Doug McKnight  0:00  

If you couldn’t make money in real estate over the past decade, then you’re in the wrong business. It’s been easy. You know, from a standpoint of cost of capital and margins, obviously, we are entering it to have debt for the latter part of 22 starting to go into the 23 more challenging environment that we can certainly discuss in more detail but, but up until this point, the areas of the market that we specialize that and I will say that we as a company, we focus on what I like to call build America. So, we are, you know, for the most part, each of our platforms that we can get into, you know, we’re focusing on really your, your working families at rebuild America fordable housing and affordable vacations. And we believe that that area of our economy not only is that the largest demographic in our economy, but it’s the most resilient

Announcer  1:17  

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  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’s program is sponsored by Building Insurance and Risk. When you invest in real estate. It pays to work with a real estate investor protection specialist to protect yourself and your investment from catastrophic loss. The experts had building insurance and risk focus on real estate and investor protection. They provide you with multiple insurance coverage offers and a side by side coverage comparison. To learn more, go to Building Insurance Risk.com. 

Today, my guest is Doug McKnight. Doug has over 30 years experience in capital markets. He specializes in maximizing portfolio performance while maintaining balanced risk versus yield relationships. And then just a minute, we’re gonna speak with Doug about the future of commercial real estate market in 2023. 

And, but first, a couple of reminders. 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, Doug McKnight. Welcome to CRE PN Radio.

Doug McKnight  3:29  

Thank you, Darrin, thank you for having me.

J Darrin Gross  3:32  

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

Doug McKnight  3:43  

Ignite, I am the president and partner at Rreaf Holdings. We’re based in Dallas, Texas. My background specifically really is on the institutional capital market side. In fact, Black Monday was my first day on the bottom floor so so I’m dating myself but we formed our company reef holdings coming out of the financial crisis back in 2010. We felt that we would have RTC to for those of your listeners that that remember the 80s we went through the painful experience with the RTC we thought we would just you know have a repeat. Fortunately, that did not take place. But out of that grew a thesis here at reef that I could then I’m happy to get into with you about the reef story. But But that’s really about background and you know what’s unique about it is for myself and my three partners, we all have unique backgrounds that we brought into this company, which I think has contributed to our success thus far.

J Darrin Gross  5:14  

So, if we could maybe just back up for a second, the the marketplace up to this point, money has been pretty free flowing. You know, there’s been a lot of stimulus money that that always kind of is, you know, bastardized as the market based on you know, it’s not necessarily you know, just capital chasing deals, there’s, there’s another element there. If you were to to characterize the where we’ve been, how would you best describe the the market up to this point?

Doug McKnight  5:53  

Well, Darrin we’ve, if you couldn’t make money in real estate over the past decade, then you’re in the wrong business. It’s been easy. You know, from a standpoint of cost of capital, and margins, obviously, we are entering into have debt for the latter part of 22, starting to go into the 23 more challenging environment that we can certainly discuss in more detail, but But up until this point, the areas of the market that we specialize that, and I will say that we as a company, we focus on what I like to call build America. So we are, you know, for the most part, each of our platforms that we can get into, you know, we’re focusing on really, your, your working families in your build America, fordable housing and affordable vacations. And we believe that that area of our economy, not only is it the largest demographic in our economy, but it’s the most resilient. Now, up until this point, resiliency hasn’t been as big of a worry. Because all types of real estate had been quite resilient. Of course, going through COVID We had some areas of commercial real estate that weren’t as resilient as others. What would those be? That would be the hospitality industry with hotels, that would be here, more of your luxury, residential, you know, luxury, high rise multifamily. You know, some of those really, you know, took a date. But other parts of commercial real estate, whether it be industrial, or whether it be more affordable housing or more affordable vacations really did quite well, you know, during the pandemic. And as we move forward, resiliency, to recessionary pressures, higher interest rates, etc. That’s going to be more of a challenge. And that’s certainly going to separate those that are more experienced and have gone through market cycles before it sort of understand the landscape better before we even get to that point. Those are the ones that are probably going to perform better.

J Darrin Gross  8:47  

As far as asset classes that you guys focus on. I heard you mentioned a couple there. Are you do you have a couple lanes you Stan, are you? Are you agnostic to asset class? Or how do you guys are you set up?

Doug McKnight  9:04  

No, no, we’re not agnostic. We we are coming back to that thesis I just mentioned that Bill America we we own today approximately 15 60,000 multifamily units across the south southeast Sunbelt areas of the country. These are mostly your secondary and tertiary markets. We were in this space back in 14 1516. What institutional capital just you know, just wasn’t there. So we enjoy very wide margins. And we really, you know, sort of hung out in that space when there really wasn’t a lot of capital chasing. And that’s one part of our company. One of our platforms, I like to call it that we’re still very much involved with today. I think we got up to about 2020 21,000 units at one point. But over the last 18 months or so, given market conditions, we have had some reversions where we have exited some deals that we’ve done quite well, like I said earlier, if if you haven’t been able to, you know, hit or exceed your, your projections in this market that we’ve been that we’ve been in with the with the interest rate environment, you’re probably in the wrong business. Another platform is beachfront hospitality resorts. And what do I mean by that Abby? Older outside corridor, hotels, motels, in iconic locations on beaches, whether it be the Gulf Coast, the west coast of center of central southern Florida, or the Eastern southern Atlantic coastal areas, we own hotels, motels in those markets. During COVID, those markets were what became known as drive to destinations. And those particular assets did did quite well. We also own a they resort, St. Simons Island called Sea palms, that was also given its location as being a drive to destination. But what is in common with all of those assets is, is the affordability but yet similar experience as something maybe down the road that’s going to cost seven or 800. And I wear 202 50, maybe 300, the highest season on night, same beach, same experience. And so, you know, again, speaking to Middle America, another platform that we have is what we call reef communities that we’re that is more master plan development, where we will be delivering single family homes for sale, single family homes for rent, which is known as PTR, build to rent, and also multifamily, highly amenitized, town centers, schools, parks, walking trails, lazy rivers, pickleball, all the things that are really, you know, desired in today’s world. From a lifestyle sets standpoint, when you get home, from your day at work, you want to be able to have all those experiences really within walking distance. So it’s basically building small towns. We own a little over 3000 acres to south of Dallas Fort Worth, that we’re going to be doing this. And we’re going through the entitlement stages. Right now we have another 3000 plus acres between Austin and San Antonio. So we’re very excited about that. And again, COVID really put a spotlight on the urban versus Suburban. I guess you would call it desirability, if you will. And so that is going to be a very, very large part of our company’s future going forward. The fourth platform is extended stay hospitality, where again, serving Middle America workforce, for the most part, whether it’s traveling nurse nurses, whether it’s construction workers, or whether it’s people that are going to be that are going to need to be somewhere for two or three weeks or a month or more in a particular city for their work. Those hotels were not as geographically level limited scope, we’re building those all over the country. You know, but again, very resilient, very much centered towards America. The fifth platform, which is the platform that I was just late to because of meetings all morning, it is we’re going to be rolling out RV communities. The RV space here in the United States, absolutely exploded during COVID That it was really a very much a growing market even before COVID. You know, but again, the the overriding thesis throughout all of that is really serving North America and being in very resilient times. Types of real estate. You know, we don’t own luxury high rise apartments in downtown Dallas, which is looking at behind me, we don’t know, four seasons at Ritz Carlton’s. So, you know, we try to keep our focus and our mission allied in order to be able to have that resiliency as it relates to the yield versus risk relationship.

J Darrin Gross  15:29  

So if a if I understand correctly, basically, the the client tell you serve is, is the focus and in the different properties, whether it be the multifamily or the resort or the, the other properties, the common thread is that class of middle America, kind of just to the middle class kind of thing, the people something that’s affordable, whether it be a place to live or a place to vacation, kind of thing, is that my hearing? 

Doug McKnight  16:05  

Yes, that is that’s a fair assessment of our of our thesis here, at Reafevery

J Darrin Gross  16:11  

I like it. Think there’s definitely a benefit and focusing on something I mean, you get to know that, you know, that client that prospect, you know, what their, what their wants, or what their needs are, and be able to cater to them. And I’m certain that would put you in a better position than then, you know, you’re a little bit in this little bit in that kind of this kind of that kind of thing. And, and definitely probably some some leverage too. I’m curious on on the you mentioned the the hotels, the older motels, hotels kind of properties that you guys have? Do you have a particular brand that you operate those under? Or are they boutique based on the area? Or how do you set those up?

Doug McKnight  17:01  

Yes, they are boutique. In fact, we have our own brand. It’s called beachside resorts. You know, what we have found that in the locations that we’re in the approach, the approach to being unique and boutique is actually a benefit. You know, we do from a technology standpoint. And from a back office support platform standpoint, it’s very much of an institutional approach. Because your management, your operations is obviously part of the secret sauce. But in terms of the experience for the guests at those properties, they are experiencing something unique. You know, as I said, I’ll give you an example. We have two beachfront properties in Panama City Beach, okay, we are on 30 today. But when I say 30 day, most most of your listeners are probably thinking seaside or rosemary beach or Palace Beach, because it is the same highway, it’s on a different part of the highway. But it’s the same beach. So you know, our residents are going to come in, they’re going to have intercourse, they’re probably going to drive right, given the the given the geographical hole that the Panhandle has from the southern areas of the country. But they’re going to have the same beach experience. And they’re going to pay a fraction of what they’re going to pay on the other side of 30. I’ll use that as an example. And that’s the type of demographic that we serve. Gotcha,

J Darrin Gross  18:59  

gotcha. So, we have a, we’ve covered kind of the, you know how easy it was to make money in real estate. We’ve got a picture of the the types of properties that you operate in. Let’s talk about going forward here and in 2023. What do you see? First of all, if you have a crystal ball, or I mean, I hear projections from this to that. And it seems like there’s a pretty wide spectrum of what people are expecting. What are what are you what’s your sense of? You know how this is going to play out in 2023? That’s fair. What are you What are you preparing for?

Doug McKnight  19:53  

First of all, I wish I could find what, but you know, given my mics variance in business every time you do that you’re always wrong. Or you’re oftentimes wrong, I believe instead, what you have to do. And what we strive to do every day is that we try to weigh and measure our risks and measure that against our mission and our purpose. And if those are aligned, then it should not matter to any great extent, the economic environment that you’re in. So if you’re in if you’re in affordability, for example, and you know, that, that your residents or your guests dependent upon the type product is going to be the place to live or want a place to go to a vacation, then it all boils down to affordability from that standpoint, from the guests or resident experience standpoint, from the capitalization standpoint, which is really at the core of your question is going into a, a rising interest rate environment, coupled uniquely in the market, we’re at now, if you couple, a rising interest rate environment, with not as much of a commensurate increase in caps in cap rates, that it creates an interesting dynamic commercial real estate. Typically, if you’ve got a rising interest rate environment, prices, that just cap rates increase, and you’re able to maintain some spread, maybe it’s not as much spread, what we’ve been experiencing. And what I believe we will experience if I did have that crystal ball is that compression. And, you know, you’re getting to a point now, where you are going to have to be dealing with negative leverage. And what I mean by that is, if your borrowing rates are higher than your cap rates, then you’re going into a transaction negative with arbitrage. So, that is a very, very interesting dynamic that we have in the current market environment. And you have to not only be very strategic in the location, in the product type, but you have to be very, very key and lasered in on the operational side. The operational side, within commercial real estate, regardless of the product type, really, is what separates the successes from the failures. And like I said over the last many, many years, you know, if you weren’t as efficient on the operating side of an asset given the interest rate environment and given the overall market economy, you’ve done, okay. But now going into this that we’re faced with, it’s going to be a challenge. And us here at reef, just speaking for our company, we continue to be buyers of commercial real estate, we continue to be buyers multifamily. And like I said, over the last 1518 months, we’ve had some very successful exits, out of assets that basically reached their, their holding period, it was time to, to have an exit event for us for our investors. But going forward, we’re going to be very, very keen on making sure as I mentioned, that the mission and the purpose is aligned with the risk and if you if you keep those factors alive, then you should be okay. It the most powerful thing in real estate is being able to sit down and you know, when you’re able to say no, and you’re able to say you know what, that’s not a fit. That’s, that’s what you know, separates a lot of the successes from failures. The markets are gonna adjust they always do. You know, you see it right now in multifamily rents, for example, you’re finally starting to see a little bit of a breakdown in terms of the rent growth. So that’s a good example of if you if you are having If you’re starting to see some cracks in rent growth, and that’s going to be evident in your cap rates, you got to get back to more of a normal or positive arbitrage. That’s going to allow more deals to get done. So we’re going through a, a transitional period right now. Do I know how many times the finish is going to evolve? I have no idea. My gut tells me that we are a that we could possibly be lower reading environment at the end of 23, that we are at the start at 23. But with that said, if you were to say, okay, Doug, are you? Are you betting your company’s capital stacks in all of your assets on that assumption? No, I’m still looking at fixed rate debt on my leverage. Because I am not wanting to make that bad or that gamble, as it relates to where we’ll begin a year or two. Because it’s very hard to tell, we are coming out of an environment that that really we’ve never state as it relates to a booming economy. A very structured, safe, and fiscally sound housing market, unlike what happened back in the crisis, and then being slammed with a pandemic, that was a true black swan event, if you will. Not to mention the geopolitical climate, everything else that we’re involved in right now. That’s, that’s making it hard to get vapes into a normal type of environment. So it’s, it is unique, but at the end of the day, you’re still dealing with deflationary pressures, you’re still paying interest rates, you’re still dealing with labor, housing, all the variables that go into a market cycle, whether that market is good, or whether that markets, you’re still going through that maybe we got here for different reasons, or maybe we got here from unique reasons. But we’re still here. So you got to manage through it. And that’s what we plan to do here.

J Darrin Gross  27:23  

Yeah, no, I think the transition is always kind of the the challenge. And it’s I believe, there’s opportunities in every, every market, it’s whether or not they’re recognizable based on, you know, what you’re used to what you’re expecting, versus, you know, where it develops. And, and, you know, I believe that a lot of times with these financial crisis, the powers that be try and plug the hole, so that doesn’t happen again. You know, so, but there’s an expectation, I think, a lot of times that people think, Well, it happened like this last time. So that’s what we’re looking for this time, when the reality is it comes from some other direction, because that whole has been plugged in. And so but but I think it’s human nature, that there’s this expectation of it’s going to replay itself. And I think more more than anything, is that it’s that the dynamics in play the, you know, the marketplace is just not settled, right now. And that’s, that’s the kind of as we work through, like you were saying that, you know, how long will it be? Or who knows what it exactly it’ll be? It sounds like you’re you’re committed to being conservative with your, your estimates and and and also the ability to say, No, that can’t underscore that enough, as is, you know, the power of that, as opposed to having to do something that’s that’s not as favorable. I want to ask you, you mentioned, you know, exiting a couple of multifamily deals sound like at one point, you’re up to like $2,100. Now you’re down run like 16 1600, if I understood correctly. Are you are you doing those through syndication? Or how is your what’s your investment structure model there?

Doug McKnight  29:11  

You’re? Sure? Yes, yes. I’m happy to walk through that. We. As I said, we we had one point back meeting months ago, we owned as many as 22,000 multifamily units. We have had a number of successful exits, I believe we’ve probably exited a little over a billion dollars in in AUM during that timeframe, just in the multifamily sector or platform. I believe we’ve averaged in the mid 20s. In terms of IRR, we’ve averaged around a 2x Multiple on equity on those exits. Most most all of them had really gone through their whole cycle three to four years. So it was really in the normal course of business. However, it was in a very good market, right there. You know, we’re coming out of a market before COVID. And to a certain extent during the COVID, where there was what I like to call stupid capital out there overpaying for assets. But to answer your other part of your question about from a capital structure standpoint, we probably owe today 80, or 90 different assets, each of those assets are in their own LLC, each of their each of those have got unique debt partners, sometimes those assets are combined into portfolios in order to be acquired. And occasionally, it’ll be a one off or a two off, if you will. But from a capital structure standpoint, here at brief, we do not have a fund, an equity fund or a debt fund in house, we don’t have capital that we have to deploy, I sort of look at that as a card pulling a horse. You know, you tend to, at times, make mistakes when you have to keep your capital out. There’s nothing wrong with that model, from the institutional world, needing to find sponsors at GPS library. That’s their model, that model works for them. Because they’re looking for the opportunities that the sponsors like REITs go out and buy, and then they team up their capital. For us, we want to be a whole lot more opportunistic and nimble in our decision making, to just to make sure that we’re not being forced to do something. So with that said, our capital structures really typically look like the following, you’ll have a debt partner or a third party debt partner, whether that’s Fannie Mae and Freddie Mac, on the multifamily side, whether that is a commercial bank, whether that is a REIT, or whatever type of lender fits that particular asset or portfolio, then you will layer in your equity. That equity for us, typically, we will have a preferred equity partner, that will be a third party institutional partner, whether indicated whether that is a find or re or, or private equity. And then we also layer in our own equity. So, we have here at reef a very robust, what I like to call a retail equity platform where we have well over 2000 accredited investors that invest directly with reefs, in reef sponsored deals. That allows us to get, as I said earlier, it allows us to be very nimble, very opportunistic. And it also aligns everyone’s interest, because we’re investing along with our other capital capital partners. And ultimately, we do well after they are when they and we don’t have any institutional capital partners at the corporate level. Basically, our company is for families, myself, and three other partners, their families were privately held. We like to keep that simple.

J Darrin Gross  34:06  

Gotcha. With the changing environment, how do you see investors in their expectations? Are they receptive to the story? Are they resistant? Are they saying I’m gonna I’m gonna wait this one out or what’s been the, the, how they perceive

Doug McKnight  34:29  

you, I think that the smart investor today, in today’s environment, they’re going to be cautious, and they’re going to be a little bit more hesitant to venture into a new type of asset or to a new type of structure or maybe even into a new sponsor that they don’t have experience with. And I think that is the proven because like I said, it’s we are in a for challenging real estate environment that we had, and I think that understanding the mission and the purpose for why that asset is being acquired, and why me as an investor are considering putting my money into it does all that lineup? And does the projections and the business plan the business thesis for that particular investment? Does it make sense? And then where can you make mistakes? Where can you maybe not do it exactly the way you think you can do it and still be successful. That is where a company like our US, that’s why we live to be in that build America space, because there’s still some room there for markets to move. And for some dynamics, to get a little bit out of whack, whether it’s, you know, debt rates and cap rates, or whatever the dynamic is, but as investors in today’s market, or I’ll speak for our investors, our investors, for the most part, continue to programmatically that’s with us. But I think one reason for that is they are not seeing us trying to venture into new spaces and new territories to go get yield, just for the purpose of going to get yield, you know, we are staying within our lanes, we’re staying in the types of assets that fit our thesis. And so far, our investors are continuing to invest alongside us. But I think the environment we’re in and the environment, we’re probably headed into whether it’s near term, or whether it make it longer than what my gut tells me. I think the prudent thing to do is for any investor is to do their homework, understand the sponsor, understand the asset, understand what the business plan is, and, and diversify. And I think diversity, whether it’s asset type, or whether it’s a geographics, that’s going to be very important because real estate, when you get into a tight environment, and you get into a more constrictive environment, then real estate becomes less commoditized. It’s very easy for real estate to be more commoditized in a very favorable market. But in today’s market, it just is not the case, if that makes sense.

J Darrin Gross  38:00  

Yeah, no. And that’s a perfect little segue, I was going to ask you, how do you see sellers expectations? You know, as as we kind of transition into this marketplace for more where we’ve been?

Doug McKnight  38:15  

Well, obviously, we’re buyers and sellers. And we, we prefer to be in a position obviously, where we don’t have to sell. And that is the position that we’re in with our assets that we owned advantage, I believe today, we’re a little bit over 5 billion in aum. And we enjoy the flexibility of being able to since we are a vertically integrated company, everything’s under one roof, whether it’s acquisitions, underwriting, due diligence, dispositions, capital markets, property management, asset management, legal accounting, all the different components of a real estate transaction from the start to finish is under one roof here. So you, you really don’t have opposing forces that are making you make a decision that maybe you otherwise wouldn’t have. And, and our our investor base has the same thesis, it may understand that that’s the way we operate out just I’m just able to speak for us. So as a potential seller, we are going to do from a fiduciary standpoint, what is best for our investors. And one of the ways to be able to do that is to as you said, Be conservative in the way that you put together your capital stack. You know, I like to say for example, that debt is a asset that sounds weird sounds backwards. But from a standpoint of a capital structure, your debt component, instead of it being a means to an end, it actually is an asset as part of that structure, because your debt is going to be worth more or less, depending upon your interest rate environment, when it comes time to exit that asset. So, when you’re selling an asset, if you have a very attractive capital structure, and debt structure, oftentimes that asset could be worth more money. And sometimes when you go back to the car pulling the horse analogy, sometimes you have sellers, especially in the environment we’re in now that are essentially being forced to sell, whether it’s because of constraints within their capital stack, whether it is a mandate with their fund that they have to exit in a certain period of time. So we are seeing that, but those that can be nimble, those those that can be flexible, those that are in good quality assets, that are opting to not sell, I believe that would be the better situation. But, but with that said, there’s still very good opportunities in the marketplace, from a buyer and a seller standpoint, you know, like I said, we, we’ve exited over a billion dollars over the last 18 months, we’ve acquired over $2 billion in the last eight to 24 months. So we still remain net buyers, as a, as a company, even though we have taken opportunities to exit.

J Darrin Gross  41:54  

Now, I think that’s all been a great perspective and kind of again, speaks to your, your philosophy and in the power of the ability to say no, you know, the sellers, they can’t say no, or, you know, gonna have to take what they can get to get out of their situation. Whereas if you do have some, some debt with some runway, you’ve got a good operating property. You don’t necessarily have to get out right now. So why would you unless you had some silly offer, which I’m guessing a lot of the silly offers are not happening right now. But, hey, Doug, 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 three strategies we typically consider, 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 when we cannot avoid or 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. 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, interest rates, the political environment, however you choose to 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, Doug McKnight. What is the biggest Risk?

Doug McKnight  43:41  

Well, you know, when I think of risks, just in general, I think of what I said earlier, I think of what is my mission? What is my purpose? what’s the end game, and then I try to measure the risk that’s involved can achieving that. And I’m really, you know, at the core, that’s what risk is right? risk reward. It’s another way to say it. We are quite risk averse. Now. Let’s face it, real estate is a risky investment. Now, that dirt is going to be worth something, right? It’s not like it goes to zero. But a real estate course over the years, it’s been considered an alternative asset. It’s really become more of a mainstream asset over the last seven or eight years, but it’s still a risky investment. And it’s an illiquid investment if you are an investor in the real estate itself, versus maybe a REIT stock. And you’re investing in something that actually has risks but as don’t quit, right So, you know, those are variables that you have to weigh as an investor. As an owner operator, there is potential risk in every single element of the lifespan of owning that asset. From the day that you can begin your underwriting and your due diligence, if you’re not conservative enough, if you’re not realistic enough, if you’re not understanding the market, or the data that you’re being provided by the seller, whatever the case may be, if you’re not doing that properly, that is a big risk. If you underwrite the asset, incorrectly, you know, there’s an expression that you always want to make money on the buy, right? And then when you’re after you’ve acquired Well, during the acquisition process, you have the risk of not putting the capital stack together properly, which is what we’ve already talked about, what kind of debt do I want to buy? What variable debt? Do I want fixed rate debt? If I’m going to do floating rate, debt, variable debt? Am I going to go buy red caps in order to protect that exposure to interest rates? Certainly, with the rise in interest rates, you know, that is sort of, you know, and then, and then during the lifespan of ownership of that asset? Have you managed it properly? What’s the risk of mismanagement, and that is a huge risk. It’s also add, it’s not a risk that can really be measured. Now I like to call the operational side is that is the secret sauce, because you can buy an asset, right, you can have phenomenal capital structure, which you can manage you right into the ground. So that’s a big that that is a big element of risk. From an asset management standpoint. That is where insurance comes into play. We often joke that we’re probably over insured in every asset we have. But I will tell you an interesting story. So we own a hotel in Pensacola Beach down in Florida. And it was one of those 70s 80s Vintage outside of corridor hotel that we basically took off why we just did it, we revitalized it, we put in a lazy river, we put in all these different, really cool features. We put a restaurant tiki bar out of the beach, we did all these things to this property, and it was performing amazingly well until the hurricane came along, okay, well, the hurricane hit the property, but really, visually didn’t do any damage. Now, it messed up the pool, Lazy River, brought all the sand and brought all the rain and wind knocked a little bit off the roof, but really no big deal, we thought. But given the quality of the insurance that we had on the property, you know, our inspectors and adjusters come ahead and add to their credit, they found moisture within the walls. And they deemed it that it needed to be much more extensively repaired. Well, given that is back in the 70s and 80s, prior to current building code. The bottom part of that hotel was below sea level. Well, you can rebuild below sea level, right. So the the short part of the long story is that we completely tore down that entire property. And we’re now in the process of finalizing the high rise, it’s going to be an amazing property. We’ve already returned our equity to our masters, we’re still going to own it, it’s going to be newer, fresher, and it’s going to be a whole lot more bad. And the good news is is not only did to no one can hurt, which is that’s the best part. But our investors, us you know we have a new a new asset. And if we did not have the proper type of insurance. In that situation, everybody would have failed. And that speaks I believe to the focus that has to be put on insurance because often times you And of course, it depends on your lender depends on what you’re required to go out and do but, but sometimes you’ll see situations where assets are not properly insured, whether it’s a fire at an apartment community, or whether it’s a hurricane at a hotel or etc. So we are a big believer in being properly, properly insured. So, you know, I’m a big fan of insurance.

J Darrin Gross  50:33  

One of the few, but for the right reasons, you know, I appreciate that example there. Because that’s, that’s what that’s what insurance is. It’s meant to get you back and and be a capital source to, you know, keep your business going. And so teltik worked well for him.

Doug McKnight  50:51  

Well, what needs insurance? Until they do.

J Darrin Gross  50:56  

Yeah, nobody wants it until they do they don’t have? Yeah. Hey, Doug, where can listeners go? If they’d like to learn more connect with you?

Doug McKnight  51:08  

Well, they could certainly visit our website@rreaf.com.  By the way that spelled R R, E, A, F. So a little bit of an unusual spelling. The way we spell it goes back to some of the predecessor companies, or the roots of the company. But it’s R r e a f.com. You can contact me through the website, you certainly email me at specific doug@rreaf.com. Feel free to call us at Dallas at Town. Feel free to come by and visit us. We love it when people just show up and want to learn more about our company. So I’m not hard to get.

J Darrin Gross  51:46  

Awesome. Well, Doug, I can’t 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.

Doug McKnight  51:58  

All right, Darrin, it’s been my pleasure. Thank you. And thank you to all your listeners.

J Darrin Gross  52:03  

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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