Today’s guest is Greg Friedman.   Greg has more than 23 years’ hospitality experience with an emphasis on deal-structure and financing. He successfully has led Peachtree in more than $8 Billion in hotel acquisitions, investments and development since co-founding the company.    Show summary: In this podcast episode, Greg Friedman shares his insights on the commercial real estate landscape, focusing on the lucrative opportunities in credit trade for financing acquisitions, developments, and recapitalizations. He recounts Peachtree's adept navigation through economic downturns like the Great Financial Crisis and the pandemic, crediting proactive investment strategies. Greg also discusses the hotel industry's potential, driven by favorable supply-demand dynamics. -------------------------------------------------------------- Introduction (00:00:00)   Greg Friedman's Background (00:01:07)   Influence of Family and Entrepreneurship (00:02:00)   Navigating the Great Financial Crisis (00:04:29)   Investing During Market Disruption (00:06:39)   Hotel Investment Strategies (00:09:23)   Opportunities in the Hospitality Space (00:12:11)   Investment Risks and Opportunities (00:13:17)   Lending and Financing Strategies (00:16:58)   Target Audience and Demand Profile (00:18:44)   Conclusion and Contact Information (00:20:30) --------------------------------------------------------------   Connect with Greg: Web: https://www.peachtreegroup.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: Greg Friedman (00:00:00) - Across all commercial real estate. I think the best opportunity set is on the credit side. The credit trade me hands down, is the most compelling trade today. And if you're doing direct lending, you know where you're financing groups to go out and acquire and develop assets or even recapitalize existing assets. And a lot of cases were, you know, ultimately driving from a standpoint of the investments we're making, we're getting, you know, outcomes that are very similar to what we would be getting if we were investing on the equity side.   Intro (00:00:29) - 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 (00:00:42) - Greg Friedman, thank you for taking the time to come on the show today. I certainly appreciate having you. Come on.   Greg Friedman (00:00:48) - Yeah. Thank you Sam. I appreciate the opportunity to be on the show with you today.   Sam Wilson (00:00:51) - Absolutely. Greg, as our listeners know, normally I give the guest bio there in the beginning, telling all about the guest and where they come from.   Sam Wilson (00:00:58) - But instead, we're going to skip straight to the same question 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?   Greg Friedman (00:01:07) - Definitely. so, you know, I graduated from University of Texas at Austin back in 1999. I spent, you know, about eight, you know, 8 or 9 years in banking before I started Peachtree going back, you know, to 2007. And, you know, Peachtree, when I originally started it, it was a, you know, small family office that we were focused on going out and acquiring and developing hotel assets. And like all businesses, we've transitioned through the years and we've transitioned into a vertically integrated private equity firm that invests across, you know, all commercial real estate property type. So we invest, you know, still very heavily across the hotel space. But we also have investments across all commercial property types as well as we have investments outside of real estate as well.   Greg Friedman (00:01:49) - And then as I mentioned, we're vertically integrated. So we own an operation development lending asset management company, so forth.   Sam Wilson (00:01:56) - That is fantastic. Did you grow up in a family of entrepreneurs?   Greg Friedman (00:02:00) - You know, I did. So my my grandfather was a huge entrepreneur. He was a doctor by trade. And he, he also owned a bunch of real estate, like any good doctor that lived in a small town in Alabama, because I grew up right outside Tuscaloosa. He was, you know, he was very focused on not only being a doctor. He was an eye doctor. He was also focused on doing everything from owning commercial real estate, you know, to owning a home building business to owning movie theaters. So he was, you know, very entrepreneurial. So he was a huge influence on my life. And he, you know, owned hotel properties. And that was, you know, that's how I sort of got into the business because he owned a business that owned hotels, but also owned a hotel lending business.   Greg Friedman (00:02:43) - So I personally grew up around the business before, you know, professionally getting into the, hospitality business on the lending side, when I graduated college.   Sam Wilson (00:02:51) - Got it. And so was that. I guess maybe that's the answer, the question that's kind of what gave you the bug early on that said, hey, this is this is kind of the direction we're going to take, but what did you decide to do differently? Maybe, you know, when you launched Peachtree that your family wasn't already involved in.   Greg Friedman (00:03:08) - Yeah. So, you know, at this point in time, when I launched Peachtree, my family was pretty much out of the hotel business outside of, you know, some limited investments. So it was, you know, my grandfather, unfortunately, he was, you know, at this point in time, he passed away shortly after I started Peachtree, but didn't have a lot of, you know, he had sold off most of his investments. And same for my mom, who was a big influence as well.   Greg Friedman (00:03:29) - But, but really went in and, you know, initially thought I was going to, you know, just focus because I knew the hotel business from a professional perspective that was out there financing, capitalizing hotel projects and have financing capitalized over 300 hotel projects across the US when I was on the banking side, so I wasn't necessarily looking to duplicate what the family business had done. I was trying to really create my own legacy. And, you know, with myself and I had a partner that still is involved in the business today. The two of us both wanted to create our own legacies, to go out, you know, acquire and develop hotel properties. And we had, you know, our own capital that we were investing. So, you know, personally was using my capital along with my partner. And then our family members were investing heavily. So my grandfather, my mom and so forth were big investors. Initially when we went out and acquired developed assets, when we set up a business.   Sam Wilson (00:04:20) - Got it.   Sam Wilson (00:04:20) - You launched that in 2007. That seems like the prime time to, get heavily into commercial real estate. How did you weather the next 3 or 4 years?   Greg Friedman (00:04:29) - Yeah. So we're good at picking timing here. So we picked it in May of 2007 when we formed Peachtree. And and that was probably the absolute peak before the great financial crisis. And so we, you know, so we went out and, you know, made about eight, 8 or 9 investments across the lodging space, in 2007 timeframe where we bought some land parcels that we ended up developing into hotels shortly thereafter, or we bought actual hotel assets. And it was, it was sort of interesting, just as I reflect on it, because, you know, it was probably the best lesson, you know, for us on the business side, because we quickly went from, you know, being able to play offense, meaning we were able to make investments to happen to play, you know, truly play defense because we were going through one of the, you know, worst economic situations of all time.   Greg Friedman (00:05:17) - With the great financial crisis that really took hold by the mid part of 2008. And, and we successfully navigated through that environment, not only do we end up producing, you know, decent returns, we, you know, all those investments we made, we actually made positive returns on every investment we made pre, great financial crisis. But we were we were super active. We were, you know, very good about not only playing defense but being able to go out and play offense and buy a lot of distressed debt during the great financial crisis. You know, where we bought over, you know, 50 loans. We bought a lot of hotels that were in distress on the real estate side as well. And we bought, you know, we developed a bunch of hotels from the ground up in the middle of the great financial crisis. So we had a lot of success making new investments as well as playing defense. And, you know, being able to, you know, really optimize and drive the returns across our, you know, our existing investments at that point in time during the great financial crisis.   Sam Wilson (00:06:13) - It sounds like you guys were. What? Let's be brave when others are fearful. Like you guys were brave when others were fearful in in this time. What? What did you guys do differently that able you know, that allowed you guys to go out and buy distressed hotel assets and say or distressed debt, whatever it was and say, hey, we're able to do something better than the previous operator has done.   Greg Friedman (00:06:39) - Sure. So I think, you know, I think a couple different things. I think it's just part, you know, at this point in time, I think it's part of our DNA, of our organization. And when you look at just the culture here, we're not afraid of chaos. We're not afraid of, you know, operating in tough environments. And we've had a lot of success doing that, obviously through the great financial crisis. And then even through the pandemic, we were one of the most, you know, active buyers of distressed debt. We bought over, you know, 180 loans in 2020 and 2021.   Greg Friedman (00:07:06) - In the middle of the pandemic, we bought a bunch of hotel distressed hotel assets, even during the pandemic, as well as, you know, we made a lot of, direct loans to groups that needed rescue capital made over, you know, 29 loans to different groups that needed rescue capital to make it through the pandemic. So I think it's it's one of those components where we're willing to be decisive when the market pulls back, you know, you find a lot of groups, become, you know, very timid when there's a, you know, when there's a chaotic environment, when there's disruption in the marketplace. And we're very proactive in the sense that we, you know, like what we did during the great financial crisis, we were very proactive in asset managing our current investments and really setting those investments up to be successful. And then simultaneously, we were able to, you know, shift our mindset because it's hard to play defense and offense at the same time. And you have to sort of, you know, you have to bifurcate those two strategies.   Greg Friedman (00:08:02) - And that's something we did successfully during the GFC. And then as we grew our company because we were much larger, you know, you know, before the pandemic started and we're even larger today than before the pandemic. But, you know, we were able to split our team where we had a certain part of our team focus on playing defense and really optimizing the performance of our existing investments. And then we had another team focused on going out and making new investments in finding and sourcing opportunities. And a lot of cases, what you find in the especially in the hotel industry, there's a lot of inefficiencies from one operator to another. And we've you know, we internalize the operations side going back to 2008 and Peachtree, we did it in order to play defense during the great financial crisis. And having our own internal hotel operation platform has paid dividends for us, not only being able to identify opportunities, but truly being able to outperform, you know, how other operators operate. And unfortunately, when there is disruption in the marketplace, like a pandemic or a great financial crisis, you can quickly see who's good at operating and who's, you know, who's been struggling, but you know, has had the benefit of the, you know, economic conditions before that disruption.   Sam Wilson (00:09:13) - What are some telltale things that you guys look for in an operation where you say, man, that would be a great buy because we can implement X and make this so much better.   Greg Friedman (00:09:23) - Yeah. So a lot of it is looking at revenue management strategies, like you find that a lot of hotels don't really optimize their actual revenue management strategies, being able to maximize rates that they're charging and simultaneously driving the occupancy. So being able to drive those revenues into the asset, you find that other operators are really good at revenue managing. But when you get these revenues, they just overspend and you know, you want to drive. Great guest experience. And we pride ourselves on being able to do that across our portfolio. But you want to be able to, you know, simultaneously because you're making you know, you're making investments in these assets because you're a for profit enterprise. You know, usually and for us, we're for profit. So we want to make sure we're able to control expenses. And we keep a very tight budget on, on what we're spending on the operations side, but we're doing it at a level where we don't want to impact the guest experience.   Greg Friedman (00:10:15) - So being able to balance that out is usually where you can find those opportunity sets. And then, you know, I would say from a more just high level value add strategy that we've been able to implement. When you look at the hundreds and hundreds of, you know, investments we made on the equity side across hotels we've acquired, you know, what you find is a lot of times hotels are undercapitalized from a CapEx perspective. So we'll buy an asset and go in and spend a lot of money to renovate that asset and actually bring it into a level where it can be competitive with the other hotels in its comp set to be able to charge higher rates and be able to drive occupancy. And, you know, other cases, you know, you find that, you know, we're able to, not only, you know, spend money to drive performance from a standpoint of renovating the asset, but change the brand and going from one brand to another brand. There's a lot of value that could be, you know, that could be created by making those brand changes.   Greg Friedman (00:11:11) - And we've had a lot of success in doing that, taking something that's maybe unbranded and putting a marriott or Hilton brand into it. So it has a strong reservation system to help drive that performance.   Sam Wilson (00:11:22) - No, that's really, really excellent. I love the insight there. And I know probably of all commercial real estate asset classes, I know the least about hotels. So this is this is kind of a fun conversation for me to learn, from you. So. Well, Greg, let me ask you this. Like, where is the opportunity that you guys? In hotels today. I mean, it's something where, you know, the traveler preferences have changed. We've seen a lot of, I think, shift in the in the market. you you mentioned here even before we started hitting record that you saw that there's chaos in commercial real estate. So I'm sure having weathered 2007, you know, been through that, built an enormous company up until now. You guys are constantly reassessing where opportunity lies. So give us kind of the insight on what you think and where you guys are positioning yourselves as it pertains to the hospitality space as a whole.   Greg Friedman (00:12:11) - Yeah. So and we we love the hotel space. And we also, you know, we still think there's a lot of opportunities within commercial real estate outside of hotels as well. But across all commercial real estate in general, hands down, the best opportunity set today is not to go out and acquire assets. You know, we think there's a better opportunity set actually on the development side across hotels today, although I think there will be a better opportunity to buy hotels more opportunistically later this year. But we're finding, you know, a better opportunity set if you are investing on the equity side, on the development side versus actually acquiring assets. But going back to my original point, though, across all commercial real estate, I think the best opportunity set is on the credit side. The credit trade me hands down is the most compelling trade today. And if you're doing direct lending, you know where you're financing groups to go out and acquire and develop assets or even recapitalize existing assets. And a lot of cases where, you know, ultimately driving from a standpoint of the investments we're making, we're getting, you know, outcomes that are very similar to what we would be getting if we were investing on the equity side.   Greg Friedman (00:13:17) - Yet we're in a, you know, position that you could argue that's protected because we're in a lower leverage position because we're financing 60 to 75% of the, you know, acquisition costs, development costs, you know, the current value of the assets. To recap. So to me, that's the best opportunity set right now, is to invest through credit versus taking on the last dollar risk on the equity side. But if you are going to take on Las or equity risk across hotels, I you know, I believe the, you know, the development side to be super compelling because there's a lot of markets, you know, when you look at hotels in general, you know, supplies down roughly about 30 to 40% from historic averages. So supply is growing at less than 1% a year. That's projected to be the case for the next five years or so. And that's just a, you know, that's a you know, that's really the outcome of what happened during Covid, where supply pipelines were shut down because nobody wanted to build new hotels when no one was traveling.   Greg Friedman (00:14:13) - And then all of a sudden we transition as travel started coming back, you know, back in, you know, 2022, we started transitioning into this environment where the credit markets became dislocated. So it became more and more challenging to finance construction or new construction assets. And and that's created that constraint of new supply. And simultaneously, there continues to be robust demand. Drivers like demand continues to grow from where, you know, where we were even last year across our industry. And, you know, we're still expecting over the next five years, demand is going to be, you know, growing at historic levels at 2% or higher per year. So demand's way outpacing supply. And there's a lot of markets that, you know, could support new hotels be built in. That's one reason why we do favor development. The other, you know, just sort of interesting component to hotels compared to other property types. Today, if you wanted to invest across, you know, any property type hotels trade at higher cap rates.   Greg Friedman (00:15:08) - And part of the reason, you know, I'm probably a little bit, you know, negative towards equity investments in general right now is I still think we're going through this whole repricing, across all asset types, especially, you know, commercial real estate because interest rates are much higher today than where we've been over the last decade. You know, we've averaged like use the ten year Treasury rate as the risk free rate, the ten year Treasury rates, you know, averaged around 2% over the last 12 years or so. And, you know, you look at today, the ten year Treasury rates around four, you know, 4.3%. So the ten year Treasury is almost double where it's been over the last 10 or 12 years. And, you know, I believe that the ten year Treasury is going to stay elevated. And if it does stay elevated, when you start applying risk premium spreads, which the ten year treasury rate is, from my viewpoint, the risk free rate. And if you applied the, you know, risk premium spreads on top of it for what commercial real estate typically is, which is on average about 275 basis points above that risk free rate.   Greg Friedman (00:16:07) - You know, you start to realize a lot of, you know, assets, a lot of these assets that are trading at a 5% cap rate or even a low 6% cap rate, you could argue you could see, you know, continue to see a cap rate expansion from where they're trading out right now. And that's the risk of making equity investments. I'm not sure if the market's fully, reset. Whereas hotels, you know, are trading around 8% cap rates. So you have higher risk premium spreads, you have less repricing risk. And that's why hotels are. More compelling on the equity side than some of the other property types that you see out there.   Sam Wilson (00:16:42) - I love that explanation. Thank you for taking the time to, to do that on that, on that credit side of things, what are people building now that today's that? Yeah, I guess what are people building right now that makes sense for you guys to be the lender on?   Greg Friedman (00:16:58) - Yeah. So I mean, on the development side, we're financing a lot of new hotels that are being built.   Greg Friedman (00:17:03) - So we're doing a fair amount of construction loans. We're doing a lot of acquisition loans, as you can imagine, outside of construction. We're actually doing some multifamily construction loans. You know, you have a record amount of supply getting delivered in multifamily. So we are very selective on the markets that we are financing. But we are doing some multifamily construction loans, some stuff on the industrial side as well on construction lending, but by far the majority of the type of loans we're making today are, you know, going out and providing acquisition financing or recapitalizing existing assets. And we are starting to ramp back up on buying loans. You know, we bought four loans in the month of December alone. We're buying we're in the process of buying several loans as we speak today. And when we buy loans, this isn't you know, our credit strategy is not a loan to own strategy. Our strategy is to go in and buy loans or even make loans with the idea of helping the borrower be successful. You know, that's what we're our focus is on.   Greg Friedman (00:17:59) - As we buy these loans, we typically buy them with the idea we're going to restructure the loans and hopefully allow the borrower to have runway to be successful and get us paid off over the next couple of years as the market normalizes back out.   Sam Wilson (00:18:13) - Right? No. And that's I mean, that's a lot of moving pieces there and a lot of different strategies I think that you guys are employing all at once. So it's it's a lot of fun to hear you just talk. I know you you probably stay at the 30,000 foot level with a lot of people making a lot of these things happen. I think that's that's really, really cool. I guess, maybe even a more direct question is on the construction loans that you guys are doing. I guess I'm trying to understand the type of traveler today that the hospitality space needs, not the type of traveler that we're building for today. Where is what is that.   Sam Wilson (00:18:42) - Yeah. So we yeah, typically we're.   Greg Friedman (00:18:44) - Focused, you know, on just to sort of put to scale what we're looking at is typically select service limited service compact full service extended stay hotels with 100 to 250 rooms.   Greg Friedman (00:18:57) - Right. So typically the type of guess we're going after are the, you know, corporate travelers. In some cases it's leisure demand. And because each of these submarkets have different, you know, demand drivers that are driving who's actually utilizing these hotels. But I would say the majority of the demand is coming from corporate and group demand as well. As, you know, there's a decent amount of leisure demand, which usually makes up about 20 to 30% of the hotels that, you know, we invest into, have about, you know, have a leisure component to it as well. Sure.   Sam Wilson (00:19:27) - No. That answers the question that that was. Yeah, that's that's super insightful because that's that's kind of the answer I was expecting because I think I've just we've just seen kind of the, the, demand profile change I think slightly over the years. And that was that was the answer I probably expected right now was that more select service? yeah. Corporate traveler sort of sort of clientele at those hotels. So that's really, really cool.   Sam Wilson (00:19:50) - Greg, we've talked about a lot of different things today. I mean, you guys have grown an enormous company here over the last. What is that? Oh seven? 17 years.   Sam Wilson (00:19:58) - 17 years?   Sam Wilson (00:19:59) - Yeah. Man. Congrats. That's a lot of fun. You've done a lot of things you've shared with us today. Your thoughts on the market as it is today, where you guys see opportunity. You've shared with us how you guys have built, built your firm, the types of things that you guys are investing in, the opportunities and how you guys have diversified yourself over the last ten years or so, and what you've been investing in, the types of loans you're buying, acquisitions, development and a very insightful show. I appreciate you taking the time to come on today. If our listeners want to get in touch with your firm, what is the best way to do that?   Greg Friedman (00:20:30) - Yeah, just visit our website, Peachtree Group. Com and we're happy to, you know, connect with anybody that the connect with us.   Sam Wilson (00:20:37) - Fantastic. Thank you again Greg. Appreciate your time today.   Greg Friedman (00:20:40) - All right. Thank you. Talk soon.   Sam Wilson (00:20:41) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is 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.

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.

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.

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.

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.

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

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.

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.

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.

Today’s guest is Anton Ivanov.   Anton Ivanov is a US Navy veteran, real estate investor, entrepreneur, and founder of RentCast.io and DealCheck.io.   Show summary:    In this podcast episode, Anton Ivanov, a seasoned real estate investor, shares his expertise on optimizing real estate operations. He advises on the importance of delegation, professional property management, and maintaining a CEO mindset. Anton recounts his journey from house hacking to managing a diverse portfolio, emphasizing starting small and learning progressively. He highlights the need for efficient turnover processes, tenant retention, and aligning rental rates with market trends using tools like RentCasio. Anton's strategies have notably increased revenue without new acquisitions, showcasing the value of operational efficiency and cost management for sustainable growth.    Links:  https://directory.libsyn.com/episode/index/id/21693881   -------------------------------------------------------------- Delegating and Focusing on Improvement (00:00:00)   Introduction and Background (00:00:26)   Starting and Growing Real Estate Portfolio (00:01:18)   Focusing on Improving Operations (00:02:48)   Transitioning to CEO Role (00:03:35)   Professional Property Management (00:04:50)   Minimizing Vacancy and Tenant Retention (00:09:14)   Implementing Systems with Property Managers (00:13:45)   Lease Renewal and Rent Adjustment (00:18:14)   Vacancy Minimization (00:20:36)   Lease Renewal Strategy (00:22:13)   Action Items for Revenue Growth (00:25:13)   Expense Reduction (00:27:27)   Contact Information (00:28:56) -------------------------------------------------------------- Connect with Anton:    Email: anton@rentcast.io   RentCast Facebook: https://facebook.com/RentCastApp Twitter: https://twitter.com/RentCastApp Web: https://rentcast.io    DealCheck Facebook: https://facebook.com/DealCheckApp Twitter: https://twitter.com/dealcheckapp Web: https://dealcheck.io   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Anton Ivanov (00:00:00) - You know, ultimately you are in charge. It is your business, it is your assets. But you need to be able to delegate and kind of step back and focus more on areas that need improvement, as opposed to just doing everything yourself.   Sam Wilson (00:00:13) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:26) - Anton Ivanov is a US Navy veteran, a real estate investor, entrepreneur and founder of rent, Cascio and Diehl Checchio Anton, welcome back on the show.   Anton Ivanov (00:00:36) - Thanks for having me, Sam. Great to be here as always.   Sam Wilson (00:00:40) - Absolutely. The pleasure's mine. Anton. It, uh. I didn't look it up here ahead of time, I can't remember. It's been a couple of years since the last time you were on the show, so it's great. Great to have you come back on. I don't remember the episode number. So here, maybe we'll include that there in the show notes, in case you want to go back and kind of hear Anton's, uh, first podcast with us, where he breaks down a lot of the ways he built this business and some really other cool, uh, things that he's done there in his real estate investing career, which we're not going to really get into too much today.   Sam Wilson (00:01:07) - However, Anton, for every guest who comes on the show, even returning guests, there are still three questions I asked them in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Anton Ivanov (00:01:18) - Absolutely. So we started investing, uh, me and my wife about, uh, it's been about ten years now going on that, uh, we actually started very small. We started with house hacking. Uh, you know, we bought a one duplex that we lived in. One of the units rented out the other. We moved on to some out of state turnkey investing in single family properties. And then most recently, we were buying commercial multifamily in, um, commercial and like, fourplex residential multifamily in Kansas City, Missouri. So we've had kind of a very, uh, more slower growth, I like to say it, but it was more manageable. Uh, it helped us make, you know, some smaller mistakes, learn from them, and then move on to bigger deals over the years.   Anton Ivanov (00:01:59) - And we've covered a lot of this with you, Sam, on the last podcast. So, um, again, I'm a big proponent of kind of not jumping into necessarily the biggest deals, uh, if, if, you know, if, if you prefer starting smaller and learn from that. Um, and yeah, we've been super happy with that, uh, lately and kind of what I wanted to focus on this show. We've, we've spent a lot of time on focusing on improving our operations, um, and kind of increasing the cash flow. The existing units we have, we have, uh, 42 units right now spread out across, uh, three places, Atlanta, uh, San Diego, and then the bulk of our portfolio and, uh, Kansas City, Missouri. Um, and yeah, just the market recently has been a little bit tougher. You know, obviously we have still prices are pretty up there. They haven't, uh, softened up, as I would expect them by now.   Anton Ivanov (00:02:48) - And then the rates are high. It's just kind of a tougher environment, in my opinion, for acquiring new rentals. So I think it's a great time to focus on operations, because I think it's oftentimes neglected by some investors that just kind of focus on more and more deals, more and more units in their portfolio. Uh, but I think you can get a great ROI in your time and kind of effort by just focusing on what you already have.   Sam Wilson (00:03:12) - Man, there's a lot to be said for that, and I look forward to jumping in to getting kind of the nitty, your nitty and gritty details on how you guys have done this. I guess before we get into that, though, 42 units spread completely across the country. I mean, yeah, Kansas City, San Diego, and if you're if you are managing operations, it sounds like you're, you're self managing these properties.   Anton Ivanov (00:03:35) - Um, so no. And actually that that takes me straight into our first point is, uh, you know, I look at, you know, when you first starting investing in real estate, you're kind of more I would say, uh, you know, boots on the ground.   Anton Ivanov (00:03:48) - You're more involved, especially with acquisition and management. I think it's important as you transition to larger volumes of units, you know, ten, 20, you know, 40 like US units, especially if they're spread out across the country. Um, I think at that point, you kind of stop being maybe like the workhorse of your business, of your real estate, uh, you know, venture empire, if you would, and you kind of start to become the CEO, right? Where you're, you know, ultimately you are in charge. It is your business. It is your assets. Uh, but you need to be able to delegate and kind of step back and focus more on areas that need improvement, uh, as opposed to just doing everything yourself. So one of my, you know, first tips for kind of improving operations at scale, uh, again, is not necessarily doing it yourself, but finding professional property managers. So we've used professional management for all of our units. Funny thing is, when we bought that duplex that we house hack, that was our first property that we bought, we used the property manager for the upstairs unit, even though we lived in the building.   Anton Ivanov (00:04:50) - And it sounds kind of stupid, maybe silly, you know, like, hey, why don't you just manage your your right there. It's the unit above. But I had this vision of kind of growing our portfolio to 40, 50 units, and I wanted to start getting experience with working with property managers, kind of seeing how that plays out, which prepared us to, uh, later buy out of state properties that I was not going to manage myself. So I think it's important, you know, I I've met folks who self-manage, especially if they're local. The buildings that they own are local. It can work. But I just think it turns into a full time job very quickly, especially if you have a lot of units. I think you can free up your time. Uh, and if you find a good manager, you know, and kind of work with them. Right. It's it's also another thing I would say about property managers. Uh, it's it's not really a give it to them and forget.   Anton Ivanov (00:05:40) - Kind of arrangement, which I think some people expect. Um, and, you know, in an ideal world, maybe it would be. But everybody is different. You're you're different from, you know, Sam from, uh, from me the way you want your units managed. And, yes, a property manager has their own, like, procedures and steps, and they like to do things a certain way. That doesn't mean that you can't go to them and say, hey, look, I know you guys like to do it this way, but here's how kind of I would like to tweak the process. Like, again, you're basically the CEO. You know, they're working for you. You're paying them. Um, and I think as the CEO, you have the full right. And kind of not to micromanage them essentially, nobody likes that. You know, they don't want you to be there just making every little, you know, second guessing their decision and stuff like that. But know if you feel like things are not going the right direction, step in there.   Anton Ivanov (00:06:28) - You know, do a monthly phone call. This is what we do with our property managers, even if things are going smoothly, just to check in and see how things are going, any big issues, anything we should be concerned about? Look at trends and let them do the work. Uh, especially if you own out of state properties.   Sam Wilson (00:06:43) - That's really great advice, and I bet most people don't do that who are out of state owners is having that monthly check in. Yeah. How do I mean and I also wonder if, you know, how did you convince and or get on the calendar of your property manager saying, hey, I want this monthly check in because I bet some property managers out there that would be like, hey, Anton, it's great knowing you, buddy, but I really don't want to spend 20 minutes with you once a month talking about your properties and go away. So, uh, how did that conversation.   Anton Ivanov (00:07:16) - Yeah, well, two things. So I think as you, uh, you know, as you scale your portfolio, the more units you own in a certain area, the more units you have each property manager manage.   Anton Ivanov (00:07:25) - Uh, you kind of become a more valued client. Right? So if, if you, if they're just managing one house for you, you're absolutely right. They may just not be inclined to spend as much time with you because you're like one out of 500 or something units. But as your units grow, you have, you know, a dozen 20, 40 plus units. Uh, it becomes much more easier, at least in my experience, to get on their calendar, uh, have them be a little more responsive. Um, and I would take advantage of that. You know, I would. You are a more valued client. They should spend more time with you. Um, so that's kind of one thing. I think it's natural for that to just happen as you grow your portfolio. The second one does come down to property managers and not being able to basically, you know, fire one if it doesn't work out. I had to do this in some of our markets, you know, some property.   Anton Ivanov (00:08:13) - There's so many property management companies and some are like you said, they're just like they don't really want to like stir the boat. They just kind of want to collect their cut from from the rent every month. They don't want to talk to you, you know, like they don't want to talk to the tenants. Um, and in my opinion, those are usually not the best property managers. Like, I don't think, again, a property manager should be like, always, you know, shaking things up, but they should be responsive. Communication is like one of the keys that I always looked at in property managers. If your property manager is not responding to your emails, phone calls, whatever, I bet they're not doing that with the tenants. Also, like there's probably some some like communication issues with the tenants and that's what you don't want. Because to me, like how they talk to me is, you know, kind of relates to how they talk to the tenants. And I want a property manager that will talk to the tenants, be responsive, like stay up to date, because that's how you increase tenant satisfaction and retention, which actually takes me to our next point, uh, very, very nicely.   Anton Ivanov (00:09:14) - How do you improve operations and kind of efficiency of your portfolio is minimizing vacancy when you have a portfolio at scale, a large multifamily commercial portfolio? What I've found and I've talked to a bunch of investors is vacancy becomes your biggest expense. It's not your taxes, it's not your insurance. It's not your it's it's actually vacancy. If if you have 40 units and ten of them are vacant, you know, that's like a 25% reduction in your income, it becomes huge. So focusing on minimizing vacancies. And there's many different aspects to this right. This it's both basically you know when you do have vacant units, uh, you need to get efficient at filling them. And this comes down to having a very good unit term process. You know, you're not like messing around, finding a contractor doing scopes of work. Like we've got it down to a science where basically we have a portfolio like our bulk of our portfolios in Kansas City. We have a standard list. Like I'm like, hey, here's basically a punch list, right? Here's here's what you go through.   Anton Ivanov (00:10:15) - Uh, they we have a standard set of contractors where they agreed on budget and materials. Like, we like to standardize, we paint like, you name it, like it's it's such a well honed process. And again, that's something that's easier to do at scale. You know, if you own a single family here or single family, there is kind of a little more individual work. Like what does this house need when you have commercial units, you know, larger special talk to folks that have 100 plus years. When it's right there. Like I can't be going and doing a personal inspection, or every manager is going to do an inspection, like have a standard set for how you turn a unit. So when a unit does become vacant, they give you the keys. It's like, boom, we done the inspection, boom, we've scheduled the work. We had contractors lined up, you know, a week too. It's it's done. The work is done. We can release it. We already know what we're leasing it for.   Anton Ivanov (00:11:04) - Uh, we already have a kind of a marketing plan. We know where to pose these properties. And, you know, with the unit is vacant for a weeks, you know, 2 or 3 weeks, like max, where as a as opposed to sitting there on the market because, again, every month you're not collecting rent, you're losing a ton of money. Uh, and it's kind of like a hidden expense, right? It's not like on your operating expenses, on your CapEx or anything. It's it's it doesn't show up there. But but when you're not collecting rent, that is an expense. So huge, very huge minimizing vacancies. The other thing I will say, kind of where we started with the whole vacancy, is the whole tenant. I call it like tenant retention. Right. Uh, general concept, but it basically involves keeping tenants happy. It's it's a multifaceted thing. It's it's hard to like, point it like, hey, do this and your tenants will be happy.   Anton Ivanov (00:11:53) - But having a good property manager like we started talking can go a long way. You know, tenants, in my experience, most of them like they're not like super picky. Like you'll get 110 and out there, that's just kind of a pain in the butt. Uh, excuse my language, but but most people, you know, if if they have an issue, uh, they understand, like, things break, right? You know, dishwashers break, whatever garbage disposals break. They just want good communication. And we've heard that time and time again from our tenants. Like, they love the fact that. So we have like, programs where they can text, they can use a website to submit maintenance requests, like it's easy to get Ahold of our managers, our maintenance departments. And I think that alone can go a long way to like, keeping tenants happy and keeping them in your units as opposed to like you know, always moving out because they just, you know, they ask for something to get fixed.   Anton Ivanov (00:12:44) - And it's been weeks before somebody even called them back. Like, that's not the experience you want. So, uh, just work with your property manager, establish some programs that can be very simple, like you don't have to send them gift cards or like, you know, I've heard, like some landlords do, like crazy stuff like that, you know, they'll, uh, send them a birthday gift, send them a Christmas gift if you have the capacity and kind of to do that, like. Yeah, I think it'll be great, you know, at least a little postcard or something like that. But even just the basics, you know, be responsive if they have issues, you know, work with them on the issues. Just be reasonable with the tenants. Uh, keep them happy. Put yourself in their shoes. I think that can go a huge way to to reduce your vacancies.   Sam Wilson (00:13:24) - You've brought up a lot of things that I would feel are more on the property manager. Things to do, such as? Right.   Sam Wilson (00:13:32) - Having text message, you know, hey, I can text and say, yeah, something broke or this or that. How are you incorporated? Or how are you having these discussions with your property managers and saying, hey, these are systems we want to implement.   Anton Ivanov (00:13:45) - Yeah. So that that yeah, you're absolutely right. So I'm not doing these myself. I'm not out there like with my phone number giving giving it to the tenants. No, this is exactly like the first thing I think, you know, having a good, good, good property manager, having a good relationship with your property manager and then finding one that is willing kind of to work with you if they don't have these systems to implement them. That's like one of the keys. And that's why I started with that as my number one point, a property manager at a scale like with a with a larger portfolio can make or break, you know, your basically success, your long term cashflow. So again, it's you know, it's more like an art form.   Anton Ivanov (00:14:24) - I can't tell you like, hey, you know, go on Yelp or something like that. Look for these keywords. Find a property manager like it's it's it's been like a bit hit or miss for us. You know, we've we have started with some companies that were doing okay. Then we got to a certain point with kind of our larger volume that we found. Hey, you know what? This is just not working. I would say the best thing that helped us was a I only ask I only find property managers now through referrals. Uh, we haven't entered a new market in a while, but I would never, like, go on Google or Yelp or whatever and just grab a random company. I just think that's, you know, your the chances of you finding a really good one are pretty low. Um, I would definitely. If you're in a new market, you've never invested there before, I would try to network and connect with other investors, property groups, like whatever, find a little circle, you know, little local meetups, and then ask who they use for property managers, find out how big their portfolio is.   Anton Ivanov (00:15:18) - Uh, so it kind of matches what you're doing, because, again, a property manager who, like, specializes in single family is going to be different than somebody who manages like 100 plus unit, you know, apartment complexes. Like you need to find a manager that like, fits what you're trying to do. Um, and then again, it's just about establishing a relationship, you know, when you come into it. I would ask him questions. Like, hey, uh, you know, how open are you guys to doing a phone call with me every month? Like, it's it's a question that you can easily ask during, like, your initial vetting process with the property manager. Uh, you know, all these questions like, hey, how do you guys handle maintenance? Like, is it a website? It's just a forum. Like, do they have to call? Uh, so I actually have, I think like a property manager checklist or interview, uh, questionnaire. Maybe we can throw that in the show notes that like covers a lot of these bases.   Anton Ivanov (00:16:06) - And it will just should give you a better understanding of how they do things. Because, yeah, you want to find a company that already has a lot of this stuff in place. And really good property managers, they do like they're not going to be, you know, like set and forget. They they will have these programs because it's in their best interest to like the like most property managers don't collect money when the units are vacant. They want to keep the tenants, you know, to keep them happy, keep the owners happy. So a good property manager company is probably going to have a lot of this stuff already. It's just again, a matter of finding one, which is not easy, but it is possible, right?   Sam Wilson (00:16:39) - No, I love it. That's, uh, that's very, very helpful finding a property manager that you think you said it. But just to recap, but find the property manager that that matches the property type you're looking for them. Exactly. And has experience in that because there's like like you said, there's it's a wildly different skill set for a 100 or 200 unit apartment complex than it is perfect.   Sam Wilson (00:16:58) - Yes, 100 single family homes spread around the city. So that's, uh, that's really, really helpful. Can I go back to. Yeah. The vacancy. Yeah. First thing that you hit on as a way to, you know, improve operations. And of course, you know, I also like what you said there when you said that, hey, you know, you're you're if you're not collecting rent, it doesn't show up as an expense other than your top line revenue number is smaller, but there's not exactly there's not like a line item says, hey, you didn't collect rent and here's how much money you lost. Yeah. Which would be kind of helpful, I would think.   Anton Ivanov (00:17:30) - Yeah. Well, we tend to put it up higher like before the operating expenses. Right on the like the NOI worksheet. So.   Sam Wilson (00:17:37) - Right. Right, right. Yeah. Somehow it needs to be like above the top line. Like here's your minus for all your vacancy. Right. But anyway, I digress.   Sam Wilson (00:17:44) - The question I had for you outside of, you know, uh, quick turnovers, that sounded like one thing that you said that you guys are really, really honing in on is if you have a turnover. Yeah, it's done very, very efficiently. What else are you doing on that front in order? And of course, you know, your second comment which was retention, which is also, you know, part and parcel of minimizing vacancy is keeping the tendency you have. Yeah. Is there anything else on that minimization of vacancy that you guys are actively doing that maybe our listeners could employ?   Anton Ivanov (00:18:14) - Yeah, I would say, uh, and kind of this I actually had a third point that this will take us in there nicely. So this is more on the retention side. So again, keeping the tenants happy with simple things like communication, maintenance. Uh, the other thing where I think landlords struggle and we have to is the whole like lease renewal and rent like, like where to keep the rent because you know, yeah, if the tenant is happy, a lot of times, though, it still comes down to what are you charging in rent? Uh, you know, if, if, if you're, like, overcharging them way above market, they're going to shop around.   Anton Ivanov (00:18:47) - They're going to move. Right? So, uh, but where do you do it? Or. I've met landlords that are like, on the opposite, they'll be like, I haven't raised rent for this tenant and ten years, you know, and, and and I'm happy and they're happy I think, you know, with that there's, there's a medium right there. So, uh, my philosophy is I do want my portfolio to kind of keep track with the market rents, right, or over a long period of time. So I'm not a big proponent of not raising rent for tenants for like decades. It's just I think there's really no reason to do that. Uh, yes. Maybe you will lose some absolutely exceptional tenants. But if you actually do the math of how much rental potential rental income you lost over the course of, whatever, five, ten years, you didn't raise the rent on them, even if you fact, you'll have a turnover and the new tenant, it will work out better in your favor, in my opinion.   Anton Ivanov (00:19:38) - You know. Right. It comes down to a little bit into like your personal philosophy and all that stuff. Uh, but just mathematically, I think you'll do better to keep track with the market rents for your portfolio overall. Now, what we tend to do for, for our own portfolio is we would be a little more aggressive when leasing new units, right? So if we have a vacant unit, we'll do a market analysis. Now by the way I'll do a self, you know uh plug here. So we have a rent Casio platform. Uh you go and rent Casio. You don't need an account uh, if you have a residence. So it's currently only for residential properties like apartment complexes. We don't quite support industrial or warehouse or retail on the commercial side yet, but if you have residential, you know, both small multifamily and larger commercial properties you can plug in and address, you know, the, like the property size type, and it will give you a rental analysis, like a rental CMA report with what the rent should be, what are the rental comps and stuff like that.   Anton Ivanov (00:20:36) - So there's like really no excuse with today's tech is. Getting to with not knowing what the, you know, current market rents are and a good property manager should have a like a ping on that as well. Like they should know. You know what what kind of properties would rent for. So basically when we're leasing new units, you know we already had a vacancy. We did a turn especially it's kind of like a, you know, a decent rehab. It's in good shape, will be a little more aggressive meaning like will list it pretty close to what we think market rent is maybe a little bit under, but it'll be like pretty up there. And you know we'll kind of judge rental demand. Obviously that's another thing with kind of working with your leasing agent for minimizing turnover is is like I've seen property managers that will just throw a rental number on there like they think it should rent for, I don't know, 1200. Uh, and then they'll list it and then it's like crickets and, and they just keep the listing on and they keep the listing on.   Anton Ivanov (00:21:27) - Maybe they get one showing like. No, like we tell the leasing agents like, hey, if, if, if you list it for a week, you should get like at least five, ten showings, whatever it is, depending on the year. Like you should get interest. If you're not, then it's too high. Like it's it's as simple as that. It's not like your pictures or you know what I'm saying, because markets also change so rapidly. Like you can look at long term trends, which was shown on the Rent Cars website. You can actually look at like zip code and where the rents are going, but they change like too quickly. They're seasonal, you know, there'll be less demand in the winter, like for example, around the holidays. Usually nobody's moving. Then there's like more demand, like in the summer when people tend to move. Right. So you just have to be like really on it. You're leasing agents should be not necessarily you personally, but uh, just do little adjustments and then you get more showings.   Anton Ivanov (00:22:13) - You feel kind of the vacancy. So we're a little more aggressive on the leasing of new units. Were a little less aggressive on renewing leases. So we typically do one year leases, sometimes two. But we'll be we'll kind of look at the tenant. And if they're paying their good if their rent is kind of pretty close, like if it's a new tenant, maybe they at least a year ago. Sometimes we'll skip a year. We just won't even do an increase. I'm not a big fan of like just doing $50 a year every year, like something regular. We will actually see what they're paying, what their history is. Uh, what would we lease that unit for? Uh, if it was like, you know, vacant if we just did market rent and if it's within like 10 to 12%, I mean, like 10 to 15, even sometimes 20% within market, we will leave it alone. We will maybe bump it up, but we will kind of always trail the market rent on lease renewals basically by about like 15%, sometimes even more for good tenants.   Anton Ivanov (00:23:09) - So we'll kind of keep it up, but we will be much less aggressive. And that kind of gives you a spread. Because if that tenant was to go and be like, you know what, they give me a little increase. Like, I don't know, $100, $150 a month. And what are they going to do? Like think about it. They're going to go and shop, right? First they're going to be like, you know what, I don't want to pay more because it's like human nature. Why would I pay more? They'll go do a market analysis for the same kind of unit type that they're in. And if the market rent is really like ten, 15% higher, they probably won't really find anything that is better than what they're paying. And they'll be like, well, I guess, you know, it's inflation. And you know, people expect rent increases, right? They just don't want to be in a position where like, uh, you know, they feel like you're overcharging them.   Anton Ivanov (00:23:54) - So if they go and they find a bunch of other units for leasing for less, or maybe they're just better conditioned leasing for the same. So just put yourself in the tenants position. Again, my preferred strategy a little more aggressive on vacant units, a little less aggressive on, uh, existing tenants and lease increases. Uh, but, uh, you know, find a strategy that works for you. Communicate that to your property manager, like your property manager should be on it. It shouldn't be like, oh, what should I lease this unit? Like we have a process like go to rent cast or whatever platform they like to use, you know, find the rent estimates. You know, look at the tenant. Is this a lease renewal? Is this a new tenant? Right. Like have kind of almost like a workflow checklist whatever that, you know, that they know. Uh, but let them do it, you know, once once they're comfortable with. And we had great success with this.   Anton Ivanov (00:24:42) - Like we got our leasing agents and they like it too, by the way. Like, you know, property managers do like systems. They have a lot of units. They kind of they don't want to be overthinking too. But if you get them on a system, I actually found that they're very responsive to it provides like overall a good company. Like they're, you know, they're honest. They want to work. Uh, they like these systems. They, they like that, like, hey, I do do do do this. And my owner is happy. The tenants are happy. Like, we're done. You know, it's, uh, I've, I've haven't had personal issues once. You kind of get them on board with that man.   Sam Wilson (00:25:13) - That's great. So we got three action items here. Yeah. In order to. And it all comes. Well, you know, one is minimize the vacancy, two is retain the existing tenants that you have and then three is inside of retaining those existing tenants.   Sam Wilson (00:25:27) - Um, you know, it's it's paying really close attention to how your units are priced and when who the tenant is. That's, that's currently there. And or if it is a unit that you're filling. So that's really, really helpful. What has been your. I know you'd mentioned this maybe off air and maybe you didn't mention it on air, but I think you told me that there was a certain percentage that you've really increased the top line revenue to your business without adding more units here, just implementing this strategy.   Anton Ivanov (00:25:54) - Yeah. I think I haven't like done the math exactly today, but I think over the last. So we haven't bought new units I think for two years. And it's primarily because of Covid and kind of the market was really up there, you know, with the prices, then the rates start going up. So we've really focused on operations because I feel like as a real estate investor, you always should be focusing on something again, like you're the CEO. Like you shouldn't be just sitting around, you know, collecting your paycheck, which is nice, but, uh, and a great time if you feel like the market is a bit saturated, you know, not not the best interest rate environment.   Anton Ivanov (00:26:27) - Focus on operations. We've grown our, uh, top line revenue and our cash flow because of that by over 20% by doing these tips. So by focusing on vacancies, working with our property managers, uh, and, uh, you know, kind of really keeping up with market rents, I think over the last couple of years, we've increased cash flow by over 20% without buying a single unit. And I think unless you're like, really? On what I, what we just talked about, probably almost any investor, any building, any asset can use something from that. And these are just like a few tips. You know, there's obviously like cutting costs and and improving your like maintenance and all that stuff that you can get into. But I would basically look at your, uh, you know, your profit and loss for, for each asset or for your whole portfolio and just work through every number like it starts with rent, then it's your vacancies, you know, then you jump into your expenses and just look at, you know, criticize every number, uh, like, you know, can I increase this number? You know, if it's rent, can I decrease this expense number, like scrutinized, like just brainstorming.   Anton Ivanov (00:27:27) - It's actually kind of cool and and, like, fun, in my opinion. Like, you'll be surprised. Like, we've even, uh, this is kind of a little off side, but we've done, like, things like, we went to our utility provider, uh, for trash, like, for trash collection. We said, like, hey, we have all these units, like, we have 30 plus units. You guys are servicing. Can we can we get, like, a 20% discount? And I don't think we got 20%, but we got like 15% discount for like, no reason. Like it's just a matter of just, you know, just asking for it, just brainstorming it. Increase your top line or decrease your expenses and just see your cash flow, you know, balloon without actually increasing units. And then you can apply this over and over again to new units you buy down the road. So it's like you're setting your current portfolio for success, but you're also preparing to basically maximize the profit and cash flow of future acquisitions, which I think is huge, especially

Today’s guest is Robert Withers.   Robert is an Entrepreneur and Real Estate Finance professional with experience in Conventional , SBA & Private Equity CRE financing.   Show summary:   The conversation unfolds with an introduction to unconventional loans, followed by an exploration of the scale of real estate podcasts.The discussion touches upon selling brokerages, navigating agreements, and imparts valuable lessons on scaling a real estate business. Throughout the episode, the speakers candidly address challenges in scaling, regional business variations, the significance of relationships, and provide a comprehensive overview of the current state of commercial finance.   -------------------------------------------------------------- 00:00 - Intro 03:54 - Speaker, guest journey. 06:48 - Guest's background, transition. 09:31 - Selling brokerages, agreements. 12:45 - Scaling business lessons. 15:54 - Challenges in scaling. 18:32 - Regional business differences. 21:45 - Importance of relationships. 24:50 - State of commercial finance. -------------------------------------------------------------- Connect with Robert:  Facebook: https://www.facebook.com/M1CapitalCorp   Linkedin: https://www.linkedin.com/in/robert-withers-602b16/   Twitter: https://twitter.com/M1CapitalCorp   Phone: (914) 490-8623   Web: https://mortgageone.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: 00:00:00:01 - 00:00:36:12 Robert Withers Why lock into a seven and a half percent, 3 to 5 year conventional loan with prepayment penalties when you can take interest only debt at a point they have a point and a half to two points over that. Okay. No prepayment penalty. And if it pencils, meaning if the numbers work, you'll have an opportunity in two years to hopefully lock into long term as cheap as possible interest rates going out for that, you know, for that either five or ten year term that you're looking for.   00:00:36:23 - 00:00:58:16 Sam Wilson Welcome to the How to Scale commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. Robert Withers is an investor, entrepreneur and real estate finance professional with experience in conventional SBA and private equity. Robert, welcome to the show.   00:00:59:01 - 00:01:00:21 Robert Withers Thank you, Sam. Great to be.   00:01:01:03 - 00:01:09:21 Sam Wilson Absolutely, Robert. The pleasure's mine. There are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me, where did you start? Where are you now and how did you get there?   00:01:10:21 - 00:01:42:18 Robert Withers Well, okay. Where do I start? I started in the men's clothing business back in 1982. And basically what happened was I had was given an opportunity to be able to jump into the mortgage business because of the expensive men's clothing that I wore. Somebody took notice. So that was a sharp dresser. It gave me an opportunity to be able to get into sales in the mortgage industry in the early eighties and taught me the business.   00:01:42:24 - 00:02:14:15 Robert Withers Four years later, I went into my own business, started my own company after three mortgage companies on the residential side, which I all sold the last one right prior to the to the financial crisis. We took a little time off, reset things, decided that residential mortgages wasn't something that I wanted to do any longer, and jumped into the commercial real estate finance field.   00:02:14:23 - 00:02:18:03 Robert Withers And I've been there ever since. That was in about 2014.   00:02:18:22 - 00:02:32:16 Sam Wilson Got it. Okay, now that's cool. How did you when you sold all three of those businesses this this is getting in the weeds a little bit, but it sounds like you figured out how to do it once. And you said, look, we built one company. Want to go out and just do it again. But how did you get around non-compete or did you just.   00:02:33:03 - 00:02:33:24 Robert Withers I waited them out.   00:02:34:09 - 00:02:34:17 Sam Wilson Okay.   00:02:35:04 - 00:02:55:04 Robert Withers I waited them out. You know. But you know, Sam, it's interesting you bring that up because I. I sold a mortgage brokerage. Now, I don't know if you know anything about our business, but not a lot to sell there, right? There's not a lot of, you know, really good will and maybe some of a pipeline that you may have in it.   00:02:55:20 - 00:03:18:10 Robert Withers The companies weren't huge companies, but they did you know, they did a few million dollars worth of business a year. So they were nice sized companies. My first one was a sale and I was young when I did it, so it was awesome. I sold it for seven figures. I actually sold it to somebody who decided to reinvest the money back into the company so we could go national.   00:03:18:17 - 00:03:45:24 Robert Withers That did not work out. It didn't work out for me. It didn't work out for him. And I wound up buying the company back, which and then developed my second company. So the non-compete wasn't really an issue because of the fact that I kind of waited it out and then was able to buy the company back and take it into my second mortgage company, which I sold and turned that actually into a mortgage bank that we were in several states.   00:03:46:08 - 00:04:07:00 Robert Withers So it was kind of cool. We had a great time. But my, my partner and I had a disagreement in the in the direction I wanted to take it more of a New York luxury market based. And he wanted to do government based business. And we had a we agreed to disagree. It was very you know, it was it was very cordial.   00:04:07:10 - 00:04:23:01 Robert Withers And then my third one, which launched me into my third company, which I shut down really, but sold off some pieces of it, but shut down prior to the financial crisis, non-compete were really never an issue. Timing because of the timing that we took. So.   00:04:23:01 - 00:04:42:02 Sam Wilson Right. Yeah. And if you're listening to this and you haven't sold a business, a lot of times there's going to be restrictions around you getting back into the same business, especially in the same geographic area. If it's a geographically bound company where it's absolute what you can't for three or five years compete in this, you know, whatever the radius is from your business or, you know, and they're all structured differently.   00:04:42:02 - 00:04:56:10 Sam Wilson But that's a that's really cool. I appreciate you giving us the insight there. I think you may have answered this question, but you said in the company that you guys look to scale because the name of the show is how to scale commercial real estate. You guys said, hey, we're going to scale. And I think the principles are the same.   00:04:56:21 - 00:05:08:10 Sam Wilson We're going to scale this business, you know, across the United States. And you said that didn't work out. What were some of the lessons you learned in that didn't work out, process it?   00:05:08:10 - 00:05:46:18 Robert Withers I think for the most part it was two things. We were really more of an East Coast. The leadership team on our company was really East Coast focused. So I found as we talked to people throughout the country, that mindset and how things are done both in, you know, on a local basis and on a regional basis differ greatly from New York to California here and from New York to Tennessee and from New York to the you know, to the northern parts of our country.   00:05:46:18 - 00:06:11:02 Robert Withers So, you know, I think cultural and that not culturally. I think it was just a matter of mindset. And I think the way that we wanted to run our company isn't what we saw. We could replicate well in other parts of the country. So we decided to really stay more on the East Coast. We were licensed in Connecticut, New Jersey, New York, Florida.   00:06:12:09 - 00:06:36:09 Robert Withers And from that part, we were we were successful. And we, you know, we were able to scale, but we were able to scale in what we knew rather than, you know. And you would think, you know, listen, you know, a product like a mortgage is universal, right? It's the same it's a national thing. You know, it's it's it's rates are driven by national for national reasons.   00:06:36:09 - 00:07:02:02 Robert Withers You know, there are state regulations. But for the most part, the markets that buy mortgage loans are national at Fannie and Freddie Mac. But doing a good job in markets that you don't understand is it can be very difficult. And when management doesn't agree with what boots on the ground, well, the flops, the philosophies of each when there's no agreement, it's difficult.   00:07:02:02 - 00:07:22:13 Sam Wilson So I could see that. And that's something that I think until you've lived in various parts of our country, you may not understand. You know, here in here in Memphis, Tennessee, if you get on the phone, even with somebody if I saw you yesterday, Robert, we're going to talk for about six or 7 minutes about nothing. We're going to talk about the weather.   00:07:22:21 - 00:07:39:24 Sam Wilson We're going to talk about, you know, family, all sorts of things. I lose you there, Robert? No. Okay, cool. And I was that you were you were you were still a stone. I was like, oh, shoot. Maybe the Internet froze. But no, we'll talk about a lot of different things long before we ever get to the reason for the call.   00:07:40:05 - 00:07:56:15 Sam Wilson It's just the way it's done. And I'm from Indianapolis. I was born there and we don't really like we pretty much get on the phone and, hey, you know what you need, Robert? What's going on, man? And we get down to business, but here in Tennessee, man, I had to slow down. I'm like, wait, like, if I don't ask and it's just kind of rude if you're just like, Hey, what's up?   00:07:56:20 - 00:07:58:20 Sam Wilson Click like it just doesn't work.   00:07:59:06 - 00:08:04:02 Robert Withers If you're from Indianapolis, right? You were like, right down to business. Now I'm from New York.   00:08:04:05 - 00:08:07:20 Sam Wilson Oh, you guys are even more I mean, you guys are like, what?   00:08:07:20 - 00:08:33:01 Robert Withers We jump a couple of spaces in front of you and it comes down to, okay, we won't even introduce ourselves. And we're pitch and we're pitching a product. You know, we don't get me wrong, I'm not I'm not a big I'm a relationship builder. I've been in this industry for almost 40 years in one way or another. So I didn't survive this way by being transaction, you know, triad transaction related.   00:08:33:08 - 00:08:43:13 Sam Wilson And I'm not suggesting that it's just, it's just a different way of communicate. And if you're not prepared to spend the 7 minutes talking on the phone about nothing, then people are going to think you're rude and be like I don't wanna do.   00:08:43:19 - 00:09:06:15 Robert Withers Business with developing relationships are is you know is something that you know I mean you can start it in 7 minutes, but some of my best clients are ones that came back to me, you know, the second, you know, two or three times we had spoken two or three times transactions didn't work. And then all of a sudden it kicked in and things actually wound up jelling between the two of us.   00:09:06:15 - 00:09:08:10 Robert Withers So relationship building is huge.   00:09:08:14 - 00:09:25:23 Sam Wilson Absolutely. No, I appreciate you giving the insight on that because it's one of those things, even for people out raising capital, it's an important skill set to master. Am I talking to somebody from New York, New York investors? Man, we is down to brass tacks on the beginning. The phone call, I call somebody from Memphis, Tennessee. We're going to spend our time on the phone.   00:09:25:23 - 00:09:40:17 Sam Wilson And so it's knowing and being able to shift even gears immediately when you jump on the phone with those people. And knowing how that works is I think it's an important skill that as you scale your business, that you and your team have to master. So that's a rabbit hole. But I appreciate you taking the time to kind of go down some of that.   00:09:40:23 - 00:10:02:13 Sam Wilson Tell me about your business today. I know you said in 2014 you decided to get into commercial real estate finance and Gilliam saying this is ten years ago now. You know, 2014 was when I think things really started to recover in the real estate markets. Commercial real estate, residential real estate started to, you know, go on that upward curve that we've seen for the last nine or ten years.   00:10:02:13 - 00:10:16:23 Sam Wilson What tell me about the business you guys are in today and maybe give us, you know, if you can, just a quick rundown on what the last decade looked like and kind of how you guys are positioning yourselves now, changing it.   00:10:17:00 - 00:10:41:03 Robert Withers Things have changed a lot from going from an investment market where, you know, we're cap rates were compressed and, you know, they were low and everybody, you know, we had cheap debt. Let's face it, you know, at one point we were looking at 3%, you know, commercial real estate rates that that were trading. So it wasn't hard to get a deal to pencil.   00:10:41:10 - 00:11:29:23 Robert Withers So people were were were trading investment real estate left and right. We work in basically four major food groups or product sets is a better way of describing it. And that is we do a lot of SBA financing for owner occupied clients are looking to finance property they want to buy for their business. We do conventional financing for somebody who's buying a some sort of a mixed use or multifamily product or an industrial product for purposes of investment, we or or owner occupied, we do bridge loan financing which is short term up to three years type financing, which, you know, is in short, short term a great, great tool for actually what's going on right   00:11:29:23 - 00:12:15:08 Robert Withers now because nobody's actually buying into conventional rates because they're high. So putting in a short term solution like a bridge loan makes a lot of sense in many cases. And and spec spec construction, construction financing for the purposes of building a, an investment property, whether or not it's a single family home of a bunch of different homes, you know, you know of it in the case of a of a of a development project or, you know, something that's more like an apartment building, not and we're not seeing a lot of mixed use or multifamily construction going on right now for the purposes of of of in the investment markets.   00:12:16:17 - 00:12:40:23 Robert Withers So we concentrate on those four types of programs here or products here. And from 14 to 23, for the most part, it's been up and down. You know, Sam, it's you know, we started off really, like I said, in a very low interest rate market. So the products were really all, you know, either CMBS loans or they were regional banks that I we don't do a lot of business with national banks.   00:12:40:23 - 00:13:06:24 Robert Withers It's mostly local or regional banks offering great product. And as rates changed over time and an opportunity changed over time, we shifted gears. Last year was our biggest year ever with SBA financing. We did a lot of SBA financing and bridge loan financing. So and quite frankly, I think we're going to we're going to see a repeat of that for 24, as they've been saying in our industry.   00:13:06:24 - 00:13:26:01 Robert Withers Andrew About your industry. Sam But in our industry they've been saying it's survive until 25. So you know what? I think for the most part, you know, we're looking ahead and maybe, you know, going to see some of that investment type real estate come back in 2025. Right, equity investment properties.   00:13:26:07 - 00:13:44:13 Sam Wilson So that makes a lot of sense. We're going to cover, I think, get into some of the more nuanced pieces of this. I'm looking here, bridge debt. You mentioned that bridge debt is a good tool for now a lot of people. And I'm going to I'm going to I'm going to ask you to tell me why I'm wrong.   00:13:45:09 - 00:14:00:23 Sam Wilson So a lot of people have taken on short term debt in the last 2 to 3 years. And from this side of things, I look at it and say, man, bridge, that's a bad deal. It's a bad deal because right now there's I don't know how much what is it? What then? You could probably give me the accurate number on this.   00:14:00:23 - 00:14:08:03 Sam Wilson I'm going to pull this one up and say it's north of $1,000,000,000,000 in debt coming due in 2024 on commercial.   00:14:08:05 - 00:14:08:15 Robert Withers Scale to.   00:14:09:03 - 00:14:09:13 Sam Wilson I'm sorry.   00:14:09:24 - 00:14:10:17 Robert Withers Close to it.   00:14:10:23 - 00:14:25:05 Sam Wilson Right. So in in some of that, I would venture to say I don't have any empirical evidence to substantiate this claim. But I would say that a large part of that is probably bridge debt where it's like, hey, man, we got to get out of this. We don't know how to get out of it. We got to refi somewhere.   00:14:25:12 - 00:14:42:04 Sam Wilson And so we're going to see cash in, revise happening and or assets selling at a massive discount because of the way they structured the debt. Tell me why you say in light of that frame, tell me why you say that bridge debt is still a good tool for now and how do you use it without playing with fire?   00:14:43:02 - 00:15:09:18 Robert Withers Interest rate cycle sent interest rate cycle was lower three years ago when this debt was was originated. So unfortunately, that debt that's coming due is is being refinanced in a higher interest rate market. We've for the most part, if you were to believe the Fed in I have a hard time believing the Fed. But, you know, if you're over the next couple of years, we're going to see that cycle turn around.   00:15:09:18 - 00:15:31:15 Robert Withers I think for the most part, we can agree that interest rates have topped out. You know, there is certain concerns on the employment jobs data side, but for the most part, inflation looks like it's under control. And although take my word for it, I never seen the price of eggs and bread be where it is at this moment.   00:15:31:15 - 00:15:51:09 Robert Withers But for the most part, inflation, if you're going to go on a on a pure core product or service or, you know, in this case a product gasoline, you know, gasoline prices are coming down. Now, you could say that that's, you know, technical in nature. But quite frankly, I think it's a good indicator where we're headed in regards to prices.   00:15:51:20 - 00:16:38:24 Robert Withers So having said that, I think that people who are originating bridge that now like we have a bridge program that's one overpriced three quarters to one over prime you're single digits right why lock into a seven and a half percent 3 to 5 year conventional loan would prepayment penalties when you can take interest only debt at a point they have a point and a half to two points over that okay no prepayment penalty and if it pencils meaning if the numbers work you'll have an opportunity in two years to hopefully lock into long term as cheap as possible interest rates going out for that, you know, for that either five or ten year term that   00:16:38:24 - 00:16:49:02 Robert Withers you're looking for. So it depends on the transaction, but quite frankly, I think is a short term for the right trend, for the right transaction. I think it's a good solution.   00:16:49:20 - 00:16:55:19 Sam Wilson So the so the gamble here is that interest rates do not continue to climb.   00:16:55:19 - 00:16:56:07 Robert Withers Yes.   00:16:56:17 - 00:17:01:05 Sam Wilson Okay. No. And that's I mean, that's as long as you go in eyes wide open. You know.   00:17:01:09 - 00:17:49:07 Robert Withers I think any substantial climb in interest rates, Sam, would hurt this economy, never mind our industry more than than it already has. And I don't think the Fed's willing to take that chance. So, listen, it's as real estate. It's you know, there are there is some risk, right? So this is a risk weighted decision. We're advising certain clients who who have that space in their performer to maybe consider bridge debt now versus convention debt because they're not facing a 2% prepayment penalty on a $10 million loan in 2025, when interest rates could be the I mean, hypothetically lower and much lower.   00:17:49:21 - 00:17:50:04 Robert Withers You know.   00:17:51:13 - 00:18:11:07 Sam Wilson You guys said and that makes sense. I mean, again, you know, for for the right product or the right project at the right time, you know, that's something you just got to weigh your options there. I think that's the conclusion there that that there is this is a tool that for the right fit makes perfect sense that let's talk about SBA 2023.   00:18:11:07 - 00:18:22:01 Sam Wilson You guys said you wrote a ton of SBA loans at 2023. Walk us through that program. I mean, SBA, I'm assuming, is long term fixed. Yes, we.   00:18:22:01 - 00:18:23:24 Robert Withers Buy 25 year. Yeah, 20.   00:18:23:24 - 00:18:25:19 Sam Wilson Five. Talk to us about that if you can.   00:18:26:07 - 00:18:56:19 Robert Withers Sure. So what we found is there was a host, a lot of owners of businesses out there who had done well, post-pandemic. Their businesses were doing fabulous. Listen, let's face it. We what you can question is there's always going to be a debate on it, but our economy is strong. So a lot of small businesses were doing very well and they decided that, you know what, they want to buy something now this is the time to buy it.   00:18:56:19 - 00:19:30:15 Robert Withers Our financials look great. We've got cash. You know, perhaps we're going to wind up being able to negotiate a great deal on the property that they're already in, approached the owner say, listen, we you know, we're interested in buying the property. Interested, or they were looking at property that was on the market for sale. Now, you know, as a seller of a as you know, a retail spot or industrial space or maybe a commercial condo, seller's got to say to himself, you know what, the market's pretty ripe right now.   00:19:30:21 - 00:19:56:05 Robert Withers This is a good time to sell. I mean, you know, where are we going to be in at the end of 2024 in regards to values? Because everybody's kind of targeting that we're going to see a reset and that reset is going to be pretty much because of a total environment type. Look at look at commercial real estate, fair or not, things on a macro basis, you know, they impact the smaller markets.   00:19:56:16 - 00:20:23:22 Robert Withers And what we saw, what people really take advantage of that, you know, they were able to lock in a rate that was. Yes. Higher than they wanted to pay. But they're an owner. SBA gives them up to 90% leverage, which is, let's face it, that's very attractive fixed rate for 25 years. And on the seven eight program, they give you they can give you working capital and they pay your closing costs.   00:20:25:00 - 00:20:46:10 Sam Wilson That's wild. I mean, to win it. Yeah. In fixed rate fixed rate debt over a 25 year period. I mean, it's incredibly tempting because it's the the real estate investors in this in this case, small business owners, greatest hedge against inflation like you can borrow in dollars and repay and dimes.   00:20:47:01 - 00:20:47:13 Robert Withers Thank you.   00:20:48:03 - 00:21:07:08 Sam Wilson It's yeah that I mean that's that's astounding I mean it's getting through I think one of the things like you mentioned, though, one of the one of the, you know, reasons that people don't do it is because they look at that interest rate that they're paying because it's above market. They're looking at that. They look at the length of time they're locked into it.   00:21:07:08 - 00:21:11:04 Sam Wilson They look at a lot of those factors and then look at are closing costs, which can be onerous.   00:21:11:23 - 00:21:40:24 Robert Withers Daunting. But since 5000, they're not paying 5000 in rent and you know, all for their mortgage payment. They may be paying closer to seven because of the interest rate bump, but they're paying 7500 right now, a month in rent to somebody else and not owning the property. And the money's gone. And all they get out of it is a line item on their on their pro forma, on the on their if they have financials and a line item expense on their financials makes no sense.   00:21:40:24 - 00:21:56:13 Robert Withers If somebody is in the position where they can, they have the capital to buy the property that they're in or something that works better for them. This is the time to use SBA financing. It was without a doubt the leading charge product of 2023 for us.   00:21:56:18 - 00:22:01:17 Sam Wilson Right. Because it's one of the last ones that had long term fixed rate debt, the last last minute.   00:22:01:17 - 00:22:04:20 Robert Withers Single digit rate and single digit rate.   00:22:04:20 - 00:22:06:12 Sam Wilson So that's that's amazing.   00:22:06:12 - 00:22:20:03 Robert Withers And really the analysis, Sam, is rent versus own. It's nothing more than that. It's not interest rate, it's not copper. It's nothing else other than rent versus own. Where are the benefits of owning this property versus renting?   00:22:20:03 - 00:22:26:19 Sam Wilson It makes perfect sense. What is the total dollar amount? The SBA will loan any one person or entity?   00:22:27:03 - 00:22:27:18 Robert Withers 5 million.   00:22:27:24 - 00:22:39:12 Sam Wilson 5 million. Okay. And that's 5 million in cash. Not and that would include that would include the debt against against real estate. Or is that just 5 million does doesn't.   00:22:39:12 - 00:22:58:08 Robert Withers Include any of the other sponsored SBA loans like the I forgot what the till loans that they came out with or the PIP loans that has nothing to do with. In fact we've taken the opportunity, Sam, to refinance those loans out that have to be paid back through acquisition, through SBA financing.   00:22:58:13 - 00:22:59:16 Sam Wilson Right. Right.   00:22:59:18 - 00:23:26:24 Robert Withers That's we're doing that right now on a transaction. We're actually taking out their PE loans that have to be paid off because they were done on a seven year basis, which made no sense. I know this. The borrower may she just made a really bad decision in regards to the the terms of that peep loan. And we're now taking that debt, refinancing it into an acquisition, never mind a refinance, and lowering her monthly payments or cash flow.   00:23:27:04 - 00:23:44:04 Sam Wilson Yeah, we we, of course, you know, had the opportunity to take advantage of those types of loans as well. But I think those are locked in for 30 years at like three or three and a half percent. And I'm like, Yeah, I guess what, we're never paying those down. I'm going to pay that for 30 years. I'll be 70 when it pays off and I will be happy to do it because it a payment.   00:23:44:04 - 00:23:59:13 Robert Withers Is a payment. I don't care what rate it is, I don't care what rate it is. It's a debt. You know what? Why is if you don't need it? I know people who are sitting still sitting with that money in their bank account, but yet they're paying a payment on it. They never needed it. They took it because it was cheap.   00:23:59:17 - 00:24:00:05 Sam Wilson Right.   00:24:00:20 - 00:24:05:13 Robert Withers But they're making it, you know, they they have to they had to start paying it back, you know.   00:24:05:14 - 00:24:28:05 Sam Wilson So very good. Thank you for taking the time to walk us through the opportunity that lies there with the SBA. We've talked about Bridge. We talk about SBA. You've talked about a reset that you think is going to happen across the macro kind of commercial real estate. I'm going to know how to finish out that sentence, but either way, the macro real estate picture is going to experience a reset.   00:24:28:13 - 00:24:47:10 Sam Wilson This is a conversation I had with some bond brokers last night who deal with a lot of CMBS loans and things like that. And they said, you know, what isn't isn't the kind of price of interest rates and or bridge debt coming due? Isn't that already baked in like when people are taking stuff to market and I'm like, I don't know that it is.   00:24:47:10 - 00:24:51:17 Sam Wilson What do you think about that and what do you mean when you say reset? What do you what do you think of.   00:24:52:00 - 00:25:18:24 Robert Withers Values are going to get impacted? Sam That's what interest rates they have to. They always do. So we're going to see valuations and those valuations a lot of for a lot of especially the larger private rate. So I'm going to be underwater. You know, they were going to have $800 million worth of debt on a building that was valued at 1000000 to 1000000002 and now all of a sudden, that's about $800 million or $750 million property.   00:25:19:03 - 00:25:45:17 Robert Withers Right? So values are going to be resetting. And when values reset, there is going to be two ways of looking at it. It's a cash refinance. Right. As you as you spoke about, there's going to be capital calls and some of the even larger players, the national players are not willing to come up with those capital calls. They handing the keys over to landlords, those loans excuse me, to the lenders.   00:25:45:22 - 00:26:07:13 Robert Withers Those banks are going to put that property on the market to savvy investors who are going to do what they're going to lowball the purchases. They're going to wind up settling in regards to the debt, using the the bank to finance it, but yet the purchase price is going to be lower. Sam That's the reset I'm talking about valuation patterns are going to get reset, which is going to trickle down to even in our local markets.   00:26:07:20 - 00:26:14:04 Robert Withers And I think we're going to wind up seeing both opportunity and unfortunately, we're going to see some pain across the board.   00:26:14:21 - 00:26:30:09 Sam Wilson Yep, I couldn't agree more. Robert, thank you for taking the time to come on the show. Today was certainly a pleasure to have you. You are a wealth of knowledge and insight. Give us a lot of things to think about here today as we consider what it means and how we are going to finance our properties here in 2024.   00:26:30:09 -

Today’s guests are Jeff Patterson and Matthew Bell.   Show summary:  In this episode of the How to Scale Commercial Real Estate Show, guests Jeff Patterson and Matthew Bell discuss the opportunities presented by electric vehicle charging stations for commercial property owners. They highlight the benefits of having charging stations, such as increased customer stay and revenue generation. They also discuss the potential costs and incentives of installing these stations, emphasizing the importance of taking advantage of current incentives. The guests also explore the marketing strategies for charging stations and the potential for partnering with the federal government in developing charging infrastructure.   -------------------------------------------------------------- Opportunity for Commercial Property Owners (00:00:00) Introduction of Matthew Bell (00:01:04) Monetization and Regulations of EV Charging Stations (00:06:11) The payback period and potential costs (00:09:51) Incentives for EV charging stations (00:11:17) Solar and EV charging possibilities (00:16:23) The Efficiency of Solar Power for EV Charging Stations (00:19:12) Opportunities for Commercial Property Owners (00:19:47) Marketing EV Charging Stations (00:21:51) --------------------------------------------------------------   Connect with Jeff and Matthew:  Web: https://www.phoenixparkingsolutions.com/   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Jeff Patterson (00:00:00) - There's a reason why, um, companies like Starbucks and, uh, waffle House, which I put in one of my recent LinkedIn. There's an article out there where they're looking at it because they want people to stop and stay longer at their business while their car charges, and they've ran the calculations on how they're going to make more money by people being longer inside their stores. So it's not just about the investment in getting the return of the chargers outside. It's about the additional money you could make inside your business. And depending on what your business model is, um, you know, that could turn out really favorable for you.   Intro (00:00:36) - Welcome to the how to Scale Commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:48) - For those of you that don't know, Jeff Patterson was on the show on November 6th, you should go back and check out that episode. That's episode number 866. Today we're here doing round two of the show with Jeff and also with Matthew Bell.   Sam Wilson (00:01:04) - Matthew, welcome to the show. If you don't mind, you know, again, if you want to hear, just buy. I'll go back and hear that one. But, uh, we're introducing Matthew here to the show as well. We're going to do a two person or three person episode here today. So, Matthew, can you tell us, uh, just quickly what your background is? Actually what I normally ask Matthew, and I can't help but do it. I'm sorry. In 90s or less. You got to tell me. Matthew, where do you start? Where are you now? And how'd you get there?   Matthew Bell (00:01:26) - Sure. Absolutely. Thank you, and thanks for having me on today. Um, so I'm our vice president of business development at Pyramid Network Services. So, uh, I started in telecom right out of school. Uh, worked on the first major build out for sprint. From there, I moved I became outside counsel for Verizon for a number of years. Uh, there I moved to in-house, um, corporate counsel for a large fiber company.   Matthew Bell (00:01:50) - Uh, eventually that sold, went back to sprint, uh, for a period of time, uh, and ran national build out there for Network Vision, where we went and, uh, updated 27,000 sites in about three years. Uh, and then when that ended, uh, wanted to do something a little bit different. And that's how I ended up at pyramid.   Sam Wilson (00:02:10) - That's awesome. Cool. I know the topic that we are covering here today, for those of you who are interested in what episode or the, uh, you know, round two of this, of this episode is we're talking about electric vehicle charging stations. So maybe, Jeff, you can kick us off and tell us just what that means, what the opportunities are, and kind of how you guys tie into that right now.   Jeff Patterson (00:02:32) - Sure. Thanks. Good to see you again, Sam. Um, so everybody's hearing all the the sound out there on the street, and it's in this article on this social media platform about EV car.   Jeff Patterson (00:02:45) - You know, uh, they're making this new one, or, uh, California is mandating no combustion vehicles after 20, 35 to be sold. Um, there's a lot to be said, but there's a lot of consumer questions going on. And I know for a lot of investors and commercial property owners, what do I do? Who do I even talk to about this? And that's where Phoenix kind of came in the market of, well, we're talking about cars talking about charging a vehicles, which typically is going to happen in a parking lot. So parking companies seems to be a logical place that you'd reach out to. Um, now for us, we decided to partner with pyramid and s, uh, because of their full turnkey agnostic, uh, services. So, um, instead of me partnering with, just for instance, ChargePoint, which a lot of people, you know, know anything about EV chargers I've seen out there. Nothing wrong with them. Um, but I would be dedicated to one single charge company with pyramid and s.   Jeff Patterson (00:03:46) - Um, we are able to work with multiple, uh, charging station companies to offer what's best for anyone out there. And it doesn't just have to be someone who's looking for my particular operation services. It could be a strip mall. You could be a a waffle House, a huddle House, uh, uh, a Walmart, um, the Starbucks, you know, we do everything from start to finish and, um, you know, really are there to help everyone along the process because most people don't know. Where do you start?   Sam Wilson (00:04:17) - Absolutely. No. I mean, yeah, if you asked me that today, I'd be like, I have no idea. So you you guys get to plug in and work basically with everybody, you know, everybody from even I would imagine, multifamily property owners. I mean, any property type is really your target avatar.   Jeff Patterson (00:04:33) - Correct.   Sam Wilson (00:04:34) - That is wild. So what's what's the opportunity for a building owner, say, somebody like me, like, how do we how do we how do we, no pun intended, plug in with this.   Sam Wilson (00:04:44) - And I mean, is there monetization opportunities? Is there like why would we even provide this other than just a nice thing to have?   Jeff Patterson (00:04:55) - Well, it depends on what type of property you do have. You know, you mentioned multifamily, for example. Well, what type of, um, multifamily project do you have? If you're in our city and you're in places where EV charging is growing? If I own an EV car, I'm not going to come live at your apartment complex if I don't have a way to charge my car. So this becomes very important for you to be able to, um, not lose potential, uh, residents. As you know, you're growing and maintaining your business profile. Uh, similar things would be, um, think about, like, a Whole Foods or. Uh, Matt and then were recently educating me on school buses. Uh, a lot of school buses are going, uh, electric and, uh, pyramid has a platform there. They work with a company, and they installed the chargers for the entire county for the school system to take the school buses.   Jeff Patterson (00:05:49) - Electric. Uh, it really depends on where you're at, but there is monetisation options. For instance, no one really charges for free. Um, you know, you plug up, you pay for the amount of time you use and, um, you know, based upon your initial capital investment and what you're charging for therm, uh, you know, like any other investment, there's a break even point and then profitability afterwards.   Sam Wilson (00:06:11) - Is there on on that monetization aspect, are there regulations around how much you can mark up that electricity? I know utilities are pretty heavily regulated. I know if you produce and of course, you know, it's the fox guarding the henhouse, but if you produce electricity, you know, via solar, you're going to be limited via contract rates. And as to what that gets sold back to the grid. So conversely, are there limits as to what you can charge at an EV charging station to the end user?   Jeff Patterson (00:06:41) - I'm going to turn this one on to Matt.   Matthew Bell (00:06:42) - Yeah.   Matthew Bell (00:06:43) - There currently are not. Um, obviously, if you're charging a huge amount, there'll be an issue there, but it really comes down to the speed that you're charging at, and I think that's why it's not regulated. So there's obviously a larger upfront cost to install a level three EV fast charger. And the EV fast charger can, uh, charge your car in approximately 15 to 20 minutes. Uh, whereas like a level two charger is more set up, uh, to do it over a few hours. Uh, so again, thinking about the different kind of, uh, location that you're at, whether you're a commercial property, uh, a hotel or something like that, people are going to be there for a longer period of time. Uh, the two hour charge of the EV works a little bit better. Uh, a level three charger is something that, you know, you'd want by, uh, a highway or at a McDonald's or something like that. Uh, people stopping by trying to fill up, grabbing something quick, and then moving on.   Matthew Bell (00:07:50) - So I was just going to add in to, you know, I think a piece of this is the question you were asking before was, you know, do we want to be a part of this? Why would we be a part of this? And I think those are great questions to ask. But another another thought about this is that, you know, EV is here to stay. And I think we're seeing it just kind of slowly building. But it's it's not a fad. It's not going away. Um, the last couple of years there's been like between 1 and 2 million, uh, cars produced, EV cars produced, uh, but they're projecting in 2029, uh, which is, is five years from that will be over 6.5 million. Uh, so the demand for this is, is going to be huge. Um, and we've seen just in 2021 and 2022, some of the largest investments from the US automakers as well, uh, they put in over $70 billion to gear up for this.   Matthew Bell (00:08:44) - And the cars are are very different. Um, they will recognize some benefits from it as well. And that, you know, uh, an internal combustion engine has over 2000 parts that move inside of it, whereas an EV only has 20, uh, the components in a in an Ice car, uh, an internal combustion engine car, there's over 30,000 components. There's half as many, uh, in an EV car. So beyond just the, uh, benefits, the environmental benefits, uh, that people are talking about, there's a lot to be gained, uh, for the, the automakers to as this process matures. And I think it's going to be something that that people are going to demand and, and require when they go different locations.   Sam Wilson (00:09:30) - Right. And I would imagine that the speed of adoption, uh, early on for people placing charging stations is probably like the early bird gets the worm, in a sense, in that because it's not widely spread. It's something that if you if you put these in now, you obviously can can probably recoup your investment much sooner, say, than somebody ten years from now.   Sam Wilson (00:09:51) - It's like, you know, scratching their head, going, oh, man, you know what? We should probably put an EV charging station in, you know, because I don't know I don't know what the in Jeff, you mentioned this what the payback period is like. How long does this take. And maybe you guys can speak to what that, you know, potential costs are. And I know, like you mentioned there, uh, Matt, that that, you know, level one, two, three, I'd imagine there's probably different costs associated with that. What are, you know, talking about government and intervention or involvement, rather, what are the incentives, uh, are there incentives available for this sort of thing? I mean, maybe you guys can just give us some insight on that, because this is obviously a world I know nothing about.   Jeff Patterson (00:10:29) - Definitely. I wanted to piggyback there real quick on Matt. Uh, last comments, we're just talking about how the automakers are into it.   Jeff Patterson (00:10:36) - Well, you also have the big guys like BP, where they are now leveraging and investing their money into lithium and creating their own chargers. So it's not just the automakers. Um, you see it all around in all the industries where they are leveraging and shifting direction, which, um, you know, ultimately means, as Matt said, it's not going anywhere. Currently, there are lots of incentives. That's part of what Phoenix and Pyramid working together, uh, help throughout our turnkey process is, you know, when we get to that, uh, that stage with whomever we're working with, we will help work with you on those incentives.   Sam Wilson (00:11:17) - What? What is this? Can you give us a breakdown of of like, maybe payback period. And and I know obviously every installation is different. Uh, but you know, what? Should somebody be looking at from a payback period? And then also from a just, you know, cost of, uh, cost of implementing a system like this.   Matthew Bell (00:11:37) - Yeah, I'll jump in on that.   Matthew Bell (00:11:38) - So, you know, like Jeff was saying, um, we manage a database, a national database that tracks all these incentives. Uh, and, and this part sounds kind of salesy, but the time really is now, um, to to grab Ahold of these, there are tax incentives, there are utility incentives. There are state incentives that are municipal incentives. There are national government incentives. Um, there's a lot of money out there, and it's coming from a lot of different sources. Uh, and we track all of that. So, you know, even if you're thinking about wanting to do this, um, you know, I would say reach out to Jeff, reach out to myself, um, and just let us run the incentives and see what's out there, what might be a possibility for you because, um, eventually, like, we always see, the money goes away, right? The the the system starts to mature. You get more of these locations out there. Uh, you don't need these incentives any longer.   Matthew Bell (00:12:37) - And so, you know, I was telling somebody this the other day, but a few years ago, somebody came to my house and said, hey, you want to put a new roof on? And I said, yeah, I don't think I'm really looking to do that right now. I said, do you mind if I go up there and take a look at it? I said, sure, and he spent a few minutes up there and he said, yeah, I think you're probably gonna need one in the next year or so. And, uh, there's, there's some hail damage up here. Probably get a good portion of this covered. I'm a lot more interested in a new roof at this point. So, uh, you know, I think that this.   Sam Wilson (00:13:07) - Is.   Matthew Bell (00:13:09) - It's kind of akin to what we're talking about here, but there, there really are, depending upon what state you're in, and we can look it up by the exact address and location, uh, to tell you what's available now or what may be available, uh, in the coming months.   Matthew Bell (00:13:23) - Uh, but that that's one of the factors that comes in. So, um, to get back to your a question about the payoff period, you know, it really depends a lot on, um, obviously the upfront expense and, and that can be driven by, you know, a level two charger. You're talking kind of in the tens of thousands of dollars, uh, a level three you're probably closer to. You know, 80 to 100,000. Um, and that just because of the power upgrades that are going to be required, uh, and the equipment that's going to be required, that's a level two is, you know, much more like a trickle charger. And, and people can usually support that with the infrastructure that they currently have. But uh, a level three a lot of times requires a new service. That said, obviously people enjoy being able to charge their car in 15 minutes versus, you know, two and a half or three hours. So what you can charge for that is significantly more.   Matthew Bell (00:14:25) - Um, so I think you have to find what fits for you. Um, but we have seen, uh, payback periods in just a few years. Um, for, for both level two and level three, dependent upon customer traffic and pieces like that.   Sam Wilson (00:14:42) - Right. So here here's I'm going to give you a little bit of a potential case study. We've got a facility in a small town in Tennessee. And the, uh we're putting solar in. Now, I will say that solar in general, from our perspective, doesn't make sense. Like the payback periods, like 25 or 30 years. I mean, and from a, you know, especially when bringing in investors, most investors don't get too thrilled with a 25 year payback. We break even in 25 years. It just doesn't make sense. But based on where this building is located, the zones it's in and, you know, some some arbitrarily grown or derived government map, it's a 90. We have a 90%, um, between tax credits and everything else.   Sam Wilson (00:15:25) - It's a 90% of that solar installation is covered. So our payback period is actually one year, which is you know, that's fantastic. Fantastic. Right. And so, you know, a company like you came to me and said, hey, man, you know, we should do solar on your building. And they said, well, here's how we're going to do it. And then they guided us through the process and they had their grant writer write the grants and blah, blah, blah. And down the road we go. And it was I mean, it was a brainless move, like, of course we'll do that. Is that same kind of thing available here in the EV charging space?   Matthew Bell (00:15:54) - Yeah, we actually submitted for incentives, um, at a New York property the other day for just that. And we, we believe it'll be between 80 and 90%, uh, of that that's covered, um, again, but not to set that expectation for everywhere. New York is pretty progressive and and a lot of money available there.   Matthew Bell (00:16:13) - California same way. Um, and, and other states are following suit um behind that. But but that's out there. Exactly. For example.   Sam Wilson (00:16:23) - Right. Which is, which is, which is really weird because I kid you not, ten miles down the road, another facility would only qualify for 50 because we looked into it as well. And it was like, well, okay. Now once again, solar no longer makes sense because again, it's a 12.5 year payback period. So scrap that one. But we're going to do the 90%, you know, one with uh with no questions. So that that's really great to think about. And on that question, you know, follow along with that is let's talk about solar to EV charger possibilities. Anything like that exist out there.   Matthew Bell (00:16:56) - There are. And I apologize, Jeff, I want to give you a chance to jump in here, too. But, um. Yeah. You're good. Um, there are, uh, solar opportunities out there around that.   Matthew Bell (00:17:06) - Uh, what we're seeing a lot of those is, uh, battery systems as well. Um, and that's one of the pieces that we try and do when we come in. Uh, we do a lot of value engineering. And that's not only picking the location. If you have a parking garage and you say, hey, we want to put it in in a corner, putting it in the east corner versus the west corner might be a $100,000 difference just because of power runs and, uh, and working across a parking lot or something like that. So those are all pieces, um, that, that we look at inside of that. But, um, the battery backup systems can sometimes help pull in power, and you don't have so much of a demand on the grid at that point. Uh, and you may not need the same level of service upgrade. So we have seen some solar, uh, and we've done a lot of solar projects. So that's certainly something to look at. But, uh, we're looking and utilizing batteries a lot as well.   Sam Wilson (00:18:03) - Right. That would make sense because and at this particular installation, because that was one of the things we looked at. And this was a commercial facility. We're just doing direct consumption. When the sun produces, we use the energy. We're not putting batteries at this facility because it the cost of doing so was like an a double or triple it. And it again, it didn't make sense. But I would imagine on the solar side of things, if you're able to set it up solar to where it goes to battery, and then when someone because you know somebody's not charging, you're then recharging the local storage that then somebody can plug into and charge their own batteries and, you know, off they go.   Matthew Bell (00:18:36) - Yeah, there's a need on the market right now. Um, that actually is that it is a DC fast charger. Uh, but it it has large batteries inside of it, and so, um, they're still working out a few pieces with it, but you can actually pull, uh, small amounts of power from and you could institute some solar piece to that as well, but you're pulling in smaller amounts of power over a period of time, and then you're offering the DC fast charging speed without having to do that major, uh, electrical upgrade.   Matthew Bell (00:19:10) - Right?   Sam Wilson (00:19:11) - Right. Yeah. And I can imagine.   Sam Wilson (00:19:12) - That that that's not, um, I'm not going to call it sustainable, but that is not it's not going to be an efficient way to do it strictly off of solar. So I'd imagine there have to be a switching, you know, some, some, you know, with being tied to the grid. Plus, you know, using solar as a as a is a is an augment to that, uh, you know, to that grid tie in. So what, uh, what thoughts on this do you do you have Jeff, I know we haven't heard much from you, so I kind of want to.   Sam Wilson (00:19:36) - Hear from.   Sam Wilson (00:19:37) - You, uh, a little bit more insight on market, on what people should be doing. Uh, anything, anything on that front. And, you know, if you want to share some other stuff you're having asked about, I'd love, love to hear from that as well.   Jeff Patterson (00:19:47) - Of course. Thanks. I think it's something everyone should be looking into.   Jeff Patterson (00:19:51) - So, you know, we've clearly made the point today that from an investment standpoint, um, a lot of people are shifting that way from car dealers to whether you want to buy an EV charging car or not, unless you might change where you live. Some states are regulating it. So eventually you're going to own a EV car. Um, you know, if you're just an investor, it's an opportunity for you to possibly make some money in the long run. If you are a property manager, you know, is it best for your property? Uh, if you're a property owner, are you talking to your property managers? We look into these things. Is it going to help draw more people to our business to stay longer? There's a reason why, um, companies like Starbucks and, uh, waffle House, which I put in one of my recent LinkedIn. There's an article out there where they're looking at it because they want people to stop and stay longer at their business while their car charges, and they've ran the calculations on how they're going to make more money by people being longer inside their stores.   Jeff Patterson (00:20:48) - So it's not just about the investment and getting the return of the chargers outside. It's about the additional money you could make inside your business. And depending on what your business model is, um, you know, that could turn out really favorable for you, right?   Sam Wilson (00:21:03) - Right now, that's exactly right. We we are long. One of the things we invest in is, uh, laundry facilities. And so people come, they do their laundry, and I'm thinking I've got several locations of Meccan actually going to shoot you in this podcast is over because I'm like, I wonder those, uh, what the incentives could look like at those facilities and if it would make sense when people come in, you know, they're there for an hour. Uh, and we do see electric cars. So it's, uh, on that. What what is the, um, what's the marketing methodology behind this? What should somebody be thinking about on that front? Is it. And I've never looked I've never even so much has done a cursory review of like, where's an electric charging station? Because I have no need for it.   Sam Wilson (00:21:41) - But is it all just on Google Maps, like you say, EV charging station? Like, how does somebody market this to the public to even let them know that they have the station available?   Jeff Patterson (00:21:51) - So yes, there's Google Maps Apple map you can log on right now and type in, you know, a blink charge or a charge point. And people who have taken the time have got those charging stations added, but that's not where all of them are. Um, there's actually a national database. Anybody who owns an EV car, um, has access to and can see when they want to charge your vehicle, it'll tell you where the nearest charger is at. Um, so that way you can go and charge up. It's, uh, a federal, um, database that is out there. So every EV charger that's put in gets put in there, and that way everyone can see it. And you can click to map your trip to, uh, Ohio or to Florida, to the beach, and it'll show you which route you need to go to, hit the Chargers and, uh, make sure you can, you know, get there and back and the amount of time you want to.   Sam Wilson (00:22:41) - No, that makes that makes a heck of a lot of sense. Yeah. Because that I mean, you need to know where those are. So you can you can plug in. All right. So I've got one more question on this. And this was something somebody approached me with maybe two years ago. They said, hey, you know, we've got this incredible opportunity to I'm going to call it partner, but to work with the federal government on developing charging stations across our highway systems. He would talk to me about that. If you know anything at all about what that looks like, because they're saying, hey, you know, we can go, we can go across call it Tennessee, we can be on I-40. It'll be every 50 miles, and we'll have charging stations, we'll have advertising opportunities, we'll have lot a lot of blah, blah, blah. I don't know all the things because it's been three years and I've slept since then. But you have any insight on what that looks like?   Jeff Patterson (00:23:27) - I think Matt would be the most knowledgeable here on that since, you know, he's the day more day to day.   Jeff Patterson (00:23:32) - So I'll let you take the wheel there.   Matthew Bell (00:23:34) - Okay. Um, yes. And we're involved in some of those. Uh, there are, um, three states that have been, uh, released recently that I know about. Um, and we're kind of in final talks to, to work through that, but, um, but yeah, they're setting those up. Uh, the goal is to be able to get people from point A to point B, uh, utilizing these chargers. And there's, there's huge gaps out there. And that's where a lot of this money's going. And, and that funding is supporting those, um, those initiatives to make sure that, that people can go where they need to go. Um, and, and the second piece to that, uh, and that's something that we, we do spend a lot of time on is, uh, making sure that the chargers are up. So, um, so to qualify for that government money, uh, you're, you have to have a 97% uptime.   Matthew Bell (00:24:34) - Um, and currently we don't only not have enough chargers, but, uh, at any given time, about 30% of the Chargers nationally are down. Uh, and there's there's a real issue around that. Uh, and so, you know, part of what we provide to is, is a long term service and training and, and things like that. There's currently um, I don't think people use the phone book anymore. But if you did, if you open that up, you're not going to find your EV charging repairman, uh, listed in there. So, uh, it is new. And so, you know, we do want to create long term relationships with customers, uh, and clients, whether you're just doing one at, at your laundromat or you're doing one all across the country. Um, we want to do the training so that you guys can do some of the basic service. And then obviously it would support on top of that, um, if there was something else that you needed.   Sam Wilson (00:25:33) - Right.   Sam Wilson (00:25:34) - I love it. Absolutely love it. Matthew and Jeff, what is the best way to get Ahold of you guys? If our listeners want to learn more about what you guys are doing and talk about EV chargers at their facilities.   Jeff Patterson (00:25:47) - Uh, for us, you can go to our website. Phoenix parking solutions. Com we have a special EV solutions tab. Click on that. It'll give you, uh, more about what we talked today and a direct access point to get in touch with us.   Sam Wilson (00:26:00) - Fantastic. We'll make sure to include that there in the show notes. Gentlemen, thank you for coming on today. I certainly appreciate it. And I learned a ton from you. Thanks. Thanks, Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.   Sam Wilson (00:26:25) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Andrew Brewer.   Andrew is a Real Estate Developer and a Buy & Hold Investor   Show summary: In this episode real estate developer Andrew Brewer shares his journey from stationary engineering and facilities management to real estate development. He discusses how his background has equipped him with valuable skills and insights into asset management and construction. Brewer emphasizes the importance of continuous learning and understanding the concerns of property owners. He shares his strategy as a developer, the challenges of remodeling versus new construction, and his approach to valuing land for development projects. He also highlights the necessity of taking calculated risks for wealth building.   -------------------------------------------------------------- Stationary Engineering and Facilities Management (00:01:43) Experience Working on a High-Rise Building (00:04:13) Lessons Learned from Construction Defect Litigation (00:06:14) The skill set as an owner and investor (00:10:15) The difficulty of remodeling vs building new (00:11:21) Valuing shovel ready projects (00:18:28) The risk of investing (00:19:27) Valuing land and potential (00:20:20) Factors in determining offer price (00:22:09) -------------------------------------------------------------- Connect with Andrew: Linkedin: https://www.linkedin.com/in/andrew-brewer-b6b042125/ Facebook: https://www.facebook.com/andrew.brewer.irongall Web: www.irongallinvestments.com Web: www.distance3development.com   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Andrew Brewer (00:00:00) - What the owners look for. What do investors look for? What makes something a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building. What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.   Intro (00:00:35) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:48) - Andrew Brewer is a real estate developer and they buy and hold investor. Andrew.   Sam Wilson (00:00:53) - Welcome to the show.   Andrew Brewer (00:00:54) - Hey, thanks for having me. Absolutely.   Sam Wilson (00:00:56) - The pleasure is mine. Andrew. There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?   Andrew Brewer (00:01:05) - Um, so I started, uh, I grew up in the San Francisco Bay area, so I guess I started there. Um, I actually started my career as a butcher. Uh, I did that for eight years through high school and college. Uh, when I graduated college, I moved into stationary engineering, uh, which is facilities management of large commercial assets. And from there, um, I moved into, uh, running my own company and developing real estate. Uh, where I'm at right now is I run my own company and I develop real estate. And what was. I'm sorry, what was the third question?   Sam Wilson (00:01:40) - Where did you start? Where are you now? And how did you get there?   Andrew Brewer (00:01:43) - Uh, how I got here is I, you know, I did a lot of reading, you know, listen to podcast, read books, went to meetups, like, did that whole kind of route to educate myself about the ownership side of real estate? Uh, and I developed my skill set through my W2 job as a stationary engineer.   Andrew Brewer (00:02:01) - Uh, and then also by doing projects, uh, both by myself and with partners, uh, kind of mushed all of that knowledge and everything together to start my own firm, and here I am.   Sam Wilson (00:02:12) - Wow. That's a lot. A lot of moving pieces. I'm curious, what is stationary engineering? I've never heard that term, and that's, uh. I'd love to get a little insight on that and how that shaped what you do currently.   Andrew Brewer (00:02:25) - Definitely. Um, so stationary engineering, contrary to most people's first opinion, is not creating new types of paper. Um, it actually is the the other definition of the word stationary, which means like stationary as and it doesn't move. Uh, and that's um, that's as opposed to in that industry, marine engineering. So when you're dealing with like large boats, battleships, cargo ships, things of that nature, all of those ships have systems that, you know, keep that ship running. They have generators, boilers, filtration systems, um, all that kind of stuff which run, you know, the power for the ship, for it to move lights, you know, anything like that that's needed on a large ship.   Andrew Brewer (00:03:09) - Now, all of those systems can exist off a ship, and often they exist in buildings. So when you are a stationary engineer, you are doing all of that applied engineering work, but in a stationary facility, as opposed to a facility that moves. Um, so a stationary engineer could also be called, uh, like a facilities maintenance person or, you know, something like that. Uh, the engineering portion of it generally comes when you're dealing with a large systems like high pressure boilers or things of that nature, which is a little more in-depth and requires a much more specialized skill set than just, you know, swapping out. You know, light fixtures or something like that, which is something that, um, which all facilities maintenance people do. But it's only the engineers that get to work on the actual, like, big systems because something like, uh, a high pressure boiler, I mean, that could explode and kill people. So you need to know what you're doing. It can't just be some rando that comes in and starts working on it, uh, so that, um, that's that job, um, where I was working.   Andrew Brewer (00:04:13) - I mean, they have these in all types of buildings. Um, the facility I worked in for a number of years, uh, was in San Jose, California. Uh, it was a high rise building, 27 storeys, um, composed of 197 residential units and then eight ground floor commercial spaces. So it was half of a city block, that one facility, um, because it was a high rise. We had a lot of, uh, singular systems in the building, um, on a lot of apartments, like garden style apartments. When you think about the Hvac system, generally, you'll see like a roof, and there's just like a whole bunch of condensing units all in a row along the roof. You know, when you're in a 27 story building, you've got less roof area. You can't just fit a bunch of condensing units. You have one system for the entire building, uh, which would be a cooling tower or a chiller or something like that. And then that is supplying, um, you know, refrigerant and cooled water to all of the 197 Hvac units that are in there.   Andrew Brewer (00:05:13) - So it's a very different system that you have to work with. Um, so that's that's the building that I worked in. I started there as a utility engineer, worked my way up to the assistant chief engineer of that facility, um, and worked on, you know, everything in that building heating and cooling, electrical, plumbing, uh, you know, even some structural work, cosmetic stuff. Worked very closely with, uh, the HOA board and the property manager to keep that facility running. Um, keep everything running on budget. Um, you know, there was a there was a lot of it was kind. A mishmash of, you know, property management, maintenance work, asset management, facilities maintenance. Like we kind of did it all because we were actually a relatively small team for that facility. Um, and that's, you know, that's really how I got a lot of my hands on knowledge. Um, while I was there, I also acted as a consultant for construction defect litigation lawsuits.   Andrew Brewer (00:06:14) - Uh, so I did that. And, you know, basically that's suing developers and builders for, uh, defects in their construction. Um, and so, you know, so I did that as well and then participated as a project manager in reconstruction projects. You know, like if you win a construction defect litigation suit, generally there's a large settlement. That settlement, if it's used properly, is used to remediate all of those problems in the facility. So that's, you know, basically a huge redevelopment project that then has to happen, which in a high rise, as you can imagine, involves a lot of work being done suspended on lifts many hundreds of feet above the ground. Um, which is not always super fun.   Sam Wilson (00:06:59) - No, but would you say that that is where you really, um, you know, figured out how to become a developer?   Andrew Brewer (00:07:08) - Uh, that was instrumental in it. So, um, doing that job, um, I didn't actually develop anything from the ground up, but the process of, you know, redevelopment, working on those lawsuits, um, that all gave me a lot of background knowledge.   Andrew Brewer (00:07:24) - So, you know, as I'm developing properties now and building properties, I know exactly what's going to put me in court at the end of the day because I know what to look for. I know where common mistakes can pop up. I know how, um, how serious those things can be if you don't do your due diligence as a builder. Um, and a lot of this stuff can be relatively mundane. It's not something that people think about. Um, you know, I'll give you a good example of that. One of, um, one of the big issues in this facility I was working in was, uh, was plumbing problems. And, you know, it turned out that that one of the issues was the builder used, um, the wrong kind of rubber and a lot of the gaskets and seals and it, you know, the water source in that area, you know, had certain, you know, certain things. And it's very hard water in San Jose. It's very similar actually, here in Austin, Texas, there's just a lot of calcium in the water.   Andrew Brewer (00:08:23) - And, uh, you know, those minerals that were in the water reacted poorly with, um, with that type of rubber, I guess the chemical composition of that rubber, and it degraded it prematurely and led to just leaks everywhere. And, you know, as, as I'm sure you know, you know, I mean, you got water will do wonders for your, your flooring and your sheetrock and, and everything. So, you know, the the leak itself may not cost that much to fix, but having to remediate, you know, a big leak cascading from the 20th floor all the way down. I mean, that's a lot of damage. That's hundreds of thousands of dollars of damage for a single plumbing leak. Um, so those things get amplified. So I kind of saw that in real time, like, oh, this is bad. These can be millions, tens of millions of dollars in damages if you don't build this stuff correctly. So that's really informed. You know, how I've approached development is making sure that, you know, I take all the steps to not get sued for that, you know, to protect my investors as well.   Andrew Brewer (00:09:22) - When I started developing, um, you know, I have a partner here in Austin that I develop with, um, he actually grew up, uh, building spec homes with his parents. His parents had a spec home building company, and they would go out and, like, buy land, subdivide it, build houses. So he and I had very complementary skill sets. He knew, you know, like, hey, this is the specifics of like, land development. And I had the point of view of like, hey, this is what it takes to do this with a large commercial facility. Um, because the process of doing, you know, redevelopment or reconstruction, I mean, you still have to go to the city, you still have to pull permits, you still have to get approvals. You know, you still have to work with contractors. A lot of that is very similar, even if it's not like exactly apples to apples. Um, but, you know, I mean, pulling a permits, pulling a permit, you know, that that doesn't change whether you're doing it for a new build or redeveloping something.   Andrew Brewer (00:10:15) - Um, so I learned all that through my job, and, uh, and that really informed, you know, what I'm able to do now, um, at that same time that I was doing that, you know, that's when I was doing, you know, a lot of reading. I still do a lot of reading, but I was doing a lot of reading then listening to podcasts, going to networking groups. Um, and I was investing myself just on the side outside of my job in smaller single family stuff. Um, and so I developed that skill set as an owner and as an investor. Like, what do owners look for? What do you investors look for? What makes them? Being a good investment, which is a different skill set to this is how you asset manage this facility. Um, and then I was able to use that knowledge and speaking with, you know, the HOA and the property owners at this facility because I'm starting to think like, okay, what are they thinking? You know, what are their concerns? They've bought this unit in this building.   Andrew Brewer (00:11:09) - What are their concerns as an owner, which may be very different to my concerns as somebody that's trying to keep the lights on. And then how do you balance those two things? Um, so I think that, you know, that was really invaluable to, to starting my own company.   Sam Wilson (00:11:21) - Absolutely. And I and I would I would say that just from an outside perspective, the remodel indoor remediation side of things is 10 to 1, the difficulty of just building something new.   Andrew Brewer (00:11:33) - It is. Um, that that's definitely true. You know, my dad, uh, my dad was a carpenter and a staircase builder for a time, uh, back before I was born. But, you know, in another life, he was that. And, you know, like, as we talk about that kind of stuff. Now, you know, the thing that he's always said to me, which I found very true in my career, is, you know, when you're remodeling, um, or, you know, he would say it's so much easier to build new than to remodel, because when you remodel, you're fighting for inches and you got to find them somewhere.   Andrew Brewer (00:12:03) - If you're building new, you know, you can just add inches and it's really easy. Um, so that with him just saying, like, yeah, you're always fighting for inches, that is just kind of always stuck in my head. Um, it's part of the reason I like new development more than more than rehabbing stuff. It is a little easier in some ways.   Sam Wilson (00:12:20) - Absolutely. I would, I would the only the only thing that I would argue on that front is that your speed to market could be potentially faster on a remodel than maybe on.   Andrew Brewer (00:12:31) - That's definitely true. Um, you know, I have some folks, you know, that I know that are able to, you know, they buy property or maybe we're able to exit it pretty quickly, you know, especially during like 2020 to 2022. You know, it's like, hey, I'll buy this apartment complex. I'll renovate 20% of the units, get some higher rents. It's proof of concept. Turn it around and flip it. I've got an exit in 6 to 8 months.   Andrew Brewer (00:12:53) - Put that on their resume. Like, look, I've got all these exits now with me, it's a little more challenging when I'm developing a property. I can't really just, uh, in six months be like, well, I built some of the framing. I'm going to flip it to you. Like people really expect you to finish it. So. So my holds end up being a bit longer because I actually have to stick with them from all the way from the beginning, all the way through the end.   Sam Wilson (00:13:13) - What's your what's your plan on the development side of things? I mean, I see, you know, the there's there's developers that get it too completed, partially occupied and then punt it. But in your bio there, you said you're a buy and hold investor. What's your what's your strategy on that front?   Andrew Brewer (00:13:30) - My ultimate goal in every project I do, I guess I'll say aside from single family home subdivisions, because I, I don't want to compete with, you know, D.R. Horton or Lennar or anything.   Andrew Brewer (00:13:40) - I will entitle lots for them, but I don't want to build the houses, um, for my townhome and multifamily projects, my goal is always to buy raw land and title it, develop it, build it, and then hang on to it forever. Like that's what I want to do. That doesn't always work to do it that way. Uh, there can be deals found at any stage in the development process. You know, I have bought shovel ready deals. I have bought raw land. I have bought land that was already zoned, but not, you know, entitled or developed. Um, I've bought land that, you know, wasn't even annexed into a city with no utilities. Um, I can come in at any point in the development process, and I have, um, it all depends on, you know, how the how the numbers work out. You know, like, if somebody wants way too much money for their entitled land or their zone land or whatever, like, I'm not going to do that deal.   Andrew Brewer (00:14:37) - If somebody is offering like a great deal and I see a good way to make, you know, investors a lot of money, uh, then then I may buy something shovel ready. But ultimately I would like to, you know, extract as much value as I can. And you do that by doing the entire process, you know, from raw land all the way through, holding the final asset. At the end of the day, I'm going to do what is best for the investors, which sometimes is to sell. If there's a crazy good offer on the table or, you know, if there's a feeling that, you know, maybe the next phase of a project might not go so smoothly, maybe there were some recent, you know, changes to the zoning code or changes to, you know, the building codes or maybe you know, somebody in, you know, a local municipality that is, you know, Anti-development just got elected. You know, I, you know, I might say, like, uh, might not be the best thing for us to stick with this project.   Andrew Brewer (00:15:33) - We could probably get it done. But the risk, you know, may not outweigh or, um, may outweigh the, the rewards at this point. So I'm always very cognizant of, you know, what's going on in the area, what's going on with any project. If we have to exit, or it makes sense to exit to minimize risk or protecting investors investment, like I will absolutely do that in a heartbeat. Um, but ultimately, I, I want to just hang on to stuff. You know, that's there's so much time value of your money in real estate. Like, you know, real estate goes up over time. You know, if you get a good asset at a good price, you know, it can make sense to just hang on to it, you know, as opposed to trying to repeat the same thing every couple of years.   Sam Wilson (00:16:17) - I mean, outside of the constraints of, you know, like you said, elected officials coming in that are anti-development things like that.   Sam Wilson (00:16:23) - What what else is there that might prevent you from holding something long term?   Andrew Brewer (00:16:31) - Um, other, you know, other things. There might be, uh, construction prices going up, like if this is if this is entitled land that we haven't built on yet, you know, seeing, you know, supply chain issues or, you know, just prices on certain items kind of go in going super nuts in the future. That would definitely, you know, factor in might want to, you know, offload a project if it looks like it might not be feasible to build anymore. Um, if there was, you know, some, some kind of negative press in the area where the project is not necessarily elected officials, but, you know, if I don't know, you know, we're trying to build some apartment complex on some street and like, you know, suddenly, you know, some, you know, some gang moves in, you know, down the street and suddenly there's a bunch of homicides like, uh, maybe, you know, this might not bode well for the neighborhood in the future, you know, might make sense to try to offload this before the situation gets worse.   Andrew Brewer (00:17:33) - If it looks like there isn't a strong response to that, um, you know, things, things of that nature, um, I guess I would say would be reasons to offload. Another reason would be a really good offer on the table. You know, somebody comes in is just like, hey, I'm going to offer you a stupid amount of money for this thing. Like, okay, well, you know, if I, you know, can like two x my investors money in like a year because some guy really wants to get into this area. And by this project, I mean that might be a good thing if it's going to take me, you know, five years to two x their money, they might be very happy just cashing out right now. Um, I might prefer to hold it, but I mean, you know, it's mostly investor money, so, you know, you got to do what's best for them.   Sam Wilson (00:18:14) - Right? Absolutely. They got one other practical question on that front, which is, you know, how do you how do you value shovel ready projects when you look at that? Like what's that process? What does that process entail?   Andrew Brewer (00:18:28) - Valuing shovel ready projects is really hard.   Andrew Brewer (00:18:31) - Um, valuing land is really hard. Especially entitled land. Um, but for a shovel ready project or, you know, entitled land, the way I do it is I try to back into a value based on the final completed asset value and what I think it will take to get there. So factoring in, you know, cost of construction and holding costs, you know, time, um, you know, time to build all that kind of stuff. You know what I think you know, the rents or the sale prices might be, uh, when it's completed. You know, I kind of back that off put in, you know, what a, you know, a good market return would be for somebody to invest in that project, you know, a good risk adjusted return. Everything I look at is a risk adjusted return. Um, you know, this is investing there. There are risks. You know, you don't get a 20% IRR on your money without taking some risks, like, you want no risk.   Andrew Brewer (00:19:27) - Go stick your money in a savings account and get 0.1%. Like that's the risk free option. But it is not the option that builds wealth. Um, not to say that I'm careless with money, but you know I do. I am upfront with my investors that like, hey, like there is a risk here if you know, if you like, you know, are betting on this money to like pay your medical bills in the next six months, please don't invest it with me like I don't want to be, you know, I don't want to be put in a position where, you know, you where I've disclosed that this is an illiquid investment and you need the money in six months, and then I'm looking like a jerk. Um, but, you know, anyway, back back to the point of valuing land, you know, put in a reward, put in. You know what my profit needs to be for me to do the project, factor in all of that stuff and kind of back into like, okay, so this is kind of what I could pay for this land.   Andrew Brewer (00:20:20) - I guess it's a very similar approach to what a lot of, um, buy and hold investors do where they, you know, you know, if they're not looking at the actual value of the property based on, like, you know, the rent roll or something, but they're looking at the potential of what the property could be and buying on that number. That's really what I do. And coming to a number on, uh, shovel ready land or entitled land, I, you know, I, I really develop kind of my top number at that point. And then I kind of go to the market and see what is land trading for, you know, are there any other entitled projects that I can look to potentially as a basis for comparison? Oftentimes there's not, um, or not something that would be a true, you know, apples to apples comparison. I'm often having to extrapolate from a different, you know, type of project. You know, maybe if I'm looking at, you know, hey, this this is an entitled project for 200 units.   Andrew Brewer (00:21:15) - The only other comp I can find in the area is a project entitled to build 16 units. Like, kind of hard to make a comparison there. Um, so, so there are a lot of estimates. Um, but. You know, if I see that, you know, the price that I'm willing to pay is far over. You know anything else that's listed in the market? You know, I'll go with that lower number. Like, hey, let me lock up something that, you know is more in line with the market. If the market's asking way more than you know, than my number says, uh, which, you know, happened here in Austin for a couple of years, you know, people were just paying stupid amounts of money. I don't I don't know how they justified prices, uh, that they paid. Um, you know, I may, you know, lob in an Loi just to kind of see if there's any response, not really expecting anything. You know, if they come back and want to be reasonable, that's fine.   Andrew Brewer (00:22:09) - Um, but I have, um. You know someone someone that I spoke to about, you know, putting in offers and, you know, what he said was, you know, if your offer price is off by more than 10% of their ask price is probably not going to go anywhere. Uh, you know, you can ask, but, like, don't sit there and be, like, betting on getting a favorable response. Um, so, you know, that's kind of how I try to value stuff and, and look at it there.   Sam Wilson (00:22:36) - Fantastic. Andrew, this has been a blast having you on the show. I've got like 500 more questions that I want to ask you, but unfortunately we are out of time. We've learned so much from you here today, especially as it pertains to kind of what your thought process is on the development side of things, how you view projects from a, uh, what did you call that, a construction defect litigation lawsuit perspective? I mean, that's that's a skill set that very few people have have been part of those, uh, calling in as a witness on a very specific part of that process.   Sam Wilson (00:23:08) - And it's, uh, yeah, it's very interesting to see see those go down and kind of how that works out. But you've got you've got a just an amazing background and uh, yeah, a wealth of knowledge there. So thank you for taking the time to come on the show today. If our listeners want to get in touch with you and learn more about you, what's the best way to do that?   Andrew Brewer (00:23:23) - Yeah. So people can find me on Facebook or on LinkedIn. Um, those are the two platforms that I use the most. Uh, or they can visit my websites. I've got two real estate companies, uh, here in Texas. Uh, one is Iron Gall Investments. So you can visit er on JL investments comm or distance three development. That's dot distance. The number three development.com. And you can shoot me an email. Uh I've got two emails either Andrew at Angle investments.com or Andrew at distance three development.com.   Sam Wilson (00:23:58) - Fantastic. Thank you again for your time today Andrew I certainly appreciate it.   Andrew Brewer (00:24:02) - Definitely. Thanks so much for having me.   Sam Wilson (00:24:04) - Hey, thanks for listening to the how to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Rod Kheif.   Rod Khleif is a multiple business owner and philanthropist who is passionate about business, high performance, real estate and giving back.   Show summary: In this episode Rod Kheif, a successful business owner and philanthropist, shares his journey in the real estate industry. He discusses his early start, inspired by his mother's investment, his significant loss during the 2008 financial crisis, and his recovery. Rod emphasizes the importance of mindset, determination, goal-setting, and focus. He also highlights the significance of surrounding oneself with a positive peer group and the role of meditation in enhancing focus. Rod provides insights into the current state of the commercial real estate market, advising listeners to be conservative in their projections and to educate themselves before investing.   -------------------------------------------------------------- The mindset it took to recover from losing $50 million (00:01:54)   Importance of goal-setting and decision-making (00:03:48)   Pushing through fear and limiting beliefs (00:06:13)   The importance of focus (00:07:38)   Playing to your strengths (00:08:25)   The power of peer group (00:09:15)   The Projections and Debt Crisis (00:15:23)   Opportunity in the Market (00:16:11)   Lowering Interest Rates and Future Outlook (00:17:42)   The episode ends (00:23:57)   Rod shares his contact information (00:23:35)   The hosts thank the guest (00:23:50) -------------------------------------------------------------- Connect with Rod Kheif: Website: http://Rodkhleif.com LinkedIn: Rod Khleif - https://www.linkedin.com/in/rodkhleif/ Twitter: @RodKhleif - https://twitter.com/RodKhleif Instagram: @Rod_Khleif - https://www.instagram.com/rod_khleif/ Facebook: Rod Khleif Official - https://www.facebook.com/rodkhleifofficial/ YouTube: https://www.youtube.com/RodKhleif   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Rod Kheif (00:00:00) - It's how do you get anything if you don't know what it is? You've got to create a burning desire or hunger. You've got to want it. That's how you push through fear. That's how you push through limiting beliefs or that's how you get uncomfortable. You know that comfort zone is a nice, warm place, but nothing grows there. And so you've got to push through fear and all that by knowing what it is you want and why you want it.   Sam Wilson (00:00:20) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:32) - Ratcliffe is a multiple business owner and philanthropist who is passionate about business, high performance, real estate and giving back rod. This is your second time on the show. It's been a couple of years. I didn't have time to look up the episode number beforehand, but in case you didn't hear rod the first time, go back. Find that episode there on the How to Scale Commercial Real Estate podcast.   Sam Wilson (00:00:50) - That was a great episode then. Rod, it's a pleasure to have you back on today.   Rod Kheif (00:00:52) - Oh thanks, brother. It's good to see you again.   Sam Wilson (00:00:54) - Absolutely, rod, the pleasure is mine. There are three questions, however. I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there in 90s?   Rod Kheif (00:01:07) - God. Oh, man. That's a that's a long, sordid story, brother. I started because my mom bought the house across the street when I was 14 for 30 grand. Two years later, she told me she'd made 20 grand in her sleep. And I said, forget college. I'm going to do real estate. And and fast forward to today. I've owned over 2000 houses. I've rented long term 200 of them in your backyard in Memphis. We won't talk about that. And then the rest are in Florida and Denver. But, you know, I now own thousands of apartment units.   Rod Kheif (00:01:37) - I lost $50 million in 2008 and nine, and it was a single family that pulled me down. And so what I'm known for talking about on my podcast and at my live events is the mindset it took to have 50 million to lose in the first place. And probably more importantly, the mindset took to recover from that to the success that I'm blessed to have today.   Sam Wilson (00:01:54) - Let's talk about that because I think, you know, if we get and we don't have an agenda for this show, I think you and I talked here ahead of time. For those of you listening, you know, a lot of times we'll just kind of hash out some of the high points we want to hit. I think you and I are going to kind of wander all over the place today and have a good time doing it. But one of the, you know, we talked about that on your first episode. So you can go back and listen to Rod's story. You can lose in 50 million bucks. That's a big deal.   Sam Wilson (00:02:17) - That's a big hairy deal, not only to build a portfolio of 50 million, but then to lose it. I do want to talk about the mindset it took to recover that. So let's spend a little bit of time there and then compare that if we can, before the show is over, we're going to compare that to where you see us in the market today and kind of how.   Rod Kheif (00:02:32) - The proverbial, you know, what's about to hit the fan, uh, there's no question about it. So, uh, you know, so how did I, uh, how did I have 50 million to lose in the first place? And how did I recover? I, when I, when I lost everything I associate with what I wanted and why I wanted it. So, you know, if you come to one of my boot camps, the first thing we do is goal setting on steroids. Because how do you get anything if you don't know what it is? You've got to create a burning desire or hunger.   Rod Kheif (00:02:57) - You got to want it. That's how you push through fear. That's how you push through limiting beliefs or that's how you get uncomfortable. You know that comfort zone is a nice, warm place, but nothing grows there. And so you've got to push through fear and all that by knowing what it is you want and why you want it. So you've got to do your goals. By the way, if you haven't done your goals, write this down. Write down rods, links com or text the word links to 72345. If you're driving at the bottom of that link tree, that's got all my social media, it's got my podcast. I have the largest commercial real estate podcast really in the world now we're over 20 million downloads. And and it's because I spent time on mindset and psychology. But if at the bottom of that, Linktree is my goal setting workshop, I do it every year on the first year. I'll do it again January 1st of this year. And you know, how do you get anything if you don't know what it is? Right? And and people spend more time planning a Christmas party than they do designing their lives.   Rod Kheif (00:03:48) - And so do your goals. That's designing your life. Have your spouse do it. Have your kids. If they're over ten years old, do it. So again, text the word links to 72345 or go to rods links.com. It's there. I'm not going to try to sell you anything. Just go design your life. So that starts with goals. Then you got to make a decision. And that's what I had to do back then. I decided to get out of my pity party and get my butt back up and make stuff happen. And the Latin word for the word decision means to cut off. Uh, for a great analogy, for a real decision would be if you're going to attack the island, you're burn your ships because you're taking their ships home. It's committed. There's no one foot in, one foot out dipping a toe in the water. It is freaking done when you make a decision. So you got to make that decision. That's the next piece. Then. Then for me, I had to I had to get back up after I made the decision of what I was going to do, which was focus on on multifamily, uh, because my multifamily did just fine when I lost everything, it was the single family that pulled me down.   Rod Kheif (00:04:40) - So then I took that first step and I went out there and started buying multifamily again. And that's the next piece. You got to take that first step. And, you know, in this business, I have a lot of students that are very analytical. And if you're analytical, you know who you are, and I love you, but you know how you typically have to check off every box before you make a move? Well, you can't do that here. You've got to take that first step. You know, great analogy for this would be you can drive all the way across the United States at night. Headlight only seen 60ft in front of you. You know you'll make it. Other people have made it before. You may have some obstacles, but it's the same way with your goals. But you got to take that first step, okay? So make a decision. Take that first step because you don't want regret. You know, um, the worst thing in the world is regret.   Rod Kheif (00:05:20) - Don't fear failure. Fear, regret. Um, you know, there was this nurse in Australia I may have mentioned on the last episode with you named Ronnie Ware as a hospice nurse, and. Yeah, and you're right, the five, uh, five biggest regrets of. She asked that, she asked her hospice patients. Do you have any regrets? And the biggest regret was not doing what I know I could have done. Doing what someone else, uh, you know, told me to do. Not doing what I know I'm capable of. I can't think of anything worse than that. So no regrets. Don't fear failure. Fear that. And then, you know, it's it's, um. The next thing is pushing through fear and limiting beliefs. You know, when I, uh. So what is fear? Um, you know, f everything and run or false evidence appearing real, I think. Yes, it's probably that for sure, because 99% of what we fear never happens. But it's definitely, in my opinion, face everything in rise because it's the successful people that push through in spite of the fear, um, and limiting beliefs.   Rod Kheif (00:06:13) - You know, when I immigrated this country, I got thrown into school. I found out what bullies were for the first time, and my mom proud dutchwoman that she is, sent me to school in these wooden shoes. These are the actual wooden shoes. We found them when we put her in assisted living. And so I got my butt kicked again. And then we had bullies that lived on the end of my street. And, uh, you know, she they chased me home, and she chased them off with a flyswatter. So next day, I got my butt kicked, you know? So I came up with this belief system that I wasn't good enough. I used to ask myself, how can I show them I'm good enough? Uh. And which presupposed that I wasn't. So, you know, a lot of people have these limiting belief systems. I'm not smart enough. I'm not good enough. I don't have enough time. I don't have enough money. I'm not analytical enough. That was another one of mine.   Rod Kheif (00:06:51) - There's a reason the acronym for Belief Systems is B.S., because 99% of them are. They have no basis in fact, but we believe they're real. The next piece is focus. I knew I had to have laser focus. The most successful people on the planet have an extremely high degree of focus. And here's the thing whatever you focus on gets larger, and wherever focus goes, your energy flows. But you know you want to make sure you're not focused on negativity. You know, we start to talk about politics and what's happening in this country. And I got flamed up because I'm very much on one side of the fence there. And but the bottom line is whatever you focus on gets larger. And, you know, they asked Mother Teresa when she was live, she was antiwar. She said, no, I'm pro peace. You know, I get students or people, not student students no better. But I get people to call me and say, you know, what do I do to get out of student loan debt? I'm like, wrong question.   Rod Kheif (00:07:38) - What do you do to make so much money? The debts are irrelevant because again, whatever you focus on gets larger. I listen to two podcasts, um, and, and you know, and I try to stay on both sides of the aisle. One is Tim Ferriss was definitely on the other side for me. And then there's Joe Rogan. And, you know, I get excited about my 20 million downloads. I think they get that a week on theirs. But on Tim Ferriss Show, I listened to it because it's fascinating. And he interviews the best of the best in every walk of life, the best athletes. Michael Phelps, NFL, NBA players, best actors Ed Norton, Hugh Jackman, Arnold Jamie Fox, uh, CEOs of the biggest companies in the world like Zuckerberg, um, um, billionaires like Ray Dalio. And he deconstructs their success. Okay? He interviews them, deconstructs their success. And I started to hear a pattern. They almost all meditate. What does meditation enhance your focus.   Rod Kheif (00:08:25) - Right. So pay attention to focus. That's a big one. The next one is playing to your strengths. I knew what I was good at and I'm a great communicator. And so I started the podcast and I'm the mouthpiece for, for for my acquisitions company. I have my thought leadership business. I have, you know, over a thousand students around the country. They now own coaching students. They now own over 180,000 units that we know of. I'm super proud of that. Um, and I've only been teaching five years and, and and, and and I teach them play to your strengths higher align or partner for your weaknesses. Okay. Because when you're playing to your strengths, you love what you do and what you love what you do. Success is inevitable. Don't do what you don't love. You know, one of the best combinations in my business, multifamily real estate, is an analytical person with an outgoing person. Introvert with extrovert. That's a match made in heaven because you need both pieces.   Rod Kheif (00:09:15) - Some people are both, but most are better in one or the other. Here's the thing though. Don't live someone else's life. Do what you're good at and when you do, you never work another day in your life because you love what you do. And when you love what you do, you're passionate. And passion is required to influence people. And so, you know, and so focus on your strengths. You're going to love what you do. You'll be passionate and and then you'll be able to influence people. And that passion is the fuel. You know, when you have that passion it breeds creativity and innovation and minimizes or even eliminates fear. Um, just a couple more pieces. The next one is peer group. Who you hang out with is who you become. You know, uh, I when I was losing everything in 2008 and nine, I was in Tony Robbins Platinum Partnership, which at the time was about 130 grand. It's more than that now. But I was around people that were killing it in the crash when I lost, you know, $50 million in 2008 nine.   Rod Kheif (00:10:04) - They were killing it. And that's when, right when I was in that mastermind and they're like, get up, you big wussy. Go make something happen. 50 million, million. That's who you want to be around when the soup hits the fan. Right. And so, you know, that's that's, uh. And so pay attention to who you allow to influence you. Most people will default to a peer group that they went to school with or that they work with. And, and sometimes these people don't have your best interests at heart. They're naysayers or they're afraid of your success, or they feel afraid of feeling like a failure. You succeed. And sometimes it's family. And I'm going to tell you I love your family, but choose your peers. Get around people that want more out of life, people that will push you and hold you accountable. That'll hold you to a higher standard. Most importantly, that that think what you think is hard is easy. You know, if you're playing tennis, do you want to play tennis with somebody that's better than you or worse than you? I mean, you know the answer.   Rod Kheif (00:10:52) - Um, and then the last piece I'll talk about is, is failure. You know, you only fail if you don't get up, back up. You don't get the lesson. You know, I call them seminars. We really fail our way to success. You know, problems give you feedback. You know, I will tell you, if you come to my bootcamp, I've got a virtual one coming up in January, and I'll give your peeps a hell of a deal if they want to come. But, you know, uh, it's a Saturday and Sunday. On Monday, you'll get a survey from me asking you what you thought. And of course, 99.9% of the feedback is fantastic, but I'm looking for that 1% of constructive feedback. And how do I make it better? And that's the only way to get it. You know, I got to meet the billionaire owner of Spanx, Sara Blakely. You know, that the women's undergarments that hold everything together for women and women know who this is.   Rod Kheif (00:11:36) - But anyway, she started with 5000, and she's a billionaire. But I met her at a mastermind that I went to, and she told me that her dad used to ask her and her brother once a week, what have you failed that this week? I thought, what an awesome freaking question to ask your kids. You mind if I mention my boot camp real quick?   Sam Wilson (00:11:52) - No. Go for it.   Rod Kheif (00:11:53) - Oh, okay. Yeah. So I've got a virtual boot camp coming up. It's coming January 6th and seven, so you can do it at home in your underwear. I don't sell anything there. It's not a sales pitch. It's two days of training. And if you come use the code, Sam, and you can come for $97. Okay. And so where you go is you go to rods, links, comm. If you're driving, text the word links to seven, 2345. There's a ton of free resources there. I've got free books there. My social media is there. If you've got a question about anything about this business, I answer every single question on social.   Rod Kheif (00:12:24) - So if you ask me a question, you'll get an answer for me every time. Some people are like, is this a bot answering? And I got to send a picture of my underwear with my fingers up or something. No, that's me. But anyway. But the point is, go there that my boot camp site is there when you know the price will be 4 or 500 bucks by the time the boot camp comes around. But if you put in the code, Sam, you come for 97. I don't sell anything there. It's every aspect of the multifamily business. Soup to nuts. And and if you go to the bottom of the boot camp website, you'll see hundreds and hundreds of testimonials. And if you come and you don't love it, I'll give you your $97 back. I don't mean like it. I mean freaking love it. I'll give you a $97 back. So you know, there is that. But, uh, but anyway, so that's coming up January 6th and seventh and rods links.   Rod Kheif (00:13:02) - There's a lot of free resources there. And again, at the bottom is my goal setting workshop. Do your goals. You should be doing your goals 2 or 3 times a year. Go do it. You know you'll really enjoy the process I promise you.   Sam Wilson (00:13:12) - So yeah rod that's a lot man. I appreciate you going into detail on that. You know, having the people around you, I think that, uh, you know, can help recenter after a devastating loss. It's probably one of the things that took away from what you.   Rod Kheif (00:13:26) - Oh, no, it helped me a lot. Help me a lot for sure. Yeah. For sure.   Sam Wilson (00:13:29) - Absolutely. So you you came out of that, you rebuilt your portfolio. You kind of gave us some insight on, you know, how you, you know, structured everything and got your head in the right space to recover mentally.   Rod Kheif (00:13:42) - Yeah. All the mental structure. Sure.   Sam Wilson (00:13:44) - And that sounds like it's 80%, maybe even more 90.   Rod Kheif (00:13:47) - It is.   Rod Kheif (00:13:47) - Listen, that's the reason my students are so successful because I'm pushing them so hard on the on the mental and the psychological part. The technical is easy. You can learn that anywhere. Go to YouTube University, you know, come to my boot camp for $97. You'll get the technical and you'll get a lot of mindset stuff as well. I'm going to tell you, you're going to get you're going to you're going to leave that event just out of your skin. But the point is, most people don't do that piece. But that's the most important piece, okay. Is is the mindset and psychology for every aspect of your life your health, your wealth, your relationships, your happiness mindset and psychology is the most important piece for sure.   Sam Wilson (00:14:18) - Absolutely. Absolutely no, I love that. That's absolutely great. How are you setting yourself up now? This is not something we got to talk about two years ago.   Rod Kheif (00:14:27) - Being very being very conservative. I'm going to tell you that I'm very conservative. Like I haven't bought a deal in over a year.   Rod Kheif (00:14:33) - I've got a deal right now. Screaming deal under contract. Um, it's 200 units in San Antonio, about a little over a mile away from another 296 unit asset we own. That's one of our top performing assets. And this deal is this, this unit, this this place is even nicer than the 296. And we're going for 100,000 a door. The one next door sold for 137,000 a door. Um, you know, this place was under contract for 26 million months ago. We're getting it for 20. I mean, screaming deal. Uh, we're assuming a low interest loan. I'm very, very conservative, Sam. I mean, like, we're we're, uh, we'll have six months of operating reserves of expenses, just, you know, in case the, you know, you know, what hits the fan. Um, we're we're going to do a huge CapEx renovation budget. They're almost $4 million, and we'll have 360,000 of it in just in case we miss something. I mean, that's that's how conservative we are.   Rod Kheif (00:15:23) - Um, the projections are very conservative, but that's the that's the operative word today is be conservative. I really believe the soup is about to hit the fan. The. There's a ton of debt coming due. And and when debt comes due in the commercial space, you either have to sell or refinance. Sales are down almost 90%. Refinancing is extremely difficult right now because of the interest rate increases. And we have what's called debt service coverage requirements. Meaning, you know, when you buy a commercial property, they're looking at the property's ability to service the debt, not yours. They're not looking at your income. They want to make sure the property will do it. And so, you know, these operators, I know some world class operators that are in in deep duty right now. I mean, they're in trouble. And and I mean, guys, I really have a lot of respect for because they got what's called bridge debt, which is like hard equity money in the single family space. And it's it's very onerous debt.   Rod Kheif (00:16:11) - It's low, low, uh, adjustable rate interest rates short term. And, you know, I'm embarrassed to say I'm in a couple of them right now with a past partner that did it. Um, uh, talked me into it. Uh, we'll get out of it, but it's no fun. But there are a lot of them that aren't going to get out of it. And so there's incredible opportunity coming. You know, there's been a lot of greed these last few years. Um, you know, Warren Buffett's famous quote, be fearful when others are greedy. I've been real fearful the last couple of years. But then again, the flip side of that is be greedy when others are fearful and the fear is here, it's coming. All you have to do is watch the news. Don't get me started, but just keep this in mind. The news are not there to inform us. They're they're they're moneymaking. They're not public service organizations that make money. And the censorship and the propaganda on the news anymore, it's just almost like, mind numbingly stupid and amazing that people are falling for it, frankly.   Rod Kheif (00:17:01) - Uh, but, uh, yeah, don't get me started on that. But, uh, you know, just be careful what you bring in. And that's why focus is so important. That's why your goals are so important. So you don't get sucked into that stuff. Stay focused on your goals and what you want. And this could be the greatest moneymaking opportunity of your lifetime, because I believe everything's going on sale. Businesses, definitely. Every asset class in real estate is going on sale, you know? So whatever it is, what? Pick your vehicle right now, decide and and go learn it. If it's multifamily, get your butt to my bootcamp. If it's something else, go learn it right away. Because if you're in the if we're in this, if we're in the middle of the soup, it's going to be too late. You've got to build relationships. You got to understand how to value stuff. And you know whether businesses are real estate. You got to understand all that.   Rod Kheif (00:17:42) - And so that takes some time. So you want to get up to speed as fast as you can. Because I really we may have a lull before the election. I think rates are going to come down because the current administration has to do something. You know, unless they're going to steal the election again, they're going to have to do something to, to to look decent. And so, you know, it's it's going to be, uh, you know, lowering the rates to try to make the economy look better. But after this election, watch out, because I really believe the proverbial, you know, what's about to hit the fan. I really believe that.   Sam Wilson (00:18:10) - Well, for sure, if you just look at the the amount of debt that's maturing in the next 12 to 18 months and it's it's a crazy thing, a staggering number and.   Rod Kheif (00:18:20) - Commercial commercial debt. Yeah. Right.   Sam Wilson (00:18:22) - Yeah. And I mean, and that's I mean that's, that's a staggering number. We'll just seeing how that plays out will be interesting.   Sam Wilson (00:18:28) - I do have a just a mechanical question on this deal that you guys are buying. Why is someone even selling a deal that has a fixed load?   Rod Kheif (00:18:35) - They ran out. They ran out of money. Yeah, they ran out of money. Uh, horrible operator, horrible management. They've got 40 vacancies in the market that were 96% occupied a mile and a half away. Um, and this these units are bigger. They have fireplaces. That's on a lake. Um, I mean, it's a nicer asset, but they've let it go to hell. And that's why we have to raise 4 million, uh, in CapEx almost. That's probably 3.8 million, um, to, to do the to to do the renovation. They're on 200 units, a pretty significant CapEx budget, but it's going to be a world class asset again, Lake on one side, golf course on the other, just it's it's got all the bones of really being something spectacular but horrible management, which is what we love to see.   Rod Kheif (00:19:15) - That's the ideal scenario. Uh, because we're assuming low interest debt on that. It's got seven years left on it. We're not getting new financing. It's got 4% debt on it, which is fantastic right now. So we're assuming that that loan and, uh, yeah, just a very exciting screaming deal. Very excited about.   Sam Wilson (00:19:31) - How how do you keep your acquisition teams busy? I mean, it's been a year.   Rod Kheif (00:19:36) - Oh we're going through so many deals, man. I mean, we looked at so many. We've kissed so many frogs. You have no idea. So many frustrating where people have outbid us and we're like, no, we're not going to go higher than that. And, you know, it just is what is. By the way, if you're accredited and you want to take a look at the San Antonio deal, text the word partner to 72345 and we'd love to talk to you about it. I also have an incredible free, free resource for investors, passive investors. It's probably the best out there.   Rod Kheif (00:20:03) - It's this we call it the Cash Flow Club. It's the free cash Flow club. If you text club to seven, two, three, four, five we'll give you the link. It's got videos, books, articles, emails. I think it's just probably the most incredible resource for passive investors that's out there. We're not going to try to sell you. It's just a free resource. If you want to check it out, it's free Cash Flow Club. See our Cash Flow club.com or text the word club to 72345. And we'll send you that link. Incredible resource. For learning about passive investing or better yet, come to my boot camp. Honestly, you know, why would you give your hard earned money to someone without having some basic understanding of what it is you're investing in? So many people do that they'll put their money in the stock market. Haven't got a clue what's happening with it. Don't do that. Spend a little bit of time learning what you're investing in, either at my bootcamp or, you know, go to the Cash Flow club or learn elsewhere.   Rod Kheif (00:20:53) - But learn before you give your hard earned money to someone. That always kills me when I see that. So yeah.   Sam Wilson (00:20:59) - Absolutely. Rob, this has been great. I mean, you've given us the, uh, the way to get our head screwed on straight. You've told us about this, the deals that you guys have been sorting through. Finally, finally finding one in San Antonio. Right? Right. One thing I read this morning, I and I spend about one minute a year on social media. Uh, but, uh, for better or for worse, I just it's just not where I spend my time. But I did read something this morning and they were talking about capital raising, and they're saying, man, this is a challenging environment to raise capital in. How are you guys climbing? Well.   Rod Kheif (00:21:31) - I mean, you know, it is tough. It's right now it's not finding the deals that's hard. And moving forward it's going to be finding the money. And you know it's going to be a challenge.   Rod Kheif (00:21:39) - And you know, you just have to allay the fear of your investors. I'm actually doing a raising capital workshop the next two nights. It'll be at the bottom of Rod's links because this will probably air afterwards. But at Rod's links will be my raising Capital workshop. It's like four hours. What I trained my warriors, my coaching students on how to, you know, raise capital. So go watch that at Rod's links or text links to 72345 and uh, and and again I'm teaching that tomorrow and the next day for four hours. So, um, you know, the soup to nuts. So if you want to learn how to raise capital, you're going to want to watch that because it's, it's it's again, it's what I teach my warriors at my warrior only events, my warrior, my coaching students, I it's what I taught them at my warrior only event because it's so important right now.   Sam Wilson (00:22:20) - Yeah it is. And it's interesting to see even the bigger names that it's like, hey, you know, even the the shops that are raising lots and lots of money or saying the same thing like this is challenging.   Sam Wilson (00:22:30) - So it's it's got to be, you know, a.   Rod Kheif (00:22:32) - Lot more handholding. Yeah. Yeah.   Sam Wilson (00:22:34) - It's adapting and it's like you said, allaying the fears of your investors and presenting really the, the, the sound deal mechanics. I think that that'll, that'll really help, help close the deal. So that's really, really cool. What else is there. Is there anything else here you want to leave with our listeners? We got about 60s left on the show. Yeah.   Rod Kheif (00:22:49) - No, just go to Rod's links. Com or text links to 72345. And all my stuff is there, you know and and you can learn a lot. There's a lot of free resources there if you're interested in, you know, in investing passively then go to the free Cash Flow Club or Text Club to seven, two, three, four, five and and and we'll chat with you or you can, you know, just see what's there and set up a call if you want or just learn. I mean it's just but you got to learn if you're going to invest your money, for God's sakes, at least have an understanding.   Rod Kheif (00:23:19) - There's the questions you should ask before you get in a deal. As one of the books. They're one of the free books there, my best selling number one best seller. I've given away tens of thousands of copies, is there for free. How to create lifetime cash flow through multifamily properties. There's a bunch of just a ton of free stuff there. So anyway, that's it man.   Sam Wilson (00:23:35) - Fantastic. We'll make sure to include that all there in the show notes. Rod, it was great to have you back on the show again today. Certainly appreciate. Thanks for having. And, uh, I guess my normal question is how do our listeners get in touch with you? But you've done plenty, uh, plenty of sharing how they do that here on the show. So again, thank you for coming back on the show. Have a great day.   Rod Kheif (00:23:50) - Thanks, brother. Thank you. You too man.   Sam Wilson (00:23:52) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a.   Sam Wilson (00:23:56) - Favor.   Sam Wilson (00:23:57) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Michael Wiener.   Michael Wiener, Partner at Greenberg Glusker in Los Angeles, focuses his practice on structuring real estate and corporate transactions in a tax-efficient manner and providing his clients with creative solutions to complex tax issues.   Show summary:  In this episode Michael Wiener discusses various topics, including 1031 exchanges, California property tax, and partnership tax issues. Michael emphasizes the importance of consulting tax advisors early in the process and having a sophisticated team to handle all aspects of a transaction. He also shares his personal experience as an investor and the complexities of holding real estate through legal entities. The episode provides valuable insights into real estate transactions and tax implications.   -------------------------------------------------------------- The 1031 Exchange Challenge (00:04:37)   Understanding Taxable Boot (00:08:25)   Complex Math in Tenancy in Common (00:09:42)   The 11th Hour Panic (00:11:01)   Consult Your Tax Advisors Early (00:14:34)   Complexities of Partnerships and Separate Exchanges (00:18:59)   Passive Investing and Syndication (00:22:00)   Negotiating 1031 Exchange in Joint Venture Agreement (00:23:00)   Challenges of Distributing Cash from 1031 Exchange (00:23:59) --------------------------------------------------------------   Connect with Michael: Linkedin: https://www.linkedin.com/in/michael-wiener-50a8a73/   Web: https://www.greenbergglusker.com/michael-wiener/insights/.   Connect with Sam: I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.     Facebook: https://www.facebook.com/HowtoscaleCRE/ LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/ Email me → sam@brickeninvestmentgroup.com   SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234 Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f -------------------------------------------------------------- Want to read the full show notes of the episode? Check it out below: Michael Wiener (00:00:00) - You sell $20 million of real estate that has $10 million of equity. You need to purchase at least $20 million of real estate with at least $10 million of equity, because you also see, some people will say, hey, well, I purchased the $20 million of real estate. I got a $12 million loan, and I just cashed out $2 million. And yeah, no, you did. That's great. But. It's taxable boot.   Intro (00:00:27) - Welcome to the how to Scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.   Sam Wilson (00:00:40) - Michael Winer, a partner at Greenberg in Los Angeles, focuses his practice on structuring real estate transactions in a tax efficient manner and providing his clients with creative solutions to complex tax issues. Michael, welcome to the show.   Michael Wiener (00:00:54) - Thank you very much for having me, Sam. I'm really excited to be here.   Sam Wilson (00:00:58) - Absolutely. The pleasure is mine. Michael. There are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:04) - Can you tell me where did you start? Where are you now? And how did you get there? Well.   Michael Wiener (00:01:10) - About ten years ago, I had my own firm. I was, uh, or just starting my own firm, um, doing some 1031 work, I. Wound up, uh, seeing an ad on the internet. I don't even remember what I was searching for. For an attorney to join a tax boutique in Century City here in LA. So I responded to the ad. Turned out it was a 1031 exchange specialty, um, firm. And, you know, basically based on my practice and some of the clients I was doing work for, we knew a number of people in common. Um, so I wound up joining that firm. It was a four person firm. A few years later, that firm was acquired by a slightly larger firm, and then that firm was in turn acquired by a larger firm. Um, and throughout it, I have to say, I'm really grateful my, uh, my traditional client base stuck with me throughout all the, uh, throughout all the firm uprisings.   Michael Wiener (00:02:15) - Um, and then from the larger firm, which was one of the largest firms in the world, um, I transitioned my practice with, uh, one of my partners and colleagues who have been with me since the, uh, since the smaller firm over here to Greenberg Luster, which was a, um, which was a better fit. I'd worked alongside Greenberg Lustgarten deals, both co-counsel and adverse for many years a phenomenal firm and, uh, and been here for about four and a half years. And I love every day of it.   Sam Wilson (00:02:45) - That's cool. And it's 1031. What you still focus on primarily?   Michael Wiener (00:02:51) - Um. Uh, I generally wind up dealing with tax issues related to the real estate industry, and obviously 1031 is a big part of that. The last, you know, four ish years, really, since 2018, qualified opportunity zones have, um, have become a bigger part of that. We also being here in California, we have to deal with prop 13, California property tax, um, and transfer tax issues and then also deal with um partnership partner, excuse me, partnership tax issues related to structuring um, joint ventures and and real estate investments.   Michael Wiener (00:03:35) - Um, and that then extends its way out to sort of syndicated tenancies of common and, you know, different ways of investing in real estate and being able to take advantage of all of the wonderful tax benefits of doing so.   Sam Wilson (00:03:51) - That gets really complicated really fast. For those of us that want to just go out and buy stuff and own and run real estate projects. You're a great complement to our to our team because the rest of us don't want to think about, you know, probably the things that you think about day in and day out, you know, specializing in this. I can only imagine. No, no, two days are the same would be my guess.   Michael Wiener (00:04:14) - Oh, no, two days are the same at all. Um.   Sam Wilson (00:04:18) - It's crazy.   Michael Wiener (00:04:19) - Every day is a unique challenge, and every day is another opportunity to learn. So what are some things?   Sam Wilson (00:04:27) - Let's talk. Let's talk. 1031 because you've touched on several things, and I know any one of these topics, we could probably burn the entire podcast, you know, going down that rabbit trail.   Sam Wilson (00:04:37) - But let's let's stay on 1031, because I would imagine that for the bulk of our listeners, that's probably something that is applicable. What what are some common challenges and what are some common misconceptions, maybe that you run into when executing a 1031?   Michael Wiener (00:04:55) - Well, the first thing that a lot of people forget about or just don't remember is that in addition to spending all of the money that you get from the sale of your relinquished property, you also have to replace your debt.   Sam Wilson (00:05:13) - And.   Michael Wiener (00:05:14) - You know, you see people from time to time who say, oh yeah, no, we completed our exchange. We sold a property for, you know, $20 million with $10 million of debt, about a $10 million, uh, property. This is very, let me say, very simplifying the facts. Fact pattern. Um. We bought a property with, um, with the $10 million. And, you know, we got this great deal. We only have to put $2 million, $3 million of debt on it.   Michael Wiener (00:05:42) - And we, you know, you know, huzzah! We, uh, we completed our exchange, and it's well known. Yeah. I mean, yes, you did complete an exchange, but you're going to have to. And it's very important to remember that that gets, um, especially tricky in a, uh, uh, tenancy and common context where you have multiple exchanges. Um, investing people, completing multiple exchanges, investing in the same property. And they have to, um, and they have to, you know, satisfy their debt replacement requirements, especially if they had different leverage ratios on their, um, on their up leg. And can wind up with a situation where you may need to invest some fresh cash in order to to equalize it.   Sam Wilson (00:06:34) - So let me let me see if if I can summarize what you said, you replace the one of the one of the things that's often overlooked is that you replace the debt and the equity. So if it's a $20 million property that you originally purchased and that was debt and equity, again, let's call it 10 million in debt and 10 million in equity.   Sam Wilson (00:06:53) - And then you sell that, you harvest, let's call it it was a breakeven deal. You harvest that 10 million in equity. You can't go out and buy a $12 million property with 10 million in equity and 2 million in debt. Exactly. You got to replace that debt.   Michael Wiener (00:07:07) - Well, you can you don't have to replace the debt per se, meaning you can add fresh cash. You have to go basically equal or up in value and equal or up in equity. Right. So, you know, if you you could put in $2 million of your own money, you know, not exchange cash or money that you raised from an investor and then just get an $8 million loan, and that's fine. But too many people overlook that, overlook that aspect of it.   Sam Wilson (00:07:38) - And that that is not an aspect of that. I even understood until right now. So not just to many people, but myself as well. Uh, so yeah, that, that that's really it has to be equal or greater.   Sam Wilson (00:07:49) - Price point.   Intro (00:07:50) - Period. Exactly.   Sam Wilson (00:07:51) - Then what you previously.   Michael Wiener (00:07:53) - Just if you sell, you know, using our fact pattern, if you sell $20 million of real estate that has $10 million of equity, you need to purchase at least $20 million of real estate with at least $10 million of equity. Because you also see, some people will say, hey, well, I purchased the $20 million of real estate. I got a $12 million loan, and I just cashed out $2 million. And yeah, no, you did. That's great. But. It's taxable boot.   Sam Wilson (00:08:25) - Right. And you call it boot b o o t.   Michael Wiener (00:08:28) - B o o t is what the term is generally called.   Sam Wilson (00:08:32) - Taxable boot. There's a new uh there's a new one. I'm going to put that in my newsletter.   Michael Wiener (00:08:37) - That's yeah called um generally defined as sort of money or other non like kind of property that you receive in a 1031 exchange.   Sam Wilson (00:08:48) - Right. And so you can do it, it's just you just have to know that whatever portion remains you're just going to get taxed on.   Michael Wiener (00:08:54) - Exactly.   Sam Wilson (00:08:55) - Right. Okay. And and maybe that's an acceptable, uh, you know, solution for some. You presented another wrinkle there that maybe um, just to again to, to hash it out again, you were talking about maybe, you know, let's use that $20 million example again. We'll see if I can if I can craft this correctly. But I sold that I owned it by myself. And then you sold another $20 million property. And together we were going to go in and buy a $40 million property. Right. But maybe your debt to equity ratio was different than mine was. And somehow you've got to get we can go in as tenants in common buying this now new $40 million property together both 1031 and into a bigger deal. But now we've got to figure out some sort of really complicated math as to how it's all got to work out.   Michael Wiener (00:09:42) - Well, like, you know, let's say, you know, we're going to go in and buy a, you know, a $40 million property with 20 million of debt.   Michael Wiener (00:09:50) - Um, and we're 50, 50 tenants in common. Right. But my. You know, leverage on my download property was, let's say it was very it was more highly leveraged. Let's say it was, you know, $15 million to just to take sort of an extreme example. Okay. When I go in. Um, to that, you know, $20 million property I have to figure out. Well, am I going to put in more cash? Um, if I do, I can put in cash to equalize it. Right. Uh, um, and, you know, that would be fine, but that requires me to come up with $5 million, you know, outside of, uh, you know, outside of the exchange, and, you know, maybe I can go shake the money tree or something, but, uh, you know, that's easier said than done.   Sam Wilson (00:10:42) - Right. And so you help clients when they get into these situations where especially I mean, 1 or 2 is complicated, but I imagine 810 on a much even bigger property than that.   Sam Wilson (00:10:51) - Yeah, it becomes a bit of a, uh, yeah, a bit of a process. You have some.   Michael Wiener (00:10:55) - Uh, pretty extensive Excel schedules, let's put it that way.   Sam Wilson (00:11:01) - Right?   Sam Wilson (00:11:01) - I bet you do. I bet you do. And when and when people get into these situations, like, do you find that they come to you at the 11th hour going, oh, crud, we didn't think through this and now we need help. Is that pretty common that happens.   Michael Wiener (00:11:16) - That's happened. Um, the you know, the good, the good clients, the, uh, the the clients who I've worked with for a long time, generally by now know to, uh, to get me involved early. But it is, let's just say, not uncommon for, uh, you know, people to come at the 11th hour. And, you know, we had one, you know, just. A year ago that I can think of where, you know, literally a week before closing, we had to restructure significantly the, uh, transaction.   Michael Wiener (00:11:52) - Um, the client scheduled it or structured it without tax advice. Um. With three tenants and or they had tax advice but not 1031 advice with three tenants in common. And you know, one was just a fresh cash tenant in common not exchanging one one with one or I guess the other two were exchanging and. Basically I, you know, took a look at it and within three minutes I said, oh, you're going to have, you know, $7 million of boot of taxable boot based off of not replacing your debt. And what we had to do was we wound up having to combine the fresh cash non exchange tenant and tenant in common, make that part of the exchanging tenant in common and that using those those numbers allowed it to uh allowed it to work and to get them to satisfy all the requirements. But you're talking about org charts already haven't been given to, um, to a lender. You're talking about documents already having been drafted and signed and having to go back to people and saying, well, you know, you were going to invest because for the people who are investing in the what I'm going to call fresh cash tenant and common.   Michael Wiener (00:13:15) - There are, you know, a set of expectations with regards to your depreciation and outside basis in your joint venture. And these are technical terms I know, but uh, but um, there are certain let's call it tax expectations that. You would expect to have when you are investing in, um, a non exchanging entity just in a straight real estate deal, in a straight real estate syndication. And those things change a bit when you're, uh, when you're coming into an entity, when you're coming into an existing partnership that is competing with 1031 exchange, there are different issues that you need to be mindful of. And and they can be worked out. But, you know, people need to be aware of them. And people need and, um, documents need to, you know, need to address them and reflect them. And, um, you know, doing all of that a week before closing is, you know, lots of fun. Uh.   Sam Wilson (00:14:20) - So is that what they call it?   Michael Wiener (00:14:22) - I would, um, I would strongly encourage people to, uh, to if you're doing a 1031 exchange, consult your tax advisors early.   Sam Wilson (00:14:34) - Consult them early. Absolutely.   Michael Wiener (00:14:35) - And especially early and early and often I would say. Right.   Sam Wilson (00:14:40) - And I would think, you know, on a single property, single investor, it's pretty it's pretty cookie cutter.   Michael Wiener (00:14:47) - Well, yeah, when.   Sam Wilson (00:14:48) - You get into stuff like this, the complication factor just rises, uh, you know, dramatically. So that's, that's really, really interesting. And how, how do you feel like when you're going back and dealing with legal? Because I mean, at this point, I imagine in this particular scenario, talking about like you're getting legal on the phone, you're getting everybody on the phone to go back and start redrafting all of this paperwork and making appropriate changes. How how is that interaction with, I guess, on the on the legal side of things like, is that a complicated or is that or is that a sticking point for you guys in your business, where sometimes the legal side doesn't understand what you guys understand on the tax side? Or how does that, uh, how does that work out for you?   Michael Wiener (00:15:29) - I mean, and that's an important, uh, an important point is that the clients need to have for these types of more, you know, sophisticated deals.   Michael Wiener (00:15:39) - You need to have a sophisticated team all around. And that means, you know, both tax and legal. So, so that when, you know, we go and we tell the legal team, well, this is what needs to be in the operating agreement. Um, and we get it back for review. That's actually in the operating agreement. They understand what we mean. They understand what concepts we're talking about, and they know how to draft those provisions. Um, and, you know, if need be, then I will go in and, you know, draft those provisions or correct them as necessary. Um, you know, as, as tax attorneys, we still do a lot of drafting.   Sam Wilson (00:16:21) - I bet you do. That's really cool. I love to hear the nuanced layers to things that are, I think, generally seen as pretty cut and dry, such as the 1031. It's generally like, oh, okay, well, we 1031, we bought one or we sold one, and then we bought another one and then we moved on down the line.   Sam Wilson (00:16:36) - But there's always, always another layer to, uh, to what it is we're working on. And it sounds like you, you go many layers deeper than what many of us oftentimes see. So anything else on the 1031 front, we should really highlight here that, uh, are things that either people get wrong, should be preparing for earlier, or are misconceptions anything else you want to hit on that front?   Michael Wiener (00:16:59) - Well, yeah. I mean, I think when people hold real estate through a legal entity, through an LLC, through a through a partnership, and if worse, through a corporation. Um, I'll get to that in a second. Uh, you need to people need to understand that it is that legal entity. It is the, you know, if you have a, um, so just by way of background, if you have a, a multi-member limited liability company, it is by default treated as a partnership for tax purposes. For tax purposes, if you have a single member LLC, it is by default treated as, um, treated as a disregarded entity for income tax purposes.   Michael Wiener (00:17:42) - In either case, you can elect to have that entity treated as a corporation for income tax purposes. That's very rare in the real estate, uh, industry. Um, but occasionally you see it. Um, and but the important thing is that it's that entity that is doing the exchange. So you have a concept called the same taxpayer principle, which I know, um, has been discussed on your show before. Uh. Which says that the. The legal, the tax entity, the entity for tax purposes. The taxpayer that sold the download property needs to acquire the uploaded property. And where that becomes tricky is where you have partners who want to go their separate ways. You know, they had a good run on the last deal, but now they say, well. We, um. We want to. We don't want to be together on the next deal. So to take, you know, the exact one or riff off of the example we were using. You know, you and I are 50, 50 members of an LLC that is taxed as a partnership.   Michael Wiener (00:18:59) - And, uh, we had a really good run, and we, you know, our our property did very well. And now we're going to sell it and say, okay, well what are we going to buy next? And, you know, I say, well, I want to go into industrial. You say, no, I want to go into multifamily or for any or, you know, occasionally you have people that just don't like each other. So I don't think that would happen with us. But, uh, um, uh, you know, for various reasons, there are any one of a number of reasons why, when they're selling the property, that people don't want to be committed to investing in the next property together and structuring those types of exchanges is very complicated. And it can be done. It can be done. There are several different structures and several different alternatives. Um, I can get into them if you'd like, but, uh, somewhat technical. Um. But that also requires consulting your tax advisors early and often.   Sam Wilson (00:20:03) - Right? No, I can only. And maybe even isn't for reasons. You know, it's not like the partnership fell apart. Maybe you, Michael, just don't want to. You don't like the property that we're 1030 running into or.   Michael Wiener (00:20:14) - Yeah, I mean. Exactly.   Sam Wilson (00:20:15) - You want to do something else, like. Well, you know that that was fun. We had a great run, but I really don't want to move on with the next ones. And now we got to figure out a way to, uh, for, say, or in.   Michael Wiener (00:20:24) - Some instances or in some instances, you know, let's say I had inherited my partnership interest in our thing and our LLC. And I say, well, because I inherited it, I have a stepped up tax basis. I'm not going to pay any tax on a sale. Right. I want to sell for cash. Right. Um hmm.   Sam Wilson (00:20:44) - Yeah. And that opportunity to get that stepped up cash out basis isn't going to happen once you 1031 to the next property.   Michael Wiener (00:20:52) - Exactly.   Sam Wilson (00:20:53) - It's got to happen now, right? That's interesting. I hadn't thought about that.   Michael Wiener (00:20:59) - I mean, so there are, you know, there are these situations which we deal with every day and there are about, you know, 20,000 different variations of these, uh, um, that we deal with every day. And, uh, and, um, you know, it's very, you know, it's very challenging. It requires a lot of cooperation. It's sort of like a, uh, you know, a three legged race, probably the ultimate three legged race you need to get, you know, you feel almost like a, uh, like a symphony, like conductor. You're like, okay, now I know you're doing this, now you're doing that. I know you're moving gear. Everybody needs to like, you know, move in concert. The documents. Um, and there are a lot of documents on these deals need to all be, you know, consistent. And then when it comes to filing the tax returns, tax returns need to be filed in a, uh, way.   Sam Wilson (00:22:00) - I didn't even think about that. So there's. I'll give you an example. I was I was a passive investor in a. This is probably more relevant to our listeners in a syndication. I was a passive investor in a syndication, and the deal went full cycle in like, I don't know, 12, 14 months. I mean, it was it was great. Everybody doubled their money, loads of fun. And so they said, hey, you know what? We should we should 1031 this entire syndication into the next deal. Except there were some of us that were like, ah, you know, I don't need to I don't like the Nick. And I in my case, I was one of those people said, I don't want to like the next deal, and I don't want a 1031. And I was an investor through a retirement account into that syndication. So I really don't care if I. 1031 it's it's a zero tactical advantage or tax advantage to me. And so that was really interesting.   Sam Wilson (00:22:50) - And again, I got to sit in the sidelines and kind of just watch it. You know, I just said, no, I don't want a 1031. And then of course, you know, I don't know the volumes of, of documents and paperwork and.   Michael Wiener (00:23:00) - No, but you know, what winds up, you know, what winds up happening as well there there are a few practical, uh, you know, points there. Most indications the syndicator is not going to give you the option. Right.   Sam Wilson (00:23:15) - They're going to say, you know, we are.   Michael Wiener (00:23:16) - Going to, uh, you know, we are going to. 1031 if it's something that you think you may want to do or may want to have the right to. It's important to start talking about that early, early, early, early in the process. Um, uh, because then you can negotiate things into your joint venture agreement. That will allow that. And the challenge, um, is that, you know, once the money, once the cash from the sale goes into the 1031 exchange accommodation account, and, you know, to some extent even before then, it's really in a lockbox.   Michael Wiener (00:23:59) - You can't use it to just, you know. I remember a one time appliance said, oh, and if we need more money for that, we'll just pull money out of the accommodate our accountant. I said, oh no, you won't.   Sam Wilson (00:24:11) - Um.   Michael Wiener (00:24:12) - Uh, first, most any accommodating that's, you know, really worth it won't let you. Right. Um. And even if they would. As your tax advisor, I wouldn't let you. Right.   Sam Wilson (00:24:27) - Right. No.   Sam Wilson (00:24:27) - Because then you negate all of the potential savings of even doing the 1031.   Michael Wiener (00:24:33) - You would blow your 1031 exchange. So you have to come up with a way. And there are ways of, um. You know, generating that cash. Sometimes it's they find another person to come and buy you out, and that person is going to take your place in the partnership. Uh, sometimes there is a, uh, a, um, a strategy that's used where the exchange of commentator will issue in a, in installment note, a promissory note to the partnership that is doing the, uh, the 1031 exchange.   Michael Wiener (00:25:10) - And the partnership can distribute that out to, um, to the investor that is being redeemed. If you're able to and you're able to do this on time, namely, before you really get into negotiating a purchase agreement, you can create a tenancy and common structure where the people who don't want to do their 1031 exchange get redeemed from the partnership in exchange for tenancy and common interest in the property. And they then sell the property, um, you know, in a taxable sale and, uh, and the, um, the people that are doing the exchange continue to just exchange.   Sam Wilson (00:25:47) - And I'm pretty sure that was what happened. It's been a few years, so I don't remember the specifics of it, but I'm pretty sure I do remember seeing something about ticks in there and some other things. And. It all worked out really well. Uh, but it was it was certainly interesting to see from the sidelines. We got about 60s left here. Michael. And I did want to get your thoughts on this real estate held in a corporation.   Sam Wilson (00:26:06) - You kind of gave a an indication that that was bad. Uh, break that one down for me if you can.   Michael Wiener (00:26:13) - Well, so first, there are just obviously two types of corporations for tax purposes. There's a C corporation and an S corporation. A C corporation is taxed as a separate person. So it pays a tax. And then when it distributes money, the investors or shareholders pay tax on what's called a dividend or a distribution. Um, an s corporation, the uh, the, the tax flows through to the shareholder. So you might say, well, how is an s corporation different than a tax partnership. That's also a flow through entity. And there are two primary differences. And that are important when it comes to real estate. The first is that. In, uh, in a tax partnership, let's say you and I put in $1 million into an LLC, and the LLC borrows, you know, $8 million, and we buy a $10 million property. We have a $10 million between us.   Michael Wiener (00:27:18) - Taxable basis each, a $5 million taxable basis. And we can take depreciation deductions on that for 5 million, including our share of the debt. If we were shareholders in an S corporation, we would not get basis for that share of the debt. So we would not be able to get deductions passed through to us on that 4 million, only on our 1 million. The second problem with corporations is that when you distribute appreciated property out of a corporation, it's treated as a taxable sale by that corporation. So these types of structures I'm talking about where people want to do different exchanges and create tenancy in common structures, or do or do anything that's really not possible with real estate held in a corporation. Because when you distribute that real estate out of the corporation, it's treated as though the corporation had a taxable sale of that real estate.   Sam Wilson (00:28:18) - That is interesting. I wish we had more time to dig into that. I've got lots of questions on that front. Michael, it has been a pleasure having you on the show today.   Sam Wilson (00:28:25) - If our listeners want to get in touch with you or learn more about you, what is the best way to do that?   Michael Wiener (00:28:29) - Go to Greenberg, glasgow.com. Um, you can email me at M Weiner. Weiner at gofundme.com or um, you can find my phone number on the website. I apologize, I don't remember what it is off the top of my head.   Sam Wilson (00:28:48) - No problem at all. We'll make sure we include all of that there in the show. Notes. Michael, thank you again for coming on today. I do appreciate it.   Sam Wilson (00:28:54) - Absolutely. Thank you very much for having me.   Sam Wilson (00:28:56) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening.   Sam Wilson (00:29:18) - Thanks so much and hope to catch you on the next episode.

Today’s guest is Frank Hanna.   Frank B. Hanna, Jr., ChFC®, Private Wealth Advisor, is a leading specialist in Estate / Tax Planning, Private Real Estate Investment, and Wealth Management for a select group of individuals, executives, and privately held business owners.   Show summary: In this podcast episode, Frank B. Hanna Jr. explains how they bridge the gap between traditional investments and real estate, offering sophisticated real estate deals to high net worth clients. Frank also educates clients on the benefits of Delaware Statutory Trusts (DSTs) for tax-deferred property exchanges. He shares his optimistic perspective on future economic opportunities, attributing it to maturing debts and banks' reluctance to lend. The episode concludes with Sam appreciating Frank's unique approach and valuable insights.   -------------------------------------------------------------- Intro (00:00:00) Introduction of Frank B. Hanna Jr. (00:00:52) Frank's background and current business (00:01:16) The 1031 Exchange Solution (00:09:45) Delaware Statutory Trust as an Alternative (00:11:13) Diversifying with DST Programs (00:16:29) The debt situation and upcoming opportunities (00:22:00) Taking advantage of opportunities in the market (00:21:16) Contact information and resources (00:23:31) -------------------------------------------------------------- Connect with Frank:  Facebook- https://www.facebook.com/RevXWealth   Instagram- https://www.instagram.com/revxwealth/   LinkedIn- https://www.linkedin.com/company/revolutionx-asset-management/   Web- https://www.revxwealth.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: Frank Hanna (00:00:00) - You know, we manage north of $1 billion for clients. And, you know, when things get rough, you know, the advisor in me, you know, worries for my clients because I know they they get concerned and they get upset. But for me, as an entrepreneur and a real estate investor, I, I get excited to take advantage of some of those opportunities that are out there. And I think, I think there are going to be a ton of opportunities over the next, the next 18 or 24 months for the groups that are well positioned, that are well capitalized. And, um, you know, have, you know, the iron gut to take chances and, and, you know, pursue some of the opportunities that are out there.   Sam Wilson (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) - Frank B Hanna junior is a leading specialist in estate and tax planning.   Sam Wilson (00:00:56) - He also specializes in private real estate investment and wealth management for a select group of individuals, executives and privately held business owners. Frank, welcome to the show.   Frank Hanna (00:01:06) - Thanks for having me, Sam.   Sam Wilson (00:01:07) - Absolutely. The pleasure is mine. Frank. 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?   Frank Hanna (00:01:16) - Um, I started in the, uh, hotel restaurant business. Did that for a number of years, managing, um, family owned businesses. My my family and businesses did that for, you know, 15, 20 years and got out of that and was doing a little bit of, you know, single family home construction, house flipping type stuff and, um, then diversified into some, some other sectors of real estate and, um, you know, wasn't in love with the restaurant business, ultimately had a lot of good relationships from that and had an interest in real estate and basically packaged that into a kind of hybrid financial planning consulting business with a real estate arm.   Frank Hanna (00:01:59) - And, um, I, uh, currently live outside of Philadelphia. My partner and I have been working together for, um, about 15 years. We started, uh, Revolution X years ago. We rebranded recently, and, um, you know, we've got a, uh, a nice footprint, um, you know, probably on East Coast primarily, but we do business across the United States.   Sam Wilson (00:02:21) - Wow. That's a lot of moving. Uh, a lot of moving pieces there. You 15 or 20 years in the family business and. And how did you. I mean, it sounds like a strategic shift when you got out of the family business and said, okay, we're going to go into wealth advising, planning all those things. Like what? What was the the evolution of that? Yeah, I'm sure there's a lot there that I just.   Frank Hanna (00:02:42) - Yeah, yeah. No, it's a great question. So yeah. Uh quick quick turn there. So I, it's funny my um, I, I had had a little bit of background in real estate, um, through my family.   Frank Hanna (00:02:54) - So my father had done restaurants for years, and he had kind of taken some of his successes and, um, and, and, and wealth from that to get into real estate. So I learned a lot through him and through some of our relationships there. My partner was actually doing like high level financial planning for some recognized individuals. Um, where I was living down near Ocean City, Maryland, and he actually was calling upon my father to try to do some financial planning. So we we connected. My dad actually pawned him off on me, and we got talking and started brainstorming and said, hey, you know what? He he's got a lot of good tools that his toolbox on the financial planning side of things. And I think, I think he can help us and help some other people. And I had a good background on, um, you know, business management, tax planning, um, you know, real estate. And we said, hey, look, let's, let's kind of package what we're, what we're both good at and see if we can, um, capture some market share and focus on a certain type of client.   Frank Hanna (00:03:56) - Um, and we, we started from there and, uh, you know, from the ground up. It was a tough, tough fight, but we're, uh, we're rolling pretty good now.   Sam Wilson (00:04:06) - Wow. Okay. I mean, and this is one of the things I think that we've see in the real estate world is that there's people who are like, you know, I'm only real estate. That's it. They they're only going to invest in real estate. And then you have people that are, you know, the typical stock and bond brokers, financial planners, that that's all they know. And the two seem to not very often intersect where you find some of the understands business and understands real estate that understands traditional kind of investing channels. Is this kind of what you've done, has been able to blend all of those?   Frank Hanna (00:04:36) - Yeah, I think so. You're right. You're right. So you have your you know, typically, typically most of your high net worth clients or our high net worth clients have have some wealth in real estate.   Frank Hanna (00:04:45) - Maybe they're doing that on their own. Um, and but yeah, you're right. Some people just love, love the, the thrill of kind of that real estate deal. And they put every last dollar into that segment and sometimes don't get, um, you know, many dollars over to your more traditional investments. And then you have the other people that, you know, save into their, you know, 401 KS or the brokerage accounts. And, and that's how they kind of grew up and, and were taught that way. And, um, ultimately those people, you know, never really, um, you know, transcend into the real estate space because they don't really know where to start. So what we've done is, is taken some of those more sophisticated real estate deals and packaged them in a way where they are securitized and people can invest and get access to some of those deals. And yeah, we've kind of bridge that gap where you can have the best of both worlds. So most of our clients, um, you know, will typically, you know, dabble in both spaces.   Sam Wilson (00:05:46) - Walk us through that, like, how are you packaging those up and presenting those to your clients? I know that there's a lot of times there's they're just from the. The brokers I've spoken to in the, in the you know, the financial planners, they say, look, you know, we can't we can't do this because their, their hands are typically tied, especially by the bigger shops that they work with. They just can't simply touch that sort of thing. So how are you guys doing that.   Frank Hanna (00:06:08) - So so we really like so in the in the financial advisory space, you have to, uh, you know, hang your flag with a broker dealer. Right. So everybody has to have a broker dealer that, you know, supports you, um, make, you know, make sure you guys are doing things the right way and, and, yeah, some of those bigger broker dealers, they're just, you know, like, they're the, the massive ship moving in the night. They don't typically want to invest the resources for all those different advisors.   Frank Hanna (00:06:36) - And and some of those type of alternative products can be somewhat sophisticated. So um, we moved away from there. We used to be with a big, large broker dealer that was not favorable. They didn't want to do anything that was out of the, uh, you know, quote unquote vanilla or the norm. Um, and now we we work with a broker dealer, um, that their sweet spot is in the alternative space. They focus on a high end advisor, um, you know, high net worth clients, and they give us access to some of the best stuff that's out there. So between us and them, we we basically, um, vetted the marketplace across, you know, the continental US and basically found some of the biggest players that had the most sophisticated offerings and, you know, their kind of sweet spot or asset class. And they do real estate syndicated deals. And some are some are designed for people that have cash on the sidelines and they just want to diversify or get away from, you know, some of the volatility in the stock or bond market.   Frank Hanna (00:07:40) - We have a lot of other deals that qualify for like 1031 exchange planning. So people will sell their hard real estate and they can't find a replacement property. They don't know where to go next. Or maybe they're just over the headache of, you know, property management. So there's there's a solution there that a lot of people take advantage of through us. And then we have a lot of deals where we do, you know, cost segregation studies. So people that either have a large, you know, passive income or maybe they, um, qualify as a real estate professional. They'll invest in our deals, uh, you know, not only for cash flow, but primarily for that accelerated depreciation to, um, you know, offset of their offset, some of their federal and state income taxes.   Sam Wilson (00:08:24) - What what I see a lot of I would put myself in this category as the deal sponsor. Like there's they're the people like us who are the deal sponsors. I know the deals we do. And that's kind of where my expertise stops.   Sam Wilson (00:08:37) - But for you, you kind of have to take a holistic approach to people who are, you know, for me, it's like, okay, hey, you know what, Frank? You're you're a accredited investor and you got $100,000. You want to invest. Okay. Come on. No, not not not a not a high hurdle. But for you, it sounds like there there's a there's a certain client type that really is looking for what you do. Who would you say is your kind of ideal client?   Frank Hanna (00:09:00) - I would say, um. You know, I kind of look at it two ways. So. So we have we're really attractive for like, the younger entrepreneur that maybe is, is, you know, a relatively high income, you know, I'd say, you know, six figures and up a year, um, that, that is looking to enter the market and they just don't know where to start. Right. So we can, um, you know, assuming they qualify as accredited investor and have some assets elsewhere, um, they could we get a lot of, a lot of people that are maybe a 30, 30, 40 years old that are just entering the market and they want to get their their toes wet, and they'll get into one of our one or more of our deals, and it typically goes from there.   Frank Hanna (00:09:45) - So that type of client and we have some, some, you know, ultra high net worth clients that have all type of planning needs that are maybe, you know, in their 60s and 70s, 80s, and they're looking to kind of simplify their life, or maybe get some of their financial freedom back, and they've started to divest of some of the holdings that they've had over time. Um, you know, they're they're obviously tax focused. Um, but we get a lot of those type of clients that say, hey, you know what? I've had a ton of success, but I don't feel like managing, you know, dozens and dozens of properties anymore. I'd like to sell, but I don't want to get whacked with, you know, massive cap gains taxes. What can I do? So we educate those type of clients on, hey, you can, you know, sell that real estate, you know, do 1031 exchange planning. And if you don't want to go out and buy another hard piece of real estate that you want to manage, you can use, um, you know, a technique or a solution we typically use like a Delaware statutory trust.   Frank Hanna (00:10:48) - And, uh, it qualifies for the 1031 exchange. So we get a lot of clients that are selling real estate and using our solutions, um, to execute a 1031 exchange.   Sam Wilson (00:10:59) - What? And I think you've just mentioned one of those creative solutions, but what what are some of the, uh, and maybe you can give more detail on that if it's relevant. But some of the creative solutions you guys feel like you've crafted, maybe that are kind of lacking in the marketplace.   Frank Hanna (00:11:13) - So I think, um, you know, the I'll, I'll just start on that Delaware statutory trust. So that's that's nothing new. But for whatever reason, a lot of people are unaware that it's out there as a, as an alternative to a traditional 1031 exchange. Um, or, you know, there's misunderstandings of how they operate. Um, you know, it really has nothing to do with Delaware. But, um, essentially we we take a lot of our deals and I'll use the Delaware, uh, statutory trust tax wrapper just for those 1031 exchange dollars.   Frank Hanna (00:11:47) - And those people that need, need, have that need. Um, so the Delaware statutory trust is a trust where you can, you know, utilize, sell, sell your hard piece of real estate and do a complete tax deferred exchange into one or more offerings, um, and get a tax favored monthly income. We do a lot of deals and, and a variety of different asset classes, um, you know, multifamily, self-storage, industrial, student housing, you know, everything under the sun. We're focused in, you know, markets that are, you know, high growth. They have a good story behind them. They're pro-business, tax favored. And, um, you can, you know, again, uh, relinquish the property management responsibilities and go into our deals. And, um, you know, the length of length of our deals are typically, I don't know, 3 to 6, 4 to 7 years hold. And again, when those deals sell, you can do another 1031 exchange on the back end as well.   Sam Wilson (00:12:50) - No, I love that. That's, uh, and that's one step more sophisticated. I would, I would imagine, than just a straight 1031.   Frank Hanna (00:12:58) - It's, it's a it's actually, um, you go through the same process as the 1031 exchange. So you're going to have your you have to hire a qualified intermediary to be your, like third, third party, unaffiliated, um, individual. That would be the middle man in the in the terms of a 1031 exchange. And then, you know, when you typically would follow that guideline of 45 days to identify and a total of 180 days needed to purchase that new replacement property. Um, our deals are already prepackaged. They're approved. They're ready to go at any given time. We probably have 15 different Delaware statutory trust programs that are available. Um, and you can list them right on your ID sheet and invest those dollars. There's no closing costs. We can settle in 3 to 5 days. So, um, you know, it's it's a little bit of a sophisticated product, but it's once you understand it, it's super easy.   Frank Hanna (00:13:55) - Um, and I, I'd argue it's easier than you know, negotiating and, you know, settling in a hard piece of real estate so we can move quickly. We always have inventory, some really attractive deals. Um, so that's I'd say that's a huge part of our business. I, I'd say that was maybe 5 or 10% of our business. Um, five, six years ago, it was probably 50% of our business this year.   Sam Wilson (00:14:18) - Wow. Wow. No, that sounds really powerful because people are looking for those types of things where one they can push the easy button. Yeah. Okay. You got 15 DST, DST programs that you can pick from. That's pretty impressive because then it's like, well, it just it's just a menu. Which one do I like? And then you're not responsible for it once you do that. Yeah. I mean, that's, uh, that's pretty powerful. I guess I got this just probably get into the weeds here a little bit. And so if it's too far in the weeds, tell me to just stop and part of it.   Sam Wilson (00:14:44) - But it's in those in those DST programs you guys have, you guys are then going out and working with operators, deal sponsors, people that are actually boots on the ground doing, you know, the deals themselves. Unless you guys are running all of these yourselves, which I would be thoroughly.   Frank Hanna (00:14:58) - Yeah. So so yeah. So we have some several layers of due diligence so we understand the deals. Um, so we have, you know, a number of partners that we've got some sort of track record with. Um, but we don't rubber stamp, you know, any deal just because of who's bringing it to the table. So we typically, um, you know, get word either that, hey, this is this is coming to market, or they're thinking about putting this deal together. And then we have our team do a very thorough analysis of the program. We visit the property through, you know, every type of study imaginable and look at the financials and say, hey, this is a deal that we think, um, has a high probability of success.   Frank Hanna (00:15:37) - We're going to approve it and put it on our platform. Um, or we'll look at that deal and say, hey, it's not for us and we're not going to approve it. But, you know, we invest in almost all our own deals. So if it gets if it gets to our platform, we feel really good about it. Um, and then we can offer it to the market or relationships that we have that are, that maybe have that 1031 exchange need. Um, but it's yeah, it's nice. We can kind of layer that out, diversify the client. And, you know, it almost acts like a laddered bond portfolio where, you know, if you if you had $1 million deal and you invested in, you know, 3 or 4 DSPs, you know, once we get out to year three, it's it's rare that, you know, we're not calling you once a year and saying, hey, Sam, good news. Uh, one of your deals is going full cycle, and you have to make another choice.   Frank Hanna (00:16:29) - Are you going to cash out, pay your taxes, do another DST with us or somebody else? Or you can actually go back into hard real estate. Um, and there's typically, you know, a nice income, some degree of appreciation. Um, but it's flexible. So we have a lot of people that, um, are using us now, maybe because of the, you know, rough lending environment and low inventory and deals are hard to come by. And, and, you know, all the factors that are headwinds right now for us, people are still selling real estate. You know, where they say, hey, I can capture a premium. I definitely don't want to pay the taxes, but I don't want to just buy something else that I have to manage that's not as attractive as the property I'm selling, and I don't want to pay top dollar for that. What can I do? Well, you could park it in a DST with us for a handful of years, let the market in a reset and then go back into hard real estate.   Frank Hanna (00:17:26) - Um, you know, in some time.   Sam Wilson (00:17:29) - That makes a lot of sense. And I was going to ask that question when it comes to in order to keep 15 different DST programs that you have may be open, you got to keep your pipeline full of opportunity inside of those. If those are single asset syndications, I mean, those are typically time bounds. So it seems like you'd have a lot of I mean, a lot of deals coming in and out. And I was going to just ask, how do you keep track of that? You know, if there's that many. You know, deals all at once.   Frank Hanna (00:17:57) - Yeah. So so we've got, um, you know, again, we're not doing everything ourselves. So those, those sponsor companies that we're working with. Um, you know, they, they do the day to day management opportunity or responsibilities. And then our broker dealer, um, you know, has another layer of, of responsibility on that too. And then we have a team of, you know, a couple dozen people that focus on all these deals.   Frank Hanna (00:18:24) - And, um, you know, we we have our kind of expected timeline and then, you know, that can change with different circumstances. But yeah, it's, you know, there's a lot of moving parts to it, but we've got that kind of sweet spot or size that I think enables us to be really proficient, um, with, you know, with the type of clients we have, we're not, you know, we kind of stay right in that space where we feel like, hey, we've got plenty, we've got good inventory, we've got good deals. We don't have. You know, too little where we can't meet the need, but we're not approving. You know, much more than that just because, uh, there's, you know, there's not a need there. So we we feel good about our business model and the support and the partners that we have to help manage that. But, um, yeah, you know, having it can change over time. I'd say fifteen's around what we typically have, some of them can be a handful of assets.   Frank Hanna (00:19:19) - Some of them are single assets. But all depends.   Sam Wilson (00:19:22) - Got it. Very, very good. I want to shift gears here just, uh, slightly when you're talking to your ultra high net worth investors, what what is your kind of subjective opinion of how they're view and set market sentiment? I guess you will. How they view the market. How has that changed in the last 12 to 18 months? And I guess if you can give us that insight, that would be helpful.   Frank Hanna (00:19:46) - Yeah, I'd say, um, you know, it's it's a it's a blend. You know, I have some clients that say, hey, you know what? This is as bad as I've seen it. You know, whether it's the economy or whether it's, uh, you know, just what's going on with, um, you know, federal circumstances. And then I have others that say, you know what? I've been through 4 or 5 crashes and market corrections and the worst of the worst. And I've survived every one of them.   Frank Hanna (00:20:13) - So I'm I'm ready, and I'm going to take advantage of, uh, the opportunities that present themselves. Present themselves. Um, assuming, you know, things get worse before they get better. So it's funny because I, you get total totally different sentiments on that. Um, but I think we are in unchartered territory with what's going on in the world, and, uh, you know.   Sam Wilson (00:20:40) - Yeah. Who who who actually knows? Has there been any strategic shift in the way investors invest?   Frank Hanna (00:20:47) - I don't think so. I think um, I think again, the, the ultra conservative and the doomsday buyers and the clients like that, that I have to stay that way. And I don't try to change their mind. Um, but they're, they're those people that are out there. And then there's the others that, hey, they just keep operating. Um, you know, assuming there's going to be a tomorrow and they've had success and, you know, it's it's funny because, you know, we manage north of $1 billion for clients.   Frank Hanna (00:21:16) - And, you know, when things get rough, you know, the, the advisor in me, you know, worries for my clients because I know they they get concerned and they get upset. But for me, as an entrepreneur and a real estate investor, I, I get excited to take advantage of some of those opportunities that are out there. And I think, I think there are going to be a ton of opportunities over the next, the next 18 or 24 months for the groups that are well positioned, that are well capitalized. And, um, you know, have, you know, the iron gut to take chances and, and, you know, pursue some of the opportunities that are out there. So, yeah, two sides of it, I look at it that way. But I do think there's going to be a lot of really good opportunities that are going to come available soon.   Sam Wilson (00:22:00) - Yeah. Would you would you base that um, that feeling just upon the the amount of debt that's maturing? Yeah.   Sam Wilson (00:22:07) - I think.   Frank Hanna (00:22:08) - Yeah. The debt situation, there's just substantial amount of debt that's all maturing in the next couple of years. And you've got banks that don't want to lend on a variety of different asset classes. Um, so I think, again, the people that are well positioned that they're that are well capitalized are going to be able to really, you know, swing the bat and get well positioned on a lot of those deals. And we have like a lending arm to. So we're in a position where, you know, if we feel like the collateral is good, um, we can make a really nice spread on those loans and, and play, you know, more defensive positions. So we're not always, you know, on the equity side of things.   Sam Wilson (00:22:50) - Right.   Sam Wilson (00:22:50) - Right. Now that makes a lot of sense. And I think there's some other people out there with that kind of same idea where it's like, hey, you know what? If we can we can come in, uh, you know, with some rescue capital, take some things over, you know, to, you know, at a discount to market, then, um, like you said, you just got to be ready for that.   Sam Wilson (00:23:05) - So. Yeah. Very cool. Frank, I have thoroughly enjoyed our conversation today. I love what you guys are doing. I love your, uh, kind of unique approach to, uh, tying real estate and investments and tax strategy. I think you guys run a very unique shop there to something we don't see a lot of. So I appreciate what you guys do. Thank you sir. Certainly learned a lot from you here today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Frank Hanna (00:23:31) - Uh, check out our website. Um, our Rev X Wealth comm. So Rev X wealth.com. Um, you can inquire contact all our contact information's on there. If you want to get Ahold of us ask a question that rev wealth is all over social media to. If you want to search, follow us. There's a lot of good content out there that we put out, um, from, you know, the ultra sophisticated maneuvers to just really good basics to follow.   Frank Hanna (00:23:57) - Um, but, yeah, happy to talk to anybody that's out there. Answer questions, confident you get value out of a brief conference. Uh, conversation with us.   Sam Wilson (00:24:05) - Awesome. Frank, thank you again for the time today. I certainly appreciate it.   Frank Hanna (00:24:08) - Yeah. Thank you. Sam.   Sam Wilson (00:24:09) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:13) - Favor.   Sam Wilson (00:24:14) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.   Sam Wilson (00:24:19) - Whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Larry Taylor.   Larry Taylor is the founder and Chief Executive Officer of Christina. Mr. Taylor is responsible for vision, strategy and leadership. Mr. Taylor is a seasoned investor with over 40 years of real estate experience in the Westside region of Los Angeles.   Show summary:  In this podcast episode, Larry explains how his company identifies valuable properties and adjusts their portfolio in response to market shifts. He also discusses the expansion of Christina's investor base, now open to all 50 states, and the opportunities this presents. The episode concludes with Larry sharing his insights on the desirability of owning real estate in the Westside region of Los Angeles and the host directing listeners to Christina's website for more information.   -------------------------------------------------------------- The perception of buying rent controlled properties (00:00:00) Larry Taylor's background and starting in real estate (00:01:11) The impact of regulatory environment on real estate business (00:04:53) The importance of performance certainty in property sales (00:12:14) Adapting portfolio strategy in response to changes in tax and securities laws (00:13:55) The benefits of real estate ownership and the government's support (00:16:17) The growth of investor base and potential for discounted properties (00:22:29) The vision of owning the best real estate (00:23:49) Contacting Christina (00:24:28) -------------------------------------------------------------- Connect with Larry:  Linkedin: https://www.linkedin.com/company/christinala/   https://www.linkedin.com/in/lawrence-taylor-7679479/   Web: https://christinala.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: Larry Taylor (00:00:00) - There's a perception amongst investors that buying rent controlled properties which have depressed rent rolls because those rents have not been allowed to go to market is a bad investment. And I say, oh no, no, no, that's a good investment. You're never going to have a vacancy. And the value can only go up because ultimately, no matter what, rents will rise because they have to rise.   Sam Wilson (00:00:25) - 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. Larry Taylor is the founder and chief executive officer of Christina. He is a seasoned investor with over 48 years of real estate experience in the West Side region of Los Angeles. Larry, welcome to the show.   Larry Taylor (00:00:51) - Hello there. And how are you?   Sam Wilson (00:00:53) - I'm great sir. How are you today?   Larry Taylor (00:00:55) - I'm doing really great and I appreciate the opportunity to be on your show.   Sam Wilson (00:00:59) - The pleasure is all mine. Larry, there are three questions I ask every guest who comes on the show in 90s or less.   Sam Wilson (00:01:06) - Can you tell me where did you start? Where are you now? And how did you get there?   Larry Taylor (00:01:11) - Uh, I am a self-made self-starter. Uh, started as a USC junior. I was a scholarship student. I formed the my first real estate company while I was a student. Uh, the premise of that was to buy real estate in the west side of Los Angeles during the, uh, Nixon wage and price level freeze. And, uh, today we're doing the same thing in the same location.   Sam Wilson (00:01:40) - Wow. Most people. I would assume. Maybe I'm wrong, but. You know, the strategy shift over the years or the asset classes or the type shift. I mean, doing the same thing and the same location for 48 years. It sounds like you guys have either, um, just gone really, really niche or I just found a gold mine and just don't want to leave it. What? What's the story there?   Larry Taylor (00:02:09) - Well, the West Side region of Los Angeles is like the Permian Basin.   Larry Taylor (00:02:14) - Basin? Basin is to oil. It's drilling oil on a proven field.   Sam Wilson (00:02:21) - Okay.   Larry Taylor (00:02:22) - It's fully it's fully developed. It's highly desirable. It is the best year round climate of the United States. Has the highest concentration of millionaires and billionaires in the world. It's the center of tourism center of an entertainment center of technology, two largest ports, and the two busiest ports in the United States. I could go on and on, but, um, uh, if you're drilling oil in a proven field, you're always going to hit oil, right?   Sam Wilson (00:02:50) - Right. I mean, you a lot of things have changed. I think maybe we maybe you said this off air. Maybe we said this, uh, at the beginning of this recording. I'm not not quite sure which one it was, but I think you said you guys formed your company in September of 1977.   Larry Taylor (00:03:06) - That's correct.   Sam Wilson (00:03:06) - A lot of things have changed in in your region, I would think in particular both socially regulatory wise. I mean, a lot of things have kind of come down the pipe that have have made, uh, a lot of people kind of steer away from California.   Sam Wilson (00:03:20) - I know you just mentioned at least ten reasons. I think right off the top of your head as to why what you're doing is, is, is the right time and the right place to be there. But kind of give us, if you can, some of the history of how some of the changes of have have, uh, come about and then how they've affected the way you guys have done business.   Larry Taylor (00:03:38) - Well, first of all, California is a huge state. Yeah, California, the the economy of California, if it was a separate country, would be the sixth largest economy in the world. Uh, there's a world of difference in California, where the northern part of California doesn't resemble the southern part. Um, it's a very, very huge area. And Los Angeles is a very, very huge geographical community. And so when people talk about California, you might as well be talking about southern South America, or you might as well just talk about Western Europe. I mean, California is a huge and diverse, uh, state, which is, you know, larger than most countries.   Larry Taylor (00:04:28) - And so when people talk about California, I don't know what they're talking about, because I can only talk to you about the hundred square miles of the west side of Los Angeles. I don't know anything about the rest of California.   Sam Wilson (00:04:41) - Got it. Very good. But can you. Can you give us a little insight maybe as to kind of the, the way the regulatory environment has shaped the way you guys do business, if it has it all.   Larry Taylor (00:04:53) - Well, of course it has. And its constantly regulations are constantly are constantly being enacted, reenacted, revised. Um, and and that's just not just Los Angeles or just California. It's the entire United States. So the regulatory environment is, you know, again, it creates opportunities. If you look at it strategically, it's the regulatory environment that creates opportunities rather than, uh, acts to, you know, uh, restrict opportunities.   Sam Wilson (00:05:34) - Can you give some insight?   Larry Taylor (00:05:36) - Sure. For example, a couple of years ago, California passed Assembly Bill 330, which ultimately became Assembly Bill uh, SB eight, which basically was designed to stimulate the creation of housing because the state of California is generally considered to be lacking of housing.   Larry Taylor (00:06:00) - So this was an idea that was passed by the state legislature to encourage housing and all the communities. And in California, however. There was an exception that was added very, very last minute to that bill which said, yes, we want to accelerate the ability to build housing by eliminating local restrictions or being able to expedite local over local restrictions. Unless what you're going to do is remove existing affordable, rent controlled housing, in which case, if you remove something that's already rent controlled or restricted in some fashion and you decide to build something on that site, you have to bring back that which you removed. At the same rent or less than what they were when you removed them. What that does is it takes away all of the incentive to remove existing rent control. So you can't really remove it. What happens is if it can't be removed, it can only become more valuable. So in a sense, what everybody's saying. Oh my God, oh my God, oh my God. This new regulation which was designed to stimulate housing, I'm saying, is all that did was it may stimulate the growth of housing in areas where there isn't already housing, but where there is protected housing, it is now protected from demolition into perpetuity, which means no more competition.   Larry Taylor (00:07:43) - So if you have a fully developed area and all of these properties are protected and nobody will ever come in and tear them down and build new, that which exists can only become more valuable because the demand exceeds the supply. So in that situation, regulation actually made a rent control property more valuable, which.   Sam Wilson (00:08:05) - I think entirely. I mean, that's that's all together. I mean, it's unique, you know, in the, in the just in the, in the concept itself. But let's assume maybe that you aren't the one holding those properties. How does that how how can that situation be made advantageous for an investor looking to get into that market?   Larry Taylor (00:08:27) - Well, it's advantageous because there's a perception amongst investors that buying rent controlled properties which have depressed rent rolls because those rents have not been allowed to go to market is a bad investment. And I say, oh no, no, no, that's a good investment. You're never going to have a vacancy. And the value can only go up because ultimately, no matter what, rents will rise because they have to rise.   Larry Taylor (00:08:56) - Period.   Sam Wilson (00:08:58) - Right. They have to. And is that is that what you guys are? Let me ask this a different way. What are you guys specifically focusing on then? Are you guys building new or are you buying existing assets like what's your what's your core focus?   Larry Taylor (00:09:11) - Our core focus is to buy existing. Properties from people that need to sell, not from people that want to sell. And we are not property specific. We are property agnostic, location specific. We like street retail, for example. That's been one of our primary property types that we focus on. We like pedestrian oriented street retail property. Uh, that's one of our hallmarks. We're not really specialists in any one particular property type, because rent is rent. Uh, space is space. Uh, doesn't really matter as long as you're buying in the right location. Location, location, location is going around is as a we've all grown up with location, location, location. They never said apartments, apartments, apartments only or they never said only the southern five states.   Larry Taylor (00:10:08) - Miami, uh, you know, Florida, Arizona. Texas, right? No, it's always been location, location, location. And there aren't that many locations in any one particular state or country, uh, that are investable. And what I mean by investible is where development is restricted. Demand exceeds supply and the entry barrier is very, very high. Those are the components that add to success in investing in real estate. There's very few places in the United States or any country that are investable, right? Period.   Sam Wilson (00:10:54) - That's wild, I love that. So you guys are. You guys are, um, you mentioned there you said asset kind of agnostic, and you want to find people that need to sell, not want to sell. Why are people needing to sell in today's environment?   Larry Taylor (00:11:10) - In any environment, there's always death. Okay. And, you know, for anybody that has a net worth of over 12 or 13 million, uh, they have to pay a state taxes. So if they have a portfolio of real estate, they have to sell the real estate to pay the estate tax.   Larry Taylor (00:11:31) - So death, divorce, bankruptcy, foreclosure, partnership disputes, there's always something like that happening, particularly in a vast environment like the hundred square miles of the West Side region in Los Angeles. There's always, I like to say, there's always someone dying.   Sam Wilson (00:11:49) - There is. There is.   Larry Taylor (00:11:52) - As long as it's not me.   Sam Wilson (00:11:54) - That's, uh. That's that's a good idea. I like that, yeah. So you I mean, in being market or, I guess, asset agnostic, how do you how do you effectively weed through the. I mean, there's got to be just a ton of property coming across your guys's desk. How do you weed through that and actually find the assets that are worth pursuing?   Larry Taylor (00:12:14) - Well, when you've been on the ground in the same location for nearly 50 years, they find you. Number one. If it's listed for sale, it's retail. We're not interested. Okay, so. But they find us. We have a long track record of performance. Certainty of performance to people.   Larry Taylor (00:12:36) - Who need to sell is more important than price.   Sam Wilson (00:12:42) - Can you clarify that?   Larry Taylor (00:12:44) - Yeah. If you need to pay your estate taxes nine months from the date of death, okay, you're going to be more focused on selling a property to somebody who definitely is going to be able to close and provide you with the money that you need to pay your taxes. Yeah. So, I mean, certainty of performance is what comes from companies that have track records within a given geographical location of performance.   Sam Wilson (00:13:14) - How have you how have you guys adjusted your portfolio over the years? I mean, I know, I know, you said, you know, the finding the assets that are it sounds like off market assets finding people that need to sell. You're not necessarily asset specific, but I would imagine I mean, you guys have gone through the savings and loan crisis. You've gone through the.com bust, you went through the GFC. I mean, you went through Covid. You guys have seen all sorts of of incredible market shifts.   Sam Wilson (00:13:43) - I mean, that's that's a wild ride to have gone through the last 50 years. How have you changed or repositioned your portfolio accordingly along the way, if at all?   Larry Taylor (00:13:55) - Well, we did change about ten years ago in response to changes in the tax law and changes in the securities law brought about by the, uh, Jobs Act. Um, it became very clear for real estate investors to be able to benefit from the tax treatment. They had to be able to own multiple properties because the depreciation and amortization, uh, deductions, which are non-cash deductions, which allows an owner of real property to actually earn a positive income. But after tax report a loss, those losses are suspended for most, uh, property owners, unless they own other properties that are producing income, which they can use to offset, they can use the losses to offset the income. So what we did was we formed private equity companies, and we said, we'll have one company that will buy ten properties, and we will allow our investors to invest in the company.   Larry Taylor (00:15:06) - By owning an interest in the company, they'll own an interest in ten properties. And then as properties are throwing off income, other properties are throwing off losses and therefore they'll be able to use the losses within the portfolio and not have to pay tax. So and then we set it up as a private equity company, because a private equity company basically says don't expect great results in the first, second, third, fourth, fifth, sixth year. Real estate is a long term. Most of our real estate partnerships when we were syndicators had a 30 year to 35 year term. Wow. So our private equity companies on average have a 30 year term. Now, if you're lucky enough to own great real estate, the smartest thing that you can do is having purchased it. The dumbest thing you can do as ever selling it. My only regret in the last 50 years is having ever sold anything. Wow. So the government rewards you to keep it, and the government penalizes you by taxation to sell it.   Larry Taylor (00:16:17) - So, you know, in the typical investor mind, which is different than the real estate mind, which is how much am I investing? How much am I going to get back? What's my cash flow? What am I going to get my money back? That works for stocks. That works for bonds. Maybe that works for businesses. Uh, works for a lot of things. It does not work for real estate. Hmhm real estate is buying the best property and the best location at the lowest possible price, and mining it for all of the tax benefits and the appreciation and value creation. Because the government rewards you by allowing you to continue to make money, build value and never pay tax. That's what makes real estate work.   Sam Wilson (00:17:06) - I love it that that's that that's extremely clear. I want to kind of circle back to your greatest regret. Is selling it comet and maybe tie that back into the 30 to plus year hold that you guys project on this. What type of investor gets in and how do you attract that investor? I mean, you know we've got a fund right now.   Sam Wilson (00:17:27) - It's an eight year fund. And people are like, oh, eight years. That's a long time. And I'm like, I don't I don't think it's that long. So obviously it sounds really short compared to what you just, uh, you just said it 30 plus years. How do you attract, attract capital that is looking at a 30 plus year hold?   Larry Taylor (00:17:46) - Well, there's all forms of capital throughout the world, and there's all forms of investors who have different strategies and different requirements. But ownership of real estate is something that's been around longer than human beings. And and so, I mean, real estate has been around longer. And once you own something and you extract value, for example, if you own a property that you purchased for X amount of dollars, call it a $10 million, right. And over a 20 year period, it becomes worth $35 million. And you originally invested 5 million and borrowed 5 million. And then over the first ten years, you earned $3 million in operating income.   Larry Taylor (00:18:33) - But in the 10th year, you had an opportunity to put a $15 million loan on the property, but you only paid ten and you only had five in, but you got three out. Now you have a loan for 15 million. You get three times or four times your money out tax free. And the interest that you pay is deductible at the property level as an operating expense. Now. Five more years go by, go down, and now the property is worth $30 million. And you have a financing opportunity to borrow $20 million. So you pay off your $15 million, put another $5 million in your pocket, and you still own the property. You still pay no tax. Then when you finally die and you have already set up your estate plan, that asset goes to your beneficiaries at a stepped up basis so that they pay little or no tax when they sell the property. You may have an estate tax issue, but in our structure, where you only own a portion with other investors in that in that private equity company, if you're transferring to your beneficiaries a percentage interest in, let's say, ten properties that are owned in this private equity company, the government allows you to apply a discounted value up to 35%.   Larry Taylor (00:19:57) - So let's say 15 years after you made an investment in one of our private equity companies and you invested 10 million, and now that 10 million is worth 20, right? You can leave it to your your beneficiaries that like 16. Okay, so real estate has been the greatest form of wealth creation. Ever. Okay. And I don't discount the stock market and I don't discount the S&P 500 and so on and so forth. But those investments do not offer the tax benefits that the government gives to real estate. And there's a reason for that because stimulating real estate stimulates the economy. So when government is always looking for ways to get people to invest in real estate because it is illiquid. You can wake up in the morning and sell a stock. You can wake up in the morning and sell a bond. You can wake up in the morning and sell out a mutual fund. You can't wake up in the morning and say, oh, I'm going to sell my building in 30 minutes. Okay. So again, but when the government stimulates real estate, it employs a lot of people.   Larry Taylor (00:21:08) - When there's construction, it puts together a lot of a lot of people are working architects, engineers, plumbers, electricians, carpet manufacturers, furniture makers. I'm saying is the way to stimulate an economy is always to stimulate real estate. And that's been going on in this country for the last 100 years. So real estate still is the most significant beneficiary of the government's largesse.   Sam Wilson (00:21:37) - Undoubtedly. Undoubtedly. Larry, I've got one. Uh, maybe two final questions here for you. I've certainly enjoyed your insights. Uh, I love your enthusiasm. What you bring to the table. I mean, you guys have done some really, really cool things, and I love just how you've hyper focused in one very, very specific part of the country there in the West side of Los Angeles. But maybe give me this insight if you can. What what's the favorite part of your business now and then? Where are you guys going?   Larry Taylor (00:22:07) - My favorite part of the business right now, of course, is growing. Christina real estate investors and opening up Christina Real Estate Investors to more and more participants across the United States because the Jobs act allows us now to market the opportunity to invest to in to people in 50 states.   Larry Taylor (00:22:29) - Right. Whereas before we were limited, very, very limited to just California. So that is very exciting. And the other thing that's exciting is, uh, as the Federal Reserve has raised interest rates 11 times consecutively in the last couple of years to rates that we haven't seen in more than 22 years. It's creating a lot of what I call finance stress on very, very good properties. And so we might start to see for the first time, we're starting to see some investors who bought in the last 20 years, or 15 or 10, particularly in the last five, that might be willing to throw in the towel, uh, because if they borrowed at three and they have to re borrow at seven, and the lender is saying, we need you to pay down the loan, they might be more willing to sell the property at a discount. So we're starting to see some pretty good properties become available at some very attractive prices. So between the growth of our investor base coming from 50 states and the potential to have that unlimited and the ability to buy great real estate, but like I said, staying within the hundred square miles of the West Side region of Los Angeles, it's a bigger location to bigger geographical area than Manhattan.   Larry Taylor (00:23:49) - And wouldn't you love to own Manhattan? Some of the biggest titans in real estate will tell you that they've made their greatest fortunes only owning real estate in Manhattan. So I mean, like, this is our our vision, which is, you know, own the best. Forget the rest.   Sam Wilson (00:24:06) - I love it, I love it, Larry, thank you for taking the time to come on the show today. I certainly appreciate it. I've enjoyed, uh, I've enjoyed having you and I've learned an absolute ton from you. I think what you guys have done, and something we'll continue to do is, uh, inspiring. So thank you very much for that. If our listeners want to get in touch with Christina, what is the best way to do that?   Larry Taylor (00:24:28) - Go on our website. It's very, very friendly. Uh, it'll immediately direct you to, uh, our company just by filling out a few things and giving us your information, and you'll get an immediate response.   Sam Wilson (00:24:40) - Fantastic. And for those of you who are just listening, that website is Christina.   Sam Wilson (00:24:44) - Christina la.com. That's Christina la.com. And Larry, thank you again for your time today. I do appreciate it.   Larry Taylor (00:24:54) - You're welcome. Thank you very much. I appreciate the opportunity. I hope your audience enjoyed it.   Sam Wilson (00:24:59) - Hey, thanks.   Sam Wilson (00:24:59) - For listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Today’s guest is Jay Helms.   Jay Helms is a financial freedom achiever, a real estate investor living a nomadic slow-travel lifestyle with his family of 5, founder of the W2 Capitalist and Amazon #1 Best Selling Author.   Show summary:  In this podcast episode, Jay Helms emphasizes the importance of having "growth friends" who are also focused on real estate investing, and making daily calls to expand this network. He also discusses the evolution of his W-2 Capitalist community, which now includes a hard money lending solution. Jay highlights the importance of strong partnerships in real estate investing and shares his criteria for selecting partners.   -------------------------------------------------------------- The Growth Trends Exercise (00:03:33)   Changing Who You're Talking To (00:07:12)   The Impact of the Exercise (00:09:07)   The W-2 Capitalist Community (00:10:03)   The Importance of Consistent Networking (00:11:52)   Partner Criteria and Building Partnerships (00:16:43)   The W-2 Capitalist Community Growth (00:20:28)   Listening to Community Members' Needs (00:21:26)   Importance of Solid Partnerships (00:27:30) -------------------------------------------------------------- Connect with Jay:  Facebook: https://www.facebook.com/jay.helms1 Linkedin: https://www.linkedin.com/in/jayhelms/ Twitter: https://twitter.com/jay_helms YouTube: https://www.youtube.com/c/W2Capitalist Phone: 205-249-0248 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 Helms (00:00:00) - So the easy trick to doubling or just growing your portfolio is changing who you're talking to. Now, I'm not saying that you should go out and tell your mom, hey. Or your, you know, your your brother or sister saying, hey, I'm not talking to you anymore, right? I'm not saying do that. I'm just saying take. Make two phone calls a day, right? Most people, if they're working a W2, they get a lunch hour. This is not going to take you 30 minutes to do. You're going to call somebody. You're going to talk to about those things that are where we're focused on growth.   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) - Jay Helms is a financial freedom achiever, a real estate investor living a nomadic, slow travel lifestyle with his family and family of five. He's a founder of the W-2 capitalist, and he's an Amazon number one best selling author.   Sam Wilson (00:00:58) - Jay, welcome to the show.   Jay Helms (00:01:00) - Sam. Thank you. Man, that was. Man, I don't I don't want to say this wrong. This is going to come out wrong. But you got a voice for radio. I got to be careful not to say. Somebody told me once you got a face for radio, I think what it was, I was like, I.   Sam Wilson (00:01:13) - Probably got that too, man. You. You can hurt my feelings. It's all.   Jay Helms (00:01:16) - Good. It's awesome. Thank you for having me.   Sam Wilson (00:01:20) - Absolutely. The pleasure's mine. Jay. There are three questions. However. I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now? And how did you get there?   Jay Helms (00:01:30) - Yeah. So where I started, uh, like most people who I put in the sophomore level, we started with a single family. Uh, buy and hold, just one, one bedroom, one bath rental property my wife and I bought with a homemaker line of credit.   Jay Helms (00:01:43) - And we have scaled up from there. We've we've done almost anything and everything that does not involve wholesaling and flipping, although we've lived in a couple of living flips and burned a couple of properties. We've joint venture GG LPs. Uh, we're still in a lot of those deals together. That's kind of where we're going to stay, and that's in the small to medium sized multifamily space. And, uh, we've transitioned into lending and hard money lending. Um, and that's kind of where we're at today, even though we've got our portfolio, we've kind of focused on hopefully I see it as a graduation. So we're just, you know, we're lending to people, um, and we're earning a lot higher interest rates. We're not getting to tap into the equity, uh, unless someone a joint venture piece or a GP, uh, or LP deal, but with a lending piece, it's just it's so much more passive than, you know, other stuff. It's just it's incredible. But, uh, how we got there and we're going to talk about this is really through partnerships, right.   Jay Helms (00:02:43) - And getting to know folks and really, uh, learning some, some lessons along the way, uh, about what a great partnership would look like. And, and, uh, you know, I hate that old saying that the only ship doesn't sell as a partnership because it's simply not true. Um, doesn't mean you're going to have some rough seas. Possibly. But, uh, one of the things that I've figured out along the way is not only with investing, do you have to have investing criteria and stick to those investing criteria. You also have to have partnership criteria, and you got to stick to those partnership criteria when an opportunity presents itself.   Sam Wilson (00:03:17) - Man. That's great. That's absolutely great. There's a lot of questions I have probably about kind of that story that you told us, you know, from doing single family residents live in flips, uh, you know, small to medium sized multifamily. And there's a lot of management, I think that goes into that. Maybe we'll get to that partnership side of things.   Sam Wilson (00:03:33) - One of the things that, you know, you and I talked about obviously before, uh, kicking off this show was really talking about a growth trends exercise, which you kind of find is something that I think it's been instrumental in how you've gotten to where you are now. So before we cover those, you know, finer points in your story, maybe we can start there on that growth trends exercise and just tell our listeners what it is and how it applies to them in you.   Jay Helms (00:03:59) - Yeah. And so for clarity, let's give credit where credit is due. I did not create this. I stole this from Hal Elrod, who we, uh, most of us probably know is the author of the Miracle Morning, uh, series. And, uh, so how does this thing where, um, and I heard it from a third party. It doesn't matter where it heard from. I heard from somebody else. It wasn't strictly from Hal, but basically, you take out a piece of paper, right? It doesn't matter how big.   Jay Helms (00:04:24) - Eight and a half by 11. And you draw, uh, two columns on it, right? The left hand column, you're going to label this growth friends and the right hand column you're going to label as maintenance relationships. And I do this exercise with almost everybody who comes to me and says, Jay, I'm having trouble growing. I don't know what what's going on. I'm doing the things like all the all the stuff that people in the podcast say to do. I'm doing this things I'm not growing. But I bet you're not doing this. So here's, here's the exercise is you get out your phone. Right. You got your sheet of paper, you got growth friends and maintenance relationships. For this exercise we're going to label. We're going to define what those two categories are right. Um, growth friends are people who talk about investing in real estate, building wealth, having a better financial future for for yourself and your family. How do you how do you grow your net worth? You're you're talking about growth, right? And the things that are important to you, in this case, real estate investing.   Jay Helms (00:05:20) - Everybody else for the sake of this conversation falls into a maintenance relationship category. Okay? I don't care if it's your mom, your dad, your brother or sister. Everybody else falls into that maintenance relationship category. Okay? Now and I don't know where my phone is, but I was going to show it, like, grab your phone, right. Grab your phone, you scroll to your most recent phone calls. Right. And you're going to go through the top 25, maybe 30 most recent phone calls. And you're going to put folks based on those definitions we just talked about in one of those two columns. Just write down their first name or their initials basically. Once you've done that, now you're going to go to your text message. Because if you're like me, most of your most your conversations or a lot of your conversations are happening over text. Um, I was playing Halo with my son last night, and I'm getting a text from one of my partners. Hey, I found this 12 unit, and so my son and I, we're we're swapping the controller, we're taking turns in Halo and and, uh, while he's doing his turn, I'm sitting here trying to write a property on my phone, you know, as we're doing it.   Jay Helms (00:06:21) - And so. But go through your text messages and you do the same thing, right? Go for maybe the top 2530 text messages. If it's about growing your real estate portfolio, it's about building wealth. Uh, how to, you know, better secure your future financial future for your family. Then those folks or those messages that you're talking to are going to go in the Growth Friends column. Again, everybody else maintenance relationships, even if it's a funny meme that makes you laugh and it's entertainment, it's going to go into the Maintenance Relationships column. And here's what happens when I when I have this conversation with a lot of people. When we go through this exercise, we get to the end of that exercise and in there complaining about, hey, I haven't grown, I don't know what to do. And I was like, look, and you don't even show me your piece of paper. I know what it looks like. You're really heavy on maintenance relationships, right? Like you may have a handful of growth friends.   Jay Helms (00:07:12) - Everybody else is in maintenance relationships. Yep. Yes, that's exactly it. So the easy trick to doubling or just growing your portfolio is changing who you're talking to. Now, I'm not saying that you should go out and tell your mom hey. Or your, you know, your your brother or sister say, hey, I'm not talking to you anymore, right? I'm not saying do that. I'm just saying take. Make two phone calls a day, right? Most people, if they're working a W-2, they get a lunch hour. This is not going to take you 30 minutes to do. You're going to call somebody. You're going to talk to about those things that are where we're focused on growth. At the end of that phone call, you're going to ask them, hey, who else do you know that likes to talk about this stuff? Right? And you keep building it and you're just making two phone calls every day. Mhm. And you do that for six months and then you do that growth uh growth maintenance exercise again.   Jay Helms (00:08:09) - And it's going to be switched. It's going to flop and your portfolio is going to look different. Your mindset is going to be a lot different. And it's just it's amazing what that little exercise can do and that commitment to making those two phone calls a day. It's incredible.   Sam Wilson (00:08:25) - I love that that's that is brilliant. And it's it you. Of course, I'm sitting here thinking through it while you're talking about it. I'm like, man, I wonder. I mean, because because that even because even and I'm thinking through maybe the last 20 phone calls in my phone, it's I mean, it's everybody from, uh, lenders to distributors to I mean, the list just goes on, but none of those would be classified necessarily as great.   Jay Helms (00:08:52) - Yeah, yeah.   Sam Wilson (00:08:53) - Yeah, yeah. You're a supplier. Okay. That's still not a growth phone call. Yeah, it's work, but it's not like it's. It's a maintenance relationship. That's, uh. It is that's convicting because you got to look back at that and you go, oh, like, man, I need to work more on my growth.   Sam Wilson (00:09:07) - Uh, my growth, um, phone calls every day. So I love that. What what why was there? How was this impactful? May I ask a leading question here? You can be like, well, that's a stupid question, Sam, but like, how was this impactful for you? And obviously, you know, like you're saying this can have, you know, wild impacts for everyone else, but what did it do for you implementing this?   Jay Helms (00:09:27) - So the the reason why I started this W2 right is I fell into this category of I didn't grow up in a family of investors. I didn't have friends who were investors or didn't work with. A lot of people, um, didn't work with anybody who was investing, you know, investing in real estate. And we had bought a few. My wife and I, we had bought three properties and, uh, we're like, all right, we're on to something. We're seeing, you know, income come in. And I'm using passive and air quotes passively, even though we were self managing and um, like we're on to something.   Jay Helms (00:10:03) - But I just we've kind of tapped out our resources. Right. Like if we want to grow past this, I've got to get comfortable with partnering with folks. And how do I do that? So I started reaching out to folks and I started, you know, changing the conversation. And come to find out, there was a lot of people just like me who fell in the same boat, right? They didn't have friends or family who were interested in investing. Matter of fact, they looked at them like they were crazy, you know, like, uh, you know, and it was like, hey, let's start having these phone calls frequently, like, I want to talk to you, Jay. And I was like, I want to talk to you because I'm getting excited just having this conversation. And, uh, and so that just kind of kept steamrolling into what we now know as the W-2 capitalist community. And, you know, you're talking about I get challenged on this sometimes when I, when I ask people to go through this exercise, like, all right, let's go through your phone, mister.   Jay Helms (00:10:54) - You know, Mister hotshot, you know, like, I was like, all right, let's go through my phone. I have no problem. And I'll go through it. And it's like, mastermind member, community member, uh, banker, you know, and it's all these things. And I can go through every almost every one of the conversations is about, uh, growth and about how we can grow our portfolio. Matter of fact. So we're we're, um. Uh, we're recording this at 130. I got up around 630 this morning. Had about an hour to myself. I had about 30 minutes to lunch. And I've been. We homeschool our kids. Everybody's home. Um, and so I've had about 30 minutes of interacting with them as I go to the bathroom or whatever. Take a water break, whatever. And so there's there's a couple of hours where, uh, was that? About three hours or so since I got up roughly. And, and the rest of the time it's been on the phone with partners, it's been on with, uh, with, with other, uh, investors who are looking to grow and just, just constantly and I get more out of that.   Jay Helms (00:11:52) - And a lot of them don't understand this, but I get more out of folks when they call and complain and say, hey, I'm having trouble growing. You know, we kind of walk through it. I get more out of those conversations. They probably they probably do, and they don't understand that. But it's just regurgitating and reciprocating what we've learned in the past. And it's also serves as a reminder because. I started this process a long time ago and I drifted from it, right? Life got busy, I still had a W2 and we kind of get stuck in this spot where we're like, hmm. I'm not really growing. And it took a mastermind member who came in his and, uh, he was getting really excited. It had a lot of momentum. I was like, how do you what are you doing to get this momentum? What are you doing, man? I'm making two phone calls every day at lunch because it's something you taught me a couple of years ago. I was like, oh yeah, I did okay.   Jay Helms (00:12:39) - So I was like, so I drifted from it, right? And we all do that from time to time. And it was a good reminder that it really comes down to who you're talking to and who you're spending your time with. Now, I don't mean that. You know, you again, you don't you don't kick the family to the curb, but you just change your conversations that you're having.   Sam Wilson (00:12:58) - Yep. No, I love it. That's fantastic. Uh, fantastic insight. And it's it's it's. Easily implemented, but difficult to do. Is that the right way to say what?   Jay Helms (00:13:10) - Yeah. You're correct. It's the the discipline to do it. And even even today, like, I know uh, like I have time blocks on my calendars to make sure I connect with a certain amount of people a day. There are days when that reminder goes off. Hey, you got to make 2 or 3 phone calls. I'm like, ah, I'm just not feeling it. I'm not. I'm not feeling it.   Jay Helms (00:13:30) - And that some days I'll skip it and then some days I'm reminded of, um, this line from um, oh man, I can picture his face. Extreme ownership guy, Jocko willing. Uh, is that he's asked, you know, on days where you don't feel like going to work out, what do you do? And he goes, well, I go anyway because at least I'm going to go through the motions, you know? And and so I, um, I am not perfect in making my phone calls and doing my reach out, but I am consistent enough where it is producing an incredible result. Right? And incredible enough for me to come on here with such passion, energy to make sure your audience is doing the same thing, because it really is the key to to grow and otherwise, you know, rewind back to where we just had those three properties and we were. We were buying about one property every year, maybe. And, uh, there's no way we could have grown the way we have, um, with just because basically what we're doing is we're taking the, the, the earnings from those properties, putting them into an account, taking some savings from my W2, combining all that up till we had enough for another down payment, going and buying another one.   Jay Helms (00:14:42) - So it took us about a year right to do it. And um, and there's just there's just no way there's no way we would have been able to get to where we are doing that.   Sam Wilson (00:14:52) - Tell me about your business. Like what? What is your business look like today?   Jay Helms (00:14:56) - Yeah. So that's that's an open ended question. Right. So which business W2 Coppolas the real estate. Our portfolio. Like which which one.   Sam Wilson (00:15:04) - Whichever one you want to talk about or both.   Jay Helms (00:15:07) - Yeah. So um the our portfolio we've got a mix. We've got a little mix of, we've got my wife and I, we've got a fourplex ourselves. We got a short term rental ourself. Uh, and then the rest of the stuff we're in is through partnerships, either through joint ventures or limited partners. We're not a general partner on anything right now. Um, so joint ventures, limited partners. And then we also do some hard money lending on the side. Uh, and so all kind of real estate focused and then the W2 cap is what feeds a lot of that.   Jay Helms (00:15:41) - So a lot of our partnerships came from the W2 cap. Because back to that investing or partnership criteria is one of the things that I do is I've got to know you got to know you not for just six. You know, I use a rule of six months, and I can't remember if I read that in a book somewhere, or if it's like the SEC guideline for raising money or taking money from somebody, um, uh, to invest in one of your deals. I shouldn't say taken, but having a partner invest with you in your deal. But I use that rule for, you know, six months. Uh, I got to get to know somebody. And, um, it's just it's one of those things where it's not like, you know, Sam, you and I are going to have a phone call today. Six months from today. We have another phone call, and I checked that box. It's. That's not what I'm talking about. Right? You got to get to know, really know somebody and just helps me filter out a lot of folks from, um, uh, tactics essentially, because, like, like you probably your social media probably gets inundated with, hey, Sam, I got this deal.   Jay Helms (00:16:43) - I want to partner with you on it, you know, blah, blah, blah. And I'm like. And I said, hey, look, I'll take a look with you. Uh, but you just you need to know I have this rule. I got to get to know you before I'm going to partner with you. Um, and nine times out of ten, here's how the conversation goes. It's like. Absolutely, I respect that. We'd love your feedback on this. And I was like, great, let's schedule a call. Just want to reconfirm, you know, I'm not looking to partner, but I'll take a look at this and and poke holes in what you may be thinking, like you asked me to. And nine times out of ten, that's the end of the conversation. There's no follow up from them. Um, they tell me they're okay with that guideline that I've given them, and they just. They don't do it. Uh, the ones that do, uh, we've had a really solid run, right? They they ultimately end up joining the deputy capitalist community because they know there are other investors in there like me.   Jay Helms (00:17:38) - And there's just been so much wealth and so many partnerships have been developed through that. It's just incredible. So it's kind of this whole circle. It's it's it's where the earn invest repeat tagline comes from. Right?   Intro (00:17:51) - Right, right.   Sam Wilson (00:17:53) - Now that makes sense. So if I, if I get the picture correctly, you're the proceeds from what you guys do in the W-2 capitalist. You then feed that back into your current real estate business. How did you start? Tell me about the W2 capitalist community, how you started it. Like how did you get that off the ground? Because that's kind of I mean, it seems like a massive undertaking.   Sam Wilson (00:18:17) - And.   Jay Helms (00:18:17) - It is. And, you know, we have three kids who are nine, six and four. And so when we launched that, it was just a little over five years ago, um, you know, so they were were three and I can't even do the math. Right. Three one and not maybe not even on the way yet.   Sam Wilson (00:18:36) - And, um, years ago, would you say that was.   Jay Helms (00:18:39) - Five years ago?   Sam Wilson (00:18:40) - Got it. Okay.   Jay Helms (00:18:41) - So. So, yeah. For for one and not on the way yet. And, um, we started with one. It was me and a couple of guys we started. It was one phone call week. We did it over zoom, and I think we originally connected on, um. Some Facebook group. Matter of fact. And so and it really just started from there and it was just, hey, let's get together, let's talk. There's no agenda. You know, um, I kind of found myself in the space. I know what we were. We were pregnant with number three in. My wife had had some complications along the way with each of them. And so we had a local ria. Um, I don't like going to in-person meetings. I'm growing it. Being an entrepreneur has pushed me out of my introverted personality. It's pushing me out of that. But, you know, five years ago, I didn't want to be in a room full of people I didn't know.   Jay Helms (00:19:38) - And and so, um, the good thing is I've been working from home for about a decade prior to that. Right? So I was extremely comfortable. I was zooming before zooming was was cool. And I know that ages me, but I'm okay with that. Um, but it was, you know, it's one of those things where I was like, all right, I had joined a virtual mastermind. It wasn't dealing with investing. It was more of a how to become a better father and how to be, you know, a better husband kind of thing. And, uh, because I was new at it, you know, new husband, new father. I was like, we got another one on the way. What do I got to do to to to do this right. Had a lot of perfectionism in me at that point in time. And, uh, and so I joined this group and they were already doing it. And a lot of what I did, I just mimicked off of what they were doing, um, and just kind of created my own.   Jay Helms (00:20:28) - So but it was a massive undertaking. It started with one phone call a week is on Tuesday nights that went for about an hour, an hour and a half, uh, sometimes. And now we're up to over 20 calls a month, uh, that sometimes go to three hours, uh, with I think we've got 60 members at the moment and, uh, it's it's incredible. We focus a lot on the various niches. Most of it is buy and hold and, um, and that's. Yeah, it has it's taken. It didn't happen overnight.   Sam Wilson (00:21:03) - Right. No, I can't, I can't imagine that, uh, that it did. And I think you know what you've done. It sounds very organic, though, in its own right. Yeah, it kind of just. I mean, we, like you set out to build it this way.   Jay Helms (00:21:17) - It didn't. And, you know, one of the things, um, you know, the heart I mentioned hard money lending that came out of listening to members in the community.   Jay Helms (00:21:26) - So, um, two years ago, I started, I kept hearing, you know, we had members in our community. They didn't know how to navigate hard money. They didn't know they didn't have connections to private money. And quite frankly, I didn't either. I've never used either one of them. And, and but I just kept hearing folks like, man, I got this really good deal. Like, all right, let's let's underwrite, let's see how good this deal is. And we'd underwrite together. I was like. Are you sure that's. That's a good deal, you know. And so and so many deals would fall through because they couldn't find short term financing for them. Right. And so after about a year of hearing that, um, well, I'd say after about six months of hearing that, I set out to, okay, let's bring a hard money solution to the community. And, um, about six months later, launched it with a few guys who were among the original founders in the community.   Jay Helms (00:22:19) - So I've gotten to know these guys, you know, by this time for years. And, um, and, and we just we just passed. We incorporated in June of 22, did our first loan in September of 22. And this past September, you know, at our our year anniversary mark, with past 4 million in loan originations for fixed and flippers. So it's it's just it's just a constant kind of art listening to those folks. What do you need? All right, let's go out and find it or let's figure it out right now. Uh, what we can do for that. So it's it has grown a lot more organically. We've spent I've spent a lot of money on ads, and it just never works. And so I've completely abandoned that for now.   Sam Wilson (00:23:04) - Right, right. It's funny. Funny you say that. I've got a, uh. Yeah. We're back. When we were doing single family and doing a lot of fixing flip. There's a guy here in Memphis that I borrowed, you know, quite a bit of money from.   Sam Wilson (00:23:15) - We always tell me he's like, don't tell anybody that I do hard money lending. That was kind of his thing. He's like, I loan to you in about five other people and otherwise keep it quiet. I'm like.   Jay Helms (00:23:23) - Yeah.   Sam Wilson (00:23:24) - I'll do that. So, you know, it kind of. But at the same, at the same token, I think you know, when you're when you're in the hard money lending space, like you really have to know who you're working with and. Yeah, yeah. Which is funny because I went back to him here recently for something that, uh, we had, like you said, you know, very short term, like 90 day, 90 day deals. And it was like, I need money. That's really short term. The price is kind of irrelevant. So I went back to him and said, hey, man, you know, let's let's look at this. He's like, yeah, absolutely. So it's helpful. I mean, incredibly helpful when you have opportunities like that, you just can't pass up.   Sam Wilson (00:23:57) - Like, you know, there's quick, quick turns on stuff that has huge upside. You might as well, uh, take advantage of it. So that's really cool. J we're about out of time here. But I do have one, you know, as you've, as you've done all these different things, as you've done the, you know, the variety of real estate investments as you've grown your W-2 capitalist, what are some things maybe over your real estate investing career or otherwise, if you wish to share on that front that maybe you would do differently? That was, you know, some things you said, man, this was either a misstep or something. I had to learn the lesson the hard way.   Jay Helms (00:24:28) - Yeah. So, you know, while we're called the W2, it was because I had a W2, right. And I was, I was whatever wages we were living off that and then um taking part of our savings and whatnot investing um, you know I would encourage and I got laid off during Covid, right.   Jay Helms (00:24:46) - I was running the sales team and we got I got laid off. And at that moment I just it was the most fearful but best kick in the pants I ever received. And I envy people who can make that decision on their own. Right. And it takes you know, it took me a while, like I got the call from my boss, and, you know, I'm. I'm sweating bullets over here. Got cold sweat. I finally collect myself. I got my wife because that time we had.   Sam Wilson (00:25:12) - A.   Jay Helms (00:25:13) - Five, three and a one year old. Right. And I'm like. All right. And so I go to her and I tell her, hey, there's this guy, here's what's going on. And she says, great, now we can go travel like we've been wanting to do. And I'm like, time out. Like I gotta absorb, you know, the six figure income that just evaporated. Like, we gotta we gotta figure out what we're doing here. And.   Jay Helms (00:25:37) - And so it took her, like, really planting that in me and saying, and you know, and it took me about a year to warm up the idea and to realize, okay, we're going to be okay financially. Like, I, you know, I'm um, um, getting outside of my comfort zone doing, you know, traveling, getting out of being a homebody. It's it's really, you know, and I say all that to say it took her and her her, um. She's so solid in her, the way she views things and whatnot, and I'm extremely lucky to have her. And that, you know, I look at her as my best and most valuable partner. One of the things that frustrates me about her, though, is, is I'll be grinding on an issue for like weeks. And I'll go to her and explain it to her. And like instantly she gives me the most brilliant answer. I'm learning like that time period to go to shortening, but I have trouble asking for help, like, I guess most men.   Jay Helms (00:26:34) - But, um, you know, the thing that I would say is who whoever's listening to this is your partnership is not only with your spouse, but with, you know, potential real estate partners has to be solid, right? It has to be solid. There's no need to rush into a deal. Don't get hyped up or get caught up in the hype of how amazing a, um, a return is going to be. And there's a lot of people right now that I talked to who, when they sit down and they absorb kind of how they got in the situation they're at, they're like, I rushed into it. I didn't really know this person a lot. And I'm not just talking about marriage, but I'm talking about, um, investing as well. And so, um, so yeah, I would, you know, focus on creating that partnership criteria. Um, and here's just to kind of give you some guidelines on what mine looks like is a, uh, you've had to do at least one deal before of some, you know, certain size.   Jay Helms (00:27:30) - Uh, I've got to know you for six months. And kind of the kicker amongst all that is, uh, you can't be divorced more than twice. Um, uh, I believe that everybody has, you know, the right to make a mistake and to correct that mistake or whatnot. But if you're on your third spouse, right, there's there's one of two things are happening. Number one, either a, you don't know how to treat people or B, you don't really you don't know how to make important decisions.   Sam Wilson (00:27:58) - Yeah.   Jay Helms (00:27:58) - And and there's plenty of other people I can partner with. And I know those are my criteria. And I know that there's probably going to make a couple of people mad, but, um, I want to provide that as a guideline. You know, as you're sitting down thinking about your partnership criteria and what that should look for, you know, it could be very, very similar, uh, or something along those lines.   Sam Wilson (00:28:19) - I love it, man. And that's, that's hard truth right there that you're sharing.   Sam Wilson (00:28:23) - And so, you know, if you're listening to this and you just got, you just got, uh, got upset by that statement, you know what? It's it's reality. And sometimes, you know, hard truths or they just are what they are. They got to speak for themselves. I had a friend of the family growing up and and this is he always told me, he said, Sam, if you want to, uh, really know somebody, he said, look at the way they treat these three things. He said, look at how they treat food. Look at how they treat sex, and look at how they treat money. And he goes, and once you have a, you know, a clear picture on those three things, you pretty much know the man.   Sam Wilson (00:28:56) - That's good. That's I like it. Interesting food, sex and money.   Sam Wilson (00:29:00) - Just look at those. Yeah I'm like.   Sam Wilson (00:29:02) - All right, what is.   Jay Helms (00:29:04) - Which is almost all of, uh, Maslow's hierarchy of needs, or at least the baseline.   Jay Helms (00:29:09) - Right. That's that's interesting.   Sam Wilson (00:29:11) - Anyway, yeah. So it was it was an equal equally as like, you know, the statement you had to think about for me like, okay, Morton divorce. Yeah. Well, I guess that makes sense because. Yeah. Anyway, on all that front, that's a good time. I've really enjoyed you coming on the show today. Certainly appreciate your insights. And, uh, what you shared with us today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Jay Helms (00:29:32) - So the best way to do it, I, I offer my cell phone. Now, this is this is my phone number. And so if anybody because very few people take me up on it and the ones who do, uh, I think enjoy it or whatnot, but just text me, don't call me because I have my phone set up that if you're not stored in my contacts, you're going to go directly to voicemail and it's probably full.   Jay Helms (00:29:52) - So just

Today’s guest is Matt McLennan.   Matt is an industrial CRE broker in the PNW with multiple running years top producer status and specific knowledge of IOS marketplace.   Show summary: In this episode Matt McLennan explains the benefits of IOS, its impact on the industrial market, and how it is influenced by port activity. He also discusses the challenges in valuing IOS sites due to lack of data and the importance of local market knowledge. Despite current market uncertainties, McLennan sees opportunities for investors in IOS properties. -------------------------------------------------------------- The Industrial CRE Market and Tenant Base (00:00:00)   Matt McLennan's Background and Career Journey (00:01:00)   The Current State of the Commercial Real Estate Market (00:02:18)   The rise of industrial outdoor storage (00:09:05)   Size and value of IOS properties (00:11:10)   Market research challenges for IOS (00:14:14)   Tech advancements in industrial outside storage (00:18:23)   Impact of port activity on industrial outside storage  (00:19:32)   Uncertainty of cap rates in industrial outside storage (00:21:34) -------------------------------------------------------------- Connect with Matt:  Linkedin: https://www.linkedin.com/in/mattmclennan/ IG: @mattm.cre Twitter: @MattmCRE TikTok: @mattm.cre   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: Matt McLennan (00:00:00) - Think of iOS as things that need to be stored over time, but don't necessarily need to be under a roof. And that's that can be trucks, that can be containers, that can be metal piping, that can be your plumbing contractors, 30 fleet vehicles that he needs to park somewhere. Um, all that stuff. That's kind of part of doing business and all these other sectors. But iOS is attractive, especially for call it the tenant base, because, you know, paying for space under roof is exponentially more expensive than paying for just, you know, a gravel lot. Welcome to the how to scale commercial real estate show.   Sam Wilson (00:00:36) - 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) - Matt McLennan is an industrial CRE broker in the Pacific Northwest. He has multiple running years as a top producer status and has specific knowledge of the EOS marketplace. Matt, welcome to the show.   Matt McLennan (00:00:58) - Thanks for having me, Sam. Glad to be here.   Sam Wilson (00:01:00) - Absolutely, man. The pleasure's mine. Matt. 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?   Matt McLennan (00:01:09) - I started falling into commercial real estate by happenstance. Hung out with some buddies. I was working a different career and they they talked me into coming here. So I showed up, didn't know what to do or how to do it, but I just cut my teeth and started, you know, working as hard as I could to figure it out. Uh, fast forward to today. It's been seven years, and, uh, things are going great. I'm still learning a ton, but feel like I've got a good knowledge base under myself. Great client base. It's an awesome industry and things have been really good so far. So just trying to keep that train running and and looking ahead really, it's it's continuing to take care of my clients, build the book of business and keep up with this market.   Matt McLennan (00:01:46) - I mean, it's been changing a lot. So that's, uh, that alone will keep you busy.   Sam Wilson (00:01:50) - Absolutely. You are coming off the tail end of a bull run there in space. So tell me where we are today. For those of you who are listening for recording this on November 7th, 2023. So when this airs, it might be 60 days later. And hopefully things don't change that dramatically in 60 days. But you never know. So just to get a time stamp on this here, but tell me, uh, you know, tell me about I guess maybe you can go back and give me the seven year run up to the day.   Matt McLennan (00:02:18) - I started in 2017, and we were already on the call it upwards inflection curve when I started. So admittedly, all I've ever really known is a good market. Um, the old guys in my office and industry loved to remind me of that. And with that in mind, though, I mean, things are changing, right? And I think anybody who's been paying attention, you can pinpoint exactly when that change came.   Matt McLennan (00:02:39) - And it was that first interest rate hike back in early 2022. So we've been in this new environment for the better part of call it 18 ish months. And what does that environment look like today? Um, keep in mind I work specifically on industrial commercial properties, albeit I keep a good pulse on the entire commercial real estate industry. As an industry, all things considered, I think we're actually in pretty good position. The only one I could sit here and knock would probably be office space, you know, large high rise offices and a lot of the metros and core markets. But setting office aside for a minute because that's a whole nother conversation. Most of the product types are doing pretty well. Leasing activity is generally healthy. It might be down here and there. I feel like it's down a little bit in the Puget Sound region where I'm at. Um, values are questionable. And why I say questionable is with the new cost of money via these rising interest rates, everyone's trying to figure out how to make investments, particularly pencil.   Matt McLennan (00:03:39) - And that's really hard to do right now when we're in this changing environment. So we've seen transaction volume fall pretty dramatically. And so and cap rates are a big question mark, which is another, you know, typical measurement of investment performance. Right. And so we're kind of just in this flux time at the moment where everyone's sitting a little bit on the sidelines. It's still very interested and eager to participate in the market. Not sure how to participate in the market. So I'm spending a ton of my time educating my clients and trying to give them some of those kind of what I'm seeing at the ground level and some advice. But really, put very simply, at this date, you know, in November of 23, we're all just kind of sitting, sitting and watching and seeing how this whole thing is going to play out. Right?   Sam Wilson (00:04:19) - Absolutely. Yeah. It's uh, certainly I've seen a lot of capital sit on the sidelines as well. So you just it's it's kind of a wait and see game.   Sam Wilson (00:04:26) - I was even having a conversation with somebody yesterday and they said the same thing. They're like, well, we're just selling stuff off and really going to sit and watch and just kind of, you know, see what happens. So that's that presents an interesting opportunity, though, does it not for those that want to participate in the market right now and if so, big time that.   Matt McLennan (00:04:43) - We were talking about this this morning. Actually, it's a good timing for your question. Debt has been the driver of all investments. If we're talking investments specifically, right? I mean, we all have our performers and and it's it's I want to say it's not simple, but it's not overly complicated to figure out if something's a good investment or not. Right. Based on your, your underlying investment criteria. But that's the big question mark. Right. And so what I'm looking at right now is there's a lot of properties that I believe based on that are being evaluated on current debt or the ability to go get future debt on that.   Matt McLennan (00:05:18) - And that's driving the value down. For example, the office building that I'm sitting in today, it's one of the better performing office buildings in our downtown market. I think if it were to sell today, if they needed to sell today, it would sell below replacement costs. And it's a great building. And but part of the problem with that is the appetite to invest in a downtown core office building. I mean, sounds scary, right? And and banks think it's scary, um, big, you know, call the biggest investors life insurance, pension funds. They think it's scary because no one knows what the future of office really looks like at this point. So but for those who have a plan and kind of have foresight, I think, into the future, I think there's going to be some fantastic opportunities to pick up property below. Realized value. Value is always measured at the point in time. Right. And and so you could argue that you're paying today's value for said property. But I think things are going to appreciate if you can pick up some of these, these properties now at kind of what I think is current or under realized value, I think appreciation in the future is going to be pretty good.   Sam Wilson (00:06:24) - It is. And it's interesting, I think about this a lot. And again, I don't have like the data in front of me to to substantiate this claim. But certainly real estate in the 60s and 70s was a lot cheaper maybe than what real estate is today. And it's like, you know, and of course, you know, most of us don't have a 60 year time horizon for an investment to become a, you know, to become meaningful. But it still just kind of proves your point where it's like, hey, you know what? If you can buy today? And I also think part of this is, is the, you know, the inflation of the dollar. Like, if you're able to borrow today in dollars and repay and dimes over the next 25 years, I mean, I don't think anybody's predicting that the dollar is just going to have some miraculous bull run in value in the near term or even long term future. So sure. Anyway, that's a it's but that's kind of obviously theoretical.   Sam Wilson (00:07:12) - And, and uh, you need to have just a little bit more, um, courage probably now to, uh, get out there and keep acquiring. So yeah, I like that. I really like that. That's let's talk a little bit, um, the types of industrial. This is a question I had for you, and it's kind of a loaded question because again, here in Memphis, industrial is incredibly hot. But I had lunch with two industrial brokers last week, and we were just talking about the types that are leasing. I want to hear what it's like in your neck of the woods, the type of type of stuff that is still, uh, highly in demand.   Matt McLennan (00:07:43) - Yeah. So the Puget Sound market is comprised primarily. If you look anywhere on the map, everyone thinks of us as Seattle and Seattle specifically. We have two ports here. It's the Port of Seattle and then the Port of Tacoma. Tacoma is a sister city to Seattle, about 35 miles south. And a lot of our industrial activity happens between those two ports.   Matt McLennan (00:08:01) - And because we're a port driven market, uh, we're a heavy distribution market. So think containers coming in overseas, those containers are getting picked up the ports, they're going to these warehouses. The product is coming into the warehouse being stored eventually, then go elsewhere, whether that's local or anywhere else in the country. So we're a heavy distribution market. We have a pretty good manufacturing presence as well. Um, Boeing has always been probably one of our top, one of our top employers up here in Washington state. And consequently, I mean, they have a huge manufacturing base. And then there's a lot of those subcontractors of Boeing that also occupy space and have manufacturing jobs. So I'd say we're distribution first, manufacturing second, uh, one sector that I spent a lot of time in is, is what we commonly referred to these days as EOS, which stands for Industrial Outside storage. iOS is basically a derivative of port activity, probably at its at its finest. And really what that means is it's think of iOS as things that need to be stored over time, but don't necessarily need to be under a roof.   Matt McLennan (00:09:05) - Right. And that's that can be trucks, that can be containers, that can be metal piping, that can be your plumbing contractors, 30 fleet vehicles that he needs to park somewhere. Um, all that stuff. That's kind of part of doing business and all these other sectors. But iOS is attractive, especially for call it the tenant base, because, you know, paying for space under roof is exponentially more expensive than paying for just, you know, a gravel lot. And consequently, the investor base called at the institutional level the again, the pension funds, the life insurance companies, the REITs, they've started to take notice of this iOS sector, which has been really interesting to watch. Because it's almost funny because iOS is not new. I mean, there's always been semi-trucks have always needed a place to park. Containers have always needed a place to live outside of the port. Um, but what the investment market figured out, and I've taken advantage of this a little bit personally, too, is that owning these iOS sites, the barrier to entry is relatively low because you're kind of paying land value or slightly above land value.   Matt McLennan (00:10:05) - If there's some improvements, the maintenance a.k.a the money that goes into tending the property pretty minimal. I mean, a lot of them, it's fencing, gravel, lighting. Maybe you have a small building on there that you need to maintain, but it's not like going and buying a piece of land and building a new concrete, you know, tilt warehouse. That's pretty exorbitantly expensive. Um, so a lot of people and then meanwhile, the rents have gone up pretty dramatically because tenants need this space and the institutional money has come in and driven rates up as it typically does. So in any event, that's that's been really interesting. But I think if you pegged to answer your question simpler, Seattle's market, it's it's distribution tenants. It's manufacturing tenants and it's iOS groups. That's that's kind of the meat and potatoes of our market.   Sam Wilson (00:10:48) - iOS. This is a fun conversation. I've got many, many questions on this. So yeah, I mean how do you let's let's start with the size of properties that were typically seeing people use this for maybe maybe we'll start there.   Sam Wilson (00:11:01) - And then I got two questions on how you value these. Um, you know where they're located, like you said, maintenance I got. Yeah. So let's start on size and how you value them.   Matt McLennan (00:11:10) - Size is probably it can vary quite a bit. Um, I'd say the sweet spot is kind of 1 to 5 acres. That's where let's use the 8020 rule. Probably 80% of the tenants live in that 1 to 5 acre space. And and frankly, leaning towards the smaller side. Um, but part of that smaller side has to do with where rental rates have gone. And, and so tenants can't afford these huge yards. There are a lot of them that want to lease, you know, these mega yards think like the big the the Walmarts, the masks, the use and logistics, the targets of the world to have just huge fleets of vehicles and trucks and all that. I mean, they need the big yards and they're happy to pay for it. Um, but if but then at your most basic sense, the, you know, Joe's plumbing down the street that needs a little office, a little maintenance shop and somewhere to park their 30 vehicles that they go to show it, you know, that their service guy shows up to your house and fixes your toilet at home, right? So how do you value these? Um, location wise is a big one, and a lot of times depending if it's if it's a port driven activity, they obviously want to be near the ports.   Matt McLennan (00:12:18) - The other one would be close to population centers, because if you're Joe's Plumbing, for example, you know, you want you don't you don't want to be way out in the boonies where it takes your service guys an hour to drive to any of your customers you're facing. So location is a huge driver, probably the number one driver in price. And then I'd say the the biggest one is the utility that the yard provides. And what I mean by that is. Quality and really buildings, I would say, because a lot of these yards in their most simplest form and we iOS, I usually use the term yard to describe it. That's that's another phrase we use. A lot of these yards can be very simple. It can be literally a square lot with a fence around it. And it's gravel, no buildings, no utilities, nothing. And for some guys, that's all they need. But there's a lot of guys that have staff that need at least some kind of, you know, small, even if it's just a simple Job Shack trailer all the way up to a full on office space.   Matt McLennan (00:13:13) - They need a building to set up a desk and occupy, right? They need a bathroom, right? At the end of the day, if you're gonna have people working on this site and you don't have a restroom and it's just a gravel lot, all that yard, really, the utility it provides is just somewhere to park stuff or lay down material all the way up to a lot of groups. Want at least a small warehouse building like a shop, is what we'd commonly referred to as something that you could go do some basic maintenance, store some parts in, store some goods in all the above. So as you start adding these things to these iOS sites, they start, in my opinion, gathering a lot more value. They command more rent, they lease faster. And that's that's been a trend amongst the market as of late. So it's it's it's really location utility. That's that's what's driving the equation.   Sam Wilson (00:13:58) - Okay. So how do you how well that's just some uh, how do you do market research for that.   Sam Wilson (00:14:02) - Like how do you and obviously you said location is important, but how do you even begin to determine who the tenant type would be. And if they want to come to your yard?   Matt McLennan (00:14:14) - The simple answer is you call me. But no jokes aside, actually, I make that joke because there really isn't a formula for it. I mean, it's it's a property sector. I mean, you go, you pick any of the big research firms, CoStar, CBRE, you know, whatever it is, right? I mean, they capture infinite amounts of data on industrial markets, apartment markets, vacancy rates, absorption, um, anything. Right. No one's doing that for iOS. And it's and it's particularly because it's been kind of a forgotten quote unquote. I mean, I legitimately think you could call it an asset class these days, but it's still it's in its infancy, so there isn't a ton of data on it. Tracking it is difficult. So really, for me, doing a lot of iOS work in my market, it's it's it's up to me.   Matt McLennan (00:15:00) - It's it's putting my boots on the ground, researching zoning codes, tracking down lease comparables. What are what are what's land trading for? What can you do on that land? What utility is it provide? Like I mentioned, I have a checklist that I use. They kind of helps me work with my clients to determine what those values are. Um, so I've kind of come up with a little bit of a proprietary method to doing it, but that but that's really what it is, is it's it's still very subjective.   Sam Wilson (00:15:26) - Right. Yeah. That's, that is that is interesting. So you really need to find somebody, you know, if you're not looking to invest in the Pacific Northwest, you need to find somebody that knows a local market that can tell you. Yes, because I can only imagine that you're like, oh, hey, you know, you know, somebody like me that doesn't know it, you're gonna go, that looks like an amazing spot for this. And it could be just two miles in the wrong direction.   Sam Wilson (00:15:47) - Yep. Exactly. And you have a you now have a you're proud owner of a lot that's worthless. So that that's cool. What about access? I know you mentioned this a little bit. Like how how are people automating access to it. Because you don't want somebody out there lock and unlock it a gate if you even have a gate. But what's that look like?   Matt McLennan (00:16:04) - Yeah. It depends. I mean, it's it's probably not as complicated as you would think on the surface. I mean, a lot of people have keycard systems or I mean, really it's it's secured fencing that's kind of checkbox number one. And then is it automated entries. Do you have a guard shack that somebody sits there 24 over seven seeing who comes in and out? Or do you just give the key employees, you know, a key to the padlock and do you leave it open from 9 to 5 Monday through Friday and just assume that everything's going to be okay? I mean, frankly, it's it's usually more simple than you would think.   Sam Wilson (00:16:35) - Interesting. And what about I mean, I would think that you aren't necessarily especially I'm picturing, you know, 20 bucks trucks, ten semi-trailers, whatever it is, you're not necessarily leasing to just one entity or one firm if the lot's big enough, is that typically the way that works? Uh, and if so, you know, how how do you do that?   Matt McLennan (00:16:55) - Great question. It varies a little bit. I'd say more often than not, you're leasing to one operator. As an owner of some of these sites, I want at least one operator, because trying to have 30 different semi truck tenants on my property and manage that is a nightmare. But I've personally leased space to the one operator who then sub leases to those 30 groups, and he manages that component. So he he's basically running call it a side business where he's leasing my property, paying me rent, then he's collecting rent from all of, you know, his his 30 Co businesses in town. And he he makes additional profit off of you know what I'm theoretically charging him.   Matt McLennan (00:17:34) - So it's good for me and that I only have to deal with one guy. I get a rent that I'm happy. It's great for him because he can upcharge and make more money off breaking it down to, you know, call it the single parking spot, which is something I have no interest in doing. I'll take the hit on the income to not have to manage that. So we see both.   Sam Wilson (00:17:51) - Oh, absolutely. So so there's even property management companies out there. It sounds like I mean, that's exactly what you're dealing with.   Matt McLennan (00:17:57) - To a degree. I mean, since it's still in its infancy there, you would never if you tried to Google, you know, iOS property management. I actually I should take that back. I should really take that back because there have been a couple companies that are making a business of this where they will go master lease a site and, and then do exactly what I just talked about and, and I mean, there's ones that have apps now on your phone where a truck driver could be, you know, in another state that he's not in, he doesn't know it.   Matt McLennan (00:18:23) - And he needs, you know, it's ready to he's he's ready to call it a day. And he needs somewhere to park his truck and just sleep for 12 hours before he continues on his route, pulls up the app, sees within, you know, whatever mile radius, what's available and what the cost is per night, which is probably a supply and demand model. And it's based on an algorithm these days because everything is, you know, tech and fancy. And, uh, and then he, he can book a spot, go show up there. Park, you know, gets gets the key code access or whatever it is, goes into the facility. Parks, comes back out the next day and goes on his way. I mean, we're we're getting to that level of sophistication that hasn't been there until recently. Before that, it could just be, you know, your local mom and pop guy just kind of leasing it out to all of his buddies. But we're getting there.   Sam Wilson (00:19:04) - That is really cool.   Sam Wilson (00:19:05) - I love that it's, um, yeah, it's another take on the parking market in its own right. It's just a little bit a little bit different. And you call that iOS? Or industrial outside storage.   Matt McLennan (00:19:16) - That's it.   Sam Wilson (00:19:17) - Okay, cool. Well, we'll keep our eyes on that front. Uh, do you think one last question. Maybe on this. Do you think that. Property type will move in tandem with how industrial is performing overall.   Matt McLennan (00:19:32) - I think generally speaking, yes. I mean, I would argue right now it's probably being impacted more than the general industrial class, and at least in my market specifically because iOS is so tied to port activity. And if you look across the country right now, port activity to use, um, 20 or 20 foot equivalent units, that's how you measure. Um, that 20 foot container comes into the port ports, measure their volumes and everything based on TEUs. And so if you look at TEUs across pretty much every major port, which is a lot of the West Coast ports, a lot of the northeast ports, the ports on the southeast, um, everybody's down year over year, plus or -15 to 20%, which is a pretty big swing.   Matt McLennan (00:20:14) - And so consequently, freight volumes are down. The probably the number one tenant of iOS space is truck and trailer parking companies. And so if these companies have less work because there's less containers to go pick up in the port, they're they're not making as much money. They can't afford to pay as much rent or lease as much space as they would when times were great. So iOS is definitely taking a hit right now, in my opinion. General industrial, kind of in tandem with the rest of the commercial market in my opinion, is in this period of flux. But I've seen at least iOS actually take a little bit more, um, take a little bit more damage than I guess you would expect. But I think to answer your question simply, yeah, I mean, it falls pretty in line with where the general industrial market goes.   Sam Wilson (00:20:56) - Matt, this has been absolutely fascinating. I've loved learning about the iOS base, something that, uh, I really didn't know a whole lot about. I know I've had some other guests who have alluded to this asset class, but never even actually heard it defined in that acronym, iOS.   Sam Wilson (00:21:11) - We've talked a lot about where industrial is, what's happening in the markets overall. Actually, I did have one one further thought on that iOS space, which is it was cap rates. And then, um, is now a good time to buy if revenues are down. So before I completely summarize our call here today, tell me on that front, you know, what are the cap rates you're seeing these lots trade at. And then do you think now's a good time to buy if revenues are down?   Matt McLennan (00:21:34) - Great question. Cap rates are I can't tell you because it's a big question mark. Frankly, I don't even know if I could tell you a cap rate on on, you know, existing big box industrial. I could I could give you some indicators and point my finger. But iOS, because it's as an investment class is still a little bit in its infancy in my opinion. There just aren't a lot of data points out there to support what the cap rate would be. Um, a lot of these sites are bought and sold by owner users.   Matt McLennan (00:22:01) - The investment market is going in there a lot of the times, but they are taking more of a value out approach where they're typically buying something either vacant or soon to be vacant, and then adding value via building and proving the site. You know, some of those metrics that I mentioned earlier that provide utility to the site, and then they're going to go lease it out. And, you know, by the time you do a value add equation, I mean, their cap rate could be well into the high single digits to low double digits, probably is kind of the the metric. I mean, if you were to buy a purely fully stabilized call lease to Amazon five acre iOS yard that checks all the boxes. What's the cap rate? Slightly above your debt costs, probably not much more. It might even be on par with with debt on assuming you know that you're going to get some upside and as the lease progresses. So that's how I'd answer that one.   Sam Wilson (00:22:48) - All right. Fantastic. And it.   Matt McLennan (00:22:50) - Is. And it is a good time to buy. Um, you got to find the right price. Like any investment, you want to make sure that you're going in under the right basis. But yeah, because I don't see this asset class going away. I think it's still in high demand. It's still in high need for the tenant base. I mentioned why the tenant need for the space is fluctuating a little bit at the moment. But I'm I'm a believer in it. Go buy it.   Sam Wilson (00:23:11) - Absolutely. Well yeah. And again you know going back to the opportunity, the time to buy is when, you know, revenues are down and valuations may be faltering. So that's uh, that's a really compelling, uh, thesis you have there. Matt, I've really enjoyed having you come on the show today. I certainly appreciate it. I've learned a ton from you. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?   Matt McLennan (00:23:33) - You can always reach me by email or cell phone.   Matt McLennan (00:23:36) - Both of those are on my website that you can find through Kidd or Matthews, my company. I'm pretty active on LinkedIn. If you ever want to reach out to me there and see some of my content that I'm posting, feel free to engage with me there. But I'm an open book call. Email me. I'm always available.   Sam Wilson (00:23:50) - Awesome. And Keter is spelled with two D's. For those of you who are wondering and just listening, it's Kidder. Kidder, Matthews comm. Is that right?   Matt McLennan (00:23:58) - Uh, kidder.com kid.com.   Sam Wilson (00:24:01) - Okay, there it is. Kidder comm. Well, scratch that, you guys, uh, got it wrong for me the first time. Matt, thank you again for coming on the show today. I certainly appreciate it.   Matt McLennan (00:24:09) - Thank you for having me, Sam.   Sam Wilson (00:24:10) - Hey, thanks for.   Sam Wilson (00:24:11) - Listening to the How to Scale Commercial Real Estate podcast. If you can do me a.   Sam Wilson (00:24:14) - Favor.   Sam Wilson (00:24:15) - And subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen.   Sam Wilson (00:24:23) - 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.