J Darrin Gross Podcasts -

Raise Capital for Real Estate with Dave Dubeau – CRE PN #371

Dave Dubeau 0:00

Say, I lost that deal, I was not able to raise the money for it because I bought into that find a good deal, the money will find you. Since then, I’ve completely changed my philosophy. And I think, hey, here’s the goal. Get your investor ducks in a row first. And then go looking for the deals or at the very minimum, do both at the same time. But don’t wait until you got a hot deal on the go. And then desperately start looking for the capital. Try and get that set up ahead of time get those investor ducks in a row. So the whole goal and nowadays we work with clients and we help them do all of this stuff, is we want to get you a bunch of investors waiting in the wings anxiously you know, biting their fingernails waiting to jump in on your next opportunities.

Announcer 0:46

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you are an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:06

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals to provide their experience and insight to help you grow your real estate portfolio.

Today’s program is sponsored by Building Insurance and Risk. Don’t put your real estate investment at risk, work with building insurance and risk and receive multiple coverage offers with a side by side coverage comparison. To learn more, go to building insurance risk.com.

Today, my guest is Dave Dubeau. Dave Dubeau is a real estate entrepreneur, best selling author, speaker and investor, attraction expert. And in just a minute, we’re gonna speak with Dave about raising capital. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment we’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, please go to our YouTube channel. You can find us on YouTube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that own welcome my guest, Dave Dubeau, welcome back to CRE PN Radio.

Dave Dubeau 2:38

Darrin, thanks so much for having me.

J Darrin Gross 2:41

Well, I’m looking forward to our conversation today. But before we get started, if you could take just a minute and share with listeners a little bit about your background.

Dave Dubeau 2:50

Sure. Well, thanks very much. I am originally from northern British Columbia, Canada. Born and raised living there now however, I took a little hiatus and I lived overseas for almost 14 years. Traveling around Mexico and Latin America, settled down and lived in San Jose, Costa Rica for a decade, from about 93 to 2003. Ran a language training company down there, got married, had kids, all kinds of good stuff. And then in 2003 I uprooted my Costa Rican family and moved us all back to the frozen hinterlands of British Columbia, Canada. And a lot of people, especially Canadians, go what are you crazy? Maybe Maybe Costa Rica is wonderful is beautiful. However, being the pasty faced white guy that I am. Whether you have money or not people assume that you do in Latin America. And there’s a distinct risk of being kidnapped, held for ransom, that sort of thing. So in the small town we live in, in British Columbia, Canada, that hardly ever happens. So that was a matter of our kids were getting towards school age, we decided, hey, you know what, Costa Rica is great, but I think it would be better for the kids to grow up in North America. So that’s why we moved back.

So at that point, Darrin was like, Okay, now what do I do? I mean, I’d been out of the country for so long. I didn’t have a bad credit rating. I had zero credit rating, just nothing. I had been self employed for quite a while. So I was pretty much unemployable hadn’t been able to sell my business in Costa Rica so didn’t have a lot of money to get started with. And it was a question What am I going to do? So I don’t know if you remember those you remember those late night infomercials? Darren, you too can get rich in real estate with little or no money down. I need you to do it. You’ve got the radio voice, but you know what I’m talking about, right? Oh, yeah. But I saw one of those. I saw one of those commercials I said perfect. That’s what he got little or no money. So I send away for this program. A guy named Ron Legrand all about creative real estate real estate type deals. had to kind of Canadian eyes it it’s basically all the same stuff, Darren, I mean, we have slightly different language for things up here. But real estate works. The same as it doesn’t doesn’t state. So first of all kicking the can was I did 18 deals in 18 months, these creative low money, no money down type deals, which may or may not sound impressive. It sounds kind of impressive. However, you got to see some of those deals, some of those were pretty, pretty sketchy at best, talking about rundown mobile homes and mobile home parks and things like that. So, but I got very good at doing creative deals and attracting motivated sellers. So that’s, that’s how I got started in the real estate space.

J Darrin Gross 5:40

Well, 18 deals in 18 months. I mean, you’re getting reps, and you’re having success, regardless of you know, how pretty they were, how big they were. I would think that just, you know, it’s like anything, you know, whether you’re doing math or trying to learn how to hit a golf ball or whatever the revenue,

Dave Dubeau 6:00

Neither which, neither one of those things, I’m particularly good at Darrin. So

J Darrin Gross 6:06

The point is that repetition is really the that’s the key, exactly are the those that are have some natural talent. But even that if they there’s room for improvement, and, you know, repetition, how you get there. So that’s great. So you you started, I know, down here, it seems like the guy was Carlton Sheets, but it was all the same kind of thing. It was a late night. You knew us it was time to go to bed when when the ads started coming on, because everything sounded too good.

Dave Dubeau 6:37

Yeah, but I think I was I was stressed out, I had insomnia. So I was late, up late, thinking, what the heck am I going to do to put the put the food on the table? That kind of thing.

J Darrin Gross 6:46

So yeah, no, I know, I’ve got several insurance clients that I think, you know, that’s kind of how they get started, because I remember some of the deals that they were, they were bringing me when I first started, right, you know, insurance were like, and, you know, just, they just, they were nothing like anything I had ever seen before, you know, trees growing through the chimney are kind of thing and, but they were making money and making it happen. And, you know, again, it was kind of more of a, an assumption and finding those that were there was some opportunity, and kind of learning the ins and outs and becoming more proficient. And, you know, to this day, they’re there they’ve done very well and, and have multiple properties very secure, you know, base of, of equity and and, you know, options for for exits and and all that fun stuff. So

Dave Dubeau 7:41

I wish I had been smart enough to hold on to a bunch of those properties. But those were all kind of quick turn transactional type deals. So so it made it made a quick POP of cash with them, but that didn’t get any of the long term growth. So that was gonna jump.

J Darrin Gross 7:57

Well, but during your your experience, so you mentioned that you attracted investors and stuff.

Dave Dubeau 8:03

Well, yeah, so that’s how I got started in real estate, took a few years off, and then when I got back into it, then I started doing a little bit more traditional type stuff, starting with single family homes, buying and holding them for a while. That’s when I started bringing on joint venture partners investors, that sort of thing, then transit transitioned into multifamily buildings later on. And these days I’m personally I’m more of a kind of a passive investor myself, because, quite frankly, Darrin, I realized a while ago, I kind of suck at dealing with tenants and toilets. So I’d rather let the guys and gals that are good at that take care of that stuff.

J Darrin Gross 8:39

Ya know, that’s an important realization to have. Yeah, property management versus asset management, two entirely different roles and the big deal there. But so let me ask so you, you know, you came, came back into you got into larger properties and raising money. Did you find the property first? Or did you find the money first when you were doing these larger deals?

Dave Dubeau 9:09

Oh, yeah, that’s a good question. So at first, when I first started realizing I needed to access other people’s money to grow my portfolio. I bought into the guru talk of just find a good deal and the money will magically find you. And personally, Darren, I like to find whoever came up with that expression first and smack them right upside the head. Because I think they’ve done the vast majority of real estate investors a great disservice for that because it’s baloney. At least in my experience, so so that’s what I tried at first, I remember it vividly. I just little deal on the go, just a single family home, but I needed to raise $85,000 And I only had less than two weeks to do that. And I didn’t have anything lined up. So I was starting from scratch. So I had heard that expression, find a good deal. The money is going to find you but I knew that. You know it wasn’t just like the secret that the universe is going to do. plunk a bag full of money down on my patio. So I’d have to do something. So I’d also heard these gurus say, Well, hey, you know what if you need to raise some capital quickly pick up the phone and do what all of us love doing, which is cold calling, right Darren, I don’t know if back in the day, when you were first starting in the insurance business, you were encouraged to cold call people and try to pitch them on on your stuff. But that’s kind of a common thing for, for people in those kinds of industries to be told. So I thought, hey, well, I’ll give that a try. And I failed miserably at that.

Desperation.

Yeah, I didn’t really know what I was doing. Plus, quite frankly, I just think it’s really a really bad idea. Unless you’ve got an amazing sales background. You’re very good at that. But if you’re trying to raise at that time was trying to raise $885,000, if you’re trying to get somebody invest 85 grand with you, calling them calling them up cold over the phone, probably isn’t the best way to do it. So I did a bunch of those calls. That didn’t work for me. So then I thought about I got to try something else. And I’d also heard Hey, go out and network up a storm turn every conversation into real estate conversation. Nothing wrong with networking, Darrin, the challenge is when you’re on a really tight timeline. So by this time, I’m down to like seven days that I’ve got to come up with 85 grand. So when you’re in a tight timeline, and you’re networking and schmoozing to raise capital, the desperation kind of oozes out of every pore in your body. Right. Right, people can pick up on that. So it doesn’t really matter how good the deal is, if you’re coming across as desperate needy, that’s going to creep people out, it’s just going to kind of repel them. So that’s what happened there. And then I was getting really desperate a few days before I needed to close on this deal. I came up with a what I thought was a great, brilliant idea said hey, this is such a good deal. It’ll sell itself if enough people see it I’ve ever heard anybody say something like that was me. So I put together the one PD one page PDF outline of the deal, put together a list of a couple of 100 people that I knew. And I spammed I mean, I emailed them all this, this PDF, and I remember it was like a Wednesday night. I think I’d removed subjects on Friday. So it was a Wednesday night I sent this out. Thursday morning, I got up I was so excited Darrin because I had some responses in my inbox. And then I started reading the responses. And they pretty much all said something along the lines of hey, Dave, dude, haven’t heard from me in forever. One guy hadn’t heard from me in eight teen years there. And this was the first thing that showed up in his inbox from me. Hey, it’s Dave, I got the deal. Have you got the dope thing, right? They all basically said, Hey, do Bo take a long walk off a short deck, take a hike, get out of here. Bottom line, Darrin, that’s a very long winded way to say I lost that deal, I was not able to raise the money for it, because I bought into that find a good deal, the money will find you. Since then, I’ve completely changed my philosophy. And I think hey, here’s the goal. Get your investor ducks in a row first. And then go looking for the deals or at the very minimum, do both at the same time. But don’t wait until you got a hot deal on the go. And then desperately start looking for the cattle. Try and get that set up ahead of time to get those investor ducks in a row. So the whole goal and nowadays we work with clients and we help them do all of this stuff, is we want to get you a bunch of investors waiting in the wings anxiously. You know, biting their fingernails waiting to jump in on your next opportunity. So that’s, that’s the goal these days.

J Darrin Gross 13:47

So you you know, you still raise money for your own deals? Or do you primarily work with others to help them raise money?

Dave Dubeau 13:54

Primarily these days, I’m working with others, we have kind of, for lack of a better term, a a boutique marketing agency, and we work with what I call Mom and Pop real estate investors, help them get started on their path to raising capital doing it the right way. And help them get their first, you know, anywhere between 500,000 to 1.5, maybe $2 million worth of industrials and capital lined up.

J Darrin Gross 14:17

That’s, that’s impressive. So in that role, what are some of the mistakes you see that you know, in or people that are trying to raise money make?

Dave Dubeau 14:30

Yeah, well, you know, everything that I just mentioned, all those mistakes I’ve made, I see other people making those as well. So waiting until you’ve got to deal until you start trying to raise capital and then just floundering around and and, you know, running around like a mad person. That’s a big mistake. Another big mistake is you know, especially for newer capital raisers is they think that everybody and anybody with a pulse and a checkbook could be a good investor. So I’m going to cover my butt here, Darrin, I’m gonna say the caveat is I’m not a lawyer, nor a security specialist. I’m a real estate guy up here in Canada. However, you know, you guys in the states have the Securities and Exchange Commission, we’ve got our own version of that up here, they’re just as nasty. It’s all basically the same role. So, same idea. So, a lot of people, I see it, I’m sure you’ve seen this as well, they start pitching their deals on social media, like they put it up on Facebook, or LinkedIn, or whatever their flavor of social media is, and say, Hey, I’m looking for investors for this deal. I’m offering x, where she had guaranteed and all this kind of stuff, right? And they’re trying to promote, they’re trying to solicit investors in a public forum. And my understanding is that that is illegal, right? Unless you’re licensed to do so. Like, if you’re a stockbroker, if you’re a financial planner, certain cases, maybe a mortgage brokers, certain financial specialists, they, they can do that they’re there, they’re able to do that the big banks, etc. Or, if you’re set up with a specific exemption, in the case of our American friends, right, you’re, you’ve got exemptions, or you’re set up with corporate structures and, and offering memorandums and all these kinds of things, which tend to be very, very expensive and cumbersome to set up, which doesn’t really make a lot of sense if you’re doing a little single family home or a duplex or a small deal. Right. So where does that leave us? Well, I think the best place for people to start is to focus on their existing network of contacts. So instead of going out to everybody, and anybody, I mean, we got to be logical about this as well there. So I mean, think about it, if you’re trying to get somebody to invest 5075 $100,000 or more with you in a deal, chances are, they’re going to need to know you, they’re gonna need to like you, they’re gonna need to trust you with their money. If you’re going out to the great, unwashed masses, you’re going out to the general public, you’re going out to strangers, strangers, don’t know you, they don’t like you. And they certainly do not trust you with their undergrads. So that’s a long shot at best. So why not focus on where we can kind of shoot fish in a barrel. And that’s with people that you already have in your existing network, friends, family members, co workers, business associates, people who know you, and who you know, because when we focus on those folks, number one, we’ve taken care of the know like, and to a certain extent, the trust factor, they know you they like you, they may trust you to babysit the dog for the weekend, maybe not with 100 grand yet. But you know, we’re getting closer, we got two out of the three, which meatloaf saying is all about that, that ain’t that that’s it, that’s a good place to start. So that’s that’s what we recommend, is when you’re getting started with raising capital, focus on your existing network. Laser laser focus on that is going to be the fastest capital, it’s going to be the easiest capital is going to be the safest capital for you to get started with.

J Darrin Gross 18:08

That’s good. With raising money, I guess that you mentioned like when to start, you recommend kind of either before or at least at the same time when you when you find a deal?

Dave Dubeau 18:21

Well, yeah, I recommend before. So that’s a really good question, Darrin, because a lot of people are hung up about this, especially when they’re first starting with raise capital, When should I start trying to bring on joint venture partners, investors, etc. And my personal opinion is, as soon as you’ve got one successful deal under your belt, then you are ready to start using other people’s money. Because the statistic I’ve heard thrown around for years, is that 95% of the general population has never purchased an investment property before their own house does not count as an investment property. So if you’ve got even one successful deal under your belt, chances are you’re ahead of the vast majority of the non real estate people that are in your network. So And my philosophy is, you know, a good real estate deal is the absolute best way for everyday folks like your listeners, myself, our investors to get an above average return on their money backed by a solid, tangible asset, a real piece of property, because I don’t know any other investment class out there that we can exercise as much control over right. So when you think about it a piece of property, we can draw what market we want to focus on, what kind of properties we want to focus on, who’s selling them on market off market type deals, to a certain degree, how much we pay for them and there’s a little bit of negotiation available there, how we get them financed to a certain degree, right? We can control what we do with those properties. Once we Get them, how we make improvements on them, who we put in those properties as our tenants, we’re holding them long term, how we exit those properties. So we have so much more control over this asset class, then buying gold stocks, bonds, mutual funds, crypto, all these kinds of things. We really don’t have much control over. Right.

J Darrin Gross 20:22

Right. Right. So as far as the asset goes, do you typically work with people that are looking for like, multifamily value add? Or do you work with other asset classes or other strategies for for, you know, buy and hold or what’s kinda the sweet spot?

Dave Dubeau 20:40

Pretty, pretty much you know, as far as the people that we work with as our clients. Yeah. Pretty much runs the gamut there, Darrin. So again, we tend to be working with smaller Mom and Pop real estate investors. We’re not working with the big time syndicators. So we’ve got clients who are doing single family homes, burrs, self storage facilities, by fixing sell flips, small multifamily properties. We’ve got people that are doing land deals, we’ve got people that are doing carwash, we got all you know, pretty much commercial, you name it, if it’s if it’s got real estate involved with it. The process works the same way. Tax liens, tax deeds too. Yeah.

J Darrin Gross 21:23

Got it. So how do you set realistic or attainable expectations? When you’re when you’re meeting with somebody? Is that based on the size of the network that they have? Or was it their experience? Or how do you kind of, if I, if I came to you and said, Dave, I want to raise, you know, $10 million?

Dave Dubeau 21:45

Well, I would say, that’s great, Darrin, how much have you raised to date, if you see a big fat zero, right? Then we’ll say nothing wrong with wanting to raise 10 million, we can probably help you get up to your first one, maybe to 2 million, by really leveraging your existing network. Because that’s what we found over the last six years, we’ve been doing this as we can typically squeeze the juice out of your existing network, get that one to 2 million out of there. Once you’ve got that, then you’ve got to quickly work on expanding your network and probably start working with accredited investors who have larger amounts to invest there. But that’s that’s kind of why that’s our sweet spot is we help people get started in the process, get them up to that, you know, over time up to that one to 2 million.

J Darrin Gross 22:32

Got it. And even in that just heard me like, I’m assuming that there’s kind of a reality check. Sometimes based on what people you know, want to do versus what, what seems reasonable or what’s easily easily attainable. You’re saying the find that that kind of the eyes are bigger than the play kind of thing, or we’re

Dave Dubeau 22:53

Not necessarily there’s there’s a, there’s a bit of a range there, but quite often daring. Again, like I say, we’re working with the mom and pops that have been doing some deals for a while that typically they sell finance their first 234 properties, something like that, now they’ve hit the raw, they’ve run out of cash, they’ve run out of credit, they tend to be very insecure about how to go about raising capital. So if anything, a lot of them tend to be quite conservative, right? So we, we actually are able to show them that, hey, we can probably get you even better results than then you’re hoping for. But again, yeah, it’s it’s important that we have those realistic expectations. So typically, what we say is, hey, it’s fairly straightforward to raise your first six figures, in a matter of, you know, less than two months kind of thing. And then we can be working towards the seven figures, the million dollar mark over the course of a year. So it’s not a immediate type thing. So it’s, it’s like anything, I mean, Darrin, you’ve been in the insurance business for for many years now. So you understand that, you know, when you first reach out to that target group, that market, you’re gonna have some low hanging fruit, you’re gonna have some people that are ready, willing and able to do business with you right away. But then you’re gonna have a much, much larger group of people, they’re going to take a little bit of time, to warm up to the idea, they’re going to take a little bit of time to be convinced that you’re the real deal. They’re gonna it’s gonna take a little bit of time for them to be ready, willing and able, especially in our case, if we’re trying to get them to invest 50 7500 grand or or more, they’re gonna have to feel very, very comfortable. So we’re gonna have to work on their timeframe, not just our timeframe. Does that make sense Darrin?

J Darrin Gross 24:41

Yeah, totally you mentioned kind of the lack of confidence or or I don’t remember exactly how you said it, but something about the investor not really I took it to me like they really believe in, in what in the value of their experience kinda thing.

Dave Dubeau 24:59

Yeah, That’s uh, so a lot of our work is just getting people in the right headspace to show them that yeah, they are worthy because here’s the thing, right? A lot of people that are listening to smart guys like you with podcasts that are interviewing super successful real estate investors who’ve got dozens or hundreds or 1000s of deals under their belt, they’re watching guys, like CARDONE on YouTube with, you know, raising gazillions of dollars and all this kind of stuff. That’s what they think is normal. But that isn’t what’s normal, right? Normal is Mom and Pop real estate investors that that, that makes up over 80% of the population of real estate investors. And the reality is, the vast majority of the people in your network could really benefit from partnering with you on a deal. I mean, we talked about, we talked about real estate as an asset. And if you look at the kind of returns and I know you’re in the financial business, Darrin, so you see this every day, right? The kind of returns, the average person is getting on their investments, whether that’s stocks or bonds, or, or mutual funds, or whatever it is, is pitiful, it’s not even coming close to keeping up with inflation, especially these days. They’re getting whacked with fees left, right and center by their financial planners. And they really aren’t coming ahead yet getting ahead. By doing it the way we’re told to do it, right. So when we bring people the opportunity, when we educate people about what we’re up to, with real estate investing, I say educate. That’s a very purposeful expression there. I’m not saying pressure, I’m not saying manipulate, I’m not saying convince people to invest with you, when we show them what we’re doing. We show them what’s in it for them, we show them the big benefits of real estate, not only as an investment class, but also all the multiple ways that they can profit from even one real estate deal. So Darrin, I know you will work with a lot of guys and gals in the commercial space. So if we’re talking about for example, a an apartment building, I’m aware of up to eight different profit centers, from one multifamily deal. Now compare and contrast that to almost any other investment out there. Who that might have usually just have one way to make money, maybe two, but definitely not eight. So again, when we’re able to show people, Hey, here’s why real estate rocks, and why it’s so much more is so much superior to pretty much everything else out there. And we allow them, we show them the pros, we also show them the pitfalls, we show them the risks as well. And we allow them to make an educated decision.

J Darrin Gross 27:45

Got it. So when you have somebody and you said, kind of work with them on their own mental frame of mind, you know, to to kind of get them to know that they do have valuable experience and others would like to probably work with them. What are is it? Kind of from that point? Is it stories that they kind of, you know, learn to tell others about, you know, their own experience? Is it? Is there a a medium that you find works best? Is it written letters? Is it emails? Is it phone calls? Is it what what’s kind of the the method and then the frequency that you find that somebody who’s getting started and trying to raise money? And let’s say they they’ve they’ve been investing for years, but but also low? Also? Yeah, that’s yeah, it’s very common. Now there’s another looking to try and raise some capital.

Dave Dubeau 28:42

Yeah, that’s a really good question. Darrin. So what I talk about are the three C’s of capital marketing. And the three C’s are constant, consistent, edutating, communication. Sorry, I have to throw entertaining in there. I’ll explain that positive, consistent communication, communications, the marketing, it’s what we’re saying. Constant means the frequency. So our recommended frequency is like once a week. That’s that’s pretty ideal. And once a week isn’t overwhelming, I’m sure you’re on a bunch of different people’s email lists, and you get gazillions of emails from certain people way more than once a week. So once a week isn’t overwhelming, and we recommend that people mix it up a little bit. So the simplest things to do and the things that are most effective these days are electronic newsletters. So for example, once a month when we’re working with clients the first week, first week of the month, we send out an electronic newsletter on their behalf and we try to make it edutainment. What does entertain me means a little bit educational, a little bit educational, and hopefully a little bit entertaining, without necessarily being goofy, right? So here’s what we need to remember there. And this is true of any business, right? You’re in the insurance business. And what you probably learned a long time ago is that you are very enthusiastic and keen about insurance, yet very few other people. No offense,

J Darrin Gross 30:21

Very true. Very, very true.

Dave Dubeau 30:22

Same thing with us as real estate investors, we’re very, we’re nerding out on this stuff. I mean, for crying out loud, you got people listening to us jabber on about real estate investing and raising capital, you got to be a little bit different than the average person if this is something of interest to right, and that’s a good thing. But what we got to remember is, our target group of potential investors are not us, right? They don’t really give a darn, they want to know that we know our stuff. And they just kind of want to get the gist. So a big mistake I see a lot of people making is they try to over educate their prospective investors by doing a data dump of everything in their brain, and try to transpose it onto other people’s brain. Big mistake. So we want to keep it super simple. Educate them a little bit. Hopefully entertain them a little bit and keep it super simple. I call it Reader’s Digest love. You remember the good old Reader’s Digest? Yeah, yes. My grandma used to get that I used to read that when I was a kid at her place. It was great. So as a magazine written for grownups, however, was written at a 13 year old reading comprehension level. So any, we want to keep our I’m not saying our investors are dumb. We just want to keep it super simple for them. So it’s easy for them to consume and understand and have a clear call to action. So to answer your question is a long winded answer for sure. What are we recommending electronic newsletters, then we’ll follow up the next week, it might be a blog posts or short little article something about why why real estate rocks compared to everything else, or why per specific strategy you’re focusing on or the market you’re on, you know, pretty light, not too heavy. With a clear call to action. Hey, if you’d like to find out more, click here, book a call, let’s have a conversation, see how this could work for you. The next week, it might be something different, perhaps is a short video, a video log of log. And that would be like a three to five minute little video, where you’re talking about something, maybe sharing a story during a case study, doing a walk through doing and showing before and after picture, something like that. So again, keeping it fairly high level, hopefully a little bit entertaining. And then with that clear call to action. So every single week, drip, drip, drip, something to get top of mind and stay top of mind with your prospective investors. The low hanging fruit, they’re going to be keen, they’re going to be responding right away. The other folks that take a while, hey, they’ll respond when time and circumstances are right for them. Right. So it might be three months down the road, five months, six months, 12 months, 18 months down the road, really doesn’t matter. Right? Because if you’re doing this constantly and consistently, it’s going to be creating a regular flow of investor meetings for you. And that’s the whole goal.

J Darrin Gross 33:15

No, that’s, that’s really good. The kind of the frequency and the method and, and, you know, again, I think myself and I struggle with it kind of the I feel like it’s kind of horn tooting. You know, it’s always like look at me kinda thing.

Dave Dubeau 33:31

Yeah, there’s there’s your that’s a good point, right? So you sound like you’re kind of a conservative kind of guy. And most most of our people are as well, they don’t want to come across like a Grant Cardone nothing, nothing against grant, but he’s over the top.

J Darrin Gross 33:44

Nobody. I mean, it’s just, it’s a level of comfort and confidence in what you’re doing. And the people, you know, I mean, there’s the number of messages and you know, we’re all bombarded by information. And I think one of the challenges that that’s tough to keep in mind is that, yeah, we are bombarded by stuff, but there are people that let know and like you already would love to, to, you know, hear more from you about whatever you’re doing, especially if it’s if it’s something positive and it’s your, your genuine, I think the authentic piece is really critical to that I’ve I’ve had, you know, numerous instances where, you know, people have come across, way over the top, you know, way over their skis kind of thing. It’s like turns you off, right. Yeah, just it’s, it’s, it’s not genuine or if it is genuine, that’s not the gym. That’s the person I want to you know, that’s not the one I want to get to know more but

Dave Dubeau 34:41

Exactly. That’s why we call this if we go about it this way. It’s kind of it’s not exactly like shooting fish in a barrel, but it’s the closest thing we can get to it because again, you’ve already got a connection with these people. They already know you they already like you that’s why you can be genuine. And to get to your point about how to do this without Being all Hey, look at me Look at me. What we do with our clients is we really try to keep it focused around, communicate what’s in it for the other person, right? We’ve all heard the Wi FM, right? So let’s focus on when you’re telling a story, especially if you’ve worked with a joint venture partner on a deal or something like that. Then talk about it from the aspect of what, how they benefited. Here’s what our investors loved about this. Here’s, here’s, here’s how our investors ourselves benefited from this. So when you’re using that language is not about all about, hey, here’s how smart I am. Here’s how clever I am. It’s here’s how we did this together, and we benefited together?

J Darrin Gross 35:43

No, no, it’s it’s definitely a powerful message and an opportunity for anybody that, you know, especially anybody that has invested and is looking to grow to the next level. And, you know, looking for ways to raise capital, because I think it is, you know, there’s mindsets, and I know, I kind of share a little bit of that it’s like, Well, I do it myself that I don’t have to, like worry about engaging others kind of thing. But the real reality of that is, is that you, you know, when you think that way you cap your ability to grow, you know, your, your asset base and your wealth, and also to share with others. I mean, they, you know, there’s nothing like you’re saying to me, you know, when you’re excited about something it’s contagious. You know, there’s, there’s even when you share that people go like, wow, you know, that sounds pretty good. And tell me more? How do I get in kind of thing? That’s kind of a common thing? Well, how do you know, how can I get in? Yeah, and definitely, with the market being what it is, there’s people looking for, you know, ways to improve their returns, and, and definitely, they, they likely don’t know all the ins and outs, or the benefits of real estate. And, you know, here’s your chance to educate them and, and attract some of their money and, or attract them to it and, you know, grow and grow for you and for them. So I think it’s a great idea.

Dave Dubeau 37:07

It’s kind of like, in a certain way, it’s kind of like the insurance business there. And and correct me if I’m wrong, because I’m not in the insurance business. So I’m making some assumptions here. But I feel like we owe it to people, to show them what we’re up to, and allow them to make up their own minds as to whether or not they’d like to get involved. So like with insurance, I’m sure you feel this way that, that you would be doing people a disservice, if you didn’t at least allow them to be aware of what it’s all about, and what the big benefits and how it can protect them. Well, the same idea with a real estate deal. You know, when we’re, we’re not trying to push our stuff on people, we’re just trying to educate them about what we’re up to, and how how we can compare and contrast that to their other options. So same kind of idea when you’re doing insurance, right? Having insurance versus not having insurance or having a certain kind versus another kind, you understand the intricacies. Now it’s up to you to be able to explain that at a level that people can really understand it, and get what’s in it for them.

J Darrin Gross 38:13

And to that, I think that if you if you don’t share that information with others, and they hear it from somebody else, and they act with that other person, because you didn’t introduce it to them when you were doing it. I think that’s that’s the thing that’s kind of driving motivation. You know, that that’s a bit of a punch in the guts, isn’t it? Yeah, I mean, because, you know, you, you know, you know, multiple times, I think we all kind of qualify somebody without ever introducing the topic or whatever, we’re gauging kind of where they’re at. And we just assumed that he had a there, they’re probably not there. And you know, it’s a great disservice to the other party, it’s a great disservice to yourself. And the reality is if you you know, if they know that you’re in this and say they do hear about it from somebody else, but they know you chances are they they would come back to you first at least, you know, find out more and see if that’s something that fits with what they’re doing and and what they want to do.

Dave Dubeau 39:21

That’s why what you do is so important is right as well because I’m sure for your for your business, your while you’re doing the podcast, you’re doing a great job of staying top of mind and having that constant consistent, entertaining communication. You’re doing that every time you do a podcast episode. So same idea for us when we’re raising capital. We got to make people aware of what we’re up to so get top of mind and then do our best to stay there. So when time and circumstances are right for them. We’re the ones are going to think of.

J Darrin Gross 39:53

No, that’s that’s the plan. That’s the strategy. So hopefully it all stays on course.

Dave Dubeau 39:59

I’m sure well,

J Darrin Gross 40:01

Hey, Dave, if we could, I’d like to shift gears here for a second.

Dave Dubeau 40:05

Okay,

J Darrin Gross 40:06

As we’ve discussed by day, I’m an insurance broker. And I work with my clients to assess the risk they have and determine what to do with it. And there’s three strategies that we typically consider, we first look to see if we can avoid the risk. When we cannot avoid it, we look to see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize the risk, we look to see if there’s a way we can transfer the risk. And that’s what an insurance policy is, is a risk risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation, could be their clients, investors, tenants, the market interest rates, political, climate, geopolitical climate. But take a look at it your situation and identify what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer.

Dave Dubeau 41:10

Good, cause I’m not gonna give you one,

J Darrin Gross 41:13

Good, good, good. So Dave Dubeau, what is the biggest risk?

Dave Dubeau 41:21

The biggest risk in my mind, for real estate investors is relying solely on their own financial wherewithal to create their portfolio. So this might sound self serving, because I’m in the business of helping people to raise capital. And maybe it is, but you know, that’s what I focus on. So just like you focus on insurance, so I see so many people get stuck and stay stuck with a real estate portfolio that just doesn’t really do much for them. Because they don’t know how or they’re not willing to grow using other people’s money. So they stay stuck with one or two or three properties in their portfolio, which is better than nothing, for sure. But it’s not, it’s not going to allow them to create that real estate dream they had in the first place, which is usually to create enough passive income to be able to quit the jlb. Right, or be able to retire early, or whatever it is. So that that is the biggest risk is just staying stuck. Because you’re not willing to expand by partnering up with other people.

J Darrin Gross 42:31

Now you got a stretch, gotta get out there and stretch and make. Make it work for you and others. That’s good.

Dave Dubeau 42:37

Exactly.

J Darrin Gross 42:38

Dave, I cannot say thanks enough for taking the time to talk today. Before we wrap up, where can listeners go if they would like to learn more connect with you?

Dave Dubeau 42:50

Oh, thanks so much, Darrin, I appreciate being on the show as well. So I’m really excited. Because we’re just launching a brand new podcast all about this stuff all about helping mom and pops get started on their path to raising capital. It’s called the How to Raise Capital 101 Show for Real Estate Investors. So you can find that wherever you enjoy listening to podcasts, the how to raise capital one on one show, or you can check it out on our website, Raise Capital 101 Show.com. And again, there and the whole goal there is to well, actually, the first nine episodes are going to be a little mini course on what I call my money partner formula. And it’s it’s all about how to raise your first six figures in a matter of weeks, and seven figures in a matter of months, even if you’re starting from scratch and you’ve never raised capital before. So again, that’s the how to raise capital one on one show.

J Darrin Gross 43:48

Awesome. Well, Dave, again, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it. Learned a lot. And I look forward to doing it again soon.

Dave Dubeau 43:59

I appreciate it so much. Keep doing what you’re doing there.

J Darrin Gross 44:02

All right, Dave. Thanks 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. CRE PN Radio.

Announcer 44:23

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio

Warehousing on TikTok with Aviva Sonenreich – CRE PN #370

Aviva Sonenreich 0:00

You know, the difference is, is that there’s a million DJs in the world, but there’s not very many people who like literally spill the secrets of real estate, specifically commercial real estate on the internet. And and the difference between that is that people want to learn about real estate on the internet they want to learn about commercial real estate on the internet. It’s really a supply and demand situation where in the music industry there’s little demand for artists because there’s such a big supply whereas when it comes to being a commercial real estate, TikToker, the there’s little supply and so there’s higher demand.

Announcer 0:46

Welcome to C R E PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:05

Welcome to Commercial Real Estate Pro Networks, C R E PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Aviva Sonenreich. She is the owner of Warehouse Hotline, leveraging advanced marketing techniques to maximize your commercial real estate results. She is also the number one commercial real estate broker on TikTok. Where her handle is @realestatesource and has over a million views. And in just a minute we’re going to speak with Aviva about Warehousing and TikTok.

But first a quick reminder, if you like our show, C R E PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And while you’re there, please leave a comment. We’d love to hear from our listeners. Also, if you want to see how attractive Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that I want to welcome my guest, Aviva Sonenreich, welcome to C R E PN Radio.

Aviva Sonenreich 2:53

Thank you so much for having me.

J Darrin Gross 2:56

Well, I appreciate you doing this. And I am so looking forward to our conversation. Before we get started, if you could take just a minute and share with listeners a little bit about your background.

Aviva Sonenreich 3:06

Sure. My name is viva, I’m here in Denver, Colorado. I work day to day as a warehouse, leasing agent, sales agent, property manager in my 20s, which was about four months ago, prior to that I had a music career, I learned how to market in music. And what I found was that when I applied the marketing strategies for my music career to my real estate, it worked a lot better than it did for the music. So I have found in the commercial real estate industry, I feel like technology is all nearly untapped. And I every day work to figuring out how that I can maximize technology to help my clients, tenants, friends, brokers, etc. So you’ll see me here on the web, because that’s my favorite place to hang out.

J Darrin Gross 4:12

Awesome. So music What was your role in music? Before real estate?

Aviva Sonenreich 4:19

I was in a DJ band and we were called Mom and Dad and we played some big shows and festivals and it was it was great. But I really think I was probably put on this earth to do real estate and so it’s working a little better. And I think I like it a little bit more.

J Darrin Gross 4:39

Well, but the the DJ and the marketing thing I can only imagine. I’m assuming you’re probably fairly responsible for for attracting or drawing a crowd to whatever event it was that you were DJ’ing Was that was that a lot of where you I mean, is that is that not the case?

Aviva Sonenreich 5:00

Oh, yeah, you know, with any business marketing is a significant aspect. Okay with most businesses marketing set large aspect. And music is certainly one of those businesses and unfortunately, people in the music, music consumers, they don’t like to be advertised to. They don’t like. Yes, people don’t like to be advertised to in general. And as a result, I noticed I had to find creative ways to get people to pay attention to our band. And even then it was still extremely difficult. But yeah, like I said, when I started using those exact methods and applying them to commercial real estate, it actually started to work, because it’s just such a different industry and a different beast.

J Darrin Gross 5:54

Well, I’m just trying to think because, you know, the real estate, the target audience, as opposed to what I would expect for a show, slightly, slightly different. Not exactly one in the same. Did you find the the real estate audience more receptive, or? Any were the differences?

Aviva Sonenreich 6:23

You know, the difference is, is that there’s a million DJs in the world, but there’s not very many people who, like, literally spill the secrets of real estate, specifically commercial real estate on the internet. And, and the difference between that is that people want to learn about real estate on the internet, they want to learn about commercial real estate on the internet. It’s really a supply and demand situation where in the music industry, there’s little demand for artists, because there’s such a big supply. Whereas when it comes to being a commercial, real estate, tick talker, the there’s little supply, and so there’s higher demand. And so leading into what they taught me an economics class in high school, who would have thought?

J Darrin Gross 7:17

Well, no, you know, the supply and demand thing that’s important to get right if you want to be, you know, in demand. If you’re on the wrong side of the supply, like I said, there’s, there’s a, you’re one of many, it’s pretty hard to stand out versus if you’re, you know, one of a very few. So that’s cool. So real estate, what, what led you to, to real estate from music?

Aviva Sonenreich 7:44

Sure. So real estate has been a family business for a few generations. But I noticed growing up, my dad was in real estate, my mom was a dentist, and I noticed how my mom worked with her back on a schedule, a grueling schedule, and I noticed my dad’s life was less of this grueling schedule and more, you know, he could work from home and it was a more of a lifestyle that they liked and thought that would work for me and my personality type and that was that was the case.

J Darrin Gross 8:29

So is the family history in industrial warehouse as well? Or is that something you sought out?

Aviva Sonenreich 8:37

So my, my grandparents fled religious persecution in Nazi Germany in 1950, came to America with literally nothing except for a baby and had the the true immigrant true true in the grid story, which I’m very proud of. In 1984, my grandfather bought a where are the first warehouse that really began this journey? You know, my grandfather was in residential motels, hotels, and what my father noticed in the hotel motel and residential business is that it’s 24/7 you’re getting calls 24/7. There’s no, you can’t really have boundaries if your tenant has a need, like heating. And it’s zero degrees outside and it’s a Sunday night. And so because of this lifestyle that my father saw my grandfather had being so involved in residential. My father went into warehousing essentially. And he between himself and partners built a portfolio of about 15 warehouses between the 919 99 to 2015. Oh, he’s still having but Um, you know, and he, he’s into the acquisitions and the syndication and we lease and manage all of those properties but technology is not something that he was interested in. And so diving into the warehousing I love the word I you know, I’ve done office retail multifamily deals, I don’t I would love to do warehousing and warehousing only integrating technology into our, into our business has just, we’ve been able to expand and grow and the trajectory looks good, because commercial real estate does not is not widely accepting to the internet. And it’s nothing but opportunity for those who want to take the time and figure it out.

J Darrin Gross 10:51

Do you find that purely generational or do you find that even some of the younger real estate people are resistant to internet and in the marketing?

Aviva Sonenreich 11:06

That’s a good question. I would say the reality is that the younger the younger generation knows, you know, they’re not stupid. They see what they do day in and day out. However, a lot of these brokerages are still run by people who are resistant to social media, or the internet in general. And a lot of brokerages have rules that won’t allow brokers to talk about them on the internet, or they’ll need to get their content approved before. And I find that so funny because I feel like that’s literally the exact opposite of what should be happening. I feel that brokers should be posting the brand’s own only not only but every piece of content should have the brokerage branding on it, but we are not there like and that’s just because the leaders in the industry did it before did it before the internet. And so now they’re you think, well, we don’t need that. We did it before without it, pick up the phone. And there’s a place for picking up the phone a big place for picking up the phone. But it’s not everything.

J Darrin Gross 12:16

Ya know, I’m familiar with that kind of mindset and trying to get people to answer the phone. Today is not always that. So, but so, how, tell me how you’ve utilized and how you’ve, how are you integrating your message your marketing on the internet? I mean, I found you on Tik Tok and was like on holy moly, you know, she’s got something to say. And I just the your presentation to me was was very, you know, it drew me in and because you were saying there was a message and there was there was facts and her points. And it was, you know, you just had an is very inviting. And it’s just kind of curious how, how are you utilizing it? How are you finding? Is it primarily tenants that are finding you is it investors that are finding you? Is it sellers buyers? A little bit about them?

Aviva Sonenreich 13:17

You know, the main, the main way that I really source leads is through Google, optimizing Google, everybody wants to know the the ROI of social media. And it’s impossible to calculate and it’ll never be possible to calculate because social media it’s a it’s very much a snowball effect. And it’s casting a net. And you don’t know specifically with tick tock, you don’t know what the net is going to catch and when it is going to catch. However, understanding these apps are geo local, so they, when I post content, it goes out in my city first. And understanding that this is a free media source to get our company name and information and you know, because of Tik Tok, I can meet people like you, and I’ve had I’ve done podcasts where local owners call me because they heard me on a podcast, right? Oh, you’re the warehouse person. I need a warehouse person. So it’s, it’s not direct by any means. But it’s effective. It’s in you know, in old school reality, everything was become the mayor of your town. And this is just a new, in my opinion, more efficient and cost effective way to become the mayor of the product type in in town.

J Darrin Gross 14:45

No, makes sense. And in. So when you do your TikToks I mean, I’ve seen some kind of the tips and that kind of thing. Do you also like show a property do you I mean, tell me some of the The mindset or the strategy in the post, that you’re that you’re creating?

Aviva Sonenreich 15:07

Sure, I mean, the biggest strategy hands down is how can I help the most people at once. And so you know, sometimes because commercial real estate can be so niche, I can make a post and I know it can’t help that many people goes, who else is leasing or owns a warehouse. So I do try to I do talk quite a bit about residential just because I know it can help more people. But I’ve just found when I’m when it’s really authentic, and when when I can deliver value is when I see the best results. And I just, you know, you see what works, you see what doesn’t work. And then you double down on what does work and refine it and make it better.

J Darrin Gross 15:57

So tell me about some of the, I guess some of the wins, you know, you make the post goes up? Are you making sales as a contacts is it leads? Is it? You know, are you leasing properties? Tell me about some of the the, and actually, How long have you been posting on social media about the real estate, as you mentioned, it’s kind of a snowball effect.

Aviva Sonenreich 16:25

I am getting I went zero to 100. On the Real Estate content, I went from never posting about real estate until to consistently posting about real estate pretty much two years ago.

J Darrin Gross 16:42

From that, yeah. Tell me a little bit about some of the the feet the feedback and then I mean, or is it creating sales? Or is it more of like a following kind of thing?

Aviva Sonenreich 16:55

It depends, you know, I have leased space out multiple times from more so from Instagram and Facebook, I can lease space out. For Tic Tok, it’s more of a visibility type of situation I was this was pretty surreal. I was walking, I was at a warehouse in the middle of nowhere, with a with one of my partners and a guy drives fine he goes your Aviva I he knew me. And he was like, he couldn’t believe he was seeing me standing in front of a warehouse and I couldn’t believe he recognized me. And you know, the hope is is that those folks are the people that call when they need something. Now I obsess over human behavior, how what do I do to find out information about x y&z? So if I was looking for a commercial real estate broker, what would I do? I would go to Google. That’s why I put a lot of my efforts in our business onto the Google side. But I’m seeing now more and more and more my own behavior and my friend’s behavior. You say, Okay, I’m gonna go to Cancun. I don’t know what to do in Cancun. So you go open up, tick tock, and you type in Cancun on the top, and there’s going to be 100 videos of the coolest stuff in Cancun. And that’s how I find that’s how I am researching certain things now, and I know other people are researching things the same way and what I’m saying is Tik Tok is becoming the search engine. Where are you typing in at the top? And it gives you the answer. And it’s to me it’s like a new form of Google that if it converts for your business, or you have to lean into it.

J Darrin Gross 18:50

Yeah, no, in fact, the the whole how I found you is funny. I must confess, I’m not a normal regular Tik Toker. i My son was telling me about one of his friends who some video game player, whatever and how is like, YouTube views went up to like a gazillion based on his TikToks I was like, what? You need to be on Tik Tok? What are you talking about? So I, I went in activate the app there and I type in commercial real estate. And you were one of there was a few others. But um, you were the one that just seemed like he had point after point. And it was like, just kind of bite size information that made a point. And maybe you want to watch another one because oh, wait, what else you know, as opposed to somebody who’s going on, you know, just kind of a because I feel like some of it’s just kind of you know, like you’re catching a presentation as opposed to a message that’s directed to me, kind of thing, which I felt like yours was more of like, you know, point you know, a tip that kind of thing. And, anyway, it was captivating. And, you know, again, what I think what you’re saying about him Brand awareness awareness. I’m not certain, but I’m assuming there’s something in the Google algorithm that recognizes the posts that you have on Tik Tok, that somehow feed into the Google algorithm. Is there. Is there any? Is that my own belief? Or do you know if there’s anything that that feeds that? Or do you then populate your Google stuff with a Tik Tok? Or is there any kind of cross pollination,

Aviva Sonenreich 20:30

I don’t see the cross pollination, like, in my analytics, or, and I don’t hear too much about it, I’m, I’m very much I’m, like, if I want to work an app, if I want to get to know an app, become friends sees in the algorithm, it’s directly in the app, you know, understanding what new features are pushing generally, if they’re pushing new features, you can catch an edge there. So for example, with Google, I am all in my Google My Business page every single day right now, because I’m getting free front page exposure through maps on Google My Business, and I’m getting crazy, consistent leads for free. Whereas last year, I was paying $500, just for Google ads every month, now I’m getting the same exposure, for free. So it’s more about really getting to know the program and seasoning it and working it to get the algorithm to support you, you know, it’s a relationship, it’s like you do you know, you give me what I need, I give you you need, and we’ll help each other out. That’s how, that’s how I see those. So I don’t see them together, I do see them apart. But they all work together to create like you said that bigger brand awareness.

J Darrin Gross 21:56

And I’m curious too, are you not able then to direct people to a website from your, your Tiktok profile page? I mean, it’s or so if I see a video that I hit your, your, your profile page, does it not have the opportunity to say go here for more? Or is that? Or is there a way to insert that links or whatever?

Aviva Sonenreich 22:21

Yes. So on the front page of your Tik Tok, you get one link. And I’ve used my link for very, you know, various tests and trials right now what I do is I have a due diligence kit that I use, every time I buy and help someone buy a property, you can download my due diligence kit for free. And it’ll take you to my website, and I capture the email there. So.

J Darrin Gross 22:48

There you go. So again, kind of a, I mean, to me, that would be the opportunity for the cross pollination, not necessarily for the the interwebs or the, you know, the Google to pick up on the Tik Tok or whatever, but just that that link is there so that somebody can, and I would assume that would also count as a backlink. Or I don’t know how that all that marketing stuff. But I just know, there’s some some things that really help your rank and, you know, become more found if you have those kinds of things. You have any thoughts on that? Or do you think that’s the the backlinks and stuff to that any of your

Aviva Sonenreich 23:25

Backlinks or something I think about daily? Yeah. I don’t know very much about them. I do understand that they help for your SEO? I cannot, I don’t know to answer your question. I do not know about that. And that’s a little above my marketing paygrade.

J Darrin Gross 23:46

Gotcha, gotcha. So with the warehouse, the market the clients that you help and the are can you describe or do you have kind of a ballpark sense of how many of the properties are owner operator owned versus tenant leased properties?

Aviva Sonenreich 24:14

I’d say maybe 40%. Owner Occupied 60% tenant maybe 35%. Owner Occupied okay. 65% tenants.

J Darrin Gross 24:27

So I would assume then there’s most of your your transactions and follow on the leasing side, is that?

Aviva Sonenreich 24:35

It really just depends truly on the day, week, year and what’s going on in the market. I have a tenant rep broker who works under me so she does a lot of my tenant representation transactions. I do lease our portfolio so I’m and I do third party leasing. So when I say are important for layup with myself and all the other owners that I represent? I do I do lease those. And then obviously I work with friends, tenants people I meet on the internet to buy and sell listings across the Denver Metro.

J Darrin Gross 25:20

Got it. Buyers of warehouse space, do you find? Are they typically like a syndication? Or are there individuals or partnerships, or what’s the what’s the typical buyer owner model?

Aviva Sonenreich 25:40

Recently, most of my buyers have been owner users, specifically in the warehouse space, what happens is is warehousing has become cool recently, and there’s been a lot more interest in the product type. So when there’s more demand for a product type, cap rates compress. So it’s becoming less and less attracted to a syndicate a warehouse for 5% return in this specifically in this environment, but we’re starting to see more 6% returns because of the interest rates, but for all intensive purposes, a lot of my investors are going elsewhere, just because these industrial deals, like, you know, it goes on the market, and then there’s five offers that day, and there’s cash and politics. And whereas, and you don’t want to necessarily be in a bidding war, you know, you might maybe use it, maybe the move is to zig when people zag and go buy some retail that makes sense or medical office?

J Darrin Gross 26:52

Yeah. Definitely. One thing I’ve always, you know, admired is in real estate, I mean, some of my clients, how, regardless of the economic conditions, they’re always able to zigzag or do something that, you know, they find a way to make money in the marketplace. And and I think sometimes we shouldn’t as having your head on the swivel, or just being aware of the opportunities can really, you know, benefit you and your your portfolio they’re. So on the size of warehouse, what’s a typical size of a warehouse that you’re involved in?

Aviva Sonenreich 27:36

Sure, we are more of the small warehousing, which I would say is anywhere from 1500 square feet to 50,000 square feet. Okay, so mostly small businesses, mom and pops, but we have some national tenants and clients.

J Darrin Gross 27:54

And in the warehouse spaces, is it strictly warehouse? Or can it be like flex space? Where you have a little bit of I mean, mix? Or is it? Or is it just a four walls and roof and

Aviva Sonenreich 28:08

There’s definitely we do flex, there’s every use is different, everybody’s need is different. We’ve got dance studios, cross fits, and you know, anything from retail, and then to like true industrial manufacturing or the trades. So it’s a bit of everything.

J Darrin Gross 28:34

And as far as the the owners of the property? Is there a typical hold time for the strategy of acquisition as it? Is there any thoughts that come to mind there?

Aviva Sonenreich 28:49

Sure, our strategy is buy hold, never sell. That seems to work pretty well, for us. I mean, you know, I’m glad the buildings that our family purchased in the 80s and 90s, they kept them because we’d be kicking ourselves today, had we not? But it’s just it’s so hard because with the revolving, like with our needs, as a culture are changing because of the internet and because of new logistic logistical ways to deliver product to us. And so I think, you know, in terms of buy Hold, hold periods. We’re kind of on standby right now because we don’t know where the landscape the commercial real estate landscape is going to shift and what makes the most sense.

J Darrin Gross 29:47

So Denver, I mean, it’s clearly been, you know, one of the, the high growth as far as demand You know, at least what I’ve seen from from afar. It’s been, uh, on the, on the radar screen there showing up as hot as far as you know, people moving there and, and just demand. Are you seeing that warehouse demand? I mean, obviously you mentioned this kind of hot, is there a lot of new construction going on? Or is it? Or is it just kind of a limited supply? Or what’s what’s going on with the real estate or not the real estate but the the warehouse supply?

Aviva Sonenreich 30:31

Sure. So right now what is being built are mega warehouses. These are 100,000 square foot 200,000 square foot. I remember very, very early in my career, I cold call the gentleman, I didn’t really know anything about him. He, at this one 10,000 square foot building in Denver, I was like, Okay, I’ll call the guy, he wound up being this billionaire I didn’t even know at the time. But he says on the phone to be, you know, I got a 50,000 square foot warehouse in New Mexico I want to get rid of. And I’m like this young green broker and I’m like, oh, so I hang up the phone, go to my managing broker, I got a guy with 500,000 square feet, you also sell and my managing broker looks at me, he goes, there are no more than five 500,000 square foot warehouses in this country. Like, what are you talking about? And now, that’s all they’re building are 500,000 square foot warehouses. So, but what they’re not building are the small warehouses, these small bay industrial. So, you know, you think about, okay, 2010 when cannabis was legalized, it took a quarter that you’d immediately took a quarter of our small warehouse space. So all of a sudden, overnight 25% of the inventory is gone. Then comes e commerce just this wave of E commerce COVID. And now these logistics crisis, you know, there’s all these logistics issues with construction. And they’re, you know, small bay warehousing in the United States is effectively sold out this year. And next year, it’s got like 4% vacancy, depending on where you are. And then it costs too much to replacement costs are too expensive to rebuild these smaller sites, so it’s more cost effective to buy them. And as a result, they’re only building these mega warehouses. And it’s gonna be interesting to see what happens.

J Darrin Gross 32:47

Are the mega warehouses, are they primarily with a single tenant? Are they are they multiple tenants? Or what’s the other use? You know, the, the Amazon type things or what? What’s the dependence?

Aviva Sonenreich 33:02

It’s, uh, it’s both, it’s, um, you know, Pepsi just bought a billion dollar was building a billion dollar warehouse by the airport. Same with Microsoft. But then you have these warehouses where it’s multi tenant, or parks, where it’s Home Depot next to Costco type of uses. It’s both.

J Darrin Gross 33:29

So kind of a supply, prior to cannabis. Was it a pretty flat market? Or was there was there a lot of growth in, in warehouse space?

Aviva Sonenreich 33:41

No, it was it was 2008 and 2009. were devastating. Really, really devastating. We at the, at that time, we had maybe like, like 100 units, and we had 13 vacancies for over a year. Or now we don’t have a day. We haven’t had a day of vacancy in 10 years. So ecom it’s been cannabis. But even if you don’t touch the cannabis, it still impacts you. And E commerce and then COVID chain. Another thing I call this like the chewy effect, you know, chewy is that dog food or cat food company, where you can say this is what I want. This is how much I want, subscribe and never think about it and it shows up to your door once a month. When COVID happened the way that consumers who never did this came and a lot of people realize Holy smokes, it is so much more cost effective, efficient, and I don’t even have to think about it to just have my chewy on subscribe, and so COVID make a lot of behavior specifically to the older generations change. And just pushed. We say COVID pushed warehousing 10 years into the future.

J Darrin Gross 35:11

Wow. That was crazy. Yeah. Are you seeing? Is that changing the use of warehouse? Or is it? What I’m trying to say? I mean, obviously warehouse warehouse, but is there any kind of a cross over where like, maybe before somebody had just an online presence? Now, maybe they open a front showroom or something with a warehouse and back, we’re primarily it’s an online business, but what there’s some sort of a, you know, a showroom aspect? Or do you see that at all in the warehouse?

Aviva Sonenreich 35:48

You know, it depends on the use. But the reality is that our websites, those are our storefronts, like this is our digital storefront. And that’s where people shop, nobody wants to go into retail to buy anymore. You know, you go into retail, the E, you’ll go into retail to get your hair done, get your clothes washed, or worked out. But human behavior, we like this storefront. And so, yes, there is there can be a showroom aspect. In certain industries, but overall people like people just buy online, it’s, it’s pretty wild.

J Darrin Gross 35:48

Point and click. Yeah, yeah, no, and what’s crazy is, I think the, you know, I was kind of a slow adopter to it, just from a standpoint of, you know, like, like to know what I was buying, you know, fit, if it was something, oh, you know, clothes or whatever. And didn’t wanna have to mess with all the return stuff. But I feel like that’s kind of the just the way it is. And also the time, whatever gap there is, from, you know, click to receive is been minimized and kind of, you know, a pretty standard affair anymore. So not, not anything to have around there. Sure. Is far as the warehouse is there, is there anything else that you see that really driving? I mean, obviously, the change in business, the, the logistics, and cannabis, and like, they’re kind of two of the big drivers of that, and the, you know, the way people are shopping? Is there anything else that you see that? possibly changing that? Or is that are those kind of the big drivers there?

Aviva Sonenreich 37:43

Yeah, I mean, there there, there is something to be said about the trades. For example, during the pandemic, when everybody was in their house, and everybody was running their age back using their appliances, fixing, flipping, modifying our tenants in the trades, and this still stands have just never been busier. You know, there’s also a huge issue in terms of employment. So you have these companies where, you know, everybody’s using the systems in their homes. Everybody’s busier than ever, but nobody can staff. Anything. Yeah, I’m hearing about it every day from tenants, vendors, friends, family. So it’s a, it’s crazy out there.

J Darrin Gross 38:38

Now, I think that’s, that’s an understatement. Just based on, you know, the human capital aspect of this whole thing is just really, you know, I think, well, I don’t know it all the all of it is, but what’s amazing to me is how many people that were seasoned in the workplace that elected to not return from COVID. And the kind of complicating things on top of all the other complications we have. And, and so there is kind of a, a loss of some of the talent that maybe was, you know, that that did exist, I know, in insurance, I find it all the time where the person I always used to dealing with it was 30 Year 30 year veteran that could tell me the answer and just, you know, one call dealing with the newer, less experienced person that that, you know, they’re trying their best but they just don’t have the, the, you know, the experience related to help them yet. And so there’s that that delay and whether or not they’re gonna stay and whether or not they want to stay in insurance or go on TikTok or, you know, go into real estate or whatever, it’s still kind of up in the air, that kind of thing but, but now, it’s it’s definitely some interesting times with all that any, any sense of slowdown with interest rates, hiking up is that anything that’s affecting you Any of your warehouse business?

Aviva Sonenreich 40:03

Oh, absolutely. It’s harder to get a deal done right now, for sure. Just the people are afraid, you know, I we’re in the business of big of big commitments being a lease or a sale, and people are afraid. There’s a lot of uncertainty. And there’s a lot of questions, not a lot of answers. And with the rising interest rates, you know, it’s really hard to justify 5% cash on cash. So definitely feeling the effects.

J Darrin Gross 40:38

Do you see any softening in the prices? Or is it more of just hesitation to do the deal?

Aviva Sonenreich 40:46

Both? Definitely, you know, but industrial has just been, like crazy, like, the growth has been unbelievably ridiculous. And so obviously, anything that goes up that fast, might not be supported. Right, that might be that might have been an inflated number due to the frenzy. You know, maybe not by the largest margin, you know, nothing, there’s not a fire sale by any means. But you’re not getting the numbers you were getting this time last year.

J Darrin Gross 41:24

Right. Well, and and, you know, as we’ve talked, I can’t imagine that the demand, or the need for the space will change, but it seems like that just kind of where are we going to land with this thing between interest rates. And just the change of market I was feel like, that’s kind of the, the painful, you know, the transition, once it gets to be a, you know, understood, this is the new marketplace, pricing adjust, and then we can go forward. But it said, in between thing where everything’s kind of, you know, a little bit just trying to figure it out, and whether or not this is the time to do it or, or kind of thing. So I get it.

Aviva Sonenreich 42:08

That’s the question. That’s the question.

J Darrin Gross 42:11

Yeah, hey, Aviva. If we couldn’t like shift gears here for a second, by day, I’m an insurance broker. And I work with my clients to assess risk, and determine what to do with the risk. And typically, there’s three strategies we consider, we first look to see if there’s a way we can avoid the risk. And when we can’t avoid it, we look to see if there’s a way we can minimize the risk. And for the risk, we cannot avoid or minimize, we look to see if there’s a way we can transfer the risk. And that’s what an insurance policy is. And as such, I like to ask my guests, if they can look at their own situation, could be clients, interest rates, the market, political, however, you would like to identify, or, you know, to identify and consider what you consider to be the biggest risk. And so for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Aviva Sonenreich, What is the Biggest Risk?

Aviva Sonenreich 43:26

I genuinely feel like the biggest risk is not taking risk at all. And not learning the pros and cons to risk that I think in our lives, our risk tolerance, can and will change and you need to assess what risk makes sense, when, for example, I feel like I can be riskier now because I don’t have kids, that could change in three to five years, and I will have mouths to feed so I can’t maybe make some of these really risky decisions in investing or working or any, in any capacity. But what I’ve noticed is that the I love the thought thinking about risk and reward and the I find the biggest and the best things happen with the most risk, right? The bigger the risk, the bigger the reward. And so understanding that and doing it in a way that is comfortable to me or you I think not having that conversation with yourself is the biggest risk of all.

J Darrin Gross 44:42

No, well put no risk, no reward and, and, you know, I I looked at all the little things that I thought were a big deal at the time, you know, and going into them and clearly buying real estates one of those but the reward down the road once you get past and this is usually well serve so, good point. Hey Aviva. Where can listeners go if they’d like to learn more connect with you? Sure.

Aviva Sonenreich 45:11

So the best bet is going to be on Tik Tok @realestatesource. You can also email me at Aviva@warehousehotline.com or mosey over to the warehousehotline.com And you can find me there. So thank you. I appreciate that.

J Darrin Gross 45:33

Awesome, Aviva. Thanks for taking the time to talk today. I’ve thoroughly enjoyed it. Learned a lot, and I look forward to doing it again soon.

Aviva Sonenreich 45:44

Thank you for having me. I really, really appreciate you reaching out.

J Darrin Gross 45:47

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. CRE PN Radio.

Announcer 46:06

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Seeking Yield in Multiple Asset Classes with REDICO’s Dale Watchowski – CRE PN #369

Dale Watchowski 0:00

Oh, you know and I don’t think there’s any magic to that I think we we all follow you know demographic trends in real estate well and the one thing I will tell you however about market choices is that we’ve never been other than maybe Chicago we’ve never been in the primary markets we you know, we look for yield and in so what we’re trying to do is to find that market you know, where we can still you know, still identify a yield opportunities.

Announcer 0:30

J Darrin Gross 0:49

Welcome to Commercial Real Estate Pro Networks, C R E PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today’s program is sponsored by Building Insurance and Risk. Don’t put your real estate investment at risk. Work with Building Insurance and Risk receive multiple coverage offers with a side by side coverage comparison. To learn more, go to BuildingInsuranceRisk.com.

Today, my guest is Dale Watchowski. Dale is the President CEO and COO of Redico. Dale has more than 30 years of real estate experience in both local and national platforms with a diverse spectrum of expertise in acquisitions, development, capital markets and operations. And in just a minute, we’re going to speak with Dale about trends in real estate trends in commercial real estate development.

And but first, quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that I want to welcome my guest, Dale Watchowski, Welcome to C R E PN Radio.

Dale Watchowski 2:36

Thank you, Darrin nice being here today.

J Darrin Gross 2:39

Well, I appreciate you doing this. And I’m looking forward to our conversation. Before we get started, if you could take just a minute and share with listeners a little bit about your background.

Dale Watchowski 2:49

Sure, sure. I’m, as you noted, I’m the president CEO and COO of Redico. Redico is an acronym for real estate development and investment company. And that describes very well what it is that we do. We develop and acquire real estate, we also happen to be a full service real estate company. So so we operate the real estate that we own we we do very little third party work we we do some for strategic clients and but for the most part we’re engaged in, in our in our own business as it relates to management leasing operations. My My background is that I’ve been in the business about 40 years. My my start in the industry came through traveling, Citigroup, went on to HSBC from there and then finished my institutional stint with JPMorgan Chase so. So I’d say that the first half of my career was on the institutional side of the business, investing on behalf of institutional companies and large companies and then went to the dark side about 20 years ago and started investing for my own portfolio. So that brings me to where I’m at today, that radical and its affiliated companies.

J Darrin Gross 4:20

Got it? So Redico, has it been 50 years it’s been in business?

Dale Watchowski 4:27

Yeah, Redico has been in business for just over 50 years, actually. And we were a Michigan headquartered business doing business throughout the country. We do have geographic focuses and, and I can share those with you but but we have been in business for just over just over 50 years. And I came on board 20 years ago.

J Darrin Gross 4:52

Got it. I’m curious, the asset classes you guys are in today, as opposed to when you started with a company 20 years ago, is it the same as a change?

Dale Watchowski 5:06

Yeah, that’s a good, that’s a great question. We’ve, we’ve changed considerably and we continue to change. And, and I’d say that, you know, that’s a key to our success really, you know, I came on board with the passing of our founder, I, I left, left my last job at JPMorgan Chase and decided to build a business investing for my own portfolio. And, and, and I spent five years doing that with, with a gentleman by the name of Michael conjoin. And beyond, in from there, you know, I came into Redico, five years later, really, quite unexpectedly, the founder of our company, Bob Sosnick, had passed away, you know, much, much sooner than anticipated and died young and in the family was looking for someone to run the business. So, so our business and answer your question at the time, was largely related to Office, and we were developers of high rise office buildings, we had essentially, one primary partner, and that was Teachers Insurance and Annuity TIA-CREF. But in New York, we, we were in also involved in sports and entertainment business through a company called Palace Entertainment. Many knew us for that business, and the Sosnick family brought me in to run the business. And so and so we’ve changed considerably, you know, from that time on, and established much less of a focus on Office and establish a focus on other asset classes along the way.

J Darrin Gross 6:53

I’m curious on on the office, you know, clearly the talk of, you know, office occupancy with the pandemic and stuff. How, how do you see your, your inventory, your portfolio? Is it? Have you seen dramatic change in the occupancy or the, or the use of office space? Is that, have you guys been affected by that?

Dale Watchowski 7:20

Yeah, another great question. And, you know, another reason why, you know, we became reliant on a diverse grouping of asset classes, but yes, we have seen a lot of change. Fortunately, it hasn’t translated to much of a change as of yet in our occupancy levels, you know, for our office portfolio, because we’re still very active. But, you know, what we’ve seen is, is certainly a shift to Class A properties which we are, you know, the beneficiary of all of our office buildings, our eight properties and the markets that we operate in. And in so, what we’ve been saying is that tenants are using this opportunity to trade up. The other. The other factor is that is that all of our tenants right now are trying to figure out what they want to be, you know, going forward? And, and it’s no surprise that we still haven’t settled on the ideal work environment, you know, are we are we remote? Are we are we a hybrid? Are we are we back in the office and, and we chose here at radical we’ve been in the office since really, this, as soon as the government led us back in the state of Michigan was very restricted. But, but, you know, following the pandemic, we came back to the office and, and but we have morphed into a hybrid work environment, but most of our team members are here. And so much, like, you know, what we’re doing our, our customers are trying to figure out the same thing. And in, you know, what, what’s also happening and it’s, it’s happening here is that our tenants or our customers are trying to determine how to use their space. If, if you have a hybrid work environment, then then you know, Hotelling makes a lot of sense. And many of our, many of our customers are moving to Hotelling and actually are providing desks for their team members, but, but that desk could change from day to day based on who’s in the office. And so what it’s translating into is generally a reconfiguration of the space. And it’s also translating into, you know, often many cases, less use of space. And in so it’s, it’s kept us on our toes. And in certainly it’s it cause for some interesting discussions.

J Darrin Gross 10:03

No, I can only imagine, I’m kind of curious, you know, he’s you were talking about that, and kind of the Hotelling of the office space. And I know, the companies we work with, that have have, you know, some sort of configuration with that, where they’re, basically have people sharing a desk, depending on when they’re going to be any kind of thing. Have you seen any? Or is it even a thought as about how you can reconfigure or not reconfigure, but even like, changed some of the occupancy? You know, there’s a couple of floors, I was just thinking, like, if you have people coming in to work, if they’ve, you know, are working more remote, but they’re coming in? Is there not like a housing thing to where you could have like even a hotel operate on a few floors? I mean, it did it just a thought that entered my head not not that I have any, there’s any substance behind it, but it just occurred to me that some of those premier sites, if if the, I don’t know if that’s even a thought, or even an option, or even a consideration,

Dale Watchowski 11:12

Yeah, you know, everything is, everything’s open for discussion. And what we’re trying to do is find creative solutions. Even before the pandemic, our response to changing market conditions was to offer the best level of service to our customers that we could, in by that, I mean, I mean, we wanted amenities within the building. You know, so premier food service, we, you know, we added conference rooms, we added cybercafes, we added fitness centers, and all with the idea that, that our customers would would benefit by being in a radical property. I’d say that, that today, the benefit of having those amenities in the building is, is really that, in most cases, and when I talk to the guys that are guys and gals that are making decisions, in most cases, they’re making decisions around their space, that enables them to attract their, their employees back to the office, in most of these folks that are making decisions are, are actually doing so with a thought in mind that they do want their team members back in the office. And I, I think there’s a, there’s a consensus, at least amongst the customers that we have, that they would like to see their team members back at back at work. So what that means is that, you know, you’re going to have to offer amenities in the building, but, but you’re also going to have to serve that employee in a different way. You know, we started, you know, early on, you know, in an effort to bring people back and keep them safe. We started by bringing in lunches, and so, so during the pandemic, of course, we didn’t want to gather in a, in a common area. And so what we did is allowed team members to order lunch, and we’d bring it in, and the idea was that we didn’t want them going up and down elevators, and walking through common areas in a building. Now, that’s changed a little bit, and we’re not offering the lunches, but what we did do is built out what we call a hub. And that hub is a central meeting spot. And, and, you know, there isn’t a night that goes by when there are people, you know, staying here late and, you know, having an adult beverage and enjoying their, their self in that space. And, and, you know, what, it’s what it’s caused, really, I think, is, is a case of FOMO for those that that aren’t here. And, and so we do have some some team members that are working remote and, and they miss not being in the office. And so if you can create space, that enables you to have that level of interaction, what a great thing. But as a landlord, it’s challenging because, because, you know, as soon as a customer wants to reconfigure their space, we’ve got another challenge, and that is, you know, paying for it. And, and in also making certain that, that we get their business rather than having them move to another building that may have similar services. So so, you know, certainly it’s a it’s a dynamic environment right now. And, you know, we’re dealing with it well, but, but it’s continuing to change and more.

J Darrin Gross 14:34

Now, I can only imagine. So, clearly, office space is is one of the asset classes. What are the other asset classes you guys are currently invested in?

Dale Watchowski 14:46

Yeah, I would say that, that, you know, we didn’t, you know, start by answering that question. With some additional information on our, on our enterprise, we refer to it as so you have radico, which is real estate development investment company. radico is our commercial real estate company. And it serves as a parent for three other companies that we are owners of. One is American House, Senior Living, and American House is, is a senior housing company that does independent living, assisted living and memory care. And we are suited to be engaging in the development of, of active adult communities. We have another company called Continuum. And Continuum is a facility services company. And we built that company about 14 years to offer a higher level of services to the buildings that we that we own and operate. And in then, we did a good enough job that, that we were getting requests from third parties. And so it’s really a service company that that serves building owners. And I think we’re about 20% Radical related now. And then, during the last recession, we found the need for mechanical room refurbishment and in huge facilities, you know, like NASA, or like hospitals, or Disney. And so we built a company called aqueous, and aqueous is a air quality company that that is involved in, in serving buildings needs around not only air quality, but the refurbishment of mechanical rooms as they start to age. So those are our related companies and, and within radico, we primarily, we primarily serve the needs of the commercial real estate space. And so what we’re doing is we do office, we do medical office, we’re in research and development, then life sciences, multifamily, active adult, and seniors housing. And so because we’re in all of those asset classes, oh, I’m sorry, I didn’t include retail. So because we’re in all those asset classes, it suits us well to do mixed use development. And in so the benefit of that is that is that we can be a horizontal land developer, but also we can vertically develop and in bring in buildings that, that we’re very much used to investing in and either requiring and or developing. So so we would do both the horizontal and vertical development in these large mixed use developments. And in so, so that’s an important area of our business. And, and I’d say that, you know, the lion’s share of what we’re doing today is development, and probably much less in the way of acquisitions.

J Darrin Gross 18:00

And development, I’m assuming, is that been? You know, from the beginning, you guys have always been a developer first, or have you? Have you acquired, pre built or already occupied operating buildings, or,

Dale Watchowski 18:15

yeah, radical was always the developer, but, but you know, from the time that I came in, you know, I’ve really changed the character of the business. And, and, you know, as I always say, to, to our team here, there’s a time to build, and there’s a time to buy. And, you know, I like to buy opportunistically and so, you know, my, my thought is you buy when there’s distress. And so the, you know, the markets for, let’s say, the last five years have been pretty dynamic with plenty of capital. And so it’s been hard for us to acquire at the types of returns that we generally require. And so we’ve taken advantage of that time to, to develop real estate. And, you know, I’d say that, you know, what’s interesting about that is that there are a lot of capital allocators out there a lot of investors that are in a position to buy, but they don’t have the infrastructure, the team that it requires to develop. And so what we’ve done is we’ve created a nice niche for ourselves, and, you know, the more development we do we find the economy start to pay off. And so, you know, if we’re doing, you know, 250 to 500 million of development a year, we, you know, we have the benefit of being able to take advantage of those economies and, and move teams from one project to the next and, and benefit through that. And so, you know, while construction costs have risen, and, you know, one might say it’s not necessarily a great time to build, you know, we’ve found that we were able to successfully deliver a great number of projects. So so we’re right now develop hoping, once again,

J Darrin Gross 20:02

in your development efforts, are those primarily located in the same geographic area? Or do you? Do you have development projects around the country?

Dale Watchowski 20:14

Yeah, so when I came into the company 20 years ago, we were very much focused on Michigan, and the primarily Southeast Michigan. And what I learned, you know, throughout my institutional career is that a company that has a, an element of diversification is, is well suited for success in so when I, when I left the institutional world I, I established a platform that that was geographically diverse, and also diverse by asset class. And so and so when I came into radico, 20 years ago, I pursued the same strategy. And so and so I would call our strategy historically as being one of opportunistic investing. Meaning that, you know, throughout my career, I’ve invested in probably every market in the US. And, and so, so we follow that path of radical but of recent, we’ve modified our focus. And our focus has shifted to a strategy that I would say is more concentrated in its geographic focus. And what we have done is we’ve, we’ve moved out of our positions in coastal markets by selling assets. And we have very few properties left on the West Coast, we have one I think, and actually we do have only one in Honolulu right now. We have nothing left in California, we have nothing left and really on the west coast, but the Hawaii property. But what we did is we we felt like with our senior housing business, we needed to maintain a geographic focus. So this business we bought it, about 13 years ago was a small mom and pop company started with 13 communities in Southeast Michigan, we knew we wanted to grow it. But because it’s a it’s a heavy operating platform, we felt like we needed to grow with a strategic focus into what I call adjacent markets. And so we started by expanding our business throughout the state of Michigan, moving into the Midwest, and then moving down to Florida, a market that we were very familiar with, given our ownership of a business in southwest Florida. And and then we moved up the coast. So So right now, our senior housing business is focused on the Midwest, moving into New England, we went down to Florida, started in southwest Florida, moved up the coast of Florida, moved over to the west, from the west coast of Florida to the east coast of Florida, and then moved into Tennessee, and now we’re in the Carolinas so, so I would say our geographic focus is Midwest, New England, and the Southeast. And the idea is that because we want to be in adjacent markets, we’ll connect those markets of the southeast and New England through through investments in the eastern seaboard. And, and there are many reasons for it, but but we felt like, you know, if we’re trying to cover that, you know, that geographic territory that we needed to, we needed to also shift the radical focus of the commercial focus into the same markets. And so we’re less opportunistic in terms of market identification, market strategy, and I’d say more focused on those markets that I just mentioned.

J Darrin Gross 23:52

You mentioned, you know, the, the different asset classes, and particularly the senior housing. I’m curious. And you also mentioned how you know, you originally kind of concentrated in in Michigan, and office when you were looking for, like diversification mentioned, like expanding the footprint. What were some of the, or what are some of the considerations you look at when considering a new asset class, or a new market?

Dale Watchowski 24:30

Well, you know, right now, and the reason why we’re establishing a serious focus in the southeast is that the demographics of the, of the Midwest are shifting and, and what we’re finding is, you know, significant growth in the southeast. We had tremendous success in Florida, riding the wave of population growth, and certainly the wave of an aging population and those markets. And so that was, that was the first criteria. but we also had to, we have to consider is the ability to, to source labor. And so demographics play into that as well. Because if you have job, if you have population growth, what you’ll have is you’ll have the potential to source team members in those markets as well. So if people are moving to the southeast, you know, what we’ll have is, is a greater, you know, greater abundance of human capital. And that’s something that’s really very important to the companies that were engaged in. So, you know, both in terms of construction, and your trades, moving up through team members that that are physically operating the properties, and then in then, and then, you know, when you’re looking at senior housing, we have about 3000 employees in that business. When you’re looking at senior housing, you’re, you know, you’re having to source what I call your team members underneath three pillars, in that, you know, hospitality or Culinary Life Enrichment, and then in then wellness or clinical. And so, and so, you know, thinking about it, I need, I need any team members that, that are that are interested in creating careers, and in the markets that we’re doing business with business in, and the SE seems to serve as quite well, there. So, you know, so that’s, that’s certainly a factor. And in, then I’d say that we follow that, you know, traditional real estate principles, and that, in that, you know, you’re looking for markets that that have, you know, great demand prospects, and so, you know, that, that translate into, you know, office jobs, retail uses your customers, if you will, and in then certainly living choices. So, so, you know, and I don’t think there’s any magic to that, I think we, we all follow, you know, demographic trends in real estate well. And the one thing I will tell you, however, about market choices is that we’ve never been, other than maybe Chicago, we’ve never been in the primary markets, we, you know, we look for yield. And in so what we’re trying to do is define that market, you know, where we can still, you know, still identify a yield opportunities.

J Darrin Gross 27:35

Yeah, now, that’s, that’s definitely important. And I would think that you probably get a little more stability in some of the markets, pitcher, and as opposed to some of the big swings, and some of them are the primary markets and that I’m curious on your, with the senior housing, you know, as a, as a developer and an investment company, in real estate, my mind typically goes to, you know, you’ve got the ground, you’ve got the vertical structure, and then you’ve got tenants that are in operational, it’s not so much. You know, you may have some facility staff, but, but not the actual, like, the senior housing thing is, it’s pretty much a hands on when you’ve got the restaurants, so the culinary and, and the health and wellness and all of that. Was that a big change for you? Or did it present any challenges that you hadn’t expected?

Dale Watchowski 28:46

It was a monumental shift, I’d, I can’t tell you, you know, that I, I’ve ever come across my career, at least more difficult business to operate in. And I think that’s what makes it attractive is that, you know, when you, when you really look around the country at it operators, you know, they’re, you know, you can count on two hands, really the number of really good ones and, and it has a lot to do with the way that, that you manage your business. So it’s a it’s a heavy operating business. And, and you’ve got to attract and retain really great employees. And, and that’s a that’s a challenge in a market like we have today. And it was certainly a challenge, you know, throughout the pandemic, and, and so, you know, in the response that we’ve had to, you know, to our business has been, has been quite good. We, you know, we have the opportunity to, to grow the business tremendously, but, but we intentionally have held back on growth, you know, primarily because we need to be able to serve resident’s first and foremost, that we have well, and so, size is important, you know, at least as it relates to scale. Because we wouldn’t be able to retain and attract the best team in the world, you know, my opinion in that those are pillars, you know, on the wellness side, on the clinical side and, and on the Life Enrichment side, and on the on the culinary side, we wouldn’t be able to bring these folks in, if we if our portfolio was too small. And so you couldn’t build the kind of infrastructure that you need, I think, to run a business well, too large and you lose, lose, you lose your focus a bit. And you can’t provide a personalized service to your residents. But But the reason we got into the business was back in, you know, we were in strategic planning in 2007. And we saw some headwinds, and, and we thought, okay, so we’re in the office business, we’re in the retail business, we’re in the medical business and, and, you know, and in, we were doing a lot of businesses at the time, and, you know, what happens when the world comes to an end, you know, when you have a real estate recession, like we, like we saw, and our thought was, well, what do we do, you know, to find a recession proof business, so we looked at a lot of different companies. And senior housing emerged, and then, and then our thought was, okay, you know, this is a heavy operating business, and we came to realize that, so, our thought was, well, you know, do we do we grow the business, like, we always have, you know, moving into other asset classes, in grown organically, or do we buy somebody and, and so we decided on a combination, so we bought a company, and it was a 45 year old company, American house, and it was mom and pop, and what we did is we added institutional character to the business, and built it to face the needs of a resident population that was changing very rapidly in terms of acuity. And so and so we went from the original 13 properties. And, you know, when we complete everything that we have under development, today, we’ll have 72 communities, you know, in the markets that I had mentioned, so and so we, you know, we built the scale that we needed to, we made the investments in the infrastructure that we needed to be, to have to be responsive to the needs of the business. And, and then we continue to morph with the changing needs of our resident population, and they have been changing and especially throughout the pandemic, you know, they change that took a lot out of our employees, but it took a lot out of our residents as well.

J Darrin Gross 32:42

Now, I can only imagine just the, you know, the human capital, and just the operational demands of a business like that, as opposed to more of a, you know, landlord, kind of, you know, business model, that’s, that’s definitely a, you know, night and day, kind of difference there. And but it sounds like I mean, if you’ve gone from 13 to 72, that’s sounds like you’ve figured out how to make it work. And

Dale Watchowski 33:07

Well we have, you know, it’s interesting, because the secret to success in the business, and believe me, we have our challenges. And it hasn’t all been success, I, I’d say that, that we’ve done tremendously well in the business, but to any degree that we’ve had success, I would tell you that it’s because of the passion that that we all have for the business here internally. And, you know, I look at it. And I’ve said this many times before, by team members will say the same thing. But but if you do it, well, you feel it. So it’s a philanthropic endeavor, because you’re giving something back. And, you know, the way in which you’re able to, you know, satisfy your residents needs is, is it’s just so unbelievably fulfilling if you do it well. And, and so it’s it’s almost philanthropic, and you have to kind of look at the business that way. So it’s a it’s a different approach than, you know, what we’ve all experienced in real estate. And, you know, 40 years of real estate tells me, okay, I’m driving for returns. And in this case, you’re driving for returns, but the returns are a little different. It’s, it’s returns from a humanistic perspective.

J Darrin Gross 33:08

Yeah, and I that that’s, well put, and, you know, you got to have some sort of a profit side of the equation there, but definitely, when you’re dealing with, you know, people and in just the massive amount of people, I mean, we say 3000 employees on the one side and then all of your residents and that that’s, that’s, that’s definitely a little bit more involved. I am curious, Dale, are there any emerging trends or anything that you’re following or, you know, paying a lot of attacks Listen to that, that pay you believe will influence your your near or long term plans.

Dale Watchowski 35:07

Yeah, you know, I’m just kind of a little bit of insight into our strategy going forward in what we set as a team and Bill, you know, through your business plans, and kind of some insight into my business plan right now is that we are, we’re maintaining our geographic focus, we are, we are looking at and considering more in the way of mixed use developments only because we have the opportunity to capitalize on the horizontal and vertical development. And also take advantage of the skill set that we have in being able to operate various asset classes. What we are, what we’re focused on now is we’re moving from traditional multifamily into single family, residential, for rent. And so we’re looking at single family for you know, as a rent as a rent, rental alternative to to ownership. We are, we are also looking at active adults, and, you know, trying to take advantage of a skill set that we have in multifamily, but also the skill set that we haven’t seen your housing. And, and so I’d say that that is a trend, and we’ll probably all hear more about it. But it’s really it’s a it’s a, it’s a social model attached to the multifamily business that capitalizes on the lives of serving the lives of seniors. And in so, so we’re we’re looking at that we continue to do what we’ve always done and, and that’s buying land and developing parks where we can do build a suits. It’s interesting to trend happens to be and I’m not sure if this is a trend for us, or a trend nationally. But I’d say that, well, I, I wouldn’t be guessing. But every one of our build to suit customers has been a foreign company. So, so so that that, you know, that probably would not have been the case 10 years ago. So say in the last five years, that build the suits that we’ve done in the foreign companies and, and who’s looking at our parks today, their foreign companies, we don’t do much in the way of warehousing we got out of that business quite some time ago, probably would have, you know, benefited had I stayed in it. But you know, we saw a lot of that business, you know, going offshore and in with just in time delivery it. It didn’t feel to me like you know, the right business to stay in and in in hindsight, you know, I wish I had stayed in or I wish I would have gotten back in sooner because it seems to be a hot commodity right now. But we don’t do much warehousing, we do, I’d say more build to suits. And it’s it’s more centered around research and development and technology and in life science buildings. So So those are the trends that we’re tracking. And that’s really the the way in which we’re, you know, we’re growing our business right now.

J Darrin Gross 38:21

Got it? Hey, Dale, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker and work with my clients to assess risk and determine what to do with the risk. And there’s a three strategies we typically consider, we first looked to see if there’s a way we can avoid the risk. When that’s not an option, we look to see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize the risk. And we look to see if there’s a way we can transfer the risk. And that’s what a an insurance policy is. And as such, I like to ask my guests, if they can look at their own situation could be their clients, investors, tenants, political landscape market interest rates, however you choose to define it. But if you can take a look can identify what you consider to be the biggest risk. And, again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so, if you’re willing, I’d like to ask you, Dale Watchowski, What is the Biggest Risk?

Dale Watchowski 39:32

Yeah, so Well, I could speak on on this topic for hours. But but I’ll start by by just you know, offering a general thought and it’s it’s nothing that that that I’m sure your listeners haven’t haven’t heard already and in know very well but, but risk is inherent in our business. Being in the real estate business as an investor is, is you know, we’re no strangers to risk and, and, you know, as developers, you know, I’m part of a pretty optimistic lot. And I think you’ve probably heard it said before that you have to be a dreamer. And you have to be a very, you know, an optimist to be a developer. And, and I would say that I’m probably the exact opposite of that. So I tend to focus on the downside, and, and, you know, my team here, as always temper that, you know, because I’m always pointing out the risks inherent in everything that we do, but but I’d say that, you know, you know, speaking outside of, you know, the risk inherent, you know, that inherent in the insurance industry, I’m gonna, I’m gonna go to kind of market risks right now, and I’m going to tell you that, that to our conversation earlier, my biggest concern is around, you know, our Office users and, and, you know, are we going to be able to retain them? You know, will, you know, will we go back to the office? What form? Will we go back to the office? And what’s it going to cost me, you know, to build out space that is attractive to my office users? And, and, you know, what did we do during this time of transition, you know, when your users are only looking to renew on a short term basis, which is really what’s happening right now. So, you know, so what the, the impact of, of all of that might be is that is the capitals becoming much less scarce, you know, for Office owners and developers. And because the, you know, like, the capital markets are pricing in the risk inherent in that business. And so, and so I see the development of capital playing significantly into the office market. And, and so, I also see on the residential side, I’m gonna move to another area of our business. And in this translates into, you know, both our market rate, you know, traditional multifamily uses, you know, of any age, right through, you know, a multi generational platform, that will include senior housing, but, but affordability is a major factor. And, you know, while we were not acquiring bundles of properties, you know, in multifamily, you know, over the course of the last five years, you know, we certainly were looking at, you know, the trades that were being done out there, and, and you know, what had happened is we took a, you know, an affordable stop, and we said, Okay, we’re going to, we’re going to improve a kitchen, or we’re going to improve the common areas. And what we’re going to do is we’re gonna increase the rent by 20%. Okay, and now you factor in inflation, and what’s that going to do to, you know, the housing stock that’s out there that would have otherwise been affordable? And then the other factor is, how are we going to build housing that, you know, that that our our tenants can afford, you know, given inflationary pressures? So, so I’d say that there’s a lot of pressure on the residential space, in that, in that we’re going to have to be responsive to the needs of the general population, which is, you know, how do I afford to live? And maybe that’s why multifamily or rental housing is so, so attractive, and probably the reason why we’re looking at single family rentals. You know, it’s an alternative to single family ownership. And so, you know, what I see, you know, as a trend right now, in this is intergenerational, is that is that people are underemployed. And so that’ll probably change, but, but then kind of moving over to the senior space. You know, what I’ve seen is a trend is that many of many of the boomers throughout this recession, or this throughout the pandemic.

By the way, I happen to believe that we’re probably in a recession right now, but at least the real estate recession but, but that said, many of the boomers have have retired, or they’ve left the workforce. And, and then those same boomers that we’re trying to attract into our senior business. They’re not like, you know, the greatest generation in World War Two generation, they don’t have savings. They don’t have equity in their homes. They don’t have pensions, and they don’t have 401 K’s, you know, which is what really drove our business and enabled us to maintain occupancy levels, you know, over the course of the last 10 years. So we have very few of those residents left and, and very few of our residents now, you know, how the kind of money that they would need to move into one of our properties. So what’s happening is that they’re moving in on a need driven basis, and they’re moving in at, you know, 85 rather And then 75, which is where they were 13 years ago when I came into the business. And so and because of that, they have more health needs. So we have to find employees to serve their needs. Okay. And, and those employees are out there. You know, so, you know, how do you, you know, how do you mitigate that risk, and I think you mitigate the risk by trying to play in the middle markets and build a product that’s affordable, you, you know, you try to, you know, not just attract and pay your employees well, but you, you try to retain them by, by offering them a great, you know, work environment, and, and then what you’re going to have to look for is a way in which to retain your talents, even after they, they don’t have the ability to pay any longer. And so we’re, we’re looking for different forms of assistance to bring into our business. So a lot of factors play into this. And I think I could, you know, as I said, I could talk about it for an awful long time. And, and that doesn’t even, you know, bring up the risks that we have today, that present themselves, you know, as a result of, you know, geopolitical pressure and in the environment that we’re dealing with. In the US, we started our conversation before this call, the environment that we’re dealing with is one that’s quite obvious through, you know, the heat that were that were incurring right now. And in the fact that we have to keep these buildings running well, throughout, you know, extreme temperatures. So So there are a lot of challenges. I think you hit on a interesting topic.

J Darrin Gross 46:34

Well, I appreciate all your perspective, your perspective there. Because, like I said, risk runs far and wide. It’s 24/7. And, and I always appreciate, you know, my guest input on on what they’re facing. And clearly, there’s plenty of risk for you to keep or keep you up at night there. So appreciate you sharing it. Hey, Dale, where can listeners go if they’d like to learn more or connect with you?

Dale Watchowski 46:58

Well, we have, first of all, you know, I’d love for listeners to reach out to me and my email addresses is dwatchowski@redico.com. And that’s W A T CH, o WSKI. At Redico, R Ed ico.com. My, my office number and I’ll give that T is 248-784-6504. So send me an email or, or call my office. But I would also suggest that that you visit our websites. And they’re easy to find Redico or American House or Continuum Services. And I’m, I’m available for you and love to love to further chat and, and hopefully it’s not all around risk. But about opportunity. So

J Darrin Gross 47:53

all right. Well, Dale, I cannot say thanks enough for taking the time to talk today. I’ve thoroughly enjoyed it. Learned a lot and I look forward to doing it again soon.

Dale Watchowski 48:04

My pleasure, Darrin, thank you.

J Darrin Gross 48:06

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, C R E PN Radio.

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Hotel Investment and Operation Risk with Vimal Patel – CRE PN #368

Vimal Patel 0:00

The typical term is a seven year window where you might be changing your soft goods or carpet you know you might be refreshing a paint we are your your FFP the furniture furniture you might you might stretch it out to maybe 10 years if it’s a good conditions right if it’s not started showing wear and tear brand brands will always do when doing the Q inspection brand is always tell you whether whether use on this capex items, you know, set the timeline upon renewal the license is typically you know, a 15 year window that there is a major upgrade that’s needed the brand requires a major PIP so they will be doing spending you know 1.51 to 1.8 million 2 million depending on the size of the property and you know, to renovate and renew their license.

Announcer 0:48

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:08

Welcome to commercial real estate pro networks CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Vimal Patel. Vimal is the President CEO of Q Hotels Management, which develops and owns and operates hotels in Louisiana and Texas. He has been featured by Fox Business News Week, the Associated Press nerd wallet, authority magazine, nola.com, and others. And in just a minute, we’re going to speak with Vimal about hospitality real estate.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. And you can find us on youtube add commercial real estate pro network. And while you’re there, please subscribe. With that I want to welcome my guest, the mall. Welcome to CRE PN Radio.

Vimal Patel 2:55

Yeah, thank you. Thank you for having me here.

J Darrin Gross 2:59

I’m looking forward to our conversation. Before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Vimal Patel 3:07

Yeah, so you know, as you mentioned, cute hotels, pos management, we are the developer operator managers. In South Louisiana, we have nine properties that varies between Hilton Marriott IG, and Best Western. So we have a couple of properties that we manage as well in Texas. We are also getting into multifamily, retail and other avenues that we’re looking into as volunteers storage, storage facilities or assisted living and other avenues. So yeah, we are kind of diversify and branch out from the hospitality and you know, a little bit do a risk management there.

J Darrin Gross 3:49

Got it. Got it. So I’m curious, you mentioned the different brands that you have his hotels, is there any limitation or any kind of friction you get between the different franchise ORS as far as your ability to operate other brands? Or is that kind of understood kind of like the car dealer that has Ford, Chevy and in you know, dodge or whatever it is that is it? Is there any issues at the at the, at the franchisor level?

Vimal Patel 4:22

Yeah, so specifically regarding whether so we have four properties right here right now plus a very corporate offices as well. So we have played an express next door to Hampton Inn and then across the street, we have Best Western right next door to that is the compass is the Marriott. So, in regards to having a branded flag right next to each other, there are no restrictions. However it is in a story for another day. We’ll be dealing with the franchisors specifically regarding, you know, the tactics and some unfair business practices and so whether they tie into for 15 plus 20 years But if license agreement, that’s another conversation because, you know, I last year actually, in New Orleans federal court I had was one of the first one to sue the Holiday Inn brands regarding some of these unfair business practices, so that’s a conversation.

J Darrin Gross 5:16

Gotcha, gotcha, well, I was just kind of curious, because it would make sense, from a, from an operational standpoint, to have multiple brands in one, one area to capture more of the market. And I would think, also, you’re, you’re able to do some cost sharing, or at least, you know, if you have staff, or whether you’re buying supplies, or whatever that is that you can bulk, you know, buy in bulk, or whatever, I think anyway, I don’t know if that’s, that translates or not. But that’s, that’s, that’s great. And so all of your, your, you have four right there locally, that are like essentially next door or across from each other.

Vimal Patel 5:57

Right, that’s this guy, they were next to each other. Now. Now, obviously, his brand has a certain branded products, which really can both buy and use it every hotels, but then there’s some other common, you know, you know, materials, that that you can use, integrated into some of the cleaning supplies or some some other products. But, you know, typically the linen products, the breakfast products, and so forth, are branded brand specific products that you have to buy, for instance, or separately for the for the for the brand recommended guidelines. So yeah, it’s gonna vary. Now, there might be some options to save the labor where you could probably have a couple of director of sales in place where you can sell on the properties or taskforce managers or, or even rotate some of the front desk, people here and there. So there are some avenues that you can benefit out there having a cluster in the same area.

J Darrin Gross 6:46

Yeah, I guess that makes sense. The cost sharing can be a little limited based on everybody has a unique presentation, I get it, I get it. So tell me a little bit about just the hotel market. In general, I know, in the past 10 years, there’s been, you know, competition from like Airbnb and other you know, I don’t know, what they call it sharing or whatever that. Is the market strong and also no COVID. You know, it was a kind of a wrench for everybody and in just the whole economy. Are you guys, are you have you come out of whatever may have been the COVID lag? Or is that has that gone? Now? Are you guys pulling?

Vimal Patel 7:33

Yeah, so So obviously, you know, March of 2020, you know, we got slammed, you know, we were we were running, you know, somewhere around 75 80% occupancy, the time and all of a sudden just grinded to a halt. And we ran down to single digit occupancy, right, we had even close down off our hotels Hampton Inn at the time, it just to kind of mitigate some of the costs, costs, expenses, and so forth. The biggest challenge has been, again, we had mortgages, we have fixed costs for the insurance, utilities, and some other spreads, we have team members that rely on on some of the benefit packages and some basic wages. So there was a lot of challenges, you know, that we had to kind of dig up, you know, some of our line of credits and just gonna make it work, to be able to sell sustain. In that essence, there was some grant help from SBA for the PPP that that really helped the hotel operations and supporting some of the team members. Now, you know, but again, you know, the mortgages are due, you know, even they get extensions, you know, you still have to pay for it. So, so, the liquidity became a huge problem, you know, and then the edge exhausted line of credit as the property debt coverage ratio went down, you know, some of the line line of credit got wiped out or are no longer available, you know, because of because, because of the devaluation, right, so, so there were a lot of challenges there, in the regards 2021, we started picking up, you know, and things were doing doing it a bit, you know, better direction, but occupancy. But then in August, in, as I talked earlier, you know, pretty good idea hit, you know, and we came down, right about our town, because seven properties within the vicinity that got hit pretty bad. You know, it took a long time to recover from that dealing with the insurance company dealing with supply chain issues. And, as a matter of fact, two thirds are still down, you know, we still have this work in progress on that part, after almost about eight, nine months. So, yeah, there’s been been a bigger challenges for us specifically, you know, you’re getting out of the COVID zone, and no signs of just his optimism, and you know, and the light at the end of the tunnel, and then here comes a very good idea and just kind of we’re starting all over again. So it’s been it’s been a challenging path. The past two and a half years.

J Darrin Gross 10:02

Yeah. Now I can only imagine, you know, get get through the COVID thing things are going back and then you have a hurricane. You know, that’s That’s rough stuff. So that the location that you are primarily located in what was the name of the town?

Vimal Patel 10:21

So we have a plus over 12 miles west of the Neon is airport. Our town is located where I 55 dead ends on I 10

J Darrin Gross 10:30

Okay, gotcha, gotcha. All right. So you guys are kind of right down there. And they the kind of the I have the, or at least that that hurricane risk is a regular thing for you. But I’m assuming is the is the tourism pretty strong? You mentioned you guys are back is that primarily your your market? Or is it just travelers that are traveling across the country? Or what? What’s the is there any kind of

Vimal Patel 10:54

so yeah, our market for the class itself is gonna be dependent on oil and gas, there’ll be a lot of industries nearby on the river side somebody’s bank in the West Bank of our town. And so we are dependent heavily on the on the on the oil and gas industry right and the tourism is not directly affects us. However, when you have a large events, festivals or very big convention center has a lot larger groups in it, and we might see some overflow on it. Predominately, it’s, it’s a corporate driven market. And we will see some overflow here and there, maybe in the weekends and some something like that. But other than that, you know, we don’t really have a lot to depend on on the on the New Orleans overflow

J Darrin Gross 11:41

genre. So more more business travel for the oil and gas industry. That’s how you catch it. Gotcha. So you guys develop properties, you operate them and you manage them? What are what are some of the things that you guys pay most attention to when looking to develop a property?

Vimal Patel 12:06

Yes, so So the biggest thing is obviously we want to look at it is you know, what market that we’re getting into and what brand you know, we want to get to get into those these associations with the weather, you know, what I want to get to the upskill meetup scale the economy brand was extended stay brand, you know, we tend to stay out of the full service hotels, where we have the food and beverage components involved is the margin is simply not there in those kind of kind of brands of hotels because of the food component which is beneficial is not any not in moneymaking in a revenue generator for the for the hotel, and in some market they’ll work but in most of our market you know, we stick with the limited service scope whether it’s upper midscale or its domestic properties. So that that’s where we start off with and then obviously you know we do a study on whether the market is sustainable, how are the competitor hotels that are doing it we do Star Report on that you know, we do build a feasibility study we will assess that if there’s a future additional hotels that may come along with wood we’ll be able to kind of self sustain ourselves. So, so there are there are a few other aspects that that we can dive in there and then obviously dealing with the find the right brand the right fit for the market. And then obviously how many rooms you want to do right? So the cost of you know, rooms that dictate you know, nowadays you know what the hotel that used to be at 90 or 100,000 a unit is now costing us North Oakland and 50,000 a unit and it’s constantly you know going up but post COVID Right so so there’s other factors in play and and the one last thing would be that you got to have X number of rooms right so so he just kind of go with 6070 rooms anymore you know the cost of operations and the fixed costs involved and just just way way too much to to have this as a low key so you can kind of push it as close to the 100 as you can obviously that will bring a project cost high as well so so your your net worth your liquidity and the bank loan to to you know now they’re doing probably about 65 70% versus before this is 70 75% that you know the ratio so there’s all those factors plays in

J Darrin Gross 14:26

no and when you guys so let’s say you find a location and brand that you think will work once you decide that you’re going to go forward how long before before you’re actually operational. I mean once you you sign the papers but you haven’t you don’t have a hotel yet you got to build it what how much time it had a couple of years are you able to get that new year which

Vimal Patel 14:51

is a minimum minimum is two years. That depends on the city as well because like Florida market I deployed is a little different sets of laws. And the zoning requirements and then the days a, you had to go through this permitting process approved positively to change the zoning, zoning law, zoning code, and then you’re done. It’s another process. So, so yeah, I mean, you know, in in, you know, least my time would be minimum two years, it could drag on to three and a half years or even even more, depending on which state which city you might end up in. So it’s, it’s very, very varies in how whichever you want to build it? And what are the current local zones, and laws are that you have to go through here?

J Darrin Gross 15:39

So, so once you have the the property, it’s built, its operational? Do you typically find that the newer properties? Do they get a boost? I mean, is it like people have seen this for a long time? And now they’re finally like, wow, we’d stay there kind of thing? Or is that? Is there any kind of initial

Vimal Patel 15:57

guide, so it’s a, it’s a, it’s, it’s quite the contrary, right? So it’s a new property takes takes a little bit longer time to ramp up in a, you know, typically, you know, we gave 12 months, 18 months worth of was a timeline to ramp up property, because you had to get into, into your corporate accounts, you had to get in the RFP process, then in a year, they had disarticulation going for, for other companies to know. So it takes takes a you know, on average, 1218 months for the period where the property will will ramp up in here that that’s on an average job, sometimes the property may take two years, right. So so it all depends on on your brand, your market, and how strong your market is, as well, that will dictate so, you know, you have to be prepared to have some cash reserves for for the first 18 months, you know, to be able to pay the debt.

J Darrin Gross 16:51

Yeah. So you’re, you know, once you sign up here, we’re gonna tell you, you’re gonna go forward, your your three to five years before you’re, you have a stabilized asset, is that kind of what I’m, what I’m understanding? Yeah, definitely,

Vimal Patel 17:03

definitely. A long term process. time factor is, is pretty high. So you have to, we had to kind of survive, you know, going to through the zoning courses, a site plan, review to building from it with architects, delimit civil engineers, and then finally find a general contractor. And then then again, there might be change orders. There’s other other avenues playing futsal. So yeah, it’s a building is not easy. It is always recommended, if you can find the right product, if if there isn’t a market, you might might have to spend extra and buy that or the building it but again, you know, if you’re a developer, and that’s what you do, then then you’re used to it at some point. But but it’s never, it’s never the same target is always a moving target is always new lesson to learn. The process is always gonna go up is gonna run on time. So So yeah, it just it’s it’s a variable is project.

J Darrin Gross 18:02

Ryan, you mentioned, you know, potentially buying an existing asset as opposed to developing it. I know the timeline we’ve talked about, but I’m assuming that the is there not a profit or nonprofit but an equity gain that you get from developing from ground up as opposed to buying an existing operating asset? Are you? Do you recognize that? Or is it just by the time you get there five years, it’s kind of a

Vimal Patel 18:38

no, so So again, I’m gonna be talking about equity part of it. So again, it goes by what your loan amount is 20 25% of the of the of the purchase price of existing property, but that’s what you’re putting down. And so that’s what equities I similarly in the new construction, if your loan is for a project is worth 10 million, and if you’re coming up with 2.5 million, you know that that’s your equity. So equity, I think doesn’t play much of a role in it is the time the return on time. Right. So everybody talks about the return on on money, right. But what, what I think most people that don’t calculate is what is the return on time, and if you overpay a project now, that doesn’t say that there’s gonna graduate three years ahead, start, you know, and then you might even take the depreciations you might not take that some of the losses or, or if you’re in the 1031 market, you know, so the different ways that you can play that part, rolling it again, it all varies by the situation, your risk risk level, you know, and your financial strength and the How have you been pursued this?

J Darrin Gross 19:43

Right. So you mentioned depreciation and or do you guys utilize Cost Segregation studies or is that not something you do?

Vimal Patel 19:54

Yeah. So we have done for a couple of properties that, you know, that’s the property that we intend to Hang on for a while, the other properties that we will not too sure whether we will hang on, or we may sell it, we didn’t do it because again, you know, look, at the end of the day, everybody realize that, that the IRS always come and get you, right. So we, you know, you may or may put today’s or pass it on till tomorrow, right, but, but at the end of the day, you still have to pay taxes, it’s still nice to kind of get out of it. So, you know, so we made an educated decision where in certain properties, we didn’t really take the deductions and we kind of left it, and we even take accelerated depreciation, and we just kind of let it receive the basis that didn’t build up. And if you do decide to sell it, then maybe our tax application, we will be much lower than if we would have taken it. So we just kind of decided to play that game that may fit best for some of our partners.

J Darrin Gross 20:51

Now make sense, case by case. So with a hotel, property, I’m assuming you have just constant capital improvement, you know, with whether it be replacing carpet, you know, whatever it is updating the pool, or whatever that is, to keep that fresh and, and inviting. Is there, you mentioned some of the other asset classes that you guys are are getting into multifamily. And that is there a Do you see a more significant, you know, budget item for capital improvements and replacement of things in the hotel? Business as opposed to you know, the other asset classes? Or is that was that more of an operational, just a cost?

Vimal Patel 21:45

Yeah, so it kind of varies between the age of the building, right, so if you have a newer building, that the typical term is a seven year window, where you might be changing your soft goods, your carpet, you know, you might be refreshing a paint, we are your your FFP, the furniture furniture, you might, you might stretch it out to maybe 10 years, if it’s a good conditions, right? If it’s not, if it’s not started showing wear and tear, the brand will always do the when doing the Q inspection brand is always tell you whether whether use on this capex items, you know, set the timeline, upon renewal, the license is typically, you know, a 15 year window that there is a major upgrade just needed the bragging rights a major Pip, so you’ll be doing spending, you know, 1.51 point 8 million, 2 million depending on the size of the property, you know, to renovate and renew the license, you know, but normal wear and tear, you know, that is that is a you know, depending on how busy all the tell is in what market is we in South Louisiana has a lot of humidity as well. So this kind of plays plays a role in it, you know, and you’re just gonna have having a three to 4% results are built in each month, so that way you have the funds available for you. When when this time temperature to invest in the capex?

J Darrin Gross 23:05

No, that’s that’s good to know the three to 4% there it makes sense to have that in reserve. So you’re able to to easily take care of the so as a hotel operator, do you guys are actually in the development and the operator and the management? Do you own and operate the the property in the same entity or do you separate Do you have do you have an ownership asset owner entity and then do you have an operator entity that

Vimal Patel 23:41

yeah so yes, so each hotel is a different entity because they’re not the common ownership as well they’re different partners, different different ownership. So, so each of the hotel is different different entity, the Makita management company is a different entity which which doesn’t you know, just a key management company. So, we got to be good by default you know, we had to have the hotels in different areas and because of the separate different partners and different breakdown the percentages and then we have a GC we also have a GC license we build so while I say to build these companies we do build a separate entity for the constructions give hotels does the management and then they each entity can also owns a hotel so we’re going to do all three succeeding in house you

J Darrin Gross 24:25

gotta admit as far as the the operation is separate from the ownership of the properties that I said that okay, yeah,

Vimal Patel 24:33

a few of those manages all villages there is a management company for all of them. Okay,

J Darrin Gross 24:39

is it a practice or do you ever see this where somebody just operates a I mean leases a hotel and operates it as opposed to owning the hotel the asset?

Vimal Patel 24:53

Very, very rarely. You don’t get most of the cases they may be Fidel operated on Bill build Watch out, it makes sense to eliminate and give it to a management company to operate it right? Leasing Park kind of opens up a little bit more risk. Because you get to deal with the brand. You deal with the insurance and some other liability that comes along with with it. So So unless, you know very is a very lucrative lease and you’re able to make make the insurance while you make the brand in licensed works and so forth. But but it’s it’s it’s not not typical to see that kind of overall lease program here.

J Darrin Gross 25:37

So, is there an average hold time you mentioned sometimes you guys buy property? And that was kind of a determination as to whether or not you might do a cost segregation study, if you’re going to keep it or you’re going to sell it? Is there indeed these trade on regular basis? Yes, it depends

Vimal Patel 25:56

again, so So did that dynamics in the right for First of all, if you’re spending, if able to build out a property at a lower cost, let’s just say that and and we said that the whole model cost was probably about 100 A key and if able to be make it to 95 or 92,000. The key that’s that’s a good sign that you may be able to kind of helicopter and flip it, it doesn’t dynamics, but your your, your your partner’s right to see it, you know, where are they at and, you know, in a different age group of partners and be a couple of partners there that were 60, you know, and so forth. They may have some other other guidelines, the other requirements in their financials, situations, and then also what works right now, do we have the product that is going to be at the peak and get the max out of it, right? If the if there’s a slow start, like I mentioned about with 18 month period, then a property evaluation is probably going to take some time versus if we have a jump start right away, and you feel they can get the most out of it. Because again, the year two and year three is still to come. And so the buyer will see there’s love still a lot more upside, and you can they can get probably, you know, 120 120 530 a key, you know that there’s something so it’s dependable by individual situation with the market the cost to build? And again, what what’s your risk factor? You know, do you want to just take what you got and run with it? Or do you want to bet for the future and see if we can gain more more out of it. So, so I’m gonna do it all depends.

J Darrin Gross 27:28

Oh, that’s, that’s, you know, it’s interesting now that I guess it’s true. I mean, it’s anything’s its numbers, if the what your what your plan is, if you’re planning it long term, that’s one plan versus if it’s, you know, shorter term or whatever. So, you mentioned the ownership, you have different investors in different properties. And that, do you typically do partnerships when you you acquire a property? Or do you? Do you do syndications? Or how are you set up on on the track contract in the capital and putting the

Vimal Patel 28:04

Yeah, so in our case, it is a family business, right. So so currently, right now, we just have four partners. You know, so the whole family with the building right now, we had couple of other partners from before, in that part, but then, and later on in the last seven, eight years, we just kind of narrowed down to us four, and we’re just developing and managing and doing the assets that we just makes it easier because, you know, we have segregation and divisive duties, like couple of our partners are strictly into the constructions and rebuild and the juicy part of it versus I can manage finances, operations and brand relations and some of the other aspects of it. So so they kind of helps out in the area and in depends, you know, where the expertise are needed and is that we can share the workload and then nobody can jump into each other’s work in. It’d be like easier and less smooth transition, I think that worked out pretty well for us. And that’s, that’s, that’s what we have. And now moving forward, the goal would be that when we’re doing a larger project, which will exceed you know, 35 $40 million projects and 50 million, then we might see outside investors or invite some other partners or build a fund, so that some of the some of the options they’d be evaluating and see how that would work out. So we have a couple of projects right now that we’re doing is dimensionally the multifamily so that’s, that’s going to be probably about 35 36 million project 150 rooms. I mean, it’s, you know, so that’d be that’d be good for this project in our asset and on our portfolio, and then that will probably, you know, will allow us to go outside of the region and then do a lot of projects and maybe may, you know, do multiple projects in a year versus having to do one at a time with the limited partnership where you’re going to forget that Take funds and be able to do two or three projects in a year and kind of just scale it from there.

J Darrin Gross 30:05

Yeah, definitely the more more opportunities. And you said that that’s a multifamily project you’re, you’re working on. Okay. And do you find the, as far as the the construction and development process kind of a similar timeline? Was to what you find with the hotels?

Vimal Patel 30:31

Oh, well, one thing for the multifamily would be that there’s a brand that can dictate certain guidelines, right? So that there’s a little bit more of the answer meet the code, you still have to go by the regulations and all of that, so so that doesn’t change a bit, right. So so what what would help you would be in the designing part of it, our pre opening process, part of doing the SEO and so forth, where, you know, you’re, you’re, you’re holding on, I guess, inspect it to make sure that the calls are made, and the inspection is done, and the lifestyle is done, and so forth. And they will open it, if you have to change them designs is an element, you’re not going to go and seek approval, and wait for three wait for that. So that kind of works. works in your favor, because you don’t have don’t have Brian in the world, but the building part of it and the construction part of it is pretty much the same timeline.

J Darrin Gross 31:28

And as far as the, the hotel business, we’ve talked a little bit about it kind of coming through COVID. And, and I asked him briefly, we didn’t really talk about it, but like Airbnb, do you see anything anything changing the hotel business? Going forward? Is it is it pretty much the same thing people need temporary shelter for for travel or for business for?

Vimal Patel 31:53

So the hotel industry, it’s gonna kind of in a very unique position right now, our you know that there are several factors being in that even if you discount the Airbnb part of it. If you just think about it, we have labor shortages, in the labor shortage across the board across the country, you know, even even internationally, too, I just saw that the news article that Heathrow Airport is limiting the traffic 200,000 and telling the airline do not don’t sell tickets anymore. Right. So labor labor is it’s a big problem. So the most of the hotels have scaled back the housekeeping service their skill by the Food and Beverage operations, because simply you don’t have labor, you can you can sustain kind of service, you know, the cost of the the wages have gone up 330 5% Yet, you cannot fill the positions, the cost of insurance, you know, for in our area, very southern Gulf Gulf region, you know, Florida, you know, it has tripled in 2024. The eight hotels in green, three of marchment are denuded right before the pandemic, you know, it was $426,000, for the property insurance, wind and hail, GL and all of that, right? March of 2021. Same properties, the properties, right? It went to 606,000. Right? March of 2021. Same eight properties went to 1.8 million.

J Darrin Gross 33:14

Again, so yeah, more than doubled.

Vimal Patel 33:17

Perfect. Yeah. So that’s the thing. So so that part, your inflation right now is playing a heavy role your Feds raising the interest rates. So most of us as the as the prime plus rates are running, right supporting rate, you know, the mortgage payment has gone up. So there’s a lot of factors being part of the hospital industries. So we had to raise rates, you can self sustain, and yet the services will be scaled back. Because there’s labor shortages and other factors being in part, your bottom line. So it’s not that these eroding, you know, and then we take out the Airbnb for part of it again, Airbnb doesn’t have to play by the same rules, they don’t have same safety standards. They don’t have to have insurance. You know, they don’t they don’t pay taxes in a local local community occupancy, tax or otherwise. Right. So So yeah, so those are the those are the factors that are playing through right now. And, you know, a lot of things coming up, you know, it’s going to change how the industry operates. And, and then the adaptively of the of the customers moving forward. You know, it’s, it’s gonna be eye opening experience for all of us.

J Darrin Gross 34:27

Ya know, I think the eye opening experience is definitely, you know, the underlying theme here. I mean, it is weird. I was just kind of doing a little bit of a comparison thing, you know, you look at, like the price of fuel or food or, or all of it, I mean, just how, you know, the doubling, in many cases is is what it is, but tripling that’s, that’s a that’s a huge deal. I have you have your rates. Have you been able to you mentioned that you’ve had to increase rates, but I can’t imagine Have you been able to double the rates to get to

Vimal Patel 34:59

it that’s the challenge. I think there’s a small increment you can go up 1015 20%. You know, but you can just kind of jump from $100 range to $200 rate that’s not going to work. Right. So it’s not going to sustain either. Again, I mean, I mean, you know, that’s, that’s, that’s another part of it is diversifying, right, they’re spreading out your risk. You know, it’s no longer so sustainable with all these different elements, it’s taking away heating up your margin, and investment is pretty heavy, 10 $15 million investment with a personal guarantee on it, you know, and, you know, so it’s, it’s a huge challenge right now, but a lot of us know what the future holds.

J Darrin Gross 35:42

You mentioned, the investment there lending is that do you primarily work with commercial banks? Or? I mean, I can’t imagine it’s already Fannie, Freddie. I’m assuming there’s not a Fannie Freddie option for

Vimal Patel 35:54

oh, no, yeah. So but yeah, a lot of a lot of local banks get private capital as well, that is always expensive. There are CMBS options, as there’ll be a couple of other CMBS we got out of it, just simply, you know, it doesn’t sit well. If you if you want to hang on to the asset, you know, so but most of most of the most of the dealings that we do is try to find, find the local banks that you have relationship with, that can help you out in time of need, and then you have somebody to talk to and just kind of how the peace of mind,

J Darrin Gross 36:30

ya know, I find a local bank that’s member of the community has a lot more interest in your success than somebody far away, so I get it. So, hey, the mall, if we could, I’d like to shift gears here for a second. As I’ve mentioned, by day, I’m an insurance broker. And I work with my clients to assess risk, and determine what to do with the risk. And there’s three strategies we typically look at, we first look to see if we can a avoid the risk, when that’s not an option, we look to see if b we can minimize the risk. And when a and b are not an option, we look to see if we can transfer the risk. That’s what an insurance policy is. And as such, I like to ask my guests if they can look at their own situation. It could be clients, investors, the market interest rates, economy, political, whatever, whatever you think is the biggest risk. And, you know, for clarification, I’m not looking for an insurance related answer. So if you’re willing, I’d like to ask you Vimal Patel, what is the Biggest Risk?

Vimal Patel 37:48

Yeah, so as I mentioned, right now, the biggest biggest risk right now is again, having having the personal guarantee that you have on your debt, right, the loan, you know, the cost of operations has gone up, you know, the fixed cost has gone up, the revenue has not gone up in that percentage. So, so coming out of the COVID, getting extensions, and now dealing with inflation and rising interest rates and the rising costs and so forth, you want to maintain that because again, if you start slugging lagging on your, on your mortgage payments, if you can pay and your your liquidity during the network is digging up, you know, that that’s a huge concern, because that pretty much underlines your future your assets that you hold your your future for kids. You know, that’s that’s the biggest, biggest, biggest part of it. Obviously, the other part Hand in Hand goes with it again, as I mentioned about the hurricane, right, we went to the hurricane, you know, and again, we dealt the billing and insurance companies is a huge challenge in this part, it took us, you know, seven months to kind of settle the claim and get the funds. In the meantime, we had to use our own line of credits, and get more debt to rebuild, continue rebuilding, and while while we were negotiating and fighting the insurance company, you know, having having the M the property coverages is the biggest factor because we just went through that part, right coverage, the right deductible, knowing your coverages and be able to ability to to have a plan in place should disaster occur, right, you’re not scrambling to find the right resources who to sue to get into this, but as a public adjuster with his attorney, or whether it’s a mitigation company or whatever the case may be right so you got to have those plan in place because absolutely the day of the disaster the after the disaster. There’ll be a million other people lining up and digging a great job for you and then you will overpay them that job, you know, and they’ll run away so so those are the two bad to experience a huge aspect of the latest my experiences in fire the risk mitigation risk factor that Family, you know, we used to be concerned about this, why the dad is concerned, you know, you had to start building reserves to have knowing COVID. And then situations that Makara you know, minimum in that building six months worth of results for your mortgage payment that way that we need to down in our period, you’re still able to kind of manage it and then hang on to your, your, your, I guess the credit part of it your net worth and then you know, your credit scores.

J Darrin Gross 40:29

Yeah, a lot of balls up in the air there. And, and so you got to try and keep them keep them in the air and keep them from landing on the ground. So that’s good. Hey, Vimal, where can listeners go? If they would like to learn more connect with you?

Vimal Patel 40:46

Yeah, so again, you can look me up. I’ve done a LinkedIn at VimalQ on Twitter as well as VimalQ. And, you know, my hotel website is QHotels.co. So you can you can find me at either one of those places.

J Darrin Gross 41:04

Awesome. The mail I can’t say thanks enough for taking the time today. I’ve enjoyed our talk, learned a lot, and I look forward to doing it again soon. Okay, thanks for having me. 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. CRE PN Radio.

Announcer 41:36

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Commercial Retail Leasing with Raphael Collazo – CRE PN #367

Raphael Collazo 0:00

You know, as far as retail is concerned, you hear the things in the news about, you know, online taking over and you know, retail just diminishing and that’s definitely still true. I mean, you don’t want to diminish the impact that online has had on on the retail environment. But since COVID, has, you know, started to normalize, you’ve actually seen an increase in retail activity outside of online and so the numbers of purchasing, as far as retailers concern online have dropped a decent amount since since COVID, has started to normalize. And so that kind of showcases that the American consumer is still very active as far as getting out there and purchasing. You know, in storefronts essentially.

Announcer 0:42

Welcome to CRE PN Radio for influential Commercial Real Estate Professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:01

Welcome the Commercial Real estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

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Today, my guest is Raphael Collazo. Raphael is a licensed commercial real estate agent who specializes in investment in investment properties. He’s also the author of Before You Sign That Lease. And before you buy that building comprehensive guides to leasing and buying commercial real estate. And in just a minute, we’re gonna speak with Ralph about how to analyze and assess retail real estate investment opportunities.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, we would love to have you subscribe. With that, I want to welcome my guest, Raphael, welcome to CRE PN Radio.

Raphael Collazo 2:49

Hey, Darrin, it’s great to be here. I’m excited to learn. Talk a little bit more about retail, which is one of the focus areas of what I do so.

J Darrin Gross 2:57

Yeah, well, I’m looking forward to our conversation. Before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Raphael Collazo 3:06

Absolutely. Yeah. And it’s it’s somewhat interesting. You know, it’s not necessarily a direct jump right into commercial real estate. So I actually am an engineer by trade. So I studied Industrial Engineering and economics in college. And then got into the software business. I was a software implementation consultant for a company that implement software systems for government agencies around the country and abroad. So I had the opportunity to work in Washington, DC for a couple of years, I worked on a big project in Puerto Rico to replace the financial software system for the island, and then moved over here to Louisville, Kentucky, where we help replace the financial software system for the city. Back in mid 2019, I actually transitioned into commercial brokerage, and I’ve been doing it ever since. And so that’s kind of a quick, high level overview of myself. My dad was in the military as a physician. And so I actually was born in northeast Italy. My mom’s Italian, and I’ve lived I lived in Europe until I was about 14 and then moved to Arizona, or went to high school and college. So got a very diverse background. But you know, I apply those experiences to hopefully better serve my clients in a variety different facets. So

J Darrin Gross 4:10

That’s awesome. I’ve always thought travel is one of the best education you can get. Just from kind of a world perspective, and and, you know, sounds like you’ve clearly had the unique opportunity. Hey, I wanted to ask you, so you mentioned by training, you are an engineer. sound sounds like you’re you’re fairly involved and doing a lot of projects here. What What was it that attracted you to real estate?

Raphael Collazo 4:40

Yeah, it’s a great question. It’s a question that I get a lot, you know, and they’re always like, why do you lead a software business? It seems to be a very, you know, a prosperous industry and enterprise and it definitely was, but in the role that I was in, in particular, it was a consulting role. So I was, you know, moving every couple of years, as far as the sustainability aspect It just wasn’t. So if I wanted to be able to start a family, I didn’t want to move my family every two to three years that so that was one facet as well. And then number two, I’ve always been somewhat entrepreneurial. I had a small Catering Company in college. And, you know, I after college for about a year, I had tried to grow that business and I thought I wanted to be a restaurant tour, I realized pretty quickly after I started managing a restaurant, that that was not what I wanted to do. But I always had that, you know, entrepreneurial fire that I wanted to kind of tap into. And so you know, that’s what initially got me thinking about the idea of doing something different. My mom is a residential agent in Arizona, and she’s been very successful at it, she actually started pretty much in the midst of the recession, in her career, and then kind of grew it to a pretty sizable amount. And, you know, she kind of encouraged me to get my license even back when I was in high school, but you know, you don’t really listen to your parents, when you’re that age. And so, you know, when I started thinking about different things to do, I started looking at the brokerage side on primarily on the residential side to see if it would be something I would be interested in after doing research and talking to a lot of people just realized that it wasn’t like didn’t fit my personality type that well. But when I started doing more and more research on commercial, it seemed a lot more in line with what I like to do. And so I gave it a shot and so far, it’s been great.

J Darrin Gross 6:16

And I can appreciate that 100% the emotional side of the residential is never mind on it. It’s making the decision when you’re making the purchase of one thing but leading others through it seems like a different kettle of fish or thing. Sorry, so now you are a commercial broker in Lou Lou. Is it Louisville or Louisville? Oh, no,

Raphael Collazo 6:43

It depends on who you asked. Depends on who you ask. Right? They say they say Louisville, Louisville Ville.

J Darrin Gross 6:49

Well, very good. All right. And that borders Indiana, is that right? Is it? Yeah. What’s the area? What’s What’s the area describe the area and kind of the size of it?

Raphael Collazo 7:03

Absolutely. So the the Louisville Metro area is roughly 1.3 million people. And that encapsulates part of Southern Indiana as well. So Louisville is located on the Ohio River. And so it’s split. It’s the the city itself is on one side. And then on the other directly across the the river is part of Southern Indiana. And so we have, you know, a city called Jeffersonville and northern New Albany, which are the, I guess, the bigger cities in that southern part of Indiana that is closest to us. You know, we’re about an hour and change away from Cincinnati. About two hours away from Indianapolis, you know, two and a half to three hours away from Nashville. So we’re pretty centrally located. In the Midwest area, I guess it’s considered us, Kentucky is considered south. But you know, it also has that, you know, has that Southern field, but But yeah, that’s that’s kind of a, I guess, a brief overview of the geographic makeup of of the area.

J Darrin Gross 7:58

And as far as the Metro size, how large is the

Raphael Collazo 8:02

Roughly 1.3 About 1.3? You know, and you know, there was a adjoining of the city in the past. So now Jefferson County, I think has so Jefferson County is the main county than encapsulate Louisville, and I think they have around 750. But if you factor in the entire metro area that feeds into Louisville, you know, within a, you know, between if you look at downtown, and you draw a 25 minute or 30 minute circle around it, you’re looking at about 1.3 million people in the metro. Alright, we’re in the top 50 cities in population size.

J Darrin Gross 8:34

Okay, I just I wasn’t familiar with her hadn’t really thought about the size of the area there. But definitely, you know, an area to contend with, like so the top 15 That’s, that’s good. Top 50 Yeah, or Yeah, top 50 Okay, yeah. And so, what if you focus primarily on retail, or do you what, tell me a little bit about your, your practice?

Raphael Collazo 9:00

Absolutely. So I’m with a boutique brokerage locally called the Grisanti Group. We were started by our broker, Paul Grisanti . He was in the restaurant space and him and his family owned restaurants in the area and you know, they decided to transition away from that into the brokerage side. And so as far as our specializations of what we do more so than anything, and I’ve done multifamily deals, I’ve done office deals with industrial deals, but you know, where my main focus area has been as blade has been the retail side in particular on the investment investment end. And so, you know, that’s I guess more so a function of the brokerage I joined because again, when you when you first get into the business, you don’t really know anything about the different property types or what you may or may not like and so, you know, I think a big reason why people specialize in a certain thing is either A, the position entails that you specialize in it or if you’re a boutique brokerage, you just kind of find where you you know, fit

J Darrin Gross 9:56

Okay, so the the news of late COVID Um, you know, excetera, post COVID has kind of led one early, least myself to believe that, that, obviously off is probably the most, you know, damaged or or, or challenged by the situation. But that also there were some challenges in retail. Can you describe kind of the current situation in your market? And? And, you know, vacancy and? And demand? Is there any new retail being built? What’s the what’s the story there?

Raphael Collazo 10:37

Yeah, of course, I mean, there definitely is new retail being built, I would say more. So on the higher end, you know, obviously, the higher price per square foot, you can, you can justify the development in certain areas of town. But as far as retail is concerned, we actually had the honor to interview on our podcast, James Cook, who’s a, you know, top research, the top research analyst for JLL for the Americas. And we kind of talked a little bit about the retail environment and how it’s shifted since COVID. And, you know, as far as retail is concerned, you hear the things in the news, about, you know, online taking over and, you know, retail just diminishing, and that’s definitely still true, I mean, you don’t want to diminish the impact that online has had on on the retail environment. But since COVID, has, you know, started to normalize, you’ve actually seen an increase in retail activity outside of online. And so the numbers of purchasing, as far as retail is concerned online have dropped a decent amount since since COVID, has started to normalize. And so that kind of showcases that the American consumer is still very active as far as getting out there and purchasing, you know, in storefronts essentially. So as far as you know, the retail environment currently, I think the biggest challenge going forward is going to be how we’re handling inflation right now, you know, the numbers have just recently come back for June, which I’ve been following pretty closely. And it’s actually increased month over month, roughly a percent, from what it was back in May. And so that’s not a good sign, as far as you know, where we are currently. And so I believe that, you know, the Fed is going to be meeting in a couple of weeks to discuss what actions they can take to kind of quell that, that inflation. And I imagine, it’s going to require, you know, an additional, you know, pull back as far as you know, or pull, increasing of interest rates, which is obviously gonna affect a variety different industries, not just retail, but you know, that that’s what I would be more concerned about as far as retail, but that’s really more so for the economy as a whole.

J Darrin Gross 12:37

Right? No, and I look at that, as I can’t really control that. I just know that it’s, it’s a constantly moving thing. They’re constantly tinkering with it. And, and sometimes they they’re putting, you know, putting the rates too low for too long, which gets us to this point where you have to correct and, yeah, and the pan.

Raphael Collazo 12:55

And a big thing is the supply shock. I mean, we can’t control how the supply chain has been affected. And, you know, obviously, with geopolitical issues that have been prevalent right now, with Russia and other other countries. I mean, that’s causing issues as far as supply chain is concerned. And, you know, that’s putting pressure on, you know, oil processing, refining of oil, which is, I think, one of the biggest bottlenecks right now. And since oil prices are an input in a variety of different goods and services, I mean, you know, obviously, that’s going to cause inflation. And so, you know, that’s, that’s, I think, what the Fed is going to be trying to manage is they’re going to have to be concerned with, you know, obviously, inflation is out of control, but we don’t want to put in, put ourselves in a situation where you have an economic slowdown, and inflation continues to rise, because that’s what happened in the, in the 70s, with the oil embargo, because you you got into stagflation, and so they’re, I think they’re trying to manage that as best they can. And it’s going to be very, very, it’s gonna be a fine line to tread over the next several months. So,

J Darrin Gross 13:50

Yeah, no, we’re in it, we’ll get through it, but not fun in it, but see what happens. So talking about retail, you mentioned that there’s, there’s definitely some new construction going on. Are there are there vacancies and older properties? Or what what kind of overall I mean, are people or businesses opening up in spaces or current businesses leasing larger spaces? I mentioned that the you know, the kind of the, the online is kind of waning, and people are looking for that local or the the physical, physical experience. What are you seeing just on that? You know,

Raphael Collazo 14:34

Yeah, no, or but that’s a great question. And I think that it depends on the type of retail that is being talked about, I think a big part of like restaurants for example, in particular, you know, fast casual drive thru restaurants, they’re going gangbusters. I mean, that’s they’re, they’re looking for space on a regular basis. You know, obviously experiential retail. I’m representing people who are looking to open up tattoo shops they’re looking to do you know, things that cannot be replicated In an online forum or an environment that’s still very active, as far as Louisville is concerned, we have a very strong culinary presence, we have Sullivan University, which is a, you know, a very well respected Culinary Institute, and other other you know, you know, institutions that can support the culinary scene. And so, as far as restaurants are concerned, you can’t find second generation restaurant space, meaning that it’s already built out as a restaurant, here, it’s just impossible. I mean, that obviously, you know, to the level with which you can operate, because, you know, a big concern for a lot of people right now is build out costs, you know, obviously, to build out a space to a specification that you would need to with rising labor costs with rising costs of materials, it’s becoming very, very expensive. So the demand for moving ready space is, is higher than it’s been since I’ve been in the business. And so, you know, those types of uses are still very prevalent. As far as new developments are concerned, I think a big one that we’ve been pushing for, for quite some time that it had, it had some contention early on here in Louisville was a top golf. I don’t know if you’re familiar with that, that that business, but essentially, it’s a restaurant slash bar that you can hit bought golf balls, and you know, it’s like a driving range. But, but that’s a big one that’s happening here in the East End, that they’ve been pushing, trying to push through for the last several years, but there was some contention at the local level for a rezone to be able to allow for it. And that’s one thing that I think, you know, obviously, is going to be unique to each individual. City, but, you know, whether or not the city is supportive of, of development, is another factor. And I think the city itself historically has not been the greatest with that. But I think with new leadership that’s coming in, there’s gonna be a lot more support for those types of uses, which is promising.

J Darrin Gross 16:45

So I was curious, you mentioned kind of the restaurant space and demand and talking about that fast. You know, the fast casual Yeah, you know, there was in the, in the beginning of COVID, there was kind of a leased thread of, of these kitchens for like delivery for like DoorDash, and Grubhub, or whatever these things were, and I don’t remember what it was called, it seemed like there was some sort of a, you know, more of just a kitchen kind of a thing where meals were prepared and, and delivered. Is that, do you see any of that? Or is that anything? That’s kind of any kind of momentos

Raphael Collazo 17:24

Ghost kitchens? Yeah, so there, there are some ghost kitchens in town, it’s not as prevalent as in other markets. I know, like, you know, obviously, in the larger markets, where rent pricing is absurd, I mean, you’re, it’s going to be a lot easier for you to be able to break into the restaurant space by utilizing those kitchens. As far as here’s concerned, depending on where you’re located in town, I mean, you can still get in at relatively reasonable rates. Obviously, if you’re starting to look into the East End, which is kind of our, you know, more affluent area, then you’re going to be probably charged a lot more. But then again, it’s a function of what your sales are what you project your sales to be in that area, then you can maybe afford it or not, but But yeah, I would say that ghost kitchens are definitely here in Louisville, and there’s people utilizing those. And I always encourage people that are looking to start a restaurant to either a consider a ghost kitchen, or be looking at the food truck route, just to provide a proof of concept. And then from there, once you build up enough of a clientele and you you, you establish a proof of concept, then, you know, committing yourself to a space long term is probably a more reasonable approach. But yeah,

J Darrin Gross 18:33

I love the fact that it you know, there’s some steps one can take and really like said test and prove the concept before you go in and sign them for the full monty kind of thing. And, you know, be more improve your your chances of success, which I think everybody would, as a fan of. So let me ask you so in your role or your efforts spent more on leasing space, or on actually sale of retail assets.

Raphael Collazo 19:06

So that’s a great question. I do a little bit of both. I’m I’m at a boutique brokerage. I’m not at a large house like JLL or Cushman that you know, you specialize in tenant rep or you specialize in you know, property management or specialize in the sale and buy side. For me, I do a lot more on the on I do a lot on the leasing side, but also on the acquisitions and sales side on primarily retail centers, you know, small strip centers to midsize strip centers. And so that’s kind of what I do a lot of.

J Darrin Gross 19:38

Okay, and on the sales side are are most of the the buyers, I guess and the sellers or the individuals or the syndications. Are they Yeah. REITs are what’s?

Raphael Collazo 19:53

Great question. I would say most of the people that I deal with are individuals but they’re also retail owners. So they have you know, Maybe they own a couple liquor stores, or they own some gas stations, they own, you know, another business that funds their ability to buy these types of assets. And usually they’re multilocation, you know, operators that now want to divert the income that they generate from their businesses into long term investments. So those are my primary clients. I haven’t done too much on the institutional side as of yet. But, you know, my, my, my primary clients are retail operators that own multi locations that will now want to invest that money into buying primarily strip centers.

J Darrin Gross 20:33

And when they do that, are they looking to occupy part of the space for new who, you know, operation or

Raphael Collazo 20:43

Sometimes yes, I mean, there’s, there’s definitely situations where, you know, you know, and this is more so strategic in a lot of senses, because, you know, they may buy a property that you know, has a vacancy, and instead of, you know, building it out to where they need to build it anyways. But instead of, you know, marketing for lease, they’ll just say, you know, what, I can put my business in there, and I can achieve a, you know, whatever margin I can with my business, so I’d rather do that than, you know, lease it out to someone else. And that’s definitely happened in scenarios, you know, as well, but it just depends on to the user, or the owner, I should say,

J Darrin Gross 21:15

I can totally appreciate the, you know, the opportunity to expand your business, and also acquire the the real estate, I think, sometimes the, there’s kind of a line of confusion know, when you have the asset, and the numbers that, you know, the NOI for the real estate versus the operational aspects of the, the tenant. And, you know, I think, because I see that more and more, like, I’ve been talking with people that are like buying hotels, and, and, you know, as opposed to just buying commercial real estate, and, and, you know, you’ve crossed the line from being a landlord to being, you know, an operator kind of thing. And so I think that that’s, it’s an interesting thing, because I think that it’s clearly, you know, two revenue streams, and, you know, a neat, neat opportunity, but it’s just something that’s different in that I would assume, in those cases, do most of the, I would assume that they’re buying the real estate in a different entity than the entity, the operator, their, their main business is that typical?

Raphael Collazo 22:21

Yeah, typically, they’ll build a lot of times, they’ll just start a new corporation and purchase the asset and there and then they, you know, lease it to the entity that they have for their own operations. So right, they sign a long term lease for this space, and, you know, at whatever rate, sometimes it’s not as formal, especially if they’re going to be occupying it. But, you know, if you’re prepping them for sale, you would encourage them say, hey, look, let’s formalize this relationship, so that, you know, if you’d or sell this to another investor, then they can count on that being the case versus just, you know, kind of flying by the seat of your pants. But that that’s the type of thing that’s, you know, before you list a property, you kind of advise your client on ways to make it as marketable as possible. And then also, you know, kind of mentioning to what you referenced, I mean, the the the opportunity for people who own their own building, and they’ve operated in that space for a long period of time, and they want to execute what’s known as a sale and leaseback I mean, that’s something that is also a pretty attractive opportunity, where you essentially sign a long term lease in the building to the, to the extent with which you want to remain in that building. A lot of times, it’s near the end of your career, maybe you’ve been operating a mom and pop shop for a while and you’re 55 or 60. And you say, Okay, well, I’ll wait another five or 10 years, we’ll sign a five or 10 year lease, and then sell the building to an investor. And that essentially becomes investment property. Thus, you can use the net operating income as far as the, the, to come up with a price for that for that property. And typically, you know, if it’s located in a desirable area, you can achieve it a higher price than you could if it just were vacant property,

J Darrin Gross 23:58

Oh yeah. I’d think if you’ve got cash flow, that’s, that’s gonna be you’re gonna be noi, as opposed to just dead or something like that. So let’s talk about just how you work with investors on how to analyze retail opportunities. I’m assuming you’ve got, you know, leases, which, you know, equal rent, you’ve got operating expenses, expenses, and you get an NOI and a cap rate. Can you describe, are there any unique revenue streams? Are there any unique expenses on the operational side that that you have to look at when you’re when you’re doing that? And And also, if you can describe what, you know, what’s a typical percentage of revenue that that the expense is equal in retail?

Raphael Collazo 24:57

Yeah, that’s a great question. I think it all All, unfortunately, depends. And it’s a function of the leases, right? So, you know, typically in our market, if you’re in a retail environment, you you’d seek out what’s known as a triple net lease, meaning that you know that the tenants responsible for pro rata share of taxes, insurance and general maintenance on the property. But that’s not always what happens. Sometimes landlords, you know, with just not knowing the market well enough, they they end up signing a lease with a tenant. That’s a, you know, a modified gross or a gross lease where, you know, the tenant is responsible for just one single rent payment, and then the landlord takes on all the operating expenses. And so those are really value add opportunities for investors. As far as other metrics to look at is obviously, my I always tell people, it’s visibility, accessibility, and traffic counts or foot traffic, like how many people are actually going to be able to see the property from from the street or whatever else, the How easy is it to access the space, and then what’s the traffic counts and foot traffic, and that’s more so just just related to attracting the tenants to the space because that’s sales is a function of how many people come into the store, and ultimately purchase a property. So if you can generate a lot of foot traffic, a lot of, you know, people coming into the property, you can typically charge more in rent. And then the next step is obviously analyzing each individual tenant and the leases, you know, obviously, a corporately backed lease is probably going to be more secure than a mom and pop shop that’s just opened up a year or two ago. So analyzing what, you know, tenants are currently in the space. And if you know, you don’t believe that a particular use is going to be successful. Because again, you know, if you’re, if you’re, if you’re if you operate a frame store, and the rent is 400 bucks a month, and the real market rents are 1200 to $1,500 a month, you know, is that Framestore gonna survive at, you know, whatever they’re paying right now. So you have to do that analysis and say, Okay, if they were to vacate, what can I achieve, potentially in rents, and then as far as the leases are concerned, just walking through them and getting a feel for what the expenses are, and then what the value add opportunities are, I mean, you know, if the market rate if the market is triple net, and all the leases are modified, gross or gross, looking to see are there, when’s their expiration date come up, so you can start passing along some of these expenses to the tenants. And then one of the things that really kills investments, unfortunately, is the options. So what an option is, is the right to renew a lease for a predetermined amount and different set of terms, once the the final lease, lease term is up. So you know, you may sign a three year lease, and then you may have another three year option at the end of that lease that specifies, okay, we’re gonna pay XYZ amount of rent here, the terms of the lease, and so ends up happening sometimes with landlords is that they grant too many options to the tenants, and they end up tying the property up for decades, I’ve seen some scenarios where they gave them a three year lease, and then four, five year options. So, you know, you could literally the tenant literally could hold you hostage for 20 years. And, you know, if unless it’s keeping pace with inflation, you’re you’re essentially, you know, it’s an underperforming asset for that long. So we’ve walked away from opportunities because of that. So yeah, and again, like reading the leases, and being very diligent about it, we have like lease abstracts that we create for our clients to make sure they understand all the provisions within the lease and what ways we can add value to it. And then once you get under contracts, verifying those those values and, and that information through what’s known as an estoppel agreement, where you provide that document to the tenant, and they verify that in fact, they’re paying what rent they’re paying that the the security the security deposit information is correct. And you know, if there’s any outstanding issues with the landlord that gets addressed before you close on the property, so those are just some tips.

J Darrin Gross 28:27

No, I was gonna say the, the triple net lease I think sometimes it gets referenced, but I I’ve also come to understand there’s like a double or I don’t know, it’s like there’s yeah, there’s certain certain aspects. And you mentioned, taxes and insurance, I think are the two constants. What’s the triple is that maintenance? Is that

Raphael Collazo 28:53

maintenance? Yeah, okay, yeah, and typically triple net so the way that triple net work or networks they’re called net leases, so they’re single net which operates you know, they just pay the taxes double net is taxes and insurance and then triple net include incorporates general maintenance, so that includes you know, the interior of the property sometimes it includes you know, some of the exterior maybe the parking lot etc. But you know, absolute net or you know, there’s another another in other markets and maybe call it something different but that’s what you typically see with like a Walgreens for example where they literally at the roof goes out they’ll replace it if the structure is bad, they’ll deal with it. Typically triple net you know, the, the responsibility for the roof and structure are on the the landlord.

J Darrin Gross 29:34

Got it. In a triple net lease versus a what do you call it when the landlord to just a gross lease, I guess when the landlord gets all the rent and then pays all the expenses. So as far as an expense ratio, if you just were to ballpark the difference for for doing an analysis. If if I had a a gross lease, and I had rent of x, what would you expect the percent of the rent to be in operational expenses?

Raphael Collazo 30:11

Yeah, I mean, that’s, that’s a great question. And a lot of times, it’s based on the user that’s in the space. I mean, you know, if you’re a heavy energy user, then obviously, that’s going to dictate what you what you can do as far as operating expenses are concerned. But, you know, you don’t usually see a lot of gross leases in our market, as far as retail is concerned. But you know, as far as triple net is concerned, 20 to 30% Max, on the operating side, I would imagine, if you’re looking at a fully gross lease building, you’re probably looking closer to 35, or 40% expense ratio, which I’m assuming is similar to, you know, apartments.

J Darrin Gross 30:45

I was gonna say, because typically for multifamily, I think that just a basic rule of thumb is somewhere around 50%. Just based on just quick back of the napkin, kinda, you know, math, just based on, you know, management, I mean, you also have a little bit, I don’t know, if it’s a little bit more, but I would think that kind of a management expense, you know, with leasing, and although you have the same thing, if you have a vacancy in a retail space, you gotta get that filled up there. So,

Raphael Collazo 31:18

yeah, and then you’ve got your vacancy rate, projections are going to be a little bit different, and retail is going to be probably higher than multifamily. But the turnover is going to be less typically. So you know, you, you have the three to five year lease timeframe, whereas in multifamily, it’s a one year commitment. And, you know, what’s the turnover on that? I’m not sure it depends on the market, I’m sure.

J Darrin Gross 31:36

Right. Can you talk a little bit more about the the value of the tenant in just their financial wherewithal?

Raphael Collazo 31:46

Yeah, I mean, that that’s a good point. So really, you know, when you do a deep dive analysis on all the different tenants, you know, you’re just trying to get a feel for what is their likelihood of a being able to fulfill their lease obligation as it currently stands? What’s their likelihood of them actually sticking around after their lease term is up. And then if they’re underperforming, as far as if the rents are under market? You know, can they survive, if you know, we re re up the lease and we push it closer to market rates. So those are types of figures that we do, we try to walk through with our clients. And again, you don’t have a crystal ball. So you can’t really tell, you know, sometimes, but you know, you can get as you start looking at a lot of these different tenants, you can get a feel for whether a frame store can pay what what a market rate is versus a, you know, a, you know, a higher margin business, like, you know, I know liquor stores decently high margins, you know, smoke shops, obviously, do you have a variety different other users that just can support a higher rent payment, but as far as the credit worthiness of tenants, I mean, obviously, you know, franchisor franchisees, you know, just because it says, you know, Buffalo Wild Wings, for example, and I don’t know if what the what the, the franchise requirements are for Buffalo Wild Wings franchisees, but, you know, just because it says Buffalo Wild Wings doesn’t mean that, you know, it’s a corporately backed lease, it may just be the their first operation they started two years ago, and it’s just a brother combo that just decided they want to start that. So, you know, just because that’s the case, that doesn’t necessarily mean that they’re going to be, you know, a strong tenant long term. So, you know, again, it’s just, it’s just doing a little bit of digging and a little bit of research. So, you know, the more franchises they have, if they’re corporately backed, and some some tenants are all corporately backed, and they’re, you know, a multi national corporation, that’s obviously going to be a lot stronger, as far as least as concerned than someone who has a one shop operation. And again, it’s just a lot of analysis. And that’s why I love retail, because it’s a lot of numbers, a lot of things to consider a lot of check boxes to check and,

J Darrin Gross 33:50

Yeah, I think the the analysis and retail seems to be, you know, much more critical. And I don’t see more critical, but I mean, more involved in really assessing the tenants, whereas I’d say multifamily, it’s matter, did they make their rent? Or their problem? Kind of thing? kind of curious on two things. One on you talked a little bit about the length of the lease and the options. Is there a rule of thumb that you abide by or subscribe to that? That kind of is kind of a target for length of lease, if you’re, if you’re signing somebody up, say they’re a restaurant, a known brand? Because there any kind of, you know, guideline that you work with?

Raphael Collazo 34:40

Yeah, I’d say, you know, three to five years is kind of the standard, you know, if there’s going to be a build out involved, you know, sometimes to attract certain tenants, the landlord will offer what’s known as tenant improvement, which, you know, essentially, you allocate a certain per square foot amount to a build out of space. So let’s Say you’re going to a restaurant and you’re looking to lease 5000 square feet of space, the landlord may say, You know what I’ll give you, you know, let’s say $30 a square foot, or $40 per square foot, which equates to 200 grand in build out, that, you know, you’ll, you’ll, you’ll take on the responsibility of doing the build out, but then we’ll reimburse you, when you provide receipts and whatever else. And so in those scenarios, if they’re going to be granting a significant amount of tenant improvement, they’re going to want a longer lease. And a lot of times, you’re going to try to amortize some of that over the course of the lease. So instead of maybe the market rate being $20 per square foot, maybe now you’re paying $24, a square foot, to cover the fact that you know, you that the landlord’s invested that amount into the space for you. And so it’s no exact science, but but I would say, you know, three to five years is pretty standard. And then if there’s going to be significant buildout involved, that the landlord is going to take some responsibility for you’re going to be looking for longer leases, you know, in the 710, maybe more range? And then, you know, typically, you’re going to have the the lease rate the higher than market, just to amortize that that expense over the over the term of the lease?

J Darrin Gross 36:04

And what about the options you mentioned, you know, you can kind of pin yourself in to where you missed the market? Is there a kind of a standard, one two option after the initial lease or would

Raphael Collazo 36:18

One is typically what you’ll grant. And, and again, with the options, you just got to be careful with how you word the language, as far as the rent increases are concerned, because sometimes you can afford it to say, you know, two to 3% annual increases, which is fine. We’ve seen others where, you know, it’s a fixed amount for five years, and then jumps up to 10 10%, in your, your five, your six, I guess, all the way to the end of the term. But, you know, again, it’s just what you can negotiate, especially now with, you know, the Consumer Price Index being, you know, so volatile, you know, I think that, you know, there’s there are historic, I’ve seen this in the past where I’ve seen, like, the increases tied to the CPI, which, you know, I’m sure those tenants are, are shooting themselves right now. So, again, it’s just all what can you do you negotiate.

J Darrin Gross 37:10

Well, it’s, it’s fascinating, and I’m sure, in your role of doing this on a daily basis, you’re able to be a good resource for your, your clients and, and, you know, get a good you know, you have a good feel of what the market is, and and how to best help both sides. Do you typically represent the landlord? Or do you work with the tenant? Or is it kind of like you you listed? And then also lease it? Or how’s that work?

Raphael Collazo 37:38

Yeah, so that’s a great question. So, you know, I’ve worked primarily with the tenants, as of right now, we don’t do a whole lot of property management as of now, but we are, we were starting to get a little bit more into that space. But I have represented the sellers of these of these centers as well. So it’s one of those things where, you know, more so on the buy and sale side, and then also on the leasing side, but primarily on the tenant side.

J Darrin Gross 38:04

And as far as marketing your, your business. How do you how do most of your clients come to you? Or is it? You reaching out to them?

Raphael Collazo 38:16

Yeah, no, that’s a great question. So I’d say that it’s a combination of a lot of things. I mean, obviously, I’m very active it locally, you know, I’m on several boards locally, I’m on you know, I run several meetups in town, for one for real estate, investing the other up for commercial real estate. So it’s commercial real estate, one on one meetup. I have, you know, podcasting that I do with a commercial real estate Academy podcast, I’ve written seven books, four of which were on personal professional development, when I first was in my previous career that was just more of a passion project for me. And then, now that I’ve gotten into the commercial real estate space I’ve written for you signed that lease before that, buy that building. And I’m working on finalizing before you sell that building, which is going to be a comprehensive guide to sell commercial property. So the goal is to become a series. So it comes from a variety different ways I’ve had clients come to me through through just watching me on YouTube, I’ve had clients that I’ve met through networking that have been connected to me through other people, I’ve had clients that I’ve that I’ve sourced just through my outreach efforts. So you know, there’s a variety of different ways to generate business. Obviously, COVID is, has has, you know, been a blessing and a curse and in some ways, and that, you know, it forces you to be a little bit more creative with how you do your outreach. And so in my case, when I first when COVID first hit, that’s when I really went digital, like super heavy with podcasts and, and YouTube channel and it’s paid dividends so far.

J Darrin Gross 39:34

Sounds awesome. That’s awesome. Hey, Raphael, if we could add like to shift gears here for a minute. By day, I’m an insurance broker, and work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider. We look to see if first we can avoid the risk. And when that’s not an option, then we look to see if there’s a way we can minimize the risk and Mmm, when we can neither avoid nor minimize the risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation, could be clients, investors, tenants, the market political interest rates, however, you choose to identify or frame the question. But I’d like to ask you, if you can, you know, take a look at and answer the question, what is the biggest risk? And, again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Raphael Collazo what is the Biggest Risk?

Raphael Collazo 40:55

Yeah, no, I think we kind of touched on it a little bit early on. And I think that’s just a broader risk as a whole. I mean, you know, it’s somewhat out of our control what’s going to happen over the next six to 12 months, I mean, the Feds gonna have a part to play but, you know, geopolitical issues that have been arising and supply constraints or, or things that we’re at work trying to work through, but it’s going to be reality for quite some time. So as far as the risk is concerned, if you’re a property owner, and you’re in the retail space, in particular, just working with your tenants understand getting a pulse on how they’re doing, you know, talking to them, just being that that their relationship, because again, they as tenants are supporting you as landlord, and vice versa, it should be that type of relationship. So in situations where we go into a, you know, an economic recession, which is likely going to be the case, you know, working with your tenants to try to get them through it if you can, and if not, then obviously repositioning the space to be, you know, attractive to to particular users, and understanding that, you know, what you could maybe charge two years ago, may not be realistic today. But that’s going to change going forward. I mean, as you know, we go through recessions, and then we eventually come out of recessions. And so, you know, again, it’s better to keep a tenant that’s good than to lose one and then have to replace them. And I’m sure that’s the case that you’ve dealt with in all different property types.

J Darrin Gross 42:14

No, amen to that, if they’re paying and they’re good tenant, that’s kind of rule one is, don’t push them around, that’s at least that’s my kind of thing, although I know others have kind of a sense of energy pushing, pushing, pushing, but in turn costs is it’s kind of a negative, it’s a cost, you know, and I can add on that kind of thing. So I’m more of a subscriber to keep the good ones as long as you can. So

Raphael Collazo 42:40

The devil, you know, is way better than the W don’t as they say,

J Darrin Gross 42:44

Yeah, absolutely. Raphael, where can listeners go if they’d like to learn more or connect with you?

Raphael Collazo 42:51

Oh, for sure. Yeah. So my, you know, they can reach out to me via LinkedIn, you know, I’m pretty active on there, you can check out my website at www.RaphaelCollazo.com. And I’m pretty easily accessible. Just feel free to reach out I have my email and phone number and everything on there if they’d like to get in contact. So

J Darrin Gross 43:09

Raphael, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed enjoyed it. Learned a lot. And I look forward to do and again soon.

Raphael Collazo 43:19

Definitely the thanks again. It’s been an honor Darrin, really?

J Darrin Gross 43:22

Oh, all mine. 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. CRE PN Radio.

Announcer 43:44

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Reach Real Estate Investors as Podcast Guest with Matthew Baltzell – CRE PN #366

Matthew Baltzell 0:00

It’s the same thing with raising capital. If you just go on one podcast and expect people to hear you one time, and after that they’re going to come and give you 1000s of dollars, you’re probably wrong. Like American Express says they have to have seven different touchpoints. So if they hear you on Rod Khlief’s podcast, and then they hear you on Darrin’s podcast, and then I hear you on Joe Fairless as podcast. Now, all of a sudden you start to become a thought leader, you start gaining some credibility. And then over time, people are going to reach out to you. They’re going to get into your funnel, and then they’ll be like, Hey, you have a deal in Houston. Why don’t you add me to your mailing list? I’m interested now you have deal flow. Now you started attracting capital capital now that comes to you before you’re chasing capital.

Announcer 0:44

J Darrin Gross 1:04

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Matthew Baltzell. Matthew is the former host of the real estate journeys podcast, a top 400 business podcast. And he is a real estate investor with a portfolio of 743 units and four years of asset management experience. And in just a minute, we’re going to speak with Matthew about how to attract capital like a boss with podcasting. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that I want to welcome my guest, Matthew Welcome to CRE PN Radio.

Matthew Baltzell 2:26

Darrin pleasure, thank you for having me.

J Darrin Gross 2:29

On pleasures mine and I’m looking forward to our conversation today. But before we get started, if you could take just a minute and share with the listeners a little bit more about your background.

Matthew Baltzell 2:40

Yeah. So you know, we spoke a little off off air but So currently I’m located in Chiang Mai, Thailand. We’re halfway around the world. So yeah, basically, people always ask me, How do I want to Thailand? Do I plan on staying in Thailand. And so basically high level overviews. I left the States back in 2016. And I attempted to move to Germany and I had a failed attempt there. So I wanted to travel the world, moved to Thailand, fell in love, got married, got married in 2018 had a kid 2020 COVID happened, stayed having another baby have a house. So in the meantime, while I was abroad, I you know, wanted to get involved in basically multifamily commercial real estate, right. And this was back in like 2018. Once things kind of started picking up for multifamily people were doing podcasts. And I was thinking of my next move and how I can basically get in the industry. But I’m still halfway around the world. So what I did is I started I went to bigger pockets, I went into forums, and I basically created a digital meetup. And I had anywhere from six to eight members at the time. And one person who didn’t join the meetup just was following my progress. And after about two or three months, this person reached out to me and said, Hey, I like what you’re doing. Why don’t I introduce you to a principal at a private equity firm, who’s basically starting from the ground up. And that’s how I got my foot into the door. And then I basically worked for that company for years, and was doing investor relations working with the asset management and was basically able to get my foot in the door. I started a podcast while I was abroad that had on 14 episodes as well. It’s no longer syndication. But that’s a little bit about me and how I got into commercial real estate and how it started a podcast and business as well.

J Darrin Gross 4:35

Awesome. I love the fact that being abroad didn’t keep you from doing it. I think there’s a old school traditional real estate was always no invest within you know X number of hours or time or miles from from home kind of thing and and clearly the the you know the tool the internet had the ability to connect with others and and make things happen is not, you know, kept you from being successful in investing in real estate? Or unless maybe I’m missing something or your units, or did you invest in Thailand? Or

Matthew Baltzell 5:15

did you? No, no, no. So I invested in the syndication deals through the company. So we had properties, or we still do have properties. And we have four, we have properties in Orlando, we have two or three properties in Atlanta. And yeah, basically, all the properties are located, or that I’m invested in are in Georgia, and they’re in Florida.

J Darrin Gross 5:37

Got it? Got it. So you said that the company you’re working with was doing this indications?

Matthew Baltzell 5:43

Correct? Yeah. So that, so I was working with I was working with a company, and I was working with him for four years. And while I was or why I’m currently still abroad, right, so I decided to start a company called Lead podcast bookings, which basically helps facilitate real estate investors getting on industry, leading podcasts, helps them attract more capital deal flow and become thought leaders. And so when I was on, excuse me, so when I was when my when I used to have my show, right, I’d be going on other people’s podcasts, I would have my show pitched. And I was just seeing this, basically, this broken, broken down in the industry, that it was basically been very done very poorly. And I thought I could start, I can basically create this business. So may 2020, I created elite podcast bookings, were able to get one or two clients. And then from there, we started to build the company. And then just recently, I decided to transition to elite podcast bookings, and make it my full time employment and scale the business.

J Darrin Gross 6:47

That’s awesome. I the whole podcast world, I mean, there’s tons and tons of them, but the ability to niche into a specific genre or an audience. For sure, I think is definitely the the cool thing with podcasts on the internet as a total just to be able to, to find and attract an audience, that you speak to this looking for what you you have to present. So that’s, that’s definitely different than buying an add on, on, you know, Superbowl or something like that you can really niche down to who exactly he’s looking for and provide her, you know, once the information you’re providing. So let’s talk a little bit about, you know, your experience as a podcast host in your experience as period on others, and then what you’ve seen with, you know, the clients you have with a lead, and what their journey has been in kind of the success that they are are seeing in their efforts to raise capital. Did you? Did you try and raise capital when you were a host? On your, your own podcast?

Matthew Baltzell 8:08

Yeah, I mean, so when I started my podcast, I think my podcast was in syndication from, I could be wrong exactly the years, but 2018 to the middle of 2019. So that’s when I was just kind of joining the company. So I was more. So just trying to get the, you know, my foot in the door, trying to get my podcast up a little bit. But I basically started help raising capital from like, 2019 onwards. And so, you know, the assets under management we had were around like, anywhere between 75 to like 90 million, right. So, going from zero to seeing all the way basically started building up in getting progress. I saw investors coming through the door through multiple deals, helping raise capital, and, you know, basically saw how the process was done, right, and saw how we were doing it. And podcasting was one of the great ways we did it. For like one for us, right? We had a client who went on a podcast, and they were able to raise $250 from one investor or $250,000, not $250 $250,000, from one investor from being on the podcast, right. And so one of the beautiful things about being on podcast, I saw you you had a bunch of episodes, how many episodes do you have now is over 100 or something? Like two

J Darrin Gross 9:35

in an hour. We’re just shy of four hours or an hour to check but this

Matthew Baltzell 9:40

Okay, so Exactly. You’re over. You’re over 100 Right. So you basically you put in the reps, right? So people that are going out, and they’re going on podcast, right? So let’s say you’re selling a book or you’re trying to promote your business, or whatever have you the first time somebody hears you or the first time they hear Darrin as podcasts, they might like it, they might not like it, but they’re not gonna probably they might come back, right. But then if you have a second podcasts are more likely to come back third, and then you started training people and people started listening to Darrin’s message. It’s the same thing with raising capital, if you just go on one podcast and expect people to hear you one time, and after that, they’re gonna come and give you 1000s of dollars, you’re probably wrong. Like American Express says they have to have seven different touch points. So if they hear you on Rod Khlief’s podcast, and then they hear you on Darrin’s podcast, and then they hear you on Joe Fairless, his podcast, now all of a sudden, you start to become a thought leader, you start gaining some credibility, and then over time, people are going to reach out to you, they’re going to get into your funnel, and and they’ll be like, Hey, you have a deal in Houston. Why don’t you add me to your mailing list? I’m interested. Now you have deal flow. Now you started attracting capital capital. And now it comes to you before you’re chasing capital. So it’s kind of an upward trajectory spiral. And as you know, like you were just saying earlier, that, you know, podcasting is a great way to basically niche down if you wanted to find people that are going to be real estate investors, or you want to find somebody that’s going to be lawyers, right, lawyers probably listen to lawyer podcasts, or maybe they don’t, dentists, right, or high net worth individuals. So you can basically, really fine tune your niche that you want to target. And podcasting is a great way to do that. For me, I was in the private equity space, podcasting space, so just kind of had a good crossover. And I was able to help people facilitate and raise more capital. And that’s what we’re currently doing with elite podcast bookings.

J Darrin Gross 11:44

So you mentioned the reps, kind of thing that the seven touches, do you in I’m kind of curious, a long, long, long time ago, when I was in college, I remember, I was trying to sell something to car dealers, I’m like that, and I’ve talked about them about and you’re on your hands are on all the time. And he says, you know, it’s funny, everybody thinks that. But the reality is there was like, some sort of sequencing that they went that they knew that if they were on, like, three times one day, or I don’t know, a bunch in one day, that the saturation point would hit as opposed to having, you know, like, one ad per day, kind of a thing. And I’m kind of curious, you mentioned the the seven touches, is there a number of of shows? Or is there any kind of math that you find that is more beneficial? For one of your clients? If they’re looking to get the word out? Is there? Uh,

Matthew Baltzell 12:44

yeah, there’s no, there’s no, necessarily there’s no necessarily concrete number, right. So, you know, we’ll just put it in probably more of more layman’s terms, like some something that everybody can relate to, or something like that. So if you’re trying to run a mile, right, and you’re trying to run a sub 10 minute mile, now, if you were 20 pounds overweight, or 30 pounds overweight, or whether, you know, you have come from an athletic background, like everybody’s gonna have different progress before they get to the sub 10 minute mile, right? So the way I would explain it to people is that basically, the more reps you put in over time, the more likely you are to see success. So I can’t tell somebody, Hey, you know, after you’ve been on for podcasts, you will raise $300,000.04 is the sweet spot. So what I typically tell people is, the longer they stay in, the more likely they are to see success, right? So the longer you go to the gym, you know, over if you do that for six months, while you see six pack abs, you might see some tone muscles, you might feel better about yourself, you know, it’s basically a lagging indicator, you go for two years, you go for a year, now suddenly come back and tell me like that’s what I used to be right. It’s like, after a year, if you haven’t seen results, like something, something’s wrong, right. And all of our clients, we have a retention rate of, we’ve only been in business for two years. And the average client has been with us for a year and a half. So the people that just come and go, they don’t usually see results, because they’re not that committed, but the people that are committed to the process, do see results.

J Darrin Gross 14:17

Got it. Got it. And as far as the I mean, your businesses to get the, your client on other people’s podcast, do you work with them about you know, how to message and you know, how to be on point where they they’re more effective or is that left? Yeah, so

Matthew Baltzell 14:42

So one of the main things right is everybody always wants the biggest exposure. Right? They will Hi, can you get me on Joe Fairless. Can you get me on? Don Joe Ferriss, I’m sorry. Joe Joe Rogan Can you give me on Joe Rogan? Can you give me on Tim Ferriss podcast like it throughout the day? to three 30 million downloads per episode, like they’re like, I want to be on those like, Okay, I understand it. But the way I explained it to people is if you were to go on Joe Rogan’s podcast and let’s say one person were to enter your funnel, and or you go on Darren, his podcast, and now all of a sudden five people into your funnel, and you get three investors, like, which one would you think is more successful? And people would probably say, like, Oh, it went on Darren. So I was able to get five people on my mailing list, and I got three investors from it. And Joe Rogan was great. It was cool, but I only got one investor. Now what I tell people is that when they come in, and they usually around these podcasts, where the where the, where what’s broken down is the call to action, typically. So like on your show, you might say like, Hey, you know, Matthew, where can people best find you or connect with you? And typically, when people go on a podcast, they say, oh, Darren, thanks for having me. You know, here’s my number, you know, 303965, blah, blah, blah, blah, blah, Oh, also, my email is Matthew at elite podcast bookings.com. I also really love to find a talk real estate, and I’m also on LinkedIn. Now you see, it’s like I listened to the whole thing. Podcasting is a very intimate experience, right? You don’t it’s not like a song where you can pick it up in the middle, and you’re like, Oh, I love this song. Oh, this is catchy here. Now, the demographic of people that listen to podcasts is usually more sophisticated. They’re usually gathering information they’re working at working out at the gym, they listen to it in their car. So if they listened to 30 minute podcast, by the time they get to the end, that’s almost a reward. And then when you deliver a long drawn out call to action, they’re less susceptible to go into your go into your funnel, right? You want them to basically sit down everything they’re doing, and take action as soon as possible. So if your call to action has scarcity into it, you could say within the next, you know, with the first two people to listen to me and say that they email me and said, I listened to Dan’s podcast, we’ll get a free ebook or free book, autographed by me, or a free 30 minute coaching, or an exclusive offer to my Bootcamp for the first two people, right. But it has to have basically scarcity to it. And you have to have a strong, clear call to action. And we basically help people facilitate their call to action, what they should be looking for what they should be doing. And a lot of times that helps real estate investors because, excuse me, real estate investors, right? It’s almost like a good old boys club. They know how to close deals and stuff. But as far as like the marketing aspect is concerned, they don’t necessarily know they just kind of like, I know how to like, underwrite, raise capital, get new deals, I know nothing about marketing. I know nothing about social media. And that’s where we usually come in.

J Darrin Gross 17:52

As far as, excuse me, as far as the promotion of the episode that the individuals on Do you do anything? Or do you recommend that the guest have their own kind of a platform? Are they active on social media, as well? Or any kind of?

Matthew Baltzell 18:12

Yeah, so I mean, as the more platforms you have in general, right, the better it is. So we are actually in the process of building out a social media management for our clients. And one of the things that we’re going to start to be doing is breaking down their content on podcasts into micro content, that they’re going to be able to push out to the network. So usually, if you’re on a podcast, let’s say your podcast or different podcasts, they might say, Hey, your podcast episode is live. And maybe they give you some deliverables, maybe they’ll give you a little infographic with a sound wave, that might have like a 22nd sound clip, right? But one, nobody will listen. So those little sound waves and everything is very visual nowadays. So we’re gonna start doing is breaking down like a 32nd clip of a soundbite having a high quality audio, high quality captions, writing that and so when people start getting that there’ll be able to push it out to their network. So if you had 1000, if you had 1000 followers, I’ll just make this up. 1000 followers on LinkedIn, 1000 followers on Twitter, 1000 followers on Instagram, and 1000s of followers on Tiktok. Right. And now all of a sudden, you as a guest are perceived as more valuable, because you now offer exposure, right? It’s a it’s almost like a give and take relationship. I’m on Dan’s podcast. Darren has 50,000 downloads per episode, I get exposure, I offer my information to Dan’s audience. It’s a give and take relationship, right. But if I also have 1000 followers across the board, you know, having me on a guest will be beneficial for your show as well, because I will promote it to my audience. And I’ll push it out to my network. So the more will say you For social score, the more and perceived value you have across your different accounts, the more likely you are to be able to reciprocate that message. So it definitely does add value. So if I wanted to get on Joe Rogan’s podcast, and you’re gonna say, Okay, I have, you know, 100,000, Twitter followers, 100,000, Instagram followers, these are more likely to die. I mean, they’re vanity metrics, but they’re going to perk people’s ears up, and they’re going to be more likely to let you enter the Golden Gate, right? But if you say, oh, like, I don’t really promote, I don’t have a newsletter. I don’t have a website, right? These are all things that you’re not taking serious. If you’ve had 400 podcast episodes. I mean, you’re doing something. Right. Right. So people already know you’re taking serious, this is guy that’s going to show up, he’s going to deliver, he has a great podcast, and he probably has an audience who would listen to him if he doesn’t have 400 episodes, right? You’re not doing it for fun. So it’s a great way to basically push your message out there.

J Darrin Gross 21:02

Now, it’s interesting how the, the value of the guest and and I’m not saying that we are are looking for a man, we’ve had plenty of guests that haven’t been it’s more about the topic that they are the the story they have, or you know, whatever it is that we want to talk with them, but but just in in kind of the bigger scheme, and you know, like the Rogan’s and, and some of your bigger platforms, how, and not just it’s not limited to that. I mean, I think I’ve seen like getting more models and, and stuff, anybody that has a following on whatever the platform is, is has more value than somebody that doesn’t. And the ability to get more exposure for kind of like said the kind of the trade off there. So it’s an interesting dynamic, how it’s changed. Yeah, for sure. And, and how easy it is for one to get a following. It’s not necessarily limited to your budget or the Capitol, just more a matter of some effort, or, you know, whether you employ somebody to do it or whatever, but, but, you know, to get to get a following, to grow an audience, and to be on point where they know what you’re going to be talking about. It’s fascinating to me how that all works.

Matthew Baltzell 22:27

Yeah. And this can also include, you know, blogs, you can also includes newsletters. So if you’re listening to this, and I have zero followers across the board, okay. Maybe you’ve been writing about entrepreneurship for two years now. And you have a newsletter of two or 3000 people, right? Or you have a blog, and you receive, you know, 5000 unique visits per month and a zero bounce rate. Right? So there’s definitely like, you have to kind of think outside the box, right? Like, when I live in Thailand, I wanted to get involved in real estate in America, like, how easy would it be for me to say, well, I don’t live there, right. But now all of a sudden, I have 700 plus unit portfolio. People are living in San Francisco, and they’re afraid to, you know, invest in Oregon, right? Like, they don’t want to drive two hours because they think oh is too far. But now that basically COVID is happening, right? Like you have to basically almost in a sense, think more creatively, you have to think outside the box. So if you’re like, Okay, I don’t have any followers, like, Do you have a newsletter? Do you? Do you have a blog? I mean, do you have a following at your art? Do you have a meetup? Right, a local meetup? How many people are in your Meetup? 30? Like, what if five people listened to your episodes or wherever you’re trying to promote? You just got to think about that. How big is your network? How big is your network? At the office? How big is your network at, you know, the football soccer club you’re in, you know, everybody has a network, it’s just a matter of using that leverage to gain more access to what you want. And then from there, it’s just about growing it and nurturing and cultivating it, and just over time, it’ll grow. And that’s why there’s no exact science to it, it’s more of a was more of a science or sorry, it’s more of an art not a science, there

J Darrin Gross 24:15

we go. So, let me ask you, you mentioned several different platforms and types of, of ways to communicate, whether it be a newsletter or or, you know, one of the the trendy platforms. Is there a baseline minimum that you encourage people that are looking specifically in real estate investing? That they they shoot for or work or, you know, work to have so they can, can grow?

Matthew Baltzell 24:52

From what in what sense? You’re saying like a number of followers or what

J Darrin Gross 24:55

uh, well, if somebody I’m just saying somebody’s trying to raise capital, you know, in And, you know, because I, my curiosity is is more, you know, the Tick Tock kind of thing. I know, it’s a trendy thing, but I’ve seen a lot of people, you know, have, you know, put in commercial real estate or whatever. And there are people on there that have a message and stuff. And And I’m curious if that’s more of a, like a bait that then you get them to go to the website? Or is where’s the bolt? So on any one platform,

Unknown Speaker 25:30

it’s all it’s all how you looked at it, right? So tick tock is usually by tick tock a shorter form content, right. And usually the demographic for LinkedIn is more professionals, right. So if your target demographic was, let’s say, high net worth individuals now, that’s not to say that there’s there’s not going to be them on Tik Tok. But let’s say they hire demographic like that is going to be on more LinkedIn. So if you’re targeting doctors, lawyers, you know, business professionals, entrepreneurs, LinkedIn is probably going to be a better avenue to go and target. Now as Oops, my camera turned off. As, as far as sorry, the other party, I lost my train of thought,

J Darrin Gross 26:23

when you were talking about LinkedIn. And I was just asking, is there an ideal number of platforms? Or is there an ideal platform specifically for the real estate investor?

Matthew Baltzell 26:35

Yeah, so what I what I would what I would say like if you’ve, if you’re raising capital, right, so basically, with any with any raising capital, capital preservation is going to be number one, people want to make sure that you’re not going to be losing, losing their money, right. So when you’re initially starting out raising capital, who are you probably going to turn to, you’re probably going to turn to people that already trust you, like, know, and trust you, which are probably gonna be friends and family. So initially, you’re probably not going to be able to raise $500 million $3 million dollars, whatever it might be $200,000. So what I would say is piggyback off your most recent successes. So if you raise one deal, and you raise $100,000, and you’ve taken the property and the property is gone, gone full cycle, you can say, look, I invested 100, we raised $100,000, with my a couple of my investors. And like, let’s say I’m talking to you down, and I can say I helped raise $100,000. Now, do you know that was from my mom? And from my brother? No, it’s true. I helped raise $100,000, right? And then you’re like, Okay, and what was their returns? Oh, after three years, it was a 2x equity multiple, so their money doubled in three years. Oh, wow. That’s great. Now I’m raising money for a new property. And this new property is located in Austin, Texas. And this is the sponsor we’re working with this is what we’re doing. And Alison next deals, you’re able to raise maybe $300,000. And then a third deal, you raise $700,000. And it keeps snowballing from there. And as long as you have, as long as you’re, you know, basically being ethical, right, you’re putting yourself out there creating content, you’re expanding, growing your network, whether you’re going to meet ups, virtually, or you’re going to meetups in person, right? You’re basically growing your network and when you’re growing, people say your net worth is your network, your network is your net, your network is your net worth, right. So as long as you kind of curating that that’s probably the best way to go about doing it. But as far as which platforms necessarily choose, I was gonna say if you’re looking for high net worth individuals, LinkedIn is probably the best bet but not to say that there’s not other high net worth individuals on other platforms. That’s where I would just initially start

J Darrin Gross 28:51

I don’t know I am always kind of amused I was talking to me with my son told me about when I was a little gamer friends that was like, you know, doing tick tock and, you know, had created some YouTube channel that has like exploded because of his Tiktok activities. And I’m like, this cross pollination and how to use them and stuff is, is interesting, but I think to your point, knowing who you’re looking for, is, I think the first thing and then having the message and messaging to those people that you’re looking for and and again, you know, if you’ve got experience telling your story and and, you know, especially if you’re trying to raise capital, like said preservation of capital, that’s got to be an important part of the message. Yeah, when

Matthew Baltzell 29:40

you mean if your brother’s friend was trying to, we just want to reverse it your brother’s friend. I’m sorry, your your son’s friend, your son’s friend if he was trying to do the same gaming thing on LinkedIn. Right? If he’s trying to get those people that were like, there’s not many gamers here at midnight, online, like finding play call duty or whatever like So they probably know exactly who their avatar is, as well.

J Darrin Gross 30:04

Ya know, and, and I, you know, it’s, I think the, the challenge I think anybody has, when you’re staring at the computer screen or the, you know, you’re trying to do this, and you’re being bombarded by all these messages and, and, you know that one is, you know, understanding who you are trying to attract, and then recognizing where they are, and then tailoring your message. So that it lands with the audience you’re seeking is, is crucial. And, and then putting in the reps, you know, I mean, if you try something, it doesn’t work, and, you know, modifier or change or whatever, and, and, you know, keep doing it. As far as your, your, your guests, we’ve talked about kind of one of the big things, the call to action, I love that, because it is amazing to me, and I am guilty of and I think everybody is is, is providing too many opportunities, as opposed to just the one point, here’s the one thing I want you to do, you know, go to this point. Is there a we’ve talked about kind of the the stain with it. Is there any kind of a measure of success that you would that you would expect? I mean, we’ve talked about, like, you know, Jim reps and that kind of thing, but is it? Is it if somebody is putting out more content, meaning with more people doing more, more and more more is going to equal more? Or is there a? And I don’t know if there’s even a way to measure it,

Matthew Baltzell 31:45

I guess. I think I think I understand where you’re going with that. I mean, as far as you know, I would say the most successful capital raisers that I know. They are always building their network, right. And so when you do not want to start building your network, when you need your network, right, so if you already have an established network, and let’s say you lose your job, and then those people that lose their job finding a new job by, you know, the month end, right, it’s like, how do they do that? Right? Because they’re, they’re just constantly staying on top of people’s minds. And it doesn’t necessarily have to be from a capital raising standpoint, right? Like, think about like your own family members. Like, it’s not that hard to reach out to your cousin who you grew up with and say, Amen. Like, Merry Christmas, I was thinking of you like, Here’s an old photo, right? It’s like, oh, wow, like you were thinking of me. That was thoughtful, like, Yeah, we haven’t seen each other in two years. But I can’t wait to get home this next Christmas, and we see each other. And then you guys see each other, and then you reconnect. And it’s just like, it’s just like you never left, right. But all of a sudden, if you get that call from that cousin, who you haven’t seen since high school graduation, it’s been 18 years. And it’s like, I bet Jordan wants something from me. And it’s like, Hey, how you being like, I’m great. Like, what’s up? It’s like, yeah, you know, lost my job. And it’s like, okay, you want like, you wanna say, my house? Like, you want something I haven’t heard from me, right. So I would say the most successful people, like we’re kind of saying is, they’re putting in the reps. So if you are not curating your network, or you’re someone that’s just not trying to really make that effort, it’s gonna be a lot harder to raise capital. So I guess in a long, roundabout way, it’s probably more about consistency and putting in the reps. But, you know, it’s up to you to, you know, when we speak, right, we kind of help set the benchmark of what your, what you determine as successful. So, if you’re saying, Hey, I have a deal coming up, and I’m looking to close, or raise, you know, $1.5 million, or $2 million, it’s like, okay, all right. Well, I would recommend we get you on this many podcasts before they usually come out like a month or two later. And this will help you gain a lot of traction and momentum. So also, once you’re pushing it out to your network down, I’ll push it out to my network. If it’s raising capital for three months, and I’ve been on a podcast, now sudden, I can consistently push out content on my end, I can break it up. I can say, hey, look, I was featured in this. Now I’m procedures as thought leader, maybe I’m featured in a couple other articles. Maybe I’m also doing a couple of guests speaking appearances at some conferences. And now all of a sudden when I’m going into raising capital, I’m perceived as that much more of a hot commodity as opposed to somebody that’s starting to build their newsletter. Two months before they need to raise cash. approval. And now I’m somebody that is trying to build a website and build a business, before I need the money, right now all sudden, the person that’s doing that is becoming a needy person they need they need, they need, they need they need as opposed to person that’s providing value to their audience, providing value to their potential future investors. And now it’s a give and take relationship. And now they feel more comfortable, because they put in the reps, and now they’ve been seen, and it’s just a cycle that goes around and around.

J Darrin Gross 35:29

Yeah. Now, definitely something you don’t want to be, you know, appearing as a somebody in need, kind of thing. But, you know, put in the wraps, and, like you said, always be growing your network, and, you know, create the content and, and have that kind of base and, and, you know, grow I think it’s pretty sound strategy, you look at anybody, and anything they’re doing, if you start with zero, you gotta get the first one. And once you get the first one, then you go to the second one, and, and you keep building that way. But I think that that consistency message to I mean, about, you know, it’s not just the you, you know, Sprint, trying to get to where you’re going but, but people see your progress and, and know, they can find you and your you keep showing up whether it be you know, you’re you’re saying hey, I was thinking about you, or they saw you on something or the you know, there’s there’s just this constant threat of, of you putting out your your content. And, and I would think that’s a lot more successful or oriented rather than like said, the, hey, and he need this need that or, you know, trying to get it all at one time, as opposed to just kind of staying with its own, for sure. Hey, Matthew, if we could like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s three different strategies we typically look at, we first look to see if there’s a way we can avoid the risk. And when that’s done an option, we’ll see if there’s a way we can minimize the risk. And when it looks like we cannot avoid nor minimize the risk, then we look to see if there’s a way we could transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation. It’d be clients, investors, tenants, the market politics, however you would like to identify what you consider to be the biggest risk. And for clarification, while again, I’m an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Matthew Baltzell, what is the biggest risk?

Matthew Baltzell 38:02

Yeah, so I thought about this. And I didn’t know I was formulating this thought. I mean, I’ve had this thought before, and it’s always constantly stuck with me. And so, you know, there’s a movie called Schindler’s List, right. And in the movie, somebody asks Schindler, and they say Schindler, like why do I never? Why do we never see you drink? And he says, You know, I never drink. Because the reason why I don’t drink is because when I drink, I give up all my power. And when I first heard that, I was like, Whoa, I was blown away, right? And so when you have your power, right, you have leverage, you actually have power. And when you say things, like, I can’t go to the movie, right? It’s like, you’re giving up like, your power instead of like saying, I choose not to go to the movie. Like, I don’t want to go to movie Hey, can you come over for dinner tonight? I can’t make it like you can make it but you choose not to make it right. So basically, giving up your power is one of the greatest risks. So if you’re giving up your leverage within your business, you’re giving up your risk, right? If you’re, if you’re, if you’re giving up, you know, cutting corners on underwriting deals, you’re you’re giving away you’re giving away your risk, you’re giving away your power. So I would say giving up your power is the greatest detriment that a person could do. And giving up my power, my voice, my opinion, my skill set. That to me, would be the greatest risk.

J Darrin Gross 39:38

I like it. I just even though the way you position, the situation, the same outcome, but it’s the way you position it. You know, either you retain the power or surrender the power. That’s That’s good. Matthew, where can listeners go if they’d like to learn more connect with you?

Matthew Baltzell 39:58

Yeah, Darrin, I appreciate it. So if people want to learn more about me, they can go to Elite podcast bookings.com. They can go in the upper right hand corner, and they can schedule a call. And if they enter in the promo code, Darrin, they will get 50% off their first month of service with us so they can go there.

J Darrin Gross 40:18

Awesome. Matthew, I can’t say thanks enough for taking the time to talk today. I’ve thoroughly enjoyed it. Learned a lot, and I look forward to doing it again soon.

Matthew Baltzell 40:28

Likewise, Darrin appreciate it.

J Darrin Gross 40:30

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. CRE PN Radio.

Announcer 40:51

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Commercial Real Estate Niche Website Marketing with Kurt Uhlir – CRE PN #365

Kurt Uhlir 0:00

They literally just started building these local community pages. And every, you know, have like four of them, kind of just do a couple more pages every week. And they’ve been doing that for like two years. Well, so he, he may have eight, the first week and 16 the next week, and now he has three to 5000 of them, because they do Brentwood, Tennessee, a suburb of Nashville, or condos in Brentwood, Tennessee, and it expands out so Google loves him. But it also is really good from a referral basis. Because if you have those local pages, and I meet you, Darrin at an event, and I go, Oh, yeah, I mean, I flip properties in Roswell, Georgia, but I have that local page. And I have some write up about kind of what that is that that gives me something to follow up with you who very specific in Roswell, Georgia, which not only makes it more likely we’ll work together, even if we don’t, it’s much more likely I’m going to get a referral from you. When I say more likely, I see three to eight, three to 8x increase in referrals by having those local like monitors on there.

Announcer 0:17

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 0:17

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Kurt Uhlir. Kurt is a globally recognized marketer, operator and speaker. He’s built and run businesses from startup to over 500 million in annual revenue, assembled teams across six continents and been a part of the small team leading an IPO of $880 million. And in just a minute, we’re going to speak with Kurt about the effective digital marketing strategy for real estate professionals in 2022. But first a quick reminder, if you like our show, CR e PN radio, there are a couple of things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that I want to welcome my guest, Kurt, welcome to CRE PN Radio.

Kurt Uhlir 0:17

Thanks for having me.

J Darrin Gross 0:17

I’m looking forward to our conversation today. But before we get started, if you could take just a minute, and share with the listeners a little bit about your background.

Kurt Uhlir 3:00

Yeah, so I’m a business person at heart, I started life as actually a programmer, but kind of quickly realized that the training that I had there, worked very well in within business and specifically within marketing, because of how much it takes to actually scale things and a lot of success in marketing. For the last even 15 years. Branding and messaging is is important. But it’s less about coming up with that cool Coca Cola commercial. And it’s much more about running, running processes, that when you find something that works, that you can think much more like a programmer or an applied mathematician and crank the knobs a little bit so that we can we can scale where we need to and, and grow the business based on that. So you worked kind of been blessed to work in more than a dozen industries. And last four years, five years have been in real estate, some of the biggest real estate companies in the world, but also helping 10s of 1000s of individual agents and real estate investors grow their individual businesses, sometimes it’s solo entrepreneurs, and sometimes a small teams.

J Darrin Gross 4:11

Got it? Got it. I’m curious, you know, I’ve been man I’ve been out of school now for at least 3030 plus years. And it seems to me back when when I first got out of college and was hired, there was a department in a the company I worked for and it was called sales and marketing. Do you can you see the separation or define the separation between sales and marketing? I mean, it seems like that was always kind of like a combo thing but but do you see it differently or can you distinguish between the sales and the marketing?

Kurt Uhlir 4:53

Yeah, they I mean they they’re different but but they are highly related to me. I actually take much more of the state Steve Job ABS approach to kind of marketing where anything that any part of the experience that a consumer or client interacts with should be considered marketing and should be viewed into that. Anything from that includes the product experience. But it’s it’s perceptions from, you’ve never heard of my brand, or the company I work with, to the point that you’ve been a repeat customer for a happy customer for years in marketing sets up a poor expectations up front, God forbid, you’re the salesperson trying to close the deal on that. On the other side, though, say, from a sales perspective, too often, we have seen sales where people are just trying to close the deal to get their commission check at the end of the, at the end of the month, or the end of the quarter. And so they’re related. But for me, sales really comes down to the person who’s closing the deal getting an agreement signed. So that could mean, you know, actually inking the check for a commercial property, it could mean bringing on somebody for my real estate marketing company, but it’s the person actually getting that signature. Everything else me really falls under marketing. I know not everybody splits it up that way. But I really kind of view marketing much more as the marketing is the custodian of the perceptions. And so both the good and the bad of that.

J Darrin Gross 6:12

I like that, I always thought it was kind of funny, you know, I think the internet has given us the opportunity to much more clearly distinguish between the two, I think, in companies before the, the the marketing department was not as clearly defined. Or at least it didn’t feel as clearly defined. People aren’t clicking or, or, you know, you couldn’t tell what, at what point people were interacting with the marketing. Whereas I think now that the internet has given us the ability to track everybody with every little click or view or for whatever length, so it’s, it’s definitely, you know, much more measurable now than it was pre internet kind of thing.

Kurt Uhlir 7:00

Agreed well, and also, it was much more muddied in the past, because a lot of times CEOs and boards, they would hire a single person to lead sales and marketing. And now it especially in high growth companies, you will usually see a chief marketing officer and a chief revenue officer, there are still times that you will see one person kind of leading both of those organizations. But, but if when that happens, or when I’ve come in and kind of you know, coached companies and private equity groups that are choosing a single person chose to still run the two, they need to be very clear on on on who the persona is that person that that is going to lead the to because like I find, you can have a you can have a really good revenue focus marketer lead a sales, sales sales organization with a sales lead underneath them. But usually, if you have that, that sales leader who has you know, 1020 30 years of sales experience, and marketing is tucked underneath them, they’re they’re focused on closing deals much less about marketing, and that can still be a good model. But that’s much less successful nowadays for a lot of the reasons that you mentioned.

J Darrin Gross 8:07

So let me ask you, so that the, we’ve progressed from, you know, pre internet to internet. Now, I mean, kind of the, the web kind of drives, I don’t say drives, but it’s clearly the the entry point, the portal where, where if you have a product, if you have, I mean, you need to be identified. And that’s where people are going to look for you or your, your competitors, or whatever the product is that you’re you’re selling or that they’re buying. Is there any data that you have? Or is there any data available that talks about the use of websites for real estate professionals?

Kurt Uhlir 8:52

Yeah, I mean, there’s a lot of data and it depends on whether or not you’re, you’re a residential or commercial agent, or whether or not you’re an investor. So the I mean, still, largely all of it does fall underneath. For me, there was a shift about 10 years ago to what I’d say is really the influence economy. To your point, people are going and checking checking out you as an individual, you as a company, you as a team, no matter which of those groups you kind of fall into. But it really does matter. I mean, on the residential side, like if you don’t have you know, what the data is very clear, and I say, like data, like looking at like, you know, 150 to 200,000 websites with, you know, half a million, you know, homebuyers going to them, the only thing I can guarantee is if you don’t have a website, or you have a poor performing, like residential site, that the only thing I can guarantee for sure, is that if you have a site that doesn’t have a home search, your clients are gonna want to use they’re gonna go to Zillow. So what’s the guarantee? A competitive agent will be calling your client if either you don’t have a website or you don’t have a good residential home site, by commercials You know, different on that. Because much more often the agent is having to is doing custom searches and they’re brokering a relationship. And there, there’s a lot more that goes into that, whether it’s for investment purposes, or you know, it’s bigger commercial properties. But in that case, sell. I’m choosing as as a potential client. I mean, I’d be doing the search by myself, but I’m betting whether or not I want to work with you or somebody else, like, I have a lot of friends that work for Cresa and work for some of these other firms. Well, I’m very, I’d verifying those people online before I choose to do a deal with them. And investors are very much the same way. Like, are you sourcing deals? Or are you just wanting to like Syndicate, or relationships, it all comes around a website, from a data perspective of expanding, especially even more on the investor side is if you don’t have a data, digital hub for website, good luck keeping digital marketing working for you, because what happens on Facebook or YouTube or your emails, open rates change. Like, you’ve kind of lost your major channel for connecting with people, if you don’t have a hub that you’ve been pointing, pointing people back to you for years and building a brand around.

J Darrin Gross 11:11

I’m kind of curious, can you talk about website and emails and all that? Is there a a particular asset that it’s most important for real estate professionals?

Kurt Uhlir 11:25

For me, there’s the two main things are Well, assetwise is a it is it’s your personal brand, no matter whether you’re in any of the categories of investor or commercial, residential, and your database. Now, those may these those may surface themselves in the form of your CRM, and a cultivated contact list that you’re keeping, not just the contact information up to date to but you’re staying in touch with those people. On the other side, it’s really hard to have a strong personal brand over multiple years, without having a website as a hub of that. For the reasons I mentioned, like, Hey, you can be really big on Tik Tok because it’s been growing so much for YouTube. And what happens when the algorithm changes? Well, your personal brand kind of withers away, unless you’ve been driving people to a site that’s built that lets you tell your story. Because, hey, any of the algorithms on any social networks, like they’re, they’re the ones ultimately in control of your personal brand, because they’re deciding who gets to see, and who gets to engage with you with any content you put out. But on your website, you control all of the content on there. And so the two big assets for me are your personal brand, and your database, it’s just how they surface tends to be in a website or a CRM.

J Darrin Gross 12:46

Gotcha. That’s the kind of a problem or it has been a problem. I’m trying to think recently, if it’s been as much, but I know that whenever Google or Facebook changes that algorithm, you know, the people that were like, Man, I’m killing it on, you know, whatever the platform was, and all sudden, I’m gonna get anybody kind of thing without the leads here. So

Kurt Uhlir 13:12

that’s why that website for me is like I, you know, I encourage people, no matter where they’re grown, that kind of growing leads and cultivating their existing relationships. Like, if you’re, if you spend a lot of time in Instagram, I do. That’s where you know, it’s fine for me to start trying to grow my network there and build influence on that. Rather than you know, I’m never on Tiktok. So my wife is, so it’d be a change of base for me to go try that. Either way, though. As long as I’ve been funneling people back to my website, I’m, I’ve largely de risked a lot of my marketing and a lot of my long term growth by helping train my people. If you ever don’t see me on Facebook, or Instagram or YouTube, go visit me at Kurt eular.com. But also like that allows you to have things like show notes or other information downloadable. You get to point people to where to go and get that information, gather emails, and you can reach out to them in many different ways when the algorithms change.

J Darrin Gross 14:07

No. So we are recording this June 1 2022. Before we started recording, we talked a little bit about kind of the change in the market. Are we there yet? Is it changing? Is it is it going to change dramatically? Interest rates are definitely creeping up and it seems like the Fed is committed to pushing them substantially higher to try and curb this inflation that we’re experiencing. So with that, I am curious if you can identify what an effective strategy for real estate professionals would would look like going forward in 2022? Yeah,

Kurt Uhlir 14:58

I mean As I don’t personally know what’s going to happen next, when things slow down, it sure feels like that. And it feels like that’s what a lot of people are talking about and concerned about. What I like to look at is data from the past. And I’m, I’m really big on control risk within my business and helping others grow theirs. And so they’re, you know, when when the market is growing fast, you know, there’s a lot of money within, you know, ad networks and pay per click to be able to pay, put down some extra dollars to generate some new leads, or remarket to pass people, when things slow down. Well, one, there’s not as many dollars most people don’t have to throw around. But also, that’s when people realize they should have been cultivating kind of their organic marketing over years and years in the past. And so, you know, some markets feel like they’re cooling a good bit right now. But this is when I think it’s really important for people to look at their individual businesses and say, how much of how much of my business growth is fueled by ads versus organic growth and are by organic, I mean, people coming to me, because of the influence that I have that could be influenced, that shows up in terms of Google search rankings, YouTube channels, podcast, or referral businesses, because if things slow down, your business is only going to kind of impress, you know, keep growing, but especially, you know, maybe even stay afloat if you have those organic channels coming in. But the good thing is, this is also like, we’re not there yet, things haven’t just slowed down by like 30 40%, like we saw, like in, you know, 2009 2010. And so this is the time where we still have a little bit more margin in both our businesses. And so I think it’s wise for people to start to shift, shift to say, How am I supporting the influence economy, my sphere of influence is starting to invest more in some of those organic channels. Because it’s kind of a it’s it is compound interest that it’s like, hey, it takes a while for you to build up content, and then for Google to pay attention to it. And that might mean six, even 12 months, well, wouldn’t you rather have started that today on June 1, than wait until August or October, when a market actually slows down. And if it doesn’t slow down, that’s still going to help your business later on. But it protects your business and D risks it right now, if you start allocating a little bit more resources towards it today.

J Darrin Gross 17:23

I’m always reminded of that when’s the best time to plant a tree and 20 years ago was probably the best time but the next best time is today. Get started there. That’s good. How do you recommend that real estate professionals go about identifying their, their their target audience? And how can you segment that? Or is there a way that you recommend that they try and zero in on on your ideal prospect? Or somebody that would be fine, you know, looking for them?

Kurt Uhlir 18:02

Yeah, great question. I find, I find a lot of times real estate professionals, we almost have to go through an exercise, we have to have a reason that we’re gonna kind of niche down or think about who our target is. Because if you if I just tell most people when I’ve been coaching them to do that, I’ll come back to him two weeks later, three weeks later, and they haven’t really done the effort. And I don’t know if that’s because it’s a little ethereal and or if it’s the nature of a lot of us that are in real estate, what I find helpful is either hey, you need to go through and really write out your bio as a real estate professional, or take the effort to do that and build it out as a website. Because then it’s I have a I have an ID that I’m creating. I’m not just making up some some some kind of ethereal concept, hey, when I say create a bio, I mean you need to have two different bios that you tell people about who do you how do you how are you know, and there needs to be a short kind of Twitter link version. And then there probably needs either needs to be a three to five minute version. Now that can very much kind of go along with your website, but it’s like that short version is What does show on social media but who do I help but that three to five minute version. Like it doesn’t need to just be Hey, I help you you know, I you know, I buy I buy homes for you know, rental homes and or I’m a flipper, or it needs to be very, very specific about who you work with why you do what you do. The best example I can actually kind of give his on the residential side. So the gentleman that helped me buy my my wife and I buy our house named Bodhi, he lives in Roswell Georgia. If you ask Bobby what he does, Bobby doesn’t have a website. You ask Bobby what he does, or almost anybody that knows Bobby, they’re going to tell you Bobby help Bobby helps married couples in their late 20s to early 40s with young kids buy single family homes in Roswell, Georgia or East Scott, like dot stuff that That’s who he helps. Now, sometimes he will help somebody that is divorced, because he helped them buy or buy their home when they were in that kind of tight niche. And now they’re, they’re exiting out of that home. So he’s going to sell it somebody like them in the past. But if I went to Bobby and said, Hey, I’m looking to buy a condo in Roswell, he’s gonna be like, I can refer you to somebody, because there’s different, there’s different questions, he would ask and guide you through buying a condo in Roswell, Georgia, or some of the suburbs. But my wife and I, we do not have kids yet. So he because he’s so tight in his niche. Like he was able to ask us questions that it’s pulled out of us what we wanted in a home that we didn’t even know we had the question. And so that’s it. I mean, him and two other agents and Keller Williams, that’s who they focus on. And one, one of them that has too much business, they affirm to the other people within that niche, they don’t help anybody outside of those niches, that’s good bread and butter, they do 80 To 120 180 to 120 transactions a year for each one of those three. That’s a great niche, very similar residence, a residential, and I think it was Chicago, I met somebody when I lived there, who did he helped, he helps primarily singles by high rise condos in downtown Chicago, or somebody who’s now you’ve married out of that you’re moving out to the suburbs, because I kind of the opposite of the guy. But Bobby, I mentioned here, if you’re, if you’re working on that bio, and you meet mentioned Bobby out at a barbecue, at church at Temple, you say, Bobby, what do you do? He’s gonna give you that two sentence version? And you’re gonna know, do you help me yes or no, and you’re gonna refer him to somebody else. That’s great. And that’s the same type of thing for, hey, I buy distressed properties that I invest in and help flip to revitalize neighborhoods and make a profit myself, in Roswell, Georgia, like, that’s, again, very tight niche. And when you practice actually writing out that bio, when I mean writing it out, you need to practice it to the point that you can repeat that three to five minute version verbatim every single time, in order for your website, when you can nail it to that, I think you’re gonna grow your business.

J Darrin Gross 22:10

I’m curious, I’m assuming the more specific you can be, the more likely you are to succeed. You mentioned the location in the examples you provided specifically in Roswell, Georgia. Holly, is there any way to gauge the the the success or the different? Different? I guess, what are you the how the success would drop off, if you’re not as specific, if you have, you know, say I help people in Georgia. As opposed to that specific geographic location,

Kurt Uhlir 22:55

I find you can broaden and more as you have, as your business grows, even then the your mark, your your response is usually going to be tailored to this to that more or that closer location, unless you are working with another partner. If I’m, if I was helping somebody do title clearing, I’m a lawyer helping doing title clearing properties, investors, while I might be working in Georgia, but unless I’m working with a with a real estate group that’s really focused, I’m probably working with somebody in Roswell in South Georgia, in North Georgia. And so I’m going to tailor my pitch a little bit like that. And if I have a website, I’m going to have specific kind of location pages that talk about those those local areas. A must in that case, you know, I was at law firm, and I have five lawyers or 10, lawyers working kind of across Georgia, at which point, each person is probably going to focus on a little bit of a distinct area as well. Right. But but people look for people are looking for, especially nowadays where I can Well, Google is definitely looking for the more specific. And so you can be general on your website. But you need to have this local community pages that that’s telling Google, you’re an expert in this area, and you can broaden those as you want. And you might start with five of those if you’re looking at more local areas, and then broaden it. On the residential side. I know a real estate agent named Patrick Kagan’s in Nashville, and Nashville, he’s national home doctor is his website. He probably has, I don’t know, three to 5000 local community pages. So he started with about four agents on their team. Now they’ve got I think, 12. And so they literally just started building these local community pages. And every, you know, have like four of them. Kind of just do a couple more pages every week. And they’ve been doing that for like two years. Well, so he, he maybe had eight the first week and 16 the next week, and now he has three to 5000 of them because they do Brentwood, Tennessee, a suburb of Nashville or condos in Brentwood, Tennessee, and it expands out so Google loves him but it also is really good from a referral basis. Because if you have those local pages, and I meet you Darren at an event, and I go, Oh, yeah, I mean, I default properties in Roswell, Georgia, but I have that local page. And I have some write up about kind of what that is that that gives me something to follow up with you who are very specific in Roswell, Georgia, which not only makes it more likely we’ll work together, even if we don’t, it’s much more likely I’m gonna get a referral from you. When I say more likely, I see three to eight, three to 8x increase in referrals by having those local like monikers on there,

J Darrin Gross 25:35

kind of when you’re saying this, so if the individual has their page, or their their website, I guess. And then you’re saying on on the site, then create a specific page for that. That locale. Yes, I went there. Yeah.

Kurt Uhlir 25:50

Okay. And you need to talk about that locale so that it doesn’t need to be much. But you know, it would be rare for me to find a real estate professional and residential and commercial or as an investor, that I live in Bristol, oaks, a neighborhood in Roswell, Georgia, it would be rare for me to find anybody in one of those three categories, that that’s their full time job that couldn’t give me three to five minutes about why people live in Bristol looks like that. That’s the type of information that would go on that page, just enough to kind of say, like, I do actually know this area. I’m not living in California or Oregon or Colorado, writing about Bristol oaks, Roswell, Georgia. No, I’m I know about the area right there. Gotcha. And what’s different on that, because you know, any of those things from an investing residential, commercial, it is there is there are differences depending on the state. So

J Darrin Gross 26:44

right, right. Now, and I’m certain anybody that’s looking for an expert or somebody that knows the area, they’d much rather another, you do actually know the area, which would just again, bolster the fact. And the reason I have that page is to, to identify yourself as an expert. So I find

Kurt Uhlir 27:02

often, I want to give real estate professionals that guidance, they tend to feel locked in, they don’t actually go forward, even if they have a website already. They go. Okay, so I need like, you know, 30 pages for Roswell, Georgia, or maybe 300. If I want to care for all these neighborhoods, and then they feel frozen, they don’t know what to do. And so it, I think, because people want to be perfect. Versus realize momentum is the name of the game and digital marketing today influenced today, you have one subscriber, no subscribers on YouTube, you start producing content. If you have no community pages, like we’re just talking about, well, you should start with one or two. Are you and then you know, are you capable of writing that out yourself? Well, if so, just remember, it doesn’t have to be perfect. But it’s also really easy to, to find a virtual assistant online, go to Upwork, go to a website like word agents. And just do take out your phone and do a three to five minute, you know, Voice Memo talking about we’ll say with Bristol Lux as the example. I can talk about Bristol oaks and why you should move here, or why you should buy properties to flip here, or why you should work with me, syndicating deals here, I can leave that in a three to five minute Voice Note, email that over to my writer and pay him 20 To $40 to write out the content for that page. Now I’m not locked anymore, I don’t have to be perfect. I just get it up there. And I can come back and iterate it in a year if I need to.

J Darrin Gross 28:27

Beyond the specific moniker for the the city or the the the area that you’re trying to identify with, are there any other like key pieces of information that should be included? In the search, I guess it’d be for the search, because obviously I’m trying

Kurt Uhlir 28:45

to search but also I’m thinking about in terms of, you know, I’m always writing not just for Google, I’m thinking about the visitor. And so when I say visitor, if somebody lands on this website, is this going to help them kind of convert or want to work with me? Or is this going to help somebody that I already have a relationship is going to make it easier for them to go, Gosh, I should refer Kirk. And so especially on the you know, from an investor perspective, if I’m if I’m syndicating deals with people, or if I’m helping coach people through that process, or I’m managing properties for them? Well, it’s possible, I’m just that there’s something very general, it’s also possible that I might, you know, be working with some fee based financial planners in my area, my wife and I use a gentleman with Ron blue trust. And so, hey, if I was partnered with the person we work with, and then then I might, instead of just being about Roswell, Georgia, I might be saying, Hey, I work with fee based financial planners that are helping people describe their situation a little bit more. So it may be less even about the locale and more about the type of person being very specific about what that looks like. And so there’s a lot of differences too, that kind of comes into play there for the same reason that people you know, they want to know that you work with people in that area. They also want to know you work with people Then I mentioned Ron blue trust, they’re a Christian financial fee based financial planning company. Well, that’s, that’s a very specific niche that they have. There’s also my brother 10, our works with somebody that they’re with. He’s with a financial firm, that they’re much more focused on social and environmental issues. So that part of their investment philosophy, and that’s, that’s near and dear to the people that are investing with that company. Well, those are very two different pages that I would write about, about, hey, I work with people looking to invest that work with either these areas.

J Darrin Gross 30:34

Got it, you mentioned a couple different ways to to go about this, whether you write to yourself or, or have a VA or somebody, you know, convert your words spoken to writing, is there any kind of a time budget you recommend people commit to, to continue, like I said, to continue the momentum of growing your your reach on your website, or

Kurt Uhlir 31:01

if you’re writing content or doing video content, because one can lead to the other? It’s, for me, it’s two to three hours a week, it doesn’t not i It really shouldn’t be more than that, I feel like until you have consistency down. And if you can only if you look at your calendar, and you can go I can only do an hour a week, that’s okay, as well. It’s consistency is much more important than, than the number of hours you work. And then you just figure out your model with that, and what works best for you. Because like, for me, I write very well in the morning, but not in the evenings after everything’s been hitting me throughout the day. So I could wake up in the morning, grab my coffee, and spend 30 minutes and write out a couple of community pages we talked about. But I tried doing that same thing at six o’clock at night, when kids are running around, I want to spend time with my wife where we’re gonna have for dinner, I’ll never do that. But I could edit at that time. So if I wrote up, if I wrote a first draft first thing in the morning, 30 minutes on that. And then sometime later in the week, I have 2030 minutes after the kids have gone to bed, I could edit that in the morning. And that’s knowing myself in finding how can I be consistent versus the amount of hours.

J Darrin Gross 32:13

That’s good. I think consistency I think is a big, big plus, if you’re you know, you commit to it, and you really want to grow it, you’re going to have to keep at it, you can’t just like set it and forget it and and you gotta get I think that the whole Google machine is looking for, you know, more information, more information, more information. So the more more you can feed it, the better I think you’re going to be, the more likely you are to be found. And Google’s can recognize you sense,

Kurt Uhlir 32:39

in the consistency matters for I find who people actually tell them to, you know, decide who they are. So, you know, we feel we think about things based on our actions. And so it’s really easy to say, Hey, I’m gonna go to the gym and say, I’m gonna go to the gym every single day, you know, for the next 30 days, well, how many new year’s resolutions actually start that way and, and by like, the fourth of January, as opposed to, my only job is to show up at the gym. And then after, like, I don’t have to work out, I just show up at the gym or workout for five minutes. And that’s all well now after a month or two months, that’s an easy task to do. Now, I’m somebody who goes to the gym every day, the same thing with these, this writing is that I only need an hour or two hours a week. And so coming from nothing. Well, after setting aside doing that, just an hour a week for a month. Now I’m somebody that writes, after two months, three months, that’s part of who I identify myself as, and I can see some some consistency, my background. And so I find like that consistency, it comes a lot for actually making me get back up the next day. Because it’s like, what, I’ve done this for the last six months, I mean, why would I skip this week, I just need one hour, I’m gonna skip one show on Netflix and make this happen.

J Darrin Gross 33:53

Ya know, I find that a lot of times the the resistance to writing is, is you know, to sit down to start writing kind of thing and and once once I get started then there’s you know, some familiarity and kind of remember how to do it. It’s not like a term paper I’ve got to have done by tomorrow kind of thing but it’s more of just kind of becoming proficient at and then in practices is really worth it kind of makes it a lot easier as you go and like say to go to the gym on a regular basis, same same kind of concept there. It wouldn’t ask you so we talked about being found organically versus or we haven’t really talked about ad I’m kind of curious, do you recommend people engage in ads or do you find organic traffic to be more beneficial?

Kurt Uhlir 34:44

Depends on where you’re at in your business. I’m a huge fan of advertising and paid media, both for new leads and also our remarketing to say resurface to people already have a relationship with ads are going to happen much faster. And so you know, I Don’t think it has to be an either or, as things start to slow down and your budget starts to kind of get get compressed ads tend to tend to fall by the wayside. And so at that point, I’m going to shift people more or less more towards an end game organic basis. But I’m a huge fan of ads and what they can do. And I mean, anybody that’s been in hyper growth, like I have been good at big companies and helping 1000s of small solo entrepreneurs, like you learn from that, that kind of muscle memory of hyper growth that says ads have a place, just do not rely on that being the sole way to grow your business.

J Darrin Gross 35:38

As far as results, go, for somebody that doesn’t have a presence right now. How much? How quickly? Or how long do you think it would, or would you expect it to take for somebody to start today and to get to a point where they’re regularly seen business opportunities, present her, you know, be for them to be found on the internet, and they regularly get business opportunities from, from their efforts

Kurt Uhlir 36:10

from, from an organic perspective, if say, you don’t have a website, and you’re just getting started, I mean, it’s probably going to be nine to 12 months before you really start to generate leads that way from, you know, it takes a while for Google to wake up to a new website, and then to start to rank it. And that may even be a little bit fast. But that doesn’t mean that has doesn’t mean that that has to be the only you’re waiting for Google, during that time period, you’re building the content for Google and people be found organically, but it shouldn’t be changing how you do things in the real world as well, we talked about, you know, by the sheer P plan of building out a website, I’m gonna refine my, my, my bio, so I should be using that in the real world when I talk to people. But also, as I have these community pages, that now gives me content to start reaching out to people in my network that I have emails for, and I have relationships too. And so there’s, there’s a lot that can be happened. So from organic perspective, you should start to see referrals, like maybe even a three to four month, three to four month timeframe, just knowing it might take people usually 30 to 60 days to get a website up and going feel comfortable about what’s there. I mean, it could just take a day to get that newsletter up, but it’s probably gonna take people 30 days to feel comfortable, hit click and send number, Hey, I’ve imported you know, 60 people into my follow up boss account. And now I want to send it out. That clicking Send is scary that first time. So I give people another month on that.

J Darrin Gross 37:40

Definitely opportunity to make some mistakes and grow. But I think the you know, commit to it, and recognize the importance of it. And, you know, I see that the internet is gonna go away. And more and more people are this is this where they go to find find the information. So if you’re not on it, you’re not going to be found. So that’s good stuff. He could if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. And there’s a couple of different strategies we typically consider, we first look to see if there’s a way we can avoid the risk. If that’s not an option, then we look to see if there’s a way we can minimize the risk. And when we can neither avoid nor minimize the risk. We look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation. Could be clients, investors, political interest rates, however you would like to frame the question, but identify what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And with that, I’d like to ask you, Kurt Uhlir, What is the biggest risk?

Kurt Uhlir 39:20

The big key is risk in my personal business. And I think in most people’s businesses, actually, what am I wrong about today? And I like I don’t know what I’m wrong about in my business today. But I can guarantee I’m wrong about at least three fundamental things. And I say that from too many decades is already working and not enough hours sleeping, realizing. Like I know one thing and feeling right and feeling wrong feels exactly the same until you realize your wily coyote out over the ledge and you realize in that moment, I’ve been wrong about a fundamental belief in my business for the last three months, three years, and something’s come out wrong. And so I do a lot to in my personal life or my business life there to try to de risk that by putting people around me that have full transparency into what I’m doing and the decisions and my thought process in business. Some cases, those are paid mentors and coaches, other times or masterminds where people that are in similar, often non competitive businesses that are trying to accomplish the same growth trajectory, tried the same things, and fully exposed, hey, here’s why. Here’s how I’m making this approach. And be very give other people permission to speak into cordite. I think this is what you’re missing. Comana that times where it’s like, you realize, oh, God, I’ve been putting in a lot of resources, millions of dollars in some cases. And I realize I’ve been fundamentally wrong, and I just lost it all, man. And we’ve been really nice to somebody could have given me that insight beforehand. So I’ve, I’ve been in that wrong situation too many times. But I’ve also saved millions of dollars, by having close people in those relationships, point out things to me that I really thought I was right about, until they started pushing me on it. And I realized through kind of that discovery, now, there’s much more riskier than I think, and I need to change path before I write that next check.

J Darrin Gross 41:22

That’s awesome. I love asking this question. Because the opportunity for input and different answers is so wide ranging, nobody has said, what you just said about what am I wrong about today? I am no that’s like that. If you start with that, that’s a great place to start, as opposed to the assumption you’re right on on everything because it’s clearly an opportunity to learn and, and also make a change. I appreciate that. Kurt, where can the listeners go if they’d like to learn more connect with you?

Kurt Uhlir 41:57

So we’ve talked a lot about digital hubs. So I have a website, KurtUhlir.com. That is my digital hub people can find, kind of track anything that splinters out to YouTube and Facebook and Instagram. But I speak a lot about servant leadership and high growth companies. And so I have several guides on there. I think I put about maybe 12 to 13,000 words on high achieving servant leadership just in the last month. So that’s where people go to find out more about those topics or find out anything going on in my life for my businesses.

J Darrin Gross 42:30

Awesome. Well, Kurt, I cannot say thanks enough for taking the time to talk today. I have thoroughly enjoyed it. Learned a lot and I look forward to talking to with you again soon. Thank you. Thanks for having me. 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. CRE PN Radio.

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Property Management Technology Systems with Julie Blank – CRE PN #364

Julie Blank 0:00

That’s when we started realizing what is it that we really need that we’re doing still manually, right, we’ve got three different people doing it manually to get us the information we need. So it’s been, it’s been wonderful to say, oh my gosh, you can automate this, these are the five different pieces that sometimes we just do without because it’s takes so long to pull together manually, but it’s so critical to helping us make decisions instead of guessing. So that’s really been helpful and working through this analytical platform that we’re using in this platform also communicates with our property management system. So it’s, it’s pulling a lot of information out of that system as well. So we’ve been able to really pull information because we’re a renovated renovation company, that’s what we do. You know, we really try to track closely our interior renovations and what’s the bump that we get from old lease, you know, rent to new lease rent and what’s the market piece versus renovation piece? So all of this we’re trying to build into the system so that it’s, again more automated streamline the integrity information is there and it’s providing us with real quick information so we can make quicker decisions, and it’s creating efficiencies because we’re not manually doing it anymore.

Announcer 1:18

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:37

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Julie Blank. Julie serves as the chief operating officer at new standard equities, where she leads the firm’s corporate multifamily operations, Investor Relations and asset management. And in just a minute, we’re going to speak with Julie about the role technology plays in bringing multifamily teams together in a geographically dispersed industry. But first, if you could help us out a little quick reminder. If you like our show, CRE PN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we encourage you to leave a comment we’d love to hear from our listeners. Also, if you want to see how attractive Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Julie, welcome to CRE PN Radio.

Julie Blank 1:18

Thank you, Darrin, it’s a pleasure.

J Darrin Gross 3:04

I’m looking forward to our conversation today. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.

Julie Blank 3:12

Sure. Well, as I say I’m an accountant by trade but not by personality. My, my career was as an auditor, starting with Arthur Andersen in back in Cincinnati, so I graduated with my accounting degree my CPA started as a public accountant realized early early on that, again, I’m a combat type of personality. So I really wanted to get into operations. And when I moved from Ohio to Arizona, that’s when I decided to make a career change. However, no one would hire an accountant to do anything other than accounting. So I was a couple of months without a job. So I decided to go ahead and do get an accounting job ended up in a company doing property management. So that was really my first introduction into this industry was as a property accountant doing accounting for a third party management company. And that was many years ago. And here I am now you know, living the dream, I guess you could say. But it’s been great. I’ve I’ve worked in with some of the large institutional firms in the industry. And I’ve been with new standard equities now for about six years as the chief operating officer but I’ve really worked in all different segments of property management and real estate.

J Darrin Gross 4:35

That’s great. The the the numbers mean a lot in real estate and and having them all in their correct categories and and accounted for properly. I mean, it’s amazing me you know, the the, just the, the depth of accounting that you can get into with with real estate, not just your not just your rent and your you know your mortgage and as, you know, the rent in the mortgage job and payroll and, and all that, but then you get into cost segregation studies and all sorts of things that can really make tax. You know, I guess a tax savings and tax advantage really amplify the tax advantages, I would think that you were uniquely qualified to really recognize that and be able to explain it to anybody that’s got any questions for you?

Julie Blank 5:27

Yeah, you know, I think having that balance of, you know, the, the numbers and operations certainly has helped around me out to be a great resource for my company, and the companies I’ve worked for, and really, you know, in a lot of different factors as it relates to looking at underwriting and market analysis, you know, in right now, with the market the way that it is, and the interest rates, you know, increasing, you know, some of our assets, we have floating rate. And so it’s being able to do that, that forecast to say, hey, what point, you know, are we going to, you know, find some challenges, and what do we need to do now to prepare for that. So it’s certainly as has come in handy. And even though I didn’t care for accounting, I certainly we do it all over again, because it’s got me where I am today, and I love where I am. So it was, it was good.

J Darrin Gross 6:20

Oh, that’s good. So let’s talk a little bit about new standard equities. Tell me a little bit about the firm. And what’s the, what’s the, what’s it all about?

Julie Blank 6:34

Yeah, so we started about 2010. And we are a vertically integrated, value add multifamily firm. So we are strictly focused on West Coast. And by being vertically integrated, you know that we have our own property management and as property management, construction management, asset management, and, of course, our investment management team. And focus on the West Coast, we’re in Washington and California right now, with the goal of expanding into Colorado and Utah, we basically said in, you know, we want to be within three hours of all of our properties, planes, trains, or automobiles, we want to we like being close to the assets. Not that we’ve ever had to jump on a plane and be at one of our assets in three hours. But it allows us to make sure that we’re physically at the assets across all of our different divisions. So that’s important to us. And we’re private, privately held firm. We have about 2000 units right now. And because of our business strategy, you know, we we acquire, we dispose, so we’re constantly in that cycle of acquiring properties and disposing of properties. So we’re looking to expand double in size, which is a little challenging when you’re disposing and acquiring a lot of times we, we kind of net net at the end of the year, but it’s in the last six months, we acquire two deals and dispose of one and we’ve got about three that we are actively in due diligence with right now. Got it?

J Darrin Gross 8:22

The couple of questions for you. The investment strategies is basically value add, improve and and dispose of that. I hear that right? That is correct. Yep. All value add multifamily. All right. And then as far as what’s an average hold time for you guys.

Julie Blank 8:38

We’re about four years. Yeah, there’s some assets we’ve you know, because of market and, and value we’ve been able to dispose of in three and sometimes we hold until five. Couple properties. We’ve had six that were about an average of four.

J Darrin Gross 8:55

You mentioned goal of 2x in your your, your company or I’m just curious, is that based on doors or equity or how do you how do you measure them?

Julie Blank 9:09

Based on doors. We’re about 2000 units right now and so we want to try to get to 4000 and we’ve recently engaged in new relationships with institutional partners which you know is going to help us get there a little quicker as well.

J Darrin Gross 9:27

Got it in you mentioned you guys are private in you also mentioned partners are you are you are syndicating these properties or how are you?

Julie Blank 9:39

Yeah, we have a few syndications. But most of our assets are joint ventures

J Darrin Gross 9:49

All right, and then you mentioned your territory Oregon or not Oregon. He specifically did not say Oregon, you said California and Washington and looking to go into Colorado and Utah. and being vertically integrated? Are your Do you have multiple properties in in the same location? Or same town? Or how are you? How are you set up there?

Julie Blank 10:14

Yeah, we do. So we have properties in the East Bay area, we’ve got six there, we have two in the Inland Empire in Southern California. And then we have five, in like the greater Seattle area. So we are a bit concentrated in the different regions we’re in. We’d like to have boots on the ground for both of the property management and construction management purposes.

J Darrin Gross 10:42

Got it? Well, you’ve clearly demonstrated, you’ve got lots of moving parts, between the geographic locations and, and all the different people and and, you know, even with the joint venture investors. So let’s talk a little bit about how you are able to communicate with everybody and keep everybody moving on the same page.

Julie Blank 11:10

Yeah, you know, the intrinsic nature of our industry creates natural barriers, because of being geographically dispersed, so we do really rely on technology in order to, to bridge that gap. So we have a lot of the portals, we’ve got investor portals that help us communicate with our investors, we have resident portals to help communicate residents employee portals to communicate with our employees, training portals, I think this is probably very common in our industry, we’re not the only ones that obviously have geographically dispersed properties. We use all those pieces of technology as well as some analytical platforms to to help communicate, teach, learn, train, educate. And then of course, for reporting purposes, but we will we still really focus on the face to face engagement, because real estate is still a lot about relationship building, whether you’re at the site level, building relationships with our residents and your prospects or, you know, relationship building for with brokers with investors, you know, there’s only so much you can do when you’re via via zoom or, or Google meats or something, it really still is about physically being together. So we we tried to create that balance, where we still have company events for our employees, where we still really try to get face to face with our brokers in our equity partners and our potential investors. Because, you know, it’s it’s real estate. And we also like to still get to our, our assets as well. So even though you can do a lot of it remotely, there’s still a missing piece, because it’s a physical asset. So we That’s why I said, we have to be within three hours of our assets, because we, we think it’s important that we’re on the asset, looking at it, feeling it, seeing it, making sure our business plans are being properly executed, building relationships with our employees for tenure. So we do really try to have that balance, and really looking at technology as a as a supplement, but not a substitute for our business is really how we look at it.

J Darrin Gross 13:27

Got it. And when you talk about the different types of technology, I mean, you mentioned zoom and and meet, I think it was a meet today with the Google one as it used to be. Okay, so they’re funny how some of these things, they’ve had different names at different times, so I can’t keep track them at all. Beyond that, are there other? Are there other technologies that you guys employ to you know, or is it due to kind of limited to that in that that, you know, the, as far as the video conferencing, are there other platforms that you guys utilize to you know, restored as far as technology goes, that could help you out?

Julie Blank 14:13

I think as far as like video conferencing and seeing people is mostly zoom, you know, we’ve got the Zoom screens in our in our different corporate offices, so that we can have our, our regular meetings with our on site teams with our other corporate team members. We’re based out of Encino in the valley. And we have a regional office in Orange County and then of course, all of our satellite offices and where we operate. So really, it’s I think Zoom is the one when we want to see people in and engage. But we’ve we have other platforms like an analytical platform that we use as a communication tool, between site and in corporate and we So how to select the employee portal that is a communication tool. So really, it’s it’s really finding the different ways to message out from corporate and receive information from the sites in order to make sure there’s open communication as much as possible when you’re geographically dispersed, I think a lot of times is there’s a breakdown in communication when when you’re spread out, but we have the employee portals and the the analytical portals that we use for those communication purposes. In addition to the zoom for the face to face,

J Darrin Gross 15:36

I’m curious if for the different portals, is there a common entry point for management? Or is it is that is it an exit this one, get into that one exit this one to get into that one kind of thing? Or?

Julie Blank 15:51

question because I think we’re probably split, we’ve tried to integrate our systems as much as possible. So there’s like a, you know, a single entry, single sign on. That’s what we’ve really been focused on most recently is okay, we’ve got these, whatever 20 Different platforms are probably exaggerating, but we’ve got 20 different platforms, and you know, 10 of them, you can all get in through this one portal, but then the other ones are all individual sign ons. So we’re really trying to figure out how do we create a better efficiency with the different platforms we have. And even right now, we’re actually migrating a couple of our stand alones on to a more global platform to eliminate multiple silence. So we’re trying to be very aware of that, our onsite teams probably feel the most impact from all the different pieces of technology, because they’re the ones that are really, it’s more day to day. For data entry purposes, we’re into it more just for reporting purposes. So the more that we can streamline the different pieces of technology, the more efficient that they become on site, too. And the more that they adopt it, the harder you make it for the onsite teams to gain access to go here go there, the less that they’re going to engage with it and use it properly. And really hold themselves accountable. So that’s what we’re really focused on now. Because we do have a lot of different pieces of technology that we need to really pull together and streamline and almost bundle.

J Darrin Gross 17:30

So let me ask, I’m not really super tech savvy, I’m understand a few of the concepts. And, and the one that always caught my attention was single entry input was like, you could put it in one time, and it would populate all these things. And, you know, I’ve never found that to be the case, it seems like you’re constantly we’re constantly inputting data, because the this platform doesn’t speak to that platform, blah, blah, blah. And you’re and so it’s very frustrating from that standpoint. But, but I’m curious, you were talking about, you know, just the, the, the, I guess, resistance, if a if it’s not easy to use, and then trying to consolidate or, you know, get get to a point where there’s like fewer entry points, have you found that either there’s a platform that makes it available to you, or that you can get multiple platforms to, to talk to each other to where it’s more of a, you know, a saint or a fewer entry points? Or do you find that the different platforms are there? No, that that’s, I mean, what I find is a lot of resistance wherever they want to fee in order to make that to happen kind of thing, and then it doesn’t work. You know, we’re just kind of curious if that’s what you find, or if you found a secret way to make that all work together.

Julie Blank 18:56

If I had this secret, I’d be making a lot more. Yeah. I wish I had a secret I was sharing to make all of our lives easier. But I think I go back to what I was saying is really being able to look at all the systems we have right now that some of them promise that they’ve communicated with other systems that were existing. And then we found out they didn’t really have to pay more, or the communication still require too much manual attention. So those are the ones that we’re looking to eliminate. But we have two systems right now once a property management platform and one is it as an analytical tool. These are the two we’re really trying to say, Okay, we want everything to feed into these two systems. And that’s it and if it doesn’t feed into these systems, then we need to decide how important is it to our core business to keep it or to let it go? Because we spend a lot of money on technology right and we buy it and we set it up it’s it’s a lot of you know, a lot of labor cost a lot Time, and not just the technology but people’s time, just to find out that when you roll it out, it’s either not being adopted or it doesn’t integrate well. So that’s where we’re really pulling back to say, okay, these two systems are the two we’re going to use, and can we get everything we need from it. And I’d say, by the end of the year, we’ll be where we hope to be, if it does everything we want to, and will really just be using these two systems, which also talk to each other, that we can be more efficient, more streamlined, will have more accurate data, less manual inputs, you know, the garbage in garbage out. So the more automated we become, the more integrity of the information we have, that we’re relying on to make business decisions. So yes, I think we’re, we’re really looking at these two systems to be the ones that allow all the integration we need that are supposed to communicate with all the different systems we have, that we can rely on going forward. So I’d say about a year we’ll probably draw, anticipated three or four pieces of technology that we’re currently using as we streamline around these other two platforms.

J Darrin Gross 21:12

So I’m curious, with multiple properties, and multiple platforms, have you been able to kind of test different platforms against each other to find? Which one? is the best fit for you? Or is it been more a matter of kind of migrating to just one that was recognized as doing more, or how have you gone about making your decision,

Julie Blank 21:36

we actually have a focus group that we get to that we pull together depending on the software, but a lot of times, we’ll pull property manager members into the focus group asset management, we have a head of innovation director, Senior Director of Innovation we pull in, and then if we need to pull our marketing team in whatever, we have a focus group. And so we say, Okay, this is the piece of technology we want to look at, they will go out and look at all the different vendors that provide that technology, that through the different system options. And then we really decide on the one, we rarely find an opportunity where companies will allow you to test, you know, for too long, and so you’ve got to already make a capital investment in one or both of them. So really, what we try to do is say, okay, how can we minimize a mistake, by maybe we just phase it in, so we say, okay, we’re not going to roll it out to all of our properties, we’re just going to choose Northern California, and then we’re going to, you know, to use it there, see that works. work out the kinks, if we’re happy with it, then we will go to the next phase and enter into a contract portfolio why. So we have found that it’s, it’s more manageable to phase it in like that. And it’s less costly or more cost effective. Because if it doesn’t work, then we’ve committed ourselves to a smaller piece of our portfolio. But that’s really how we we’ve tried to work through it. And that seems to work for us to use, we get the buy in from all the different groups that are going to be a part of working in this system. And then we get to kind of test it out. And on a smaller scale that’s more manageable.

J Darrin Gross 23:19

Got it? I was just in there thinking as you were talking, in that you guys are acquiring properties on a regular basis. Have you acquired any properties that had a system that that you weren’t aware of that worked really well that that you stayed with? Or has it? Has it been kind of the system that you’ve had from corporate to you’ve pushed out?

Julie Blank 23:44

That’s actually a good question. And I have to say maybe it’s because of the class of property, we buy the size of properties we buy, but we really haven’t purchased a property that we were introduced into, you know, to a new system, and that we adopted, a lot of times they might have the same systems we do. So it’s actually easier, we just kind of roll it over and we keep going. And now know, I can’t say we have so what we do is we just you know, use the systems obviously, that we have in place and we you know, plug and play into the new acquisitions that will take over.

J Darrin Gross 24:26

So, the sounds like you you’re getting down to two systems, which is sounds to me, like amazing compared to you know, the, just the multiple options that I have, I just find it so frustrating the amount of time it takes to get a result, at least in our industry that the you’re inputting this system that you got to input that system, that input in that system, and it’s essentially the same information over and over and over again. Which it seems to me then if somebody was really to come to this problem, and it’s not unique to, to property management or or insurance or anything, it seems like it’s everywhere. But if you could just create the portal that everybody plugged into, and you could create the face of whatever that is to where the technologies came in and populated the bill or the from the one common and went out or something like that just seems like it just seems too simple, that we continue to have this problem, but it just, it’s an aggravation of mine that I just gotta let go. But But I’m glad to hear that you’re, you’re moving to at least more of a, I guess, fewer systems. And I would assume that that based on having fewer systems and having the testing that you’ve done that you’ve got buy in and you know, the more people use it, the more familiar they are with it and how to use it. And they’re more likely to use it to give you the data that you need, so that you can make the decisions that are critical to your business. So that kind of the endpoint there?

Julie Blank 26:03

Oh, absolutely, because most of the information that we rely on is from property management, feeding information into the system. You know, we obviously have Asset Management who’s doing their piece of it, but a lot of the information starts at the site level, you know, that it’s impacting them your operational information and your financial information that you’re making your business decisions on. So it really is about the adoption of the on site teams. But what we’ve found is it’s not so much training them on the system itself. That’s a huge piece, yes. But it’s explaining to them, whoever the end user is explaining to them why, like, why are we capturing this information? What do we do with the information? Once you’ve put it into the system? Why is it so important? Let me explain to you why what you do in this system matters to the overall business plan and how we use it to make decisions. I had one recently that I went through this, I was in our Washington area. And I went to all of our assets. And I was, you know, as we walk through the property information and the operations and walk the property and the financials, and, and I realized that just by being there and talking to them about the system that was in particular the information in it, you can see that they were like, I get it like now I know why you’re asking me to push this button every day, you know, so shame on us that we didn’t kind of have this bright light before. But after visiting that region a few weeks ago, that’s when I realized that we need to spend more time explaining to them why they have to work into this system and enter the information they do. Because this is what how what you do impacts the performance of the asset and the decisions that we make. So it adds value to themselves as well, that what they’re doing actually matters.

J Darrin Gross 28:04

Now, that’s that’s a really good point. I’m curious, you know, this is all ventually or it’s all data. I mean, big data is basically the mean, we’re, we’re we’re finally to a point where we’re we’re able to or we’ve got enough data that we can make decisions that that are somewhat predictive based on, you know, the past kind of thing. With, with the the data you’re collecting heavy, have you been able to recognize certain data as not useful and and and also recognize other data that would be useful? And is it if you have any examples of that that that you’ve you’ve had over the years?

Julie Blank 28:56

Yeah, actually, really great question. I think my first focus point is, what did we realize we needed in working with this, like this analytical platform, this contractor we’re working with? We’re he’s really helping us build the platform. For us. It wasn’t like, hey, choose, you know, Platform A, B, or C. It’s like, okay, here’s kind of our basic, but we’ll help build you what you want to be specific for your needs. That’s when we started realizing what is it that we really need that we’re doing still manually, right, we’ve got three different people doing it manually to get us the information we need. So it’s been it’s been wonderful to say, oh, my gosh, you can automate this. These are the five different pieces that sometimes we just do without because it’s takes so long to pull together manually, but it’s so critical to helping us make decisions instead of guessing. So that’s really been helpful in working through this analytical platform that we’re using. And this platform also communicates with our Property Management System. So it’s it’s pulling a lot of information out of that system as well. So we’ve been able to really pull information, because we’re a renovated renovation company, that’s what we do, you know, we really try to track closely our interior renovations, and what’s the bump that we get from old lease, you know, rent to new lease rent, and what’s the market peace versus renovation fees. So all of this, we’re trying to build into the system so that it’s, again, more automated, streamlined, the integrity information is there and it’s providing us with real quick information so we can make quicker decisions. And it’s creating efficiencies, because we’re not manually doing it anymore. There’s still been a lot of manual reporting that we’ve been doing, for different reasons once to save money. Technology’s expensive, right. And because of the size of company we are, we’re not small, but we’re not large. So having those economies of scales to really get this big technology has been challenging for a company of our size. So we’ve always had to weigh technology versus I guess, payroll, right, you know, a few hours of someone’s time versus spending 1000s of dollars, you know, till we scale up. So that’s been a challenge for us, too. And then the other part of that question, you said is other things that we’ve been eliminating? I don’t think we’ve eliminated information that we’re like, oh, we don’t really need it anymore, but never really looked at it, don’t use it. I think it’s actually us adding information we need into these new systems so that it is automated versus being you know, a manual report. That’s where we get our biggest benefit, I think.

J Darrin Gross 31:43

Gotcha. I’m curious. With property management, how granular do you get with the data? Can you give kind of a an example of what your property management team is? is collecting or inputting?

Julie Blank 32:01

Oh, yeah. Every Tuesday, we have our revenue management call. So this is a very granular example. And we have Asset Management and property management on those calls for the specific region. And we’re looking at everything from lease trade out numbers down to how many days vacant, or the units that have been sitting there. So in everything in between lease renewals, going down to actually looking at the individual, and do they have balances due because we’re in COVID. And so there’s still this this COVID collection issue and stuff. But it’s very granular. And I think that’s why it’s so important for us to have our in house property management team, because it allows us to stay close to the asset, it makes us very nimble and quick to make decisions. There’s not you know, a lot of red tape or or, you know, toes, we have to step on, and you have a third party management company, but it does allow us to stay close to the asset to make decisions quicker and making sure that we’re aligned with the business plan. So, yeah, we were looking at days vacant, and then we’ll talk about staffing, you know, why is it they can, you know, that hasn’t been ready in 60 days? Why is it not ready in 60 days, while we don’t have a maintenance team, and we’re having trouble with, you know, contracted labor, because they’re having the same issue in our, you know, economy where, you know, it’s labor markets short, and supplies are hard to get. So these are all the things that we’ve talked about. So we do get very granular in those discussions, so that we really understand, you know, what is the root cause? And how can we fix it? And, you know, it’s a collaborative approach to making sure that, you know, every team is successful in executing the business plan.

J Darrin Gross 33:47

Appreciate your turn. What about with the tenants? How, how are residents how the tour technology integrates with them?

Julie Blank 33:58

Yeah, I think we’re pretty consistent with the rest of the industry where we have the resident portal and prospect portal so that they can pay their rent online, they can put in a work order online, of course, they can email the the office. So I think everything is there, we have, you know, self guided tours, if someone wants to do a self guided tours and option, the virtual tours, I think I think we’re pretty competitive with the offerings that are out there for residents, you know, everyone these days, they don’t want to really engage with a human if they don’t have to. So we want to make sure we give those people the options to never speak if they don’t want to to us, but you know, we’ve got the chat bots and everything as well. So I think we have to be that way for this. This generation we’re in because we’ve all been kind of conditioned, you know, to go through technology to communicate, it’s quicker and if you don’t respond in that time have already lost them, you know, you’ve got like a couple of minutes, and then they’re gone. And we’re done. So we have to have that in place, but we still have our staff on site. So that those that you know, want to engage, we’re there and available. And you know, we have to be available. There’s some people who don’t want to use technology, there’s some generations who, you know, still want to talk to people. So again, it kind of goes back to that balance of, yes, we have all the technology that you want, if you don’t want to ever speak to us. But if you do, we’re here as well. So you can come see us or pick up the phone.

J Darrin Gross 35:32

I think I’m crossing over from the technology to the like the people human contact, and it’s sometimes the I mean, technology is great when it works. I think that’s one of the frustrations with it is that, you know, I think that in a platform that you’re in daily, you’re familiar with the ins and outs and how to do things. The frustration, I think I find is more often with the the app that somebody told me that I had to have a download that I use once every so often that every time I go into it, it’s needing to update or they’ve changed something or I can’t remember my login. So I think there’s there there is a frequency of use, that I think has to be taken in consideration for actually making it you know, something, but I mean, somebody who if you’re paying rent, or you know, communicating with landlord property management, or whatever, it seems like that’s a frequency that’s regular enough that that should shouldn’t be a resistance. Have you had much resistance? Or do you percentage wise, you mentioned there are some that still like to talk versus some that are, you know, more than like the technology? Is there a percentage number if you had to guess what that might be that, like the technology versus the still in person?

Julie Blank 36:52

would be a total guess, you know, I just recently was looking at our online payment penetration rate. Right. So how many of our residents are paying, you know, online, whether it’s through credit card or ACH? And I was actually shocked by the the low percentage, and, you know, we’re about 50%. But again, I think, you know, just the, the geography in which we’re in, I think, maybe leads to that, to that. That being said, I think people I think maybe 50%, because I think people still, you know, some people are just comfortable with the connection, you know, the talking to someone and feeling like you can rely on them, and that they’re honest, they have some integrity. And that, you know, there’s emotion that comes out of speaking with someone and seeing their you know, why to their eyes, I say, and that means something to people, I think there’s probably part of part of the process, whether you’re a resident or a prospect is fine to do through technology. But I think at some point through any piece of the of the process, there has to still be that human connection. So, you know, maybe maybe half of our residents still want to communicate face to face. And maybe the other half, you know, we’d rather just do it through technology or an app. But we still require of our on site teams to no matter what standard operating procedure, what process we have in place, we still put a touch point in there of a human contact, so that we create that sense of resident tenure, you know, resident retention, that we’re not just a chatbot or robots or AI that we’re, you know, we care, and that’s one of our values is accompanies, and one of our core values is we care and, you know, we care. So we are we’re available for you and really to build that relationship is through face to face interaction to so that’s important to us through, you know, all this technology is great, but like I said, it’s a supplement and not a substitute for what we do. And, you know, again, real estate is a relationship building industry, I think, and we like to keep it a main point of our focus.

J Darrin Gross 39:15

No, I agree. I’m curious on the 50% that aren’t utilizing the ACH or credit card for for rent payments, any sense of percentage that are unbanked? Is that a low percentage with with your, your residence or maybe

Julie Blank 39:41

20%? Yeah, okay. Some people still are a little hesitant to give out their banking information. They don’t want to automate it in case there’s a dispute, you know, over the rent or a charge. I still think that there’s some skepticism out there among individuals. was okay. So, you know, we we still allow them to, you know, give us a check or money order? And that’s what they’re comfortable with.

J Darrin Gross 40:09

Yeah, no, it’s it’s interesting. That is what about with your vendors? Is there a URL your vendors plugged into the platform, so if you need something new, you are able to communicate with them, or is that an outside platform.

Julie Blank 40:31

It’s, it’s a platform rolled up into our property management system, that they you know, as far as invoicing and everything, certificates of insurance, that’s all automated so that that communication is through automation. You know, there’s, we have a small percentage of our vendors that are outside of that program, not the insurance piece, that’s always important piece. But you know, some of them are really small kind of family run businesses that are a little less technically savvy, that, you know, sometimes run outside of our of our platform, but I’d say we have about 85 90% of our vendors that we use through the portal.

J Darrin Gross 41:21

And I’m curious, with the platforms and stuff, designed to use your IT department, or who’s responsible to make sure that are the monitors to make sure things are working the way they’re supposed to, as far as a communications.

Julie Blank 41:39

That would be me, and my Director of Innovation are the two of us are kind of the it for the company. And again, it’s because of scale, right? I mean, we’re, I’d love to have an IT division. But it’s, we’re not quite there yet. So it’s myself and our Director of Innovation, that really makes sure that the technology that we choose, you know, we bet it well, that it’s going to integrate that we have a good relationship with the with the with the vendor, the contractor. And then she’s responsible, our senior director is responsible for understanding the integration in the communication among the pieces of technology, and carrying on the training, the rollout and the relationship with our contractor, which is extremely important. So you know, there are moments we have to reach outside and get an IT consultant, it’s rare, that we’ve been able to usually figure it out ourselves and just working with our contractors.

J Darrin Gross 42:44

Well, I think the key to that, that, that I’ve come to recognize is that if nobody’s paying attention, or there’s not somebody that’s, that’s kind of, you know, looking over it and making sure that it’s doing what it’s supposed to do or you know, left on and others, some famous quote out there talking about whatever you whatever you fail to inspect or whatever. You have to constantly stay on top of in order to make sure it works week, you know, you’re getting what to expect.

Julie Blank 43:13

Absolutely. And that’s what our Senior Director of Innovation does. I mean, I can’t do that every day in my role, but that’s what she’s really tasked with is ensuring that what we’ve signed on for is working the way that it’s supposed to, from the vendor side, but then also internally, are we doing what we’re supposed to be doing to make it work as well as opposed to? And are we using it to full capacity as the other way? It’s like, example, like my iPhone, I probably use 20% of this 100%.

J Darrin Gross 43:43

Remind me of that.

Julie Blank 43:44

Exactly. I have teenagers as well. So I know, I’m not using 20% of my phone capacity. But that’s the same thing with the technology we have in our in our firm, we you know, are we using it to its full capacity and getting not just our money’s worth, but really using it to help us continue to be more streamlined, automated and help us make better business decisions quicker, with more integrity of information.

J Darrin Gross 44:14

And I think one of the frustrations I have with that is that I think there’s a lot of people that understand how to push the button, but don’t understand what the what the information behind the button means kind of thing. And I’m still a mold. I’ve been doing this long enough to know that before there was a button, I had to know how to do that to get results kind of thing. And so, you know, there’s a part of me that I know how to do the work as opposed to just push the button that gets frustrated with the people that don’t understand the work that’s been done when you push the button and so but anyway, it’s kind of a I mean, if the work gets done and it gets done the way it’s supposed to, what’s the difference between push a button or you know doing the work if you’re still getting The results you need. But I think there’s, there’s I guess for myself, it’s kind of just that that reconciling and recognize that hey, look, you know, we’re getting what we need, you know, what do you carry God and kind of thing so, but no, I I applaud your efforts here, you know, being spread out the way you are and all the transactions and the people you have the different moving parts and, and trying to find your way through these different systems that, you know, it’s, it’s a chore. And, you know, I think that the thing that I recognize it’s, it’s not like technology is going to go away. It’s just in it’s a constant update. Thanks. So I mean, just because something’s working today, you would expect that the next iteration will work better. However, I’ve seen that that’s not always the case. But there’s usually there is a progression period. And so I guess we’ll get used to it. Julie, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk, and determine what to do with risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. And if that’s not an option, and we look and see if there’s a way we can minimize the risk. And if we cannot avoid or minimize the risk, then we look to see if there’s a way we can transfer the risk. That’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation. frame the question, however you choose to whether it be your clients, investors, technology, employees, the market, politics, how are you whatever you you think might be the the biggest risk, but see if you can identify what your your biggest sort of skills. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Julie Blank, what is the biggest risk?

Julie Blank 47:24

Well, a couple of months ago, my answer might have been different than now that you know, the market has been changing so drastically with the I think with the speed and magnitude of the interest rate increases, it has, you know, spooked investors, it’s you know, put some weight in the cell of borrowing. But there’s still a lot of capital out in the market. You know, investors want to do deals, they, they need to place capital. So deals still get done. But I think the the risk that we’re looking at now is being able to continue to do deals, but looking at the severe impact that the interest rates will have on your cash flow. You know, especially for us what we do, we’re value add, so our, you know, our cash on cash is, you know, already a little low, we’re more about, you know, when we when we dispose of the asset. So when you are in a area that we are and interest rates are increasing, we have to really step back and really scrub the underwriting be a little bit more conservative, educate our investors, you know, some investors have stopped investing, some have become a little bit more cautious, rightfully so. And then, you know, we have other investors that are still going, Hey, let’s figure out how to make it work. So it’s really just being able to realize that the market is changing now, and that it might continue to be that way for the next, you know, couple of years, not only on the acquisition bid on our existing deals, like I mentioned earlier, in our conversation is, you know, some of our deals, we have floating rate so it’s being able to step back and forecast and look at what the risk might be, how do we overcome the risk and be more proactive right now. So I think a lot of it’s going to come down to just kind of protecting cash flow and being able to underwrite new deals, and realize that we’re not going to get to the, you know, 1819 20% returns that we were able to underwrite, you know, a few years back and be be satisfied that we might get 11 or 12%, which is still really good as a return and that you know, apartment investment is still the top You know, real estate investment type. And we’ve been in difficult cycles before in real estate, and we’ve survived. So yes, there’s a risk, we’re not going to be stupid, we’re optimistic, we’re cautiously optimistic. But we also know that real estate is still a good investment in apartments in particular, especially the asset class we’re in, we’re B class. So we’re right in the sweet spot that the markets are gonna are doing well, the economy’s doing well C’s go to B’s, when the economy starts to not go so well, the A’s go to B’s. So we were we’re a bit protected as far as the as you know, occupancy and rents and stuff. But I think we still have to realize that there, there’s going to be some risk and some hits on our cash flow because of the interest rate increase, but I think it will, won’t make us stop doing deals, we just have to be a little bit more cautious and, and work with our investors much closer. So that we you know, have a better understanding of where we are and where where it’s going to go. I don’t have a crystal ball. I wish I did. But it’s hard to say things are have moved so fast, that I think just taking a step back and looking at things closers is something we need to do. But at this point where we’re continuing to operate business, as usual, with continued focus on being aggressive, as much as we can with rents, which is going to help overcome the, a little bit of the interest rate increase in the inflation, and continuing to work in our technology platforms to get all the information we can to make good decisions. That’s where we are.

J Darrin Gross 51:47

I appreciate you sharing that. Definitely some challenging times ahead. But like I said, we’ve been here, done that and and, you know, survive, it’s kind of just a matter of, you know, changing the chapter here for a little bit and then go back to the chorus.

Julie Blank 52:05

So we didn’t know we’d survive a pandemic. Right. Right through it. I mean, we’ve been through worse. So we’ll get through it. We know we will

J Darrin Gross 52:15

have to. That’s the only way. Julie, where can listeners go if they’d like to learn more or connect with you?

Julie Blank 52:23

Well, we have a website, which is new standard equities.com. Scott information about the company about the executive team, all of our properties. And my information is on there as well. So, I mean, I can give you my email, I don’t know what you’re looking for. But

J Darrin Gross 52:45

knowing we can point him to the website and that we get there. So all right. Well, Julie, I can’t say thanks enough for taking the time to talk today. I’ve thoroughly enjoyed it. Learned a lot and I look forward to doing it again soon.

Julie Blank 53:01

Sounds good. Thanks, Jared. It was a pleasure. I had a good time too.

J Darrin Gross 53:04

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. CRE PN Radio.

Announcer 53:24

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Hotel Investor Syndication Deals with Kyle Tushaus – CRE PN #363

Kyle Tushaus 0:00

The current vehicle that my business partner and I are just now launching where the approach is taking the sort of institutional approach the, you know, commercial, commercial type deal or thesis that we might use for any of those product types, but putting it through a syndication model, which is more akin to what’s being offered for your individual accredited investor and so we’re keeping it below an $8 million or there abouts deal size and using a syndication structure to actually put the deals together. With the with the idea being we’re gonna offer the institutional type returns and see structure which is better than what the syndication landscape is offering investors in offered in that portion of the market.

Announcer 0:46

Welcome to see our adn radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:06

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Kyle Tushaus. Kyle is a partner with Pine Ridge capital. He has a background working for family offices under a sponsorship model focused on acquisition. And in a minute, we’re going to speak with Kyle about syndication and the current macro environment, and how that influences your micro investment decisions. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that I want to welcome my guest. Kyle, welcome to CRE PN Radio.

Kyle Tushaus 1:26

Yeah, thanks for having me to be here. This is actually the first first podcast ever I’ve ever done. So this is a interesting experience.

J Darrin Gross 1:26

Well, we’ll go easy with you then. But no, Kyle, I’m glad you’re here. And looking forward to our conversation. Before we get started, if you could take just a minute and share with listeners a little bit about your background.

Kyle Tushaus 2:02

Yeah, my my background, prior to commercial real estate actually got started as an engineer in the oil and gas industry, which is was interesting and highly technical and exciting. But it’s definitely something that’s more enjoyable when you’re in your early 20s. I’ll say I moved around a lot and eventually got to a point where that was either going to send me overseas, or I was going to need a change of change of scenery, so to speak. And I just gotten married. So I took option B and I had some opportunities sitting on my plate at the time. When I was given that option to try out some commercial real estate deals. They were kind of centered around the energy industry, kind of without going into too many details. A friend of a colleague had bought some properties that they wanted to redevelop and there’s some hidden oil wells on him that he didn’t know about. And so I got started by helping him mediate that issue. And that was kind of the impetus for getting into commercial real estate. And within the commercial real estate industry prior to this, I’ve worked for two family offices across all product types, heavily focused on hospitality, office and mixed use across both of those that was probably the bulk of the dollar amount that we were focusing on were those three. But like I said they both were opportunistic.

So just about every single product type we got into I think the only thing I can say I’ve never really touched is self storage or mobile home parks. Those are the two asset classes where we kind of steered clear, but following those two sponsored a few deals on my own. That was in 2020 which was a great time to go out as a GP. And, you know, got a few deals done. Despite everything that was going on in 2020 I was really excited because I thought I would get some some screaming deals, but you can even keep it pretty good poker face going when you don’t have to pay the mortgage and whatever and had their death pause. I think that was probably the toughest negotiation landscape. I Experience, just because nobody actually had to do anything. So you kept getting 2019 pricing on, you know, zero cash flow in some cases. And in that approach, most of the LP focus was on institutional firms. And so I was kind of mimicking what I was doing at the family offices where we build out the LP tranche with one, maybe three, at most capital groups. So I was rinsing and repeating that model, because that’s what I knew. But it came with a couple of issues, because when you only have say, one LP, they know they have a lot of leverage against you. And so I got retreated 100% of the time on all those deals. And that led me to the current vehicle that my business partner and I are just now launching where the approach is taking the sort of institutional approach the, you know, commercial, commercial type of deal or thesis that we might use for any of those product types of putting it through a syndication model, which is more akin to what’s being offered to your individual accredited investor. And so we’re keeping it below an $8 million or there abouts deal size. And using a syndication structure to actually put the deals together with the with the idea being we’re going to offer the institutional type returns and see structure which is better than what the syndication landscape is offering investors in offered in that that portion of the market.

J Darrin Gross 2:56

Got it? So one of the go back here to so you mentioned your experience in the institution, institutional investment world, and kind of a limited number of LPs that you dealt with and and how they treated you differently when you went out and tried to do some of the smaller deals. And then the retreat. I wonder if you can just expand on that a little bit. Because I you know, it’s funny, I hear I’ve talked to a number of syndicators. And I don’t know that anybody’s ever, you know, kind of shared the backside or, you know, what goes on behind the curtain kind of thing in those situations. But it was kind of fascinating when I heard you say that. Wow, that’s, that’s a that’s a surprise when those lessons you only learned by going through it, I suppose.

Kyle Tushaus 3:02

Yeah, I think we touched about it. We touched on this a little bit when we were face to face several weeks back anyway, when I was kind of talking about the hardware and I went through Yeah, so on those. Yeah, the, and again, I’ll caveat this by saying this is during 2020. So it was an interesting time where I feel like people were more keen to burn a bridge, maybe than they would have been in normal times, because they thought to hell with it, like, who knows what’s gonna happen. And maybe I’m just being too nice. I don’t know. But you know, the, I won’t, I won’t throw out any names, because that can come back to bite me. It’s a very small industry, despite the, you know, the dollar size of the industry that we, we operate in. But a good example is, you know, one we had a really clear thesis on, you know, what the returns are gonna look like, we were going to convert a hotel into apartments, which is now a thesis, I think, just about everybody has seen. But one of the last things I did in the family office direction was help launch a fund for that thesis and said, Okay, well, I learn how to implement this, I’m gonna go do one on my own, and had found one where there was several characteristics about it that led to, you know, you had to mess it up a lot to not make a good amount of money because it was by right zoning, the city already had tried to get this to happen in the past. So they rolled out the red carpet. For me, when I said, this is what I want to do with the property, they said, We’re going to fast track the approval on this, the property was 18 separate buildings. So I could actually renovate and convert them piecemeal, and not disrupt the operation. So it wasn’t even a hey, let’s take our cash flow down to zero and renovate this as fast as we can, I could still operate the hotel and turn over one building at a time on my way to the conversion. So there were all these things that were stacking up where it’s like, you know, despite it being 2020 Look at all these ways that we can protect our downside. And that’s not even just you know, speaking of the difference between the price we were paying for the hotel and what the rents were in that market and they were all extended stay too so it’s not even like I had to convince people to live in a shoebox they were already 520 square feet or above. So it almost looks like the stars were aligned and during 2020 My thought was oh, this is a this is a no brainer. This is going to be great and LPs are gonna love it. And so we got through DD is last week. And you know, this happened several times, but this one was particularly, you know, stung particularly bad because I had lined up all these contingencies. Closing on not closing but going hard on Friday. They call me on Monday and say, You think you can get a couple extra 100 Off $100,000 Off the park. Just price, we would feel better if this was at least $500,000 off, we’re already like at a good price. And so you guys are just kind of, you know, being mean, like, we should just do the deal the returns with great, why risk it. And they, they said, well see if you can make it happen. So pulled some strings, you know, kind of probably pissed off the seller a little bit, got the 500 within 24 hours went back said, Alright, let’s do this deal. Well, you think you can get another 750 off. And so what was actually happening is they just kept coming back with requests that we’re going to get harder and harder, and we’re not going to get fulfilled by Friday. So on the second request, I called them out on it, I said, you guys realize that any another dollar off on this deal doesn’t get it over the like, that’s not the crux of why this should or should not be done, we are far beyond the level of, you know, suitable risk adjusted returns. And they pretty much just blatantly said, Well, here’s the thing, you’re going to be 10% of this deal is the GP which is standard, we have your 10%. And we kind of just want to do the deal without having to pay you either any management fees, or promote or anything like that. So what we’re going to do is, either you take our terms, or we’re let’s get in unless you fall out of contract, because you only have three or four days before your money goes hard. And we know that’s not long enough to get another LP on board. So it’s either going to be this or we’ll let you fall out of contract. And we have the sellers number now we’ll just circle back with them. And we’ll buy it. So that was that was kind of the standard operating procedure, just about every single time towards the end of the deal. And when you’re in that position, you kind of just, you know, I used to have a kind of a mentor that said, look, at the end of the day, you should drop your ego and who gets paid wins in this game. And I agree with that. But then also, if something keeps occurring like that over and over and over again, you have to go reevaluate if you reevaluate your business model, and that’s, that was one of the experiences that kind of kind of highlights the the games that were being played maybe in 2020. Or maybe that’s just luck of the draw, maybe for me, but I’ll say that it, it was still a kind of a standard procedure or standard move. Even when I was at the family offices. The Retrade, when the clock was almost run out was was kind of the kind of everybody did it. Just because they knew they could it’s almost like, hey, once I tie up the property, I’m gonna ask for money off, because the worst thing the seller is going to do is say no, and then I’ll just say, Okay, well, I’ll still do it anyway. But you might as well ask. So that’s, that’s what pushed me in this direction.

J Darrin Gross 3:26

It’s fascinating to hear kind of the inside baseball talk there a little bit about, you know, some of the more the details and the nuances of the negotiation there. Do you find that to be or was it a case particular to one or two LPs? Or was it more just the time? Or do you think it was just kind of the way the big boys were? Were prepared to play?

Kyle Tushaus 5:20

Yeah, I want to say a lot of it had to do with the time in the market environment. I mean, everybody thought the world was gonna end, right. And I was kind of approaching this with I had just gone out in January of that year saying, Alright, I’m gonna do my own deals. I had no, you know, I, I was not in any capital stacks, I was pretty much all cash. So when COVID hit, you know, from an outside perspective, looking in, you can either think that was lucky or brilliant, because I had the liquidity and I thought, This is gonna be great, I’ve got flexibility, and I can go out and, you know, pick up, you know, bargains. And that’s not what panned out, because, like I said, No, you know, nobody had to pay their debt during that time. So they could kind of dig their heels in and say, Nope, you’re gonna pay me on 2019 numbers, no matter what’s happening. And I think some of that trickled over to the actual cash stack negotiations, where the LP said, you know, look, we don’t know, you know, what’s going to happen here. And even if you’re talking to us about something like multifamily, that should be safe. We’re, you know, the, the downside of doing nothing, in that time was zero. And so I think they probably thought, like, why not? Like, let’s see if this guy will say yes to just an egregious deal, because we can, you know, it’s certainly a benefit. And potentially, if you’re sitting in that position, trying to get a deal done, maybe a downfall of our industry, but there’s no called strikes here, right? So I can, I can look at deals all day, doesn’t really matter. I might have opportunity costs, but you know, the human brain being what it is we don’t really gauge opportunity cost correctly, and so the do nothing. The motivation was pretty high at that time. So I think that was probably the bulk of why that panned out that way, but I will say that, you know, was negotiating with LPS from Midwest or west coast, a couple on the East Coast. The These deals were all, you know, Detroit or westward. So this is not, you know, I didn’t look at anything on the east coast. But I would say that I had a similar experience with LP groups regardless of geography.

J Darrin Gross 5:21

Gotcha. And did you end up doing the deal?

Kyle Tushaus 5:56

Yeah, once you’re in that position, you kind of have to just take it on the chin. And so yeah, I ended up doing I mean, basically, for every situation where that occurred, I kind of had to just say, Well, you know, another thing you have to consider, it’s kind of sunk cost mentality, which, you know, I kind of just alluded to the human brain that gauging opportunity costs correctly, and then I fall victim to sunk cost mentality, or the sunk cost fallacy. And when you’re the sponsor, or you’re trying to occupy the GP tranche in a deal, you know, you’re paying for the due diligence. So in all these situations, I’m looking at, you know, 10s of 1000s of dollars of due diligence efforts that could either just evaporate, or you could just say yes, and do the deal. So, you know, 100% of time you say yes, and you do the deal. And like I said, you don’t necessarily get bent out of shape, when that happens, because the who gets paid wins, or who gets the deal done wins. You just change your business model, right? You say, Okay, well, you know, Stefan, the bear trap over there, I’m still alive. I just won’t stop there anymore. Right. So you got to find a different path. So yeah, did did every single deal and kind of dip my lap and just move forward. But, you know, going for future deals, looking to avoid similar situations. And saying, you know, it’s, it’s a lot safer. If you say, have the, say you got 20 people or entities making up your LP investment tranche, and you get one person that pulls that kind of move. And you can just look at the other 19 and say, Hey, does everybody want to increase their capital allocation by X percent, and just replace the person that’s saying that, and you have that flexibility? You don’t have that flexibility when you’ve gone to a single shop? To fill out your cap stack? So

J Darrin Gross 6:04

Yeah, no, he has the money makes the rules kind of thing, right?

Kyle Tushaus 6:04

Yeah. Yeah. So Elon Musk, just skirting every SEC Rule that you were I would be? Yeah.

J Darrin Gross 6:04

So you mentioned the the Pine Ridge Capital model, you guys are working with you? Were you were trying to get returns for your investors, similar to what they might expect on the institutional side? Can you kind of give us a comparison as to what you see in the the syndication model that that you see on the marketplace, as opposed to what you are experiencing? On the institutional? Side?

Kyle Tushaus 6:54

Yeah, and they so prior to this, I could not get anything past the underwriting phase, if I didn’t feel like we had a shot at getting above a 20% internal rate of return for a reasonable amount of risk. So that was kind of our benchmark, where we had to say, look, we can’t hit 20, at a deal level, there’s not going to be enough flexibility for what actually trickles down to the investors after you know, fees, and, and all of that, for it to be worthwhile. And obviously, you don’t go reaching for yield just to try to get over 20. Right, the 20 has to be, you know, with a stabilization plan that makes sense. It is, you know, somewhat expected, given the environment. Now, I would say the main difference. And again, I’ll say that I don’t have a massive amount of experience. In the syndication world, it’s more of having friends and family and colleagues, show me and tell me what kind of things they’re getting pitched. On the institutional side, there’s always some kind of give and take the deal might have. So if I have a really high IRR, first thing I’m gonna ask, is this predicated on the exit, right? Or am I getting a good cash on cash return and a kind of a light pop on the refinance or the exit price? Like, where am I on that spectrum? And where, what aspect of the cash flows in my giving up on to get the thing that you’re advertising to me, and it was very sort of cut and dry on that when we said, like, you know, we have to do XY and Z, like, let’s say it was a hotel renovation, and we knew that this property was trailing market rates, and here was the growth year over year, and it was in a market that was desirable, and you know, not subject to high seasonality, whatever the case might be, we’d say, Okay, we’re gonna spend x amount of dollars to renovate it, you know, I’m going to place it at this point in the market. And then if we can run it at this margin, right, because that’s going to flow through is very, you know, cut and dry. And you would say in that situation, well, what’s my biggest risk factor? How are you going to control the renovation? And so we had a particular firm, that I’m actually You know, speaking to we might have said, well, we bought a GC firm. So now we control construction costs. So there, okay, you’ve, you’ve solved for the biggest risk factor. So great, now I see what’s going on. But you couldn’t really, you know, I said, look, it’s going to be 6% cash on cash return until we can actually start popping the rates. And then after we pop the rates, right, it’s going to take some time to work through the market. And then we got to actually have things trickle down to the net operating income line. So this is what the timeline is going to look like. And then I compare that to the experience and say, This syndication world where I’m seeing deals that say, like in the hospitality example, come with an operating business. But then it’s an operating business that none of the sponsors have experience with. And it’s very new, what not very way very much might be people just reaching for yield, which is a very natural human behavior, especially when we’re at this point in the business cycle. But as the sponsors say, we’re going to take on a business model that we’ve never done before. And that’s how we’re going to get you to X percent cash on cash returns. And I question these models where it’s like, you know, I think I would take a lower cash on cash return, or maybe not such high octane returns in an investment where I’m not banking on you figuring out this business model for the first time. And then beyond that, you might be buying five properties that require this business model. You know, I’m speaking to some things that I’ve seen in the market.

And a lot of these returns are kind of predicated on you trusting that they’re going to just figure it out. And, of course, I’m the man with the hammer. So I’m looking at this through the lens of the you know, if I was on the other side of the table, pitching a 500 plus million dollar, Aum, institutional firm, they would laugh me out of the room. And so, you know, now when I talk to friends and family, if somebody says, Hey, I invested in Kryptos, a big one recently, right? They say invest in some kind of crypto fund, I would I always ask now, how often have they been distributing cash on that thing? Because I hear people talking about, you know, double digit cash on cash returns, and then oh, when we sell this thing, it’s going to be even more. And then I just say, when was the last check. And you know, of course, this is not a scientific approach, but it kind of seems like the marketing, my marketing beforehand, I had to sort of downplay the returns and over deliver, it almost seems like the tables are flipped in the syndication realm, at least what I’ve been exposed to where it’s like, you got to promise a lot and get people’s eyeballs on it. And then afterwards, like, if you don’t distribute, tell them why you didn’t supply issues or something like that, which, you know, from my standpoint, I’d be like, Alright, I’m not investing in you, again, if you if you tell me that kind of stuff. So but that’s, I might be too jaded from where I’m coming from. But that’s, that kind of seems like the difference where, yeah, pitching institutional money, I would have to like, I would just have to handicap the deal so much, and then say, we’re still at 16% IRR. Right. And I have just thrown everything I can at this thing. Like, you know, short of, you know, meteor hitting this building, right? Well, we’re not going to lose money. Where that doesn’t seem to kind of be the like the bar that I have to get over if I were to put together a syndication thing. And I’m sure there’s some syndicators out there that are listening to this saying, screw you, like we’re very diligent, but you know, there’s always outliers. And I’m saying that’s kind of what was pitched to me initially. And why I said, Well, why don’t we just take institutional model, pull it down market where I’m not competing with institutional capital, you have the same structure, right? Well, syndicate it, but Right, these crazy promotes where you got sponsors taken 50% of the cash flow. Like, I wasn’t, I would never be able to get that to pan out at the institutional level. So I’m not going to pitch that to any investor. So you know, we’ll, we’ll stick to reasonable rates of fees, and promote and then look for deals where I said earlier, heads, I win tails, we don’t lose.

J Darrin Gross 7:58

No, that’s, that’s, you know, enlightening to hear kind of the, you know, how you you were required to act on the institutional side versus kind of maybe what, you know, the less sophisticated or experienced syndicator may be promoting. So, talk a little bit about the Pine Ridge capital, what is your, your, your model, your thesis? What are you guys looking to do and go after?

Kyle Tushaus 8:03

So, outside of just saying lower deal size, trying to eliminate competition in that regard. And, you know, we consider they there’s enough tech tools nowadays to where you can manage a pretty disparate portfolio of smaller assets without getting bogged down. Now if I threw something like a hotel in there, obviously something like that if you’re if you’re in the portfolio building world, you hand that management off to somebody else. But for the most part, right, try an asset manage that much you don’t need, you know, if he told me buy one $50 million asset versus 10 $5 million assets, yeah, those are much more moving pieces. But I can systematize a lot of things, and I can solve for a lot of the friction. In the terms of the management, keeping up with the paperwork, that doesn’t necessarily mean I need to charge a crazy management fee to do that. But then outside of saying, we’re going to bring it down to a lower price point in the market to try to get rid of some of that larger competition, we don’t really have a product type that we’re focusing on, right, if we’re agnostic, and we’re really just looking for the right opportunities in the right sub markets, at the right price. With with the right stabilization thesis, I will say we’re only looking at the Pacific Northwest, because that’s where my business partner I live. And so I don’t need any more southwest rewards, points at this, at this juncture, the previous deals that I was doing, despite living in the Pacific Northwest, where none of them are in the Pacific Northwest. And so I was flying around a lot. These are all you know, our focus will be hyperlocal, you know, we gotta be able to drive to them same day if need be. But then, the way we enter any of these is looking for opportunities where we’ll have a thesis, usually we try to find one or two, maybe three avenues, just beyond the base thesis that we could go after. So things like, I think most people are probably familiar with a covered land play. So you know, one, we’re kicking the tires on right now, it’s got a building on site, where I could quickly lease it out to somebody for say, three years, get my ducks in a row, get my ducks in a row and go vertical plan for multifamily, while we’re getting cash flow, but the idea being, let’s ink that lease for three years with a clause that says, hey, we’re going to develop this thing, and we’ll go find you another property. So you get the tenant working hand in hand with you. And for the effort, right, they get a slightly below market rental rate. But that rate still covers your debt service and everything you need to do with the property, maybe distributed a little bit a little bit at the same time. But during those three years, right, we’re actively putting together, you know, a, a vertical multifamily development. And then when you’re ready, right, you go place that tenant and another property, so you actually turn the first deal into two deals, because you might actually go acquire the property that they’re gonna go be placed into. And then you can scrape the original building and go vertical there. So that’s a good example of one where we say, okay, day one, let’s say we just get in day one, we don’t do anything, right? Well, that lease was still cash flowing positively for us, right, and that development potential isn’t going away. And this particular case, I’m talking about sub market that has land use restrictions, where it’s making it a very, very tight market. So it’s very hard to find any dirt that you can build on. And it’s also in a market where we have contacts and colleagues existing that can do the construction. But even if we don’t decide to go that route, right, let’s say we just lock it up, we could turn around, maybe contribute that as 1015 20%, whatever the numbers come out to be as contribution into a go vertical plan. And we let a developer or some other group actually do that part, and move on to the next one. Or you could do it yourself. So it’s, it’s, it’s an approach where you say, look, day one, we’re covered. And then we’ve got, say, three different avenues we could go. And the macro environment, or particularly the market level details, given that sub market are screaming at us that, you know, it might make sense to go vertical, in this case today. But it’s certainly going to make sense three years from now, five years from now. And if you’re locked in with something that’s going to cash flow, right now, you can kind of pick which date you want, obviously, tomorrow would be the best day, you’re going to look at it from an IRR perspective and the time value of money. But if you got to year two, or three, and prices are still soaring, you might say we’re gonna wait for four or five, and it really doesn’t change your returns all that much to have to wait for that, but you haven’t yet pulled on construction financing, right? You’re not now making payments you have that optionality of when you want to move forward. So that’s kind of, I’d say, that’s a good, good example of how we’re looking at the deals we’re going into.

J Darrin Gross 8:49

Gotcha. And I think you might have said about I’m Are you will you be doing syndication, like one building at a time or will you be doing more of a fun approach?

Kyle Tushaus 10:08

So for the time being, we’re going property by property, and that is, I mean, primarily in phase one, we’re kind of testing out this thesis. You know, I might be able to pull up a notepad and say, you know, Why doing, you know, a light industrial play at 4 million makes just as much sense as 40 million. But we want to actually go through the machinations of doing that first. And then Phase two would be, let’s say, you put your head down and you get this, you start chipping away at these and you’ve got a portfolio of 10 or 12 would first go back and probably do a blanket debt refinance over the whole thing. Because obviously, you get better that in and of itself is kind of a strategy for return of capital is get a blanket term across, say, a dozen different portfolios. And at each property level, right, you get better, better debt terms for that reduce risks as far as a lender is concerned. And I think at that juncture, we would probably look at more of a fund approach, how we would incorporate that into still the syndication market, we’re not quite sure. Like I said, right now, we’re, we’re just testing out the property by property thesis. But the Holy Grail of this would almost be to say, kind of be like a crowd street or a Fundrise. Where, you know, I guess in fundraises case, you don’t really get to pick the properties, crowd streets, you do, maybe somewhere in between that, except we don’t want to necessarily be an online platform, I think it would be preferable to operate more like, like an old school Buffett partnership, where it’s kind of like, look, you can chuck your money into this bucket. And we’re doing X, Y, and Z with it. But, you know, scaling up to, you know, a billion assets under management is not necessarily the play here. It’s like taking this laser focused, like picking off the things that make sense and have this optionality. But in a manner that, you know, obviously, you’d want to scale it up to a point where you can move faster than say that one broke one property at a time, but not scale it up so much that you dilute the core approach and the core thesis. So yeah, I guess sort of, like, somewhere between a crowd Street and Fundrise. But obviously, on a much smaller scale, and, and not marketing on sort of like a yeah, just submit your information here. And then wire is 25. You know, okay, not not exactly that model, either.

J Darrin Gross 10:10

Gotcha. Do you have a minimum investment requirement?

Kyle Tushaus 10:10

Yeah, so right now we’re at $25,000. And we arrived at that one, because 25, kind of a typical minimum, anything below that, and you’re kind of just doing a lot, you know, too much movement for not enough contribution into a deal. But primarily, because the size of the deals we’re looking at, it’s pretty easy, just take a if I want to do a $5 million deal, and I have this minimum, divide the deal, but that minimum, and if it gets to be too high of a number of investors to juggle, then you might want to increase your minimum. And so 25 is a comfortable number, where we feel at that at that number will, will not have to be juggling the 99 Investor limit that, you know, we’ll have for that type of deal structure.

J Darrin Gross 10:10

Well, it sounds sounds exciting. I mean, the opportunities and the fact you’ve got a, you know, a model for you know, the funding and then the distribution and raising capital and, and kind of your thesis you’d like said you’re agnostic, but, you know, experience with the hotel conversion and, and kind of multiple exit points. I guess that’s kind of what I what I heard you I mean, it sounds to me, like more of a, you know, safety kind of a thing as opposed to the the one that you gotta hit. And yeah, if not, everything happens, like it’s supposed to, then, you know, what do you do? Yeah.

Kyle Tushaus 11:24

I mean, yeah, another thing that I feel like it’s kind of, it’s probably not completely lacking. But I haven’t heard in, you know, too many people pitch me on it so far in a syndication world, is this idea of sending it up the ladder in terms of investor risk appetites. And I think the closest thing that I’ve seen get in touch on this is, hey, let’s buy called 100 units of multifamily for easy numbers, and we’re going to renovate ATM and leave 20. So the next guy sees that there’s meat on the bone, there’s meat on the bone concept. I mean, I get that and that was something that entered the conversations in my experience previously, but I always thought of it more as like where certain capital resides in the lifecycle or the type of cash flow an investment might throw off and you could say the same thing not just about commercial real estate but just about any private investment. But you know, we did a couple of rows and columns and a couple were certain investors like the more risky like go renovated, get a bridge loan right to yours and pop the rates kind of thing, especially in the hotel world, right? You go do a PIP or what’s called a Property improvement plan. And you can now say, you know, they’re doing $99 A night, now we’re gonna do $160 A night. And once you get to that point, the investors that came along with you for that renovation period of that 99, to your, whatever your market rates were, they don’t necessarily want to keep that capital in something that’s now shelved, and you’re just sending out your distributions, they want to take that out and go find the next hotel, or the next, you know, property, whatever the thesis is, that’s gonna get renovated and mark to market. And so rather than worry about who’s going to pay me 100 bits less than my cap rate to sell this thing outright, we were thinking more in terms of how do we recap this project. So in that scenario, right, we renovate the property rates are going up, you know, property value was, you know, for easy numbers, let’s call it a $10 million property, it’s now $15 million, we’ve created $5 million worth of value, but it’s still cash flowing at X percent, that is still attractive to a passive investor, to say, Great, our investors that only want that renovation phase, you’re out, we’re gonna bring in new dollars at this new valuation, the new dollars don’t feel like they’re getting the short end of the stick, because we’ve already renovated and we already took the risk. And we can tell them, Look, you’re gonna get X percent distribution on a stabilized asset. And they would say, Great, that’s what we’re looking for. We don’t want to trust that you can swing hammers, and not screw it up. And so it was never really, I mean, obviously, if you can get somebody, you can buy something at like seven, do a little bit of work and sell it at a five. Everyone wants to do that all day. But we always talked about more in terms of recapping and it was less about, you know, what’s the new valuation, but what does the capital that’s in the deal actually want out of the deal. And so there’s always this preferred route and saying, like, well, it’s Nick, open market and pay 6%, to the broker to go list it and all this, let’s call the group so we already know that wants stabilized cash flow on this particular asset type, and just pull that tranche out, that was the opportunistic tranche and replace it with, right, the new stable cash flow investors. So that’s, that’s something where, obviously, we’re talking, you know, pretty early on out of the gate for this platform that we’re doing. But that’s another another avenue where, you know, if we can get sort of the more like cookie cutter bread and butter type investors that say, Don’t give me massive valuation increases, if you can tell me, I’m gonna make six to 10% a year on my money, and it’s going to be stable. But I’m okay with that. I don’t need a massive exit and a 20 plus percent IRR pop. So that’s another angle where I feel like it probably definitely exists. But from my understanding, it’s probably probably less focused on than, say, the institutional world where there’s always an option of just recapping your project with a different investment type.

J Darrin Gross 12:31

Got it. Hey, Kyle, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to try and assess risk and determine what to do with the risk. And there’s a couple different strategies we typically employ, we first look to see if there’s a way we can avoid the risk. When that’s not an option, we look to see if there’s a way we can minimize the risk. And if we cannot avoid or minimize the risk, then we look to see if there’s a way we could transfer the risk. And that’s what an insurance policy is that a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation. Could be clients, it could be investors could be the market could be politics, interest rates, however you however you would like to frame the question as to what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Kyle Tushaus, what is the biggest risk?

Kyle Tushaus 12:56

I think, right now everybody’s kind of afraid of inflation, which is an interesting business environment to be in for real estate, because everybody kind of gravitates towards this industry is a safe haven. I think you can kind of take that a step further and think if I’m going to de risk myself from inflation, and I’ll say inflation, I don’t think is actually the risk of getting at its eventually I think there’s a risk that I think a lot of people are not thinking about some are but I haven’t seen any media headlines about it. But within real estate, right, you might say okay, well what’s my what’s my best inflation hedge within an inflation hedge? Right. And that would be a property that I can mark to market more often, right? So the reason why consumer durables doesn’t do well, and inflation is because I can wait 10 years to buy my next car or washing machine. But bread and butter, I’m gonna buy that more often. And so that price can keep going up every time I transact. So how can I mimic that in real estate and well, the properties that get marked to market more often would be better and inflation environment. So hotels get marked to market every single morning. So it should be the best inflation hedge, but you’ve got the dual side of that sword, it says it’s also discretionary spending. So be very careful on that front. But then, so maybe I’m okay with every year, say in multifamily. You know, the, the triple net 25 year lease would probably be the worst, depending on how that lease got written. So there’s obviously a spectrum even within the inflation hedge that is our industry of commercial real estate. But the thing I haven’t heard enough people talking about, and the thing that scares me the most and influences a lot of how we’re going into these, these, this first phase of deals is that the labor risk that is kind of bubbling under the surface where you see a lot of these value add deals, I mean, people have been ever since 2008, value add has been kinda like the everybody, everybody and their cousin is getting into this idea of renovating a property and popping the value of it. But I think there’s going to be a massive moving target into how well you control those costs. And so for like an interesting data points since about the early 70s. Productivity, or I’m sorry, compensation has gone up 115%, since the early 70s, which sounds great hiring 10 or 15% increase in compensation. And that’s for non supervising roles. So the roles, the jobs that are actually doing the thing.

While productivity of the same jobs has gone up almost 250% During that same time, so there’s this massive difference in the throughput that’s being provided by somebody in our job versus what they’re getting out of it. And I look at the landscape of people now for the first time in four years even know what inflation is. Our socio socio economic landscape is not great, there’s a lot of political strife. And I feel like that gap is probably going to get closed to some degree. And so I see a big risk factor in those business models that are going to be very reliant upon labor as an input, because I think we’re about to see a compression of that gap. And I think rightfully so, I mean, you look at some of the numbers, and it’s just, I might be a little jaded, I came out of, I came out of school, after the Oh, eight collapse. And so I don’t, I don’t really have the, I don’t have that much of an experience through that run up. But, you know, you look at what was accomplishable with, say, your bass degree, or even no degree 3040 years ago versus now and how much you know, someone’s having to work to get the same throughput in terms of quality of life. I don’t see it continuing status quo for much, much longer, maybe, you know, we kick the can a little bit longer, but I don’t see people being willing to do it. And the great resignation might be sorted a first little cue of it. But yeah, I think I think what’s about to follow inflation is and we talked about energy prices going up housing prices going up, when labor prices keep going up. And right now it’s the remote workers that are driving, you know, the leverage in those negotiations, it’ll eventually get to all labor. And if your investment thesis is heavily dependent upon labor, I would think of some ways to lock that in ways that we mitigate that, right? If I if I see a value add deal. It’s got to be in a market where I’ve already got a pretty good relationship with the GC. And I can go to them and say, Do you want to be part of the GDP tranche? And so with that, I can say, you’re now going to have equity incentive, not just, you know, hourly rate, or markup incentive. So, you know, let’s put together a budget of do not to exceed and you control that cost, but you’re also in our cap stack. Now, you know, outside of that, I would be very worried about taking that GC risk, because I hear horror stories of colleagues having guys walked off the job for $2 more an hour. And, you know, it kind of sucks when you’ve already pulled the debt on the deal. And you got, you know, this bridge loan kind of clock ticking away at you, but then you look at the data and you’re kind of like, well, I don’t necessarily disagree with it. I mean, someone offered me more you probably do the same thing. And so I think it’s something that needs to be taken into consideration when you’re when you’re underwriting because I do think that’s the next big wave to follow in this. disinflation run up.

J Darrin Gross 14:33

No, that’s enlightening. They’re just the, you know, wage, wage growth and how it’s likely to affect A lot of things so I got it. Kyle, where can the listeners go if they’d like to learn more or connect with you?

Kyle Tushaus 45:12

So they can either submit something through the website, which is Pine Ridge cap.com at P I N E R IDG E CA p. So it’s cap instead of capital for the website. Or you could email me directly, just Kyle Kyl e at Pine Ridge cap.com. That’ll probably the quickest way to direct to the horse’s mouth so to speak. Yes, and we’re not on any. Not on any social, unfortunately. So I can’t tell you to follow our I’m not even on social personally. So I’m kind of behind the times in that regard.

J Darrin Gross 15:08

Gotcha. Kind of, I can’t say thanks enough for taking the time to talk today. I’ve learned a lot and enjoyed it. And I look forward to doing it again soon.

Kyle Tushaus 15:08

Likewise, yeah, well, I’ll definitely keep you in the loop on everything we’re saying.

J Darrin Gross 15:08

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. CRE PN Radio.

Announcer 46:25

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Storage Facility Investing with Tom Dunkell – CRE PN #362

Tom Dunkell 0:00

We’ve found a lane that we’re really good at. And that’s that’s where we’re gonna stick. We’re very selective about the facilities that we buy are not out there trying to cobble up every every single facility that’s for sale. As everyone out there knows it’s easy to buy real estate right? You can be paid cash, pay the asking price and close tomorrow you can buy as much of whatever real estate class you want. But for us, that’s not the that’s not our approach. We’re very diligent. We’re very disciplined about the kinds of facilities that we acquire. And it’s all because we want to do the best job we can do for investors want to reduce their risk increase their cash flow increase their returns.

Announcer 0:40

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:00

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversation with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Tom Dunkel. Tom has a background in corporate finance, and over 25 years of real estate and investment experience. Tom brings extensive experience to Belrose storage group, taking the company from a startup to a world class organization. And in just a minute, we’re going to speak with Tom about self storage syndications. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. And you can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Tom, welcome to CRE PN Radio.

Tom Dunkell 2:25

Thank you, Darrin, it’s great to be here. And I do hope listeners go to you too, because I wear my favorite shirt today and in honor of our conversations.

J Darrin Gross 2:34

That’s awesome. I appreciate you doing that. And I hope they do too. Hey, Tom, before we get started here, if you could take just a minute, and share with listeners a little bit about your background.

Tom Dunkell 2:50

Sure. So I was one of those annoying MBA guys. I got my MBA in finance and accounting and went into corporate America did CT corporate mergers and acquisitions and raising capital in the aerospace and some other industries. It was great training, I worked with some amazing people. It really did. And I and even though it was getting to be a long time ago, now I still reach back to that time for lessons learned from leadership and you know, just how to grow a business the right way and those kinds of things. So So I ran that out for a while and but always wanted to go and do something on my own. And so in 2006 My timing wasn’t great, but I left corporate America actually kind of abruptly because I got fired from my corporate job. But it was just the kick in the pants that I needed to go out and do what I had been wanting to do. And I and I feel like what I am meant to do.

So 2006 Obviously my timing was horrible. So learned a lot of tough lessons in his first few years in real estate. So I definitely still have the the battle scars and the lessons learned from from that tough time. But just had to keep battling through and grinding. And so I reinvented after spending some time in residential real estate started. When I had rentals and I was doing fix and flips and wholesaling and those kinds of things. I went into distressed mortgage debt, which ended up being a great business, just kind of the right place at the right time. I connected with my business partner, Joe downs, in 2010. And we started us mortgage resolution, which is still thriving today. Over the past 12 years, we’ve generated over $50 million of revenue in that business acquiring over $800 million of distressed mortgages. That’s on paper. It’s well balanced so, so we had a great run with that business which allowed us to do some other things including hard money lending. We have a we have a real estate, we have a rental portfolio, short term rental portfolio, and a vacation spot here in Pennsylvania and called the Poconos Pocono, mountains, with lakes and such up there. But our, our, our big push right now, and really what we’re most passionate about at at Belrose is storage. So we’ve we’ve gotten into storage, we started buying facilities, back in 2020, leading into 2021. And now we’re up to we’re about to acquire our 10th facility, we’ve got about a quarter million square feet of storage, and we just are big fans of this asset class.

J Darrin Gross 5:56

Awesome. So you mentioned kind of your start, and you would did you do single family? Start with? I mean, I heard that you got into the hard money or not the hard money, but the mortgage is is that but that your your initial start? Were you doing single family? Or did you jump into a different asset class or what?

Tom Dunkell 6:17

It was mostly single family, a few small multifamily duplexes, triplexes, quads, that kind of thing. But interestingly, I did start investing as a passive investor in multifamily in 2013. So, so I’ve had that’s been a great run as well, and a big, big fan of that industry. But just as a, as a passive investor there.

J Darrin Gross 6:40

Got it, got it. And how did you guys arrive at self storage? What What was the attraction?

Tom Dunkell 6:48

Yeah, great questions. There’s quite a laundry list of things that we really like about it. But the the highlights are. I mean, first of all, it’s real estate, right? So it’s a hard asset, it’s not going to zero. And like the old adage, says, you know, don’t wait to buy real estate, buy real estate and wait, so so we love that about it. And it comes with all the the tax benefits of being in real estate as well. Second, big thing is is cashflow. Our operating expenses at a facility are are very modest, typically around 30% of our revenue, give or take. So that gives us a lot of cushion to generate cash flow. And you know, in the uncertain times that we’re in right now, that gives us cushion. If the economy were to take a dip, we can we can adjust our rates, and still be okay and cover our debt and that sort of thing. So we love the cashflow aspects.

One of the other big things we like about it is is the capital expenditures are usually very low. When I know when I do invest in multifamily, I know there’s a lot of times that a big capital expenditure budget set aside to account for turnover in units because they need to go in and upgrade the lighting package or the countertops or the appliances and paint carpet what have you. In Self Storage, when a customer moves out, we can roll up that door and just sweep it out and put it back. For Rent, that’s pretty much that same day. And that does happen. So we do like to have our facilities looking nice. So we do spend a little money on landscaping, and of course keeping keeping the trash picked up and all those kinds of things. But those are relatively low dollar. We do for sure spend money on security, because we want our facilities to be secure when our customers feel comfortable doing business there. So we’ll put up video cameras and make sure that the the game is up to par. And that’s all working and all the fences are, are taken care of. But those are the big primary things we like about real estate, or about self storage if I could maybe throw in one more thing is that it’s becoming more and more mainstream self storage. It used to be that self storage facilities were these rusty dusty old boxes stuck in the back of, of a of an industrial area. But now it’s becoming more mainstream. You’re seeing like old Sears buildings, old Kmart buildings being converted into storage. You’re seeing new storage facilities being built in more retail convenient areas. And that’s all because self storage is becoming more and more utilized and more and more mainstream.

J Darrin Gross 9:56

No, I gotta get all that’s good stuff. Did I hear you right? Did you say that your expenses for on your cash flow for the Self Storage runs about 30%?

Tom Dunkell 10:09

Yeah, that’s about right on on smaller facilities and might be more like 35. But on larger facilities that can even be it can even be less than that.

J Darrin Gross 10:17

And does that include the? Are you guys actually managing these directly? I mean, do you have like the staff for that? Or do you do?

Tom Dunkell 10:30

We do? That’s a great question, Darrin. So one of the ways that we do keep our expenses down as we are shifting to more of a remote managed model. In some cases, it’s kind of a hybrid situation where we do have boots on the ground in that market, but they’re not spending all day every day, at the facility, they might be, you know, an hour to drive away in silico, by the facility, maybe once a week. But they’re still managing the facility from afar, because they’re fielding the calls from the customers. And of course, today, most customers are, you know, wanting to just do business on their, on their smartphones. So they can rent a unit on their smartphone, and then just move in at their convenience. So we’re finding at least the the way that that our management strategy works is that we don’t need an expensive body on site all the time. So we’re able to really keep that piece of the expenses down, which is everyone knows, headcount in any business is probably your biggest expense.

J Darrin Gross 11:40

Got it? With that are you guys able to do upsells? Or whatever? I know, like, I’ve talked with others about this. And whether it be the U haul vans, or the boxes, or the, you know, whatever. Additional things, do you have any kind of a storefront that allows for that? Or was it more of just the space? Rental?

Tom Dunkell 12:08

Yeah, our model Darrin, as far as upselling, we, we haven’t gotten into the U hauls, and the boxes and those kinds of things. That because that does take more, you know, attention and personal attention, meaning and other body kind of thing. And the boxes and those kinds of things is not a not a ton of margin there. But one thing we do apply is one of our value added strategies is protection plans. So we require our customers to purchase a protection plan from us and allows us to make a few extra bucks per month per unit. But as everyone knows, and if you’re familiar with commercial real estate, every dollar of revenue that you can increase or increase the net operating income, you get that multiplier effect on the value of the business. So you know, so a medium sized or smaller facility that where you’re offering tenant protection on top of your regular rent, it might increase the value of that facility on your noi. Because you’re getting that in a wide multiple by quarter million bucks with not a lot of headaches. No, it’s It’s pretty nice.

J Darrin Gross 13:22

That’s awesome. So your Self Storage asset class, is there a particular territory? Are you guys nationwide? How are you selecting where you locate these?

Tom Dunkell 13:37

Yes, so we’re trying to ride the the demographic trends, of course, we’ve got the Baby Boomers are selling their big houses up in the Northeast, and they’re moving to this to the southeast and salmon to store their stuff. So, so we’re focused on the Eastern US. Our facilities today are in Maryland, Virginia, and North Carolina, Georgia and Florida, are currently looking at a deal in New York State, which is like a super thriving growing market and wherever this you know, real estate’s all very local, right. So this particular area has a big Costco retail center that’s going in, it’s going to draw a lot of traffic to that area. And the facility we’re looking at is right across the street. So we’re excited about that one. And we’re looking to look the deals in Alabama, Ohio, but we’re very selective. We’ll make sure that our there’s a lot of value to add there. So that’s that’s our primary strategy is acquiring existing facilities and just running them better.

J Darrin Gross 14:42

And is it as far as the kind of the investment strategy are you do you have a particular hold time that you’re, you’re looking to hold these or is this forever hold or what’s your what’s your plan?

Tom Dunkell 15:00

Yeah, good question. So, first and foremost, when we go into a facility, like I say, we want to have a lot of value add strategies. And those are all meant to really increase the cash flow of the of the facility. And what that gives us the ability to do the luxury to do is, is be selective about our exit strategy. So if we’re if the facilities are running, the way that we want it to be running, we can hold it until there we maybe we see there’s an optimal time to sell. Or maybe it’s part of our portfolio, we sell the whole portfolio at once. But our in general, we’re, we’re not super long term hold guys, we’re typically in the, you know, I would say the two to five year range. Again, because we are acquiring existing facilities that are poorly run. So once we turn those facilities around, that’s our opportunity to capture the best return for our investors. And so we’ll typically look to be exiting at that time.

J Darrin Gross 16:10

So let’s talk a little bit about your your syndication model. Are you guys are the the GP that are finding the deals and then raising the money, LPs? Is that pretty much the strategy there? Or?

Tom Dunkell 16:28

Yeah, no, in a nutshell there. And that’s exactly right. So my partners, and I act as the as the GP’s, and we bring in the passive investors to be our limited partners and our passive partners. And so we do, we spend a lot of time and effort finding the deal we have, we probably look at hundreds of deals for every one that we buy. And then we’re doing all the upfront due diligence, we’re arranging for the debt financing, which me and my partners signed for personally, at least at this stage of the game, we’ve been using recourse debt, through credit unions and small local banks. That’s where we’ve been getting the best execution. And then once the deal is closed, we’re handling all the back office operations, all the investor reporting, everything lives in our investor portal. So our investors can have full transparency with what’s going on, we post all the management reports there and move ins and move outs and rent rolls and occupancy reports. And all those things live in our in our investor portal. And that’s where all of our investors get their, their key ones and their distributions are made out of out of our portal as well. So we’re really happy with that. It’s pretty slick feature that we just added in the past year. So we’re really liking that. But yeah, that in general, that’s, that’s, that’s the model.

J Darrin Gross 17:58

So one property one raise one, one syndication is that, as opposed to a fund where you basically have multiple properties under the same fund that that’s in there in that,

Tom Dunkell 18:13

Yeah, that’s exactly where we are, we’re a deal by deal shop. We seem to like it that way, we’ve kicked around the idea of maybe doing a fund. However, I know, as an investor, I’m more comfortable if I’m investing in a deal where I know exactly where the money’s going. And, and I can I can look at that specific property and make my own decision. So that I like that personally. So it seems to be that that’s the way that we’re heading with Belrose resource group is doing one one deal at a time.

J Darrin Gross 18:48

No, I like the monolight. Just curious, I know, I’ve talked to some people, and they it seems like some of graduates are and I say graduated, they if some, I guess it’s the issue of if you’re raising capital and you have deals, or you don’t have deals and you’re trying to you know, trying to match that up kind of thing, as opposed to there’s the opportunity to get in, you know, before it’s gone, kind of the thing is, is more of what I think the syndication model is, and if you’re producing results, I would think that it doesn’t really matter. If you’ve got Do you have investors and you’re producing results? I’m, I’m guessing, you know, what’s the problem here?

Tom Dunkell 19:30

No problems. Yeah, we I think if you get to a certain scale, you know, fun might make a lot more sense, but we’ve never wanted to be a big company. Darrin, we’re, we think of ourselves. In fact, one of our core values is here at Belrose storage group is SEAL team. And so we just want to be an elite, Premier fighting force that’s, you know, smaller but we go out and we execute with, with passion and excellence and And so we’re not looking to be the biggest but you know, we we certainly, to this point have executed really well. And investors are quite happy and they keep bringing in their friends and family to our deals, which is a great testimony for the what we’re able to deliver for them. So we’re really proud of that.

J Darrin Gross 20:19

You and you mentioned the lenders, you guys are currently using it your your, I mean, the partners are actually signing on the loan. What is the the lender appetite for? Self Storage? Is it pretty robust? Or is it pedal lender by lender?

Tom Dunkell 20:41

We’ve had lenders come to us for saying, Hey, I’ve got a mandate to fill up, you know, our portfolio with self storage. So you know, send everything you got to that. So now, those are those seem to be the kind of the more smaller regional lenders, like actually a good friend of mine is, is a is a commercial banker at Bank of America. But we’re just, it’s just too, I guess, too small for him. He’s used to doing these massive loans. And so I was given him a hard time about it one night, and he actually called his boss, and was like, Hey, how come we’re not lending and self storage. But I guess it was just just a scale thing like is typically Self Storage deals, there’s some big ones out there. But a lot of times they’re, they’re more on the on the smaller end of the scale, if you’re a Bank of America working to fill up your portfolio with, you know, 100 200 half billion dollar loans, and that’s just not going to happen in the Self Storage deal. Typically.

J Darrin Gross 21:44

All right, that’s, that’s pretty big self storage, I guess. Unless you had like a portfolio kind of thing. But even that, and I don’t know, that makes much sense. But so in your, your deals, what is an average deal size? For? You mentioned what I think he said, 10, you’re focusing on your tenant? And you said 225,000 square feet? Is that total? Or is that the one deal that you’re you’re focusing on focusing on right now?

Tom Dunkell 22:16

Yeah, so we’re at about 250,000 square feet across our portfolio. Right now, our average deal size is about two, two and a half million. So these are smaller kind of mom and pop run facilities. But that’s where we’ve been finding the best turnaround and value add opportunities. So that’s, that’s what’s driven us there. And we’re not running into, you know, any of the huge private equity firms that are, you know, thrown around huge money and, you know, super low cap rates. So we’re happy to just, you know, stay in our lane and stick to those types of properties. And just, if I can go back for a second make another point about what’s happening with the lenders, Darrin is self storage has quietly been the best performing asset class in commercial real estate for many years. And the default rate is super low. So lenders typically loving to lend on self storage properties.

J Darrin Gross 23:19

No, I would think that if the bank wants to lend you money, and and they recognize it’s a good thing, and I mean, your number, your 30% expense rate I’m selling Wow, that’s that’s pretty impressive. You know, and just the the easy turn. I mean, is there any kind of eviction? I mean, are you are you beholden any of the eviction laws that like multifamily house or, or things like that?

Tom Dunkell 23:48

No at all, not at all. And that’s, I mean, if at the beginning, if I can, you know, kind of gone on with my laundry list of things that we love about self storage that would have popped up pretty soon, but we live in the lien law world, not in habitational real estate, where it’s a landlord tenant situation. And as a lot of landlords out there know, like, I used to be a landlord, you know, the SU evict a tenant, you gotta get a landlord, tenant court. And in a lot of places, that court is very much slanted in favor of the tenant. And I lived through that personally. And it was it was no bueno for me. But in, in self storage, there was no eviction moratorium during COVID. And the lien laws are very, very clear. You are able to give notice, and then short time later depends on the state could be 30 days could be 60 days, you can put that facilities contents of that units contents up for auction, sell it online, that buyer comes over and they have to clean it out. And then we have now have a unit available for rent again. It’s really it’s not a big it’s not The big to do like it is in habitational real estate.

J Darrin Gross 25:03

So when you do have one of those, I’m thinking of that, what’s the reality show The Storage Wars there, whatever we’re the you sell the contents, who who owns the contents at that point, it’s still the tenants and then they they get the proceeds or you know, the owner of the contents.

Tom Dunkell 25:23

So what happens is, and this actually never happens, but it what happens is the proceeds first go to pay the back the delinquent payments, and then if there’s anything leftover, it would go to the customer, but that the unit’s contents go for very, very little money, and it usually doesn’t cover what’s owed to the facility. So there’s never any money left over for the customer. In my experience, in my experience,

J Darrin Gross 25:59

Yeah, no. And in those situations, is it kind of a blind auction? Or do people kind of look at us? Again, I mean, are they think it’s go through it? Or?

Tom Dunkell 26:11

Yeah, it’s honestly, it’s, it’s pretty crazy if you ask me, because, again, everything’s done online now. So our managers will go in there, and they’ll take, you know, a handful of representative pictures, but they’re certainly not pulling out all the content. So the buyer of the contents of that unit is really going on very little information. They might be able to zoom in on the picture and see something valuable, you know, piece of equipment or a tool or something that maybe they don’t extrapolate from, they’re like, hey, there’s tools in here, I’m going to invest in I’m gonna, I’m gonna bid more. But it’s it’s pretty risky. Because you roll up the door, and it’s full of stuff. You don’t know what’s tucked away in the back. Yeah, I don’t know.

J Darrin Gross 27:01

Definitely a bargain hunters. Doesn’t really interest me, but Me neither. Yeah. Not I like the tenants of pay there. There are the storage, you know, the people that pay their rent, and they keep their stuff. That’s, that’s the best one. What is the just kind of curious, talking about, you know, the how you recoup on somebody who doesn’t pay? What is the default rate of tenants, his fair national number for tenants who don’t pay their storage bills?

Tom Dunkell 27:38

Yeah, there are national statistics on that. And again, at Belrose storage group, one of the things we really focus on, because it is in our control, you can’t really control interest rates, cap rates, all that stuff going on out there. What we can control is how we run our facility. The national average for delinquencies is 10%. Across our portfolio were about 3.5%. And so what that does is that further increases the cash flow that we have available for our investors. So we’re very, very proud of that figure.

J Darrin Gross 28:10

That’s awesome. I’m in such a low delinquency percentage. And if you do have somebody that goes, delinquent minutes, I’m assuming is that 30 days? Is that kind of the what’s the what’s the point when they’re, they’re delinquent? And they do?

Tom Dunkell 28:26

Yeah, 31 days, they get a notice.

J Darrin Gross 28:29

All right. And so at that point, do they lose lose access to their I mean, with digital, you don’t have to, like go in and rekey the thing you undo their code or whatever kind of thing or so they can’t, can’t access their stuff until they make payment is that basically the

Tom Dunkell 28:46

That’s right, yeah, the, their gate code won’t work at the gate, and then they’ll also be an overlock on the, on the actual unit. So you’ll, they’ll have their lock on there, and then we’ll put a lock on top of that. And then they need to talk to us and get paid and get caught up before they can access their unit.

J Darrin Gross 29:08

I love that model. Just the the ease of compliance there as opposed to you know, being strung out for months or with COVID years or whatever it could be for you know, particular you know, yeah, get get back I think so. That’s awesome. So, the future here, what’s your guys’s plan? You mentioned you’re not looking to compete against the big funds and stuff but kind of the smaller Asia basically continue to find deals on the east coast there and and try and grow your portfolio or is that what’s the long.

Tom Dunkell 29:48

Yeah, absolutely. No, that’s that’s hit the nail on the head. Oh, we’re we’ve found a lane that we’re really good at. And that’s, that’s where we’re gonna stick. We’re very selective. About the facilities that we buy are not out there trying to gobble up every, every single facility that’s for sale. As everyone out there knows it’s easy to buy real estate, right? You can do you pay cash, pay the asking price and close tomorrow, you can buy as much of whatever real estate class you want. But for us, that’s not the that’s not our approach. We’re very diligent and very disciplined about the kinds of facilities that we acquire. And it’s all because we want to do the best job we can do for our investors want to reduce their risk, increase their cash flow, increase their returns.

J Darrin Gross 30:34

So it’s great. Your team who who was on your team, for your your partners?

Tom Dunkell 30:42

Yeah, so the core team is myself, my business partner, Joe Downs. For our self storage venture we brought in Tim Kaine, he’s an expert at lead generation, and also is really good in the in the expansion and construction aspects of our of our properties. We don’t, we don’t do big developments or anything, but we will do small expansions, if it’s warranted. So that’s where that’s where Tim comes in. He’s an extremely valuable resource there. And then, you know, we have the glue, every good company, you got to have the glue or glue has Gretchen for Shala. She’s our Chief of Staff, she makes sure that everything’s running smoothly, everything’s communicating, well, everyone’s sticking to our core values. So she’s been a great resource. And then we, we have a great accounting team. Cuz with every facility that we have new entities that are formed new bank accounts that are open, so that accounting aspect gets pretty heavy pretty quickly. So we’ve got a great team there. And then on further on the operation side, we have an outsourced expert counsel consultant that we work with, they’re named Katherine ease, she’s with elite Self Storage advisors. And she’s been in the self storage industry for 16 years now, and has managed and done turnaround and auditing work on self storage facilities around the country. So she’s a tremendously valuable resource as well. And she, what she does for us is she helps to transition the property from the prior owner, moving everything over to our systems and processes and methodologies. And then, as I mentioned, she does the auditing, and gets the marketing up and running and rolling. And then she also brings in someone from her team to manage the facility as well, or she’ll hire someone if there’s no manager convenient to that location. So she’s an outstanding resource as well. And that’s pretty much the core team.

J Darrin Gross 32:48

Call. You mentioned marketing a little bit there. Do you guys is the marketing outbound to prospective sellers? Or is this also marketing for investors to raise capital?

Tom Dunkell 33:03

Yeah, great question. It’s really all the above. So we have the lead generation and marketing engine that we turn on for reaching out to facility owners. So we have a VA that helps out there, and we’re reaching out to hundreds of facilities a week. And so there’s a whole process there. And that’s Joe Downes, my partner, he is pretty much running that aspect. On the what we call the capital servicing side of things, that’s when it comes over to my area of responsibility. So we do have a marketing program there as well are reaching out to investors and making sure we’re trying to add value all the time. So we anyone who signs up at our investor portal, I’ll be sending out articles that I think are interesting about, you know, what’s happening with inflation, what’s happening with cap rates happening with interest rates, how are rents, you know, trending in self storage, and even other markets, other commercial real estate markets just to try to be a thought leader and be have a finger on the pulse kind of thing. And then, and then at the facility level, there’s marketing going on there as well, because we’re reaching out we want to be in the top three on the Google search or that market. And we want to make sure that everything’s smooth for the, for the customer to rent that facility on their on their smartphone. And so we’ve got a lot of different ways that we’re reaching out to our different constituencies.

J Darrin Gross 34:39

Now, it’s important I mean, you got to you know, I, I’ve always been kind of reluctant to do the horn tooting, but if you don’t toot your own horn, you know, likely nobody’s ever gonna know you have a horn so

Tom Dunkell 34:54

well, it’s a good thing for us, I think on the cinema in my particular area of responsibility, the Capitol service thing. Like I mentioned earlier, our our investors tend to refer people to us, which of course, is the best way to get business, right? It’s, I’m sure it’s the same way in your business and insurance, you get that referral from someone who’s already done business with us that that has huge weight, right, so. So that’s why I really tried to go the extra mile and make sure our investors are having a good experience with us.

J Darrin Gross 35:25

That’s great. Hey, Tom, if we could, I’d like to shift gears here for a second. As you just referenced by day, I’m an insurance broker. And I try and work with my clients to assess risk and determine what to do with the risk. And there’s a couple of different strategies we typically consider, we first look to see if there’s a way we can avoid the risk. And when that’s not an option, we’ll look to see if there’s a way we can minimize risk. And when we cannot avoid nor minimize the risk. And we look to see if there’s a way we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation, could be clients, investors, tenants, market politics, you name and however you would like to define the biggest risk? And for clarification, I’m not necessarily looking for an insurance related answer. So if you’re willing, I’d like to ask you, Tom Dunkel, what is the biggest risk.

Tom Dunkell 36:38

Like lots of business owners out there daring and we have a number of different different risks that we’re faced with on a daily weekly annual basis. In the, like, in storage, as I, as I mentioned earlier, we’re avoiding development projects, because we just see a lot of risk in those right now with with supply chain issues, labor issues, material cost issues, and it’s just not really in the DNA of our company. So we’re avoiding that one entirely. On the facilities that we do buy, we minimize risk by not over leveraging by being conservative with our projections. And of course, we use insurance to make sure that the physical plant is properly insured. But as far as our biggest risks our business there, and I would say, it’s really, it’s really me, it’s really me and our leadership team. The business can only grow and go so far as we’re able to take it. So we have to be the best that we can be we have to be we have to be educated and smart and and hire the right people and bring in the right partners. Because if any of those things get out of out of whack, you know, we’re not going to reach our potential and that’s what we’re we’re here to do or reach our potential and provide value to our investors. So we’re always looking for ways to improve ourselves and improve our business. As I mentioned earlier, we do have core values, we do have a purpose. And so we use those as our guideposts every day in our decision making. But you know, we’re always looking for better ways to do business to take care of our investors and just be good good members of our of our business community.

J Darrin Gross 38:36

Like it, that’s good stuff. Hey, Tom, where can listeners go if they’d like to learn more or connect with you?

Tom Dunkell 38:43

Yeah, so again, I’m Tom Dunkel, Managing Director and Chief Investment Officer at Belrose. Self store Belrose storage group, you can go to Belrose storage group.com. That’s b e l r o s e storage group.com. And belrose storage group.com. And I would encourage folks together whether you’re interested in ours, participating in our self storage, syndication deals or not, we do have a free resource there for investors. It’s something that I’ve developed over my years of investing, actually started investing as a kid but I’ve been high net worth investors since 2006, accredited investors since 2006. So I’ve made some mistakes along the way and learned some lessons and I’ve done some good things done some not so good things, but we compile them in an ebook that we call Safe Investing. And safe is is an acronym, s a f e. S is for sponsor gives you a list of questions to ask about who’s sponsoring the deal. What’s their background? What’s their track record? Are they criminals? Have they done this before? How long and then A is for assets? So what is the asset you’re investing in? It’s It’s incredible to me, sometimes people invest in things and you don’t really understand the asset they’re investing in. So here’s a list of questions to ask about that particular asset to make sure you understand it. F is for Financials, gives you a list of questions to ask about the projections, the returns, and also personally like, how much of your portfolio? Are you putting at risk here? And are you okay with that? And then E finally is for exit. How do I get out of this thing, you can’t go to schwab.com and click, click, click sell your position in a Belrose storage group storage deal because that money is going to be tied up for 2345 years, and you need to know that going in and be comfortable with that as an investor. And ultimately, they’re these all these questions are really designed to help an investor feel good about what they’re investing in and be able to sleep at night, knowing that they have their money tied up with this sponsor, and that asset and these financial characteristics and when they’re gonna get out of this, so I think it’s a it’s a valuable resource. I hope everyone goes to get it. It’s free. You don’t have to give me your name, email address or anything. It’s just, it’s just available for download on our website.

J Darrin Gross 41:17

Awesome. Well, Tom, I cannot say thanks enough for taking the time to talk today. I’ve enjoyed it. Learned a lot, and I look forward to doing it again soon.

Tom Dunkell 41:29

Thank you, Darrin. It’s been great. Appreciate it.

J Darrin Gross 41:32

Announcer 41:52

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