The Private Equity Real Estate Podcast – Show 16

   

   

Summary
On this week’s episode, we have Tyler Cauble, the President of Cauble Brokerage located in Nashville, Tennessee.

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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 on this program every week, we are going to sit down with experts in real estate and we’re going to talk about different topics across the commercial real estate landscape. And this week we want to talk about a topic that was actually broached on First National Realty Partners’ website and you could find that at fnrpusa.com under the blog section and of course, we’ll just provide a direct link to that in the show notes as well if you want to check it out. And that is, we’re talking about investing in an economic contraction and today we wanted to talk about some of the positives. In order to do so, we head to Nashville, Tennessee, and we’re going to talk with this man.

Tyler Cauble:
If you’re not passively investing in commercial real estate, you absolutely should be. Commercial real estate investing has many benefits that other investment vehicles like stocks and bonds wish they had.

Eric Murphy:
That is Tyler Cauble not only is a bestselling author on Amazon, but he’s also the President of the Cauble Real Estate Brokerage in Nashville, Tennessee. And Nashville is an area that has really exploded in growth over the last several years. And Tyler is a native Nashvillian so not only has he witnessed that growth firsthand, but has also really put a stamp on it with some of the things that he’s done with his company. So we want to welcome to the program, Tyler Cauble, thank you so much for being here.

Tyler Cauble:
Eric, thank you so much for having me, I’m really excited to chat with you.

Eric Murphy:
You’re a guy that’s clearly very passionate about commercial real estate, you’ve got blogs, got a great YouTube Channel with some informative videos, little background for people who may not know your story, how did you get involved in commercial real estate? And what is it about it that you love so much?

Tyler Cauble:
Yeah. Absolutely. So I actually kind of just fell into it, it wasn’t something that I was ever thinking that I would be in. I dropped out of college when I was 19, 20 years old after my freshman year I just didn’t like college. I went to a good high school, so I felt like I didn’t need it and I had done really well in sales working part time. So I figured, you know what, let’s go directly into that. Came back to Nashville, I actually started working as a project manager for my grandfather’s construction company. And three months into that, somebody that I had actually sold to, one of the developers I’d sold to at my previous job, heard that I was back in town and recruited me to come work for him. This was back in 2013 and back then shopping centers were going very slowly.

Tyler Cauble:
There just wasn’t a whole lot of leasing activity going on and so he wanted to bring somebody in-house to handle the leasing of a shopping center that he owned as well as a mid-rise that he owed in Nashville. And so I came in and kind of cut my teeth on that and that’s where we got started. But I ended up falling in love with it because the amazing thing about commercial real estate is the impact that you can have on these neighborhoods around you. You know I’m from Nashville and so to be able to kind of give back to my city and be a part of these amazing developments, one story I tell all the time is this coffee shop right down the street from me, Retrograde Coffee. They took an old decrepit building that was vacant before and came in and retrofitted it and built this beautiful coffee shop that’s now the community hub for this entire neighborhood. And I think it’s really cool that you can provide that doing what we do.

Eric Murphy:
Why do you think Nashville has grown so much over the years?

Tyler Cauble:
Yeah. So Nashville has exploded in popularity. I mean, back when I was growing up here, it was a small town, man. I mean, it shut down at 10 o’clock at night and now it’s almost like a second Las Vegas, it’s kind of crazy. But you know, Nashville has an amazing culture. You’ve got that Southern hospitality mixed with a modern forward-thinking city. We’re very healthcare and technology-based which certainly helps with the economy. And they call us the Athens of the South. We’re one of the most educated cities around, so that coupled with no state income tax makes Nashville a very, very attractive place to live.

Eric Murphy:
You mentioned the coffee shop, what are some other projects that you’ve worked on that you’re really proud of to have brought to the neighborhood?

Tyler Cauble:
Yeah, so there’s all sorts of smaller little retail things here and there that are really fun. We’re working on a food hall right now it’s going to be kind of a high-end artists and food hall. We’ve worked on a number of restaurants. I mean, restaurants and honestly restaurants and fitness concepts are kind of my favorite when it comes to neighborhood impact because when they’re done correctly, those make the biggest change. So restaurants have been a lot of fun, but right now we’re working on some larger mixed use developments and those are really exciting because you can actually create a community.

Eric Murphy:
Yeah, that’s very cool. So 2020, it’s been interesting and it’s been a challenging time for investors, but I take a look at the articles that you have posted up and I’ve seen some of your YouTube videos and you seem pretty optimistic about kind of where we’re headed. What are some encouraging signs that you’ve seen that makes you feel like it would be a good time to invest?

Tyler Cauble:
Yeah, I think the last few months have been a massive opportunity. Anybody that is looking to take advantage of the panic, there’s always opportunity in that. How many millionaires were made back in 2010 when everybody was afraid of buying and some guys just went out start buying stuff? And I think the same thing has happened in last six months. We’re going to see a massive shift in wealth in real estate, because there were people that were very active during this time and some who were too scared. I mean, we’ve put in the last two months alone, four and a half times more under contract than we did as a brokerage in 2019. So if that tells you what kind of activity is happening in Nashville, that should be pretty positive for commercial real estate. I mean, that’s a [water 00:05:11] product.

Tyler Cauble:
And a lot of it is from outside investors that are mostly in California and New York and Chicago looking to get their capital into the Southeast. The coronavirus has across my personal portfolio, we’ve collected well over 100% of our rents since all of this happened, most of our landlords have had… We’ve had to work with a couple of tenants, but we haven’t kicked anybody out, nobody’s had to leave. Everybody’s still paying rent. So it’s been pretty positive overall. A lot of the businesses that have kind of gone out were businesses that were teetering anyway. The strong will survive, we had some clients that pivoted to an online model fitness concepts that started renting out equipment. They thrived in the middle of this.

Eric Murphy:
That’s great and so a situation like we’re in now does that you change the way that you might evaluate a property?

Tyler Cauble:
Yeah. I think it’s very important to have your investment criteria and really stick to that, no matter what kind of market you’re in. When you get into a hot market, it’s very easy for a lot of investors to just start saying, “Well, the market’s headed this way, so maybe we’ll overpay now and it’ll catch up to us.” I mean, I’m always relatively conservative with what I’m doing, if I can’t make it work with X amount of vacancy or if I get 10% below market rates, then it’s not an opportunity to me.

Tyler Cauble:
And I’m not in here to give myself a job for no reason. We’re here to make a lot of money and so, and have an impact. And so a lot of the projects that we’re working on right now like we put a deal on our contract it’s a 300,000 plus square foot shopping center. It was on the market for well over 30 million before all of this hit and we got it under contract at 18. So, there’s opportunities out there if you’re willing to look for them, but I’m always conservative on my vacancy rates and my lease rates, because as long as I can make it work, assuming the worst then it’s a deal.

Eric Murphy:
You had this great article that I came across about properties that you think will actually thrive after the coronavirus. Before we get into that, do you have like some properties that you think are maybe safer bets for investments or are going to kind of bounce back a lot quicker than maybe some people are predicting?

Tyler Cauble:
Yeah. Well, there’s some assets that they’ve taken off like distribution warehousing especially in Nashville, because we’re so close to I think within a day’s drive, you can reach 80% of the nation’s population and because of that, it’s become a massive distribution hub. Well, warehousing over here, we had less than 6% vacancy rates before all of this hit and it’s decreased. There’s just nothing available. So warehousing is doing extremely well. One thing that I think will also emerge out of that will be micro restaurants. I think that restaurants, and I think this could be said for any emerging city, but especially Nashville, restaurants just got too big. I mean, who needs a 5,000, 6,000 square foot restaurant where half the seating is vacant for most of the time? We’re starting to see a massive shift towards, we’ve got some restaurants we’re doing that are less than 400 square feet. I mean, it’s basically a walk-up counter and the numbers work really well, even though we’re charging high rates.

Eric Murphy:
When you mentioned the micro restaurants in the article about the businesses that might actually thrive after the coronavirus, one of them was micro apartment units. So just across the board, do you think that that’s kind of the direction that we are headed?

Tyler Cauble:
I do. I just think that that’s more efficient and I think that I mean, look at me I’m a millennial but I work all the time. And so I was in a 750 square foot apartment unit and I started looking out I was like, “I’m never home. I never even cook. So I’ve got half my space as a kitchen and an island for entertaining people I never have people over to entertain them. So I could actually live with half of this.” And so that’s what got me started looking into micro units and then now we’re testing out. We’ve got a 126 unit apartment complex that was converted from an old motel with rooms that are about 216 square feet. And we’re coming to market with an all expenses included rate. But we’re looking at just under $1,000 a month on that.

Tyler Cauble:
I mean, you start running the numbers on a price per square foot basis and that’s incredible. So I think for landlords, it makes more sense because you’re going to get higher dollars per square foot for better space. And for tenants, you’re going to have a more affordable monthly all-in rate for the space that you need. So I think, of course you’ve got to program the amenities right and you’ve got to be in the right location and stuff like that. But we’re doing some units are 216 square feet I think micro units are definitely the future.

Eric Murphy:
Especially with everything going on, I think people are going to want things closer and maybe even in their apartment building, your gym, your grocery store, everything right there in the building. Are those the type of amenities you’re seeing being put into the micro apartments?

Tyler Cauble:
That’s exactly it. That’s exactly it. I mean, you’ve got to be at a good walkable area. You now one thing that I think multi-family developers just ignore, or maybe they just don’t understand it and they really should, is ground floor retail and how that can be utilized as a money-making amenity. A lot of multi-family developers especially in Nashville, but I think that this is true for many Southern cities they build retail because they have to. I mean, they’re forced to by the city or whatever and so the retail is always an afterthought, but, man if you program that correctly you get a really cool restaurant in there, you get an amazing fitness concept, a coffee shop, something to that extent and that is an amenity for your tenants. And you’ll start leasing space to people just because of that. And you’re collecting rent on it, it’s not a gym that you’re having to pay to maintain.

Eric Murphy:
So the micro apartments, that’s one of them you mentioned briefly another one that you had on the list was last-mile warehousing.

Tyler Cauble:
Yes. So look at Amazon stock over the last few months, right? it’s just… It’s absolutely skyrocketed and I think a lot of people have become very accustomed to buying things online, we’ve been ordering just about everything online. And I can still go to the store, but to me it’s more convenient to pull up my phone, order it and it’s there in 24 to 48 hours. So, within the urban cores of growing cities, there’s not a whole lot of last-mile industrial warehousing because it’s been torn down to accommodate some other use. So any sort of warehousing that is that close to the core is going to be high demand you’ll get higher dollars per square foot for it because when you need a logistics hub and you’ve got hundreds, if not thousands of vehicles coming in and out all day, you don’t want to be on the very edge of town where everybody’s got to drive 10, 15, 20 minutes to get to you and then drive 10, 15, 20 minutes back to town. So, you know that last-mile warehousing is going to be very, very crucial for delivery products moving forward.

Eric Murphy:
And last one you have on the list is neighborhood retail and what do you mean when you say neighborhood retail?

Tyler Cauble:
Yeah. So I mean your smaller strip centers that are located within neighborhoods, they could still be along major thoroughfares, but maybe they’re tucked away as well. Something that has the local Mexican restaurant or the coffee shop, or a little grocery store, the dry cleaner something like that, because those kinds of tenants aren’t going anywhere. I mean the dry cleaners, Amazon-proof, coffee shop, Amazon-proof. You cannot deliver the same product. So, I think that consumers are going to be utilizing strip centers and retailers that are within their neighborhoods because it’s very convenient for them and the tenants and product that we have, those tenants have been doing really well and those shopping centers have been doing really well. We haven’t had to worry about them.

Eric Murphy:
That’s great. You also own several office buildings in the Nashville area. If we do have more shutdowns, we know how that’s going to affect things kind of short term, but what are your thoughts in the near and long-term future? Like how quickly do you think that the market is going to recover? And do you think that people are going to want to go back to work in offices again?

Tyler Cauble:
Oh, absolutely. I don’t know if you pay attention to the stock market too much, but last week when they announced the vaccine, Zoom’s stock dropped by like 16 or 17% because people are very excited to get back to work. I think this has been an experiment that has proven that yes, in a worst case scenario, we can make work from home happen, but it’s not convenient. No one likes doing Zoom calls all day, it’s not as productive for the team, you don’t create as much synergy and it’s tougher to have that physical presence for your clientele. So, absolutely. I mean, honestly, class A office space that scare me a little bit because those tenants are sophisticated enough to hire attorneys to say, “We’re not paying rent, do something about it.”

Tyler Cauble:
But class B and class C tenants, they don’t really think like that and they’ve got to get out and work. I mean, a lot of class C and class B tenants are mom and pop shops that, if they don’t go to work that day, then they’re not going to eat next week. And so all of our stuff was B and C and like I said, we collected 100% of our rents. All the buildings that really were having trouble were class A where the tenants were sophisticated enough to argue with them about it.

Eric Murphy:
Yeah. I feel like at the end of the day, we’re all social creatures, right? And we are going to kind of crave being around our coworkers and want to be back in offices again. I have read articles that say it might change the way we lay out an office. Employers might want to space out their employees a little bit more, maybe not an open layout plan, maybe more offices and in turn larger office buildings what are your thoughts on that?

Tyler Cauble:
Yeah I’ve read some of that and honestly, I just don’t know that, that maybe in corporate America and I don’t deal with a lot of corporate real estate. So, that I guess understand that I’m coming in at with a small business entrepreneurial mindset. I don’t really see that being a huge impact. I don’t think that people are going to get bigger space because they want separate people in the office. I think that businesses will, if they really want that distance, then they’ll start scheduling people at different times. You come in from 8:00 to 12:00 and then the next group comes in from 12:00 to 4:00. That way they can kind of utilize the office a little more efficiently, but at the end of the day, if you’re going to all be in the office and something happens there’s a chance you’ll get sick no matter what, right? I mean, you’re all going to be walking past each other in the hallways and stuff.

Tyler Cauble:
So I think that some office space will get smaller, just as a factor of it. I think there’s some businesses that may never come back to office space. They realize, “Hey, actually we can work remotely and it’s more convenient for us and whatever it fits the bottom line better.” But I know from firsthand experience, I know people that came out and leased office space for the first time ever, because they were so tired of being stuck at home that they just wanted a different space to get out of that rut that they were stuck in at home. And so, we’ve got one building where we signed six leases since March and I don’t have… I mean, that’s that’s office space, right? So I think that that’s pretty critical, smaller office space of course is going to be better. Right now I’m on that micro unit kick.

Eric Murphy:
Yeah. You’re a person that has really stressed kind of the importance of thinking creatively when it comes to commercial real estate. Has there been a creative solution that you’ve come up with in the past that might be relevant to the current situation that you’ve learned from, or that has benefited you greatly?

Tyler Cauble:
I think I naturally kind of lean towards that anyway, when I was looking at big boxes years ago, the first thing that came to mind was pivot these to churches, fitness centers, warehouses and it took a lot of shopping center and retail developers a long time to figure that out. They really tried to struggle and try to keep it as retail for as long as they could. And to me the biggest thing about being a commercial real estate investors is that you cannot get stuck in your own groove because you get caught in this feedback loop of, no, we got to keep doing this. We have to keep doing this work and you’re not listening to what the market is saying. I mean, the market was saying for a long time that those businesses are going out.

Tyler Cauble:
And so a lot of developers or investors that didn’t prepare for that they really paid the price. You know, again, I think the biggest thing that people can start working towards right now is micro units. That’s the big kick that I’m on. The other thing is urban neighborhoods, I love the urban core adjacent. I’m not too big on the urban core I think that traffic, density, all the issues you have to deal with, it’s just too much, but urban core adjacent, the neighborhoods that immediately surround downtowns. Those are incredible areas to invest in because you’ve got a built-in clientele, you’re just outside the downtown so you’re still convenient to a lot of people and they’re not building any more of that real estate. So, you look at like in Atlanta and you compare what downtown looked like in 1980 compared to today, the downtown grew into those urban core adjacent neighborhoods. And so I think that’s where the value is.

Eric Murphy:
Before I let you go you did write a book I can actually see it there in the background. It’s available on Amazon can you tell us a little bit about that?

Tyler Cauble:
I’d say yeah I wrote that book when I was 25 on leasing commercial real estate. So what I had seen was a lot of small business owners had no idea what they were doing when it came to leasing space. So I kind of wrote the guide on how to approach it for them.

Eric Murphy:
That’s great. Tyler, thank you so much for joining us today. Where can people find you on social media?

Tyler Cauble:
Yeah, absolutely. So you can find me on YouTube, just Tyler Cauble, we’re releasing commercial real estate investment strategies, leasing and management tips, market update videos, and more on that every week. And then if you want to directly get in touch with me the best way is through Instagram. I’m very responsive there. My Instagram handle is commercial_in_nashville with underscores in between, or you can just search Tyler Cauble.

Eric Murphy:
I appreciate the time today, Tyler thank you very much.

Tyler Cauble:
Eric, thank you so much, man. I appreciate you having me on.

Eric Murphy:
My thanks to Tyler and thank you for listening to the Private Equity Real Estate Podcast brought to you by First National Realty Partners. Once again, if you’d like to check out the article about the case for investing in an economic contraction, you could do. So it’s posted up on the website, fnrpusa.com or just check the show notes and we’ll have a link directly to that for you. Thank you again for listening. Please subscribe, rate, and review the podcast and we’ll talk again next week.

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