The Private Equity Real Estate Podcast – Show 9

   

   

Summary
In this week’s episode, we have the co-founders of First National Realty Partners, Tony Grosso and Chris Palermo discuss whether commercial real estate should be approached as an investment or as a business.

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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 can know exactly what it takes to be highly successful at investing in passive commercial real estate opportunities.

Nick Cucci:
Hey everyone, welcome to another episode of the Private Equity Real Estate Podcast brought to you by First National Realty Partners. This is the ultimate resource for passive real estate investors. I’m your host, Nick Cucci, and on today’s show we’re going to take a trip to the archives. We have our co-founders, Chris Palermo and Tony Grosso, and they’re talking about commercial real estate, should you look at it as a business or an investment? This is a great conversation and I hope everyone listening enjoys it.

Tony Grosso:
I think guys that have been in the business understand it is a business. You’re not really just investing passively and sitting back. I think the asset class and ultimately what goes into each deal or asset does kind of determine how full time and hands on you have to be, but real estate 100% is a business. It is not an investment. It’s not something you can just put capital to work and sit back, unless you’re working with a sponsor or a firm that obviously does that for you. Even when you hire a property management company, you’re still managing the manager. There’s a lot that goes into it. I don’t think that real estate, at all, should be looked at as just a passive investment class. You need to look at it for what it is. There’s a lot that goes into it from acquisition, to management, to leasing, all the way through to disposition. It’s a full time endeavor.

interviewer:
Yeah. So a lot of moving parts, basically.

Tony Grosso:
Absolutely.

interviewer:
A lot of people involved, a lot to it, it’s not just a set it and forget it type thing. Chris, what would you have to add to that? I mean, do you have the same opinion [crosstalk 00:01:54].

Chris Palermo:
Look, when you’re working with anything that produces income and you’re dealing with, let’s say a customer, which this end user would be a tenant, you’ll always have issues. Whether it’s an apartment building where you have either two tenants fighting, or a toilet clogs, or a heater blows, with real estate, you’ll always have issues. You have the guys who can address the issues and work through any problems. It makes things a lot easier.

Tony Grosso:
I think there’s a huge misconception from guys that are doing their first deal or buying their first asset, that they’re going to buy an asset, they’re going to sit there and then rents are going to go into their mailbox or their bank account, and it’s just not what goes on. Even when you’re using a third party manager, there’s a lot that goes into it. You see that from a lot of novice guys stepping into the business, they’re just going to buy, they’re going to get their check, and then they’re going to do a bunch of deals, and just sit back, when it really takes a village. It takes an entire staff of people to run a portfolio correctly.

interviewer:
Let me ask you something. From a novice standpoint, what kind of mistakes do you typically see first-time real estate owners make not realizing the management intensiveness to the property? And Chris I’ll actually direct that question to you.

Chris Palermo:
A lot of times people don’t reserve the amount of resources that it takes. God forbid an issue happens. A lot of people say, “Oh well, nothing’s going to happen. I’m going to take as much cash.” And what I’ll say is, if there is an issue to happen or something’s going to happen, it always does. It always happens at the time when you’re least ready or you’re not as liquid. I think one of the biggest mistakes that novice real estate owners make is not reserving enough cash for when something happens. Whether it’s a roof, whether it’s an electrical issue, or if you blow a hot water heater. Things happen in real estate. You’re dealing with property and you’re dealing with people that are renting from the property. It’s a lot more intense than let’s say, managing your own home.

Tony Grosso:
I mean, really you look at all the facets that go into properly managing a building. First of all, you’ve got to collect rent. If you’re the chief cook and bottle washer, and you’re doing all these functions, you’re sitting there sending off letters, collecting rent from your guys. Then you’re managing the day to day. You’re taking phone calls. Somebody got to lease the property as well. Somebody’s got to be there from a physical standpoint, like an engineer to make sure that all the operating systems are in line. Then you have to have a project manager who oversees all the contractors and the third party guys that go out to the property. If you want to sign up for a job, I think it’s a good idea to buy a piece of real estate and sit there and run everything that goes into it.

Tony Grosso:
If you’re somebody that’s looking to invest, you really need to either have a staff of people that works for you or a team that works for you to do it correctly. Especially if you want to do more than one deal. You might be able to handle one deal, but then how are you out looking for other deals? Which is a huge thing from the acquisition standpoint. Trying to find new deal [inaudible 00:04:54] and you can’t do it if you’re running a property day to day.

interviewer:
Yeah. I’m glad you brought that up. You mentioned with the multiple facets of it, the different people that could get involved; property managers, leasing people, maintenance guys. How much importance or stress do you put on putting the right people in place in these types of situations? I mean, could you be a first time real estate guy and do that kind of stuff on your own?

Tony Grosso:
I think people also underestimate the staff and the talent that you need to correctly run a piece of commercial real estate. I think because there’s so many people that call themselves a property manager, a would be investor thinks he’s just going to buy a building and it’s going to kind of run itself. A great team of people can successfully run or make a good deal out of a bad piece of real estate. If you have a great piece of… I’d rather have a good team almost than a great piece of real estate sometimes. Some sites lease themselves, run the best corners, or they’re in a hot market and there’s economic factors that are coming into play, but having a great team or being talented and knowing exactly what you’re doing, you really can’t shortchange that. I mean, it’s a huge part of the business.

Tony Grosso:
And there’s another point I want to bring up, and then Chris, if you want to elaborate on that, I think the biggest reason why being in the business full time or leveraging or investing with somebody who’s running a real estate portfolio and investment business full time, is really what I just touched on, which is the acquisition front. If you’re a part time guy, you’re not out there bidding all day long on properties. Maybe you get a million dollars, you build up over a year, whatever, now you’re going to go out and start looking.

Tony Grosso:
The beauty of being in the business full time is that you’re in full time acquisition mode. You’re constantly making offers. You’re constantly networking. You’re talking to brokers, you’re talking to owners. When you’re a part time guy and you say, “Oh, guess what? Now I got some cash. It’s time to go buy.” Or, “Mr. Jones wants to go in partnership with me. Let’s go look for a deal.” You’re not going to find the right opportunities because you’re not out there pounding the pavement full time. It’s not to say guys that don’t do as many acquisitions as say us or other companies can’t be successful, but when you’re in the marketplace you understand exactly what’s going on, you’re making the maximum amount of offers, and that’s really given you a chance to make money on the buy. When you’re a part time guy you’re not going to have those same types of opportunities.

interviewer:
Great point. And I think you hit the nail on the head because when you’re not in it full time, you don’t really understand truly where values are, if you’re getting the best price for something and really have an understanding of where the cap rates are trending for different product types.

Tony Grosso:
Think about it Dan, if you’re in a business and you have a hundred employees, or you’re a dentist and you’re working all day long, you might be able to log on to LoopNet a little bit and see what cap rates are and what’s trending, but how are you really going to be able to go after… How are you going to be able to write offers? How are you going to write 30, 40 offers and ultimately find some that makes sense? When you’re doing something else, it’s impossible to do. It’s impossible for Chris and I to run acquisitions if we personally want to. We have to have a staff and a crew of guys in our office just to do acquisitions. Each facet is a full time job from the management, the acquisitions, the leasing, the accounting, all that stuff. Go ahead Chris.

Chris Palermo:
No, no. Yeah. What’s funny is, and I’ll share this with you, one of my real estate mentors when I got in the business almost 20 years ago, said something profound. I’m going to share it with you. He said, “Getting involved in a piece of real estate is like raising a child. You need a village.” If you hear everything that Tony is talking about and what Dan is saying, it all comes down to time. Most professionals lack the time to source a deal, lack the time to manage a deal, lack the time to correct any issues that go on with the deal. And another big one that we’re not talking about is a lot of these third party vendors, if you’re not watching everything they do, the guy that does the tile work, the plumber, the electrician, you’d be surprised at how they try to bake in certain fees.

Chris Palermo:
If you don’t know what you’re looking at, it can be a big cost to remedy problems that you have because you don’t even know what you’re looking for. I think that’s why a lot of the professionals who are dedicating themselves to their business like to work and invest through companies that are professional, because overall they’re able to make more return than flopping on their face and getting through all the mistakes that they make, and it starts with even finding the right type of deal. It takes a lot of time.

interviewer:
So where do you start then? You buy a property, you have it now, where does your focus immediately go towards? What is the first thing that you’re looking to do? The first group you’re looking to hire? On the level of importance, what are you looking at?

Tony Grosso:
I think you bring together… you put a problem to the table that a lot of entrepreneurs face, not just in our business. What do you do first? What comes first? The chicken or the egg? You go out and you buy a building, let’s say for a million dollars, obviously you can’t support a full time staff. You can’t have an accountant, you can’t have an asset manager, you can’t have all these people that go into it. Until you have a point of critical mass, it’s actually very difficult to try and figure it out. You’re operating on a shoestring almost. That’s why Chris and I are huge fans of doing big deals. The bigger the deal you do, the easier it is to leverage off of people because the numbers are built into the margins to be able to support all the key players in the real estate cycle and what goes into managing it.

Tony Grosso:
To answer your question, there really isn’t anything first you got to do. When you buy any piece of real estate, whether it’s a two family house or whether it’s a 5 million square foot industrial complex, you got to have a physical guy, you got to have a day to day property manager, somebody’s got to lease the building or lease a space, obviously, right? You got to have somebody from an accounting standpoint making sure that all the billing is up to code and stuff. So where do you start? I can’t answer the question. If you could start with a $250 million or even $50 million portfolio that supported having somebody, that’s what I would say to do. To be honest, I would advise… I’m not trying to discourage people from getting into the business, but knowing what I know now, my first deal wouldn’t have been a million dollar mixed use building. It would have been a $15 or $20 million deal at least.

Chris Palermo:
I’m I guess you could say slightly pessimistic about a lot of things. Maybe I’m a glass is half empty type of guy. One of the first things that I look at is from a financial standpoint, “How can I lose on a deal?” From there I work backwards and say, “How can we do well?” Then it goes into location. What type of vision are we going to have for this area, let’s say over a 30 year period. Whether it’s a $200 million deal or $200,000 deal I think those are the first things that you look at. What type of mistakes, because while looking at those mistakes, you can find opportunities.

interviewer:
I love that. When you look at a deal the first thing you’re asking yourself, “How can I lose on this deal?” You’re not looking at the upside components of the deal or the good aspects to it, right? You’re looking at the negative components.

Chris Palermo:
Of course, because then I can know what I need to do to get myself to a profitable position. I’m going to give you another phrase that I learned from one of my mentors. Sometimes… All times, excuse me, the juice has to be worth the squeeze. If a few minor things happen and I can no longer be profitable, whether it’s physical or a tenant leaving, a lot of times I wouldn’t do the deal personally. Certain other people, they make a business out of it. But me personally, that’s why I like to stay away from single tenant type deals because your catalyst is that one tenant. If something happens, you’re in a position where you can be compromised quickly, versus let’s say you have 10 tenants with equal square footage.

interviewer:
I love that mindset because I think a lot of people, they look at deals, they see what they like, and even when they find the negative aspects, they’re already convincing themselves why those aren’t that big of a deal because, “Oh, I like X, Y, Z about it.” Right? If you look at the negatives first and you weigh the pros and cons and how you might lose, you’re kind of already hitting those things before you even go after it. I want to transition to something else. Both of you hit on it a little bit. That’s the management intensity to running these assets. What is involved? Tony, I’ll start with you and I’ll get your opinion. How intensive is the management component to some of these assets?

Tony Grosso:
Great question. I think that that ties in perfectly with is real estate business, or is it an investment? If you go out and you buy a single tenant drugstore or industrial piece that literally is completely triple net situation, a case could be made that that’s more of an investment so to speak than say a three or 400 unit apartment building, which is you’re in people’s homes, people are going to be calling on your phone 24/7. So what goes into each asset is definitely a little bit different and it all comes down to management intensity. There’s a trade off for everything. When you go out and you get 400 units or you get multiple tenants, you trade off some of that risk that Chris was just talking about, because if one guy leaves or a couple of guys leave, it doesn’t kill your net operating income. Whereas when you’re in a single tenant situation, one guy leaves, now you’ve lost all your cashflow.

Tony Grosso:
That being said, if you’re able to get a credit worthy tenant on a longterm lease, that thing’s going to run itself. It’s pretty straightforward. Let’s say you get a hundred thousand foot industrial facility and it’s a AAA publicly traded type of tenant and they’re going to handle everything involved with it, you basically are going to bring capital to the table, get the thing financed, and it’s pretty much going to run itself for the most part. Now they could leave and there could be issues and stuff because it happens all the time, but that’s pretty much a turnkey type situation.

Tony Grosso:
Whereas on the other side of the fence, let’s say you got a 50 unit strip mall with 50 different spaces, and there are 50 different tenants, there’s going to be a little bit of intensity to that. Each asset its pros, each asset has its cons. Pretty much a rule of thumb, I would say, is when you’re dealing with people’s houses or where they live, where they’re in the unit all day long, you’re going to be dealing with more management intensity. The more tenants you have, you’re going to be dealing with more management intensity. The older the building you’re dealing with, you’re going to have more of a physical focus on that property, which is why sometimes buying old buildings, they might look like they make sense, but when you get into the deal, there’s a lot of physical issues ongoing with it unless you’re doing a full rehab. Management intensity plays a huge, huge role into the deal and ultimately determines how involved you, your staff need to be and what makes it an investment versus a business.

Chris Palermo:
Yeah, and I couldn’t agree more. A lot of the triple net deals, if you can buy it with a longterm lease in a very desirable area, they are attractive for certain investors and that could be considered an investment and more turnkey. But when you buy those types of properties, you’re trading out that safety for return. Sometimes the returns are so low on these deals, which we all see on LoopNet, that you’re almost better off getting involved with, let’s say, a publicly traded reader or some type of public traded security where you can get in and out, especially if you’re going to try to make 7%.

Tony Grosso:
I think that that management intensity that we’re talking about is built into the pricing of these single tenant deals, because you go buy a fast food out on a pad site and it’s subdivided off and you’re going to go out and you’re going to buy it at a four and a half or a five cap, it’s a McDonald’s or whatever, the person buying that… And guys are bidding on these net lease deals all across the world because what are they buying? They’re not so much buying a piece of real estate. They’re really buying an income stream. They know that McDonald’s has great credit, if it’s corporately backed, and that they’re going to get their rent two weeks early like clockwork.

Tony Grosso:
That’s why, not only are you buying the credit, but you’re also buying the management intensity. It’s literally an income stream. Whereas when we talk about multi tenant deals, much more management goes into it. You have to have more of a team where when you can just kind of get away with it when you’re buying a restaurant, or a bank, or drug store and it’s single tenant industrial piece.

Chris Palermo:
These single tenant deals, what I’ve seen through my analysis, is a lot of these deals, they sell to 10 31 traders. Guys that have money that they’re going to get a big tax on, that they have to roll over in a time constraint and making four or 5% is a heck of a lot better than paying capital tax on their entire investment from 20 years ago.

Tony Grosso:
Great point.

Chris Palermo:
That’s kind of what we see right now.

interviewer:
That is a good point, Chris. Just to even further elaborate on that, you don’t have as much wiggle room in terms of price, right? Because when you’re dealing with 10 31 exchange buyers who need to place capital because they’re looking at a large capital gain hit, you have multiple buyers at the table because you have multiple guys in 10 31’s, and they’re going to eventually… Most of them will pay dollar because if they don’t, they’re going to have to pay the tax.

Tony Grosso:
And you have more liquidity, so to speak. When I say liquidity, I mean you have more buyers in the marketplace. There’s more of a market for a triple net Walgreens because your pool of people, they understand that there’s real estate risks taken off the table because Walgreens is the tenant. They’re buying that credit, they’re buying the triple net structure, they’re buying an income stream. Whereas when you look at multi-tenanted pieces, there’s a little bit more real estate risks that goes into the actual deal. If that makes sense to you guys.

Chris Palermo:
But right now where we are in this specific environment, there are so many traders that are getting out of other deals that they feel that have reached their peak and they’re going to get their majority out, that a lot of these single tenants, let’s call them the McDonald’s of the world, the Walgreen’s of the world, the CVS’s, the cap rates are so compressed mainly because there’s such competition in that.

Tony Grosso:
So I think kind of tying in what we’re talking about here, I want to throw a point out there. I think when you’re getting into the business, because you asked me this earlier Dan and I didn’t really give a good answer, you have to make a determination. Are you a real estate entrepreneur or are you a real estate investor? I think it’s two different things. In my opinion, a real estate investor is a guy who is looking to put capital to work inside the real estate space. If you’re an entrepreneur, you want to build a team, you want to build a portfolio, you want to grow in operation. I think that there are two completely different real things. One you’re signing up to be in business, and one you just want to get exposure to the asset class.

Tony Grosso:
If you’re a guy who’s an investor, who sees the merits of investing in commercial real estate, which we all are bulls behind, I think that working either at buying a non-traded reader or a [inaudible 00:19:30] or investing with a private equity sponsor, kind of like our firm, or there’s a lot of great sponsors out there, I think it’s the right thing for guys that are investors and they want exposure to the asset class, but they don’t want to sign up for toilets, trash and tenants. They just want to get their quarterly distribution. They want to take advantage of a great management team that a sponsor might have and great deals that have been sourced by that sponsor.

interviewer:
Yeah. I love that perspective, because when you think about it, your average guy, would you invest into a dental practice if you had to be the guy who ran the practice, having never done anything in that space before?

Tony Grosso:
That’s a phenomenal point. [crosstalk 00:20:05] That’s the issue, is that people look at real estate like it’s different than that dental practice or buying that staffing company or the insurance firm or that manufacturing business. For some reason, we’ve been conditioned to believe that real estate is an investment and not an ongoing concern, an ongoing business, when it couldn’t be further from the truth.

Tony Grosso:
My opinion, an investment is where you put money to work, and you literally… Your capital does the heavy lifting for you. If I go and I got money in a savings account, I’m making 2% a year. That’s an investment. I’m just sitting there and I’m getting interest on my money, right? When you’re actually out there pounding the pavement, even if you’re overseeing the manager, you’re managing the manager, or if you’re overseeing an accountant, you’re still in business, whether you like or not. There’s an art to managing your investments as well, but that’s another day. Real estate is a full time job. Real estate is a full time business and if you want to do it right, you either need a staff of people or you need to leverage off of somebody else or another sponsor or [inaudible 00:21:03].

interviewer:
Not to put you guys on the spot, but I’d be curious to know if you could think of something quickly. Is there a mistake that you made earlier on your career that stands out to you? That maybe was that one thing that you learned from and ever since then you’ve been a better operator because of it?

Chris Palermo:
I’ll tell you what it is. I’ll tell you one thing. You never want to do something halfway. You never want to cut a corner. You try to save a few dollars, you try to do the quick fix and a little bit of time elapses, and then you end up paying three times as much than you originally have done. I would say in anything you do, whether it’s sourcing a property, fixing a roof, choosing the right tenants, make sure you don’t try to cut any corners cause eventually you’ll be paying.

Tony Grosso:
I’m rattling my brain here as Chris was talking, and I think that one that just kind of jumped in is really important and it’s changed as we’ve done bigger deals, more sophisticated larger deals, more sophisticated financing, is speaking to the full time nature of what goes into real estate from a due diligence and an operational standpoint. These leases, what goes into somebody’s leases. When you have a major powerhouse tenant that has a 200 page lease, if you’re one guy hanging out in an office and you’re in a dental business and you’re going to go out and buy buildings where there’s these major leases, you got to be able to comb through these things. It doesn’t just mean hiring a law firm you’re getting banged on your head. You got to be able to do it cost effectively, run through these things, abstract them, understand the key points because there’s so many gotchas. There’s so many clauses in these leases.

Tony Grosso:
We have a guy full time on the operations team, that’s all he does is review leases when we’re going into a deal. He’s not doing the physical due diligence. He’s not doing the tenant interviews. He’s not doing everything else. The financial due diligence. All he’s doing is combing through leases. Elaborating on Chris’s point about cutting corners and just real estate being a full time business, that’s just one aspect that I think that you got to be diligent when you’re going after these buildings, that you’re understanding exactly what you’re buying and the leases are huge.

Chris Palermo:
The other thing I want to say is that when you’re literally in the due diligence process and you’re getting ready to buy a property, one of the biggest mistakes I see for the guys, and again, it goes to cutting corners, especially for the smaller properties is they don’t hire professionals to go look at their property and do a property condition assessment. Where they don’t look at the roof, they don’t look at the foundation, they don’t see if there’s any asbestos or environmental issues. Then we see guys money go hard or something happens, and now they’re buying a building let’s say for five, 600,000, a million dollars, whatever it is, and then all of a sudden the issues that they have are half of that price to remedy it because they didn’t want to spend the $2,000 to send a professional out there to make sure that everything was in good working order. That’s a big mistake that any investor, any private equity company should make sure that they do, know that exactly what it is they’re buying and hire the professionals out there to do the work.

Tony Grosso:
I think that ties into staff as well, because when you’re hiring people to run your portfolio, whether it’s an account, whether it’s an asset manager, whether it’s a leasing guy, an operational guy, a property manager, you’ve got to hire great people. That goes without saying. A talented group, like I said earlier, a talented group of people can take a mediocre property to unbelievable heights. You can buy the best property in the world, if you’ve got a bunch of idiots working it and running it, you’ve got a chance of screwing up.

Tony Grosso:
It’s not just about cutting corners when you’re doing a physical report, or when you’re looking through leases, or hiring a licensed contractor versus Joe blow in the van, you ultimately have to hire great people and that’s any business. It’s a cliche thing to say, but it’s the honest to God truth. You think about accounting, I’ve seen over the years, another mistake you see is that you’re on a triple net lease and for some reason in the lease, they’re not billing back for a certain portion of snow removal and ultimately they go back in and they re audit the lease and it was a huge windfall and we weren’t charging or not us, but the entity wasn’t charging. You have to be able to have the right people in place to catch stuff like that because you’re dealing with a… there’s a million different elements, a million different things that go wrong. You’ve got to have the right people in place. It’s very simple.

interviewer:
Yeah. I think to even just further elaborate on that and to give an example, when you look at sports. You could have the best talent assembled on a team, but if the coaching isn’t there, sometimes it doesn’t jive, right? A lot of times you have to have a better coached team than a talent team. A lot of times you’d rather have a lower class building, to get back to your point, with a great staff behind it running the asset, as opposed to a better property with not as professional or not as seasoned people behind it [crosstalk 00:25:46] behind the scenes.

Tony Grosso:
You might be able to get away with less seasoned people if your systems and processes are set up properly.

interviewer:
Right.

Tony Grosso:
So if you have A to Z, we do this, if this happens and this happens, and then if this happens, you do A, B and C, right? If you have your systems and processes down to a science, which we like to think that we do, you could bring in somebody entry level and say, “Okay” and let them kind of handle [crosstalk 00:26:06] got some smarts. For us, and I hate to talk about us, but we want to have a great team. We want to have great properties. It’s that simple. We don’t want to do middle deals. Midway deals with a great team or any type of combination, other than great well located assets and markets that we think are going to be worth significantly more in assets [inaudible 00:26:25] more that are appreciating in value, and a great safe of people. I think if you do that, longterm you’ll have success.

interviewer:
So ultimately when it comes down to it, it sounds like there’s a lot that’s involved with running real estate. It’s not just a set it and forget it type of asset. You can’t just buy a building and expect it to perform well if you don’t know what you’re doing.

Tony Grosso:
You’re 100%, right? It’s a full time business. It’s not an investment unless you’re ultimately leveraging off of somebody else to do everything, except send you your distribution and increase value of the property. Hiring a property manager is a completely different animal than doing high level asset management, which is really what all of these properties need. Day to day property management is important. High level asset management from looking at leasing and physical and budgeting and accounting is the name of the game. If you don’t have the staff, the resources in place to do that for you, you’re operating from behind the eight ball. Which is why it’s very difficult for guys who think that they’re investors, not entrepreneurs, they’re real estate investors to be successful without the team in place and to kind of go off as one man bands.

Chris Palermo:
To that point, when you’re a real estate operator, when you’re a professional, there’s so much that goes into, Tony mentioned asset management. From curb appeal, tenant synergies…

interviewer:
That’s a big one.

Chris Palermo:
Yeah. The square footage breakdown, what type of term are you going to try to go for your leases, whether it’s a retail piece or a multifamily.

Tony Grosso:
I’m glad you brought up leases because think about what goes into leasing. We have guys that have relationships on a first name basis with every single potential tenant in our type of product type. We’re full time building relationships with new potential tenants, building relationships with our current tenants. I mean, that’s a full time job. It really is.

interviewer:
That in itself, right?

Tony Grosso:
That in itself is another thing. All of these different facets add up and you got to have the right players in place, but it’s a full time job. It’s really that simple. I wouldn’t attempt to take on… Knowing what I know now, I wouldn’t be foolish enough to go into a deal without a team in place.

interviewer:
You guys brought up a ton of great points. The management intensity that’s involved in running the assets, being able to know your lease structures, the language, knowing your tenants and prospective tenants. There’s a lot that goes into this. To sum everything up, what would be your one piece of advice? There’s someone listening now, he’s thinking about investing in real estate, give him one piece of advice, him or her, that they can take with them and maybe mull around as they’re deciding whether or not they want to.

Tony Grosso:
My one piece of advice would be, make a decision right now. What are you? Are you an investor, a real estate investor or a real estate entrepreneur? Make a decision. Are you somebody that’s going to go out there and try to build a huge portfolio or build a team… whatever your niche. You might be a guy doing development. I don’t know, single family fix and flips. It applies to really all businesses. Are you an investor or are you an entrepreneur? Are you somebody who’s looking to put capital to work or you look at somebody who’s looking to build out a whole crew and put something special together? When you’re able to ultimately determine which one of those you are, that’s the point in time you can say, “Okay, here’s what we need to do going forward.”

Tony Grosso:
As far as being an investor is concerned though, you need to work with a professional company or you need to work with somebody else who’s going to do all the high level asset management, the acquisitions. If you will looking to put capital to work by all means, there’s nothing wrong with that, but make that decision, leverage you off of somebody who’s doing it full time because they’ll do it right.

Chris Palermo:
What I would say is is that just like anything good in life, you have to put the work in. If you have the time to be able to devote and craft a plan, and vet deals, and vet vendors, and vet geographical locations on where you want to buy properties I think that you’d be able to do it. If you don’t have the time, figure out a way where you could either partner up with somebody or work with a professional company that can help you because the reality is this, real estate whether you’re buying triple net, a single tenant deals, or whether you’re buying a 50 unit multifamily, they’re all management intensive. You have to be able to devote time, you have to be able to know what you’re looking for, and you have to make sure that you don’t cut corners. That would be my only suggestion. Tony, you want to add one last thing?

Tony Grosso:
My last thing in closing is let’s stop looking at real estate like it’s an investment. Let’s stop looking at it like you’re buying a security and you’re a passive holder. For whatever reason, pop culture society has made this determination that real estate is just an investment vehicle, like a stock or a bond or a mutual fund, or savings account in the bank or something else that’s more of from a passive standpoint. It is not. I don’t know why it got tainted that way. It should not be looked at that way. Make a decision. Either you’re an entrepreneur, somebody who wants to operate real estate, or you’re an investor who wants to put capital to work, and then you’ll be clear. You’ll know exactly what you need to do going forward.

Nick Cucci:
So that was Tony and Chris talking about commercial real estate. Are you going to approach it as a business owner or as an investor? Thank you, Chris and Tony for your time. We really appreciate you guys as always. Thank you all for listening. The show is brought to you by First National Realty Partners, one of the top syndicates of private institutional quality commercial real estate in the country. If you’re interested in learning more about FNRP or we’d like to get access to our private offerings, please click the link in the show notes or visit fnrpusa.com.

Nick Cucci:
Remember that this show is for educational purposes only and should not be considered a solicitation to purchase securities or be construed as tax, legal, investment, or accounting advice. Thanks again for listening and we’ll see everyone really soon.

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