Commercial Real Estate Investing From A-Z

What are some ways to increase income on a commercial property? Joseph Woodbury, CEO of Neighbor, shares his knowledge. Read this entire interview here: https://tinyurl.com/wewybvt5 What kind of fees do you charge and how does it benefit the property owner? We only make money when our partners make money. We don't charge any upfront or recurring fee, free to use the service. Just like an Airbnb or other marketplace, will take whatever you decide to charge as a host and we'll charge the renter a service fee on top of that, and that's where our money comes from. It is a sliding scale take rate based on the size of the dollar amount of the rental. For smaller rentals, if it's $30 a month, we're going to take a high percentage take rate on top, to make the money that you need to, versus we have some spaces that rent out for 1000s of dollars a month, we're going to take a very low percentage take rate on top of that. It varies by the amount. But again, very similar to what you'd see on Airbnb, where it kind of slides based on the amount of the reservation. Have you scaled the operations to cater to your partners who are listing their spaces with you? It's very much scaling the technology. The value of the platform is the value of the tools that we provide. Every year we're trying to think how can we make this more of a passive income experience for our hosts because that is one of our differentiating factors. If you think of other marketplaces, to make money on Uber, there's labor involved, you have to go drive around, or Instacart or DoorDash, and you have to work for the income that you earn. Even Airbnb tends to have a decent amount of management and turnover and customers. Oftentimes, management companies are hired, Neighbor, on the other hand, is the first platform where we can bring you a renter, and you're going to get a payment from that renter every month without doing much of anything, it's very passive income. Further along in the business, we've gotten the bigger hosts and have started to use the platform to where today. We have hosts that may own a $30 billion real estate portfolio across the country, office or retail or multifamily and they're listing lots of space on our platform in 100 cities. The tools required to manage that amount of space are very different than the tools required to manage a driveway or a garage. And so, building more robust payment systems to work with any large enterprises, custom payment systems, or building tools, almost like SAS-type tools where you can see the layout of hundreds of spaces and assign renters to different spaces, we use this cool tool called a blueprint for large owners of the land... Can you share an example of a REIT or a larger investor that has onboarded some properties with Neighbor and how did that go? In the retail space, we work with a group called Federal Realty, one of the largest owners of retail space in the country both on the East Coast and the West Coast. We onboarded them, we work with them both the suites that struggled to rent then will rent those out for self-storage, and also the parking in a strip mall. There's always that parking in the back that nobody parks on, we've rolled out nationwide with them. On the multifamily side, an example of one of the many multifamily groups we work with is Equity Residential, one of the largest owners in the country. In some properties, they have 20 different vacant parking stalls while in some properties, they have five, but at every property, they have and it's all income, and those properties get leased up very fast. If I look at properties that are onboarded, they get up to 75-80% occupancy quickly. And then, when you add on the interior self-storage opportunity...

How to find, analyze, and convert small boutique hotels? What are the systems and tools to use and the processes for hiring top people? Blake Dailey, a real estate investor, owner of boutique hotels, and founder of BoutiqueHotelCon, shares his knowledge Read this entire interview here: https://tinyurl.com/yevhs2u3 How long did it take you to surpass your W2 income after you started investing? It took 13 months from the time of purchase. Short-term rentals helped me achieve that goal more quickly. How do you find a small boutique hotel? How do you analyze it, including conversions, if you undertake them? Municipalities across the country are increasingly regulating short-term rentals in places like New York, Dallas, Atlanta, and Southern California. These regulations aim to protect the single-family housing market and the rental market. Hotels, classified as commercial properties, are designed for nightly rentals and thus aren't subjected to the same regulations. Authorities aren't shutting down major hotel chains like Marriott and Hilton due to the influence of hotel lobbyists. This lack of regulation provides an opportunity to invest in prime real estate in metropolitan areas or their suburbs. To find these opportunities, I seek out tired hospitality assets typically owned by Mom-and-Pop operators who often reside on-site and handle all management tasks themselves. The inefficiencies of managing a business where you both live and work can be substantial. Many of these operators are slow to adopt technology, neglect online travel agencies (OTAs), and fail to engage in marketing efforts beyond word-of-mouth referrals or basic direct booking websites. By acquiring these properties, refreshing and renovating them, and listing them on OTAs such as Airbnb, booking.com, and Expedia hotels.com, we can attract a wider range of guests. We also focus on collecting guest emails and contact information to facilitate direct marketing efforts, which can significantly increase margins by avoiding OTA fees. We target markets such as destination markets, ski towns, and beach towns. For instance, Panama City Beach attracts 17 million visitors annually. However, similar opportunities exist in various markets nationwide, including metropolitan areas. I've found success in acquiring outdated properties owned by owner-operators, improving their efficiency, updating their design, and consequently increasing their average daily rates (ADRs). Since commercial properties are valued based on net operating incomes, these improvements can significantly boost property values. Can you discuss your systems, processes, and approaches to hiring and developing your team? Investing in this asset class requires a team effort. I couldn't manage all my hotels alone, although I did gain experience managing all my short-term rentals while still involved in residential properties. I outsourced administrative tasks and guest communications to cope with increased demand. Boutique hotels generate revenue from the outset, enabling us to hire and outsource roles early on. For instance, with a property generating hundreds of thousands of dollars annually, we can afford a full property-level team, including a director of operations, operations manager, revenue manager, and guest relations team. Regarding guest check-in processes, we employ self-check-in systems for smaller properties, while larger properties with higher revenue may warrant on-site staff Blake Dailey www.instagram.com/blakejdailey www.botiquehotelcon.com

What are the top lessons learned over a four-decade real estate investing career? What are his thoughts on the current real estate investing market compared to other difficult markets that he has been through in the past? Is there such a thing as work-life balance? We are chatting with Stephen Bittel, Chairman and founder of Terranova Corporation, he manages their sizeable portfolio of properties in several asset classes such as retail, multi-family and office. Read this entire episode here: https://tinyurl.com/2s3u5u3y What is like investing today compared to the past? This is the hardest investment market we have ever participated in. There's staggering uncertainty about the future, with half of the pundits predicting a recession and others foreseeing a soft landing. People simply don't know what's coming, and this uncertainty freezes both debt and equity capital. Part of the challenge today is that most of the people making investment decisions have only experienced an era of continually declining interest rates and cap rates, where you didn't have to be particularly skilled to make money. However, the current situation is different. While there was a brief interruption in the last quarter of 2008 and 2009, the past 15 years, and even longer for those under 50, have been relatively stable. Positive leverage, which used to be a hallmark of real estate investing, is now extremely difficult to achieve. In the past, we could finance properties at lower rates than their initial yield, resulting in immediate profitability. However, achieving such positive leverage today is nearly impossible. Despite this, we continue to invest in properties with tighter yields if we see opportunities to increase income. What are some of the toughest lessons learned, and what advice would you give without someone having to experience it themselves? Managing cash flow is crucial both corporately and at the property level. We've always prioritized managing our balance sheet, promptly paying down debt after liquidity events. The key lessons are: Regarding nonrecourse loans, although they may incur slightly higher costs, the benefits of a clean balance sheet outweigh the expense. While our model may not be replicable for everyone, I would advise paying the premium for nonrecourse loans if given the choice. Commercial real estate is a fantastic industry with long-term wealth-building potential. While it's not without challenges, such as the current uncertainty in the market, it offers numerous advantages, including tax benefits and opportunities for cash-out financing. It's essential to treat real estate investment as a full-time commitment and to prioritize understanding the details of every transaction. Ultimately, success in this industry requires dedication, hard work, and a deep understanding of market dynamics. Stephen Bittel stephen@terranovacorp.com www.terranovacorp.com Join our newsletter here: www.montecarlorei.com

We continue our education of the history of The Irvine Company, picking up where we left of in the 1980's through 2013. Excerpts from the book: The Irvine Ranch: a Time for People" by Martin A. Brower. Read this entire episode here: https://tinyurl.com/y6s85em4 About 4,000 residential ground leases made over a 15-year period were coming up for renewal. The new rent, set at 5, 6, or 7% of the fair market value of the land, had been written so that rent would remain flat for an original 20 or 25 years. At expiration, the Company could charge 5, 6, or 7% of the new fair market value, but few foresaw how steeply land values would rise during the two decades. The residents created a Committee of 4000 to ask the company to discard the leases they had signed and to obtain more favorable conditions. They secured extensive news media coverage, took advertisements, held mass rallies, and won favorable community support, and as a result, the Company’s credibility plummeted. The Company made the Committee of 4,000 a new offer. The leaseholders could buy their land at an average of 50% of its appraised market value, and because interest rates were high, the Company would permit homeowners to pay for the land over a 30-year period with a variable-rate loan beginning at 10% - an acceptable interest rate in the mid-1980s. Key takeaways: Key takeaways on purchasing The Irvine Company: Subscribe to our...

We continue the introduction to the richest real estate investor in the globe, the owner of The Irvine Company, Donald Bren. Read the entire episode here: https://tinyurl.com/m2ehfys7 1970's At that point, cities and the County were increasingly imposing costly demands on the developer. These demands included roads, flood control channels, parks, and schools — all of which were previously provided by the cities and the County. The James Irvine Foundation became serious about selling The Irvine Company to comply with the Tax Reform Act. When thinking of purchasing the company, Bren combined forces with Taubman, Allen, and the others. Understanding from Bren the need to have heiress Joan Irvine Smith on their side, Taubman and Bren had decided to allow Joan Irvine Smith to become an 11% partner of the consortium, allowing her to retain partial ownership of the Company she loved after the proposed purchase — which she relished. On May 18, 1977, Mobil bid $336.6 million. The next day, May 19, the consortium bid $337.4 million — more than one-third higher than Mobil's original offer. At noon the following day, May 20, 1977, Mobil announced that it would not attempt to outbid the consortium. The consortium was prepared to go higher. The court approved the price, declared Taubman-Allen-Irvine the winner, and the sale of The Irvine Company was completed. Therefore, 112 years after James Irvine acquired the Irvine Ranch, the company became a Michigan corporation. The consortium purchased the company for $337.4 million. Key to the financing of the acquisition was the $100 million loan, which was assembled by a group of 9 banks. The timing of the acquisition could not have been better, as the nation came out of the 1973-74 recession, and the economy grew warm in 1976 and 1977. 1980's In 1983, Bren made a startling move. He offered to buy out Taubman and his partners by launching his own leveraged buyout of The Irvine Company, for their 51 percent of the Company, for which they had contributed less than $100 million six years earlier, Bren offered the “Eastern” shareholders $516 million. Determining that they had made a sizeable profit and uncertain about the future resulting from the heated “greedy eastern carpetbagger” campaign and the residential leasehold crisis, the Taubman-led easterners agreed to accept Bren’s offer. Orange County newspaper reporters tried to uncover why these astute businessmen would sell a company which appeared to have an unlimited financial future, but Taubman would only comment “My father always told me you take some and you leave some.” To his hometown “Detroit Free Press” he boasted: “This was a better deal than the Louisiana Purchase.” But Joan Irvine Smith objected to the buyout price as being too low, and objected to Bren’s saddling the Company with a $560 million debt (the $516 million buyout plus interest due to five banks making the loan). This valued the company at just over $1B and her 11% shares at about $100M. She filed suit. With the buyout also came $560M of debt. Bren worked with First Boston Company on financing the buyout, and he worked closely with accountants Kenneth Leventhal & Company on how to make the payments. The lawsuit lasted quite a few years in the 80s and after endless months of discovery, depositions, the trial which was in Michigan (where the company was incorporated) resulted in the judge awarding her $256M including accumulated interest. Join our newsletter here: www.montecarlorei.com

A little background on the history of The Irvine Company. Read this entire episode here: http://tinyurl.com/55zadwbj In 1864, James Irvine and three partners bought a 101,000-acre ranch, for around $26k. Much of that is now a city called Irvine, in California. It was initially a ranch focused on agriculture and it also encompassed coastal land. In the early 1900’s they started developing some of the real estate, and in the 1950’s they started large scale planned community development, also known as master planned communities, which encompasses building everything from residential to commercial and industrial buildings. The city of Irvine became one of the largest planned communities in the US. I recently read the book The Irvine Ranch: A Time For People by Martin A. Brower, and I will be sharing what I highlighted from the book below for my own knowledge. 50's 60's 70’s We will continue this exploration on the next post as I will highlight how Donald Bren became a partial owner of The Irvine Company and how he then became the sole owner of The Irvine Company. Subscribe to our newsletter here: www.montecarlorei.com

How to canvass tenants for retail properties? What are some techniques to get a new tenant? Who to target? Beth Azor, the "Canvassing Queen", CRE leasing coach, developer, investor, author/speaker, and CEO of Azor Advisory Services shares her knowledge. Read this entire interview here: http://tinyurl.com/2jdstyra How to canvass tenants for retail properties? Canvassing is when we knock on doors to find tenants to lease spaces in our vacancies. I was taught very early in my career not to sit around and wait for the phone to ring, go out, and knock on doors. If you think about what would qualify as a great tenant, it would have other locations, someone that's paying another landlord rent. How easy is it? This is why I love retail, It's just great to be able to go within 1 to 2 hours from your property and knock on doors of retailers to see if they're interested in expanding or opening in your shopping center. Canvassing tips and examples: - I was sitting at a red light, and there was a van across the way from me. On the bottom of the van, there was a plumbing supplies company, and they had five locations listed. What I always tell my students or my leasing agents who work for me is this: if someone has one location, it's a 50/50 shot if they want a second; if they have three, four, or five, they want more – they're in the expansion business. That is why I took a picture of that van, saying, "Hey, everyone, open your eyes, this is a business; they have five locations, here are their locations." Now, I know that one of my shopping centers was a hole in their doughnut of locations. I called the place, and they said they weren't interested in my area, but they gave me two other areas, and I have no friends that own properties there, so I sent my friends the information. - There are prospects everywhere. There are prospects on bus benches, where you're driving down and it reads "Hey, have a smoothie!" and they list multiple locations under the bus bench. I love getting the little magazines that they hand out at doctors' offices or pediatrician offices, where it's the little community magazine. I grab those, and then on the weekend, I go through them, and I have found tons of prospects, because what does it tell you if they're advertising in a magazine? They've got money because we know the first thing that goes, if attendance is not doing well, a business isn't doing well, is marketing. They have another location, and they have money to spend on marketing, so I'll call them. - I just did a deal with a men's clothing store that I found an ad in a magazine and called them up. I said, "Hey, I've got this property; we'd love to have men's clothing," and they were very interested. Within 90 days, they opened in one of my properties. - I have an assignment that I'm working on in Cleveland, where I took over a 15% occupied mall and we have signed 49 leases in two years. I've met over 1800 businesses in Cleveland personally in two years. That's how you sign 49 leases. I realized that because the property was in downtown Cleveland, with lots of office buildings around and the food court had only two or three tenants, but because we got their sales, we knew that they were doing very well. I created a flyer that showed a picture of the nine available food court spaces. I said, "Food court spaces are available. I think it's a great rate, utilities included." Then I asked, "Which ones had hoods and which ones had refrigeration?" And I went and handed it out to 50 restaurants like fast-casual restaurants. Within 90 days, we leased five of them. Flyers—where the guy can come into the store and the gatekeeper goes, "Oh, this lady dropped this off, but it's got nine...

Will interest rates come down in 2024? What is the economic outlook? What will happen with inventory by the time the rates go down? Should you buy real estate right now? Chad Zdenek, real estate investor, and owner of CSQ Properties, shares his knowledge. Read this entire interview here: http://tinyurl.com/8y6b9k57 You are in tune with the economy and economics. We have some interesting news on interest rates recently; let's dive into that and see where your thoughts are for 2024 and 2025. The interest rates and how fast they increased have been a big shock to the real estate system. Any industry relying on borrowing has been challenged by the interest rate increases, and real estate has been hit particularly hard because we normally have 60 to 80% leverage on the commercial side, and that involves a lot of loans. Anyone on variable-rate loans has been feeling the pressure. At the Fed Funds meeting, they mentioned they're not planning on increasing rates. They didn't increase rates, shifting away from the narrative we've been hearing for a while, which was higher for longer, meaning these interest rates, which increased the fastest in 40 years, were expected to remain high. The Federal Reserve aimed to take some steam out of the economy, but they've seen that while unemployment is still low, inflation has come down. That's encouraging, and they indicated they are looking towards three interest rate decreases next year. The 10-Year treasury, on which many mortgages in the commercial world are based, has already been retreating, and that good news for investors with debt on their properties. It will also indirectly affect cap rates, correlated with interest rates. Cap rates, how we value properties, have expanded, meaning property values have gone down, and different real estate sectors have seen different decreases, but with interest rates coming down, we hope cap rates will compress, and values will go up. You started with multifamily and then moved to different asset classes; can you share your reasoning behind it? Why did you pick those asset classes? I'm investing in three asset classes: multifamily, medical office, and self-storage. For people newer to real estate, they might see real estate as an asset class, but within real estate, there are several different asset classes.I was heavily invested in multifamily and knew I should diversify because you never know what will happen. I diversified into self-storage properties, which has been great. I also invest in California and out of California. Living in LA, I'm one of the rare investors who invest in California and out of state. Diversifying within different asset classes has been a good way to spread out the risk, especially with tenant rules and regulations constantly evolving, they're a lot more strict with multifamily than with self storage. Migration patterns affect both asset classes similarly, but tenant laws and COVID restrictions apply only to multifamily, not self-storage. During COVID, seeing restrictions in multifamily, I realized my investors were exposed to legislative liabilities. Diversifying into self-storage, with less regulation but good returns, has worked well. The last 18 months have been crazy in the real estate world, and some people have a mutual fund or stock mindset, trying to time the market. A common saying in our world is that it's not about market timing; it's about time in the market. These should be long-term investments. Whether you buy at the bottom or 10% off the bottom, they should be viewed as long-term. Chad Zdenek www.ihelpbizownersretire.com

What are some ways that real estate operators and syndicators could market themselves in today's world? What are the benefits of a mastermind? Kyle Wilson founder of Jim Rohn International, YourSuccessStore, and KyleWilson.com, shares his wisdom. Read this entire interview here: http://tinyurl.com/3z7wnnd2 What are some ways that real estate operators and syndicators could market themselves in today's world with all the technology, and now even ChatGPT? After I sold my companies, I retired for seven years and when I decided to come back and create my mastermind, I had to put myself out there. And my first thoughts and observations were social media. I'm a big believer, in The Wheel which I started in 1993, you're the hub and each thing you do is a spoke. The big question is how to get people on the wheel, and then take them around, and I think a lot of people leave out is the getting them on the wheel part. And I thought social media had a couple of powerful components: 1) anyone in the world can find you and you can reach anyone else in the world and, for the most part, it's free. And so, I thought, "Okay, I'm going to have to get in the social media game." I didn't want to, I was still missing my story, and I was living a very almost private life. I wouldn't even do a Jim Rohn post, and not even mention that he was my business business partner and that I owned Jim Rohn International, the company that I'd sold. We have to be willing to put ourselves out there. It's our ego that doesn't want to be judged, I had to be content to say some people are going to judge me, they're going to say, "Oh, I'm bragging, or I'm whatever", versus the other people that say, "Kyle, I've been following you, you're making a difference in my life." If I can get them on the wheel, that's not a funnel, funnels have agendas, I'm not talking selling, everything I've ever taught is about attracting, it's about fishing versus hunting. I've always talked about marketing as principles and tactics and tactics change all the time. The tactics to fill a room in 1993 changed in 2004, and that changed 2010, and that changed 2016, and today is also different, but the principles haven't changed at all. The core principles are: 1) Build a relationship with people, and build trust. To do that, you have to have a way to talk to them and social media is the first step, podcasts are great for that as well. And from there, getting people onto an email list that you have a little bit more control over. 2) You have to show up where the people are. I'm a big proponent of events, especially specific types of events that are industry related and your avatar will be there. You have to show up sometimes whether it's groups or events, or that can be online. But again, anywhere I go, there is an intention, if I meet my avatar, is there something of value I can bring to them in the way of some resources. I have a bunch of free resources and that's how we became friends, you got on my email list, and we followed each other on social media, and we met at an event. I've done that 1000s of times but I also am not going to just hard sell them, it's the wheel. They go on the wheel, you put it out there, there's no agenda and when the customers are ready, that's when it happens. It's not about who, it's when the right person is ready, and taking the agenda out. But first, you have to get them on that social media's first step, or that email list. Kyle Wilson kyle@kylewilson.com www.KyleWilson.com

How do you approach requests from a national tenant that can hurt your property value? What do retail landlords care more about? How do you balance TI with free rent and how much to give of each? Bethany Babcock, Founder and Principal at Foresite Commercial Real Estate shares her insights. Read this entire interview here: http://tinyurl.com/mryukh4j There's a lot of pushbacks that we need to give tenants, how do you approach that because when you're talking to a national tenant, they have a lot of the upper hand. I like to explain to them how it impacts the value of the property, because sometimes, especially if it's a national tenant, they're working from a real estate department, they've never had to think about it from a landlord's perspective. I like to show them how it's going to impact the landlord, and how do you propose we solve that? And put the burden back on them to come up with the solution. Once they understand that what they're asking for is a $100,000 ask, but they feel like it's a $10,000 ask, they start to weight their priorities a little bit differently because their goal is to get a deal done. Putting the weight back on them to be able to come up with solutions is important, some of these things are more important than others. Vague or generous assignment language: tenants are priced based on their risk in retail, and so, when you have a tenant that can assign their lease to another guarantor, if it's not clear that the guarantor is of equal or greater strength, it can impact the value of the building. That's been happening a lot. You see that in single-tenant properties where a large operator will set up all of these locations, guarantee the lease, but have the ability to assign the lease to another operator. And so, someone will buy it at a lower cap rate with this really strong credit and then later have it assigned to a tenant with a lower credit, that's an immediate reduction on the value of the building. Tenants need to know what they're asking for and understand that their credit is the value of that building. Retail landlords care more about the use more than they do about the rent: brokers will sometimes get frustrated when the first question the landlord asks, or the landlord rep asks is, what use? And they'll think, just tell me the price! No, it depends on what use, they want to know who are they, and how many locations they have, you can't just say I can't disclose. It wastes everyone's time because there might be an exclusive that prevents that use from being at that property. And that might keep them from doing a lease or waste everyone's time, but also, they might not like the use, or it might not fit with the overall feel of the center. There's a lot more psychology that goes into leasing out a shopping center than leasing an office building, for example. Not every landlord wants the longest lease term possible: Brokers are very much incentivized to do a very long-term lease and sometimes the landlord doesn't want that, and sometimes the tenant doesn't either, so it's important to make sure that everyone's asking the right questions. A landlord is assumed to want the longest lease term possible and that's not always the case. One of the reasons is because they might want to stagger the expirations so that you don't have more than 30% rolling over in a year. Or sometimes the conditions might throw off the deal and that's one way to get it back on track by shortening it a little bit, or they might have a different long-term plan for the property. Bethany Babcock www.foresitecre.com www.twitter.com/bethanyjbabcock

What are the top things that you should be aware of when negotiating a retail lease? Bethany Babcock, Founder and Principal at Foresite Commercial Real Estate, reviews some major points for landlords to negotiate with their prospective tenants, large and small. Read this entire interview here: http://tinyurl.com/y8cppmt8 You represent both tenants and landlords, what are the main things we should be aware of when negotiating a lease, especially from a landlord's perspective? 1. Fixed renewal options: in this world where now we're seeing rental rates increase dramatically, especially on retail properties in our area, when you're putting fixed renewal options, which give a tenant the right to renew at a specific price in the future, it's equivalent to putting a cap on the owner’s value. That's important because if the owner wants to sell or do anything, that's the cap, it doesn't get much better than that, so at that point, the value of their property is going to go up and down, subject to the market and the cap rates, but it's not going to go up and down based on rent anymore. That's a bigger ask that I think most tenants realize. A lot of times they'll ask for a five-year lease and then they'll want 20 years’ worth of rent options, that's never a good deal for the landlord. 2. Free rent upfront versus lower overall base rent:how to maximize the value of the lease? It's really important if a tenant is saying, I need to be at $20 a square foot, and you're thinking, that's tough, I don't think I can make that work, it's not working on my pro forma. One of the better ways to do that and still be able to maximize the value is to tell the tenant, I can't give you $20/square foot, what if I gave you a year's worth of free rent, and the first year is at zero, and then your effective rent over the period will be about $20/sf. But in year two, or year three, it'll be $23/square foot. What that does for the landlord is that when you're capping the value of the property, you're doing it after the free rent period, and they get the benefit of the higher rent, whereas the tenant still gets the same effective rent. That's one way to get a win-win scenario for both parties. 3. Buying up the rent to get more TI: Once you go over market rents, it doesn't help anybody. A really good example of this is Starbucks, back in 2006-2007, when they were expanding fast, they were buying up the rent high by getting a ton of TI and having their buildings just delivered to them. But in 2008, when the market adjusted, suddenly you had all of these little Starbucks that were closing, and the rents they were paying at that time were $50 a foot, and now it's even much higher. They couldn't replace or backfill those locations, even though it was a good real estate with those same rents and so a lot of landlords were in hardship. It matters because it's going to affect the value of their property. 4. HVAC and plumbing: If you're on the landlord side, make sure that it's a one-time event, or that it has an end date because if those issues go on indefinitely, that means every buyer or lender that underwrites that property is going to have to underwrite that possible event. If you have an end date, within one year or two years, they can put it in and once that period has passed, that risk subsides. But if it's ongoing, then it's going to diminish the value of the building, because it has to get underwritten each year, or conservatively, every few years, however often they think it might occur. Bethany Babcock www.foresitecre.com www.twitter.com/bethanyjbabcock

What went right and what went wrong in 2023? Which goals did I accomplish and what have I failed on? Since a lot of you have been following my career for a few years I thought it would be good to share the things that went right and wrong in 2023. My goals for 2023 were to purchase 6 properties worth $5M each and get one land ready for development in CA. My other goal was to sell or convert the car washes. Here is what I accomplished: I accomplished 3 properties worth $5M, and this was in a partnership with 2 different people that helped me get there, so this is a fractional ownership of these opportunities and not exactly what I had in mind, my goal was for me to have sourced, closed on and operated the deal, along with my investors. And this was a partnership with a couple of other parties. I also accomplished closing on another property that was part of my 2022 goals. This property took a long time to close because it was off market, and the seller was not organized, he hadn’t done his taxes for 3 years and it was like pulling teeth to get him to file his taxes. It took almost one year to close on this property and we are at least doubling the value of it in the next few months. The best way to describe the closing on this property is with two words: follow up. This is something I reiterate often in this podcast because nobody follows up. Only a few successful people follow up with me, and if you want to get something done, or a relationship built, you must follow up, period. Especially with someone that is busy, they get so many requests, emails and people trying to reach out to them. The only way to stand out is by following up. What went wrong in 2023: The car washes are not doing well because I am not a car wash operator nor do I want to be one. After my best employee had to leave due to personal issues, it went downhill, people started stealing, breaking in, things started to break and the list of things that needed fixing started to pile up. I am actually grateful for it because I learned quite a few things such as: don't ever invest in a new asset class that you know nothing about. If you find a property in a good city, make sure that the property is in a good part of town. This will save a lot of headache and potential issues. I am also still not making what I was making at my sales job. I fully expect to make what I was making in 2024. One of the ways I will be doing that is partnering up with someone that has build many properties before and we will get land in contract, get them entitled for building either storage or multi-family and sell the entitlement. Get a copy of my book here: http://tinyurl.com/52bak7th If you'd like a PDF file of the book, please send me an email at admin@montecarlorei.com

How much have commercial real estate prices declined? Are the properties we are buying today discounted? Neal Bawa, CEO of MultifamilyU, shares his knowledge. Read the entire interview here: http://tinyurl.com/832h7ak6 How were you investing in 2020, 2021, 2022? For that property, I must be honest and say there is no horror story to tell. The property did what it was supposed to do, we bumped rents by $175 from the very beginning to the end. On the last day, we had rents $176 dollars higher. So, the property did what it was supposed to, it also stayed highly occupied. You might say, it doesn't sound like a typical property, where are the horror stories? The answer is this, by stepping outside of the metro, we were able to buy the best property in this small market. We didn't have to be stingy; we didn't have to buy a really bad property in a bad area, we just bought a very nice property in a very nice area, it just wasn't in Atlanta. As a result, our process of actually running the property for years was fairly straightforward. What about today? Things have changed dramatically since COVID. In December 2019, probably three months before COVID, cap rates were low, but they weren't crazy low so we probably bought the property at around 4.7 cap or 4.6 cap but if you fast forward to six months, nine months after COVID, cap rates were completely insane. Many people don't know the answer to this question which is, when do you think cap rates in the United States for multifamily were the lowest, which means the highest prices? The answer is March 2022. How much have prices declined? Another question that I think everyone should be asking that I don't see enough is, how much have prices declined? When you ask that question, you have to go back to the first question, which is when was the peak because whenever you measure a decline, you have to always measure it from the peak. First, you have to know where the peak is so that you can say how much of a decline there is. In March or April 2022, the peak is well known because CBRE has published that and a bunch of other people have published articles around that peak. We looked at our underwriting from those days, and we were losing a lot of offers, we were still making offers because you have full-time employees, and their job is to make offers even if they're losing them. We looked at the going-in cap rate in that month for the offers that we made. None of them were offers we won and one can say that we were conservative because we didn't win any offers and we didn't even get into best and final so it's nice to look at that benchmark. And then we looked at the offers that we made in November of 2023 so now the gap between the two is about 20 months and the difference is the offers we are making today are 37% lower than the offers we were making in March. Does that mean that the market is discounted by 37%? No. What is the right price? In the absence of crazy interest rates, what is the right price for our properties? The right price is about 15% higher than it is today and at some point, we will return to that price, we are never going to go back to 37% higher, probably not for the next five to 10 years. The only thing banks know how to do when bad things happen is to cut interest rates to zero, so it will happen at some point, but until that next Black Swan event occurs, prices are about 15% above where they are today. What causes them to go to that level is simply interest rates dropping by about 150 basis points from where they are. Neal Bawa www.multifamilyu.com

How to find the next market? How to convince investors to invest in something that is new to them? Neal Bawa, CEO of MultifamilyU, shares his knowledge. Read the entire interview here: http://tinyurl.com/4vj3wyhr You sold a deal today and you returned a huge amount to the investors. Let's go over the entire process from why were you analyzing that deal and what made you want to buy it. The name of the deal is Equinox at Night, which is a name that we gave it, it was called Weatherly Walk when we bought it. The property was sold today, which ended December 2023, and was purchased right about this time four years ago. We wanted to buy it in time and close in time for the depreciation benefits in 2019. The journey was one day short of four years. I wasn't looking for a property in this particular marketplace but back in 2019, I had started feeling that properties were getting too expensive inside city limits and I felt like it was a terrific market to be putting a lot of money into. As I was talking about Atlanta, I started seeing good things and then as the years went on 2017-2018, I found that I was seeing more negative things about Atlanta than positive things because inside of the city, I was starting to see pricing that was just unreasonable for the income levels. What was happening was that the incomes of the people living in Atlanta, were going up 4% a year, and the property prices were going up 20% a year when property prices go up that much, the new owner needs to raise rents, so they're forcing rents higher because everyone's buying at these new prices. And for a while that works but then what happens is that either you start seeing occupancy fall, or even worse, you start seeing delinquency increase, as you start forcing people into 40% of their income, 45% of their income going to rent and almost 50% go into rent, then you're going to see a lot of delinquency, the first time their car breaks down, they can't pay rent. How do you convince the investors that may have been used to keep investing in MSA itself? In many of our projects, you just send out an email, and all the shares are taken. We knew that we were buying a better property and were going to make a lot of money on it but first, we had to convince investors (you're not going to make any money if you can't close the property). We did a two-step approach: first, before we put the property in the contract, we were making offers and we had identified three cities not two, that were around. We started holding webinars about the true opportunity in Atlanta, and then another webinar about the true opportunity in Phoenix. "First, I'll tell you about the true opportunity webinars and then I'll tell you about how that transition into getting the property funded", this is something that every syndicator should do instead of telling everybody, "Fayetteville is the greatest city in the Atlanta metro" which never works, what we do is we started to rank some of these outside cities. We started comparing these cities and started talking about these different cities and why we felt that they were better than Atlanta itself, both for single-family and multifamily. We always tell our database, that if you want to buy single-family homes, go do it. You'll be back talking to us in one or two years once you realize you've turned into a landlord, you just wanted to be an investor. We always tell people that the single-family experience is worth it, you learn a lot, and you don't want to do it again. Neal Bawa www.multifamilyu.com

How to approach due diligence on a new operator as a limited partner? How should investors decide if they should invest in a fund or not? How should you fundraise for deals that have not been determined what they are yet? When to say no to a potential investor? Dr. Joseph Ryan Smolarz, founder of STOR, shares his insights. Read the entire interview here: http://tinyurl.com/yph2892p What are some of the main topics that you want to pass to passive investors and how should they do due diligence? The basis of the whole interaction is trust, you're trying to build rapport with your investors from a sponsor's point of view. From an investor's point of view, you want to make sure that you're a good fit. You have ways of thinking about things and your risk tolerance needs to fit into the asset class and the investment strategy that you're trying to do because if you're in a very aggressive fund, and you have a low-risk tolerance, regardless of what happens, you're not going to be happy. Those are the questions that I would start with. When you're starting the due diligence as a sponsor, the number one goal is to make sure you're not in a Ponzi scheme or some sort of fraudulent group. There's a lot of good questions to ask to sort of drill down on that and if you're not comfortable at the beginning, you're probably not going to be comfortable at the middle or the end, as well. During an up market, how would you recommend doctors doing their best to find out if a sponsor is not legitimate? Having made several pretty bad mistakes as a limited partner, this is a topic that's near and dear to my heart. When I approach a deal as a limited partner, what I'm trying to do is understand that sponsor in such a way that we can build a 30, 40-year relationship. It's not about the first deal in its entirety, because I'm willing to put in the time, effort, and cost to get to a comfortable place knowing that when these guys or girls have a deal, and they send it to me, that I'm never going to have to go through this first step of due diligence again. I'm comfortable that they're not trying to push one past me, or whatever the case may be. And that's a gigantic step. I would personally say, and I know this is going to be shocking to your audience, but a lot of times, what I'll do is, I will hire a PI to go through and make sure that some of their previous deals have not been fraudulent. If I had a fund, and I knew that the economy was about to take a turn, for example, in 2024, we all know that it'll be even better for finding deals. However, there is a lot of fear that normal human beings think that that specific time will never end and it'll be doom and gloom for a very long time so they end up not putting the money. From a fund perspective, I would personally prefer to have that cash available right now in case people get cold feet, how would one go about that, in your experience? There are lots of sponsors out there that will do that, they'll get the capital, and hold on to it. It does add liability to to the fund. If you're going to do that, you would probably want to know how much E&O insurance they have, errors and omissions, and all the things to safeguard. Is there the ability for one person to be able to extract all of the cash and run, or is there a safety mechanism where it takes two people to sign off on it? There are lots of checks and balances, and systems out there that can be put in place for a reasonable cost if the sponsor hasn't thought about that, and what happens in those scenarios, and they very well should. But it's just personal...

What are the top lessons learned over a very successful six decades of real estate investing? Tom Wilson, principal at Wilson Investment Properties, a seasoned investor in several asset classes including retail, office, multi-family, industrial and others, shares his wealth of knowledge. Read the entire interview here: https://tinyurl.com/38phajz2 Major Lessons Learned My first tip of the day is to go to Fannie Mae's website and look for Doug Duncan's predictions around what's going on in the marketplace, and he has accurately called every single rate change in the last 20 years. Secondly, operations is indeed a critical element, Ken McElroy prides himself in having come into the real estate world from the operations standpoint, and he often emphasizes how important that is. The best underwriting, the best market, and product are only as good as you can execute it. You really need all the legs of the stool to be able to have something come off successful. We always want high cap rates, low risk, and high appreciation but it's very hard to find all three, so you have to decide what is the most important to you. California has been able to generate great appreciations in recent years, but not so good on cap rates, and Texas, Florida, and other places have other things that are strong so you need to realize it's very hard to get everything you want, you have to choose which is important. One of the most important things I've learned is how different sub-markets are and how different products are. It's incredible how different they are. You look at the curves of these markets and products. The general information will give you a general concept but you can always find products, you can always find portions of the market where it can be quite contrarian to what the general information is. Don't fall in love with a deal and try to make it happen. Saying no can be more valuable than saying yes. Almost every property I've bought, I've gone to see it myself, I don't do the level of detail I used to but when you scale, you have to delegate to others. Go look at the other stores around the area, retail, grocery, etc. Who is it that actually comes in there? Market studies from the listing agents show you the one-mile, three-mile, and five-mile, what the demographics are, that's not necessarily who's in your property. As you can tell by going at nighttime, park the car, and see what comes in and out. When you make a mistake, it's tough to grieve, and lick your wounds for a while but don't run from it forever. Go back with your team and analyze what is it that went wrong or what is it we can do better next time. Sometimes we learn more from the things that don't work, than the things that do. Change your model periodically. Switch from market to market to asset class to another, whatever it goes with the time so the market. One of the things I've done that has contributed to my success is to change the model. One of the things I haven't done so well is probably not change it as fast as I could have. It's hard to leave something that was working. What's the most valuable asset that you have? I think it's the 2,000 names that I have on my phone, because with those relationships you can start over if you have to rebuild. Relationships are critical, and character is more important than competence. It's nice to have both but character is number one. And, above all, enjoy the journey. It's so easy to get caught up on every day operations and finding more success. But along the way, give back and smell the roses.

What to do if your property is in trouble? If your interest rates are doubling? What will save your deals? This is a step by step guide on what to do if your property is in trouble, from managing your bank all the way to getting multiple bids from all of your vendors. Ken McElroy, CEO and founder of MC Companies, shares this golden guide with us. Read this entire episode here: https://tinyurl.com/mry4cbnv What are some of the things we should be doing if our properties are in trouble? The first I always look at is what's within your control. One of the things I've started to do is really dial in on my operations. Now, I have a massive advantage because I started in property management right out of college. For the first 10 years of my life, I managed 20-30,000 units. When I step on a project, I have a checklist in my mind that I've been through 100 times. The first thing I've done is scrubbing each one of my assets. I want to make sure that my expenses are completely in order, everything's been bid out multiple times, and that my market rents are exactly where they should be. I make sure that I have the right teams in place, that I'm maximizing my revenue, my other income, and my expenses. That requires a fairs amount of work. That's super important because no matter what, that is going to determine your next loan, your next investor, they're going to look at the operations. The second thing is you have to dig into your partnership agreement with your LP equity and your prefs, and all of that, and you need to take a look at your stress points. And then you can start to bring in other sources to top it up, whether that's asset management, it could be family office, institutional, or a number of things, you can give up GP equity, you can bring more LP equity, you can come up with a loan, all of that should be fully transparent to your existing deal. You can't just change things and tell them later. You have to paper up and make sure it's all correct. That's the area that people are going to be in trouble on, thinking that this will be short term, I only need this for six months, three months, one year, whatever. If they're right, they're probably going to be okay but if they're not, people are going to wonder how they got squeezed out. You need to go out and get other opinions from brokers, opinions of values, people are doing that all over the place. Brokers aren't listing deals right now, they're actually giving everybody BOV's. That's really important because that substantiates what the thing is worth. Then, you have to look at your debt, and see how much equity you have, and if you have equity, even if it's half, or 2/3 or 1/3, of what it was, that's still okay, you're in the money. Now, it doesn't really matter today because you're not selling, If you're selling today, that's exactly what would happen. You're playing the long game here so you need to have all that information and then you can go out and make good decisions on the asset, preserving the equity. I've been in a situation where we bought things and equities went down, probably everyone has, a car, a house, things depreciate, things go down in value, but over the long haul, especially with this inflation, you're on the right side of it, even though you might be feeling a little bit of pain. I want to be in hard assets during high inflationary times, because we all know, you can't build a home or apartments affordably right now, so if you own them, you're actually in that category. That's good, even though it might not feel good, if you can hold on to it, I truly believe that real estate is going to really skyrocket based on all these crazy...

What is happening with commercial real estate? Is now a good time to buy or will it get even better? How are the Fed rates going to play out? Ken McElroy, CEO and founder of MC Companies, shares his experience. Read this entire episode here: https://tinyurl.com/mryp72kv A lot of investors have bridge debt or value-add deals, we're seeing capital calls, you've been through 25 years of this, how are you looking at what's happening right now? What happens in a normal balanced market is: there needs to be a little push-pull between buyer and seller and what happened is that the buyers in the last couple of years were at a massive disadvantage, they had to stretch for pricing and for terms, they were shortening their due diligence periods, etc. It was all coming and what this is doing is, it's an adjustment for the sellers and that gets lost in cash calls and all of that. But we needed the sellers and the brokers to adjust their expectations. What was happening was that people were stretching for deals and many of those deals are the ones that are in trouble, so the market was not in balance. I have talked to one investor that has five capital calls going on, there's a lot of challenge, but it's really counterintuitive. A lot of times, it's the idea of being fearful when others are greedy and being greedy when others are fearful, as Warren Buffett would say. Do you think, with the cap rate expansion, are we seeing some better deals now or are we not quite there yet? We're not quite there. There's a lag effect with interest rates, with cap rates, with sellers and brokers and all of that. Playing defense and offense is a good analogy and I believe that you should be at all times. You should always be playing a little bit of offense, sometimes you're playing more offense, a lot of people right now are playing maybe a little more defense, but the worst thing that you can do is bury your head in the sand. If you're in this business for the long haul, I think that there needs to be a good balance there. What has gotten our investors to trust us over a long period of time is full transparency. We all know news can be a little slanted but it does stand to reason. If somebody's in that kind of trouble, how are they managing that? Have they been talking with their lenders? Have they talked to their investors? What are they doing on the management side because, for the last 22 years, the market has not gone up. I've seen it go up and go down multiple times. There are strategies for all of those things. There has been a tremendous amount of focus on influencers raising money online, I don't have a problem with that, however, if that's their only skill, then they have a problem and if the investors invested in those people, then that's an LP problem. When things like this happen, and it will happen again, you start to look at experience and wisdom, and how deep your bench is, your capital reserves, and all those things. What do you think about the Fed with rates? From everything I read and see it doesn't appear that the Fed would do that, and if they do, what are they going to go down to? Five? They punch all the way past 3, 4, 5, 6 and now they're approaching 7, so think how far they have to go. Even if they say, yes, we're going to reduce rates, they're going to do it at about a quarter point, half a point over time. Maybe if you're lucky, that could be a point in a year. You have to put things in perspective, they're not going to go from 6- 7% rates or even 8 for single family, in some cases, and hard money is way over that.

How to approach doing a capital call to your investors? And on the other hand, how should investors decide to give more money for a deal that is in trouble? Mauricio Rauld, securities attorney of Premier Law Group and host of Real Estate Syndicator Live, shares his knowledge. Read this entire interview here: https://tinyurl.com/3mz7t22h A lot of people are in trouble, interest rates have doubled, insurance has doubled in many states, and some people have to do capital calls, how would you approach doing a capital call? And from an investor's perspective, how would you choose to participate in it or not? The first thing we typically advise clients is from my buddy, Ken McElroy, when things aren't going well and things are starting to not go according to plan because lack of cash flows don't happen from one day to the next because those things are going to slowly start happening, the key is to make sure that you double down on your communication with your investors. A lot of syndicators, especially new ones, tend to sort of stick their heads in the sand a little bit when things aren't going well, the investor is going to be upset at us, and we should not tell them, if you're communicating once a quarter and things aren't going well, start communicating once a month or once a week or every day, depending on how severe things are. That way, when it's time to do the cash call, it's not a complete shocker, you've slowly been showing what's going on, it's been a tough environment, we need to refinance, and we can't because the interest rates have gone up and the whatever the situation is. Letting them know earlier will be appreciated by the investors and you’re going to be in a much better situation. Try to avoid a cash call at the beginning. Usually, if there's the inclining of issues that happen, let's say, rents or revenues down because of whatever reason, then, the first line will be the syndicator. They'll make a loan to the company, they'll make a capital contribution to the project: 1) to show faith that they're confident in the project, 2) the cash call is the last thing you want to do. For both syndicators and for investors, as you want to look at the operating agreement. If you need $500k, you probably want to ask for $750k. There are a lot of funds out there that are really targeting they might come in and say, look, I know you need 500, I'm going to give you the 500 or I'll give you a million, but then they insert themselves way ahead of everybody else. Obviously, the bank is going to be number one always, but then they're going to be second and they're going to have their money out before any of the LP money comes out. Mauricio Rauld www.premierlawgroup.net www.youtube.com/@MauricioRauldEsq

What are some of the biggest items that syndicators need to keep in mind? How to raise a fund yourself under your company name? Mauricio Rauld , real estate syndication attorney of Premier Law Group and host of real estate syndicator live, shares his knowledge. Read this episode here: https://tinyurl.com/yvk4k4e3 What are some of the biggest items that syndicators need to keep in mind that are easily forgotten? Understand that you are in the business of selling securities, because a lot of times, especially new real estate syndicators, they don't quite understand that. I'm just buying real estate, why do I have to worry about the Securities and Exchange Commission or the SEC? I'm just getting a couple of my friends and we're going to go buy a single family home, or buy this building, why do we have to worry about all this stuff? People think of SEC as the stock market, stocks, bonds, mutual funds, etc but it is much broadly than that. TIC agreements, joint ventures, profit sharing agreements and promissory notes are potentially securities, I always joke that high fives and handshakes are securities but the structure itself doesn't matter. People try and get creative such as I'm going to structure it this way or that way, or it's just a loan, it's just my dad, but the reality is the SEC doesn't care about any of that, all they care about is whether you are raising money, where the returns are generated by your efforts. If you're raising money, and you're doing all the work, or you and your co-sponsors are doing all the work, and you have passive investors who are writing you a check, it doesn't matter how you structure it, and how creative you get structuring it, it's going to be a security and that's something that newbies forget. What would be a way to go around that, would it be to raise a fund yourself under your company name, and then invest in that deal if you don't want to participate fully on the operations side or other things? In order for somebody to come into the syndication group as a legitimate co-sponsor and bringing in some capital, there are three things they need to fit into because there's an exemption. The general rule is you need a broker dealer license, but we can find an exemption to registration and that would be what we call the issuer exemption which requires three things and most of these deals don't follow. Number one is no transaction-based compensation. This happens a lot, you have to be willing to say, I'm going to give you 10% of the GP even if you don't bring a single dime. I know you promised that you thought you were going bring a half a million dollars from your investors and it turns out, you aren't able to bring any, you still have to get that 5% or 10% because you're giving that person that percentage, not for raising money, but for other things they should be doing like any other syndicator: due diligence, underwriting, asset management and all these little ton of things otherwise it's transaction-based compensation. Your primary role needs to be those substantial duties, it can't be raising capital and you have to show that you're doing more than that. If you're a real syndicator, you have two or three partners, you're part of the team, and you're all working hard to make this deal work, then you're going to fit into that exemption. Do funds pay an interest until they allocate all of the funds, is that optional? That's the beauty of syndications in general and certainly with funds, you can be as creative as you want to be. I would usually recommend not making it super complicated, because...