Industrial Insights with Michael Bucci

Michael Bucci 00:39

Yeah, thank you for having me, Justin. I appreciate it.

Michael Bucci 00:45

Yeah, we did. We bought actually a copy for everyone in the office. I think that's how we ended up connecting. Somebody from our office added all of us to the newsletter that you have. And then that's how you had reached out to me. So amazing book. We all loved it. And although we don't do leasing, like the lessons that we learned. Just kind of the specifics of how a tenant looks at a space that they want to lease was very, very valuable. And even just the terms and the layout, some of the things that we look at as investors, we understand that they're important. But just seeing how important it really is for the tenant and why, it just makes things like, all that more clear when we're looking at what buildings to acquire. And also when we look at a building that maybe doesn't have all the characteristics for the ideal characteristics, let's say for warehousing and distribution, now it's more clear how risky that could be in a down market. So very valuable insights in that book.

Michael Bucci 02:10

Mm Yeah, exactly. And now we're seeing that especially with this big box space. mean, before even the ones with less ideal characteristics were leasing, you know, with tight shipping or, you know, a lot of office, let's say, like they were still fully leased. But now those things are sitting vacant. You know, they're still sitting vacant since the downturn. So, yeah, it's definitely, definitely something to watch out for.

Michael Bucci 03:00

Yeah. So essentially today, what we do is we look for value -add industrial real estate for warehousing and distribution. And more specifically, we're looking for... multi -tenant space. So the smaller the units, the better. And it's just served us well because today that's what's leasing so easily. But we'll do a lot of buildings, so multi -tenant, but it doesn't need to be subdivided. But just the ability to subdivide it is what we look for primarily. We'll also do some single -tenant acquisitions. I would say it's not our bread and butter, and especially now we're kind of staying away from it even more so because of the challenge in leasing it, unless we could buy it at a discounted rate. But yeah, that's what we do. And then we'll buy these assets, we'll increase the value by increasing the rent, and then we'll refinance or exit. Very simple.

Michael Bucci 04:06

Big in what sense?

Michael Bucci 04:13

Yeah, probably something around there. I would say, though, the way I look at it is more on, like, we canvassed the whole area, OK? So then the amount of buildings that have good characteristics for warehousing and distribution, there's probably only a good 20 to 30 ,000 buildings in the greater Montreal area with OK to amazing characteristics for warehousing and distribution. So it's not a massive market. And there's a lot of people competing for the same product. But I guess it's good to be, I guess, a

Michael Bucci 04:54

a medium -sized fish in a small pond as opposed to a tiny fish in a big pond. So that's how I look at Montreal.

Michael Bucci 05:29

Yeah, so we have all the data and then what we'll do is we'll kind of exclude a lot of these massive institutions, pension funds, REITs and stuff like that just because we could still get deals done with them but it's just more challenging. A lot of times they have to, you know, they have, you know, requirements for their dispositions that, you know, it's harder for them to sell off market, let's say. So we'll exclude those from our list and then we'll go after, you know,

Michael Bucci 05:58

the people that own the asset that are either using it for their company or maybe they only own their private investor that owns, you know, five, 10 buildings or, you know, like these are the type of people that we're reaching out to to get deals done with. Those are the people that we've had the most success with.

Michael Bucci 06:16

And also, we could cater to their needs a lot easier because if it's an owner -operator, we'll offer a lease back or we'll offer a delay of closing so he doesn't need to pay rent. Let's say he needs X amount of time to vacate because he needs more space or he's going to retire or he needs less space, let's say. We could give him the flexibility to do that and either pay rent in the meantime or delay closing and not pay rent. That's where we have a lot more success with these owners and our flexible terms, obviously.

Michael Bucci 07:05

Yeah, exactly. mean, we'll still see buildings nowadays that we've acquired or that we look to acquire where they're leasing it at five bucks net a foot. Whereas today's market in Montreal is like 12, 14, even up to 16. Some people push it above 16, but we're not really seeing those anymore. You know, so the rents today, some people still haven't increased them and they're like one third of what market is, which is pretty insane.

Michael Bucci 07:47

Yeah. Yeah, so my father, he was never in commercial real estate or anything like that. He had his own business and stuff and he would just invest his profits into real estate. So he'd buy like small condos here and there. Funny enough, the condos that he would buy were all like kind of on the same street. He would just look online at those listings and he knew exactly what they should be worth. And the minute he would see a listing that was like below market, he would make an offer and whatever. That was like his little real estate endeavor. But he would always tell me that you can't say

Michael Bucci 08:33

the amount of money that real estate makes you like you're not gonna make that money by saving it.

Michael Bucci 08:39

And so that really stuck with me and he would always tell me like I need to be thinking about how to invest in real estate. I need to be thinking about how to buy these assets because it's one thing to save your money from your job. But then, you know, when things happen in life, let's say it's so easy to take that money that you saved in your bank account and go, you know, use it for something else. And not only that, but it's like it's not increasing in value the way it would in real estate. So he would teach me all these things. Whereas if it's locked into that asset, like it's there, you're not going to just sell all of a sudden because, you something happens in your life where you might need the money, you'll figure that out, you'll continue keeping the real estate, then you'll find the money elsewhere or you'll whatever. So you just was explaining that no matter what happens, if you keep those assets, you'll be safe in the long term. so at 16, I had asked him, I'm like, look, you talk about this all the time, how much would it cost to buy a condo? And then he told me. Well, at first, you told me, you're not ready yet. I'm telling you to start thinking about it. stop wasting our time here. Just get a job and stuff. Yeah, we'll get there at some point. And I was like, no, just tell me. No, I'm curious. I want to buy one. And then finally, after pushing a melody, said that.

Michael Bucci 09:51

I would take me 15 grand to buy a condo, a one -bedroom condo at about like $200 ,000 with 5 % down. So I told them I'd come up with that money and I would buy the condo. So fast forward a year, I was working anywhere I could, taking side jobs, construction sites, anything I could to save money. And I would spend $0 at that age. I was just like super hungry to buy this condo. And so I ended up buying it a year later at 17. funny enough I was too young to even sign on the mortgage so they had to sign the mortgage for me and two years after that we sold it made like 60 grand selling a random condo that we had purchased two years earlier and for some reason it didn't click in my head how lucrative real estate was I kind of just thought like yeah that was nice but

Michael Bucci 10:42

Yeah, but I wish it did to be honest. But anyways, I started all these other businesses to make money because I'm like, OK, you need to have a business that makes money to buy the real estate. You don't just buy the real estate or do real estate. And then I had many failing businesses in online sales or landscape and all these different industries. I mean, failed. They didn't make much money. It finally clicked when I was selling products on Amazon and I got banned and all of a sudden my revenue went to zero and I was like, okay, this is the last straw. The one business I finally have that's making some money goes to zero overnight and it still doesn't even make me as much money as I had made with that one condo. And so then I just, I decided, you know, that's it. I'm going a hundred percent in real estate. I need to figure out how to get into the industry. And so I started asking around who could introduce me to somebody that could teach me real estate. I got introduced to the owner of Mondev. He's one of the, well that company and he's the owner of it, him and his brother and his two sons. They're one of the largest real estate developers and investors in the city. So I got very lucky in that sense. I went to breakfast with him and he was just telling me everything he was working on, all the projects he was doing, essentially just how active he was in the industry. And so at the end of the meeting, I was just like, look, I'll work for you for free if you teach me what you know. And then he was just kind of shocked a little bit that I had asked him and he starts laughing and he's like, look, he's like show up on my office Monday morning at 9 a So I'm like, okay, let's do it. And then I showed up, luckily he ended up paying me small salary, but it didn't matter if he would paid me or not. I was convinced that I was going to work for him for free. And right away, was bringing me to meetings where he's negotiating a deal valued at, let's say, $20 million or $50 million, like these massive deals. And he's negotiating the price on it. And I'm just sitting there. And I wouldn't say a word in the meetings. I just listened the whole time. And I did that for a year. And then I decided to go off on my own. But that was how I got started in commercial real estate. So I was very fortunate. And man, it's a very easy way to bypass the learning curve when you just shadow somebody who's that ahead of you in the industry. But I would say the challenge is that he was probably annoyed of me because I knew nothing, especially compared to him. So yeah.

Michael Bucci 13:30

Yeah. Yeah, yeah. Funny enough, even when I would go to those meetings, sometimes they would try to speak to me and I would just be like, I would just be like, yeah, yeah, no problem. And I would just keep listening. I didn't even want to, I was just so focused on trying to learn what he was saying and how he was explaining it and stuff that I just like, couldn't, I didn't care to speak. I wanted it to be more of like a fly on the wall. Like that's how I was always, that's how I was with him the whole time. Like I just, I just was there to learn, you know? So that didn't bother me at all. Funny enough, even I went to dinner with him where he would negotiate pricing on huge deals and he would just like have me sitting there. It was just crazy lessons that I learned.

Michael Bucci 14:27

Yeah, so basically what I was doing for them is I was finding them deals and I was getting a fee for finding them the deals, but all in -house and only finding deals for them.

Michael Bucci 14:37

And so afterwards, I kind of wanted to get paid the same percentages that brokers get paid. And so they said that would be no problem, but that, you know, it'd be more lucrative for me to do this if I went on my own. Like if that's the avenue I wanted to take that I should just go on my own and just do brokerage in general. And I could still bring them deals and do deals with them. And so with their blessing, I just went off and I started my own thing and I was also finding deals for them as well. But then I started finding deals for a bunch of, well, not a bunch, actually a group of probably two to three core investors that I still work with today. luckily, so basically what happened is when I was with them, I was cold calling for industrial towards like the end of the year that I was with them. And I started, you know, speaking with different owners and they were all telling me like a group of like 20 of them had told me that they were leasing their buildings at $10 net. And so at first, when I brought that up to Mondep,

Michael Bucci 15:34

They didn't believe it. But after I had spoken to like 20 of them that all told me the same thing, mean, I was convinced that they weren't all lying to me that they were leasing at a 10 bucks net. And so, you know, even Monda was very shocked that it was actually the case because the rents were at five bucks net, you know, a year earlier and all of a sudden everybody's leasing their buildings at 10 bucks net. So the rents had doubled. So then when I went on to do my own thing, I started asking around and I was.

Michael Bucci 15:59

getting the opinions of other active real estate investors that know way more than me. I was asking them, like, look, if rents double, shouldn't the value of the asset double? And then they'd say, yeah. And I would say, like, look, let me give you an example. Because I just wanted to make sure that I was right. Because at that time, I was only a year in. I still wasn't very confident in what I knew. Now it's obvious. The answer is yes. Like, you could even model it out. If you double the income, like, you're pretty much doubling the value of your building. But at the time, I had no clue. So I started asking. And I even made the example, like, if an apartment building used to lease a one -bedroom for a thousand bucks and now you could get two thousand dollars for that same unit like and you do that for the whole bill the whole building like you're doubling the value of your asset no and they're like yeah and so then I was convinced that industrial real estate was going to double and at the time they were trading for like a hundred bucks a foot which was high still for that time people thought that a hundred bucks a foot was was high just before COVID and then I started doing deals that way and telling everybody this whole story about like why they should buy it at 125 a foot, 135 a foot, 150 a foot. And so I did like over 150 million of deals and that like one and a half year stint and interest rates were so low too. It was just the perfect storm. Values were doubling and interest rates were so low. And so I made a lot of money doing that and I made a lot of connections with those two, three core buyers that I was working with. And then when I had that money, I kind of asked them, I'm like, look, I want to participate as

Michael Bucci 17:30

an equity partner. And then they allowed me to join in and enroll my fee as equity and also to even contribute additional equity. then I pivoted completely. Exactly. That's the broker's dream, I would say.

Michael Bucci 17:50

Staying on as an equity partner, especially when you've been in it long enough, I'm sure you know this too, you see some acquisitions that people have done, and then you see their exit, and you're like, wow. I know how much they paid. I know how much it cost them to buy that building. And now to see what they're exiting for, it's just the numbers don't make any sense. And so. Yeah, so I pivoted to that very quickly and now my company still does the same thing in the sense that we handle the acquisition side of things. So we find the deals, we negotiate the deals, but then at the end we stay on as an equity partner. And the partners that we work with, everybody has their own added value. So one of our partners is a property manager. Another partner does the financing. He's a mortgage broker. You know, I find the deal, do all the due diligence, you know, close on the property. So everybody has their own role. And then, And that's what we do. And in the future, I'd like to go back to monetizing some of the deals through a traditional brokerage, which I'm in the process of doing. I'm to have a separate entity that does brokerage still, just because 99 % of the deals that we come across, we can't monetize because we can't buy everything, obviously. And so I'd like to go full circle and come back to that at some point. But today, yeah, it's just we're 100 % focused on acquisitions.

Michael Bucci 19:25

So what works for us is first off getting the data. Like you need the data of all the properties of the owners of the properties, the phone numbers, everything like that, their email address. So that's step one for us. Then step two is qualifying those leads. So there's a lot of leads in industrial area that are just, they're either not an industrial building, they're not the quality of industrial building that we're looking for. And so getting rid of those so that they're no longer in our list is what we do right away. once we have all the data. And then we're left with, for us specifically, it's buildings that have good characteristics for warehousing and distribution. So good shipping court, X amount of, like our ideal, I guess, amount of truck level docks is like one per 10 ,000 square feet. But we'll whatever, give or take. Maybe you could even add truck level loading docks, but just good shipping in general, I guess. And then we have the ceiling height. The higher the ceiling, the better. We have all these different characteristics We essentially have like this cheat sheet with like different different tiers and different ratings per tier and then we plug that in for every single property and then with that we're left with a list of you know properties in the city that we have all the data for that are have good characteristics for warehousing and distribution and then we'll contact them, you know any way possible So maybe we have a mutual connection with the guy that knows him on LinkedIn or maybe we'll call him directly or send an email or we will go in person and at the building, we'll do anything to get a hold of these people and then we'll just negotiate the deals that way. And then... How, again, how we have the most success with the people that we reach out to is that we really cater to whatever their needs are. Some people, I mean, I guess the most obvious example is always like an owner operator. They can't go and list this thing publicly and then their employees get wind that they're selling their building. Why are they selling? Are they shutting down? Is business not good? So then they get scared and they might start looking elsewhere. There's also the visits. You don't want visits all the time while you're know conducting business there you don't know you can't trust everybody who's going to come to the visit if it's listed publicly there's the other structures where it's like

Michael Bucci 21:48

you wouldn't have a traditional brokerage list of property where there's a delay of closing of a year while they close down operations. it just, it's not something that you would do. It goes to bid and then whoever buys it has to close shortly after. And that's just the way it works. So for us, like we could cater the terms of the deal specifically to the people that we're working with. And that's why we have a lot of success.

Michael Bucci 22:21

Yeah, exactly, exactly. And people, they appreciate that, that we're so willing to figure out what their needs are and then kind of structure something that works and fits their needs. So people really appreciate that as well.

Michael Bucci 22:39

Yeah, yeah. So we're a team of like 10 people now. We have quite a few people. We have five. Four, no, five people that are making calls, then we have the backend. So we have the whole machine going. My role in the whole thing is basically, I guess, investor relations to a certain extent, and then closing deals high level, if I have to get involved at that point. But yeah, they're definitely speaking to many owners on a daily basis. You'd be shocked how many people we speak with.

Michael Bucci 23:26

So we'll get all their property information. But for us, we're looking for upside in the, you know. short to medium term. And if not, then if the upside's only in the long term, then we'll pay a discounted rate today. But we're most competitive on buildings where there's upside soon after closing. And so we're looking for rents that are low. We're looking for leases that are close to expiring. We're looking for vacancy or a vacant building in general. we're looking, essentially, we keep it very simple. We want to optimize the rents as quickly as possible. So that's what we look for.

Michael Bucci 24:01

And then, again, we're more aggressive with these multi -tenant buildings that could at least, even if they're not subdivided today, where they could be subdivided many times, that's what our bread and butter is, just because we have so much. We could lease those things very quickly. But essentially, what we're looking for when we see this thing is high level, what is the price that they want today? And then after we increase the rent, what is it worth after that? And then are we OK with that return? And then obviously, if high level, it seems like it would make sense. If they're asking for a price that's, guess, of related to today's income for the building, or even like halfway between what it would be worth once it's increased to market rent versus what it should be worth today. as long as there's still some upside for us to unlock, then we'll look at it further. Then we'll run the pro forma, we'll show what the market rents would be, we'll include some downtime for leasing it, the leasing commissions, all that. Then when we look at it in detail, then that's when we'll make a decision if we submit an offer or not.

Michael Bucci 25:30

Yeah, yeah, yeah, honestly, I try to forget about those things, but no, I reflect on those and we try to learn from them. yeah, for sure, I've had my share of horror stories.

Michael Bucci 26:03

Yeah, basically how we finance our deals is We'll contribute x amount of equity in the deal, and we'll do our deals with partners. So like I said, it's those same partners that we were working with before. And everybody has their own role within the acquisition. And so we'll also get a fee for finding the deal in general. So we'll usually roll that fee into the deal. And then we'll also contribute additional capital. And then, yeah, we'll stay on as equity partners with them. And then how we do our financing is it depends the acquisition. So most of the time, we have to get a brief

Michael Bucci 26:36

loan because you know if we're buying something vacant or with know leases way below market we need to close private so we'll get a bridge loan for let's say one to two years while we optimize the rents and increase the value and then we'll refinance and pull some cash out or whatever we have to you know keep X amount of equity in the deal that's fine but that's how we operate usually we have to get the bridge loan first with higher leverage you know but also paying substantial interest rate and then after we'll get our term loan after that.

Michael Bucci 27:14

Especially in industrial, I think. feel like it's what keeps the industry afloat, honestly. It's like for apartments, you see these loans. For us, we have a CMHC program for government subsidies. The government subsidizes the loans and stuff. Sometimes they'll ask for, they'll have a financing clause in the offer where they might need like six months to finance the deal. Whereas in industrial, like if you can't close quickly, like you're not buying industrial deals. Like they're not giving you many months to go and get your financing in order. So you have to close very quickly, you know, and that's why private is so necessary. Or you close cash, which is just... It happens, it's not the favorite choice of investors for sure.

Michael Bucci 28:25

Yeah. Yeah, yeah, so that's actually a great question. mean, At the beginning when everything was happening and the rates were going up so quick, I kind of fell into the trap that like, okay, now it's a bit of a break. Well, you know, the market's cooled off. There's not going to be many transactions. Like, let's just wait this out and, you know, work on other aspects of the business because we won't be doing as many deals. I think that lasted for maybe a month. And then I realized like, no, there's just always deals. Like in a downtime, there's deals and in the uptime, there's deals. And it's funny because when interest rates are super low and things are trading very rapidly, people will say there's no deals because the minute they find one, somebody else out bids them or buys it in 10 seconds. And then in a downtime, they're like, well, interest rates are so high, I can't make sense of the numbers and I can't get financing on the deal. So it's like, there's issues no matter what market cycle you're in. And so when that clicked, I started realizing we just have to kind of adapt our game plan and find out how to strategically structure deals so that it's a win -win for every

Michael Bucci 29:39

and so we had pivoted to just going even harder, speaking with many people, like even more people, and then also just kind of.

Michael Bucci 29:53

Exactly, exactly. And then also sitting down with them and educating them on the reality where they would tell us, well, I'll just wait this out and I'll sell it afterwards for more. And then I would tell them, OK, well, look. What's your timeline of selling this thing? If you don't need to sell this thing today, sure, then wait until rates come down and you'll probably get more for your property. But if you want to sell it in the short term, how long do you think this is going to last? How long do you think rates are going to stay at this amount? So was just kind of educating them on the value today based on the rates and finding a structure that would work for them, finding kind of a middle ground. The other thing I used to do with them is explain to them, they'd say, I could sell it for more later. ask them, know, like how much do you want to net after selling this thing? Like how much do you want in your pocket? And then they tell me and I'd say, okay, well, we were comfortable giving you that today, you know, like at the end of the day, if we're closing private anyways, we're paying crazy rates for the first two years regardless. So if, you know, we, if we're making the assumption that rates will come down in the next two, three years, then the pro forma still works. So, so we were just found creative ways to educate the vendors and to find a win. win solution to get a deal done and it worked and then we were we got so many deals done and also recently we had a capital gains tax increase in Canada I don't know if you heard of it but it was crazy yeah it's like they say 50 % to 66 but it doesn't it's the way it works is like that's how much you get you pay capital gains tax on so let's say your your profit is a hundred grand

Michael Bucci 31:32

then you'll pay tax on 50 % of that. now, well, you used to do that. Now you pay tax on 66 % of it. But it's just a very confusing way. I don't know if they try to confuse people with how they explain it gets calculated. But the reality is it used to be around 25 % tax on the total profit. Now it's about 33%, so a substantial difference. But this happened in July, I believe, or June, I think.

Michael Bucci 32:01

We got a lot of deals done right before that because we would basically show people the math of how much more tax they'll pay if they sell a month after that date. And so we got a lot of deals done at that point too. I guess how we navigated everything is just like whatever was happening or just finding a way to be creative and get deals done and also educate customers to see like what is it that they need to sell and then how can we bridge that gap essentially.

Michael Bucci 32:47

Yeah, exactly. Yeah, yeah, it's funny you say that because... I find people appreciate us because we'll be transparent like that and we'll show the underwriting and like, I mean this might sound weird, but I personally don't like stealing buildings. I know a lot of investors, they love stealing buildings. I don't like trying to trick somebody out of selling a building that is like their retirement just to get a better deal for me. So I'll show them, I'm happy to show them my underwriting because it's realistic. Like yes, I'm making a profit and I'm doing well.

Michael Bucci 33:36

but at the end of the day, I'm showing them kind of the risks associated and how I'm evaluating those risks. And of course, if we execute the roadmap to the T, we'll make a lot more money than what my pro forma shows because, you know, if I'm underwriting 12 months downtime and I lease it in one month, then that's a huge difference. If I don't need to pay a leasing commission versus if I do, these things change the deal like crazy. But when I show them our underwriting and I show them that I'm giving a fair value and these are my these are are the assumptions I'm making that I think are fair. They appreciate that a lot, you know?

Michael Bucci 34:18

Mm Yeah, exactly. Yeah, so I know that you guys have way more tax advantages. So you guys have like the 1041 exchange where you could roll your profit in another deal tax free and defer your taxes. We don't have anything even close to that. So if we're selling an asset here, like we're paying capital gains tax on it, and there's very little ways to even reduce our capital gain tax on the profit of a sale. So for us, like that that sucks, obviously. And you guys have even like I, I don't understand your tax code specifically because I've never made acquisitions in the States yet but from what I've heard there's all these different tax advantages that you guys have that we don't have whatsoever. Another thing is like your markets are just huge you know like we have major cities and they're like tiny compared to your cities within your states you know or even your state in general like for us let's say Montreal is within Quebec Montreal is like the one major city and it's a tiny city with like 2 million people or something. I don't even know if it's exactly what the population is but it's just like a tiny city relative to major US cities. So there's just so much more opportunity for you guys. For us, our major cities are like Toronto, Vancouver, Montreal, and then everything else is not as big as those three cities. But that's it in our whole country. And also the amount of people we have. We only have 30 million. You guys have upwards of 300. So just a lot more opportunity for you guys. But then there's also the fact that with a lot more opportunity, you get a lot more people competing for the same assets. I'm not sure how it would. how it would look when we start doing acquisitions there and how competitive it would be. I mean, I would say something about Canada that I enjoy is like, even in Quebec, French is supposed to be the number one language. And so a lot of the people that we're working with, speak French. And so if you're an outsider, it's a bit more challenging to enter into our market. So that's a kind of a barrier to entry that we see here. So I guess there's pros and there's cons. And then another thing is about what I was saying about the, it's a small point. So we're a bigger player within a small pawn. I think that that helps us within Canada. So different things like that. Well, actually another big difference though, I've heard that your financing is just, your banks will be way more aggressive on financing. Plus you have a lot of like smaller banks. We have like five major banks and that's it, you know. So those are kind of the pros and cons, I guess.

Michael Bucci 37:27

What would you say is like some of the tax advantages or some of the advantages in the states that you see?

Michael Bucci 37:38

guys. Yeah, we don't know.

Michael Bucci 38:17

Mm

Michael Bucci 38:56

Mmm.

Michael Bucci 40:08

Yeah, yeah, that's a great point. Yeah, yeah, I think if I saw the statistics in Canada, it would probably be shocking to see how some properties just never trade hands. And it's just because the cost basis is so low that it's never going to make sense for them to sell that asset. Because after paying tax, they can't use the profit to buy an equivalent asset. So it just doesn't make sense. Whereas for you guys, it's like you're probably trading hands. I don't know what the percentage would be. more than what we do, I'm sure properties trade hands way more frequently in the states because of this rule.

Michael Bucci 41:14

Yeah, yeah. Mm

Michael Bucci 42:27

Yeah, yeah, there could be a massive chain of transactions with that same broker involved, I guess, which is super interesting. Yeah.

Michael Bucci 42:48

Yeah.

Michael Bucci 43:05

Yeah. Yeah, I would say probably the game plan right now, which like you said, could change is that we're going to have two separate entities. So we're going to have the brokerage on one side and then we're going to have the acquisitions, which is the current company investing real estate .com on the other side. And then we're going to keep everything separate, but it's just that these brokers here will have access to the same data that we have access to. And then they'll just be contacting for listings while we contact for acquisitions.

Michael Bucci 43:44

And that's kind how I see it working. And then I guess our added value to other brokerages is just going to be kind of the data that we have everything ready for them. We have all the owners information. We have everything prepared for them to start finding leads. And then, obviously we'll handle the marketing and this and that for a traditional brokerage would, but our real bread and butter added value is that we're going to be creating a sales team that's going and contacting owners to try to get listings. So that's going to be one aspect of it. I don't know how involved I'll be within that organization as of now, but we'll see what happens when the time comes. And obviously expanding in other cities in Canada, expanding in the States, those are our plans for sure. Growing the team internally, buying more buildings, also building out a management team internally. I'd like to start doing more aspects of the deal internally. handling the management, which actually we're working on an acquisition where we would be managing it 100%. So we're going to start building that out. Then we'll also start handling the leasing side of things. Hopefully the brokerage could take care of leasing as well. So we just want to get even financing as well. So the game plan is just to handle all aspects of real estate in general with these two entities. And yeah, that's pretty much our game plan moving forward.

Michael Bucci 45:38

Yeah.

Michael Bucci 45:42

I'll break down our first deal that we ever did, the first acquisition where I stayed on as an equity partner and our exit there. But we never sold the asset, but we haven't really exited and sold the assets. We've kind of refinanced and just held them. In the future, I anticipate...

Michael Bucci 46:02

Yeah, exactly. I try to keep my dad's advice and try to hold on to the asset for as long as possible. But eventually we'll start exiting for sure. But I'll run you through quickly like the first acquisition we did. This one was like a unicorn deal. Essentially, half of it was occupied by the vendor and the other half was occupied by a tenant. The tenant, they had a lease that was expiring by the time we closed on the property. And the owner, he wanted to vacate his space at closing. So the building was going to be 100 % vacant, essentially. And during due dill, the vendor was so nice, he allowed us to renegotiate the lease with the existing tenant. So we were able to renegotiate that lease and increase the rent to market. So that was stabilized on day one. And then during due diligence as well, he allowed us to put his unit up for lease, which was also insane. This guy was just the nicest guy ever. And so we put it up for lease, and then we found a tenant within a couple of weeks. So we actually had stabilized the building even before closing. So that's why it became a Unicorn deal, because.

Michael Bucci 47:07

Yeah, was amazing because we had actually we had wave conditions with technically half the building stabilized because we renegotiated that existing lease. And then the other unit was vacant. So we were planning that that was going to take, I don't know, like six, 12 months after closing. And we were going to have to pay like a lot of, you know, holding costs and whatever. Well, leasing commissions, we were going to pay no matter what. But anyways, so we had anticipated interest. We had anticipated a lot more cost to that. And in the end, we put it up for

Michael Bucci 47:37

and we found a tenant even before closing. So then we had to figure out what to do because we didn't want to finance based on our purchase price anymore because it would stabilize the assets. So we asked the vendor if we could have a balance of sale. He gave us a balance of sale for three months at 5 % interest, so very favorable interest as well.

Michael Bucci 48:02

Yeah, seller financing, seller financing. But seller financing, I guess, is more like a long term thing. least the way I look at it is like seller financing is more long term. Balance of sale, I refer to it when it's like we have to pay the balance in like a few months or something. So in this case, we only had three months to pay the whole balance of like 5 .2. And then so he's a yes to that, thankfully. So then we were able to close, you know, so basically we closed, we had to contribute like 1 .5 million of equity and he gave us a balance of sale of 5 .2. And then we were able to refinance within three months based on the actual new value of the property. I mean, they didn't give us the full value of the property just because they knew we bought it three months ago, but they saw like what we had done. And so they still gave us more than we would have if we would have got financing, you know, on day one.

Michael Bucci 48:52

And so for this one now our annual debt service is like So even when we refied we already pulled out almost a million bucks so we have like not much money left in the deal and then we had So our NOI today is like 548 so 550 and it goes up like today. It's already at We had huge rent bumps in the lease because we started them off a bit lower as long as they agreed to massive rent bumps. So now our NOI is probably around 580. So whatever. Our pro forma is after all the cash flows in the five years, and then let's say we exit in year five. If you just do the cap rate based on the NOI today, I'll do the NOI in the last year just to show you because it's pretty crazy how much value you could unlock of a building when you increase rents this substantially. But let's say we bought it for 6 .0. 6 .6 all in. Let's say in year five, the NOI is around, I don't know, 600 grand. We exit at, or even do a 6 .5 cap, anticipate we could exit for a more favorable cap rate at that time when interest rates are lower, but let's just say 6 .5. 9 .2. So 9 .2 and we bought it for 6 .6. You know, that's like we make $2 .6 million and we put in $1 .4 We only have like $750 left in the deal. So it's just crazy returns. And obviously, the NOI in year five is going to be higher. Interest rates are going to be lower. So that was like a unicorn deal where there was no risk involved. But initially, it seemed like we're buying a vacant building. And it turns out there's zero risk. We get a balance of sale. We stabilize the building before we even close on the property. incredible that deal.

Michael Bucci 50:52

Yeah. Yeah, exactly, Also, there's just sometimes you get fortunate with a vendor that's just willing to accommodate reasonable requests, but others are like, you know what, until you own this property, you're not touching anything. So we got lucky in that sense. He allowed us to basically act as owners.

Michael Bucci 51:28

Yeah, exactly. sorry. We use Vendor. Yeah. Maybe it's like a French translation thing. I'm curious now. Yeah, Vendor.

Michael Bucci 51:53

Yeah, exactly. Exactly. And then like we did another acquisition. mean, I won't go into as much detail on that one, but our most recent acquisition, you know, a multi -tenant building, industrial, same type of asset as the other one, but this one was subdivided a lot more. There's like 10 tenants and we bought the building with extra land, you know, on the building is on a lot. That's at least double the size of the land that would be needed to build that existing building. And so the game plan with that one is to stabilize the

Michael Bucci 52:25

existing building and either refinance or subdivide a lot and sell that building alone and then build an identical building next door on the vacant land and then again increase the value by you know stabilizing that asset and then refinancing or selling it or even selling it vacant to a user just because once it's built brand new there may be a user that's gonna want to pay for it to operate his business from so that's the game plan with that one but that one like We couldn't do any leasing during due diligence. We had to put a lot more cash in the deal to make the numbers work. It wasn't stabilized on day one. So they can't all be unicorns. That's still a great deal in our books. But it's not a unicorn like the first one, I would say.

Michael Bucci 53:21

Yeah, exactly. That's another scenario that we're looking into for sure. I the building has to be set up to accommodate that from day one. Otherwise, it's a bit too expensive. But for sure, it's something that we included as a possibility. Have you done that a lot or?

Michael Bucci 54:10

Yeah.

Michael Bucci 54:37

Yeah, absolutely. actually remember one of your, I was listening to your podcast and one of the guests was talking a lot about that being his strategy. Super interesting.

Michael Bucci 54:52

Yeah. Yeah. Yeah, absolutely. We'd love it. Honestly, we're looking for deals all the time and We're aggressive, we're flexible. We're young, so I guess we look at things a bit differently. Some of these people that have been in the industry for a long time, maybe they'll look at a specific deal and they'll have rules in their head about how much they should be paying or why they should be paying that much or why they shouldn't be flexible on certain terms. For us, whatever it takes to get a deal done, if the numbers work, we're going to get a deal done. So we'd love for you to send us deals.

Michael Bucci 55:48

Now, hopefully when we come to the States as well, we can work together. That would be amazing.

Michael Bucci 56:12

Yeah, thank you so much Justin. I appreciate you having me and again, you know, we appreciate the book that you created, Industrial Intelligence, fantastic book and you connected us so it was great and you know, thanks for the invite. I appreciate it.