How to Invest in Commercial Real Estate

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Episode #013 - Live Overview of Criterion's latest investment opportunity - Kiddie Academy DFW

by Criterion, Braden Cheek, Brian Duck
January 19th 2021
00:00:00
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A LIVE REVIEW of The Criterion Fund's latest investment opportunity! This offering over subscribed in less than a week! - For details, questions and more information - Check it out!

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we want uh long term capital gains instead of short term capital games. Right? So it's all about, it's all about taxes. I mean if you can wait just a few months and and save quite a bit on taxes, then then that's what we're gonna do and that's what that's what our plan is and that's what we will do. Master. So brian, what's up, man? Hey, not much. How was your weekend? It was really good. It was really good. So I'm excited. We're doing a live, let me get this shared really quick. I want to do that. We've got to figure this live thing out. Yeah, we're testing out, but generally speaking, we're going to talk about our latest the latest investment opportunity. Right? So we did that last uh kitty academy, go through that a little a little bit. I'm gonna get this shared. Okay, We've actually got a couple uh that are going on right now. Our first one, we started last uh first of 2020, it's a kiddie academy and columbine, south of south of Denver. Um Kiddie Academy is early childhood uh education sort of childcare education. So their philosophy is that they do childcare there there anywhere from infants to 12 years old.

But their their philosophy is that um that they're going to have some education, some health and fitness and just pretty rounded curriculum rather than just normal child care. Yeah, I think it's a good setup because I mean we timed it really well, we're kind of looking at that early childhood education space because it's it's a good asset class to have because it's pretty stable, right? Children are always gonna be around, they're always gonna need education, they're typically gonna need a kind of semi quasi babysitter, why parents are and at school or at work or you know, whatever happens, it's always, It's always going to be needed no matter what, when we saw that during the 2020, right? During the during the pandemic, it, these places thrive because people still needed to, to work. They spent the first part of their paychecks on their kids, right? And they want their kids, no matter what happens to them, they want their kids to to do well and not to suffer. Yeah. I mean if, if schools are shutting down, I mean they're going to be needed even worse. And what we found is a lot of these early childhood education facilities like, you know, the Goddard school or Kiddie Academy or Primrose Academy or, or just, you know, stuff along those lines, A lot of them stayed open and we're full throughout covid or last year and are full now.

Yeah. People had to move into him, right? Not away from him. Their kids weren't in school, they needed in school, the parents have to work as much as they could. I think more people have decided maybe to transfer to these kind of places full time. I think some of the parents kind of lost, lost faith in the, in the public school system during pandemic, right? Sometimes they were in school, sometimes they're out of school there. Online curriculum didn't work very well and they just got tired of it. And they said, hey, we're gonna go someplace where they've got it together. Kids can be in class and learning. So yeah, I mean, I don't want to get into this too much. Right? But like I send my kids to a smaller school just because of that reason, you know, it's a smaller school, like a kiddie academy. It's a, it's privately owned, you know, there's less people, less contact and they've been shut down through covid one time. So we've been, you know, extremely fortunate. Yeah. But anyway, this is about the latest investment. So what we do is we go in and we, um, we partner with a group down in Dallas fort worth companies called the Woodmont Company definitely couldn't do without them. Those guys are amazing. Um, but we go in and we basically have a pre assigned 15 year lease before we even fund the deal before we even offer it to our investors.

So, so there, there's some security there just in the fact that 15 years is a really long time. So somebody's fully committed to that building for 15 years. They've got annual lease increases already built in. Obviously these people who have been highly vetted to make sure that they're, uh, responsible and know know what they're doing, right. They've got the funds and everything else. Yeah, it's funny, um there's typically one, you know, it's typically a husband and wife or a couple combo and there's typically one of them that's deeply rooted in education and then the other one is typically and more, you know, entrepreneurial minded, um and they want to go on a business and then they couple up and you know, can really dominate it. But yeah, you're getting financial statements and balance sheets and um, you know, resumes and everything and we, you know, the Woodmont company, our partners down in Fort Worth, they have weekly calls with the tenant once we get up and running and start construction, just to make sure, you know, we don't miss a beat and communication because when you're building a new building like this, timing isn't an exact science right, right. But generally speaking, we're going to go in, We get this least sign for 15 years and then we just go build the building.

Um, so a lot of it, you know, you want to build it for as cheap as possible, but quality. So a lot of it is just architectural documents getting, getting bids out, getting competitive pricing, making sure land is for a good price. So our partners in Fort Worth do a lot of the site identification for kitty academy, their preferred developer forum. So kiddie academy says, hey, we want to be in these markets or we have these franchisees that want to open up locations and Woodmont really goes in and and finds the perfect spot, which is good because they're great land brokerage guys. I mean, they can find a good piece of line. It could be anywhere in the US, Right. I mean, Woodmont works all over the US. Kiddie Academy has what, 259 locations all across the US. I mean, it's from west coast, east coast and north to the south. So it could be anywhere. Yeah, I think they're in, you know, 30 states or something. Um, but you know, pros and cons and feel free to just, you know, ask a question. Um, if one comes up, but pros and cons is, they're, they're shorter deals.

So a lot of our other deals can be 57, 10 year deals, just waiting for the asset to appreciate enough, um, to recapitalize through some sort of sale or refinance later on down the road. Whereas this one, the business plan, the profit to be made is strictly on your delta between the cost it takes you to develop it versus what the income is worth after the tenant is in there and the building is done. So you're, you're selling less on the value of the inherent real estate and obviously on the income, right? Because we're gonna sell this to somebody who wants the stream of income that this building will produce after the tenant is in there and they can go and say, hey, you know, there's a 15 year lease on this. It's in a great area of town. You know that the one we didn't columbine, that's infill. I mean there's, there's no lots in columbine. You can just go pick up, you know, it's really hard to find good location. That's the last one we did is in, you know, the same thing North Dallas, right, right in between. Uh, what is it close to north of Addison I think between plano and Richardson I think so.

It's a really good, really good location in North Dallas. Yeah. I mean anything, anybody who knows anything about north Dallas knows that they literally can't build houses fast enough. I mean texas is absorbing, you know, most of the jobs leaving California it seems like. And um, I've got some family down in frisco and every time I go down there, it's, it's nuts because of a massive is and what they're having to build a high school close to where we're putting this kiddie academy, there's so many families moving in. Right. Yeah. Which is a good thing because before they go to high school, they're going to go to our kiddie academy. Right, perfect. Right next to her to a Kroger as well, which is a really big thing. We're almost in the same shopping center. Um, and we're even picking up some extra land on that deal to sell. So that, that'll, that'll be a nice piece, but not really that important. Right. So essentially what happened? So we, um, so we, we partner up with, with, uh, Woodmont and then it's time to, uh, you talked about the least. They found. They found the, the, the land and uh, we're ready to go out to our investors.

And so what's, what's kind of the timing from there? Yeah. So we funded a deal, um, you know, this time last year, beginning of january ended december. Um, and we're actually flying up to Denver here in a couple days to go check that out because it's done. So a year ago. It was a check we wrote and now it's a gorgeous building. Super excited about that. But yeah, we, we get the site we vetted. Um, we should be permitted on the new one in, in Dallas, um, in the next 30 days or so. So I would say when you can? T up your loan, closing your land closing and you're permitting all in one day, you want to get funding about a month before that. Um, and, and we've hit, you know, I think three out of the four of those mile markers were waiting on final permitting, but we'll be funding that deal next week. Um, and you know, they're, they're nice deals, you know, both of these deals sent out to our investor list and we're full within a week. We didn't double check with investors on either of these deals? Um, you know, normally you go through the rounds, Hey, are you interested?

Hey, did you see this deal? Hey, can I take you out to lunch? Go through the ringer. But our, our guys love these deals. Yeah, I think like you said at the beginning, it's because it's, it's a little bit different. Um, you get your money back faster, You get a nice little multiplier on your, on your investment. And uh, then you can, you can do it again on, on similar. You might be a kiddie academy with us again or, or we've got, you know, some other deals that are more traditional that, that we've done in the past where you're doing it for The cash on cash and then, and then maybe get sold like you said in 5-10 years. Right. Right. But you know, one of the, one of the big questions I get is what's the risk, you know, what's the downside of this building? Right. Um, what, what's the biggest risk of the investment? It's a good question. But you can, there's markets for these things. So when you're going and buying, you know, stocks or whatever investments you want to gain, you know, research and analytics and you want to go, you know, that, you know, that it will sell for that amount or somebody else will buy it for that amount. You know, you kinda want to verify at third party, you want to make sure this house goes for mark.

you wanna make sure you can sell that car for market. So there's a market for these sorts of buildings and you mean over the past year will be watching it closely obviously because we're pretty highly invested now. But there's a lot of sales of kitty academies and Primrose schools and Goddard schools and they're becoming a lot more attractive investment class just because you know, some of the other ones aren't, aren't doing as well in 2020 and Covid and this new e commerce environment. But school is really, you know, the the root of a service based tenant because the parents have to go to work typically and these kids have to go somewhere and there, I mean we have just found that these schools fill up. So I think a lot of people might be afraid that hey, all these other schools because of Covid went to online learning. But I think you talked to nine out of 10 parents or maybe it's 99 out of 100. They don't, they didn't like it. They didn't like it. They wanted their kids to be in class for for a variety of reasons.

But so I don't think there's any, I don't think there's any chance of uh school's going to, you know, mostly online learning. Yeah. And the downside is we finished the building, the tenant gets in there, we've got a 15 year lease with that tenant that's gonna be cash long. So I mean worst case scenario we can't sell it. Which we can we would hold on to it and keep the cash for ourselves. Um I would say the only other risk and that is the risk that the building doesn't get finished. But there's insurances and the partnership team that we've put together in the lender and just everybody streaming to, you know, to that same beat right? It's hard to, it's hard to mess up that bad on this deal. It's hard to miss it by that much. And especially when you're looking at North Dallas infill of, you know, where it's at, where it's at. You can look and see where the houses are at where the people work. You know the traffic counts on the road. The amount of money they're making the schools around, you can look at the data and the deals are great. Yeah. Another risk people might think is, so what if these uh what if the franchise the uh isn't performing?

Does Kitty academy have some um um They have some ramification that they can go in and and take it over or get rid of that franchisees and bring in another one. What what what's the risk there? Yes. So first of all, candy academies closed rate is less than 1%. I think they've had like two or three and they were all extraordinary circumstances. It wasn't because, you know the market couldn't support or something like that that's really low, it's really low um that and kiddie academy is a franchise, the they do have a right in the least to step in if they're not operating it right, if they're not hitting benchmarks if they think it should be done better. We've obviously got a relationship with the tenant Um but more importantly we've got a relationship with the franchisees and Woodmont especially you know they've worked with them for 15, 20 years now, a really long time. Um So I mean they used to just broker for Kiddie Academy and then the Trust just kept building up and it was like hey guys we need you in our corner, we need you to vet sites, we need you to build these for us, we need to make sure when the best spots and they've I mean how many of these is Woodmont doing a year?

Uh How many kids academies are they developing? Just Woodmont, they're doing about 15 years. Yeah this is a lot. Yeah that's a lot. That's a lot. So I know they're striving for 15 years and you know 2020, they probably got delayed a little bit but I mean just the sites they've teed up to us that they haven't announced yet and you know we've passed, on you know one or two already, we could be doing more, we could we just want to make sure all these risk that we're talking about and all this uh all this data that we have really comes to fruition and it really has. Yeah, like you said, we're flying up there day after tomorrow, we're gonna do the walk through hopefully uh soon after the certificate of occupancy gets issued and and uh the tenant takes over and and then uh one thing we haven't discussed is after that. Um I mean you could take us to the through the, through the timeline of how long does it take to build? And and uh then when do we then when do we look to start selling? Yeah. So we'll have to get some like pictures of the dirt lot that was before and the building.

Now we'll take some pictures and maybe put it in post when we upload this. Um, Good idea or later we won't be able to do it post Tuesday because we fly to Denver Wednesday anyway, we'll upload. It will show you guys, I promise. But anyway, yeah, it starts out with a piece of dirt and there's a live construction camera on it. Um, And the biggest thing is you want to be fully permitted. You wanna have a loan, fully approved. Um, and you want to have your equity funded, you know, all around the same time because you, it's all about timing right. Once you're permitted, it's a pretty smooth train, right? So you want to get the equity in as close to permitting as possible. So you don't just have dead equity sitting where you can't do anything with it. And permitting is a decent risk or entitlements, whatever you call. Um, so you want to make sure that you're good or like 99% good on the permitting before you go in. So that's going to happen. Um, then you're gonna get the permits and basically that just says, hey, the city or the county or you know, whatever municipality says, hey, you have the right to build that building will inspect along the way, yada yada yada.

It's about a six, 6-9 month build time. Just depending on the weather, right? They could knock it out in six months if it was sending gorgeous every day, but it never is. Dallas will be a lot better weather than we had in in Denver and it wasn't that bad. But um, I mean there's not that many snow days or you know, such cold days that you can't do certain things. Yeah. So you know, Denver, um, you know, some of these last things like installing turf and asphalt, you know, it's gonna be 40 degrees. Um, Dallas by the time we're breaking ground in mid february, most of the weather should be gone. We'll be gone and then we'll be done before, you know, before comes in. Yeah, before it comes in, that following the fall. So that's good timing. Yeah. So, um, construction is 6-9 months. Um, and then we'll get the certificate of occupancy which that municipality that gave you the permit comes in and says, hey um This is fit to be occupied. You built it to the city standards. You did what you said you were gonna do, you know everything works, it's good. You know, they do the same thing on the house when you build in your house. If you're familiar with that, you get the certificate of occupancy and then we decide to hold it for 12 months.

And why do we do that? That's the question. The biggest like why don't we sell it immediately? The tenants in there? Why do we not tell it immediately? Yeah, well we want long term capital gains instead of short term capital games. Right? So it's all about, it's all about taxes. I mean if you can wait just a few months and and save quite a bit on taxes then then that's what we're gonna do and that's what that's what our plan is and that's what we will do. You also get that year of depreciation as well. So you're depreciating it along the way. Um It's it's paying down the capital balance, you know, it's cash flowing that year that we hold it and then um were allowed to sell it 12 months after we get the ceo so um what was I going to say? Well tee up the sale or the brokerage or you know get it on the market so to speak, you know around month 6 to 9 because you're gonna have a marketing period, you're gonna have a sale period, you know lose lose somebody for whatever reason maybe they drop it or you know whatever things don't go perfect. We'd love to sell it just as soon as that 12 months is up. So we got to get started before that. Absolute. Absolute. And then you know the returns, you know on the two we've modeled so far you're looking at like a 1.4 equity multiple from the time you put an end to the time you put it out.

You know if you put in 10,000 you should get out 14. Yeah and that's gonna be about 18 to 24 months. Yeah. Right. Yeah. So and then so what's your I. R. R. What's that work out to on an I. R. R. So the I. R. S. Time based so 18 to 24 months. There's a variable there but we're targeting 20 to 25%. Okay. Um And those depends on how quickly you sell it, how quickly you sell it and for what you sell it For and then for what you sell it for. And and again it's the cap rates. So you know you could sell for, you know 6.5 6.75 cap rate. You could sell for higher. We we go in and split the middle and assume a seven caps sale. Um the cops, we have all of them are lower. We just do a seven cat because it's modest and it gets us the return our investors were happy with and if they're happy with 20% and it's believable and its modest, there's no reason to pitch them 26 when you could hit it. I'd rather pitch them 20 because everyone twenties arguably. Oh, it's got to be risky. Oh, that's too high. You know, what are you doing that something different? You're making 20% of your money. That's a lot.

So your advertising higher than that. People just won't trust you face value because they know you're assuming the moon. Yeah. Yeah. We don't want to do that. And if you look on the Woodmont uh website or you look into their the kitty academies that they've done that they've closed on now and sold. Their, um, their projected returns were always less than the actual returns. They always increase the returns. I think on nearly every single one of them, there might have been one where it didn't or maybe it's slightly dropped. You know, so what if it they projected 22 I went down to, I think the one I'm talking about might have gone, it was still in the twenties I think or maybe 18. I mean that's still a really good return. But a lot of those, a lot of them are netted an and I are are in the upper twenties. So that's really good. Yeah. You want to focus on the IR, you also want to focus on the equity multiple with short term deals like this just because with 18 to 24 months, you know, it's, if you're comfortable with the equity multiple then 18, 24 months, it's kind of irrelevant almost. Right. Um, the next thing I think we should hit real quick is just how, how the investors are doing now. So we oversubscribed this deal about a week ago.

And then now, you know, the investors are just going through the process of getting their accreditation status verified. So I had a letter typed up, they've got it signed by their C. P. A. Or attorney for this type of deal just because we're advertising it, you know, on facebook live or screaming it from the top of the mountain, so to speak. So so everybody had to be accredited for this particular investment. Exactly. So they're going through those steps and then, you know, they hit a button on our website, they said, hey, I want to invest now or they shot us a text or an email, but they were in that exclusive investor list. So they got the email, they got the invite and then we just started getting, you know, peppered with emails, Hey, I want to say, hey, I'm interested, hey, I'd love to go to lunch asking more questions or whatever at the end of the week, it was full and now this week we're sending them documents. So the majority of them are going to be in a doc, You sign format where we've gone in and you know, preformatted everything and auto populate certain fields based on your profile. So easy. It's really easy. You click a button that says, I want to invest and you tell us how much you want to invest and then a week later I think, um, you got all the, um, all the forms uploaded and so you just go in there and click on each form that needs to be signed.

And like I said, it's dark. You signed, you have to print anything off, You just sign it and it sends it back to us and you and I have to countersign some of it. And, and uh, I mean literally you could do all that Located in 15 minutes I think, don't you? I mean Maybe it takes a little longer to read everything, but I really think you could do it in 30 minutes or so. Yeah, there's, uh, it's funny, there's, there's guys who are really good at paperwork and those guys who really like the paperwork. It's funny the real estate guys, we have this sophisticated real estate guys who, you know, own some real estate without us who are in just in the game of real estate investing, you know, almost as much as us, those guys are the best with their paperwork because they understand what it feels like to have an investor who is not good with their paperwork. There's some guys, I mean you send them an email, you sign this and it's I mean lickety split and there's some guys, it's like, hey bro I really need that form. You know, you gave me money Yeah that form and I'm gonna print it out and I'm gonna sign it and I'm gonna scan it and I'm gonna send it to you, I'm gonna mail it to you. I'll drop it off to you. Yeah, we'll send a horse bro. I need that for um yeah whatever whatever it takes, we're willing to, willing to help out.

But generally speaking it's super easy to get a lot of feedback that I mean it's a few buttons you can do it from a smartphone, tablet computer. I mean trying to be easy. Yeah. And well what else man? Um I don't know, I guess we'll have an update for everybody after we get back from, from Denver. Yeah, we'll go to Denver Wednesday like said, um well funded that deal about a year ago and it's finished now. The tenant should be taking occupancy by the end of the month finishing touches during the punch list. Super excited about that. And then that's when that 12 month period starts, right. The certificate of occupancy. Absolutely, yeah, absolutely. So this time next year we'll be selling that deal dinner, which is awesome. Yeah. Which is awesome. I can't believe he has already gone by. I just love the fact that we can fund a deal before Covid have 2020 happened. Have everything that's happened happened and we're still still on target. We're still on target. That's amazing. That's amazing. We were on time and on budget on that thing. So yeah, that's during Covid. That's, that's an absolute home run, which is why we're giving them another million bucks right now.

Alright guys, well, um, be sure to check us out on how to invest in sierra dot com. If you haven't grabbed uh, grabbed, if you haven't gotten your free L. O. I from a website, um, it's invested, how to invest in Sierra dot com, you get your free letter of intent will teach you how to use it. Um, make sure you're on our investor list. Like I said, I mean, we sent an email out and within the week it was full and we didn't, we didn't really double check with anyone. We didn't have to beg, we didn't have to ask, it's like if you're on the list and you're not paying attention to the emails, you're missing out. And we had some people who just, you know, we're asking a lot of questions and didn't necessarily reserve a spot. They were kind of out. So pay attention and I would just encourage you, you know, there's a lot of people we talked to and they're just like, where do we get started? Well, you got to build up some trust with me and brian, you gotta build up some trust in what we're doing. Go watch our podcast, go watch our show, listen to our offerings. Pay attention or emails. Sign up for our investor list and yeah, listen to our podcast and and give us a call. We've gone to lunch and dinners and coffees with lots of investors who you know, want to ask personal questions and and get some good answers.

So just any of that. It's really easy to get educated if you just, if you do all those things. All right man. Well, I think we're good and we will catch you next time on how to invest in commercial Ristic later. Thanks.

Episode #013 - Live Overview of Criterion's latest investment opportunity - Kiddie Academy DFW
Episode #013 - Live Overview of Criterion's latest investment opportunity - Kiddie Academy DFW
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