Episode #101 - Expanding Our Real Estate Portfolio With New Deals, Locations, and Principles!

Today hosts Braden Cheek, Brian Duck, and Joel Thompson team up with Andrew Thelen- Criterion's new Principle and Director of Capital Gains- to discuss their newest deals and developments.

No. So let, let's talk about that because part of the reason the investors aren't gonna see that lag time is because criterion funded over a million dollars in down payment money to get the project started early and we got control of the land. And then now when we get, we bring in the investors and bring them their money, we're already moving dirt and we're getting them right to the construction and hopefully shortening that window that we have their capital tied up, man. You really did that. We did. Well, you didn't necessarily do it, Brian and I did it. That's great. You guys tell you about that. All right, how's it going? Welcome back to how to invest in commercial real estate episode 101 today is a super exciting episode. Today is an awesome episode because we have a special guest on Andy. Hello, hello, we're gonna have to stop calling you a guest. My man. That's true. So Andy is um officially come on board at a criterion as a principal and he is going to be the director of capital markets. So Andy's specialty um for a while, but especially a criterion is gonna be helping, um, source debt and equity.

So, I'm sure a lot of the investors, if you haven't gotten the chance to speak to Andy yet, you probably will in the near future. Yeah. And you're gonna be opening the Fort Worth office for us. Yep. Yep. Got everything slowly moving in and getting it up and running. So it's a lot of space for just me, but it works for now. We're gonna expand, hold on to it. Don't think it'll take that long to expand, I think. Yeah, I think being down in Dallas Fort Worth area is gonna allow us to have more direct connections with big players in the industry. It's gonna give us access to commercial real estate talent and uh you know, for, for those of you that, that call us saying, hey, when's the next deal coming? Well, Andy is a reaction to some of those calls. He's going to help uh improve uh and increase deal flow. At least that's what he tells us. Yeah, it's, it's been one week and I think we've got six projects we're looking at and submitting some L O I s to some developers for funding. So should be uh a lot coming down in the next two months or so. Yeah, and we recently just went down there to help open the office uh a week or so ago and, and met with the retail partners guys, they've got um a ton of deals in the pipeline.

So it was nice to get down and, and put a, I mean, we've met them before but we haven't gone to their office. We got the opportunity to hang out with them for the majority of the day. So that was, that was good. And that led to, to really this deal that we're launching. Now, it, it launched out uh recently uh by the time this has come out. So check out the website, if you're not on the investor list, you can still probably get on the invest list. You may be able to see the deal, it may be open. Um But anyway, this is another development with retail partners. So we just went down there and, and kind of scoped it out and we've been working on it for better part of a month um or two. And it's a really, really cool deal and there's a lot of moving components, but essentially you have this massive tract of land, this big corner lot and it's a, a grocery store. So it's Market Street, right? So you've got Market Street, which is gonna be the Anchor Lisa sign development will happen this year. That's Albertson's credit for about 85,000 square feet. They've already got L O I S trading to sell about eight acres in the back to multifamily groups and there'll be a gas pad as well which will drive traffic kind of the neat thing about the projects, the tenant mix, you've got salad and go, which is a fast casual or fast food.

A healthy restaurant fits the market perfectly. The average age is 34. It's grown 100 and 50% in the last 10 years. So let me ask you about that. Uh This is, what is it east, northeast of Dallas is northeast where mckinney is just go a little further east. Ok. So this is just starting to catch some of the overflow growth in North Dallas. You're getting Anna Selina, all of those northern areas are just exploding with growth. It's where all the young families are moving. It's more affordable than living in Frisco Plano. You just can't buy a house for under 600,000 now and you're gonna get new homes for 3 54 100 up there. Um Yeah mckinney was in the same situation like 57 years ago where they were blowing up because that was the, the newest closest suburb that again people can afford. It's kind of a drive to, you can afford area D F W. Um in Princeton in now is just getting overrun with these, um D R Horton spec homes to where it's really affordable to live. There's like 10 Master plan communities all going in and you've got a growth rate of 5% per year, not over the next five years.

You got 5% per year growing. Uh That's crazy for anybody that, that studies, population growth of cities. I mean, that's really high. Um, you know, if you look at the tenant mix in there, I mean, there's a T L E which is a daycare group. There's not another national daycare company out there. Um, you've got average age of 34 years old. I mean, that thing should hopefully be fully enrolled two months after it opens. I mean, the young population fits well for kind of the salad and go uh healthy fast food as well as fat burger, which is an expanding concept out of California. And that franchisee's got about 20 million in the Bank of Liquid. And it's just a very high net worth multi unit franchisee. And the Seven brew ground lease is being uh guaranteed by stach investments, which is a large investment player in D F W and he's guaranteeing the lease for all 15 years. That's amazing. And we got Chipotle in there too. You got Chipotle. So you got the corporate investment grade tenant at the hard, I mean, who can complain about Chipotle? I mean, it sounds like we uh we're heading out of the park for the investors here. It sounds like a hot, hot area, hot area, great tenant mix, great credit.

Um, everything is gonna trade at probably a lower price so it should move pretty quick. Site works already started. We should be able to hopefully have the south and go and seven brew open within six months or sooner. And the Chipotle should be open probably within eight or nine months. And our goal is to hopefully have both of those sold by the end of the year and potentially have the highway 55 pads sold too. Um, that deal we have to do is do some site work and then it sells. So we should be able to exit half the pads within 8 to 12 months. All right. So Brayden, big picture. Uh what is the deal size? What does the equity raise look like for these, the investors? And what kind of returns are we projecting for them? Yeah, so uh quick and dirty, it's a $3 million equity raise and that funds all of the land around the grocery store to fund the development of all of these pads. So there's a mixed bag. We've got some like Andy mentioned our build a suit like Chipotle learning experience where we're actually going and building that building. There's some where we're essentially just buying the land, we already bought it, we have control of it and we're selling the land, right?

And then you have another mix of just ground leases. So we'll scrape the dirt deliver it. Rent starts and six months. So there's gonna be funding spread out over the next 18 to 24 months in, in terms of distributions from sales because all of these assets will sell at a different time. So you're saying that the investors will get distributions as these properties are sold. Is that ok? And then we're gonna raise a fund and then we're gonna use the money as, as needed to, um, to, um, build the buildings. And absolutely. So the timeline is 18 to 24 months from, you know, a month from now, we'll probably for everything, for everything. So we'll, we'll close on this deal and start the first gig. The G C is actually already scraping dirt on the first several sites. So we, we've kind of already broken ground and started like I said, um but we'll close this fund in the next month. Um 18 to 24 months from there is the projected timeline and we're expecting what? A 25.5 I R R 25 a half I R R about a 138 equity multiple. Yeah. This to the investor that assumes some conservative underwriting, just not knowing what the market's gonna do over the past 12 months, we took a little bit more of a slap on 15, 25 basis cap, conservative underwriting on every tenant just to make sure that we're in a good position.

So let me, let me be clear for those that are listening. Uh I I are, these are gonna sell at different times with the proceeds of the first few out parcels that sell? Are we gonna be paying down debt or are we gonna be distributing funds? So, we're arguing with the lender right now. It's still kind of up in the air on the exact distribution method from the sale. We're arguing and pushing and we believe we can get funds from each sale. But obviously, we're gonna have to pay down debt every time we sell an asset. So we're, we're just hoping to also get a distribution in line with the bank. Nobody wants to make their money on the last deal. We don't think we'll be in that situation. The, the worst case uh is that we will pay off the debt, save the interest and at the end of 18 months or whatever, when we sell the last of the pad sites, uh or the parcels, then they'll get, you know, the remaining, you know, equity. If they haven't received it back in all of the profit, still 18 months isn't that long to wait if you're making, you know, you know, north of 20% I R R and your money in that time frame.

I, I think it's a pretty good deal. Well, that's not too much different than our other developments, right? Is 18 to 24 months later, investors are getting their money back, right. So it's not, it's not a whole lot different. What's nice about that? And what's nice about this one too is you've got the permanent in hand already and you're already moving dirt on the site. So there is no, no lag the money goes in and you're hitting the ground building day one, there's not a 23 month to finish the permit process. So it should theoretically hopefully move a little faster because you don't have that lag time. So let, let's talk about that because part of the reason the investors aren't gonna see that lag time is because criterion funded over a million dollars in down payment money to get the project started early and we got control of the land. And then now when we get, we bring in the investors and bring them their money, we're already moving dirt and we're getting them right to the construction and hopefully shortening that window that we have their capital tied up. Man. I did, we really did that. Yeah, we did. Well, you didn't necessarily do it, Brian and I did it. That's great. Yeah. Yeah, it was great. I mean that, that helped um normally on a lot of these projects, we do have a, a month or two of lag time just kind of getting mobilized in construction.

Um But we can report good news on the stuff we've done so far. So the, the first retail development we did in a with this same group, um They've got foundations poured. We've delivered our ground Les Pad rent's gonna start in six months that um sal and go should probably be on the market for sale in, in about five months from now. So we, we think there's a possibility for an exit on that this year. And Andy told me the other day, we've already got tons of interest on the shopping center already. We had a, a 1400 square foot vacancy. We think we have that locked up already and that's been out there for maybe a month for at least so great activity. On the first one. We made good progress. By the way, I hadn't told you guys this, but there's a salon go going up about a half mile from here and we're about to pass them. They started, they started three months. This is Main Street and I told someone that was, they're like, no, no, it's not. It is. Definitely. And so we, we're about to pass their progress. So we're doing good. Well, hopefully the developer of that is not listening to this because you're behind. But anyway, we're excited about this project. We've got an office in Fort Worth now.

Um We've got boots on the ground at Fort Worth. It's a, a contractor I believe we've used before. Um Like I said, we're already scraping dirt. The equity raise is already out. So go to the website. It may already be full, but there may be a last minute opportunity there. So really, really cool opportunity. And then like Andy said earlier, we have a pipeline full of stuff where offering on right now. We think there's several opportunities maybe in Florida. We think there's some more opportunities in some shopping centers that we may hold. We haven't done one of those in a minute. If we're doing Florida, can we do South Florida just so we can on the coast, on the coast? South Florida? Do you want to pay those prices? If it makes money? They're gonna go, hey, but you know, we, we haven't mentioned this is another exciting episode because it is freaking distribution time. Yeah. Yeah, Tanner is gonna play that clip of us throwing some confetti. We'll, we'll keep it short because, uh, we've already, we've already done most of the show today. But, uh, every single quarter we're sending out close to a million dollars in cash to, uh, investors that have invested with us, uh, to the tune of maybe 200 individual checks and Brady and I, I think get the sign those and I love it because people trusted us with their money and, uh, we get to send out those checks and they, it gives them confidence that, that we're doing exactly what we said we were gonna do with their money.

I went out to my mailbox this morning and got one. It was um uh oh Red. Ok. Red Bud. Nice. You should have already got, it was a Stephanie, you got Stephanie Check. Uh, you should have gotten a perimeter check. Uh New York South Check Creek check. We got checks out. We got all kinds of checks. There's lots of checks then sign up and get your check. Let's go get it, get your checks in the mail guys. Um It, it's also exciting to say we launched this last deal and we had a record number of investors on the list. So deals are going out to tons of people. They're filling up fast and we have tons of opportunities. We have tons of checks going out in the mail. So, you know, for a lot of people, I think they may turn on the news or, or listen to too much outside media maybe. And they just feel like the economy is in hell in a handbag, right? But we're getting on here saying that our portfolio is operating strong. We've got deals in the pipeline with strong returns that we believe in and there's a lot of people still out there expanding and, and making great money and making deals work.

So maybe hang out with different people or listen to different people that have a different perspective because it's not all down and dumps right now for sure. I think if we could make it through COVID as we did when we first started, we can, we'd probably make it through a little bit of a downturn. Well, this was a fun episode. I'm sure we'll be seeing a lot more of Andy. Thanks for coming on, man. I just got to say it's been a, it's a fun time joining. I'm happy to be a part of the team. It's been, I think I've worked with you guys pretty closely for three years even before you start a criterion on some stuff. So I think we've done 57 deals together before this. So, looking forward to doing a lot more, for sure. All right guys. Well, we will catch you next week on how to invest in commercial real estate. Thanks.