The Private Equity Real Estate Podcast – Show 30

   

   

Summary

Listen in and learn about First National Realty Partners’ proprietary asset management strategy called FNRP 360. FNRP has brought every function in-house, from acquisitions all the way through the commercial real estate process.

Here to talk about FNRP 360 is Anthony Grosso,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 would like to invest passively with FNRP or learn more about our commercial real estate investments, you can go to fnrppodcast.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 sit down with experts in commercial real estate and we talk about different topics across the commercial real estate landscape.

Eric Murphy:
This week on the program it’s all about FNRP 360, and here to talk about FNRP 360 is a frequent guest of the program, Tony Grosso. He is co-chairman, managing principal and founder of First National Realty Partners, one of the nation’s leading commercial real estate private equity firms.

Eric Murphy:
Tony, as always we appreciate the time, and thank you for being back on the show.

Tony Grosso:
Great to be with you as always Eric.

Eric Murphy:
Tony, what exactly is FNRP 360?

Tony Grosso:
FNRP 360 is our proprietary asset management strategy. It’s the fancy way of saying we’re vertically integrated. We’ve brought every function in house, from acquisition all the way through the commercial real estate process to this position.

Tony Grosso:
We’ve done that for multiple reasons. We found that we get the best results from that. But basically it’s the name that we’ve given to our proprietary asset management process. We call it 360 because we take a total view of the real estate process and we completely have all the functions in house.

Tony Grosso:
I’ll also kind of give you the genesis of how we came up with it and why we think it’s the best way to do things. When I originally got into the business I used the combination of third party property managers, third party leasing people, outsourced legal, outsourced accounting, and there’s a lot of professionals in different verticals inside the commercial real estate process.

Tony Grosso:
Some of them are good, some of them are not so good, but… So we were using all these different third parties. We were using a third party manager, and what we found is not really too earth shattering. It’s that nobody cares about your property or your assets the way that you do.

Tony Grosso:
So after having some troubled relationships on the property manager, on the leasing firm… Some of these leasing guys, they’re just salesmen. They want to go for the lowest hanging fruit, so they got 20 different listings. They just stick a sign up in front of your property and whichever phone starts ringing of those 20 signs you better hope it’s yours. They’re going to call up and try to do that deal and put that as a priority over yours because it’s the path of least resistance of them getting their commission share.

Tony Grosso:
So we basically said you know what? We’re in this for the long haul. We have to bring this in house. We need to bring everything in house that we’re going to be doing say more than a one off basis. So if we’re going to consistently be doing something, like managing a property, or putting properties under contract, or leasing a property, we better bring it in house, and we better become the best at it that we possibly can by hiring the best people, keeping them aligned.

Tony Grosso:
A big issue with dealing with third parties is holding them accountable. A property manager, they close the month at the end of the month and then you’re lucky, some of them, if they’re giving you reports three weeks after the month. By the time that that’s happened so many decisions could have been made. Things have changed.

Tony Grosso:
So we find that by bringing everything in house it allows us to perform much better. It allows us to hold people accountable and it just produces better results. It’s worked really well for us, where some institutional real estate investors, they’re just kind of capital allocators or institutional capital providers, and they just leverage off third parties to do all the real estate. We want to be nimble. We’re entrepreneurial. So by bringing it all in house it works better for us.

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

Tony Grosso:
As far as an example of how we did it recently, I’ll give you one. We brought in in house counsel last year. We were using third party counsel to do all of our transactions and we had great counsel. They were really solid people. We vetted them through multiple deals and we felt pretty compelled to work with them and we were loyal to them.

Tony Grosso:
What we found out though is we need contracts turned around quickly. We need to get leases turned around quickly. Time kills all deals. So it was a real eye-opener for me when here we are working on some $40 or $50 million deal and we can’t turn our contract fast enough because the guy doing the legal for us is closing some lady’s $300 thousand condo and it’s holding up our process.

Tony Grosso:
So we said this is unacceptable. We brought the legal function in house. We got a topnotch team of people that do our leases and our contracts from the acquisition and disposition front and we’re able to move very, very quickly, turn contracts quickly, get comments back quickly, and that allows us to I think compete better when we’re going after properties to buy.

Eric Murphy:
Tony, is that one of the biggest benefits of the FNRP 360, is that it just kind of streamlines that process?

Tony Grosso:
It streamlines the process, no question. It creates a line of sight and a line of accountability, where if… Let’s just use that example that I just gave you, the in house counsel who’s on my speed dial and I’m in communication with every single day, he knows we’re his only client, he works for us, he’s an employee of the firm, if he’s not moving fast enough we’re holding him directly accountable, where when it’s another organization, another entity, we can fire them on the next deal, but really what does that prove? It’s like yeah, we got to go find somebody else who can do it better I guess.

Tony Grosso:
But when you’re doing something more than one time I think it makes sense to bring the function in house and really, really get good at it and continue to get better. What we found is not only are we better a lot of times on the first go-around, but we’re able to improve much better because we can hold people accountable, set goals and be successful.

Eric Murphy:
That in house functionality that you mentioned, how does that directly benefit First National Realty Partners’ investors?

Tony Grosso:
I think we able to perform better along every step of the real estate process. Each step that you do better than your competitor, you’re able to get a better return and drive more cash-on-cash returns and internal rates of returns, and ultimately provide a better experience for your tenants as well, which keeps them coming back and wanting to do multiple deals, so ultimately it benefits everybody.

Tony Grosso:
The better that you are as a landlord, the better your tenants are going to do, and if you’re really operational and running streamline you’re going to be able to perform better, and that’s the reason why we do it. If we thought we could perform better by using a bunch of third parties we would do this. This for us we think is the best thing that fits our business model well.

Tony Grosso:
By bringing everything in house, we found that we’ve been able to perform better than working with these third parties. We just… You know, it’s tough to really hold them accountable.

Eric Murphy:
Yeah, Tony, you brought up tenants. Can you tell us how this approach benefits the tenants?

Tony Grosso:
We want to be world class in everything that we do, in every discipline. We can do any business. We can allocate our time doing whatever we like. We have a lot of pride in what we do, and we just want to do world class in every discipline.

Tony Grosso:
Our tenants are our customers and they’re paramount to… Their success is our success, so we’ve got a world class not only new leasing function where we’re able to leverage off of properties in the portfolio and have them be successful and grow with our portfolio, but also from a property management standpoint.

Tony Grosso:
We’re doing things like net promoter score for our tenants to make sure that they’re happy, and surveying them, and getting feedback from them, and putting in process in place, and making sure that when they have a question we’re literally tracking down to the second how long it takes us not only to get back to them, but to solve the issue, whereas there are third parties that provide that type of data and intel, but in reality can you really hold them accountable that much?

Tony Grosso:
Can you say, “Hey, we need you to install this software. We need you to get back to every tenant within five minutes, and we need issues resolved within 25?” It’s a lot more difficult to do that when you’re dealing with a third party entity. When your property management team is in house it’s like, “Guys, this is the way that we do this. This is the FNRP way. This is FNRP 360. Get with the program or ship out.” It really works well to get a better experience for all of our tenants.

Eric Murphy:
You know, Tony, you call it the First National Realty Partners way. Are there particular systems that need to be in place? Exactly how does First National Realty Partners implement FNRP 360?

Tony Grosso:
We have all kinds of systems, whether it’s acquisition software, whether it’s property management technology, whether we’re looking for new sites to put our tenants into and who would do well in certain spaces. I mean it’s just a tremendous amount of technology.

Tony Grosso:
Whenever you decide to bring something in house versus outsourcing there is costs involved with doing that, so you have to make sure that you’re going to be able to offset it by performing better. That’s what we’ve found, is that we’ve been able… While there is costs involved with having to have a world class property management software, where if you’re maybe working with a third party they’re bearing that cost, we think it’s well worth the investment.

Tony Grosso:
If we were looking to do it for a year and then move along, or do one deal here and there, kind of do it part time, it’s one thing, but we want to build something great and lasting, and by bringing everything in house and making that investment it makes sense long term. That’s how we invest, long term, not short term.

Eric Murphy:
Okay. Great. You’re listening to the Private Equity Real Estate podcast, which is sponsored by First National Realty Partners. First National Realty Partners is one of the nation’s leading commercial real estate private equity firms, focused on expanding its portfolio by acquiring market dominant grocery and necessity based commercial real estate assets well below replacement cost.

Eric Murphy:
Being vertically integrated, First National Realty Partners maximizes investor value by actively managing each asset they acquire with a talented in house team of real estate professionals, to include acquisitions, leasing, finance, accounting, asset management and investor relations.

Eric Murphy:
If you would like to learn more about investing in commercial real estate with First National Realty Partners you can always visit fnrppodcast.com, or send an email to them at info@fnrpusa.com.

Eric Murphy:
Today on the program our guest is Tony Grosso, co-chairman, managing principal and founder of First National Realty Partners. Today we are talking about FNRP 360. Tony, how would you say that FNRP 360 makes First National Realty Partners unique?

Tony Grosso:
There’s other groups that are vertically integrated and there’s other groups that are successful outsourcing a lot of the different components, so I don’t think that we have a monopoly. It just works really, really well for us. We’re one of the few groups I think in the grocery anchored space that does everything under our house and under our umbrella.

Tony Grosso:
I think one of the big aspects of FNRP 360 that we decided to bring in house is leasing, where a lot of institutional landlords and owners, they want to third party everything. We said no, no, no, because what happens in the leasing business more really than any other space is, like I mentioned, these third party brokers stick a sign on the door and hopefully they get a phone call and hopefully something happens.

Tony Grosso:
This actually creates a tremendous amount of risk, specifically when you’re going into a new market, where when you settle on a property maybe you’re working with a third party leasing person for a group for the first time, and yeah, they’ve said the right things and you’ve vetted them through a process and you feel confident, but ultimately there’s a little bit of a lack of accountability there, because they’re not inside your shop every single day.

Tony Grosso:
We do some things that the typical institutional landlord doesn’t. We’re going to go out and canvass. We’re going to send Facebook messages. We’re going to bang the phones. We’re going to call all of our relationships and use tenant centered value added investing to make sure that we fill up or space.

Tony Grosso:
There’s just a tremendous effort that goes into being successful on the leasing front, and I just don’t think I would be able to get a third party to do the things that we do that makes us successful. That’s not to say that other groups that use third party leasing or outsource other functions of the real estate process can’t be successful, because that would be a lie, but by bringing this all in house, specifically on a leasing front, we’re able to hold the team accountable, we’re able to hit our numbers, and ultimately that just creates a line of sight and we know where we need to be, and it’s really worked well for us.

Eric Murphy:
Tony, before I let you go it definitely does seem like that FNRP 360, the streamlined approach, has its advantages. In your opinion, why do you think others haven’t adopted this strategy and they use third party resources?

Tony Grosso:
Because a lot of people aren’t really in the real estate business. Maybe it’s a high net worth family that made their money doing something else and they’re putting money into real estate assets. Yeah, they’re investing in real estate, but they’re not really in the business.

Tony Grosso:
The same thing with some of these institutions. They’re capital allocators. They’re just putting money to work in real estate. They’re not equipped to run property management. They’re not equipped to run an in house leasing team.

Tony Grosso:
We’re a very flat organization from a structure standpoint and we do one thing and one thing only. We try to be the best at it, whereas a lot of these institutional capital advisors are investing in all kinds of private equity and public securities and all this different stuff.

Tony Grosso:
A lot of the people actually aren’t in the real estate business. They’re investing maybe in real estate, but they’re not really in the real estate business, so for them making the investment in technology, in human resources, in everything that goes into these different veins of the commercial real estate process, it doesn’t make sense for them because they’re not doing it like we’re doing it, which is all day, every day.

Tony Grosso:
So like I said, and I’ve said it couple times, there’s many institutional investors and other investors that use third parties successfully. This for us just works way better and I would never go back.

Eric Murphy:
Fantastic. Well, Tony, if someone wants to learn more about FNRP 360 or get in touch with you, how do they do so?

Tony Grosso:
Our website is fnrpusa.com, like First National Realty Partners, fnrpusa.com. All the information on the portfolio and everything and who we are is up there, and we’d love to engage with everyone.

Eric Murphy:
Great. Tony Grosso, co-chairman, managing principal and founder of First National Realty Partners, as always thank you for being on the program.

Tony Grosso:
Thank you so much. I’ll talk to you soon. Thanks Eric.

Eric Murphy:
My thanks again to our guest, 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 for listening, and we’ll talk to you again next week.

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