J Darrin Gross:
If you're willing, I'd like to ask you, Travis Watts, what is the biggest risk?
Travis Watts:
So I really haven't changed? You know, this opinion since I started investing in syndications years ago. And it's that as a limited partner, if you're going to invest in a real estate, syndication, whether it be office or multifamily, or car washes, industrial, whatever it may be, you really have three primary risk categories. You know, again, not just three, but three primary risk categories. That is the operator that you're investing with, that is the market you're investing in. And that is the deal itself. I've always put the most emphasis on the operator, right? So bet on the jockey, not the horse. And I think again, that's more important than ever, as to this, the shake up in this market cycle shift that has been, you know, unwinding over the last two and a half years with interest rates and capital markets and cap rates going up and valuations coming down. Who are you working with as an operator? What connections do they have? What's their track record? What's their level of transparency? Are these folks really in it to have your best interest? And what are they doing about the things that have popped up? And what are they changing to mitigate risk moving forward?
Contact Travis:
Today, my guest is Richard Crouch. Richard is a commercial real estate attorney and principal at the Virginia law firm Woods Rogers, where he chairs the business group. He's built his legal practice on the foundation of commercial real estate over the past two decades. And in just a minute, we're going to speak with Richard about Contractual Remedies. Get it right before things go sideways.
Contact: https://www.woodsrogers.com/
Email: richard.crouch@woodsrogers.com
Cell: 757-353-0969
J Darrin Gross
I'd like to ask you, Richard Crouch, what is the BIGGEST RISK?
Richard Crouch
I would say, and there are a few concepts within this, but I would say probably the biggest risk is not having the self awareness to recognize your own limitations. And what I mean by that is, there are a couple ways that this can play out. Certainly when transactional volume is humming along at a steady pace, commercial real estate attorneys are very busy. And this could probably apply to a number of professions. But sometimes the pace at which we must work, particularly with the mindset, the time kills, deals, and that's the mindset that we we live by. But sometimes that pace can preclude extensive deliberation on important sophisticated matters. And so I would say one of the ways to mitigate that risk is obviously you have to review every deal. on a case by case basis, no two deals are exactly the same. But you do need to have certain preventative measures in place to basically back check yourself, basically have certain things, whether they be templates, templates, checklists, and so on, where on every deal, although some issues will leak out more than others, that you're basically looking at every single issue, that could be an issue, and disclosing that to the client. And if the instruments or the language of the deal, address it, you tell the client, how they address it, if they don't address it, you reveal that to them as well. And that's something that, from a practice management standpoint, definitely improves the consistency and the reliability of our product and our clients ability to rely on that. Some of the other things in terms of just recognizing your own limitations is, you're only one person and you can't do it all yourself. Sometimes it's a function of physical time, you can't do it. Sometimes it's an issue of being cost effective. And using perhaps a, a less season but more affordable attorney on your team to help you review certain documents or prepare certain documents. So that's a that's a critical component, as well as basically being able to look at your team, surrounding yourself with people you trust. In fact, these may be people that in some aspects, they have strengths scenario there that are stronger than your own, and being able to rely on them, pinpoint their strengths, have them work well together, so that you have some redundancy on deals that increase basically responsiveness, the maintains the quality of the deal, and keeps you cost effective, as well. And also, and I guess the last thing, in terms of how limitations can be a risk is not being able to delegate when you should, and I know this dovetails maybe with the with the prior principles, but it does basically limit your bandwidth and your ability to expand your own business and your own practice by not being able to trust those that you've trained around you and grown around you to basically have the same the same skills that you've learned as well. So those those are the general risks. One that I encounter. And those are some things that over almost two, two dozen years of practicing, that we put in place to really mitigate those at least as an attorney.
Now for our clients, I would say probably the biggest risk is similar to what I was saying before is being too hasty. to land the deal, get the deal, finish the deal. Without properly properly documenting what happens when things go wrong?
I'd say that's probably the biggest issue. And sometimes we see this with less experienced syndicators is they're so eager to get the deal, they haven't really thought through how they're going to get it financed, or how they're going to raise the equity. And so oftentimes, there's a bit of a scramble there. So that's another thing where, in terms of being prospective, and forward looking, it's helpful to not lose sight of those and more important things, because without the equity and without the financing, it's it's definitely very difficult to actually get the deal done.
So there's some of the things that we basically highlight for our clients to be to be mindful of, and again, to just always be always be transparent and honest. And I say this quote, often that a, an honest man doesn't have to remember what he said. And I think that's very good. Good and very good tip for anybody who's particularly handling other people's money to live by.
Today, my guest is Joe Caltabiano. Joe is the CEO of Healing Realty Trust, a data driven self managed real estate investment company with a portfolio of healthcare related real estate assets dedicated to serving the mental, behavioral and physical health sectors.
Website: https://healingrt.com/
Email: Joe@healingrt.com
J. Darrin Gross:
If you're willing, I'd like to ask you, Joe Caltabiano, what is the BIGGEST RISK?
Joe Caltabiano:
So in real estate, you know, I think the number one risk as you're looking to grow a real estate portfolio is access to capital. And that access can come in the form of equity or debt. But you know, as you have tightened tightening of free cash flow for people, maybe their investment dollars are a little smaller. And as we sit as a private REIT, unlike a public company, you know, where you're, you're, you're picking up multimillion dollar checks, you know, our check size, again, the minimum for qualified investors is 250,000. Those are regular people a lot of times, so they are impacted by, you know, what's going on in the world. So access to capital, not only on the equity side, and what's in people's pockets today, but also access to capital through the lending institutions and banks. So kind of blending out, you know, where that where that risk is, and ultimately, what's your cost of capital, because if you build a model that anticipates x as a return, and you're wildly off, because access to capital became lack of access to capital creates a higher cost of capital, because as the pools shrink, you're paying more to get that money in either the form of equity or in the form of interest rate. So access to capital is by far the driving factor of of kind of number one risk thing for us. So what that means is, I talked to more investors than I did in both of my previous industries, you know, my hit rate for success is probably lower than my fragile ego thought it would be when I when I got into this space, but talking to more investors, you know, spreading a wider net to talk to more people. And then on the debt side, it's talking to more banks and more lending institutions. Because unfortunately, until you have that bully signed deal with them, things can happen. I've seen banks close, I've been in mid underwriting where the board decides to shut off lending, you know, and that's, again, they do that to protect themselves. It's never anything personal with you, because they wouldn't have given you the term sheet. But when a board says we're not lending more money, there's very few things you can say to the loan officer, to get them to open up that vault and give you capital. So you know, talk to more investors talk to more banks, casting a broader net, and really just getting out there and playing the hand to hand combat game which, which I certainly enjoy. But again, when we launched healing Realty trust, you know, a year plus ago, I would have thought there was more capital than then maybe I was able to stumble into.