Latest / Carson's Corner: Entrepreneurship & Investing / How a Builder Thinks About Investing: Shannon Robnett on Development, Industrial & Terminal Value

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How a Builder Thinks About Investing: Shannon Robnett on Development, Industrial & Terminal Value · Carson's Corner: Entrepreneurship & Investing

• 0:00
  SPEAKER_02: We saw it during COVID.
• 0:01
  SPEAKER_00: My lumber package went from 3.4 million to$9 million.
• 0:06
  SPEAKER_00: Today's guest is Shannon Robnet, who went from framing houses by hand to developing multifamily and industrial across three states and now runs a fund blending all of it.
• 0:16
  SPEAKER_02: I had my lumber locked at the 3.4 million.
• 0:19
  SPEAKER_02: I resold my whole lumber package and put my project on hold.
• 0:22
  SPEAKER_02: I made$2.5 million reselling my lumber package and then bought once it came down after COVID.
• 0:28
  SPEAKER_02: It cost us a year delay, but I was able to make money for my investors without sticking a shovel in the crap.
• 0:34
  SPEAKER_02: That's kind of crazy.
• 0:34
  SPEAKER_01: You're like, I know this isn't gonna stay elevated for this long.
• 0:37
  SPEAKER_01: $1,780 a thousand from$650.
• 0:40
  SPEAKER_01: I mean, it tripled.
• 0:41
  SPEAKER_01: So I think coming from the construction background, you also understand what can go wrong.
• 0:46
  SPEAKER_02: It's your main focus on development, right?
• 0:48
  SPEAKER_02: We probably do 70% of our investments are in new construction.
• 0:52
  SPEAKER_02: I was talking with some friends of mine that that have about a 5,000 unit portfolio in the Dallas and Houston area.
• 0:59
  SPEAKER_02: Their expenses are approaching 52%.
• 1:02
  SPEAKER_02: Yeah.
• 1:02
  SPEAKER_02: Wow.
• 1:02
  SPEAKER_02: But I can build brand new, and we can be in that 29 to 30% category.
• 1:07
  SPEAKER_02: We don't have heating and air units going out all the time.
• 1:10
  SPEAKER_02: We don't have trees buckling sidewalks.
• 1:12
  SPEAKER_02: So what uh what markets do you like right now?
• 1:15
  SPEAKER_02: The number one thing that I look for, Carson, is I look for wage growth.
• 1:18
  SPEAKER_02: Most people look for rent growth.
• 1:20
  SPEAKER_02: If I want to charge you more rent and you're not getting more pay, then you have some hard decisions to make, and that may mean moving out of my apartment.
• 1:27
  SPEAKER_02: I agree.
• 1:28
  SPEAKER_02: That$75 difference on a 200-unit apartment complex is close to three million dollars in net terminal value.
• 1:36
  SPEAKER_01: Let me ask you this, though.
• 1:37
  SPEAKER_01: When you hire a property management company, is the biggest mistake people make is going with the cheapest.
• 1:42
  SPEAKER_01: The easiest way to hire a property manager is to Tell me a little bit about industrial.
• 1:48
  SPEAKER_01: On that side, are you building or are you buying both?
• 1:51
  SPEAKER_01: Or I like an industrial to the bond.
• 1:54
  SPEAKER_01: So what are you guys doing?
• 1:55
  SPEAKER_01: A few spots and select projects.
• 1:57
  SPEAKER_01: Like it's got to be like a high quality deal, and you'll kind of help bridge the gap on it.
• 2:02
  SPEAKER_02: Well, and that's why, you know, Carson, our main product is a fund where we blend multifamily, industrial, and then pref equity, right?
• 2:09
  SPEAKER_03: Because there's welcome to the Carson's Quarter.
• 2:16
  SPEAKER_01: Alrighty, I'm sitting here with Mr.
• 2:18
  SPEAKER_01: Shannon Robnet, uh developer and investor doing multifamily and industrial, based out of Boise, Idaho, does projects in Florida and Texas, kind of a nationwide guy.
• 2:32
  SPEAKER_01: Um, the deal's got to make sense to him.
• 2:34
  SPEAKER_01: So, Shannon, how you doing?
• 2:37
  SPEAKER_01: Good, Carson, how are you?
• 2:39
  SPEAKER_01: Good.
• 2:40
  SPEAKER_01: Uh, before you came on, you know, you mentioned that you started in construction, and how do you feel like that separates you from everybody else that's out there raising money right now and and all that?
• 2:55
  SPEAKER_02: Well, you know, the thing about it, Carson, is my dad was a builder and a developer, and my mother was a third-generation real estate broker.
• 3:02
  SPEAKER_02: And I just grew up in the industry and and quite honestly, as a child, I hated it because it meant if you weren't gone from the house by 7 a.m.
• 3:09
  SPEAKER_02: on Saturday, you went to work.
• 3:11
  SPEAKER_02: And I I didn't really think that was going to be my life course, but I I got I I tried to go to college for a little bit.
• 3:19
  SPEAKER_02: I didn't really like it.
• 3:20
  SPEAKER_02: Uh so I started building houses.
• 3:23
  SPEAKER_02: And and when we built the house, we actually built the house, you know.
• 3:27
  SPEAKER_02: We'd dig the foundation, we'd backfill it, we'd pour the flat work, uh, we'd frame it with a couple other guys, we'd build the cabinets, we'd stain and lack all the doors, we'd paint it inside and out.
• 3:38
  SPEAKER_02: I mean, there was a lot of things that I learned how to do.
• 3:41
  SPEAKER_02: And I wouldn't say that I'm the world's best cabinet maker, but I know how cabinets lay out.
• 3:46
  SPEAKER_02: And when I started that uh the commercial end of my business, I really saw how taking that idea and doing a design build with people that they had a$3 million budget and a 40,000 square foot need.
• 4:02
  SPEAKER_02: And if I got involved from the beginning, we could make sure the architect didn't draw the Taj Mahal.
• 4:08
  SPEAKER_02: We could get something that was affordable and within their budget, and I worked with them the whole time so that when we got to the place where we were going to build the building, there weren't any surprises.
• 4:18
  SPEAKER_02: Well, I just took all of that and started doing uh developments with partners one at a time, and I did some small stuff, and then I started getting into some larger stuff, and I did a hundred and eighty unit apartment complex with a family office.
• 4:34
  SPEAKER_02: And I brought that same mentality to the game.
• 4:37
  SPEAKER_02: So when we when we had, I mean, you you know, how investments work, you start with the rent, right?
• 4:43
  SPEAKER_02: This is what we can get for rent, this is what our known expenses are.
• 4:47
  SPEAKER_02: So how do you know how much building you could build?
• 4:51
  SPEAKER_02: How do you know what level of finishes to put in?
• 4:54
  SPEAKER_02: How do you know how big your clubhouse is gonna be?
• 4:56
  SPEAKER_02: It all runs backwards.
• 4:58
  SPEAKER_02: And if you're just dealing with a raw number that says, hey, we've got, you know,$2,000 rents, that's gonna allow us to build a$60 million project, what does that really look like?
• 5:07
  SPEAKER_02: How does that really break down?
• 5:09
  SPEAKER_02: And so when we go in and develop a project or go in and renovate projects, we know from the beginning what that cost looks like.
• 5:17
  SPEAKER_02: I know that my plumber is about uh he's about 7.5% of my overall building cost.
• 5:24
  SPEAKER_02: Well, if he's seven and a half percent and I've got sixty million bucks, that means I've got to do all the units for his dollar amount, and we know that before we get all the way into it.
• 5:35
  SPEAKER_02: And we got a 70 uh, you know, a 70 million dollar set of plans to build and a$60 million budget, right?
• 5:41
  SPEAKER_02: And we see this all the time where people exceed their budgets, where their returns aren't coming in correctly because they spent too much money.
• 5:51
  SPEAKER_02: Um or they're looking at$2,000 rents and they go cheap, cheap, cheap on everything when they could have spent more money and then they can't get the rent.
• 6:01
  SPEAKER_02: Yeah.
• 6:01
  SPEAKER_02: Right.
• 6:02
  SPEAKER_02: And so that's really where I believe my experience is better uh suited for the investment gain because I can really look at it and break it backwards and go, this is what these elements cost, and this is why we can get it done, we can develop, we can invest, we can build, all of those kinds of things.
• 6:23
  SPEAKER_01: I think being from the cabinet space probably helps you a lot because you understand like that finished product and you know the quality and stuff like that in the end is kind of what drives and the amount of detail that goes into it is really important.
• 6:37
  SPEAKER_02: So well, and I'll I'll tell you a quick story.
• 6:40
  SPEAKER_02: You know, when I built my second house, I just assumed that we had framed it exactly right, and I didn't bother to measure the kitchen, and I went into the shop and I built the cabinets exactly like like the plants.
• 6:51
  SPEAKER_02: Yeah.
• 6:51
  SPEAKER_02: Well, Carson, as you can imagine, we had the window off three inches on one side, and so my cabinets wouldn't fit.
• 6:59
  SPEAKER_02: Yeah.
• 6:59
  SPEAKER_02: And so I had to go back in and rebuild the cabinet because I didn't measure and double check.
• 7:06
  SPEAKER_02: Well, it was just a window, it was just a cabinet, the sink was a little offset, but it wasn't the end of the world.
• 7:14
  SPEAKER_02: But there are things in development that can lead to that where the plumbing's in the wrong place or things like that.
• 7:21
  SPEAKER_02: And so there's a lot of those examples that I grew up with that I just built into how we do things to double check almost everything all the time and make sure that everything comes out the way it's supposed to.
• 7:34
  SPEAKER_01: Yeah.
• 7:34
  SPEAKER_01: So I think uh coming from the construction background, you also understand what can go wrong.
• 7:40
  SPEAKER_01: You know, um you put the you put the pieces together, and if not done right, you know, um, if you were ever to buy an existing complex, you would be able to pull the curtain back and say, this is screwed up, this is screwed up, this is screwed up.
• 7:54
  SPEAKER_01: But um, so is your main focus on development, right?
• 7:58
  SPEAKER_02: Yeah, we probably do 70% of our investments are in new construction.
• 8:03
  SPEAKER_02: Oh, wow.
• 8:03
  SPEAKER_02: What kind of thing?
• 8:04
  SPEAKER_02: So, you know, the thing is, when you're looking at that, you know, you can go buy uh something in, you know, Dallas, Texas for$75,000,$80,000 a door right now, and you can get a return on it.
• 8:17
  SPEAKER_02: But I was talking with some friends of mine that that have about a$5,000 unit portfolio in the Dallas and and Houston area, and their expenses are are approaching 52%.
• 8:28
  SPEAKER_02: Right?
• 8:29
  SPEAKER_02: Now I I get it, property taxes is a big portion of that, but when I can build brand new and we can be in that 29 to 30 percent category, we're our cost per door is much higher, our rents are much higher, and our expenses are a lot lower.
• 8:45
  SPEAKER_02: We don't have heating and air units going out all the time.
• 8:48
  SPEAKER_02: We don't have trees buckling sidewalks at at the brand new part of the game.
• 8:54
  SPEAKER_02: So we have a lot better expense ratio, which is a lot more controllable.
• 8:59
  SPEAKER_02: If you're really looking at an investment, the one thing that can get out of control on you faster than anything is unseen expenses.
• 9:06
  SPEAKER_02: Oh, all of a sudden we got to replace the roof, or you know, the main boiler went out, or all those kinds of things.
• 9:12
  SPEAKER_01: Yeah, and people don't realize the magnitude of what a roof can cost on a big commercial project or you know, getting into home.
• 9:19
  SPEAKER_01: No, it's not a simple thing.
• 9:21
  SPEAKER_01: Yeah, it's not uh 15,000 like on your residence or or 50,000 even, you know, you're getting into hundreds of thousands.
• 9:28
  SPEAKER_01: Um I got a question for you, you know, and this might be a little bit naive, but my I I bought a fridge and it went out, and then I took the warranty, got another one and it went out.
• 9:39
  SPEAKER_01: You know, on those HVACs, I mean, do you have y'all fine found brands or you know, the the refrigerators because you see them, you know.
• 9:48
  SPEAKER_01: I guess that since you're building new new units, you probably have a two or three year warranty, but are there certain brands you steer steer away from?
• 9:56
  SPEAKER_01: This is like an electronics question, but I'm just curious, you know.
• 10:00
  SPEAKER_02: Well, we've we've actually had issues with dishwashers in our in uh a project that we're just wrapping up, where uh we've somehow there's uh some dirty power that's coming in, and we've actually traced that back to the power company and gotten them to pay for our dishwashers.
• 10:16
  SPEAKER_02: But a lot of that comes from our knowledge of why are why do we keep blowing circuit boards in the in the dishwashers, you know?
• 10:25
  SPEAKER_02: Yeah.
• 10:25
  SPEAKER_02: Um and you know, you you see a lot of that where, you know, certain brands, I mean, everybody, you know, if you let the architect, he's gonna spec uh carrier or train, you know, very uh high-end unit.
• 10:39
  SPEAKER_02: What I found to be more helpful is my relationship with my subcontractors.
• 10:44
  SPEAKER_02: I use a lot of the same c subcontractors time and time again because again, we do it from a design build standpoint, so we may use a lesser unit.
• 10:52
  SPEAKER_02: We haven't had an issue with a new unit going out in a couple of years, but I know if I did, my people they rely on me for a good chunk of their work.
• 11:03
  SPEAKER_02: And so the ability for them to understand that I need that unit replaced and I'm not gonna pay full retail for it, and they're gonna give me a deal, uh, typically helps me in that regard.
• 11:16
  SPEAKER_02: And then the last part of that is even inside the units, when you look at an HVAC unit, there's a cooling element, there's a heating element.
• 11:23
  SPEAKER_02: You don't need the whole HVAC unit if it's fairly new because they're all up to speed with the electronics and everything, so you can just swap out parts and pieces rather than replace whole units.
• 11:35
  SPEAKER_01: Yeah, that's always interesting stuff.
• 11:37
  SPEAKER_01: Um, I actually bought a boss dishwasher and it lasted forever.
• 11:41
  SPEAKER_01: I was kind of surprised about it.
• 11:43
  SPEAKER_01: So yeah.
• 11:44
  SPEAKER_01: Um, but yeah, I've uh I had a friend, he bought a like a Samsung, and I'm not trying to like pick a brand here, and he said I went to buy a refrigerator.
• 11:53
  SPEAKER_01: He's like, they're really expensive, and and they are, and he was like, get the five-year warranty, and I'm sure glad I did.
• 12:00
  SPEAKER_01: So I had another one that went in.
• 12:05
  SPEAKER_02: You know, when you're buying used product, you know, it's as is where is.
• 12:09
  SPEAKER_02: Uh as soon as that check cashes, it's all yours with it with yourself.
• 12:13
  SPEAKER_01: It's yours whether you want it or not, right?
• 12:15
  SPEAKER_01: That's right.
• 12:16
  SPEAKER_01: That's right.
• 12:17
  SPEAKER_01: Do you do you believe uh the full-blown conspiracy that it's uh planned um, you know, where it falls apart, right at the you know, three to five year mark.
• 12:26
  SPEAKER_01: I don't know.
• 12:27
  SPEAKER_02: I just kind of you know, I I haven't really had that happen.
• 12:32
  SPEAKER_02: Um uh and and you know, the other side of that is we we plan so there's two two ways to build apartments.
• 12:39
  SPEAKER_02: One is the the two-year model and one is the seven-year model.
• 12:44
  SPEAKER_02: And if you're building it, if you're building it to develop the property and then sell it and recognize the profits versus building it to hold it for seven to ten years, you use a different theory.
• 12:57
  SPEAKER_02: One of the things that we do is most carpet is jute backed.
• 13:01
  SPEAKER_02: It's you know, and if you've ever gotten on the back of the carpet, it's really rough, right?
• 13:07
  SPEAKER_02: Yeah.
• 13:07
  SPEAKER_02: Well, we use a a fiber-backed carpet, and what that allows us to do is pull the carpet up and re-tuck it without destroying the baseboard.
• 13:17
  SPEAKER_02: It's about 50 cents more a yard.
• 13:19
  SPEAKER_02: It's not much, but it but it's with the mindset of we're gonna have an issue with this carpet.
• 13:26
  SPEAKER_02: We may need to pull it out, we may need to suck water out of it, we may need to do a hundred different things that tenants find new ways to destroy products.
• 13:34
  SPEAKER_02: But yeah, but we're doing that kind of thing.
• 13:36
  SPEAKER_02: We're buying a higher grade nylon that lasts longer, that's stain-resistant, you know.
• 13:41
  SPEAKER_02: We're doing the things that matter so that the product will last longer rather than build it as cheap as possible to get the tenant in, stabilize the asset, and then sell it.
• 13:51
  SPEAKER_01: That's awesome.
• 13:51
  SPEAKER_01: I like the uh for my podcast, it's Thinkin' Decades, you know.
• 13:56
  SPEAKER_01: Um my podcast, uh, The Wealthy Thinkin' Decades, not quarters.
• 14:02
  SPEAKER_01: Um I love the mentality.
• 14:06
  SPEAKER_01: I think people are when they come into multifamily, I think that's the biggest mistake they make is become they because they come from a house flipping environment, they assume that they can keep it for a very short period of time and it's always gonna work out.
• 14:20
  SPEAKER_01: If it doesn't work out at a different interest rate and work out, you know, seven to ten years down the line, I don't think it's a deal worth doing right now.
• 14:28
  SPEAKER_02: Go ahead.
• 14:29
  SPEAKER_02: No, I was just gonna say I agree with you, and I think, you know, people got, you know, we there's cycles in every market, and I think the cycle that we went through in tw uh about 17 to 21, where all you had to do was buy the asset, put a coat of paint on it, increase the rents 200 bucks, and people got into really apartment flipping.
• 14:51
  SPEAKER_02: It was just a bigger multiple.
• 14:53
  SPEAKER_02: Uh, they didn't really think through some of the things that can happen when when debt expires, when it comes time to renew, because you got three-year lock instead of a 30-year lock, because it was a half a percent less.
• 15:07
  SPEAKER_02: You got interest only uh on that as well.
• 15:10
  SPEAKER_02: So now you find yourself in a different rate environment, and we're seeing that across the nation where asset prices are really resetting, not because the asset is that it has changed fundamentally.
• 15:22
  SPEAKER_02: You're still getting$1,800 in rent.
• 15:25
  SPEAKER_02: Your expenses are still in that 30 to 35% range.
• 15:28
  SPEAKER_02: But what's changed is you've gone from a 4% interest rate to a 6.5% interest rate, and now the bank's wanting you to come to the table with more money.
• 15:38
  SPEAKER_02: Well, you left all those doors open for the bank to do that.
• 15:42
  SPEAKER_02: You could have made smaller distributions by, I don't know, a half a percent on a on a$10 million loan would probably cost you less than$50,000 a year.
• 15:53
  SPEAKER_02: That's not gonna crush your cash flow.
• 15:55
  SPEAKER_02: If it does, it's probably not a deal worth doing.
• 15:58
  SPEAKER_02: And then you put yourself in a position where the the the money's gonna come due.
• 16:02
  SPEAKER_02: Anybody that saw three and four percent debt as as temporary was an imbecile.
• 16:08
  SPEAKER_02: I mean, that was a once-in-a-lifetime thing, and to have locked that for as long as you could have was the only way that you should have done that.
• 16:16
  SPEAKER_02: And we were guilty of that.
• 16:18
  SPEAKER_02: We had some construction projects that that we didn't lock uh going forward debt, and we regretted it.
• 16:25
  SPEAKER_02: It definitely made the deal harder.
• 16:27
  SPEAKER_02: But you've also got a plan for two and three different contingencies of I mean, we saw it during COVID.
• 16:34
  SPEAKER_02: My lumber package went from uh uh three point four million to nine million dollars.
• 16:40
  SPEAKER_02: Wow.
• 16:42
  SPEAKER_02: And so what I did was I had my lumber locked at the 3.4 million.
• 16:47
  SPEAKER_02: I resold my whole lumber package and put my project on hold.
• 16:50
  SPEAKER_02: I made two and a half million dollars reselling my lumber package and then bought once it came down after COVID.
• 16:57
  SPEAKER_02: It cost us a year delay, but I was able to make money for my investors without sticking a shovel in the crowd.
• 17:04
  SPEAKER_01: And it was a fluke, but we took advantage of it.
• 17:07
  SPEAKER_01: That's kind of crazy.
• 17:08
  SPEAKER_01: You're like, I know this isn't gonna stay elevated for this long.
• 17:11
  SPEAKER_01: It did get really high.
• 17:13
  SPEAKER_01: I can't remember exactly.
• 17:14
  SPEAKER_01: I don't want to remember.
• 17:15
  SPEAKER_02: $1,780,$1,780 a thousand uh from from six six fifty range.
• 17:24
  SPEAKER_02: Yeah.
• 17:24
  SPEAKER_01: I mean it tripled, you know.
• 17:26
  SPEAKER_01: Yeah.
• 17:28
  SPEAKER_01: That is nuts, man.
• 17:29
  SPEAKER_01: I was like thinking, how much was a two by four back then?
• 17:32
  SPEAKER_01: I I was working on something at the house.
• 17:34
  SPEAKER_01: So I I everybody was.
• 17:36
  SPEAKER_01: I wasn't doing new development back then, but you know, I just remember it being kind of shocking, like, wow.
• 17:42
  SPEAKER_01: So what uh what markets do you like right now?
• 17:49
  SPEAKER_01: Idaho's a booming state, isn't it?
• 17:51
  SPEAKER_02: Idaho's been booming for the last 20 years, and uh I remember this I I was making the statement in 08, you know, when everybody was in the middle of the GFC.
• 18:02
  SPEAKER_02: It's a great place to go broke, right?
• 18:04
  SPEAKER_02: I mean, if you're gonna I mean we've got a great quality of life, right?
• 18:07
  SPEAKER_02: Yeah.
• 18:08
  SPEAKER_02: And this isn't a political statement, but I like red states.
• 18:12
  SPEAKER_02: Yeah.
• 18:12
  SPEAKER_02: I like states that have landlord-friendly laws.
• 18:15
  SPEAKER_02: You know, in Idaho, uh, if if you miss your rent by the 10th, uh, I can give you a three-day notice.
• 18:23
  SPEAKER_02: I get that three-day notice to vacate.
• 18:25
  SPEAKER_02: If you don't, I can take you to court, all in and done.
• 18:28
  SPEAKER_02: I have you out in less than 60 days.
• 18:30
  SPEAKER_02: Yeah.
• 18:30
  SPEAKER_02: In California, that's a 10, 11 month process.
• 18:34
  SPEAKER_02: I don't want to buy assets in California that tie me to that kind of stuff.
• 18:39
  SPEAKER_02: But the number one thing that I look for, Carson, is I look for rent uh or I look for wage growth.
• 18:45
  SPEAKER_02: Most people look for rent growth, but I look at it one step back.
• 18:50
  SPEAKER_02: If I want to charge you more rent and you're not getting more pay, then you have some hard decisions to make, and that may mean moving out of my apartment.
• 18:58
  SPEAKER_02: I agree.
• 18:59
  SPEAKER_02: So one of the things that I look for, you know, Texas has got good wage growth, uh, North Carolina's got good wage growth, Florida's got good wage growth, Idaho's got good wage growth, Nevada does.
• 19:11
  SPEAKER_02: Those are the kind of states that I like to focus and concentrate in because, you know, as you know, Carson, everything is supply and demand.
• 19:19
  SPEAKER_02: And in that supply and demand cycle, if you're getting paid more, it's because your boss feels like he needs to in order to keep you, which means that there's a demand on employees, which means that there's more people moving in.
• 19:34
  SPEAKER_02: It it's part of the cycle, but but if the wages are growing, that's a sign of a very healthy economy for tenants.
• 19:40
  SPEAKER_02: And as we continue to head into a interest rate inflating environment, yeah, houses are becoming less and less attainable, which means I'm gonna have more and more tenants, people that are gonna stay in apartments long term, because they need a place to live.
• 19:56
  SPEAKER_02: That's not the option.
• 19:58
  SPEAKER_02: But the difference between$2,000 for apartment rent or$4,000 to own the home is not a surmountable thing for them.
• 20:05
  SPEAKER_01: Yeah, it's it's crazy, man.
• 20:07
  SPEAKER_01: Um what other markets do you like?
• 20:10
  SPEAKER_01: You're in uh Florida.
• 20:11
  SPEAKER_01: What do you how do you feel about Florida right now?
• 20:13
  SPEAKER_01: I hear mixed things.
• 20:15
  SPEAKER_01: I always love Florida.
• 20:16
  SPEAKER_01: I love going there around this time of year in October.
• 20:19
  SPEAKER_01: But as a vacationer and an investor, that's two different things.
• 20:23
  SPEAKER_01: Um environment as an investor down there.
• 20:26
  SPEAKER_02: You know, I'm in Florida in the industrial market.
• 20:29
  SPEAKER_02: Okay.
• 20:30
  SPEAKER_02: And i if you look at the cycle, industrial's always two to three years behind residential, right?
• 20:37
  SPEAKER_02: So people move to the area, they need more goods and services, they need, you know, more car washes, they need more quick stop blue boil uh places, they need all the different things.
• 20:47
  SPEAKER_02: Well, those come after the people get there, right?
• 20:50
  SPEAKER_02: Yeah.
• 20:51
  SPEAKER_02: So now you've got the car washes have been built.
• 20:53
  SPEAKER_02: Well, who's selling on the car wash supplies?
• 20:55
  SPEAKER_02: Well, he needs a warehouse, right?
• 20:57
  SPEAKER_02: So we do a lot of that uh industrial stuff, and the Florida market right now might be a little soft on housing depending on where you go, but for the industrial space, it's really, really hot because there's not enough of it.
• 21:12
  SPEAKER_02: And that's where you get into the demand cycles of where is the product that all the people that just moved there, because they had a massive influx during COVID, right?
• 21:21
  SPEAKER_01: I'd like to.
• 21:22
  SPEAKER_01: I think I think Florida's one of those markets like it's similar to Texas, like the Dallas area.
• 21:29
  SPEAKER_01: You never bet against it.
• 21:30
  SPEAKER_01: It might get a little head up ahead of itself or costs might go up, yeah, for whatever reason, but long term it's just always such a good solid play.
• 21:38
  SPEAKER_01: You know, if you're like you said, if you're in it for 10 years, it's a good place, but you know, if you're in it for two, it's a bad idea anywhere, really.
• 21:46
  SPEAKER_01: You know.
• 21:46
  SPEAKER_02: Well, and that's kind of that's kind of true with real estate investing as a whole, you know.
• 21:52
  SPEAKER_02: Yeah.
• 21:52
  SPEAKER_02: Um I mean, I I I was talking with a buddy of mine that flips houses uh on Tuesday, and you know, his statement was I don't know.
• 22:00
  SPEAKER_02: How many I'm gonna flip in the next 12 months because I can't I can't go flipping houses if it's if if interest rates are gonna continue to go up.
• 22:08
  SPEAKER_02: Yeah.
• 22:08
  SPEAKER_02: And that's a short-term window.
• 22:10
  SPEAKER_02: And that's that's the right window to look at for flipping houses.
• 22:13
  SPEAKER_02: But if I'm looking at, you know, real estate is one of those things that time heals all wounds, you know.
• 22:19
  SPEAKER_02: Yeah.
• 22:19
  SPEAKER_02: Uh I mean, if you if you owned real estate that you bought in 2007, right before the market crashed, and you still own it, you're in great shape.
• 22:32
  SPEAKER_02: You did extremely well.
• 22:34
  SPEAKER_02: If you sold it in 10, 11, and 12, you'd you lost money.
• 22:38
  SPEAKER_02: Yeah.
• 22:39
  SPEAKER_02: And I think that that's where a lot of people they look at timelines in real estate and go, well, this is a three-year deal, this is a five-year deal.
• 22:47
  SPEAKER_02: This is we're gonna look at this in five years.
• 22:50
  SPEAKER_02: You know, I sold 180 units to Kennedy Wilson, their a national uh and New York stock exchange traded REIT, and I asked him, I said, What's your plan for this?
• 23:01
  SPEAKER_02: He says, We're gonna put it on the shelf and we will not even look at it for 10 years.
• 23:06
  SPEAKER_02: Wow.
• 23:07
  SPEAKER_02: Well, they bought that from me in 2022, their value's down about 15 to 18 percent if they were to sell it today, but they're only four years in.
• 23:15
  SPEAKER_02: They're not even gonna look at it for another six years, and then all of a sudden they look like geniuses.
• 23:20
  SPEAKER_02: Yeah.
• 23:21
  SPEAKER_01: It feels a lot different if you're I'm sure they took a peek at it and they're like, oh man.
• 23:27
  SPEAKER_01: I bet they didn't.
• 23:28
  SPEAKER_01: They they imagine you at the beach drinking a margarita.
• 23:31
  SPEAKER_01: I'm kidding.
• 23:32
  SPEAKER_02: Well, in real estate, you know, everybody tells you to dollar cost average stocks, right?
• 23:37
  SPEAKER_02: Yeah.
• 23:38
  SPEAKER_02: When you're looking at long-term hold, nobody nobody applies that thought process to real estate.
• 23:43
  SPEAKER_02: You might buy something today for a million bucks that tomorrow's worth one or one five and then be able to buy it again in another two years at 800, but now your your dollar cost average is fine because you're not selling it till it gets to two million in 20 years, you know?
• 24:02
  SPEAKER_01: Yeah.
• 24:02
  SPEAKER_01: I think that's some wise advice.
• 24:04
  SPEAKER_01: If you had uh advice to tell somebody that was, you know, just now getting into real estate, what would you tell them?
• 24:10
  SPEAKER_01: Your early long-term window, is there anything you would say don't do?
• 24:15
  SPEAKER_01: Like I think the the cabinet making and all that probably helped you a lot, I think.
• 24:19
  SPEAKER_02: You know, sure, but but you know, Carson, it's kind of like this.
• 24:23
  SPEAKER_02: If you if you found out tomorrow you had high blood pressure and a heart arrhythmia, you're not gonna immediately go to Harvard and start taking classes to become a world-class cardiologist.
• 24:33
  SPEAKER_02: You're gonna go get a cardiologist, you know?
• 24:36
  SPEAKER_02: And I think people people often say, I need to do this so that I understand it.
• 24:41
  SPEAKER_02: And to some degree I understand that.
• 24:45
  SPEAKER_02: But do you really want to know how to answer a call at two o'clock in the morning and go clean out a toilet?
• 24:50
  SPEAKER_02: You know?
• 24:50
  SPEAKER_02: You you don't need to understand it.
• 24:53
  SPEAKER_02: What you need to understand is who is doing it right in this business, what is their track record, what are the fundamentals, what can make this deal blow up?
• 25:02
  SPEAKER_02: Those are the things that you need to know.
• 25:05
  SPEAKER_02: And if you know that and you're working with people with good track records that have long histories of doing this, you're gonna be fine, right?
• 25:13
  SPEAKER_02: You don't have to go through the headache and the heartache of single family homes to get to a bigger place if you don't want to.
• 25:20
  SPEAKER_02: And what a lot of people don't realize, and I didn't realize this for so long, is I've always done my own property management until I was able to hire people to do it.
• 25:30
  SPEAKER_02: But all property management is, if you're a real estate investor, is buying yourself another job that's close to minimum wage.
• 25:37
  SPEAKER_02: Or worse.
• 25:38
  SPEAKER_02: Because I'm gonna I'm gonna put you on the spot here, Carson.
• 25:40
  SPEAKER_02: Yeah.
• 25:41
  SPEAKER_02: Carson, when was the last time you did a home project and only had to go to Home Depot once?
• 25:47
  SPEAKER_01: I don't think there's ever there's never been one, you know.
• 25:50
  SPEAKER_02: But the professional, he shows up, he's got everything he needs in the van, he does the job, he moves in, he moves out, it's over, you know?
• 25:57
  SPEAKER_01: Yeah.
• 25:58
  SPEAKER_01: So that's the difference.
• 25:59
  SPEAKER_01: Well, so you you like having property management.
• 26:03
  SPEAKER_01: Sometimes they don't do such a good job, but other times I think it's worth it.
• 26:06
  SPEAKER_02: Yeah, but here's the thing I think about property management, Carson.
• 26:10
  SPEAKER_02: If I hired you to be my property manager, the very first uh order of business in your business is to make money for your business, right?
• 26:19
  SPEAKER_02: Yeah.
• 26:19
  SPEAKER_02: Well, the easiest and quickest way to make money for your business is to maintain an asset at full.
• 26:26
  SPEAKER_02: I don't ever want my asset 100% occupied.
• 26:29
  SPEAKER_02: Why?
• 26:30
  SPEAKER_02: Well, because if I'm 100% occupied, that means I'm missing out on rents as they rise, right?
• 26:36
  SPEAKER_02: Yeah.
• 26:37
  SPEAKER_02: Uh and it it means that that, I mean, if if my property manager goes through the path of least resistance and gets$1,700 when we could have got$1,775 and maybe taken a little bit more time to do it, that$75 difference on a 200 unit apartment complex is close to$3 million in net terminal value.
• 26:58
  SPEAKER_02: Wow.
• 26:58
  SPEAKER_02: But on the income side, which is all that the property management is looking at, it's only$50 or$75,000 a year.
• 27:06
  SPEAKER_02: It's not that much money, Shannon.
• 27:07
  SPEAKER_02: I don't know why you're stressing about it.
• 27:09
  SPEAKER_02: I'm stressing about it because I'm looking at the end value of my asset.
• 27:13
  SPEAKER_02: The cash flow is definitely nice, but if I add another$50,000 to a$4 million revenue stream, you're not gonna see it.
• 27:22
  SPEAKER_02: You're not even gonna see it in the 0.01 category.
• 27:26
  SPEAKER_02: It's not gonna show two decimal points later.
• 27:28
  SPEAKER_02: But it will show when you look at it based on a cap rate, based on the value of the building.
• 27:34
  SPEAKER_02: So two reasons why.
• 27:36
  SPEAKER_02: Number one, they look at their income first, and they're looking for the quickest and shortest way to do something, the most cost-effective way so that they can make money.
• 27:44
  SPEAKER_02: And the second thing is I have yet to have met a project, a property manager who actually understands the relationship between rents, income, and cap rates and how they have the biggest influence on the value of the property.
• 27:58
  SPEAKER_02: So I just hire my own and train them.
• 28:00
  SPEAKER_01: Yeah.
• 28:01
  SPEAKER_01: How long of operating your own apartments?
• 28:04
  SPEAKER_01: Was it just dealing with the tenants, just everything combined?
• 28:06
  SPEAKER_01: You just said I want to specialize in construction and development only and just stick to what I'm good at.
• 28:12
  SPEAKER_01: I mean, it it is a headache with the tenants and all that.
• 28:15
  SPEAKER_01: So Yeah.
• 28:16
  SPEAKER_02: Well, I've always just I I just brought people in-house to do the property management the way I wanted to.
• 28:21
  SPEAKER_02: Yeah.
• 28:22
  SPEAKER_02: Um, and so, you know, I mean, I've been in construction and development for over 35 years.
• 28:27
  SPEAKER_02: Uh, I've had a property management team for 10 of that.
• 28:30
  SPEAKER_01: Let me ask you this, though.
• 28:31
  SPEAKER_01: When you hire a property management company, is the biggest mistake people make is going with the cheapest or, you know, or somebody in an inexperienced to do it, or what you know, because there's a trick to that, hiring somebody that's going to do a good job.
• 28:46
  SPEAKER_01: You know, there really is a trick to that.
• 28:48
  SPEAKER_02: Um, and I think the easiest way to hire a property manager is to ask them for the before and after T twelve and and proper prop profit and loss of an apartment complex that they've recently taken over.
• 29:08
  SPEAKER_02: Yeah.
• 29:08
  SPEAKER_02: Because you can see from the T twelve, you know, let's say that you took over at the beginning of 26.
• 29:15
  SPEAKER_02: Show me what the other guy did in 25, and show me what you did in 26.
• 29:20
  SPEAKER_02: Granted, rents have gone up.
• 29:21
  SPEAKER_02: What's the vacancy rate been overall?
• 29:24
  SPEAKER_02: What's the expense ratio been overall?
• 29:26
  SPEAKER_02: Because the numbers don't lie.
• 29:28
  SPEAKER_02: You know, uh interviews are everybody interviews are everybody getting dressed up and showing up trying to make make themselves look good, and they should, but at the same time, if you're really diving into it, it's how did you cut the expenses from last year?
• 29:47
  SPEAKER_02: Because, you know, if if and one of the other things that we do is we have more people on site than most, and they're paid better.
• 29:56
  SPEAKER_02: Yeah.
• 29:56
  SPEAKER_02: Because turnover is expensive.
• 29:58
  SPEAKER_02: I just took six months to train somebody, they got another job for two bucks more an hour, and I lost them.
• 30:04
  SPEAKER_02: Now I gotta start back over.
• 30:06
  SPEAKER_02: Oh, that's it.
• 30:08
  SPEAKER_02: You know, so we pay top of the industry.
• 30:11
  SPEAKER_02: Uh, we we do a lot with training, and we make sure that they understand how we want it done, and it isn't always uh it doesn't always show in the daily because we will spend more on our grounds upkeeping, but I want to be able to walk any apartment complex in town and go, you know what, mine is as good or better than this.
• 30:32
  SPEAKER_02: Mine looks better.
• 30:33
  SPEAKER_02: My grass is cut, my trees are trimmed, my pool equipment is good and it looks nice, you know.
• 30:40
  SPEAKER_02: The the people are making this their home.
• 30:42
  SPEAKER_02: We look at it as an investment.
• 30:44
  SPEAKER_02: It's just us putting money to work for 10 years, whatever.
• 30:48
  SPEAKER_02: But people make choices based on their home.
• 30:50
  SPEAKER_02: And what that's allowed us to do, Carson, is we've been able to be$30 to$50 more than our competitors in our market because we are one of the finest properties in the area.
• 31:02
  SPEAKER_02: That$50 more, again, adds millions of dollars to our value because we spent$50,000,$70,000 to keep the best lawn care company, to pay more for more water, to keep the grass green.
• 31:17
  SPEAKER_02: You know, those kinds of things.
• 31:19
  SPEAKER_02: There are places to spend more money, and property management going with the cheapest guy, because he's got the least experience, uh, you know, isn't always there.
• 31:29
  SPEAKER_02: I've also seen people go with the biggest and they're they're nationwide, and they really don't care about you anyway, either.
• 31:35
  SPEAKER_01: I think I think what you said is because like from a broker side, I've been I'm an investor and a broker.
• 31:43
  SPEAKER_01: So I've owned apartments and I've you know brokered them, but on the broker side, you see owners with multiple different apartments, and then you and then you'll get one who has like three in the same market, and one of them's managed by a property management company, and they just had taken over, and within a year, like the rents are higher than their other ones, you know, and you're and then and then every from everything the rents are higher, the vacancies lower, every metric it's higher with a good property management.
• 32:13
  SPEAKER_01: And then the ones that they're still managing are struggling.
• 32:17
  SPEAKER_01: And I said, you know, the reason you want to exit is because you're struggling.
• 32:21
  SPEAKER_01: You know, you want to stop the struggle of getting you're in something that you're in over your head on, and the management's become too tough.
• 32:28
  SPEAKER_01: You just need to either outsource it, but we'll gladly take care of you and sell it.
• 32:31
  SPEAKER_01: But you need to do some soul searching, you know.
• 32:34
  SPEAKER_02: But um And I've I've seen that too, where mom and pop have thought, well, you know, what are we gonna do in our retirement?
• 32:42
  SPEAKER_02: Let's buy some apartments, and I'm a handy guy, and I can do this and I can do that.
• 32:46
  SPEAKER_02: You know, but the reality is there's still there's still an emotional attachment there where I'm hiring professionals that are skilled in this area, that know what they're doing, they know how to drive the metrics, right?
• 33:01
  SPEAKER_02: So it's not just that I mean you can manage your own, but it doesn't pay very well, especially under the scenario you just described.
• 33:10
  SPEAKER_02: Yeah.
• 33:11
  SPEAKER_02: Where if you get professional property management or, you know, and I think it's you know, there's a fine line.
• 33:18
  SPEAKER_02: I think it's about five, six hundred units where professional property management is is uh pays for itself, you know.
• 33:26
  SPEAKER_02: Yeah.
• 33:27
  SPEAKER_02: Before that, and and in most cases, you know, property management costs us money because of how we're managing.
• 33:34
  SPEAKER_02: We're managing for terminal value.
• 33:36
  SPEAKER_02: And so it it's not something that we necessarily look at, but if it costs me$25 or$50,000 a year on my balance sheet, but it makes my units worth millions of dollars more because that expense is offset by the higher rent, it's a pretty easy equation.
• 33:56
  SPEAKER_01: Higher rent.
• 33:57
  SPEAKER_01: There's just so much to leasing and stuff like that as far as lead capture, the follow-up, and just there's so much to it.
• 34:05
  SPEAKER_01: The in too much AI is being implemented, in my opinion.
• 34:09
  SPEAKER_01: You know, people want real.
• 34:11
  SPEAKER_01: Like you and I are sitting here, we're real people, we're having a conversation, but you know, if it's a robot or they don't get a response for like two days and they're trying to lease the apartment, that person that they get the phone call back from whether it's within a first couple hours builds immediate trust.
• 34:28
  SPEAKER_01: But absolutely.
• 34:31
  SPEAKER_01: And we've seen that.
• 34:32
  SPEAKER_01: I think going on.
• 34:34
  SPEAKER_01: I think going I think what you're gonna see a lot is uh investors making mistakes that go with too cheap, somebody that promises a lot of uh AI um, you know, modifications to get the price down, and then it's just a disaster, you know.
• 34:51
  SPEAKER_01: Yeah.
• 34:52
  SPEAKER_02: So AI is not the same thing.
• 34:54
  SPEAKER_02: And implementation and execution.
• 34:56
  SPEAKER_02: Implementation and execution is everything, you know.
• 34:59
  SPEAKER_02: And you have to have the human interaction because, you know, we have uh we do use quite a bit of AI.
• 35:05
  SPEAKER_02: We've got a uh our maintenance.
• 35:08
  SPEAKER_02: If you've got a problem with your apartment, you text us and it runs you through a maintenance queue.
• 35:12
  SPEAKER_02: We've got videos recorded.
• 35:14
  SPEAKER_02: So, hey, you know, my my wash machine is leaking.
• 35:18
  SPEAKER_02: Okay, great.
• 35:19
  SPEAKER_02: Uh we'll get somebody scheduled right now, but here is a video on how to turn off your wash machine, right?
• 35:26
  SPEAKER_02: So then they can turn off the water and stop further damage.
• 35:29
  SPEAKER_02: There's there's ways for that to be uh helpful, but it cannot be the end all.
• 35:36
  SPEAKER_01: Yeah, yeah, I know.
• 35:38
  SPEAKER_01: It's like a AI can't solve everything.
• 35:40
  SPEAKER_01: I use it a lot too.
• 35:41
  SPEAKER_01: You know, it's like, okay, I use it for proofreading and other things.
• 35:44
  SPEAKER_01: It can make you do a better job, but it's not going to replace every single function that you have to do.
• 35:49
  SPEAKER_01: No.
• 35:49
  SPEAKER_01: Not right now.
• 35:50
  SPEAKER_01: I did get in a Waymo and drive it, and it drove me in a taxi the other day in Atlanta, but it was interesting.
• 35:55
  SPEAKER_01: I was like, well, it will replace some things, but I don't know.
• 35:59
  SPEAKER_01: Yeah.
• 35:59
  SPEAKER_01: Yeah.
• 36:00
  SPEAKER_01: So tell me a little bit about industrial.
• 36:02
  SPEAKER_01: On that side, are you uh are you building or are you buying both or yeah, both.
• 36:08
  SPEAKER_02: So industrial, I I like in industrial to the bond of real estate, right?
• 36:13
  SPEAKER_02: So most industrial, all the industrial we have is triple net leased.
• 36:18
  SPEAKER_02: So when what happens there is the tenant and I, we make a decision that we're gonna sign this lease for five years, but I don't know what the property taxes are gonna be in five years, and I don't know what insurance is gonna cost in five years.
• 36:30
  SPEAKER_02: So what we do is all the expenses that c that it costs to operate that building, the tenant is responsible for, build through me, and they pay me back.
• 36:42
  SPEAKER_02: So I come in and I say, hey, this space is 12 bucks a foot, uh, that's a dollar a foot a year.
• 36:48
  SPEAKER_02: You know, you do you run your cabinet shop out of there, or your window tinting, or your cheerleading camp, or what, you know, whatever you want to put in there.
• 36:56
  SPEAKER_02: You go ahead, yeah, and then I will reconcile the invoices every year and you will pay me back for what the property taxes were.
• 37:05
  SPEAKER_02: So really, it's a very, very stable um asset because there's not spikes in, you know, we we've seen this in multifamily insurance has gone bananas.
• 37:17
  SPEAKER_02: I don't care about that in my industrial because the because the tenant takes the brunt of that.
• 37:22
  SPEAKER_02: The other thing that you wind up with in industrial tenants is you wind up with people that have balance sheets, they sign personal guarantees, they have assets because they own businesses, and so you wind up with a better uh a more uh economically stable uh tenant.
• 37:41
  SPEAKER_02: Then you combine that with the fact that all your expenses are always covered, your rent is your rent, um, it's it's much simpler.
• 37:49
  SPEAKER_02: Then if I were to sign a 10-year lease with you, Carson, I would say, hey, every year we're gonna bump the rent 3%.
• 37:54
  SPEAKER_02: You'd say, well, okay, you know.
• 37:56
  SPEAKER_02: Yeah.
• 37:57
  SPEAKER_02: But when you look at it, if I raise your rent a hundred bucks on your apartment complex, you're gonna call two buddies, they're gonna show up with their pickup trucks, you're gonna buy some pizza and a half rack of beer, and you're gonna move, right?
• 38:08
  SPEAKER_02: Yeah.
• 38:09
  SPEAKER_02: In industrial, you've got to shut down your operation.
• 38:12
  SPEAKER_02: You've got to pay your employees to pack everything up.
• 38:15
  SPEAKER_02: You've got to move across town, you've got to set up, so you're gonna lose time.
• 38:20
  SPEAKER_02: That's gonna be expensive, and there's a there's a difference in the mentality.
• 38:24
  SPEAKER_02: The last and final point, and I'll land with this, is in an apartment complex, depending on the class of apartment you're in, you're anywhere from 30 to 45 percent of their income for rent.
• 38:37
  SPEAKER_02: In industrial, you're typically five to eight percent of their gross sales in rent.
• 38:44
  SPEAKER_02: Yeah.
• 38:44
  SPEAKER_02: Or sorry, their gross profit margin.
• 38:46
  SPEAKER_02: So it's a much smaller number.
• 38:48
  SPEAKER_02: So for me to go to my tenants, it's usually less than twenty percent.
• 38:51
  SPEAKER_01: Yeah, it's usually like in the restaurant business, they say you want to be b definitely don't go over twenty percent of what you think you're gonna do in your pro forma numbers, but it needs to be around ten percent or less is where they're shooting for.
• 39:03
  SPEAKER_01: Correct.
• 39:04
  SPEAKER_01: You know, yeah.
• 39:06
  SPEAKER_01: So and you wind up with a much more and those businesses typically have increases in their prices.
• 39:12
  SPEAKER_01: You know, every year they're gonna have to take a two to three percent bump to outcover, you know, what you're you're talking about.
• 39:18
  SPEAKER_01: So anyway.
• 39:19
  SPEAKER_02: Well, and when you look at it, you know, Carson, people don't want to move.
• 39:22
  SPEAKER_02: I mean, I have a building that I built in 2000 and uh in 2000 that a guy went in there and and put in a gelato ice cream shop.
• 39:30
  SPEAKER_02: He's got an 18 by 24 freezer.
• 39:34
  SPEAKER_02: He's still there.
• 39:35
  SPEAKER_02: The business has sold three times, but where are you gonna put an 18 by 24 freezer?
• 39:41
  SPEAKER_02: You know?
• 39:42
  SPEAKER_02: I mean, the the thought of him moving is gonna cost thousands of dollars.
• 39:47
  SPEAKER_02: You just rent the space, you know.
• 39:50
  SPEAKER_02: And so you you wind up with a lot more stability.
• 39:53
  SPEAKER_02: Also, an industrial product will trade at a higher cap rate, which means you're getting uh a better return on your capital, but it doesn't move as rapidly as you know.
• 40:05
  SPEAKER_02: We've seen a 10% bump in rents in Boise, Idaho this year, right?
• 40:10
  SPEAKER_02: 10% increase.
• 40:11
  SPEAKER_02: Yeah.
• 40:12
  SPEAKER_02: You would never see that in industrial, right?
• 40:15
  SPEAKER_02: Because you've got your tenants locked into multi-year leases that are predetermined at 3%.
• 40:21
  SPEAKER_02: So at the end of that five or that 10-year lease, you have the right to adjust the price.
• 40:26
  SPEAKER_02: So you're not dealing with the fluctuation in pricing.
• 40:30
  SPEAKER_02: But then again, in 24, when uh when market rents got soft for for multifamily, industrial didn't feel it.
• 40:37
  SPEAKER_01: Yeah.
• 40:38
  SPEAKER_01: I think uh it's good to have both.
• 40:41
  SPEAKER_01: You know, they they go through cycles, but definitely a different renter for sure.
• 40:46
  SPEAKER_02: Um well, and that's why, you know, Carson, our main product is a fund where we blend multifamily, industrial, and then pref equity, right?
• 40:55
  SPEAKER_02: Okay because there's always a great place for pref equity, and prep equity provides good liquidity, right?
• 41:01
  SPEAKER_02: It's turning every 18 to 30 months.
• 41:04
  SPEAKER_02: Uh, it's its rate is usually ultimately around 14%.
• 41:09
  SPEAKER_02: You're coming in 7% cash on cash, you're getting a 14 and 18 months, you're blending that in.
• 41:15
  SPEAKER_02: You've got multifamily, which gives you a higher depreciation uh first year.
• 41:20
  SPEAKER_02: Uh, but a low cash on cash, you know, when it starts out.
• 41:24
  SPEAKER_02: I mean, apartments are still trading in that five to six percent cap range.
• 41:28
  SPEAKER_02: Well, industrial is trading in a seven to eight range, right?
• 41:31
  SPEAKER_02: So I can bring in industrial, steady eddy, and I can blend those three together to get closer to that eight, nine percent year one with the higher depreciation value that you just can't get if you go into a single asset of multifamily or a single asset of of industrial.
• 41:49
  SPEAKER_02: And that's where we've really created the strategic income and opportunity fund that brings all of those together so that you get the blend of that.
• 41:57
  SPEAKER_01: I like it, man.
• 41:58
  SPEAKER_01: What are your uh latest projects you're working on right now?
• 42:02
  SPEAKER_02: You know, we just broke ground on uh a build-to-rent community.
• 42:07
  SPEAKER_02: Um we're seeing uh we're seeing build to rent, you know, Carson, five years ago I'd have told you build to rent was kind of one of the dumbest things out there, right?
• 42:15
  SPEAKER_02: But but what I'm seeing now, what I'm learning in my old age is that the build-to-rent community provides uh a product is that is not an apartment, right?
• 42:29
  SPEAKER_02: Yeah.
• 42:30
  SPEAKER_02: And and I get it, there's a time and a place for that, but people are willing to pay for a house even if they can't afford to buy it, right?
• 42:41
  SPEAKER_01: I don't I don't disagree.
• 42:43
  SPEAKER_01: And even like those upgraded like townhome style apartments are doing the rents are like three hundred bucks a month more, and they're I mean, what do they have?
• 42:54
  SPEAKER_01: A little tiny garage with it, so they feel like it's a house.
• 42:57
  SPEAKER_01: One car.
• 42:58
  SPEAKER_02: Yeah.
• 42:59
  SPEAKER_02: Well, we've got we we've got product in a in we're we're completing 191 units with nine single family homes, so 200 units.
• 43:07
  SPEAKER_02: We're completing that.
• 43:08
  SPEAKER_02: Um, and we have a uh three-bedroom, two and a half bath, fifteen hundred square foot townhome product with a single-car garage that we're getting$2,650 a month for.
• 43:19
  SPEAKER_02: Wow.
• 43:19
  SPEAKER_02: Uh we're doing a build-to-rent product that's$1,800 square feet with a two-car garage, again, townhome style, but we're gonna be getting$3,200,000,$3,300 a month for that.
• 43:31
  SPEAKER_02: The thing is, that same size house is gonna cost you$4,500 a month to buy.
• 43:36
  SPEAKER_02: So now you wind up with a lot of the same features and similarities of a home without the price tag.
• 43:43
  SPEAKER_02: Yeah.
• 43:44
  SPEAKER_02: So we love build the rent.
• 43:45
  SPEAKER_02: We've got some industrial product on our plate.
• 43:48
  SPEAKER_02: Industrial still really strong.
• 43:50
  SPEAKER_02: Um rents are rents are keeping up.
• 43:53
  SPEAKER_02: Uh, we love that blend.
• 43:55
  SPEAKER_02: We've got a lot of opportunities right now for prep equity deals.
• 43:59
  SPEAKER_02: Uh Where you know people are wanting money to come in on a short term basis to uh recapitalize some projects that are out there that are fundamentally excellent.
• 44:08
  SPEAKER_02: Yeah.
• 44:08
  SPEAKER_02: They're just caught in that timing gap on their principal uh loan balance.
• 44:13
  SPEAKER_01: So what are you guys doing?
• 44:14
  SPEAKER_01: Doing a a few spots and select projects?
• 44:17
  SPEAKER_01: Like it's gotta be like a high quality, you know, deal, and you'll kind of help bridge the gap on it.
• 44:23
  SPEAKER_02: Yep.
• 44:24
  SPEAKER_02: Yep.
• 44:24
  SPEAKER_02: We're able to do that.
• 44:26
  SPEAKER_02: Um, and you know, we've we've been quite successful in doing that along the way.
• 44:30
  SPEAKER_01: You know, I think it's one of those that like for listeners, they don't really understand because there's people out there just doing these blanket rescue recaps and all this crazy stuff and issuing more debt and acting like it's guaranteed, but I think it really depends on the asset.
• 44:47
  SPEAKER_01: Because if you look back at like 2008, like class A, class A apartments in the higher end apartments only dip down to like a six and a half cap rate.
• 44:57
  SPEAKER_01: You know, you get into class B and C, those are like trading at 11 cap rate, which is really, really cheap, you know.
• 45:05
  SPEAKER_01: So yeah, you're a little bit less price resistant or or I don't know.
• 45:11
  SPEAKER_01: The reset the recession's not going to be as bad with those.
• 45:14
  SPEAKER_01: So it's it's you gotta be really careful.
• 45:17
  SPEAKER_01: You gotta be careful on the ones you do rescue.
• 45:19
  SPEAKER_01: You know, it's gotta be worth rescuing, is what I'm getting at.
• 45:21
  SPEAKER_02: Absolutely.
• 45:22
  SPEAKER_02: I mean, I look at it like, do I want this thing, right?
• 45:25
  SPEAKER_02: Yeah.
• 45:26
  SPEAKER_02: Because when you're coming in as as pref equity, you're in front of the LP investors, right?
• 45:31
  SPEAKER_02: Yeah.
• 45:32
  SPEAKER_02: But the other thing that I that you can look at nationwide, in the class C apartments, they're paying 42 to 44 percent of their income for rent.
• 45:42
  SPEAKER_02: It's the highest percentage of rent.
• 45:43
  SPEAKER_02: In the class A's, it's 26 to 31 percent.
• 45:47
  SPEAKER_02: Yeah.
• 45:47
  SPEAKER_02: So if a recession does hit, I may not have to move if things change.
• 45:53
  SPEAKER_02: If I've got to go from Microsoft over to Expedia or whatever, you know, uh I may, I may not like what's happening in my financial world, but it's not gonna destroy me.
• 46:04
  SPEAKER_02: Yeah.
• 46:04
  SPEAKER_02: Whereas if I'm a blue-collar guy and I'm in a class C apartment complex and the pipe fitters union just shut us all down, I can't I can't rent.
• 46:14
  SPEAKER_02: Right?
• 46:15
  SPEAKER_02: Yeah.
• 46:15
  SPEAKER_02: And so I definitely agree with you.
• 46:17
  SPEAKER_02: I love the class A, uh, I love the industrial space.
• 46:21
  SPEAKER_02: That prep equity piece has got to be something that I would want to own long term should things not work out.
• 46:28
  SPEAKER_01: Yeah.
• 46:29
  SPEAKER_01: That's awesome.
• 46:31
  SPEAKER_01: Well, Robin, I think um Shannon.
• 46:34
  SPEAKER_01: Sorry, I I I had the last name, uh, Rob Nett.
• 46:37
  SPEAKER_01: Sorry.
• 46:38
  SPEAKER_01: I called you Rob, and that's terrible.
• 46:40
  SPEAKER_01: It's all right.
• 46:40
  SPEAKER_01: You're fired.
• 46:41
  SPEAKER_02: Does that make you does that make you Batman?
• 46:43
  SPEAKER_02: No, it may it may yeah.
• 46:45
  SPEAKER_01: No, it makes me old, dude.
• 46:46
  SPEAKER_01: I'm losing it.
• 46:47
  SPEAKER_01: No, I'm just kidding.
• 46:48
  SPEAKER_01: Yeah.
• 46:48
  SPEAKER_01: Um, I appreciate you coming on, though.
• 46:50
  SPEAKER_01: I I uh we're hitting the f I have people that go an hour.
• 46:54
  SPEAKER_01: I don't mind if you go an hour, but you know, I I actually love it.
• 46:57
  SPEAKER_01: It means the conversation's deep and there's more to you than just, you know, I do one thing.
• 47:02
  SPEAKER_01: You know, you're one of those you're one of those guys I could talk to for like four hours because you know so much.
• 47:08
  SPEAKER_01: You've been around the block, you know.
• 47:10
  SPEAKER_01: Um just I'm gonna need a note that you said I know a lot.
• 47:13
  SPEAKER_02: I'm gonna I gotta give that to my wife because there's a couple of things I did this week that are very contrary to your statement.
• 47:21
  SPEAKER_01: Oh man, that's pretty funny.
• 47:23
  SPEAKER_01: Um, no, I appreciate you coming on.
• 47:26
  SPEAKER_01: I think there's a lot of knowledge and expertise and experience.
• 47:30
  SPEAKER_01: You know, you've been around the block a few times, and that's really important.
• 47:34
  SPEAKER_01: You know, you're not just some guy with no track record out there asking for money or anything.
• 47:39
  SPEAKER_01: Um Shannon Robnet, I know I do know his name.
• 47:44
  SPEAKER_01: Um, I did brain fart though, I'll admit that.
• 47:48
  SPEAKER_01: Um what's what's the best way to get a hold of you?
• 47:51
  SPEAKER_01: I know I've been following you on LinkedIn for quite a while, so you know.
• 47:55
  SPEAKER_02: You know, we're we're we're pretty active on LinkedIn.
• 47:58
  SPEAKER_02: You can go there.
• 47:58
  SPEAKER_02: Uh Shannonrobnet.com is the is really the easiest.
• 48:02
  SPEAKER_02: We've got some educational information there.
• 48:04
  SPEAKER_02: You can actually book a call on my calendar.
• 48:06
  SPEAKER_02: You can get straight to me.
• 48:07
  SPEAKER_02: Uh I don't have handlers, you know.
• 48:10
  SPEAKER_02: Wow.
• 48:10
  SPEAKER_02: Um, and I'd love to have a conversation and and see if uh what we're doing fits for for you and your listeners.
• 48:16
  SPEAKER_01: You know, I put a I while we're on the subject, I put a text Carson thing on my uh website.
• 48:22
  SPEAKER_01: And I get texted every now and again.
• 48:23
  SPEAKER_01: You know, people like wanting a little like, hey, question for Carson, and it's I I don't know.
• 48:29
  SPEAKER_01: I just got I was like, people don't want to see that stupid chat bot fly up, you know, and I'm like and nobody uses it anyway, it just gets on their nerves.
• 48:37
  SPEAKER_01: I said, I don't want to get on their nerves, I just want to be here if they need me.
• 48:40
  SPEAKER_01: So I put a text Carson up there.
• 48:42
  SPEAKER_01: It's kind of different, but yeah.
• 48:43
  SPEAKER_02: Um we appreciate it go ahead.
• 48:46
  SPEAKER_02: People gotta know that you're real and that they can get a hold of you.
• 48:49
  SPEAKER_02: I mean, they are investing money, right?
• 48:50
  SPEAKER_02: I mean, oh yeah.
• 48:52
  SPEAKER_02: The last thing people want to feel like is that they can't get in.
• 48:55
  SPEAKER_01: Yeah.
• 48:56
  SPEAKER_01: Oh, absolutely.
• 48:57
  SPEAKER_01: There's got to be some access.
• 48:58
  SPEAKER_01: Well, we appreciate you.
• 49:00
  SPEAKER_01: I look forward to uh following the journey, and we appreciate you uh sharing your story and all that with us and what you're doing and your thoughts on the market and all that.
• 49:08
  SPEAKER_01: So we appreciate you, man.
• 49:09
  SPEAKER_01: Thank you, sir.