102. Industrial & Retail Real Estate – Investing in the Niches with Todd Nepola

PILF 102 | Industrial Real Estate

 

Todd Nepola, the founder and president of Current Capital Group, has been in the industrial real estate niche for his entire investing career. In this episode, Todd joins Jim Pfeifer  to share his financial journey and discuss how investing in just two niche asset classes in one market have been the key to his success. Tune in now and hear Todd’s story and plenty of golden nuggets of advice!

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Industrial & Retail Real Estate – Investing in the Niches with Todd Nepola

I’m very excited to have Todd Nepola with us. He is the President and Founder of the Current Capital Group. He comes from a long line of real estate investors in his family, and he’s focusing on retail and industrial real estate. Todd, welcome to the show.

Thanks so much for having me. I appreciate it.

The first question I typically ask is, what’s your financial journey? How did you get into real estate? How did you get into syndications? I know you have a history of real estate in your family. How did that affect you, and how did you get to where you are now?

I’ll make the story as quick as I can. In a nutshell, my grandfather was a surgeon who passively invested in real estate and did very well. My father was an engineer by trade, and he passively invested and did well. When I graduated college, I was starting to work as an investment banking and stockbroker, and I really enjoyed it. He lived and died on a trade and a commission.

I looked at what these guys were doing in passive investing in real estate and said, “I want to be more active than that, but I want to invest in real estate.” I started investing in real estate in 1998, bought my first building and still have it to this day. In 2000, when the tech bubble burst, I was not making any more money as a stockbroker, so I decided to shift permanently to only doing commercial real estate.

You were a stockbroker. How did you make that transition? I was a financial advisor, and I realized that I wasn’t able to help my clients with paper assets. I started believing more in the real assets, and that’s what gave me my transition. How did that transition go for you?

It’s an excellent question. It’s almost like what you just said. I truly was buying and selling stocks, but I realized it wasn’t that I was good. It was more that I was lucky. Back then, everything that said dot-com after just went up, like we had in cryptocurrencies the last couple of years. People started to fool themselves that they were geniuses.

When you look at the earnings, you realize these companies had nothing but the hype behind them, which wasn’t sustainable. I also fell in love with real estate because it’s not as glorified, and it doesn’t get you instantaneous riches, but it’s consistent every single month. If you’re expecting this cash flow, it usually comes roughly in that area. It’s real. You could touch it, you could feel it, you could go to it, and you could visit it. I’m not welcome at the Microsoft headquarters, but I am welcome at my properties.

[bctt tweet=”Real estate is not glorified. It doesn’t get you instantaneous riches, but it’s consistent every single month.” via=”no”]

What was the first thing you did? You’re done with being a stockbroker, and you jumped into real estate. Were you buying single-families? Were you flipping? Now, you’re in retail industrial. How did you start?

I was still a stockbroker at the time. It was June of 1998. Back then, it was the end of the savings and loan crisis. Banks were just trying to unload any property they could from that transfer. I was able to buy my first property with 50% down. It was a warehouse because back then, you could buy warehouses. Believe it or not, it was on a very busy street in South Florida, and it was literally a for-sale sign on it.

I drove by and called. I guess nobody else wanted it, and I was the lucky or unlucky guy who got it at the time. I always tell people it’s funny because I was 25 years old at that point. I go to a real estate closing with all these smart people, from lawyers, banks, and everybody. They’re all telling me I’m crazy, what the heck did I do, and who’s buying real estate now.

I said, “I got to figure this out quickly.” I just jumped right in. I started figuring out how to do a lease. I went to Office Depot and bought package leases that were for sale for a few bucks. That was the template for how you rent a property. I hired a guy to help me clean the property up. I started talking to all the tenants. I went and opened up a bank accountant.

I just ingratiated myself right into real estate. By trial and error, I figured it out. I bought it in June 1998 and paid $575,000. There were seven units. I leased the four that were vacant. I put leases for all seven tenants at that point in time. We have a cashflow positive. In six months, I refinanced it for $600,000. It appraised at $800,000. After all was said and done, I got all my money back plus my closing cost. I got a check for $3,000 or $4,000, and I was getting $5,000 bucks a month. I knew I had something good, and I kept going from there.

That’s amazing. I’ve never heard of anybody who started out with an industrial property. Most of us start with a single-family home, maybe a quad, an Airbnb, or something like that. What was it about that property that made you think, “I guess I’m going to go buy an industrial property?”

I never really got into the multifamily at that point. I was a young guy, but I would drive by this building all the time, and it was a new building. A developer bought the land and developed it. I didn’t know the exact math, but I said, “This guy spent at least $1.2 million on buying the land and developing this beautiful building,” but he never got out of his own way.

Either he had too much leverage or whatever it may be. I didn’t know who the developer was, but I said, “How stupid could I be to buy this building?” It was a beautiful, spectacular, brand-new warehouse. When I bought it, it was only 2 to 3 years old. I said, “How stupid could you be?” I figured I’d give it a shot. Sometimes being young and naive and having a first source of income will let you take a little bit more risk in getting to the game.

[bctt tweet=”Sometimes, being young and naive and having a second source of income let you take a little bit more risk in getting into the game.” via=”no”]

Where did you go after that? You had massive success on the first property. Did you just start driving all over South Florida and buying all the industrial properties up? What was your next step?

I went about half a mile off the street and found another for sale sign from a gentleman who had owned the property for many years. He had moved to Connecticut from South Florida. I still remember his name. He’s a great guy. The property was in shambles. I said, “I could buy this property.” This was an older property, and I could redo the front, paint it, and clean it.

I already knew how to do it. I bought it. I went to the city. I got some of the zonings changed because, going back, this is in 1999. Getting zoning changes was just like signing a paper. It’s not like it is nowadays. I was able to move some of the tenants around, reposition that one, and I still own that property to this day, too. I started saying, “This is a lot of fun.”

Between the first one and the second one, I had enough cashflow coming, and I said, “I’m only going to use my real estate money to keep buying more real estate.” The only purpose of refinancing was to buy more real estate, and then I became obsessed. I want every one of your audience to know this because this is very important.

Even when I bought my second property, all my friends, not all my family, but a lot of family members, everybody was telling me, “What are you doing? There’s so much more money to make in the stock market. Why would you buy a property, put $100,000 down, and make $800 to $900 a month?” You have to be able to overcome that obstacle because people want to tell you no quite a bit. All those people tell me how smart I am now, by the way.

I’m sure they do. You just keep buying industrial properties. Is that how you grew and got to where you are now in the industrial space?

Yes. My first few properties, back in those days, I was buying a lot of industrial. Retail was a lot hotter back then than it is now. The retail stuff was going quicker, but people didn’t want to have the mechanic shops or the AC refrigeration guy with this truck. They weren’t as desirable. I was buying comparable properties on comparable streets.

I was always on busy streets for 1/3 or 1/2 of the price these guys were paying for retail. At that point, industrial was cheap. To give you an example, in the last two and a half years, we purchased almost 700,000 square feet of real estate, maybe seven 750,000. Out of that, 10,000 square feet is industrial because now you cannot get industrial square feet. Now it’s only retail.

Why is that? What changed?

I’m going to say it has a lot to do with the media and the news that everybody wants to get the hottest asset class. Apartments just became virtually untouchable. People expected building warehouses, and they were faster to produce. There was that story that retail was dead a few years ago, and Amazon was going to put everybody out of business. Nobody wanted to touch retail. When COVID hit, nobody really wanted to go near retail, and then everyone said, “No one’s ever going to go to a retail store again. They’re only going to dropship stuff out of a warehouse.” From what I see, nationwide warehouses are just virtually untouchable.

You’re now more focused on retail. What type of retail are we talking about?

Our retail is all the Class B and Class C centers. When you think of the pristine, gorgeous center that has Gucci and Louis Vuitton, it’s not us. When you think of the Class A perfect grocery-anchored center with Chipotle and Starbucks, it’s still not us. We come down a tier. We’re specializing in the Dollar General centers, the Family Dollar centers, and the AutoZones.

Our typical tenants are chiropractors, dentists, and insurance agents. A lot of things are required to have office space that needs customers to come in and out. Even though they call it retail, there is not a lot of retail experience where you’re going to walk from store to store and go shopping. It’s either a gym, chiropractor, or things you need. You’re in and out to grab them.

What type of returns are you seeing currently in those types of assets?

I don’t go in when I buy properties and concern myself exactly what the cap rate is. People focus on, “This is the cap rate. This is the numbers.” I have a lot of smart people that I’m lucky to work with. I have these young guys walking, and they’ll give me a ten-year Argus schedule, which I can’t even understand. It’s algebra. I try to explain to them that that’s not how real estate is done.

The famous line that I use all the time in the office when they show me, I say, “Show me where the pandemic hits in these ten years.” You just don’t know. When I go into real estate, I’m looking to see, “My gut tells me, and I believe this. Do I believe I could add value to it?” That’s why I said I don’t own Chipotle and Starbucks because what could I do there to add any value?

When I buy these B and C centers, we can modernize and do a facade renovation to the front. We could move tenants around to make it a better experience for them. Some buildings come with roofs to shafts, so no tenants want to move in. We replace roofs. If we could do things to add value, that’s what we look for. The cap rate going in is not as important.

PILF 102 | Industrial Real Estate
Industrial Real Estate: If we could do things to add value, the cap rate going in is not as important.

 

What’s the upside on these? Do you still own your first two investments? Are you buy and hold forever, or do you still sell some of these assets? Who do you sell them to if you do?

I don’t like to sell. I do think of them as when I buy them, I go in for my timeline is the rest of my life, but I don’t fall in love where I won’t sell. If the deal is just too good to be true, I’m going to sell them because it is just a piece of property. Generally, I don’t sell. I’ll give you an idea. We bought a property in January 2020, two months before the lockdown.

It was a beautiful retail with flex property in the back, right on the Florida Turnpike in Port St. Lucie. We bought it for $14 million. It wasn’t a great deal when we bought it. It was a 7% cap at best. We knew some of the tenants were underpaying. We knew we could bring some of the tenants we knew in. We knew we had to redo some leases, and it was a great property.

We had that property for two years. This summer, we refinanced it and appraised it for $29 million, and we pulled out our entire $14 million. The banks won’t let me take out anything above what I pay for. It’s all my closing costs, and still, I can’t recoup. Now, I have all that money out, and then we take that money out, and my client signed. We reinvest it. We closed on another deal for $25 million. It’s a similar situation. It will be a lease-up deal.

When passive investors are looking at deals such as this, what are some metrics in the retail space? In Left Field Investors, we have tools that help us figure out how to analyze a multifamily deal because that’s what we mostly see, even self-storage and things like that. How do you analyze as a passive investor, a retail investment, to decide, “This is the right investment for me or not?”

Where multifamily and self-storage have massive edges, the leases, you could change them. They adjust every year, generally, at one-year leases. When you get into an investment property, whether it’s commercial-related with retail centers or industrial, these guys have long-term leases. A typical lease is going to have at least 3, 4, or 5 years left of term.

As you get into better tenants, be it at Dollar General or Advance Auto Parts, these guys kept 20 to 30 years of term with options. That’s great when you buy a property, and the banks love to see it, but I have a newspaper. I’ve been doing this long enough to know. When things aren’t great, they’re the first guys to get on the phone with you and say, “We’re not going to pay that anymore.”

PILF 102 | Industrial Real Estate
Industrial Real Estate: When things aren’t great, banks are the first guys to get on the phone with you and say, “well, now we’re not going to pay that anymore.”

 

You do have a limited upside. When rent skyrocketed for multifamily, we didn’t get that luxury and commercial because we were locked into leases. We only have the risk on the downside. It’s a little bit more complicated. You got to know what you’re going into, and the investor has to believe in the property and, more so, believe in the sponsor. If you don’t believe in the sponsor, get out of the way, but it’s a little bit trickier.

How do investors believe in the sponsor? One of our main focuses at Left Field Investors is helping people vet sponsors and figure out if sponsors are someone they want to invest in. How does a passive investor vet someone like you and figure out if they’re someone that you know we want to invest with?

That’s fantastic because, with us, the way we do it is we invest alongside our investors. Not only am I asking clients to put up money and investors to join me in a deal, but we also put up the money. In every single deal I’ve done, I put up more money than any individual investor does. That’s part one. Part two, the person that’s going to be the sponsor, are they going to be operating it? Are they just kicking it off to a manager or someone out in the left field?

We lease, manage, and do everything ourselves in-house, so we have a strong edge. If that’s the case, look at the sponsor and say, “Are they running their portfolio well? What is their track record?” Google them. Find out who they are. Don’t just invest in a deal. Did they have a murky track record in 2008 and 2009? When things got bad, did they give everything back to the bank? Did they tough it out and make it through?

In addition to that, one thing that makes us a little bit different that every sponsor should do is when I put money into a deal, not all my money, I put whatever amount I agreed to with my partners. That is the first risk stack. What I mean by that is my money goes ahead of yours. It’s treated the exact same way, but if there’s a loss, I’m going to lose 100% of my money before you lose one penny. That shows investors that you believe in the product. Those are the things you want to believe in. You also want to have a sponsor that you could reach. My clients and investors could call and text me anytime. They could email me.

If they want to come to my office and sit down and discuss a lease, which they generally don’t, but if they ever did, it’s available. If they want to come to the property and meet me, it’s available. You don’t want to work with a sponsor so far removed from you that you’re just hoping for a check. For that, you should buy a REIT.

Are you mostly operating in Florida still, or have you branched out to other markets as well?

We only stay in the state of Florida. My rule of thumb is that I want to be able to drive to my properties and come home on the same day. That way, I have another edge because I know my Florida market. We lease and manage properties from South Florida up to Jacksonville and only along the East Coast. I could get to a property early morning and be home for dinner with my wife and kids that night.

If I have to start leaving the state and go to Atlanta or the Carolinas, I have no more edge. If I have to get on a plane to visit a property, I’m probably not your best sponsor at that point because I’m too far removed from the property. The properties we bought are a twelve-minute ride from my office with no traffic, so I’m pretty close. If there’s a problem, I got your property covered. If we have a problem at our property in Minnesota, I might not get out there for three days.

These leases that you have on the retail side, are these triple net leases? If so, can you explain exactly what that means?

Yes and no. For some tenants, for example, because we just renegotiated at least the State of Florida, they’ll only do a gross lease because their budget doesn’t allow them to have a triple net. Ninety-plus percent of our leases would be triple net. What triple net essentially means is the tenant’s paying two parts of rent. One part is the base rent dollars, which is entirely your cashflow income. The rest is they’re covering their pro rata share of the expenses.

To make it simple, if the property was 10,000 square feet and this tenant was 1,000 square feet, they’re responsible for 10% of the expenses, whether they go up or down each year. That’s the real estate taxes, the property insurance, the common area maintenance, the landscaper, and the property management fees. They pay one 1/10 of that.

That’s fantastic because when you have that in a lease, it allows you to protect yourself if the expenses go up. Where it really hurts you is if you lose tenants. If you only have 5 tenants, 5,000 square feet occupied in a 10,000 square feet building, the landlord has to cover the other 5,000 square feet. Those expenses still have to be paid. They’re fixed.

PILF 102 | Industrial Real Estate
Industrial Real Estate: Where it really hurts you is if you lose tenants. If you only have five tenants, 5,000 square feet occupied in a 10,000-square feet building, the landlord has to cover the other 5,000 square feet. Those expenses still have to be paid; they’re fixed.

 

On a fully rented out property, would you say that having these triple net leases would protect you from some of the aspects of the inflation that we’re seeing because the rising costs are mostly covered by your tenants? Does that compensate for the long-term nature of these leases, where maybe you’re not getting rent increases like you would if it was a new tenant coming in?

Yes, 1,000%. That’s exactly why it’s in place because the apartment investors got the edge that leases are generally twelve months or less, so you can control it. When I have a lease, even to a five-year lease, we do all leases where the base rent will increase by greater than 4% or CPI. This 2022, we’ve had a lot of leases that increased 9% year over year, which still didn’t keep up with some of the bumps I’ve seen, but the expenses will be what they are.

We don’t make any money on the expenses. We give a CAM reconciliation report. “These are the expenses.” You pay your pro rata share divided over twelve months. If it’s going to be $12,000 each month, you’ll be sending me $1,000 towards your expenses. This way, I’m protected if taxes or insurance goes up.

What about costs that can’t be split? They’re specific to one unit. Maybe there was damage to property or something like that. Is that for the tenant to pay, or do you pay that as well?

That’s the landlord’s responsibility. If there’s damage to something, the only thing the tenant’s responsible for is the expenses to operate the building. If tenant number two has an AC go bad, that is not shared by all tenants, that’s the landlord’s problem or the tenant’s problem, depending on the lease. They’re only paying the operational expenses of that property.

If you’re a passive investor in this, you need to look into what exactly triple net means because, in some cases, it could mean the landlord is paying for the AC unit or if the water heater that goes bad. In other cases, it could be the tenant.

Correct. If you’re a tenant looking to rent space, that’s something you better familiarize yourself with before you sign the lease. I’ve heard a lot of people come to me and say, “I signed this lease, but I didn’t realize I was responsible for the AC. All of a sudden, I found out that the AC was nine years old.” Like buying a house, just because you’re signing a lease, you’re not leasing a car from Enterprise Rent-A-Car for the week. You have to do your due diligence and read the whole lease to know what your obligations are.

[bctt tweet=”As a tenant, you have to do your due diligence and read the whole lease to know what your obligations are.” via=”no”]

You said that industrial is untouchable right now. What do you mean by that?

You could find industrial properties here in South Florida right now that people are trying to buy so badly that I’m telling you they’re sub-4% caps. They make absolutely no economic sense whatsoever, but people just want to buy it. Because I only really focus on the State of Florida, primarily the South Florida part, there’s so much money that came to this state.

Be it because of COVID lockdown, good government, or whatever you want to call it. They’re so much wealthier that people just think this is what’s in style and what they want to buy. I’m competing with a guy from Brazil who just sold his company for $50 million and wants to park money in America. Years ago, he just wanted to buy a couple of condos.

He’s now gotten smarter and said, “I’d like to buy an industrial warehouse because that’s what everybody tells me I should buy.” As an investor, it’s very challenging to make money on these deals. Unless you’re Blackstone and your cost of capital is virtually nothing, an investor such as myself can’t do a deal and get a 4% to 5% return. It doesn’t make any sense.

Does that mean you still have industrial properties? Are you selling those to take advantage of the market, or are you holding them and letting them cashflow because that’s also a good play, probably?

I’m holding them. I just turned 50 in 2022. I don’t want to sell any properties. One day, you never know you will sell. The offers I have gotten, some have been pretty ridiculous, but then the problems become, even if you sell the property, where am I going with the capital? Finding deals is extremely challenging in every market, even in-office, which is the one nobody really talks about, but they’re still hard to find deals.

Generally, my industrial leases expire a little bit quicker, the 1, 2, 3, or 4-year leases. A lot of those guys want to move around sooner. They had 3,000 feet, and now they need 6,000 and need to move around, then I’m flexible with that. The rents from where they were at the beginning of 2020 to 2022 are, across the board, probably double of more what I’m getting. Why sell? I’ve owned them so long that I have very low debt on them. I’ll leave them alone.

You mentioned office. Are you looking at other asset classes as industrials too hot right now to buy anything? Retail seems to be a place to be. Are you looking into other asset classes? Have you ever invested in asset classes other than those two that you’re focusing on now?

I have. I’ve done some office projects. Office would be my least favorite market to get into. What people don’t understand about an office is like, “I’m in an office now. It works for me. That’s great.” If I leave, the next tenant’s going to want this wall down, and this conference removed. It becomes very expensive. The other problem with an office building is whereby I could control a lot of my expenses and shopping centers, I have to keep the entire floor AC, whether I have 1 or 10 tenants on it.

The cost is so staggering. If you get into some older buildings, the elevator maintenance and the fire sprinkler systems, it’s not my passion and my love. Multifamily is fantastic, and it’s one of the best and easiest ways for new investors to get started, but it was never for me. Like I said, I wound up because I fell in love and thought the building was so pretty.

I started with industrial, and I kept down that path. When people ask me, I tell them that probably the easiest way if you want to buy a deal on your own is you could go buy a duplex or a triplex or a little six-strip unit apartment. It’s a very easy point of entry, and banks like to lend on those. I don’t do any multifamily, either. I pretty much stick to what I know. It helps give us a great synergy because we have so many tenants in that arena that whenever we get a vacant space, we already have thousands of tenants to send to that maybe they give us referrals. It helps a lot.

Talk a little bit about how you find underperforming properties. You’ve talked about finding underperforming properties, and then that’s the value add as you make them performing again. How do you find those? Is it your broker relationships? Are you finding them off-market? What’s the process?

It’s a lot of process. It’s countless hours on the computer. It used to be more driving around, but that doesn’t help. I always say I fly Google around because I can take a look on Google to see if I like a deal, and you can look at it and get your first glimpse. You were right 100% when you said brokers. Anytime a broker calls to talk about a deal with me, I never want to be rude to these guys, even if I don’t like the deal. I bought a deal in April of 2022 from a broker who talked to me about a deal that I bought last year. He was a young broker, a new broker to the business, and he was showing me I had no interest in, and I told him everything I like.

He brought me another deal I wasn’t so interested in. Finally, in about February of 2022, he brought me two shopping centers in Palm Beach, where I realized there was some value. He said, “They’re not on the market. I’m not sure he’s going to give me the listing, but he wants $14 million if you want to buy it.” I said, “Sold.” Done.

I never even met the guy, and then I was supposed to meet him after the closing, and we never got together. Up until a few weeks ago, he finally said, “I want to come to your office and meet.” I never met the guy, but it was an off-market deal from being nice to a broker. Brokers have to know that you can get deals done. You’re not going to re-trade them. You’re not going to play games. You have the financial wherewithal to close. Once brokers have that, they’ll bring you a lot of deals.

PILF 102 | Industrial Real Estate
Industrial Real Estate: Brokers have to know that you can get deals done. You’re not going to re-trade them and play games. You have the financial wherewithal to close.

 

Do you work with other operators? You said you’re vertically integrated, so you’re doing all the management? You’re not working with a property manager or anybody else. You’re the asset manager and the property manager. Everything is in-house.

That’s right. We run Current Capital Management here in Hollywood, Florida. We have about 30 people in here. We have the leasing team. We have property managers in the office and in the field. We have a full accounting team. We don’t do the accounting, per se. We do the bookkeeping. That’s all, and then it gets delivered to accountants. We do everything in-house.

What’s the advantage of that? There are other operators who outsource, specifically property management. What do you think the advantage is of having it in-house?

We do third-party management as well, and that’s probably a little more than 50% of our portfolio. I love when people outsource as well. Without shooting myself in the foot and losing the property management business, it’s like everybody knows. Nobody’s going to take care of your stuff where your name is on the deed and the guarantee of a mortgage the way you will. If you have the wherewithal on the team and the capability to manage it, you’re going to be the best manager. You’re going to care more about the tenant and the rental collection than any third party could ever do for you. It’s just the facts.

Talk a little bit about the current economic conditions. There are all kinds of uncertainty because, basically, no one knows where interest rates are going. I know you never really know where they’re going, but when they’ve been consistently low for so long, this is a huge change. How is that affecting your current deals that you’re in? Do you have variable-rate debt? Is that an issue? How is it affecting you going forward with new deals?

Your audience is lucky because you ask great questions here. I’m going to answer that in a couple of parts. I’ll never do an adjustable-rate loan. To give you an example, I have a client who did, and they’re more aggressive than me. In January 2022, they had some quasi-redevelopment properties that were working with them. We’re a management company only.

When he took out the loan, he got very aggressive financing in January 2022 at 6%. We are eleven months later, and his interest rate is 12%. He has a $9 million loan, so now the property’s not cashflow-performing. He’s trying to scramble to refi to try and get a fixed-rate loan, but it’s not as easy to get a loan as it was back then. He wanted all that extra capital, and he got aggressive versus putting more money down. That’s how we wound up in that bad position.

I don’t do that. What I will tell you is the deal I did in April 2022, we financed that deal at 3.25% interest. I technically closed on Friday, but it went from Monday. We closed this deal, and it got as high because the rate wasn’t locked. It was 2.50 above the five-year treasury. What that means is two and a half basis points above a five-year treasury.

Not so long ago, it was almost 7% of what I was going to pay. Luckily, rates dipped down and came down quite a bit. We locked in at 6.12%. We’re still almost two and a half points higher than where I was a few months ago. However, if you look at historical interest rates, 6% is very cheap. I don’t buy real estate based on the interest rate, but people are going to have to get comfortable and understand that in our lifetimes, we may never see 3% again. If you do, it’s because something really bad happened. 4%, 5%, or 6% is still pretty cheap debt. When I first started buying, 10% was cheap debt, and it was coming down from 12% to 13%. You got to get used to it.

[bctt tweet=”People are going to have to get comfortable and understand that in our lifetimes, we may never see a 3% interest rate again.” via=”no”]

That’s the thing. It’s all relative. Interest rates now are closer to normal than they’ve probably been in twenty years as far as historical norms. It just feels like, with the way you described it, it doubled. If you’re an investor or a property owner, your expenses doubled because you’re paying twice as much for your mortgage. It’s hard to wrap your head around that. Everyone’s in a little bit of panic these days, and part of it is we need to realize we’re not in trouble territory yet. If they double again from here, we might have some issues, but we’re back to what might be normal, and it’s still possible to make money at these interest rates.

A hundred thousand percent correct. We just have to realize what happened for two years and the reason rates got there was because of COVID and lockdowns. The government got extremely aggressive. A lot of people made a lot of money off that. If you’re going to look back to those days, I can’t buy Apple as an IPO anymore either. If you want to invest, you better get into the game you’re playing now because you’re probably never going to see those deals again.

That’s well said. Get into the game that you’re playing now because that’s a key, for sure. I had to pause and write that down because that’s such a good thing. You have to be playing the game that is available to you now and that’s different than what it was before. If you’re not understanding that, you’re not going to be successful.

You are so consistent with retail and industrial. I’ve been accused, rightfully so, of chasing the shiny object. If there’s something new, I’m like, “I guess I’d better run and go check that out.” How do you stay so consistent? What do you recommend to passive investors so that they can diversify among asset classes, but they aren’t chasing the shiny new thing, and they’re in quality asset classes?

I look back at the guys that I have the most respect for, whether it’s in real estate or business. We could go back to the one person everybody would always say, “That’s the master.” It’s Warren Buffet and his protégé Charlie Munger who run Berkshire Hathaway. When they didn’t want to buy tech stocks because they said they didn’t get it, they didn’t understand how you could buy a company that makes no money, and they will laugh and tell that, “This is the end of Berkshire Hathaway.”

Nobody was laughing in 2002, 2003, 2004, 2005, and still to this day. They’re famous for saying the same thing. People think they need to diversify to many different things to hedge their risk. What those guys say is, “Have a couple of things and watch them very carefully.” It’s very hard. No one’s smart enough to pick every asset class, whether you’re a developer, an investor, or even if you want to trade stocks.

You can’t own everything and know what’s going on. I would rather own two different types of asset classes, be it retail and industrial, and know them as best as I can. Is it possible for me to get into multifamily and office? Of course, it is, but I’m diluting my skillset because I can’t be great or excellent at everything. I try to stay away from that. Just focus on what you love.

I get that. For an operator, that makes complete sense to me. Is it different for a passive investor? I’m never going to be an expert like you are in industrial and retail. I’m never going to be an expert like an operator in multifamily. What I try to do is find partners that I can learn to know, like, and trust and then rely on them to get me into quality deals. I will analyze, but I’ll never analyze a retail deal with the same depth as you. Does it make sense for a passive investor to maybe diversify a little bit more than an operator would because we’re not going to have that level of deep expertise as the operators do?

Absolutely. If I was a passive investor, that’s exactly the path I would go down. I wouldn’t concern myself then with where I’m investing. If I said I want to invest X amount of dollars, I want to bet on the best operator and the best market at the easiest times. Even if I met a sponsor who’s great at managing Class C office buildings, and he was a genius, I don’t want to invest in that now because I think they’re going to have a rough run.

Yes, I would chase after where I thought was the hot market, just like you said, but I’d also make sure the sponsor was a great sponsor because if you’re the investor, the only thing you got to get right is you got to believe that that’s a good asset class. You have to believe that your sponsors will do the right thing and be able to perform. As the manager, I have to know a lot more. I have to know how to operate these properties. As a sponsor, you got to know where you’re going to put your money, and that’s okay. It’s a very different thing. You’re right. As an investor, I would look for the hot thing, too.

If people are just starting out in passive investing, and I look at it as a snowball that grows into a giant snowman or whatever analogy you want to use, how would you recommend to people at the beginning of their journey to get that snowball so they can make perhaps their W-2 optional because they have other income streams? Can you give some advice on how you get going and get that snowball growing?

You get going by getting going. You got to get in the game. You also have to get over the hurdle, which is what I had to get over when I first started investing myself, which I got over very quickly. Let’s say you’re going to put $100,000 into a deal. For argument’s sake, the sponsor’s going to give you an 8% pref return.

They say, “I’m going to type $100,000 and get $8,000 back. I’d rather keep my $100,000.” I see that a lot. Maybe now you could buy a 10-year treasury, so it’s almost halfway there. You got to get over that mindset because real estate changes. The deal that I did in January 2020 for $14 million, we refinanced it and pulled out $14 million. We still had closing costs and improvements, so we returned 80% of the money to the investors, but because we came off that pref at a much lower interest rate, the deal performed almost the same way. Very quickly, in less than twelve months, we’ll repay that balance, but they’re still going to get a distribution forever.

Guess what? In 3 or 4 more years, I’m going to refinance that property again because then I can refinance it towards value and then they’re going to get another big check. They’re still going to get a quarterly estimated distribution each quarter with no money in the deal. The only way to ever get to that passive cashflow is to get started. Even if it’s $25,000, $50,000, whatever the sponsor asks for, you got to get in the game, and you got to be patient.

You’re talking about infinite returns when you get all your capital back, and you’re still receiving cashflow. That is one of the ways that you get that snowball going because now you have your capital back. You put it into another deal, and you basically have two assets that are cashflowing with that $1 of capital you put in because you’ve got your capital back from the other one. That’s a great strategy. I’d like to switch. I know you mentioned you have a book, and I’d like to hear about your book.

Thank you for asking me. What happened here with me is I’ve been doing this now for over many years. Everybody would ask me about real estate, and 99 people out of 100 asked about real estate. They just ask because they saw something on TV. Everyone asked me about houses now because they skyrocketed, so now are they going to crash? I don’t know. I’m not in the housing market.

When people would ask me questions on real estate, I found that they weren’t asking exactly the right questions. I started having interns come into my office from high school and college over the summer because I wanted to get back and help these young guys and girls. I was teaching them. I saw how moved these people were when they started to figure it out.

I don’t believe the school system’s teaching these kids anything about how to manage money. These young kids, 17, 18, 19, and 20 years old, are realizing, “I could actually get rich doing this if I start in my twenties.” From there, I started doing a lot of podcasts, and people would call. I always say, “You’re free to call my office. Email me whatever you want. I’m happy to help everybody because I don’t want anything in return. I just want to help.”

From there, I decided, “I’m going to write a book as if I’m writing it to my interns who know virtually nothing about real estate, what they need to know, whether they want to invest in real estate, they want to buy REITs, or they want to invest with sponsors.” I wrote a general book. The biggest turnoff I have in books is when I read a whole book, get to the last couple of pages, and it says, “I gave you this, but if you want more, you got to go to my mastermind or my bootcamp. That’s $10,000 for step one,” it gave me an ugly feeling, and I didn’t feel good. I don’t offer any of those services, but people don’t know that.

I decided that I was going to write a book. I’m going to give 100% of the proceeds away to charity. I won’t make $1 off the book, so when people read it, they’re getting 25 years of my experience, stories of how I got started, and how I invested in all the different options. It will answer their questions. A lot of the great questions you asked here are already in my book, too. They could see it.

If you know my intentions, I won’t make any money, but I wrote a book that took me over a year to do. I probably have some good stuff in there for you. I wrote a book called Keeping It Real on Commercial Real Estate. You can get it anywhere, Amazon, Barnes & Noble, and Target. It’s available all over the place. All I want to do is offer people help in the book. On your show, people could feel free to call me at Current Capital. Email me at Todd@cc-reg.com. Call my office. I’m happy to help anyone do their first deal as long as they know that when they’re successful, they got to pay it forward. That’s what the point of the book was.

That’s fantastic. The last question I always ask is, what’s a great podcast you listen to?

I listen to a lot of podcasts, and they’re all great in themselves. One of the greatest things people who love real estate need to do is, I don’t want to recommend a real estate podcast. You got to go outside real estate because excellent leadership and skills come from different people. Yes, you can listen to the greatest in real estate talk if you want to be in real estate, but take yourself outside.

Listen to CEOs of medical companies or young guys who started up something, even if it’s something you’re not even truly interested in. I’m not interested in cryptocurrencies, but I like to figure out what they did and how they became successful. Try to take yourself outside the real estate arena as well and listen to podcasts for other successful people.

That’s good advice right there. You mentioned it, but can you mention it again? How can listeners get in touch with you if they want to learn more about you or your company?

Anyone’s free to call me anytime at my office. The number is (954) 966-8181. To some people more comfortable shooting an email, it’s Todd@cc-reg.com. Feel free to call me or email me with your questions. I’m happy to help you guys. Many people tell you that I take plenty of time helping them. I have nothing to sell anybody other than I want you all to buy my book because I do want to be a bestseller. That part is true.

There you go.

I think I’m there. I have nothing to sell. I don’t have a bootcamp. I don’t have a mastermind camp. I don’t want anything, but it gives me a lot of good feelings. I had a young guy in my office who was 23 and who was a genius in high school and college. He went to school, graduated top of his class, and went to dental school because that’s the path his parents wanted for him.

In one semester at dental school, the young guy had the guts to tell his family that, “What you want in my whole life, I’m not going to do it.” Now, he has come into real estate. He became a real estate broker. Even though I have a broker license, I don’t broker deals, but I’ve been working with this kid. The kid is so great, so talented, and so nice. I’m watching him change. I’m like, “He’s a young kid. He’s 22 years old.” He knows I read. He came to my office to give me a present, brought me a book, and thanked me for the time. When you’re 50, and you can help a 21-year-old, it’s more valuable than any deal will ever be.

That’s an amazing story. Thank you so much for being a guest. This was fascinating. It was great talking to you, and we definitely appreciate your time.

Likewise. You’ve asked great questions. I’ve truly enjoyed it. Have a great one.

Thank you. You, too.

That was a great conversation with Todd. It was an interesting start. I’ve never talked to anybody that started in real estate investing for their own account and bought an industrial property. Everybody I know dips their toe in with a single-family home or something. It’s an interesting start, and he stayed focused. He has decided he’s going to stay in Florida, mainly South Florida.

He’s in one market that he knows well, and then his whole career has been two asset classes. There’s a big advantage to the focus you get from an operator that is 1 or 2 asset classes, 1 or 2 markets, and knows their stuff. It’s such an advantage. Now, we’re seeing a lot of operators splinter and go into multiple asset classes.

That’s fine as long as they’re hiring people that are experts in all of those. Sometimes it’s nice to just find someone who’s in a niche that they’ve been comfortable with and they’ve been in it for years. That’s all they’re going to do, so you know what you’re getting. I thought that was pretty interesting. That was his mantra. Stick with what you know. Don’t branch out. Don’t chase the shiny object.

He’s more talking about as an operator. As a passive investor, you have to do a little bit of both. You don’t want to be crazy about chasing the shiny object, but because you’re not going to be a super expert in any one asset class, it’s okay to rely on the expertise of others. That’s why we spend so much time and effort finding the best sponsors and the best operators so that we can focus on that as our expertise.

Our expertise is picking great partners. We don’t really care what those partners are investing in. Of course, we do, but our main focus is let’s build up our expertise in picking the right partner and then giving the partner the ability to pick that asset class for us or that deal, and we’ll look at the top of it. We’re not going to dig in and rewrite the deal. We’re going to make sure we understand it, and we’re comfortable with the partner. That’s how I look at it.

The most powerful thing that I got out of that episode with Todd is when he said, “You got to get into the game that you’re playing.” These things that hit me sometimes like this are so obvious, but you don’t think of it when you’re in the day-to-day grind. If you’re going to be an investor, you got to get into the game and learn how to be an investor, whatever that is. If you’re going to be an operator, you got to get into the game you’re playing and figure that out. It’s one of those obvious things that when you hear it from somebody else, it recenters you. You’re like, “I got to play the game I’m playing instead of some other game.” It makes sense to me.

I also liked Todd’s sense of giving back. He’s been successful. He’s had a good run. I’m sure he’s had plenty of people that have helped him along the way. He’s taking the attitude of, “I’m going to pay it forward and help the young intern in my company.” He’s going to write a book and donate the proceeds to charity. That’s great when you have a spirit of giving. That’s a good thing. There’s nothing ever bad about giving off your time and expertise. I appreciate having Todd on. As we do with all of our operators, we will follow them and see what they get into. That’s all we have for now. We’ll see you next episode.

 

Important Links

 

About Todd Nepola

PILF 102 | Industrial Real EstateAs President and founder of Current Capital Group, Mr. Nepola is responsible for the company’s vision and long-term strategic plans.

Mr. Nepola follows three generations of real estate investors and developers of commercial real estate. His paternal great-grandfather came to Manhattan from Italy in 1899. He was a superintendent for over 40 years responsible for building the Holland tunnel and several of Manhattan’s subway lines. Mr. Nepola’s grandfather and father also were real estate investors and developers.

Mr. Nepola graduated from the University of South Florida in 1994. While pursuing a career in Investment Banking, Mr. Nepola followed in his families footsteps and started acquiring investment properties and developing properties for himself.

After a decade of buying, building, leasing and managing his own properties, Todd made a decision to open up his own firm. With properties throughout Florida, Mr. Nepola has opened a second office in Port St Lucie, FL in order to be even more accessible.

He has been recognized as a winner of CoStars “Power Broker” award, in addition to being a member of the international council of shopping centers (ICSC). With over two decades of “hands-on” experience in acquisitions, development, leasing and management of commercial real estate, Mr. Nepola is proud to lead Current Capital Group.

Mr. Nepola resides in Miami Fl with his wife Alexia Nepola and is the proud father of two beautiful daughters. He is active in social and philanthropic organizations within the area. In addition, he is an active triathlete and a finisher of the Ironman triathlon.

 


 

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Tribevest is a strategic partner and sponsor of Passive Investing from Left Field.

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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