← The Rich Somers Report
The Rich Somers Report
The Biggest Real Estate Opportunity You’ve Never Heard Of | Jeremiah Boucher E509
00:48:11
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- [00:00]
A
Hey, guys. We are buying two more boutique hotels along the California coast here with Summers Capital. 45 rooms off Market in Catalina island and a second deal up in Bodega Bay, which will make a total of eight boutique hotels owned and operated. Our investors get passive income tax benefits. And the best part is, unlike investing on Wall street and a lot of these other asset classes like multifamily, our investors get to go and stay and experience these boutique hotels firsthand to see how their money's working for them. And so if you want to learn to see if we can help you before this opportunity fills up, you can go to summerscapital.com invest to book a call with my team. Again@summerscapital.com invest to book a free call with my team.
- [00:36]
B
Now let's jump into the show in the environment. Right now, if you don't have the growth in the forecast, you can't create value. So that's a problem. So that's where I think investors look at value add. Like they looked at it two or three years ago and they think that they're going to be able to, to hit their forecasts and they can't do that because the environment doesn't allow it. But they're buying at basis that don't allow for enough of a margin of error. So you're still paying close to 20 to between 10 and 20% of market value. But then you're forecasting that you're going to create a 25% IRR on the project. That's a problem when the environment is not conducive to that. So for me, I don't mind being more like I'm on the offense. I want to go buy. But I feel like being a defensive investor right now is the strategy that's more conducive to the environment is I want to buy at a basis where I'm walking in cash flow today. And then if the forecast or if the market grows, great, I win. But if it, if it doesn't, then I still protect my, myself, my investors, and we still win in the short term, too.
- [01:45]
A
All right, guys, today I got someone that's doing big things in the mobile home community space, the flex space, in the self storage space. He is the founder and CEO of Patriot Holdings. I got my man Jeremiah Boucher in the building. What's up?
- [02:00]
B
What's up, Rich?
- [02:01]
A
What's up, dude? Appreciate you coming on, man. Rocking the black on black. Even got the built game going today. I see, I just saw that, that, that icon right there.
- [02:08]
B
Oh, yeah, you know what, man, it doesn't wrinkle. I can go anywhere. It's great.
- [02:12]
A
Yeah, I love, man, some of, some of the best, freshest, most comfy, you know, attire and, and apparel out there in the game. Built. Got to represent my guys out there. But anyways, man, a lot to cover here, dude. A lot of game, a lot of value. We were just talking before we started recording, location is everything. Talk about why you feel like location is everything. As a real estate investor, so been
- [02:35]
B
in the game 20 years, bought everything. D, C, B, A class, all of it. So I think thinking about the exit right out of the gate, like, who's going to want to own this 20 years from now? And I think in the, in the beginning I had such a short term view of like, just get in the deal, make money, cash on cash. It's all about cash flow. And it is, but at the same time, like thinking about the long term that if I were to hold this asset forever is, is someone ever going to buy it? And I bought in rural Louisiana, I bought in middle of nowhere Wisconsin. And, and it might look good on paper, but you can't sell the asset in a down market. And for me it's, I've really changed that strategy to be within an hour of core markets because I see the durability of it, right. The destinies and the demographics. And if there's actually demographics of people that have good jobs that want to be there, I'm going to be able to make money in all markets.
- [03:28]
A
And the other thing is it's, it's easier to get lending a lot of lenders that want to fund your deals when you're in great locations, but also attract investor capital.
- [03:37]
B
I stayed in your hotel here, right. So. And in downtown San Diego, you know, I had a place here for seven years. It's like you're not going to lose here ever. So. So I love what you're doing.
- [03:47]
A
Yeah. Especially in Little Italy, I think, I think downtown can be like very block by block. You know, you go over to East Village right now, you know, there's a lot of homeless, there's a lot of tenants out there and a lot of those developers that built out there. Cheaper cost of land, lower barrier to entry, but they're getting crushed right now versus the ones that got into Italy. A little bit higher barrier to entry, a little bit more expensive cost of land. But in this neighborhood, I mean this is the hottest, most trendiest neighborhood of the San Diego area. 30 of the best coffee shops, restaurants here. This is where all the affluent people are going. Downtown is where all the money is going to see a lot of rent growth here. And these developers are getting compensated for it, which is big, but it's a testament to you know, location is important, but also the hyper location within a market is also important.
- [04:32]
B
It is and I don't want the audience to think it's like New York, Louisiana. I think it's got to be major, major markets. I mean done very well in like Des Moines, Iowa, just like solid industrial towns or diverse industries link Lincoln, Nebraska, I mean or Omaha area, you know, and all, all these like Middle west markets that, that are just very durable. Obviously outside of Boston I invest in a lot of areas that aren't in the Sunbelt states. So that's kind. It's contrarian to what a lot of investors did the last five years, but it worked well for me.
- [05:04]
A
So Jeremiah, give us a snapshot for the audience members that, that don't know who you are. Give us a snapshot of what you guys do in the real estate space today.
- [05:11]
B
Yeah, so 20 years in it. I focus on buying diversified streams of income. So a bunch of tenants. So I don't want single tenant risk, so only commercial real estate. So I cut my teeth in land lease communities, mobile home communities, you know, roofs over, I mean just people roofs, overheads, like affordable housing, number one, number two, flex space which is we also call contractor base. We were talking about like offices like this where you can have a warehouse with an office, a bathroom and some people have like dope gyms and all these built out showrooms and all this stuff. But it's cheap, affordable industrial warehouse, office type space. And then lastly is self storage, just a basic, you know, metal, metal storage with roll up door.
- [05:58]
A
The flex space is very interesting, man. And you know I see a lot of folks, a lot of entrepreneurs, business owners, I've been kind of inspired myself. They go in, they pick up these industrial buildings, kind of warehouse type of buildings and they do these really cool vibey build outs where they add pickleball court, maybe a gym and then they'll have some office space and they can even release some of the office space to other tenants to come in and kind of create this co working really cool central ecosystem to where you know, now team members, employees can come in, not just get work done, not just use it as a meeting space, but also can, you know, have a really cool space to get a workout in fitness, host events, workshops, that sort of thing. And I always thought that was really dope Man. So that's, that's cool that you're doing that. How did you get into this?
- [06:43]
B
And it's important people know. So flex, what it means is just flexible type zoning and uses. Right. So you. So some people use it all as office.
- [06:50]
A
Okay.
- [06:51]
B
Some people use it purely as warehouse, some people use it as retail in the front and showroom. And then it can be a blend of all three. So that's why it's so powerful. So I think today, the way that small businesses, entrepreneurs need affordable space, not so driven by location. Right? You don't need to actually have main and main because now, you know, people are found online and they don't want to pay crazy retail prices for their rent and they don't want to pay crazy office prices because either office is outdated and they can't really get what they want or it's. It, it's just not conducive to what they do on a day to day basis. That's why I like it. I think it's really the future of commercial real estate where you know a thousand to ten thousand square foot suites where you can choose how you want to operate in the space and, and cheap and still in a decent location. So I got in it because I started having a bunch of commercial tenants getting in my storage units and I can't have them, you know, working on cars. I can't have them hooking up power and building machinery in there. You know, it's a storage unit. So I'm realizing like they need more space and we got to, we got to provide that for them. So I tried developing, I did develop a couple of the projects which, that's a whole different game. And then also started acquiring. It's, it's a, it's a complicated one rich, where you can do conversions, where you buy a large industrial building and cut it up, which, you know, you, you're, you know how to operate assets. But it's not an easy game for a new timer. And then for me, I think that for someone to get into it or for my investments, where I've done the best is something that already is divided. I mean it's already a, a multi tenant flex or in small bay contractor warehouse space that I'm coming in and doing just the basics. You know, I'm not doing a big conversion, I'm not doing big demos. I've done all that. I mean, I just want to keep it simple. Cookie cutter, it's just rectangular boxes that I can lease out cheap and it's real simple. For the tenants.
- [08:48]
A
Got it. So give me high level what you're doing. So you guys are, you guys are picking up these industrial buildings, these warehouses and then what are you doing?
- [08:56]
B
So they're already. I'm not doing anything, no demos, I'm not doing any conversion.
- [09:01]
A
You're not moving plumbing?
- [09:02]
B
No, no. I mean, not anymore. I've done it. So yeah, just keeping it very simple. What we're doing is inheriting 80, 90% occupied buildings. We're, we're buying these buildings and then renewing the leases. If the tenants don't want to renew at the market rent, then we'll, we'll do some improvements and then we'll release it out. But the key is getting from lower market rents, just like you do in multifamily to, to market rents and doing it over time. The difference with the small bay industrial or any industrial is the wall. The weighted average lease term is sometimes it's four or five years that, that constricts the value of the building unless your leases come due and you can start to renew earlier. So we like one two, three Year Waltz where short term leases are better for our business because then once the lease expires, we're buying them off market or from operators that aren't really driving the rents up. So when that lease expires, we're going to start working with the tenant to go to market and that's really the value add.
- [10:01]
A
How important is structuring these like rent escalation clauses within these leases? Because I know we just, we just finished our first 39 month lease here in this office that we're recording the podcast studio in. And I'll use this as podcast, but also with my company Summers Capital and it works great because I'm here podcast and I got guests coming in. But I'm also, you know, use this to, to run the whole business, which is great. But we just finished 39 months, we just negotiated another 36 months. So we just renewed. But in both of these long term leases we've done, there's always been an escalation clause to where the rent goes up every year. How important is that in this space?
- [10:38]
B
Oh, when you're buying industrial or commercial, the lease is everything. The lease dictates 100% of the value.
- [10:44]
A
Are there a lot of mom and pops or like other operators that, that maybe have leases in place that are long term without the escalations?
- [10:51]
B
Yeah, yeah, there's every type of structure, so which isn't a bad thing. I mean it's good for the tenant?
- [10:57]
A
Yeah, it's good for the tenant. Yeah.
- [10:58]
B
But the challenge is I bought industrial buildings where there's 7 or 10 year or even 15 year leases when you, when you add up all the extensions. So they have a five year lease with a five year extension with the built in increase. But if they're already well below market, you're tied up for 15 years in that space with that tenant unless they don't renew.
- [11:16]
A
And generally speaking, rents go up, inflation goes up a little bit faster than, than people might assume or anticipate when they go to negotiate a lease.
- [11:24]
B
Oh, of course, yeah, yeah.
- [11:26]
A
So, so, so you're picking these things up with, you know, potentially you might have several tenants in there with below market rents and is a huge loss to lease.
- [11:34]
B
Oh yeah, yeah, A majority of them. Yeah. So that's the balance there is that you have to have the leases expiring.
- [11:40]
A
Okay.
- [11:40]
B
They have to be within one to three years or at least staggered out.
- [11:43]
A
Yeah. And so what kind of things do you do? Is there any good negotiation tactics or strategies to, you know, work with these existing tenants towards like, hey, we don't want you to vacate, but we're going to bring you a little bit closer to market value. Is there any like strategies there to where it's like you're showing them, hey, we're adding value, we're making this a better thing for you, your business, but we're going to bring you closer to market rent, for sure. What do you guys do?
- [12:06]
B
Well, first off, show them the comps because if you don't buy right at the right basis and you show them that you're actually competitive against the other comps, then they're, they're going to want to leave. So I mean you have to buy right. In order to offer the right pricing. But to get to market, I mean there's really two drivers there. Number one is free rent. So it depends on the type of lease we want to structure. But every business owner likes free rent. So we'll either structure if you sign a three year lease or a four year lease. We'll give you one month of free rent each year that you sign on the lease and we'll structure 3 or 4% increases. And then the other thing is that tenant improvements. So it's like what, what have you been wanting to do to the space that you haven't invested the capital to do that? And if you sign it, this new market rent will come in and we'll give you the ti credit to improve your space. So you can be here long term because we're a partner with your business. Like I, I grew up in small business. My dad is a paving company. I grew up on the back of a paver. We had a small bay in unit. So I know what it's like to have to go to a location every day and, and this is where you operate your business out of. So for me it's like I want to help these guys. I don't want to just squeeze them all the way out. Typically they're getting out of the house, they got a couple trucks, they got some equipment, they got a couple employees and they outgrew their home or an old barn or something they're running out of. So I want to be that partner. I want to help these guys get to where they want to go and ideally give them more spaces so they can expand into a bigger spot.
- [13:32]
A
Yeah, that's really big, man. That's huge. And so you know, with these, these warehouses, the industrial. What is the kind of debt look like on, on these things as far as like ltv?
- [13:43]
B
Yeah. So you can go two routes. Like I'm sure your audience has heard this on other real estate parts podcasts is you can go regional banks. Right. So if we're anywhere between two and $10 million projects that have a heavy value add, meaning we're going to come in and do improvements, or the debt coverage is really low because a lot of those leases are well below market, we're probably going to start out with a regional bank. So right now I have maybe 65 different regional bank relationships throughout the northeast. And these banks understand the towns that we're buying in. They understand that there may be a year or two period that you got to stabilize the property. So, so they work with you with interest only with some of the leverage giving you 70, 75% leverage.
- [14:24]
A
That's pretty good. Yeah, that's really good.
- [14:26]
B
Yeah. As long as the thesis is that you can get the rents to help debt cover.
- [14:30]
A
Yeah. And what's the, what kind of cap rates are you seeing with this asset class in the markets that you're in?
- [14:37]
B
I mean, it depends. Right. So I'll speak to the other, the other type of lending is the, the, the traditional. Oh yeah, well, it's, it's just the, the life cos. The CNBS is the institutional banks. Right. And that's 55 to 65% LTV. That's typically where it's more stabilized projects, projects there.
- [14:56]
A
And so you're typically refinancing into these deals if you're, if you're adding a lot of value.
- [15:00]
B
We are. Yeah. And one thing that I wanted to talk to you about is that I'm actually seeing the market over the last five years has been so focused on value add that they're forgetting that the goal is to buy stabilized. And they're stepping over stabilized projects that actually have good increases in long term value and cash flow in out of the gate because they're so hyper focused on value add and a bit IRR kick. So right now we're buying a deal in Houston at a 9 cap. It's $18 million walking solid 9 cap. I mean with every underwriting assumption that we need in there to be conservative and, and that's the yield that I'm typically like working my, my butt off to get. So it's just nice that now in the market you can find actually cash flowing, solid assets that are, you don't have to do the heavy value add to get the yield.
- [15:49]
A
Yeah. And what do you think's caused that in your, in your space? Do you think it's more so this high rate environment for the last four, four plus years to where it's kind of been a grind and we've seen, you know, cap rates kind of increase a little bit that's allowed you to come in there and find that, or do you think it's more so a function of like, hey, like too many investors are chasing the value add stuff and they're forgetting about the stabilized.
- [16:12]
B
Yeah. I mean, for lack of a better term, I think it's greed. I think the 2030, 35% IRR projects, they worked out in 2019. 2020. Right, right. When Covid was, it was really volatile. People went in. The people that definitely had some guts and went in and bought real estate when the market was really sensitive and then you didn't have to be a genius. Rents went up in, in self storage or in some of the other asset classes were in 30, 40% in two years. So everybody looked like a genius. Right. I'm sure in your assets. Right. Those two, that two year window, everybody made a ton of money. And then.
- [16:50]
A
Well. And the people that sold in 2021, early 2022, before the rates started going up, look like geniuses. We sold. I sold one asset, multifamily deal in a suburb of Indianapolis down in Greenwood is called Breeza 32. We bought it, it's called Vicksburg Apartments. This is C class 1960s construction, multifamily deal, grinding. But that buyer came in and we exited January of 2022, but right before the rates started going up and this is 1960s C class product, they paid a 3.7 cap rate on trailing twelve month actuals. And to your point, we renovated 50% of the units. The broker said, stop renovating your units because buyers right now in this market will pay more for unrenovated units than they will renovated units. And so sure enough, he found us multiple buyers and the one we went with paid a 3.7 cap rate on actuals. I'm like, dude, thank you. And we got out of that one before the rates started going up. But you know that, that was the time in that market. It was just crazy. I mean all asset classes was crazy. Rates were at an all time low. We had just gone through this government shutdown with, with COVID and everyone thought, man, there was no recession. The government just bailed everyone out, printed a ton of money. They printed 80% of the money supply. And so I think people had a lot of buyer confidence coming out of that, that if, if Covid didn't cause a recession, there's never going to be a recession.
- [18:13]
B
Oh yeah, exactly.
- [18:14]
A
And then look what happened. The government said, hey, or the Fed said, we're going to, we're going to increase the rate environment. No one anticipated the rate environment more than doubling for as long as it's been four years. And so, you know, I think cap rates have shifted. We've seen buyer demand slow down. And for the first time, at least in my, my asset class that we kind of play in the boutique hotel game. I feel like the first three years at a high rate environment, a lot of sellers were kind of holding off and they're kind of like having these, these high 20, 21 expectations with what their, their assets were worth. Now for the first time, we're starting to see this, this expectation from sellers really start to get a lot more realistic.
- [18:51]
B
It's, it definitely is you seeing that too. For sure, for sure. Because you can only have the property on the market so long if you really want to sell it. You got to start to get real because people have capital needs eventually. You do need liquidity. And in commercial real estate at some point, and that's the biggest challenge in real estate is liquidity. And I want to talk to you about that. You brought up a couple of good things though. A couple, two things with value add. You have obviously the execution with the operator, which is critical because it's hard no matter what. It's not easy money. And then the other thing is the Environment. And I think that that was the thing that when that market timeline was occurring and everyone was looking really, really smart because they made money, the environment was in our favor. And then now the last two, three years, the environment is completely shifted, which not only interest rates, interest rates have not gone down, but the economic climate to drive rents and occupancy is not there. It's slow. Right. Housing, the housing market's slower. Businesses aren't hiring. You know, unemployment is.
- [19:53]
A
AIs really created some. The way that that business is done is really changing with the AI now.
- [20:00]
B
Yeah. More efficiency.
- [20:01]
A
Yeah, yeah. And a lot less jobs available. You know, maybe not so many layoffs as we would anticipate, but a lot of these, these companies, they don't have to lay people off. What they're doing is they're just not rehiring and they're letting people go through natural attrition. People leave, they get uprooted, they have to move or they get let go. And as that happened, they're just, they're just not rehiring. And so their, their payroll expenses are going down and down and down because of AI.
- [20:24]
B
That's it. And every business is tightening their margins. I mean, they, they're doing this. But it makes sense where in the environment right now, if you don't have the growth in the forecast, you can't create value. So that's a problem. So that's where I think investors look at value add. Like they looked at it two or three years ago, and they think that they're going to be able to, to hit their forecasts, and they can't do that because the environment doesn't allow it. But they're buying at basis that don't allow for enough of a margin of error. So you're still paying close to 20 to between 10 and 20% of market value. But then you're forecasting that you're going to create a 25% IRR on the project. That's a problem when the environment is not conducive to that. So for me, I don't mind being more like, I'm on the offense, I want to go buy. But I feel like being a defensive investor right now is the strategy that's more conducive to the environment is I want to buy at a basis where I'm walking in cash flow today. And then if the forecast or if the market grows, great, I win. But if it, if it doesn't, then I still protect my, myself, my investors, and we still win in the short term. Too.
- [21:36]
A
Yeah, I'm the same way, man. I'm like, hey, let's, let's assume the worst. Let's assume the rate environment is going to stay high. Let's assume the cap rates are going to continue to go up, and let's have conservative assumptions. And if the market doesn't adjust and the rate environment stays high, we're still good. Um, but in the event that, you know, rates start to come down in the future and cap rates start to compress, like it's just going to be cherry on top. And let's plan for the worst possible outcome. And, and if, if that still makes sense, let's do it. But for me, man, it's always been, hey, three things. Number one, we got to buy in a great location. We can never replace the location. Number two is we got to have a clear path to add value because that's what creates a margin for error. That's what creates a buffer. Um, so if you fall short on projections because you just created all that value, it's okay. We're still going to be okay. And then number three is I don't want to time the market. So for me, I think a lot of people that get in trouble in the real estate game, it's like they're flipping, so they have a six month, maybe a 12 month kind of window to time the market. Those, those guys are getting crushed right now. Think about all these home flippers. It's like the rate environment's gone up, buyer demands has come down, and all these people that are in these flips, I mean, shoot, like their time in the market, development, developments, time in the market as well. Grant Cardone, you know, he says this best. He said on this podcast, he's like, builders lose all their profits at the end of every cycle. And you know, right now, unfortunately, there's a lot of cranes downtown in San Diego. The ones that got in early, they timed the market correctly, they made a lot of money. But now there's a lot of cranes right now in lit Italy. And these guys are all going to be competing with each other with these high rise multifamily deals. Guess what? The ones that are late to the party, they're going to lose money on those deals. And so I don't want to time the market. And so for us, it's got to be a long term time horizon.
- [23:22]
B
For sure, for sure. And development gets a lot of hype because you can make a lot of money. But I agree 100% with Grant and you can really lose your ass with development as well. Timing is everything and that's, that's the balance between liquidity and leverage. And that's the hard part there with regardless if it's development or not. If you're in large industrial warehouse or if you're in you know, big single tenant or big grocery centered anchored retail or a major office building down here with, with big, big corporate tenants like I think people that are in the game. I mean it looks attractive to own these assets but I think there's an underestimation of the amount of capital it takes to be able to weather the storms when it, when a large tenant leaves. Right. Or when the market shifts and the type of product you have needs to be completely rebuilt or a market's shifted in the way that the, the identity of an area like you said, the East Village over here, like you may have to completely rebrand that type of product like the liquidity. I think people think that they're, they're real estate rich right on your balance sheet you have net worth and you feel good about yourself as a, as an investor and whoever your investors, you buy a bunch of real estate on paper it looks good man. It can change in a heartbeat. It can change within a one or two year cycle where a couple of things happen. The trigger of events where you can't lease up that property that you just built, you need more reserves, you're going to need to rebrand the property or rebuild it to target the new market or you're going to have to, you're going to have to weather the storm on debt service. Any of these things can completely shift the capital needs of your entire portfolio. But when people go out and they're not disciplined and they go out and spend tons of money because they think they're rich on paper, but they don't understand the unfunded liabilities, the parts of their portfolio that are going to need capital in the future. It can really put you in a bad spot. You know, I, I, I don't live a lavish lifestyle and I just always, maybe it's just the way I was raised in the Northeast. You just, I always am, I have that, that paranoia that you know there's always going to run out of money. But I think in real estate it's, it's a healthy paranoia where there, there you have to allocate capital to weather the storms and I, I just don't hear it enough. And leverage can be your best friend and it can be your worst enemy and it's just being caught in A down cycle with high leverage. As you know, you've talked about it on the, with the multifamily investors and their debt resets. It's, it's just important that it's, it's like a gun to your head where at some point you got to pull the leverage off of it and, and sit back and take a little bit less of a return.
- [25:58]
A
Yes. But protect yourself and setting that expectation. You know, like, I, I completely agree with you. Like, there's nothing wrong with being a little bit less levered and, and settling for a little bit less return and, and having that expectation. I think most investors invest because they, they, they trust the operator and they want to know, hey, their investment safe. Right. Most of these investors, they, they're not investing because, hey, this is going to be a 23% IRR versus a 19% IRR that they don't really care about that. It's like, hey, they want to know their investment safe. They trust the operator and, and this is a good business plan that's in place that's not timing the market.
- [26:35]
B
Yeah, you know, oh, I know a hundred percent. So the people that have the real money that I've met throughout, and you've met a lot of people with a ton of money. It's like when you talk to certain people, they're like, I got a guy. Like, I got the hotel guy, which is my hotel guy. I got the industrial warehouse guy, Jeremiah, or the storage guy. You know what I mean? They're not looking around like, trying to find a million operators. They're like, the guy puts his money where his mouth is. He's committed, he's focused, he's got a team, he's got a track record, and he's honest. He's going to tell you when things go wrong or when they, when they're not going to plan, and that's it. And then, you know, this is, that's who I count on in my life. Like, if I am going to be going to a doctor, I want to know the guy is committed and he knows what the hell he's doing. And that's the guy I go with.
- [27:18]
A
Yeah.
- [27:18]
B
So it's all about trust, you know, but you got to earn it.
- [27:21]
A
So which markets are you guys primarily investing in today?
- [27:24]
B
So I like the Northeast. I like, because it's a highly educated skill, skilled labor force, high cost of housing. It's not huge growth, but it's not huge decline either. So that's suburban New York, Connecticut, Boston, New England, New Hampshire, Mid Atlantic. So I like that part of the east coast.
- [27:46]
A
North Carolina.
- [27:47]
B
South Carolina, all the way up to Philadelphia.
- [27:50]
A
Okay.
- [27:50]
B
Yeah.
- [27:51]
A
Okay.
- [27:51]
B
And then Texas is also a market I like a lot.
- [27:54]
A
Okay, which. Which market's in Texas?
- [27:56]
B
Well, it's kind of the big three or four. The triangle there. Right. Dallas, Austin, Houston. Houston, yeah. San Antonio, too.
- [28:04]
A
Got it. So, and you guys are based out of where. Where's your office located?
- [28:07]
B
Vegas.
- [28:08]
A
Vegas. Okay. So Vegas. Vegas is a great place to be centralized, I think.
- [28:13]
B
Yeah.
- [28:13]
A
No state tax. But also a lot of business owners and successful people are always flying through Vegas. I know you got your podcast out there. It's a great, great place to. To be podcasting. Yeah.
- [28:25]
B
Vegas is a good life. I like it here too. San Diego is beautiful.
- [28:27]
A
Yeah, yeah, absolutely. Used to live out here.
- [28:29]
B
Yeah, yeah, yeah.
- [28:30]
A
Okay.
- [28:30]
B
Literally right here. Really? Yeah.
- [28:32]
A
Dang. What. What brought you from Little Italy to Vegas?
- [28:35]
B
Well, no, second home. This was. This was my dream. After my portfolio sold in 2019, I, like, I worked for 13 years, built up a mobile home park portfolio in Vegas. There's a whole nother reason why I sold it, but the operations was killing me and I wanted to get that final exit, exited, made my first 10 million bucks. Like, I felt validated everything I ever did. And then that's when I bought the place here. I was like, this is the place. I've been coming here since I was 19 years old. And I'm like, this is, this is where I want to be, dude.
- [29:03]
A
I've been in this neighborhood for eight years now, and this is our fourth year in the office here. I literally, I don't have a need to drive. Everything's walkable. As you know, I walk to the office every single day. It's like a five block walk. I'm a big believer that, like, if your environment that like, moves the needle for you is, is. Is easy and accessible, you're more likely to spend more time there. So it's quick, it's easy. But I love it here, man. Like, 30 of the best coffee shops, restaurants here in San Diego. It connects the San Diego airport to the 5 Freeway. So, like, hotels and Dell, you're staying there right now. According to Costar, 27,000 cars that drive by that hotel every 24 hours. And so you saw that mural that we did? Yeah, in the courtyard. We did that because it's 27,000 cars that drive by every 24 hours. So it's. It's free marketing. Yeah, but I knew it.
- [29:52]
B
I saw that before I ever knew you. Oh, really?
- [29:55]
A
Yeah, that's funny. It's kind of got that Mona Lisa kind of like resemblance there. Yeah.
- [29:59]
B
Yeah.
- [30:00]
A
Which kind of is a staple of, of Little Italy. But anyhow.
- [30:02]
B
Well, just with the environment, you know, I'm the same way. I, I can walk to my office even in Vegas. So I don't. I think when people are trying to be productive and you're trying to build a, a life where you, I don't know, you just want to grow and improve. Like, you got to create the environment around you to be able to fuel that. Because like I like in James Clear's book, he says the, the habits that you build are the ones that you do on your worst day. That's, that's the habit. Like, what can I do on my absolute worst day? So if I can walk to the office, if I got a studio in the house, if I got the cold plunge in the sauna in my gym, right next in my garage, like, I'm gonna, it's like my worst day. I can still do all those things. And I think people forget that how important their environment is because you compound it, right? You do these little things over a year, five years, 10 years, like, this is dope. You come in here, you, you're working, you're shooting your podcast, you got your guy at, he's filming all the time. Like you, you literally, it's in your face. You can't not do it.
- [30:56]
A
Yeah, no, exactly. And honestly, man, like the other real. That's a good takeaway, by the way, from James Clear. The other takeaway I've really had a realization of is you have to overpay for excellence. You know, anything good in life, you have to overpay. That's not just money, but it's time. It's resources, it's energy, it's all the above. And you know, you have to go through seasons. It's not forever, but you have to go through seasons. I typically go through three to four seasons a year to where I'm really in lock in season. So like right now I'm in one of them, right these next 60 days or so I'm putting in, you know, I'm like, I'm in the office yesterday, came in the office, said, well, let me back up. I was in here Saturday. I was in here Sunday, Sunday. I came in 1pm and then I was here till, till 10pm, go home Monday morning, I'm back in here at 6am and I was here till about 5:30 last night, went, got a haircut, I went home, I plugged in for another few hours and I'm back here first thing in the morning. So I'm in a season right now to where I'm, I'm doing six, seven days. I'm plugged in seven days a week. But when I'm in here, man, I'm doing 12 hour days, 14 hour days. And that becomes the norm for these, these short 60 day sprints. And obviously there's, there's, there's a season to where I take my foot off the gas, I reflect, I enjoy the fruits of my labor. You know, think about what I did wrong, what I did right, and really get clear on what the next target is and what resources I'm going to need in order to get to that next target. And then I enter another sprint. And that's, that's what works for me. And the beauty about entrepreneurship is everyone has something that works great for them. It's the same thing with fitness, right? You want to get in shape. It's like there's no secret. Like getting in shape is move more, eat less, and you're going to get in shape, right? And there's hundreds of diets and workouts that all work. And so the beauty about entrepreneurship similar to fitness is like everyone has something that works for them. For me, this is what works for me. I do these 60 to 90 day sprints and then I enjoy it for a month, maybe 45 days at the most, and then I get back to it and I do another sprint. And that's what works for me.
- [32:52]
B
Yeah, I, I like that. I, I have a real problem learning how to stop sprinting. So I, I, I, and that's one of the reasons I bought the place here. And that's why I need to buy another place outside of Vegas. Like when you're locked in your environment, it's, and you're obsessive. For me, I'm like a very overactive, stimulated mind. Adhd. So it's like I, I can't stop. So I have to literally remove myself from the environment to like, to, to, so that the environment doesn't trigger the pattern that I feel guilty that I should be working harder. And there's a culture around us that, you know, hustle, hustle, hustle, harder, harder, harder. And I mean, you can do that. I'm not saying that's bad, but it gets to a point where you got to have that balance. So it's cool that you have a boat that you can just step away, that you pull away from the team. I get it, really. It's been a challenge for me to do that. And, and I think you have to structure it in your environment. And literally, for me, I grew up where, you know, my parents always, it's all about work. It's all about performance. It's like, you know, I feel guilty, like, just, just the whole New England, Irish Catholic culture of, like, if you're not working, you're a piece of shit, you know, so it's just like that. That's not healthy. Over time, though, I think people get confused that it's all about work all the time. But you can't, you can't stop thinking, you can't see the big picture if you're always in the grind, for sure.
- [34:18]
A
And, and just to be clear, for anyone listening to this right now, like, I'm. I'm very aware that, that what I do as an entrepreneur and I go in these seasons of working seven days a week and really putting in the hours and the reps and at bats. I'm very aware that this is not for everyone. And I, I think everyone has what makes them happy. Right? For me, happiness stems from growth and progress. And I, I. The one thing, the one reason I do this is because this doesn't feel like work to me. This doesn't feel like work to me. This is something that I enjoy. This is like my life. And, like, I'm so obsessed with building this vision that I want to build, and I want to build a big thing. And so, like, I will say, if you do want to build a really big thing and you want to compete with the best of the best, you have to go through seasons where you overpay, otherwise, you're just never going to get there. Like the great Jim Rome once said, if you don't sacrifice for what you want, what you want becomes the sacrifice. And as you continue to grow up the ladder and evolve into all these new levels and versions of yourself that are going to allow you to keep growing, you start competing with better and better competition. And as you start to climb the mountain, you have to overpay for seasons in order to achieve the top of the mountain.
- [35:33]
B
Oh, 100. Like, there's, there's no balance when you're building in the beginning.
- [35:38]
A
No.
- [35:39]
B
But the fact that you align with, like, you love this is your lifestyle. Like, you clearly it's integrated into how you live, every part of you.
- [35:46]
A
So it doesn't feel like work to me. I'm like, dude, I get to do what I love.
- [35:49]
B
And me too. Me too. I love the game. I. I Love. I've learned a lot about how I'm wired and I love the rush, I love the risk, I love the, the learning and exploring and there's a. I just understand the other side of it too.
- [36:04]
A
Do you love the, the times where it gets uncomfortable and heavy and overwhelming? Because obviously as, as an entrepreneur, real estate investor, you've built a big thing, but you know this just as good as me, if not better. Like, if you're growing, there's going to be multiple seasons and times where, where shit gets very heavy, shit gets very overwhelming. Do you enjoy those times?
- [36:24]
B
Well, through a lot of therapy and some psychedelics and things, I've learned that I, I don't feel good when there's no pressure. I don't know how to. I don't know how to relax without feeling. I love the pressure. I, I say I hate it sometimes, but I feel most alive when I'm right on the edge of, of dealing with something important or, or difficult and I'm pushing against something. I don't know if you ever feel the same way, right? It's just like you like, like you get the shot, you get the final shot of the game, but you earned it. You worked your ass off to be that player in that position. So for me, it's like I only, I feel alive in those moments when there's a lot, it's a lot of pressure against me.
- [37:05]
A
Yeah, I'm the same way, man. And you know, like, like you said, if you take too much time off, you start to get anxious. I'm the same way. Happiness stems from growth and progress. And you know, whether we realize it or not, we're all human beings. And I think most people are wired that way. And so the second you stop growing and progressing, like, at least for me, I get bored. I'm like, dude, I got to get back to it. That's why when I enjoy these seasons of like, all right, I just leveled up. I did a 60 day sprint, 90 day sprint to start the year. I'm doing a little bit bigger sprint, but you know, once I enjoy it for a little bit and take my foot off the gas for a month, after about 30 days or so, I'm like itching to get back to it, you know, because I can feel myself no longer growing and starting to kind of plateau. And you know, I, I really believe that if you're not growing, you're dying for sure, you know, for sure. So anyways, you know, I'm curious for you. You self storage, mobile home parks and then Flex space. Which one are you most hyper focused on right now?
- [38:04]
B
I think Flex is where it's at right now.
- [38:06]
A
Why?
- [38:06]
B
Yeah, I think because of the demand. I think that like we were talking about earlier, I think there's a lot of businesses, a lot of entrepreneurs that need the space.
- [38:15]
A
Are you seeing less opportunity in self storage right now? And if so, I'm, I'm curious to the reasons why.
- [38:20]
B
Well, there's a lot of per se opportunity, but I think it's mispriced. I think people are still paying 5,6 caps for markets that are oversupplied, that there's difficult operations that you have that you're inheriting or they're just, they're just slow growth markets. Okay, I, there's no reason to overpay. I, I don't, I like storage. I think it's, there's still a need for it, but most of most assets are mispriced and it's not worth the effort or energy to invest in it right now.
- [38:54]
A
Yeah, I, I'm, I'm, I feel you on that. And that's kind of why I shift away from multifamily is, is I feel like multifamily is overpriced today. Cap rates got it became an all time low and people overpaid for that asset class and you know, rightfully so. It's, it's, it's time tested, it's evergreen. But you see a lot of those guys that overpaid for multifamily back, you know, 2021 and some of these guys are getting crushed today. So, you know, yeah, it's, it's, you got to go where the opportunity is. You got to go where, where you see value. So I love that you're doing that, man. I'm curious, what are some ways that you guys are adding value to these Flex spaces?
- [39:31]
B
Yeah, and I think an important thing for investors to understand is you can do one deal one time and make a lot of money. Right. But then to do deals at scale, to be able to buy, you know, hundreds of millions of dollars of real estate, there's opportunity everywhere. And you could, you could find the key is being able to do it where it's predictable and it's defensible, like it's safe and consistent again and again and again. So that for me means saying no a lot. And I'm sure you get lots of opportunities with what you do here. You gotta say no to so many things and be crystal clear. In my mind, this is the business plan and we're going to stick to this thing right here, like land lease communities and mobile homes. I'm buying lots that are in good markets, that have decent occupancy and that have quality tenants. Like, and that's it. I can't buy C or D class beat up trailer parks in Denver or in Vegas. It just doesn't fit. You know, I want that nice community that I can do again and again and again. And warehouse too. You know, an hour within a core market. We have at least 50,000 square feet. 40, 50,000. We have at least 20 tenants and we have 80, 90% occupancy. And it maybe it's not the biggest home run out there, but it's super consistent. I'm going to hit that 8% cash on cash. I know I'm going to get rent growth. There's always going to be demand. So how we're adding value, I mean, like people ask, you know, what's the, what's the edge? Or what's the competitive advantage versus you versus everyone else? And I, I mean, staying in your hotel last night, I can appreciate that you understand this. It's, there is no one edge. Like, the edge is every piece of the puzzle has to be in place for you to have the edge in the game. The edge is acquisitions. It's underwriting, due diligence, it's operations, it's in your capital raising, it's investor relations, it's, it's all of it. Your construction. Every piece has to be in place for you to win the game. And at scale over a long period of time, every, you can win for one or two years. In the right market, you can look flashy. But to win this durable game over 20, 30 years, like when Grant was sitting here like these, we're all the guys that you, you have to be great at every aspect of it.
- [41:43]
A
Yeah. And, and also like, like time in the market and like the reps in the app ass. Like you said, like, you got to learn to say no to bigger and bigger opportunities as we grow, but also like being hyper focused on that one thing over and over and over and you can't, you can't like undervalue the experience. Like notch on your bill. Just getting the experience is so big and rich.
- [42:07]
B
What I wanted to say on that was we were just briefly talking about it before the podcast. One of the worst mistakes I think I've made in my career is staying in my comfort zone in small deals for too long. So I, I used my own money in the beginning and I was very Hesitant to raise large investor capital because I want to make sure I understood what I was doing. But after I earned the track record and I understood how to operate this stuff, I stayed in C class assets in really rough markets for a long time because it was in my comfort zone. And I saw guys that are a lot newer to the game than me grow in scale and they got their own issues, but still I've seen them do quite well because they graduated into bigger deals. So I'm not saying don't do bigger deals. I'm just saying stay hyper focused on the category or the, the business plan that you are going to build your team around that you can scale. So for me, I want to go hard into flex. You know, in buying that $18 million deal in Houston right now, it still fits the boxes. So it's the same type of deal if I were buying a $3 million deal in Houston. I mean it's a metal warehouse building with diverse tenants and a good area. This is just $18 million in 150,000 plus square feet. So that's where I want to be more disciplined, to push myself to do less quantity but higher quality and continue to drive up, drive the average cost of the assets that I'm acquiring.
- [43:38]
A
That's really good. How big were the deals you were buying back then? And then kind of give us an idea of like how big the deals you're buying today as far as like, you know, going in purchase price, going in cost basis after you do your capex plan and then kind of like ARV when you go to, you know, reposition or stabilize the asset.
- [43:56]
B
Yeah. So when I started, anywhere between I was, you know, when I started buying six $700,000 deals, but basically $1 million to about $4 million was, was about the size of, of deals I was doing for the first 10 years. And depending on the project, you make $1 million, maybe $2 million over the life of the investment. So you, you know, are targeting a, a 20% return, average average annual return over the life of the investment, sometimes more, sometimes a little less. And at this stage, 20 years in the game, buying a $3 million asset or $2 million asset and making a million dollars unfortunately feels so unfulfilling because it doesn't move the needle on a 40 or $50 million fund. People are like, I expect my pref, I expect the 15 to 20% return on my money. And that, that million dollar win, it was just as hard to do as a five or $10 million deal. So it actually psychologically messed with me where it's like doing the same thing over and over but then not getting a different result. But I'm, I'm doing what was comfortable. It, it frustrated me. Like what's the point of even picking up the phone anymore and doing that deal? It doesn't move the needle at all. And not that I, not that they don't appreciate it, they do, but there's just, there's no excitement anymore in it. So nowadays the average, like for the deal to make sense, it's anywhere between a 6 and $7 million purchase price that as an operator, that's about the size of the asset that allows me to keep the best team that I can have to, to actually create value from everything that we do. From investor relations, acquisitions, finding the best deals, construction, management, the debt, the accounting. Like you need good team players. And that's one thing that I know. I mean, I've JV ed with a lot of guys before in the past and when they don't have a team, it always fails. It may not fail where I lose my money, but we don't actually hit the returns that we want because there's only so much people can do. And deal junkies. Everyone here that's on this show or that likes real estate, like everyone loves the deal. We're hunters, we're entrepreneurs, excited, we're creative, we're stimulated. Who wants to sit there and manage it and farm? Who wants to manage the farm? Like not the people that are on this show, you know? You know, like, so they're off to the next thing. But we need people that are actually going to cultivate it and actually grow it. So you got to get paid to do that. So my point is like 10 to 20 million dollars deals is, is a perfect spot right now because it's bigger than the average investor, like as a small time investor that he can handle. But then on the 20 million plus side you're, then you're competing more with the, the larger funds though. The, the, the real private equity sizable funds that are going to overpay because they have a capital allocation they have to place so that, that like 5 to 20 million is just such a nice sweet spot to be able to grow.
- [46:53]
A
Yeah, no, I agree, I agree with the 10 to 20. And you know, our, our deal that we're, one of the deals we're acquiring right now is, is in that window and I'm, I'm having the same kind of progression as you as far as like deal size. And I'm realizing you know a little bit more economies to scale but but well located supply constraint is is the game right here. So but I feel you man. And you know for each dollar of value add growth or another way to put it is small hinges swing big doors, you know and so you started playing with a little bit bigger deals. These small, little, tiny like hinges start to create larger, larger swings in in value add and equity growth appreciation, all that sort of stuff. So I love it. My man Jeremiah. This has been great, dude. Love everything that you're doing with Patriot Holdings. Where can the folks get in touch with you if they want to learn what it's like investing with you?
- [47:43]
B
Patriot holdings dot com. Simple, easy. Come on, book a call with me. I'll talk to you. We can share war stories or I can tell you what what I'm doing, you know, and just in general, just about real estate tax. Anything you want to do, I'm happy to hop on it. Call.
- [47:58]
A
Yeah. I love it. I love it. There it is. He is Jeremiah Bu. I am Rich Summers listeners. Thanks for tuning in. We'll see you on the next one.
- [48:04]
B
Peace.