How to Invest in Commercial Real Estate

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Episode #092 - It's DISTRIBUTION TIME! Criterion's Q4 and 2022 Distribution Recap.

by Criterion, Braden Cheek, Brian Duck
January 16th 2023

Today hosts Braden Cheek, Brian Duck and Joel Thompson discuss the distributions that they sent out in Q4, as well as what their total distributions were for 2022!

Time Stamps: 0:00 - Introd... More

How is it going? And welcome back to another episode of How to invest in commercial real estate. And this is our favorite time of the year. It is distribution. So this is the best time of year because we get to send out checks. We, we raise a ton of money to put these properties together and people are investing the money because they're getting a return on that investment. Some of them are development deals where you may not see any cash flow along the way, but a lot of them are shopping centers or something. We're gonna hold for a long period of time and we distribute that cash flow every single quarter. So just last quarter for Q four, we'll do last quarter and then we can do some fun stuff for last year. Just last quarter, criterion did $250,000 worth of distributions. Super excited about that. What about you guys? Last? Just the last quarter, just last quarter. Precision equity is around uh 600,000, which is kind of our run rate lately. That's a lot of money, 708 $150,000 every single quarter. Going out to our friends and family and colleagues and business associates and, and now people all over the country, thanks to the podcast and, and people going to the website and signing up for the investor list, but just last, last year.

So last year was a great year. We set a ridiculous goal. We said, hey, interest rates are amazing. The market is hot. We need to strike, we need to go out and, and buy some real estate. So we bought $60 million worth of real estate last year and last year we were able to distribute $5.7 million out of criterion back to criterion investors. That's not. So if there's not an applause playing in the video, massive applause and that's something I think we're all super proud of. That's a lot of money and, and so some of that, a lot of it was cash distributions but some of it was from sales. Yeah. So a million was uh distributions from those assets that we're holding for the cash flow. 4.7 million of that was from four assets that we had um sell last year. So that will be the portion of their original investment back and um whatever share of profit was assigned to those sales. So just, just a note on precision. Uh because some of the same investors, uh we, I think just in distributions, no property sales, just cash flow and profit from deals that people are invested in uh 4.5 million.

Um So that's over 10 million between the two companies. Yeah, it was crazy. So when investors, when they, when they sign up uh on our investor list and then they, we launch a deal and they're like it filled up in two hours. Well, this, this is why because not only do they have more uh assets to invest, but we're every quarter, we're sending 850,000 back to them that they want to turn and get back to us. So it's this game of our investor list is growing. But so are the the pockets of our investors as we give them uh distributions every single quarter. And in the case of this year, when we had property sales and precision equity hitting records, uh almost $10 million going back into the pockets of people that want to do more deals. We can't find the deals fast enough at the moment, especially with interest rates rising. Uh So it's gonna be a tough year and you're gonna have to act quick if you want to get in these deals. Yeah. And I would say on that note, right? Like if you, if you're interested in getting involved, don't wait for a deal, don't wait for me to send you an investment asking for something, ping, ping, one of us, call one of us and say, hey, I love what you guys are doing or hey, you guys suck, whatever, whatever you want to start it with.

But I'd like to get involved with you on the investment side. Keep me in mind on your next deal. A lot of people now I go and preplaced commitments for it because I know that guy's gonna be in for 50 every single time. I know this guy's gonna be in for 75 and we can adjust that on the back end. So just shoot us a note and say, hey, I'd like to get involved more. Reserve me a spot on the next deal and then if we need to back you down, it's fine. Yeah, just hit us up and say, hey, I think I've got this much money, I'm willing to invest and uh why don't you prepopulate me next time so that I don't lose out? And what, how, why that's so helpful uh for both companies is that we're going out and looking at deals and, and if you can, if we had, let's say 10 investors, 15 investors, 20 investors say, hey, I'm good for 50 on the next one, I'm good for 100 on the next one. Now it helps me go uh find a deal because I know I've got the backing. So let's say I'm looking at a $5 million deal, but now I can look at a $12 million deal because I know I have the capital that's able to take that deal down and once again, guys, if you tell us you're in for 100 and, and then you, we pitch the deal to you and you're like, I don't like that deal. It's no commitment on that, but it does allow us to foresee how many investors want in and to what kind of capital we have access to on each given deal.

Let's us know what size of deal we might want to be able to chase. Um And with that in mind, that's not a bad segue into um our next deal and the first deal of 2023. What is it? Oh, it's on me now. Ok, I see. So it's in uh Burleson. Bur bur Burleson. Well, it's Bur Les on Burleson. We know a lot about this investment. We know how to pronounce where it's from. We'll just say it real fast. Oh my God, that's not gonna edit well at all. Ok. We should know how to pronounce the name of the city. South Fort Worth. That's see, that's easy. It's a suburb of uh Fort Worth, Texas growing, growing south Fort Worth suburb. So our partners on this deal, retail partners, they're based in Dallas. Um our other partners, Woodmont um company, we've done tons of deals with both of these companies. Now, both of them are in Dallas. The guy um who connected us to retail partners is, is Woodmont. So they're in Fort Worth. Actually, they, they are in Fort Worth, this is in their backyard and retail partners is in Dallas. But anyway, it, it's a growing suburb of Burleson and we're basically repeating, see, I still can't say a suburb of the, the town, he can't pronounce that we're getting real small on the.

Anyway, anyway, the last two deals we did with retail partners were a 3 to 5 unit, multi tenant commercial strip center that we're building from the ground up and they were accompanied with a ground lease or a pad site or, or a build a suit. So this is essentially the exact same thing we're doing a ground lease with Black Rifle Coffee company, which is a local veteran owned um drive-through coffee concept similar to a Dutch Brothers or a Starbucks or a scooters or something like that. And then there's a three unit commercial strip center going in and those three units are filled with fat burger, which is a burger franchise. Um Obviously they sell burgers, they're probably super greasy. I I bet it's delicious. To be honest, you know, when you get the brown sack and it's just like fat burgers, we have a fat guy's burgers here. But fat burger, just fat burgers, fat burgers. They literally don't have any meat on them. They're just fat, it's just grease anyway. So there's a fat burger. Uh a cool greens, which is essentially the opposite of a fat burger.

Cool greens is what I, I can't remember what you don't want a fat burger. How about a salad? So, that's either place a franchise based out of Enid and it is really healthy. Um, quick, fast food and they have a, to go market as well. So, salads wraps, um, you know, that, that sort of thing. And then there's an athletico, which is a physical therapist. So, those three tenants, um, in a building, Black Rifle Coffee Company that has a ground lease. Um We are scheduled to buy two acres, I think is what it sits on 1.1 0.891 0.89. The land is ridiculously expensive. I mean, 3,090,000 for the land. Wow, crazy. But it's in a great location. This is supposedly the spot to be, you know, the, the major retail thoroughfare that runs through the city. This is right on that. Um Obviously, you know, it's, it's a good enough location for all these tenants. These tenants are fairly picky about their locations. Um And our partners feel really good about it. So location seems fine. The leases are, are great credit.

Um They're, I believe they're all 10 year leases. Um We're gonna go get a 2 to 3 year, I think it's a three year construction loan. Um The rate on this deal, obviously, you know, rates kind of suck right now. I mean, they're insanely high. It's hard to make stuff work. We talk about that with shopping centers, all the time, you know, if we, if we're going to buying this massive shopping center and paying 7% on the debt versus 4% on the debt, that 3% is, is hundreds of thousands of dollars sometimes. So that comes directly out of the investors cash flow, right? We're on this deal, we're not gonna have cash flow until the building's done anyway. And as soon as it's done, we're gonna put it up for sale because we're not planning on holding the asset. So it's really just about the carrying costs of interest for that first year. And since you're holding it such a short amount of time, it, it works out to pay the higher interest. How many months for construction on this one? You, you recall super quick. I mean, that's what I would expect. All right. Well, the investors want to know how much we're gonna make, what's our projected irr on this?

Great questions. So we do a best case kind of a middle, you know, average of the two in a worst case, all all blended in. I think the worst case scenario is an 18.54 Irr. Um That's assuming an exit in um the 18th month is that to the investor or to, to the, to the investor, which is a 1.3 equity multiple. The, the best case is a 24.5% Irr which is a 1.41 equity multiple. And then the uh middle where they normally come around is 21 point 63, a 1.35 equity multiple. And that's right in line with a lot of the kitty academies we've done, um, the Dallas Kitty Academy which is exited with 1.33 equity multiple. The Kitty Academy Redevelopment Fund will be, I think a 14 was, I think around 1.4 equity multiple. So fairly standard with the last few development. Yeah, with ones that don't take a long time. Normally people that are looking to invest on a five year, maybe 2, 2.5 times cash.

Uh, but here these are 18 months, maybe, maybe two years. And so the equity multiples are smaller. Uh, but you're getting your money back a lot quicker. Yeah, so a little bit more on the demographics. Um, five mile population, 100 and 2000 people, 35,000 households average household income of $96,000 with a median and it's pretty strong. And the Southwest Wilshire Boulevard, which is where the site sits on has 39,000 cars a day. No, that's, that's good too. So great little location there. We think it's going to be a great deal. It is a two point 16 $1 million equity race. It's pretty big, um, will end up being, you know, 10 20% of that ourselves personally. Um, we're raising the rest. So today's Thursday, this episode releases on Monday, the investment will probably release Friday. So a couple of days before you saw this, so it, it might still be open. Yeah, if we sent out $5.7 million last year, raising 2 million might not take too long. The last one we did was a million dollar equity raise and it sold out in an hour.

So this one could go too fast. Two hours, two hours. It's a million an hour is that, that's how it goes. No way. So anyway, that's the first deal of 2023. I think we can expect more of these. Um There's several, I think in the pipeline that can come in maybe the end of the first quarter, we have um not a whole lot else in the pipeline right now. I mean, the shopping centers, like I said, it's a great shopping center with a great owner is not really gonna transact right now. I mean, not that I'm seeing the shopping centers that are trading are, are really distressed. Um You know, bank owned people, unrealistic cap rates. Uh I am seeing cap rates inch up uh slowly. I'm starting to see some eight cap deals come back in the market. Uh 8.5 cap. They are, they are they not primo spots? Uh But I think we're gonna see more of that and I think uh the inflation, the numbers came out today, they were a little lower uh than last year uh increased.

So I think, I think this thing may start to stabilize and hopefully rates can start coming down uh in the next six months to a year. That'd be nice. These developments though are popular with our investors. A lot of them that I've been surprised is that they like giving us their money and they like getting it back in 18 months with a nice little profit. Right. Uh, as opposed to putting it in one of our, uh, shopping centers where, you know, we might not sell it for 5 to 10 years. They like getting their money back and, and then they've got it to do whatever they need to do with it and reinvest it or buy something if they want to. But these development, things have become really popular with our investors. Yeah, there's, there's several, I've talked to you though that, you know, it, it turns into a job because the money turns so fast, you end up, you know, paying a little bit more in taxes immediately. Whereas a long-term investment, you know, that's kind of deferred until you sell or sell or, or maybe it's deferred until you trade into something else and, and that sells and then, you know, just if you're doing a lot of these, constantly having to find the next deal, like Joel was talking about earlier, it's hard to find these deals. I mean, if we just had a dozen of these in our back pocket. It's not like we're just strategically releasing one a month over the next, you know, year it takes work.

I I would say uh investors can take my word on this. I like the, the cash flow. I like steady cash flow. So every month I know that my investment shed, you know, whatever they shed 100 grand or whatever, you know, and uh the finding of the deal is hard. It takes work to close the deal. Then you have the sale, takes work uh to organize and then you have the taxable event. Now, of course, if we hit our numbers and people are getting a 1.3 equity, multiple uh uh after 18, 15, 18 months and they put in another one and they compound that and they compound that. Yeah, it pays off. Uh but we'll, we'll keep trying to deliver both options. We want to deliver cash flow opportunities and we want to deliver uh cool brand new de uh development opportunities. Well, I think um I'm excited about the deal. Go on the website, see if there's still room left, see if it's still open. Um We are excited about this year. We're gonna have a ton of deals. We had an amazing year last year. Um Yeah, you probably have already gotten a ton of investor updates. You probably have a ton more on the way and you're gonna get your K one iii I promise, I promise you're gonna get your K one as fast as, as possible.

Tax is due the 15th. Yeah. Can, can we just by the, by the 13th you're gonna get it like just let's, let's be real file, file an extension, just file an extension. Just do that for me if you like me be like you wanna hook up Brayden, file an extension, say Brayden, I got you. I filed my extension. Don't worry about my K one. Then you're my best buddy. Otherwise we're gonna get like hundreds of calls. Where is it? Probably starting next week? I can, I can, I can list the guy who's gonna ask first. I can him who will not be named him, who will not be named anyway on how to invest in real estate.

Episode #092 - It's DISTRIBUTION TIME! Criterion's Q4 and 2022 Distribution Recap.
Episode #092 - It's DISTRIBUTION TIME! Criterion's Q4 and 2022 Distribution Recap.
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