Growing to 2000 Apt Units + 200,000 Office Space with Bob & Diane Bowman

Bob and Diane Bowman have been investing in apartments since 2008. Learn how they navigated through the last recession, and how they plan to navigate through this next cycle. 

Here are some highlights from today's episode:

• How they manage their roles as both business partners and a married couple
• Why Bob created his own underwriting software to close his deals
• What they like about office space versus apartment buildings
• Learn about their biggest nightmare deal - where the buildings literally went down in flames

To get a free demo of Bob's Commercial Underwriter software, go to https://commercialunderwriter.com/ and be sure to mention the PROMO CODE: CREBOSSES to get 10% off your first year.

Bob & Diane Bowman began investing in single family in 2002. They began buying apartment buildings in 2008 in the midst of the recession. Since then, they have grown their portfolio to over 2000 units and 200,000 sf of office space.

Are you looking to level up your commercial real estate game? Join the Commercial Real Estate Bosses Community for free at https://crebosses.com/join and get access to live trainings, industry professionals, and a network of like-minded investors. 

To listen to our past shows and be notified of our upcoming episodes, subscribe to our Podcast or Youtube channel:

Apple Podcast: https://podcasts.apple.com/us/podcast/growing-to-2000-apt-units-200-000-office-space-with/id1648166587?i=1000616873457

Spotify: https://open.spotify.com/episode/3uqXHtcBLXvjGb7y4cIZJD

Youtube: https://www.youtube.com/@crebosses/streams

Connect with Bob Bowman:
Website: Go to https://commercialunderwriter.com/ and be sure to mention the PROMO CODE: CREBOSSES to get 10% off your first year.
Email: bob_bowman@outlook.com
Phone: 321-239-0647

Are you looking to level up your commercial real estate game? Join the Commercial Real Estate Bosses Community for free at https://crebosses.com/join and get access to the Passive Investing 101 masterclass, live and recorded trainings, and a network of like-minded investors.

To listen to our past shows and be notified of our upcoming episodes, subscribe to our Podcast or Youtube channel:

Apple Podcast: https://podcasts.apple.com/us/podcast/commercial-real-estate-bosses/id1648166587

Spotify: https://open.spotify.com/show/1aRI59MdwaTMZL4mdhztk2

Youtube: https://www.youtube.com/@crebosses/streams

Transcript

Ciaara: 0:00

Hi everybody. Welcome to Commercial Real Estate Bosses where we interview badass investors who are crushing it in the commercial real estate space. I'm your host, Ciaara Hoffmann, and on today's call we have Bob and Diane Bowman. So thank you both so much for being on the show today.

Bob: 0:16

Oh, thank you. Thank you for having us.

Ciaara: 0:18

Of course. So as usual, I always like to start off by knowing more about your story. So tell us what you did before and how did you guys get into commercial real estate?

Diane: 0:28

I've been in commercial real estate for a long period of time. I actually started in no long time ago, we'll just say a long

Bob: 0:36

time ago.

Diane: 0:37

That's how Bob and I met. I was with Silverman's and American Eagle when Silverman started American Eagle in 1977. And Wow. I did demographic research for them and then over the years, it's once you get into real estate, no matter what job you apply for, they put you back in the real estate department. So I've worked for them. I've worked for a CPA firm, DT Commercial Real Estate W R Butler Company in. Tampa. I worked for their corporate X Division, dne High-Rise Construction. Spent 17 years doing working for residential Home Builder. We did land development. We owned our office buildings, we had storage units, warehouses, you name it. We did a little bit of everything. Wow. And then it was actually while I was there that. Bob went to a seminar and learned about single family homes and we started buying single family homes. And when that market changed is when he decided that we would move back into commercial, which I thought I was getting out of.

Ciaara: 1:34

Got it. So you guys have been in the game for a very long time. Started off in the single family investment side of things. And then I'm assuming like when the crash started in 2008, you're like, okay, we need to pivot and do

Bob: 1:48

something different. Yes. Yeah. We, we we were watching the infomercials at night and watching people talk about how much money they were making in real estate. And we were at a point in our life where I, and I wanted to make the change. And so I actually I quit my job, but I never told my wife and she found out seminar. And and so one of the things that, that we value is education and real estate education and being around people that are actually doing the business that have similar. Goals and aspirations. We went from single family when the market changed, real estate crisis came. We had to sell everything that we had and we basically lost all of our income, our net worth. By then, Diane had actually quit her job as chief financial officer for the investor. That she worked with for 17 years here in Orlando, and so we had to reinvent ourself, and that's where we decided that we wanted to get into commercial. Instead of the residential side for equity value, cash flow, and the opportunity to really make, much better money than we were doing working for somebody else. And that's where we, I went to a private money class to learn how to raise money. That's how I got started. Didn't know anything about apartments or commercial real estate, and learned how to raise money very quickly. And that's how we got started. We bought our first apartment in 2008. We got involved in, closed in January of 2009. I guess it was. Yep. Yeah. And it was property out in Texas and Nice. We took off. We just took off from there.

Ciaara: 3:30

So awesome. That's exciting. I'm sure you've, you guys have been through the cycles as well. We're going to, we're going through another cycle right now and a lot of people are pretty worried about, what's gonna be happening in this market. So we'll get into that. But, What I wanna talk about since I love having couples on the show, because everyone, this is a team business. Everyone has a different role that they do. So what is each of your roles in the business and did that change over time?

Bob: 3:58

That's a really good question. As a matter of fact, our roles compliment one another and they work quite well for us. Diane has a financial background. And she was a forensic accountant for several years and she's just been in finance and accounting on the real estate side, working for investors all her life. So she does all of our backend operation and she checks on the property management company and deals directly with the accounting and making sure that we balance every month to the penny on everything that we do. So she's our eyes on, in the background and I'm in the forefront. I'm on the operational side. I'm involved with, the owner of the management company and when we raise rents and, looking at our operational cost and leading the charge, if you will, looking at potential acquisitions and then when we get ready, we decide together if we're gonna pull the trigger on that or not. But when we get into the deal, our roles are very complimentary and people call us, they think because. We're husband and wife that I know what she knows and they're asking me questions. We have no clue. We have no clue. Cause we do so different things And that works in our relationship. We've been married now for, what, 40 years? We were married on the 4th of July. Yeah. Wow. And so that

Diane: 5:22

people were not sure when we worked together, people were not sure we were gonna make it cuz we were very different business.

Bob: 5:30

Very much we probably spent the last 10 years or so also educating and helping other people. Either raise money, buy apartments. Diane had a formal agreement where she did a lot of education for Rich Dad and worked for Rich Dad education for a number of years and taught people how to buy commercial real estate. And as we bought apartments over, over a period of time when the market started changing back probably around 2016, 2015 as the value of real estate went up. And cap rates became more and more compressed. We started buying some office buildings, so we own an office building a really nice one in outside of Dallas, Texas, and seven office buildings in Charlotte. And they've all done extremely well and it's a totally different tenant profile, if you will. With longer leases and, we really enjoy just commercial real estate in general, and not just apartments. Nice. But our functions are, really, make our relationship work and make the business work. I love

Ciaara: 6:39

that. So you mentioned you have some office buildings, you've got apartments. Can you tell us what your overall portfolio looks like in terms of units and how is that diversified between the different asset classes?

Bob: 6:50

Oh I think with that, just for her and I, we've owned just under 2000 units, apartments and then in office space over 200,000 square feet of office.

Diane: 7:03

But we have recently sold off when. When the prices were so astronomically high on apartments and people were paying really dumb prices for them, we did sell off some of our older apartment assets. We, this is again, really reading the real estate cycle. People were just paying ridiculous prices. So we sold some assets early just because people were paying way more for it than what it was gonna be worth at term. So, The investors got more than what they expected over a longer hold period in a shorter hold period. So everybody was happy. Yeah.

Ciaara: 7:38

Great. Yeah, and I think that's the advantage, when you've been in this industry for a long time, you can you can tell when things don't look right and they're like, yeah, everyone's overpaying for properties right now. It's a good time to definitely sell.

Bob: 7:50

We feel that and I say this often, that the value of any given piece of real estate is only worth the cash it produces today. Not what it's supposed to do or what the broker says it's gonna do. And, and it's made it really hard for us to actually go out and acquire. Apartments, in the last couple of years, but because people were buying on proforma and we had some apartments, a couple of, like the two older ones that we just sold in St. Louis and in Huntsville before the interest rates went up last year. Boy, we, we did really well. We got outta those time and it was all proforma based. I can't believe it. I, but that's what people were doing. But it was the market rate. It was the market, what people were paying, it was what they were paying. And we had a lot of people that, a lot of people were doing that. And now, unfortunately, I'm getting those phone calls from other investors that do what we do. That are in trouble, that are actually making mortgage payments out of their own pocket now and have, they can't pay their investors. And, the market, as you were saying earlier, has changed. Yeah. Because of the interest rate increase and also the thing that's really changed. Is the cost to operate over the last three years because of Covid. Everybody thought, okay, I'll go renovate and I'm gonna increase the rents, all this, 200, 300, whatever it was. But I don't think what anybody anticipated in their proforma back two, three years ago was the cost, to do business, which eroded their NOI and their returns and their cash flow, and has made it very difficult for a lot of people now. And if they wanna sell, now with the interest rates up, they're trying to get the numbers, they show their investor, because of that has also eroded values to some degree.

Diane: 9:41

Yeah. The expenses Have really gone up. Yeah. So much

Bob: 9:45

more than people anticipated. We just got two deals we're working on last week. One, so we're really excited about'em, but it's all based on.

Ciaara: 9:55

Absolutely. Yeah. Cash flow, that's the strategy. Yeah. Cash flows. So earlier you mentioned you've got some office and then you've got apartments just for people that are, getting into the commercial real estate field and maybe they don't know what asset class that they wanna get into, can you explain what you like about offices and how is that different from getting into apartment buildings?

Bob: 10:19

Oh wow. That's a lot of different things that are really pretty neat about office. First of all, in terms of the property type. Our business model, and it doesn't matter if it's an office or a storage unit or an apartment, our business model is always the same. We go and look for over the hold period, 11 or 12% cash on cash return, and a 20% total annualized rate return. And in terms of the asset classes themself, we really don't like A properties because you're basically at the top of the rental. Amount. There's not much room upward you can move when you're already have a beautiful apartment or office building and you're getting top rents and then of course we don't like the D as in David properties, because, it's a lot of management, lots of cash flow, but you really can't build equity. And that's what we all want is that equity because that's what. Helps us to gain wealth is equity over a period of time. So we typically the B and C assets prefer the B asset because it grows quicker. On the equity side, it seems the C property is also really good, C, C+ good cash flow. You have some equity over time you can build but you have a tenant profile that's, fairly limited in how much. That they can actually afford in, in the working class C properties. So you have to have a good demographic in order to be able to take a C property and really lift it and have some kind of of considerable value play. You have to be in the right market. It's all about being in the right market. And

Diane: 11:59

just as a point you asked about between office and apartments, the office space that we like is not Highrise towers and things like that. We like the kind of single story flex office that can be used. It could be used as an institutional office, it could be used as a banking, it can be used as retail so that, you could have a wide breadth of different types, tenants in there. It has a multitude of uses and we like a large multi-tenant building. We don't want anything with just a few tenants that, you know, the same as you would with a multi-unit. We wanna have multiple tenants in our office space too, so that you're not relying on one or two big tenants to support you.

Bob: 12:41

Yeah. And that's a really good point because we really get the belly of the tenant businesses out there. And the key is for us, no elevators. So they're all basically, yeah. So it makes it simple. They're all single story assets and boy, you can attract, many business just like years ago. When we had the real estate crisis, all those, tall, high rise buildings, white collar jobs, and people that worked in those, typically those buildings were the first people that lost their job. And for us, during this the last cycle with Covid, we did extremely well. Almost everybody paid all their rents and they were up to date, and we stayed well occupied.

Diane: 13:23

They could work because they could walk in their front door. They had their own restrooms. There was no shared space. So it was almost like they were going to their home to work. They didn't have to associate with other people. They could go to their own space and work. And of course, none of us knew about Covid. Nobody predicted that. However, having that space and been through this, there's more and more businesses now that, like that type of arrangement they know the benefit of it now.

Bob: 13:49

Yeah. And a matter of fact, that building type became very much in demand during covid and still is today, where owners want to have control over their environment and where their employees go. And et cetera. They don't share restrooms with anybody that walks in the building. And there's many, matter of fact, that was one of the things that we learned when we went and bought all of those buildings in Charlotte. We actually ended up buying a whole park at the end because we ended up buying all seven buildings. It's been very good. And, in terms. The way that you analyze it, it's very much, very similar to a unit-based analysis is just a dollar per square foot. And so there are some calculations that are different than apartments. You have to have the right software to be able to do that. Yeah, and that's how I ended up creating a product called Commercial Underwriter. To underwrite, retail and warehousing and medical office buildings and it underwrites apartments and storage units and many different types of, because you have unit based analysis and you have square footage. But we love the office space because you have longer leases, you have a business in there, and businesses that what we learned when we got started that they're willing to put their own money into your space to improve your space. For their customers and they, and their livelihood is, is being, it's in your building and how they make a living. So they, the pride of ownership is so much different than what we find in the, tenant demographic in an apartment complex, which is really exciting. So it's a lot less to manage in a, in an office like that,

Ciaara: 15:38

So would you say you like office better than apartment buildings then?

Bob: 15:43

Oh, my, you know what? We like to make money.

Diane: 15:46

It's six one and half a dozen of the other. The, it, there's more work upfront to buying an office part because you have to read every lease. They're all very different. You have to understand what you're getting up front. Once you're in, there's a lot less management. An apartment is much easier to get into because all the leases are the same. A lot more property management companies for apartments and things like that, so a lot easier entry. But there's a lot more work the whole time you have it. So you know, it, it just depends on what you get and how good the property company is.

Bob: 16:21

Yes. And makes, and makes sense. We have an attorney and a property management company that read and go through the leases and so it's not like you like us having to do it, but it's important to understand what you're buying and the leases that are gonna be your responsibility to oversee. So we like, we actually like both property types. Single story office and apartments. Apartments are our first love, but yeah, office is good too. Love it.

Ciaara: 16:48

Yeah. All right. Yes. You mentioned you have a software you developed, you created this underwriting software to be able to you need it for yourself, but now you've also been able to create it for other people that can use it as well to underwrite more easily. So can you tell us about how that has helped you analyze deals better and also. Your current strategy in this market environment, how has your investment strategy changed? How has your underwriting changed?

Bob: 17:17

In terms of the software itself, the, the reason that I created it is that I wanted to buy office. And I really couldn't find a product that would do what I wanted it to do from an investor's point of view. And so I needed to build something that was efficient, that was comprehensive, that was accurate because I underwrite and look at a lot of deals. I, I really needed to dummy something up for myself. And I got tired of all the different Excel spreadsheets and the formulas being changed and the numbers. You got tired of it? Yeah. Yeah. Person got tired of it too. Cause he doesn't excel. I don't

Diane: 17:56

Tired of it

Bob: 17:57

and and it was the need to create something that I couldn't find in the market for myself. And so I actually used my eight year old granddaughter. To test it, didn't we? And, make sure it was dummied up. And so it's and the other thing is when I underwrite a deal, I wanna know, like right now, what is my promote? Meaning what is my equity in this deal on a 65 35 carve out, or 70 30, whatever it is. And I wanted to have something, I wanted the software to work for me. I didn't wanna work for the software and go through all these tabs, and I just wanted it. Mm-hmm. So anyway, over time what I realized is that I couldn't do it on Excel just because of the type of calculations that we do. It would just drag everything down. And I also like working on a Apple computer, a little plug for them. And I, that's when I learned that Microsoft doesn't give apple, all of the attributes in Excel and some of that. So anyway, what, long story short, I hired a programmer out of my pocket, developed my own, and over a period of time people would ask me, Bob, what software do you use? And I'd go, oh, I just have my own. Can I get a copy? I go, no. It's a, it's on the cloud, every time you use it, it costs me money for the data. What would you sell it for? So anyway, we just started. A subscription based product, and it's just evolved over time. But I love the underwrite because nothing happens in real estate until somebody finds a deal.

Ciaara: 19:28

To get an exclusive discount to the Commercial Underwriter software. Go to CommercialUnderwriter.com and use the promo code CREBOSSES. You can schedule a demo there and make sure to use the promo code CREBOSSES. That's all one word to get 10% off your first year.

Bob: 19:47

And so with that in mind and the deal, our business model from how we underwrote seven, 10 years ago, and in today's market has not changed because we follow the cash. And I have some people, Ciaara say, Bob, what cap rate do you buy at? I go I don't buy a cap rate. I buy cash flow because at the end of the day, we have to have ample amount of cash to pay the lender and then to pay our investors and there's better be some leftover for us. And so we don't have a lot of tolerance for risk. And we just keep our eyes on the cash. If we close an apartment today or an office building, how much cash would we have? Where is the opportunity to, to grow the income? And is there any opportunity to decrease expenses by being efficient, and how you execute your business model. But our business model has never changed since we got started because it's all about cash flow. And that's what my product, that's what commercial underwriter does. It gets you to that number very quickly. But yeah, wouldn't you say Di that's,

Diane: 21:00

yeah. But it gets you to that number very quickly, but it also gives you the opportunity to put in your value plays and to tell you what your investor returns are. And it does a lot more than that because you can't just buy on what the property is worth today based on cash flow. You do that, but you also have to know what it's gonna be worth in three years, four years, and five years. Cuz if not, you could buy for cash flow today and not have cash flow in four years. So you have to know exactly what everything is gonna be. Going on over the

Bob: 21:29

life of the project. Yeah. And when we bought properties 10 years ago, everything was based on cash. And that in that first year, you, if you get to that, 10, 11, 12% cash on cash return, it was a deal. But now, it's gotten so competitive you can't do that. You can't do that if you wanna buy an apartment, you have to take some element of risk as involved. And so I created a whole income value play broken out by year. That helps me to uh, evaluate that level of risk. And so that's what makes it work. That's part of what makes the product unique.

Ciaara: 22:03

So I just wanna switch gears a little bit here and walk through one of the deals that you guys have gone through. So could be the one that maybe was more difficult than the others, or one that has an interesting story. Tell us, how you found the deal, what you liked about it, what didn't work, and how you were able to overcome any challenges with that property.

Bob: 22:22

That's gonna be an easy one so at the time we owned about the largest apartment was about 135 units and we found a apartment, a portfolio of apartments and there was seven or eight. And we decided that we were gonna make an offer to the bank cuz they were all in foreclosure. On the largest one, it was just under 400 units. And so we ended up making our offer and we ended up, buying the deal. We knew that there was a lot of work to be done and it ended up being both a tenant. And an asset repositioning and a management. And a management. So when, what was memorable? There's some crazy things here. But the first thing is that when we took over the apartment the apartment was initially, originally owned by uh, somebody from this church in North Carolina. The property was in South Carolina. And they had all of these people, we had about what, 13 employees? 12. 13 employees. Cuz it was a big apartment. They all belonged to what was considered a religious cult. And the state of North Carolina was actually trying to shut'em down. And Deborah Norville in Inside Edition actually put some cameras in the church and did a whole story on it. We didn't know any of this and so when we got into the property, but we inherited those. Yeah, we noticed some really unusual things, happening. And it was about six weeks into it or so, one of my vendors came. And said, Hey Bob, do you know are you gonna keep these people here? And all this? And that's when I was informed what was going on. And so the management company never told us that they belonged to this cult. And you can't fire people because of their religion or anything like that, we, we had, we fired the management company and so Diana and I take over almost a 400 unit department out of Orlando, Florida and say, we gotta get in there and we gotta take this thing over now and figure this stuff out. And we went in and, we hired a really good P E O P E O. It stands for Professional Employer Organization. And it's a, I, if you're not familiar with the PEO, look at'em. They're a whole industry and they're like your HR department, they do the payroll and they make sure you're compliant. And they're a co-employer. They're a co-employer, exactly. But we direct the activities of the employee. Okay. So anyway over time we ended up spending like 3.3 million dollars in rehab. Um, Wow. We had yeah, we had to put new roofs on. And the roofs were so bad there were 13 accidents and two people actually fell through the roof into the kitchen and one of them had to go to the hospital because the roofs were so bad. We didn't know this. We could, this never came up in the inspection report. And we couldn't pay investor distributions. We were gonna pay'em in at month 18, but we couldn't even start until year 4. Because it took so long to turn the property and we had to do a cash call, we had to do two cash calls and we had to get several, two or three bridge loans. I remember. Yep. And then we had a fire. Wow. And it, it was, yeah, it was before. It was right before Christmas. 2014. 2014. And five people were killed, And three of'em were children and it had a, oh no. Oh, I got the call and it was very, we lost all of our employees. It was so traumatic. They never figured out what the cause of the fire, what caused it. And apparently there this was a building and this was really important information. If you're. A property built in the seventies, the mid seventies or earlier. There were no firewalls up, some of these buildings had anywhere from 10 to 16 tenants, but between the different apartments, there were no firewalls up in the attic. And so when the fire started below, it went up. Fire rises, right? Smoke rises, yeah. And it just spread right across the top. And it, the entire building was, Wow. Was raised. So the, instead of rebuilding the building, people moved out. They said it was unsafe and et cetera. What we did is the insurance company asked me what do you want to do? Because when you have a fire, any kind of issue at all, the money always goes to the insurance company. It doesn't go, it goes to the bank. Or To the bank. Yeah. It doesn't come to us as GP's. And so we said, you know what? We're gonna put the best and highest quality firewalls in every single building. That's what we want to do. And so we hired a contractor and we made every building, we went through all the electrical just to make sure we upgraded some boxes, whatever it was. And then there was a little bit of money left that they just applied to the loan. But we said, you know what? We're gonna, we're not gonna rebuild. We're gonna leave it like it is. We just took out those 16 units. Yep. We just took out the 16 units. We had 400 it, but didn't make a big change in our value. And also, you didn't want, you don't wanna build a building unless you can build it very near, and replicate what's already there, which is, hard to do sometimes. But we wanted to make the property safe and the community safe. And so that's what we did. And we kept it. And then we eventually, we came to term after seven years and sold it. And by then we had hired a really good management company. We had turned the tenant base, we made all the improvements, and raised the rents and the property was worth quite a bit more than what we paid for it. It was really, it was a really good deal at the end.

Diane: 28:28

The investors ended up all being very pleased with their return. When they finally got it. They had to wait a long time. And that's one of those things where if you're going to do something like that's a repositioning where you have to go in and there's not gonna be any return for a period of time. You really need to make sure that you're putting the right investors in the deal. These were high net worth individuals that didn't need the cash. They weren't looking for the cash flow. I don't think any of'em were thrilled that they weren't getting it right away. But it didn't hurt any of'em. Nobody. Nobody was upset about it. Nobody was upset about the cash calls. They just needed to know what was going on. It would've been completely different if we had been just raising money from people who were using their retirement accounts or they were putting in 50 or$100,000. You wouldn't do that for something that was as high a risk property, right? You would not wanna use that kind of investor in that type of deal.

Bob: 29:24

Yep. And we far exceeded the returns. Exceeded the returns almost doubled what we told'em they were gonna get. So they were, but they waited longer for it, but they waited. Yeah. And they were, everybody was happy at the end. They were all very happy. But it was hard, that was the hardest deal. Even today, Ciaara, we say. We'll never wanna do a property that requires that much work. There's a fine line between rehab and reconstruction, we don't want to be in the construction business. We don't wanna rebuild anything. We don't wanna rebuild anything.

Ciaara: 29:55

Awesome. I really enjoyed having you both on the show today. Thank you for coming. And where is the best place for people to go online if they wanna learn more about you and if they wanna learn about the underwriting software that you offer?

Bob: 30:07

The best place is to go into commercialunderwriter.com. www.commercialunderwriter.com. Or they can call me if they like at 321-239-0647 or my email address is bob_bowman@outlook.com. bob_bowman, B O W M A N@outlook.com. Perfect. That's the best way, Ciaara thank you. We appreciate it. Yes, and thank you so much for the opportunity.

Ciaara: 30:41

To get an exclusive discount to the Commercial Underwriter software. Go to CommercialUnderwriter.com and use the promo code CREBOSSES. You can schedule a demo there and make sure to use the promo code CREBOSSES. That's all one word to get 10% off your first year. If you're looking to level up your investment game, join the Commercial Real Estate Bosses Community. It's completely free. And inside you will get access to our Passive Investing 101 masterclass. As well as regular live trainings where you can ask questions. And access to industry professionals and like-minded investors. Join for free today by going to CREbosses.com/join. That's CREbosses.com/join or click on the link below and I'll see you inside.