Episode #091- A Review of Our 2022!

Today hosts Braden Cheek, Brian Duck, and Joel Thompson review their 2022 deals and acquisitions while gearing up for a different approach to their investing strategy in 2023!

Welcome back to how to invest in commercial real estate. We are back 2023, I know, I mean we've been, when do we start podcast 2021 like November 20 late 20 one. So it's been a long time coming And you know, it's it's exciting. We had an insane year last year and I think today we just wanted to go back and and kind of do a spotlight on 2022 and then maybe at the end go into what we're thinking for this year. So we did a ton of deals last year, right? Like I think we bought 10 and we sold four so more than a deal a month, a lot of activity um obviously couldn't have done any of this without our investors so massive thank you and shout out to them. We had a ton of new people get involved this year on real estate, right? Like the investor list continues to grow. How many new investors did we get on our list in 2022. Do you think you have any idea? Easily 100 easily 100.

But I think out of those 100 new people that invested with us last year that haven't invested before, there's easily 25 people I want to say, I mean at least two brand new people, every single deal, which is just amazing, right? Because that's why we're doing this is the testament to get people involved in real estate. We found were doing it to make money also. Yeah, we're selling you of course will make you money. Why we make money. Isn't that a fair trade? I mean win win anyway. So thank you to you guys for listening and being part of criterion and we're just gonna go through. So we started off the year with a bang and in january we bought Plaza West, it was $7.5 million acquisition. So I personally love Plaza West. That's probably our biggest deal today. Right at that time, was it? That was the biggest deal at the time, biggest deal today. It's been a huge home run, massive home run. Right? So we, we bought this massive shopping center at three out parcels in front of it. We talked about it a lot on the show. We were able to successfully close those out parcels as well as distribute cash flow all year.

And the investor I our our is ridiculous on that. And they got 100% of their money back and we still own most of the shopping center and it's still cash flowing and it's still paying down the debt, massive home run on that deal. Um, not too long after that. I think it was in april we bought Gordon and farmer. That was marketplace, marketplace commons was like a month later. But yeah, both of those together, we combined in the ST louis retail fund one. So, um, that was going great. You know, we knew we had a decent amount of Capex work that needed to be done initially, you know, some roofing, some sidewalks and parking lots, stuff like that. But that one we actually walked into, we had several tenants immediately kind of non default. Um, a couple that were struggling with just getting them on our payment schedule. So that one wasn't the best this year, but we're optimistic for 20, and we've got a decent amount of vacancy to fill. And that was the plan with that asset really all along. Yeah, I'll just, I'll just make a note that out of 10 deals, I would say that one or two is probably been the toughest deal.

And, and so I just remind investors we haven't had deal, we haven't lost anybody's money, but there's always that chance that deals won't go the way we want them to. This is an example of a deal hasn't gone anywhere close to the way we wanted it to, but it still is servicing the debt. We're still positive cash flow. Uh, and we've had a lot of vacancy. If we can fill that vacancy, we're gonna be, you know, back to paying distributions. Just an example of a tough deal that isn't losing money that isn't losing investor dollars, but it's been a struggle. You know, I think that goes back to our original pitch, right? Like we want to find investors that don't have an investment relationship of $100,000 and they give it to us one time. You know, I want a relationship with somebody that can give it to us 5 10 times a year and try to be in every single deal. We try really hard not to cherry pick ourselves and deals. I mean we're in every single one of them for this reason to help mitigate risk and diversify. Um Next one we bought another kiddie academy in Cyprus. Normally our kiddie academy's or ground up construction, but this one we actually bought an existing kiddie academy, Joel.

Can't even silence this freaking phone. It's silence just vibrating. Um anyway, so we remodeled this kiddie academy, We plugged a new franchise in there. We were able to get we we were able to get a 15 year lease with annual increase on that. And we actually just sold that right before the end of the year. They signed the contract the day after christmas, they closed four days after that four and a quarter million dollars in cash. Fastest closing I've ever seen in my life. Fast closing our partners have ever seen in their life. Uh there. How'd that come out? Based on projections? Based on projections? I think that deal had like 50%. Alright, next one Kiddie Academy in New Jersey, we did the exact same thing as Cyprus, right?

We bought a failing Kiddie Academy, we shoved in a new operator in there, we spruced up the place, new 15 year lease that is currently on the market for sale today. As soon as that sells it will get the investors the rest of the money back and and the profit as well. Um that one I think we're supposed to hold 18 months, right, bought it in July. We've already been under contract once it fell through which Is coming within within the next six months. Yeah. Which just boost the R. R. A ton. I think that one will probably end up with a 30. 40% are are pretty easy after it's all said and done which is amazing right? Like when's the last time you talked somebody? How's your stocking out doing man? I'm up 30%. Yeah. Stock markets were down 20% across the board for 2022 worst year for stocks since 2008. Oh that sucks. That's bad. Alright next, see this one is fun, this one's fun. Stonewall Village, I'll never forget. We're sitting at smoke eating lunch, we were watching this auction, we're bidding on a property in Stone mountain Georgia, didn't, didn't you?

And I fly out there. Was that after the fact that was after the fact For sure. Oh my gosh, we, we, we bid in one, well we didn't actually win the auction that day, but we were bidding on it without ever having seen it right? And then they call us the next day and, and you know, we're conveniently the winner, you know what I mean? You never know what it is with these auction platforms. Anyway, we signed the contract the day after we, we wired them $600,000 a day after that me and Brian hopped on a flight because Joel's and Cancun probably or something. No, I was not in Cancun. Well actually depending on when this was like august, no, I went in Cancun in Cancun. Why? Um Anyway, Stone would village has been uh kind of a secret success right? All of the tenants have, have stayed. All of the tenants are currently are paying rent. We've had tons of early renewals. Little little caesars just reached out a year and a half before their lease expires to renew another five year option, which is just a testament to how well they're doing now they're, they're saying man, we have to exercise this option as fast as possible, we have to lock down this location for another five years.

Um we had that funny car crash, you know, somebody drove through the building. So we got the insurance settled on that. You know, we lost a few $1000 which is negligible. I mean it could, it was $30,000 worth of damage. But overall we've got a property that's not leaking. We've got a property that's in good condition. We've got a property that's, that's paying us great cash flow. It's got tons of money in reserves because we haven't had to spend anything really on capital expenditures. If anything that's gone to plan or maybe even better since we didn't have any surprises, no surprises. I would say it's better than playing. It was, it was a good deal, good deal. Um, the next one right? Trying to top uh, we set a goal for $60 million in acquisitions. So we knew we had to do something big. We got presented an opportunity with the guys um, in in Fort Worth Woodmont guys to buy a deal in slidell Louisiana, which is again, a little out of the comfort zone a little bit. But they had a great relationship with several of these big box tenants to where they were just calling their senior real estate guy on the phone and saying, hey, would you renew at this location?

Yeah. Would renew that store does great your financials. What have you? Um, we, we had an L. O. I I think under while we were under contract, that tenant got moved in and the big value add for this place. Sure it's a big box center and it's it's a cap or whatever it is it should cash flow fine with the debt we had on it. But the real value of the real heavy lifting was those out parcels. Right? And one of those were under contract with a car wash to buy one of those and that's over a million dollars in sales proceeds right there right there. It'll probably pay back a third of the equity. And the beauty of that deal is when we set up the loan on the shopping center, we have them specifically exclude the out parcels from the value. So we get 100% of those sales proceeds. Um, so now the cash on cash will go from something like 11% what has been paying the past two quarters, which is what I would consider a great cash on cash return now that'll probably go up to like 15%. Right. So massive win. So and that we think that might happen. Q. Two based on the L. O. I.

Right. Yeah. They we we have to go and get the lot split. They have to go and get permitting and There's like two or 3 other parcels. There's three left. Yeah. So that that could end up being a really really massive. I agree. Yeah, massive deal. And that set our record purchase price for the year, largest acquisition to date and last year of $12.5 million. A massive deal. Um, after that these are my favorite because in Owasso, so the next one is at 96 Garnet, a really busy retail corridor of Owasso Oklahoma, which is part of Tulsa just north of there. And this is a retail development. So the story behind this land is, it was owned by this family forever. They sold the majority of the land to develop the J. C. Penney the best buy that this massive quarter million square foot power center and she refused to sell the rest of this land even though it was just an amazing location, there was a bar in there and literally as soon as this old lady died, the land sold and it's now immediately developed. Everyone's kind of waiting for it. But anyway, um, we put in a salad and go um we're developing a salad and go we're developing a five tenant strip center next to that salad and go, so I think it's probably a $4.5 million development costs on that.

We put around a million dollars in equity into it and the building should be complete by the end of the second quarter next year. Um, and hopefully sold by the end of the year next year We did that again. So on the other side of that lot there's chipotle. On the other side of that chipotle is this hard corner, 30,000 cars a day doesn't want to be next to a Chipotle, that's perfect. Seriously, Chipotle chicken next door, there's a Hawaiian brothers I think. Anyway, Chipotle is great location. I mean the Chipotle has literally had a line out of the parking lot into the street, backing up traffic because it doesn't have a Chipotle, it's mind blowing that we have in total, but now we do amazing location. Um, that one is a lot easier deal we're doing to ground leases and people really aren't familiar with ground leases. I think Joel explain, I guess in the layman's terms as easy as possible, what a ground leases, it's really easy. You have some land and you have a restaurant that wants to go on there or it could be anybody, but you just, you do a lease like you do a normal retail lease only, you're just leasing them the ground, they can put whatever building they want.

Maybe you have approval rights. So they construct a building on your land, but you're just leasing in the land. If they ever go out, then you own that building too because the, that's permanent fixtures that they put on your land. So if they break the lease or don't want to renew the lease, then you get the, you get the land back with the improvements, the building, it's pretty, it's pretty crazy. So in this case scenario we have to deliver a pad with utilities on it. So we're going to do some dirt scraping, we're gonna get utilities, taco casa and then the other one is still under L. A. Y. Right now, so we can't release that one, but it's going to be another um, fast food place, uh, ground lease fast food place. So to ground leases will exit those. Um, we'll deliver the pads in the first quarter. Most likely they'll probably have the building up by the end of the second quarter, maybe end of the third quarter. And they'll probably sell before the end of the year, next year. Good news. We got the taco casa. So casali signed what? Today or yesterday. I got, yeah, I got it signed today and nice and then they've got a lot of interest on the, on the remaining space.

So there was a lot, I mean, and there's a lot of bigger brands that are kind of teasing us a little bit and throwing their weight around of like, hey, you know, of course you want this, you need to give me the time timeline I want and I think we're kind of playing hardball with them because we've got other great tenants that are willing to sign and pay great rents. So I don't really care if there's this amazing brand wants to play hardball or somebody else who wants to pay me. Yeah, so we, we feel good about that. And that was actually a start of a brand new relationship for us. So we've done a lot of deals with the Woodmont company now, I think five or six, maybe seven. Um, and they introduced us to another company called retail partners. That was our second deal with them. We're looking at several more deals with them, will most likely have several in 2023 with him, a great group of guys. Um, and then the last deal of the year, I think we close this on december 5th. Um, it was a small gym deal in Owasso, so small to tenant jim deal. It's being fund raised right now. It went up on the website. It was a super small equity raise. That and the last two Owasso development. So if you hate us because you didn't get in?

I'm sorry. I mean it sucks right. Like we have to fund this deal. We know a million dollars isn't a massive equity raise for our investor list. It sucks. The last one sold out in an hour. I hate getting a phone call from the guy two hours after I launched it saying, what the heck man? It's full. He, he actually, he doesn't hate getting that phone call. He loves, he loves filling that up in one hour. He actually gets a lot of those calls, but people get frustrated right? Hey, you just sent me this email two hours ago. What am I supposed to wait at my computer for you. So, you know, it's tough. We have, we have a lot of investors, we can accommodate everybody. Uh, and it's just the nature of the game that those that are, that are most interested that trust us that have been in deals before are gonna pull the trigger faster, uh, than, than certain other people. And it's not that we don't want to let people in. It's just, no, it's really you not wanting to let people in. You know, we want to find more deals. We found a lot of deals. This doesn't even include the precision equity deals that I was involved in. So there was a lot of deals done in 2022.

I think the 2023 deals just to talk about that, they'll look different. There won't be as many cookie cutter multi tenant retail deals that were buying at a cap and getting better at 4%. Uh, we're gonna maybe look to do a lot more development partnerships because the market is still pretty good. But, but getting long term debt with sellers that are unreasonable on their pricing expectations is gonna be a little tougher. In 2023 developments seem like they haven't slowed down or maybe it's because we're relatively new on development and it's becoming a bigger part of our portfolio. But I think the development, your, you have such a short holding period. And the arbitrage is the lease, right that you're selling. So it, it can support the increased carry costs of the debt. Right? Whereas the long term cash flowing property, it can't really support the, the extra debt cost because it's cash flowing. So I think if you do see a retail deal, which I'm sure the probability of us doing a retail deal next year is pretty high, but I would say in the short term, you're gonna see us underwrite 2 to 3 points, lower cash on cash until we can get that rate refined.

Obviously we believe we can get a rate cheaper than, you know, 7% or whatever the heck it is right now. Um So you'll see us, you know, hey, here's year 12 and three. Not amazing. It's really shitty debt. We we understand that, but your four, here's what it looks like with great debt. Here's what it looks like with january 2022 4%. Amazing. You can buy whatever you want debt. Yeah, predictions that I have for 2023, I I believe we'll see sellers starting to adjust uh their cap rates maybe by 2nd 3rd quarter of this year. So before where rates went up, so fast sellers were holding now they're going to be some sellers that need to sell for whatever reason. So we'll start to see some of that adjustments. We'll look forward to trying to take advantage of those deals. Absolutely. I think some of the word that I'm hearing Joel. I don't know if you've been reading up on this, is that late uh 2023 Maybe Q four, that maybe the interest rates start leveling off and maybe start tinkering down just a little bit. I agree. Yeah, I mean what what I would say is, you know, on the criterion, building that interest rate is slowing because we believe long term rates are are still have the possibility to come down in the short term.

You know, we think we can refinance that asset in Q one or Q two. Um So I think of 2024 maybe. No, I mean yes, but maybe earlier. Yes, but maybe You want to like this year we're in Q1 of 2023. We're not thinking about I think long term interest rates are coming down in the end of the first quarter. Probably we'll see. We will, we'll have this on video. Yeah, it's documented. Well, good. I think it was a good run. We look forward to 2020 2023. Hopefully you guys listening will make a commitment to get involved in commercial real estate in this coming year. Absolutely. Well that is it for this episode. And we will catch you guys next week on how to invest in commercial estate