Sia Senior began her career as a Mathematics educator at the high school and community college level. She earned her MBA in Economics and Finance and started in real estate as a real estate professional before transitioning to real estate investment. With nearly twenty years of real estate investment experience, Sia has helped build and manage an impressive rental portfolio. Sia is responsible for company operations and asset management.

[00:00 - 06:06] Opening Segment

• Sia Senior, a former math teacher, achieved financial freedom by investing in real estate.
• She empowers others to achieve the same through education and connections.
• Sia how she became a real estate agent and how she transitioned from flipping properties to buying and managing rentals.
• She experienced highs and lows with her flipping business but eventually learned how to pick tenants and manage her properties successfully.

[06:06 - 12:01] Getting the Best Tenants and Scaling UpYour Portfolio with Tthe Help of A Mentoring Group

• Sia shares her love for teaching
• Sia shares her experiences with landlords
• Joining a mentoring group with people who are interested in commercial real estate would help you scale your portfolio.

[12:01 - 18:05] We Got a Handle on Commercial Property Underwriting

• Sia's company has been doing commercial property underwriting for 10 years and is now educated enough to do multi-unit investments
• They found a 16-unit townhouse community in Tennessee and got seller financing for 24 months
• They are self-managing the property and have been working well with the tenants

[22:31 - 24:34] Closing Segment

• Reach out to Sia Senor!
• • Links Below

• Final Words

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Tweetable Quotes:"We don't want people moving in and struggling to afford the rent and so we're pretty conservative with that. And that helps us because then if something happens in an emergency, it's not choosing between eating and picking the rent, we don't want those kinds of struggles for people. We don't want those for our tenants." - Sia Senior

Connect with Sia by following her on LinkedIn or you may visit their website at https://arrowheadcap.com/ to know more!

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

[00:00:42] Sam Wilson: Sia Senior is a former math teacher that achieved financial freedom by investing in real estate.

She empowers others to achieve the same through education and connections. Sia. Welcome to the show.

[00:00:51] Sia Senior: Thank you for having me. I'm so happy to be here.

[00:00:53] Sam Wilson: The pleasure is mine. Sia. There are three questions. I ask every guest who comes on this show in 90 seconds or less. Can you tell me, where did you start?

Where are you now? And how did you get there?

[00:01:02] Sia Senior: Ooh in 90 seconds. So I started as a high school math teacher. I worked with my husband. We picked up our first rental transitioning to be real estate agents. I did that, you know, part-time while I was teaching full-time we picked up enough rentals and enough, you know, flips and things like that, that I was able in, you know, 2015, so 10 years later to go full time into real estate.

We continued to build our portfolio until we. Enough that we self-manage a little, almost 30 units along with joining other people in two years last year to pick up a 16 unit you know, joint venture in Tennessee. And so that's kind of where I am and quickly how I got there.

[00:01:38] Sam Wilson: that's awesome. That's that was very, very quick.

That's probably the fastest 96 version I've gotten. Yeah, no, I love that. Sorry. Tell me, tell me this. I mean, it's it. It's one thing to be a high school math teacher, cuz that's what you're trained to do is to teach high school math. And then it's an entirely different thing to say. Not only am I gonna start investing differently than everyone around me, but I'm also gonna get involved in a, in a career in an industry.

I know nothing about. Walk us through that

[00:02:03] Sia Senior: process. Yeah. So, I mean, I think what happened was for us, you know, it happened by chance. So we, you know, working, my husband worked

for the federal government as a contractor. So both of us w two S the regular work every day, you save your money and you'll get there eventually.

Right. And so when we first purchased our, our first home, we were like, wow, that agent made a lot of money. Real quick. And she didn't really do much, you know what I mean? She showed us a couple properties, no offense, but you know, that's really what happened so true. We should do that too. so on the side we became agents.

And so we were doing that, you know, getting income coming in, you know, spurts of it. And, you know, decided for our house that we were living in, we were gonna convert that to our first rental. So we moved out. Of our primary residence made a new primary residence and made that first property a rental.

And we were seeing immediately, oh, wow, look at this cash flow. That's coming from a house that we own, you know, we have a low mortgage on it cuz we had lived in it before. Right. And so the cash flow was doing really well. We're like, wow, this might work. This might work. And so we just started to, you know, build up, buy more properties.

You know, we really worked on buying properties cuz we're in the DC area. So we bought properties that were in the Baltimore DC area. We're distressed. So, you know, we fixed them up a little bit and we're able to put people in them and get great cash flow. And so we just continued to do that. We did some flips in a DC area, you know, it's a high appreciation area, so you can definitely force the app, you know, the value of the property once you fix it up.

So we took that active income and we used it and transitioned it to buy more rentals. So that we can continue to increase the passive income coming our way. So as we worked and my husband actually, you know, after two years of doing , the flips and buying the real estate, he went full time. And so I stayed as a teacher 10 more years while he continued to focus in, on finding the properties and taking out the residents and tenants and, you know, flipping, we did that so that we had a lot of active income coming and converting into passive income, which is why, you know, in 2015, I was able to go, you know, full time into real estate and manage other

[00:03:53] Sam Wilson: rental.

That's awesome. I mean, 10 years is a long time to be slowing those seeds of residual income. I mean, that's what, what allowed you to say all right, we're gonna stay the course on this. Was there, I mean, tell, tell me about that.

[00:04:08] Sia Senior: Well, well I think for me, you know, I could have done it sooner cuz we, you know, we, by that time in 10 years we had probably maybe like 15 properties, so I probably could have done it sooner.

I was, I wasn't necessarily ready to leave the golden handcuffs as they say right. Of, of the w two, the consistent income coming in when you're flipping a property or you're a real estate agent, even with the rentals. Well, the rentals are pretty consistent if you buy it right. Which we did, but with the active income from flips and, you know, being a real estate agent, There's highs and lows.

Sometimes you have a lot of money coming in and then sometimes you don't have any right. Feast and famine. So for me, I was really concerned as we started to grow our family, that we always had something consistent like health insurance, because that could be very expensive, especially if something unforeseen happens, you know?

And so for me, I needed to be comfortable knowing that we had enough foundation that if something happened financially, we will be able to handle it. And so I could have left sooner, but I really just wanted to be confident. That, you know, we would be taken care of. If that makes sense.

[00:05:06] Sam Wilson: Was there any confusion and, or kind of awkward glances from your colleagues, as you told 'em what you were doing and what your plan was?

[00:05:13] Sia Senior: Oh, I mean all the time, they'd be like, , why do you renters? Why do you have renters? Like, why are you doing that? Oh, don't, aren't the tenants annoying. I don't think they call you at night and da, da, da, which, I mean, if you handle it correctly we are really good at communicating with our tenants. We are really good at, you know, Picking them well, right.

So we're very upfront and communicate well about what the expectations are. And we do a good job of screening so that we don't have a lot of that. It took some time to get there, but by the time we had, you know, 10 units, I had gotten enough bumps and bruises to figure out, okay, here's how you pick a tenant.

Here's how you don't pick a tenant. And so. By the time I was ready to leave the last, you know, let's say three years, I was preparing to leave. You know, it was no big deal. I mean, I was able to do it on the side while I was teaching. So I knew that if I left teaching and all of the grading of the papers and dealing with students all the time, I would have more time to be able to even grow, which we did cuz we definitely expanded and increased, you know, our assets after I went full time into real estate.

Sure. But yeah, definitely. There was definitely like, why would you leave this? This is, this is easy. This is there's nothing to do, which it was. Teaching is, you know, well here and there it's really, you know, a, a great job to do. It's easy. It's one and it's fun, especially if you enjoy it. But just being able to control my time was much more important to me and spending time with my kids, you know, so that was much more important.

[00:06:25] Sam Wilson: Fantastic. .

[00:06:25] Sia Senior: I've

[00:06:26] Sam Wilson: got a question for you on the picking your tenant's. Well topic, you mentioned that I want to hear what it is. You feel like your secret sauce is that helps you do that.

[00:06:37] Sia Senior: Wow. Yeah. Well, I think we've learned, you know, when we first started out, we were definitely like, okay, we need the warm bodies.

so, you know, we were just so desperate to get people, especially when you have one or two units, the goal is to get somebody in there, get them paying. But when we become the realize, is that like, okay, just because they're a warm body and they might have. What looks like a decent income coming in. If you're not really qualifying them overall, it really, you, you can't guarantee that, especially in some places that are not landlord friendly like Baltimore, which is in Maryland, isn't as landlord friendly as maybe some of the, you know, locations in the south.

And so it, it sometimes is a struggle to get them out. And so what we learned is that we really needed to one, make sure we met with. Prospective tenant that met our qualifications, that we communicated clearly what the expectations were that we were consistent. So, you know, we have a minimum credit score.

We've got, you know, how much we think you should be making in terms of income. We don't want people moving in and struggling to afford the rent. And so we're pretty conservative with that. And that helps us because then if something happens emergency, it's not choosing between eating. Picking the rent, right?

Like we want, we don't want those kind of struggles for people. We don't want those for our tenants. And so, you know, clarifying that and making sure that we do a thorough background in credit check, which we didn't necessarily do in the beginning again, but we do a, a quality thing that, and what I also do, I think that really it's helpful is that when we pre-qualify them so that we're not spending a lot of time showing everybody at the property we make sure that they're, you know, they've met the household income.

We go meet them at the property, show it to them, or someone will show it to them, not necessarily us. Then we let them know, okay. Before you. Because now you like the property. That's great. Here are the qualifications that we're looking for. And so when you tell them that front, they disqualify themselves, you know what I mean?

Because it's like, oh, I definitely don't meet that. Oh, I don't meet that. You know? And we don't have to worry about that. So we get left over people who are pretty much right there. They wanna be in the property, they've seen it. And we've, we've met them. So we have a, a good idea about like are they the type of tenant that we could work with and, and them for us as well.

Right. And so that, by that whole, doing all of that upfront and making it clear, it really. Eliminates the people that would be difficult to work with and that couldn't afford it and might run into something. So that's pretty much what we do. We also do a home visit. So visit mm-hmm . So we visit their current place of where they live.

And I think that is the trigger too, because some people don't want us to come to their house, but think about it. Like, it's not like we're going to yay or nail you from the house. Right. But in terms of like on the home visit, but. If you're concerned about, you know, someone coming into your home to look at it, to see how you live, you may not be the right tenant for us, because what we're looking for is not necessarily, if you were coming from a slum, slum landlord, we would know that, right?

Like the mold and things like that, the ceiling not being repaired, that has nothing to do with the tenant. That's what the landlord but you keeping a place that has like, you know, there's crayons all over the wall. You know, it's not being kept up. There's holes punch in the wall. That was clearly by someone's fist.

And not necessarily by, you know, like some, those are things that we would notice. And so we're not gonna be having someone that is gonna treat the property live in like that in our rental. And so we, they disqualify themselves on that because if you're not comfortable showing us your home, there's probably a reason why.

And so we do that for everyone and people who don't have a problem with it, it's no big deal. And they end up coming in, you know, How do you, I think that that's our secret sauce.

[00:09:46] Sam Wilson: No, I that's. The first time I've heard that. I love that. How do you do that objectively so that you're not violating any fair housing law.

And, and again, I don't even know what, I don't even know what law there would be out there that would say, Hey, you just didn't like your cuz your house was right. Like how, yeah. So you do that with a, with a consistent score card that you can then put in the file and say, Hey, I reviewed Sam's. And yes, he has crayon on his wall and like, whatever it is, I don't know.

[00:10:14] Sia Senior: Tell. Right. Well, I'll tell you, like, because as I said, because we give that upfront to let people know everyone, every home that we've visited we've no one's ever been as qualified on their home. so. It's worked out, right? So the ones who have done those things, right? Like if you're some, a tenant that has destroyed your rental place, where you live, you wouldn't let us in because you've destroyed it.

If, if it has mold because of the landlord, you're not, you have a problem letting me in because it's not, you it's a landlord. And we would know that from seeing it. So we've never disqualified anyone on, on moving into the home.

[00:10:50] Sam Wilson: That's brilliant. I love that. I love that. Cuz they've disqualified themselves.

When you say that they

[00:10:55] Sia Senior: disqualified themselves. Yeah. And we tell 'em upfront. So then we don't have to worry about that because. You know, I'm a tenant. I'm proud of my home. I have no problem with it. Come and see, right. The ones that have destroyed it, they don't wanna see their house. They never they're like, no, we don't want, we don't want a home visit.

Okay. Well, that's part of the that's. Everyone has this. It's the it's everyone, everyone, every one of our tenants we've had a home visit before. So it's, we're being consistent. It's not like we're choosing whose house we go to. Everybody's house gets visited.

[00:11:19] Sam Wilson: Right. Oh, that's really smart. If you're listening to this and you're wondering how to find a good tenant, there's a great screening feature that you know, I haven't quite heard before.

I think that's really cool. Let's talk about scaling up your portfolio. I know you guys are working on some larger projects now and tell me how you're doing that.

[00:11:39] Sia Senior: Yeah. So we, you know, 20, 20 we, before 2020, we were trying to figure out how to scale because buying one or two or four units, you know, at some point you're gonna run outta either money or time or something like that.

And so we knew the best way to do that would be to com connect with other people. And so we joined a mentoring group that had people who were interested in scaling and doing commercial real estate. We networked for a while. We really got a handle on the underwriting for commercial properties, because we could do obviously the underwriting for single family, four units, and two units, small ties in our sleep.

We had been doing it for 10 years plus so we really wanted to be as Educated as possible. Particularly because when you're doing larger assets and we know we were gonna be bringing in family, friends and other investors, you know, the last thing we wanna do is lose our money and theirs. You know what I mean?

So we took our time really just, you know, networking with people and getting a good feel for what it meant to have a profitable multi-unit. That was bigger than what we had been used to dealing. And so we networked enough that we connect with some people particularly through an underwriting group that I had been joining, you know, for over a year and networked with some of the people there.

And someone in the group found the 16 unit in Tennessee. And, you know, we connected, we looked at underwriting and it looked like a great investment. So 16 unit, a townhouse community, it was. Built by the seller who was selling it, it's about 20 so years old and he was starting to offload all of his units.

So he had a whole bunch and he was just letting them go. And so we were able to pick up that one, we got seller financing for yeah, for 24 months, which is good, you know, so we'll, we'll see how things go. I know the market's a little crazy now, but we've got some time, you know, the were grossly on the market particularly because, you know, he was on his way out, so he wasn't necessarily pushing rent and that kind of stuff.

And so we've been able to really do a good job of. You know, communicating with the tenants, first of all, and, you know, making sure that no one was afraid of like new land, you know, new owners coming in and rent are going up, even though they were under market by like almost $400. So we've been working with them, the, the units ever opened, we were able to bring that up right away, doing a, you know, minor details and minor upgrading to it.

The other residents who were there because of the type of people that we connected with that have the same value. We were able to work with them and slowly work on building. The, the rent increase. And so we were communicating with them. And so we didn't jump those rents up right away. But the goal is to do that and they we've communicated with them.

And so they know what's coming. They also knew that they were dealing with a great asset where they had, you know, undermarket rents cuz when you looked around, they, they were sitting pretty. And so they recognize, you know, what was happening and we were communicating with them, which made it a much easier to deal with, you know, besides doing some upgrades to the outside of the property and making sure that, you know, the issues they had were taken care of.

So it's been really good. So. Now,

[00:14:14] Sam Wilson: I mean, you may have said this and I may have missed it. Are you self-managing this property

[00:14:18] Sia Senior: as well? No it's in Tennessee. And so, you know, we self-manage in a DC area. So this one, cuz it's a joint venture. This is our first time doing a third party property manager. And we picked one of the top ones in the area.

And so it's been great for me to be able to just, you know, see, I guess as an asset manage side where I see someone else running the rentals and taking care of it as opposed to, you know, us doing ourselves. And so it's been a great experience. So. What

[00:14:40] Sam Wilson: have been some things as you interviewed your potential property management companies, what were some qualifiers and or disqualifiers that you used?

[00:14:50] Sia Senior: So I wasn't actually on the team that picked that group. But when we met , as a team to discuss it, we definitely talked about making sure that we had someone that was really familiar in the area because of where it's located in Johnson city. It wasn't like, you know, the DC area, Baltimore big cities where you have lots of property managers.

Right.

[00:15:06] Sam Wilson: You mean John city, Tennessee is not DC.

[00:15:10] Sia Senior: right, right. So we've really had I know. Right. I know. So. We had to really hone in on like, you know, who were the top players in that area. And we went on referrals as well. We also looked at a national company that was gonna be . Maybe putting an asset manager or a property manager close by that would add on to our units, you know?

But we ultimately went with one of the top two. That have been there for a while that know that area, because you know, they're familiar with what the rents could be. When you come from the outside, there's not a lot of like Zillow and things like that, to give you a good feel for what the rents are in the area.

And so they had a good handle on it. And so for us, it was more important that we picked someone local that was really educated and been in the community and could do a good job. And so that was pretty much what we, we chose, even though we had a couple other options to go. That's really

[00:15:56] Sam Wilson: cool. I love that.

Rewind your journey over the last, gosh, I don't even know how long it's been 15. Call it years that you've been in real estate. What's one that you would do differently if you could.

[00:16:08] Sia Senior: Wow. I think probably we would start sooner with joining with other people. I think you know, it's been a great experience and I think that, you know, because we were focused on just doing ourselves and having our own portfolio that we're building, which we still are doing on the side, there's just a lot more fun with other people, you know?

And being able to scale quickly, you know, could we buy some of the smaller. 10 units by ourselves. We could, but it's much more fun when you do with other people, you get different perspectives. And I think that's what I've enjoyed most about coming into this space where I get to hang out with other investors.

Right. And like-minded people. So I don't get the word looks like I did from my former coworkers, you know?

[00:16:43] Sam Wilson: There there is that. Yeah. I mean, yeah, absolutely. So you'd go bigger bigger, sooner, and really partner up with other people. Yeah. Which is a great, a great way to scale. I mean, and for those of us who aren't looking to build out our own in internal teams, Joint venturing with other people with similar goals and objectives is a great, I mean, that's a great way to take down projects and really expand your portfolio.

That's absolutely awesome. What is one thing you feel like you've done really well that other people should emulate?

[00:17:12] Sia Senior: Hmm. I think for me, what I've done really well is really worked well with the residents and tenants in the community. I think that that has made a big difference on why we were able to, when the pandemic hit, we had.

All of our residents were taken care of. We worked with them because of our communication style with them and communicating with them. And so if they needed a couple months or, well, a couple weeks or a month or two of, you know, working with them for the rents, we were able to do that with no problem. We lost only one tenant, meaning like during the entire.

You know, when there was lockdown, we had, everyone were communicating with them except for one tenant who I didn't actually qualify the correct way. When I went back and looked at my stuff, I was like, oh man, I miss this. And so she was the only one that we ended up having to, you know, evict from the property.

But everyone else. You know, was perfect. And I think that's because of the way that we connected with people and qualifying them in the beginning and then keeping the communication lines open. I wouldn't say they're family, but they're really, really close, you know, friends and I know what happens.

They're when they have kids, when someone passes away, the kids are married or going college. And I think that has really helped us to work with, you know, Keeping our residents, we have a 95% renewal rate and that's just because yeah, because of our connections with them and communicating our expectations up front.

And I think that helps us wow.

[00:18:27] Sam Wilson: A 95% renewal rate. That's you know, there's always things to learn. What was the one thing you missed in that tenant that you had to evict?

[00:18:36] Sia Senior: So for me, I think what we missed was I didn't look thoroughly at her background. Right. And so, well, I mean, I looked through it, but I think I gave a little bit too much leeway and it can go either way. So sometimes you listen to the stories and you think so, for example, when you're looking at credit and the credit history, there are things that might happen that cause you to get a lower score, some things impact more than others.

So not paying your student loans. Yeah. That hits you really hard. But I mean, , these college loans are a hundred thousand dollars. I mean, a hundred, th that's a lot of money, you know, I can understand why that would be a medical issue hits your scores really low, but you're. Trying to live, you know, so those are things that we gave a little bit of benefit to and didn't look necessary at the other historical things that would give us an idea about her.

So , even though my gut said, no, I wanted to give her a little bit of grace and I think. I gave her a little too much grace, and that's fine cuz you know, sometimes you hit, sometimes you miss right. More of the time, more often than that, we, we hit, you know, and we provide second chances to those that need it because of life's craziness that happens.

And I think that's why we're able to, you know, keep them so long for sure,

[00:19:38] Sam Wilson: for sure. And I love, I, I love that. I mean, , nobody gets it right every time, but you know, you guys are getting it right again at. Well, again, 95% of the time your, your tenants are coming back and you want them to come back. So that's a, that's, that's a pretty pretty heroic effort there.

Absolutely love it. See it. Thank you for taking the time to come on the show today and share with us your experience, how you've gone from a high school math teacher to being financially independent, to owning a large portfolio of your own. And now how you're growing by joint vendoring with other people in the industry.

Certainly love it and appreciate you sharing. Whether it's your insights today. If our listeners wanna get in touch with you and learn more about you, what is the best way to do that?

[00:20:17] Sia Senior: Well, I think they can reach out to me at our website Arrowhead cap.com. We have lots of information there, resources, and I'm also on LinkedIn.

So I enjoy, you know, biding back and forth and talking to people there as well.

[00:20:28] Sam Wilson: Fantastic. Sia. Thank you so much. Appreciate it.

[00:20:31] Sia Senior: Thank you for having me. I appreciate it.

Ariel O. Diaz, CCIM is the Managing Principal of Trajan Capital LLC and CEO of Trajan Commercial Real Estate Inc. He and his wife, Claudia oversee the day-to-day operations of their family-owned commercial real estate investment and consulting firm based in Miami, FL. He has achieved the distinguished Certified Commercial Investment Member (CCIM) designation, which only six percent of all real estate practitioners across the globe have the privilege of holding. He serves on the CCIM Miami Dade/Monroe District Board of Directors.

In this episode, Ariel discusses his approach to raising funds, breaking through limiting ideas, and how he's been successful in commercial real estate.[00:01 - 05:08] Getting into Commercial Real Estate Investing

• Started as a real estate broker 20 years ago which led to his property management career
• Built his own commercial real estate brokerage with his wife
• Commercial real estate and brokerage are challenging but doable with the right team

[05:09 - 09:26] Teamwork in Business

• Breaking down the fund side of his business
• He teams up with different partners from other states allowing them to operate without starting all over again
• Find out why Single Purpose Vehicle is the fund structure that works for his team
• The long-term benefit allows attorneys to lower their price

[09:27 - 17:14] Build Relationships, Build Business

• Turning active investors into passive investors
• Break limiting belief in raising capital by presenting investors with opportunity instead of asking for money
• Talking to more people increases your chance of finding good opportunities

[17:15 - 19:17] Closing Segment

• Earning the Certified Commercial Investment Member (CCIM) Designation
• Reach out to Ariel and check out his latest book: The Four Pillars of Real Estate
• Links Below

• Final Words

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Connect with Ariel on LinkedIn for passive commercial real estate investment opportunities!

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

[00:00:00] Ariel Diaz: Most people, I'm not gonna say everyone and everyone structures their business differently. But definitely we have noticed, at least for ours, definitely, you know, everything matters. So, you know, you have to have the good articles, you have to have a good website, you have to have all those things. But at the end of the day, you've got to call people and let them know even if you sent them an email, hey, did you receive that email? I have an opportunity now, I don't know if it's gonna last, you know, we are getting reserves coming in. And just that simple call.

[00:00:42] Sam Wilson: Ariel Diaz is an investor himself that creates opportunities that he shares with his clients, so everyone can participate in a high-quality asset that outperforms the overall market. Ariel, welcome to the show.

[00:00:53] Ariel Diaz: Welcome. Thank you.

[00:00:55] Sam Wilson: Hey, you know, there are couple of questions I asked. Three questions I ask every guest who comes on the show Ariel in 90 seconds or less? Can you tell me where did you start? Where are you now? And how did you get there?

[00:01:04] Ariel Diaz: Sure. Well, I started 20 years ago, as a real estate broker, I assisted people to buy and sell residential properties. And that led me into a property management career. And about 15 years later, I started my own commercial real estate brokerage with my wife, and I ventured into commercial real estate really enjoyed that I ended up buying multifamily properties. And then little by little, we scaled and by actually looking for better opportunities, because I'm here in Miami, Florida, we were trying to invest that estate and we ended up partnering with an operator, I ended up investing in that project. And I brought a couple of my close clients along. And that's how I started actually a fund and investing in other people's projects.

[00:01:56] Sam Wilson: 15 years you say as a residential broker?

[00:02:01] Ariel Diaz: I was 15 years as a resident. Well, give or take? So in 2014, I transitioned into strictly commercial real estate, I had done one multifamily project. And, and I fell in love with it, I was really, that's what I've always really wanted to do. And I said, You know what, I'm never gonna do residential again. And I'm just going to do commercial real estate. And then it just went on from there. And we did industrial properties. And we got involved in a retail center. And next thing, you know, we were just focused on commercial real estate. And when I say we, it's myself and my wife, because she's a commercial real estate broker as well.

[00:02:38] Sam Wilson: That's awesome. Do you ever look back at your story and go, Why did it take me so long to get involved in commercial real estate?

[00:02:45] Ariel Diaz: All the time, all the time.

[00:02:46] Sam Wilson: So what was the lightbulb moment? Like when were you? When did you go oh, my gosh, like, this is 100% What we have to be focused on.

[00:02:53] Ariel Diaz: I always wanted to do it. The thing is, I was very fortunate, I had a mentor, but he didn't like commercial real estate. And he told me, you know, you're just gonna have to get involved with a bunch of attorneys and all these rules, regulations, just stick with residential, you'll be able to do that it's a lot easier. And I guess that just goes that you can only grow as much as your mentor allows you to and he was extremely successful and no knocking that at the end of the day, I really feel it just depends on what you want. But one day, I just ended up doing it anyways. And then. And then that's when I obviously started my own brokerage because they said, Okay, I'm gonna do commercial real estate, let him do residential. And the funny thing is, just this last year, he was calling me for advice on getting into a commercial real estate deal.

[00:03:40] Sam Wilson: That's awesome. That's the what, that's the way it goes. Now, do you still own and run the commercial brokerage?

[00:03:46] Ariel Diaz: Yes. We're still actively running an operating it here in Miami, Florida.

[00:03:51] Sam Wilson: What have been some of the challenges in growing a brokerage? But it also sounds like you know, you guys have started a fund and you're investing, you know, a lot in multifamily. So, what have been some of the kinds of challenges of running? I mean, those are two obviously compatible businesses, but very different businesses.

[00:04:08] Ariel Diaz: Yeah, they're extremely different. It's basically two monsters but at the end of the day, running the brokerage has taught me a lot to also run the fund. And it's just about putting systems and processes into place. Now luckily, again, I do run the brokerage with my wife, so she's had to take on a lot more responsibilities and deal with a lot more of the headaches that I used to be doing. So if so to allow me to more focus on the funds. But really, what we've been able to do is work with them together. So a lot of our investors that invest in the funds come from past clients from the brokerage. So that's really been able to give us I guess it's an extra layer of comfort, knowing that we already have people that understand those know us, you know, have worked with us before. And trust us to get inside something so complicated as an investment fund.

[00:05:08] Sam Wilson: So break down your business for me today. On the fun side, are you guys partnering with other operators? Are you know, building the fund and then acquiring and owning and running yourself? Or what's the structure there?

[00:05:22] Ariel Diaz: Right. So we owned and operated our own here in Miami. But as you know, as most people know, this is an international city, it got extremely competitive. And to be able to scale, it really got, you know, where the cap rates and the returns weren't really aligned with what we wanted to do with ourselves with our own investments and with bringing on partners. So what we started doing was going to other states mainly Arizona, and I could talk to you about that if you want of why we chose Arizona. But by doing that, we realize you know what, the best way to do this is we're going to just meet up with an operator, well, we've met up with plenty of them. But we figured out that would probably be the best strategy, because to get to know that market, as well, as someone that actually lives there and operates there, you know, to get to know the property managers to basically build our team all over again, would take so much time, effort and energy for most. So it was just really fortunate that we were able to find this particular group and, and that's when we decided just partner with them. And we got advantageous, I guess, you could say splits for investing with them and bringing a large sum of money. And then, you know, that's basically how we were how we structured it. And then in order to get those ready to get those specific splits, we had to bring in a larger amount, and then that's when we got some of our clients involved.

[00:06:52] Sam Wilson: That is really cool. There's so many ways that funds can be set up. Why did you choose the particular structure of the fund that you have?

[00:07:04] Ariel Diaz: Right, so we created let's call it a single, and I won't get too technical, but it's a Single Purpose Vehicle. And so it was just a particular, you know, in layman's terms, it's just an LLC, that is just going to invest in this particular project. Right. So but what was good was, let's suppose that we were just going to invest $100,000, we were going to get a 70-30 split. But since I was able to raise money, I said, well, if I bring in at least a million dollars, will you give me a preferred rate? And the operator was okay with that, because now he's just dealing with one group that has a million dollars instead of 10 different people with $100,000. Okay, so then that's when I got my investors involved. And we were able to raise that million dollars, and we've done an 8020 split. And a couple of other advantageous things. If, if the property performs a little bit better, then we also got, you know, most investors get like a 5050 split, you know, after a certain of return has been reached, and we were able to keep that 80-20 Split throughout the entire investment.

[00:08:14] Sam Wilson: Wow. Okay, cool. That's, that's I love that one of the challenges that I have found with SPVs is that they add another layer of expense to a deal that may be you know, it, depending on the size of the deal can almost become cost prohibitive. How have you overcome that?

[00:08:35] Ariel Diaz: Yeah, well, that's just networking and getting to know a lot of different attorneys out there, and just being able to feed them business, then you're able to get a discount. And if they're familiar with that particular operator, and they understand, you know, the way that you know, the SEC regulations and everything that has to deal with, you know, creating this fund, you can typically work out something like everyone, everyone's running a business, right. So if you're able to offer them something, though, their attorneys, they're able to lower their price because they know that they're going to benefit in the long run. So luckily, I was able to lower the price on this particular deal, promising them more business in the future and also bringing them business from people that we know.

[00:09:25] Sam Wilson: Right. Talk to me about the capital raise process for you guys. I mean, it's really interesting. Of course, you've got clients on the brokerage side that are looking for active investments How did you broach that conversation with those clients of yours saying, hey, by the way, I've got an opportunity over here that you could possibly invest in.

[00:09:42] Ariel Diaz: All right. So it's actually trickier than you think. Because yeah, they are looking for active investments. And that's the keyword. They're typically active investors. So when you try to explain to them how the passive investment side means, they're gonna get good returns. And typically, they're able to diversify into other asset classes into other markets, this is all great. But yes, as a passive investor, you're not going to be in full control of that property, right and of that investment. So that's where they typically have a little bit of an issue in issue with, but as they really start diving into it, and explaining it to them, you know, not everyone jumps on board, but a good enough amount of people that really understand it and really realize, wait a second, this is actually very beneficial. And I put myself in their shoes, because I was an active investor, and I still am, and I believe they, you should have a combination, if you feel comfortable being an active investor, you should definitely be an active investor as well. But the way that I saw it was, hey, I'm able to diversify in a new market, I'm able to diversified potentially, in other asset classes, not put all my eggs in one basket, why not test this out, do it. And it's, it was very viable. So as I explained to them, what I went through, they kind of feel the same thing. And they're like, Okay, so let's go ahead, and let's give it a shot. And the good thing is, you know, you could just start off with $50,000 $100,000. So it's not like they're putting in the full million dollars, or whatever they're used to putting into an investment, they could test it out with just 50,000, 100,000, 200,000, whatever they feel comfortable with.

[00:11:23] Sam Wilson: Let's talk about that capital raising a little bit more, what's been one thing or one kind of limiting belief, maybe that you've had around raising capital, and how did you overcome it?

[00:11:34] Ariel Diaz: Right? Well, the limiting belief, I try to stay away from them, but I would say is just how much money you can raise. Right? And it's, it's a difficult situation, because you know, the operator is counting on you to deliver, right. So if you're telling them, Hey, I'm gonna bring in a million dollars or $2 million, and that's the reason why they're allowing you to come in into their deal, right, because they've, they've done pretty much everything, they really set it up perfectly for you, right, they found the mismanaged property, they're going to be operating, they're the ones that are going to be renovating it, running the whole operation, and they're allowing you to take part in this. And not only that, they're gonna give you a better deal than they really would give them to themselves or to their own investors, because you're supposedly bringing in a large sum of money. Well, there's pressure there. And so I think, you know, that can mess with you mentally. But, you know, you just go through it, and you just realize, okay, you know, really the sky's the limit, the more people you talk to, the more it's, the more people are going to understand it. And the reality is that people are looking for these type of opportunities. And once you really take it like that, like you switch it around, you're not asking them for money for your fund, right? It's more of, hey, I'm bringing you an opportunity, I'm giving you an exclusive opportunity to invest in here. That's when your mind switches. And that's when you're able to raise a lot more money, that's for sure.

[00:13:07] Sam Wilson: Oh, it certainly is for sure. And I take my own there. I've had some of my own capital in a retirement account sitting idle. I'm embarrassed to say it even on this show, but you know, I try not to hold any, any cards. The best. I mean, it's been sitting there for like eight months, right? And I've had deal after deal after deal come across my desk. And I'm like, oh, yeah, I need to do that. I need to do that. If I'm sitting in that position, with money sitting in an account doing absolutely nothing. You know, there are other investors out there in the same position that are just waiting. And I think what you said there was really key so the more people you talk to, there was a call I was on here recently, someone and they said somebody effective. Well, I sent the deal out, and I just didn't get any feedback on it. I said, Well, did you pick up the phone and call everybody? Did you dial their number on your top not send attack? Did you call them? No, I haven't done that yet. I'm like, right. And so the guy that called me yesterday, he was like Hey, and it's somebody it's a friend of mine for you probably know him here in the business as well. And he said, Hey, you know, I got an opportunity. And I said, Great done. Oh, good. You can meet my need to place capital and you're we're on the phone and we're getting this deal done. Because in that's what I think people over they just don't realize that. I think on the capital raiser side of things that we've got to be proactive in those outreaches. So I love what you said there, the more people talk to you.

[00:14:527] Ariel Diaz: Yeah, I think it's very few people have it down packed, where they're just you know, you're gonna have people calling you and saying, Hey, can you get me into a phone? Right? I think people get confused. And no matter what, even if you have the coolest website, the cute the best articles out there. Most people, I'm not gonna say everyone and everyone structures their business differently. But definitely we have noticed, at least for ours, definitely, you know, everything matters. So, you know, you have to have the good articles, you have to have a good website, you have to have all those things. But at the end of the day, you got to call people and let them know, even if you send them an email, Hey, did you receive that email, I have an opportunity now. I don't know if it's going to last, you know, we are getting reserves coming in. And just that simple call. Because these guys are busy, you know, so maybe even if they met to look at your email, and they want to invest with you and everything, that doesn't mean that they're going to definitely get to that. So by you calling them even if they don't say yes, on the phone right there, it at least puts an added I guess not pressure on them. But add a reminder for them to actually go and do what's best for them, which is to look at your opportunity and invest with you.

[00:15:35] Sam Wilson: You said it man. You said at one of the things that I saw there in your bio, was that you have your CCIM designation. Tell me really quickly No, if I had one other guests, I don't know what this will be 670 episodes a mod by the time you come on your lead one other guests, I think that I can remember talk about that. Tell me why you did it. And then what the advantages are to you personally for having that?

[00:15:52] Ariel Diaz: Well, it is a global standard for professionalism and commercial real estate, I always try to reach the top of whatever I do. So I do believe in getting highly educated in anything I do. So that was the main goal, it was just a challenge that I put to myself. And I said, if I was going to do it, I was gonna have my wife do it as well. So I challenged her as well. So we were able to do it together, which is great. But, you know, like I mentioned to some people what you said that not too many people that you've had on the show had and that's because only 6% of the world real estate professionals have it. Right. So it's very unique cream of the crop type of people that you get to network with him. So I went into further education, but the value really was meeting all these other top quality real estate investors and commercial real estate professionals that made me really stick around and stay with it and say, hey, you know what, this is something valuable to get. Now, I don't think that everyone should go out there and get it. But I do think that everyone should at least take the CCIM one on one course, and at least dive into it. Because just that one little course was there's four main courses will teach you so much more than what you think you already know. And it does take that education to another level.

[00:17:14] Sam Wilson: That's really, really cool. Last question for you. You've recently written a book. Can you tell us a little bit about that?

[00:17:20] Ariel Diaz: Sure. So it's called The Four Pillars of Real Estate. Feel free to get it. It's on Amazon and on my website, pillarsofrealestate.com. It's also available right now for free. But yeah, it was a process. It was something that I've always wanted to do. As I said, I've been doing this for 20 years. And it's something that I wanted just to get out so that people can understand why they should be investing in real estate. I'm not telling people to invest in real estate, just because I'm a real estate broker or I'm raising, you know, money for my clients. There is the true value of why you know that there are so many millionaires, you know, that got there because they invest in real estate. And I basically break it down into four main reasons of why someone should be investing in real estate.

[00:17:20] Ariel Diaz: Man, that's really cool. Ariel, thank you for taking the time to come on the show today. From a residential broker all the way to opening your own commercial brokerage into then investing in multifamily assets. Starting a fun you've given us lots of things to think about even taking the one-on-one CCIM course I think that's absolutely fantastic. And we'll also look for your book there on Amazon and make sure we link to that in the show notes. If our listeners want to get in touch with you and learn more about you what is the best way to do that?

[00:18:31] Ariel Diaz: And just go to the website, www.pillarsofreal estate.com. And if you want to retrain, you can go to the website www dot pillars of real estate.com/invest.

[00:18:46] Sam Wilson: Fantastic. Ariel, thank you again for coming to the show today. I certainly appreciate it.

[00:18:50] Ariel Diaz: It was awesome. Thank you, Sam.

Scott Harris launched the New York city-based Harris residential team. In 2003, they have gone on to sell more than $1 billion in residential real estate and his successful visionary brokerage system finds him among the top 250 residential real estate agents nationwide.

Scott shares tips for building a successful real estate business and it would be valuable for you!

00:00 - 07:12] Opening Segment

• Scott Harris started his real estate career in 2003 and has since grown his company to become one of the top residential real estate agents in the country.
• One of the strategies Scott used to grow his business was to focus on relationships and networking, and then delegate tasks as they become necessary.
• Scott believes that being great at what you do is the key to success and that by specializing in your field, you can grow your business even further.

[07:13 - 14:00] How Scott Built a Successful Real Estate Business

• How successful businesses need to have someone in charge of operations, someone who is responsible for setting up accountability and keeping track of progress.
• It is important to find someone who is a good fit for your team and has the same strengths as you, as this will help to ensure that the business is moving forward at a consistent pace.
• If you feel exhausted after working on your business, this is a sign that the person you are working with is not a good fit.

[14:00 - 22:49]How to Scale Your Business Without Becoming the bottleneck

• Delegating tasks to a team helps to free up time and energy
• Surviving recession and keeping your business alive
• • Put all your emails into a folder and schedule a time to review them all together; this will help you be more efficient
  • Don't be the bottleneck in your business; let others make decisions where it's important

[22:31 - 24:34] Closing Segment

• Reach out to Scott Harris!
• • Links Below

• Final Words

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Tweetable Quotes:"It's having, the presence of mind to get really clear on what you're great at and do that.

Then delegate the rest to people that you can empower to do it, train up, and make sure that they can do more even better, at least you know where they slot into the types of referrals and the types of business that you develop. It's not all gonna be what you can say yes to you don't have enough time to say yes to everything." - Scott Harris

Connect with Scott for real estate investment opportunities! You can follow him on LinkedIn, Tiktok, or visit harrisresidential.com

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Want to read the full show notes of the episode? Check it out below:

Scott Harris: [00:00:00] It's having , the presence of mind to get really clear on what you're great at and do that.

And then delegate the rest to people that you can empower to do it, train up, make sure that they can. More, even better at what they're doing and grow, but at least, you know, where they slot into the types of referrals and the types of business that you develop. It's not all gonna be what you can say yes to you don't have enough time to say yes to everything.

And when you say yes to something, you say no to something else, right

Sam Wilson: Scott Harris launched the New York city based Harris residential team. In 2003, they have gone on to sell more than $1 billion in residential real estate and his successful visionary brokerage system finds him among the top 250 residential real estate agents nationwide. I think this is gonna be a fun [00:01:00] conversation for us today.

Because there's gonna be so many crossovers. I know they focus primarily in residential real estate, but growing a business in a team, this is something we're gonna talk a lot about today. And I'm excited to have Scott on the show. Some of the things we can learn from him. Scott, welcome to the show.

Scott Harris: Sam, thanks so much for having me great.

Sam Wilson: The pleasures. Absolutely mine. There are three questions. I ask every guest who comes on the show in 90 seconds or less. Can you tell me, where did you start? Where are you now? How

Scott Harris: did you get there? Okay. Where did I start? Grew up in new Orleans. Went to school at Penn in Philadelphia was in a band for five or six years, learned everything I could possibly learn in the music business and then translated that directly into real estate.

When I started in 2003. So I'm in Manhattan, upper west side of Manhattan sell a lot on either side of central park and 20 years. I can't remember the last question cuz I can, this is how either, either remember the last one or the first one. So , what's the last

Sam Wilson: question. I should know this.

What is the last question? Where'd you start? I have to say it in order. I can't even remember. Where'd [00:02:00] you start right now. And how did you get there? There's

Scott Harris: number three. How did I get there? I throw a lot against the wall. I never stop. I've got a fire that never goes out. I'm always trying to figure out a new way to do so.

And I'm just excited to wake up every day. I think that's how that's how I got here,

Sam Wilson: man. That's cool. So tell me, building a billion dollar residential brokerage firm.

Scott Harris: How well I'm part of a bigger umbrella company called brown Harris Stevens. Right? So I, my last name is Harris. I'm not the Harris and a Harris.

Maybe my, I will be the Harris. We'll see. But . How do you build that? When I started, I really started from nothing. I started in the real estate business with relationships only. Yeah. And brick by brick, did tons of networking, put myself out there? Did I said yes to everything. And then over time I realized , when we had our second child, it was time to get an assistant.

So it was very organically, organic the way it grew. [00:03:00] I burned. Burned out assistant after assistant for a number of years, until I figured out how to be a nice guy and a better delegator and manager. And then I wanna say about six or seven years ago, I hit a wall. We had an amazing year and it was like, gosh, I'm working way too hard.

And I had to sort of re retool the whole business and empower the team a lot more. We brought on more of an operations person to help me run the business side. And then brought in more talented sales agents. And, we're now a team of seven. We'll probably be 10 by the end of the year. And it's really about making sure people are specialized and, having enough meetings with them so that there's accountability, you can help support them.

I know what I'm good at and I know what the other people are good at. So we really try to lean into our strengths. I'll keep that's the nutshell, but we can go into detail on any

Sam Wilson: of that. If. Absolutely. Let's back up maybe a little bit. And talk about , you mentioned the word specialized.

Yeah. What does that mean inside of your organization and how [00:04:00] can people determine what, how to get their team members to

Scott Harris: specialize? Well, I wanna make sure I do a direct relate to like commercial the commercial side of the business, but let me just talk about residential for a minute. We sell, I, I work with.

Successful entrepreneurs and professionals 35 and over who are crushing it in their business who really need like a VP of res of real estate acquisitions, right? They're busy doing what they do. Time is money. They need to be efficient with their time. They feel like the residential side is confusing.

They need to trust somebody that can run with it for them and fill them in where it's necessary and really maximize every. So that's what I do. Right. And then I also talk to them, make sure we navigate all the stress, which inevitably comes up in the residential side. Okay. But if somebody wants to buy a one bedroom apartment and they're first time buyers and they need handholding and I know exactly what they need, but I need to have somebody on my [00:05:00] team who really focuses on that.

So the second I know, okay. I can have that initial conversation with them. I can get them excited and motivated and inspired to move forward. Then somebody on my team can do that one specific thing, that neighborhood. And so we can say yes more, but I know that I'm not gonna be doing all of that work. I'm gonna provide strategy.

I'm gonna provide advice and moments of crisis. I'm gonna upstate calm. I'm gonna leverage relationships that I've built over 20 years, but it's like specializing different neighborhoods and different price points. And how does that directly translate into commercial? I have a very close friend who works at CBR E.

And is, run works with tons of private equity and other really boutique high end. And he's constantly reaching out to me. If I have a commercial need, I reach out to him. He's like, oh, you gotta talk to this person on my team or this person . It's having , the presence of mind to get really clear on what you're great at and do that.

And then delegate the rest to people that you can [00:06:00] empower to do it, train up, make sure that they can. More, even better at what they're doing and grow, but at least, you know, where they slot into the types of referrals and the types of business that you develop. It's not all gonna be what you can say yes to you don't have enough time to say yes to everything.

And when you say yes to something, you say no to something else, right? So if I say yes to a buyer, that's in a lower price point, I'm having, it's the same time, probably dedicated to that person. I'm saying no to a client. That's really a better fit for me and my skillset that make.

Sam Wilson: It absolutely. Does.

I guess you sound more like a visionary to me and not necessarily the integrator on the team, is

Scott Harris: that right? I was reading something about that when I hear good news, Early. I want to run with it when I hear bad news. I wanna wait until the last minute.

It's like, I'm all about optimism. People have accused me of being a Pollyanna. That's fine. But yeah, I'm a super optimistic guy. I'm always looking over the horizon and thinking [00:07:00] about how things are going to affect our market. But yeah, I mean, it's definitely in the visionary. In terms of leadership and what I do here, I really try to get other people to keep me from floating into the atmosphere sometimes.

Sam Wilson: Right. And I think that the point I was gonna bring up there was that it's tough. I think in the visionary seat to wanna take the time, to develop those other people necessarily into those, Hey, specialized roles. It's like, I don't know, like this is the grand idea. Go figure it out. How did you overcome that?

Scott Harris: Well, what I've always tried to do is have someone in the operation operations partner, operations manager kind of seat, where we set up a lot of accountability. So I think you, if you're running a real estate business, there's this exactly what you say, this tendency to just, I gotta work on this deal and I'm working on this deal and I'm running here and there and I'm in the car and we're, I've got my suit on and I'm kind of like business meeting after business meeting.

And there's a lot of juice. And I that's what [00:08:00] happens. Right, right. But I also have to have somebody at the mothership. Who's having one-to-one meetings with the team saying to me, Scott, like this person is growing and doing great. Let's lean into that person and incentivize them and this person needs more support here.

So it's having someone else who is keeping track that I know, they can pull me back and we have our meetings one to one, and then they can say, this is what needs to happen. But yeah, you have to have an accountability partner either in your business or like a coach.

I have both I'm really, I feel really lucky that I have more than one person to help keep me keep me in line. But yeah it is the challenge, but you gotta find time every day to work on your business. And that's like what these people are for. And then you had also have to find people to help you work in the business, but not just on deals like on actually, if you're gonna specialize like that, you gotta have people to help you work on your most important thing, which is your talent.

Sam Wilson: That's so true. That's so true. This morning, I had a, in a, in an unrelated business that we own had a meeting with [00:09:00] our integrator on that team. And I just looked at what he brought to the table and stuff. He was showing us and pulling it up on his computer and all the backend stuff he's building.

And I'm like, Wow. Like, I couldn't, you could give me $10 billion and I still couldn't do that. Like, it's not rocket signs, it's just not inside my gifting. How have you gone about, I know you said six or seven years ago, you kind of hit that proverbial wall where you're like, oh my gosh, I'm burning. We're making huge, amounts of money, but I'm burning myself out.

I'm both ends. How did you find that operations person to come in? That was a good fit for your team?

Scott Harris: Well, I do think it's not as complicated as you think. And in fact it actually ties together with almost exactly what we were talking about before, about slowing down to speed up. I sat down and said, what are my strengths?

What am I really great at? And, business development, forming relationships, listening, asking lots of questions and, really being curious and uncovering opportunities, not just in real estate. I mean, I'm, I connect [00:10:00] people all the. Just adding value. Right. And what is the person? What are the things that I'm not great at?

What do I not like doing? And then make that list and say, okay, what would a perfect person be like? I'm lucky I've got a wife that I consider like my COO at home. Right? I mean, we are, it's an amazing partnership cuz she can do get all this stuff done. And I have like a thousand percent respect for her and without her, nothing works.

Literally nothing works. And so I just, I need to create somebody. I need to find someone who fits that description, man, or woman at work, so I got really clear on what it was that I was looking for, kind of what kind of style and more than anything as you hire team, you have to, I call like an energetic.

Meaning, like if I talk to you Sam, like when I leave this, I wanna be fired up. Like, I wanna love this conversation. I want to, oh man, this is really fun. And like, I have more energy for the rest of my day. Right? If you have somebody on the team and [00:11:00] you feel exhausted when you're done, that's a great sign that they're not a good match for you.

So you know, more than anything, it's like, I know it's like on paper, they look amazing. And like they've been doing commercial real estate for all this time and, or residential, whatever, if you don't find a good match, energetic. It ain't gonna work. Maybe not today. Maybe not tomorrow, but soon enough.

They'll you're just gonna like, Ugh, I just don't wanna deal with this person, yeah. I don't care how much money they bring in or up business, whatever it's not gonna, it's working against your business growth.

Sam Wilson: Yeah, man. That's and that, that's excellent advice. It's also hard to hear because for the, for those of us who wanna love everybody and wanna include everybody and it's like, I know, oh man, like I've gotten better at it with time, but it's the old adage fire fast and higher slow.

like, man, I stunk at firing people. Luckily, I mean, I don't have to do much of that anymore, but when it came down to it, it was like, I hate this.

Scott Harris: I still don't like it. I mean, it's the worst. It's the worst, it really [00:12:00] does. It's that whole definition of insanity. It's like doing the same thing again and again, and expecting a different result, right?

Like that's what you're doing. You're meeting with this person every day, thinking that some magically it's gonna change. and you knew it. I mean, in your gut, right. That if you want to grow your business, this person has to go, like, I've been late to fire people. Even recently, I have this amazing guy, love him and he just wasn't the right person for the seat.

Right. And it was time to bring somebody else in. And I probably waited an extra three or four months. And he's like, why, why didn't you? It was like, so upsetting that I didn't want, I didn't wanna hurt his feelings, whatever, but you know, you're not doing anybody's service in the long run, cuz he'll find his way into the perfect job.

That's worked great for him. And I was holding him back from that. Right, right. That's

Sam Wilson: it. That's it, man. Yeah. You're hurting both sides of the relationship. And I think that's something else just just to remember and yeah I'm still not good at it. You convicted me even there when you said, Hey here recently.

And I just thought [00:13:00] about a relationship where had depart ways here recently. I'm just like, yeah, I think I postpone that by at least a couple months. Like, nah, I just, I don't want to do that, but that's part of building team. And part of bringing the right people on the right seats on the bus, if you're gonna advance, your growth in any meaningful

Scott Harris: way.

Can I add one more thing here? Yeah. There's, you asked, like, how did you grow your business? One of the things that I felt like I've always done really well in a lot of respects, not in the hiring, not in the firing part, but is just speed of implementation. Right? If I have an idea, something that like, Hey, I should really talk to that person.

Did they pop into my. I just call 'em I email I'm like, I thought of you, blah, blah, blah, text, email, call, whatever that I think. And people will always say, it's so weird that you reached out to me. It happens multiple times a week. It's very weird that you reach out to me because I was just thinking about you.

It's like, okay. So like I'm onto something there. I think that's been a really important. Piece of growth, but you know, why don't I just, when I know that somebody has to go, I should just follow my gut there [00:14:00] too. Right? Right.

Sam Wilson: There was a good old boy here in Memphis. And he told me this, once , Sam, when do you fire somebody? And I'm like, I don't know when he goes the first time you think about it. I'm like, wow. , that's harsh. And I've gone back through, I've replayed the tape over the last 20 years and I'm like, not wrong.

He's not wrong. The first time you think about it, you're like, oh wait, my, your gut already knows that, Hey, this would be better for them. And you, if you guys move on, like,

Scott Harris: yeah, If you can do that. I mean, sure. Maybe the second time, maybe the second time, right? His point

Sam Wilson: was not that you just think about it and you go do it.

It was that it's like, Hey this is not getting better. And that goes back to your speed of implementation. Like, Hey, there's things that are leading up to building a great team. Tell me what have been some strategic things you have done to offload tasks maybe that you thought only you could do.

Scott Harris: Only I could do. I mean, come on, right? Like you are Scott Harris, [00:15:00] but come on, photography, people wanna set up preparation of some of I, we have like really high end properties and they're beautiful. And I used to think I have to be at every photo shoot to make sure it looks perfect. How about you just find photographers that you really love.

And let them do their thing. I mean, maybe in the odd time, there was one angle that I thought of that was really great to make the photos look perfect. But I would say I offloaded that. Another thing , I call it like the doctor approach when you go to the doctor's office to make the appointments.

Yeah. Right. It's not the doctor, it's the person in the front of the office. You call, you're not getting the doctor on the phone. So it's like realizing, wait a. Scott, you don't have to do everything. Copy people open, be very transparent in your communication. When you're gonna show a property, if you're, showing commercial real estate or residential, it's the same.

Like you have people who are doing some of the showings, you have people doing all the schedulings, you all the logistics. I'm terrible at that. I used to put bands on the road when I was, in the TW in [00:16:00] my twenties booking college concerts and all this stuff. I wasn't that great at that either, but it's an important part.

But now I have somebody, I say, here's the list, here are the things I wanna see. And I have someone who books that. So people understand what your highest value is. They don't pay me to schedule things. They don't pay me to be there at a photo shoot. They pay me to engage, get people excited who wanna buy something.

So I'm listening for that information. That's gonna help us in a negotiation. What are the things they really need? What are people, what are I'm listening? So like, what do people really want? If I'm meeting with a CEO who wants to buy a piece of real estate, he wants someone to save them. Lots of save them time, make the process quicker.

I'm like, all right, let's sit down for a half an hour at the beginning. I want, I'm gonna ask you a ton of questions. That's the half hour. And then let me run with it. Let me be your VP of like real estate acquisitions. I'm gonna do all the work. My team's gonna do all the work you've delegated to.

You trust me now and we're [00:17:00] gonna make it happen, and we're gonna, yes, of course. We're gonna manage all the emotions that come up no matter you're a CEO or not. Right. You get emotional in this process, but that's just par for the course, but that, I dunno if that answers your question, but that those are the things that we try to delegate out and off, offload into our team to be more.

Sam Wilson: Absolutely. When it comes to scaling your business, was there a mistake or is there a mistake you can think of that you would say, Hey, this is something that I could help other people avoid.

Scott Harris: Oh my God, we have, we're gonna have to have more than 25 minutes to have that conversation. The mistakes, please learn from my mistakes.

, it's a never ongoing challenge in the process of scaling. You have to get your processes really. So sometimes it's unclear, somebody said it's like Swiss cheese. So you gotta realize like where's the breakdown in your process, make a note of it so that it doesn't happen again, like somebody calls or there's some moment when you are not sure where to delegate to.

And recently had a move from one place to another and then like [00:18:00] a few thousand dollars and stuff went to the dump instead of. To the apartment, right. It was like a disaster and you're like, okay, left hand, right. Hand kind of stuff. Right. And you just wanna make sure that you're not more than anything.

You don't wanna be the bottleneck in your business ever. And what I mean is that you don't want to have like 10 or 15 decisions that have to come through you because every single time it's like, you're reinventing the decision. Right? Like, so I think conceptually, those are bigger. Those are moments when you're like, okay, I'm approving a, some kind of marketing piece or whatever.

Put 'em all together, sit down with your team, zoom or whatever it is. And like actually consolidate that. I think a big mistake people make is that they like have the one by one decisions. Put all these emails into a folder, schedule a time to review everything at the same time and then just do it and be focused and present.

I mean, I'm an D D ADHD guy, like a lot of entrepreneurs. [00:19:00] I know. I mean, I, if I focus for an hour, I can get a ton done. Right. If you try to nail me down while I'm floating around my day, it's impossible. I can't think about it. So absolutely be present in your, and then you'll be amazed at how efficient and how much stuff you can get done.

Don't be the bottleneck in your business. I think, think about it. Where am I? The bottleneck. Oh, I'm here, here, here. A thousand places here all the time.

Sam Wilson: All the time. Yeah. And that's a, in the faster week and I love what you said there, empowering others to make the decisions where it's, like you said, if it's all marketing material decisions, like, okay, here's our 20 marketing pieces that we've used.

Here's the things we like. We didn't like, and this is what it should look like. Okay. Team. Make 'em look like what we've all decided they should look like, and then stop

Scott Harris: asking me for input. Oh. And by the way, like, they're not gonna be perfect. Even if you look at it and you approve it, like they're never, they're always a mistake.

Like forget perfection. It's just, it's all about, do you know what you're doing? Yes. Do you have market knowledge? Yes. Like you're studying all the time. You're reading all the time. You [00:20:00] become that market expert wherever you are. And. People trust you. They like you, they wanna do business with you, and then you're gonna imperfectly proceed as you scale.

Like that's just the nature of the beast. That's the

Sam Wilson: nature of the beast. Scott, this has been a blast. Thank you for taking the time to come on today. I've got one last question here for you. What do you feel is the health of the market and then where we going from here? Completely subjective questions.

Scott Harris: Sure. Well I'm based in New York. So New York has been an independent market. From the rest of the buoyant market, of course, office space is different than residential, but residential, everywhere has been like market peak everywhere around the country. New York never got to a new peak. Huh? So, mark, it never, it got within maybe five to 10% of a peak.

Wow. So, right now we've got a little turbulence, we've got some mortgage rate issues. Although 50% of our deals are cash across our whole market. Wow. So, financing is less of a concern here than other places. It's

Sam Wilson: not, it is not like you guys are a cheap market to [00:21:00] buy in.

Scott Harris: No, we're not, people, or they finance, kind of, in some kind of alternative way, right.

Borrowing against assets at much lower rates and so on. Well, sure. So what we're gonna have, whatever we're gonna have from the, equity markets we're gonna have. If there's some kind of down recession, whatever's gonna happen. I would say, we're gonna have some turbulence here for the next six to 12 months.

As things shake out, people get used to things. I mean, don't forget, there was a moment where the state and local income tax deductions, which went away in markets like Connecticut or Westchester, where house taxes can be 60,000 a year, a hundred thousand a year. Everybody forgot about that last year.

Right? It just went away. All of a sudden people just forgot that it was important. It was hurting their market pre COVID and then it was nothing. So, over the next, once we get past this recession, I think New York city will see a new peak at some point, in the next three, two to three years, I would expect we'll get back to a peak here.

I think everybody will wake up and go. Maybe I didn't need that house. Upstate. Maybe I need that at vacation home. I think some vacation markets will probably [00:22:00] suffer, but I'm really. Stick to my knitting here and just say that New York city think in the next, two to three years , will be stronger than ever.

And of course you can accuse me of being optimistic over optimistic, but I do think that we never saw the peak that everybody else saw and it's a blue chip market. People want to be in New York and ultimately I think it'll prove out. There's a lot of demand. People want to be here.

It's an exciting. Come sees I'm gonna have some ribs next time. I'm in Memphis. I haven't. What is it? Quirky, quirky, porkies. I can't remember the name of quirky.

Sam Wilson: You're gonna start a family view here. Yeah, you can go to what's the other

Scott Harris: spot that I love sat out

Sam Wilson: there on barbecue. You can go down to rondevu downtown.

Ron. That's the one you can go down to one and only, I mean, there's probably 20 to 40 brand, household names in barbecue here in Memphis. You don't come to Memphis to to get fit, but you can certainly eat really well and listen to some great music. So come on.

Scott Harris: I I high school kid from new Orleans, I used to go up, see my buddies in Memphis.

Yeah. And we didn't have money to go see the concert. So we would sit out on the [00:23:00] river across the river from what's that venue, that cool venue in the middle of of the river there there's mud island down mud. Yeah, the island, the one on the island there. We, I remember listening to sting.

How flood, well, I could hear him belting. Roxanne, cuz that voice cuts through everything. We're sitting there eating ribs, listening to him. I mean that, that was a great summer night with me and my buddies in Memphis. So that's, I'm jealous

Sam Wilson: man. That's a great memory, Scott. Thank you for taking the time to come on the show today.

Appreciate your insights, both on the market and then just about growing a team, man. You've got some really great things that you've shared with us today and I certainly appreciate it. If our listeners wanna get in touch with you and learn more about you, what is the

Scott Harris: best way to do that? Well, they can go check out Harris, residential.com, which is, our main website.

If you go to brown Harris Stevens and just put in Scott Harris, you'll find us. And we're having a lot of fun on TikTok. So if you look at Scott Harris, finding home, you can see all sorts of silliness there. That's where I'm probably the most active. And then if you look on LinkedIn under Scott Harris, you'll find me and I'm [00:24:00] posting a bunch of wisdom, dropping a bunch of business wisdom on people.

So that's fine. That's

Sam Wilson: fantastic, Scott, thank you so much of your time today. Certainly appreciate it. You

Scott Harris: bet. Thanks a.

So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Tom Dunkel is the Managing Director of Belrose Storage Group with a background in corporate finance and over 25 years of real estate and investment experience. He has specialized in discounted asset opportunities nationwide since 2006. As a dedicated mentor to investors and entrepreneurs, Tom has also taught classes on real estate and mortgage note investment at the CAMA Academy along with Belrose Asset Management co-founder Joe Downs.

In this episode, Tom talks about why you should be investing in self-storage real estate, what you need to know before investing and how you could make sure you are investing SAFEly.

[00:01 - 06:06] From Corporate America to Real Estate Investor

• A Financial Analyst who transitioned to real estate in 2006 and learned a lot of hard lessons that he'd use in his business today
• The secret to business success is finding the right team who has the same core value

[06:07 - 10:00] Self-storage Real Estate is A Good Investment

• Self-storage is getting a lot of attention lately because of its resiliency
• How to find opportunities in the space
• Running a self-storage facility is inexpensive with an operating expenses ratio of around 30% range

[10:01 - 19:43] Consider These Before Making Investment Decisions

• Here are things you need to consider when investing in a self-storage facility:
• Have a deep dive into the market such as diversification of employment
• Supply index
• Check data Google Analytics
• Using the triangulation method in research
• The common pitfalls in self-storage investing and how you could avoid them
• Tom compiled and wrote a free ebook S.A.F.E. (Sponsor, Asset, Financials, Exit) Investing

[19:44 - 21:35] Closing Segment

• Reach out to Tom!
• Links Below

• Final Words

Tweetable Quotes

"We find that the successes that we do have is largely because of the of the people that we surround ourselves with." - Tom Dunkel

"​​Sponsor is a huge thing. What's their track record? Where have they been? Where are they going?" - Tom Dunkel

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Want to read the full show notes of the episode? Check it out below:

[00:00:00] Tom Dunkel: It's a little bit of art, a little bit of science. But basically, we're just wanting to see that the storage facilities in that market ideally for us, we want to see that the facilities are full. So we don't stop just looking at the actual data, we actually get on the horn, get on the phone, and we call these facilities and we make sure that what we're seeing in our databases and in the analysis is lining up.

[00:00:38] Sam Wilson: Tom Dunkel has been involved in corporate finance, mergers, and acquisitions until 2006. But since then, he's been a full-time investor focused solely on self-storage. Tom, welcome to the show.

[00:00:50] Tom Dunkel: Hey, Sam, great to be here with you,

[00:00:52] Sam Wilson: Hey man, I appreciate you coming on. There are three questions. Tom, I ask every guest who comes on the show. In 90 seconds or less? Can you tell me where did you start? Where are you now? And how did you get there?

[00:01:01] Tom Dunkel: Sure. Well, I started out in corporate america, after getting my MBA in finance and accounting, I came out as, you know, Financial Analyst, Excel spreadsheet nerd. So I was able to kind of learn a lot from that I was with a couple of companies that were growing aggressively through acquisition in the aerospace industry and a couple of other industries, but always wanted to get into real estate. So I chose the worst time in history to get into real estate, which was 2006. I learned a lot of hard lessons as first few years, but I wouldn't change it for the world. I'm super excited about where I am. I don't feel like I'm working at all, and I just come to work excited. Just about every day. Not every day, that would be a stretch, but just about every day. So that's where I am.

[00:01:50] Sam Wilson: Man, that's really, really cool. 2006. Well, you didn't know it in 2006, that it was going to be the worst time in history to get involved in real estate. What were some of the things that you took away from that period of time that maybe you're using as a lesson in, in your business today?

[00:02:11] Tom Dunkel: Sure, yeah. Still, to this day, Sam. Can't do it by yourself. You gotta have a solid team around you, coming out of corporate America, and I had a great career to that point, you know, great education worked with some phenomenal people and great training all that I thought I, you know, that having my own business was going to be a breeze. But I learned very difficult lessons. That was not easy. I needed to have the right people around me. And especially at that time in the real estate cycle, when the world was going crazy. And the bubble was bursting at all that I just I didn't have the right people around me. And so I paid that price. So it's definitely been a focus of mine. Ever since then.

[00:02:50] Sam Wilson: Did you lose your portfolio in 2008?

[00:02:55] Tom Dunkel: So I didn't. So good news there, but I was just hanging on by a thread, I ended up having to just get rid of some properties at a loss. And thankfully, at that kind of, voluntarily, shall we say, you know, not that none of them were snagged away from me by the bank. So I was able to avoid that, which was great. But I just had a huge marketing budget. So I was, you know, just bleeding cash from my marketing budget. And I did have some people, and my, you know, my lease and you know, for my office space and all that stuff. So that was just the bleed that just really was painful over those next few years. Yeah, absolutely.

[00:03:38] Sam Wilson: And you said one of the things that you have changed since then, is the team around you? What does that mean?

[00:03:44] Tom Dunkel: Well, I guess it was my good fortune in 2009, met my now business partner, Joe downs, we've been business partners ever since then. And I think I didn't realize that at the time. And this was just something that came out of a leadership exercise we did recently when we were going through our core values as a company. But I think Joe and I just connected on a values level. We're both family men and had kids and we wanted to be part of our kids' lives. We didn't want our company to rule our lives. And so but we also had ambitions about you know, being the best we could be in our field and achieving goals for ourselves and our families. I think we just we initially just connected on that kind of level. Initially, our backgrounds were similar but different but you know, financial related, both real estate related, but we just kind of came at it from different angles, but ever since then, we've just been trying to find the right people. It doesn't always work out right. As best as you might try. You're going to run into partnerships or employees or whatever that don't quite work out the way that you want. But like we find that the second success that we do have is largely because of the people that we surround ourselves with, and that's why we're really excited right about where we are in self-storage right now because we just haven't we have just a great team around us.

[00:05:05] Sam Wilson: That is awesome. I love that because that's a common question. You know, the common question in this kind of train of thought is like, how does someone go about if they are scaling their real estate portfolio? Because like you said, it's a team sport. I love that you said at the beginning that having the right team, but how do you find the right people to work with? And I think you hit it on the head is maybe not necessarily starting with a lot of things we probably start with. But starting with a core value, like, are we aligned philosophically? And if we're not, probably not going to work out.

[00:05:40] Tom Dunkel: Correct? Actually reminds me, Sam of a time back when I was getting out of business school, and I was interviewing on Wall Street with some companies up there. And I remember just meeting this one guy, and basically all he did was work. He pretty much blew off his family and his friends, and he just wanted to work and get that money and get that power, or whatever, you know, is light in his fire at the time. And I was like, man, this is not the environment I want to be.

[00:06:07] Sam Wilson: Right. Absolutely. Absolutely. Let's talk a little bit about self-storage. I mean, this is an asset class that's had, I don't know which asset class hasn't had a ton of attention. So I say it's had a ton of attention as if others have been neglected, but I don't think they have. But tell me about self-storage, why you guys are in self-storage and how you're finding opportunity?

[00:06:30] Tom Dunkel: Yeah, sure. I think Sam, self-storage actually has been a little bit neglected over the years, because it's, it's been a little bit of a redheaded stepchild in commercial asset classes, you know, multifamily, you know, senior housing, student housing and those kinds of medical office, those kinds of asset classes have definitely been attracting a lot of attention. But I think, especially now that we're on the tail end of the pandemic, I think, folks out there seeing how resilient self-storage is, and continues to be. And so it's getting a lot of attention now from some big money, investors. And so we were just thankful to be in the place where we are. And I think the reason Sam is that, that self-storage is getting a lot of attention because it is resilient, we have a slide at our investor deck, that goes back to the 1980s. And it shows the United States economy, you know, jumping around like this, over that time period, you know, expansions, contractions, recessions, depressions and all that fun stuff. And on the top of that, we have a wine goes about like this very slow and steady, but it's the occupancy level of self-storage facilities over that same time. And it just sort of gently floated between 80 and 90%, during that entire time period. And it's, that's, that's a huge thing. It's very resilient. In that regard. It's very inexpensive to run a self-storage facility. So like our operating margins are generally in the 30-ish percent range or excuse me, our operating expense ratios in the 30% ish range, which means our net operating income is in the 70-ish percentage range. So lenders love it, because there's plenty of cash flow there to cover the debt. And our investors love it, because there's plenty of cash flow left over to pay a nice dividend to them along the way. So those are two big reasons. We love storage.

[00:08:26] Sam Wilson: Absolutely. stability of the product is huge. You know, like you said, over a 30-year, however many years you had their 30 or 40-year trend, it's pretty, pretty consistent. And, you know, consistent is the name of the game. One of the I was in Asheville, North Carolina this last last weekend with some friends, we were over there, doing some mountain biking and as I drove through Asheville, we're driving on this one road, I can't remember the name of it, but I don't know every I don't know to call it every mile. There was a new self-storage facility, not a new one, but a self-storage facility. None of them particularly huge on particularly small, but I just kept driving and you know, some would have boat and RV storage. Some would be just regular storage, some of the climbing trolls some wouldn't. And as not, as someone who is I'm a passive investor in self-storage opportunities and other syndicators like yourself, but I don't actively go out and buy necessarily just straight self-storage. I just kept driving by all this stuff. I'm like, one, there seems to be a lot of it. In two, I go, how in the world? Do I, as an investor, look at all of these and say, Oh, I'll buy that one, but not that one. Or that one is better than this. When I go all of this looks the same to me. I don't see opportunity here. Tom, please tell me why I'm wrong and how someone maybe in a similar situation could make sense of what they're looking at.

[00:09:51] Tom Dunkel: Sure. Well, first of all, I have to point out that we own a facility right outside of Asheville, so I have a baby it drove right by.

[00:09:57] Sam Wilson: It was 191 I think was the road it was on. So maybe that was it.

[00:10:01] Tom Dunkel: Yeah, we're on. We're on smokey Park highway out there. But, uh, anyway? No, it's a great question. And it's certainly one of the things we look at very very, very closely because I'd rather own a mediocre-looking facility and a great market than vice versa, right. So before we acquire a facility, we're doing a deep dive on the market, we're making sure it's a diversified economy, that it's not like a one factory kind of town, where if that factory goes out of business, the whole town goes out of business. So we're looking for that nice diversification of the employment base, we're looking for low unemployment and looking for growing jobs, growing population, all of these things that are that point to it being a healthy area, including income and, and those kinds of things. So as far as competition goes, he touched on that. There are a couple of different ways that we look at that Sam, one is from the supply side, right, so we calculate what we call a supply index. And that's basically, we calculate the square footage per person in that in that particular one, three and five-mile ring around that facility. And the equilibrium is, varies from place to place. And it's not super scientific, but it's about seven feet, seven square feet per person. So if we do our analysis, and we see that it comes in at two feet per person, we're finding that market is out of equilibrium and is under supplied, if it comes out at 15 feet per person, we're going to have to take a close look at that, because that looks that's suggesting, not determined but it's suggesting that that market might be oversupplied. So we're doing that analysis on the supply side, from the demand side, we actually look at Google Analytics. So we look at how many folks in that market are searching for self-storage on Google. And that gives us a little sense of what's happening on the demand side of that equation, because it could very well be that there's a 15 square foot per person market that still has a high demand, try to find that supply and demand curve. How how do you take that data from Google Analytics from Hey, who's searching for this? How many searches in this one, three and five mile radius? And then connect that to and draw meaningful conclusion? Well, it's,

[00:12:31] Tom Dunkel: It's a little bit art, a little bit of science. But basically, we're just wanting to see that the storage facilities in that market ideally, for us, we want to see that the facilities are full. So we don't stop just looking at the actual data, we actually get on the horn, get on the phone, and we call these facilities and we make sure that what we're seeing in our databases and in the analysis is lining up. So we're calling those facilities seeing what are their what's their occupancy, and what are their rate trends are the rate trends going up. That's been the case the last couple of years, but sometimes rates do come down. So we want to see that as well. So it's really I guess what I would say, Sam, is it's kind of a triangulation process duo are kind of looking at the, the facility from multiple angles and just making our assessment to see, you know, if it's an attractive opportunity, or not,

[00:13:29] Sam Wilson: How much time do you spend making that? triangulation? Like, is it okay, we think we have an opportunity? Or do you do all the triangulation work ahead of time and then find facilities inside of that area that you want to buy? Which way? Does that work?

[00:13:47] Tom Dunkel: Yeah, it's, it's a little bit of both ways. Because we do outreach, we have an internal process to generate our leads where we are reaching out directly to self-storage owners. And we find no big surprise, we find that that's where the best opportunities are. Once we find a facility that then we kind of run it through our process, and to find out, you know, what are the supply and demand dynamics in that particular market? And once we acquire a facility, Sam, then we start looking at the facilities proactively around that area so that we can try to build a presence, because obviously, if we're acquiring this one facility, and there's another facility, you know, 510 15 miles away, pretty good chance that we're going to like that market as well.

[00:14:34] Sam Wilson: Right, man, that's great. That's great. Thanks for taking, taking the time to break down. You know, how you guys are valuing an asset and how you say, Hey, this is a good buyer. This is not a good buy. That's, that's some tactical information there. So certainly appreciate that. So don't worry about this. Let's talk risks in self-storage right now. Do you see any risks or hidden risks for yourself? towards investor.

[00:15:01] Tom Dunkel: Sure, I mean, there's always there always is a risk that a particular market like, you know, obviously we're doing our analysis, as of today, we do have some visibility into the pipeline of new facilities coming online. And so we incorporate that into our analysis as well. So we'll we'll add in that square footage when we're looking at the supply index, etc. But it's, it's, if a big, if a Big Read is coming in, like a public storage, extra space, cube smart, what have you, a lot of times, because they're the 800-pound grill in the market, although more on that in a second, they what they'll do is they'll come in to a market and they'll artificially push down their rates to attract customers to lease up their facility. So obviously, that has ripple effects through a market and that's certainly a risk. That's somewhat out of our control. If we don't see that project, coming down the pipeline. Now, I did say 800-pound gorilla, and they certainly have massive resources, there's big companies so that they can, they can absorb that kind of, you know, lower rates for a period of time. But I do want to point out to the folks out there that those big guys I just mentioned, they're really only commanding and self-storage, about 25% of the market, give or take. So 75% of the market is either smaller regional players like ourselves or Moms and Pops. And so that's another huge thing that we love about the self-storage industry right now, Sam is that a lot of the owners out there are moms and pops, they're not running their storage facilities very well, which creates huge opportunities for companies like Dell or a storage group.

[00:16:48] Sam Wilson: Now that's great. I absolutely love it. Let's talk a little bit about some of the pitfalls, I guess, you see, in general, you know, there's a lot of us, you know, we raise capital here at the Brecon Investment Group. I know you guys probably take outside capital as well. What would you say to a high net worth investor? You know, what are some risks you see on that front? Maybe? And how could a high net worth investor potentially avoid investing in or making a mistake? That could cost him a lot of money.

[00:17:19] Tom Dunkel: That's a great question, Sam. And it's something as a high net worth investor myself since 2006. I've been through a lot of different investments I've invested in multifamily deals, I even looked at a COVID-friendly convenience store. A drive-thru convenience store concept. So I've looked at a lot of different deals out there myself. But I think it comes down to a few things. And I don't know if you asked that question on purpose. But we did. Over the years, all these lessons that I've learned these mistakes I've made, we actually compiled it down into an ebook. It's available on our website we call S.A.F.E. Investing. So save is an acronym sa fe. S stands for sponsor, and Sam sponsor is huge, right? I mean, we have these nine-figure net worth, guys that we do business with. And they tell us flat out and say, Hey, we come to you guys, because we do business with you over the years. And we trust you we know, you know, even if a deal doesn't go well, we at least know that you're going to give it your all and make the best out of it that you can. So sponsor is a huge thing. You know, what's their track record? Where have they been? Where are they going? You know, all those? Is it a team? Or is it just a guy with a gmail.com? Email address? A is for asset is what is the asset that you're investing in? Do you really understand that? What's the market? Is it in? What's that business? Is it something you can explain to your kids, you know, that kind of thing? F is for Financials. So what are the financial projections? Are they reasonable? Has the sponsor delivered these kinds of financial results in the past? You know, those kinds of things? And then E is for exit. How do I get out of this thing? It's not like you can go to schwab.com. If you're in a Belrose, storage group, self-storage, syndication, and click, click, click and sell your position. Unfortunately, it doesn't work that way. If you're investing in one of our deals, you need to be comfortable having your money tied up in that deal for 234 years, depending on what the strategy is that we're employing at that particular facility. So it's a free ebook available on our website. You don't have to give me your name, address, phone number, social security number, anything like that. It's just there on the homepage as a little value add back to the investor community from us to you,

[00:19:43] Sam Wilson: Man, that's great. I did not say you think I teed that up and that was a question and man you not only answered it, but you also got a free resource there as well. So that's all good. All good timing. It's funny how that worked out. Tom, thanks for taking the time to come on the show today, you've certainly given us a lot of things to think about as far as underwriting assets, and how to look at how to evaluate a marketplace. You know, next time when I drive through Asheville and I go, gosh, there are seven storage facilities in a three-mile stretch of highway on how to think about that a little bit differently. So certainly appreciate that. And then also, you know, of course, given us that free resource there on your website. I do. I do appreciate you coming on today and sharing with us if our listeners want to get in touch with you and learn more about you what is the best way to do that?

[00:20:31] Tom Dunkel: Sure, I would love for folks to reach out to us at Belrosestoragegroup.com You will have my contact information on there, as well as the opportunity to register in our investor portal. We're super active in the self-storage space, and we are raising equity for our upcoming opportunities and band. They are really popping right now. We're seeing some great deals out there. So we'd love for folks to reach out to us through their register on our portal, you'll get notified of all of our upcoming investment opportunities.

[00:21:05] Sam Wilson: Fantastic. Tom, thank you for your time today. I do appreciate it.

John Powell is President of Phoenix Commercial Properties, an industry-leading commercial real estate company in Raleigh North Carolina, representing landlords, tenants, buyers, and sellers in commercial transactions.

In this episode, he shares valuable nuggets about how you could succeed as an investor in commercial real estate.

[00:01 - 09:13] Stepping Out From His Father's Shadow

• John credits his father who's an attorney for the building foundation of his business acumen
• He focused on commercial real estate straight away and started a brokerage

[09:14 - 16:58] Investing in Commercial Real Estate

• The things tenants are looking for in a rental property
• Analysis: The key to finding a good office property
• What a good cap rate is and how you can make the most out of your property

[16:59 - 20:30] Keeping The Team Together

• The importance of team building in strategic planning
• • Unites the team members for the same goal
  • Members' inputs are valued and heard
  • Uplifts the team spirit
• It's one of the best investment as people is the key to business success

[20:31 - 22:40] Closing Segment

• Reach out to John!
• • Links Below

• Final Words

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Tweetable Quotes:"Where there are losers, oftentimes in a marketplace, another similar position product to be a winner." - John Powell

"I tell people all the time, this is not my journey, this is our journey. And even though I might be the one dropping the price, I greatly value their input." - John Powell

Connect with John for real estate investment opportunities! Visit the Phoenix Commercial Properties website now or email him at [email protected]

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

00:00 John Powell: If it is a well-positioned building that has one single tenant with a long-term lease, obviously, the cap rate is probably sub-by. If it's an industrial building, with one tenant or two tenants, 100,000 square feet, 4000 square feet, and their brand new seven or 10-year leases, those buildings that we've traded in a three and a half or so for. So on one hand, the buyer pool is very minimal. But if you have that product type, and if you want to sell it, you will be inundated with opportunities.

00:42 Sam Wilson: Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big. John Powell has been involved in the commercial real estate landscape for the last 30 years. He's the president of Phoenix Commercial Properties based in Raleigh, North Carolina. John, welcome to the show,

01:04 John Powell: Thank you so much for the opportunity. Good Afternoon.

01:08 Sam Wilson: Hey, good afternoon. Appreciate you coming on. You are living the dream in the state I just left. Man, you live in North Carolina. That's a gorgeous state to be in. John, there are three questions I asked every guest who comes to the show in 90 seconds or less. Can you tell me, where did you start? Where are you now? And how did you get there?

01:27 John Powell: All credit to my father. He was an attorney in Cary. And he earned a small office building when I was growing up. So growing up, I was the janitor, and the landscaper and I had a chance to work on Fit ups every now and again as someone improves the space. While I was in college, he decided to assemble 125 acres out near the Raleigh Durham International Airport credit business park. And before I knew that I was getting my real estate license. And I was learning a lot about development. I was going before a town council meeting to speak at a public hearing or to try to get a site planner freeze, and very quickly took over the marketing of the project. And I was honored enough to create marketing strategies I'd studied in college, around an asset class, I then decided to open up my own real estate firm. And I had that firm for 20 years before joining a larger firm in Raleigh. And then I came over being exactly just started my 16th year. So five years ago, unfortunately, the founder of this storm passed away very unexpectedly. And they asked me to come over and to want to drive the bus. And so it has been a 30-year journey. Plus a lot of childhood education that really has delivered me to where I'm at today.

02:51 Sam Wilson: Man, that's awesome. And you're involved in a business that bet when you were a teenager you'd never see yourself being involved in.

02:58 John Powell: No, not at all. I will say that summers and Christmases oftentimes be at home from college, I might work at my dad's office. And I would see people come in, but I quickly realized that they were representing clients or projects or developments or redevelopment of older type products, you really bring new life to it. And I decided to not really look at the residential sector, I focused on commercial literally from day one.

03:30 Sam Wilson: That's really cool. And that I mean, that's a jump that a lot of people struggle with is going from the residential to commercial and you kind of just got baptized by fire. It sounds like directly into the commercial market.

03:43 John Powell: That is a very accurate statement. Because I had a team of three, I had me, myself and I and I opened up an office and I really just tried to figure it out now I had in-house counsel. And so I relied on my dad a lot. And he was a very sharp attorney. And so again, I'm very thankful for maybe the way that I was able to at least get initially into the business.

04:10 Sam Wilson: Now, what's interesting is that you got in 125-acre project was your dad's project, right?

04:17 John Powell: It was. It was very ambitious. And there were a lot of bumps and bubbles. I still remember one of his first lines, imagine a development loan in today's market at 18% interest. Do remember and I was just getting started into commercial real estate and I was like that, I don't know a whole lot. But this doesn't sound like a good idea. And the smart thing that he did was every dollar he made when he sold a lot or actually handled the market. We sold a lot. He paid off his debt. In my first client, I got a chance to see him never take money out of the project. In essence, he wanted to be debt-free and that is gold when you look at what we all do.

05:05 Sam Wilson: Absolutely. What gave you the idea to go into brokerage versus being on the investment side, kind of like your dad?

05:14 John Powell: I thought that I didn't have $100 million dream. I just had the checkbook, oh my goodness, I could change the world. I've never been that guy. So I really had to work for a living. But I really thought that I had the personality I had local knowledge, and certainly business connections to work, I can help people. And I've always been a quick study. On the same token, I've never been one to know all the answers. I'll be straight up and tell somebody that I might not know it. But I know where to find the solution. And my dad taught me a lot about integrity, and just being a managing word. And, you know, that really has proven very fruitful. And not only in good economic times, but certainly in more difficult times, because it does kind of bring out the true test of a man when your backs against the wall, right?

06:06 Sam Wilson: That's absolutely for sure. What are you guys focusing on right now in your brokerage? Like what? What is your core specialty?

06:15 John Powell: I have say, among our 10 brokers who are in production, we're not a solid firm. So let me first say that we have dear friends who are the nationals. And they're just in that office sector or just in that retail sector. We're a bit more of a generalist if you will, but we also understood the importance of swimming in the pond that you feel comfortable in. I am mainly an industrial guy. I'm also an office guy. Those are probably the two platforms I spend 99% of my time now. We have others here that are more focused on retail, and or investment sales and or land. Instead of the primary sectors office industrial retail and multifamily. We do a little bit of multifamily. But typically, it's more on the land side, representing the seller and representing the buyer in this live selection.

07:08 Sam Wilson: Got it. So tell me this when you look at the market right now, and I know this is every real estate market is local. But where is the greatest opportunity? If somebody came to you and said, John, Hey, man, I got a pile of money. I want to invest it in Raleigh and or its surrounding areas. What do I do with it?

07:28 John Powell: Well, we probably would stay away from the industrial sector and or the flex sector or Rockley, they'd never known a pandemic is going on. That is the most competitive sector we have right now. tremendous demand for that product, yet very low supply. Hence, high price multiple offers hardest as you can imagine, all the guys and girls who we want to support the restaurants, there are various service organizations. They have rebounded, but they are still I'll call it saw said probably the best sector to maybe invest in right now will probably be the retail sector office along the same lines, a lot of the office market because of that work from a home platform that we've all kind of become accustomed to. And again, really kind of an attitude adjustment for all of us. Some office buildings haven't been able to adjust the buildings that have amenities attached to them. So maybe they have an on-site gym, or they have a cafe or they have walking trails, kind of exterior amenities. Those Office projects have really continued to thrive and or certainly Nettie remained stable. The older buildings that maybe haven't been repurposed or the nicer, minus buildings that maybe didn't have that amenity package, have struggled. And so we do have out-of-market investors who are looking at some of our lives. Nice, well-notated office properties that to me offer tremendous offset.

09:03 Sam Wilson: What are people doing with those? I mean, if they are amenity, light, maybe nice product in a good location. What are people doing to make those attractive assets?

09:14 John Powell: Probably the number one thing Sam that they're doing is trying to figure out how can we kind of even the playing field like some of them will add an exterior amenity like a putting green or a not a fire pit but just an outdoor gathering space to where you truly can offer that aspect to the campus. Others have all of a sudden become Yeah, I'm a fan of that food truck. My daughter loves a food truck. And so all of a sudden you have food truck Tuesdays. Oh, rotate that and inspect. We have one landlord that every now and again he has a power issue. He likes ice cream. So the way that he trusted think or reach combat that issue with his tenants is if he ever has kind of an issue that affects the quality of your experience there in that building. You're going to be blessed with some ice cream, probably a Monday or Tuesday the following week. That's hysterical, hysterical.

10:13 Sam Wilson: You say built buildings that are struggling or they're, you know, rapid vacancy? Is it? What would you say struggling? What do you mean by that?

10:23 John Powell: Probably. And it really depends on the sector. But let's say take the office sector, for example, Sam, the urban areas, downtown Raleigh, downtown Durham, downtown Charlotte, the towers have been extremely affected by the work-from-home environment, therefore, and today. Here it is in August, those buildings may be I'm going to teach 60 to 70% full. So there's a tremendous amount of sublease space in those buildings. So as a tenants, you could potentially capture value by taking on a sublease space. On the same token, that building being less than four, all of a sudden, the men and women who are selling coffee and bagels for breakfast, nobody's there to buy that, right? And women who are selling lunch, there's no way to buy that because those who are in those buildings, more than likely have brought their lunch to the office. And so it kind of there's this trickle-down effect for those buildings, the winners have been what we call low-res product, the 23456 story product almost seems to be a mindset of saying that I don't want to run the elevator with you for say 18 floors. On the same token, I can't walk 18 floors to get to the office. Yet, I don't mind walking three, four or five flights of stairs to get to my office. So where there are losers, oftentimes in a marketplace, another similar position product to be a winner. From a tenant rep sign the agreement from a landlord rep sign. Even we're on the third floor of a Class A building. And within our three-building campus here, there's a very little vacancy, we relocated our office on December 1 2020, in the midst of the pandemic, we invested ourselves so to speak. There was a lot of vacancies here in the street, building campus when we came over in the last year and a half. He's been in general almost full, though, definitely emphasizes my point. This area has been one of the benefactors, or people vacating the tunnel.

12:27 Sam Wilson: That's interesting. So you're saying a low rise two to four-floor office building with amenities is really what right now it seems that people are looking for?

12:41 John Powell: You know, we all want the good ingress-egress, we want to mediate parking, and that's on the other. But absolutely, if you have good access to the interstate or any other areas to banking, and retail, and other things that we need just to conduct our lives, these buildings are thriving, I will also say the proactive landlords, the best, the best. They have now increased their janitorial services, for those that are concerned about the pandemic. And So case in point in our building, we're fortunate we have a day quarter that cleans the restaurants to three, four times a day cleans the lobby twice a day. That is an exception. But yet, it really gives us a comfort level that maybe we didn't demand or maybe we didn't even need it. But yet, now that we have it, we feel very thankful. Because we really, were we just the plant rd?

13:38 Sam Wilson: Yeah, absolutely. I think that's really cool. I mean, it's one of those things. People love to say that, you know, there's no opportunity in office space or you know, paint broad, broad brush, you know, strokes, eight, all right, you know, the office is dead, but you're telling us that it's not. And it's not with a very specific focus. And I like that because I've often thought and I'm not an investor in office, so I don't know anything about Office other than what you're telling me and what I've heard. But it's always nice. Just to hear from someone that knows, man, there is an opportunity, you just have to know where to look for it.

14:13 John Powell: And I don't think that was the type of investment that we want to pursue, whether it's individually or collectively, it is just doing your analysis. If you can kind of go in and visit some of these sites, you'll quickly see those that take care of the exterior, and more than likely they're taking care of the interior. And so if I were to be a buyer, I can take an abandoned building and spend a lot of money to retrofit it or I can maybe take an underserved building and then do more minimal upgrades to kind of maximize that return.

14:44 Sam Wilson: Is there and I know this is an unfair question. So I'm going to ask it anyway. You can tell me it's an unfair question and leave it alone. But is there a cap rate that these are trading in right now that you can say this is the range that your looking at?

15:02 John Powell:That's a big question. And I will say calculate cap rates have been in my 30-year career, they're probably at an all-time low. Sure. Oh, as interest rates are piping up, and we anticipate more interest rate hikes this year, and certainly into 2023, we believe they're going to continue depending on the sector you're in, depending on the product type. Similar his cap rates are roughly mine, that it's right, or they will certainly not move to match the increase in interest rates. Right? If it is a well-positioned building that has one single tenant with a long-term lease, obviously, the cap rate is probably sub-by. If it's an industrial building, with one tenant or two tenants, 100,000 square feet, 4000 square feet, and they're brand new seven or 10-year leases, those buildings that we've traded in a three and a half or so for, wow, it's actually incredible. So on one hand, the buyer pool is very minimal. But if you have that product type, and if you want to sell it, you will be inundated with opportunities. We just did a deal on a large industrial building, we were fortunate to capture a 20-year lease on it. And it, we checked all the boxes. And again, this was kind of the unicorn, this was the leprechaun rotting the unicorn. And those are the deals we try to get. If these investors wanted to sell that building, they could sell it for, you know, three. But there's such a new lease, there's no incentive to do it. And so we've just recommended that just sit on it and enjoy it. And maybe down the road, will be a time to look at recapturing those dollars.

16:59 Sam Wilson: That's really cool. Last question for you here. John, thanks for taking the time to kind of break down where you're seeing opportunities in your market and where you're seeing risks. But you guys do something every October there with your team and you don't just do it once but you do it for entire days. Tell me about the value that brings to your company. And what you guys do?

17:21 John Powell: Oh my goodness, I say one of the things that we just finished commercially as and culture is really the bedrock of who we all are really, the people here at Phoenix, as I refer to them, each of us are an individual ingredient and our recipe for success. But each October we get out of town. And we've gone to North Carolina mountains, we've gone to North Carolina as we've gone into Virginia, and we just get away. And we stay together and we put together we clean together. We do a lot of team-building exercises, we have a lot of fun. But we do a lot of strategic planning on not only where we're at as a company, but we're looking at where we're going really what is the path that we want to take. I tell people all the time, this is not my journey, this is our journey. And even though I might be the one dropping the price, I greatly value their input. And so getting out of town, and just kind of pausing for a few days, and we invest a lot of dollars to accomplish this. But the return on our investment, Sam, it is tremendous. And it really has allowed us to grow closer as individuals so when you team a project with someone, your team and on a project with someone that you truly trust and you value their opinion, as I'm trying to make decisions internally, I have surrounded myself with a core leadership team of three other individuals who I greatly appreciate their opinions, but I lean on them and I greatly respects the time energy and effort that they put into this immunization but get out of town each October it is a blast last year, we went to Wilmington, and we decided that we're going to get back to this year. So that's already booked and we can't wait.

19:10 Sam Wilson: Man that's awesome. I love the idea of you know, I guess as it pertained maybe even to you know, I heard this on the on another interview I did today and he called it pre-site work big developer. So it's kind of your pre-site work, you know, for your team and for your organization. That's just so hard to do. I mean, it's hard to do because it seems like there's always too much to do. And so taking four days off...

19:35 John Powell

It's hard and it really requires commitment and so we do a lot of training while we're there. Oftentimes. In the mornings after breakfast, we will have training until kind of mid-afternoon. Obviously we break for lunch we check emails we checked voicemails were returned calls, but we have never run into a complete conflict. It is amazing. Our customers when we share with them really what we're doing Some of them have begun or truly are looking into how they can implement within their organizations.

20:06 Sam Wilson: I love it. I love it. John, you've given us so much to think about here today. Again, you know, just to rehash it, you know, you've given us an opportunity or showed us how to find opportunity in the office space. You know, you gave us some warning signs on the industrial side of things and guess what to expect on that front. And also just what you guys are doing to build team and culture inside of your organization. Absolutely love it. If our listeners want to get in touch with you and learn more about you what is the best way to do that?

20:31 John Powell: Probably the easiest is our website is phoenixcommercialnc.com. My personal email is my first initial last name. So [email protected]. And we welcome additional conversations certainly with you in the future, but certainly, the listeners that I have enjoyed this today.

20:55 Sam Wilson: Awesome. Thank you, John. We'll make sure we put all that there in the show notes, appreciate you coming on and have a great rest of your day.

21:00 John Powell: Thank you again for the opportunity and blessings to hear the family take care of yourself.

21:04 Sam Wilson: Hey, thanks for listening to the How to Scale Commercial Real Estate podcast if you can do me a favor and subscribe and leave us a review on Apple podcast, Spotify, Google podcast, whatever platform it is you use to listen, if you can do that for us. That would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.

Marc Bonilla is the founder and CEO of VIAONE Commercial Real Estate Group. He has been involved in the commercial real estate industry for more than 16 years as an investor and brokerage advisor. During his time as an investor and brokerage advisor, Marc sold, purchased, or developed over $5.6B in commercial property.

He joins us today to talk about the work they are doing in the Arizona real estate market and how you should always be looking to give back to your deals in order to gain long-term value. He also gives his unique perspective on scaling your business, and fostering relationships and offers his advice on being analytical and flexible in the ever-changing market environment.

[00:01 - 10:30] Becoming the Value Enhancer

• Welcoming Marc to the show
• He talks about how he has grown his company
• Don't go into a deal looking to take, be the one to give back to the deal
• Sharing some of their projects and lessons they learned
• Make the city a part of your development
• Building relationships are essential to scalability

[10:31 - 25:16] Staying Competitive in a Shifting Market

• Marc discusses the impact of COVID on their business
• With all the changes happening in the world, it's important to learn how to reprogram and make deals work for you
• What are the development opportunities in Arizona
• Social media is the new calling card
• The reason why Marc decided to be politically active
• To be successful in the space, it's important to be deliberate and exacting and have everyone in the organization fully aligned

[25:17 - 26:35] Closing Segment

• Reach out to Marc!
• Links Below

• Final Words

Tweetable Quotes

"One has to have a constant commitment to learning. It's an everyday process of learning." - Marc Bonilla

"Always look to give back to the deal because partners come back once they see that your objective is to give, not to take." - Marc Bonilla

"If you stay disciplined to process execution and your core business, there are ways to reprogram your deals and distance your deals insofar as reassessing risk and value." - Marc Bonilla

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Connect with Marc if you're looking for investment opportunities in Arizona! Visit viaonecre.com or email him at [email protected].

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

[00:00:00] Marc Bonilla: The greatest threats and the greatest weaknesses that we are all aware of as it relates to inflation and everything else that developers talk about on your call, but at the end of the day, if you stay disciplined to process execution and your core business, there are ways to reprogram your deals and distance your deals insofar as reassessing risk and value.

[00:00:38] Sam Wilson: Marc Bonilla says that there is not one deal that he's presented with that he's unable to see the ability to create value in. Marc, welcome to the show.

[00:00:46] Marc Bonilla: Thank you for having me.

[00:00:48] Sam Wilson: Hey, Marc, pleasure's mine. There are three questions I ask every guest who comes in the show: in 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?

[00:00:57] Marc Bonilla: Oh, gosh, in such a small period of time, I guess I'll try to condense it. Well, I started in the tech space out in Silicon Valley. And right out of college, I went to work for a telecommunication company, and I was doing much of the engineering side of the technology that we were selling at the time, and I found myself as a top salesperson. They moved me out to Silicon Valley from Phoenix and essentially my job was to interface with the Fortune 50 and be of value and answer on the telecommunication side meeting with developers and meeting with designers and meeting with architects. And sitting down in some of those predesigned meetings, I really built an affinity for design and it just seemed so sexy, development did. And so naturally when the .com busted, on the forefront of that was was technology and I lost my company. I came back to Arizona. And so I launched my commercial real estate career, you know, through several different discussions with mentors that I had. And, you know, you're going to find out through this interview that you know, the mentorship element of success is something that that is suffering from diminishing returns and that is a big part of how one can scale growth and success and really understanding how to or how important is mentorship within the community. So once I met with sort of my, I call my executive team, I sat down, I said the ultimate goal was to get into development and, first, real estate investing. The decision was widely made much to my dismay to start within a brokerage. And so I started at Colliers International and I was there for about 15 years before I launched VIAONE Commercial Real Estate Group. But before that, I launched a sort of a small little microfund. I was the GP on that fund. And it was, you know, I was a capital raise of about 3 million bucks. And the whole idea was to go out in the marketplace and look for, you know, value, opportunities and what a value profile meant was relative to where I can go in and I could diagnose, you know, what the application of value is. I've built out a very strong, you know, political network here in the valley. I've built a very strong reputation in terms of, you know, the academics of going in and seeing opportunities and being able to work through the academic side. But most importantly, it's a discipline that one has to have to a constant commitment to learning. It's an everyday process of learning. And if you're a lifelong learner, In this business, you can find success and you can go into any deal and be able to diagnose where the opportunity profile is.

[00:03:50] Sam Wilson: One of the things that we talked about before launching this episode was that you love difficult deals. You love things that are kind of complex that most people walk away from. Can you give me an example deal and how you guys capitalized on the challenge?

[00:04:09] Marc Bonilla: Oh, gosh. I could tell you that, you know, a deal that I'm probably largely known for here in Arizona was a deal that's probably near and dear to my heart because, during that deal, I lost a best friend. And you know, his name was Wayne and I would say that Wayne was. instrumental in the success that I've been able to attain and, you know, learning from Wayne in so far as understanding how to architect your business based upon relationships and based upon the idea of every opportunity, every deal that you go into, make sure that you're the one that's the value enhancer. Don't be the one that is in the deal that is looking to take something from the deal. Always look to give back to the deal because, invariably, you know, partners come back once they see that your objective is to give, not to take. That's how I learned. So the most notable deal that I stumbled into was a deal out in Tempe where one of the brokers within the valley was working with this elderly woman that did not want to list the property with a broker. And it was very close to ASU. It was a small little parcel and her husband had just passed away at the time. This was a A+ site and she was so reluctant to hire a broker that probably would've got her 10 times multiple. Well, she went out to Walmart and bought a for sale sign, and very quickly I showed up in my car and I delivered an offer to her. And I said, Edna, this is principal to principal. And I would love to do a deal with you. And so I negotiated a deal on a piece of property, went in escrow, had no idea how I was going to pay for it. It was maybe a million, million seven, I think at the time. But I realized that it was a piece of gold and it was in the path of growth. And all of the programming around ASU was amplifying value and it was really creating a dearth of opportunities out there. And so just to get a foothold on that piece, for me, represented a proposition of, I don't know what I'm going to do with it right now, but I know that long term, this is going to turn into something that is potentially legacy. So I purchased it somehow. I think I went through about every capital institution here within the valley. And finally, I was able to pick up some short-term financing. And then that's when I brought in, I went by my partner, Wayne, and then from there, I put together kind of a strategic path on a sort of bigger scale project with respect to a project that lent itself to the Hayden Ferry sort of corridor, which is a development that's just outside of ASU at the time, it was just absolutely proliferating. And you know, we looked at several different development iterations and profiles. And we were very keen on working with the city to make certain that we were taking feedback from the city as it relates to executing on a development that lent itself to that area. And so from there, we were able to assemble six other parcels. And when we were done, we owned the entire city block corner and the big piece of that was negotiating directly with the city. And so the ability to understand how important political relationships are, understanding how the political landscape works, understanding how critically important it is to make the city a part of your development. Sometimes it's unrealistic what they're looking for, but you also want to be a good developer. And so far as sitting down and listening to what it is that's important because, at the end of the day, you can come to a place where everybody's happy.

[00:08:09] Sam Wilson: Yeah. That's challenging for some of us to hear, you know, guys like myself, I really just kind of want you to stay out of my business and I'll stay out of yours. And that just doesn't work.

[00:08:19] Marc Bonilla: Yeah.

[00:08:20] Sam Wilson: You know, when you've got a situation like this, my approach will fail every single time.

[00:08:25] Marc Bonilla: Yeah.

[00:08:26] Sam Wilson: What steps did you take specifically when you say that you went and took feedback from the city? Where do you even start on that?

[00:08:34] Marc Bonilla: Yeah, there's always this struggle with the private sector, the public sector, and a developer's always the bad guy. And I don't know, maybe it's just a blind optimism that we're coming into a whole new register where developers are thinking differently. There's more of a focus and thought institution around being responsible. Responsible development is really important for us. And so the steps that we took to sit down with the councilman of that respective district, and then from there, figure out, you know, sort of the mapping within all of the council folks within Tempe and we bootstrapped, campaigned, and met with all of those.

[00:09:21] Marc Bonilla: And we took, you know, a little piece of advice from each one of them. And you know, what that taught me was, you know, number one, the city wants to be involved in transformative projects. And when they get the idea that you're a developer that is open to the idea, listening to the city, it makes things so much easier to do because the old school mapping was you're a developer, you go in, and you drop the hammer, and when somebody really pisses you off, the development community typically wins because it's about money. There's just a different way. There's a better way to do it. And, you know, building relationships. And if you don't want to have long-term sustainability in a marketplace, I could tell you that, not to get off track, but I've found tremendous success by staying in my backyard because of this very reason. Scalability, as it relates to anything is building relationships to be able to understand and have help to work you through a matrix.

[00:10:30] Sam Wilson: Yeah, absolutely. Tell me this. You guys kind of have a few different focuses inside of your business. You know, development is a large part of it. You guys also have a brokerage. Is there anyone that kind of takes priority over another?

[00:10:45] Marc Bonilla: Yeah, good question. My aspirational idea when I launched VIAONE was in the namesake. It was an idea that was based upon creating a company that would be a value enhancer by way of taking multiple different disciplines and delivering it via one application. And so this idea was to build out the brokerage division, to feed the development side of the house. And I learned very quickly that having a handful of brokers out in the marketplace, wheeling and dealing one, trying to focus on continuing to advance development opportunities. It just didn't work because I was finding a lot of my time having to deal with the sandbox brokerage type of activities that didn't have any return on my time. So we scaled that back during COVID. COVID changed landscape for everyone. And we all kind of realized that, you know, we work in a business that we feel like we're all in this silo, but the reality is everything is so external right now. The external idea of being able to go into a deal and see opportunities within a deal reside in the ability externally from an existential perspective to go out and walk out of a deal and make three calls and be able to put a deal together. And again, that goes back to my philosophy and philosophical approach to business and that is adding value through relationships, adding value to people. Don't put money first, people first. And so we really scaled back the brokerage side and now we're in a place where we've got some really talented guys that put together this restaurant advisory group, and they're exacting in their focus, and they're right where they need to be in a lot of the projects that we do, have a heavy emphasis in the restaurant side.

[00:12:51] Sam Wilson: And that is wild. It sounds like you guys really refocused and rebuilt almost and the pandemic gave you an opportunity to reengineer your business and say, this is what we're going to do moving forward.

[00:13:04] Marc Bonilla: Had to, had to. It still shocks me even today as market dynamic shift, as they always do, and this notion that you can continue to do this business and not understand that the board is moving constantly. We're all playing the same game on the same board. And if you're frustrated that you're playing and you've got chips on the board and the board is moving, that's all of us. If you're going to throw your hands up in the air and walk away, then, you really don't understand the business. Because again, it is moving chips on the board to be able to reprogram deals, to be able to make any deal work within any market right now, everybody understands the greatest threats and the greatest weaknesses that we are all aware of as it relates to inflation and everything else that developers talk about on your call. But at the end of the day, if you stay disciplined to process execution and your core business, there are ways to reprogram your deals and distance your deals insofar as reassessing risk and value. And I think that smart money right now is going through a monumental re-indexing of risk and value right now.

[00:14:22] Sam Wilson: Absolutely. Tell me about the restaurant advisory side of your business. I mean, that's, in its own right, to me seems like, okay, that's kind of a left turn from what you guys were previously involved in. Maybe it wasn't. So if so, can you kind of give me some color to that?

[00:14:38] Marc Bonilla: Yeah, I guess, on the nose, it seems like it was a, you know, sharp left turn, but you know, most of the projects that we were doing at the time that I was the GP on, or I was largely the capital behind were mixed-use projects, and most of those projects had an out parcel commercial component. And so, you know, for me going into projects and seeing opportunities to be able to lend our expertise, to developments that proliferate the strong economic growth that we're seeing in Arizona, which is probably one of the strongest fundamentally in the country.

[00:15:14] Sam Wilson: Right.

[00:15:15] Marc Bonilla: But our ability to really understand that commercial piece within a mixed-use project has created a value for us where folks now, developers now are starting to retreat. There's this flock to security and that flock to security is flock to what you know. You had a lot of multifamily developers out there thinking that they were retail developers and understanding how that retail component could amplify a project or could effectively kill a project. And so for us, that's a real value proposition and a scaling opportunity that I saw. And I could tell you right now, you know, as a result of that pivot, just going through, you know, a realignment of the brokerage side has probably opened up, you know, close to a hundred million dollars worth of development opportunities we're a part of right now.

[00:16:10] Sam Wilson: And is that on the mixed-use slash retail component where you just said, Hey, this is kind of an under, I guess, not an underinvested in, but really under maximized, if that's even the right word or I'm just making that up. But it just kind of, there's a lot of...

[00:16:26] Marc Bonilla: Misunderstood.

[00:16:27] Sam Wilson: Yeah. Misunderstood. Thank you. That's the right word.

[00:16:29] Marc Bonilla: Yeah. You're right on track. There's no question that when the market was moving at the clip that it was, you can miss a read. If you're fast enough and the market was fast enough to still make your drop. And for us, it was very much seeing how the market was playing out and then seeing how the cities were slowing down as it was related to entitlements, which is still happening right now. And I mean, this is a much bigger issue that keeps developers up at night, but it largely has to do with timing elements, date downs, and timing expectations within the city. Everything is taking twice as long now. Workforce participation is a real issue, but at the end of the day, there's still a pipeline of projects that are going to work their way through the cities and and at some point, these folks that have projects that haven't figured out how the retail or the commercial component that was almost a giveaway at the time is really now going to come back. And the cities are really going to focus on we need an activation, a full activation as it relates to how people are living now, as it relates to community area developments and how the market is starting to segment itself and mixed-use projects really need to reflect how people are living right now. And so if you don't understand how commercial or the retail piece is going to thread the needle of your project. Then bring in somebody who is going to understand that and I could tell you, for me, you know, my guys have brought me into deals where I've been able to go in and figure that piece out very quickly.

[00:18:19] Sam Wilson: How do you guys find that opportunity? I mean, it sounds like you need someone out there that already has a project in mind, that maybe it's mixed-use, maybe it's, I don't know, whatever the project is, but they may not even know that they need somebody like yourself to come along and help them maximize that opportunity. How are you connecting with those people in the marketplace?

[00:18:42] Marc Bonilla: Yeah, I would say there's a couple of different, you know, arteries. We're very innovative as you can see, being 45 years old, you know, walking into to meet with the mayor and the mayor looking at me like that is the developer? I'm not used to seeing somebody that's got hair and that's younger, but, you know, not to be tongue in cheek, but the reality is is we really pride on being innovative and taking advantage of, you know, technological opportunities. Right now, we are very, you know, invested in social media. Social media has, that's the new calling card. That's the new cold calling, that is really understanding where your target audience is. And there's so many different social media platforms right now that it has been a little shocking to me. Kind of feel like an old man. I was telling one of my brokers, a really, really sharp kid, not a kid, man, younger man. But he was telling me about certain social media outlets. And I'm just thinking to myself, if I was looking for a date, that might work. But what we're doing here is commercial real estate development execution. And so he went through and showed me on a pragmatic basis, this sort of midcap companies that have sort of the same DNA as us. And how they have figured out how to monetize social media. So I could tell you that social media has been a windfall for the organization and for myself, that's one. Number two, I'm very, very politically active. I don't know, for me, it is near and dear to my heart because of my mentor Wayne Howard. He showed me the value of getting involved in the community, giving back to the community, understanding leadership within the community, and then becoming a part of that. You know, Arizona's going through a little bit of a political shift, if you will. And I think it's probably happening across the country. And so, you know, for for us, particularly for me, that's my opportunity to give back in terms of what I feel like is a civil duty and it's a responsibility to give back. And I really enjoy that piece and it just so happens that piece is of tremendous value to my business. So I could tell you that I get deals by proxy because of my involvement within each one of these cities because the cities are very comfortable with me and my ability to execute and go in and figure out a botched deal.

[00:21:19] Sam Wilson: That's really, really cool. I love that, Marc. Marc, you've given us so much here to think about today, both from the involvement from the city side, like you were just talking about the creative solutions that you have to bring to the table with out-of-the-box thinking on properties that other people may be overlooked or just how to overcome obstacles. You talked about being vested in social media. Even for guys like myself, it is hard. It is hard every day 'cause you're like my gosh, the last thing I want to do is, is get on social media, communicate to anyone. I'm a total introvert. So communication is the last thing that I like to do on any given day, but yet how important it is. And it's one of those things where I think it's just, it's getting in the reps. You've given us a lot.

[00:21:59] Marc Bonilla: Sorry to interrupt you, but...

[00:22:00] Sam Wilson: Please.

[00:22:01] Marc Bonilla: And I want to be clear about this because I just got a text from one of my guys that we have been, I don't want to kind of glaze over how deliberate and exacting we are you know, it's tough to, I wish I had 15 hours with you. You probably get more personality from me but, you know, everything that we do is very deliberate, very exacting. It isn't some folks, the idea that, you know, this is the trend right now, and this is what we should be doing. No, it is really understanding from a forensic standpoint, from an analytical standpoint. Those efforts, I need to see analytics and the support thereof. And so I could tell you that our social media presence and our other outlets in terms of business development are all exacting and all have an alignment that is completely integrated across the board.

[00:22:53] Sam Wilson: That's really cool. I love the pre-site work. I think was a term you had used earlier that kind of goes into, you know, development, obviously taking that from your development side of your business. But the same idea that goes into your, even your online social media, just design it's like, Hey, we're going to lay out the groundwork, and then we're going to fill it in.

[00:23:15] Marc Bonilla: Yeah, it's shocking to me a lot of times when I go to speaking engagements or speaking forums, people want to understand what we've been able to do. And what I naturally think to myself is simple. We see the market as it comes at us. However, we see the market as it comes at us. Within the locus of our control and the locus of our control means that we've already laid a foundation of site work to create long-term successful outcomes. And yeah, there's going to be some, you know, crossing the lanes and moving across a swim lane. But if you do that work up front, It doesn't matter how the deal shifts. You've already done the pre-site work and folks, a lot of folks live and die by this sword because once the deals start to come in and you've reached that tipping point, then they're working backwards and they're trying to get that work done that they could have capitalized on right now. But all of that is being deliberate and all of that is being exacting and all of that is making sure that from an organizational standpoint, everybody is aligned and everybody has their obligations for success. That's a big thing for us is everybody that's within my organization, I can be a little bit prickly at times because I have a expectation that's largely unrealistic even for myself. And I tend to levy that on other people and it's unfair, but I could tell you that the guys that I have within my organization, they know that I love them and they're family. And that too blends itself to the success that we have because when you're with people that you know, are going to have your back and that are fiercely talented, you're not wasting time thinking about other things that aren't in accordance with economic and business development that we are staying in and the space right now.

[00:25:18] Sam Wilson: That's awesome. Marc, this has been a pleasure. Thank you for taking the time to come on this show today. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

[00:25:27] Marc Bonilla: I appreciate that. Probably the best way would be our website, which is www.viaonecre.com, Or you can reach out to me personally at [email protected] om. And I could tell you that, just to be clear, our focus is 100% Arizona. We have no desire to want to scale into any other market because we dominate this market by staying disciplined to that idea.

[00:25:56] Sam Wilson: I love it. I love it. We'll make sure we put that there in the show notes. For those of you who are listening, that's viaonecre.com, that's V I A O N E C R E.com. Marc, thank you for coming on the show today. I certainly appreciate it.

[00:26:09] Marc Bonilla: Likewise, thank you so much.

Chris is the founder of Skyline Commercial Real Estate Focused on advising clients regarding their multifamily assets - to maintain and build wealth and forge strong relationships across the Southern California investment market. He previously played professional baseball for multiple teams, reaching the Major Leagues with the Los Angeles Angels of Anaheim in 2009. Through hard work and dedication, Chris kept earning his way to the next level and achieved success at the highest level.

Tune in as he shares valuable strategies on how you could get the best deals for your real estate investments, and how he is able to maintain leads for his business which could be applicable to you too.

[00:01 - 11:48] Finding Opportunities in Challenges

• A professional baseball player turned real estate investor
• The need for cashflow led him to focus on the brokerage instead of the investment route

[11:49 - 17:39] Things You Need to Know Before Buying A Real Estate

• Buying a unit? Chris shares a strategy to increase its value
• Regulatory environment for buyers
• • Stay on top of your rents and increase when you can
  • California has restrictive rent control. You need to be within the guidelines
• Brand new investors must be comfortable with the cap rates knowing it is capital preservation
• The resilience of tenants to rent increases

[17:40 - 17:54] The Keys to Business Growth

• How to find motivated seller leads
• • Emails and build and maintain relationships
• Chris on starting his own brokerage
• How to approach a broker as an investor
• • Ask with no expectations

[17:55 - 20:45] Closing Segment

• The similarity between baseball and real estate is failure
• Reach out to Chris!
• • Links Below

• Final Words

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Tweetable Quotes: "When you start in the business, it's a grind." - Chris Pettit

"If you're brokering and you're not owning, like, do you really believe in your product?" - Chris Pettit

Connect with Chris on LinkedIn and visit Skyline Commercial Real Estate for investment opportunities.

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Want to read the full show notes of the episode? Check it out below:

Chris Pettit: [00:00:00] What took me, the brokerage drought was the ability to be entrepreneurial, grow your own business, do your own thing.

And it's really, you eat what you kill. So whatever you're out there putting in, you're gonna make those returns.

Sam Wilson: Chris beta is a localized department, brokerage founder. He assists private clients with wealth, growth and preservation. He also has a background in baseball, investing in taxes, and as Chris puts it, he has all the bases covered. Chris, welcome to the show.

Chris Pettit: Hey Sam, thanks

Sam Wilson: for having me important in here.

Absolutely. The pleasure's mine. There are three questions. Chris, ask every guest who comes in the show in 90 seconds or less. You tell me, where did you start? Where are you now? And

Chris Pettit: how did you get. Yeah, I was playing baseball and I joined a couple friends for some very small scale investments. Some single family houses out in it's called the Midwest.

One of my friends said, Hey, I think this is a good idea. I said, well, why don't we pull some money [00:01:00] together? And we can buy a couple of these. So we did that learn more about. The real estate side of the business. My background's more on the finance side. So got to see some of the tax advantages, the depreciation, the cash flow, how it worked.

Good hands on experience. Finished playing baseball and got into the brokerage business, local Southern California apartment brokerage, and really took me to where I am now. Just started this company a couple years ago with a couple partners and we're moving that forward. So

Sam Wilson: here. Man. That's really, really cool.

So you're playing baseball professionally, and then you start investing in real estate. Were you guys buying single family stuff, buying multifamily? What, what were you guys buying?

Chris Pettit: Yeah, those were single family. And maybe a little bit of the misconception about playing professional baseball is not, everybody's making millions of dollars.

So , I, I was not making a lot of money at that time, but I was saving money put away. So we were buying single family little bit in Dayton, Ohio, actually just kind of like bottom of the barrel type stuff for calf flow.

Sam Wilson: Got it. Got it. And when did you know you were onto something and you [00:02:00] said, all right, I'm onto something.

And now I'm gonna scale into bigger assets. And I guess then of course, you know, , all the way to launching a, a brokerage, what

Chris Pettit: led you there? Well, seeing how the cashflow would work on a single family and then saving that up, being able to purchase another one, just purely based off of the cashflow you had gotten to date.

And having the depreciation, the ride offs, the expenses, that type of thing, it was like, wow, you could kind of scale this a little bit. I didn't wanna try to make something huge there. And , you know, I wasn't didn't know all the tools that we have now, but once I got into the brokerage business, I realized, well, this actually is scalable.

Seeing like a lot of things that my clients have done and how they've grown their portfolios. A lot of people just started from the ground up and individuals have large portfolio.

Sam Wilson: Yeah, absolutely. What took you to the brokerage route versus the investment route? Or

Chris Pettit: maybe there's both. You know, it's, it's both for me.

I, I do believe in investing and the, the brokerage route is an avenue that you can get there. [00:03:00] Obviously you gotta make some money to be able to invest it. So I think that's probably what led me to the brokerage drought over other over say other jobs. What took me, the brokerage drought was the ability to be entrepreneurial, grow your own business, do your own thing.

And it's really, you eat what you kill. So whatever you're out there putting in, you're gonna make those returns. Right, right. Yeah. So I saw the, I saw the upside for, in brokerage compared to just like a job.

Sam Wilson: Absolutely. Absolutely. and as things get extremely frosty in a, in a few different asset classes, I've oftentimes looked at it and I'm like, gosh, it's kind of a risk free way.

And obviously you got your time, your capital, your investment on the front end of, you know, going out and finding opportunities and building your buyers list and all those things, but in its own, right, you're not putting down millions of dollars into these deals and going, gosh, I hope it works out. It's like, okay, once we get it across the finish line, it's kind of a risk pretty way of, of being involved in real estate.

So I really really, really kind of liked that, especially in times of uncertainty. So that's really cool. Now you guys are [00:04:00] specializing in the Southern California market,

Chris Pettit: is that right? Yeah. Specifically Southern California and specifically apartment buildings. So it ranges the gamut from, you know, four units, which obviously is similar residential, but four to, 50, to a hundred.

You know, there's a lot of smaller buildings in Southern California versus . Maybe some other areas. So there's a lot of 10 to 30 unit buildings out here.

Sam Wilson: From what I understand, there's not a lot of new supply coming online in your guys' market.

Chris Pettit: No, not at all. So the market we work, like I said, is let's call it four to 50 core market.

And nobody's building those. Maybe there's a couple people building duplexes or fourplexes based on some new zoning, but the stuff that's getting built is 200 unit 300 unit, 400 unit class, a right in the core business districts on these main drags. And those are just not competitors for the type of product that.

Are seeing our investors focus

Sam Wilson: on. Right? So tell me about the opportunity right now in your market.

Chris Pettit: So a little bit of the difference in our market versus [00:05:00] other markets is, is such a core market, specifically orange county, LA county, San Diego county being core markets. You can't, like you said, no more supply and someone who wants to preserve capital.

Yeah. You might look at the cab rates. They're very compressed, but they're staying compressed. They're not, they're not changing. And rents are flying. Some of that to do with the back end of rent control, but rents are really flying up. So there's no supply, there's no rental supply. And then the class a stuff that's coming out is being priced to the moon on the rental side.

So any, any nice property, that's a little bit lower density living for a tenant. They're gonna wanna come in and happy to pay a good amount of rent there just to live in the location that, that they wanna live in. And I don't see that changing just due to the supply, like demand and supply. So the opportunity is purely more preservation rather than say.

You might be like, oh, let me go out. I can see this quick flip over here in this hot market. You know, I wouldn't call us like a hot type market or cold market obvious.

Sam Wilson: So what's a strategy then for a buyer. I mean, you know, they're, they're buying something [00:06:00] four to 50 units, Southern California. It might be a rent control.

I don't, I don't know exactly how rent control work if that's by county, if that's by building, if that's, maybe you can even give us some, you know, lightness on that, but what is the buyer? What is the person you're representing? What are they thinking when they buy a building? What's their strategy for

Chris Pettit: how to increase value?

So their strategy's gonna be growth and appreciation, and you're gonna get there just through the natural and pushed rent growth. The overriding it's a state rent control policy, max of 10%. It's not terrible. Obviously. Sometimes if people are behind then, because an owner's own the building a long time, there is a lot more upside there.

Yeah, the strategy is just to come in, purchase the building, get the rents up to market, improve the property a little bit. And not that it's gonna be a significant, like I said, flip, but you're gonna have the value. You're gonna have the value earned in the property and the significant rents providing more cash flow.

And you're gonna be, you're also able to get pretty much [00:07:00] core.

Sam Wilson: what's it like when you buy a building? And again, I'm asking just as it, as it pertains to more the regulatory side of things there in California, which is a lot of what investors are afraid of. I think mm-hmm oh man. You know, and, and we hear it.

I think, I think it gets a bad rap because obviously you're there and you have clients there making money. You're there making money. I've got friends out there making money in the apartment space in Southern California. And I hear it, hear it all the time. We don't invest in California. But what does, which I think is kind of, again, it, it's kind of a, just a, it's probably a bad statement cuz obviously there's opportunity there.

But what's somebody doing when they buy a building from a regulatory and from like a rehab standpoint, like what can they expect? What are the challenges there? Do those challenges, present opportunity. Talk to me about

Chris Pettit: that a little bit. Yeah. Completely understand the regulatory side and a lot of our clients and owners have some of the same feelings.

Like they're not saying I won't invest here, but because they already own here. They're saying, oh, I'm not sure about how this regulatory environment is gonna be for, for landlords, which is a fair thought. So part of [00:08:00] our deal, our job is educating them on what the latest government requirements are gonna be that are coming down the pipeline.

We don't really have a say in those things. So it's, it's just keeping them up to date. And how do you navigate that? The biggest thing you can do is stay on top of your rents and increase them when you're, when you can once a year and not, not fall behind. If you're buying a building today, it's not, it's not crazy.

I mean, we don't really market to say out-of-state buyers. Like California's a, our buyer pool is the buyers that own in the market that live here and that's the people. Like they wouldn't say, oh, I don't, they already own here. And they live here, so right. California's gonna get you for taxes either way, whether, you know, if you're gonna do both.

So if you're gonna live here and you wanna own here, maybe you wanna drive by your building. Maybe that makes sense. But just in order to get there, there's no like crazy regulatory requirements. When you purchase an investment property, you go buy an apartment, building a 10 unit down the. Nothing crazy.

But if you do wanna do some rehabs or some or raise rents, you just need to be within the guidelines. And, and they're [00:09:00] really not outside of a couple areas. You know, city of LA is very restrictive. Santa Monica has restricted rent control, Santa Ana and there city, certain cities do have up above and beyond requirements.

And those are the cities that people are. Either navigate away from, but like you said, there's still a lot of people that maybe not a lot, there's people that will make money in those areas. And they're more experts in navigating that local environment.

Sam Wilson: What do you say to somebody that maybe is a brand new investor to your market?

Where do you start them?

Chris Pettit: I would start 'em with the sense of. You need to be comfortable with with the cap rates, let's call it, you know, three and a half to four and a half. When now it's probably generous, but you know, you, you have to be comfortable knowing that this is capital preservation. And if you're, if you're buying here, you're gonna start a three, three and a half and push that up quickly to.

You know, four, four and a half on your numbers, and it's not something that you're gonna be making this huge pop on right away. But you, you are gonna [00:10:00] make those gains and rents are gonna go say, they go 10% this year, 10% next year. They're a little bit behind. Then you, you will catch up and you'll have the value and it's gonna be safe.

It's, it's a safety play really, but we don't work with too many new investors. I mean, you know, , I live here, I invest here. I don't have a, an issue with that for me. It's I want to be, I'd rather rather own good real estate and good locations. And it's not, about today's cash flow for.

Sam Wilson: Yeah, that's a good point.

You know, and that's a lot of, that's a lot of what people are looking for is that big pop. So I guess just reframing the investor expectation. Like, Hey, you're coming into this market. You are, this is a safety play. I think, as you put it, it's not, you're not here to, to hit, hit your home run. You're here to preserve capital.

What is I, I, if a landlord is behind, let's say it's a legacy owner. They haven't raised rents in 7, 8, 10 years. What is the tenant resiliency as it pertains to rent increases? Like do, [00:11:00] do, do we see a lot of buildings go vacant once people are like, Hey, we're raising rents 10, 10% this year, you were at 2000 bucks.

Now you're at 2200 next year. You're gonna be at, you know, 44 20. What's that? How

Chris Pettit: does that work out? Yeah, not really. I mean, a legacy owner who's fallen behind or just chosen , to do that because they don't need the extra cash flow. Right. New owner comes in. Goes 10% people don't budge. It's not, it's not enough because the building on the streets rent convert $500 more than that, you know?

, some people will move and you get natural movement. It's not too restrictive. And then you, you may be able to move people out for some renovations, but that's a little bit dependent on the, the.

Sam Wilson: Right, right. That's really, really cool. Tell me about finding sellers. I mean, that's obviously the, the two things we need in this in this real estate are deals and money.

How are you guys finding

Chris Pettit: sellers? Yeah. On our, on the, on the business side, I mean, we just do a lot of consistent calling and emails and touching base with people. It's a very consistent group of people that we're [00:12:00] talking to, the owners that are local, just trying to build that relationship. And there's not a lot.

Let's say people that are just oblivious to what's going on. A lot of people know what's going on relatively. And we, we just want to talk to 'em and see, Hey, is, you know, are you ready to go? Are you ready to sell today? Or what's your impetus to sell? These are mostly long term holds for people long term legacy ownership.

And as we know, those are great deals to buy and the most opportunity for upside. And so sometimes it's like building family relationships whenever their family. Whenever that time comes to pass it down along the family, things like that. I mean, you know, the time comes for every. , but this is not a short term lo short term game, as far as location goes, you know, you gotta put in the time, build the relationships here.

Yeah.

Sam Wilson: Yeah. And that's true, you know, that's true. I think in, in any market, there's not a, there's not a nuance there necessarily defining sellers. It, it sounds like you guys are grinding it out, just like everybody else when it comes to to

Chris Pettit: deal flow. Yeah, absolutely. I mean, we are, [00:13:00] we have some younger guys and it's you know, that's, we don't pull any punches there.

It's like, no, this is a grind. I mean, when you start in the business, it's a grind. I mean, we're still on the grind and that's what, that's really the only way you're, you're not gonna you're not gonna miss, you know, blatant deals. Right? Tell

Sam Wilson: me about your team, building out your team. You said you have some younger guys on the team now, what's it been like building a brokerage and, you know, talk to us about that experience and some of the lessons maybe you've learned in that.

Chris Pettit: Yeah. So it was just an opportunity that that presented itself for so myself and two partners. And we were working together before not necessarily doing deals together, but independently doing deals while working together. And so we thought, Hey, this is a great opportunity for us to build ourselves, where are we gonna be in five or 10 years?

And, you know, maybe build out, build out some sort of a brokerage it's we're not trying to be this big brokerage house, but having some. More people talking and being able to collaborate on deals. I hear you say someone. Oh, Sam. Oh, what was that deal? You were talking about Sam. Like [00:14:00] maybe I, I might have somebody for that where you're, you're just thinking, I talked to this person that was like a waste of time.

Right? They said something, but I, it didn't click for you, but I'm sitting over here like, oh, well, I it clicked for me and they let's, let's put a deal together. And so we're really trying to build. Team environment where obviously you're gonna get rewarded on something you bring in and we have, so we have two other guys that are just starting out in the business.

You know, they believe in owning real estate as well. And that's, that's a long term goal. I mean, if we can all switch from the broker side to the owner side, we're gonna, we're gonna be doing pretty well, you know? Right.

Sam Wilson: Is that the long term plan then is to, yeah. I mean, transition.

Chris Pettit: Yeah, to accumulate and own, own real estate.

I think California, maybe getting back to one of your earlier questions, Southern California is more of an accumulation game. Mm-hmm if you can accumulate little bits and pieces of, of deals. I mean, I know I have some clients that are open to me throwing into deals, and if, you know, if I can at the time, I'll do that and just kind of put it away.

It's not, you know, it's not there. It's not accessible, not running the deal, but [00:15:00] Hey, it's in the deal. I know that's a good piece of real estate and, and down the road I'll be rewarded. So I think it's more of an accumulation play, but yeah, that's the goal, ultimately, just to own more real estate.

I mean, we're believers in real estate and we also feel. I'm a strong believer in the fact, if, if you're brokering and you're not owning, like, do you really believe in your product? right. And maybe you don't. Right. Maybe you're just a sales guy, you know, that's fine too. But

Sam Wilson: absolutely. Tell me about cuz that's a nuance a nuance kind of play that you talked about there when you said.

How your buyers will rope you in on the deal and say, Hey Chris, do you wanna participate? What's that conversation like? And what would you recommend to somebody that wants to approach their broker? Maybe it's a large commercial real estate transaction. The broker's getting a six, you know, multi six-figure paycheck and they go, Hey, you know, do you want to get in on this deal?

How should someone approach you as the broker

Chris Pettit: to have that conversation? Yeah, I mean, I think it's very easy approach from the investor. It's an easy question. Hey, do you have, would you have any interest in [00:16:00] partnering in or putting some of your commission? The deal obviously clear, very clear that no, you're not giving it up.

You're not giving up your commission, but right. In putting it into the deal And , timing's everything in that respect, you know, like I said, this is my, my job. So depending on where I'm at timing, maybe I just put money into another deal, obviously gotta pay the bills. And so, yeah, it's an, I feel like it's an easy conversation from the.

Investor from the agent side. I don't really bring it up that much. Just because it's, I feel it's a little more you know, most people, most people I deal with it's their, their deal. It's like a one person buyer. Right. And maybe, but, but a people that I know, well, I'll throw it out there at some point.

Like, oh, I'd be happy to co-invest with you at some time. And so there's a few, that's the way I would frame it as a broker. You don't wanna be telling everybody, oh, let me get in with you. Let me get in with you. You know, it's a little more, I guess I feel like that would be like pushy, but from the investor side, I think if you just ask with no expectations, I don't see the, I don't find the broker being [00:17:00] offended.

Sam Wilson: No, no, certainly not, certainly not. I think it's a great way. One to get some buy in from, like you said, either you believe in the product or you don't. So get some buy in from the broker it's a relatively not easy, but it's a, it's a, it's a source of capital, you know, where you can get involved in it.

But then I think it also, it also just develops a long-term relationship with your broker where it's, Hey, you know what we're, we're not just doing a onetime transaction. We're we're in deals together for the long haul. So that's. That's really,

Chris Pettit: really cool. Yeah. I mean, I think it's beneficial for both parties.

Like you said, you put people in, we can be partners and you sold me the deal and then, you know, we'll sell it back whenever the time comes again and we'll make money and go to the next thing. Absolutely.

Sam Wilson: Tell me about baseball, baseball, and real estate, that transition. what would you say some things, or maybe, maybe I'll ask this question.

I could find the question I was gonna ask you. You know, as it pertained to baseball, what are some things, some, some crossovers from playing baseball to real estate, some similarities you find in, in, in

Chris Pettit: between the two. Yeah, the, the biggest crossover, especially to [00:18:00] brokerage is failure. So, yeah, baseball's a game of failure.

You fail all the time. You know, you fail seven outta 10 times. You'll be in the hall of fame. And you know, this is a game of failure too. You're, you're talking to people and some people are not, not receptive to your call at that time or anything you're saying, but it's really a game of being able to a failure and being able to maintain your composure through the highs and the lows.

This is a game of highs and lows, and that's the same as baseball. So you can't be out there closing a deal. Celebrating, like just won the world series. It's not gonna, it's not gonna pan out. You know, you gotta be back on, back on the grind and work harder.

Sam Wilson: That's it, man. That's it? Baseball is a game of failure.

Yeah. That's kind of funny. I've never heard it quite put like that, but you're right. You know, the what'd you say, what was your statement there? I didn't quite catch that, but it was something about a hall of Famer. If you do

Chris Pettit: what now, if you fail seven outta 10 times as a hitter, you're a hall of fam.

Right. Yeah. If

Sam Wilson: you have a 300 buck average, you're, you're a hall of Famer, which is that's pretty [00:19:00] crazy. I absolutely love it. Chris, if our listeners wanna get in touch with you and learn more about you and what's going on there in your marketplace, what is the best way to do that?

Chris Pettit: Yeah, you can reach me via email or through our website. It's skyline commercial advisors. And I'm also on Twitter. It's CED at eight 15. That's more of a generic following. I do talk some real estate. It's not strictly real estate focused. It's pretty personalized and, and open. But yeah, those two places and email, or my emails on the site, you gimme anytime.

Awesome.

Sam Wilson: Chris, thank you for taking the time to come on the show today. Certainly

Chris Pettit: appreciate it. Yeah. Thanks Sam. Nice to meet you and a pleasure being on the show.

Hans Hansson is the president, principal, and founding partner of Starboard Commercial Real Estate, the largest privately owned and locally-based commercial real estate firm in San Francisco. He joins us today to discuss how the institutions are impacting the industry and how we can still find value in the market. With a long career in the business, he has survived downturns in his long career and he talks about what areas and assets should we focus on and what mistakes to avoid. He believes that a recession is a perfect time to grow and every entrepreneur should be ready to seize opportunities.

[00:01 - 05:27] 38 Years in the Business

• Get to know Hans and what made him become an office leasing agent
• How the business has changed over the years
• The personal touch in business has faded away quite a bit with the advent of email and text

• Industry consolidation is happening
• 70% of the industry are now institutional players
• Individuals can still acquire but once they reach a certain size, they will be competing with institutions or entities backed by institutions

[05:28 - 09:05] On Off-Market Opportunities

• To compete with institutions and to prepare for the looming recession, Hans and his team are looking for candidates to sell
• What is the Delaware Statutory Trust?

[09:05 - 19:22] Thriving in Uncertain Times

• Nonprofits often lose out on opportunities but they find better deals in down markets
• Retail and hospitality are bouncing back while multifamily remains strong
• Hans gives his views on the office sector
• The biggest mistake that people make is that they do nothing during a down cycle
• Everyone should be building their foundation in a down cycle to prepare for the up cycle

[19:23 - 20:59] Closing Segment

• Reach out to Hans!
• Links Below

• Final Words

Tweetable Quotes

"Off-market opportunities… We're focusing in on a couple of buyers, and then on these sellers that are faced with some long-term vacancy that could be extended for a while and see if we can mix and match those." - Hans Hansson

"The guys that know what they're doing do know the market will come back. Now's the time to build your foundation for that next business over and over again." - Hans Hansson

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Want to read the full show notes of the episode? Check it out below:

[00:00:00] Hans Hansson: It's the old fractional interest play that occurred, you know, 15 years ago, except with more protections. So in this case, you can choose to go a higher cap rate that would give you a higher return with more risk, or you could take a lower cap rate. Take lows just the same as any other investment.

[00:00:30] Sam Wilson: Hans Hansson is the president of Starboard Commercial Real Estate. They are the largest locally owned commercial real estate company in San Francisco, and they specialize in office retail and industrial investments. Hans, welcome to the show.

[00:00:42] Hans Hansson: Thank you so much for having me. Hey, the pleasure's mine. Hans, there are three questions I ask every guest who comes in the show: in 90 seconds or less, can you tell me, where did you start? Where are you now? And how did you get there? Well, like anybody that gets in real estate oftentimes is by accident. I had always wanted a political career. I saw myself as being the president of the United States and it didn't quite work out that way. But somebody I talked to that I value dearly when I was trying to figure out what to do with myself, they said you should become an office leasing agent downtown. And I said, what is that? And they go, well, go find out what it is and do it. And I've been doing it since 1984.

[00:01:18] Sam Wilson: Wow. That says not every day you get career advice that someone then followed. '84, let's see, that's 38 years ago. Somebody told you that, is that right?

[00:01:27] Hans Hansson: That's correct. Correct.

[00:01:29] Sam Wilson: Wow. That's awesome. Some things have changed since 1984.

[00:01:34] Hans Hansson: Well, it has and it hasn't. The fundamentals of the business hasn't changed. How we do business has changed for sure. I mean, when I started, nobody was allowed to do a phone call. You had to visit everybody in person, and then we went, you had to do phone calls, nobody could do it by email. And now, you know, the question is, do you do texts, do you do email? And the personal touch that, you know, I was forced to learn and always have applied myself to, that's kind of gone by the wayside and that's unfortunate, but that's, kind of where we're at.

[00:02:07] Sam Wilson: It is where we're at. And it's funny you say that even with investors, you know, it's something that, text is kind of expected at this point. I'm at the point now, you know, investors are texting me and it's like, I probably would never have texted you first, but I guess if you're texting me, whatever. We'll just have this conversation via text that wouldn't have been the way I'd have gone about it. It's funny how things like that have changed. You say things have relatively, the things have changed and yet things have stayed the same. What things do you feel like have dramatically changed, outside of maybe technology uses, but what things have changed in the market themselves over the last 38 years? And how are you taking advantage of where we are in today's cycle?

[00:02:46] Hans Hansson: Well, first of all, I'm a commercial real estate broker. So back when I first started, you know, the business was basically 70% local independent firms, 30% regional firms with no national firms. And this spans between the eighties and nineties today. It's basically 70% institutional players, CBRE, Cushman & Wakefield, the big guys that are now New York Stock Exchange companies and are certainly diversified real estate companies and not just brokerage. And 30% of the business remains in the independent brokerage chains like myself. So, the sandbox of business is definitely very clear. My sandbox is high-net-worth individuals, startups, nonprofits, local business, the families, investment trusts, and the institutional guys pick up the Apples and the Oracles and all those other larger players. So the industry is very clear now on who has what, and again, our niche, our road, which is the independent tenants that we represent are clients that we represent, there's certainly a lot of them. So there is still a future for our business, but it definitely is consolidated down.

[00:04:00] Sam Wilson: And when you say consolidated down, what you mean is that the brokerage houses have consolidated a lot of this. When you say independent versus, you know, institutional, you're thinking more on the brokerage side?

[00:04:13] Hans Hansson: On the brokerage side. But as a result of that, what has also happened on the investor's side is that again, when I first started, 70% of all businesses were owned by local businesses, and so forth. That too has switched over to kind of that 70, 30 realm where now 70% of all businesses is institutionalized and it just keeps on going down, you know, in our market, the San Francisco Bay Area, institutional New York- funded firms started buying multifamily apartment buildings. Those typically were owned by families or high net worth individuals. And now they've consolidated that down into an investment play for an institution. So that business has kind of gone away. You're now even seeing in a residential, where equity firms are now buying single-family homes and institutionalizing the single-family home market. So, you know, the days where individuals can control and garner wealth through acquiring, it can still happen for sure. But the challenges are when you reach a certain size, you run smack dab into the investment guys that are going to be by backed by these institutional players. It's a tough, it's a tough group to compete against.

[00:05:28] Sam Wilson: Yeah, it really is. So what are you telling your families, your family offices and people maybe, and again, your family office is maybe not smaller, but maybe compared to an institution, it is smaller. How are you helping them find value and opportunity right now?

[00:05:44] Hans Hansson: Well, even though, you know, there's signs of recession, even though there's interest rates that have gone up, even though there's an uncertainty of what cap rate we should use to turn values, the reality is that there's still very, very little inventory available to purchase on the commercial side. And I'm talking about all aspects, including office, which has been decimated the most by COVID. So to develop a strategy where you work with somebody like myself that will look for off-market opportunities or candidates to purchase because maybe they have a high vacancy going on and we know the owner, we know they've been sitting on it for a while and they could be candidates to sell. We are doing more, what I would call off-market opportunities, working, focusing in on, strategically, a couple of buyers, and then focusing in on these sellers that are faced with some, you know, long-term vacancy that could be extended for a while and see if we can mix and match those. So, as an example, I recently did a deal. We represented this building since the late 1980s. This woman is now in her eighties. She's by herself. She's got a son in overseas and she was generating about $40,000 worth of income on this commercial office building with retail on the ground. And now the whole building is vacant during COVID. And she's looking herself at the eighties and going, you know, I have no income coming and this was her sole source of income during the life of this building. And so, we talked to her and in years past, when we've talked to her about selling, she never thought about selling. Her belief is you hold, you never sell, but we convinced her that we could move her asset into a different investment vehicle, protect her on 1031 exchange and move her into a different asset class. And sure enough, she did that. We were able to successfully sell the project to a nonprofit. Nonprofits are definitely buyers right now. They are seeing opportunities that were not presented in them before. And so we were successful in selling the building to them. And then we moved this lady into something that's becoming more popular and that's what's called the DST investment. It's Delaware Statutory Trust Investment. This is where you can move your asset into this, protect yourself onto a 1031 exchange, enjoy the benefit of real estate without owning it, or you're owning it but without managing it, and then get a set return. So everybody's in it. American Express is in it, Goldman Sachs is in it, and then Morgan Stanley. You've got what's called sponsors that are building this. It's the old fractional interest play that occurred, you know, 15 years ago, except with more protections. So in this case, you can choose to go a higher cap rate that would give you a higher return with more risk, or you could take a lower cap rate, and take low risk, just the same as any other investment. In her case, she chose a lower cap rate for safety purposes. And now she's enjoying cash flow again, protected by 1031 exchange. And we were able to sell the property. We are doing more and more of that, and that's becoming a much more popular vehicle for the people that just say, you know what, I'm too old, I don't want to do this anymore. I don't want to go through another cycle. I just want income. And that's the way they're doing.

[00:09:07] Sam Wilson: Got it. Got it. That's really cool. I love that. I want to ask a question about something you said, you said nonprofits are buying now and they're finding opportunity. In what regard does a nonprofit find it beneficial to buy now maybe that a for-profit company is not? I guess, but if that's even the right question.

[00:09:29] Hans Hansson: Well, again, given the nature of the fact that the market's very competitive as I started by saying is even though the market's, you know, softened a lot of areas, they're just still not a lot of property available, but a nonprofit typically would get beat out on deals. Because, you know, frankly, the for-profit guys can offer more money can renovate the spaces differently and they've got just a different budget. So nonprofits are usually kicked down the sidelines, so to speak. However, in down markets or in a market like this where office space is uncertain, the nonprofits, this is their market, always has been where they can take advantage of locking in lower rental rates on office face for lease, and then looking for buildings that they can buy. Oftentimes nonprofits can get grants. In this case, a philanthropist actually bought the building for this nonprofit, and this is their market. This is their chance where they can grab and they know it. We're doing right now. We've got three nonprofit deals going on now on the for sale side. One of which is interesting because we just sold the building to an investor who's going to have to do a fair amount of work to the building and lo and behold, a nonprofit had looked at the building but didn't jump on it fast enough. We got into contract right away. And they're now offering a million dollars more than we just closed on the building less than a month ago because they were all teed up to do something, but then the opportunity went away before they could react. That's the problem with nonprofits, they do tend to be slower, so they're going to actually pay $1 million more for this building less than four weeks after close and my guy's going to do it. He's going to flip it because they are poised and ready to go to buy a building. That's very, very hard for them to find. It's also a building that fits into the area they want to be in. And so our guy's going to be enjoying a nice profit and the nonprofit will find a building that, you know, fits what they need.

[00:11:25] Sam Wilson: That is incredible. I love that there's so many nuances, I think, to real estate and commercial real estate that it's always just fascinating to watch the different ways this gets taken down. Tell me this. What are some opportunities, or is there an opportunity in any particular asset class that you're seeing right now that people should be paying attention to?

[00:11:47] Hans Hansson: Well, that's, again, leading to the fact that there's really nothing available, the retail market is definitely bouncing back. And even shopping centers are seeing new interest and, you know, just even six months ago, you know, Westfield, the largest owner of shopping centers in the United States, announced they're pulling out of the United States altogether and putting all of their assets on the market. That was certainly a bad sign for the industry, but you know how things are coming back. And there's definitely renewed interest in retail, both neighborhood retail, leading to large regional shopping center retail. Hospitality has definitely come back. Multifamily has always been strong even in market sectors where they saw a freeze or lowering of rents. That market remains strong. The market that still is struggling is obviously the office market. And this is again where this discussion that we had earlier about institutional players. We're kind of seeing two different markets. We're seeing the institutional market where the institutional market has made no attempt to lower rates at all in the San Francisco Bay Area to try to meet current market conditions. They're holding firm on rates. They're offering larger tenant improvement packages. They're offering free rent incentives, but they're not touching rent. And yet the independent and local owners are definitely becoming more competitive on the rental structure. So the spread between what I would call institutional A quality space and B and C quality space that disparity of rents is growing every day, as rents are softening on one side, but the institutional guys aren't moving at all. Why? Well in the San Francisco area, one of the problems we have os a lot of our assets traded just before COVID hit. So we have new owners, they bought it at a certain coupon rate with a certain rate attached to it. And every dollar that they go down means a tremendous adjustment on value for the overall asset. So they're just simply not doing it. Now, eventually Wall Street will say, look, you got to be real to the marketplace. You can't be 50% vacant and say that we're 95% occupied waiting for a tenant. So eventually this will get caught up as it has at other down cycles. But right now there's been no challenge to the institutional guys to lower value. So in terms of opportunity, I would say the secondary office markets are probably a place that will come back and could offer some real opportunities. I would say the downtown office sectors B and C markets would be more dangerous because I don't think the rental rates have flattened enough yet to determine how far down we're going to go. If you're a long-term holder, when I say long-term, at least 10 years, these are cycles and the market will come back. But it's still, the tea leaves cannot be read yet when it comes to downtown core office. But secondary outlining area markets, that's an interesting place to be because if hybrid is going to take hold, then your suburban marketplace where somebody says, you know what? I don't want to go back downtown, but I can't stay in my house all day. Let's have an office close to my house, you know, in a suburban market where I live, I don't have to commute. I can still have an outdoor office. I still don't have to be with a ton of people. I can see that happening. I can see larger operations now doing satellite offices which means that instead of having everybody in one block, they'll start having pods of offices throughout secondary markets. So the suburban market office space, your pricing tends to be lower, that you have opportunities to buy things away from the institutional marketplace and go back to that high net worth investment trust, people that are playing in the smaller marketplaces when I say smaller 25 million or less. That is a place where this potential value add for somebody today.

[00:16:09] Sam Wilson: Got it. I love it. Thank you for breaking that down for us. Tell me this. Rewind the tape through your last 38-year career and what is a mistake that you feel like you've seen repeated over and over that maybe could have been completely avoided?

[00:16:26] Hans Hansson: Well, this is my fourth downturn. And this COVID attack reminds me a lot of the 1989 earthquake that hit San Francisco, where the market just crashed. There was a tremendous amount of uncertainty as to whether the next earthquake was going to hit. And it kind of walled around for about two to three years before it finally stabilized. And then something new came out. What happened in our market in the early nineties, something called fiber came into play and something called the internet, the worldwide web came into play. That industry caught on in San Francisco and a lot of our warehousing and offices were converted into this creative tech space and then it went on to another cycle. So I envisioned that this would happen again in this cycle, I think that people will go back to offices, but they may go back in a different environment. It's very, very clear that the conventional office of the past has been converting itself even before COVID into more what I would call, I call it more attributed to an airport. Where you look at an airport, leisure area, offices are starting to look a lot more like that than they are traditional desk, desk, desk, office, office, office. Right. So I can envision that happening, but I would say if there's a mistake that I have made, and I think others have made is when I look at who has really made it in business, and I think of one particular guy that it really is probably under the radar screen. One of the richest guys in the bay area that nobody knows. A self-made man, he told me a long time ago. He says you use every down cycle to do all your improvements so that you're ready for the next cycle. So what he does is he takes down a building, he does his improvements. He knows that to do improvements in San Francisco, between permits, getting your design, and so forth is at least 12 to 18 months. And if you look at all the historical cycles, that's typically what the cycle is, 12 to 18 months. So by renovating that building and getting it up and running he is ready to go for the next cycle. So what he does is he renovates during the down cycle, he buys or leases the buildings when they're at an up cycle, and then takes his money out, so he has cash to buy for the next cycle. So that is the right thing to do. And yet the mistake I see over and over again is in uncertain market, everybody just retrenches and does nothing. They don't jump into the pool, whether it's cold or hot and just start swimming, they wait. And that's the problem. Because the guys that know what they're doing do know the market will come back. Now's the time to build your foundation for that next business and over and over again, the richest people that I know have always taken advantage of that. The ones that aren't are not that rich.

[00:19:23] Sam Wilson: Awesome. I love it. Absolutely love it. Hans, thank you for taking the time to come on the show today and really give us just kind of your breakdown of where opportunity lies, mistakes we can avoid, things that you've seen change. We've talked also about Delaware Statutory Trust. We've talked, you know, the nuance of even nonprofits, you know, coming in as buyers and just how that segment of the market can present its own unique opportunities. And just where things are for you guys there in the San Francisco and surrounding markets. I appreciate your taking the time to come on the show today. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?

[00:19:59] Hans Hansson: hanshansson.com, H A N S, Hanson, H A N S S O N . com. I also have a book that I wrote that you might find interesting, Stop Selling Yourself Short. You can find that on Amazon. It gives you a lot of good tips on how to survive and grow in your real estate career, both as an investor and as a broker. And love to have a chance to talk to anybody that would like to reach out.

[00:20:25] Sam Wilson: Awesome. We'll make sure we put all of that there in the show notes. Hans, thank you for coming on today. I do appreciate it.

[00:20:31] Hans Hansson: Thank you. I appreciate you inviting me.

Welcome back to How To Scale Commercial Real Estate. We are joined by Fred Moskowitz. Fred is a mortgage note investor and industry veteran who has been buying and selling notes for over ten years. He focuses on residential notes and believes it's a solid and stable asset class in the current market environment. Fred continuously monitors risk and does his best to stay ahead. Let's join Fred as he shares his journey with us!

Highlights:

[00:00 - 06:39] Opening Segment

• Fred Moskowitz is a note investing veteran and has managed a mortgage note investment fund.
• He focuses on residential and performing notes and believes the current market conditions are good for performing notes.
• Risks in the note-buying industry include increased regulation and threats to property.

[06:39 - 13:22] How to Shop for and Buy High Yield Notes

• You should be proactive in notifying your HOA and HOA board of any delinquencies or issues with the property.
• You have the right to protect your interest in the property by reinstating delinquent taxes, association dues, or a senior mortgage.
• Several vendors and services will monitor your property at a low cost.
• It's not a problem as long as you stay on top of it, but if there are any issues, you can get help from a note servicer.

[13:23 - 19:36] Fred Moskowitz on the Importance of Notes Investing

• Fred discusses that they can buy notes that originated 3, 5, or 10 years ago.
• Those notes can be rated and locked into those loan documents that will never change.
• They always will pay the same payment, the same interest rate as In the promissory note.
• If the interest rate environment continues to rise, that will impact pricing.

[19:36 - 20:25] Closing Segment

• Reach out to Fred
• • See links below

Final wordsTweetable Quote

"Be a lifelong learner, never stop learning."- Fred Moskowitz

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Connect with Fred Moskowitz by following him on www.Fredmoskowitz.com

Or www.giftfromfred.com

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

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Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

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Want to read the full show notes of the episode? Check it out below:

Fred Moskowitz: [00:00:00] As you have more experience, you may be willing to take on a little more risk, maybe buy a note that has a problem.

and that warrant's a lower purchase price. If you know how to fix that problem, you could benefit. You could benefit because problems come up with notes and it's like anything else with enough time and enough money. Any problem can be solved

Sam wilson: Fred Moscowitz manages a mortgage note investment fund that is considered an industry veteran within the note investing arena. Fred, welcome

Fred Moskowitz: to the show. Thank you. Thank you, Sam.

Great to be here.

Sam wilson: Hey, the pleasure's mine, Fred. There are three questions. I ask every guest who comes in the show at 90 seconds or less. Can you tell me, where did you start? Where are you now? And how did you get.

Fred Moskowitz: Yeah, absolutely. I started out working as a computer [00:01:00] engineer in the technology sector, had a great career with that, but through all the turmoil, the bursting of the.com bubble and everything that happened there, I realized that I needed to have other sources of income so that I wasn't taking that risk of relying solely on the paycheck for my job.

And so from that, I got involved. Active investing in different types of assets, rental, real estate built up a portfolio there. And then after some time I got involved in mortgage note investing, which is the whole idea is buying notes. And then you step into the shoes of the bank. You become the one receiving those monthly payments and I've started to scale.

And grow that business. And over the years it has evolved. Eventually I formed my first note fund and started raising capital . Through offerings. And and that brings us to where we are today. [00:02:00] Is

Sam wilson: there a particular type of note that you're buying? I know that there's such things as first liens performing notes there.

Second liens. Yes. The non-performing notes. Is there a flavor that is the one that Fred really likes.

Fred Moskowitz: Yeah, absolutely. I focus on residential notes, performing notes, and we buy all over the country nationwide. But as you mentioned, yes, there are so many types of different types of notes, different niches, and they all have different business models around them.

But some do better in certain portions of the market cycle and others. But right now in , the environment we're in, I find that performing notes on residential properties is a very solid and stable asset class. And so . That's where , the majority of my focus is at this time, at this point in the market cycle,

Sam wilson: Got it.

Got it. So that's where you're seeing opportunity. What are some risks [00:03:00] maybe in some of the other types of notes that are being bought right now that you're avoiding.

Fred Moskowitz: It's about managing risk and doing good due diligence. Some of the risks that, that I see in the industry, there is a growing trend for increased regulation from government.

The government, both at a federal level and at a state level. And so that's always something to keep an eye on for us that are active , in the industry. Other areas of risk are looking at. Since we're buying notes that originated maybe several years ago, we have to look at current market conditions and seeing if there's there might be any negative impacts that are there.

So that's always a concern. And with any type of note, there are always threats to the lean threats to the lean could be taxes going delinquent or homeowners association. Going delinquent or a senior lean that might be [00:04:00] ahead in, in priority. Not being current. So there's all these different risks that are out there.

However they can all be managed. They can all be managed with the proper. Processes and systems in place. And so it is important to do that. People sometimes think, oh, node investing can be passive. I'll just buy some notes and put them off on the side and that's it. But it does require constant monitoring.

And you can either do that yourself, or you can outsource that through different service providers to help you, especially if you have a larger portfolio, you're absolutely gonna need help with.

Sam wilson: Why does someone invest in a note buying fund versus going out and just acquiring a handful of individual notes on their own?

Fred Moskowitz: Yeah. Great question. Great question, Sam. It really comes down to how much time do you have available and how much time do you want to dedicate to being. An active node investor [00:05:00] node investing takes a lot of time. It's really a full time business to be successful for you to be effective. And so if you are seeking to dedicate yourself to that being an active investor is a great way to go, going out, buying those notes, creating those relationships with the people in the industry, to be able to have access to buying notes and sell notes.

For many people they don't have that time or they're focused on. Their own business, their own career. And so a better option is to be a passive investor in a note fund, the same way with investing in an apartment syndication. Right. For instance, for me, I do not wanna own a large 500 unit apartment complex.

I have no business doing that. However, I love the asset class. So yes, I will invest passively in a syndication and benefit from. And with node investing, investing in a note fund, it's the same idea, , the passive investors, [00:06:00] you as a passive investor, you're able to leverage the expertise, the experience, and the relationships that the fund managers have and benefit from that.

And so it creates a win-win relationship.

Sam wilson: What are some things you're doing on? I know you, you mentioned some of these risks we'll kind of circle back in the conversation. You mentioned some of these risks. What are some things you're doing to stay on top of those? I mean, I can imagine that if you get a super lean, such as, city or county taxes.

Yep. Right. They're gonna probably notify you as the lender of record, I would assume. But how do you stay in front of those things? Just to kind of offset some of that risk, I'm thinking. Maybe HOA and HOA, I'd probably imagine probably also gonna yeah. To notify.

Fred Moskowitz: Absolutely.

But absolutely. , you need to be proactive with that. Now there are several vendors and services that will do monitoring on your behalf and they will check regularly. You can check it yourself as well. If you just have a small [00:07:00] portfolio of notes. Sure. It's a. Phone call down to the tax assessor's office to make sure that taxes are paid.

Yes. In most states you are supposed to be notified and, and all this, but not every state. And so I wouldn't rely on that. And if you're getting a notification that's really far along in the delinquency, so . It's better to get ahead of the curve with that. And as the lender, you have the right to protect your interest in the property.

And part of that is you can reinstate delinquent taxes. You can reinstate delinquent homeowners, association dues. You can reinstate a senior senior position mortgage as well. And so these are different ways that are part of the rights and remedies that are in the mortgage documents.

Sam wilson: Got it. Got it.

but other than hiring a third party service or not third, that's not the right word. Third part third but hiring a third or an independent company that, that monitors this for [00:08:00] you, is it otherwise just a manual process of just, Hey, every once a quarter, we make 500 phone calls and make sure everything's paid up or what's the process there for you?

Fred Moskowitz: Yeah, absolutely. It's something you can do annually or biannually is usually enough frequent enough to check on that. And there's some great monitoring services out there that will do this at a very low cost. They'll send you a report and then you can look over that and see, but in general it's not a problem as long as you stay on top of it.

And if there's any issues, you can . The right help involved, but definitely having a note servicer in place is key. They are one of the key members of your team to be successful and they handle a lot of on the ground. A lot of the hands on activities that go on.

Sam wilson: Right. That's really cool.

I love it. What is something, what is a mistake that you have made in the note investing business and how would you tell someone [00:09:00] else to avoid

Fred Moskowitz: it? Oh, great question. So a mistake that I made early on was buying small value notes, small loan balance notes, and here's why. for someone that's not familiar, just getting started, they may see a small balance note, a note with a principal balance of $10,000 or $5,000.

Right. They're out there that you'll see them out there. But what I found over time is that it's the same amount of work and expense. As it it is for a $5,000 note or for a $50,000 note or a $500,000 note, same exact expenses, same amount of time and effort. And so why focus all of that on the small notes, because the ratio of the work and expenses to, to what you're making on that it's not good, not good at all.

And. [00:10:00] Go into larger size assets, as best as you can because that's gonna be the best use of your time and your resources.

Sam wilson: Yeah. Well, I mean, that's that goes hand in hand with kind of the theme of the show, which is how to scale commercial real estate. I was at the title of it. Yeah. But that over and over, which is like, it's just as much work to close one, single family residence, as it is to buy an entire apartment complex, it's exactly the same amount of work it's like, , it's almost the same amount of papers.

Maybe a few more, but not. Not dramatically, like, so you can find a 10 million apartment complex or a hundred thousand dollars house it's, one might be slightly quicker than the other, but still in the end, it's just not a dramatic difference in the amount of work it

Fred Moskowitz: takes. Yeah, exactly. I love that Sam.

And that, like you said, it's the theme of your show, the ability to scale and ramp up. That's what has the most impact you in your business and your growth [00:11:00] trajectory?

Sam wilson: Absolutely. Let me go back to maybe some more tactical things that you're doing inside of your business. So you're buying first position, performing notes at the moment, I guess.

How do you do that at scale? I mean, is there. There big note buying platforms out there that you just filter through and buy ones you like, is there relationships with banks? Is there, how you doing that?

Fred Moskowitz: Yeah, this is highly relationship based, highly relationship based. And so, I've been active in this industry for.

The past dozen years. So we've built a lot of relationships with note sellers with other hedge funds with note funds and we buy and sell notes between each other all the time. And so having those in place, it really allows for better access of notes. Yeah. There's some exchanges where you could go and buy like a single note here and there, but.

[00:12:00] Eventually, when you're buying in bulk with larger purchase prices and larger volume of notes, that's gonna give you better access. It's almost like you can shop at a different store. When you're doing this and it opens up a lot more possibilities, a lot more opportunities. So in summary, to answer your question, it's through personal relationships we all know each other.

In the note industry, we go to note conferences and industry events see each other. And so it's super important to maintain those relationships on an ongoing basis. ,

Sam wilson: let's talk about interest rates for a second. This is a good question. I just thought about is there a correlation between the price that you pay for the note and the interest rate that loan is paying as interest rates have climbed?

Yes. Are you gonna now pay more for a note that's paying five and a half percent than you would for the one that was generated originated three years ago, that's paying two and a half.

Fred Moskowitz: Yeah, absolutely. That will [00:13:00] impact the pricing. It's all based on the yield and when notes are bought and sold, it's not so much about the loan balance itself, but the yield based on that loan balance and the loan may be discounted to get it to the appropriate yield for the marketplace.

And so that, that does influence, but keep in mind, Sam. S we may buy notes that were originated three years ago or five years ago or 10 years ago. Right? And so the rate is whatever it was locked in into those loan documents that will never change from the point of view of the borrower. They always will pay the same payment, the same interest rate as.

In the promissory note, but move, as things, change things evolve. If the interest rate environment continues to rise. Yeah. That will definitely impact pricing. For sure.

Sam wilson: Right? Yeah. I would imagine that the price of that loan [00:14:00] would go down as it's trading hands between you and whoever's selling it.

Like if say they're selling it to you, it's gonna cost you less in the front to buy it. Cuz the yield's lower. Is that right?

Fred Moskowitz: It may go down, but it may go up. There may be a stronger equity position backing that note. There may be a change in the profile, the borrower of their track record. If the note today has.

Let's just say a little bit of a blemished payment history and then two or three years into the future that gets cleaned up. The borrow is on track with all their payments. The note could be worth more actually for that reason. And so there, there are some different influences for sure. But what ends up happening in this industry?

If you think about it, notes have a life generally of five to seven years before the property gets refinanced or sold. And so you constantly get notes that are being paid off. And so at that time, you're redeploying the capital at the current market conditions. [00:15:00]

Sam wilson: Got it. That makes a lot of sense. And I like the idea I'm kind of imagining, like, and I know you're buying these in bulk, but I'm kind of imagining like this matrix where you, like you put, I mean, there's a whole bunch of different things you're considering.

Yeah. That can kind of spit out. Hey, here's the actual value? Here's the price I'm willing to pay for that? No, like, oh, okay. We've got a. A borrower that pays on time. It might be at a 3% interest rate, but they've never missed a payment. There's all these different things. The neighborhood is amazing.

The demographics in the air and the zip code are incredible. And so it's okay. Well that note's worth more than maybe, I'll note that didn't have

Fred Moskowitz: those characteristics. Yeah. A absolutely. And another thing over time is have, as you have more experience, you may be willing to take on a little more risk, maybe buy a note that has a problem.

and that warrant's a lower purchase price. If you know how to fix that problem, you could benefit. You could benefit because problems come up with notes and it's like anything else with enough time [00:16:00] and enough money. Any problem can be solved, right? If there's a document issue, title type of issue, it may take a year to, to do the legal work and the expense to clean that up.

But in the end now you have a clean file, all tightened up, and the value is now greater than what you bought it for.

Sam wilson: Oh, yeah, no, I'm an investor in a fund that does just that. I mean, they bring on some, really some really hairy deals, but the returns are exceptional because they've figured out how to do it.

And it's like, wow. They're, I mean, they're buying stuff with hair on it, but we all know it going in. It's like, well, okay, good. And I think that's a cool, a really cool model. And again, it just shows the opportunity that's out there for those that, that understand and know how to seize it.

Fred Moskowitz: Yeah. It's just like, Buying larger multi-unit properties. Multi-family if an asset has been neglected and it can be repositioned, there's a lot of opportunity there for a seasoned operator to come in and increase the [00:17:00] value.

Sam wilson: Yeah, absolutely. Tell me this what's one thing a mentor or a coach told you that you would say is probably one of the, or the best piece of advice you've received about your industry.

Fred Moskowitz: The best piece of advice that I've ever received is this. Be a lifelong learner, never stop learning. And I'd love to share a little quote with your audience, right? I'm a Philly guy. I'm from Philadelphia. And I love to look back at one of our founding fathers, Benjamin Franklin, and he left us with this beautiful quote.

It's beautiful. And it goes like this and investment in knowledge always will. The highest interest and what that, that means is always invest in yourself in your learning, in your development, right? Attend workshops, attend conferences and events where you are around. People that are ahead of you in your industry.

And you can learn from [00:18:00] them, learn, stay up to date and grow your knowledge because no matter what happens, that can never be taken away from you. And so, it's always like the first place to start invest in yourself, invest in your education. No matter what level you're at, you're never going to like hit some level and say, okay, I'm done.

I know everything. It's not like. It's not like that. How many people do you know that once they graduated high school or graduated college, they never cracked another book again. And that's such a shame. It's such a shame, right? I mean, always seek to be learning, expand your knowledge, learn different things.

And that is gonna open up your mindset and open up all the possibilities for. I

Sam wilson: absolutely love it. Couldn't said it better myself. Fred, thank you for taking the time to come on the show today and share with us the note investing business, how you guys are finding opportunities, what it means to invest [00:19:00] in a fund, the types of notes that you guys are buying some of the risks that are out there in the marketplace.

And yeah, I mean, there's just been very informative. Appreciate you taking the time to come on this show today. If our listeners wanna get in touch with you or learn more about you, what is the best way to do that?

Fred Moskowitz: Thank you, Sam. The best way to connect with me is to visit my website, which is Fred moskowitz.com.

However, if you prefer an easier spelling, you can always go to gift from fred.com and sign up there and have a special report about node investing, happy to send out by email to any of your listeners.

Sam wilson: Fantastic. We'll make sure that gets in the show notes there. Gift from fred.com and we'll also put Fred Moskowitz in the show notes.

As well. Fred, thank you again for coming on the show. Thank you so much, Sam. I appreciate it.

Keith started in commercial real estate sales, which provided him with the foundation of knowledge to build a successful real estate investment company. He built Dual City Investments on the foundation of fidelity and integrity, and he is always looking for areas of improvement and a desire to do things differently. He has a diverse background in federal law enforcement, entrepreneurship, and education, and is a published author.

In this episode, he talks about the tax strategies used to invest in real estate and the funds you can invest in.

[00:01 - 04:01] From Federal Government Employees to Real Estate Investors

• He and his partner started with real estate syndication and exited with about 25 deals

• Keith is now focused on industrial assets

• Scaling on different classes without losing focus

• Sometimes the assets you didn't think would perform are the ones who bring you cash flow

[04:02 - 10:16] Closed-End vs. Open-End Investments: What's the Difference?

• Keith talks about the advantage of being a liquid investment

• There are significant differences in the structure, pricing, and sales of closed-end funds and open-end funds.

• The best time to move to an open fund

[10:17 - 15:22] What Is A 721 Exchange And How Does It Work?

• Not a fan of the 1031 exchange? Try the 721 exchange
• Keith will strengthen his marketing efforts
• Let the people know how they started, what they offer, and eventually work with accredited investors who believe in the same vision
• The one thing Keith believes he'd done well that people can emulate

[15:23 - 16:42] Closing Segment

• Reach out to Keith!
• Links Below

• Final Words

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Connect with Keith for real estate investment opportunities! Visit the Dual City Investments website now.

Connect with me:

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.

Facebook

LinkedIn

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!

Email me → [email protected]

Want to read the full show notes of the episode? Check it out below:

[00:00:00] Keith Nelson: If cap rates rise, and we're in a closed-end fund that might hurt our exit in this fund we could continue to buy. So in turn with that 721 Exchange, we can offer units in our funds and absorb a property and then that owner their equity becomes you know, part of that fun, right so you know, then that's tax deferred until they want to exit and then once they exit the regular you know, capital gains taxes will apply to them. But if they request you know, a cash out at any point, that portion of the cash out is going to be, you know, taxed as a as a regular exit on real estate.

[00:00:50] Sam Wilson: Keith Nelson has a diverse professional background, he has the experience needed to adjust and overcome obstacles and challenges that he is confronted with in the investment real estate industry. Keith, welcome to the show.

00:01:01] Keith Nelson: Hey, thanks for having me.

[00:01:03] Sam Wilson: The pleasure is mine. There are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me where did you start? Where are you now? And how did you get there?

[00:01:10] Keith Nelson: Okay, well, if you want the full story is gonna take longer, 90 seconds. But I started in a car with my partner. We both worked for the federal government. We were on surveillance. So that's where this whole concept started. How we got here, we've we started with syndication, real estate syndication, we've exited about 25 deals. And we're currently on our second and hopefully final real estate fund.

[00:01:38] Sam Wilson: Second and final real estate fund exited 25 deals, what asset class?

[00:01:44] Keith Nelson: We started in multifamily. But we have experience in pretty much every asset class right now. So multifamily storage office, hotel, even land development lots. I mean, we've done it all.

[00:01:59] Sam Wilson: Right. Is there anything right now that you guys are particularly focusing on?

[00:02:06] Keith Nelson: Strong focus on findings on industrial assets. You know, with the latest bills passed about bringing manufacturing back home, I'm from the southeast. So there's a lot of projects, I think they could plant like 5 million square feet of industrial development. So we're focused on that right now. But it's not the same, we wouldn't, you know, take on any deal that had the right opportunity.

[00:02:31] Sam Wilson: How have you found an effective way to scale, you know, being so broadly focused? How, how have you done that? And because obviously, you guys have found a way to meaningfully scale into a lot of different asset classes. I guess, if I can find the right question, how have you found a meaningful way to scale into so many different asset classes without experiencing I guess, dilution with your focus?

[00:02:55] Keith Nelson: Great question. We, like I said, we started in multifamily, that industry got real tight. And we pivoted over to self storage that industry's gotten real tight, real compressed cap rates. Really, we tested this model out on our first fund, which was a closed-end blind pool fund, and we started with multifamily. Then we went to class A office, we had a boutique hotel, and we had self storage with some landlords. And through COVID, we actually proved that concept because we saw our multifamily, which we thought was a very strong asset, you know, all the moratoriums they put on, people weren't paying rent. So that stopped cash flowing. But our other assets sometimes is the one that we didn't think would perform that great, such as a boutique hotel, where we're carrying the cash flow or fun. So throughout COVID, we didn't miss a distribution. So we had since exited that, but that kind of proved the concept. And we wanted to move that over to a more open-end fund, which we started now.

[00:04:00] Sam Wilson: Got it. And so the first fund you guys did was you call it a closed-end blind pool fund. How does that differ, you, said you're in right now you've got to open-end blind pool fund. Is that right?

[00:04:12] Keith Nelson: Yeah. So so closed-end means we've raised capital for a certain amount of time. And then we have X amount of time to deploy that capital. But then once it's deployed, you know, that's it, there's no more raising, you know, we have a set horizon on the fund. So we close it out after five years, and, you know, if successful, everyone made their, you know, 20% IRR and you know, they went home, but we feel like if we were able to continue to reinvest and compound those investments, we feel like we could have blown that up. We started we were going to launch our second fund right before COVID. And no one wanted to lock up capital then just no one. You know, everyone thought the world was going to end. As did I, I didn't want to lock up my own capital. So, we went to more of a debt structure, we did that for about a year and a half. And we gave the people option of, hey, look, we don't like, you know what we're investing and you can take your money. So, so that's what we, we structured our this other fund around where we're more structured like a REIT than a private equity fund, but we are d it is private equity. And people have the ability to come in and out. So I tell people all the time, like, you know, look, if we, we start buying stuff that you don't agree with, then you know, request your capital. So, you know, we plan for them. And we went, you know, for that not to happen, of course, but that was the benefits that we like to offer.

[00:05:40] Sam Wilson: Got it. Can you quickly break down for us the difference between the closed-end fund and the open-end fund? I mean, obviously, there's the open, and then it closes, but well, I guess strategically what benefits you and what are some, I guess, things to consider on whether you pick one or the other?

[00:06:00] Keith Nelson: Yeah, so like I said, the compounding returns, right? So if we sell an asset in the open-ended fund, we could go redeploy that capital, right? So if there's a margin that we've made on that asset, we go redeploy it, you know, put, leverage it, put that on it, and then the returns will hopefully go up for all the investors as well, the unit price of the units now. So instead of one sort of one cash out at the end of the term, you know, we leave it up to the investor where, okay, well, we reevaluate the share price after certain raises that we have, right? So we plan to do it yearly or not that we just launched it this year. So we're not at that point yet. To answer your question, it's the compounding effect of reinvesting capital after we get exited exit a property.

[00:06:49] Sam Wilson: This is kind of a newer, you know, I haven't talked to a lot of people about this concept. I've never done a fund myself. So my question is going to kind of be somewhat from an ignorant point of view. But is there so on an annual basis, you guys reevaluate the share price, I guess, of the fund. So, you know, every 12 months, you say, Okay, well, last year, it was worth 10 bucks this year, it's worth 12 bucks a share whatever it is, I'm just making it up. Is there a potential that you could ever have a run on the fund?

[00:07:18] Keith Nelson: Run as with the withdrawals?

[00:07:20] Sam Wilson: Yeah.

[00:07:20] Keith Nelson: But it is a private equity fund, we're not a publicly traded REIT or anything. So you know, we specify that if we have the liquidity available, you can exit the money. But, you know, I tell investors all the time, like, Hey, this is not a, you know, in Oh, crap scenario, where well, World War Three breaks out, everyone wants to take their capital out, it doesn't work like that, because there's not going to be the capital there. Right? It just a benefit. We like to offer investors where, you know, if someone's got money invested, and they want to know, by Lakehouse, or, you know, a Porsche or something, they have the ability to take it out. It's not locked up for X amount of time.

[00:07:56] Sam Wilson: Right. But you guys still retain the ultimate yes or no authority on that? You can say, hey, look, you know, you can't withdraw right now, because there's just the liquidity is not there. Is that right?

[00:08:08] Keith Nelson: It's actually written in there. If it is there, then we're required to but if it's not there, then yeah, no, we can't, we're not going to, you know, dilute, sell off assets to, you know, cash somebody out, because that could hurt the overall plan on fund. So, if the liquidity is there, we are, you know, required to meet that.

[00:08:28] Sam Wilson: Are there any reporting requirements that are different in an open-end fund versus a closed-end fun?

[00:08:36] Keith Nelson: No. I mean, the only other, I guess requirement is, we do use a third party service to to evaluate the unit price, or sorry, the asset values, and then it's just simple math to do to calculate the unit price. But other than that, now, there's, like I said, we're still private equity. So we still, you know, it's still a reg D filing, it's not a it's not a REIT, with REIT comes extra reporting and all that so we are still private equity just structured similarly to REIT.

[00:09:07] Sam Wilson: At what point in $1 amount, I guess, or maybe there's a wrong question to ask but maybe I can think about it but assets under management at what point in in that process is it makes sense to move to an open-end fund is there like hey, you need to have 100 million needs to be you know, 2 billion, whatever it is like what's the what's the number for you where you figured out that it makes sense to move to this model?

[00:09:31] Keith Nelson: No. Like I said, we just launched this year. So we're fairly new. There's no minimum dollar amount tha, there is a minimum, I mean, it does make sense if you're moving this structure to a private or public REIT, which we are set up to do on our docks. But we'd have to be over 100 million AUM to even consider that just because there are so many other extra expenses with running a REIT versus a private equity fund. But now similarly, it's really not that much different than a typical fund or a typical syndication.

[00:10:03] Sam Wilson: Yeah, no, that's really cool. Thanks for taking the time to kind of break down some of the nuances of that for our listeners, I know that's gonna be an interesting topic, and something that we don't get to talk about a lot. So appreciate you kind of sharing your thoughts on that. One other thing that we had talked about, that you guys have as an option in this fund is what you something about a 721 exchange, I think you had mentioned to me, before we kick this off, what is that?

[00:10:26] Keith Nelson: Sure. So I mean, I guess the backup, which goes along with the 721, you know, another benefit of us having this open-ended fund is we're able to buy and sell through all the market cycles, right. So, you know, cap rates rise, and we're in a closed-ended fund, that might hurt our exit in this fun, we can continue to buy. So in turn with that 721 Exchange, we can offer units in our funds, and absorb a property, and then that owner, their equity becomes, you know, part of that fun, right, so you know, then that's tax deferred until they want to exit. And then once they exit, the regular, you know, capital gains taxes will apply to them. But if they request, you know, to cash out at any point, that portion of the cash out is going to be, you know, taxed as a, as a regular exit on real estate.

[00:11:16 ] Sam Wilson: So let me get this right, you've got a seller that wants to sell a property and they can sell that property into your fund, essentially tax free on that initial sale, is that right?

[00:11:30] Keith Nelson: They could exchange it right. And yeah, it's not a sale, so we absorb their interest in their LLC, you know, sometimes we'd have to, you know, bring capital to pay off their loan or, you know, cash out a partner or something like that. But then they if they're interested, they become an equity, part of, you know, an LP interest in into our fund. So that coupled with that open-endedness, you know, gives us the ability to just keep churning and compounding the returns. And, you know, it's so far so far, it's working out pretty well.

[00:11:59] Sam Wilson: And so from a tax deferral standpoint, that's beneficial to the seller.

[00:12:05] Keith Nelson:That is correct.

[00:12:05] Sam Wilson: Right. Okay.

[00:12:06] Keith Nelson: So those people that are not fans of 1031, perfect, perfect for that, which I'm not a fan of 1031. So I found this, this code a couple of years back and figured out how to work it into, our private equity fund. And, you know, so far it's, it's, we've done a couple 721 exchanges, but like I said, we're just kind of getting our wheels rolling here.

[00:12:32] Sam Wilson: Yeah, no, that's really cool. That's something until the day I've never even heard of. So that's really cool. How do you have that conversation with the seller? Is that something you guys go to? I mean, is it every seller, you say, Hey, we have the potential to 721 exchange this?

[00:12:48] Keith Nelson: Generally will, we'll want to buy that asset regardless, so we'd probably lock it up under you know, regular cash purchase. And then we may have that conversation. If it fits. Sometimes it doesn't fit, you know, sometimes it fits great. Sometimes there they can increase their cash flow by coming over. Sometimes it doesn't, you know, we'll be honest and open with them and tell them it's probably not worth it. So, depends on the situation depends on what asset it is.

[00:13:17] Sam Wilson: Right. That's really interesting. One of the things we talked about off air was you guys are in the middle of a big marketing push. Sounds like you guys have done a lot of deals, you've done a lot in a lot of different asset classes. You got a lot of experience under your belt. What does that mean? A big marketing push.

[00:13:34] Keith Nelson: Well, for us, that means starting marketing. We've never, we've never done anything. I think this is like my third podcast, or, you know, in the like, the eight years we've been in existence. So yeah, we're just we're just trying to get the word out. Now. It's, it's, it started off as friends and family I told you, me and my partner, you know, we're on surveillance and came up with this idea of, you know, what builds wealth and why are we sitting in a car, you know, eating pizza and using porta potties as the restroom, but, you know, real estate is obviously a huge wealth builder, and we kind of wanted to bring it to our friends and our family and that's how we started. So we've grown just by word of mouth. But now you know, we're looking outside for you know, more accredited investors that are like our plan and want to get involved.

[00:14:20] Sam Wilson: That's really, really cool. When you rewind the last eight or nine years, you guys have been in business. What's one thing you feel like you've done really well that other people should emulate?

[00:14:30] Keith Nelson: We take care of our investors. But that's a cop out answer. I think we concentrate on really the assets and protecting our investor capital. And that kind of led us to the whole fund approach. Because when we did, we're doing syndications, you know, we had three or four of them going at one time, and, you know, you might get one that's lagging behind the other three, and that's where all your attention and efforts going to and, you know, we just sat back and reflected once we did it, it was like, man, if we had them together, that would have been a really kick ass, you know, fund. That's kind of where the whole idea came, came from. It's protection of capital, like, my grandmother's money is in our fund, you know, so, last thing I want to do is lose that. So, you know, that's, that's our focus is protection of capital, I think we do that better than most.

[00:15:21] Sam Wilson: That's awesome. I absolutely love it. Keith, thank you for taking the time to come on the show today break down for us where you see opportunity. And you know, spending a lot of time telling us about how funds are structured, the division closed in funds, and opening funds and the nuances to opening and launching each of those respectively, the various asset classes you've been involved in where you guys are currently finding opportunity. And then you know, one way to find success, and that was by taking care of your investors. So thank you, again, for taking the time to come on the show today. If our listeners want to get in touch with you or learn more about you what is the best way to do that.

[00:15:57] Keith Nelson: Yeah, they can just go to our website and the numbers there are emails there. It's dualcityinvestments.com

[00:16:03] Sam Wilson: Dual City Investments, we'll make sure to put that in the show notes. I'm sorry. Was there something else you wanted to add to that?

[00:16:08] Keith Nelson: Thanks for having me, Sam. I enjoyed it.

[00:16:11] Sam Wilson: Absolutely, Keith. Thank you for coming on to appreciate your time today.

[00:16:14] Keith Nelson: All right. Appreciate it, thanks.