we're all itching to get back out and spend our money like we used to and I think that's gonna be a boon, a huge boon just for sales and, and obviously the shift we've been warned about two online has finally happened 100% and good for that, that industry, but I think that there's still a desire to go touch and feel soft goods and obviously eating and you know, having some social time with your friends and maybe over a drink or I think the taking a dump on retail is a little overblown their segments of retail that are going to struggle versus online. But when you just take time to think about what is in your neighborhood retail center, you can't get your haircut online, your nails done online, can't do hot yoga, can exercise. Yeah. What is up guys and welcome back to how to invest in commercial real estate. My name is Brandon and today we have our special guest Jason kenan with case and associates. Usa um Joel is going to introduce him. I'm excited to have a friend of mine on Jason.

I have known each other for a few years. Most people when they think of case here in Tulsa, thank multi family just cause that's the bulk of what they own. But they actually have a pretty good sized commercial portfolio and Jason is director of that commercial portfolio. You handle industrial office and retail. I think for case. That's correct, yep, we have a property 750,000 square feet. Um you know, the commercial segment of that. The commercial segment of the portfolio has been, has been a part of the case for the whole time. Mr case, the founder of our company 38 years ago, he he cut his teeth on the commercial side before he got into the multi family, interesting. Yeah, so before he got in development working for Roger Hardisty, he was uh you know, part of the of his, you know, sentient in that company. Uh commercial is a big part of that. So he knows he knows retail, he knows office, he knows he just knows it through and through. He's he's got a lot of experience in a lot of areas As an apartment owner myself, there's a lot of people that that would love to be case or have his kind of career that I think you said 30,000 units, there.

one of the largest or the largest apartment owner in this part of the country. Great people, great systems. Uh And so anyway, we're happy to have you on, man and I I think we're going to talk a little bit about 2020, just because you have several different property lines. Uh and see kind of what was the struggles going through the pandemic for having to manage all those different types of asset classes. Well, anything you struggled with. Yeah, each one had its own struggle office in particular. Um you had a lot of people, a lot of companies did not have their employees at the office. So you know, as you know, literally literally a year ago as people started sending their employees home, uh we didn't know what, what it was going to look like and we, we were, we were learning on the fly like everybody. So, you know, we're getting all this information coming to us from the CDC and from local Tulsa Health department and you know, governor state, it was tough. It was, it was like drinking from a firehose and at the same time you're, you're trying to uh just prepare and plan for what are the question is gonna be uh, how, how are the employees, I mean, what, what's their comfort level?

What's, what are their fears? Um, so that was, that was a very tough couple of weeks in the beginning And as it, you know, first it was originally gonna be 14 days to slow the spread. So that wouldn't have been nice. Um, so here we are a year later. Uh, but it was, it was learning on the fly reading a lot, a lot of research, which it was real time on the data and the information. It was just changing rapidly. So as you have tenants that were, you know, coming to you saying, hey, we went out of our least, we want lower lease rate. We really feared that it was a great fear. We prepared for it. But for the most part we really didn't have, it happened, I think that we had one tenant and you know a three building, three office building portfolio come and ask for that type of interest relief. So we felt, you know, very fortunate from that perspective. Um we did have a few wanting us to work with him on, you know, hey, you know, we're non essential business for example, I'll give you a real life example is we have an endoscopy center on the first floor.

Well they, you know, elective procedures were shut down so that's their source of income. You know, they came to us with what we thought was a very reasonable request hey, until we get through at least the next 30 60 days because you work with us and we were like sure we, you know, we want to be a partner with everybody, we want everybody to survive because if you're not here, if we if we help you fail that doesn't do us any good. So we, we tried to be the best partner that we could particularly well really just rent relief and not, we didn't wave it. We we just really worked with them and it was more a delay. So you work out a plan a repayment plan or or you might you might abate a month or something. But each tenant, each situation was different. That's a real example of what we did. We didn't wait, we didn't abate any of their rent there, there's a lieutenant but that literally their income went away or whatever period of time when they couldn't do you know perform elective surgeries now as they got back into some of the relaxing of the rules they could they could justify some more urgency or emergency procedures and you know more essential things but not not every colonoscopies urgent so that that was they had to walk that tough balance.

I suppose you had some of that same requests and retail or retail for sure restaurants, you know we one of our shopping center 101st Domingos got several restaurants and that that was a very big fear was that we were going to have one or two of them shut down maybe all of them big restaurants to yeah and they're big restaurants, decent sized footprints and um we talked to everybody, we just went we we approached everybody we we we have a really good lender uh for that property First National Bank of Broken Arrow if I can give them a little plug. They they really were proactive with us. They contacted us first as we were contacting our tennis said hey we're here to help what what do you need from us, how can we make this period of time better. So we we went to an interest only period, I don't remember the term which really helped as we were working with our tenants or restaurant tenants and you know because you're passing that relief down to the tenants. Yeah we're trying to we're attempting to so as as a P. P. P. Was coming out and everybody was learning how to how to apply for that and how long that was gonna take and how how that the mechanics of all that worked.

We were you know you know working with our bank talking to our tenants and just trying to be the best partners you know from all of them vertically. From the from the lender all the way down to the user of the document as we could. So that that program for us worked out real well I don't know if it did for everybody but it seemed to be a very successful. Uh Roll your sleeves up just kind of empathy. We're working with as many people as you can Human understanding humanity of it a year later we really we didn't lose a single retail tenant over that over the pandemic. So in our opinion there is a lot of you know you can say a lot about our efforts in the beginning that helped us a couple. Uh We were we were surprised we thought there might be some some true attrition. Some just you know something that just had to close the doors. But everybody's restaurants are doing now and so yeah they are restaurants are getting a huge hit with the new relief package passed yesterday as well I believe so I didn't look at all the details. It's significant. I I want to say, I don't know, 28 billion but that could be the wrong number.

But it was a lot just set aside for restaurant specifically for restaurant and hospitality with the economy opening back up cases are dropping him with this new round of money. I feel pretty good that most people are gonna gonna be able to weather it. I do too. And one thing that if I can interject the in talking to restaurant users and tenants and uh um society burgers, one of ours that that we have and that's a that's a concept that rib crib has has come up with. I didn't know that was that was a rib crib concept were society burger number two. And it's actually just called society. Um and talking to the CFO and kind of their leadership team. One thing that the pandemic definitely forced them to do is get better carry out and delivery and things that there's not as much overhead. You know, obviously you're gonna have your cooks and everybody that's supporting that food service but they got more efficient and really learn how to be leaner and yeah not not as not as much staff which is bad for employment but at the same time they had to do what they could to survive.

You know as they you know that I'm gonna depart from them specifically as these users receive their P. P. P. Then they had to decide to what level are we keeping our staff. And so as they, you know, were weighing balance. I'm sorry lean and efficiency versus trying to you know keep bringing everybody back if you will. It was a that was a tough deal for all the restaurants but I think that they have learned to be more efficient. They really intensified their focus on on the carry out which you know, everybody had But I think that they have gotten so much better that it's gonna it's gonna help their profitability as we go into this may be the next roaring 20s as as people are starting to say yes and I think with the amount of money that they're dumping in the economy and the pent up demand, I think certain segments are really going to take off. Obviously there may be pockets of office that that continue to struggle. Uh central business districts and things like that. But overall I'm I'm encouraged I think yeah we are too. I mean office is a whole another subject and we get into that, you know, the office market when you guys are ready. But from the retail um you know industrial held its own, it's been really tight.

I I jumped on a costar loop net webinar today, it was kind of the state of the state for Tulsa right now um industrial vacancy rate is still below 4% and it really hasn't wavered much. Uh the good news is there isn't a whole lot of spec development coming out of the ground right now. So that's good for the tightness of the market. I see Brandon doing a Tiger Woods, tiger woods fist point should look into that. Maybe you should. So I don't, we don't expect much change in the industrial sector at all, but we're really bullish on, on, on retail, mom and pop shops, small neighborhood shopping centers, you're looking, you're looking to acquire. So I think we would, and, and I think we definitely would as, as we started seeing, we haven't seen a whole lot of deal flow come our way, but we're not actively calling people say, hey send me your, so you send me your, your sales right up because, and I need to start doing that because I think there's some opportunities out there, but it's, there's, we're all itching to get back out and spend our money like we used to and I think it's gonna be a boon a huge boon Just for sales.

And, and obviously the shift, we've been warned about two online has finally happened 100% and good for that, that industry. But I think that there's still a desire to go touch and feel south goods and obviously eating and, and you know, having some social time with your friends and maybe over a drink or I think the taking a dump on retails a little overblown their segments of retail that are going to struggle versus online, but when you just take time to think about what is in your neighborhood retail center, you can't get your haircut online, your nails done online, can't do hot yoga, can exercise karate. Um, so anything restaurants, obviously, I think the delivery is going to be part of it, but I think there's still a desire to go out somewhere and have an experience. So their segments of the retail industry that I think are strong and will be around for decades. It's just like you said, trying to, trying to make sure you buy the right retail with the right mix of tenants were not over exposed to something that's just selling discount clothes or something that may be ordered at coles dot com.

Yeah. Anything you can order online, particularly the south goods department, it's, they're going to struggle for maybe for the rest of, for the foreseeable future. Uh, everybody still needs close, but it's so easy now to click of a button. You don't know, you don't have to, and you can see in this, uh, since it's easier to send things back a lot easier than it used to be. That's just changed the game, anybody's wife like by, you know, several shirts at a time and then send three or four of them back. That's just part of the part of the process. It's just what they did to going to the store. I don't know about just wives that would say you know anybody. How do you think? I guess exactly. One thing you said earlier, Common interests, you said you were using local bank debts. Are you guys using local bank debt on like all of the commercial stuff Or tell me about the debt mix on that. It is a mix of debt. So the industrial, excuse me. The industrial property, our retail um they are all local local banks and we have very good relationships with the local bankers. The office buildings the opposite. They are life insurance companies.

For the most part we have 11 of his PNC um the other is uh it's Transamerica uh wagon because I couldn't think of the actual name that's the service or I've heard I mean life Company is a really good way to go but it's typically lower ltv. Is that what you guys have is yeah definitely lower L. T. V. And you know you're going to have more just more loan cabinets. You've really that are a little bit stricter, more reporting required. Um More than just sending a detailed rent roll in a you know P. And L. Monthly you're gonna have some things that they're just gonna require. Sometimes they do annual inspections and um Trade off for that is a lower interest rate or yeah you just get more and more attractive rate and and you can 10 year fixed. Yeah Maybe maybe 30 year mm. Yeah 25 year typically. And a lot of times you can accomplish it at non recourse and nobody, nobody on the hook other than like a bad boy carve out for environmental and things like that. It's basically non recourse and that's one of, you know, you know, coupled with the attractive rate is that it might not be a publication have on offices, the non non recourse option on office just in case things get really bad in the office market.

Yeah, but those those guys didn't call you and give you uh you know, I owe relief. Like the community banks did, did you know, I don't think we heard anything now. Yeah, I don't think they contacted us once. I heard it's a very good point. Yeah, I heard our CMbs under in the back of our, my head like chomping at the bit, hoping we'd miss a payment. So you take it from us, CMbs supposed to be coming back pretty, pretty strong, right, with a change in the requirement for the, for the government agencies. I didn't know that. Well, you know, Fannie Mae Freddie Mac are gonna, they've got edicts coming down from, from the federal level, they're going to have to really increase their fair housing lending. So that's going to take some of that market. Uh some of those market loans off the shelf or or out of their uh you know pool of of assets that they want alone. So CMbs can come in and get a little bit more aggressive, interesting. Which, you know, I'm not gonna go into explaining what that is. One of the experts here, if you guys like to talk about what cmbs means. But yeah, we haven't had a debt show yet, but I got a mortgage program I've been wanting to bring on uh were scheduled to have him on, I think next month.

Yes, I'd watch it. I'd listen because it's not my area of expertise either nor mine. I'd be interested to hear what they said on your webinar today and what girls thoughts are on the outlook for office space. Because I know that's a lot of companies are saying, well we're just gonna stick with the work from home and uh well specifically on office today, it was more focused on industrial and retail. But I can I will I will dive into what my personal opinion is and what what our team thinks about, you know, office Kind of look in the rear view mirror, looking, looking right now and then in the next 12, months, um the work from home thing was not new. But with this pandemic, what it has forced people to do is allow people to work from home because you have a lot of you have a lot of uh you know, c suite uh individuals that weren't necessarily big fans of work from home, you know, control, shocker control uh to work from home efficiency. They're still concerned about doing dishes and also being efficient. So you know that you know and so that's legitimate. I get it.

But working from home had to happen. And so through that forced remote um process, I think a lot of companies are realizing that okay, I don't necessarily want everybody at home but there is a segment of our workforce and it's not it's not necessarily a bad thing that they go ahead and have some more flexibility in their work week. Whether that's a three to schedule your your on three off two or you're you're onto off three by off. I mean not physically in the office. Um So and I think that comes down to an individual motivation by the way, I think that if you're going to be productive you can do that pretty much anywhere. I know personally with three kids at home it would be tough for me to work at home. Very very for long periods of time. But I tried it, it didn't work baby. I love you. But I went insane immediately. It was like day one. I was like I have to go to the office now. I was making up excuses like my internet is better, you know what my printer is not working. It gets a different situation for everybody, printer is not working, you know, things like that.

I got to go with. Um So a lot of people. So if I have a three, I'm gonna go take a step back. We have three office buildings. It's interesting. Richmond Plaza where I office at has a little bit of medical flair and uh more of a local ownership for the for the tenants. They had a propensity to bring their their employees back a little sooner. I mean not not breaking any any thresholds are lost, but as soon as we're allowed to do it or they were allowed to do it, they were bringing back a large clip of their employees. Uh at Seven Hills Tower, my other buildings 61st and one of my other buildings at 60% lewis a lot of corporate tenants, Chicago new york, some Houston based groups, We're still only about 25% occupied physically. Does to this day corporations walmart's not sitting there. People back so they're still at home and you know the good fortune for us as they continue to make their payment. But it always makes you nervous. Said, how comfortable do they get with this workforce not having to be in the office? I think as we get to, you know, quote unquote herd immunity or vaccination level, everybody's comfortable with.

I think by this summer you're going to see that Physical, I can see back in the 60s and 70s. I don't know if we're gonna get back 90-100. We'll see. Um I'd love to I miss, I miss seeing people I know you guys are all done soon and Microsoft teams what have you, it's different, it's it was effective and it was necessary but it's not the same when you can't make the personal connection. The old cliche water cooler conversations, they really mean something you can really, there's just things you say in person that you hadn't really that are off the cuff that that may lead to certain conversations that are very productive that you're not going to have in a zoom call or whatever. It's a good point. I think when I think about zoom it's it's gonna be obviously people are gonna use it for day to day office but I think it's for that business meeting that you would know, we really need to get in front of this client a conference call isn't gonna cut it. A zoom call might cut it and might might say that you know $1000 trip from L. A. To new york. So I think the business travel sector, the business hotels like that that's going to suffer because you just aren't going to take as many of those trips as you would have otherwise.

Yeah, which is one of the highest margins which is unfortunate for them but I 100% agree and our company as an example um we were in six states, I'm departing commercial but the apartments were in six states and we have supervisors that we would bring in every month um and they you know we do a monthly financial call first pass and you know basically you go through your P. And L. And you go through any kind of expenses and you know what's going on the property market. What have you sound super thrilling. I know but it's a very important thing about what we do and why we run our companies so well is we're so hands on and we're really into the details details matter. Um But you know you're flying in these supervisors from el paso from corpus Christi soon to be Kansas city. Um Other places in texas and Arkansas and they're coming in coming in every month and I've got a day of travel. I gotta I gotta get a hotel and they got coming for the meeting and you're prepping for your meeting which obviously is important and then you got their out of their office.

They're not around their employees and then you gotta go back expensive. So not only is it expensive it's it's a inefficient. It's time consuming. So what with the advent of this pandemic and zoom and all the virtual, virtual been around forever but now virtual we're really making it work. We're not bringing them in anymore. We've committed to we being the company. I'm just speaking about case they've committed to this virtual meeting which has worked really well last two or three months. Um In fact they just signed off on on an order two you know, improve and enhance our conference room for better cameras better sound all, all the above just so because that's a real, it's a real way we're going to do business from now on. Um, so if we're gonna be that big and we continue to grow, what we hope to grow and maybe even get to 10, 10 states, that's gonna be a positive thing for our, you know, that's, that's right to the bottom line. You're not having, you're not having to absorb that into any property to do a property split for these travel costs. So that's, there are positives that have come out of this virtual remote working.

There's winners and losers that are going to have a, but like you said, all the company is not doing as much business travel, it will make them more efficient in their business. And, and the workforce becomes more productive. Uh, sitting on a plane isn't productive. Makes airlines money, but it's not productive for the workers. So yeah, you try to be productive, but you, you're not, you might have a little bit of productivity. Well, before we let you go, I want to ask you looking forward, um, how do you go about evaluating your next deal? Is it a return profile you're looking for? Is it a deal type? Um, you know, I'm just interested. Yeah. So for us, it's, it's really cash on cash driven. We're not, you know, I love that. Can we just pause right there so we can you can you can why does that matter? Why does cash on cash matters? Because you're investing something and you're eating cash in your pocket that year immediately every year? Yeah. I mean you're saying it's a real yield, its tangible, it's what you're not a bet on the future.

You're paying down debt, paint your plus, it's appreciated. Absolutely. Your there's 33 or four different ways. You're you're you're getting income and you know, what is that? What is that number for you? I mean, I know it changes based on risk profile. Is there a target that you're trying to hit? It needs to be north of 10 on an average and we really like to be close to 15. So that's sure I'd like to say 20, but I don't think 20 is really, that's tough to get to. But if we could be 10-15 and closer to 15 on that average, we're really interested in it. I preferred return. I don't think this is not public knowledge because there's so many investors in our deal, 150 200 people and that invests with Mr case and his company. You know, I prefer to returns eight. That's industry standard standard. I'm not gonna get into, you know, carried interest or splits or the owner promote probably we talked about that in other episodes? Probably very standard what or similar to what you guys do. Um, but you know, it's about to cash and do you, are you the one presenting acquisitions opportunities to, to your leadership case for sure. I can, um, you know, if we have a broker, bring us an opportunity, well, you know, bring it to me or scott case who's our, our president and the son of the founder, um, we get stuff all the time.

And if we think it has any legs are worth looking at, then we definitely, we'll do a little preliminary conversation. Maybe a little preliminary number run, you know, running some numbers. But, um, we're gonna have a fairly preliminary conversation with him and, and the team really, mainly him, uh, about what our, what our appetite is and what our interest is in it, which property line makes the highest cash on cash yield on average between, you know, that's tough at this point and the portfolio because of how long we've held a lot of the assets. Yeah, that is true. Because now we're to a point where we've given all of our money back to our investors. So gosh, um, that's tough. So sweet in the beginning, it was office for sure. But, you know, he, you know, they bottom right. And, and we, and we, we think that we run everything better. We think we're gonna manage it better. We think we're gonna lease it better. And if we didn't think that way, we shouldn't be doing this. And so far that's proven proven to be a good philosophy. Um, so, and I'm sorry not to answer it very directly, but I think Office was fantastic.

It's still very good for us. Offices and shopping bought it so well. Um, we have, we felt like retail has been a nice, we've owned one of them for four years and it's already kicking off a nice, you know, cash on cash return. Um, we've been aggressive and going out and trying to get some tenants to, But our partners are really happy. It's a closely held partnership compared to a lot of our other ones that are, you know, 50 people or 50, you know, investors in the deal. It's more like 10. Um, but industrial, it's like this snapshot in time. It's probably the best cash on cash uh, investment, you know, that we've made, I think driven by the local marijuana laws. Well, no doubt about it, cannabis has been a boon for us. Uh uh, that changing, I will tell you from a market perspective, not from our portfolio, we're at a tipping point, there's, there's too many grows, there's too many licenses that have been issued. They're, you know, they're not going to make it, you're gonna have, uh, I think there's 6700 licenses that were issued and I don't know, I bet the next 12 months the 1000 of those go away because there's so much competition and um, you know, there's, there's plenty to read about how there's international interests and and non Oklahoma interests in our in our state now.

But I can tell you there's a lot of good people trying to, trying to work in that industry. We've we've enjoyed getting to know that industry better. I've learned a lot in the last 12, nearly two years. It's a it's not going anywhere, it's a viable industry, It's got a purpose and a place in our in our market. Um But everybody rushed into it. So we're gonna have some some shake out fairly soon. What's that about? You don't get to see you swim who's swimming naked until the tide goes out. That's the industrial thing. We're close. Yeah, we're getting close. Well, I just kind of wrap up, I think we're going to see that across industries. You know, the pandemic. Uh And the fallout will expose a lot of people in a lot of different sectors. Uh The multi family market is so hot right now, but I only hear stories and their pricing, People are paying. They're always they're they're not even really cash flowing, they're just betting that the price is going to continue to go up. So I think we're going to have that kind of shakedown and a lot of different segments of the commercial real estate market and that should be opportunities for our companies, obviously that's why we're here, we're looking for opportunities and you don't want to see anybody fail.

But it's not our fault when they make bad bets. There's just some, there's some people you wanna see fail. That's true. When people on every multi family deal, maybe I want them to not use the what? That's fair. That's very fair. So vindictive at all. What about development in any other sectors? You guys are obviously super bullish on, on multi family development. What about, you know, the other sectors? Any any appetite there? No, not really for our company. You know, personally, I love development, I love reading about, I love talking to people about it. We've shied away from it. We, we do what we do. Well, we build apartments. Um, we buy commercial property as well and we run them lean and we run them well and we keep them full. But you guys, you know, development is a different game. Yeah, we're trying to get into it right now, you know how it goes. It'll take a little bit to get into. I know it takes a while to get constructed. So kind of like kind of like an office building, you know, every savvy sophisticated, you know, investment company that with, that focuses on real estate, they need to own an office building and at least have one development another belt.

That's what I think that gives you the experience that you need as you continue to grow your partners and your investors, I think those are important things. But to answer your question no. Near term appetite for us to build anything other than the multi family that we do currently. Well, okay, we're gonna probably wrap it. Uh, I want to say thanks for coming on. My pleasure. Only your good friend. But Case and Associates is a great company. It's been great for Tulsa. Uh, and of course, you know, they inspired me and my partner as we go into apartments and now trying to develop. So I appreciate you coming on. Well, thanks for having me guys. I hope I wasn't too boring, but I get excited talking about commercial real estate, what I do. Um, and you know, good friends and I appreciate it. Thank you. Thank you. Thank you. Mm. Yeah.