All Forum Posts by: Joel Owens

There are no absolutes to investing. No investment comes without risk. Nothing is guaranteed.

My current syndications have not lost money. On our value add side the goal is to try and double the initial investment within a 3 year hold period. Sometimes with single tenant on lease up we decide to sell the property to an end user or a developer rather than hold long term if we do not land the tenant strength and terms we want for the lease.

I call it my (90 day initial review period). We usually talk to about 2 to 3 leasing brokers before we purchase a property. After that we monitor interest over a 90 day period and decide what we want to do. If you take doubling money and divide it by 36 months then if we exited in 3 or 6 months time on our value add we try to hit what that would have been had we held for 3 years. Example 100/36 months or 3 years roughly equals about a 2.78% average return per month.

Now our core plus syndication for NNN is tenants already in with place with leases so that is a different model more long term holds. Our accredited investors could invest in both value add and core plus and blend their portfolio returns. I am more selective on deals I syndicate and more about quality than doing volume.

It's all about what kind of life you want and what kind of risk you want to take with your investments.

Someone can be worth 50 million or 1 billion the number does not matter as much as are they living the life they want and happy?

I say this because some syndicators sometimes like to take money from non-accredited investors and newly accredited investors. Those types of investors statistically can be more highly manipulated. They get sucked in by promises of high returns.

Alot of it is bullsh*t and theory. In NNN for example a weak tenant could put out a 9 cap and sign a lease for 15 years. If they go out in 2 years then did you get the 9 cap? You sure didn't. You got a lot of re-leasing and other costs for money losers.

Some syndicators are nothing more than glorified property managers disguised as GP's praying some of the deals work out and limp along.

The newer accredited investors tend to get sucked in by the pref and do not study the deal as much. They want that money working day 1.

Many of my investors making millions per year or higher at their job or business are more concerned about safety of the investment and the hassle factor ( variables in a syndicators pro-forma that could go wrong and the returns could not materialize like they hoped ).

Someone mentioned office. Personally can't stand regular office I do not care how cheap it is UNLESS it is sitting on valuable land and I figure in existing building demo costs to re-adapt the dirt to a higher and better use than it becomes appealing. Years and decades of your life you never get back. Even if someone makes 5 million but it took away time wise one of the best decades of your life was it worth it? Not to me.

I see the care free go lucky hippie types that just chill all week. My massage guy is one of them. Little money but he has a great time and makes the most of experiences. Then on the other end of spectrum I see the work aholics with their 60 hour or more weeks with money and migraines but little to no fun in life.

Then there is that tiny percentage that has the secret sauce where they work so many hours and cap it but also make a lot of money and get the most enjoyment out of everyday. Now someone could say they enjoy working so they find joy in working 70hr weeks. To that I would counter that THEY might enjoy that but not their family, friends, their health etc. would all suffer.

Everyone's life and personal journey is different. I actually find it interesting to study other people and see how they think, what they value, and why.

As a syndicator myself I would rather do 10 great deals a year than 17 and have 4 be duds, 9 okay, and 4 huge winners. You just create a lot of busy work and drama in the name of scale. I don't care who the syndication group is nobody likely anticipated a 300 basis point hike in rates so fast that went up like a rocket. Everyone in life has adversity it's how you handle and respond to it that matters.  

These posts could go on forever.

You know what I have learned talking with thousands of millionaires from 7 to 9 figure net worth and billionaire families over the decades?

A return in real estate can literally be made hundreds or more ways.

People are too busy chasing other people doing investments and think they have to match them or surpass them. 5 million, 100 million, 1 billion doesn't mean squat if you are not living the life you want. So where you invest and what you invest in is an individual question as to what crap or not do you want to put up with for a yield?

The answer varies because someone else's nightmare can be someone else's dream who has various different skillsets and personalities. 

Virtually all my cold belt clients on the NNN side buy in warm belt states because they see the growth there long term and many state they want to retire in a warm belt state. I do have a few that still buy locally in cold belt states.

I personally can't stand residential but that is just me. I like my life a certain way and if I make 5 million a year versus 10 million doing something that makes me unhappy then I take the 5 every time. It's about how I feel everyday when I wake up and ask myself am I happy and living the life I want. If the answer is not a resounding yes I take a minute and re-evaluate what I am doing.

Once you have for some people 7 figure wealth and others 8 figure wealth you let off the gas and start enjoying more fruits of your labor as you get older and time becomes more and more precious. ( Dust in the wind ) song is very real (not another minute will your dollars buy). There are some addicted to the game of investing at all costs. Lots of guru's that need to keep puffing to create more buy in to huck their wares.

Cold belt states fundamentally live differently in a lot of ways than warm belt states. It's all about do the positives for you outweigh the negatives for the location and asset type your are seeking. 

So all questions come back to the ultimate question: What kind of life do you want as an investor? In the beginning there tends to be lots of investment types and things you do not want to do that you might have to for getting started but as your net worth, liquidity, and track record grows over years and decades the more you get to decide the ultimate life you want to live. You get that freedom to make the choice versus being restricted by bills, cash flow, net worth, etc.

Each level of net worth is not all sunshine and rainbows. There is a certain life force taken out of you each time leveling up careers, real estate holdings, a business you own etc. It's all subjective when enough is enough and you want to coast. At that point it's mainly outpacing inflation and keeping the money safe. 

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.