Ep12: Retail Real Estate in Iowa with Mike Cunningham

[00:00:00] [SPEAKER_04]: One of the more challenging things is just dealing with municipalities.

[00:00:04] [SPEAKER_04]: Certain, say you have a drive-through client, some of the cities have went away from zoning that allows a drive-through,

[00:00:11] [SPEAKER_04]: which makes it really difficult to find a site that actually works where the tenant wants to be.

[00:00:17] [SPEAKER_01]: From cornfields to high rises, office to industrial, houses to hotels and every other asset class in real estate,

[00:00:23] [SPEAKER_01]: we cover the people, the projects and the profit.

[00:00:27] [SPEAKER_01]: Welcome to The Investing in Iowa Show!

[00:00:30] [SPEAKER_01]: This show is for go-doers, action takers and business owners.

[00:00:34] [SPEAKER_01]: It's for people like you who are sick of Uncle Sam taking a huge bite of your apple.

[00:00:39] [SPEAKER_01]: If you're looking to get ahead of what's taking place in Iowa, learn who is doing what and how you can get in on the action.

[00:00:46] [SPEAKER_01]: You're in the right place.

[00:00:47] [SPEAKER_01]: Hosted by Neil Timmins, an Iowa native who has been involved in over $300 million in real estate right here in Iowa.

[00:00:56] [SPEAKER_01]: Recording in studio from West Des Moines.

[00:00:59] [SPEAKER_01]: Here's your host, Neil Timmins.

[00:01:02] [SPEAKER_03]: I got Mike Cunningham here with me today. Mike, welcome to the show.

[00:01:05] [SPEAKER_03]: Thanks.

[00:01:06] [SPEAKER_03]: I'm excited you're here.

[00:01:07] [SPEAKER_03]: Say for the audience to say, who are you? Where are you from? What do you do?

[00:01:10] [SPEAKER_04]: All right. I grew up in a small town, walk on Iowa, went to college at the University of Iowa.

[00:01:16] [SPEAKER_04]: Along the way met somebody that talked about commercial real estate and decided I'd give it a try.

[00:01:23] [SPEAKER_04]: Now I live in Des Moines and work at Fires Realty.

[00:01:26] [SPEAKER_03]: Is that how you got into real estate? It was through college, somebody turned you on to the industry?

[00:01:30] [SPEAKER_04]: Yep.

[00:01:30] [SPEAKER_04]: It's kind of interesting. I ran a track at the University of Iowa and there was an athlete, Tim Dwight, who played football for the Atlanta Falcons.

[00:01:38] [SPEAKER_04]: He convinced me to move to San Diego when he got traded at the Chargers, take a semester off college, help him out, train for track and then go back.

[00:01:47] [SPEAKER_04]: It was going to be my fifth year to finish school and run.

[00:01:50] [SPEAKER_04]: And one of his buddies convinced me to go into commercial real estate. He was a broker in Denver.

[00:01:56] [SPEAKER_04]: Yeah. So did you end up coming back then for a fifth year?

[00:02:01] [SPEAKER_04]: I did. I came back for a fifth year.

[00:02:02] [SPEAKER_04]: And then I actually moved back to San Diego and tried to get into commercial real estate.

[00:02:06] [SPEAKER_04]: They're like, hey, you're not from here. You're going to go broke.

[00:02:10] [SPEAKER_04]: And you're going to go home. So I ended up coming back to Des Moines.

[00:02:15] [SPEAKER_03]: Was that experience like a conversation? More like, two yups, bitch you out.

[00:02:19] [SPEAKER_03]: It was more like, yeah, we just don't have any interest.

[00:02:23] [SPEAKER_04]: Yeah. That's interesting. All right. So you come back to Des Moines and then what do you do?

[00:02:28] [SPEAKER_04]: So I came back to Des Moines and iReality commercial was just growing their branch, hiring a bunch of people.

[00:02:35] [SPEAKER_04]: So I got a job there. I worked at iReality commercial for one year.

[00:02:40] [SPEAKER_04]: And I really liked retail and I ended up doing a deal with Buyer's Realty.

[00:02:45] [SPEAKER_04]: And they asked if I'd have interest in coming over to the shop.

[00:02:49] [SPEAKER_04]: And that's how I ended up there.

[00:02:51] [SPEAKER_03]: What year was that you went to Buyer's Realty?

[00:02:55] [SPEAKER_03]: Roughly.

[00:02:57] [SPEAKER_03]: 2003.

[00:02:58] [SPEAKER_03]: All right. So you've been around for a while then doing this?

[00:03:01] [SPEAKER_03]: Yes. Okay. 21 years.

[00:03:03] [SPEAKER_03]: Yeah, that's incredible. Why retail?

[00:03:06] [SPEAKER_03]: Initially why retail? What led you into that your first year?

[00:03:09] [SPEAKER_03]: What turned you on to like that versus the different asset class?

[00:03:12] [SPEAKER_04]: Yeah, I think just kind of driving people around showing them like restaurants, shopping centers.

[00:03:19] [SPEAKER_04]: Just found it to be interesting.

[00:03:20] [SPEAKER_04]: And then you could cover numerous markets, which I kind of like to go to different cities and so forth.

[00:03:27] [SPEAKER_03]: So you covered numerous markets because when you have a client looking for space,

[00:03:32] [SPEAKER_03]: they're looking to put their shop, their thing, their Starbucks, whatever that retail, whatever that user is,

[00:03:39] [SPEAKER_03]: they're in the business of making money. They want to be in the location in any city, whatever city it happens to be largely.

[00:03:44] [SPEAKER_03]: Yep.

[00:03:46] [SPEAKER_03]: What's that process like for you to work with a client and then go find space?

[00:03:52] [SPEAKER_04]: Yeah, a lot of times it'll start out like we're interested in coming to Iowa.

[00:03:58] [SPEAKER_04]: We want to do 10 stores so then you identify what you think are the 10 best markets, kind of sub markets

[00:04:06] [SPEAKER_04]: and then work on finding sites.

[00:04:09] [SPEAKER_04]: And a lot of guys want to know sales volumes about the retailers.

[00:04:12] [SPEAKER_04]: They will always want to be by people that do average or above average, especially on the restaurant side.

[00:04:18] [SPEAKER_04]: Yeah, the idea there being more creates more.

[00:04:20] [SPEAKER_04]: Yep.

[00:04:22] [SPEAKER_04]: And if other people are doing well, hopefully I'll do well.

[00:04:25] [SPEAKER_03]: Right. Yeah. But they thought being we've done well in other markets where we're next to these people.

[00:04:31] [SPEAKER_03]: Yep.

[00:04:31] [SPEAKER_03]: Let's just keep doing it.

[00:04:32] [SPEAKER_03]: Yep.

[00:04:33] [SPEAKER_03]: Yeah. When you're identifying those sub markets and then down to the property level, what's that process like?

[00:04:39] [SPEAKER_03]: How do you identify, if somebody says they want 10 in Iowa or they want to make up a smaller number?

[00:04:44] [SPEAKER_03]: Five.

[00:04:45] [SPEAKER_03]: Yeah.

[00:04:45] [SPEAKER_03]: So therefore you have a lot of places to use around how do you go about deciding and providing guidance and opinions on where they should be?

[00:04:53] [SPEAKER_04]: So someone that might want five, it's probably a larger retailer and then you want to focus on kind of the super regional trade areas.

[00:05:01] [SPEAKER_04]: Like in Des Moines everybody wants to be out by Jordan Creek Mall.

[00:05:05] [SPEAKER_04]: You know, that's kind of a national big tenant just because it can pull the whole city and surrounding areas.

[00:05:11] [SPEAKER_03]: And then how do you decide?

[00:05:14] [SPEAKER_03]: So geographically, okay, you've narrowed it down and now all of a sudden you're down into specific buildings, specific properties.

[00:05:21] [SPEAKER_04]: Yep.

[00:05:21] [SPEAKER_04]: What's that process like?

[00:05:23] [SPEAKER_04]: Yeah, depending on the tenant they all have different requirements.

[00:05:26] [SPEAKER_04]: Some people only will look at an end cap.

[00:05:28] [SPEAKER_04]: Some guys have to be freestanding.

[00:05:29] [SPEAKER_04]: Some guys love to be in line and then traffic counts and different things kind of play into it.

[00:05:36] [SPEAKER_04]: They'll have different criteria where you have to have 30,000 cars a day on the road or I can't consider it.

[00:05:41] [SPEAKER_03]: I'm curious.

[00:05:42] [SPEAKER_03]: This is maybe way too nuanced.

[00:05:44] [SPEAKER_03]: Is the road speed matter?

[00:05:48] [SPEAKER_04]: Not really.

[00:05:49] [SPEAKER_04]: No, yeah.

[00:05:50] [SPEAKER_04]: But mainly just traffic counts.

[00:05:52] [SPEAKER_04]: Yeah.

[00:05:52] [SPEAKER_04]: Yeah.

[00:05:53] [SPEAKER_04]: As long as there's a reason.

[00:05:53] [SPEAKER_04]: But I mean, I could see where the question's coming from.

[00:05:55] [SPEAKER_04]: I mean, the slower speed you get more eyeballs, right?

[00:05:58] [SPEAKER_04]: If it's like 60 or correct.

[00:06:01] [SPEAKER_03]: You know, I'm thinking of some markets, you know, Florida comes to mind and certain populations of the market where they utilize u-turns down there versus here.

[00:06:09] [SPEAKER_03]: U-turns are almost non-existent as part of a built-in roadway system.

[00:06:13] [SPEAKER_03]: And the speeds are much higher versus, you know, I think it's probably all local, I suspect.

[00:06:18] [SPEAKER_04]: Yep.

[00:06:19] [SPEAKER_04]: And yeah, access is another big thing for people, right?

[00:06:22] [SPEAKER_04]: Is there a stoplight?

[00:06:24] [SPEAKER_04]: Is there a frontage road?

[00:06:26] [SPEAKER_04]: Ingress, egress, parking.

[00:06:28] [SPEAKER_04]: Yep.

[00:06:29] [SPEAKER_03]: But just a lot of different variables.

[00:06:31] [SPEAKER_03]: What data are you using?

[00:06:32] [SPEAKER_03]: Do you have to use multiple systems to be able to identify what's available and meet the client's parameters?

[00:06:41] [SPEAKER_04]: Yeah, I would, as far as finding available properties.

[00:06:44] [SPEAKER_04]: Yeah.

[00:06:44] [SPEAKER_04]: I mean, the best way to do it, to be honest, is you really got to drive the markets and the streets and look at everything and dig into it.

[00:06:52] [SPEAKER_04]: And a lot of the best opportunities are off-market opportunities.

[00:06:55] [SPEAKER_04]: We just have to call the property owners and see if a tenant's going to be leaving or at least is coming up.

[00:07:02] [SPEAKER_03]: So you're literally driving, coming up with addresses, backing into, you know, if there's a sign, great, you already know that.

[00:07:10] [SPEAKER_03]: You can find somebody or if it's full, it's backing into the ownership and then making the calls to see what's actually coming down the pipeline.

[00:07:17] [SPEAKER_03]: Yep.

[00:07:17] [SPEAKER_03]: Yeah.

[00:07:18] [SPEAKER_03]: Isn't it funny?

[00:07:19] [SPEAKER_03]: You know, we talked about big data gets talked about a lot.

[00:07:22] [SPEAKER_03]: There's something to be said for actually going and doing the work at the human level to make those phone calls not relying on some computer system to show you what's there.

[00:07:32] [SPEAKER_03]: It's actually taking those next steps.

[00:07:33] [SPEAKER_04]: Yep.

[00:07:33] [SPEAKER_04]: And we use a lot of different databases, but you find some people don't put their property on there or you're with the client and they're like, I need to be in that center.

[00:07:43] [SPEAKER_04]: So it's always good to know about it.

[00:07:45] [SPEAKER_03]: What have been some of the more fun or more challenging tenants and or situations you've had to deal with?

[00:07:52] [SPEAKER_04]: I would say one of the more challenging things is just dealing with municipalities.

[00:07:57] [SPEAKER_04]: Certain say you have a drive-through client.

[00:08:00] [SPEAKER_04]: Some of the cities have went away from zoning that allows a drive-through, which makes it really difficult to find a site that actually works where the tenant wants to be.

[00:08:10] [SPEAKER_03]: What's the thought process on the municipality side?

[00:08:13] [SPEAKER_03]: They don't want drive-through or maybe this is location specific?

[00:08:16] [SPEAKER_04]: So I know like the city of Coralville has a main corridor where they want to do more.

[00:08:22] [SPEAKER_04]: It's like town center zoning.

[00:08:23] [SPEAKER_04]: They would like more mixed-use development.

[00:08:25] [SPEAKER_04]: And I think there's a demand for maybe apartments and they like the retail on the bottom.

[00:08:31] [SPEAKER_03]: Do you have an opinion relative to mixed-use, whether it's a strong asset class, whether the jury is still out?

[00:08:38] [SPEAKER_03]: It seems like cities really like this.

[00:08:41] [SPEAKER_03]: But it also seems like when you start putting two different things together in one package, it prevents them unique, presents some unique challenges.

[00:08:49] [SPEAKER_03]: You have apartments above, which is a totally different asset class in terms of how you manage it.

[00:08:53] [SPEAKER_03]: And then retail on the bottom where it's pure triple net.

[00:08:57] [SPEAKER_03]: It's a little unique.

[00:08:59] [SPEAKER_04]: It is from a national tenant perspective, I would say like suburban mixed-use dependent on how it's set up.

[00:09:06] [SPEAKER_04]: They really struggle with ground floor space unless it's a real urban setting, right?

[00:09:10] [SPEAKER_04]: Where you have to do that.

[00:09:12] [SPEAKER_04]: You just don't get the same signage, the pop.

[00:09:14] [SPEAKER_04]: You got to deal with parking or the tenants above, guest.

[00:09:18] [SPEAKER_04]: So they like to avoid, I think.

[00:09:20] [SPEAKER_03]: The best tenants would prefer to avoid that when they can.

[00:09:23] [SPEAKER_04]: Yeah.

[00:09:23] [SPEAKER_03]: Yeah, those infills totally get that.

[00:09:26] [SPEAKER_03]: You're in the middle of the town, it's more collective.

[00:09:28] [SPEAKER_03]: You just have a greater variance in things, structures.

[00:09:33] [SPEAKER_02]: If you're a house flipper, execute the BIRS strategy or do double closings and are in need of money.

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[00:09:42] [SPEAKER_02]: Time is money.

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[00:10:02] [SPEAKER_02]: Check out www.littleguylones.com.

[00:10:06] [SPEAKER_04]: But I would say if you're in a suburb and it's other stuff, it's kind of single tenant one story

[00:10:10] [SPEAKER_04]: and then you pop up a multi-story building with the retail on the first floor, it's pretty difficult.

[00:10:16] [SPEAKER_03]: On the investor side, where do you see developers and those participating in the investment side?

[00:10:22] [SPEAKER_03]: You've seen a lot in 20 plus years of doing this.

[00:10:25] [SPEAKER_03]: Where do you see the guys get it really, really right?

[00:10:27] [SPEAKER_03]: They have what in common and those who get it wrong, what are they doing wrong?

[00:10:32] [SPEAKER_04]: I would say the guys that get it right is you have a great location

[00:10:35] [SPEAKER_04]: and then you can land the anchor to it and then you can do pad sites and develop around it.

[00:10:40] [SPEAKER_04]: The guys that get it wrong, it's just not supported with the traffic and demographics and so forth to do a development.

[00:10:49] [SPEAKER_04]: Maybe it's too green.

[00:10:51] [SPEAKER_04]: A lot of people want density.

[00:10:53] [SPEAKER_04]: We look at one in three and five mile demographic rings

[00:10:57] [SPEAKER_04]: and a lot of people have requirements of how many people have to be within those rings in order to consider a location.

[00:11:04] [SPEAKER_03]: And so they're doomed from the get-go?

[00:11:06] [SPEAKER_04]: Yeah. Until growth catches up right and housing, right?

[00:11:10] [SPEAKER_04]: We want a lot of housing around those so there's people and it's convenient.

[00:11:15] [SPEAKER_03]: Retail, we heard about this in a handful of years ago and certainly through COVID.

[00:11:19] [SPEAKER_03]: Retail is dead. It's going to be dead.

[00:11:21] [SPEAKER_03]: It will not survive and the exact opposite has taken place.

[00:11:27] [SPEAKER_04]: Yeah, I mean retail has been on fire the last couple of years.

[00:11:31] [SPEAKER_03]: What do you read that to?

[00:11:31] [SPEAKER_04]: I would say just some pent up demand. There hasn't been a lot of new construction

[00:11:36] [SPEAKER_04]: and then I know during COVID, some staff, the restaurants have all done extremely well

[00:11:43] [SPEAKER_04]: and then just because everybody wants to get out they want to shop, they want to eat out, they want to see people again.

[00:11:48] [SPEAKER_03]: Talked about new construction. We record this now.

[00:11:52] [SPEAKER_03]: Interest rates are about as high as they have been in a decade plus probably.

[00:11:57] [SPEAKER_03]: Construction costs are relatively high compared to pre-COVID levels.

[00:12:04] [SPEAKER_03]: And it seems like that's going to taper some new construction that takes place.

[00:12:08] [SPEAKER_03]: It's challenging to go build with the inputs as they present themselves today

[00:12:13] [SPEAKER_03]: and then turn around and put a required rate of return on those inputs

[00:12:19] [SPEAKER_03]: and then lease it to that end retailer at what's required.

[00:12:23] [SPEAKER_03]: Seems like there's people are struggling to get those numbers and therefore they're just not constructing today.

[00:12:30] [SPEAKER_03]: How do you think this plays out over a period of time?

[00:12:33] [SPEAKER_04]: I think either interest rates, you got to wait until they go down or construction costs

[00:12:37] [SPEAKER_04]: or the retailers going to have to step up and pay more

[00:12:40] [SPEAKER_04]: and currently they just aren't willing to do that.

[00:12:43] [SPEAKER_04]: They're focused on backfilling, bed bath and beyonds or bye-bye babies

[00:12:46] [SPEAKER_04]: or the couple groups that went bankrupt.

[00:12:49] [SPEAKER_03]: There's enough of that out there where they can just go back.

[00:12:53] [SPEAKER_03]: One of those three factors is going to have to break the letter or a combination of all three, right?

[00:12:58] [SPEAKER_04]: Yep.

[00:12:58] [SPEAKER_03]: Yeah. It's going to be interesting to see how that plays out.

[00:13:03] [SPEAKER_04]: Yeah. I'm not aware of really any junior box power center developments currently in Iowa

[00:13:10] [SPEAKER_04]: and not that there's not demand for it. They just can't pencil it out.

[00:13:13] [SPEAKER_03]: For the audience to say, what does that, when you say that, what size of construction are we talking about?

[00:13:20] [SPEAKER_03]: What is that?

[00:13:20] [SPEAKER_04]: When I'm saying like a junior box tenant, I'd say 10,000 to 50,000 square feet.

[00:13:25] [SPEAKER_04]: Like the TJ Maxx, Alta's, Ross, PetSmart, PetCo.

[00:13:30] [SPEAKER_03]: They would typically be inside of a center of some nature, right?

[00:13:34] [SPEAKER_04]: Yep.

[00:13:35] [SPEAKER_03]: And the center would be how big?

[00:13:36] [SPEAKER_04]: Yeah. The other interesting part about the junior box tenants is there's a big co-tenancy clause

[00:13:41] [SPEAKER_04]: that's part of the deals where they have to, they probably want 100,000 square feet surrounding them

[00:13:48] [SPEAKER_04]: and then certain tenants within there.

[00:13:52] [SPEAKER_03]: So they may take up 10 to 50 and they want to see another hundred-ish surrounding them

[00:13:56] [SPEAKER_03]: because again, going back to your example of the restaurants, these tenants have,

[00:14:02] [SPEAKER_03]: it has been proven market after market after market that certain tenants play well.

[00:14:07] [SPEAKER_03]: I use that in quotes, right?

[00:14:08] [SPEAKER_03]: Play well with each other.

[00:14:09] [SPEAKER_03]: Yeah.

[00:14:09] [SPEAKER_03]: They complement each other.

[00:14:11] [SPEAKER_03]: Yep.

[00:14:11] [SPEAKER_03]: Yeah.

[00:14:11] [SPEAKER_03]: A couple of things, the tenants that might come to mind that complement each other are who?

[00:14:16] [SPEAKER_04]: The fashion guys all like to be next to each other, you know, like TJ Maxx and Alta or Ross

[00:14:22] [SPEAKER_04]: and even a pet guy or Burlington, Coles.

[00:14:27] [SPEAKER_04]: They all play together pretty nicely.

[00:14:29] [SPEAKER_04]: Yeah.

[00:14:29] [SPEAKER_04]: The sporting goods guys like Dick's sporting goods, but then they won't like other shoe guys.

[00:14:34] [SPEAKER_04]: So some, you know, you can't have in the same center.

[00:14:37] [SPEAKER_03]: Yeah.

[00:14:38] [SPEAKER_03]: Are restaurants like that at all where they don't want to be in the same center or is that,

[00:14:41] [SPEAKER_03]: you don't see that very often?

[00:14:43] [SPEAKER_04]: If it's like, let's say a Raising Cane, it's just going to want probably a Chick-fil-A next to him.

[00:14:47] Yeah.

[00:14:48] [SPEAKER_04]: Or the same type of restaurant.

[00:14:50] [SPEAKER_04]: Otherwise, say like other restaurants, just to create a synergy.

[00:14:53] [SPEAKER_04]: Yeah.

[00:14:54] [SPEAKER_04]: That makes total sense.

[00:14:55] [SPEAKER_03]: I'm curious on the, when I see developers putting things in place, you'll see a multitude

[00:15:00] [SPEAKER_03]: of things.

[00:15:00] [SPEAKER_03]: Sometimes they'll construct the building, they'll own all the ground, they'll

[00:15:04] [SPEAKER_03]: own all the construction, they'll fill it, so it'll do whatever we're retaining.

[00:15:08] [SPEAKER_03]: Some guys like to do ground laces, some tenants or maybe some of the gas stations that come

[00:15:13] [SPEAKER_03]: to mind, you know, require either ground lace or to buy the ground.

[00:15:17] [SPEAKER_03]: They won't let anybody construct the property.

[00:15:20] [SPEAKER_03]: What do you see?

[00:15:21] [SPEAKER_03]: Maybe you see the whole gamut and what are the kind of differences from an investor

[00:15:25] [SPEAKER_03]: perspective about why somebody would do that or maybe the avenues in which they

[00:15:30] [SPEAKER_03]: can participate in investment?

[00:15:32] [SPEAKER_04]: So yeah, say you have like a pad site in front of a Walmart.

[00:15:38] [SPEAKER_04]: Yeah, I guess different options if you own that, right?

[00:15:41] [SPEAKER_04]: You could sell it outright, which is probably the preference for most people is to buy.

[00:15:45] [SPEAKER_04]: But if it's a great piece of real estate, you're like, I'm not selling it.

[00:15:48] [SPEAKER_04]: There are certain tenants that do ground leases.

[00:15:50] [SPEAKER_04]: In my opinion, you know, that's the best avenue for an investor.

[00:15:54] [SPEAKER_04]: A ground lease typically, a lot of national restaurant chains will do ground leases,

[00:15:59] [SPEAKER_04]: but they'll just take the site and come in and build their own building.

[00:16:03] [SPEAKER_04]: And then you just get ground rent.

[00:16:05] [SPEAKER_04]: And typically it's a 15 year lease term with 10% bumps every five years.

[00:16:10] [SPEAKER_04]: And if they ever leave, you get their building.

[00:16:13] [SPEAKER_04]: And the chance they leave is less, right?

[00:16:16] [SPEAKER_04]: Because they spent $4 million building the restaurant that they got to walk away from.

[00:16:20] [SPEAKER_04]: And so 15 years rolls off and then what?

[00:16:23] [SPEAKER_04]: Then they have options.

[00:16:24] [SPEAKER_04]: They'll typically want at least probably three, five year options

[00:16:27] [SPEAKER_04]: so I can control it for at least 30 years.

[00:16:32] [SPEAKER_03]: And so you are on the ground lease side of things.

[00:16:35] [SPEAKER_03]: One's just getting rent, you know, you call it ground lease.

[00:16:38] [SPEAKER_03]: It's just rent for the ground.

[00:16:39] [SPEAKER_03]: That's simply what it is.

[00:16:41] [SPEAKER_03]: They're the ones who come in and construct.

[00:16:43] [SPEAKER_03]: They do all the physical improvements they require to handle everything

[00:16:45] [SPEAKER_03]: associated with that thing physically.

[00:16:48] [SPEAKER_03]: Anything with their building, it breaks it, whatever.

[00:16:50] [SPEAKER_03]: Because you don't own or control the building, they do.

[00:16:55] [SPEAKER_04]: Correct.

[00:16:55] [SPEAKER_03]: You just own the ground and they've leased it from that.

[00:16:58] [SPEAKER_03]: They do whatever they want for that period of time.

[00:17:01] [SPEAKER_03]: And then the thing rolls up and they ever leave, they ever vacate the building's yours.

[00:17:07] [SPEAKER_03]: What are the odds of that happening?

[00:17:09] [SPEAKER_03]: I suspect it depends on the site, right?

[00:17:13] [SPEAKER_03]: They probably like to come back even if they had options at the end of 30 years.

[00:17:17] [SPEAKER_03]: They probably come back and they want more time.

[00:17:20] [SPEAKER_04]: Right.

[00:17:21] [SPEAKER_03]: And they're buying it.

[00:17:21] [SPEAKER_04]: Yep.

[00:17:22] [SPEAKER_03]: What makes you say that that's one of the best investments in your opinion?

[00:17:27] [SPEAKER_04]: Especially for like a restaurant, they're usually pretty specific

[00:17:30] [SPEAKER_04]: and everybody wants to have their own look.

[00:17:32] [SPEAKER_04]: So if you end up with a Chick-fil-A, for instance,

[00:17:36] [SPEAKER_04]: the next tenant, they probably don't want that exact same building.

[00:17:39] [SPEAKER_04]: They're probably going to have to tear it down.

[00:17:41] [SPEAKER_04]: So this way, at least you didn't build it, right?

[00:17:44] [SPEAKER_04]: Your base is just a land.

[00:17:45] [SPEAKER_04]: You're in a pretty safe place where if you built the Chick-fil-A,

[00:17:49] [SPEAKER_04]: say they went bankrupt or whatever happens in five years, right?

[00:17:52] [SPEAKER_04]: Then you got this building that it's pretty hard to...

[00:17:56] [SPEAKER_04]: Specific use.

[00:17:56] [SPEAKER_04]: Yep.

[00:17:57] [SPEAKER_03]: No, that makes sense.

[00:17:58] [SPEAKER_03]: So I've seen a number of developers who do that.

[00:18:03] [SPEAKER_03]: They'll put it in there and they'll get the ground lease

[00:18:04] [SPEAKER_03]: and then they sell that ground lease.

[00:18:06] [SPEAKER_04]: Yep.

[00:18:07] [SPEAKER_04]: And then you typically get a lower cap rate too for a ground lease

[00:18:10] [SPEAKER_04]: because of the risk.

[00:18:12] [SPEAKER_03]: The risk profile is not very high.

[00:18:15] [SPEAKER_03]: Yep.

[00:18:16] [SPEAKER_03]: The type of people in buying those types of things,

[00:18:20] [SPEAKER_03]: you see all sorts of people I suspect.

[00:18:22] [SPEAKER_03]: There's no depreciation.

[00:18:23] [SPEAKER_03]: So you'll see a lot of retirement plans.

[00:18:26] [SPEAKER_03]: Individual IRA owners is what I've seen by those types of things.

[00:18:29] [SPEAKER_03]: But because past that, they're probably a lot of...

[00:18:31] [SPEAKER_00]: Hi, it's Ava Baukamp,

[00:18:33] [SPEAKER_00]: the Investment Relations Manager for Neal's firm,

[00:18:35] [SPEAKER_00]: Legacy Impact Investors.

[00:18:37] [SPEAKER_00]: I'm inviting you to join us for our next investor workshop,

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[00:19:34] [SPEAKER_04]: I've seen farmers that sell their farms right

[00:19:36] [SPEAKER_04]: in retirement that won a 1031 in mailbox money.

[00:19:40] [SPEAKER_03]: Yeah. Who else have you seen that?

[00:19:42] [SPEAKER_03]: I guess, Andorra, what's the downside of a ground lease?

[00:19:45] [SPEAKER_03]: Just that you don't get depreciation.

[00:19:48] [SPEAKER_04]: That's about it.

[00:19:50] [SPEAKER_04]: And then there's reads like realty and come buys

[00:19:53] [SPEAKER_04]: a lot of ground leases and different properties.

[00:19:57] [SPEAKER_03]: Yeah. It is.

[00:19:59] [SPEAKER_03]: It's as easy. It's truly as passive as it gets

[00:20:02] [SPEAKER_03]: from an investment perspective.

[00:20:04] [SPEAKER_03]: Yeah.

[00:20:05] [SPEAKER_03]: What do you see that's what's unique and challenging

[00:20:08] [SPEAKER_03]: about working in the retail space as opposed

[00:20:11] [SPEAKER_03]: to a different asset class?

[00:20:13] [SPEAKER_04]: I would say just trying to get sales

[00:20:16] [SPEAKER_04]: and just probably more knowledge is required

[00:20:18] [SPEAKER_04]: for what they're doing.

[00:20:20] [SPEAKER_04]: I don't need to know how the other warehouse tenants

[00:20:23] [SPEAKER_04]: are doing, right? That it's an $80 million

[00:20:25] [SPEAKER_04]: Walmart next door.

[00:20:28] [SPEAKER_03]: Totally independent there in silos.

[00:20:29] [SPEAKER_03]: It is not relative to or germane to your

[00:20:32] [SPEAKER_03]: client's decision about retail.

[00:20:34] [SPEAKER_04]: And location isn't as important.

[00:20:36] [SPEAKER_04]: Right.

[00:20:36] [SPEAKER_04]: Which retail, it's kind of everything.

[00:20:40] [SPEAKER_03]: How do you go about understanding what people

[00:20:43] [SPEAKER_03]: are doing and what retailers are doing in their sales?

[00:20:47] [SPEAKER_04]: So one of the newer tools is called Placer AI

[00:20:50] [SPEAKER_04]: that tracks cell phone data.

[00:20:52] [SPEAKER_04]: And it's pretty cool because it can rank

[00:20:55] [SPEAKER_04]: how many people go there a week, a month,

[00:20:57] [SPEAKER_04]: what time of day, where they came from,

[00:20:59] [SPEAKER_04]: where they live.

[00:21:01] [SPEAKER_04]: It's unbelievable the amount of information

[00:21:03] [SPEAKER_04]: you can get now.

[00:21:06] [SPEAKER_03]: And they're stacking that suspect to subscription base,

[00:21:09] [SPEAKER_03]: they're selling that data and then you're using

[00:21:12] [SPEAKER_03]: that platform to be able to help

[00:21:14] [SPEAKER_03]: educate and inform your clients.

[00:21:15] [SPEAKER_04]: Yep.

[00:21:16] [SPEAKER_03]: Yeah.

[00:21:17] [SPEAKER_04]: And the other way is you just represent

[00:21:19] [SPEAKER_04]: different tenants, right?

[00:21:21] [SPEAKER_04]: If you represent a lot of different people,

[00:21:23] [SPEAKER_04]: they'll typically tell you how they're doing.

[00:21:25] [SPEAKER_04]: So then you have just some good knowledge

[00:21:27] [SPEAKER_04]: from relationships.

[00:21:29] [SPEAKER_04]: The other thing is to go in and talk to managers

[00:21:32] [SPEAKER_04]: and see what they'll share.

[00:21:34] [SPEAKER_04]: And it's hit or miss.

[00:21:36] [SPEAKER_04]: Yeah.

[00:21:36] [SPEAKER_04]: Some people are pretty open and some,

[00:21:38] [SPEAKER_04]: they just don't want to share anything

[00:21:40] [SPEAKER_04]: which is understandable.

[00:21:41] [SPEAKER_04]: Sure.

[00:21:41] [SPEAKER_03]: It's funny because at a corporate

[00:21:43] [SPEAKER_03]: wide-stamp point, it wouldn't give you anything.

[00:21:45] [SPEAKER_03]: But at the manager-manager level.

[00:21:46] [SPEAKER_04]: Yeah.

[00:21:47] [SPEAKER_04]: Because you can build a relationship.

[00:21:47] [SPEAKER_04]: And if you're going in and you're talking

[00:21:50] [SPEAKER_04]: to a tenant and your user is totally different,

[00:21:53] [SPEAKER_04]: like I'm not going to compete with you.

[00:21:55] [SPEAKER_04]: I just want to know if it's a good area.

[00:21:56] [SPEAKER_04]: Right.

[00:21:56] [SPEAKER_04]: Is it a good store for you?

[00:21:58] [SPEAKER_04]: Yeah.

[00:21:58] [SPEAKER_04]: Then they're pretty open to share information.

[00:22:01] [SPEAKER_04]: I imagine if they're going, well, they're more open.

[00:22:03] [SPEAKER_03]: Yeah.

[00:22:04] [SPEAKER_03]: Yeah.

[00:22:05] [SPEAKER_03]: The happier they are, the more they want to talk, right?

[00:22:08] [SPEAKER_03]: Yeah.

[00:22:09] [SPEAKER_03]: The better they're doing.

[00:22:10] [SPEAKER_03]: Yeah.

[00:22:11] [SPEAKER_03]: What are you most excited about this year?

[00:22:13] [SPEAKER_04]: I was hoping the interest rates would go down

[00:22:15] [SPEAKER_04]: so it would just spur on a little new development.

[00:22:19] [SPEAKER_04]: But there's still a lot of tenants out there

[00:22:21] [SPEAKER_04]: that want to do deals, even new concepts

[00:22:23] [SPEAKER_04]: that want to come to Iowa.

[00:22:25] [SPEAKER_04]: So I guess I'd be most excited about that

[00:22:27] [SPEAKER_04]: is there's still a lot of good activity

[00:22:29] [SPEAKER_04]: and even new to market people that want to roll out

[00:22:33] [SPEAKER_04]: and do some stuff in Iowa.

[00:22:35] [SPEAKER_03]: You should have thought you mentioned Iowa.

[00:22:37] [SPEAKER_03]: Why Iowa?

[00:22:38] [SPEAKER_03]: I mean, you've been doing this a long time, successful.

[00:22:41] [SPEAKER_03]: You could live anywhere, right?

[00:22:43] [SPEAKER_03]: Yep.

[00:22:43] [SPEAKER_03]: You could work with retailers any marketplace.

[00:22:47] [SPEAKER_03]: What do you choose, Iowa?

[00:22:48] [SPEAKER_04]: Yeah.

[00:22:49] [SPEAKER_04]: I would think part of it, I grew up here.

[00:22:51] [SPEAKER_04]: I like Iowa.

[00:22:52] [SPEAKER_04]: And one of the big things, I guess,

[00:22:53] [SPEAKER_04]: would be the cost to living.

[00:22:55] [SPEAKER_04]: One of the things I realized about San Diego

[00:22:57] [SPEAKER_04]: is I may never be able to buy a house.

[00:23:00] [SPEAKER_04]: Right.

[00:23:01] [SPEAKER_04]: It's one of the most expensive cities

[00:23:02] [SPEAKER_04]: in the country currently.

[00:23:05] [SPEAKER_04]: So it's just a good quality of life,

[00:23:07] [SPEAKER_04]: great schools if you have a family.

[00:23:09] [SPEAKER_04]: It's a different place, isn't it?

[00:23:11] [SPEAKER_03]: Yep.

[00:23:11] [SPEAKER_03]: How did being an athlete contribute

[00:23:14] [SPEAKER_03]: to success in your business life?

[00:23:16] [SPEAKER_04]: I think sports help a lot.

[00:23:18] [SPEAKER_04]: Just defeats.

[00:23:19] [SPEAKER_04]: You get shot down a lot.

[00:23:21] [SPEAKER_04]: Asking people that they want to move

[00:23:24] [SPEAKER_04]: or whatever it is, cold calls.

[00:23:26] [SPEAKER_04]: So you got to bounce back up.

[00:23:28] [SPEAKER_04]: And just like in college,

[00:23:30] [SPEAKER_04]: if you ran a bad race or had a bad game,

[00:23:32] [SPEAKER_04]: you're going to do it again in two days.

[00:23:34] [SPEAKER_04]: You got to get yourself ready and get back out there.

[00:23:36] [SPEAKER_03]: So much of being an athlete mental.

[00:23:40] [SPEAKER_04]: Yeah.

[00:23:40] [SPEAKER_04]: A lot of mental toughness from just the amount

[00:23:42] [SPEAKER_04]: of pressure and practices

[00:23:44] [SPEAKER_04]: and prepares you well for a job, I think.

[00:23:48] [SPEAKER_03]: Let's see us on the final segment.

[00:23:50] [SPEAKER_03]: I call the final three.

[00:23:52] [SPEAKER_03]: If you had one piece of advice

[00:23:53] [SPEAKER_03]: for your 20-year-old self, what would it be?

[00:23:57] [SPEAKER_04]: I would say just, you know,

[00:23:58] [SPEAKER_04]: always stick to it and keep trying.

[00:24:00] [SPEAKER_04]: Just don't give up.

[00:24:02] [SPEAKER_04]: Two books that change your life.

[00:24:03] [SPEAKER_04]: I don't read that much,

[00:24:04] [SPEAKER_04]: but I listen to a lot more podcasts.

[00:24:07] [SPEAKER_04]: Sure.

[00:24:07] [SPEAKER_04]: I'm trying to think of some books.

[00:24:09] [SPEAKER_04]: I have a lot of biographies and sports books,

[00:24:11] [SPEAKER_04]: but I guess I don't really have two.

[00:24:13] [SPEAKER_04]: But I just like all that.

[00:24:14] [SPEAKER_04]: Even stuff about like a Navy SEAL

[00:24:16] [SPEAKER_04]: or just people that overcome adversity.

[00:24:20] [SPEAKER_04]: What kind of podcast do you listen to?

[00:24:21] [SPEAKER_04]: A lot of real estate stuff.

[00:24:23] [SPEAKER_04]: Yeah.

[00:24:23] [SPEAKER_03]: All right, here's the curveball.

[00:24:26] [SPEAKER_03]: Let's see if I can stump you on this one.

[00:24:28] [SPEAKER_03]: If you were cast away on an island for a year,

[00:24:30] [SPEAKER_03]: what three things must you know every month

[00:24:34] [SPEAKER_03]: inside your business to know whether you're doing well

[00:24:37] [SPEAKER_03]: or not so well?

[00:24:40] [SPEAKER_04]: Ooh.

[00:24:43] [SPEAKER_04]: So the business is still running

[00:24:45] [SPEAKER_04]: and I'm on an island?

[00:24:46] [SPEAKER_04]: Yep.

[00:24:47] [SPEAKER_03]: Yep.

[00:24:48] [SPEAKER_03]: How's it going?

[00:24:51] [SPEAKER_03]: What do you have to know?

[00:24:52] [SPEAKER_03]: What three things are the drivers in your business to know?

[00:24:55] [SPEAKER_03]: I got to know these three things.

[00:24:57] [SPEAKER_04]: I would say how people are doing and who's expanding

[00:25:00] [SPEAKER_04]: and just what's happening in the economy

[00:25:03] [SPEAKER_04]: and just in Iowa, I guess, if this is where I'm working.

[00:25:07] [SPEAKER_03]: You've got to have your pulse on what's taking place.

[00:25:09] [SPEAKER_03]: Yeah.

[00:25:10] [SPEAKER_03]: And then inside of that, the players, who's doing what?

[00:25:13] [SPEAKER_03]: That's what it sounds like, yeah?

[00:25:14] [SPEAKER_03]: Yeah.

[00:25:15] [SPEAKER_03]: Definitely.

[00:25:16] [SPEAKER_03]: Yeah.

[00:25:16] [SPEAKER_03]: This is fun.

[00:25:17] [SPEAKER_03]: We could talk for hours, I'm sure, about retail

[00:25:19] [SPEAKER_03]: and the uniqueness of it because it is so nuanced

[00:25:23] [SPEAKER_03]: and there's some really fun things

[00:25:26] [SPEAKER_03]: and tremendous things that are taking place

[00:25:28] [SPEAKER_03]: and you've been a part of that here in town.

[00:25:30] [SPEAKER_03]: For people that want to find you, they want to follow you

[00:25:33] [SPEAKER_03]: and they want to connect with you,

[00:25:34] [SPEAKER_03]: where can they go?

[00:25:35] [SPEAKER_03]: What should they do?

[00:25:36] [SPEAKER_04]: Yeah.

[00:25:36] [SPEAKER_04]: So Buyer's Realty, Inc.com is our internet site.

[00:25:40] [SPEAKER_04]: Mike at Buyer's Realty, INC.com is my email.

[00:25:45] [SPEAKER_04]: And then I'm also on LinkedIn.

[00:25:47] [SPEAKER_03]: Perfect.

[00:25:48] [SPEAKER_03]: We have the link below in the show notes for everybody.

[00:25:51] [SPEAKER_03]: All right, Mike, last question.

[00:25:52] [SPEAKER_03]: What did I not ask you that I should have asked you?

[00:25:56] [SPEAKER_04]: Well, I would say for investors,

[00:25:58] [SPEAKER_04]: one of the interesting things about Iowa

[00:25:59] [SPEAKER_04]: is we have a really high disposable income.

[00:26:03] [SPEAKER_04]: I think we ranked ninth, which, you know,

[00:26:05] [SPEAKER_04]: that's money that's available after your pay your taxes.

[00:26:08] [SPEAKER_04]: So it's spending money, which makes it, you know,

[00:26:12] [SPEAKER_04]: a lot of people do well because they have money

[00:26:14] [SPEAKER_04]: as opposed to some of the markets where maybe

[00:26:16] [SPEAKER_04]: the housing is really expensive.

[00:26:18] [SPEAKER_04]: They still have the disposable incomes, right?

[00:26:19] [SPEAKER_04]: That you can use to eat out, shop, entertainment.

[00:26:23] [SPEAKER_04]: So I think that really makes it a great state

[00:26:26] [SPEAKER_04]: for investing in different products.

[00:26:29] [SPEAKER_03]: That's an incredible fact, one I did not know.

[00:26:33] [SPEAKER_03]: And so, which makes sense and aligns itself

[00:26:35] [SPEAKER_03]: on the retail side of things.

[00:26:37] [SPEAKER_04]: Yeah.

[00:26:37] [SPEAKER_03]: Because of the ability to have that choice

[00:26:40] [SPEAKER_03]: of what to do with the excess money.

[00:26:44] [SPEAKER_03]: Right.

[00:26:44] [SPEAKER_04]: You said, right?

[00:26:45] [SPEAKER_04]: A lot more people can afford to eat out and buy things

[00:26:48] [SPEAKER_04]: compared to, you know, maybe the other states look better

[00:26:50] [SPEAKER_04]: because the housing and maybe the incomes are high,

[00:26:54] [SPEAKER_04]: but just the cost of living is eats it up.

[00:26:57] [SPEAKER_04]: Eats it up.

[00:26:58] [SPEAKER_03]: Yep.

[00:27:00] [SPEAKER_03]: What else did I not ask that I should have asked?

[00:27:05] [SPEAKER_04]: And I mean, just there's all kinds of retail too.

[00:27:09] [SPEAKER_04]: That's, you know, small tenant retail shops

[00:27:12] [SPEAKER_04]: with chipotle's and there can all be really good investments.

[00:27:16] [SPEAKER_04]: And, you know, it's 10 year leases with corporate tenants.

[00:27:20] [SPEAKER_03]: I think what you're saying from the,

[00:27:22] [SPEAKER_03]: is that sit inside of a center?

[00:27:24] [SPEAKER_04]: Is that a triple net single asset?

[00:27:26] [SPEAKER_04]: It would sit inside of a center.

[00:27:27] [SPEAKER_04]: A lot of those guys like two or three bay

[00:27:30] [SPEAKER_04]: small tenant strip centers.

[00:27:32] [SPEAKER_03]: And so those scenarios you're saying from an investment standpoint,

[00:27:35] [SPEAKER_03]: you'll have a strip center.

[00:27:37] [SPEAKER_03]: Yep.

[00:27:37] [SPEAKER_03]: But they're small.

[00:27:38] [SPEAKER_03]: The two to three bay is somewhere in that range

[00:27:40] [SPEAKER_03]: and you'll have a very strong anchor.

[00:27:43] [SPEAKER_04]: Yep.

[00:27:43] [SPEAKER_03]: On one of those that might be 10 plus years.

[00:27:46] [SPEAKER_04]: Yep.

[00:27:47] [SPEAKER_04]: If you have a great location, yeah,

[00:27:48] [SPEAKER_04]: you can get some really good tenants

[00:27:50] [SPEAKER_04]: and they usually stay around for a long time.

[00:27:53] [SPEAKER_04]: And there's a lot of demand just because of the size.

[00:27:55] [SPEAKER_04]: There's more tenants, right?

[00:27:56] [SPEAKER_04]: That are 1,000, 2,000, 3,000 square feet

[00:27:59] [SPEAKER_04]: and there's always new concepts.

[00:28:02] [SPEAKER_04]: Yeah.

[00:28:03] [SPEAKER_04]: Those can make squung investments.

[00:28:06] [SPEAKER_04]: Yeah.

[00:28:06] [SPEAKER_03]: Four investors come in and ultimately own that passively.

[00:28:09] [SPEAKER_04]: And it's a little more affordable than trying to buy

[00:28:12] [SPEAKER_04]: the 100,000 square foot power center.

[00:28:14] [SPEAKER_04]: Yeah.

[00:28:14] [SPEAKER_04]: And you don't have the co-tenancy clauses

[00:28:16] [SPEAKER_04]: and all the different nuances of the junior box tenant leases.

[00:28:22] [SPEAKER_03]: It's highly specialized at that level.

[00:28:24] [SPEAKER_04]: Yeah.

[00:28:25] [SPEAKER_03]: Yep.

[00:28:26] [SPEAKER_03]: You primarily see developers owning that

[00:28:28] [SPEAKER_03]: and when they own that,

[00:28:29] [SPEAKER_03]: they typically own a multitude of that

[00:28:32] [SPEAKER_03]: because it is so nuanced.

[00:28:33] [SPEAKER_03]: Is that fair to say?

[00:28:34] [SPEAKER_04]: Yeah, definitely.

[00:28:35] [SPEAKER_04]: Yeah.

[00:28:35] [SPEAKER_03]: Man, what a great conversation.

[00:28:37] [SPEAKER_03]: We'll have to have you back on and dive in

[00:28:39] [SPEAKER_03]: on the detail side of things

[00:28:40] [SPEAKER_03]: and see what transpires over this year

[00:28:42] [SPEAKER_03]: and to see what of those three factors,

[00:28:46] [SPEAKER_03]: if any or off all of them,

[00:28:48] [SPEAKER_03]: break to help spur your development

[00:28:50] [SPEAKER_03]: and what that means on the detail side of things.

[00:28:52] [SPEAKER_04]: Yeah.

[00:28:52] [SPEAKER_03]: Yep.

[00:28:53] [SPEAKER_03]: Thanks, Mike for being here.

[00:28:54] [SPEAKER_03]: Thanks for having me.

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