How to Scale Commercial Real Estate

Sam Wilson

Remove the guesswork from real estate investing and establish a clear path for consistent returns. Here, building wealth is straightforward and fun.Discover how commercial real estate investors from all over the world got where they are today, how you too can generate truly passive, tax-efficient income, and confidently invest in real estate, even in the face of risks and unknowns.Real estate has made more people wealthy than any other form of investment. However, it can come with a steep learning curve and high risks if you don’t know what you’re doing.If you are a business owner who dabbles in real estate and wants to grow your portfolio or expand your network, you are in the right place.Welcome to How To Scale Commercial Real Estate. On the show, we expose the most important, needle-moving real estate investment strategies, leading you to maximize your returns. This is your friendly guide to getting past the roadblocks of investing in real estate so you can sail smoothly toward creating the financial and time freedom you’ve been wishing for.The best minds in real estate give you the tips and tricks to scale your real estate investment portfolio. Listen to industry professionals as they reveal insider secrets that helped them acquire multimillion-dollar assets in a strategic way.Hear details about the most crucial and painful mistakes they made in real estate so you know what to avoid and how to plan carefully throughout your real estate investing journey.Learn about leverage, real estate metrics that matter, and gain valuable resources, connections, and tips that will shift your mindset toward an immediately more prosperous, passive income-generating path.Discover how investors build high-performing teams and find the best deals and then implement their advice to build your own robust real estate portfolio. Your host, Sam Wilson, is passionate about helping you fully grasp real estate fundamentals and know what to look for in any real estate deal, whether residential, commercial, short-term or syndication. Real estate syndications are group investments in large commercial assets where you can invest your money passively, alongside dozens of others (including Sam!) and earn reliable passive income through distributions and equity. Sam Wilson is an active investor in self-storage, multi-family apartments, RV parks, laundry facilities and single-family homes, bringing vast industry knowledge from a diverse background to the show. Unlike other established real estate investors, Sam is in the middle of his own growth journey. He invites you to rise alongside him and his team members as, with each conversation, he’s learning too! Sam is the Founder of Bricken Investment Group, where he helps clients find commercial real estate syndication investments that align with their investing and lifestyle goals. Likewise, this podcast guides listeners through real estate’s steep learning curve to mitigate the risks. If you want to be a successful real estate investor without necessarily becoming a landlord, you need real estate syndication investments in your life. Growing and diversifying your portfolio and high-worth network boils down to making the right investing decisions and surrounding yourself with a like-minded, growth-pursuing community. It starts right here. Jump into the discussion of How To Scale Commercial Real Estate with Sam Wilson at https://brickeninvestmentgroup.com/podcast/. Together, we'll achieve life-changing growth and invest in commercial real estate assets ripe with strong fundamentals, leading to the financial and time freedom we’ve been dreaming of. read less
BusinessBusiness

Episodes

How to Get Money for Real Estate Deals Without Relying on Traditional Money Lenders
3d ago
How to Get Money for Real Estate Deals Without Relying on Traditional Money Lenders
Today’s guest is Jay Conner.   Jay Conner has been buying and selling houses since 2003 in a town of only 40,000 people with profits now averaging $78,000 per deal. He has Rehabbed over 475 houses and been involved in over $118 Million Dollars in Transactions.   Show summary: In this episode, Jay Connor discusses the advantages of using private money and private lending over traditional banking methods for real estate investments. He shares his personal success story of raising $2.15 million in private funds within 90 days. Jay also highlights the importance of mastermind groups, building a strong team, and the transition from mobile homes to single-family houses. Additionally, Jay promotes his book "Where to Get the Money Now?" which offers a step-by-step guide to funding real estate deals, and he provides a special offer for listeners to receive an autographed copy.   -------------------------------------------------------------- Mastermind Groups (00:00:00)   Background and Journey (00:00:45)   Transition to Private Money (00:02:22)   Deployment of Private Money (00:03:49)   Protection for Private Lenders (00:04:38)   Applicability to Commercial Real Estate (00:05:59)   Building a Strong Team (00:06:52)   Automation and Delegation (00:10:03)   Efficiency and Growth (00:11:48)   Raising Capital Strategies (00:14:31)   Raising Private Money (00:16:35)   Mindset and Rejection (00:21:40)   Book Recommendation (00:22:24)   Offer for Listeners (00:22:46)   The giveaway (00:22:55)   Raising money principles (00:23:39)   Thank you and closing (00:23:56) -------------------------------------------------------------- Connect with Jay: Web: www.JayConner.com   Facebook: https://www.facebook.com/jay.conner.marketing   Linkedin: https://www.linkedin.com/in/privatemoneyauthority/   Free Book: https://www.jayconner.com/book   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: Jay Conner (00:00:00) - My business started to skyrocket, like overnight when I started joining really good mastermind groups, mastermind groups of where I, fellow like minded individuals are in real estate investing and have been doing it a while. I'm not listening to advice from somebody that hasn't even done their first deal yet, right? I'm listening to advice from fellow mastermind members that are doing 50 plus deals a year. Welcome to the how.   Intro (00:00:33) - 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) - Jake Connor has been buying and selling houses since 2003, in a town of only 40,000 people, with profits now averaging $78,000 per deal. He has rehabbed over 475 houses and been involved in over $118 million in transactions. Jay, you've been on the show before. It's really great to have you back for round two. Thanks for coming on today, Sam.   Jay Conner (00:01:08) - Thanks so much for having me back. Talking about my favorite subject in topic. And that's private money and private lending, because quite frankly, that in and of itself has had more of an impact on our real estate investing business ever since 2003.   Sam Wilson (00:01:24) - Absolutely. Jay, I asked this question to every guest that comes on the show, and so I have to ask it for the listeners maybe that didn't hear your first episode in 90s or less. Where did you start? Where are you now? How did you get there?   Jay Conner (00:01:40) - So where did I start? I grew up in the housing business with my dad, Wallace Conner, and at one time he was the largest retailer of mobile homes, manufactured housing in the nation. So I grew up, you know, being around a family that was that helps people own a home. So in the early 2000, the consumer financing for that product went away across the nation. And I knew if I ever wanted to, if I ever got out of mobile homes, I wanted to get into single family houses. Now I've done commercial as well. I've done condominium developments and, shopping centers. But my focus has been single family houses. So how did I get to where I am today? Well, I'll tell you.   Jay Conner (00:02:22) - In short, from 2003 to 2009, I relied on institutional money and local banks to fund our real estate deals. And in 2009 January 2009, I had a rude awakening. I was on the phone with my banker, and I learned that my line of credit had been closed with no notice. January of 2009 I'd done a ton of deals with my banker, and of course, during that time, they were not loaning out money to real estate investors anymore. So I knew I had to find a better and quicker way to fund my real estate deals. So right after that, I was introduced to this concept of private money private lending, self-directed IRAs. I'd never heard of any of that stuff. And so in less than 90 days, I raised $2,150,000 in private money and lending from individuals through connections that I have and had. And since that time, I've not missed out on a deal for not having the money.   Sam Wilson (00:03:27) - That is fantastic. It, $2.15 million in less than 90 days. Yes, you had the context or contacts to do that, but what did you have them invest into? I mean, it's one thing to go out and say, hey, I have, you know, this is the thing we're doing, but where did that money get deployed so rapidly.   Jay Conner (00:03:49) - In single family houses? So I had houses under contract to buy and close on before I knew that, you know, that my, my line of credit had been shut down and so but I only needed, $500,000 or so to take those houses down. So the other $1.5 million we started putting to use on other deals that we were negotiating on, you know, over that 90 day period.   Sam Wilson (00:04:20) - Got it. One of the things I think, that you've always stressed to your lenders is they are direct investors. Their name is on the they, you know, not just a promissory note, but they hold the deed of trust or I guess, you know, depending on what state you're in, I'm not sure how North Carolina does it or the mortgage. is that still the case today?   Jay Conner (00:04:38) - That is the case. Everything that we do with single family houses is what we call one offs. So what do we mean by a one off? Well, a one off is that you've got a private lender, which by the way again we're not talking institutional money.   Jay Conner (00:04:51) - These are individuals. These are human beings just like you and me, using their investment capital and or their retirement funds to invest in our deals. And so you have a private lender or maybe a couple of private lenders that are funding a single family house. And as you said, they get the problem. They get the same protection as a bank, right? They get a promissory note, they get the mortgage or the deed of trust here in North Carolina that collateralize that note. So we're not borrowing unsecured funds. They get named as the mortgage on the insurance policy. That's another layer of protection. We name them also as additional insured on the title policy. So we give them the same protection as the bank. So the private lenders are not having any kind of equity position. It's not joint venturing. The private lender acts in the same capacity as the bank. And it is our entity, our company that owns the properties. Right, right.   Sam Wilson (00:05:47) - And that makes perfect sense. And for those of you who are listening to this, go and wait, Sam, why are we talking about private lending on single family homes? On the how to scale commercial real estate podcast? It's because the principles are the same.   Sam Wilson (00:05:59) - Not only do I think the principles are the same in the in the way that you can utilize this strategy in commercial real estate, because I think, as you mentioned, you may have done that with shopping centers and with other things. but it also could give you something else in your tool belt. Another way to think about how to take down a deal, because there's there's not a one size fits all approach to how we finance and take down assets, even on the commercial. And I think even especially on the commercial real estate side, where you get into some very, very creative financial structures. So this, this may be just one more thing in your, in your toolbox that you can go, oh, here's, here's a way I can plug somebody. And I know that has a lot of capital that maybe could help us get this deal done. So very cool. It sounds to me when you mention all of this, like, you have to have a great team behind you that is able to get all these eyes dotted and t's crossed.   Sam Wilson (00:06:52) - Otherwise this becomes an administrative nightmare.   Jay Conner (00:06:55) - Absolutely. The team is so important. So who are the team members? Well, first of all, it's my opinion. You're not really in business as a real estate entrepreneur or investor until you have a relationship with an excellent real estate attorney. As a matter of fact, our real estate attorney is right next door down the sidewalk, about ten feet, so that's pretty convenient. I've been with the I've been using the same firm, the same group of people, ever since 2003 when we started. So we got a long history of relationship to Sarah. So the real estate attorney is important. I am not a realtor. I don't want to be a realtor. I want, but my relationship with my realtors are very, very important. My primary realtor that I've been doing business with, it helps me find deals, pulls all my CMA's. For me. Comparative market analysis gives me opinion on value. his name is Chris. We've been together doing this thing ever since 2004, the second year that I started.   Jay Conner (00:07:55) - And so the realtor relationship is so important. And then, of course, my team members, I've got a full time acquisition list that's been with us for 18 years. But what in the world is an acquisition? Acquisition negotiates the deals, I make the decisions. you know, based on what I want to offer on properties and etc. and then I've got my project manager. So I got a actually, I have two project managers that oversee, the houses that we're doing on rehabs. So they go out and they estimate the repairs and budgets when we're actually rehabbing a house. And, by the way. As a side note, private money is not just for rehab. Business private money is when the seller of any kind of property requires all the cash. Now, of course, we're familiar with all kinds of creative ways to buy houses and commercial properties and etc.. You know, when you're in the commercial space, of course, self storage and all that kind of stuff. Very popular to have seller financing.   Jay Conner (00:08:55) - Take back a note with single family houses. We will, you know, buy houses sometimes, subject to the existing note where the owner agrees to sell us their property and we agree to make the payments on their current mortgage and leave that in place. But at the end of the day, and, Sam, I think you will agree. At the end of the day, particularly in the world of single family houses, most of the time, as in 87% of the time, to be exact, the seller requires all the cash. So having the cash ready to be ready to go is going to allow you to make more offers and not miss out on any more deals. But back to the team. Acquisition is very, very important. And, I have a I have a full time personal assistant that helps, you know, runs my calendar, schedules my appointments and etc. but let me go back to day one. It didn't start out this way. Day one. I mean, Jay Connor was running around with his hair on fire, you know, 60 plus hours a week trying to do everything myself.   Jay Conner (00:10:03) - And I learned a very, very important lesson. You cannot scale. You cannot grow if you try to do all this stuff on your own. So I. I set out on a quest after I'd been in this business for about 3 or 4 years to start automating, delegating everything that I can and to only be involved in the activities in the business that I really enjoy. Right. So today, what do I do? Well, I make decisions. It's my job to make sure the marketing machine was motivated. Several leads are coming into the funnel every day, every week. Because I say if you don't have consistent leads coming in all the time, you're not in business. You got a hobby, right? So I make sure the marketing leads are, turned on. And another important part about communicating with my team is the proprietary software that I use, communicating with the entire team as to where we are with any given deal. That's why with the team in place and our software of communicating with each other, regardless of where that deal is in the pipeline, that's how I'm able to run this business in less than ten hours a week.   Jay Conner (00:11:16) - Right.   Sam Wilson (00:11:17) - And that. Yeah, you you've hit on hit on the, the, the team systems. I mean, that stuff takes time to build. And it goes back to the, Seven Habits of Highly Effective People. I think I'm thinking of, I think. The, the third, what is the third chapter where they talk about, Efficiency is not efficiency, but it's something along those lines where they have the, the, you know, the the matrix where it's urgent, not urgent, important, not important.   Sam Wilson (00:11:47) - Oh, right. Right, right.   Sam Wilson (00:11:48) - You know what I'm talking about. Where it's like most people spend like 80% of their time in the urgent, important category, which is crisis mode.   Jay Conner (00:11:56) - That's right.   Sam Wilson (00:11:57) - Where we need to be spending, you know, the inverse 80% of the time in the not urgent, important category in those.   Jay Conner (00:12:04) - Well, you know, if you're if you're in the if you're in the reactionary mode, right. versus focusing on growing your company and making it better and putting systems in place, then your company's never going to grow.   Jay Conner (00:12:18) - If you're in the reactionary, you know, box.   Sam Wilson (00:12:22) - Does building team and system, does that come naturally for you, or is that something you've honed over time?   Sam Wilson (00:12:30) - I'm sure I honed that over time.   Jay Conner (00:12:33) - I didn't get a college degree on how to build a team and grow system and put systems in place. That'd be a great degree. I tell you, I tell you how all that did come about very early on. And this right here is, is very, very important advice that I would give to any real estate entrepreneur, whether you're brand new or you've been in it for a while. My business started to skyrocket, like overnight when I started joining really good mastermind groups. Mastermind groups of where, fellow like minded individuals are in real estate investing and have been doing it a while. I'm not listening to advice from somebody that hasn't even done their first deal yet, right? I'm listening to advice from fellow mastermind members that are doing 50 plus deals a year, so I can't recommend that strong enough to get involved in a group to where you can really learn from and contribute to your fellow mastermind members.   Sam Wilson (00:13:39) - Right? No, that's really, really powerful. I like that. So we've talked a bit about team. You know, I like the idea. We talked about this a little bit off air. I like the idea of debt. And this is just again, you know, full disclosure here on my own show, which is that I don't love I don't love raising capital. It's not something that comes to me. And I'm like, man, like you said, you know, find team members that love doing this. Not that's not what I love doing. just because of the amount of work that goes along with it. One, you're now married to that investor for 5 to 8 years, potentially answering questions, fielding emails, responding back. I'm not an amazing communicator, Jay. It's not something, again, like, you know, outside of the podcast, it, you know, my wife handles all outbound family communications. Like, I don't know if you want to hear if you want to know something from our family.   Sam Wilson (00:14:31) - I talked to my wife, because I'm just going to do, like. That's where I specialize is doing. And I found that one of the shifts that we've made strategically is that we take on a lot more debt. It's short term debt now, similar to a private lender. And in fact, it is private lending on on a lot of deals where it's debt as opposed to raising equity. And I found that to be really powerful one, because it ticks all the boxes for me personally, where I now no longer am and beholden is too strong of a word, but I'm no longer responsible. I will say to those people that gave me the money, because there's great responsibility when you have equity investors, and as long as I'm making those payments back to those lenders on time, they don't give a rip what I do in my day in and day out. And so it alleviates that communication, you know, kind of kind of hang up that I have. So I don't know, what are your thoughts on that when you when you hear that? I mean, for me, it's it's just a strategy we, we're employing more and more and I'm really enjoying it.   Jay Conner (00:15:26) - Yeah. Well, let me comment on. What's what are the activities that we do to raise private money. So. So I've got two comments or two thoughts. Number one, as far as an activity goes or a way to raise private money as far as having an event, the only events I've done are what I call private land or luncheons or private lender events to where I will invite a group of people, you know, to a luncheon, and I'll teach the private lending program that I've put together that gives our investors high rates of return safely and securely. And so I'll just teach the I'll teach the opportunity. You know, since I started doing this, I've never asked anybody for money. And they say, J how did how do you have, you know, right. At $10 million, now that you've raised a private money without asking anybody for money, it's real simple. I put on this hat that's called my teacher hat. So this is my private money teacher hat. And I just teach people how.   Jay Conner (00:16:35) - So, you see, the traditional way of borrowing money is you go to the bank or the institutional lender, and you get on your hands and knees and you say, please fund my deal, right? It's you're begging, right? And this world, I'm not asking for a mortgage. Excuse me, I'm getting interrupted here on my screen. I'm not asking for a mortgage. I'm offering a mortgage. Right. So. So as far as activities, I mean, I've raised $969,000 at just one private lender luncheon, and I wasn't pitching any deals. There's no there were no deals at at that luncheon. It was the program. So they tell me what they want to do and how much they got to work with. And then I call them up with the good news phone call. Well, what in the world is the good news phone call? Well, Sam, let's say you're one of my private lenders, and you've told me you got $150,000 to invest. And let's say I got a house with an after repair value of 200,000 over in Newport.   Jay Conner (00:17:34) - So I pick up the phone. Believe it or not, we still have handsets here in North Carolina with cords attached to them. But anyway, I pick up the phone and I call up Sam and you and I have a little chit chat. And then here is the script. Here's the script. Let's hear it on the good news phone call. I say, Sam, I got great news. I can now put your money to work. You see. Side note, you've been waiting for the phone call. You've been waiting for me to put your money to work. Because you tell me you've got this. And by the way, Sam, if you had retirement funds and I've introduced you to the company that I recommend where you can move retirement funds tax free, no tax effect over. And then you can loan that money out and earn tax deferred or tax free income. You're really waiting for the phone call because you've moved the money over at my recommendation, and you're not making any money until I put it to work.   Jay Conner (00:18:28) - So back to the script. I call you up. I say, Sam, I got great news. I can now put your money to work. I've got a house in Newport with an after repair value of $200,000. Now, the funding required for this house, this property is $150,000. Closing is going to be next Wednesday, so you'll need to have your funds wired to my real estate attorney's trust account by next Tuesday. And I'm going to have my real estate attorney email you the wiring instructions. That's the end of the conversation. Notice I do not ask Sam, do you want to fund the deal? That's the most stupid question in the world. I get asked Sam. Of course he wants to fund the deal. He's been. He told me he's got $150,000 to put to work. He's waiting for me to put it to work, and I don't have to pitch the deal because I'm not going to bring a deal for Sam to fund. It doesn't fit the criteria of the program that I already taught him as to how it works.   Jay Conner (00:19:25) - For example, part of the program is I'm not going to borrow more than 75%. I'm not going to allow my private lenders to loan me more than 75% of the after repaired value of the property. I didn't say of the purchase price. I said of the after repair value. So did you did you hear those numbers? The after repair value, which I told Sam, was 200,000. The funding requires 150,000. That's 75% of the after repair value. And so. You know, one question. I got on another show yesterday, Sam, was when you're looking for when you're looking. I could what I'm getting ready to say is probably the most important thing I will say on this show. One question I got yesterday was J. When somebody's looking to start raising private money and they've never raised it before, what's the first thing they should do. I said that question is easy. The first thing they should do is get their mindset right. It's hard to own real estate until you own the real estate in between your ears.   Jay Conner (00:20:31) - So what do I mean by that? How do you get your mindset right? It's this whole idea of you're not asking, you're not begging, you're not chasing, you're not selling, you're not persuading, you are educating. Educating. You're an educator, you know, of my 47 private lenders that we've got right now, not one of them had ever heard of private money or private lending until I educated them on what it is. All my private lenders, none of them are sophisticated. They're normal people, just like you and me. By the way, where's a great place to start making your list as two potential private lenders in your world? Retired people? There's a good chance retired people and got retirement funds, and now you can educate them on what self-directed IRAs are. You know, not one of my 47 private lenders had ever heard of what a self-directed IRA is. And so over half of our private lenders are using their retirement funds to invest in our deals and be our private lenders. So that's the first thing.   Jay Conner (00:21:40) - You're an educator, right? You know, sometimes people say, gee, they may not say it directly, but if they've never raised private money, they got a fear of rejection. Here's my question how can you be rejected if you're not asking anybody for anything?   Sam Wilson (00:21:59) - That is. That's a very, very good point. It goes. I mean, the other way to look at that is the the answer is always no. it's no before you ever made the call. So if it doesn't work out afterward, where did where are you? The same place you started? It's like it's.   Jay Conner (00:22:15) - By the way, there's a really good book I recommend, and the title of it is go for no. Have you ever heard of that book saying not.   Sam Wilson (00:22:24) - You haven't heard of go for No, man.   Jay Conner (00:22:26) - I was going to look over there on my shelf and just see if I had it handy. It's a really, really thin book. you can get it on Amazon, but but quick read. But the premise of the book is don't go for yes, go for nothing, go for no.   Jay Conner (00:22:41) - Right. And it's just a whole reframing of how you get a bunch more yeses when you're going for. No, I.   Sam Wilson (00:22:46) - Love it, I love it. J you had one other thing that you wanted to, give away here to our listeners today, which I think will be of value. How do they get that?   Jay Conner (00:22:55) - Absolutely. Yeah. So the first time I was on your show, I gave away my e-book, but now we're taking it to the next level. So here is my recent book, Where to Get the Money Now? And subtitle How and Where to Get Money for Your Real Estate Deals without relying on traditional or hard money lenders. You can't even get this as an e-book to download. I'll actually mail this to you. Priority mail, three day priority mail. I'll autograph it and, just cover shipping. And so here's the URL to get this book shipped out to you right away. W w w dot j Connor j con air.com/book. That's J connor.com/book. I'll rush it right out to you.   Jay Conner (00:23:39) - It walks you through easy read step by step. How to get all the money and funding for your real estate deals you would want. And by the way, as Sam said at the beginning of the show, the principles are the same. Whether you're raising money for commercial or you're raising money for single family.   Sam Wilson (00:23:56) - Thank you, J, for coming on the show today. I certainly appreciate it. It was great to have you back on. And thank you also for that, giveaway there to our listeners. I myself will, end this call and probably send the book to my house because you never know what you're going to learn. So get the book. If you're listening to this show, I'm sure it's packed full of great stuff. And, Jay, thank you again for your time.   Jay Conner (00:24:16) - Thank you Sam. God bless you.   Sam Wilson (00:24:18) - 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.   Sam Wilson (00:24:31) - 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.
From Medicine to Money: Dr. Joseph Ryan's Journey into Commercial Real Estate
Apr 8 2024
From Medicine to Money: Dr. Joseph Ryan's Journey into Commercial Real Estate
Today’s guest is Ryan Smolarz.   Dr. Joseph Ryan Smolarz is the founder of STOR, leveraging his experience as an entrepreneur and Otolaryngology practitioner to guide people toward financial sovereignty.   Show summary: In this podcast episode, Dr. Joseph Ryan, a former otolaryngologist and founder of Store Partners, shares his transition from medicine to commercial real estate, focusing on self-storage facilities. He highlights the importance of team building, relationship-driven negotiations, and ethical business practices. Dr. Ryan also discusses his podcast, "Medicine and Money Show," and invites listeners to connect with him for educational discussions on investing. -------------------------------------------------------------- Building Successful Teams (00:00:00)   Introduction to the Show (00:00:31)   Dr. Joseph Ryan's Background (00:00:44)   Transition to Real Estate (00:01:10)   MBA and Transition to Real Estate (00:02:08)   Challenges and Enlightenment from Higher Education (00:04:27)   Transition to Self-Storage Focus (00:09:42)   Staying in Self-Storage Lane (00:11:41)   Decision-Making and Deal Selection (00:11:47)   Managing Capital and Acquisitions (00:13:57)   Challenges in Business Growth (00:15:51)   Remote Operations and Team Building (00:19:51)   Finding Deals and Relationship Building (00:20:59)   Building Rapport and Deal Cycles (00:23:26)   Conversation with Potential Investors (00:25:03)   Conclusion and Call to Action (00:26:19) -------------------------------------------------------------- Connect with Ryan: Web: https://storpartners.com/#/ Linkedin: https://www.linkedin.com/in/joseph-ryan-smolarz-4803a81/   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: *Ryan Smolarz * (00:00:00) - Where I think the, you know, the Alpha lies in building the teams. we have a big focus on that. And, trying to find people who were who were all rowing in the same direction with. I find that super important. you know, the when you know, you have a good team, when one person on the team doesn't like the decision, but everybody else does, and they are rowing even faster in the same direction that everybody else is.   Intro (00:00:31) - 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 (00:00:44) - Doctor Joseph Ryan is the founder of store. That's. That's spelled excuse me store. He leverages his experience as an entrepreneur and otolaryngology practitioner to guide people toward financial sovereignty. Ryan, welcome to the show.   *Ryan Smolarz * (00:00:59) - Hey, thanks for having me. Sam, this is going to be great.   Sam Wilson (00:01:02) - Absolutely. The pleasure's mine. Ryan. There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:07) - Can you tell me where did you start? Where are you now? And how did you get there?   *Ryan Smolarz * (00:01:10) - I started in 2017. I realized that, going from room to room as a doctor wasn't going to allow me to retire. And, once I decided that I ended up in a month, I was sitting at a desk in the in an MBA program in Miami. And, so we decided to get into commercial real estate. We, built a assisted living home and started an e-commerce company. Like a lot of people kind of, diversified out. And now we're sort of the diverse offering, if that's a word I'm not even sure, down into more of a focus. And, self storage is certainly one of those. And, where we're going, we want to do right by our investors, raise capital and buy, self storage facilities and, you know, do the best we can for, for our people, our investors, the people who believe in us and treat us well.   Sam Wilson (00:02:07) - Got it.   Sam Wilson (00:02:08) - Now, you're you're an EMT and you decide that you want to do. You said going room to room as a doctor isn't really going to lead us to where we want. So you went to get your MBA? Yeah. It sounds like more education. I mean, you're already super highly educated. So what what was the kind of thinking there or thought process there? And how did you get how did getting an MBA lead you to real estate?   *Ryan Smolarz * (00:02:29) - Yeah. So, when I was what happened was, I woke up one morning and decided I wanted to go on a surf trip, and I had no idea how to get into my bank account to see if I had enough money. I didn't even know what bank we banked at. So my wife took care of all of that. and so I realized that, you know what? Maybe, money is not fun tickets. And I should probably take it a little more seriously. Right? So doing the things that I do, I sort of take it to the extreme.   *Ryan Smolarz * (00:03:06) - And I was like, well, if I'm going to do this, I'm going to go all the way. So let's learn how to do business and the whole bit. And so, yeah, the next month I was in that MBA program and, kind of spiraled from there. you know, I realized that I really liked it. And in that moment, I became, an investor instead of a consumer. And I can tell you that that was one of the most powerful things that's ever happened to me. or, you know, my children's birth and and raising them and my wife and the relationships, but just the outlook on life. my thought process sort of switch from thinking about, you know, watches or cars or whatever it was to solving the world's problems and, capitalism. And, you know, how can we take those thoughts and, you know, do something with them and change the world for better? And, man, it was life changing.   Sam Wilson (00:04:05) - Did you do you feel like you.   Sam Wilson (00:04:07) - And I'm going to. I guess when I say this, I don't think of higher education as a place where people typically get enlightened to go be an entrepreneur. Even in the MBA program, how did was just the right school, the right timing? Was that the right people? Like what was the confluence of things that occurred to really inspire this in you?   *Ryan Smolarz * (00:04:27) - Yeah. So, you know, I was starting from absolute zero. I didn't know, you know, how a bank worked. I didn't know what an interest rate was, really. I mean, we had a mortgage on our house, but, you know, I was like, oh, it could have been 12, 15, 100. It wasn't. You know, I don't want to change anything for me. I didn't really grasp the concept of, you know what that meant. And, once I figured out that, you know, if you do understand business and you can, you can put these ideas into fruition. that there was always a place that there was, like, this itch I was trying to scratch, and I never could figure out what what it was that was off.   *Ryan Smolarz * (00:05:12) - and almost instantaneously, when I made that, that jump, it was completely different. Like, I didn't have that feeling anymore. And so, yes, the MBA, the MBA program was really meant for people who are in that, you know, business, corporate ladder. But I just use the information in a totally different way. Right? I just took what they were telling me and applied it to where I wanted to apply it. and it really worked out perfectly.   Sam Wilson (00:05:44) - That's awesome. So you've gone from a guy that doesn't even know where he banks to now running funds, buying self-storage, raising capital. I mean, being very, very in the weeds in the finances.   *Ryan Smolarz * (00:05:58) - Absolutely. Yeah. We did it, man.   Sam Wilson (00:06:00) - That is that's awesome. So what, outside of the MBA program, how did you then take the next steps to figure out? I know you mentioned the e-commerce business. You mentioned some other things along the way, but kind of give us the, the maybe the modified version of what happened over the last six years to get you where you are now.   *Ryan Smolarz * (00:06:18) - Yeah. So I you know, I always had these ideas in my head about things that I wanted the bucket list. Right. What are the things in life that I want to accomplish? And, I had these ideas for some patents. And so, you know, one day I just said, you know what? We're going to write these patents and we're going to push it through the system and see what happens. And so we did, got a patent attorney and, started having the conversations and, wrote two patents. One of them is supposed to launch the product here in a couple of weeks. It's been, you know, almost five, six years of in production. Wow. yeah. So, you know, once I figured out that Wall Street sort of has this language that they don't want retail to know what it means and that, you know, I've been through medical school, got the anatomy under my belt and learn Latin and, you know, all the things that were really difficult to learn.   *Ryan Smolarz * (00:07:17) - I said, you know what? I think that, you know, the stereotype of doctors not being able to learn this stuff is just garbage. it was the same thing in flying a plane. You know, people told me that I couldn't be a pilot. I said, that's just garbage. so I'm going to go learn how to do it. And, you know, being a contrarian and it's just sort of the way I think and the, you know, you tell me I can't do something. Okay, well, that means that I'm going to do it. If I want to write, I want to.   Sam Wilson (00:07:49) - I would I'm sorry. Go ahead.   *Ryan Smolarz * (00:07:51) - No. That's it.   Sam Wilson (00:07:52) - I would imagine then that being a contrarian again, in a field where everybody kind of has to play by the rule book has been helpful for you because you stand out. No.   *Ryan Smolarz * (00:08:03) - yes and no. there have been certain times where that has certainly worked. not in my favor. but from making that switch from, you know, this ultra conservative, profession to quite the opposite, you know, where the world is, your oyster, kind of scenario.   *Ryan Smolarz * (00:08:24) - it was an easy transition for me because it was hard for me to sort of fit into that box and just never, never been that kind of guy. And so, you know, I would come in and say, why don't why don't we do this in surgery? Think of the work a lot better. Oh, that's not what the books say. Right. And so I pushed it a little too far on occasion. with those, you know, mentors and things like that. But I think that, you know, hard work, dedication that's never been a problem. They knew they knew I was working hard. But, you know, it just kind of it was it fit my mentality so well, to make that sort of jump.   Sam Wilson (00:09:03) - That's cool. Tell me, how did you get to today your you are through store, which again is store. What is the store partners you said was the website. Is that right?   *Ryan Smolarz * (00:09:12) - There's dot com. Yes. Store partners. Com store.   Sam Wilson (00:09:16) - Partners.com.   Sam Wilson (00:09:17) - You have to go check that out. How how did you get into what you're doing now. Because even that even being in real estate this is yet another. And it sounds like you love to learn. That's one thing I've picked up from our conversation is that I think, calling you a lifelong learner is probably an understatement, but, you know, what you're doing now is even a unique subset of commercial real estate. how did you get into what you're doing now?   *Ryan Smolarz * (00:09:42) - Yeah. So, interestingly enough, I remember where I was. I was driving to the airport, and there happened to be a podcast on and I was getting done with my training through the MBA, and I really didn't want that to fall to the wayside. I was pushing hard, to try to use that, if, if nothing else, the mindset. And so there was a guy on there talking about self storage and, I thought, you know, my life is so complicated that what, what I want to do is to find an asset class that is the the most that I can find.   *Ryan Smolarz * (00:10:24) - That's not complicated. And, you know, people say that you can look at your set of keys and figure out how complicated your life was. I looked down at my seat and there was like 300 keys on my passenger seat. And I said, man, my life is super complicated. So here's what we're going to do. We're going to go buy a concrete slab with a metal box. And we're going to do that. And, so I went online, try to find the best, person to learn from that that I could in the world. And that's kind of how I do things like, you know, I, I love mentor programs. I love coaching programs. you know, I want to learn from the best. And I always feel like if I don't, then what did I miss? so I ended up in this group, and I've been there since 2000 and really 2018. We started in 17 because I got an a limited partner deal to, to try to learn. And, it's just grown over the time and, you know, got to know and, respect the, the guys in the group.   *Ryan Smolarz * (00:11:26) - And so it's almost a lot of, you know, it's as much fun as learning going on a quarterly basis up there to see them.   Sam Wilson (00:11:32) - Right? I bet it is. So you've stayed in the self-storage lane the entire time? Yeah.   *Ryan Smolarz * (00:11:40) - Yeah.   Intro (00:11:41) - Absolutely impressive.   Sam Wilson (00:11:42) - Hats literally. Hats off to you. That's impressive.   Sam Wilson (00:11:46) - I.   Sam Wilson (00:11:47) - I mean, there's temptation. I only speak from personal failure on this front, but I'm sure over the years you've had some really great deals come across your desk and unique opportunities that were outside of the slab in a box methodology that you've, been employing. How have you said no to those?   *Ryan Smolarz * (00:12:06) - Well, there's been some times where I have and, you know, it was basically friends and family flipping homes and said, okay, well, here's some capital. Go for it. Right. but I'm just not interested. I don't know it. I, you know, I could probably underwrite it, maybe, but it's a headache, right? I mean, it's just like, it's it's much easier for me to take a self-storage deal, look at the number of, you know, what they're selling it for, for square feet.   *Ryan Smolarz * (00:12:34) - I know the the ins and outs. It's kind of like Warren Buffett. You know, he's got you call him up in five minutes later. He knows if he wants to do the due diligence and put it under contract. you know, it's just it's the experience. It's the knowledge. It's knowing who's in the business know, knowing who to call. I mean, it makes me want to vomit, to try to learn, relearn all that. Right? It took me a lot of time to figure that out.   Sam Wilson (00:12:58) - No doubt on on that front and that and that kind of learning that, those soft skills to where you can have a deal sent to you and within just a few quick, you know, glances, you're like, yes, no or maybe investigate further. I mean, that's a, that's a, that's a hard earned skill set. And even even yesterday I had somebody had a broker send me a deal and I just called her back and said, hey, you know what? If I offer on this, it's going to be one less than one half of what the list price is.   Sam Wilson (00:13:28) - And here's three key reasons why you want to draw it up. Knock yourself out. But that's about where I'm going to be. Yeah. She you know she understood it. But having that innate kind of, you know, built an understanding of what what it takes to make those sorts of deals go around is, is really, really powerful. So you are a full time EMT. You work really hard during the week. You are running your and tell me what is the structure or current structure of what it is that you do, or you guys running a fund or you doing a deal by deal syndication? What what is that?   *Ryan Smolarz * (00:13:57) - Yeah. So it's a series LLC. so there are barriers between each deal. so if you invest in one deal, you're not invest is not a blind pool. it's basically a syndication under a holding company is really what it is. So syndication on syndication on syndication. and so going through that process, my main focus these days is the fund manager role of a fund.   *Ryan Smolarz * (00:14:25) - That's sort of where my, passion lies. And to be able to, you know, to, to do all of those components, which is super fascinating to me and super boring to everybody else. I absolutely love it. and so to be able to do that in self storage, which I have a fair knowledge base on and bring in the right people, it's it's just been it's been fabulous and, almost. Well, it is life changing for me, right.   Sam Wilson (00:14:56) - Does that, what was I going to ask you on that it was or are you guys allocating capital? Are you guys actually buying the deals yourself and running them?   *Ryan Smolarz * (00:15:05) - Yeah. So it started off as allocating capital. we were almost like a debt fund for equity. that's how I can describe it. but now we've moved into our own space. we have a acquisition team that we're building, and, we're going to do it all in all in house, under the under our roof. And, you know, if there's a development deal and we decide to JV with, with another sponsor, or firm, then so be it.   *Ryan Smolarz * (00:15:34) - But right now we're, we're focused on acquisition and, that's, that's sort of where the bread and butter lies for us.   Sam Wilson (00:15:41) - What has been probably the, number one lesson or maybe the hardest thing that you've had to solve in growing a business like what you're doing right now.   *Ryan Smolarz * (00:15:51) - Oh, it's certainly. Well, one thing is timing. Like when the capital comes in versus when the the deal closes and, and trying to make all that work is, sometimes just torture. but the other thing that I think is more kind of, you know, the 30,000 foot view where where I think the, you know, the Alpha lies in building the teams. we have a big focus on that. And, trying to find people who were who were all rowing in the same direction with. I find that super important. you know, the when you know, you have a good team, when one person on the team doesn't like the decision, but everybody else does, and they are rowing even faster in the same direction that everybody else is.   Sam Wilson (00:16:43) - What do you when you. Can you explain that a little bit further? If what I heard was you saying that you may have a team member that doesn't necessarily agree? With the decision, but yet is still meaningfully participating in and helping everybody push in that direction. Is that.   Sam Wilson (00:16:59) - Right?   *Ryan Smolarz * (00:16:59) - Absolutely. Yeah, absolutely. And it may be me that disagrees in the other part. People on the team want to push forward. It really depends on the scenario. But if you're out in the middle of the ocean, everybody thinks that, you know, North America is to the left and Asia is on the right, and you got to get to the, the, the place that's closest. If everybody wants to go to the right and you want to go to the left in the decisions made, you paddle as hard as you can and, and to the right and, you know, you're you're all in. So this is, you know, a team sport. It's not an individual sport, and it's full contact.   *Ryan Smolarz * (00:17:38) - there is no doubt about it. Commercial real estate is full contact sport.   Sam Wilson (00:17:42) - It is indeed. You're based in the US Virgin Islands. Where do you guys buy? And I'm imagining that you're not buying. All right. There in the Virgin Islands. No. So how do you do that?   *Ryan Smolarz * (00:17:56) - Yeah. So we spend hours and hours talking about our buy box, and it's constantly changing. Right. What do we buy? Right now? It's over 20,000ft². It's in the Sunbelt states and only states that we feel are good for business. as you you can just take property taxes, right? We have and we look across our portfolio and you can just look at that line item on the due diligence on the, on the PNL. And you can almost tell right looking looking back, one place will be three times more than the other one. Right? with the market rates being fairly similar and just with that data point alone. Hey, you know what? We're going to the one that's more business friendly.   Sam Wilson (00:18:47) - Yeah. There's no doubt behind, behind your principal and interest payments, property taxes, are probably going to be your second greatest, expense, unfortunately. Generally, you can do nothing about you can contest, but, you know, good luck if you just bought it and they, reassess at your latest sale price depending on what the state is. So that's, What's that now?   *Ryan Smolarz * (00:19:12) - Oh, we look a ton at, dividing up the goodwill, you know, for those purposes. so we don't get hit with that extra income. That's just for goodwill. It's not on the property. we have a person. We're going to have a on the podcast. I think it's next Wednesday. Who not only does cost eggs, but he fights property taxes on the increases, like that's his job. And so we keep him very busy, and, it's awesome. And, you know, I hope he never retires.   Sam Wilson (00:19:42) - Tell me about building team. I guess, you know, again, building it remotely. You guys, I'm sure you still have staff, at the front desk at these facilities.   Sam Wilson (00:19:51) - Maybe you don't. I don't know, you could maybe if you can break down a little bit of your kind of operations and how you guys run that from so far away.   *Ryan Smolarz * (00:20:00) - Yeah. So a lot of it. And self-storage. I mean, these are, C plus B minus facilities. there are, there's a few of them that have, management on site, but not many of them. A lot of it's done remotely. We have, the coined the term, chief petty officer. So, there is someone that at least goes by once or twice a week to make sure that the, you know, there's no garbage on the ground that the the lawn, people who are coming by to keep everything up. you know, there are instances where, you know, we get calls and say, hey, we we need a locker. Like, okay, the keys are in the back, right corner. Right. and, move your stuff in. And, you know, here's the way you pay.   *Ryan Smolarz * (00:20:46) - So there is there's components of it that are, you know, offsite, onsite. It really just depends on the facility and what works for the community and all the all the things.   Sam Wilson (00:20:59) - Yeah. Self storage has been a hot asset class for a number of years. How are you guys finding deals that pencil in today's interest rate and also competitive you know buying environment.   *Ryan Smolarz * (00:21:13) - Yeah. So our last deal was bought on seller financing at a cumulative rate of about 2.8%. yeah. So we. Yeah, that definitely helps it. Pencil. There's no doubt about it. We love Utah. you know, a lot of it's this marketing engine that I talk about ad nauseum over and over. It's, you know, having dialers and bringing deals to the table where really our focus is, to close that deal where everybody wins. Right? Because what we don't want is our name to get out there as sort of a, you know, a a firm that's trying to squeeze. So there's certainly times we leave some on the table, to, you know, keep that reputation intact.   *Ryan Smolarz * (00:22:12) - we love to keep up with our sellers, you know, to see what they're doing. And, you know, when I'm in the town of a previous owner, then, you know, maybe we'll go to dinner or something like that. you know, we're really not in the commercial real estate business as far as I'm concerned. We're in the relationship building. sort of. That's what we do, is build relationships. And, I think that goes a long way. And with you, if you go into, you know, a negotiation with that in mind is how can we all win walking away from the table? I think that's powerful. And I think that that brings, you know, sort of a little bit of a competitive advantage to our group.   Sam Wilson (00:23:00) - It takes time.   Sam Wilson (00:23:02) - To.   Sam Wilson (00:23:02) - Time and effort to build those types of relationships. What would you say your average from the first day you look at a deal and say, I'm interested in that to when you finally get a deal closed. Do you think that, do you think your number of days in kind of transaction, or considering a transaction to getting it closed is longer than other people's cycles? Maybe.   *Ryan Smolarz * (00:23:26) - Maybe, it's tough for me to say. I mean, I I'm in contact with quite a few firms that are doing the same thing. I would assume that we're a little bit, outside the norm. just on the the real front end of building that rapport. but with our, you know, standard operating procedures in place, I think we'd catch up on that a little bit as we go through the deal.   Sam Wilson (00:23:55) - Right. No, that makes sense. And I'm not suggesting that's a that's a bad thing. I was just thinking that, you know, if you're thinking about employing this, which it sounds like an incredibly sound strategy, but that you just need to know that you need to put the time in. I guess at the short, short summary there is that this takes time to build those relationships, but it does pay off there in the in the long haul. So that's very, very cool. Ryan, we've talked about a lot of things, everything from kind of your story as an EMT, going to school, how you got involved in commercial real estate.   Sam Wilson (00:24:27) - I love the singular focus that you've had over the last six, 7 to 7 years now. and just kind of how you've built out your company, the way you guys are finding opportunity right now. So much here to learn. one thing we didn't talk about was that you have your own podcast. So if you're listening to this, check out Ryan's Medicine and Money show. if I had the pleasure of being on that show at one point. So check that out. That's, that's also another way that you can connect with Ryan. if our listeners want to get in touch with you and learn more about you, what are some other ways they could do that?   *Ryan Smolarz * (00:25:03) - Yeah. So on our website, store, store partners.com, there's a button you can click. and that will take you directly to our calendar, Lee or Calendly. And, you can have a conversation with us. a lot of our focus on these calls is about, if we can provide value and some sort of education, you know, not necessarily pushing to, you know, come into one of our deals to me, if a person's not comfortable, with the investment, it really may not be the right time or place for to place that capital.   *Ryan Smolarz * (00:25:42) - And so we really focus a lot on that. we love talking to, you know, the, the potential investors, CPAs or financial advisors or whoever the case may be. So, you know, bring it and, you know, we will do our best to answer every question that that comes up. I'm on LinkedIn, Joseph Ryan, small hours. You can check me out. and, Yeah, that's probably the two best places.   Sam Wilson (00:26:11) - Sounds like a winner. Ryan, thank you again for coming on the show today. I certainly appreciate it.   *Ryan Smolarz * (00:26:16) - Absolutely. And I appreciate you having me.   Sam Wilson (00:26:19) - 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 (00:26:41) - Thanks so much and hope to catch you on the next episode.
The Power of Delegation and Automation in Land Investing
Apr 1 2024
The Power of Delegation and Automation in Land Investing
Today’s guest is Mark Podolsky.   Since 2001 Mark has completed over 6,000 raw land deals with an average return on investment of over 300% on cash purchases and over 1000% on land deals that he financed.   Free Book: https://landgeek.samcart.com/products/dirt-rich?utm_source=how-to-scale&utm_medium=podcast   October 2021 podcast:  https://directory.libsyn.com/episode/index/id/21693923   Show summary:  In this episode, Mark shares his journey from hands-on management to overseeing his business in just 30 minutes a week by building a capable team, establishing efficient systems, and utilizing technology for automation. He stresses the importance of delegation, staying focused on high-impact activities, and operating at a strategic level.    -------------------------------------------------------------- The importance of focusing on your comparative advantage (00:00:00)   Introduction to the show (00:00:39)   Mark Podolsky's impressive track record (00:00:52)   Mark Podolsky's return to the show (00:01:04)   Recent developments in land investing (00:02:08)   Automation and scalability in land investing (00:03:30)   Different methods of buying land (00:05:27)   The value of cash flow in financial security (00:08:51)   Adapting to economic cycles and mitigating risks (00:10:54)   Land as an inflation-resistant asset (00:13:44)   Strategies for land acquisition and investment focus (00:14:55)   Time management and life philosophy (00:16:37)   Scalability and automation in land investing (00:18:26)   Achieving business efficiency and learning from past experiences (00:19:35)   Leveraging comparative advantage and delegation (00:21:10)   Mark's offer (00:22:31)   Link in show notes (00:23:06)   Contact information (00:23:39)   Closing remarks (00:23:53) --------------------------------------------------------------   Connect with Mark: Linkedin: https://www.linkedin.com/in/thelandgeek Web: https://www.thelandgeek.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: Mark Podolsky (00:00:00) - Let's say, for example, you are, you know, the best at finding deals, right? Right. Like that's how you're making your money. You're, you're you're finding these deals, but you also type 135 words per minute. Right. And so you're like, well, I can I can hire someone at 80 words per minute. But they're not. I mean, they're fractionally as good as me. I might as well type it for myself. But the answer is no. You're comparative advantage, even though you're might be the best typer is going to be you're only should be focusing on deals, right? And letting everything else go.   Intro (00:00:39) - 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 (00:00:52) - Since 2001, Mark Podolsky has completed over 6000 raw land deals, with an average return of over 300% on cash purchases and over a 1,000% return. That sounded like I just hit puberty.   Sam Wilson (00:01:04) - My goodness, Mark, where did that come from? 1,000%. Let's try that again. A thousand. Hey, whatever. We're going to leave it in there. I like this man. You made 1,000%. I don't care how you say the number. That's a lot on land deals that you financed. Mark, welcome back to the show.   Mark Podolsky (00:01:17) - Sam Wilson. Brother. Great to see you again. And look, I. You know, these these little puberty things. That's pretty cool.   Sam Wilson (00:01:26) - It is until you're until you're 42. And,, you know, you don't want to be there anymore. Hey, man, it's great to have you back on the show. For those of you who are listening. Today, Mark came on the show two, two and a half years ago. I don't have the episode number right in front of me. If you want to go back and listen to that, I would highly advise it, because what Marc does in that show is really breaks down the land investing business and what that looks like.   Sam Wilson (00:01:48) - We probably won't spend as much time on the nuances and kind of not the new, but maybe more time on the nuances today, but last time, kind of explaining what the land business is. So go back and listen to that if you want a primer for this episode. But today, Marc, it's great to just have you back on the show. We got lots of things to talk about. So tell me, I guess in the last two and a half years, what's been going on?   Mark Podolsky (00:02:08) - Well, I'll tell you that it's a good time to be a land investor. And the reason being is when we are doing our deals, we're paying cash. And so interest rates can do whatever they want. And it really doesn't matter. And so for us, it's been a great, you know, sort of bull market in in raw land investing. And we've seen our note portfolio increase now., gosh I don't even have the percentage. But it's it's really been exciting last two, two and a half years watching our clients get out of what I call civil economic dependency, which means if they're not personally working, they're not making any money and seeing how they've been able to quit their jobs, it would retire their spouses and have that security, knowing that when their passive income exceeds their fixed expenses, they're working because they want to, not because they have to write.   Sam Wilson (00:03:07) - No, that's hey, man, that's that's a great,, a great thing, certainly to strive for the land business, at least a lot of times what we see and other guests that we've had on the show that talk about the land business, it's a very active. It's like flipping houses, but without the house. I mean, is it how how does how does what we've kind of heard some people talk about versus how you do it, how do those two differ?   Mark Podolsky (00:03:30) - Yeah, that's a great question. So really, the last thing anyone wants to build from this build for themselves is another job. Right. And we see this happen all the time where people come in, they're enthusiastic, but then they don't have the wherewithal to start building systems, processes, playbooks, swim lanes to say, okay, how do I leverage my time for the highest impact activities? So the way that we teach this, and the way that we set up our own business is using software on the front end, inexpensive virtual assistants and software on the back end.   Mark Podolsky (00:04:10) - 90% of this business is automated and is scalable. And so it actually said, I've got my my second book. It's just about ready to come out in a few months. Dirt rich too. The plot thickens. How to scale your land business. And so I talk all about the pieces that you need in order to to grow, scale your lab business without making yourself crazy. And this really can be applied to any business that you're trying to grow., it's just it's just one of those things because. We think, well, we should be doing all of it and we don't scale. And so it kind of gets back to that sort of Michael Gerber E-myth piece as well. And, you know, are you the technician? Are you the,, you know, the other pieces of it and most people are coming in the technician and we want to become the CEO of our business.   Sam Wilson (00:05:08) - Right? Absolutely. Yeah. And the land business is a it's a is a very interesting business because there's a thousand ways you can do it.   Sam Wilson (00:05:16) - Like what I know you mentioned here, you mentioned early on a note portfolio like what's right. If there is any one particular strategy that you like to employ, what is it?   Mark Podolsky (00:05:27) - Yeah. So I like really three buying. Sort of simple ways to start to buy land. The first one is direct. So what we'll do is we'll do county research, we'll pick our county, and then we'll start looking at comparable sales. And essentially we'll take the lowest comparable sale in a county. We'll divide by four. That gives us what Warren Buffett call a 300% margin of safety. And we'll send direct offers to those people. And why are we doing that? Because we don't want to be in the appraisal business. If we send out a blind offer, then next thing you know, we're spending all our time on the phone appraising and negotiating. So this is just an offer. Take it or leave it. Maybe there's some room for renegotiating, but not much. Right. So that's the first way we can buy.   Mark Podolsky (00:06:14) - The second way we can buy is we can totally eliminate the aspect of getting a list, scrubbing a list, pricing a list, mailing a list, and we can go straight to a wholesaler. They've already done all this front end work, and now we're buying it at a premium of what the wholesaler bought it for. But they've left enough meat on the bone because our margins are so high that we can go in and make. Maybe 100 to 300% on our investment. So you've got retail, you've got a wholesale. And then let's say that you're really cash constrained. And you just want to sort of dip your toe in the water or you're just. Your capital is really dwindling. There's something that we have been teaching now called land arbitrage. And so land arbitrage is typically when someone like me will buy a piece of land, let's say the market I bought it in, let's say I paid $10,000 for it, and I started selling it for $400, down $400 a month. And after, say, ten months of receiving payments, I've gotten 50% of my capital back.   Mark Podolsky (00:07:28) - Right. And then someone defaults. Well, I've already established here's the market. It's $400, down 400 a month for $10,000 a piece of property. Well, what I'll do is I'll use a land arbitrage technique. And so I'll say, Sam. Hey, look, I know you don't have $10,000, and what I'll do is I'll land arbitrage this to you. So instead of $400 down, $400 a month, I'm going to sell it to you for $8,000. $200, down 200 a month. And now you're going to flip it $400, down 400 a month, and you're going to make the spread at a $10,000. So because I've got my almost all my capital back out, I can afford to do this. And then you can lock up a piece of property for only $200. And so let's say it's three months and you couldn't sell the property. Well, now you're only out 600 bucks, so you've mitigated your risk and you've been able to keep your capital. So those are three really simple ways of buying land.   Sam Wilson (00:08:38) - Got it. No I love that I love that yeah. The, there's there's lots of different ways that you can do it, but it sounds like you've been building and will continue to build a note portfolio of your own because you like that monthly cash flow.   Mark Podolsky (00:08:51) - Yeah, I mean, I, I prefer cash flow over cash.. I think it's the antidote to financial insecurity. I really do. I think cash is great. And I think there's certain circumstances where you want cash. But ideally, if you can get to cash flow and you have steady cash flow, it's the antidote to financial insecurity because, you know, you don't have to go hustle for your next deal. You know, you can get sick. You know, life can throw any curveball it wants at you. And you have the steady cash flow coming in every single month without you having to put in too much effort. I mean, let's face it, nothing's completely passive. If, you know, if I gave you $1 billion, you'd still have to do something with that capital actively.   Sam Wilson (00:09:40) - You absolutely would. I've always said that that, you know, the misnomer of passive investing. It's like, no, it's not passive. I'm still vetting sponsors. I'm still, you know, making sure distribution I'm still entering those bond spreadsheets to track the performance of sponsors. I'm still I mean, there's still a lot of still getting tax return documents. I mean, there's nothing passive about passive investing. Maybe less.   Mark Podolsky (00:10:02) - Nothing. Yeah, it's it's less active, but there's nothing passive.   Intro (00:10:06) - Right, right.   Sam Wilson (00:10:07) - Absolutely. So you're a big fan of the cash flow which I couldn't agree with you more, man. I don't know where you were ten years ago, Mark. When? Our 11 years now, when I got into real estate, of course, I read the purple the purple book. And you know, that's all Robert Kiyosaki talks about. It's cash flow. And I'm like, that doesn't make any sense. Like, I want the big lick now. Like, and.   Intro (00:10:25) - Yeah, you.   Sam Wilson (00:10:26) - Know, 11 years later I'm like, man, he was on to something. Cash flow makes a lot of sense. So. Right. It's it's funny how your,, how your perspectives change. When you came on the show a few years ago, you had mentioned that in 2008 you were in the land investing business and got crushed. How are you positioning yourself differently now in light of kind of wherever, whatever we are, wherever we are in the economic cycle that no one knows?, what's different now for you?   Mark Podolsky (00:10:54) - I think I think when you get crushed the way I got crushed. And so it wasn't that the the land business was still profitable, but what I didn't understand was I had Parkinson's law of money. So the more money I made, the more money I spent. And it's an interesting thing because I was I was listening to a podcast recently where Americans feel that how things are going now, they'll continue in this trajectory, where in Asian countries, they're always waiting for the other shoe to drop.   Mark Podolsky (00:11:30) - And so I'd like to take the more Asian approach now because I've felt it. And I know that anything can happen. There can be any kind of black swan event. Nobody could predicted Covid, right, in most of the things. And really that's the definition of risk is when you've thought of everything, what's left, that's risk. And so to me, knowing that I've thought of everything and I can't think of everything, how am I going to mitigate that inevitable risk? And so I probably have more cash on hand than I that I should. Right. And I probably am more conservative with my personal debt than I should be. And. That's really how I think about it. And I'm constantly looking at the market. I'm constantly asking myself that Jeff Bezos question if everything's going to change, what's not going to change, and sort of position myself in the land business in that way. So I think that's just sort of being a little bit conservative, paranoid and having enough cash on hand so that I can weather the inevitable financial storm.   Mark Podolsky (00:12:43) - That's that's coming. It is coming. I don't know when, but I can tell you right now it's been a great, you know, ten year or what. How long has it been since the.   Sam Wilson (00:12:55) - 16.   Mark Podolsky (00:12:56) - Is it.   Sam Wilson (00:12:57) - 6000? Eight was 16 years ago. Yeah.   Mark Podolsky (00:12:59) - Yeah, yeah. So you could say. Okay, Covid was, was a big dip for some sectors, but other sectors, it was crazy. And you have this huge government bailout. They throw trillions of dollars into the economy. You've got massive,, inflation now. And now we're trying to set that back. I mean, it always feels a little. An unsteady to me. And so I want to prepare myself,, for that.   Sam Wilson (00:13:29) - Absolutely. What about. What about the the. Who am I going to ask this? The recession. Inflation. I would imagine that land would be considered inflation resistant in the sense that it's dirt, right?   Mark Podolsky (00:13:44) - Yeah. Yeah. So so when in when you know, we we benefit in a, in a high interest rate environment.   Sam Wilson (00:13:51) - How's that.   Mark Podolsky (00:13:53) - Well because the the the land is a is basically a fixed asset, right? So just like gold or silver, you're,, it's a great inflationary asset. In that sense. So as I said, interest rates, I mean, we're finding interest rates because we're not using debt, but also in an inflationary environment. We do really well as well.   Sam Wilson (00:14:15) - Right. Because you can just reprice to whatever that now.   Mark Podolsky (00:14:18) - Yeah.   Sam Wilson (00:14:19) - Value is.   Mark Podolsky (00:14:20) - Exactly.   Sam Wilson (00:14:21) - Well are there, are there. Ways of. I know you said you buy everything in cash. Is there a particular size or a particular use or., you know, are there things you're staying away from in the land business like development projects or subdivides or infill lots or you name it? Is there anything right now that you're like, yeah, you know what? That style of land investing is not for me because of where I see us, where you perceive us to be in the cycle.   Mark Podolsky (00:14:55) - Yeah, I'm agnostic when it comes to these different strategies of acquiring land.   Mark Podolsky (00:15:00) - What I focus on is where can I get an asset 25, $0.30 on the dollar. And in today's market, it's not going to be an infill lot. I'm just not going to get that right. I might be able to get an incredible deal in, say, a rural area where I can subdivide. Absolutely. I'll do that deal all day long, a development deal. I'm not going to go through the the risk and the process and the headaches and, you know, the years of of, you know, going through that process of getting a piece of land shovel ready. Right? Right. I think it can be a great model. It's just not for me. And so I don't necessarily avoid them. I just sort of I'm an inch wide and a mile deep. I just keep doing what works for me.   Sam Wilson (00:15:55) - That makes a lot of sense. That links, I mean, which essentially you said, hey, you don't see there's anything wrong with those. It's just not necessarily the one that you want to be personally investing in.   Mark Podolsky (00:16:06) - Yeah, absolutely. It's just not going to be in my buy box.   Sam Wilson (00:16:10) - And a lot of those require a very, very unique skill set like the one, you know, where you just talked about the risk, the process of getting, taking a parcel, subdividing it and then getting it shovel ready for whatever you perceive may be the best, highest and best use of that that can be. A lot of years, a lot of gray hair and a lot of,, a lot of time that maybe you could have spent otherwise, you know, on on your business. Doing what,, what you're what you're best at.   Mark Podolsky (00:16:37) - No, absolutely. And I'm, you know, vicious with my time. Right? So,, I've got an app called Y croak, and it reminds me five times a day of my death. And so I. You know, I'm very conscious of the fact that, like, it's really short. It's terrifyingly short. And so how I spend my days is how I spend my life.   Mark Podolsky (00:17:02) - And I want to have the most enjoyable day as possible, doing what I love to do the most. And so if there's something I'm doing that I don't love, well, I either, you know, delegate it, automate it, or eliminate it and that's it. And sort of taking this inventory of, of how I'm spending my time to make sure that,, I can live, you know, the best life I can.   Sam Wilson (00:17:30) - That is, I've never heard anyone mention that we croak. That's,. That's pretty funny. I mean, but it's realistic. You know, I always joke and say that this is just a rental suit. Like, I don't get to keep it, you know? Yeah, you wear it for a while, and then it's all it's over. So. Yeah, that's,. That's pretty funny. Delegate. Automate. Eliminate I love that., okay, so we've talked a little bit here about kind of what your philosophy is right now, how you're positioning yourself, the types of things maybe that you guys are buying, what works for you.   Sam Wilson (00:18:04) - We've talked about your note portfolio,, some strategies for offers on land, the ways you can, different ways you can buy land. What's the what would you say to somebody,, you know, on the scalability of the land investing business. I know you mentioned 90% of this business you think you can offload to other people. Talk to us about that.   Mark Podolsky (00:18:26) - Yeah. So I personally spend about 30 minutes a week in the land business and I'm meeting with my team. We're having a meeting and we're looking at how many offers went out. How many deals are pending, what have we sold and then what playbooks do we need to update? We're where have things changed so that team knows how to run the playbooks,, for each aspect of the business. And that's really it. And just sort of keeping,, my finger on the pulse of the health of the business. And where do we need to add resources? Where do we need to take away resources? Where are things changed? Where can we,, utilize technology? How can I help us do a better job?, and really looking at those types of things as a CEO would look at, at the business.   Mark Podolsky (00:19:17) - So I'm trying to stay at that 30,000 foot level.   Sam Wilson (00:19:21) - That's really smart, I love that. How long did it take you to get that set to where your business runs? Basically? I mean, 30 minutes a week. It's it's running without you, man. I can burn 30 minutes on a phone and, you know, short order. So how did you get there?   Mark Podolsky (00:19:35) - I would say, you know, it took many, many years, I want to say at least five years and then constantly tweaking and doing that and then. Yeah, I mean, it's at least five years to build that.   Sam Wilson (00:19:51) - Right, right. Are there any things you could have done or anything you could have done to kind of shortcut that process as you look back on it and say, man, if I'd implemented.   Mark Podolsky (00:20:00) - Well, if my my clients are doing it in a year, I just didn't know what I didn't know. Sure. So I and I also had this,, I think Chris Tucker from Virtual Freedom calls it,, superhero syndrome, where I thought, oh, no one's going to do it as well as me, right? No one's going to price as well as me.   Mark Podolsky (00:20:20) - No one's going to do due diligence as well as me. No one's going to market as well as me. No one's going to sell as well as me. And it's it's totally wrong. Right?   Sam Wilson (00:20:29) - Totally wrong there. Well, okay, I'm going to be devil's advocate here and say maybe it's not totally wrong, but there because I think there are unique strengths each of us has. I've got a guy no, no.   Mark Podolsky (00:20:43) - 100%.   Sam Wilson (00:20:44) - Right now. And the dude is amazing. Like he can take the most angry seller in the world and suddenly before they're over there, like, you know, high five. And it's like, I'm like, dude, you need to keep doing that. Because for some reason, like you turn angry callers into just happy go lucky people and they want to, like, be at your kid's birthday party before the call is over. Like, that's weird.   Intro (00:21:02) - So yeah.   Sam Wilson (00:21:03) - Yeah, Matt. I'm like, let's let's move all the other pieces or take those off your plate, but we're going to leave that.   Sam Wilson (00:21:08) - We're going to leave you in that seat. So.   Mark Podolsky (00:21:10) - Right. But but as an entrepreneur, I mean, let's say for example, you are, you know, the best at finding deals, right? Right. Like that's how you're making your money. You're, you're you're finding these deals, but you also type 135 words per minute. Right. And so you're like, well, I can I can hire someone at 80 words per minute. But they're not. I mean, they're fractionally as good as me. I might as well type it for myself. But the answer is no. You're comparative advantage, even though you're might be the best typer is going to be you're only should be focusing on deals, right? And letting everything else go for sure.   Sam Wilson (00:21:52) - You hire two people that can type at 80 words a minute and suddenly you're whatever it is, 25 into 135. What? That percentage is more in speed. So now you're 160 words a minute. 135. Understood. No, that's absolutely great.   Sam Wilson (00:22:04) - Mark, this has been fun having you come back on the show and really just banter and talk about the land business. I wish we had a little more time today because there's there's more stuff I want to talk about, but we'll leave that for our investor or for our investor, for our listeners to come to you and and investors to come to you and find out how to invest in the land business. I know you had mentioned something to me, and I've already forgotten what it was, but you mentioned on the show before we started recording, actually, that you had something for our listeners. Can you tell me what that is?   Mark Podolsky (00:22:31) - Yeah, I'd love to offer them a free book called dirt Rich. And so I've got a link for them to click on. It'll, it'll take them,, to our page. They can get dirt rich for free, which will actually just give them a nice overview of the land business. Also talks about my story, my cautionary tale. So you don't have to make the same mistakes I did in life, which could save you a lot of,, time, money and heartache,, as well.   Mark Podolsky (00:23:01) - And so all you have to do is pay for the shipping,, and get dirt rich.   Sam Wilson (00:23:06) - Dirt rich. We'll make sure we include that link there in the show., show notes rather for Mark's book, dirt Rich, which is really cool. Thank you for offering that to our listeners and shipping that out. It takes a lot of time and effort to write a book, by the way, and just to send that to you for free is a really great gift. So, Mark, thank you again for doing that. The link for that free ebook will be in the show notes there on our website, which again, you can find that,, there at the Brick and Investment group.com/podcast. Mark, one more plug for you though. If our listeners want to get in touch, we learn, touch with you and learn more about you. What is the best way to do that?   Mark Podolsky (00:23:39) - I think the best way is to go to the land geek. Com. Com and start learning more.   Sam Wilson (00:23:47) - Than geek com.   Sam Wilson (00:23:48) - Mark, thank you again for your time today. It was great to see you again.   Mark Podolsky (00:23:51) - Thanks, brother. Good seeing you.   Sam Wilson (00:23:53) - 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.
Can Self-Storage Strategies Thrive in the Current Real Estate Market?
Mar 25 2024
Can Self-Storage Strategies Thrive in the Current Real Estate Market?
Today’s guest is Ben Lapidus.   Ben Lapidus is the Chief Financial Officer for Spartan Investment Group LLC, where he has applied his finance and business development skills to construct from scratch a portfolio of over $500M assets under management, build the corporate finance backbone for the organization, and organize over $200M of debt capital from the firm. In addition to completing over 50 real estate transactions at and prior to Spartan, Ben is also the founder and host of the national Best Ever Real Estate Investing Conference and managing partner of Indigo Ownerships LLC.   Best Ever Conference Code Use code “INVEST” for $300 off any ticket type at https://www.besteverconference.com/   Show summary:  In this episode, Ben Lapidus joins Sam to discuss the nuances of the commercial real estate market, with a focus on self-storage and investment strategies. Lapidus shares his expertise on navigating the current market, the importance of robust business plans, and the challenges of finding attractive yields. They also talk about the Best Ever Real Estate Investing Conference, detailing how it adds value for passive investors and the innovative strategies used to attract them.    -------------------------------------------------------------- Self-Storage Market Insights (00:00:00)   Introduction and Background (00:00:37)   Current State of Self-Storage Market (00:02:03)   Investment Strategies and Passive Investors (00:03:34)   Conversion Deals and Opportunities (00:05:18)   Shift from Office to Self-Storage (00:06:00)   Interest Rates and Debt in Self-Storage (00:07:14)   Pricing Mechanism and Market Response (00:08:36)   Commercial Real Estate Market Overview (00:10:33)   Alternative Investments and Portfolio Allocation (00:11:57)   Best Ever Real Estate Investing Conference (00:13:46)   Strategies for Attracting Passive Investors (00:15:41)   Conference Organization and Team Management (00:18:28)   Closing Remarks and Special Discount (00:20:16)   Best Ever Conference (00:20:30)   Contact Information (00:20:50) -------------------------------------------------------------- Connect with Ben: Web: https://www.benlapidus.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 Lapidus (00:00:00) - If your business plan can survive 2 or 3 years of negative leverage, because you can take a low enough IRR that you can store enough cash on the side, then it is a great time. If your business plan is overly aggressive or you're trying to seek a very high IRR at a at a velocity of capital deployment, that's unachievable, then now is a bad time to make an investment. You might want to wait 12 or 18 months to do so. 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 (00:00:37) - For those of you that don't know Ben Lepidus, you need to know him. I've known Ben. Now. What? Man? What's been seven, eight years at this point? Yeah. About to go about that. I met you normally, Ben. I love to do a long winded introduction about how great the guest is. You are a great guest. I'm. It's my honor to have you on the show today, but before I give you my own introduction, I'd love for you maybe just to come on the show today and tell us a little bit about who you are, and then we'll get into it from there.   Ben Lapidus (00:01:03) - Yeah. I'm the founder and host of the best ever Real estate investing conference., not the brand, just the conference. And,, was a founding team member of Spartan Investment Group, which bought a half a billion assets under management in self-storage, recently retired, but have a long history of buying single family multifamily self-storage assets over the last 12 years., recently or prior to that,, was in the adtech space, learned a lot about big data, started a study abroad company Costa Rica., and have tried several other startups that failed. So I'm an entrepreneur at heart and can't wait to talk about whatever you want to talk about.   Sam Wilson (00:01:36) - Dude, that's that's a whole lot. I mean, my gosh, that's a lot of moving pieces there. Most recently you were like you mentioned a,, a partner there at Spartan Investment Group where you guys bought an absolute ton of self-storage. Why don't you just give us maybe a high level view recording this? What? Its end of February 2024, high level view of where self-storage is now and then maybe is what you see across the commercial real estate space as a whole.   Ben Lapidus (00:02:03) - Yeah. So self storage still has incredible fundamentals. When you look at the supply demand of self-storage, it's gone from 1 in 11 households to one in less than nine households are leveraging self-storage or consuming self-storage just over the last 5 or 6 years. That's an incredible shift in demand in a 5 or 6 year period simultaneously, construction costs,, going up, interest rates going up have made new supply difficult. So the fundamentals that drive storage is still in a very attractive asset class. That's on the consumption side on the on the,, the consumer side, on the investor side, investors have wised up to it. So it's become incredibly competitive. And the the spread between what you can get on the equity side versus what you can borrow on the debt side, has been radically compressed., and it now mirrors one of the major five food groups. You've got all of this office money, which was the largest component of commercial real estate coming out of office. And it's number one place to place it is self storage.   Ben Lapidus (00:02:59) - And that's just a lot of moving money. So from an investment perspective, the supply and demand,, isn't as attractive as it used to be. So I think what we're going to see over the next two years is do rates compress faster than cap rates?, and do the supply and demand economics on the consumer side kind of create a skyrocket effect of occupancy and rental rates such that it's attractive enough despite the competitiveness on the investment side?   Sam Wilson (00:03:23) - Wow. That's a that that that's an impressive,, impressive insight there. So yeah, I guess, you know, in short, is now a good time to to be investing in self-storage.   Ben Lapidus (00:03:34) - Now, there is never a bad time to be investing in self-storage. To be clear, it's recession resistant. It's always going to go up because of those supply demand economics. It's just is this the best time to generate the cash flow that you need to kind of cross the chasm if you're buying in a negative leverage environment. And so it's really about your business plan.   Ben Lapidus (00:03:54) - If your business plan can survive 2 or 3 years of negative leverage because you,, can take a low enough IRR that you can store enough cash on the side, then it is a great time. If your business plan is overly aggressive or you're trying to seek a very high IRR at a, at a velocity of capital deployment, that's unachievable, then now is a bad time to make an investment. You might want to wait 12 or 18 months to do so, right?   Sam Wilson (00:04:18) - Right. What about what about that conversation with investors like as in passive investors? How does that work when you're looking at deals that may be negative leverage? I mean, is that even a conversation that's being had?   Ben Lapidus (00:04:30) - It is. And that's because you just kind of find a different investor profile as the yield moves from kind of value add to more opportunistic, you have to find the investors who are willing to take the risk return ride with you at the end of the spectrum where those yields are achievable and attractive. If you're trying to get, you know, a 6% cash flow with a 14% IRR on an asset, that's 70% stabilized, that's been in existence for ten years with no expansion potential, that's going to be really tough.   Ben Lapidus (00:04:59) - But if you can find a conversion opportunity or the doughnut hole in a state that is booming with those supply demand,, economics working in your favor on the consumer side, then you can achieve those 20, 25, 30% IRR on a ground up development or conversion deal or an expansion.   Sam Wilson (00:05:15) - What do you say when you say conversion deal? What comes to mind?   Ben Lapidus (00:05:18) - Yeah, conversion is just taking,, a space that is not used for storage today and converting it for,, storage purposes. If you if you like, like a Macy's, a Kmart, a Shopko and just converting it into kind of like how urban air. I don't know if you've got urban air where you are, but I. Here in Colorado, there's an urban air chain, which is like an indoor like,, pre-teen park for trampolines and stuff. And they've just been converting, you know, grocery stores basically into,, urban air adventure parks. It's the same thing with storage.   Sam Wilson (00:05:51) - Same thing with storage. Be it office.   Sam Wilson (00:05:53) - , I know I'm a passive investor in an office to storage conversion project right now.   Ben Lapidus (00:05:58) - Hotel to storage? Yeah, all sorts of things.   Sam Wilson (00:06:00) - Which is wild because you're looking at this. They've they've converted it from,, office to storage and, and just like you're saying, the opportunity in this particular area was unbelievable. I mean, it's leasing up at like 30 or 40 units a month. I mean, it's just flying off the shelves as soon as they got their Co, which was,, kind of kind of crazy to see. So that opportunity exists. You mentioned the money that's coming out of office and going into storage. How are people even getting their money out of office? I mean, talk about something with negative leverage. What's that look like?   Ben Lapidus (00:06:31) - I mean, we're seeing,,, gosh, I'm gonna I'm gonna fail to come up with specific examples, but we're talking like, institutional level, like CRO holdings,, tremble., you know, bam capital, like those, those size of organizations,, dumping their office assets or dumping their office up co partners and selling them off, whether it's at pennies on the dollar or not.   Ben Lapidus (00:06:55) - And they are recalibrate or,,, rebalancing their portfolio to not reinvest that into office but say let's let's find alternative assets. Self-storage being the darling of the alternative asset space inside of commercial real estate.   Sam Wilson (00:07:08) - Got it. Very, very interesting. What's that look like on self-storage right now?   Ben Lapidus (00:07:14) - That is just as attractive in self-storage as it was anywhere else. And now that's a misnomer because nothing is attractive in debt., I just I use that to say it is just as attractive as any other lending rate outside of the agency world. So you're not going to ever beat, you know, government backed loans like you would get in housing. But outside of that,, you can get self-storage. Lending rates are akin, if not better than than office lending rates today, if not better than retail rates today., you can still find like, kind of the needle in a haystack. Sub six low 6%,, interest rate. Although the majority of what you are seeing on average, when you make those phone calls or high sevens, low eights, and then you're kind of getting to the riskier stuff of nine, ten and even double digits, you know, interest rates.   Sam Wilson (00:07:59) - Anybody doing long term fixed rate on that or is it all floating debt.   Ben Lapidus (00:08:03) - Oh, sure. Yeah. You can find long term fixed rate either, either by way of, you know, like doing shorter term or by doing a swap,, or some other derivative that, that, that creates that, that fixed rate despite starting with the floating rate product.   Sam Wilson (00:08:17) - Okay. Very very cool. Have we seen maybe you've answered this already and forgive me. I'm I'm,, I'm riding the short bus here today, but have you seen seller prices come up as interest rates have also climbed or not? Solid prices go down. Rather like have we seen that that sellers become more realistic or is it still.   Ben Lapidus (00:08:36) - Yeah. So? So I drove the acquisitions team and was very familiar with that up until about 7 or 8 months ago. So I've started to fall off of my, you know, a thumb on the, on the pulse of things. But we haven't seen the correction that you would assume,, with, with,, interest rates climbing.   Ben Lapidus (00:08:54) - So number one, we've only seen rental rates correct by 3% with all this inflation maneuver. And that is incremental street rates not in place rates. So revenue is still going up at self-storage consistently in the industry. And you look at the rate level reporting revenue still climbs quarter after quarter after quarter. The incremental customer rates might be decreasing. But you've got one month leases. You can you can do existing customer rate increases after providing that discounted rate almost immediately if you choose to. So we're still seeing rates increase. So it's an inflation hedge. So we haven't seen the pricing correction in response to the interest rates that you might assume. Because you've got investors coming out of longer term lease product like office like retail like industrial, for the purposes of hedging their inflation and going into short term lease product like self-storage, because they see the future potential of that inflation benefit. So yes, we we have seen pricing come down a little bit. But now instead of, you know, pricing to,, a 4.75% cap rate on a T3 or maybe pricing to a 6% cap rate on a year two pro forma.   Ben Lapidus (00:10:03) - So we're just we're seeing a different heuristic to kind of come to the same pricing or margin of error pricing as we were just a couple of years ago.   Sam Wilson (00:10:10) - Right? No, that's very, very interesting. Thank you for taking the time to give us kind of a brief snapshot on where the self-storage industry is today and kind of what's driving the pricing mechanism behind that. Certainly appreciate that. Let's hear what your thoughts are on the commercial real estate market as a whole. Like where is opportunity if that's still one that people are, you know, fighting tooth and nail over to get involved in? Where do you see opportunity today?   Ben Lapidus (00:10:33) - Yeah, I think commercial real estate just doesn't have the spreads that it did for the last decade. I mean, it was if you're listening to this podcast, you probably have a sentiment that there was a time where raising capital was on the easier side of the spectrum if you wouldn't just blatantly say easy. And that's because you could achieve like a yields an IRR just by consequence of of appreciation that was happening in commercial real estate in general.   Ben Lapidus (00:11:01) - , that appreciation has evaporated as a result of interest rates climbing., and maybe that appreciation will return if and when interest rates decrease. But for right now, you do not get the cash flow that you're you're used to getting after the last decade and a half, you do not get the appreciation that you're used to getting after the last decade and a half. So kind of commercial real estate wide, it's just not a very attractive time to be in commercial real estate relative to yields that you can get in other places. And, you know, modern portfolio theory suggests that up to 30, 35% of somebody's portfolio should be an alternative assets, with real estate being the largest segment of it. About 9 or 10% of the average portfolio contains real estate. So there's a long way to go for alternative assets to kind of climb to 35% to get to that modern portfolio theory number. But there's a lot of other segments of alternative assets like precious metals, operating businesses, secondaries,, private equities that have not been tapped into nearly as much.   Ben Lapidus (00:11:57) - And I think that those yields are more attractive today than what commercial real estate offers. And that's and that's probably going to be for the next 18 months at least.   Sam Wilson (00:12:05) - Well, yeah, absolutely. And I'm I'm testament to that. I mean that's what we're investing in right now is operating business simply because it is inflation resistant. It's recession resistant, like it's it's stuff that spins off cash flow at rates that commercial real estate just simply can't. And that's like.   Ben Lapidus (00:12:22) - I'm more interested in the activity of how the space is being used right, right now than the than the value of the space itself. Right. As an investor mindset. Right?   Sam Wilson (00:12:33) - Right. Yeah, absolutely. That makes a heck of a lot of sense. So you've got you've been through,, you know, all of this here with with Spartan here up until, you know, seven, eight months ago. And what do you do with your time now, like when you talk about these things and you think about, okay, alternative investments, operating businesses, what what are people doing with the space? Like what piqued your interest today?   Ben Lapidus (00:12:51) - Yeah.   Ben Lapidus (00:12:51) - And the way that I found my way to,, the partnership at Spartan was through the Best Ever conference, which I founded with Joe Fairless the year before, joining up with with the guys at Spartan Investment Group. And,, that that conference has been a North Star for me because I've been building it to service me as an avatar consumer of the conference. Who do I want to learn from? Who do I want to meet? Who do I want to be surrounded by? And let's just kind of create all of the details of this conference to attract those people, those speakers, those sponsors, those attendees. And, and I don't I don't know if you've seen that consistently year over year, Sam, but you were there at the first year. Every single speaker that I picked was somebody that I wanted to hear what they had to say personally, like myself. And that's still the case today. We don't have anything to sell at the. Conference. We just want to create a community of like minded people who are intelligent, are having a good time, and want to collaborate with each other to get more out of their businesses and out of their lives.   Ben Lapidus (00:13:46) - , and so that's that's the premise of the conference today. And,, I'm just kind of using the small amount of free time that I have,, after prioritizing my family and my kids, which is the major shift that I made this year into growing and improving the quality of that conference., and so a lot of our effort this year, with the conference coming up in April, April 9th, ten, 11 and 12, in Salt Lake City, is to focus more on the needs of the the passive investor. So as our conference has grown, we've attracted a lot of participants on the syndication side of the house, the operator side of the house, the people who have their their fingernails dirty with the real estate. But the passive investor hasn't had as much,,, emphasis at the best ever conference. So we've built a deal list site that we're going to be launching next week that allows all of the passive investors who are going to be in attendance to review all of our pitch slam competitors and all of our syndication sponsors deals in advance.   Ben Lapidus (00:14:45) - We're going to have a scheduling feature where you can, without walking around the conference and being cultured upon. You can establish one on one sessions with the syndicators that you want to get to know, like, and trust before putting your money in. It is the number one place to show up and look in the eyes. Hundreds of potential,, companies to invest your money into, and not just in commercial real estate, but into a growing number of private placement,, opportunities. And so that's that's really our focus for growth this year is just making the conference useful and desirable for the passive investor, which then, of course, makes it more useful and desirable for the syndicator, who's looking to join forces with those passive investors in growing their portfolio.   Sam Wilson (00:15:27) - That's really cool, I like that. What what have been some strategies that you've implemented to bring in that more passive investor? The people like how how do you draw in that ideal clients? The wrong word attendee how do you do that?   Ben Lapidus (00:15:41) - Yeah. So I think the experiments that we've done in the last couple of years are, number one, you know, three years ago we tried out this pitch slam.   Ben Lapidus (00:15:48) - It's kind of like a TechCrunch disrupt where,, a panel of judges decides on who has the best deal of the year. And the first two years was,, kind of pay to play, and it wasn't a very good situation. But last year was the participation by merit. And you were actually a brick and was one of 12 finalists,, put up on stage. And that got to compete for prize money of $600,000 by actual investors who are on stage. And so we're going to be repeating that this year. We had over 80 applicants this year,, and we have 12 finalists selected for the stage. So that's number one. Number two, we've been trying to partner with investor communities like IDC, intelligent investors, real estate community last year, left field investors this year,, long Angle is another great investor community that we're going to be highlighting on our stage this year., 506 group is,, you know, Mark Robertson, somebody that we've highlighted on our stage before. So trying to partner with investor communities, number three is building that directory so that you can in the comfort of your home, review and plan for your time so that you're not just kind of showing up and hoping that something good happens, but rather you're reviewing materials and saying, I actually have an interest in this.   Ben Lapidus (00:16:50) - I have an interest in a laundromat fund or a Texas vineyard fund. Let me,, or neighborhood retail fund that only buys nine caps or a hotel conversion,, into a bed and breakfast fund or something like that. Right. We've got all of these disparate, kind of nuanced data center style, as well as the traditional multifamily retail office opportunities that you could review. But looking at them in advance and determining, I want to interact with these people,, from the site, that's a new feature, as well as the scheduling one on one feature where you can kind of come up with your agenda as a passive investor in advance. And we've got a speed networking session that we've never had before that only qualified, excuse me, accredited investors are allowed to participate in with prevented sponsors who are,, either on our pitch slam stage or,, sponsoring the event so that you can have kind of five minute curated,, one on one rapid fire conversations. So those are some of the features that we're adding to the experience this year.   Sam Wilson (00:17:45) - Dude, that's really cool I love that. And yeah, I've been,, coming to the conference since 2017. And it's been it's always proved incredibly valuable. So if you're listening to this and you've not been to the Best Ever conference, go check it out. It,, is definitely worth your time. You'll get way more out of it than you put in., so yeah, that's,, that's my plug. My shameless plug as well, for the best ever conference I have. I have benefited from that, Sam. Absolutely, man. It's been a blast, dog. Well, you know, it's fun, man. It's kind of like homecoming. Like you go back and see all your friends. You're like, hey, man, what's up? I missed everybody, it's been an entire year. I can't believe it. But you also have, you know, have created an environment where meaningful relationships, relationships. So if I could speak today are formed. So that's,, that's very, very cool.   Sam Wilson (00:18:28) - On the technical side of that, I look at that conference, Ben and I just kind of go, my gosh, like, this is a ton of. Work. How? How have you organized your team, your people, and your time to pull off something of that magnitude? Because honestly, I look at it from the outside and it seems like you've done it pretty effortlessly.   Ben Lapidus (00:18:49) - But I appreciate that. I, you know, the first 4 or 5 years did all myself on top of growing Spartan at the same time., and, you know, we were just starting to have kids then, so it was a little bit easier to do the multitasking, right?, but around your 4 or 5, I got, I got burnt out, you know, we were we had scaled it from, I think the first year we had 170 people. By year 4 or 5, we were at like 800 people. Now we're this year, it's probably not going to grow just because of the challenging macro environment and people having surplus budgets for marketing and travel, what have you.   Ben Lapidus (00:19:19) - But we'll have over a thousand still., and around that year I said, you know what? I, we just gotta have to hire some people. And so we've built a team, and now they're in their third year of doing this conference together. And so they've, they've just got a great rapport with each other and are capable of seeing the bigger picture that's being put in front of them, the strategic plan that's being put in front of them and executing on that. So I'm I'm very fortunate to be in a position where I only spend about an hour or two a week on that conference up until maybe a week beforehand. And I can I can use all of my extra mental load to be creative with. How can we improve the experience and offer more value to everybody participating?   Sam Wilson (00:20:00) - That's really cool, Ben. I've enjoyed our conversation today. As always, it's a pleasure to get to chat with you. I always feel smarter,, after those engagements, so appreciate you taking the time to come on the show today.   Sam Wilson (00:20:11) - Is there anything else you want to cover here on the show? Before we wrap this up? It's just burning a hole in your mind.   Ben Lapidus (00:20:16) - Yeah, I think we're going to have a special discount,, for your audience, so I don't know what it is, but I don't know if you know what it is, but we're gonna have a special discount for your audience that you can put in the show notes, and you can check us out at Best Ever conference.com, and I hope to see everyone there.   Sam Wilson (00:20:30) - Best ever ecommerce.com. Yeah, check that out. I will get that special discount for our listeners to the how to scale commercial real estate podcast. Put there in the show notes. You'll have to find the episode on our website in order to find that discount, but it'll be there and I hope to see you all at the Best Ever conference as well. So, Ben, thank you again. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?   Ben Lapidus (00:20:50) - Yeah, you can reach me at Ben at Best Ever Conference.   Sam Wilson (00:20:55) - Fantastic. Thanks again, Ben. Great to see you. Have a great rest. Your day.   Ben Lapidus (00:20:58) - All right. Thanks, Sam.   Sam Wilson (00:20:59) - 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.
A Deep Dive into Flex Warehousing with Portal Warehousing
Mar 18 2024
A Deep Dive into Flex Warehousing with Portal Warehousing
Today’s guest are Alex Morrison and Andrew Runnette.   Alex Morrison has broad experience across real estate, capital markets and startups. Alex currently is the founder and CEO of Portal Warehousing, an innovative real estate operating company in the flex warehousing space.   Show summary:  In this podcast episode, Andrew and Alex, co-founders of Portal Warehousing, discuss their innovative flex warehousing business. They detail how they provide small industrial spaces to various businesses, emphasizing the flexibility and services they offer, such as logistics support and community building for their members. They share their strategic approach to market underwriting, building selection, and the importance of location in gentrifying areas. Despite challenges in scaling and logistics, they highlight their efficient systems and the high demand for their spaces, evidenced by rapid occupancy rates. The co-founders invite building owners to consider management deals with Portal Warehousing, which seeks to expand its unique model nationwide. -------------------------------------------------------------- Intro (00:00:00)   Concept of Flex Warehousing (00:02:17)   Finding Properties and Plugging Tenants (00:07:17)   Membership Perks and Differentiation from Self-Storage (00:12:27)   Challenges in Scaling and Overcoming Them (00:17:08)   Underwriting Deals and Selecting Locations (00:18:17)   Underwriting Markets and Demand Generation (00:18:59)   Building Criteria and Location (00:20:12)   Real Estate Cost and Client Opportunities (00:21:34)   Minimum Building Size (00:23:07)   Conclusion and Contact Information (00:23:55) -------------------------------------------------------------- Connect with Alex and Andrew:  Facebook: https://www.facebook.com/portalwarehousing  Instagram: https://www.instagram.com/portalwarehousing/   Linkedin: https://www.linkedin.com/company/portal-warehousing/ Web: https://join-portal.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: Alex Morrison (00:00:00) - They have very limited options after they outgrow their first space, which maybe is a garage, maybe a bedroom as they get to that next level., the options drop off. They need to sign a five year lease, and there's not a lot of space that's available sub 5000ft². So what portal is doing is being an institutional level provider of small warehousing space.   Sam Wilson (00:00:19) - 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) - I've got Andrew and Alex with me here today from Portal Warehousing. Andrew and Alex, welcome to the show.   Alex Morrison (00:00:38) - Thanks so much for having us.   Andrew Runnette (00:00:39) - Absolutely.   Sam Wilson (00:00:40) - The pleasure's mine. I always asked every guest who comes on the show in 90s or less. Where did you start? Where are you now and how did you get there? And, Andrew, if you don't mind kicking us off by answering that question. And then Alex, I guess we'll have you be up next after that.   Andrew Runnette (00:00:55) - Yeah. No problem. Thanks for having us on., we started the company about three years ago., we just opened our fourth warehouse,, and we've got for,, Salt Lake, Tempe, Brooklyn and LA., it's been a journey, and we're, you know, we're growing and just moving on to the next one as we go. So I'll let Alex take it from there.   Alex Morrison (00:01:21) - Yeah. I mean, the the genesis of the company actually came at the start of Covid when the world changed. And, you know, traditional methods of real estate were kind of changed overnight. And I was based in LA, and the only thing you could, you could tour for the first six months of Covid were industrial buildings., so we looked at buying a lot of industrial buildings for my last,, the company I worked for lastly, which was a real estate private equity company. And ultimately that journey led us to developing an operating company that could plug into vacant real estate and add a lot of value.   Alex Morrison (00:01:54) - And that and that, you know, three years later is portal. And what we do is as effectively,, we're a co warehousing, flex warehousing operators. So we provide industrial space for businesses of all sizes to, to use for all sorts of purposes. But basically the solution is a flexible industrial product that,, serves a lot of needs on the logistics side and the warehousing side.   Sam Wilson (00:02:17) - Okay, that's really, really cool. I love that in the name again of your company is Portal Warehousing going to learn more about it? I think it's join-portal.com. So give me a breakdown on that. Like what's a who's a customer. What is flexible warehousing I know we talked about this before the show. You guys said something along the lines of, you feel like where you are now is where maybe self storage was 30 or 40 years ago. Kind of give us just a broad overview if you can.   Alex Morrison (00:02:43) - Yeah. Like I'd say from a fundamental perspective, if you think about an industrial business or an industrial user of space,, there's a long tail of users that are smaller.   Alex Morrison (00:02:53) - , you know, the Amazons of the world take on 50,000 100,000ft² plus of spaces, but there's a massive amount of companies that just need a couple thousand square feet or less space. And their options are super limited. So the genesis of portal was actually thinking about our network in the e-commerce space and learning, you know, their their kind of supply profile as you as you start a company and think about the last company you saw advertising or purchase from on Instagram, these companies have products they need somewhere to store them and fulfill them out of. They have very limited options after they outgrow their first space, which maybe is a garage, maybe a bedroom as they get to that next level,, the options drop off. They need to sign a five year lease, and there's not a lot of space that's available sub 5000ft². So what portal is doing is being an institutional level provider of small warehousing space.   Sam Wilson (00:03:42) - Got it. An institutional provider of small warehousing space. Is this kind of I mean, we're going to use this maybe not even the right term, but I mean, we see it happening across Airbnb ten years ago, you know, hey, we're working.   Sam Wilson (00:03:55) - We're doing you know, people are renting out their houses on Airbnb. We're seeing it happen in the parking industry where we're, you know, anybody with a lot that can park a semi and some other things those get, you know, turned into,, you know, semi parking spaces. And you guys kind of saw this, I guess same opportunity in again, smaller, potentially unused spaces. And or maybe you're taking big buildings and converting them I don't know. I mean it's that kind of am I thinking along the right lines here.   Alex Morrison (00:04:21) - Yeah, exactly. The thought is there is a massive amount of of customers out there that need a functional place to operate. They don't need the 32 foot clear class A building. They just need an industrial logistics environment with a dock door and loading in a commercial address. And we can take spaces that range from your class A warehouse to, you know, our newest location in Brooklyn is actually on the seventh floor of a multi-story, you know, a true multi-story warehouse that was built 100 years ago with freight elevators and logistics for that manufacturing kind of company.   Alex Morrison (00:04:52) - We can plug our customer in. That just needs a highly functional space,, and some logistics services and basically fill buildings that, you know, are antiquated from today's traditional logistics perspective.   Sam Wilson (00:05:06) - Got it. Okay. That's really, really cool. Tell me, I guess when you you guys are all over the country, you said Salt Lake City, Tempe, Brooklyn, Los Angeles. How how do you underwrite? How do you even figure out if this model will work where you guys are going?   Alex Morrison (00:05:24) - I mean, we there is an enormous demand. We think this product works in, in every city. We have to be smart on location. We're really focused on infill amenities markets. If you think about our customer profile, which Andrew can kind of jump into a little bit, they want to be in a convenient we're really selling convenience as well as space here. The core product is space, but it's also the alternatives are very slim. So our customers are paying for for high quality functional space near where they where they work.   Alex Morrison (00:05:55) - So generally that means last mile locations that are infill. They'd rather be in downtown LA than going out to the Inland Empire, for example. And Andrew, one of you, you know, show Sean some of our story, Sam, some of our,, example kind of customers that we work with.   Andrew Runnette (00:06:13) - Yeah. We've seen a lot of crossover sand between, you know, people doing industrial work but also doing e-commerce work, but also using the spaces where they work out of it as well. So you've got your side hustler, you've got your Amazon full fillers, right. You've got all those kind of profiles that come across, but also a lot of service industry customers where, you know, satnav company, right. They get a contract to do some restaurants in Phoenix, for example. We've had this numerous times where they come in and use our warehouse to fulfill their contract. Then they're gone, right? So it's flexible. You know, they're signing a six month lease or a 12 month lease and, you know, that's it.   Sam Wilson (00:06:55) - That's really interesting. How how does it work? I guess, you know, from a buildout perspective. Are you guys are you guys subleasing space from another, you know, are you guys buying the warehouse and then, you know, making it into smaller bays or are you guys buying are you guys subleasing space and then leasing that out again. Like how are you guys finding the properties and then plugging the right tenant into the right spots.   Alex Morrison (00:07:17) - Yeah. Like,, just to kind of exhibit an example is our, our building in, in Brooklyn., we have a bunch of different strategies. We do select releases, but generally we're moving away from that. We're doing mostly management deals now and then acquisitions through some of our capital partners or where our partner buys a vacant building and we come in and operate it and generate a pretty big increase in NOI, because we're generally getting at least three times market rents on our on our, our spaces, because we're making them much smaller than a market lease is.   Alex Morrison (00:07:50) - , so we'll take a 50,000 square foot warehouse and break it down into spaces that average about 500 or 700ft², where 50 companies can operate out of. And we have a logistics operational component where we help them with a bunch of services and give them an awesome space to work out of. But for the most part, you know, they're doing their own business within their own space. It's private, but they share the logistics infrastructure, so we're allowing companies that will never have access to things like a dock door., because generally, it's hard to find that when you when you are below 5000ft² and don't want to sign a five year lease, where do you find infrastructure like that? We can provide someone who needs 200ft² of space with a commercial, you know, dock door, which which allows them to grow their business very quickly and grow with us.   Sam Wilson (00:08:36) - Got it. So you guys, are you guys moving? I maybe I misheard this, but you're moving away from the like actually buying of the of the warehousing and then leasing them out and more into the management model.   Sam Wilson (00:08:47) - Is that kind of what I'm hearing?   Alex Morrison (00:08:50) - Yeah. The last two deals that we did were management deals., and one of them was an acquisition through a partner of ours, and the other was a third party management deal. And we're seeing a lot of opportunity with that as the as the product matures and, and the track record kind of appears and it looks really good. Really good. Honestly, our track record in terms of filling space or buildings or 100% full generating big premiums, people are saying, can you do this with us? Can you do this in our building? And we can take some of these funkier buildings that are in, you know, gentrifying pockets but are not class A industrial and generate like class A+ rents on those, right?   Sam Wilson (00:09:24) - No, that makes a lot of sense. And I would think from a scalability model, I mean, that's far more scalable than you guys, one building at a time, taking it, building it out, doing whatever you're going to do, then managing it and then going back to the next building.   Sam Wilson (00:09:37) - Like at this point, your customer base is nationwide. You're you're just running the management side of it. How does that work? Say, I came to you today and I said, hey, I need 200ft² and, you know, Salt Lake City, like, how do you how do you define what that 200ft² is? And where does a customer, I mean, what's what's that space even potentially look like?   Andrew Runnette (00:09:57) - It's pretty small, but it works for a lot of people., but it's already set, you know, it's got a it's got a key. It's got a door, you know, it's it's already set. We we've modeled out how many we need of that size in each of our locations. And we've got 250ft², 500,015 hundred square foot spaces that are just predefined. And people make it work and they, you know, they can move in same day. Really. We've made it really easy. We've automated everything.   Sam Wilson (00:10:27) - So it is a lot like I mean a storage unit. It's just you walk in, you get the keys.   Sam Wilson (00:10:32) - Hey, this is the size,, you know, like you said, two 5500 was your next one 1500 square feet something along those lines? You can pick one of those three sizes and boom, you're ready to go.   Andrew Runnette (00:10:43) - Yeah. And we've we've taken a lot of learnings from storage. Right. We've taken a lot of learnings there and and really automated things and made it pretty easy. We only have one general manager at each location, so operating a 40,000 square foot warehouse.   Sam Wilson (00:11:00) - Right. Okay. What were you going to say, Alex?   Alex Morrison (00:11:03) - I was going to say, we mentioned earlier on the call that, you know, we see a lot of similarities between storage. I think another another name for this product is could be like industrial Self Storage, where it looks like self storage. It feels like self storage. Our customers are not people, they're businesses., and it's a very diversified rent roll. And you know, we're cutting up space. It's a you know, it's changing the model to a monthly model versus a per square foot model.   Alex Morrison (00:11:27) - And, and that's what storage does. And you can get some pretty big premiums when you do that., so so we do think this is,, like an early asset class that you'll see more and more of and just like self storage., you know, 30 years ago, it was,, mom and pop industry or maybe not institutional industry. And now it's a darling of real estate. So, you know, not to say that that will become of this, but I think it could I really do.   Sam Wilson (00:11:52) - Got it. So let's say you rent that 1000 square foot space or 1500 square foot space. But I am looking at I think one of the things that you mentioned here was that all of your spaces have a services component that goes along with it, maybe that you're not going to find,, I guess I'm what I'm searching for here is the differentiator between self-storage and what you guys are doing. And I know there is one. So maybe you guys can clarify that for me, because when I see here 200ft², I'm thinking, well, why not just go rent to ten by ten, roll up storage units, and then you're at 200ft², and it's probably less than maybe what you guys do.   Sam Wilson (00:12:23) - But there's got to be some differentiator there. So tell me what that is. Maybe.   Andrew Runnette (00:12:27) - I think there's two,. The docs, as Alex. Alex mentioned earlier. Right? You can't find a loading dock at it. Such a small space. Right?, and then second would be we receive goods for people. So say you have 6 or 7 pallets coming in. You let us know. We'll grab them off the truck for you. Pretty simple. And we'll throw them in your unit if needed or, you know, if you can't be there. So companies are saving you know that labor piece, right? They're saving the money right there by not having to have somebody out there warehouse at all times.   Sam Wilson (00:13:00) - Absolutely. And if you don't know, for those of you that's never been in a business that has receivables like that, that come on trucks, I was a long time ago. And what a nuisance that is. Man in the middle of the day you're trying to get something done and all of a sudden there's somebody knocking hey man, there's a there's a semi trailer out back like crud okay, let's go pull something.   Alex Morrison (00:13:19) - And we also help on more on the logistics side too. I mean we help with the outbound and the inbound. So you know we arrange pick ups from all the major carriers. So from a if you're a small e-commerce brand sending out 100 packages a day, all you need to do is give you past a product that's been packaged to us, and we'll handle it from there. And we aggregate that amongst the facility. So we have economies of scale and get the past that labor cost and the shipping costs. Savings on to our members. So there's a big component of of the logistic services that, you know, we have a lot of companies that actually come to us from self-storage. They're in 4 or 5, six self storage spaces, and at some point that breaks and it's definitely a more affordable model. But at some point you have to make a decision, do I want to run my keep growing my business professionally or do I want to stay, you know, limited by storage units and in generally, you know, it breaks at some point.   Alex Morrison (00:14:10) - So, you know, our model is kind of the next stage. If they're not ready to go lease a 2000 square foot industrial space, if they can even find it, where the next kind of stepping stone for that, for that journey.   Sam Wilson (00:14:21) - Right. Yeah. Like you like you mentioned there, if you can even find it, let alone being able to find it on flexible terms, you know, which it sounds like that's another perk that you guys have where it's not, hey, we're not tied in for 5 or 10 years on an industrial space. It is. You know, I don't know what you're I'm sure there are varying lease terms, but it's it's probably much shorter duration, I would guess.   Alex Morrison (00:14:43) - Yeah, it's 3 to 12 month terms. And generally, you know,, customers don't leave us after their initial term. They just they like the flexibility. Something changes. We, you know, we've had companies grow from our smallest space to our largest space, 200ft² to 2000ft² over the course of a year.   Alex Morrison (00:14:59) - And then and then they're ready for their next, you know, traditional term. And they'll go find a 5000 square foot building to lease on a five year basis. But they might not be ready for that for, you know, a number of reasons when they first joined us.   Sam Wilson (00:15:11) - Right. Oh, that's really, really cool. You mentioned the term member. And I'm looking here at your website and one of the line items across the top on the menu bar, I guess that's what that's called., is this membership perks. What is.   Andrew Runnette (00:15:22) - That. Yeah, we touched on some of it. I mean, that that's, you know, the technology partnerships, meaning the shipping platform,, you know, the receiving for customers, the outbound. So setting up, you know, they don't have to set up accounts with Fedex UPS, right? They can just come in to us and use our accounts and ship out to their customers. You know? And that way they get aggregated shipping discounts as well.   Andrew Runnette (00:15:47) - , and then, you know, partnerships to help them scale their company. If you need help building your Shopify store, we have somebody that can help you, you know, if you need insurance, we can help you there. We've just built a bunch of partnerships that people get access to just through becoming a member of portal.   Sam Wilson (00:16:04) - Got it. And that's and why did you guys select the the term member versus, you know, client or something else or you know, where did that name kind of or that idea of calling people members come from?   Andrew Runnette (00:16:17) - I think it builds community. It builds, you know, being a part of something. I mean, there's, you know, a lot of,, folks that meet each other within the warehouse., we just had a packaging company join us, and he's he's now supplying packaging., he started supplying packaging in one facility, and now he's expanding to others, and now he actually expanded to others. So he's in he's in two, maybe in three facilities here in the near future.   Andrew Runnette (00:16:43) - So, you know, that also helps him save on shipping to his customers outside of Porto as well, right?   Sam Wilson (00:16:50) - No, that's really, really cool. I love this model. This is really unique. And you guys are obviously you're aware that you're filling a gap in the market that's probably existed for a long time. What are some challenges, I guess, that you guys see in scaling this? And then how do maybe you intend on overcoming those?   Alex Morrison (00:17:08) - Yeah, I'd say one of the one of the biggest challenges in any real estate operating business has this challenges like, is growing efficiently, smartly and and quickly enough to to grow., so, you know, we see demand for this all across the country., you know, some markets are hard to break into. The coastal markets are very expensive on an industrial industrial basis. Our base rent is a function of the base rent of the real estate. So, you know, there's just some some markets are cost prohibitive. And we're getting creative on deal structure to solve that.   Alex Morrison (00:17:39) - So I'd say I'd say our limiting factor is just is just real estate. And which is a good problem to have because if we're having that issue, we know that the companies that we're servicing are also having that issue., but, you know, at this point, we're just we've really built out a really strong set of infrastructure. We spent most of last year building out our operations,, from top to bottom. And we think this year will be a big year for us on growth. So,, but, you know, the more, the more deal flow we get, the faster we we can we can grow the company. And it's just a matter of finding the right deals in a creative way.   Sam Wilson (00:18:13) - Right. Very, very cool. Andrew, you have any thoughts on that?   Andrew Runnette (00:18:17) - Yes. I mean, I think the challenge is, you know, come just in logistics, but, you know, that's what we're solving for. So it's I don't I think the way we've built out our infrastructure and all of our systems over the last year just, you know, really set us up for scale.   Sam Wilson (00:18:36) - I got a question really, I touched on this a little bit earlier, but it was really about how you how you underwrite a deal, like when you look at an opportunity like what makes it. Yeah, this is going to be a great place to put a co warehousing space or I guess, again, I'm probably using the wrong word there. But how do you do that? I mean, that's that's kind of yeah. Just loving the answer to that if you can.   Alex Morrison (00:18:59) - Yeah. We spent a significant amount of time underwriting markets doing our diligence., you know, generally before we open a facility will have a list of about 200 companies that have signed up for the product that are waiting for us to open so that we know that the demand is there and we do. We've built out a really powerful demand generating system that's proprietary that,, helps us basically determine the demand levels. So, you know, we'll run ads across the internet, across different platforms to, to kind of market something that's coming soon and then hear from the actual customer.   Alex Morrison (00:19:32) - , we want to make sure the demand is there. We're not picking the wrong pocket. And there's obviously better places in a city than others. Like everything in real estate. We want to make sure we're in the right space to make sure that, you know, the occupancy comes to us., but we're, you know, in terms of our, of our occupancy history, we're really excited because, you know, we filled up our our two first facilities to 100% occupancy and under an under ten months,, and, and that's that, you know, very, you know, premium market rents and honestly a wait list in these facilities. So the demand is there., it's just about being smart, about making the right kind of decision on where where to place the facility.   Sam Wilson (00:20:12) - Is there a type of building in particular that works? And one obviously, maybe that's a stupid question, because you just mentioned a building in Brooklyn with a seventh floor that you've converted into this. But I ask the question anyway, but a type of building that works for this and the type of building that just doesn't.   Alex Morrison (00:20:26) - Yeah. What we like, the criteria that we look for is, is generally like adequate. You know, we essentially we look for criteria like doctors, parking, location. Those are the three main kind of things that we look for. Clear height isn't as important to us. So we can kind of fit into these buildings that you wouldn't think have have a useful life in industrial anymore, because an Amazon wouldn't be able to work there. Our companies generally have no issue with that. So,, you know, honestly, most buildings, most buildings work. And what we really try to find is these class B and class C buildings that, you know, are relatively priced well,, in good pockets of town and gentrifying industrial neighborhood. We like to say we go to where the breweries are because once a brewery starts to pop up, you know, you know, these are industrial pockets that are turning over and our product would work well there.   Sam Wilson (00:21:15) - Got it. And I think that's probably the, the, and again, filling up an entire space and ten months that's, that's, that's impressive.   Sam Wilson (00:21:23) - But because you're getting premium rents like the the numbers make sense. I would imagine a lot sooner in the process than maybe it would be if it was just a standard industrial building. No.   Alex Morrison (00:21:34) - Yeah, it all comes down to the real estate cost. The base cost. You know, if we went and paid class A rent and it doesn't really provide value to our customers or, you know, class A pricing on a per foot basis,, we don't need to do that. I mean, it would work just as well, but if we can find value in A, in A, B, or C building in a good part of town that we know we can bring the rents to and bring the occupancy in, we'd rather do that than than pay up for a higher quality building.   Sam Wilson (00:22:03) - Got it. Understood. So can somebody approach you today if I called you to say, hey, Alex and Andrew, I've got a building that I think would be a great fit for this, I own it.   Sam Wilson (00:22:12) - Am I an ideal client for you?   Alex Morrison (00:22:15) - Absolutely. And, you know, we're looking at opportunities all across the country. I'd say to like an ownership to the audience out there that has a building, you know, we're generating the ownership like 25 to 35%, no premiums on the real estate that on a per a market basis. So it's compelling from, from a, from market rent perspective. And we're also, you know, bringing breathing life into some properties that maybe have stagnated. So absolutely, we are looking at management deals across the country in our in our open open awesome.   Sam Wilson (00:22:48) - Know that's and if you're listening to this you know Alex just said it. You know if you've got a building that kind of fits this profile reach out to these guys. And of course their information will be included here in the show notes at the end of it., and just find out if this is a good fit. Is there a particular size, like what's a minimum size that you would need in order to turn a building into? Yeah, you guys are doing great.   Alex Morrison (00:23:07) - Great question Sam. We generally look for 40,000ft² and above. So 40 to 80,000ft². Size range is what we find works best from an economies of scale perspective. Now we could we could flex down. We can flex up. But generally 40,000 is our starting point.   Sam Wilson (00:23:23) - Got it. Okay. 40,000ft² or bigger. This has been fantastic. Alex and Andrea, thank you for taking the time to come on today. And really, I mean, I haven't I don't know whether we had 900 episodes or something on this show at this point, and we haven't had anybody talk about what you guys are doing right now. So obviously you're aware that you're on to something unique. And obviously filling a building in under ten months proves that that is also true. So certainly appreciate your guys's time today. Any last thoughts on your business, on the model or anything else you guys want to share here before we sign off?   Alex Morrison (00:23:55) - You know. Thanks for having us, Sam. If you're ever out in Phoenix, Sol, la, Brooklyn, or maybe more markets come by, check the space out and you'll you'll find it really cool.   Sam Wilson (00:24:05) - Fantastic.   Alex Morrison (00:24:06) - Appreciate you having us on.   Sam Wilson (00:24:07) - Absolutely. No. The pleasure was mine. If our listeners want to get in touch with you and learn more about you. What is the best way to do that?   Alex Morrison (00:24:15) - Yeah. My email to alex@join-portal.com Andrew's Andrew at join dash. Com or you can go to our website join-portal.com and and reach out to us there.   Sam Wilson (00:24:25) - Fantastic. We'll make sure we include that there in the show. Notes. join-portal.com Alex and Andrew, thank you again for coming on the show today. Appreciate it.   Andrew Runnette (00:24:33) - Thanks. Thanks, Sam.   Sam Wilson (00:24:33) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:38) - Favor.   Sam Wilson (00:24:39) - 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.
Navigating Challenges and Opportunities in Commercial Real Estate Financing
Mar 11 2024
Navigating Challenges and Opportunities in Commercial Real Estate Financing
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.   -------------------------------------------------------------- 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)   -------------------------------------------------------------- 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 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 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
All-Cash Real Estate Investment Strategy
Mar 4 2024
All-Cash Real Estate Investment Strategy
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.    -------------------------------------------------------------- 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) -------------------------------------------------------------- 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 -------------------------------------------------------------- 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.
Capitalizing on the Surging Demand of RVs
Feb 26 2024
Capitalizing on the Surging Demand of RVs
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. -------------------------------------------------------------- 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) -------------------------------------------------------------- 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.
Nomad Capital: Repurposing Retail for Premier Storage
Feb 19 2024
Nomad Capital: Repurposing Retail for Premier Storage
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. -------------------------------------------------------------- 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) -------------------------------------------------------------- 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 -------------------------------------------------------------- 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.