0:01

Welcome to Episode Four of Season 10 of the Growing Empire Show. I am back for part three, the final segment with my special guest, Adam Von Romer. We are continuing our conversation about the world of commercial real estate and everything that you need to know to be successful in your investment strategies. Stay tuned.

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Welcome to Growing Empires. Hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

0:42

You've got to be very careful. And that's why I said you buy your profit upfront. And listen, again, don't fall in love with the deal. And just move on. Oh, yeah, well give you a prime example. Anybody that I know in South Florida, I am telling right now any any of my customers, I am telling you right now, sell your properties. Take the cash, and let's move you to and I'm becoming a bigger fan of the Midwest and the north east. Because there's a first off, there's a different ethos up there. You know, people of people are really concerned in Pennsylvania, even to a certain extent, people are concerned with paying their bills. Yeah, people worry about making that payment. They're concerned with paying their bills. You're not seeing like down here. The best way I can describe Miami and Fort Lauderdale is it's like the Wild West. You know, I joke about I joke about this, it's like, every crook and scumbag that got thrown out of the Northeast, washes up on the shores down here. And it's, it makes it it makes it interesting to do business. But, you know, it's just a different world, you know, in a different, you know, like here, it's like, well, the busiest day of the week is always manyana. And for those of you don't speak Spanish, that means tomorrow, Manyana manyana. It's always and you know, whereas in, you know, in Indiana, Illinois, Nebraska, North Dakota, South Dakota, those places people are concerned with credit and credibility. And, you know, I, I've been involved in transactions there that, you know, you think, Oh, well, it's, it's Kansas? Well, there's more A and B paper coming out of those places than probably the rest of the country combined. So those are those are areas I'm looking at. I'm also very, very much into tax, personal tax free states. So when I look for assets for my guys, I go to Texas, Tennessee, Alaska, I forget that I keep a list of because I can't remember. Especially at my advanced age, you know, on the checklist, but in the personal income tax free states. And then again, I look at those, those triple net opportunities. As far as local hands on management stuff like in Lehigh Valley. If I had people that I knew there, you know, especially if they were if they were bigger investors, I'd say hey, listen, let's liquidate this let's move you into a, I’m not going to say CVS today, because they're closing 900 of them, you know, let's let's move into a Walgreens or something. Or let's move into a and I always get them confused, but like, it's either Dollar General or Family Dollar, that's a triple net deal to 20 year lease, one and a half percent annual increases and a corporate guarantee. You don't even have to have to see the property. Nice, you know, it's just there and it's performing. If somebody is particularly, you know, good at managing. I have a buddy, I literally have a buddy who I've known for probably 25 years. And he only buys let's just say, somewhat less than desirable multifamily properties. But he's an absolute expert at making them perform. And if it's if he jokes about if it's dirty and nasty, he buys it.

4:10

Yeah, yeah. Do you think it's necessary for somebody that is because we're talking about now moving your money, right? You're you're advising your clients to move their money to other other assets and other states? How do you identify, how would you suggest Alright, let's just say that they're not working with Adam and Adams not, you know, doing the due diligence for them. How would you suggest somebody went about trying to identify where they might want to invest?

4:35

Well, I'm going to give you my CCIM commercial. Okay. First off, and please do not take this the wrong way. But I would seek out a CCIM or an SIOR to help me buy a commercial property. Okay. And you know, I've been agitating for years down here that residential should be practiced by one group of people and have one license and commercial should have a different license, because they're really greatly different transactions, like I think I shared this with you earlier, I don't care what color the carpet is, I don't care if your sofa fits, I've got a chainsaw, it'll fit. In my world, it's about income. Does it cash flow? Or conversely, if it's an owner user buildin, is it where they need to be? Is it by a major transportation hub, a supply of raw materials, or their their customer base? So two entirely different metric and different attitude. So that's what I would do, I'd look at somebody who's CCIM, SIOR. And, you know, I'm kind of partial, I'm going to expose my prejudice here. But, you know, also somebody with a little bit of gray hair. Yeah, don't, don't drive, don't drive them nuts. You know, tell them what you've got. And for God's sake, be honest with them. You know, listen, if you know, if it's $12 or 12 million bucks, tell them what you've got, and what your objectives are, and see if they can help you. And if they can't, you know, don't don't take it personally. It's just, you know, maybe that's not where the market is today. So move on. But you know, and I'm not taking a shot at anybody. But just because you have a real estate license does not mean you are competent to practice commercial real estate.

6:28

Yeah, that's true. That's very true. So your best advice would be find somebody that's an expert in their craft an expert in commercial real estate. Yep. And use them to identify the best types of investments in those those outside states.

6:42

Well, and if you've got a if you've got a good relationship with them, for example, remember I said check out the valuations. Yeah, I do proposals in order to list commercial properties, right? Well, if somebody calls me up, who's a client of mine, and says, Hey, what do you think, you know, what do you think my property's worth today? I can go in and zim zam, zoom, I get on, you know, Costar or some of the other services, I have put together a brief spreadsheet. And poof, here it is. Give me a primary example. And you got to promise not to laugh. I'm working on. I'm working on selling a marijuana dispensary. Okay. Okay. Now it's a $4 million deal. Why? The largest marijuana dispensary company in the country just signed a 20 year triple net lease on this building. There's no way on God's green earth, this thing would be worth 4 million bucks by itself. But add a corporate guarantee from a company like that. And guess what? And the guy who I'm dealing with I met him I started with him probably about two years ago. And at two years ago, it was about a 3.4, $3.5 million deal. Well, the market has changed. So, you know, a year later, it was worth, you know, 3.8, something like that today. You know, I looked at the comps and looked at what's trading, send them a spreadsheet, and it's a $4 million deal all day long. So again, if you've got that kind of relationship, you can say, hey, you know, Adam, tell me what's going on in the marketplace, what are you seeing? nd you can get a pretty good handle on, on what's happening in the marketplace.

8:23

So if you're an investor that's got, let's just say a large handful of properties, whether they be commercial or whatever they are, right? When do you determine or when do you advise clients that it's now time to look at other markets? Like how do you know you're ready for another market?

8:41

You know, what I would say it's going to be based on a combination of their investment objective. And, you know, certainly their risk tolerance, if you will, and their desire to be, you know, their desire to be involved. My my personal plan, for example, is I plan on on doing this for another 15 years. And then anything I own, I am planning on doing what's called an up REIT, where I basically sell my properties to a REIT and not for cash, but for shares in the company. And then, you know, so I've got shares in the company, my my management responsibility is zero. And if it's a big enough, I mean, some of these companies are billions of dollars. The ones that I'm working with right now is a $5 billion dollar company. So I offload my warehouses to them, you know, I get, pick a number Yeah. $5 million worth of warrants for shares in the company, right? Plus dividends. And then, you know, I jump on my boat in my shorts and tank top and put on my straw hat and go fishing. And that's, that's the extent of it. Yeah, for somebody who's on the other end, you know, you're gonna want to be not necessarily fixing and flipping but buying those opportunities, increasing the value in some form or fashion and selling it and flipping you know, or 1031ing into something bigger, and just continually watching that market and watching, you know, it's like this. My thought process is put all your eggs in one basket, then watch the damn basket. Yeah, make make sure make sure you're keeping an eye on it. You know, and when the time is right, don't hold out for the last nickel. Make it gone. Make it somebody else's, take your proceeds 1031 them into something else, then, you know, start the cycle all over again.

10:33

Yeah, so when we're advising clients locally here about multifamily which is a high percentage of what we do is large multifamily. We do commercial as well, but it's large multifamily. And we are advising them to, you know, unless you know what you're doing and have some experience in management, never, under any circumstance, try to do it yourself. Because you're just gonna mess. Always hire, always hire a professional management company. But I suspect that commercial real estate is a lot different in that respect. Do you still advise your clients who are not experts in managing or leasing? Do you still advise them to seek out a management company? You don't think and it's just so simple, especially if you're, of course, if you're investing in triple net? But do you think that it's simple enough that one could realistically be successful managing their own assets?

11:22

Well, again, let's let's talk about what goes into managing a warehouse. You know, you have to pay the taxes, you have to pay the insurance periodically, you get the leaf blower out, you know, and every 30 years, you put a roof on it. Right, you paint it, etc. Now, to your point on leasing, I think it's imperative that if you move into that you have to have a relationship with a good leasing broker. Because just like that story I talked about earlier, you know, we've got a building that could be worth substantially more, but the leases, because she's likes the people, and they've been friends for 30 years, are at half what the market rate is, right?

12:01

Well, that’s the key. You’ve got to know what the market rate actually is. Because, again, maybe it's just our market and what we are doing here, but, the disconnect between what real market value is and what people think it is, is sometimes..

12:16

Yeah, especially now. Oh, I just heard well, my favorite is was the guy down the street just sold his building for $10 million. No. Yeah. Well, of course, it's a nicer building. Absolutely. It's in a better position. Now, the market is what the market is. You've got to look at what's going on comparable sales wise, income approach. And that's what when I do a proposal, that's what I do. I income, you know, cost approach, income approach. And typically I look at the actual price per square foot and what's traded. And then I compare and contrast all those to see what the, you know what the real you know, I call it the golden mean is. Where are we going to land that it represents a substantial, you know, return, or you know, that it makes financial sense for somebody to buy it? And that's, you know, that's really what I target.

13:08

The episode will continue in just a moment.

13:12

As an investor, we know it's important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success. If you're interested in having these types of resources, as well as access to me and my team, I invite you to join the Empire Investment Club. A free service that gives you an easier way to make sense of today's and tomorrow's real estate opportunities. As a member of the Empire Investment Club, you'll get access to relevant resources and investment focused experiences such as live interactive webinars, market trend presentations, and investor socials designed to equip you with what you need to succeed. So whether you're an active investor, passive investor, a combination of both or just starting out the club is where you'll get what you need to build a portfolio you love. To join, just head over to JenniferdeJesus.com, sign up, and we'll see you in the club, where everyone's on a journey to becoming a better investor.

14:10

So you know, that's probably what I would suggest, as they start out small get their feet wet, if they get into, for some reason, if they look into a retail or an office building, you're going to want property management. You're going to want a professional leasing agent. Now, if you got a four unit like strip center, neighborhood center, you probably don't need a property manager. But you know, you're definitely going to need some accounting background. The other thing I will tell you, have you guys been doing any cost segregation studies up there. If you've got a client and you know, and they haven't done a cost seg study on their property. They're missing an opportunity that's not going to work on a four unit. But if you got somebody who's got a 40 unit, they absolutely need to do that. Absolutely. Because that that juices up the yield. And consequently, it's going to juice up the value of the property. So that's something that, in fact, I was I was getting an illustration, I should be getting it as we speak, on that property down in Miami. Because the only way it's going to perform is after the study. Right, you know, with the tax shelter. So that's the thing that, you know, a real practitioner will be able to tell you. Somebody who just got their license working it, you know, Bob's Realty, not gonna happen. No, well, you know, it's funny, because I've been a real estate instructor for like, 30 years. And, you know, you go in and you teach the, the 63 hour pre licensing course. And then, you know, in hour 62 and a half, you go, Oh, and by the way, there's commercial real estate too. Okay, but it's, it's about passing the test, and not understanding the business. That's not what that's about. You know, in fact, if you read the statutes in Florida, it says that the, you know, the reason for this legislation was to render the practitioners minimally damaging to the public. So, yeah, that's, that's where that's at.

16:13

So I have a million dollar question for you.

16:17

And you're gonna pay me a million dollars for the answer?

16:18

All depends on how good your answer is.

16:21

Listen, as a broker, I can make it up.

16:23

I would like your prediction for what you see in the marketplace. And you could be talking about Florida, the East Coast or anywhere else in the country you want to talk about. But I'd like to know what your prediction is for the marketplace in commercial real estate over the next 6 to 12 months.

16:41

Okay, fair enough, I think that we're going to see interest rates go up, okay. And everybody needs to understand that for every 1% uptick in the prevailing interest rate environment, there's a commensurate 10% decline in the value of real property. Okay, if we, as we go from three to four, your million dollar building goes from a million to 800,000 to maintain the same yield on the same cash flow. So that's the first thing that I think we're gonna see. And, you know, given the climate out there, you know, we're seeing things like, well, you know, we're gonna give the IRS the ability to look into your bank accounts. And if you do over 600 bucks, they get to look at your transactions. I know, I know, I'm gonna sound like a kook, okay, but I am looking seriously at whatever I have liquid, buying gold. And that's another story entirely. Because, understand our currency is fiat currency, it's not backed by anything, right. And when we get into inflation, as that takes off, or even we get into hyperinflation, you know, now all of a sudden, your dollar isn't worth the dollar anymore. It's worth like 67 cents. And hard assets, real estate, gold, etc. go up relative to the dollar. So that's, you know, that's kind of my thinking is. I’ve got surplus cash, you know, keeping my I'm keeping my powder dry, sitting on the sidelines right now. I'm waiting for, you know, as the French would say, the miere to hit the le ventilature. And then I'm going to come ripping back into the market and, you know, buy whatever I can. So I say 12 to 18 months we're gonna see interest rates incline. We're gonna see values decline. Depending on what goes on, like, for example, with the cost of fuel, you know, things like that, you know, I think we're gonna see the velocity decrease drastically. And, you know, some, and some of these people are gonna end up like bugs on the windshield. You know, what happened? And then, you know, and it's, it's, you know, risking the sounding ugly, it's, they over leveraged, they bought more than they could handle. And, you know, splat! Now, good news, bad news. Bad news is a lot of people will lose a lot of money. Good news is it'll present opportunities for people to pick up assets at prices that make sense.

19:10

Yeah. Then ironically, I was just going to ask you your, your theory behind when we're seeing the foreclosure set. Right.

19:17

So listen, I'm an economic Darwinist. If you're a bonehead and did a bad deal. You deserve to lose your money. And somebody in I mean, I know it sounds harsh, but think about it. That's how the economy revolves. If you if you if you you know, blow your own legs off, somebody comes in and picks it up and makes it perform. And that leads to further investment. And I know it's harsh, and it's, you know, it's not, you know, warm and fuzzy. But that's what kind of makes the the economy go round. And again, it's back to the 85% of the populace that’s really drive in this thing. Right. One of the illustrations I talked about in when I was teaching real estate school is, when you have an economy. Like, for example, US World War Two, you had two and a half million soldiers coming back from Europe and in Asia, to a place where now the war production had tapered off, it's gone. So now you've got this massive unemployment issue. So somebody, a pretty smart, somebody came up with the GI Bill, send them to college, give them low interest rate loans. And simultaneously, they decided to build out the infrastructure of this country. And if you drive around, just look at the dates on a lot of the bridges and stuff, 1954, 1963, etc. And that led to the longest economic expansion in history. And here's, here's what happens. The guys building the bridge, who came back from Germany, right? He's building the bridge, he's getting paid. He's a veteran. So he takes $1 and goes to Jenkintown and buys a house through the VA bill, right? Well, he bought a house that a carpenter had to build, right? So the carpenter builds the house, and he's working 50 hours a week to keep up with the demand of houses. So he goes and buys himself a new truck to put his tools in. The guys in Detroit have to make more trucks to keep up with the demand of the carpenters, and the guys in the Pacific northeast have to cut down more trees, they have more money to go out and buy a new truck. And then, of course, everybody's gonna have you know, 2.3 children, a one carport, and the latest labor saving appliances. And yeah, now all of a sudden, we've got people buying, you know, color TVs, and you know, the guys at the Motorola plant or making color TVs, they've got more discretionary income. So they go out and they buy, you know, a new refrigerator, or whatever. And it's just this giant circle of cash flow. That's why you know, I say macro economics be damned, it's micro economics. hy it's going on with the people on the street. You know, and I say, this may be a little tongue in cheek, but look at the guy who sells hot dogs, you know. Is he selling a lot of hot dogs, or is he not selling a lot of hot dogs? Or look at the guy who's, you know, pick a transmission shop, or a builder. What are they doing? Are they busy? And if they are busy, or they, you know, obviously, we're hoping they're making money. And that discretionary cash flow, that discretionary capital is what goes back into the market and drives things. So that's it. That was a lot of talking.

22:20

That was a lot of talking, but I'll tell you what, you are a wealth of knowledge and insight, and you know, just great energy and great to talk to. So I, I absolutely cannot thank you enough for all of your time today. I will make sure that all of your information for anybody that might want to reach out to you if they're thinking about investing in the southern states, or want more information about commercial real estate in general, they certainly by now have already figured out who the expert is in that marketplace. So I will make sure all of your information is in our show notes page with access to you.

23:00

Thank you. Great to be here.

23:03

Thank you for listening to this three part segment with my special guest, Adam Von Romer. I'm sure you got to see that he was a wealth of knowledge regarding commercial real estate, and it's a part of the market that was untapped, as far as we're concerned. And there still presents a lot of growth and opportunity for your real estate investments. So I hope you got a lot out of these three segments. And if you missed any part of them, please make sure that you go back. Because I really feel that they have a lot of valuable content and whether you need it now or in the future, commercial real estate is definitely the wave of the future. Until next time, take care.

23:40

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit growingempires.com

Please visit www.adamvonromer.com for more information and to see how Adam might be able to help you!