Anthony Scandariato 0:00
The most important thing Darrin, is is track record. Yeah, I have Okay, you bought this property? What did you do to it to add value and what were the returns? So that’s what it comes down to at the end of the day. So we just want to continue to provide solid returns and make everybody happy and you can’t complain about pulling all your money out plus an additional 40% in a year and still own the building and collect you know, cash flow. You just can’t complain.
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J Darrin Gross 0:47
Welcome to Commercial Real Estate Pro Networks CREPN Radio, Episode Number 258. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focus on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their insight and experience to help you grow your real estate portfolio. Let’s get into the show. Today my guest is Anthony Scandariato. Anthony is the co founder of Red Knight Properties. They are a multifamily syndication firm. It’s a vertically integrated doing both investing and property management. And in a moment we’re going to speak with Anthony about both multifamily and property management more specifically. But first, a quick reminder, if you like this show, CREPN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, please consider leaving a comment. We’d love to hear from our listeners. And also if you’d like to see how handsome our guests are you sure to check out our YouTube channel. You can find us on the YouTube at Commercial Real Estate Pro Network. And also please consider subscribing. It always helps if we can grow the subscribers so we can also attract more listeners and viewers as well. With that, I want to welcome my guest Anthony, welcome to CREPN Radio.
Anthony Scandariato 2:25
Hey, thanks for having me, Darrin.
J Darrin Gross 2:28
Well, I appreciate you doing this today. I’m looking forward to our talk. But before we get started, if you could take just a minute and share with listeners a little bit about your background.
Anthony Scandariato 2:39
Sure, so So Darrin gave a great introduction. But in a nutshell, Red Knight Properties is a boutique, you know, value add multifamily and mixed use real estate investment and property management firm. So, we’re based out of northern New Jersey about an hour outside of Midtown Manhattan, Western down. And, you know, we own and manage ourselves about 200 apartment units as well as, you know, mixed use properties and by mixed use I mean apartments above retail on the bottom and both suburban and more CBD infill locations. And, you know, we’ve been growing We’ve been in business you know for me full time I was working for another real estate sponsor for a little over five years over the past, you know, since since last year and I went full time with red Knight this year. So we’re continuing to find good opportunities and our focuses on you know, B and C workforce housing apartments, with average rents anywhere from you know, $1,000 to $1,500 in northern New Jersey.
J Darrin Gross 4:00
Well, I wanted to, if we could, given the fact that you guys are vertically integrated, and, you know, do both the operation and the management of your properties, I wonder if you could speak to kind of the the some of the particulars with real estate management, and how, how you made the decision to do that. And then how you find that it helps, you know, with your overall operations.
Anthony Scandariato 4:38
Yeah, so the decision to self manage, was the locality. So, our properties are within 30 to 30 minutes to an hour of where I reside, and my partner, Brian resides. So location wise it made sense and also from a, you know, investment standpoint, the projects that we’re working on do require capital improvements and a very strategic turnaround when you’re trying to sometimes in cases rent increases have gone up 30 40% at some of our properties, and in order to get those increases, you have to be creative and to understand you know, rent control laws, if any, you have to, you know, just really be on top of your game and managing rollover. So for us, it was an easy decision to okay once we’re done with the value add on our buildings, and we’ve gone through, you know, cycles on three different buildings, you know, already. Once we go to the value add, we stabilize, we either refinance or sell. Typically, it’s refinancing them, you know, if we get our money back, we can be flexible with the holding period. But once we’re stabilized and the business plan is executed, then we can pass on the Management. But we want to be hands on and we want to make sure we’re managing the properties correctly, because I can’t tell you how many times I’ve seen, you know, sponsors, operators just passing along the management to a third party. Now, if you buy an out of state, it might make more sense and they’re very reputable. But just because we were so local and I could drive there I can, I can get in my car be there and a half hour. It just made more sense. The only thing that I don’t really do in house is the leasing and because that’s, it’s a big, time consumer. And, you know, we outsource that to a third party brokerage, which is essentially an extension of Red Knight. But, you know, at no cost to me because in a market where I am in northern New Jersey, you know, 99% of the time tenants pay the one month the realtor fee, so it’s really a no cost to to me.
J Darrin Gross 6:56
I thought I heard you saying in there when you’re working through a value add you guys management, you manage the property through the value add and getting leased up. But then do you consider turning over to third party or? Did I hear that right?
Anthony Scandariato 7:12
Yeah, yeah, once we’re done, we haven’t done it yet. Okay, we might might do it in the future, but we’ve been getting the link to self manage. But to be honest, once you get the value out of the properties are kind of on cruise control, depending upon how large they are, what’s your, you know, what your staff looks like. But if you’re buying in our case, we started out by, you know, 10 family up to 10 family of the same family. So, you know, it got to a point where we had 70 of them, and we were still able to manage it is important to have your systems in place. So if you don’t have if you’re tracking all this, rent roll and exploration schedules and payment schedules, outstanding balances on a spreadsheet, it’s not gonna work. You got to get property management software we use Buildium right now. So if we didn’t We’d be dead in the water
Yeah, no it can get pretty sloppy in a hurry if you have a an organized system with that. What about the value add? Are you guys turning that over to a general? are you managing that on a, you know artisan contractor by contractor you can you speak a little bit about that? Yeah, so we have our set of contractors and also subs. It depends upon what what job it is for the most part, we’re not doing anything too too heavy. Mostly, you know, carpet paint, you know, new countertops, maybe new sink, maybe paint the cabinets. So we work with you know, we have a few different contractors in our Rolodex you know, a few different GC we usually do work with GCS and then we manage the construction of that so you know, oversee them. So essentially we do construction management to but our projects aren’t, you know, anything too crazy so far. So we’re able to manage that process.
J Darrin Gross 9:11
So more kind of cosmetic value add.
Anthony Scandariato 9:17
Yep, goes a long way there was a long way.
J Darrin Gross 9:20
No, that’s usually the kind of stuff you can charge more rent for. Right? As opposed to, how are you? Big system stuff that’s hidden behind the walls that the, the, it’s supposed to be there as opposed to, you know, nice new countertops or painter or floor coverings when you guys are searching for a property or when you you know, you find one and you’re going through your due diligence. Do you feel like being a invested as you are in property management that’s given you a kind of a leg up or is it give you giving you a better understanding, going in as to what’s the Gonna be needed as far as trying to estimate or do you still get your contractors involved with getting bids and all that or how do you how does that help you out? Was it worth?
Anthony Scandariato 10:10
Yeah No we feel for underwriting Yeah, it helps a lot for sure. Because you know how much here’s, here’s the type of laminate I want to use, you know, what’s my labor going across? What’s the square footage of the apartments? One of the material is going to quality it’s definitely has its advantages to underwrite better, but we still go in and we do we do bid out, you know, each of our unit turns or project projects. You know, for example, we had like an exterior landscaping project where we were ripping out sidewalks and put in, you know, new sidewalks and also what’s it called, stonework. So, you know, we would we do bid them out. But as you start bidding out projects, you kind of understand, in general how much this is going to qualify. And that’s gonna cost so you kind of get more familiar with it. And every, every location is different. So, you know, cost of Labor’s different in New Jersey as you know, it would be in Ohio or wherever. So it’s, you know, I can actually have a chart that breaks down labor and by part, so we I kind of use that for my guidelines, but we’re getting used to understanding what in general things cost. So,
J Darrin Gross 11:27
gotcha. You mentioned 10 unit properties, or the majority of your properties, like close to a 10 unit, or how do they vary in size?
Anthony Scandariato 11:41
No, so that’s just how we started I mean, personally, I started with two families. But my partner and I started with the 10 unit, and then we bought you know, for other 10 to 20 units together. And then, you know, we ended up you know, we mentioned syndication, syndication is just pooling partners and resources together investors together to go after a larger property. So we did our first indication in December of 19, actually and under contract for a second one, which should close next month, and that’s, that’s April. So yeah, I mean, that’s, that’s essentially what we do and, and, you know, as you start to produce and you develop a track record, which we have, we’ve had to find refinance events, where we pulled out 140% of our equity on one deal, about to pull out 110% of our equity, we only owned it for a year. And then I saw something like 40% IRR. So once you develop more of a track record, you can, you know, present yourself better and, you know, more doors open for you to do larger deals. So, we just started out by the twos and the 10s and the 20s then The syndication really closes at 50. The next one we closed, we’re closing on as 64. So it’s gradually getting bigger.
J Darrin Gross 13:08
Got it? Have you found investors are more receptive to your or to working with you or investing with you given your, your, you know, steady increase in, in, in growth?
Anthony Scandariato 13:26
Yeah, absolutely. That helps. But like I said, the most important thing to add is just track record. Yeah, I have, okay, you bought this property? What did you do to it to add value and what were the returns. So that’s what it comes down to at the end of the day. So we just want to continue to provide solid returns and make everybody happy and you can’t complain about pulling all your money out plus an additional 40% in a year and still own the building and collect, you know, cash flow. You just can’t complain. So, you know, we want to do more deals like That was kind of an anomaly. But now he second deals similar, you know, and the syndication that I closed on, it looks like if we continue the way we are, we’ve already turned over 40% of the rent roll to new rents, and I’ve only only for three months. So if we continue the way that we are, we’re probably looking at a refi. I mean, by the end of the year, and I projected to do a refi you know, in two years, so just under promise and over deliver is what we always say.
J Darrin Gross 14:35
No, that’s, I’m sure most investors would be happy with that. Are you finding that most of the investors are willing to reinvest the equity when you’re returning their their capital?
Anthony Scandariato 14:47
Yep. Everybody has their own different reasons and, you know, timing for certain things, but we don’t require that. But yes, most of the times they do. Yep.
J Darrin Gross 14:59
Got it. Can you speak to kind of the the target kind of what you’re, you know, what you’re looking for in a property condition asset class management, etc.
Anthony Scandariato 15:13
Yeah, so we’re looking for, you know, Class B and C, you know, workforce housing product, which is, you know, not, not the low low low end of the totem pole, but kind of in the middle between, you know, really high end stuff and decent stuff. So, we focus on that and, you know, we, we like, right now we’re in New Jersey, and you know, I’m not saying he has a great story in general because it doesn’t to be honest. But there are certain pockets in the state that you can still buy at a low price for door and a nice cap rate going in that a lot of people don’t know about you know, and that’s that’s where you know, we’ve targeting right Now, actually, I just got awarded a deal over the border in Pennsylvania. So we’ll be moving out moving out there. I do own a small deal in New York State, as well. So we’re kind of in the tri state area, so to speak. But we look for properties, you know, that have that asset class and for rents that are below market due to whether it’s poor management, or they just haven’t really kept up with the building in terms of improvements. You know,
I’ve seen very many different situations. But it’s mostly mostly mismanaged properties. Off market for the most part, some of them we bought, were marketed with a real estate broker. We we picked up but we’re not we’re not buying things at the auction. You know, we’re not doing any of those short sale sort of things. It’s a lot harder to do that commercial anyway, for these types of deals, but in terms of deal size, Anything from like five to 20 million? we would we would close on.
J Darrin Gross 17:06
Gotcha. You mentioned off market are you are you going through brokers? Are you are you marketing direct to sellers?
Anthony Scandariato 17:19
Yeah, so now we’re going through brokers 99% of the time, there’s always that situation where you come across a real off market deal, but it’s just developing relationships in your network. And once you start closing on deals people know about you. And you know, it creates a sense of trust when you’re trying to buy another property from the seller who’s never worked with you before. You know, that definitely helps with one deals just because of that. But 99% of the time, it’s from brokers, especially in you know, this price range. And obviously, once you get to the higher price ranges, it’s even more broker dependent. So
J Darrin Gross 17:59
Gotcha. And as far as your expense, you know, stack as far as you guys are self managing, do you charge? I mean, in your operations? Do you charge a management fee similar to if you were managing, or having a third party manage the properties?
Anthony Scandariato 18:21
Yeah, so we actually charge at least for, you know, if it’s a deal with other investors, and it will charge under when a third party would charge to manage. So we’re always cognizant of that.
J Darrin Gross 18:36
No, I think there’s you know, having to charge for it totally makes sense. I just kind of curious you know, how you guys use that and I would think it would also help just spread the or help support the operations, you know, if you’ve got people that are actually engaged and, and doing things and how many units do you have now.
Anthony Scandariato 18:59
So we have 100 In 140, and then we’re closing on 64 for next month. So we’ll have a little over 200
J Darrin Gross 19:08
That’s great. That’s great. And the timeline since you When was it, you guys got started.
Anthony Scandariato 19:18
So I started about a little over a year ago. I was also working part time. As I mentioned, I was working full time, as I mentioned, but uh, we, you know, I started buying slowly on the side with my partner and, and then one thing led to another and we found a really good off market larger deal. And we put a group together and closed on it. And then that was the catalyst for,you know, for making this a real business. Yeah,
J Darrin Gross 19:50
That’s awesome. See, the I mean, just, that’s a pretty quick timeline as far as, you know, growing that fast and making it happen, so Like you guys are known in the areas as operators and have attracted assuming that the brokers are coming to you now with the fact that you have worked on multiple deals.
Anthony Scandariato 20:14
Yeah, yeah, absolutely.
J Darrin Gross 20:18
Is it a little different than when you first started?
Anthony Scandariato 20:23
Oh, yeah, much different a, for the most part, especially in a close knit community in New Jersey, it’s it’s tough to get a phone call return you know, there’s a lot of people who like to kick the tires so yeah, you take you get taken a lot more seriously for sure. And even you know, age doesn’t mean anything but you know, younger younger guy like me just walking in there and say, hey, I want to buy a property is $10 million. You know, Who who are you? So it’s a lot easier once you you can say, Hey, I own this now that I closed with this person, I know this person. It’s a lot easier. So
J Darrin Gross 20:59
Right Right now I’ve talked with a couple of different people here recently and conversation is kind of alluded to the need to stay with it and stay in it and consistency in order to kind of get some results. But once you, you know, begin to have those results, people start to recognize you as as, you know, capable and and credible and somebody that can close and is not just say kicking the tire. So that’s kudos to you and sticking it through there and in building up that reputation. And what’s the the MSA as far as the size of the area that you’re in?
Anthony Scandariato 21:45
Yeah, um, I mean, Northern New Jersey as a whole. Yeah, I think is actually look it up. But I know it’s at least a million people in New Jersey, but Miss in terms of the sub market, particularly That we’re invested in to some markets 50 to 100,000 people within a three mile radius.
J Darrin Gross 22:09
Right. And are jobs, you know, do you weigh is are upside, are people moving into the area? Or is it more of just kind of a a mature demographic is pretty steady or
Anthony Scandariato 22:28
It depends on the area and in particular, but the areas we invest in are yet people who already lived there or people relocating there for work. And you have to remember, we’re only an hour from Manhattan. So, you know, it’s, there’s so much demand all the time and vacancies are very big, the rates are very low, especially for this types of these types of products. Even, you know, during the last recession, the vacancy rates were extremely Low, everybody needs a place to live. So, yeah, I mean, it’s a combination of both. And in the markets, you know, market we’re heavily invested in is bringing actually like 6000 jobs over the next couple of years. So we do look at you know, employment is already a steady employment base within local economy we do. We do like that, because, you know, if, if stuff hits the fan, then we want to make sure that people still have the ability to work and they have jobs and are able to pay the rent. So
J Darrin Gross 23:33
Yeah, no rent rents important. Your mixed use properties. Can you speak a little bit to you know, how that’s different from a straight multifamily property?
Anthony Scandariato 23:50
Yep. So next uses apartments above and stores in the bottom in my instance, it could mean something else to somebody else. But generally if we’re looking at a mixed use deal, the spread between the going in cap rate going and yield so is generally like 200 to 300 basis points, which is pretty significant when you’re comparing it to traditional multifamily. At least in my experience, it’s definitely went down since we started buying. So there was definitely a spread but there’s a little bit more risk with the retail. We’re buying a building with retail, we’re very cautious and we’re very selective, that retail can’t be more than like 20% of the gross total revenue in the building. And you know, the has to have at least a three year lease depending upon who the tenant is. But most of the tenants we have are like mom and pop. And it’s that a service based so nail salon hair salon, ice cream store can really be disrupted by Amazon. So or you know, any other ecommerce so you No, this is all service based for the most part. And that’s generally what we look for.
J Darrin Gross 25:07
I would think that would be kind of a nice stabilizing factor, I would think or do the do the commercial tend to tend to be longer term.
Anthony Scandariato 25:20
Yeah, yeah. Like I said, usually they sign at least three releases, sometimes five, sometimes 10. Sometimes 15. depends on you know, if you have a credit turn in or if it is like a, you know, a mom and pop or a startup. But for the most part, we’re looking at, you know, service based retail.
J Darrin Gross 25:39
Gotcha, gotcha. Hey, Anthony, if we could I’d like to shift gears for a second. As I mentioned you before we started by day, I’m an insurance broker. And with that I assess risk and try and manage risk for our clients. And there’s a couple of strategies. We will use When we’re trying to manage risk, the first is we look and see Is there a way we can avoid the risk? If that’s not a possibility, we look to see if there’s a way we can minimize a risk. And when when neither of those are options, we look to see if there’s a way we can transfer the risk. And that’s where insurance policy comes in. And I like to ask my guests, if they can take a look at their situation and what they’re doing. And you can identify what they consider to be the biggest risk. And just to be clear, I’m not really looking for an insurance related answer. But more of Ill let you kind of frame that. So if you’re willing, I’d like to ask you, Anthony Scandariato what is the BIGGEST RISK?
Anthony Scandariato 26:52
Yeah, I mean, the BIGGEST RISK is to me it’s always on the buy. So you have to always buy right you have to always run your numbers. You To run a sensitivity analysis, you have to understand, you know, if downside base case and upside, and if the downside scenario still makes sense, then it’s a good deal. So the BIGGEST RISK is people not buying right? You know, we always not running these analysis because markets change, and right now they’re changing every day. So, you know, you have to incorporate those into your numbers, and we always do, you know, what happens if, you know, I can’t get the rents I wanted? Or what happens if I can’t refinance or sell for this cap rate? And, you know, what happens if interest rates go up? And, you know, I have to therefore increase my exit cap by 3300 300 basis points. Am I still gonna make a decent return on my money as opposed to putting it in the stock market? And the answer is yes, then that checks my box. But we have a whole criteria of that but the base versus people overpaying for deals just today. Deal doesn’t necessarily mean it’s a big deal.
J Darrin Gross 28:04
No, there’s definitely a fear of missing out kind of a thing where people are, you know, willing to do some silly things sometimes. So that’s good advice there. Anthony work and then people go, Where can the listeners go if they’d like to learn more or connect with you?
Anthony Scandariato 28:25
Sure, so they can go to our website, that’s RedKnightProperties.com and that’s Red Knight with the K. We also have a LinkedIn page Red Knight Properties and we have a Facebook page Red Knight Properties and on our website, we have a scroll to the bottom of the homepage, we have like a Contact Us form. So you can send us an inquiry there or you have my email on there and also my partner’s email, so feel free to email us phone number is also on there as well for office so happy to hear from you.
J Darrin Gross 28:57
Got it. Well, Anthony. Thanks for taking the time to talk today. I’ve enjoyed it. learned a lot. Yeah. Yeah. And hope we can do it again soon.
Anthony Scandariato 29:09
J Darrin Gross 29:11
All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CREPN Radio.
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