start to talk about politics and what's happening in this country. And I got flamed up because I'm very much on one side of the fence there. And but the bottom line is whatever you focus on gets larger. And, you know, they asked Mother Teresa when she was live, she was antiwar. She said, no, I'm pro peace. You know, I get students or people, not student students no better. But I get people to call me and say, you know, what do I do to get out of student loan debt? I'm like, wrong question.

 

Rod Kheif (00:07:38) - What do you do to make so much money? The debts are irrelevant because again, whatever you focus on gets larger. I listen to two podcasts, um, and, and you know, and I try to stay on both sides of the aisle. One is Tim Ferriss was definitely on the other side for me. And then there's Joe Rogan. And, you know, I get excited about my 20 million downloads. I think they get that a week on theirs. But on Tim Ferriss Show, I listened to it because it's fascinating. And he interviews the best of the best in every walk of life, the best athletes. Michael Phelps, NFL, NBA players, best actors Ed Norton, Hugh Jackman, Arnold Jamie Fox, uh, CEOs of the biggest companies in the world like Zuckerberg, um, um, billionaires like Ray Dalio. And he deconstructs their success. Okay? He interviews them, deconstructs their success. And I started to hear a pattern. They almost all meditate. What does meditation enhance your focus.

 

Rod Kheif (00:08:25) - Right. So pay attention to focus. That's a big one. The next one is playing to your strengths. I knew what I was good at and I'm a great communicator. And so I started the podcast and I'm the mouthpiece for, for for my acquisitions company. I have my thought leadership business. I have, you know, over a thousand students around the country. They now own coaching students. They now own over 180,000 units that we know of. I'm super proud of that. Um, and I've only been teaching five years and, and and, and and I teach them play to your strengths higher align or partner for your weaknesses. Okay. Because when you're playing to your strengths, you love what you do and what you love what you do. Success is inevitable. Don't do what you don't love. You know, one of the best combinations in my business, multifamily real estate, is an analytical person with an outgoing person. Introvert with extrovert. That's a match made in heaven because you need both pieces.

 

Rod Kheif (00:09:15) - Some people are both, but most are better in one or the other. Here's the thing though. Don't live someone else's life. Do what you're good at and when you do, you never work another day in your life because you love what you do. And when you love what you do, you're passionate. And passion is required to influence people. And so, you know, and so focus on your strengths. You're going to love what you do. You'll be passionate and and then you'll be able to influence people. And that passion is the fuel. You know, when you have that passion it breeds creativity and innovation and minimizes or even eliminates fear. Um, just a couple more pieces. The next one is peer group. Who you hang out with is who you become. You know, uh, I when I was losing everything in 2008 and nine, I was in Tony Robbins Platinum Partnership, which at the time was about 130 grand. It's more than that now. But I was around people that were killing it in the crash when I lost, you know, $50 million in 2008 nine.

 

Rod Kheif (00:10:04) - They were killing it. And that's when, right when I was in that mastermind and they're like, get up, you big wussy. Go make something happen. 50 million, million. That's who you want to be around when the soup hits the fan. Right. And so, you know, that's that's, uh. And so pay attention to who you allow to influence you. Most people will default to a peer group that they went to school with or that they work with. And, and sometimes these people don't have your best interests at heart. They're naysayers or they're afraid of your success, or they feel afraid of feeling like a failure. You succeed. And sometimes it's family. And I'm going to tell you I love your family, but choose your peers. Get around people that want more out of life, people that will push you and hold you accountable. That'll hold you to a higher standard. Most importantly, that that think what you think is hard is easy. You know, if you're playing tennis, do you want to play tennis with somebody that's better than you or worse than you? I mean, you know the answer.

 

Rod Kheif (00:10:52) - Um, and then the last piece I'll talk about is, is failure. You know, you only fail if you don't get up, back up. You don't get the lesson. You know, I call them seminars. We really fail our way to success. You know, problems give you feedback. You know, I will tell you, if you come to my bootcamp, I've got a virtual one coming up in January, and I'll give your peeps a hell of a deal if they want to come. But, you know, uh, it's a Saturday and Sunday. On Monday, you'll get a survey from me asking you what you thought. And of course, 99.9% of the feedback is fantastic, but I'm looking for that 1% of constructive feedback. And how do I make it better? And that's the only way to get it. You know, I got to meet the billionaire owner of Spanx, Sara Blakely. You know, that the women's undergarments that hold everything together for women and women know who this is.

 

Rod Kheif (00:11:36) - But anyway, she started with 5000, and she's a billionaire. But I met her at a mastermind that I went to, and she told me that her dad used to ask her and her brother once a week, what have you failed that this week? I thought, what an awesome freaking question to ask your kids. You mind if I mention my boot camp real quick?

 

Sam Wilson (00:11:52) - No. Go for it.

 

Rod Kheif (00:11:53) - Oh, okay. Yeah. So I've got a virtual boot camp coming up. It's coming January 6th and seven, so you can do it at home in your underwear. I don't sell anything there. It's not a sales pitch. It's two days of training. And if you come use the code, Sam, and you can come for $97. Okay. And so where you go is you go to rods, links, comm. If you're driving, text the word links to seven, 2345. There's a ton of free resources there. I've got free books there. My social media is there. If you've got a question about anything about this business, I answer every single question on social.

 

Rod Kheif (00:12:24) - So if you ask me a question, you'll get an answer for me every time. Some people are like, is this a bot answering? And I got to send a picture of my underwear with my fingers up or something. No, that's me. But anyway. But the point is, go there that my boot camp site is there when you know the price will be 4 or 500 bucks by the time the boot camp comes around. But if you put in the code, Sam, you come for 97. I don't sell anything there. It's every aspect of the multifamily business. Soup to nuts. And and if you go to the bottom of the boot camp website, you'll see hundreds and hundreds of testimonials. And if you come and you don't love it, I'll give you your $97 back. I don't mean like it. I mean freaking love it. I'll give you a $97 back. So you know, there is that. But, uh, but anyway, so that's coming up January 6th and seventh and rods links.

 

Rod Kheif (00:13:02) - There's a lot of free resources there. And again, at the bottom is my goal setting workshop. Do your goals. You should be doing your goals 2 or 3 times a year. Go do it. You know you'll really enjoy the process I promise you.

 

Sam Wilson (00:13:12) - So yeah rod that's a lot man. I appreciate you going into detail on that. You know, having the people around you, I think that, uh, you know, can help recenter after a devastating loss. It's probably one of the things that took away from what you.

 

Rod Kheif (00:13:26) - Oh, no, it helped me a lot. Help me a lot for sure. Yeah. For sure.

 

Sam Wilson (00:13:29) - Absolutely. So you you came out of that, you rebuilt your portfolio. You kind of gave us some insight on, you know, how you, you know, structured everything and got your head in the right space to recover mentally.

 

Rod Kheif (00:13:42) - Yeah. All the mental structure. Sure.

 

Sam Wilson (00:13:44) - And that sounds like it's 80%, maybe even more 90.

 

Rod Kheif (00:13:47) - It is.

 

Rod Kheif (00:13:47) - Listen, that's the reason my students are so successful because I'm pushing them so hard on the on the mental and the psychological part. The technical is easy. You can learn that anywhere. Go to YouTube University, you know, come to my boot camp for $97. You'll get the technical and you'll get a lot of mindset stuff as well. I'm going to tell you, you're going to get you're going to you're going to leave that event just out of your skin. But the point is, most people don't do that piece. But that's the most important piece, okay. Is is the mindset and psychology for every aspect of your life your health, your wealth, your relationships, your happiness mindset and psychology is the most important piece for sure.

 

Sam Wilson (00:14:18) - Absolutely. Absolutely no, I love that. That's absolutely great. How are you setting yourself up now? This is not something we got to talk about two years ago.

 

Rod Kheif (00:14:27) - Being very being very conservative. I'm going to tell you that I'm very conservative. Like I haven't bought a deal in over a year.

 

Rod Kheif (00:14:33) - I've got a deal right now. Screaming deal under contract. Um, it's 200 units in San Antonio, about a little over a mile away from another 296 unit asset we own. That's one of our top performing assets. And this deal is this, this unit, this this place is even nicer than the 296. And we're going for 100,000 a door. The one next door sold for 137,000 a door. Um, you know, this place was under contract for 26 million months ago. We're getting it for 20. I mean, screaming deal. Uh, we're assuming a low interest loan. I'm very, very conservative, Sam. I mean, like, we're we're, uh, we'll have six months of operating reserves of expenses, just, you know, in case the, you know, you know, what hits the fan. Um, we're we're going to do a huge CapEx renovation budget. They're almost $4 million, and we'll have 360,000 of it in just in case we miss something. I mean, that's that's how conservative we are.

 

Rod Kheif (00:15:23) - Um, the projections are very conservative, but that's the that's the operative word today is be conservative. I really believe the soup is about to hit the fan. The. There's a ton of debt coming due. And and when debt comes due in the commercial space, you either have to sell or refinance. Sales are down almost 90%. Refinancing is extremely difficult right now because of the interest rate increases. And we have what's called debt service coverage requirements. Meaning, you know, when you buy a commercial property, they're looking at the property's ability to service the debt, not yours. They're not looking at your income. They want to make sure the property will do it. And so, you know, these operators, I know some world class operators that are in in deep duty right now. I mean, they're in trouble. And and I mean, guys, I really have a lot of respect for because they got what's called bridge debt, which is like hard equity money in the single family space. And it's it's very onerous debt.

 

Rod Kheif (00:16:11) - It's low, low, uh, adjustable rate interest rates short term. And, you know, I'm embarrassed to say I'm in a couple of them right now with a past partner that did it. Um, uh, talked me into it. Uh, we'll get out of it, but it's no fun. But there are a lot of them that aren't going to get out of it. And so there's incredible opportunity coming. You know, there's been a lot of greed these last few years. Um, you know, Warren Buffett's famous quote, be fearful when others are greedy. I've been real fearful the last couple of years. But then again, the flip side of that is be greedy when others are fearful and the fear is here, it's coming. All you have to do is watch the news. Don't get me started, but just keep this in mind. The news are not there to inform us. They're they're they're moneymaking. They're not public service organizations that make money. And the censorship and the propaganda on the news anymore, it's just almost like, mind numbingly stupid and amazing that people are falling for it, frankly.

 

Rod Kheif (00:17:01) - Uh, but, uh, yeah, don't get me started on that. But, uh, you know, just be careful what you bring in. And that's why focus is so important. That's why your goals are so important. So you don't get sucked into that stuff. Stay focused on your goals and what you want. And this could be the greatest moneymaking opportunity of your lifetime, because I believe everything's going on sale. Businesses, definitely. Every asset class in real estate is going on sale, you know? So whatever it is, what? Pick your vehicle right now, decide and and go learn it. If it's multifamily, get your butt to my bootcamp. If it's something else, go learn it right away. Because if you're in the if we're in this, if we're in the middle of the soup, it's going to be too late. You've got to build relationships. You got to understand how to value stuff. And you know whether businesses are real estate. You got to understand all that.

 

Rod Kheif (00:17:42) - And so that takes some time. So you want to get up to speed as fast as you can. Because I really we may have a lull before the election. I think rates are going to come down because the current administration has to do something. You know, unless they're going to steal the election again, they're going to have to do something to, to to look decent. And so, you know, it's it's going to be, uh, you know, lowering the rates to try to make the economy look better. But after this election, watch out, because I really believe the proverbial, you know, what's about to hit the fan. I really believe that.

 

Sam Wilson (00:18:10) - Well, for sure, if you just look at the the amount of debt that's maturing in the next 12 to 18 months and it's it's a crazy thing, a staggering number and.

 

Rod Kheif (00:18:20) - Commercial commercial debt. Yeah. Right.

 

Sam Wilson (00:18:22) - Yeah. And I mean, and that's I mean that's, that's a staggering number. We'll just seeing how that plays out will be interesting.

 

Sam Wilson (00:18:28) - I do have a just a mechanical question on this deal that you guys are buying. Why is someone even selling a deal that has a fixed load?

 

Rod Kheif (00:18:35) - They ran out. They ran out of money. Yeah, they ran out of money. Uh, horrible operator, horrible management. They've got 40 vacancies in the market that were 96% occupied a mile and a half away. Um, and this these units are bigger. They have fireplaces. That's on a lake. Um, I mean, it's a nicer asset, but they've let it go to hell. And that's why we have to raise 4 million, uh, in CapEx almost. That's probably 3.8 million, um, to, to do the to to do the renovation. They're on 200 units, a pretty significant CapEx budget, but it's going to be a world class asset again, Lake on one side, golf course on the other, just it's it's got all the bones of really being something spectacular but horrible management, which is what we love to see.

 

Rod Kheif (00:19:15) - That's the ideal scenario. Uh, because we're assuming low interest debt on that. It's got seven years left on it. We're not getting new financing. It's got 4% debt on it, which is fantastic right now. So we're assuming that that loan and, uh, yeah, just a very exciting screaming deal. Very excited about.

 

Sam Wilson (00:19:31) - How how do you keep your acquisition teams busy? I mean, it's been a year.

 

Rod Kheif (00:19:36) - Oh we're going through so many deals, man. I mean, we looked at so many. We've kissed so many frogs. You have no idea. So many frustrating where people have outbid us and we're like, no, we're not going to go higher than that. And, you know, it just is what is. By the way, if you're accredited and you want to take a look at the San Antonio deal, text the word partner to 72345 and we'd love to talk to you about it. I also have an incredible free, free resource for investors, passive investors. It's probably the best out there.

 

Rod Kheif (00:20:03) - It's this we call it the Cash Flow Club. It's the free cash Flow club. If you text club to seven, two, three, four, five we'll give you the link. It's got videos, books, articles, emails. I think it's just probably the most incredible resource for passive investors that's out there. We're not going to try to sell you. It's just a free resource. If you want to check it out, it's free Cash Flow Club. See our Cash Flow club.com or text the word club to 72345. And we'll send you that link. Incredible resource. For learning about passive investing or better yet, come to my boot camp. Honestly, you know, why would you give your hard earned money to someone without having some basic understanding of what it is you're investing in? So many people do that they'll put their money in the stock market. Haven't got a clue what's happening with it. Don't do that. Spend a little bit of time learning what you're investing in, either at my bootcamp or, you know, go to the Cash Flow club or learn elsewhere.

 

Rod Kheif (00:20:53) - But learn before you give your hard earned money to someone. That always kills me when I see that. So yeah.

 

Sam Wilson (00:20:59) - Absolutely. Rob, this has been great. I mean, you've given us the, uh, the way to get our head screwed on straight. You've told us about this, the deals that you guys have been sorting through. Finally, finally finding one in San Antonio. Right? Right. One thing I read this morning, I and I spend about one minute a year on social media. Uh, but, uh, for better or for worse, I just it's just not where I spend my time. But I did read something this morning and they were talking about capital raising, and they're saying, man, this is a challenging environment to raise capital in. How are you guys climbing? Well.

 

Rod Kheif (00:21:31) - I mean, you know, it is tough. It's right now it's not finding the deals that's hard. And moving forward it's going to be finding the money. And you know it's going to be a challenge.

 

Rod Kheif (00:21:39) - And you know, you just have to allay the fear of your investors. I'm actually doing a raising capital workshop the next two nights. It'll be at the bottom of Rod's links because this will probably air afterwards. But at Rod's links will be my raising Capital workshop. It's like four hours. What I trained my warriors, my coaching students on how to, you know, raise capital. So go watch that at Rod's links or text links to 72345 and uh, and and again I'm teaching that tomorrow and the next day for four hours. So, um, you know, the soup to nuts. So if you want to learn how to raise capital, you're going to want to watch that because it's, it's it's again, it's what I teach my warriors at my warrior only events, my warrior, my coaching students, I it's what I taught them at my warrior only event because it's so important right now.

 

Sam Wilson (00:22:20) - Yeah it is. And it's interesting to see even the bigger names that it's like, hey, you know, even the the shops that are raising lots and lots of money or saying the same thing like this is challenging.

 

Sam Wilson (00:22:30) - So it's it's got to be, you know, a.

 

Rod Kheif (00:22:32) - Lot more handholding. Yeah. Yeah.

 

Sam Wilson (00:22:34) - It's adapting and it's like you said, allaying the fears of your investors and presenting really the, the, the sound deal mechanics. I think that that'll, that'll really help, help close the deal. So that's really, really cool. What else is there. Is there anything else here you want to leave with our listeners? We got about 60s left on the show. Yeah.

 

Rod Kheif (00:22:49) - No, just go to Rod's links. Com or text links to 72345. And all my stuff is there, you know and and you can learn a lot. There's a lot of free resources there if you're interested in, you know, in investing passively then go to the free Cash Flow Club or Text Club to seven, two, three, four, five and and and we'll chat with you or you can, you know, just see what's there and set up a call if you want or just learn. I mean it's just but you got to learn if you're going to invest your money, for God's sakes, at least have an understanding.

 

Rod Kheif (00:23:19) - There's the questions you should ask before you get in a deal. As one of the books. They're one of the free books there, my best selling number one best seller. I've given away tens of thousands of copies, is there for free. How to create lifetime cash flow through multifamily properties. There's a bunch of just a ton of free stuff there. So anyway, that's it man.

 

Sam Wilson (00:23:35) - Fantastic. We'll make sure to include that all there in the show notes. Rod, it was great to have you back on the show again today. Certainly appreciate. Thanks for having. And, uh, I guess my normal question is how do our listeners get in touch with you? But you've done plenty, uh, plenty of sharing how they do that here on the show. So again, thank you for coming back on the show. Have a great day.

 

Rod Kheif (00:23:50) - Thanks, brother. Thank you. You too man.

 

Sam Wilson (00:23:52) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a.

 

Sam Wilson (00:23:56) - Favor.

 

Sam Wilson (00:23:57) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Michael Wiener.

 

Michael Wiener, Partner at Greenberg Glusker in Los Angeles, focuses his practice on structuring real estate and corporate transactions in a tax-efficient manner and providing his clients with creative solutions to complex tax issues.

 

Show summary: 

In this episode Michael Wiener discusses various topics, including 1031 exchanges, California property tax, and partnership tax issues. Michael emphasizes the importance of consulting tax advisors early in the process and having a sophisticated team to handle all aspects of a transaction. He also shares his personal experience as an investor and the complexities of holding real estate through legal entities. The episode provides valuable insights into real estate transactions and tax implications.

 

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The 1031 Exchange Challenge (00:04:37)

 

Understanding Taxable Boot (00:08:25)

 

Complex Math in Tenancy in Common (00:09:42)

 

The 11th Hour Panic (00:11:01)

 

Consult Your Tax Advisors Early (00:14:34)

 

Complexities of Partnerships and Separate Exchanges (00:18:59)

 

Passive Investing and Syndication (00:22:00)

 

Negotiating 1031 Exchange in Joint Venture Agreement (00:23:00)

 

Challenges of Distributing Cash from 1031 Exchange (00:23:59)

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Connect with Michael:

Linkedin: https://www.linkedin.com/in/michael-wiener-50a8a73/

 

Web: https://www.greenbergglusker.com/michael-wiener/insights/.

 

Connect with Sam:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook: https://www.facebook.com/HowtoscaleCRE/

LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/

Email me → sam@brickeninvestmentgroup.com

 

SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson

Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234

Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f

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Want to read the full show notes of the episode? Check it out below:

Michael Wiener (00:00:00) - You sell $20 million of real estate that has $10 million of equity. You need to purchase at least $20 million of real estate with at least $10 million of equity, because you also see, some people will say, hey, well, I purchased the $20 million of real estate. I got a $12 million loan, and I just cashed out $2 million. And yeah, no, you did. That's great. But. It's taxable boot.

 

Intro (00:00:27) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.

 

Sam Wilson (00:00:40) - Michael Winer, a partner at Greenberg in Los Angeles, focuses his practice on structuring real estate transactions in a tax efficient manner and providing his clients with creative solutions to complex tax issues. Michael, welcome to the show.

 

Michael Wiener (00:00:54) - Thank you very much for having me, Sam. I'm really excited to be here.

 

Sam Wilson (00:00:58) - Absolutely. The pleasure is mine. Michael. There are three questions I ask every guest who comes on the show in 90s or less.

 

Sam Wilson (00:01:04) - Can you tell me where did you start? Where are you now? And how did you get there? Well.

 

Michael Wiener (00:01:10) - About ten years ago, I had my own firm. I was, uh, or just starting my own firm, um, doing some 1031 work, I. Wound up, uh, seeing an ad on the internet. I don't even remember what I was searching for. For an attorney to join a tax boutique in Century City here in LA. So I responded to the ad. Turned out it was a 1031 exchange specialty, um, firm. And, you know, basically based on my practice and some of the clients I was doing work for, we knew a number of people in common. Um, so I wound up joining that firm. It was a four person firm. A few years later, that firm was acquired by a slightly larger firm, and then that firm was in turn acquired by a larger firm. Um, and throughout it, I have to say, I'm really grateful my, uh, my traditional client base stuck with me throughout all the, uh, throughout all the firm uprisings.

 

Michael Wiener (00:02:15) - Um, and then from the larger firm, which was one of the largest firms in the world, um, I transitioned my practice with, uh, one of my partners and colleagues who have been with me since the, uh, since the smaller firm over here to Greenberg Luster, which was a, um, which was a better fit. I'd worked alongside Greenberg Lustgarten deals, both co-counsel and adverse for many years a phenomenal firm and, uh, and been here for about four and a half years. And I love every day of it.

 

Sam Wilson (00:02:45) - That's cool. And it's 1031. What you still focus on primarily?

 

Michael Wiener (00:02:51) - Um. Uh, I generally wind up dealing with tax issues related to the real estate industry, and obviously 1031 is a big part of that. The last, you know, four ish years, really, since 2018, qualified opportunity zones have, um, have become a bigger part of that. We also being here in California, we have to deal with prop 13, California property tax, um, and transfer tax issues and then also deal with um partnership partner, excuse me, partnership tax issues related to structuring um, joint ventures and and real estate investments.

 

Michael Wiener (00:03:35) - Um, and that then extends its way out to sort of syndicated tenancies of common and, you know, different ways of investing in real estate and being able to take advantage of all of the wonderful tax benefits of doing so.

 

Sam Wilson (00:03:51) - That gets really complicated really fast. For those of us that want to just go out and buy stuff and own and run real estate projects. You're a great complement to our to our team because the rest of us don't want to think about, you know, probably the things that you think about day in and day out, you know, specializing in this. I can only imagine. No, no, two days are the same would be my guess.

 

Michael Wiener (00:04:14) - Oh, no, two days are the same at all. Um.

 

Sam Wilson (00:04:18) - It's crazy.

 

Michael Wiener (00:04:19) - Every day is a unique challenge, and every day is another opportunity to learn. So what are some things?

 

Sam Wilson (00:04:27) - Let's talk. Let's talk. 1031 because you've touched on several things, and I know any one of these topics, we could probably burn the entire podcast, you know, going down that rabbit trail.

 

Sam Wilson (00:04:37) - But let's let's stay on 1031, because I would imagine that for the bulk of our listeners, that's probably something that is applicable. What what are some common challenges and what are some common misconceptions, maybe that you run into when executing a 1031?

 

Michael Wiener (00:04:55) - Well, the first thing that a lot of people forget about or just don't remember is that in addition to spending all of the money that you get from the sale of your relinquished property, you also have to replace your debt.

 

Sam Wilson (00:05:13) - And.

 

Michael Wiener (00:05:14) - You know, you see people from time to time who say, oh yeah, no, we completed our exchange. We sold a property for, you know, $20 million with $10 million of debt, about a $10 million, uh, property. This is very, let me say, very simplifying the facts. Fact pattern. Um. We bought a property with, um, with the $10 million. And, you know, we got this great deal. We only have to put $2 million, $3 million of debt on it.

 

Michael Wiener (00:05:42) - And we, you know, you know, huzzah! We, uh, we completed our exchange, and it's well known. Yeah. I mean, yes, you did complete an exchange, but you're going to have to. And it's very important to remember that that gets, um, especially tricky in a, uh, uh, tenancy and common context where you have multiple exchanges. Um, investing people, completing multiple exchanges, investing in the same property. And they have to, um, and they have to, you know, satisfy their debt replacement requirements, especially if they had different leverage ratios on their, um, on their up leg. And can wind up with a situation where you may need to invest some fresh cash in order to to equalize it.

 

Sam Wilson (00:06:34) - So let me let me see if if I can summarize what you said, you replace the one of the one of the things that's often overlooked is that you replace the debt and the equity. So if it's a $20 million property that you originally purchased and that was debt and equity, again, let's call it 10 million in debt and 10 million in equity.

 

Sam Wilson (00:06:53) - And then you sell that, you harvest, let's call it it was a breakeven deal. You harvest that 10 million in equity. You can't go out and buy a $12 million property with 10 million in equity and 2 million in debt. Exactly. You got to replace that debt.

 

Michael Wiener (00:07:07) - Well, you can you don't have to replace the debt per se, meaning you can add fresh cash. You have to go basically equal or up in value and equal or up in equity. Right. So, you know, if you you could put in $2 million of your own money, you know, not exchange cash or money that you raised from an investor and then just get an $8 million loan, and that's fine. But too many people overlook that, overlook that aspect of it.

 

Sam Wilson (00:07:38) - And that that is not an aspect of that. I even understood until right now. So not just to many people, but myself as well. Uh, so yeah, that, that that's really it has to be equal or greater.

 

Sam Wilson (00:07:49) - Price point.

 

Intro (00:07:50) - Period. Exactly.

 

Sam Wilson (00:07:51) - Then what you previously.

 

Michael Wiener (00:07:53) - Just if you sell, you know, using our fact pattern, if you sell $20 million of real estate that has $10 million of equity, you need to purchase at least $20 million of real estate with at least $10 million of equity. Because you also see, some people will say, hey, well, I purchased the $20 million of real estate. I got a $12 million loan, and I just cashed out $2 million. And yeah, no, you did. That's great. But. It's taxable boot.

 

Sam Wilson (00:08:25) - Right. And you call it boot b o o t.

 

Michael Wiener (00:08:28) - B o o t is what the term is generally called.

 

Sam Wilson (00:08:32) - Taxable boot. There's a new uh there's a new one. I'm going to put that in my newsletter.

 

Michael Wiener (00:08:37) - That's yeah called um generally defined as sort of money or other non like kind of property that you receive in a 1031 exchange.

 

Sam Wilson (00:08:48) - Right. And so you can do it, it's just you just have to know that whatever portion remains you're just going to get taxed on.

 

Michael Wiener (00:08:54) - Exactly.

 

Sam Wilson (00:08:55) - Right. Okay. And and maybe that's an acceptable, uh, you know, solution for some. You presented another wrinkle there that maybe um, just to again to, to hash it out again, you were talking about maybe, you know, let's use that $20 million example again. We'll see if I can if I can craft this correctly. But I sold that I owned it by myself. And then you sold another $20 million property. And together we were going to go in and buy a $40 million property. Right. But maybe your debt to equity ratio was different than mine was. And somehow you've got to get we can go in as tenants in common buying this now new $40 million property together both 1031 and into a bigger deal. But now we've got to figure out some sort of really complicated math as to how it's all got to work out.

 

Michael Wiener (00:09:42) - Well, like, you know, let's say, you know, we're going to go in and buy a, you know, a $40 million property with 20 million of debt.

 

Michael Wiener (00:09:50) - Um, and we're 50, 50 tenants in common. Right. But my. You know, leverage on my download property was, let's say it was very it was more highly leveraged. Let's say it was, you know, $15 million to just to take sort of an extreme example. Okay. When I go in. Um, to that, you know, $20 million property I have to figure out. Well, am I going to put in more cash? Um, if I do, I can put in cash to equalize it. Right. Uh, um, and, you know, that would be fine, but that requires me to come up with $5 million, you know, outside of, uh, you know, outside of the exchange, and, you know, maybe I can go shake the money tree or something, but, uh, you know, that's easier said than done.

 

Sam Wilson (00:10:42) - Right. And so you help clients when they get into these situations where especially I mean, 1 or 2 is complicated, but I imagine 810 on a much even bigger property than that.

 

Sam Wilson (00:10:51) - Yeah, it becomes a bit of a, uh, yeah, a bit of a process. You have some.

 

Michael Wiener (00:10:55) - Uh, pretty extensive Excel schedules, let's put it that way.

 

Sam Wilson (00:11:01) - Right?

 

Sam Wilson (00:11:01) - I bet you do. I bet you do. And when and when people get into these situations, like, do you find that they come to you at the 11th hour going, oh, crud, we didn't think through this and now we need help. Is that pretty common that happens.

 

Michael Wiener (00:11:16) - That's happened. Um, the you know, the good, the good clients, the, uh, the the clients who I've worked with for a long time, generally by now know to, uh, to get me involved early. But it is, let's just say, not uncommon for, uh, you know, people to come at the 11th hour. And, you know, we had one, you know, just. A year ago that I can think of where, you know, literally a week before closing, we had to restructure significantly the, uh, transaction.

 

Michael Wiener (00:11:52) - Um, the client scheduled it or structured it without tax advice. Um. With three tenants and or they had tax advice but not 1031 advice with three tenants in common. And you know, one was just a fresh cash tenant in common not exchanging one one with one or I guess the other two were exchanging and. Basically I, you know, took a look at it and within three minutes I said, oh, you're going to have, you know, $7 million of boot of taxable boot based off of not replacing your debt. And what we had to do was we wound up having to combine the fresh cash non exchange tenant and tenant in common, make that part of the exchanging tenant in common and that using those those numbers allowed it to uh allowed it to work and to get them to satisfy all the requirements. But you're talking about org charts already haven't been given to, um, to a lender. You're talking about documents already having been drafted and signed and having to go back to people and saying, well, you know, you were going to invest because for the people who are investing in the what I'm going to call fresh cash tenant and common.

 

Michael Wiener (00:13:15) - There are, you know, a set of expectations with regards to your depreciation and outside basis in your joint venture. And these are technical terms I know, but uh, but um, there are certain let's call it tax expectations that. You would expect to have when you are investing in, um, a non exchanging entity just in a straight real estate deal, in a straight real estate syndication. And those things change a bit when you're, uh, when you're coming into an entity, when you're coming into an existing partnership that is competing with 1031 exchange, there are different issues that you need to be mindful of. And and they can be worked out. But, you know, people need to be aware of them. And people need and, um, documents need to, you know, need to address them and reflect them. And, um, you know, doing all of that a week before closing is, you know, lots of fun. Uh.

 

Sam Wilson (00:14:20) - So is that what they call it?

 

Michael Wiener (00:14:22) - I would, um, I would strongly encourage people to, uh, to if you're doing a 1031 exchange, consult your tax advisors early.

 

Sam Wilson (00:14:34) - Consult them early. Absolutely.

 

Michael Wiener (00:14:35) - And especially early and early and often I would say. Right.

 

Sam Wilson (00:14:40) - And I would think, you know, on a single property, single investor, it's pretty it's pretty cookie cutter.

 

Michael Wiener (00:14:47) - Well, yeah, when.

 

Sam Wilson (00:14:48) - You get into stuff like this, the complication factor just rises, uh, you know, dramatically. So that's, that's really, really interesting. And how, how do you feel like when you're going back and dealing with legal? Because I mean, at this point, I imagine in this particular scenario, talking about like you're getting legal on the phone, you're getting everybody on the phone to go back and start redrafting all of this paperwork and making appropriate changes. How how is that interaction with, I guess, on the on the legal side of things like, is that a complicated or is that or is that a sticking point for you guys in your business, where sometimes the legal side doesn't understand what you guys understand on the tax side? Or how does that, uh, how does that work out for you?

 

Michael Wiener (00:15:29) - I mean, and that's an important, uh, an important point is that the clients need to have for these types of more, you know, sophisticated deals.

 

Michael Wiener (00:15:39) - You need to have a sophisticated team all around. And that means, you know, both tax and legal. So, so that when, you know, we go and we tell the legal team, well, this is what needs to be in the operating agreement. Um, and we get it back for review. That's actually in the operating agreement. They understand what we mean. They understand what concepts we're talking about, and they know how to draft those provisions. Um, and, you know, if need be, then I will go in and, you know, draft those provisions or correct them as necessary. Um, you know, as, as tax attorneys, we still do a lot of drafting.

 

Sam Wilson (00:16:21) - I bet you do. That's really cool. I love to hear the nuanced layers to things that are, I think, generally seen as pretty cut and dry, such as the 1031. It's generally like, oh, okay, well, we 1031, we bought one or we sold one, and then we bought another one and then we moved on down the line.

 

Sam Wilson (00:16:36) - But there's always, always another layer to, uh, to what it is we're working on. And it sounds like you, you go many layers deeper than what many of us oftentimes see. So anything else on the 1031 front, we should really highlight here that, uh, are things that either people get wrong, should be preparing for earlier, or are misconceptions anything else you want to hit on that front?

 

Michael Wiener (00:16:59) - Well, yeah. I mean, I think when people hold real estate through a legal entity, through an LLC, through a through a partnership, and if worse, through a corporation. Um, I'll get to that in a second. Uh, you need to people need to understand that it is that legal entity. It is the, you know, if you have a, um, so just by way of background, if you have a, a multi-member limited liability company, it is by default treated as a partnership for tax purposes. For tax purposes, if you have a single member LLC, it is by default treated as, um, treated as a disregarded entity for income tax purposes.

 

Michael Wiener (00:17:42) - In either case, you can elect to have that entity treated as a corporation for income tax purposes. That's very rare in the real estate, uh, industry. Um, but occasionally you see it. Um, and but the important thing is that it's that entity that is doing the exchange. So you have a concept called the same taxpayer principle, which I know, um, has been discussed on your show before. Uh. Which says that the. The legal, the tax entity, the entity for tax purposes. The taxpayer that sold the download property needs to acquire the uploaded property. And where that becomes tricky is where you have partners who want to go their separate ways. You know, they had a good run on the last deal, but now they say, well. We, um. We want to. We don't want to be together on the next deal. So to take, you know, the exact one or riff off of the example we were using. You know, you and I are 50, 50 members of an LLC that is taxed as a partnership.

 

Michael Wiener (00:18:59) - And, uh, we had a really good run, and we, you know, our our property did very well. And now we're going to sell it and say, okay, well what are we going to buy next? And, you know, I say, well, I want to go into industrial. You say, no, I want to go into multifamily or for any or, you know, occasionally you have people that just don't like each other. So I don't think that would happen with us. But, uh, um, uh, you know, for various reasons, there are any one of a number of reasons why, when they're selling the property, that people don't want to be committed to investing in the next property together and structuring those types of exchanges is very complicated. And it can be done. It can be done. There are several different structures and several different alternatives. Um, I can get into them if you'd like, but, uh, somewhat technical. Um. But that also requires consulting your tax advisors early and often.

 

Sam Wilson (00:20:03) - Right? No, I can only. And maybe even isn't for reasons. You know, it's not like the partnership fell apart. Maybe you, Michael, just don't want to. You don't like the property that we're 1030 running into or.

 

Michael Wiener (00:20:14) - Yeah, I mean. Exactly.

 

Sam Wilson (00:20:15) - You want to do something else, like. Well, you know that that was fun. We had a great run, but I really don't want to move on with the next ones. And now we got to figure out a way to, uh, for, say, or in.

 

Michael Wiener (00:20:24) - Some instances or in some instances, you know, let's say I had inherited my partnership interest in our thing and our LLC. And I say, well, because I inherited it, I have a stepped up tax basis. I'm not going to pay any tax on a sale. Right. I want to sell for cash. Right. Um hmm.

 

Sam Wilson (00:20:44) - Yeah. And that opportunity to get that stepped up cash out basis isn't going to happen once you 1031 to the next property.

 

Michael Wiener (00:20:52) - Exactly.

 

Sam Wilson (00:20:53) - It's got to happen now, right? That's interesting. I hadn't thought about that.

 

Michael Wiener (00:20:59) - I mean, so there are, you know, there are these situations which we deal with every day and there are about, you know, 20,000 different variations of these, uh, um, that we deal with every day. And, uh, and, um, you know, it's very, you know, it's very challenging. It requires a lot of cooperation. It's sort of like a, uh, you know, a three legged race, probably the ultimate three legged race you need to get, you know, you feel almost like a, uh, like a symphony, like conductor. You're like, okay, now I know you're doing this, now you're doing that. I know you're moving gear. Everybody needs to like, you know, move in concert. The documents. Um, and there are a lot of documents on these deals need to all be, you know, consistent. And then when it comes to filing the tax returns, tax returns need to be filed in a, uh, way.

 

Sam Wilson (00:22:00) - I didn't even think about that. So there's. I'll give you an example. I was I was a passive investor in a. This is probably more relevant to our listeners in a syndication. I was a passive investor in a syndication, and the deal went full cycle in like, I don't know, 12, 14 months. I mean, it was it was great. Everybody doubled their money, loads of fun. And so they said, hey, you know what? We should we should 1031 this entire syndication into the next deal. Except there were some of us that were like, ah, you know, I don't need to I don't like the Nick. And I in my case, I was one of those people said, I don't want to like the next deal, and I don't want a 1031. And I was an investor through a retirement account into that syndication. So I really don't care if I. 1031 it's it's a zero tactical advantage or tax advantage to me. And so that was really interesting.

 

Sam Wilson (00:22:50) - And again, I got to sit in the sidelines and kind of just watch it. You know, I just said, no, I don't want a 1031. And then of course, you know, I don't know the volumes of, of documents and paperwork and.

 

Michael Wiener (00:23:00) - No, but you know, what winds up, you know, what winds up happening as well there there are a few practical, uh, you know, points there. Most indications the syndicator is not going to give you the option. Right.

 

Sam Wilson (00:23:15) - They're going to say, you know, we are.

 

Michael Wiener (00:23:16) - Going to, uh, you know, we are going to. 1031 if it's something that you think you may want to do or may want to have the right to. It's important to start talking about that early, early, early, early in the process. Um, uh, because then you can negotiate things into your joint venture agreement. That will allow that. And the challenge, um, is that, you know, once the money, once the cash from the sale goes into the 1031 exchange accommodation account, and, you know, to some extent even before then, it's really in a lockbox.

 

Michael Wiener (00:23:59) - You can't use it to just, you know. I remember a one time appliance said, oh, and if we need more money for that, we'll just pull money out of the accommodate our accountant. I said, oh no, you won't.

 

Sam Wilson (00:24:11) - Um.

 

Michael Wiener (00:24:12) - Uh, first, most any accommodating that's, you know, really worth it won't let you. Right. Um. And even if they would. As your tax advisor, I wouldn't let you. Right.

 

Sam Wilson (00:24:27) - Right. No.

 

Sam Wilson (00:24:27) - Because then you negate all of the potential savings of even doing the 1031.

 

Michael Wiener (00:24:33) - You would blow your 1031 exchange. So you have to come up with a way. And there are ways of, um. You know, generating that cash. Sometimes it's they find another person to come and buy you out, and that person is going to take your place in the partnership. Uh, sometimes there is a, uh, a, um, a strategy that's used where the exchange of commentator will issue in a, in installment note, a promissory note to the partnership that is doing the, uh, the 1031 exchange.

 

Michael Wiener (00:25:10) - And the partnership can distribute that out to, um, to the investor that is being redeemed. If you're able to and you're able to do this on time, namely, before you really get into negotiating a purchase agreement, you can create a tenancy and common structure where the people who don't want to do their 1031 exchange get redeemed from the partnership in exchange for tenancy and common interest in the property. And they then sell the property, um, you know, in a taxable sale and, uh, and the, um, the people that are doing the exchange continue to just exchange.

 

Sam Wilson (00:25:47) - And I'm pretty sure that was what happened. It's been a few years, so I don't remember the specifics of it, but I'm pretty sure I do remember seeing something about ticks in there and some other things. And. It all worked out really well. Uh, but it was it was certainly interesting to see from the sidelines. We got about 60s left here. Michael. And I did want to get your thoughts on this real estate held in a corporation.

 

Sam Wilson (00:26:06) - You kind of gave a an indication that that was bad. Uh, break that one down for me if you can.

 

Michael Wiener (00:26:13) - Well, so first, there are just obviously two types of corporations for tax purposes. There's a C corporation and an S corporation. A C corporation is taxed as a separate person. So it pays a tax. And then when it distributes money, the investors or shareholders pay tax on what's called a dividend or a distribution. Um, an s corporation, the uh, the, the tax flows through to the shareholder. So you might say, well, how is an s corporation different than a tax partnership. That's also a flow through entity. And there are two primary differences. And that are important when it comes to real estate. The first is that. In, uh, in a tax partnership, let's say you and I put in $1 million into an LLC, and the LLC borrows, you know, $8 million, and we buy a $10 million property. We have a $10 million between us.

 

Michael Wiener (00:27:18) - Taxable basis each, a $5 million taxable basis. And we can take depreciation deductions on that for 5 million, including our share of the debt. If we were shareholders in an S corporation, we would not get basis for that share of the debt. So we would not be able to get deductions passed through to us on that 4 million, only on our 1 million. The second problem with corporations is that when you distribute appreciated property out of a corporation, it's treated as a taxable sale by that corporation. So these types of structures I'm talking about where people want to do different exchanges and create tenancy in common structures, or do or do anything that's really not possible with real estate held in a corporation. Because when you distribute that real estate out of the corporation, it's treated as though the corporation had a taxable sale of that real estate.

 

Sam Wilson (00:28:18) - That is interesting. I wish we had more time to dig into that. I've got lots of questions on that front. Michael, it has been a pleasure having you on the show today.

 

Sam Wilson (00:28:25) - If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

 

Michael Wiener (00:28:29) - Go to Greenberg, glasgow.com. Um, you can email me at M Weiner. Weiner at gofundme.com or um, you can find my phone number on the website. I apologize, I don't remember what it is off the top of my head.

 

Sam Wilson (00:28:48) - No problem at all. We'll make sure we include all of that there in the show. Notes. Michael, thank you again for coming on today. I do appreciate it.

 

Sam Wilson (00:28:54) - Absolutely. Thank you very much for having me.

 

Sam Wilson (00:28:56) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening.

 

Sam Wilson (00:29:18) - Thanks so much and hope to catch you on the next episode.