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Visionary Investments in Healthcare Realty · Go Big with Gib Podcast

• 0:00
  Speaker 1: Welcome to the Go Big with Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins.
• 0:06
  Speaker 1: Hey everybody, and welcome to the investor webinar for Health Wealth Capital Fund One.
• 0:19
  Speaker 1: Today, I've got my good friend and business partner, aj Peek here with me.
• 0:24
  Speaker 1: Aj, how are you today?
• 0:25
  Speaker 1: Doing well?
• 0:26
  Speaker 1: Doing well, great.
• 0:27
  Speaker 1: So, aj, if you would tell the investors a little bit about yourself and just give them a little bit of background who you are, what your experience is in and how you got to this point, sure.
• 0:39
  Speaker 2: Quick flyover of my background.
• 0:41
  Speaker 2: I grew up in the middle of nowhere in rural Minnesota.
• 0:44
  Speaker 2: Quick flyover of my background.
• 0:44
  Speaker 2: I grew up in the middle of nowhere in rural Minnesota, went to school at Carnegie Mellon University on the East Coast, studied business, got myself into McKinsey Company one of the world's largest strategy consulting firm to the kind of Fortune 500 CEOs, and throughout my 20s was doing strategy consulting work for Fortune 500 CEOs.
• 1:02
  Speaker 2: Mckinsey Company paid my way for business school, kellogg School of Management, came back and ran teams mostly in New York and Chicago, and as I was turning 30, I thought I knew it all, had a strong entrepreneurial drive and knew that the firm would always take me back.
• 1:19
  Speaker 2: So that gave me the confidence to start a business as I was turning 30.
• 1:24
  Speaker 2: This was 17 years ago and really had a calling to do something in healthcare and my father at the time was 60 and a dentist in Colorado Springs.
• 1:34
  Speaker 2: He had moved there with my family and just a small kind of cottage practice.
• 1:38
  Speaker 2: So one thing led to another.
• 1:39
  Speaker 2: He had said the dental industry is consolidating.
• 1:42
  Speaker 2: I turned around and built a big business plan and convinced him to be the test case.
• 1:46
  Speaker 2: It was just him and four employees and about a half a million in revenues.
• 1:50
  Speaker 2: We bootstrapped it.
• 1:52
  Speaker 2: I raised minority capital and the first 12 did from scratch.
• 1:58
  Speaker 2: Then did acquisitions, got to about a $50 million enterprise going into COVID and did a majority sale to private equity.
• 2:06
  Speaker 2: Then nearly doubled the business again, got it to nearly $100 million business throughout Colorado, texas, with about 600 and some employees.
• 2:17
  Speaker 2: And through that process, as we were buying dental practice, the dentists often had a problem.
• 2:23
  Speaker 2: They had debt that was securitized.
• 2:26
  Speaker 2: The real estate was securitized by the practice.
• 2:29
  Speaker 2: We as a business operation didn't want to own real estate.
• 2:32
  Speaker 2: Most private equity-backed healthcare companies don't want to own real estate and so to solve that problem I set up a separate fund to buy the building and lease them back to the dental practices.
• 2:44
  Speaker 2: It was very lucrative, did it with friends and family in the beginning and had more recently scaled it up to become what's HealthWealth Capital, where we're buying medical real estate under triple net leases which are long-term often 10 to 15-year leases, backed by very recession-resistant healthcare tenants that we do a significant amount of due diligence on AJ.
• 3:10
  Speaker 1: so let's go back a little bit.
• 3:11
  Speaker 1: Many of the investors may already be familiar with what a triple net lease is, but just for those that may not be familiar with it, if you could explain that for me.
• 3:20
  Speaker 2: Most likely most of the investors understand an apartment or a multifamily lease and that's considered to be a gross lease.
• 3:27
  Speaker 2: You just get the rent and the tenant maybe they pay for their own internet but the landlord, the owner of the apartment building in that scenario, has got to pay the property taxes, the insurance, some of the other utilities they can't pass on to the tenant, and a triple net lease which is common for any kind of retail or medical type establishment.
• 3:51
  Speaker 2: The tenant is paying for the taxes, the insurance and the maintenance expenses and occasionally they're paying for all the capital expenditures as well.
• 4:00
  Speaker 2: And it's a pretty amazing thing as well.
• 4:07
  Speaker 2: And it's a pretty amazing thing and it enables you to really scale a triple net lease business in pretty much all of the continental US without having a heavy property management kind of risk or component, because the tenant healthcare.
• 4:17
  Speaker 2: In this scenario they really are responsible for just about everything, both in paying as well as resolving.
• 4:25
  Speaker 2: If something goes wrong with the HVAC unit on the top, they're responsible for finding somebody to come in and fix it, and so it makes it a very knowable return business that you don't have the risks of inflation or can that property manager really manage the expenses of the business.
• 4:47
  Speaker 2: Those expenses are passed on to the tenant.
• 4:50
  Speaker 1: That's fantastic.
• 4:51
  Speaker 1: Yeah, yeah, thank you for explaining that.
• 4:54
  Speaker 1: That's very helpful.
• 4:55
  Speaker 1: So talk to me more about how you arrived at this point in your entrepreneurial journey and you know the beginnings of Health, wealth, capital.
• 5:06
  Speaker 2: So I'm a major shareholder in a private equity-backed healthcare organization and that's been very lucrative in my career.
• 5:15
  Speaker 2: But, candidly, the most passive income and the least amount of kind of stress for me has been owning medical real estate with triple net leases.
• 5:29
  Speaker 2: It's really been a game changer for me personally and of course a lot of my network is other doctors as well as some of my network of CEOs and in private equity, and it doesn't have the same risks of inflation, et cetera, because of the triple net lease.
• 5:46
  Speaker 2: So what really started this was I was trying to solve a problem and then realized over, you know, several years that the sort of distribution checks and valuation increases of these medical buildings were really phenomenal and without the same concerns of, you know, tenant turnover, are these buildings dilapidated Because under the triple net lease these businesses or healthcare businesses, they want their facilities to look, you know, really pristine to keep the viability of it.
• 6:20
  Speaker 2: So that's really what started it and love scaling businesses as I got more and more into it.
• 6:33
  Speaker 2: There's really a business case that isn't as similar in multifamily where scaling this to a larger size can really create outsized returns, which I think we'll get into a little bit later, and so that got me really excited that the returns for me personally in the high teens distributions.
• 6:47
  Speaker 2: I wasn't getting that anywhere else and on a risk adjusted basis I really like that profile.
• 6:52
  Speaker 2: But then secondarily I came to realize hey, if I scale this business those high returns could be almost doubled or certainly ratcheted up.
• 7:04
  Speaker 2: So that was pretty exciting.
• 7:06
  Speaker 1: Yeah, there's definitely a lot of potential upside with this fund and you know talking about, you know comparing it to multifamily.
• 7:18
  Speaker 1: I think you know my investors over the last couple of years have seen a ton of multifamily offerings and you know they do offer really good returns.
• 7:28
  Speaker 1: But there's not as much potential upside as there is with the medical real estate offer that we have now, and I think that's something that's very, very attractive.
• 7:38
  Speaker 1: And also the recession-resistant nature of medical real estate knowing that our tenants are going to be doctors, physicians, dentists, medical professionals that tend to sign long-term leases and kind of stay put, and then having them backed by other guarantors really makes it a lot safer for the investors.
• 8:05
  Speaker 1: But yeah, aj, walk us through the deck and let's kind of take a look at the details.
• 8:12
  Speaker 2: All right, so I'm going to go over just a couple of highlights in the deck.
• 8:16
  Speaker 2: Let me pull it up here.
• 8:19
  Speaker 2: Okay.
• 8:19
  Speaker 2: So I thought I'd just for the audience go through some of the highlights and really, on the first slide, the targeted returns very similar to multifamily in the 16 to 20 percent, but that doesn't require maybe as Herculean of effort in terms of managing expenses et cetera, et cetera.
• 8:48
  Speaker 2: The base case for us is really just selling to some other like-minded buyers.
• 8:50
  Speaker 2: That I'll talk about a little bit later.
• 8:51
  Speaker 2: The upside is 25% to 35% IRR, which I'll talk about with one of the key slides in a bit.
• 8:57
  Speaker 2: That really equates to two to three times your money.
• 9:00
  Speaker 2: The cash on cash 8% distributions this is paid quarterly but through conversations with Gibb and I have agreed for Gibb's investors to do this monthly.
• 9:12
  Speaker 2: On the preferred returns 8% preferred returns with a 90-10 split 90 to the investors, 10 up to 15% IRR and then 70-30 after 15%, which I think this is even more a little more lucrative for investors than some of the multifamily arrangements Whole period's five years, but have a kind of awfully short pathway to try to do this in three years or less.
• 9:43
  Speaker 2: Asset classes, of course, medical real estate.
• 9:45
  Speaker 2: These triple net leases are very powerful and we're really targeting 10 to 15 year leases.
• 9:50
  Speaker 2: These are leases that will surpass the lifetime of the investment.
• 9:55
  Speaker 2: And then it's really a tax smart investing.
• 9:58
  Speaker 2: A rough comparison for every $100,000 investment You'll see in year one a $50,000 deduction.
• 10:06
  Speaker 2: In fact, the first two years of the investment will be the distributions will, on a net basis on your K1s will almost be zero.
• 10:17
  Speaker 2: It means the 8% in the first two years is really, on a equivalency to the stock market dividends, closer to 11%.
• 10:25
  Speaker 2: If you were to do the equivalency and if I were to hit some of the highlights, I'm going to just jump ahead to a key slide.
• 10:36
  Speaker 2: If you're kind of comparing this to multifamily, these are healthcare providers, those are tenants.
• 10:41
  Speaker 2: The lease duration it's not one to two years, it's 10 to 15.
• 10:46
  Speaker 2: In fact, the last seven buildings we just purchased were all 15-year leases.
• 10:50
  Speaker 2: Tenant credit risk these are healthcare tenants.
• 10:54
  Speaker 2: And we are going to excruciating detail, analyzing three years of financials and using all of the financial analysis that I've accumulated, buying dental practices last 15 years.
• 11:06
  Speaker 2: We're putting them under that same rigor, meaning we won't buy the building if that dental tenants financials are not strong enough where I would have bought them in my previous role where I was buying dental practices.
• 11:20
  Speaker 2: So not only are we in a recession-resistant industry, but we're really going deep into the analysis of these healthcare providers.
• 11:27
  Speaker 2: The triple net leases denoted by the three Ns on operating expenses.
• 11:32
  Speaker 2: So it's all passed on to the tenant Demand volatility.
• 11:35
  Speaker 2: These are really essential services.
• 11:38
  Speaker 2: People have two things.
• 11:39
  Speaker 2: They're going to come in whether the economy is doing well or not.
• 11:42
  Speaker 2: They're going to come in whether the economy is doing well or not and because there's not as many variables to manage to get to the returns, it's really much more predictable, a lot less.
• 11:56
  Speaker 1: It's just been a really nice asset for me and my family and friends over the years.
• 12:00
  Speaker 1: Aj, let me ask a question real quick.
• 12:01
  Speaker 1: So you talk about the depreciation and you know an estimated 50% depreciation on the investor's investment.
• 12:11
  Speaker 1: Talk to me a little bit about that, like when is the anticipated closing date?
• 12:15
  Speaker 1: Would that be 2024 or 2025?
• 12:20
  Speaker 2: It's predominantly we have multiple buildings under contract to close.
• 12:23
  Speaker 2: It's predominantly we have multiple buildings under contract to close and, as your investors know, you know all great plans sometimes can slip by a day or two, and so we've got some buildings estimated to close the last week of the year.
• 12:37
  Speaker 2: If I'm a betting man, a majority of this is going to trip into 2025.
• 12:46
  Speaker 2: And so I want to be an honest, a steward of people's money and taxes, and so people understand I would really anticipate this is going to be a tax deduction in 2025.
• 12:55
  Speaker 2: I am a big personal investor.
• 12:58
  Speaker 2: I'm trying to get these at the end of December.
• 13:03
  Speaker 2: There's a chance it'll trip, you know, trip into that first week of January, and so I'm we'll see how I thread that needle.
• 13:12
  Speaker 1: Well, you know, who knows, there could be changes in the law as well, and those changes could be retroactive to 2024, or they could just be prospective changes for 2025.
• 13:24
  Speaker 1: So a 2025 closing may could actually be favorable if there's a change in law and bonus depreciation, you know, is reinstated at 100%.
• 13:35
  Speaker 2: I agree that it's favorable.
• 13:38
  Speaker 2: It's also dental buildings have a lot of build out.
• 13:42
  Speaker 2: It's also why tenant turnover is so low.
• 13:47
  Speaker 2: Building a dental practice is a ton of capital in terms of equipment and cabinetry and plumbing.
• 13:57
  Speaker 2: As you might imagine, it's one of the highest capital expenditure build outs in health care.
• 14:01
  Speaker 2: That's very favorable for us as investors.
• 14:04
  Speaker 2: On a cost segregation, accelerated depreciation, and so, even if the laws don't change, it's really incredible what the depreciation benefit is over the uh, pretty impressive.
• 14:16
  Speaker 2: So, uh, it it is.
• 14:18
  Speaker 2: Um, I'm a very large shareholder of the real estate and some of the buildings that we're buying.
• 14:35
  Speaker 2: Um, it's canceling out, you know, large distribution checks I'm getting on, uh, older buildings uh and funds that I own as well, so it's pretty interesting and why I really love this asset class.
• 14:48
  Speaker 1: Yeah, yeah, thank you for that.
• 14:50
  Speaker 1: I assume that, given where we are middle of November 2024, I assume that it was more likely than not that these would close in 2025.
• 15:01
  Speaker 1: And I don't necessarily think that's a bad thing, but I do think it's important for people to know that.
• 15:06
  Speaker 1: You know, for tax strategy purposes, go ahead and mentally think of this as a 2025 deduction.
• 15:14
  Speaker 1: If we happen to close early on a couple of properties, great, but if not, you know that's okay.
• 15:21
  Speaker 1: This episode of Go Big with Gibb is brought to you by Irons Equity.
• 15:26
  Speaker 1: At Irons Equity, we specialize in helping investors like you create long-term generational wealth and save money on taxes through recession-resistant real estate investments that create passive income for you and your family.
• 15:39
  Speaker 1: If you want to secure your financial future, go to investwithgibbcom to schedule a 30-minute introductory meeting with me, gib Irons.
• 15:47
  Speaker 1: Again, that's investwithgibcom.
• 15:54
  Speaker 2: The other piece I wanted to share is just what does this mean on the exit strategy, how do we think we're going to get the 15% to 20% IRR and then what the upside is.
• 16:10
  Speaker 2: And the first part I'll just talk, and the second part I'll share a slide that I think will be helpful to your investors.
• 16:17
  Speaker 2: And the second part I'll share a slide that I think will be helpful for your investors In the medical space and the benefits of triple net lease.
• 16:23
  Speaker 2: One of the big buyers of medical triple net lease is actually investors in multifamily doing a 1031 exchange.
• 16:34
  Speaker 2: They made their money, they want something less risky, more predictable, and so many times they will 1031 that into a triple net lease medical building.
• 16:45
  Speaker 2: So there's a lot of small buyers that are 1031 buyers because're ready to exit for triple net leases with a healthcare piece.
• 16:53
  Speaker 2: And that's where I get offers all the time on the medical buildings we own and I'm quite conservative in the numbers I've shown in our portfolio.
• 17:13
  Speaker 2: They're actually better than what I've shown.
• 17:15
  Speaker 2: So you know it's just a very sought after asset class for the reasons we mentioned and when we underwrite meaning we're forecasting returns those are the type of buyers that's a pretty healthy market.
• 17:32
  Speaker 2: So presently the average dental practice not the practice, the building that's being leased to dental practices the cap rates are close to 6.7, 6.8 today, just private party transactions et cetera.
• 17:49
  Speaker 2: Through leveraging my network I've been in dental for over 15 years, kind of well-connected.
• 17:57
  Speaker 2: Not every dental building the owners really understand triple net leases and so there's really opportunities to find hidden gems where you can buy them for an 8% or 8.5% cap rate.
• 18:11
  Speaker 2: They don't understand the financial engineering of triple net lease.
• 18:15
  Speaker 2: So we're able to get buildings, you know, at pretty attractive prices of triple net lease.
• 18:20
  Speaker 2: So we're able to get buildings at pretty attractive prices if they're in a proper lease right away.
• 18:23
  Speaker 2: The current market is sort of 6.8.
• 18:25
  Speaker 2: Now that's how we underwrite the high teens and we know day one these things are leased, that will get the distributions that we're saying in terms of the cash on cash, and so the conservative teen sale.
• 18:43
  Speaker 2: We're not really assuming any Herculean outcome on that front.
• 18:48
  Speaker 2: Now the upside how do we think we might be able to get 25, 30% IRR three times your money?
• 18:58
  Speaker 2: We might be able to get 25, 30% IRR three times your money.
• 19:03
  Speaker 2: That's where scale comes in and wanted to share a slide, and as I set up this slide.
• 19:10
  Speaker 2: It's worth people knowing real estate investment trusts.
• 19:12
  Speaker 2: Maybe a lot of your audits has heard of it a REIT.
• 19:13
  Speaker 2: There are several case studies of medical REITs that got to a size between $5 and $15 million of net operating income.
• 19:23
  Speaker 2: People don't know what net operating income is.
• 19:25
  Speaker 2: It's real simple.
• 19:26
  Speaker 2: In triple net leases it's rent.
• 19:27
  Speaker 2: So between $5 and $15 million they were able to sell, convert to a REIT and get a 30% premium.
• 19:38
  Speaker 2: And the reason is the public marketplace loves the asset class.
• 19:44
  Speaker 2: They want an easy way to kind of buy and trade you know this asset and so that demand means they're willing to take a lower yield, that we've done all the work to accumulate all these dental buildings and this asset class, and so the public marketplace likes that returns.
• 20:02
  Speaker 2: It really drives up a premium and getting to 10 million is the goal.
• 20:07
  Speaker 2: And I'll sort of unpack this with real data.
• 20:10
  Speaker 2: Just, you know, people don't have to take my word for it, they can validate this.
• 20:16
  Speaker 2: And this chart on the Y axis is cap rate.
• 20:22
  Speaker 2: We're buying medical buildings often between a 7.8 and 8.8 cap rate.
• 20:29
  Speaker 2: So way up here, and currently for private buyers that I've mentioned, the current average is 6.8.
• 20:39
  Speaker 2: So in the dotted line is where we're forecasting to sell and in this range, based upon the building we're buying, that's where we're getting the 15% to 20% IRR, which is great.
• 20:54
  Speaker 2: I don't know about you, gib, but if I get that on my returns, I'm super happy.
• 20:58
  Speaker 2: On the upside, this solid line here is the implied cap rate of medical REITs Not all REITs, just the medical REITs and you can see that the implied cap rate of medical REITs in the highest interest rate environment at the end of 2023, I mean literally the highest it was still a 4.83, which is insanely low.
• 21:26
  Speaker 2: We're suggesting somewhere 5.5, even 6.
• 21:32
  Speaker 2: There's a huge spread, spread being arbitrage, meaning we would get the 20 to 30% premium if this continues, which it really has in many years throughout the past you can see that almost throughout the last 20 years.
• 21:51
  Speaker 2: Now in that piece, it's that spread where we're trying to get to 10 million of rent net operating income and at that point we would either convert or sell to a REIT.
• 22:01
  Speaker 2: That enables, at the premium, more of a 20 to 30% lift, enabling us to get a 25% IRR higher.
• 22:09
  Speaker 2: And that's pretty exciting because come Q1 of 2025, we'll already be at 3 million At the pace we're going and the materials.
• 22:20
  Speaker 2: I've said it'll take us five years but the reality is if we keep this pace up we'll be there in three At the.
• 22:27
  Speaker 2: You know how fast we've been kind of adding buildings, added just seven buildings about eight weeks ago and at this sort of continued clip, get there in three years or less is what we're gunning for, even though the materials to your investors all suggest five years.
• 22:44
  Speaker 2: You know whether we get it or not.
• 22:47
  Speaker 2: I'm really happy with the high teens but it's fun to scale businesses and there's really a premium in the marketplace where we'd either sell or convert to a REIT and kind of get those bigger returns.
• 23:00
  Speaker 1: Yeah, that's huge.
• 23:02
  Speaker 1: The opportunity to have those compressed cap rates.
• 23:06
  Speaker 1: When you sell to a REIT, you know selling it like a five cap because we're selling the entire portfolio.
• 23:13
  Speaker 1: So we've already done all the work for them.
• 23:16
  Speaker 1: All they've got to do is buy the portfolio.
• 23:18
  Speaker 1: You know this intact portfolio with all the properties.
• 23:21
  Speaker 1: Then on top of that, the opportunity to potentially shorten that time horizon from, you know, anything less than five years just drives up the IRR.
• 23:31
  Speaker 1: So if we can sell in three years or even four, that just enhances the returns.
• 23:40
  Speaker 1: But it does seem like from a downside risk protection strategy, there's just this is a much less risky investment than multifamily, where you've got all these expenses, a lot of them that you just don't know what they are.
• 23:57
  Speaker 1: You know and you don't know until they're due.
• 23:59
  Speaker 1: Talk to me a little bit about downside protection.
• 24:03
  Speaker 1: Like, I love hearing about the upside, but a lot of my investors are more concerned about the downside risk protection.
• 24:10
  Speaker 1: If we hit a home run, great, but they just want to make sure we don't strike out.
• 24:15
  Speaker 2: There's four to five levels of downside protection.
• 24:20
  Speaker 2: So the first two mentioned these are triple net leases that we were not and we're buying these with kind of fixed interest debt.
• 24:30
  Speaker 2: So we're not at the liberties or mercy of inflation or some property manager does a lousy job, does not matter in a triple net lease environment because of the tenants are on the hook to pay those expenses, maintenance and utilities, taxes, insurance et cetera.
• 24:49
  Speaker 2: The second level of protection is we're in the healthcare sector Now, specifically the dental sector.
• 24:58
  Speaker 2: In the last 40 years it's only had three down years.
• 25:03
  Speaker 2: One was COVID and the down was like 1%.
• 25:07
  Speaker 2: It's a nearly $170 billion business or the total sales of dentistry.
• 25:15
  Speaker 2: It's the largest healthcare vertical in all of healthcare sales of dentistry.
• 25:20
  Speaker 2: It's the largest healthcare vertical in all of healthcare and so it's kind of incredibly recession resistant.
• 25:24
  Speaker 2: So we're buying into a kind of healthy sector that is kind of proven the test of time.
• 25:29
  Speaker 2: Up markets or down markets, people's teeth hurt and they need a solution.
• 25:34
  Speaker 2: The third I've been buying medical businesses for the last 15 years, bought over like 75 million worth of businesses.
• 25:45
  Speaker 2: All the analytics and financial discipline that I've accumulated.
• 25:49
  Speaker 2: My team has built those analytical models.
• 25:52
  Speaker 2: We're taking three years of tax returns and outside data and we're doing all the financial rigor on these tenants to see are they really good standing businesses?
• 26:02
  Speaker 2: Are these businesses we would have actually bought if we were running a different?
• 26:07
  Speaker 2: You know a private equity backed dental group as an example?
• 26:11
  Speaker 2: If it's not, we hard pass.
• 26:13
  Speaker 2: Even if it's a beautiful building, priced well, you know we're not touching it.
• 26:17
  Speaker 2: So that's the third level of protection.
• 26:19
  Speaker 2: The fourth level of protection the majority of these dental buildings, all of them, will be guaranteed by the dental practice.
• 26:29
  Speaker 2: The majority, then, will also be guaranteed by a private equity back group that usually has between 50 or 100 million plus revenues.
• 26:38
  Speaker 2: Private equity back group that usually has between 50 or 100 million plus revenues.
• 26:40
  Speaker 2: So if this thing goes sideways for any reason, we have private equity backstop to pay rent.
• 26:48
  Speaker 2: Put another tenant in there In a minority in a few instances.
• 26:55
  Speaker 2: In the current deal, only one out of four buildings has the dental practice guarantees it, and then the dentist personally guarantees the lease for the life of the investment.
• 27:06
  Speaker 2: So that's sort of the fourth layer of protection.
• 27:10
  Speaker 2: Now, gib, I hope this never happens.
• 27:13
  Speaker 2: But the fifth level is myself and my team.
• 27:17
  Speaker 2: We're operators.
• 27:19
  Speaker 2: I've built a nearly $100 million dental business.
• 27:22
  Speaker 2: I've seen everything under the sun happen to medical professionals, including death, disability etc.
• 27:29
  Speaker 2: And the longest I've ever gone without sourcing a per diem doc in a facility is two weeks.
• 27:36
  Speaker 2: So if something happens to the sector, something happens to the dental practice and the dentist and for whatever reason, we would step in as a dental operator we'd source a doctor within.
• 27:50
  Speaker 2: My track record is two weeks, the longest it's ever taken.
• 27:53
  Speaker 2: They'll keep the lights on to keep paying rent.
• 27:56
  Speaker 2: We'll work with the heirs.
• 27:58
  Speaker 2: If, let's say, the doctor died or something, we'll work with the heirs to sell the practice to a buyer that steps in and pays the lease Again incredibly rare, but have experience in that downside situation.
• 28:12
  Speaker 2: That's sort of five levels.
• 28:14
  Speaker 2: It's pretty.
• 28:15
  Speaker 2: You know I sleep at night so I, you know, love this asset class.
• 28:20
  Speaker 1: Yeah, no, that's fantastic.
• 28:21
  Speaker 1: I mean that sounds like a lot more certainty than you would get with multifamily and I still love the multifamily asset class, but just the level of certainty here and security is really unparalleled, you know, and quite unique.
• 28:38
  Speaker 1: Talk a little bit more about the debt structure, if you could.
• 28:41
  Speaker 1: I'd like to know a little bit more about that.
• 28:43
  Speaker 1: I heard you say fixed rate debt, which is Definitely appealing in this economic environment, even though you know rates have started to decrease a little bit.
• 28:53
  Speaker 1: But tell me more about our debt.
• 28:55
  Speaker 2: First is the leverage how much debt you know loan to value, and we've targeted actually low 65%.
• 29:02
  Speaker 2: We have the opportunity to go up to 75, but I have historically tried to peg at 65.
• 29:11
  Speaker 2: Again, I am one of the largest shareholders.
• 29:14
  Speaker 2: I love that.
• 29:19
  Speaker 2: I can get high returns on what I can say to be a pretty conservative leverage, if your audience understands debt service coverage ratios.
• 29:25
  Speaker 2: So that's just how much cash do you have to cover your debt obligations?
• 29:29
  Speaker 2: Banks are real comfortable at a 1.3, meaning you've got 130% cash to cover your debt obligations.
• 29:38
  Speaker 2: When we're borrowing we're at like 1.8.
• 29:42
  Speaker 2: We have 180% of the cash needed to cover debt obligations.
• 29:47
  Speaker 2: Again, just trying to be really wise with the money and still getting great returns.
• 29:53
  Speaker 2: The second is interest rates.
• 29:54
  Speaker 2: So we've been doing two different products.
• 29:58
  Speaker 2: One is just fixed for 25 years amortization.
• 30:03
  Speaker 2: There is a product that we may entertain which is floating with a rate cap that we can fix in 12 months.
• 30:13
  Speaker 2: So the rate cap is no big deal, floating for six to 12 months and then it goes to fixed and the product's pretty interesting because we can trigger the fixed.
• 30:27
  Speaker 2: So at any time with a 30-day notice we can trigger the fixed and it's got a rate cap on the upside, and so we are entertaining that.
• 30:36
  Speaker 2: It's a pretty interesting time to do that.
• 30:39
  Speaker 2: If we do that, the upside's bigger than what's in the current materials, meaning we've underwritten it at the high side.
• 30:50
  Speaker 2: It would float down, meaning the returns would just be a little better than illustrated thus far.
• 30:55
  Speaker 1: Yeah, so what is the total capital stack?
• 30:58
  Speaker 1: I know you mentioned 65% loan to value.
• 31:01
  Speaker 1: What are we talking about in terms of total purchase price?
• 31:05
  Speaker 1: So it's a little over.
• 31:09
  Speaker 2: it's about a $4 million equity and a little over $6 million in some change and debt on that front and now AJ, I know that the plan is to buy, you know, several properties by using different funds in a series Like this.
• 31:31
  Speaker 1: right now that we're talking about is Fund 1, and Fund 1 consists of four properties.
• 31:37
  Speaker 1: Tell me a little bit about those properties, where they're located and if any of them are from the same seller or different sellers.
• 31:47
  Speaker 2: So the four buildings, they're one's in Tucson I'll kind of maybe work left to right of the United States large building that will have three dental tenants.
• 32:10
  Speaker 2: It is backed by a large private equity backed group that has nearly 50 million in revenues and almost 7 million in profitability.
• 32:19
  Speaker 2: It high visibility retail center, kind of anchored by Chick-fil-A big shopping center, brand new gym, just high visibility space.
• 32:30
  Speaker 2: This would be considered like MedTail.
• 32:32
  Speaker 2: You know it's like a retail building and a medical establishment on that front.
• 32:37
  Speaker 2: That, moving our way to the other side, is Chatham, illinois.
• 32:44
  Speaker 2: It's near Springfield, it's a little smaller community.
• 32:47
  Speaker 2: It's backed by the same private equity group.
• 32:50
  Speaker 2: The seller is a little different but the tenant and the backer is the same and that's just a strong going interest.
• 32:59
  Speaker 2: Dental practice Also, what I would consider to be MedTail kind of retail, high visibility, high foot traffic street, which is another layer of protection I don't think we'll ever need, but these are in high, favorable kind of retail-like settings on that front.
• 33:20
  Speaker 2: Continuing to move to the right of the United States is Kansas City.
• 33:27
  Speaker 2: It's independent but it's actually part of Kansas City.
• 33:29
  Speaker 2: It's literally like four miles from downtown Kansas City.
• 33:30
  Speaker 2: It's independent but it's actually part of Kansas City.
• 33:31
  Speaker 2: It's literally like four miles from downtown Kansas City.
• 33:35
  Speaker 2: Again, what I would consider to be MedTel, across the street is a McDonald's.
• 33:40
  Speaker 2: It's high visibility, more than 25,000 cars a day.
• 33:45
  Speaker 2: Established dental practice that has a personal guarantee, a different seller and the dental practice guarantee.
• 33:54
  Speaker 2: I would happily buy this dental practice in my previous life, you know, it's just a beautiful, exactly what people want to own in the private equity back pay space.
• 34:06
  Speaker 2: Then, last but not least, in terms of currently under contract, is in Wayne, pennsylvania.
• 34:11
  Speaker 2: It's a wealthy suburb of Philadelphia.
• 34:13
  Speaker 2: It's kind of great school systems, people want to be there and there's two tenants.
• 34:19
  Speaker 2: There's a podiatrist, small podiatrist clinic and a dental practice.
• 34:25
  Speaker 2: Dental practice has been there many, many years and that is owned by another private equity-backed group.
• 34:29
  Speaker 2: That's over $100 million in revenues Well-known private equity-backed group.
• 34:32
  Speaker 2: That's over $100 million in revenues A well-known private equity-backed group on that front.
• 34:34
  Speaker 2: And that's in Wayne, pennsylvania, which is just a suburb of Philadelphia.
• 34:39
  Speaker 2: So you've got three pretty big major markets Philadelphia, kansas City and Tucson.
• 34:43
  Speaker 2: And then Chatham is close to Springfield.
• 34:47
  Speaker 2: It's very close enough to a large populous city.
• 34:54
  Speaker 2: We tend to target over 100,000 residents population within 10 to 15 miles, which this is on that front.
• 34:59
  Speaker 2: That's a large enough area that it's not a challenge to find dentists to back other dentists up and it gives me comfort.
• 35:07
  Speaker 2: And then again it's backed by a 50 million revenue private equity back group to sort of make sure that you know it's operating well.
• 35:16
  Speaker 1: Yeah, no, that's fantastic.
• 35:18
  Speaker 1: Sounds like four really promising buildings.
• 35:22
  Speaker 1: Talk to me a little bit about the fees.
• 35:26
  Speaker 1: Just briefly, let's talk about the acquisition fee and the asset management fee.
• 35:30
  Speaker 1: I know we've already addressed the waterfall structure, but if you could just tell me briefly about fees, Yep Acquisition fee is 2% of the purchase price.
• 35:43
  Speaker 2: I've seen others that are high as three et cetera.
• 35:45
  Speaker 2: So ours is 2% of the purchase price to do all the work to find these assets.
• 35:50
  Speaker 2: That's fully embedded in all the forecasted returns, meaning any forecasted returns are net of that 2% fee, the asset management fee.
• 36:01
  Speaker 2: Now this is different than a lot of other asset classes in real estate.
• 36:04
  Speaker 2: 80 to 90% of the tenant, that triple net leases.
• 36:09
  Speaker 2: It's a 2% of the rent fee.
• 36:12
  Speaker 2: It's passed on to the tenant and that's also underwritten in the forecast return.
• 36:19
  Speaker 2: So we kind of know in advance if that lease will accommodate that fee to be passed on the tenant.
• 36:25
  Speaker 2: So it's not even a fee as a shareholder.
• 36:28
  Speaker 2: Of all the buildings I own, historically 100% are paid by the tenant.
• 36:34
  Speaker 2: There'll be some rare instances in future buildings but we know at the time of the purchase and putting in materials.
• 36:44
  Speaker 2: So it's a.
• 36:44
  Speaker 2: You know it's a nice thing as an investor.
• 36:48
  Speaker 2: So it's a nice thing as an investor.
• 36:50
  Speaker 2: It's the beauty of triple net leases.
• 36:52
  Speaker 1: Awesome.
• 36:52
  Speaker 1: Well, aj, those are my questions for you.
• 36:57
  Speaker 1: Really appreciate you doing the webinar with us today.
• 37:01
  Speaker 1: I know that my investors will be very excited to you know.
• 37:08
  Speaker 1: Are you available for questions?
• 37:10
  Speaker 1: If anybody, if any of the investors have questions that maybe weren't answered on the webinar today, anything that I'm not able to answer, do they have the option of speaking to you For sure?
• 37:23
  Speaker 2: I take it very seriously.
• 37:24
  Speaker 2: This has been a great asset class for my family and for me and love being able to answer questions and meet others.
• 37:32
  Speaker 2: So happily, meet with investors if they'd like that.
• 37:36
  Speaker 1: Yeah, and I've got access to your calendar so I can pass that along to any investors that want to have a little bit of time with you to flush out any questions.
• 37:46
  Speaker 1: But no, aj, I think this is a super.
• 37:49
  Speaker 1: I'm super excited about this opportunity.
• 37:51
  Speaker 1: So, aj, I think this is a super, I'm super excited about this opportunity.
• 37:56
  Speaker 1: You know, looking forward to a very long partnership and I do love the asset class, love the business model and the economics that we're talking about and, just you know, appreciate your leadership at the helm of this and and yeah, thank you very much, I appreciate you joining us today.
• 38:14
  Speaker 1: Thank you so much, gib.
• 38:15
  Speaker 1: Thank you for listening to this episode of Go Big with Gib.
• 38:23
  Speaker 1: If you haven't already, go follow us on social media at Gib Irons.
• 38:27
  Speaker 1: We'll see you next time.