Innovative Solutions in Acquiring and Disposing Industrial Assets with
“The bigger the challenge, the bigger the reward fulfillment for me. And I've always had a thrill for problem-solving.”
Adam Abushagur specializes in the acquisition and disposition of single-tenant and multi-tenant industrial assets in the southwest market. His daily mission is to support clients but in engineering innovative advisory solutions designed to bridge their objective today's up today with their goals of the future whether involves industrial acquisition or disposition, complex sale-leaseback advisory services, or capital markets debt structuring.
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Brett:
Our next guest is from the great state of Texas and he specializes in the acquisition and disposition of single-tenant and multi-tenant industrial assets in the southwest market. His daily mission is to support clients but in engineering innovative advisory solutions designed to bridge their objective today's up today with their goals of the future whether it involves industrial acquisition or disposition, complex sale-leaseback advisory services, or capital markets debt structuring. This next guest finds great passion and puzzling, puzzling complex obstacles into creative solutions. Please welcome to the show with me, Adam Abushagur.
Adam:
There you go.
Brett:
Adam, for our listeners getting to know you for the first time, would you give them a little bit more about your story and your current focus?
Adam:
I grew up born and raised in West Texas, grew up in El Paso and graduated high school there, and then moved to New Mexico and went to school there. I was actually a civil engineering major for three years and decided to turn the lights off one day and turn back on and switch my major to business. So I hated sitting at a computer all day. Funny enough, that's pretty much what I do now. So I just get to interact a lot more with people, help people piece together, together with solutions, and whatnot. It's definitely fulfilling my eyes. And then I moved to Dallas after I graduated. And since then, coming into Dallas, I just joined a sales company, selling office supplies, business to business. And that was effectively like my learning curve. I learned how to interact with others. Learn that at the end of the day, you're always selling yourself. And from there a year and a half into that transition into commercial real estate started with Marcus Millichap. Since then I've been here. And five years. Fast forward five and a half years we're, here we are.
Brett:
That's amazing, Adam. And we'll dive into all of those things that have to do with commercial real estate brokerage here in a minute, and especially the industrial marketplace. But before we go there, I'm curious, I wanna get to know you a little bit better, maybe picture the high school or college days. And I believe we've all been given certain gifts, Adam, and these gifts have been given to us to be a blessing and a help to others. Some people call them superpowers. Some people call them strengths, I believe their God-given gifts. I'm curious, what are those maybe two strengths or gifts that you believe you were given? And how does it help how you help and bless people today?
Adam:
I will say that my biggest strength is piecing together challenges. So I use this example all the time. As a kid, I remember this vividly, I basically begged my dad to come home and buy me a set of Legos and I took the Legos, dumped the whole box, and threw away the instructions. And then from there, I just tried to piece it all together. And I've always had a thrill for problem-solving. So in the end, what I found with real estate is that the bigger the problem The bigger the challenge, the bigger the reward fulfillment for me, so I tend to be problem seeking.
Brett:
I love that. That's a great, great answer, and piecing together challenges, solving problems, and helping people along the way. And looking for the problems and then solving them. So is that a fair summary?
Adam:
Yep, nailed it.
Brett:
Awesome. So let's dive into the number one perhaps problem facing commercial real estate brokers as it pertains to industrial property sales or can even be owners to not necessarily just brokers, but maybe your clients. What's the biggest challenge facing a lot of industrial owners.
Adam:
I would say right now. I mean, really, last year was COVID. Right? So fast forward to this year, there was a lot of uncertainty in the air with what's coming politically. Tax Reform and whatnot. We had the whole Senate race going on in January, right. So there's a lot of uncertainty there. Now, with all of that, behind us, the question mark that I was thinking is how tax reform is gonna affect me here towards the end of the year? And I mean, I would say for owners, there are a couple of big items out there that are common one is the new administration. So love Biden hate bite and love Trump hate Trump politics aside, the reality is we're dealing with your tax reform. And what's coming is potentially hiking capital gains tax, and there are talks in the air about 1031 exchanges, being limited to a capital gain of half a million. So not that this is the first time 1031 has been thrown out there and threatened but that is part of what we're dealing with. There's a lot of uncertainty and fear. So we're helping owners decide to dissect and really downsize their risk while making sure they're piecing together call it good decisions here come towards the end of the year.
Brett:
We couldn't agree with you more here. Capital Gains Tax Solutions were on the channel on the front line in California. So we saw a lot of pain when it comes to maybe some capital gains tax and other taxes, to say the least. So let's dive right into that. So what do you think?Perhaps Biden's proposing, by the way, is 20%? federal to be doubled to just about 40? About 39.6%. federal? And how do you think that might affect your sellers? And then on top of that, if they take away the 1031 exchange?
Adam:
What I always like to go back to is a couple of different things. One is, as far as real estate investing goes, always just be focused on the fundamentals. I think there's a lot of a lot up in the air that we can all argue about five backward and forwards on what's potentially coming. But the reality is none of us really know. So I would say the two big ones that come in are, capital gains tax. So right now what's being proposed is, as it stands right now, it's 20%. plus I call it the 3.8%, or 3%. Obamacare. So it comes out to be 23.8%. And then on that what Biden is proposing is if the gain is over $1 million, it would then be considered ordinary income. And that would be 39.6%. Plus the same Obamacare, so and plus its state income tax. So in a lot of states, I mean, that's, that's more than half of your gain, which would cause a lot of question marks around potentially selling. Now, as it relates to real estate, specifically, there are some factors that drive transactions, one is death, divorce, debt coming due, you name it. So there's a lot of factors out there that the realities won't go away. So there will still be transactions taking place. Definitely less if that's the case. But I would say there's a lot of factors behind the scenes that are immune to tax reform. They're happening regardless.
Brett:
I agree with you. They're focused on the fundamentals. I like that. Let's talk about the 1031 exchange, though in general, what's been the biggest frustration you found for your clients as it pertains to the 1031 exchange? And how do you help people navigate through that?
Adam:
The biggest challenge is always the timing. So I would say the fear in going through an exchange is always well, what's out there, and what can I exchange into? Because the reality is timing, there's a lot of uncertainty there, that is, I would probably say the number one reason why someone is stuck in the unknown. So what we've found helpful is helpful for clients is really outlining the timeframes for them. So the reality is, you have more than just 45 days to find a property and exchange it. We can extend that deadline, that timeframe sign-on deadline for a lot of our clients. To give you an example. We've got a client that we just sold a building for. We'd been looking for a replacement property the minute we procured the initial Li for them, so we procured the Li on their existing building, two to three weeks to negotiate a contract, plus another 60 days to close. Right, we're already talking about 75 days, roughly it plus another 45 days. So at that point, you're, you're, you're looking at 120 days, four months, that's a lot more than just the 45 days. So that process can be very well controlled if you're partnered with the right people.
Brett:
I agree with you on the timing part of it. It's actually why we started our company. You know, back in before the crash of Oh, eight, we had a lot of people doing 1031 exchanges, like Yo, is that Marcus and Millichap and multifamily here in Sacramento, and, you know, things were going well for a while. And then there is this, you know, things hit the fan and people, all of a sudden, like Warren Buffett, said, you see who's been skinny dip and right when the tide goes out. And some people had too much debt, not enough diversification, not enough liquidity. And they knew they were overpaying for these very low cap rates in the 040506. But they felt like they had no other option except for what we call the shotgun wedding 1031. I love 1031 when the deals make sense when the cap rates make sense when the intrinsic fundamentals of the properties make sense. But at a certain point, when you have such low inventory and values being driven up, there's a time to sell and there's a time to buy. So, Adam, I'm curious, do you think it's a seller's market buyers market? What's your take on timing as far as buying something or selling something high, and perhaps buying it, you know, higher 180 days later?
Adam:
Let's say it's very product-dependent. So give me an example last year, if COVID did anything, it amplified the need for industrial real estate. So I would say industrial just at least in our world here in Texas went untouched. If anything amplified it amplified the need for it. You look on the other hand on retail hotels, other product types and offices highly affected. So there are a lot of variables driving when it's good to buy or sell depending on the product type now speaks industrial specifically. I would definitely argue it depends on what position you're in. So it's definitely you can easily say it's a seller's market. But there's a lot of times I look back at some of the properties we helped clients sell and buy two years ago where I thought it was aggressive. And then you fast forward two years. And you look at today in two years, population growth, employment growth, corporate relocations, all those factors keep fueling the growth of the economy in Texas. And it's something I don't see stopping. So unless something drastic occurs to really put a halt on a lot of the population growth and shifting that we've been experiencing in Texas, nothing, not much is gonna stop that.
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