How to Invest in Commercial Real Estate

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Episode 129 - Missed Opportunities and Market Insights: A Deep Dive into Recent Deals

by Criterion, Braden Cheek, Brian Duck
December 4th 2023
00:00:00
Description

Today hosts Braden Cheek, Brian Duck and Joel Thompson discuss the benefits of cold plunges and lessons learned from missed opportunities.

Time Stamps: 0:00 - Introduction 1:25 - Benefits of... More

Why are you going to still water again? Football game uh toured the College of Engineering. That sounds thrilling. Are you giving like a keynote speech or something? No, I'm gonna be a mentor to some engineering students. Trump did not do engineering. I I, yeah, I'm gonna say you chose the wrong profession, dude. Not too late. Change your major. I mean engineering degree. It teaches you to think challenges your brain for four years. So for that, it's worth, it's worth it. But then you need to continue learning other things. Well, for anybody who didn't get an engineering degree and wants to make tons of money, that's a good segue into the show. Anyway, what is up and welcome back to how to invest in commercial real estate. We are back with another super exciting show today because we just did the cold plunge or we did it last week and we're showing it today. But these guys did a cold plunge today. We do it every day or at least do me too. So yeah, check, check out that video. We encourage everybody to give uh the cold plunge a try. I feel like it's a great way to start your day. Uh, like I said, in the video, you'll see it's, you know, teaching yourself to do the hard thing and, uh, I just feel like it starts the day off.

Right. I did mine. Oh, less than an hour ago. I'm feeling great. Yeah. Right. You weren't sure you liked it. It was a lot, you know, it was a lot. It's like, you know, I don't have any tattoos but it's like getting a tattoo. You know, people make it seem like it's not a big deal. And then you hear some people it's like, oh yeah, it hurts like a bitch, you know. No, it's definitely uncomfortable. I see the videos of it on Instagram and I'm like, oh I can totally do that. You know, these people are like giving, you know, reading novels just sitting in a bath. I actually think watching some of these promo videos for the ice baths that literally the water's got to be 85 degrees. They're just sinking into it like this is the best thing ever. And I'm thinking no way, man, you can't even breathe when you get in there. I couldn't talk. I got out and I was, I was mumbling, I couldn't even, I couldn't even say words because I was just so cold to the core. But yeah, the the dopamine rush was, was nice for sure. Dopamine was nice. Oh yeah, it's gonna be great. So once we get in. We're gonna tell our audience why we do this. Yeah, I've been wondering that we're going to walk in, in 321. So it's uh 30 it's 32 outside right now.

Who wait to the neck? I don't know why you're panting like a dog, bro. Uh Brian read us. Why anybody should consider a coupon. All right. If I can decrease inflammation, OK? O a huge rush of endorphins. A huge rush of endorphins like dopamine. I love the dopamine, baby boost, injury, recovery, do swelling, ok? It's getting better. Increased testosterone, promote lymphatic drainage, regulate hormones and accelerate metabolism. So why I like doing it? And I've talked to a bunch of my friends and family about it is I love how it wakes me up in the morning. I love that. You know, there's so few things in life we can control and uh you know, forcing yourself to do the hard thing, right? It gives you confidence that you can take on life's challenges. And for me, it's just one area of like, you know what life I'm gonna, I'm gonna f and do it and, and it's terrible. I hate being cold. I hate cold water, but it really helped me just start my day off thinking, you know, I can do the hard thing like you accomplish something.

It also gives you a, a, an energy rush for a few hours. Yeah, I definitely feel good after I do it um, the colder the water is, the better, the better the rush is afterwards. Two minutes to go, we're gonna start an army of podcast watchers and all. Get in the water every morning. I had literally buzzes. It's, it's a weird feeling. Come on, Pete. Come on in. Great. As terrible as it is. When you get out within 30 seconds or a minute, you're gonna feel so much better. And so you just have to ask yourself, can I do something for 3 to 5 minutes? That's totally miserable. And knowing that in a minute or two of getting out, you're gonna feel amazing. All right. Only one minute. One minute. Let me for a minute. All right. Going under again. It's good. Hey. All right. Come on, you're definitely in a state of shock. You're gonna need to breathe. Braden. You're the only one that hasn't gone under. Yeah, let's do it. Go under one. Hey, you're almost done. Go under. I'm gonna splash your face. If you don't go under, go under, go under. Let's go. Ok. Better under, I promise you. Thank you. Uh, 5.5 minutes.

We're good. Boom. 5.5 minutes. Oh, gosh, I can't feel my legs. It's hard. Yeah, it's hard to walk. Why did we do that? Because it's awesome testosterone. Now, everybody that watches the podcast is now gonna do that just because we did it and they're gonna love it. That means always nice. Alright, so a couple of things we wanna go over today, you know we thought I I thought I would talk about a deal that we lost because we talk about a lot like deals that we win and uh you know there's a lot of times where the deal of the decade comes around and it just slips through our fingertips and uh I had that happen to me in the last couple of weeks, a uh Light C portfolio. So Light C stands for low income housing tax credit deals and we won't get into the specifics uh about exactly how you turn a deal into a low income tax credit deal. But basically the government does offer tax credits uh to either build, develop or rehab units as long as you are offering them to people that make uh less than uh a certain income, less than, you know, certain medium income for the area.

Yeah, it's gotta be within like it's gotta be in the 98th percentile of the median income for the, for like that specific location and, and Light is funded through some sort of federal agency and they fund the state agency for um you know, low income housing and that state agency actually gives you the tax credits and developers sometimes sell those tax credits to build the light tech properties. Um But you can like Joel was saying these light tech properties, you can buy them existing. Um but it's it's kind of hard to do well. And uh this was a portfolio and they were actually um very well maintained 2000 vintage assets that we were gonna be able to purchase at a really good cost basis. And so we we were all in trying, trying to make this deal work. And uh I think the ask price was 28 or 28 million for the portfolio. What is that per door? Uh It was called it roughly 4042 a door which is in this, in this market is super, super cheap. So we knew we had uh potentially $20 million in in, you know, upside on this in years into the future either uh through increasing the rents to the max allowable.

Um A couple of them were rolling off the Light Tech program so you can take a market rate and then they take a huge jump up in value, right? So the difference in 98% of the median, you know, value where you have to lease them at that certain rate and market value that may be hundreds of dollars a month per unit. You have 500 units you're buying. That's a massive pop in. I after it expires off of the program. And so ask price was 28 million or 28 million, 500,000. Uh I think our first offer was, was that like we, we said we want these, we'll, we'll pay the ask and then they did a best and final. And uh we came in at, at, you know, we, we didn't want to lose them. So we came in at 30 million. 500,000. Another bidder was, I think it was at 30 million. And uh I can't remember, maybe another bid was somewhere else. So 10% over ask prices. And so to start, you're bidding against other people, they're offering the asking price too, maybe. And I think we all recognize that there was some pretty good upside available. So for a lot of people that haven't been through these before, you're utilizing brokers to submit these offers, they're supposed to be blind, they're supposed to be best and final, you know, every single time they're like, yeah, submit your best offer.

But these, I mean, they're maximizing their value. They're trying to get as much money as they can, their brokers trying to earn their fee and they're really good at this. So a lot of times they'll come back to you and say, well, give me a better and more final number and I'll keep this one secret and won't tell anybody. But really, they're probably going back to the other broker and saying, yeah, he's a, he's at 30 million. You need to be at 30 million, 500,000. So then you guys are analyzing that. Well, he, he's probably saying we're at 30 million and telling them to go to 30,500,000. So you guys are, I mean, it's crazy. Who are you, who are you actually buying from just an owner? Like anybody is that I think this is uh Blackstone. Um They were ok, but you were, you were telling me things as this was going on through the last two weeks that they wanted to know your light tech experience. Why, why do they care if they just want to sell this? Why do they care about your light experience? Good, good question. You know, they were totally hung up on whether we owned currently own Light, I guess, uh, you have to be approved on some level to ownership or take over a light tech property.

You do because the tax credits you're held liable for. And if you don't, if you violate the rules of the program, they claw back those tax credits on your personal return and you were going to get tax credits just because you bought it or you had to do something once you bought it just because you own it. Yeah, just because we own it. We have to comply with the regulations and, and could it be that, that if we don't comply, uh, that, that maybe there's a hang up on the tax credits that's already been given or, or not even qualify to begin with? It's like doing your first CN BS loan or your first, you know, Fannie Freddie loan, I mean, the first one is always the hardest to get. So I, I, in my opinion, they just didn't want to be held with the bag assuming they couldn't qualify for the assumption of the properties under that program. So why do you think this was such a uh a low asking price? That that's a great question too. Uh Brian, I mean, I, I don't think they, they weren't really cash flowing that well. Uh and, and maybe that could be that they were purchased in a part of a bigger portfolio assets here in Oklahoma that maybe weren't being optimized through management.

Uh And they just wanted a quick sale, maybe they, because obviously we paid over ask price. So they just offered a low price to generate a bunch of interest and get people bidding and then we bid it up, which is what we did uh to go back to Braden's point, you know, I'm trying to rely on my broker to give me as much information on where the other bids are. Other bidders are doing the same. The seller's trying to maximize the price, you know, and, and so you're just trying to gather as much information as possible and say, OK, we're, we were at 28 5. Now we're at 30,000,500 they were maybe at 30. OK. They, they decided to do a sealed best and final. So now we're trying to anticipate, did they hear our price? Uh How much are they gonna go up and then they're gonna anticipate that I'm gonna go up and so then they're gonna go up even higher and then I have to anticipate that they're gonna know my price and go up. And so I'm gonna jump them. It's just huge game that we played last week. And, uh, I tried to do my best to play poker as well as possible and it, it, it came down. I don't know what the, the final number was. We increased our bid all the way up to almost 32 million.

You could have been hired. Yeah, we could have been hired. Uh, I don't know, but at the end of the day, the other group had, they owned uh two light tech deals currently. And so I guess they, they figure, uh that, hey, these guys are a more sure bet they already own Light Tech. They're gonna get approved even though we've owned low income housing. Uh our entire uh investing career. I, I thought that was enough. We have voucher properties. We have O A properties. We have a, a mod program with uh Windsor Village. But in the end of the day, we, we lost it. They just, they just told you you lost it because I've seen Best and Final. This is in engineering days. Best and final. But like you say, they have a preferred vendor and if they're actually not the highest on Best and final, they just go to them and say, hey, you're, you're a million dollars low. We think that happened. There's two portfolios that we bid on one in Tulsa and one in Oklahoma City. The first one was Tulsa. We felt like that that happened. There was another uh group that had a bunch of light tech experience and we just kept offering more and we said, hey, guys, just tell us where the number is what we want. These, we really want these, tell us what we need to pay. And at the end of the day, I think they just kept giving our number to the other people because they had more experience.

And they said guys, you gotta match it, you gotta match it. That could have happened on this one or it could have been that, that they just, they were so close, maybe the, the bids were so close, they decided to go with the other group because they had like to experience, I mean, there was, there was millions of dollars there. Uh And, and so for those watching uh that this happened several times in my investing career where the deal of the decade comes along as I say, once a week. And uh you know, it's those that recognize the value that's in front of them and they'll move heaven and earth to buy those properties. So you, you know, you cannot let them slip through your fingers. And I tried not to let this portfolio slip through my fingers. It did. We, we were, we were over 10% over assed and then we were 20% over ass like we were doing whatever we could uh to, to get it. Uh But I, I look back in my career, Stephanie promenade was one I felt like was a deal of the decade and uh the 318 unit package was the deal of the decade. And uh even when we bought plantation originally, it was the deal of the decade. It, it's the, you know, there's been a lot of the deal of the decades, just like this, that we've completely missed though.

And I think that's important because a lot of the times on the show, we're talking about all these deals we're doing and all the deals we're buying. Woo, and it's fun, but we miss out on a lot of deals because we're, we're trying to swing for the fences. You know, you're trying to buy this $30 million apartment portfolio in Oklahoma City. That's a, that's a, that's a big nut and it's a, it's a healthy reminder that you're not always gonna be the biggest fish in the pond. You know, somebody else can just swoop up and grab something and use you as a backboard and that's life. But, you know, I, I feel like you learned something on it. Yeah. And you learn and now we're gonna hopefully position ourselves. We're gonna look into getting a light tech deal just because in the future, if another portfolio comes out that there's $10 million to be made, I, I don't wanna be there saying, well, I still don't have any light tech experience and so we're gonna try to take those steps. Uh But what I was saying is just when you're in the commercial real estate game, there's a lot of singles and doubles out there uh deals that'll just kind of make your returns. But every once in a while you'll see a deal and you'll know in your gut, something's different about this. There's a huge opportunity, a huge upside.

And I remember uh the deal in Norman, the shopping center in Norman that we could have bought for 10 million and it ended up selling at auction a few months later for 18 million. Uh just think about $8 million. Uh And we knew there was a lot of profit there, but we just didn't take advantage of it. We, we didn't convince ourselves it was the deal a decade, do whatever it takes. And sometimes that's what it takes in this business because these deals, they come along and, and then they're gone and uh millions of dollars are there ready to be, to be taken. So anyway, big learning point, if you're, if you're jotting down a note or want to learn something from that, uh from the story, I think the biggest thing is when you're bidding on something, a specific asset, some, some sort of asset class, you really need to have a compelling story or some sort of competitive experience on your resume. It doesn't have to mean you've been a part of that deal, like find an equity partner that's been a part of one of those deals, find a broker that's been a part of one of those deals, find a lender, like do anything you can to say I am qualified to buy this asset and, and prove that because at the end of the day, I think that's why you lost the deals because you didn't have a live tech property.

It could have been one, it could have been one property and you could have got the portfolio. So, you know, I think that's the lesson there. And that's why on our website, if you go look on our website, all the stuff we buy looks almost the same. So when some, like when a broker calls me and says, hey, I've got some such and such for sale, I can tell immediately whether they're a good or a bad broker immediately, a good broker calls me and says, hey, I looked on your website. I have, I found the shopping center that looks like just like everything else you I'm interested, right? Like I've obviously got a type and then the bad brokers like, yeah, what are you guys interested in? And I'm like, just go to my website, like everything we're interested in it. It fits in this little bucket right here. Like you either play in that space or you don't play in the space, but it's the same with, uh, getting debt. Right. They want to see that the banks or whoever you get the debt from, they want to see your experience. Right. They don't want, they don't want to loan you money if you're doing something that you don't know anything about. Yeah, if you've never had any commercial loan besides you may have a mortgage in your home and you go to a bank and you say I got this, I got this deal the decade. I just need $6 million you know, and they're gonna be like, yeah, but you've never owed anybody more than $500,000 in your whole life.

So why are we gonna give you 6 million bucks? But it would be the same thing if we wanted to go do something in like think of something insane. I mean, you guys are engineers so I'm trying like that covers a lot of basis but for a normal person like starting out like if you're not asking yourself the question of, well, what if they say, how can you do this? Because you've never done it before? Like if you've never asked yourself that question, you actually haven't done it before, then you're grossly underprepared. You've got to have the best freaking answer for that. Question guys. Like that's, that's, that's it anyway. Well, uh, the other thing we're gonna go over today is we have, uh, we're entering into December at the end of this week. And so, uh, we have a couple of closings that are gonna happen before the year end and a couple of investments that we're gonna be launching. We want to make sure that you guys are aware of those and that you guys can be tracking them on our website and be ready to invest if you have an interest to do so. Yes. So, uh we've talked about this next deal, a bunch. We've showed, uh we showed, showed the drone footage. Uh Me and Brian went down to Jacksonville and checked out the site.

Joel unfortunately couldn't join us and he was there with us though. Um Got a new developer that I think we're gonna do several deals with. We've already got the next kind of wave of deals which I'm super excited because they're in Tulsa, not Jacksonville. But anyway, uh we are doing a build to suit Starbucks in Jacksonville, Florida in between a public and a sprouts. Absolutely amazing site. Um We are launching that right now. It'll probably open by the time the show is, is out and it's a decent equity raise. It's like a million two, I think. So. It's not gonna sell out in. Hopefully, it doesn't sell out immediately and you have a chance to get involved but um just a reminder how you get access to these opportunities is by being on our investor list, right? We have to have a pre-existing relationship with all of our investors. So by signing up on our website, the Criterion fund.com and hit join the investor list, you get all these opportunities and this first one is gonna be the build to suit Starbucks in Jacksonville. So, um great return profile on that one. I'm not gonna try to quote it off the top of my head, but a million to equity raise, we're closing on that in December. Super excited about that deal.

Um The next one is with the developer. We closed the auto shop with in Vegas. This is a ground lease or a build to suit gas station in Carson City. Carson, Carson City. Yeah, that's right. Buy the Reno Drive to Carson City in Carson City. Um This is gonna be the second deal with that developer. Uh Super great deal. This will launch out. Um It's, it's kind of being fundraising now. So if you're listening to this and you're thinking, hey, I want access to that call us and we'll get you access to that. Um There is another deal not sure if we got that one yet, so we'll skip that. Um There's a redevelopment of a childcare facility in Missouri that is coming out probably end of December or beginning of January. Um That one looks like it's got a great return profile because it's an existing building. We're just reining it brand new 15 year lease, a little bit of T I money and the credit um on that lease is some of the best in the early childhood education space. So that could be a great little deal. Um And then end of January, beginning of February, we have another Children of America in Fort Worth, possibly a learning experience and then a learning experience in Burleson all before the middle of February.

So several deals, a lot going on, um decent equity raises. So we have plenty for everyone to get involved. Wouldn't worry about that. Yeah. And the last thing I'll mention, I've mentioned it before is if you have money to invest and you're ready to look at deals, let us know. Uh So then we can earmark uh how much money we have on the sideline. It'll help us know how many deals we need to be putting into the pipeline because obviously we have people that get frustrated when we launch these deals and we fill up and they're like, I want it in, we didn't know you wanted it in uh the next deal. So let us know that and that way we can, we can start forecasting uh some of the equity raises and get, make sure that you get in the deal that you want. Yeah. So guys, we've got, we've got deals from A to O, you know, ABC defg, you know, all the way to o so we've got so many deals that we're looking at and it's amazing when an investor comes up and says, hey, you know, I, I, I'm interested, I want to get involved in the next half a dozen deals. Like we've got pitch decks for like the next six deals. The data is probably wrong in it. I mean, it's probably dangerously close. We're doing assumptions, we're underwriting, you know, we're negotiating things change as you're evaluating the deal, but we're typically pretty damn close.

So if somebody came to me right now and said, hey, I've got half a million dollars, I want to get invested with you or 100,000 over, you know, I'd like to put 25,000 in four or five different deals with you guys. What do you have available? I can give you a sneak peek at, at a lot into the future. And if you said, hey, I'll take 25,000 in every single deal. We're starting to take commitments for all of these deals into the future now, even though we haven't officially launched them yet, just because real quick, the commitment that you'll give us, uh, it's not like, you know, it's not, you're not able to say no. Once the final numbers come out, this is just a forecast we're gonna play. It's a placeholder for you. It gives you access, but it doesn't lock you in, but it it does help us forecast and that, that's, that's good for us when we're starting to line these deals up. Yeah, we might mention we have people watching the podcast so they hear about these before the email goes out and they say, hey, that one sounds interesting. Send me some information we're doing pitch decks well, in advance, like you say, they're not 100% because we haven't released them yet, but they're close. And so people are starting to hit us up before we ever send out the email. So, and feel free to do that anyway, so much going on over the next couple of months, we're gonna be focused on closing these deals.

I think next year we've got the opportunity to sell a ton of assets. Um, we've got assets that we funded, you know, in the previous 68 months that are finishing up construction. I know, um, Chipotle and Sal and go should be open and hopefully on the market by the end of the year. So that's another two assets on the market. So really starting to stack these assets up that we need to start disposing of. So hopefully he is already on the market, right? Haven't we already sal and go and was, is already on the market or Sal and go and Prenton is about to go on the market. So many salads can keep them straight. Well, guys check out the, uh polar plunge video. Hopefully, you guys will try that wherever it is that you are. Uh, it's a great way to start your day. Uh That's it for today's episode. Thanks guys. All right, thanks.

Episode 129 - Missed Opportunities and Market Insights: A Deep Dive into Recent Deals
Episode 129 - Missed Opportunities and Market Insights: A Deep Dive into Recent Deals
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