The Allure of Secondary markets in Real Estate Investing

21st April, 2021

With the critical thinking skills of a lawyer and the business savvy mindset of a real estate investor, Brian Adams joins us on today’s show to discuss his personal experiences in the real estate industry, and some of the main trends he is seeing in the broader real estate world as a whole. Brian’s private equity firm, Excelsior Capital, works with non-institutional accredited investors. Brian explains how they have built up a reputable name for themselves, the roles that he fulfills in the company, and the three core provisions that they offer to their clients. If you are new to the real estate field, you’ll learn about cap rates, the impacts of inflation and the difference between a fund and a syndication. Furthermore, Brian shares his thoughts on why the US real estate market is so secure, why secondary growth markets are booming, his expectations for interest rates in the coming months, and how the COVID-19 pandemic has affected real estate. 

Key Points From This Episode:

  • Factors which led Brian to leave law and open a private equity firm.
  • How Brian’s law background helps him in his current work.
  • What Brian’s job entails for the most part.
  • Mistakes Brian made early on in his investment career, and what he learned from them.
  • The three things that Brian’s company does for their clients. 
  • Differences between a fund and a syndication.
  • Types of investors that Brian’s company works with, and why they avoid institutional investors.
  • A comparison between a $10 million deal and a $100 million deal. 
  • Brian’s strategy for sourcing deals.
  • An example of how Brian’s company likes to “pay it forward” to their brokers. 
  • Why Brian believes that the US commercial real estate market will continue to thrive.
  • Parts of the US that are becoming more and more popular for investors, and why.
  • What is currently happening to interest rates, and what Brian expects to see in the future.
  • Conditions that Brian’s company looks for when investing in a deal.
  • The types of investors that Brian’s company works with. 
  • Inflation and its impacts on the real estate industry. 
  • Changes that have been brought about by the COVID-19 pandemic. 



“BA: So, there’s an adage in real estate that it takes the same amount of effort, or to use a real estate term, brain damage, or heartburn, to do a $10 million deal as it does to do a $100 million deal. And that’s totally true. I’ve never done a $100 million deal, but I’ve done $50 million deals and it does. The workload is equivalent, getting a transaction closed is always a lot of effort. But I think the difference is that the metrics and the values and the return profiles can be pretty dramatically different. If you’re willing to go “down market” to do these smaller type opportunities.”

[00:00:42] JM: Hi, I’m Jenny Merchant, co-founder of PitchBoard, and welcome to The Pitch Podcast. We’re here to have thoughtful discussions with forward-thinking managers who are taking unique approaches to professionally investing capital. Through these conversations, we hope to introduce you to new ideas and strategies that will help you better manage your own portfolios.


Before we begin, we want to remind our listeners that everything in this podcast is for educational purposes only. Nothing here is tax, legal or investment advice. We don’t endorse any products, services or opinions made by our speakers. Some statements in this podcast may contain forward looking projections. These projections do not guarantee future performance, and any past performance does not guarantee a future result. Finally, nothing in this podcast is an offer to buy or sell securities. Speak to your own advisor before making any financial decision.


[00:01:45] AH: Hi, this is Andrew from PitchBoard and I have the pleasure today to introduce our listeners to Brian Adams, Founder and President of Excelsior Capital. Excelsior is a private equity sponsor based in Nashville, Tennessee, and invests in commercial real estate. Brian has 10 years of real estate investing experience and before that, was a practicing attorney. With that, Brian, welcome to the show.

[00:02:06] BA: Hey, thanks, Andrew, appreciate you having me.

[00:02:08] AH: So, I’m always interested in how people sort of arrive at becoming an alternative fund manager. So, for you, the thing that jumped out, of course, was that you used to be an attorney. I’d love to hear about what made you make the switch from law into running a private equity firm?

[00:02:29] BA: Absolutely. So, I had the great fortune and privilege of marrying into an affluent family. So, my wife’s family has a single-family office based here in Nashville. I grew up comfortably, but not in that same world. So, I did not have the knowledge base growing up, of exposure to alternatives or private equity, financial services, et cetera.

But when I joined the family board as an ex officio member, I got exposure to the sponsors. We were working with the GP fund managers that we were investing in, and started to learn quite a bit through my father-in-law and our CIO, and those relationships.

So, that was initially how it started. There was also a dual track of not wanting to be an attorney my entire career. It was a great way to cut my teeth, but certainly not something that I want to do for 30 or 40 plus years. It was a confluence of those two streams that led me to start my own company 11 years ago now.

[00:03:37] AH: Do you find that your background helps you on a day to day basis as an attorney?

[00:03:42] BA: Yeah, I think certainly when I started. I’m 38. So, you’re talking about somebody in their mid-20s. I think having a JD gave me a lot of credibility with people, and certainly gave me the basics in terms of commercial real estate law, corporate law. So, it was a resource for me. But frankly, at this point, I’m very content to have our third-party lawyers do the legal work, and handle all of that. That’s not the highest and best use for me, for the enterprise, or for our investors and I actually have technically retired my license. I’m still barred in Tennessee, but I don’t give legal advice any longer.

But I think initially, it did help me, and certainly continues to be a resource in terms of critical thinking. But the technical aspects, I haven’t really practiced law in a long time.

[00:04:30] AH: I mean, now, you’re obviously essentially a practicing investor, right?

[00:04:35] BA: My focus today is fundraising, marketing, investor relations, business development, and then strategically thinking, “Okay, well, what direction should the company go in?” That’s where I spend the majority of my time.

[00:04:47] AH: Talk to me about how a firm, how Excelsior has evolved since you started it? What was it at the beginning and what is it now and how did you get there?

[00:04:57] BA: Yeah, so I had started a legacy company called Premium Properties, and we initially raised funds, sort of, blind pool commingled funds. They were small, but they were kind of friends and family type capital vehicles. And I made a bunch of mistakes in that first iteration. So, one of them was learning the hard way after raising three funds that I think a fund is a suboptimal investment vehicle for individuals and families for taxable investors who are putting a lot of capital to work. I think it’s just a very challenging product, and not a good fit. So that was kind of one mistake.

The other was, we were able to grow the company fairly quickly because we started offering people direct co-investment opportunities. Initially, it was the fund LPs themselves, we gave them sidecar rights on every deal we did, they start to bring in their friends and family and that’s when we realized, “Man, we should be syndicators not fund managers, because this is a much better fit for our investor base since in terms of what they want.” The byproduct of that is we grew very quickly. A big mistake I made was not putting enough time, energy and resources into the infrastructure or the guts of the company. So, I think to explain to you how Excelsior works now, is really a product of, kind of, the imperfect iteration of it was before where we didn’t have best in class investor relations, we didn’t have great reporting. Marketing and business development were certainly something that got put on the back burner, because we were so focused on making acquisitions.

So, this iteration of the company, we lead with reporting, investor relations, transparency, communication, development. Those are all things that we start with. I think just fundamentally, when we first got into the business, we were kind of classic deal guys, out there making acquisitions, a very ego driven mentality. What I’ve realized is that now we solve a problem, right? I spent a lot of time talking to my investors, understanding what their issues are and now we provide a service and a product offering and a solution to their problems. We really do three things. We give them direct access to co-investment opportunities, we provide a double-digit cash and cash yield, and we give them all the benefits that come from direct real estate ownership from a tax perspective.

So, those are the three challenges that I saw in my investor base, and now that’s what we lead with, is a very much more of an empathetic approach to fundraising and raising capital. It’s really made all the difference in the world.

[00:07:41] AH: Forthose at home who are listening and they’re confused a bit about, what’s the difference between a fund and a sponsor in the syndication that you describe? What’s the best way to describe that?

[00:07:54] BA: Yeah. I apologize for the jargon. But yeah, it’s a good question. So, a fund is basically a bucket of capital, where I come to you and I say, “Hey, Andrew, I’m going to plan on going to buy all these real estate opportunities. But I need you to commit $100 into this fund, without any deals currently in it today. I can tell you what I hope to achieve, what my targets are, et cetera.” And you say, “Hey, Brian, that sounds great. I’ll commit $100.” You don’t actually give me the money right there and then, I call that money down over time as I find opportunities that fit within the investment thesis or the strategy that we discussed.

It’s great from the perspective that it gives me discretionary capital, right? I can say, “I found an opportunity, I’m going to call all these commitments that were made to me and I can buy this property.” The issue is that oftentimes individuals and families, if they have a liquidity situation, if timing is right for them, they oftentimes want to put capital to work right away.

So, what a syndication is, it’s actually the reverse. So, a syndication is where I find an opportunity, that I think is attractive, a single building somewhere, and then I go to my network, and I say, “Hey, I found this deal. I think you all will like it. Would you like to invest in just the property itself?” So no other exposure to other deals, no other exposure on debt or equity with other opportunities. You’re just coming in on that one particular property itself, that’s a syndication.

One, you got the capital, and you’re looking for deals, the other is you’ve got the deal, and you’re looking for capital.

[00:09:30] AH: So, with that, are you also managing then the properties that you buy?

[00:09:35] BA: Yeah, so I’ll use some terms and I’ll explain them. We’re what’s considered a fundless sponsor or a syndicator, but we are a general partner operator. So, we are actually sourcing the deals ourselves. We are “running the deals ourselves”. We are raising the capital ourselves and we are managing those properties ourselves. Now, we’re managing them on an asset level, because we’re in 14 different markets across the US, we third party with local groups.

So, CBRE handles most of our property management day to day. And then on the leasing side, we’ll work with a Cushman or a Call Yours or a CB, depending on that market, and depending on that particular building. So, we third party property management lease with local groups, but we manage the asset ourselves. We don’t allocate to other sponsor operators, we are self-operating internally.

[00:10:33] AH: Do you take an equity stake in any of the properties themselves?

[00:10:37] BA: Every deal.

[00:10:39] AH: Every deal.  Yeah. Right. Is there a lot of commonality then if you look at the different properties that you’ve ended up buying just among the investor base? Do you have a lot of repeat, as you said, legacy clients?

[00:10:50] BA: Yes, we do. Again, just to set reference points, we only work with accredited investors, but they’re all non-institutional. So, these are high net worth individuals, family offices, independent RIAs, boutique multifamily offices. Yes, oftentimes, I say the 80/20 rule pretty much applies across the board for us. 80% of the time it’ll be a legacy investor, somebody who has invested with us in the past, and then 20% of the investors will be new, friends and family or folks that are in our network.

[00:11:24] AH: Is there a reason you don’t work with institutional investors?

[00:11:28] BA: Life’s too short.

[00:11:29] AH: Life’s too short.

[00:11:32] BA: I say that slightly tongue in cheek. We certainly have done some of those deals in the past, and listen, it’s a different business, right? I mean, that is a different relationship and they can write big checks. I totally get it. In my experience, that type of capital is fairly expensive, not only from an economic standpoint, but from a psychic emotional standpoint where these people are only looking to you for economics. They’re not looking to build a relationship with you. They’re not looking for you to make other introductions, or referrals, or to provide them as a resource beyond the deal itself. It’s just not how I want to run the business.

We have a style of management, we have a style of reporting, we like to work with the folks we like to work with. We’re very fortunate from that perspective, that we have a deep investor pool. So, it’s a conscious decision that we’ve made.

Frankly, our deals are too small. We’re buying 10 to $15 million acquisitions, that usually means 3 to 5 million of equity. Most of these groups, even on the very low end, a 5 or $10 million check is their bare minimum. So, it just won’t work and that’s okay.

[00:12:45] AH: So, I sort of see a parallel between then the kinds of investors who you’re looking for, and the kind of deals that you guys see is the optimal deal. Your advantage, as you see it are the deals that are too small for institutional investor base. Can you just elaborate on sort of how you see that as your as your wheelhouse?

[00:13:08] BA: So, there’s an adage in real estate that it takes the same amount of effort, or to use a real estate term, brain damage, or heartburn, to do a $10 million deal as it does to do a $100 million deal. That’s totally true. I’ve never done a $100 million deal, but I’ve done $50 million deals and it does. The workload is equivalent, getting a transaction closed is a lot of effort. But I think the difference is that the metrics and the values and the return profiles can be pretty dramatically different if you’re willing to go “down market” to do these smaller type opportunitiesAnd what you find is that 10 to $15 million acquisition point, oftentimes, buyers are a loose affiliation of friends and family, maybe a family office, but it’s not a very sophisticated buyer pool often.

So, what we’ve been able to do is go to sellers and show them our track record, build that relationship through brokerage networks, demonstrate that we won’t re-trade, that we’ll be good actors, that everyone will get paid their fees, and that we’ll close in a timely manner and run an efficient process. Once you start doing that, you’re able to go to them and say, “Listen, if you want to run a double-blind auction, fully marketed process, go for it. We’re probably not going to be a competitive bidder there. But if you’re looking for a liquidity solution, we may not win the beauty contest, but we will close and be gentleman about it, you’ll get a pricing premium there.”

So, for us when we’re trying to solve for that double-digit cash on cash yields, stable properties and growing secondary markets, there just aren’t a lot of buyers with our profile. So, it works really well from achieving the solution set that our investors want, but also gives us plenty of deal flow, as long as we stay consistent, and don’t suffer from style drift and try to do these bigger deals. That’s not what we’re going to do. We’re very disciplined and we found a good niche and we’re going to continue to deploy into that space.

[00:15:18] AH: So, that sort of leads into the question of how do you source your deals? Do you have a network of relationships that you’re able to draw on? And have you, sort of, built those up over time?

[00:15:28] BA: Yeah, it’s almost always broker driven. Even if it’s off market, there’s always typically an intermediary or a third party that’s representing the seller or representing us. Those brokers relationships are how we source our opportunities. So, to provide context, we have 2.7 million square feet under our management today, it’s about $400 million worth of real estate and we’re in 14 markets. So, what we found is getting an introduction or referral from a broker that you’ve done a deal with, is the best way to get off-market looks.

So, once you plant a flag somewhere, once a brokerage team kind of knows you, most of these groups do like a Monday call, or a weekly call talking about what’s happening in their markets and comparing sellers and buyers and talking about people. That’s usually how we find our relationships. So, it’s really the brand that we have, the reputation we have and our performance over the last decade plus.

[00:16:24] AH: It sort of sounds a bit like the way that a lot of jobs aren’t maybe publicly advertised but they exist, obviously. And people get them even though you know, it’s not been amusing. I’m dating myself here, but it’s –

[00:16:39] BA:

[00:16:39] AH: Yeah, it’s not advertised in the newspaper or something like that. But yeah.

[00:16:43] BA: I mean, when you’ve been around for as long as we have, and you’ve done as many transactions, we always inbound both brokers and acquisition folks, you’re talking to them all the time. But we get phone calls and we always try to pay it forward. What we see oftentimes is a leasing broker knows that the seller wants, the current landlord wants to sell eventually, for whatever reason. I’ve heard them all, like death, disability, divorce are the usual ones, and then the leasing broker says, “Man, my guy’s going to sell but I want to keep this leasing work. It’s what feeds my kids. Let me see if I can intervene here and get two to four weeks of a window before it goes live or fully marketed, and make a few phone calls and see if I can make a deal happen.”

 So, we get a call, and we say, “Hey, if we close and you’re doing a good job, we’ll keep you on the leasing work.” That’s been a great way for us to get off-market looks and to build those brokerage relationships. Because usually, in the secondary markets, 75% to 80% of brokers’ income is based on recent commissions, and the rest is from sales. So, that is really what keeps the lights on for them.

[00:17:53] AH: So, going back to the niche you described, the $10 to $25 million deal. How do you think the return profile compares for those deals compared to say $100 million plus? What’s the added advantage, say, in yield terms from going down market?

[00:18:12] BA: Yeah, I mean, listen, when you start getting into that $50 million to $100 million price point, you start entering into a buyer pool with very low cost of capital. What I mean by that is, imagine if it’s a building in New York City, not a great example today, but Austin, Texas, like a cool, great market, right? You start getting into the $100 million price point, you start attracting big institutional private equity groups, maybe some foreign nationals, insurance companies, sovereign wealth funds, et cetera, folks that want to really deploy capital. And if you’re, say, a German pension plan, and you’re getting a 100 or 200 basis point negative return on your bond yield, you start looking at deals and you start saying, “Well, a 3% or a 4% return is pretty attractive relative to a 2% negative return.”

So, that’s what I mean by cost of capital and that’s where you see really significant cap rate compression because, it’s hard for domestic investors to understand this but if you take a step back and think about the world in general, US commercial real estate is still one of the most attractive places to park capital long term. It’s been a good performer over the last 25, 50 plus years. There’s just a lot of competition in today’s market, there’s a lot of liquidity in the system.

So, I think that’s the biggest difference is, we’re just not competitive in that price point. But also, your returns are going to be fairly muted because I personally think as a taxable individual or family, you should be in that 8% to 12% return world and you just can’t find it once you start doing bigger deals, unless it has an incredible amount of risk associated with it.

[00:19:59] AH: So, the cap rates in the markets you deal in, and I should just sort of maybe stop, say for those who are listening who are wondering what cap rates are, it’s essentially the yield on commercial real estate, just this funky term that gets used.

[00:20:15] BA: It’s like EBITDA, or it’s a way to do an apples to apples comparison, it’s the ratio of how much income comes off a property relative to how much price you pay for it.

[00:20:25] AH: Right. That’s a great explanation. And so is 8% to 12%, is that –

[00:20:30] BA: So that’s levered returns, that means you have to put debt on these properties, which we do. And so that means we’re looking at seven to eight cap rate ranges, generally speaking, that’s right.

[00:20:43] AH: Has that come down significantly over the last decade, two decades with this sort of era of low interest rates we’ve been in?

[00:20:51] BA: Yeah, I mean, since I’ve been in the business, we’ve seen cap rates go down 200, 300 basis points, which for listeners means people are paying more on a purchase price basis for the same amount of income, more or less. And so yeah, yields have gone down, rates have gone down, so debt has been relatively cheap. So, it’s a good time to put-on long-term debt, but it’s become more and more competitive. And I think COVID only accelerated that trend.

[00:21:19] AH: What are the big picture trends you see in commercial real estate right now, even stepping back from the markets that you specifically look at? You mentioned US commercial real estate has been a very strong performer. I expect that you expect that will continue? Is that fair?

[00:21:38] BA: Yeah, I mean, I think if you look at places that have strong rule of law, strong capital markets, and functional governments, you look at Western Europe, you look at US, Canada, and maybe look at Southeast Asia, Australia, et cetera. When you put them all together, and you look at the demographics, the demographics in the US are still the best far and away. And for commercial real estate investors demographics are destiny.

So that’s big picture, in my opinion. When you kind of drill down a little bit more, I think what you’ll see is the continued growth of the Sunbelt region in the US, as well as the interior Midwest secondary markets, a trend that you’re going to see more and more and hear more and more of are big coastal gateway markets, New York City, San Francisco, Chicago, LA, struggling from a perspective of, those are jurisdictions that have budget shortfalls. Because nobody wants to tighten their belts, the only way you can make up those budget shortfalls is to increase taxes on the affluent. That’s a narrative that a lot of people like right now.

So, what you’ll see is an increase in taxes, a decrease in services, and then a continued flight of affluent people and their businesses out of those jurisdictions into more tax and business friendly places like Texas, Tennessee, Florida, et cetera.

[00:23:09] AH: We’ve seen long-term interest rates, and they’re still fairly low. But I mean, the US 10 year has gone from I think it was 0.6% in the last year, and we’re now at I think it’s like 1.65, something like that. What do you think the prospect is for long term rates? And how does that intersect with commercial real estate prices?

[00:23:27] BA: It’s a great question. Historically, they’re still very low. But there has been a dramatic uptick over the last 60, 90 days, and that does impact spreads and that does impact debt. Again, you’re still able to get debt in that 4% range, which is pretty good, frankly. But I think fundamentally, the issue is, the Fed can’t let rates get above two, two and a half percent. I think 2% is  big psychic barrier for a lot of people. Because once you start creeping in that 2% to 3% range, because we have so much debt on a federal level, we literally can’t service it, we can’t service our interest payments, if the 10 year goes up that much. So, they just simply cannot allow that to happen, because the whole thing will fall apart.

[00:24:16] AH: I guess there’s two issues then, right? What is, I guess they’re linked, but what do higher long-term rates due to commercial real estate prices? And then what do they also do for prospective buyers or long-term buyers of commercial real estate in the sense that it does make it obviously more difficult to fund deals?

[00:24:35] BA: Yeah. So, when I say the spread, I mean, a lender, your debt provider, life companies, CMBS, regional banks, et cetera. They want to make money or they want that delta between what the 10 year is a risk-free return versus what they get returning for taking risks on a borrower like me. Generally speaking, it’s 200 to 300 basis points, 2% to 3%, depending on the profile of the acquisition. So what you’ll see happen is, if 10-year treasuries do go up, that means the cost of debt will go up. That really just impacts how much your cost of capital is, right?

So, if I’m taking 70% of an acquisition as debt, and I’m paying, last month if it was 4%, next month is 5%, and I’ve still got to pay by common equity, which is the remaining 30% of the capital stack to buy the property, it’s still expecting 10% yields. It’s not possible. Yields will go down, and return expectations will get tighter. So, I think that’s what you’ll see. Most people are doing long-term fixed rate debt. We’re doing 10-year terms, because we think there’s much more risk on the upside than there is going lower. So, you’ll see returns go down overall.

I think what would happen is, bonds start to look more attractive, as opposed to US commercial real estate. So, you’ll get a rotation out of, maybe some of these institutional players will say, “If I can get a risk-free 10 year at 3%, I’ll just put some money into that as opposed to doing these multifamily deals at a four cap.” So, you’ll see money kind of rotate out of commercial real estate into other assets, like fixed income.

[00:26:20] AH: I guess just changing, sort of, gears for a second, because you’re not a fund manager, but you’re your fund sponsor, so you’re managing investments, and you’re looking for clients. What’s the ideal kind of a deal for you and what is the ideal investor profile that you’re looking to be a part of that deal?

[00:26:41] BA: Yeah, so the deal is similar to achieving those three pain points that we see in our investor pool, which are direct co investment into stable properties in growing secondary markets. So, for instance, we closed the deal last week in Chattanooga, that’s a market that we think is exciting. Tennessee has experienced a huge amount of growth, Nashville has become very expensive, so, it’s a great option that’s not too far away. That’s continuing to see a lot of demographic movement in the right direction.

We’re under contract on something in Texas and we just went under contract on something in Florida. So, I think we’ll continue to focus on the Sunbelt, as well as selecting tier Midwest locations, all places that are experiencing year over year job growth, population growth, wage growth, and that have industries underlying their economies that we’d like to see the [inaudible 0:27:31] so healthcare, education, government, some kind of knowledge-based economy.

And then for us, it’s finding opportunities that we can buy at a reasonable price per square foot, kind of that per pound number. And that cap rate that we talked about, we’d like to be that seven to eight cap range with moderate leverage, we can still achieve something close to a double digit, or hopefully more cash or cash yield. What’s important to us is weighted average lease term, basically means, day one, when we own the property, if you combine all the leases that are in this property with a weighting towards how long the bigger leases are, versus the smaller leases on a square footage basis, what does that stability look like? What’s our ability to maintain that monthly distribution dividend coupon over the long term, and not have to churn through tenants over and over again. So, we’d like to see a weighted average lease term of three to four to five years, depending on the property type.

Those are all things that we’d look at, that would be ideal for us and we’re still able to find them. They’re harder. We’ve been doing smaller acquisitions recently, because of that.

On the investor side, we work with high net worth individuals, we have the structure to manage them and we’re a really good fit, in my opinion, for folks that they probably have maxed out the 401(k), they probably have a large IRA holding, they have exposure to the market. Bonds don’t look very attractive to them. Private credit doesn’t look very attractive to them. They’re looking for income generation and they want those tax benefits like depreciation, that they can offset gains elsewhere in their portfolio, they have enough exposure to the stock market. And rates really are a poor synthetic proxy for direct real estate for them and they don’t want to go through a big fund to fund that has an opaque fee system where they don’t have a relationship with the manager or the GP. That’s usually a fact pattern that we see.

Increasingly, these are RIAs, multifamily offices are looking to allocate and pool some of their client capital to these types of opportunities as well, and that’s a place that we’re spending a lot of time also. So, I’d say those are the two, kind of, typical groups.

We do work with a few single-family offices, they’re looking to have a larger relationship with a manager like us, but they want to spread it around. So, they’ll allocate X amount to us annually and they won’t try to pick the winners and they’ll say, “Hey, I’ll do 5 million towards your investment thesis and we’ll do 500,000 each deal or a million in each deal, and then we’ll kind of reassess on an annual basis.” I’d say those are the three typical fact patterns that we run up against.

[00:30:07] AH: So, are your investors primarily looking for that yield pickup? Or to what extent are they also looking at commercial real estate and the opportunities that you’re bringing them as potential for capital gains?

[00:30:22] BA: Yes, I’d say usually they have exposure to some value-add multifamily, et cetera. So, they’re really looking to us for income and for yield. We’re not big IRR players, these are long term holds on purpose. So, it’s going to just mathematically mean that I’ve got less of an IRR if I’m doing a 10-year hold. But what we found is, if the property is producing and I’m able to achieve that double-digit cash on cash yield, most folks don’t want the capital back, they’d rather have the coupon.

So, I’m fine with having a lower IRR at the end of the day, if it means that that’s going to be a repeat investor for me. The multiples are decent, but these are not, kind of, big swing IRR deals. Oftentimes, they already have exposure to those typically through multifamily, maybe retail. That’s just not the solutions that we offer.

[00:31:12] AH: I noticed on your website, there’s a blog post about the impact of inflation on commercial real estate. I was just wondering if you could speak to that. I think it’s a very interesting issue.

[00:31:22] BA: Yeah, so inflation matters, and even though the Fed is not concerned about it, I think anybody who is a consumer that’s paying for housing, that’s paying for health care, and is paying for education feels that inflation. It feels pretty real to me, as somebody who owns my own home, is self-insured, and I have two children in private school, I notice it. It’s here. I think it’s only going to be more prevalent moving forward.

And so, inflation is very pernicious in many ways. One of the chief ones is, it’s very difficult to manage for your public stock market portfolio. Counter cyclical things like mining commodities, real estate do really well and inflationary periods, because you’ve got to think that, as an owner of assets, I can reset my pricing to accommodate for inflationary impact through my leases.

Now, for what I’m doing, frankly, it’s a little bit harder, because my leases are longer term. But you can imagine, if you were a hotel operator, you can reset your prices every day. If you’re a multifamily owner, you can reset your prices every six months, maybe every 12 months. So, as inflation kicks in, you can increase your pricing to reflect that. Whereas other assets and other operators have a really challenging time to keep up with it. So that’s where it’s a great hedge for inflation.

[00:32:56] AH: I’d be remiss if I didn’t ask, we’re unfortunately still in a pandemic, how has COVID-19 affected your business or, I guess, the markets that you look at more generally? And has it changed as your part of the country has started to open up?

[00:33:12] BA: Yeah, we’ve been fortunate. We’ve been able to make distributions on the majority of our assets. We had one that we had to take a 50% reduction in distributions on because of slow lease momentum when everything kind of shut down. We did have a few tenants that had direct hospitality, leisure, travel exposure that had a lot of challenges. We’re able to accommodate them for the most part, working with our lender, working with them directly. So, thankfully, no critical issues for the majority of the portfolio and we were able to, obviously maintain everything in terms of ownership. We’d have to give the keys back to anything.

I will say that long term, a lot of people thought this maturing millennial generation, which was already transitioning out of the coastal gateway of markets to these secondary growth markets, many people on Wall Street thought it was illusory and it was anecdotal. I think what you’ve seen with these big corporate relocations out of California, out of New York, to Florida to Tennessee to Texas, part of it is because a direct reaction to COVID. But honestly, I think it COVID provided political cover for a lot of them to make moves that they wanted to make for a long time. I think it’s going to be a fundamental shift out of those type of markets into these growth markets.

Pre COVID, the biggest challenge for employers was attaining and maintaining your human capital, your workforce. I see that’s going to be the biggest problem again, moving forward once we get past this. I personally think Q3, Q4, you’re going to see the markets rip and the economy really open up in the states and a lot of pent up demand in the retail consumer will come roaring back, and that is again going to be the biggest problem these corporate users have. And they’re going to continue to go closer and closer to where their workers are, their employee’s bases.

I’m a millennial. I think maturing millennials that have families want access to single family homes, they want access to education for their children, they care about quality of life, they care about cost of living, even more so now, because of COVID. I just see that to be a fundamental shift over the next 10 plus years.

[00:35:29] AH: Right. Is there anything that we haven’t talked about that you’d like to sort of chime in on? I’m out of questions, but I’m happy to give the floor to you. Is there any burning topic that you’d like to address before we sign off?

[00:35:29] BA: Is this the year the Maple Leafs can break the curse?

[00:35:48] AH: I mean, I hope so. But I think if I predict it, and it doesn’t happen, I’m going to hear – I’m based in Toronto for a personal –

[00:35:53] BA: He’s based in Toronto. I’m a huge hockey fan. I think Austin Matthews is the best thing since sliced bread. He’s incredible. I’m going to just go really deep Canada here. The fact that McDavid and Drysdale are burning through their best years on just like a dysfunctional organization, crushes me. It crushes me.

[00:36:13] AH: The way I look at hockey is that because of course, I’m Canadian, and Austin Matthews is American but I’m totally okay with that as long as he’s on –

[00:36:19] BA: As long as he brings the banner, I’m sure.

[00:36:22] AH: Yeah, when it comes to the Olympics, I have to cheer for McDavid and co, but yeah, I’m hoping for a big run in the playoffs and fingers crossed. I’m not going to make any predictions because I’ll have egg on my face.

[00:36:34] BA: Well, I’ve transitioned to being a diehard Predators fan, and they did that thing where they were terrible, then they made themselves look good before the deadline. And now, I don’t know, they’re kind of in that weird in-between. So, I’m a little worried. I’m a worrier.

[00:36:51] BA: I really think there’s a chance the US may boycott the Winter Olympics, just when the pros are going to come back to play. So, I’m a little bummed out about that. But I’m just excited that we’ve got playoff hockey around the corner.

[00:37:04] AH: It’s great. We’re still in lockdown here and it’s a particularly nice thing to have playoffs coming up. As a Leafs fan to be not just in the playoffs but have a shot this time.

[00:37:14] BA: Yeah, they’re loaded this year.

[00:37:16] AH: So, with that, Brian, thank you very much. This was great having you on and to our listeners, thanks for your time and for your attention and we’ll see you again soon.

[00:37:25] BA: Thanks so much. It was fun.

[00:37:26] AH: Okay, thanks.


[00:37:28] JM: Thanks for joining us on this episode of The Pitch Podcast. Make sure you check us out online at If you liked our podcast today, please make sure to subscribe to The Pitch Podcast so you don’t miss an episode.


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