GI144: Combining Net Lease Properties and Blockchain with Michael Flight

GI144: Combining Net Lease Properties and Blockchain with Michael Flight

Our featured guest is Michael Flight. Michael began his real estate career in 1985 and in 1990, he founded Concordia Realty Corporation. Over the years, Michael has partnered with some of the world’s most well-known banks, hedge funds, institutional investors and insurance companies to complete over $600 million in real estate transactions. He focuses on a diversified essential business real estate portfolio that provides regular cashflow to investors from tenants and brands that you know and trust.
Michael is an expert in retail real estate, including shopping centers and triple net leased properties, redevelopment and most recently, real estate tokenization. Michael is the CEO of Liberty Real Estate Fund, the World’s First Net Lease Security Token Fund that allows you stable and tradable private real estate; along with consistent monthly income.

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Transcript:

Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Michael Flight. He founded Concordia Realty Corporation in 1990 and his firm focuses on acquiring retail real estate including; shopping centers, malls and triple net properties. More recently he has become CEO of Liberty Real Estate Fund, the World’s First Net Lease Security Token Fund; providing Stable and Tradable Private Real Estate. So thank you so much for being on the show, Michael,

Michael:
Thank you very much, Charles. Really appreciate it.

Charles:
So give us a little bit of your background. Both professionally and perf personally prior to getting involved, been real estate investing.

Michael:
Well, I was I I’ve been in real estate since 1986. My brother and I like to tell the story that I was still in college and, you know, we went to a, nothing down seminar thought that we could buy, you know, property, nothing down. And then we walked into a real estate agent and the guy says, do you guys have any, you know you know, like any type of income that you can show or anything like that? I was like, I, I sincerely doubt you’re gonna buy anything, nothing down. So, but that got me bitten on the real estate bug. I worked you know, for one summer rehabbing apartments for a gentleman that redid, you know, invested in multifamily buildings in the Chicago, actually in, in the city of Chicago and up and coming neighborhoods. And so I was doing the physical labor of rehabbing and things like that.

Michael:
And he said, you know, as I was getting closer to college graduation the best way for you to learn, you know, the real estate industry has become a commercial real estate broker. You can make some money, you can save up some money and you can find some deals. So I went out and became a retail real estate broker doing sales and leasing for retail properties, retail properties are malls shopping centers their, of the single tenant buildings that you see on the corners, like even gas stations or Walgreens or things like that. And I became a retail broker because you had the opportunity that if a tenant was expanding, especially in the Chicago market that Chicago has around 3 million people. And so a tenant could put in actually 20, 25 stores to, to really serve a market. And so if you got connected with a tenant, you could do multiple deals versus if you were in office space or an industrial building, you’d do one lease deal, and then you’d have to turn around and go cold call for, for more things. So it was kind of efficiency and it was also kind of laziness that I didn’t want a cold call that much. So that’s how I got into retail real estate.

Charles:
And you are compensated every year on those where you were compensated every year on those Le or every least renewal you were compensated for? No,

Michael:
Actually you typically get paid a one time commission. Okay. And it’s it, sometimes it’s based on the value of the commission. So because if you do a lease that’s a hundred to $150,000 a year, and, you know, you put a cap rate on that you’ve added, you know, close to, you know, a million dollars or so of value to a property. And so you get paid a percentage yeah. Of the, the lease. And then in certain areas, it, the leases, the rents are too high. So they’ll just pay you on a basic per square foot. So, okay. For example, we had a shopping center in Hamden, Connecticut. And so if we did a lease for a thousand feet that would be a smaller lease. And so you get paid five to, to $6 per square foot.

Charles:
Okay. Interesting. All right. And so how did you get started in actual real estate investing, going from the broker side to the investor side?

Michael:
Well, my brother and I bought a three flat in a town called C Illinois. And it’s known for being the home of Al Capone when he got chased out of Chicago. And it’s also known for making Martin Luther king Jr cry. So it was a a working class neighborhood. We were able to buy this three unit apartment building for I think we put down like 2,500 or even less than that. And it, we, it was an educational experience because we did everything you could possibly do wrong. So as soon as we closed on the building the tenant on the upstairs had a lead and he just decided he was, and the owner of the building lived in the building. So they were moving out and the upstairs tenant was a Polish guy. They were younger and he was worried that two young guys were gonna, his wife was alone at home.

Michael:
So he was worried that we were gonna take advantage of his wife or his wife might, you know, like, like us. So he just moved out, you know, so we were sitting there with a three unit building with two vacancies. So we didn’t do the best credit checks. Some guy came in off the streets he wanted his sons an apartment and he put down like, you know, a thousand dollars or $800 or a thousand dollars cash in our hands. And at the time that was a lot of money and we had never of seen that much money. And it’s like, okay. You know, then it turns out, you know, a little bit later on that the one brother was a great worker and he, you know, did everything he was supposed to. And the other brothers, you know, running a drug operation out of there.

Michael:
Geez. So anyways, it was a, it was a nightmare. And so it really also tinged my thinking on, you know, getting into residential real estate. So I have owned apartment buildings, we’ve owned a number of them. And over the years with a partner, we flipped and fixed probably about 125 houses that was in the, the 1990s through 2013. But I’m really never been that interested in residential real estate. I keep getting sucked into it, but just the management headaches. Yeah. Which is why, you know, I really prefer commercial real estate because most of the time I you’re dealing with a business owner or a large corporation. And it, it’s why I really prefer triple net, you know, leases because the tenant maintains most of these stuff.

Charles:
Yeah, for sure. The it’s funny what you said about when you’re renting yourself as your first landlord and I’ve made those mistakes before, and it’s very diff you know, when you have a mortgage payment coming up and it’s your first bra might not have that money reserves. And you’re taking people that are suboptimal tenants, and that’s one benefit of having property management, because they’re not really tied too much to how it performs. They’re looking for, you know, month, 14, month, 15, if this person’s gonna be there and if they’re gonna be paying. And so it’s kind of, that’s another benefit I think of bringing in property management that really vet people and have a criteria that they’re kind of working towards working through.

Michael:
So true. And even if you’re coming up on that you know, because that was exactly, we, we actually got, you know, two kind of disastrous tenants, cuz we are in such a hurry to, you know, cover the mortgage and then, you know, think you’d beyond you know, bigger and better things, but it’s like it comes back. But a property management company will do the credit checks will go through all the stuff and that’s what you need to make sure because there are some property management companies that are not good property managers, but you know, we’ve been managing property since 1990. And so you know, you just need to make sure that your property manager has the systems in place to, to do the right thing. And then some of ’em are gonna be able to con you know counsel, you say, I, I know you really wanna lease this right away, but there’s this other tenant here, you know, why don’t we just and they, they, they actually might be paying a little less, but you won’t end up losing all kinds of rent, like three months to, I know when we were operating properties in Connecticut, you actually had to pay the tenant to leave.

Michael:
Oh yeah. You know, and do that stipulation of judgment cause they don’t evict anybody in Connecticut. So

Charles:
Yeah, I know, I know how that goes really well. Unfortunately, so Mike let, what’s, what’s your company’s current acquisition criterion strategy?

Michael:
Well Concordia Realty is putting we, we still own properties. We still own shopping centers. And we typically used to do value add, but our biggest enterprise right now is Liberty real estate fund. And it’s a single tenant, triple net lease portfolio of properties. So it gives investors geographic diversification. It gives investors credit diversification, and, and it gives investors industry diversification. And so I can kind of explain how we got into that. We, as I said, I started out in the retail real estate world. I we’ve been in business in doing all kinds of retail real estate from large 800,000 square foot, more alls all the way on down to like, you know single tenant triple net deals, or we bought portfolios of single tenant, triple net deals. And you know, the, the, the shopping centers are getting much harder to lease because some of the tenants are being, you know, taken out of business either through comp or what a lot of people assign to Amazon or online sales.

Michael:
It’s really a, a matter of demographics. So a lot of shopping centers, especially malls were women’s clothes heavy and and even shopping centers were heavy on women’s clothes and women. Number one most of the baby boomer women are aging out and the millennial woman, even though they are buying clothes, they’re not buying the same amount of clothes that people used to buy, buy before. And also America’s getting more casual. So there used to be you know, women would dress up and even men would up and, and go to work. And now it it’s a much more casual thing, so it it’s changed the, the buying habits. And so we, as an industry need to figure out how to backfill some of those spaces. Some of those spaces have been backfilled by gyms and you know, service type of business.

Michael:
The main problem with those is they’re, they’re great to fill space, but they take up a lot of parking and the other regular tenants, like a marshals or a supermarket do not want a gym because people just go to the gym. They sit there for like an hour to three hours and take up a lot of parking. So with that long story we, that retailers are coming outta malls. Retailers are coming outta shopping centers and they want free standing buildings and they want free standing buildings. They want the opportunity to put a drive through in you saw it probably over the last 20 years, almost all drug stores, Walgreen, CVS, Rite aid, all went it to something with a drive through. You’re gonna see it with dollar stores. Now they’re gonna start putting in drive throughs. And then COVID was just an acceleration of that.

Michael:
So we said, if the trend is moving towards single 10 and triple net deals, and it’s actually easier to manage them because with a shopping center, you still have to take care of the roof. You still have to take care of the parking lot and all the rest of the stuff with a single tenant, triple net deal, the tenant pays for the taxes, the insurance and the maintenance. So they pay everything. You can remember it by the acronym, Tim so it’s taxes, insurance and maintenance. And so all you do is get a check. So what we like to call it is the nothing but net income strategy.

Charles:
Hmm. Very interesting. And I mean, when you’re looking at returns, as I’ve looked at, ’em, obviously I’m not anywhere near as educating this as you are, but when you’re looking at returns that are coming from triple net properties, it’s less than what you typically will see from when people are doing these value, add multifamilies and all this kinda stuff. And I mean, you’re getting a lot, Le it’s a lot less hassle for you though to handle asset management on these properties. And I mean, you’re really getting long terms, best tenants, minimal hassles. It’s really like the gold standard. Is that kind of how you see it as why you’re, why you like it.

Michael:
And I, I see it as you know, the, the value add because we’ve done heavy value add we’ve actually taken malls and D alled them, you know, we’ve done that on three malls, we’ve done extensive redevelopment. And you know, you can have a plan to, to do the value add. And sometimes the plan goes insanely great. And sometimes the plan takes a lot longer to execute. Sometimes the plan, you know, doesn’t happen and sometimes you execute the plan and you don’t get the red pops. So the thing that I like to point out is is that you know, when you see the multifamily value add, and you see a lot of other value add strategies, they have these like giant IRR numbers and those giant IRR numbers all, most investors gravitate towards that. And it’s like, what you actually have to do is also look at your current cash on cash return, how much cash or flow you’re gonna get right away.

Michael:
And the other thing is your equity, multiple, how much are you going to get out of the total deal? Because those IRR numbers are dependent on a lot of things actually happening. And I can tell you in more than, you know, 35 years of investing, nothing ever goes like you plant, you know, so that’s true. I can see how it’s gonna get there. I can, you know, take a look at any property. Well, I can’t take a look at any property, but I can take a look at any retail property and say, we could take it from here to here. I can do that a lot with, you know, residential properties with the flips and everything like that, but there’s all kinds of things that have to happen in the right order. And you know, you never know you open up a wall, you get some sort of environmental problem.

Michael:
Yeah. You never know that you might need some sort of building permit or approval or a zoning approval. And all of a sudden you’re at the mercy of, you know, some sort of political system, as we just talked about it, you can have a difficult tenant that you’re trying to execute your value, add strategy, and you can’t get the tenant outta your way. Hmm. Yeah. So that’s why I like to say the returns look lower than what you could get for a value add, but the returns are truer. Yeah. So it’s, it’s, it’s cash flow. It’s what you’re gonna see. The the great thing about the leases. That’s why we call ’em net leases is they’re typically lease to large corporations. So like for example, Jiffy lube the parent company is shell oil company. I always say I’ll take shell oil company as my tenant over the us government, because I’m pretty sure that shell oil company is gonna pay their debts, you know, hopefully but you know, there there’s a lot less political instability with a shell with a Walgreens, with a McDonald’s.

Michael:
I do like to talk about McDonald’s you know, we’ve got McDonald’s and when they a corporate tenant, when they pay their rent, it’s, you know, seven to five to seven days ahead, it’s automatically deposited into your bank account. It’s an ACH payment. So you don’t even have to worry about like, taking that check and going to the bank it’s there it’s credited. And when you sign a lease with that tenant, you get the full faith and credit of that tenant backing the lease as long as they’re guaranteeing it.

Charles:
Wow. Yeah, it’s crazy. Cause that does not happen. Multifamily. I think I, one tenant in all my years of multifamily that used to pay two months at a time, cuz he didn’t wanna write too many checks. Other than that, other than that,

Michael:
I would’ve reviewed him at a discount.

Charles:
I was like, go month to month, as long as you wanna go. But other than that, he was I’ve never had anybody, you know, prepay, you know, a month like that or anything like that. That’s the that’s that’s nuts, but that’s awesome. I mean, it’s, I

Michael:
Wanna just, you know, and this is could be, or not be inappropriate, but we had a tenant in a shopping center in Michigan city, Indiana, and they were a massage parlor. And so the main thoroughfare this center was off the, the main expressway, 80 90, the, between Detroit and Chicago and there’s this Tokyo health spa 24 hours. And they’re in the corner of the, the shopping center and basically it was a massage parlor and so, and they would pay their rent eight months in advance because my God, you couldn’t kick ’em out until they, you know, didn’t pay rent.

Charles:
Oh.

Michael:
So we were trying to do a redevelopment. I’m out there with like, you know, TJ, max, corporate executives and stuff. It’s like, yeah, we’re gonna put you right here. They’re like, what are you gonna do about that thing? Cause we ain’t going in there with that thing.

Charles:
Yeah. That’s crazy. Interesting way of this, how people figure out stuff right. And right. Figure out ways around it. But so with COVID with everything, I mean, you have a lot of these are central businesses that we’re really talking about that you’ve mentioned on this that obviously would be open and probably thrived during COVID what, what kind of happened during COVID to your business to did you know, is it, is it a lot of people leaving the malls too with anything to do with COVID or is it also people are leaving the malls too, because it might be less expensive cuz they’re not maybe on a percentage lease, like a lot of malls like to do. So it might be advantage pages to them to move to their own individual single location.

Michael:
Yeah. It’s definitely less a expensive, it’s not only do the tenants have to pay a percentage rent but they also have to pay what are called cam charges, which are common area maintenance charges. And in enclosed mall, you’re not only paying for like, for example, in a Chicago or a Massachusetts or Connecticut you’re paying for, or the H V a C you’re paying for the heat. You’re paying for the air conditioning you’re paying for and the tenants pay all this stuff. You’re paying for indoor sprinkling, you’re paying for fire suppression and then outside you’re paying for all the same things that you would pay in any other building. So you have to pay for snowplowing, you have to pay for landscape. So it’s really expensive to be in an enclosed mall. It’s less expensive to be in. What’s called a strip shopping center, like your shopping center that you have with a grocer.

Michael:
And then it’s usually about the same rate or a little less expensive for a tenant to maintain their own free-standing building. Okay. COVID did accelerate people coming out of the mall because the malls were just shut down. We had shopping centers that you know, in, in one of ’em, probably half of our tenants were shut down because they were declared non-essential. So unfortunately you’ve got these, it, unfortunately they were may major national tenants. So like in a Longhorn state cost, we were able to work out an agreement with them because it’s like, they’re just shut down. They’re corporate tenants. They, everybody, you know, worked out well. We were able to, you know, give them some sort of break and then they got, they’re actually paying for the, some of ’em are paying over the next two years, the, the, the rent that they didn’t pay during COVID.

Michael:
But in terms of our portfolio, we are, are investing in automotive services. We’re investing in medical services. We’re investing in drug stores, we’re investing in dollar stores, we’re investing in cell phone stores. I think there’s oh, in, in medical retail and almost all of those tenants were open all the way through. Yeah. Some of those tenants, actually the sales just went through the roof because they were the only available thing. So CVS and Walgreens sales went through the roof. Not only because a lot of ’em were open 24 hours, but they had the drive through so that people didn’t have to go into the store. So it was a beautiful thing for them. And they also were able to kind of take advantage of the situ because they had COVID testing. CVS and Walgreens are also adding in medical facilities where you can go get, you know, checkups or nurse stations or things like that.

Michael:
And the dollar stores, the dollar stores their, their sales blew up because I, if you look at a dollar store in a lot of people that are in the upper income brackets have never been into a dollar store. But a dollar store has just about all the basics that people need. They, they also include food. Some of them have like frozen food sections and all the rest of it. So it’s kind of like what I like to describe it as is a mini Walmart. Yeah. And so their sales just blew up and then the, oh, we, we’re also doing grocery stores. So like in all the, or you know, freestanding triple net lease grocery store, like a Kroger or something like that. And their sales all went because they were one of the only things that people was buying at the time.

Charles:
One question before we get onto your, your blockchain technology is, so if you’re for multifamily or someone’s doing residential real estate you know, you wanna hold the property for five years and go through this whole value, add thing and all this kind of stuff. And it’s not a real scientific process after you’ve pinpointed market in a neighborhood, right. I see some gentrification hat happening. I know that within five years there’s gonna be more and all this kind of stuff. You’re, you’re buying properties with long 25 year leases. And some instances I would imagine how are, like, what kind of market research are you doing? Do you want to go there and see a lot of national tenants around where it is? I mean, how are you choosing, not that you have to keep this tenant for, you know, you have to hold up a property for the whole Tennessee, but you know, let us know kind of what kind of market due diligence you do, let’s say,

Michael:
Well, we wanna make sure that it’s on Maine and Maine. We have, you know, a checklist that we go over off. And it has I wanna say it’s, it’s close to a hundred different points that, you know, we need to sure that, and, you know, it’s assigned a waiting. But the, the main thing is, is that there has to be good access in and out. There has to be good visibility. These tenants are leasing in these properties because they’re not only a place where they can do business, but it’s also a giant billboard for them. They want as much signage as possible. They want you driving by that. And, you know, you, you might just notice it outta the corner of your eye, but all of a sudden when you get sick, it’s like, oh, I, that Walgreens is over there.

Michael:
And, you know, I, I know I can go over there. So that’s what they’re looking for. And that’s what we’re looking for. We’re also looking for good populations with growth. We’re looking for traffic counts to see how many cars are going by it. Ideally we want the store or whatever. You know, even if it’s a, a debt, a veterinarian or something like that, we want them as close or close as possible to a traffic light because it’s easier to, to get in and out of. We absolutely try to get as many as possible on a corner. So you can not only get in on one side, but you can get in on a separate side that might not be as busy. So that’s the type of thing that we look for. You can also do value add in that lease.

Michael:
So if you take a look at some of the properties that might have shorter term leases, and you have a good feeling as to what the market, whether it’s a great location, whether you believe they’re gonna renew or not, you can actually get those properties at a higher cap rate. So what we do with our portfolio is we have the confidence that we are not only blending it with longer term expirations, but we’re doing some shorter term expirations. Okay. Because we know we’ve been in the leasing business we have contacts with all the national retailers. So if that, if we’re going to go in and buy something that has, like, let’s say a, a three year lease expiration or a four year lease expiration or under five we’re already gonna know if this tenant does renew they’re gonna size their option, or they might not have an option. And so we’re gonna know what type of sales they’re doing there. And we’re also gonna have two or three backup tenants that if let’s say this dollar general or dollar tree decides not to renew, who are we gonna have that can backfill it.

Charles:
Hmm. Interesting. Very interesting. And

Michael:
So you can get a, a, a higher cap rate on something like that, but it’s a dangerous game to play if you don’t have the relationships with at tenants and you’re not supremely confident that you can release it.

Charles:
Hmm. Interesting. Yeah. It makes, so it’s, it’s interesting because when you’re going, driving somewhere, how important, how much important you put on ingress E gr of in and outta that property, and if there’s a light and everything like that. And so I,

Michael:
How time you like saw something you wanted to go to and you couldn’t get into it, so you just drove past it and went someplace

Charles:
Else, right. Or like a corner so crazy. You can’t get to the other side going the other direction. And you’re like, only if I’m going this way, you know what I mean?

Michael:
It’s the Yogi bear it so busy. Nobody goes there anymore.

Charles:
Exactly. so give us a little about premise behind your Liberty real estate fund and what you’re doing there and how that is kind of disrupting private syndications. As we know it

Michael:
Sure. I was hanging around a bunch of people that were a lot smarter than me and all of them were saying blockchain, blockchain, blockchain. A lot of them were saying Bitcoin. And so I knew that there was something happening with blockchain that I had to, you know, try to understand it. And as I was talking to a lot of these people, it was a around, you know, the, the crypto craze that all the prices had just gone nuts in 2017. And I was looking at a lot of these things, and I didn’t understand, you know, where, where the value was and a lot of ’em didn’t have any value. And so I’m like, why wouldn’t you just tie it to like some sort of an asset? Why wouldn’t you just do a cryptocurrency backed by real estate or backed by gold?

Michael:
You know, because this other stuff you’re taking it on complete faith, whatever their, you know, little project was and they’re, they’re raising a billion dollars. So what I really wanted to do was create a real estate stable coin. I was already in the net lease business, and I knew that net lease properties on average over the last 20 years have fluctuated between 97.5% occupancy and 98.5% occupancy. Wow. So you’ve got this super stable everyth backed by major corporations. So you’ve got like basically bonds wrapped in real estate. And so why not tie that to what I thought at the time was gonna be a cryptocurrency? So you get a real estate stable coin. So that was the intent. That was the idea let’s create a real estate stable coin. Fast forward, we learned that you know, if we were going to do what’s called an ICO and initial coin offering, that would be illegal in United States.

Michael:
And so, but there were these things called security tokens. So it’s runs on the exact same rails as all the cryptocurrency that you see out there, except there are legal security there. For example, Liberty real estate fund is a 5 0 6 C offering. So it’s regulated by the S sec. But the really cool thing is, is that it’s just like a normal syndication only it’s tradeable so you get a token and that token so you actually each token in our fund is $10,000 a piece. And so it, you can, like, let’s say you bought a hundred thousand dollars, so you get 10 tokens, and let’s say in three months you decided that you were gonna trade a few of your tokens because you wanted to buy something else, or you had to, you know, know, do a wedding for one of your daughters or something.

Michael:
So you decided to, to trade one of those, you could actually trade person to person with another accredited investor, or you could list it on these things actually right in your neighborhood is Oasis pro markets, and they’re, what’s called an ATS. So you could list it on the ATS and it’s similar to a, a stock exchange and it’s a matching trading system that they have, you know, so other other people will be able to find in, in buy your tokens, but the really cool thing is after a one year lockup period, those shares in, in the fund, or if you were going to do this with one of your multi-family properties, those shares in your multi-family property would be tradeable to accredited or non-accredited investors. So it just opens up a much wider investor pool. It it’s, you know, really a, a cool thing.

Charles:
Yeah, because there’s, there’s quite a number of pages in the private place and memorandum that tells you this is non-marketable, you’ll never sell this blah, blah, blah. And so that’s, that’s great because there’s a lot of people that turn down in investing in a syndications, cuz they want their money back in 24 months, let’s say, and you can’t obviously can’t, you know, you shouldn’t be saying unless that’s what your project goes for, that you’re able to do that. So that’s, that’s a great exit strategy for investors.

Michael:
Right. And we’ve had that you know, for example, if you’re doing your value ad strategy, sometimes, you know you have a downturn in the market. So if you were scheduled to sell in 2020 you’re probably not selling your project or refinancing your project in 2020 because you know, it just wasn’t available. So, and it’s the same thing. I’ve been through four downturns. So as I said before, you have this plan, you’re executing on this plan, but you know, it never typically goes exactly as planned. You eventually end up getting there, but sometimes it takes a little longer to get there. So for example, if somebody was investing in one of our syndications with our shopping centers they’d be locked in for like five to seven years. We’ve had one deal, which, you know, E everything’s been great and it’s just been a stellar deal.

Michael:
But it’s been a 30 year deal. So but you know, like I said, with these, if you absolutely need to get out of it, you need some sort of liquidity. There’s liquidity with broker dealers, there’s liquidity that me and you could trade directly. So you could say, Hey, I got these shares. It’s doing really good. You, I need to do this other stuff or I wanna buy a car or whatever, or, you know, and so you come up to me and I say, well, that sounds good. So as long as we agree on the price, if I put the money up and you put the shares up, the trade goes automatically through, without any broker, without anybody in between it. So it’s a really cool thing. Then, like I said, you could list them with a broker. You could list them on an ATS and there are security token exchanges, and we’ve been talking with Coinbase and Kraken and eventually more than likely they’ll also be, you know, listing security tokens as well.

Charles:
Interesting. that’s fantastic. The I want you mentioned about the four downturns. I just just in passing, what, what kind of commonalities have you seen because the catalyst for all these downturns is is different. Like what do you see maybe as common traits between them that kind of peaks your interest when you’re, you might be seeing it in a current market cycle?

Michael:
I, I really haven’t seen the exact same thing in everyone because everyone was started by some sort of different thing. Right. The, this past one a lot of the stuff that we thought was going to happen didn’t happen cuz it, you know, went down and then it went right up. But back in 2008, through 2010 there, most of the people that got wiped out and this was also the same thing in 1990 1989 through 1991 it was the capital stack. And so the people that got wiped out were over leveraged you know, and it had a difficult situation and you know, and, and I I’m worried about that now because I see especially in the apartment market, but also in, you know, other parts of commercial real estate, it’s not only are you borrowing your maximum because the debt is really cheap.

Michael:
But the other thing is then, you know, they’re doing these preferred equity, which are basically mezzanine loans. And so we’ve done in the past workouts for bank and insurance companies and a workout is when the bank or the lender forec closes on the property, they bring somebody in to stabilize the property to get it all like, you know, in a manageable situation so that they can get it off their books and then, you know, help them dispose of it. So and that’s like I said, most of the stuff is, you know, usually a leverage situation. And I’m not saying because debt is so cheap right now. You should take this much as you can cause it’s almost free money.

Charles:
Yeah. It’s, it’s interesting when I’m looking at something is, do we, does this person need to leverage it this much for it to make sense or are they doing it because that’s really cheap and you can usually find it’s, it’s so expensive now for multifamily. It’s one of those things where you gotta ask that question of what you’re getting yourself into.

Michael:
Oh, you know, you just hit on a perfect thing that nobody hits on is like do they need the debt to make the deal work? Or are they just like this deal works and we’re just taking it out as much debt as possible to, to maximize returns because there are, I I’m, I’m gonna say guys, cuz I say you guys, but there are a lot of guys out there that are really stretching to make the deal. And I would be concerned. I would look at, you know, if they’ve ever been through a downturn before if they’ve ever executed on a plan before. Because I just, like I say, I see a lot of you know, newer syndicators out there. They all seem to be like GPS in the same five deals.

Charles:
And

Michael:
And, and you know, I, I’m just worried about it cause they’re like talking about asset management, asset management. When, you know, you at the beginning of this conversation started talking about property management and, you know, knowing you need to know the property management to know how to do the asset management.

Charles:
Exactly. a couple questions as we’re finishing up here, I had one with these are long, longer term leases with triple net. How do you avoid getting crunched? Let’s say by inflation that’s happening right now in this increasingly inflationary period. Are you guys doing any type of pegging any of these leases to indexes or anything like this?

Michael:
As of right now, we’re not. But what we typically do is we look for there there’s, so for example, let’s take dollar general. I’ve seen people syndicating, a dollar generals out there. And my main concern with that is dollar general signs a 15 year lease that never goes up. So number one, we look for leases that have rent increases. We really like a lot of the automotive in the medical deals like an Aspen dental or, you know like I said, Banfield pet hospitals, which is owned by Mars corporation. A lot of these go up every year sometimes 1%, sometimes 2% a year. So we like those leases that, that escalate and we try and, you know, mix our portfolio so that you get some escalating leases and then you get some better locations that you’re just buying for the location, cuz you know that the value of the properties there. What I also like to point out is is that you are buying in right now and you’re locking in this year’s construction rights. So, you know or you’re, you’re locking in like, you know, 19 or 2000 construction rights. So if somebody else coming along, isn’t gonna be able to build that building across the street in three years for the same amount of money. So you’re locking in that value too.

Charles:
Interesting. Yeah. That’s very, the other thing too, is that since these are triple triple net lease properties you don’t have the normal expenses that a, let’s say full service or multi-family property has where I’m worried about this going up and I’m worried about having to pay for that. It doesn’t really affect you cuz you’re not paying that and it affects mostly your tenant. You’re just really giving them a shell and then they have to operate that shell.

Michael:
Right. And the other thing that I, I point out to, you know not only with you know, multifamily, but also mobile home parts and some of those other things they project that they’re gonna like increase rents higher than inflation. And I, I just don’t assume that that’s gonna be so that’s number one. And number two, what was the other one? Oh, you had mentioned it before. Not only do tenants sometimes is pay percentage rent in malls, but they also sometimes will pay percentage rent in single tenant, triple net. And so when the tenants raise their prices, you get the benefits of that, you know, bumping up against your break point. And so that covers you in inflation too.

Charles:
Yeah. And I also like all the industries as we wrap up here that you’re involved with with with auto mechanics, with, you know, they’re ever increasing increasing prices of cars when there’s a pullback people fix their cars more and you have probably auto parts stores and all that kind of stuff and dollar, I mean, this is all perfect around any type of pullback you will actually you know, you’ll actually have more business probably coming through those those units, those properties. So that’s a great strategy of how you’re doing it, especially where we’re going now. I think that everything’s just gonna be getting more and more expensive over the next few years, but

Michael:
We really designed the portfolio to be internet resistant. And what we also found out during 2020 is it seems to be pandemic resistant. So it’s something that people need to do. We’re looking for, you know, bread and butter necessity type of businesses. You.

Michael:
That, you know, people are still gonna need for the next, you know, 20, 40 years.

Charles:
Yeah. So what do you think are the main factors that have contributed to your success, Michael?

Michael:
Just dumb luck.

Michael:
No, the I, I would say persistence you know that, you know, it’s, it’s persistence, it’s willing to, to learn. I like to play the old guide card with a lot of the people that work around me and for me, because they’re all under the age of 35, but it’s like, when, you know, I started out in the industry, there was no internet, so you couldn’t look up anything, you know, you had to just like read magazines, you had to like read trade journals. You had to like actually go out when you were looking at a property. Yeah. Fly out there and look at it. So I would say that education keep reading and also you know, just keep positive mindset.

Charles:
Interesting. Okay. So how about our listeners learn more about you and your business us?

Michael:
They can get ahold of me at Liberty fund.io. That’s Liberty fund.io. We not only have all kinds of educational material on net, lease properties, triple net properties or net, net, net properties. But we also have a lot of information on security, tokens block in real estate.

Charles:
Okay. I will put all those links into the show notes and I wanna thank you, Michael, for coming on today.

Michael:
Thank you.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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About Michael Flight

Michael Flight is a founding principal of Concordia Realty Corporation in 1990 and more recently CEO of Liberty Real Estate Fund, the World’s First Net Lease Security Token FundTM giving you Stable and Tradable Private Real Estate. Michael is a real estate entrepreneur and Blockchain Real Estate evangelist who is an expert in retail real estate (NNN-Shopping Centers-Triple Net-Net Leased) investment, redevelopment, real estate tokenization and real estate on the blockchain.

He started his commercial real estate career in 1985 and has an extensive record of partnering with some of the world’s most well-known banks, insurance companies, hedge funds and institutional investors in many successful projects.

Michael has been featured on CNBC Arabia, CEO Magazine and quoted in Yahoo Finance, Crowd Fund Insider, Crain’s Chicago Business and E-Crypto News. Michael is co-host of the Nothing But Net – NNN Show podcast – an educational podcast about Triple Net/Net Leased properties and the Chicago Blockchain Real Estate Collective educational meetups.

Michael is a well-known speaker including engagements at: Global Family Office Summit Dubai, FreedomFest, Investor Summit at Sea, Multifamily Investor Network conferences, LA Blockchain Summit, Intelligent Investors Real Estate Conference, Security Token Summit and the Liberland 5th Anniversary. Michael has been elected to public office, serves on the real estate investment advisory boards of two non-profits and is a founding board member for Freedom of Life, a Romanian NGO helping women achieve liberty and build new lives while recovering from human trafficking.

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