The Private Equity Real Estate Podcast – Show 28

   

   

Summary

On this week’s episode, we discuss building a world-class real estate team. Our guest this week is Chris Palermo. He is the co-chairman, managing principal and founder of FNRP, one of the nation’s leading commercial real estate private equity firms.

If you like what you’re hearing, please subscribe, share and review the show!

If you have any topics you want to hear about, let us know! We have experts in all real estate fields and would be happy to interview one of them for you. Contact us at info@fnrealtypartners.com and let us know what you’re looking to learn about.

If you would like to invest passively with FNRP or learn more about our commercial real estate investments, you can go to www.FNRPUSA.com


Announcer:
You’re listening to The Private Equity Real Estate Podcast, brought to you by First National Realty Partners, where investors learn from private equity experts and insiders. We share our own real world experiences so you know exactly what it takes to be highly successful at investing in passive commercial real estate opportunities.

Eric Murphy:
Hello and welcome to the Private Equity Real Estate podcast, which is brought to you by First National Realty Partners. I’m your host, Eric Murphy and as always on this program we like to sit down with experts in commercial real estate, and we talk about different topics all across the commercial real estate landscape.

Eric Murphy:
And this week we are going to discuss Dragnet acquisitions model and to discuss that this week is a returning guest, Tony Grosso. He is the co-chairman, managing principal, and founder of First National Realty Partners, one of the nation’s leading commercial real estate private equity firms. Tony, thanks so much for coming back on the show.

Tony Grosso:
Great to be with you.

Eric Murphy:
So Tony let’s begin with what is First National Realty Partners’ Dragnet acquisitions model.

Tony Grosso:
Yeah. And it’s basically just a fancy way, it’s what we’ve coined our proprietary acquisitions process. So I’ll kind of give you the high level and if you have questions, I’m happy to answer them and go into a little bit more depth.

Tony Grosso:
So the Dragnet acquisitions model is a way that we acquire our property. So we take a national approach. There’s a lot of real estate operators that are local or regional, and they focus on a very specific region. And there’s a value to that because you have a lot of knowledge on the market and one of the ways to be successful in real estate is to really understand your market. We go nationwide and we’ve found that that’s kind of our value add for a couple of different reasons. So we kind of look at the entire country, the United States, and we run a Dragnet over it.

Tony Grosso:
Now, the reason why we go after the entire country versus being very specific for a specific regional location is actually because we have a very specific and intentional focus when we’re sourcing deals. There’s about 60 different boxes that need to be checked for us to find a deal and what we found is that when all the boxes are checked, it de-risks the deal a little bit and skews the chances of us being successful heavily in our favor. So we need every single box checked. One of these boxes could be a certain amount of traffic going past the property,, or the right length on an anchor lease, or the right anchor in a spot or the right location.

Tony Grosso:
So you’ve got all these different boxes that need to be checked and what we found is that if we just focus on a region or a local market, there’s no way that you’re going to find deals that check all these boxes at a good rate. You might find one here and there every 10 years or five years, but you’re not going to be able to source deal flop and acquire the way that we want to. So we’ve opened up our entire acquisitions focused to the United States, the whole country. We run this Dragnet over the country is what we call it and all along the way deals are getting sucked up in the Dragnet.

Tony Grosso:
And as time goes by, we find out through due diligence and through our underwriting process that some of these deals don’t check the boxes. Okay. So it gets removed from the Dragnet and what happens is by casting this very specific prototype of what we’re looking for, we’re able to eliminate everything that we’re not focused on. And this is the way that we’ve been able to force not only a tremendous amount of deals, but a tremendous amount of quality deals that check all the boxes and our investors love it.

Eric Murphy:
And can you share an example of how First National Realty Partners has recently used this approach?

Tony Grosso:
We use it on every single deal. So, we’re working on a deal in the Northeast right now, and it’s in a market that… We’re not from the market, so I wouldn’t say that I was a total expert on the market now, but it was in a market kind of was out of focus. Wouldn’t be out of focus for a lot of different operators, but because the property level specifics and the performance of the tenants at this property were so phenomenal, I mean, it’s the number one grocer in a chain of like 200 stores.

Tony Grosso:
If we weren’t casting that Dragnet and we were just focusing on certain markets like maybe South Florida or Austin, Texas, or a lot of these markets that are really en vogue right now because of the population growth, we would’ve missed this gem, this diamond in a rough, which is just the performance of the property. It’s like, you look at all these tenants, you go, “Wow, I can’t believe this is one of the highest performing properties from a tenant output standpoint that I’ve ever seen.” So by casting that wide Dragnet and that property got looped into the Dragnet and it wound up checking all the boxes, we came across an investment opportunity that has tremendous, we think risk adjusted returns that we would’ve missed if we were just focused on certain pockets, or hot markets, or regional locations and so on.

Eric Murphy:
That’s interesting that you say you cast this wide net and maybe at first you don’t have exactly all the knowledge you need of a certain area. But what due diligence is involved to make yourself more knowledgeable and what type of intelligence are you able to gain through the process?

Tony Grosso:
So I’m from Matawan, New Jersey. I live in South Florida now. I’m not an expert on every single real estate market in the country. Now we have a lot of really smart guys that we’ve hired that understand markets that I don’t understand better than I understand different markets because I’ve done deals in those markets better than other guys. But the way that you do it is you build a network of people who are experts in that specific location.

Tony Grosso:
We were buying a Whole Foods deal in Northeast, Ohio and there’s a specific gentleman in that market who we know who’s the guy to talk to in that market. So I’m able to get a crash course on that market. In about 60 minutes from him, I know more about this property than I probably would’ve known if I grew up across the street from the property. So it’s all about maybe I don’t know the market individually, but my team knows the market or they know somebody that’s an absolute expert in that market.

Tony Grosso:
And then we’ve got this proprietary diligence process and underwriting process that really allows us to go in and understand that market and become total experts on it. Whether we’re calling competing centers and finding out what rents are, or getting a lay of the land from the different tenants that we know that are already in the market. So there’s a lot of stuff that we uncover through diligence and underwriting prior to even making the offer that says, “Hey, yeah, this is a good market. We want to own here.”

Eric Murphy:
Yeah. You touched a bit on it, Tony, but can you expound a little bit on how First National Realty Partners implements this acquisition model?

Tony Grosso:
That’s pretty much what we do. We have a very, very specific animal. We’re looking for a specific deal. It has to have these boxes checked, has to fit. We can’t put a square peg in a round hole. It’s got to look like this and that forms the base of our Dragnet and then we run it across the entire country and we see what sticks. And stuff comes in, we find out it doesn’t fit. We knock it off the list. Deal comes in, looks like it checks all the boxes. We go through diligence and before making an offer, maybe we talk to a tenant, we remove it off the list.

Tony Grosso:
So by being highly, highly focused and specialized knowing exactly what we’re looking for, but casting this big wide net, we’re able to find situations that other investors might miss. And we also kind of fit in a white space, I like to think, in the institutional real estate investing space where you kind of have two players, in my opinion, in this space, right? And there’s other groups like ours that are a little bit more institutional, but also entrepreneurial.

Tony Grosso:
But you’ve got these mega institutions who I kind of call allocators, and they’re just kind of putting money to work in deals and they’re working with operators kind of like we are. And then you’ve got these regional operators or these local operators where they’re specialists, they own… In Massachusetts, this is the guy who owns everything in Massachusetts and the Western part of the state. Or this guy owns, this guy dominates this market. Think about a local or regional player.

Tony Grosso:
We’re kind of a hybrid and I think it’s actually worked really well for our business model in the standpoint that we’re an institution, but we’re also very nimble and entrepreneurial in our acquisitions process.

Eric Murphy:
And how does this directly benefit First National Realty Partner investors?

Tony Grosso:
So, a lot of people kind of have come to grips who’ve invested in real estate that real estate is a business, not an investment. You can invest in deals by being an investor and leveraging off of a sponsor or buying a REIT, which is a true passive investor. But real estate is really an operating business. The investors that work with us also understand because we educate them that it’s not only is it an operating business, but so much success comes down to buying right, making your money on the bottom.

Tony Grosso:
And people just think, oh you’re going to buy real estate, if you’re a good operator you’re going to be successful. The amount of effort that goes into sourcing these deals, underwriting, talking to tenants that we’ve got relationships with, understanding the markets, analyzing risk. I mean, you can almost make a case that that’s like 60%, 65, 70% of the success in a deal comes down to what you do before the acquisition.

Tony Grosso:
So when institutional and high net worth investors work with us, they’re leveraging off of all the legwork that we’re doing, all the hard work that goes into this and the relationships that we’ve developed. And we think that it creates a superior product and they get to partner with us and it works pretty well.

Eric Murphy:
Outside of investors, are there others that benefit from this as well?

Tony Grosso:
Yeah, potentially, but the thing is in real estate investing, you’ve got to have your own investment thesis. This is what we do really, really well. So we’re highly focused and specialized in this lane. Other investors may want to do value add multifamily in North Dakota. There’s a lot of different [inaudible 00:08:36] out there. None of them are… They could be wrong or right. But nobody has a monopoly on real estate investing. I just think that if you focus on one thing and you try to become the best at it and really, really become world-class in all aspects of the process, you have a better chance than if you’re just saying, “Yeah, I’m a real estate investor. This is what I do.”

Tony Grosso:
This is what works well for us and we’re going to continue to hone it and become better at it and really dominate this niche. But we don’t proclaim that we’ve got a monopoly on the single best real estate strategy. It works really, really well for us, but there’s also multifamily and industrial and all kinds of investors out there and ground up development and core buyers. There’s a lot of different strategies and nobody’s got a monopoly on all great ideas.

Eric Murphy:
Okay, great. You’re listening to the Private Equity Real Estate podcast, which is brought to you by First National Realty Partners. A little bit about First National Realty Partners, they are a rapidly growing commercial real estate private equity firm that owns and operates more than 3 million square feet of real estate throughout the United States and they have a portfolio valued in excess of $400 million.

Eric Murphy:
First National Realty Partners focuses on expanding its portfolio by acquiring market dominant well located commercial assets well below replacement cost. They actively manage their portfolio through an in-house team compromised of more than 30 full-time real estate professionals focused on acquisitions, property asset management, leasing, finance, accounting, and investor relations. If you would like to get in touch with someone at First National Realty Partners, you can always email them at info@fnrpusa.com.

Eric Murphy:
And today we’re lucky enough to have someone from First National Realty Partners joining us, our guest Tony Grosso and today we’re talking about Dragnet acquisition model. Tony, now is this an approach that you have always seen a benefit in, or is this something that over the years you’ve kind of honed in on and adapted your thinking to this approach?

Tony Grosso:
That’s a great question and it has been honed over time. I have experience working with every asset class. I have experience with ground up development, I have experience with buying core single tenant 20 year lease properties or net lease properties. So I’ve really been blessed in the standpoint that I’ve had a good education and I’ve seen the pros and cons of all of the different product types, all the different strategies, and deals that are in, whether it’s a core, core add, value add or opportunistic ground up situation.

Tony Grosso:
So I have a lot of experience working with that and with the different types of deals out there and I would say that, yeah, we just, we got a little bit of momentum in this space when we were earlier in the business and it allowed us to just develop a lot of relationships with tenants and on the backs of those relationships, we said, you know what? Our customer really is the tenant. How do we help them become successful? And then that kind of all those relationships formed our acquisition process because now we knew that we can get in, tell him we knew, who the tenants were, who the shakers and movers were, how do we do deals quickly? And that formed this acquisition, this Dragnet model, because all these national tenants that we have allow us to really work on a national pace on the acquisitions front. So it’s been good for us.

Eric Murphy:
Tony, before I let you go, how does this Dragnet acquisitions model, how does this make First National Realty Partners unique?

Tony Grosso:
In my opinion, there’s some good retail owners out there, but I think that we’re the only guys that are operating our business the same exact way. I mean, look where we do everything in house, we’re vertically integrated. We only go after grocery anchored properties, we have built a tremendous relationship with all these national tenants so that we can kind of move them around like puzzle pieces throughout our portfolio and get intel on new acquisitions.

Tony Grosso:
So are there other good real estate operators out there? Absolutely. Are there other good grocery anchored operators out there? Absolutely. I think that we’re the only crew that’s doing what we’re doing specifically, in that we’ve done everything in house we’re vertically integrated. We’ve got all these relationships, we’re buying all over the country. So I think from a uniqueness standpoint, we’re pretty specialized in what we do and we try to be pretty damn good at it.

Eric Murphy:
Excellent. If someone has questions about First National Realty Partners’ Dragnet acquisitions model, or any other questions, how would they get in touch with you?

Tony Grosso:
They can just go to our website, which is FNRPusa.com. Whether you’re a tenant, an investor, somebody who’s looking to work with us as an employee, we’re always looking for great team members, or if you have a property that fits the bill, we’ve got our acquisition criteria up there at fnrpusa.com.

Eric Murphy:
Fantastic. Tony Grosso, co-chairman managing principal and founder at First National Realty Partners. We appreciate the time. Thanks for being on the show.

Tony Grosso:
Thank you Eric. Take care.

Eric Murphy:
My thanks again to our guest today, Tony Grosso and thank you for listening to the Private Equity Real Estate podcast, which is brought to you by First National Realty Partners. I’m your host, Eric Murphy reminding you, if you haven’t already please subscribe, rate and review the podcast. Thanks again and we’ll talk to you next week.

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