Sridhar Sannidhi 0:00
Definitely this COVID and as well as this current slowdown in the economy indefinitely impacted during COVID People who are not sure in the initial phases, what’s going to happen out how it is going to impact a commercial real estate segment. But to our surprise, it really helped on the commercial real estate. So we had support from the government. And then we also had full occupancy on the property so we were in a better shape during the COVID. Post COVID The liquidity is tight in the current market, so the lending space has shrunk and the interest rates have gone up. So as a result, they’re slowed down so hoping that this current market condition is going to ease out soon. Once the Fed starts cutting the rates, I believe lending will accelerate, and projects will start coming to light again at a faster pace.
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J Darrin Gross 1:20
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.
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Today, my guess is Sridhar Sannidhi. He is a 30 year IT professional turned full time real estate professional. And it just a minute. We’re going to speak with Sridhar about multifamily syndication and development.
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 our handsome our guests, are you 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 Sridhar Sannidhi, welcome to CRE PN Radio.
Sridhar Sannidhi 3:02
Thank you. Thank you for having me on the show.
J Darrin Gross 3:05
Well, you are welcome. And I am 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.
Sridhar Sannidhi 3:18
Hello, good morning. Good afternoon. Good evening, wherever you’re listening from, my name is Sridhar Sannidhi. I was formerly an IT professional. I worked in IT for 30 years. And I thought I should build something for future so as a generational wealth and down so in that process, I leapt into commercial real estate initially I thought of building single family portfolio which I could not do much. So then I went to commercial real estate. That’s where I started this journey six years back. And since then, I’ve been doing commercial real estate, particularly multifamily valuation, grown up constructions.
J Darrin Gross 3:59
Got it. So you mentioned your your career was in it and that you decided, in order to leave a legacy you wanted to do something different? How did you settle on real estate?
Sridhar Sannidhi 4:14
So being an IT professional, our first thought was to start an IT company. And I had a few ideas to do that. And then I started teaming up with a few professionals and they didn’t come a long, long way. So in the in the middle, we had to stop that endeavor. And the biggest challenge was like money at that time. So I thought I should build my own network so that I can pursue those kind of dreams. Initially, I thought I should do with a single family, buy one at a time and then build as a portfolio that can give me passive income so that I can focus on my IT company, but I couldn’t do any single family portfolio build up due to competition or something Then I decided to go big and bold. So here I am. So started buying multifamily syndications.
J Darrin Gross 5:11
So you’re starting multifamily. Were you were you a limited partner originally or how did you? How did you get into the syndication?
Sridhar Sannidhi 5:23
The first couple of deals I was a limited partner and just to test the waters whether whatever the syndicators have been promising is it really what data is transpiring or not? After getting couple of checks, I realized that it’s working, then I, at that juncture, I decided to take an active role. I said, if I do passively, it is a slow progression. If I do an active role, then the rate of growth would be much higher.
J Darrin Gross 5:58
Excellent. So how long was it between the initial limited partner investment in when you decided to go more as an active participant?
Sridhar Sannidhi 6:11
Six months, I waited until the first couple of checks to see that it is a standard pattern.
J Darrin Gross 6:21
All right. And so in the limited partner version, how large of a property where you invest in?
Sridhar Sannidhi 6:34
First a couple of properties for like 100 Plus units, limited partner in less than 200 unit type of properties. And then they sell it to come on to act to roll after that.
J Darrin Gross 6:50
And when you say active role, have you been a general partner? Or have you been the lead or our our view, our active review?
Sridhar Sannidhi 6:59
A couple of days have as a general partner, not the lead, but the general partner in the days after for this start started leading my own deals?
J Darrin Gross 7:10
All right. And as a general partner, were you more of like the capital? Were you? Were you raising capital? Or were you signing on the loan? Or what was your role in the
Sridhar Sannidhi 7:23
The first deal, it was mostly like a fundraiser from the second day onwards, I started taking responsibility of asset management, and passion, not all the duties. So for each deal, I picked up different different aspects of the asset management so that I will cover all the functions of an asset management and get familiar with. So that’s how the next four or five days have worked on it. After that, you do complete Asset Management.
J Darrin Gross 7:54
In the strategy for each of these, Have they all been a value add strategy as far as acquire, improve, and then increase the NOI? Has that been the
Sridhar Sannidhi 8:08
The first six, seven deals that all value add deals? After that we started ground up construction.
J Darrin Gross 8:16
All right, so tell me what, what’s different in the proach, from a value add as opposed to a ground up?
Sridhar Sannidhi 8:27
Yeah, these two are different segments for different type of investor base. One is for like, the value add is mostly for people who want a steady income based on their investment, that source for that type of investor. Whereas new construction is more like people who want to see net worth go up a bigger check at the end, they don’t worry about the cash flow distributions during the whole. So those are two different types of investors. Some of the investors were looking for a bigger gains. So that’s when I had to think and I had to jump in a construction phase. So just to capture my investors, when that that
J Darrin Gross 9:16
tell me your experience between the two. For your investors, what what’s kind of a range of return that you’ve you’ve, you know, historically I know you can’t project as far as what what will be but what kind of returns have you been able to achieve in the value add as opposed to the new construction.
Sridhar Sannidhi 9:37
So value add, we projected like 15 16% per year average rate of return for five years. So it says like 75 to 80% Return prediction, but we didn’t feel full cycles and couple of them we were able to achieve that 80% return in two and a half years and one property. We were able to exceed the average rate of return projected but we did not had to reach that 80% In one property. So, so the three full cycles I did, but as construction, we project 80% in two and a half years to three years versus five years.
J Darrin Gross 10:17
All right, in with the the 80%. In, in a syndication, it’s pretty much just return the capital and then the investors pay whatever taxes they owe and, and can reinvest or do whatever they want. In the development, is there any, any different tax situation created or an opportunity for the investors to reinvest? Or? Or Or is it basically just a one, one project, you know, raise the capital, do the project, sell the project, return to capital.
Sridhar Sannidhi 10:58
So, at the moment, we are not doing 1031 exchanges to give the tax advantages to investors from the construction projects. However, we launched the value adds so that value add project typically have a cost segregation that gives that tax advantage so they can bring the capital gains into the tax advantaged value add project that way they can defer the taxes.
J Darrin Gross 11:26
And tell me about the size of the property share developing.
Sridhar Sannidhi 11:30
So the multifamily projects we have right now one is 306 unit construction ground up. And another one is 330 units. It’s another one that’s going on at the moment. All right.
J Darrin Gross 11:44
And I believe before we started recording, did you say you’re based in Dallas? So I’m based in Dallas? Okay, and are your projects in Texas? Or do you whereabouts are you doing your projects?
Sridhar Sannidhi 11:57
Construction projects are mostly in Dallas and Austin. Whereas the value as I have in Houston, Austin, Dallas, which to Paul’s Memphis. So slowly, we are expanding to other central states.
J Darrin Gross 12:13
Alright, and raising capital Have you had Tell me about your your capital raising experience from the beginning to now? What? What’s kind of been the response from investors?
Sridhar Sannidhi 12:28
Yeah, when I started, I was not sure whether I would be able to raise funds or not. So I reached out to 20 close friends and told them that I’m getting into commercial real estate space. Are you interested in then they asked me, Are you putting the money? And I told them that yes, I’m putting so much money, then they said okay, we are also going to join you. If you have taken that much risk, then obviously it should be good. So let, let us also be part of it. That’s how it started the conversation. So all people, whoever I call this, so they all agreed. So that gave me the confidence that I can raise funds. So initially 1.2 million raise. So myself and another friend of mine, we raised more than million plus. So that is,
J Darrin Gross 13:17
So million views. A million was a property 4, 5 million?
Sridhar Sannidhi 13:23
96 unit, we bought for 3.2 million.
J Darrin Gross 13:31
Was there a heavy value add?
Sridhar Sannidhi 13:35
Yes. Close to 236 units were completely gutted. And around 48 units required heavy modifications or upgrades, including those statistics units. So
J Darrin Gross 13:51
Any How did what the accent look like on that?
Sridhar Sannidhi 13:55
So we did not exit with the investors money is more than doubled in last five years. We’ve been holding it for five years. We wanted to hold it for a few more months until the market turns around so that their returns would be even higher.
J Darrin Gross 14:10
Yeah, I think there’s a fair number of investors with that kind of mindset right now just based on kind of let the market reset here. I get it. So tell me the that was a value add. Project. Tell me about the raising capital for new construction.
Sridhar Sannidhi 14:31
So new construction, is mentioned that some of the investors were looking for bigger checks. I mean, they don’t worry. They don’t need cash flow or cash distributions as most of them are working currently. So they’re like they’re fine with that. So I thought it would be difficult to raise but to my surprise, I was able to raise a big check for construction. In fact, I raised More better deals per construction project and existing value adds.
J Darrin Gross 15:07
That’s, that’s impressive. That’s good. And on the new construction, are you? What’s your role in the new construction? Are you the lead? Are you be acting as a developer? Or you,
Sridhar Sannidhi 15:21
I’m a lead GP. Development, also you’re doing not as a full fledged construction manager, but as the lead developer from the asset management point of view.
J Darrin Gross 15:37
And so then you do you directly then hire the developer and construction or? Okay,
Sridhar Sannidhi 15:47
Yes, so we had the general contractor, we had the construction manager, and we oversee both of them, construction managers, and actual general contractor. We are working as a pseudo developer. In other words, so not 100% developer type of function.
J Darrin Gross 16:09
So did you partner with somebody with development experience? Or how did you did? Okay,
Sridhar Sannidhi 16:17
So we have a few other partners in the deal. So they have experienced construction experience.
J Darrin Gross 16:24
All right. So you, you partnered with some developers with experience, you brought the capital the projects underway, what how far are you from certificate of occupancy on on the burner?
Sridhar Sannidhi 16:37
Then nine months? We’ll be done with that first project?
J Darrin Gross 16:44
And will the exit be posted lease up? Or we’re I mean, I would assume that would be the case?
Sridhar Sannidhi 16:52
Yeah, post lease? That’s what our Yeah, we get buildings in phases. So as and when first phase is done, then we will place them out the second phase buildings already like that.
J Darrin Gross 17:05
And what is the projected timeline to lease up a building?
Sridhar Sannidhi 17:11
So by the time we get the third phase, we will be left with 35% of the units being empty. That’s our guess. So after that third phase is done, we are expecting within three months we will be stabilized.
J Darrin Gross 17:26
That’s that’s pretty fast. And what’s the build time on a on the project from start to finish?
Sridhar Sannidhi 17:34
It was projected to finish in two years, in fact, just construction piece, but so far, we are running late by six months due to weather and other related issues.
J Darrin Gross 17:46
Is that creating any issues for the capital or the lenders, etc? Or?
Sridhar Sannidhi 17:52
Yeah, we’ve had some hiccups. We are working on those hiccups like lenders, obviously, we need to extend initially to give the loan for two years, we are working on that lending extension on all that service. The current lending market is tighter. So that’s another thing that is creating a little bit of challenge with the lender.
J Darrin Gross 18:16
So with the market being what it is, I mean, the areas that you’ve described me, are you’ve mentioned Dallas, and, and Austin, and that my impression is that the demand is is high for the product you’re developing. Is there is that continue to be the case? I mean, I’m assuming that is the case if you’re you’re building there.
Sridhar Sannidhi 18:43
Yeah, suburb where we are building that when is experienced double digit population growth year over year. So it has, it is going in that passion for past several years. And it is projected to continue in that pattern. But at least next five years.
J Darrin Gross 19:01
Now it should should cover you for your exit sir. That’s That’s great. How, how do you go about identifying the opportunities for your development.
Sridhar Sannidhi 19:13
So we do have criteria to pick the project. Most of the time we see minimum 80 to $90,000, median household income that we see the tenant base to be resilient of any downtown’s and all that. Second thing is it should be committable to workplaces. The location should be comfortable to work places like that. So if we find a decent size project, typically we look for 200 Plus unit construction. If we find such a project, we will go for it.
J Darrin Gross 19:54
Yeah. And what about the developers and the other people pool that you’re gonna you’re having to bring on board? Is there any kind of a prior relationship? Or how do you go about screening or, or selecting the, the parties that you’re working with.
Sridhar Sannidhi 20:13
So in this project, the people who will partner that we know each other for a while. So that’s how we, we started. As far as the persons who are experienced in construction site, luckily, we have in the partnership team, we thought of bringing someone else also, even though we have some experience with other bring someone else but they didn’t work out. So we always look for somebody who has more experience than us in the construction space to bring them as a partner.
J Darrin Gross 20:48
And so, I think you said that the first project you’re, what are you about? A year out from having to complete?
Sridhar Sannidhi 20:57
J Darrin Gross 20:58
So, your, your personal opinion, kind of sense of how things are going compared to the pace at which like a value add project can go? Do you, you feeling? Tell them? Well, tell me what you’re feeling, I mean, just just from the difference between the two.
Sridhar Sannidhi 21:21
So I mean, this Kelly, we did some rookie mistakes, but the first project made from the second onwards, we know what needs to be done. One such mistake is bringing the construction manager at the level is then the start time itself. So which we can have realized it. So from the second project on which we hired the construction manager in the beginning, that way, we have smooth execution of the project.
J Darrin Gross 21:55
That’s, that’s an interesting lesson there. The the construction manager, what is what is it? Did you find that they? I mean, as far as making it smooth, what are some of the challenges you found on the first one with with bringing them in later.
Sridhar Sannidhi 22:13
So the first thing is like a coordination of activities, right? Even though the GC has their own project manager, oftentimes, there would be a communication gap between the ownership team and the the general contractor, and we were not able to foresee how it would impact on the project at level state. So the construction manager typically has the vision, like what can be the consequence if we delay on certain things, right. So those are definitely the ones which we learn from the past project. And as we start to doing that, so we could have avoided some of the delays due to whether or not that we planned properly.
J Darrin Gross 22:56
Ya know, that keeping the project moving smoothly and making certain the, it all follows the right order, right, you don’t want the drywall guy showing up after the paint guy shows up, you got to have the paint show up after the drywall. But that’s the that’s, I mean, always appreciate lessons. You know, people learn and and, you know, and share them, because it’s probably, you know, plenty of people that that would not have considered that and may not have understood what the importance of that is. Appreciate that. So, given the the current market conditions, I mean, you’ve been doing this, what was the year you started investing? Is
Sridhar Sannidhi 23:41
2018. Starting? Yeah. Okay.
J Darrin Gross 23:44
So, from 2018, to now the market is, I mean, it’s done all sorts of crazy things. I think in 18, I remember people talking about the end of the cycle, the end of the cycle, the end of the cycle kind of thing. And then we had COVID and Natalie, like accelerated the cycle. And now we’re recording this in December of 23. How How have the the market conditions affected? Your because your your view of things and or your your your plans, expectations for the future?
Sridhar Sannidhi 24:23
Yeah, and definitely this COVID As well as this current slowdown in the economy indefinitely impacted during COVID People who are not sure in the initial phases, what’s going to happen out how it is going to impact a commercial real estate segment. But to our surprise, it really helped on the commercial real estate. So we had support from the government. And we also had full occupancy on the property so we were in a better shape during the COVID. Post COVID The liquidity is tight, so And the current market. So the lending space has shrunk and the interest rates have gone up. So as a result, they’re slowed down. So hoping that this current market condition is going to ease out soon. Once the Fed starts cutting the rates, I believe lending will accelerate, and the project’s gonna start coming to light again, at a faster pace.
J Darrin Gross 25:25
So what you just described, there’s kind of the the theme of everybody I think I’ve talked to is just kind of the, you know, the, the, the slowdown based on the the lending kind of thing. My question to you is with respect to your investors, and and how have you been able to communicate and, and I guess, manage their expectations? Has everybody remain calm? Or have you had to ramp up your communications with your, your investors to keep everybody you know, their expectations in line, or how’s that gone.
Sridhar Sannidhi 26:07
So prior to COVID, we used to do like newsletters ONLY on a monthly basis. And then, once a quarter or twice a year, we used to have a meeting, like Doom type of meeting, from the COVID time onwards, we started a monthly invested meet, irrespective of the project they are and we start to showing what’s going on in every single project of ours. And also, we started sharing how we see the economy is growing, and different indicators and all that. So we started discussing that with all the investors, they can ask any question from any property, and we have been transparent, in other words, so that helped us so very few investors are a little upset that we had to go throw in the variable interest rate loans. Other than
J Darrin Gross 27:04
the communication thing usually helps. You know, they know what’s going on and may not be happy, but at least they know, you’re still still there doing your thing. Is there any in the current market, given, you know, from 18, to now? Have you been raising money capital right now for any future projects? Have you what’s been the the, the attitude of the investors or the definitely
Sridhar Sannidhi 27:40
investors, many reservations now in investing new projects, due to several aspects, right in the last market, they see slowness. So everybody is worried about their current investments. So they wanted to wait and watch until things are panning out the way they wanted to. So we had to double down on reaching out to the investors. And then also, we had to get just out percentages of investor pool that would invest with us when we reach out to them. So we had to reach out to many more investors than what we usually do for a single transaction.
J Darrin Gross 28:23
Given the the greater number of investors you’re reaching out to have you had, have you been successful in meeting your your investment, or your capital raise goals? Yep.
Sridhar Sannidhi 28:34
Personally, I was able to reach all my goals. But my other partners, some of them have difficulty in reaching out to their targets. Then I had to step up and use different mechanism to fill in the gaps.
J Darrin Gross 28:49
Yeah. Well, if there’s one thing that I’ve come to recognize about the real estate market is it’s there’s the up and the down and, you know, interest rates, all that fun stuff. It’s usually the time is the thing that makes it all work. If you got if you have the time to wait it out. Usually everything works out or right. It’s if you lose the time, then you can, you can end up in a little bit more of a challenging situation. So Well, it sounds exciting. What would you know what you’re working on? Is there a favorite project that you’re that you’re working on?
Sridhar Sannidhi 29:33
So we are working on an entitlement project, but we will take it into phase two if the market condition permits. That’s like when the ACA document makes it use document like hotel townhomes retail space project, just leaping into the area. So again, it all depends on how the market is at the time. So we are going to entitle It means at this at this time
J Darrin Gross 30:03
that that that is what kind of separates the, you know, the men from the boys kind of thing and that ability to the time and then the ability to, you know, deliver a product when the markets receptive to it. That’s a hang on to it. That’s that’s one of those challenges of the development. But that sounds exciting. As far as your your investment strategy, do you do you find that your investors typically? I mean, we’ve talked a little bit about a visitor, is there any? Is there any sense of like long term kind of hold on to product your projects? Or is it most of it, get leased up and then sell and return to capital is that pretty much sure.
Sridhar Sannidhi 30:49
Now, we started working on long term strategies, also, now what we’re going to do is like, have a very limited number of investors will work with them to build and then hold the project for 10 plus years. So not everybody will be willing to do that. But there are some some subset of investors who wants like, stable income, they don’t need about like, top percentage interest or something like that, but they want stable income, at the same time, the wealth growth, right. So we do have some high net worth individuals who are willing to do that. So we are working on those projects. Next year, we will learn to adapt to such projects.
J Darrin Gross 31:33
Yeah, I think that’s, that’s one of the AHA, I guess I’ve had over the years is just recognizing that when you bring a bunch of people together, it seems like, you know, the reason why most of the investments are, are targeted for an earlier exit is, you know, trying to keep everybody on the same page or, you know, directing people. Whereas for a longer view, it takes a little bit of a different I don’t know, temperament for an investor or the ability, the ability to be in an investment that long. People need their money.
Sridhar Sannidhi 32:10
In that aspect, we are also giving the flexibility to liquidate their share at any point in time. So we are designing in such a way that those who want to continue for long term they can continue, but if their circumstances change, and they have they have to exit out the property. So we are coming up with a mechanism to compensate them and continue on the project for long term.
J Darrin Gross 32:38
Yeah, no, it sounds sounds exciting. And, you know, you’re you, you’re you’re living the dream there, you’ve got, you know, all the fun, you got the raising the capital and doing the projects and, and making a can you and your investors money and, and then, you know, the challenges that come with it. So that’s great. Hey, Sridhar, if we could, I’d like to change gears here for a second? As I mentioned, by day, I’m an insurance broker. And as such, I like to ask all my guests a question. And, except by my day, as an insurance broker, I when I work with my clients, we work to assess risk and determine what to do with the risk. And there’s three different strategies we typically consider. The first is we 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 nor minimize the risk, then we look to see if there’s 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 their investors could be the political winds could be the interest rates, the Fed, whatever it is that you see, and identify as to be the biggest risk. And again, for clarification, while I am an insurance broker, I am not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you Sridhar, Sandy, I’m sorry, Sannidhi, if you could identify what is the BIGGEST RISK?
Sridhar Sannidhi 34:32
So, it used to be property and casualty for this large projects earlier, but in the current lending market, it is the variable interest rate is the biggest risk for current projects. So we bought rate cap insurance to mitigate the risk or transfer the risk in other words so that we are protected from the rate, interest rate increases. That’s the biggest risk we have seen in the past. Latest market. And besides that, yeah, property casualty incidents that are tied to the projects we have in coastal areas. The biggest one is like Hurricane type of events, right? We had to protect ourselves, our investments. We had to take the insurance to cover all the costs that can arise from any damage that happens during hurricane season.
J Darrin Gross 35:28
Yeah, and I no matter of fact, that is wind insurances going up quite a bit. So I can appreciate that. I’m curious, in your experience with that, given the new construction, who are with these new construction projects that were more more challenging, or was it just the existing stock that you had?
Sridhar Sannidhi 35:55
Existing ones had this incidents challenge, suddenly the rates have gone? So good that then
J Darrin Gross 36:03
I say that’s kind of consistent with what we’re seeing is just the age of construction dictates a lot of the willingness or the ability for carriers to give a provide something that’s cost effective or, you know, affordable, I guess. So I can appreciate that. appreciate you sharing that. Sridhar, where can the listeners go if they’d like to learn more connect with you?
Sridhar Sannidhi 36:30
So they can go to my website, www. grow wealth. Number two retire.com. The Grow Wealth numeral two retire.com. http://www.growwealth2retire.com/
J Darrin Gross 36:41
So grow wealth. The number two retire.com?
Sridhar Sannidhi 36:45
Yes. Got it.
J Darrin Gross 36:49
Well Sridhar Sannidhi. I cannot say thanks enough for taking the time to talk to you today. I’ve enjoyed it. I learned a lot. And I look forward to doing it again soon.
Sridhar Sannidhi 37:00
Thank you. Thanks for giving me this opportunity to connect with your listeners. I hope this is useful to them in the real estate journey. Once again, thanks for having me on the show.
J Darrin Gross 37:14
You are most welcome. And again, appreciate you coming on. 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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