All Forum Posts by: Joel Owens

I can tell you what I see on the NNN commercial side nationally when buying for myself and searching for clients.

Cold belt states tend to be least desirable, followed by mid belt, followed by warm belt most desirable. Alot of net migration moving to warm belt states especially retirees. Property taxes with the exception of no income tax states tend to be way, way higher in cold belt states.

For development the entitlement process tends to be longer in cold belt states. An example is a retail center developer I know that the time it took in 2 plus years to do one center in Colorado they built 3 in Texas. 

Certain states have an ideology that it is a privilege for you to be there as a business and you should pay for all their shortcomings with the government. Pro-business states tend to give incentives for hyper business growth and want to make the process as easy as possible. They feel long term growth and quality of the area better in the long term helping instead of hindering businesses. 

Coastline properties tend to be less desirable due to flood plain, lots of severe storms, and high property insurance costs. With median sea level rising even areas with waterways not considered flood plain could flood and if owners do not have flood insurance they could be SOL.

Lots of cold belt states areas are overbuilt since net migration they have had populations move away. This leads to lots of old buildings not being repurposed with blight that typically leads to high crime takeovers for an area. I explain it as rocks falling in small ponds that barely ripple versus warm belt states where giant boulders drop in the lake causing massive ripples (growth) throughout the states. No state is perfect you just have to decide on the pecking order what you see as important today and into the future with your investment dollars. Now there are isolated affluent areas with hyper growth in cold to mid belt states you just have to be more careful analyzing those areas for investment potential. In warm belt states there still are bad areas. The economic development department is key. A bad one can crush an area and a good one can help it flourish.   

A NN lease roof an structure in a cold belt state landlord obligations can be way different for a landlord than a NN in a warm belt state where you typically are not encountering lots of snow, ice, etc. that wears down roof and parking lot faster. You have to build that into your cap rate on the purchase.

In general large governments tend to be inefficient with money. 30 plus trillion in debt with little of anything to show for it. I personally like small controlled necessary government for vital services that are needed and minimal but importation regulation on the private sector side. I feel too much power either way the abusers will take over the system and the results will not be good for the American public at large. I like to invest in areas with less constricting government regulation that are affluent and pro-business. 

Paul there are not apples to apples.

You could have 2 syndications offerings each having similar structures and estimated returns.

On paper they look the same. My 20 year knowledge in the space is pretty deep when selecting properties for investment.

You do not want syndicators that need deals to get going or buy lots of stuff for volume. The core plus is really a long term hold. Typically if you want to get out at some point there are provisions to sell share to the GP's, sell to another investor already in the investment, sell to outside investor ( with GP approval ).

A friend of mine owns about 15 million sq ft of retail shopping centers and has a staff of about 150 employees for property management. They also manage other centers. They make literally zero money on property management and a little bit on lease up. WHY do they do this then? They do it because they want to own as many as possible within a 100 mile radius and already know about everything there is with a center managing it for years and get first crack at buying it from the current owner and folding it into their portfolio. Also when leasing and sales cycle slows down they have revenue to keep employees on with the management fees. 

These types of deals are more long term not short term equity multiple bumps and recycle to something else. Their families tend to keep funds in there when the LP shareholder parent passes away. Long term when value increases they tend to refinance every so many years or decades and pull out the money.

For core diamonds the way I look at it is you hold forever unless someone has a 1031 exchange and is seeking safety and wants to pay you an amazing price for something. ( example they will pay all cash 4.5 cap rate because they are 70 years old and want ultimate safety and do not care about much yield ). Also what could happen is we buy all cash now at higher cap rate and then sell with cap rate compression when interest rates hopefully fall by a good amount again.

Otherwise just keep holding that dirt in the strong area will typically keep going up in value.

As for 8 pref those are theoretical investments. A retail center can have 100 things go wrong with it that affect cash flow versus single tenant you know because the lease says the investment grade credit tenant takes care of everything per the lease and can model out predictable returns over time and if you have additional upside that is icing on the cake but not a requirement of the investment to be considered successful.

Most of my LP investors make medium 6 to 7 figures a year with job or business and have lots of cash and net worth. An investor making 150k a year and worth 1.5 million is usually not a good fit because they are trying to do max yield investing to try to grow fast. They want to live off the pref etc.

A doctor making millions a year doesn't need to grow fast they just want safe yield that in regular times outpaces inflation. They play the long game.

I am 49 years old now. As you get older you are not typically looking for max yield. I could seek that out and put out tons of retail center offerings to invest in but frankly I do not want that life or the stress of it.

Good luck

In a retail condo unless you have majority ownership you are not often the controlling declarant.

You need to look at restrictions that might run with the deed, any REA association, etc.

There is a ton of analysis that would go into if you wanted to buy or not the space you are in. You might not want the business there long term and find a better spot and then can you rent it out and cash flow for what you are purchasing it today for?

You can be hit with lots of special assessments. Before considering buying the unit you likely want an inspection of A/C units, roof, parking lot and everything else and try to negotiate a price reduction or credit from seller at closing to repair or replace the items. You typically do not want the seller fixing as when they are selling they tend to (dope stuff up for cheap) and can't be found after closing. It can be better to often estimate repairs or replacements on the high end and get a credit so you can choose materials and quality used and potentially pocket any unused difference.   

Hi Paul,

We have 2 syndications at the company I own NNN INVEST.

One is value add buying properties for all cash and then leasing up dark spaces. These tend to have awhile before any cash flow due to lease up but equity multiple tends to be higher.

Then we have our core plus model which is mainly investment grade credit single tenant we buy all cash with.

On those core plus it's 5% pref to investors and split the cash flow above 5% - 50/50 (LP/GP) and upside 70/30 (LP/GP). Minimum investment is 200k or more per deal and must be accredited.

We go after larger properties because those under 3 million often do not have the diamond locations and a huge portion of buyers are all cash below 3 million. Basically what I call (kick the bucket) buyers. They have saved their whole life and want to pay cash and then live off of 100k or 200k until they pass away and just own the one property. They are willing to take less yield like 5 or 5 caps for perceived safety as often are in retirement years.

There are other syndications in retail like ground up development and companies that focus on shopping centers.

I do not like those because of the complexity, variables, and instability to the cash flow streams. ( example a development deal the costs could run higher than expected or take much longer or with a retail center some tenants can go out dropping cash flow and cap rate.) 

A retail center can sometimes pay out a 7 pref but can have more risk. It's all about how much money you make annually with your job or business, your age, risk tolerance, liquidity, and net worth levels. The higher the net worth goes people tend to value time more than large yield and want safety. They get older and have less time to deal with headaches and investments not going as planned and want to covet what remaining time they have left in older years to create memories.

20 years in NNN retail

Hope it helps some.

I make millions annually transacting as a principal broker and owner of my company with clients.

I also run a lean operation with employees extracting the most performance per worker.

Many big companies tend to hire the crap out of every position having 30,40,50 people in the hopes they keep scaling. When markets change they have a massive nut to pay and start bleeding cash to stay afloat.

I see this with large commercial brokerages when cycle sales is hot the champagne is flowing and companies can't hire on people fast enough then downturn happens and they have to merge with other companies to survive or go out of business all together. 

I do think anyone would say they were shocked rates went up 300 basis points so fast.

My clients when we were buying NNN and rates in 3's was only 15 basis points difference between 5 year fixed and 10 and I mentioned to them 10 is worth it because you often have full cycle low fixed rate for paydown and more options to exit and trade up than 3 to 5 years fixed debt. They are sitting pretty awesome now with those 10 year loans. If you make millions per year and have a 4 million property you owe 2.2 million on fixed for 10 years then pretty, pretty good especially with investment grade tenants.

Heavily consider investing with GP's that tend to like the money but do not NEED the money to survive or keep some business model alive.

Some of my friends did massive exits with multifamily and sitting on tens of millions or more in cash with pencils down on that asset class unless they can buy quality at say 6 cap and assume a loan with 5 to 7 years remaining in the 3's fixed with 25 to 30 year amortization schedule. They do not want to buy anything that is a headache because again they do not need the money. The ones with larger companies tend to scratch their heads saying ( How can we keep doing deals in this environment to pay staff and make money ?)

I could retire today but I would be very bored. Instead I live my ideal life and work when I want and choose which clients I want. 20 years in I can do that. People ask why if people have tons of money they still buy real estate? It's the hunt and the art of the deal. I love looking at thousands of properties to find the true diamond that catches my eye.   

I think it comes down to the WHY you are doing something.

I can give example of Chick Fil A. Their restaurants average about 5 million minimum in sales and some do 10 million annually which is staggering as it compares to a dine in Cheesecake factory with much larger tickets per person.

They give employee chance from within to partially own and operate ONE store. The employee see it as a chance of a lifetime to make 300k,400k,500k a year with share of the profits. They want to run the location to perfection.

On the flip side the private equity companies tend to just want to hit a number kind of like the fund managers.

So it's an approach of only buy when the syndicator feels really awesome about a property OR they just keep scaling and hoping some work out.  

I think you have to look beyond the company and look at the GP as a core. I am talking in generalities but on the commercial real estate broker side I am always blown away by investors that want to own direct themselves and get talked into crap deals. You are talking about people's legacies, their life savings, all their blood, sweat, and tears of work for their profession or their business built up often after many decades of time.

How can someone take something like that so lightly? 

I see some syndicators that have to do deals because of high carrying costs with lots of employees. So to make payroll they have to keep churning over deals OR they might be a good person but simply have limited knowledge. I see some stuff syndicated in the NNN space that I would not touch with a ten foot pole but I have been in commercial about 20 years and reviewed millions of properties in that space. It becomes like breathing air you just know how to do it optimally without thinking about it.

I have seen syndicators take on loan assumptions with marginal terms and high fees or they used floating debt just to massage the numbers so they could hit a certain projected pref (hopefully) to the investors to entice investment of capital. I just personally do not think that is a good way to do business. I like pay all cash with the raise and then you can exit at optimal time of the cycle because you do not have the lender or banking situation environment causing potential waves with your investment.  

Check if the roof has rocks. If the flat roof has lots of rocks to suck off then can add a few more cost per sq ft to the bid because of added time, labor, disposal.

First I want to say that multifamily was on a cycle high 5 years ago. Now a lot of that is tapped out. If you look at projections many outfits are paying almost nothing in the hopes of a return years down with the pro-forma.

I personally would be very skittish of those type of deals right now.

My syndications I focused on value add dark retail NNN buildings to re-purpose. They have higher growth equity multiple potential.

Currently I am more focused on core plus NNN buying all cash. High profile locations with investment grade credit tenants or strong private credit if available. 5% preferred return annually plus splitting of cash flow over that mark. I like buying all cash because we are not controlled by the debt market or what interest rates are. Those large debt deals you can win big or lose your %ss.

My deals aren't super sexy for returns by they do not have to be. Occasionally you can achieve cap rate compression for growth or the building comes with extra land for some value add but that's not a given. Multifamily on the other hand is heavily economic cycle, debt cycle dependent on exit. 

Why do syndicators take on debt? So they have to raise less capital and can buy quicker and faster leveraging debt. In low interest rate times they can look like champions if they buy right but they can also lose it all in turbulent rate times.

( I am not talking about this company but in generalities ). I think it's good they are communicating. Lots of syndicators got mentored up with these multifamily type properties and were buying anything anywhere. That time is gone now nationally for multifamily. You better make darn sure you have a stellar location with tons of demand to rent so that the rehab matches the rent growth to NOI with what jobs are paying in the area. The rest are likely to get hammered hard in coming years.

Some of my friends that are long time with multifamily have pencils down right now unless a loan to assume in the 3's or 4's with rate and those get like 10 offers from syndicators when they hit the market. 

Hi Ross,

I have been in NNN about 20 years now as a principal commercial broker, investor, syndicator, etc.

I stay mainly on the buyer broker side working with clients nationally. I am not pitching myself but mentioning this because very few high level commercial brokers work the buyer side. Instead they focus on the listing side for volume. Their splits are so bad making maybe 10k or 20k out of 100k payout that they run hard on the hamster wheel and are not wealthy. The senior director have the VP's and newer agents do more of the grunt work while they land more portfolio's to sell.

So because most live by the deal they sell whatever is available to them from their sellers. That could be bad, mediocre, or a good property. Most of the time the good stuff sells pre-market and then the scraps are sold off to uneducated buyers to the space. The listing brokers do a solid for the seller dumping the dog properties at a premium and the seller rewards those listing brokerages with more business.

Owning single tenant NNN is easy the HARD part is the process reviewing lots of properties to find the gems to buy. It's just like any other asset class lots of junk out there. I do not post on here as often anymore just because I am so busy with clients and my own investments these days. So make sure whoever you work with they know what they are doing and they do not need the money to live. Often those types can tell you what they really think about a property.

On my website and on Amazon I think is a free book on NNN I wrote that goes in depth. Hope it helps.