Structuring Industrial Sale Leasebacks Investments with Neil Wahlgren

Podcast

Justin interviewed Neil Wahlgren, COO of Mag Capital Group. They spoke about Mag’s niche investment strategy centered around long term, absolute net, sale leaseback transactions of industrial properties and why they are so attractive to investors.

 

Key Takeaways:

 

 

Here is a 2-minute clip from Industrial Insights Podcast with guest Neil Wahlgren.

 

 

Listen to the full episode below and subscribe to the podcast on Apple.

 

Highlights

  • Raising capital – 5:12
  • His main focus in the company – 6:05
  • Private equity firms – 10:09
  • Commercial real estate broker communities – 13:48
  • Categorizing tenants – 21:57
  • Looking for consistent growth – 23:43
  • Advantages of multifamily – 28:34

 

Episode Resources

 

Justin Smith: Thank you for taking the time. I appreciate you spending time with me now doing an intro call and it’s been exciting to be able to start looking at deals. That’s where the experience and the learning come into play and where you really get to know people.  Your background is air force, a helicopter pilot, as best I could tell.

Neil Wahlgren: Almost a C-130 pilot.

Justin Smith: What’s a C-130? So, this is an airplane not helicopter?

Neil Wahlgren: That’s correct.  So, it’s like a four-engine turboprop tactical cargo. You see them a lot in war movies and a troop carrier equipment carrier. You do a lot of airdrops at the back, both special forces and when you’re dropping supplies down to people in the middle of a firefight. You do a lot of dirt field landing. Really, it’s just kind of like the rough and tumble, get it where it needs to go type of real combat support cargo.

Justin Smith: What’s your favorite war movie of all time? Do you have anyone that comes to mind?

Neil Wahlgren: Oh man. That’s a great question. I don’t know if I’ve ever really thought about that.

Justin Smith: Because some are like terribly unrealistic, I would imagine where others may be do a little bit better job of telling the story.

Neil Wahlgren: I had a lot of friends who were always purists, who like would get upset when they weren’t accurate. I’m okay with that, I’m like, Hey, you know, they’re telling a story. Saving Private Ryan is always a pretty solid one, but I don’t know.  I honestly don’t watch a lot of war movies. I try to keep it on the lighter side for my discretionary movie piece.

Justin Smith: No doubt. I was thinking about where you were before mag capital. I had not originally thought that Wilson was the same Wilson I had heard of and looked at just as I, maybe 10 years ago, was looking at investments and looking at other buyers I could work with that were looking at industrial deals. When I was looking at industrial ones in Texas.

Neil Wahlgren: That was funny.

Justin Smith: So, I was like this is the same Wilson.  I saw like two or three deals. I never was able to find one that fit the acquisition criteria, but people learn skills along the way. So I’d be curious, what kind of experience you had there and what skills you picked up there that serve you today now at Mag Capital?

Neil Wahlgren: It was a great way to jump in with both feet in the commercial real estate world.  I had been doing a lot of modeling and underwriting. Basically, like JV analysis, building business models for new products on my prior company, which is a renewable energy startup.  Really good with numbers but didn’t have really any real estate experience.  The founder there, a guy, Tom Wilson was married to a family friend of ours and just came to talk to him during a birthday party. He was getting a little older and looking to bring someone on to help kind of take over the reins to the operational piece. I came on and it was a great model to jump into because what he would do is effectively his business model is focusing on investment and focusing on kind of the marketing piece, really the interaction and raising equity. Then he would partner with experts. Whether it be in developers or operators, commercial real estate brokers, whatever that might be. Basically, people have had a good eye on an expertise in a certain area for putting together a commercial real estate but lacked the access to the capital. So, we would basically partner on a deal by deal basis. We would try to do repeat deals with a small group of operators.  We had our multi-family group. We had our land development group. We had our multi-tenant retail.  One of those groups was Mag Capital. Early in the lifecycle of Mag Capital they were growing at a rate that was faster than their investor base could support. It was a good chance to kind of combine those two needs and effectively led to the introduction to where I am now.

Justin Smith: It’s funny. Most people, think of syndicators and operators as having the deal and raising some capital, but those aren’t always one in the same. Sometimes you’re looking for a new capital partners and not all firms have those two pieces connected.

Neil Wahlgren: Yes, and a lot of times operators tend to be really laser-focused on putting together deals. A lot of times they’re brokers by trade, really good at that transactional piece. Honestly raising capital is kind of a fully different skillset and whether you don’t have that skill set yourself, or maybe you’re just starting to get to the point where instead of brokering deals, you’re trying to be the sponsor owner on the full life cycle. In that transition, building up a kind of loyal group of investors can take time. So, during that period, while you’re kind of ramping up organically, a lot of folks find value in bringing in some outside capital.

Justin Smith: Without a doubt. How long have you been in mag now?

Neil Wahlgren: About two and a half years full time.

Justin Smith: What’s your role? I mean, I know you and your role for me would be sending you acquisitions opportunities, but I imagine there’s all sorts of different parts of the puzzle that you play a part of.

Neil Wahlgren: So I’m technically COO. My main focus within the company is really the equity side.  I have a couple of folks who work with me, one being my brother, actually and we are really just growing our investor pool largely organically, through referrals and through recommendations. We’re really active in a lot of podcasts and a lot of real estate investment groups and just growing this really close-knit group of investors. In a sense that we seek to do multiple investments with a relatively small group of people, and we’ve been pretty successful at that over the last two years.

Justin Smith: The secrets getting out. I would imagine this is a good investment opportunity and I would think that word of mouth is people have successful outcomes.  Then they inevitably are at other birthday parties where they’re talking about their friends and family.

Neil Wahlgren: No, it’s been nice.  We’ve never even needed to have a formal marketing budget as a company. Largely, it’s just talking about what we’re doing, and people get excited about it. Especially folks who’ve been in a number of different real estate asset classes during COVID. There’s a lot of variability and a lot of asset classes really saw a deviation between what they projected and what actually happened. In the industrial side, I think one of the great parts was, it’s not the highest performing asset class but if you choose it and structure it right, you can have in my opinion, competitive double digit returns and it’s extremely reliable.  2020 was a year of hitting our marks on the dot, paying distributions in full on time and that was largely based on the single tenant net lease structure of these leases and having the right kind of tenants in place.  I think that consistency and performance in a time of kind of craziness with COVID kind of helped us break out from the crowd a little bit.

Justin Smith: Took a long breath. I’m sure like everybody did in March and then you realize like, okay, this part of the world, this segment of the industrial will continue. It was definitely interesting times and I feel like industrial assets did well. Then industrial brokers were all happy to say the music didn’t turn off. If anything, there’s a greater need now than there was before.

Neil Wahlgren: A hundred percent.

Justin Smith: Why sale leasebacks?  When you think of most industrial investors that are looking at a multitenant business parks, or they’re the Prologis and Links of the world where they’re looking at e-commerce, logistics and high barrier to entry markets. I feel like this is a space where you’ve found a niche that not as many people play in.

Neil Wahlgren: I really like it. Before talking to Dax and Andrew, the two principals at Mag Capital, I had never even heard of sale-leaseback until just really a couple of years ago. At first, it’s really easy to put on the mindset of a homeowner to go, Hey, someone’s selling a home and turn it on becoming a renter, like something went wrong.  Typically, I think from, from a residential perspective, there’s a lot of like, wait, why would you want to pursue this? But on a commercial side, it’s such a different set of motivators for why profitable and growing companies would want to do sale leasebacks and really it comes down to that ROI perspective. To go, hey is my money making more money for me basically invested in real estate. Or do I think I can get a better ROI internally investing that capital into my company?  When these companies are private equity backed those private equity firms are experts at saying, Hey, you know what, where’s our best internal rate of return? Is it owning real estate or is it really juicing this company?  We bought this company because we think we can grow it at exponential rates. So, kind of a win-win in that side. They’re selling the real estate, they’re taking the proceeds reinvested in this company and then they’re really standing behind that investment by signing a really long-term 15, 20 year lease. Full triple net at that point, which is great because it’s kind of a win-win and really aligns the motivations of both the seller who’s becoming the tenant and our party.

Justin Smith: It’s something, I think people without that experience, don’t recognize the return on capital and where you invest it. For businesses, it’s a different decision. If it’s not a sole proprietor, who’s looking at wealth building and retirement. Or it’s not a public company that it’s a critical asset, like a headquarters or a data center, then largely there’s no reason why you would want to own.  Then I was looking at some of the acquisition criteria from that deck and a point you guys put out there that was insightful that I think people don’t think about is this extracting a hundred percent of the value of the asset versus what you would think of a loan to value. If you were putting a loan on your property that you own and that you use that still has that equity contribution that’s in the building. When you do a sale lease back, that’s a hundred percent. I think that’s something that gets lost in translation. Most people, when they’re thinking about that, they’re they don’t really think of the difference between the two.

Neil Wahlgren Yes and it can be pretty sizable as well. Between really extracting the full value of it versus 65 or 70%. Then the other one is, is tax treatment.  If you were to take a loan on your property that you own, you’d be able to write off the interest piece of those mortgage payments and even that’s kept based on , a number of different factors. Whereas if you sell it and become a renter, 100% of that rent and utilities are all 100% tax deductible. So that can be a pretty prominent change when you’re talking about , multimillion dollar properties there and rent payments that often are in the six figures per month.

Justin Smith: When you think of taxes for the company doing the sale lease back at, it depends on how they hold title on whether they go through capital gains and exchange themselves. Or I assume if it’s in the corporate name, then that’s a more about their corporate P&L than it is a capital gain.

Neil Wahlgren: Absolutely. The closer it is to the actual operating company the motivations can shift versus whether they’re optimizing for that or just for the tax piece.

Justin Smith: Then sourcing deals? Deals are hard to source these days. They used to be plentiful. So now a lot of capital out there. There are listings have a lot of action. As brokers, we’re trying to create opportunities that are off market. How do you find your sourcing most of your deals these days?

Neil Wahlgren: It’s interesting, one thing I like about the sale leaseback world is it’s really such a micro-community of the broader commercial real estate brokers community. A very small amount, I don’t know the exact number, but, you know, I would estimate probably 5% or less have really a deep core skillset to be able to negotiate, not just a buy and sell agreement, but a sale leaseback where you have really two main levers, you’re negotiating price and negotiating lease and lease terms. Really understanding the nuances of how depending on whether the seller wants to maximize their sale price or potentially they want to minimize the rent obligation long term.  Those are kind of two different categories of sellers. If you’re skilled, at those two factors, you’re able to really craft and create much more of a piece of art when it comes to a deal than just simply negotiating a price to sell a building.

Justin Smith: I love that part of the sale lease back. That is great. That’s where you really get to balance everybody’s needs.

Neil Wahlgren: Exactly. To answer your question, I was going to say on the acquisition side, we get a lot of ours from that tight-knit group of commercial real estate brokers with a sale leaseback focus and then a little bit on the private equity side. If we bought previous portfolio companies from a certain private equity backer, sometimes they will buy new real estate or buy a new portfolio company also comes with a real estate. It’s easy for them to go to a proven transactional partner and say, Hey we’ve done business with you before. Here’s another one.

Justin Smith: I was thinking that too.  I was thinking more of a company that you’ve structured them for if they don’t have private equity then maybe they have other assets, but that’s another take on the same idea of clients you’ve worked with in the past. I would think that would be a great place to network further to broaden your relationships. That seems like a great community that will continue to have all sorts of new opportunities. Then underwriting? So, when you’re looking at new deals people get all lost in the Argus and Excel and modeling and discounted cash flows. I feel like a sale lease back is much simpler. It takes that it has its own critical components, but their stream of cash flows is a one.

Neil Wahlgren: Your NOI calculation effectively rent comes in and that’s your NOI. You pay the bank for the debt service and then the rest is effectively free cash flow. It’s a very simple underwriting spreadsheet and really the operating accounts is simple as well. Effectively, you have three main transactions every month, the rent comes in, you pay the bank, and you pay your investors.  I think that simplicity is really kind of refreshing compared to all the moving parts of some other asset classes.

Justin Smith: So these are I think absolute net is what we’ll use that term for. So even the roof, foundation, load bearing and HVAC replacement. Anything that would be typical in the AIR triple net, where they’ll have some landlord responsibilities. In this space, it’s absolute net so it’s as if you owned it yourself.  That’s something people don’t understand until they get into this world and start doing some more investment sales when they realize not all triple net leases are the same there’s nuance there. There are ones that include capital and ones that don’t.

Neil Wahlgren: There’s a bit of negotiation room in there too.  For example, we’re getting ready to push a deal out right now where the desired lease was a double net where effectively the responsibility for the roof would go on the owner. We were able to negotiate and really smoothing out the rent bumps and extend the term a little bit and convert that lease from a double net to a full triple-net. It was great for us as an investment group because now you have that additional, you really have de-risked the investment even further. It was good for the tenant because he was like, look, I know my roof, I live under it. I feel good about this. Also, he was able to really save a decent amount of money long-term by reducing the rent bumps that were built into that lease.  We treated it as a win-win. We were still able to get the yield that we desired and the seller there was able to save some money long-term.

Justin Smith: Back to its more of an art form is that you’re not buying at lease that someone else created and you’ve got to figure out how to live with it. This is a lease you are creating with the group that you are working with, so you can smooth out those things and you can work through issues and then have it all be documented.

Neil Wahlgren: Exactly.

Justin Smith: Do you dictate term? Do they dictate term? Or when you think of like 5, 10, 15, or even longer, how do you come up with what’s good for everybody?

Neil Wahlgren: That’s a great question. We love 15, 20-year terms just because there’s so much certainty with it. You know almost a hundred percent certainty that you’ll never have to go through a releasing events and so you have to kind of remove that risk off of the table. You’re able to hold say five years still have 10 or 15 years left on the term when you go to sell and now it’s attractive to the next buyer. They can buy and hold. In fact, they might hold for a few years and sell to a third buyer before it ever comes down to the releasing risks there. But on the other side, if it’s market rate rents, you always want a really longer is better. There are some scenarios where, if the rent is really low, you’re kind of okay with it. If the Metro is good and the rent is significantly below market, then maybe a short term is okay, because if they renew great, but if they don’t, Hey, you have a chance for a value add just by releasing it at market rate there.

Justin Smith: I’m 15 years in. We didn’t have that for a really long time. Then now I feel like the rent increases have been greater than the bumps. So now that does mitigate risk and it can be good news for the tenant doing the sale leaseback that they get. They don’t have to be in the market any longer or in like a less frequent intervals.  I feel like that changed the game a little bit with now having the ability, if it does not work for them, or if they do need to change direction that you can go to market. Where I feel like it used to be more, a hot potato. That you wanted to own it before there was a chance there was that lease-up risk and lease-up risk can be real in some of these, a single tenant that are, non-industrial like a quick serve restaurant or like the dollar general or something where you’re not in a major Metro area. Then underwriting, credit that seems like that’s the part where you have to be more sophisticated. You have to come up with the lenses through which you look at financials to understand what are you dealing with? How do you think about credit? How do you underwrite credit when it comes to who your attendance is going to be and if they’re credit worthy? If they’re bankable? If there’s issues? If there’s skeletons in the closet? How do you find them? How do you think about that and how do you work through that?

Neil Wahlgren: That’s a great question.  In general, we’ve kind of categorized tenants really in two buckets.  You have your larger, typically a hundred plus million dollars a year in revenue is loosely categorized as investment grade tenants. That investment grade really refers to institutional investment grade. So, when you have larger, lower risk appetite, larger investment groups, that might be just seeking slightly above inflationary returns, 6%, 8% are going to be very happy.  They’re going to largely just look at those larger more substantiated tenants. So examples are going to be publicly traded ones, Walgreens, Home Depot, really name brands, Walmart distribution centers and Amazon. Those kinds of buildings are going to have tenants with a near zero chance of default.  But because of that very low risk comes a corresponding lower cap rate and lower return. So we play in a world that we refer to as sub investment grade. I know that has potentially bad spin to it, but no, it’s really, we were playing in a, in an area slightly more risky than the other one.  I equate it to a multi-family investor, someone chasing 30-year-old class B multi-family properties that have some value-add potential on them compared to, the brand new build, class A, downtown Los Angeles type of a apartment complex. So, we’re buying these companies and some people do pursue turn around companies. We usually avoid those, and we just look for consistent growth. Usually at least the last three years, we’re looking for increasing growth year over year, strong EBITDA margins, decent debt to EBITDA ratios and how we evaluate this? We don’t have an outside credit agency given a score like you do it for investment grade. So, investment grade, you’re going to Moody’s standard and poor. They’re going to give a very objective credit score to these companies. For us, we have to really do that analysis ourselves.  We use a gentleman who actually came from a single tenant net lease and p publicly traded REIT background. So, all he did was evaluate credit for companies and really that’s where this field sort of blends with the private equity world. So, you’re, you’re taking that company objective risk. What’s nice is it doesn’t need to go to infinity, right? Cause we’re just holding the real estate.  I’m happy if a company doesn’t grow at all.  If they’re profitable, I don’t need to see year over year growth. I can see flatline growth. I know they can still pay that at that point.  Private equity group won’t be happy with that. They’re going to want to see them actually grow. Either way, really we’re just looking, Hey, this is about a five year bet. Do they have the substantiation that we think they’re going to reliably pay their rent on time? That’s ultimately, that’s the analysis that we’re centered around.

Justin Smith: When people are lacking that what’s usually happening? I would imagine there’s a bunch of problems you may see as you delve into some of these.

Neil Wahlgren: Typically what happens is if a deal looks too good to be true, once you look under the hood, you find out why. They’re going to have to sell it at a higher cap rate. A higher risk premium, if they have some skeletons in their closet. If they have a recent bankruptcy, if they’ve been losing money, if their EBITDA near zero. These are all things we look for to say, Hey, you know, are, are these guys really financially. Do they have the legs to push forward? Or, if they had a few years in the red, what caused it and what’s the turnaround?  You better feel really strong about the reason why it turned around and even if you don’t it’s okay. You just say, Hey, I have a little bit of credit risk here. I can pursue some other options to lower that risk. So, I can look for credit enhancement and that can be a lot of different ways. You can increase your security deposits. You can require a guarantee, say from the parent company who provides a secondary guarantee on that lease. Or potentially you could even get as a secondary guarantee from the owner of the tenant company.  That’s something we’ve pursued in the past.  So, all those are really just, you know, effectively pools of capital that you could tap into in the event that your primary signer on that lease defaulted on their obligation. You have additional remedies before your left had nothing.

Justin Smith: One experience I had a working on something like that was finding out that in some of these guarantor legal contracts when they are guaranteeing the parent company is guaranteeing one of their subsidiaries that if they sell the subsidiary, then they don’t have to continue to guarantee the lease. Which makes sense right. It’s not like you would sell a company and you’re still guaranteeing their obligations, but that was a little nuance.  This is good to know, as you think through who would be your guarantor and how that would work. So, I could totally see why having the principal. That would be your next best person and if he is willing to do that, then he must be very confident.  Then he must also have, or he or she, must also have their own financials that you are underwriting them and their credit risk and what that looks like. Then financing, right? So, we’ve gotten past credit.  Are you taking out debt on these ones? I imagine everybody will be like that’s a pretty standard practice.  What’s the debt world look like these days?

Neil Wahlgren: It really depends like everything, but in general we’re seeing leverage close to other commercial real estate. Somewhere between 65 and 80 is kind of our sweet spot that we play in.

Justin Smith: One value.

Neil Wahlgren: Exactly.  When it comes to interest rates, we’re usually going to be about 80 to a hundred basis points higher than multifamily. So, one advantage multifamily has, is they get that agency debt. So, Fannie Mae and Freddie Mac and those agency loans allow sponsors to go non-recourse and they also effectively have that additional government back into them. So, lenders are willing to take absolute bottom dollar type of interest rates on those. We’re usually about a full point higher, which is still not bad in today’s interest rate environment but most of them do require a sponsor recourse. So, the sponsors are typically signing personal guarantees on a fairly large amount of debt on each deal.

Justin Smith: For sure. I would think as time goes by in industrial makes a name for itself, then maybe that spread is reduced a little bit over time but I’m sure never to the likes of multifamily. How about terms? Like I would imagine the lease term and the loan term.  Not like those always match, but they do have some interplays. You usually just think of like five-year money and then it resets it for year six through 10 or it’s just a five-year and then a balloon.

Neil Wahlgren: Honestly, we pursue ten-year terms when we can on the deck. We like having wiggle room, again, it’s all about having options. I don’t know what the interest rate environment will look like in five years, if I’m projecting a five-year hold. I want to have at least a little cushion in there before I potentially find myself in a very different interest rate environment, having to refi or potentially having trouble selling just because the whole industry is in a churn at that point.

Justin Smith: I have a 10-year loan on one of my industrial properties and we’re coming up on the end of year five is coming up in a year. So, it was a great time of thinking through where are we at today? What do we think a reset would look like in 12 months, given everything you see now in the economy? Then feeling good that you do have it till 10 years, if you don’t want to refinance or if it is not the right opportunity to do so.  It does open up options though. I have only been through the 2007, eight, nine and 10, but I could only imagine if you were in the market at that point in time and you ran out of time on your loan, that’s the horror story that nobody wants to relive. We’ve been fortunate that that’s not in the near term or anything we envision anytime soon. And operations?  So you’ve bought a deal. Life is good and you’ve signed a lease. You’ve got your three payments to make. I would imagine there’s not that much to do in terms of like property management. Think of like all the Yardi systems and reconciliations, your kind of are fortunate you don’t have to deal with a lot of that kind of stuff. So, was there anything else in operations? It seems like maybe not overly simplistic, but the nature of the sale lease back in the absolute net lease means there shouldn’t be too much to do what happens mid-stream or mid-lease? I’m sure there’s some stuff maybe of like expansions, cap ex projects or other opportunities to work with that same tenant during the lease term.

Neil Wahlgren: There is more than you might think of.  These deals that are similar to most commercial real estate these days, it makes sense to do a cost segregation, basically accelerated depreciation. We’re typically doing those early on. Like getting those depreciation tax benefits there. In terms of CapEx, quite often, if we have a private equity backed tenant and that private equity company is successful at growing at tenant company, the way they hoped oftentimes they come to us a few years in and say, Hey we need more space. Life is good. We’re maxed out on capacity. Luckily, with these industrial buildings, oftentimes they sit on a lot of land. So they have land to expand, especially in the Midwest, it’s fairly a company friendly environment in terms of building and getting permits. Sometimes we’ve had companies that want to expand and sometimes that can turn into a really nice value add. Where you basically scope out the additional square foot. We have a facilities manager and GC on staff. So we’ll actually typically oversee that construction to spec. We’ll pre-negotiate, what the terms will look like upon completion. Quite often both the investors and us as a sponsor group end up really seeing a lot of additional value created in those scenarios compared to what the original project looked like.

Justin Smith: I’m sure sometimes it can be another opportunity to extend the lease or to change the rate or to amortize based on how the economics work on the expansion.

Neil Wahlgren: A hundred percent.

Justin Smith: Cost SEG? Is there any reason why you wouldn’t? For me, I didn’t at first in one of my industrial buildings. I’m looking at it now, there is nuance there based on what state you’re in. Then your hold strategy and your investment horizon. I feel like with the new administration, there will inevitably be continued tax increases and if you weren’t already doing cost segregation, that will be a lever you’ll want to pull soon. If you’re not already pulling that lever. Is there any nuance in there for you guys or it’s pretty straightforward and there’s almost no reason why you wouldn’t want to do it?

Neil Wahlgren: The latter there. You’re looking at, am I paying taxes today on it or am I effectively kicking the can? Kicking the can just makes a lot of sense because you’re able to front load that and not just effectively offset the tax obligations on your distributions, but really have it have a huge amount of a debt, additional depreciation losses, way up front. If you think about it on its own industrial amortizes out on a depreciation schedule 39 years. So we don’t plan to hold anywhere close to that. So that’s a lot of depreciation beyond the timeline that we ever planned to see. So by front-loading that we’re able to really provide a huge amount.  Most of our investors have really a large amount of passive income coming in so they can use that offset and honestly, sometimes all of it. Then even when this deal sells five years down the road, they’ll have some passive income liability, but now they’re buying a new real estate that potentially can accelerate depreciation and offset that.  You just kind of keep the cycle going until some administration gets rid of the sweetener, but while it exists now, I think it’s a great strategy.

Justin Smith: I remember when I first learned it was 39 years and I was like, wait a second, that is too long. Why is it so much longer? Is it really that much less re-investment that goes on? It doesn’t feel like there’s much less. So, that seems like a necessary lever to pull. Then we’re almost wrapping up dispositions. So how do you think about dispositions? I suppose that we talked a little bit about the hot potato when you think of maximizing the value of the asset that you have. It is when you have enough term left, when it’s still attractive to the investment community, for whoever else is looking for those types of assets. Then we are used to user sales, being worth more, but that’s when the buildings vacant. You take a risk with a vacant building. Then I feel like some of these Midwest industrial buildings that are larger people will pursue this, chop it up approach where they’ll turn a single tenant building and then they’ll figure out is this one that can demise to be two, three, four or five tenants that are distribution oriented or based on where the docks are in the yard. So how do you guys think about a disposition? Is it just 60 months there will be one? Or is it a very opportunistic or asset-based?

Neil Wahlgren: A lot are actually unsolicited offers to be honest.  From an investor focused angle, if I can deliver year five profits in year three or four, I’m probably going to take it. I’d much rather take a solid double or triple then kind of roll the dice for a home run in a few years. We’ve been fortunate in the sense that the market has been hot.  We’ve been able to exit our last batch of deals at the end of last year. We sold about six projects just because we’re able to deliver year five profits by around year three. That’s what we’re seeking to do. We’re seeking to provide solid cashflow and decently turn on the end in terms of profit. But really just return that capital plus a decent little bump of profit there. Then that gives them a larger nugget than what they started for to reinvest.  Just use an example, let’s say you got a 100K in and your profit piece is 30%, right?  To make the numbers easy, you were in a deal that was cashflow in 10% a year. So, you were getting 10 grand a year on that a 100K but now you’ve gotten that a 100K plus 30 grand. You roll it into an equivalent deal and now you’re getting 13 grand a year instead of 10.  You haven’t done anything different, but now you’ve taken the money off the table and reinvested it. Now you’re leveraging that additional capital in the form of cashflow and cashflow is always King, especially in this world. That is what we optimize for with our investor group. And we seek to.  We put together deals that cashflow at a high level from day one, there’s no big hurdles to hit before they start. They’re just cranking from the get-go. That’s really what we try to just continue to build and build. You end up with a pretty substantial amount of truly passive cashflow after you buy a couple.

Justin Smith: That’s the joy of this niche. That’s what it is optimized for. I can tell you as a broker, half the brokers business plan is making more unsolicited offers because there’s so few buildings available on the market. That is how you have to get attention and it does lead to more work. Cause you don’t know if you will be successful, but that’s half the fun of the broker’s job is uncovering opportunity.  I can second that there’s a lot of that going on and that’s just the nature of the market dynamics that we’re in. Then lastly, thinking about cashflow and your exit and reinvesting this all lives in a portal, a platform, what do you use or what’s the experience like there for a the 100K investor? This is all in like a Juniper Square or AppFolio or something like that. Or how’s that work in terms of the investor experience?

Neil Wahlgren: We use Juniper Square as our engine behind the scenes. We like it, single log in for investors, they’re able to see new offerings. They’re able to see a high degree of clarity. Where the money they have invested is? What sort of capital has been returned. They can pull up current and old communication reports. You can look at distribution reports that go out. All your tax forms. That’s kind of nice, it minimizes the headache of where do I go? Did I miss an email? You can just log in and see it all right there.

Justin Smith: I feel like the age of institutional reporting it couldn’t be a better reporting experience for investors these days. I feel like that’s as good as it’s ever been, and it’s really made it a lot easier to have confidence, to have transparency and to just makes you and your accountants’ relationship easier to give them what they need here. Cool. Well, that’s all I got Neil. I think that sure helped help people understand all the cool things that you guys are working on. I loved the niche and that’s exciting stuff. If people wanted to reach out to is LinkedIn a great place to reach you? Or what’s good for you?

Neil Wahlgren: LinkedIn works. My last name Swedish spelling so WAHLGREN. I’m probably the only Neil Wahlgren on there, or just shoot me a note, neil@magcp.com.

Justin Smith: Thank you, Neil. I appreciate it.

Neil Wahlgren: Cool. Thanks Justin, bye.

Justin Smith: Bye.