Value Over Volume: Building A Real Estate Foundation with Tanh Truong

We sit down with Tanh Truong to unpack how he moved from pharmacy to commercial real estate, why he wrote a three-volume guide, and the hard truths of development. From zoning and utilities to soils, traffic, and parking, we map the real steps that make projects work.

• why Tanh split his CRE knowledge into three volumes 
• core differences between retail, office, and industrial 
• the lease structures every beginner must learn 
• the pivot from pharmacy to real estate and mentorship 
• visionary vs integrator roles and where Tom adds value 
• following population growth to pick winning markets 
• zoning alignment, future land-use maps, and city signals 
• utilities capacity, cost, and timeline risks 
• topography, geotechnical, and wetlands as deal gates 
• access, DOT, traffic impact, and decel lane realities 
• parking math, site layout, and tenant fit 
• building systems, facades, and cost control by visibility 
• negotiating longer diligence and staged extensions

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Transcript

Meet Tom Trong And His Book Vision

SPEAKER_02 2:44

Welcome to another episode of Timeless Business and Building Strategies. Today I'm sitting down with Tom Trong. Tom, thanks so much for joining us.

SPEAKER_00 2:54

Thank you for having me, brother. Always uh always a pleasure talking to you.

SPEAKER_02 2:58

Yes, sir. He is a seasoned commercial real estate investor located up in Ohio. Uh, and he has now done some uh informative books on commercial real estate investing. So we want to kind of dive in to his books and how he can add value for uh existing and astriving uh commercial real estate investors. Uh so Tom, thanks again uh for sitting down and chatting with us today.

SPEAKER_00 3:27

Yeah, yeah, absolutely. Where do you want me to start, brother?

Why Three Volumes And What They Teach

SPEAKER_02 3:30

All right, let's start with um, I know we were just diving in. So you've been working for a long time on these books and uh writing tons and spitting all your knowledge out. Uh, what we kind of dug into is it was so much information you had to kind of stop and start breaking this thing apart. So let's go back and and you've completed and published your first volume at this point. So tell us a little bit about that first volume and then we'll go from there.

SPEAKER_00 4:00

Well, yeah. So I'll I'll start by saying that I originally I had knew nothing about commercial real estate, and I was going down a rabbit hole of looking at, you know, looking for information, you know, books out there or YouTube university, things like that, just any free resource that I could get my hands on, and there was really nothing out there. And luckily I found a mentor who kind of took me under his wing, who's now my business partner, and I was able to learn everything hands-on. So the book and everything within the book is pretty much a compilation of everything that I've learned either hands-on or through my colleagues. So I had this, it was, I would still say it's a dumb idea today because it took me so long to actually write this book, right? Um, I sat down, I had the idea of putting everything on paper because I wanted people who were in similar positions as I am in the past to have some type of guidance to learn commercial real estate. So I sat down for roughly a year. This was 40, 50 hours a week, just grinding away and just vomiting out all these things that I know, right? And then on top of that, you got to learn how to organize everything. So from there, I realized that I had way too much shit written. And that's why I broke everything up into three books. You know, if if you look at a normal book, the size is roughly a six by nine, right? That's your typical size. And if I if I looked at everything that I've written and put it into a book like that, it would have been roughly like 900 pages. And who the hell wants to read a 900-page book, right? So that's why I decided, you know, let's let's break it up into three volumes. Um, we'll start with a fundamental one, like a beginner one, just to get your bearings in place. And then the next volume, volume two, will be something along the lines of you know, walking through each individual asset class, like you know, going through OMs, looking at you know the nuances of each particular asset class, and going through how to invest in those deals. And then thirdly, the third volume will be more advanced level, you know, more like how to raise capital, ways to structure partnerships, getting creative with your deals, things like that. So as of right now, I'm working on volume two, and I had the stupidest idea. I'm just full of stupid ideas today, Tony. But the the the idea was to take the what I have currently and turn it into a fable. You know, originally that was kind of my plan, but I was like, eh, it's too much work. I revisited it, and from my perspective as a book reader myself, I really love reading fables. So I'm gonna I'm gonna put my put my head to the to the table uh to the computer again and start working on this fable. I got about two chapters done out of uh nine. So the other seven's gonna take some serious work.

SPEAKER_02 7:04

Awesome, man. All right, and the first one is called Value Over Volume Foundation of Commercial Real Estate Investing. That was published, so that is available for anybody uh looking for a beginner book. So let's kind of dive in to this book too. I know part of our conversation today is just to kind of go through different aspects uh in real estate. And one of the things obviously I'm most familiar with is construction, development, and that side of the coin. Uh, and anything else you'd like to talk about?

From Pharmacy To Real Estate

SPEAKER_00 7:37

Yeah, so the the the book is I I try to make it very similar to my voice. So when you're reading it, it it hopefully sound like you're hearing me speak, and I cuss a lot, so there's gonna be a ton of cuss words in there. So a PSA for anyone who doesn't like vulgar language, and I try to make it amusing too, right? But outside of that, it's getting you hip to the verbiage or the the vocabulary of commercial real estate investors. You know, you gotta learn how to you know talk the talk before you walk the walk, right? So getting that foundational knowledge first, you know, getting the the reader or the audience hip with what really are the different sub-asset classes of commercial real estate. And it doesn't talk about anything multifamily, right? We're focusing on retail, we're focusing on office, we're focusing on industrial. Those are the three main classes. And then obviously you got a couple other specialized classes, you know, QSRs, which are quick service restaurants, which is a subclass of retail, and you know, you got hybrids, so mixed use, which is a hybrid between multifamily and retail, but you also have mixed use or hybrids between two other sub-asset classes, like you know, office and retail. You could have that. You could have office and industrial, which is technically flex space, right? So getting you in tune to the type of buildings that there are, and then additionally walking you through kind of the the baseline of what a commercial investment is. So if you look at multifamily, you have residential tenants. Residential tenants typically have gross leases, right? And they're on a one-year basis. So within this book, I'll go through you know the type of different leases that are available in the commercial world and then the nuances that are that are within those leases, right? You know, you got gross lease, modified gross, single net, double net, triple net, absolute nets, even, right? So those different things there, and then um, yeah, from there, just kind of building your framework block by block. And the idea is to hopefully get the audience slash reader about 50% of the way there. If if you know a little, you know, the baseline and and the just a just a foundational understanding of of how commercial real estate works, I believe everything can be built on top of that to make you a dangerous investor.

SPEAKER_02 10:19

Absolutely. Yeah, I mean, if getting in something like this, any any book that's on the baseline, as long as it's well written and can give you a nice foundation to start from and work from, and then you can start to go down other avenues. But speak to your point, you have to get the base foundation of knowledge and understanding. Uh, otherwise, you're gonna be lost with a lot of the things everyone's talking about uh in leasing structure, negotiations, all of that, you would get lost. So let's back up a little bit for your foundation. Now, I know you spoke on it briefly, you know, you were doing some stuff, and then uh you got in with a mentor that has helped you further your development. So prior to being in real estate, you were in pharmacy, if I'm not mistaken, is that right?

SPEAKER_01 11:10

Yeah, yeah.

SPEAKER_02 11:11

Okay. So let's kind of run through that background. How did you pivot from uh doing pharmaceuticals to real estate?

Finding Your Lane: Visionary vs Integrator

Commercial 101: Asset Classes And Leases

SPEAKER_00 11:18

Oh boy, okay. Let's go, let's take a walk down memory lane, huh? Well, uh for those who don't know, I'm um my nationality is a Vietnamese. So with Asian parents, you know, they're they're pretty strict on you, and they're they're always about you going to school, going to get some type of degree that will bode well for your future. Or and on top of that, it's uh something for them to boast about or or brag about within their community as well, wh when they're out gossiping and shit, right? So uh the the options for me really were you know uh some type of like going to medical school, going to uh law school, something like that. And pharmacy was something that I chose myself because it did not have the time cons the same time constraints as medical school. So originally it was medical school, but then I realized, you know, well, you know, you got four years of undergrad to get a bachelor's, and you have to, you know, you have another four years in order to go through and finish grad school. And on top of that, usually a lot of times you'll need some type of residency. So that could be a year and that or it could go up to four plus years, right? So in short, you're looking at either you're looking at roughly nine years to 12 plus, depending on what you want to do, right? Yeah, so I chose pharmacy because um it was for the within the program that I was in, I was able to get the undergrad done in two with a four-year grad program, which is the pharmacy schooling, right? Um, and there are residencies available after your graduate studies if you so choose. Now that depends on what you want to specialize in. As a as a community pharmacist, we did not need that residency. So I took the six years instead of the nine years, maybe because I'm a cheap ass, I don't know. Um uh I obviously I wanted to save some some money for my parents on the on the schooling side and myself even because I commuted to school. But essentially I went to pharmacy school to appease my parents. Um I you know, part of it is like if I got back those six years, would I do it? I don't know. Because I I met some really good people. It gave me a really good income. Um, coming out, I think I was 24, 25 at the time, making six figures. Uh so that was really nice, and and that was nice because I was able to save up money for real estate investments. So while I was in school, I honestly I wasn't really the the greatest student. I was uh pretty much a C student, pulled all-nighters, and during lectures and what whatnot, or studying time when I should be studying, I was I was actually listening to podcasts and just learning a lot about financing or finances and investments. So that threw me down the rabbit hole of just learning about stocks in general. And uh the more and more that I started hoarding information, naturally that led me to real estate, and I went down that rabbit hole. And so with that, I started again hoarding books, podcasts, resources, and finally pulled the trigger. I think this was probably uh within a couple months of me graduating pharmacy school and already practicing in my field, uh, started buying small multifamilies and rentals. Um, I did kind of the whole gambit. I did flips, I wholesaled, uh one or two, uh probably a rap, one wrap, maybe a sub two deal in there somewhere. Um pretty much the whole gambit. But my my bread and butter was really the the buy and hold aspect. And um from there that transitioned into commercial real estate. Commercial real estate was one of those uh fields that again I had no knowledge of. Uh and it was so it was elusive to me. So the more elusive it is, you know, the more I wanted to catch it. So I I and again I found a mentor. So from there I kind of just sold everything that I had on the residential side and transitioned everything over full-time to commercial real estate. And your question really, Tony, was why? Um so my answer would be it's because within the pharmacy realm, I I really like don't get me wrong, I really love the patient care aspect of it. What I didn't love was the corporate bureaucracy. And on top of that, it's also your your output is or your I'm sorry, yeah, your output is also capped. So I could input everything and work my ass off and be the best employee there, and my pay would be 0.3% better at the end of the year, right? And it's capped at a certain amount. Whereas out here in the business world or or the real estate world, more specifically, whatever I put in, I can see some reciprocity, and that is typically linear, sometimes exponential, depending on what it is.

SPEAKER_02 16:37

Absolutely. So, yeah, like with your pharmaceutical work, your time is capped at what you can value your time at. Uh, with the real estate, you're able to leverage your time, and then it starts to scale and snowball uh because everything is reoccurring and doesn't require you. So it's a 24-hour piggy bank that keeps on giving if you do it right.

SPEAKER_00 16:59

Yes, sir. Absolutely.

SPEAKER_02 17:01

Absolutely. So that's fantastic. Okay. All right. So we've got now we got a good background on you. Now let's get into uh obviously you've done you've done transition from the residential to the commercial. Now you're full in on commercial. We could go through a couple of your deals, but I think let's focus on the bigger things. Everybody goes through their first deal over and over again. So obviously, you've gone through deals, went through struggles, got a good mentor. Now you've started to expand your understanding and how you become an industry leader is honing in on these skills, niching out and to be better, just a little inch better than someone else, to start to scale and become something. So now where have you niched down and where do you find your you add the most value to deals and putting stuff together?

SPEAKER_00 17:53

Yeah, so I so to answer your first question, uh, where do I add the most value? I to back up, I I think if anybody's read the word the book Traction or Rocket Fuel, you know, there's two type of people, types of people. One, you have the visionary and you then you have the integrator. I am probably 70% visionary and 30% integrator. And I and I say that because I'm a really shitty integrator. A really good integrator is a CEO that can get in and get everything done right, you know, have the operating operations or operating procedures set in place. I have that idea, but I'm not good at implementing it. So where I add the most value now in my field is deal finding. Um I have again in the residential side, I've done a lot of the wholesaling pieces. So for what with my team now within the commercial realm, that I I bring those talents that I've or or skills that I've gathered from the residential side over to the commercial side. And that could be grunt work, whether it be 30, 40 hours of looking for deals or trying to extrapolate data to find those deals or cold calling, things like that. And secondarily, um as a student of business, I think my other side of adding value is figuring out ways to be more efficient. So it might be a practice of traction, but I I really love the framework behind it. I am really good at going in and seeing how an operation works and finding ways that they are either just doing a shitty job or two, finding a better way to operate it in some way, shape, or form.

SPEAKER_02 19:56

Yeah, that's fantastic. So what Tom's talking about obviously he's brought up traction. And so this is EOS framework, which we talk about all the time on this podcast, which I love. And basically, what you're doing is taking that EOS framework and seeing people that are not properly managing properties and fixing that management with your understanding of how operationally to make things work better, smoother, and in essence, then turns them more profitable.

SPEAKER_00 20:27

Yes, sir.

Development Basics: Following Population Growth

SPEAKER_02 20:28

So that that is a great synopsis. And giving that EOS is a fan. If you have not read Traction, one of the best books in the world to read, uh, uh it helps anyone who wants to be successful in business. And then identifying yourself from rocket fuel, visionary integrator. A lot of times you want two of those together, normally form great partnerships for partnerships, uh, for one person out there driving, driving, driving with the vision of where to go, and another person right behind them to execute, execute, execute, uh, which would be that integrator role. So, yeah, I love that you've done all that. We love to pair that with Culture Index so we know uh on top of that, what traits are specifically um being utilized by that visionary and integrator where their strongest strengths are in order to partner you with the proper support behind you on those innate traits that don't ever change. Do you guys do any type of that or do you do you print practice any type of um trait surveys or following anything to understand yourself or your partner and team better?

SPEAKER_00 21:36

Currently, we do not. Historically, um, we have had conversations about it. Our our team's pretty small, and we kind of we have a good feeling of what each other's strengths and weaknesses are. And I don't think it hurts to actually do it, but as of right now, we do not.

SPEAKER_02 21:53

Oh, okay. All right. Well, it's I definitely think anybody as you're growing and scaling is it it Eliminates, especially when you're starting to build up a team and grow that team, it eliminates a lot of uncertainty from an interview. And you just have those backup realistic traits that can't be hidden. They're either there or they're not embedded from 12 on in life. They don't ever change. Um, so let's dive in a little bit more on your book and kind of go through stuff. And let's see, uh, you know, I know that you've got pieces of your book that you sent me. What can we talk about with that that would be helpful?

SPEAKER_00 22:34

Well, more so, I, you know, I have not had a lot of experience in the development world, and I'm bad at construction.

unknown 22:44

Okay.

SPEAKER_00 22:44

So more so, and so what I sent you, Tony, was more so a uh it's probably I think it's in the second book, if I'm not mistaken, but it hopefully breaks down everything that goes into a development project. And I say development with a caveat because you can't ever have everything in there. There's always something that comes up that you never know about. But the idea is having a general framework, again, of how a development deal works. Like who you do, who do I need on my team, right? So any newbie that comes out there, myself included, who knows jack shit about construction, or how do I how do I even start building a project out here, right? What do I do? So that is the premise behind why I wanted to write this. And everything so far has been is is been my research and talking to people, right? So the idea is who do I need? Who do I who do I need on my team? Where do I start? How much time should I expect to do X, Y, or Z? Um, are there any any tips and tricks that I can use, utilize with the city or county to get my project approved? Or and then from there, like what do I do when shit goes south? Should I raise additional capital for for contingencies? What contingencies should I have in there? What fees should I look out for? Things like that. Uh, does that make sense, Tony?

Picking Land: Zoning And Utilities First

SPEAKER_02 24:17

Yep. Absolutely. Yeah, those are all valid uh concerns that you you want with any development deal. So, you know, it's uh what to look for is your first primary um understanding. And so, you know, just with anything, it's you want to follow growth. And so with commercial, so you know, that's what we're we're doing. We're actively pursuing uh neighborhood retail and flex development opportunities, and so what you you do there is follow the path of progress of residential because so what you want to do is look for any properties or any areas, I'm sorry, where you have a strong demand, meaning population growth is really at a very high level. And when population growth is at a high level, the first thing to come is residential development. So you have the national builders come in those areas and the large apartment builders come in those areas and they drop large apartment complexes that then are infilled with residential neighborhoods with single family homes, right? And so you'll start to have big pockets of those come in where they have influx of population. Maybe some industry is coming, or a big plant is coming to the area, and there's a big influx of population, or it's just a growing area that's a desirable place to live. So you have a big influx of population, and those first pieces come in, then what lags behind is the local and national services for that population growth. So you'll have coming in a large anchored uh shopping, grocery shopping center, um, and some of the national tenants come in, and that's so that's the big time investors are coming in and developing those. But what gets on the side piece would be then the neighborhood services, the barber shop, you know, the pizza joint, the local uh people, and then the service trades that might need garage warehouses and stuff. Those things that present a strong opportunity for those to then come in those areas. And if you can position those in those markets, that's where you can really make some good money. And then it's about somebody that can source and find the raw land that's ready for that development. Right. So so that's what that's how I would start. So is that kind of are we on the right track?

SPEAKER_00 26:53

Absolutely. Yeah, yeah, yeah. So the so the land that you you have to that you look at, right, within within these communities that are that are slowly developing. Again, from what you mentioned, you you look for the big developers that are bringing in that population first, the residential population. So now you look for the land that's already zoned, or if it's not zoned, you go and get it rezoned, right? But what makes that piece of land the perfect piece of land or ripe for commercial development?

SPEAKER_02 27:25

So when those those builders are coming in, when they've built and and then that population is growing and more builders are still coming in. So you don't want to go in right when it's right when it's started. But let's say you you're looking in an area that has seen high growth for the past 10 years, right? And they're continuing that growth. So it's already been built out, and you can still find pockets around these areas that have been developed, right? So if that is it, because when there's a lot of growth in an area, they're typically going to the new area. So some of the things that I look for are I look at future planning. So first thing you want to do is find the uh community that you're looking at and get their future zoning and planning map. So that's showing where they're they're already rezoning pieces of land in order to meet what's required and what they want to see in that area to fill in for all the residential development. So when I call a planning department and I'm talking about a piece of land I'm looking at or I have under contract, first thing I want to hear from the planning department is I hope you're not trying to put residential there. We are not trying to approve any more multifamily or residential. We don't want any more multifamily or residential. So if that's what they're saying to me, I know that I've hit the right piece of land because that area is in dire need of commercial property, right? And so if that's a rezone, that's an easy rezone because they want it. So that's going to get fast tracked, right? So I don't ever want to fight local, local government. I want to do something that local government wants me to be doing. So then I'm following you know their guide on what they want. And it's just a matter of then does the numbers work? And what is the availability of water and sewer? Those and power, those are the big first steps, right? So if I've got water and sewer on site and there's capacity for me to tie into that, those are big first hurdles before I really go anywhere. So my first hurdle is okay, what's my utility availability? Right. Then it's what is the capacity for stormwater management if I'm over an acre, right? So if I'm under an acre, typically that's not a big deal. But let's say we're over an acre, up to 10 acres, and then you know, what is the requirement? Storm pond, and then do I have to have an understanding of where my overflow from that stormwater management is going to go? And do I have ability to go somewhere with that overflow, or am I blocked? Do I have to get approvals from other landowners, easements, those types of things that are going to make it more complicated? So optimal for me, first thing I want is I want something that's already zoned, what I want it to be zoned, or it's future planned to be zoned to that. That's optimal. You know, anything with rezoning, I'm adding about a year, six months at least to my timeline. And so then I really have to plan on negotiating with that owner for a long due diligence period, and they might not be interested in a long due diligence period, right? And so that becomes a hurdle with the seller that uh is adds a hurdle and a timeline constraint for me. So there has to be way more meat on the bone if I'm doing a rezoning to even consider it. So optimally, you want something that's already zoned for the use that you want, or it's a quick, easy transition. So meaning you look at a future land map, and maybe your piece isn't, but it's right next to something that's rezoning. So it's an easy sell to add this piece in, right?

Timelines, Costs, And Due Diligence Math

SPEAKER_00 31:14

And if the land doesn't have utilities yet, sewer, water, electricity, gas, and to get that, what do you typically anticipate the timeline increasing to and cost?

SPEAKER_02 31:29

That's a loaded question. So there's there's a lot of variables in that. So if let's say utilities are a hundred yards down the road and that's as close as they come, and let's say that they're on the same side of the road, okay, then it becomes do I have to get easement from all of those homeowners, landowners, other property owners in order to bring it across, right? And are they going to then I have to negotiate? Are they going to want to tap into this water and sewer that I'm bringing that they can share in the costs? You know, do they or do they not? Typically, they're not going to want to. Typically, they'll let you come across because it's added value for them. Uh, maybe they'll charge you a fee, maybe they won't. But just for you to do that, it's going to take time, right? So, with this instance, we we probably are going to add six months to our timeline approvals, and then dependent on the size and type. So, if it's a force main or a gravity main on the sewer, it could be variable in cost. Do I need a lift station based on the depth of it and where I'm needing to pull it from? Uh, and then the size of the available utilities is their capacity for me to do it. And then this is probably going to be a quarter million dollar ad, real quick on the same side of the road, doing 100 yards, right? Something like that to bring the water and sewer. Um, electric is a whole nother gamut, uh, but we're just saying for water and sewer purposes right now, right? If I've got to go across the road, that again, is it a public road? Is it a private road? Uh, if it's a public road, then the dot doesn't want you cutting into the road. So you're gonna have to bore under the road more than likely, very expensive. Let's say it's a a four-lane highway, extremely expensive. We could be talking uh 300,000 just to bore under the road. So this becomes very expensive, which is why this is the first hurdle to overcome. So if you're looking at one to four acres, I don't know, anything under five acres, let's say, you don't want to have to bring utilities because it's not going to pencil. So when you're talking about bringing utilities, it needs to be a big project. So if let's say we have a master development plan we're putting together with a retail strip, hotels, gas stations, out parcels, all of that, then we talk about bringing utilities. And then what you not only want to work on with bringing utilities is if it's if we go back to that planning department, they might pay to bring you the utilities because they want that development there. So you can then negotiate for utilities to be brought to you. And that would then be something you don't even have to pay the expense for. So if you can lock it up and you know that the town needs this shopping center in this area, and there's not a whole lot of other options, but if they go bring you the utilities, you might get them brought a mile down the road to you. Might take it's gonna take you years, but this is something that you could do and negotiate and not have to pay for because that's probably 12 million bucks or something, right? So not small cost. And then we start talking about the electrical is uh another hurdle. If you don't have electrical in the area or transformers that can size up for a commercial development in this area, then that's pretty much a non-starter.

SPEAKER_00 34:59

Aside from entitlements, too, the topography comes into play. Yes. Absolutely ideally, you want something that's that's nicely cut up for one, and not ravenous, or flatland is probably the the ideal ideal piece that you would want to get everything built on versus tens or hundreds of thousands of dollars in dirt work and tree work, yes?

Topography, Soils, And Wetlands Tactics

SPEAKER_02 35:23

Absolutely, yes. So flatness of the dirt, and we haven't gotten into uh you know due diligence on it, but yes, so obviously when you're looking at the topography, there can be some slight drop-off, you know, three, four feet. When we start talking about a six, ten foot drop-off on the property on areas that we want to utilize, this could become uh uh a non-starter as well. So I live obviously at the coast, so I live at the beach, so I am flat here. Everything is flat that you can't find a hill forever, right? I mean, you just pile put a pile of dirt on uh the ground, and that's our hills. Other than that, it's completely flat. But yes, in areas with a lot of topography movement, that that's pretty critical because this can become extremely expensive. Now, depending on that topography, you might have a really high piece of your uh land and then you have low pieces. So that could be easily mitigated. What we don't want to have to do is bring dirt or excavate dirt, so we don't want to have to bring tons of dirt in or move tons of dirt out. Now, if we can reutilize, so if we've got high points on the property and low points where we can just go out there with machines and grade and reuse, then that's okay. It's where we don't want to have to start uh bringing dirt in or moving dirt out. So that becomes our second step of so if we find a good piece of property, it's zoned right, there's utilities available. The very next step is starting to look at the topography and then the quality of that soil, right? So that's step two. So that's the next big challenge is we start looking at geotechnical studies. We get surveys, topography, tree surveys, boundary surveys, right? So typically what you can do is first you can just kind of overlay what you think you can build on a property when you find one you like. So you just go to Google Earth, shoot it, and then you can get uh any architect can just overlay a site plan optimally if you have a civil engineer that you've reached out to, somebody that understands the parking to occupancy ratio that's required for the area for development. So if we're doing office warehouse or retail or restaurants or general office, they all in every area are going to have different parking to unit ratio. So every thousand feet, you're gonna require a certain amount of parking spots, and those are minimums. And so, what can be a big death trap of any development is overbuilding and then underperforming in providing the amount of spaces. So if you just go to the minimum required spaces, a lot of times you're not going to have enough spaces, which is a deterrent for commercial tenants. So, anyway, for the geotechnical studies, when we're talking about that, what you want to do is see that this property has bearing capacity throughout the property. And so they basically do cores where they core down into the earth and tell you what that soil is made of down and how far down do they have to go based on the makeup of that soil in order to get capacity to support a commercial building. So you they can just go shoot points if it's a bigger piece of land or smaller piece, or you can uh draw just on um, you know, the parcel where you kind of think a building is gonna go, and then they're gonna go shoot those points, and that gives you uh a good understanding of if you're gonna have a ton of money with soil or not have the capacity to put a building on it. So those are those are kind of still we're on step two.

SPEAKER_00 39:25

Gotcha. So what's the steps after that?

Access, Traffic, And Parking Realities

SPEAKER_02 39:28

Okay, well, let's let's stay with step two for one second. So once we understand that, again, this is all dependent upon the size of the development. So if we run into a soil issue on let's say five, ten acres, that could be a deal killer. If you run, you might run into partial soil issues where where they've done um some cores and a portion of the land doesn't work, but the rest is okay. That might not be a deal killer because you might be able to put a pond there, it might be wetlands designated, and so this is again with step two, we're looking at these items. So wetlands comes into play. So we have the wetlands too. We need to look at so there might be portions of the property that are designated wetlands, and that can that can be uh a deal killer or offer potential upside. So um going with that, right? So we've got the geotechnical studies, let's say for ideal purposes, this comes back okay. Then we're looking, we get a wetlands map. You can pull this off of a normal GIS, it'll give you a wetlands map. Those change for areas at different times. So you might have a designated wetlands that you can get looked at by an environmental person in your area. So they'll come out there and they'll say, okay, here's the wetlands. Based on this, we can maybe mitigate some of this, uh, which means we can buy to utilize some of this, which means mean we can pay. Maybe it's non-jurisdictional that it was there at some point, but they update these maps, you know, every seven, 10 years. And so maybe it was wetlands. Now it's non-jurisdictional. So you can actually put in an application with the core, and then it takes your time. Let's say this takes four to six months. The core can come out, and if you can get that environmental person to say they're non-jurisdictional, and then you get the core out, the core will write it off, and then you might be able to just fill in those wetlands, and all of a sudden, then this piece of property that looked like you couldn't build on it, you can utilize twice as much as you thought originally. So this can be a game changer for the piece of property. So if you're buying a 10p 10 acre piece and it's designated right now as only six of those 10 acres are usable, then the seller can only really charge you a rate on the six acres, right? But then you take it through and are able to utilize those wetlands, all of a sudden you've got nine acres, you've lowered your cost basis per acre. So all of a sudden, then this deal can make sense. It's going to add six months to your timeline, but man, all of a sudden this deal makes a little more sense, right? And so then it becomes back to your original point. What you're good at is deal and negotiations. If you can negotiate that as part of the contract on, you know, tying this land up, because with development, you might need to tie land up for six months, nine months, 12 months. If we're talking about rezoning, you have to tie it up for a year. And um, so we're at that first point. So, you know, those are some of those first hurdles uh to go through. The next steps would be um getting the layout, utilizing the property, and then demand for that product and making sure you're understanding what you're bringing, that there's demand for that, um, and then kind of continuing down that path to see if this works.

SPEAKER_00 43:03

More like a feasibility study.

SPEAKER_02 43:05

Mm-hmm. Yep.

SPEAKER_00 43:06

I see.

SPEAKER_02 43:07

All of these pieces are feasibility studies. So you want to get all of these items done prior to your due diligence period ending. And if it's a good piece of property, the seller is not gonna give you a long time. So you have to have all your ducks in a row. Because if the if you drop this ball in my market, I'm not gonna get that uh due diligence period longer than 60 days. And then typically they want you to close within 30, 60 days past that due diligence, and then you have the ability to buy extensions, those are non refundable extensions. So you want to get as much done as possible in that due diligence period. So you're basically locking it up, getting a free look. You're gonna development is expensive up front because you're gonna spend money up front when you don't know. So that due diligence period. Money is really immaterial. It does not matter. It's the money that I'm spending in my due diligence period. How much am I spending on my survey, my geotechnical study, my phase one environmental to make sure there's not contaminants in the soil? I'm verifying my utility, my utility capacity, verifying I have electrical. Then I'm verifying access to the property because I have to deal with DOT. If I'm doing retail and let's say restaurants where I'm adding a lot of vehicles per day, I'm going to have to do a traffic impact analysis. So I want to get that stuff kind of queued up and started. Because there's tons of things to understand. Because let's say I've got a great piece of land, I have to get approval from DOT to cut in if they're public roads that I'm going into. How many cut-ins can I get? Where can the cut-ins get? So if I'm on great road frontage, but they don't, they're not going to allow me a road cut unless I do a D sell lane, then I got to spend$300,000 on a D sell lane. I might not want to spend$300,000 on a D cell lane, which means I have to get my access from a side road. And I have to, and then if I'm, let's say, on a corner lot, that's a great lot for retail, right? But then I've got a stoplight there. So I can't have my cut in near the stoplight. So half my property, I can't have a cut-in. So then I got to push it to the back. Is that going to work? Is it easily accessible? Or am I going to lose uh traffic and ability for somebody to get in there? That's not going to make it not appealing. Are they going to have to make a U-turn to get in there? Or is it all left turns? Or is my traffic count going the one way in the morning and it's an easy turn, right turn, and then pulls into my property? That would be a great retail space for coffee shops. But it would be a terrible retail space because everyone then is going to be coming the other way at night for a nighttime restaurant, right? So I have to be aware of all of these things when I'm looking at this piece of property and figuring out who's going to be the optimal tenants for me. Everything. So it'd be morning gyms and stuff like everything that's morning where everyone is easy in and easy out if that's a high traffic count access point.

SPEAKER_00 46:15

Lots to think about.

Designing Buildings For Tenants And Codes

SPEAKER_02 46:16

Lots and lots and lots to think about. So, right, you want to be thinking about tons of things with this because again, let's go back a step. So when we're locking this property up, we want to put as little down as possible and get as long of a due diligence as possible. And so this is where some negotiation could come in. The longer the due diligence, you have to make that seller understand and potentially tell them, here's what I'm going to provide you. Let's say I go through my due diligence and this is not going to work for my needs, but I'm going to need to make sure I can rezone or make sure I can get all of these items that we're talking about done. And I can't do that in the 60 days you're allowing me. So in order to get there, maybe I want four months, and then I need an opportunity to buy additional months non-refundable at 10 grand a month. So let's say my due diligence period that I work up with the seller is$30,000 in due diligence. That's all refundable, right? Within my due diligence period with the commercial real estate, it's different than residential. You can get that back. So that's going to come back to me. But let's say I go through all these initial issues we just discussed and I bypass that. And I still haven't completed everything to where I'm comfortable on closing this deal. I'm comfortable enough that I'll give that money and I feel good about it right now. So let now I'm$25,000 in guaranteed on this deal, right? But I would still walk away if it does, if it turns out not to look good. I lose that money. That's where development can get expensive. On top of that, let's just say, for instance, this is a 10-acre parcel. I've got probably$40,000 in typographical tree survey, boundary survey, right? So let's say I got 40 grand into that. I've got a civil engineer just doing an initial layout, like just a C1 sheet, right? Just a civil sheet. Uh, we identify where the utilities are and kind of get an outline. That would be, let's say, 15,000 bucks for that, right? I've got to get geotechnical study, environmental study. It's another$20,000, let's say. So you can see where I'm adding all this money in. And you know, I don't have anything yet. I've just got where I see it as a good piece of property. I think it's a good demand. I got a good cost basis, but I'm investing all of this money just to find out if everything then goes past due diligence to the next stage, right? I I have a base understanding of how many square feet I can fit on there, how much parking I need, stormwater understanding, if I have uh to manage my own stormwater, or if there is, if I'm in a large park, if I've got uh stormwater management, so I don't have to have a retention pond. I can tie in to the community stormwater management, which means I can build more on that property than if I have to manage that on site. If I have to manage that on site, I might lose an acre or more of property that I can develop. So I have to take that into account. Um so hopefully that gets us to this next stage of understanding that we've got money out. So what we want to tell that owner is you know, I've got this due diligence. If this doesn't work out, the reason I want this longer time frame is I might give you all of this information because it's useless to me, and you can then utilize that. So that somehow we might be able to work a longer due diligence time, work to get the cost basis a little lower once they understand how much money we're spending just to figure this out. And then that helps them for if it doesn't work for us in the end, it helps them if we give them everything to market their property to someone else.

SPEAKER_00 50:25

Yeah, absolutely.

SPEAKER_02 50:26

And and they've gotten all that for you know free. So that's where we might want that timeline extended. So we only would offer that if we're able to extend a longer timeline. Otherwise, why am I gonna give it to that? If they're tough and I'm spending, spending, spending, I'm not gonna offer that. But of course, it's something to consider.

SPEAKER_00 50:44

Absolutely. Okay. So then after that is when if everything is all golden and you got to go, that's when you take over the plot of land.

Why Margins Start With Land Price

SPEAKER_02 50:54

And then, well, obviously, with the that's when we continue past due diligence. So we're still we're we're we're going past due diligence. Now we're vested. So now everything looks good, we feel good. We feel like in in this time frame, too, we need to make sure we're talking to real estate agents, finding out, yeah, could clarifying the cap rate, clarifying the uh desire for this space, kind of running it just through our network and seeing if we're getting people that want to discuss this, have interest based on our timeline. They would want to rent here, uh, getting some of those and having some of those conversations to discuss your proposed rental uh fee structure and see if that's you know workable for these people, timeline, and see if you can start to you know get some interest from tenants at this point. I mean, unless we're so I'm still assuming we're doing more of a master development plan where this is bigger. Yeah. So 10 acres, uh, because this is a lot of time and energy. So you can see with this when we start looking at one, two acres, this becomes a massive undertaking. And typically that's gonna be something for like an owner operator that just wants to build their business on the land, not for someone like us to develop where it's gonna pencil, it's gonna a smaller piece of property, the price per foot is gonna go through the roof once we do all of these things that we're discussing.

SPEAKER_00 52:20

Certainly, yeah.

Wrapping Up And Next Steps

SPEAKER_02 52:22

Um, so we have to have to have that understanding. Um, then we start to figure out okay, what type of building type does do? Am I going into an area where the building has to have certain facades on the fronts and the sides? Is that a requirement? Am I in a smaller area where they don't even have those requirements? So it's just like I can build whatever. Uh, so those are something you have to be concerned with once you start and get into the design process for demand. And then we want to understand the shape of the buildings that so we can fit a certain amount of square foot. We have to understand the directions we want the buildings to face, the frontage of the buildings, and the shape, the width and depth of the buildings depending on how many units we're breaking out, right? So we don't want a bunch of 20 by 90 foot units because it's like a long hallway and people aren't going to want that, right? Uh, you you want to try and you don't surely don't want anything under 20 feet wide per unit. Uh so you you really want to shoot 20 to 25 foot is the normal for like small bay, right? So 25 is optimal. Um, then 20 is not as optimal, but if you're doing smaller, like 1200 square foot units, uh, so they're not as deep where that rectangle is still functional, then then that might work. Beyond, let's say, 60 feet deep, I would definitely recommend going wider to 25 feet, but you don't want to go too wide per bay. And when when I'm saying base, how I'm structurally thinking of these is I'm gonna have a column every 20 to 25 foot, and that's going to dictate my unit breakup when I'm setting this design up, when I'm outlaying this design, then I need to understand what type of building structure am I doing? A cost-effective way would be wood framing. It is the most cost effective, but you can't build big buildings, and certainly you don't want to do that when you're doing something uh with more mixed use. So you, if you're really tight on funds and you're doing smaller stuff, you're gonna limit yourself on tenants, that's when you would consider wood construction, most inexpensive method. Next step up would be a basic pre-engineered metal building. Those are really great options. I'm a butler building dealer of pre-engineered metal buildings. Uh, we're uh I'm a big believer in pre-engineered metal buildings, and the versatility Butler offers in that scope is vast. They not only do pre-engineered, they do conventional, they do hybrids, they offer if you've ever been in a Costco, they have this product called Logistics, which is um the truss roof that goes on a conventional building, but these are much nicer. They're all galvanized and they don't need to be finished, they can be up visible, and so you can do massive spans, and they're less uh the weight is less for the load coming down than traditional, conventional um steel buildings. So those become some options. And when you're designing and understanding those, they the standardized base basing on a pre-engineered metal building or a conventional steel building is going to be between 20 and 30 feet. If my base sizing is going to 35, 40 feet, that's going to increase cost. It's more customized, it's going to increase the depth of those beams that's going to cost me valuable space. So when I'm laying these things out, I start to think from that aspect. Then I need to think is am I going to try and put a restaurant? Do I need a drive-thru? Do I need accessibility? And then how am I going to understand my parking ingress, egress, ingress, in and out on a daily basis, which that traffic impact analysis then comes into play. So all of these things, as you see, I'm going and just down little rabbit holes, but they're all very important. But they're also all massive gullies that you can ruin a deal on if you don't properly plan for. All of these things take time to understand and to go back to what you're originally saying, you gotta have a team that has the knowledge. So you really need someone on the team before you get into development that understands all of these things about development, or just get them in as a consultant. In every area that people live, you've got basically they're they're developers, but they're really consultants that are keyed in in that local planning department with the city council that are going to have the knowledge and understanding on approvals, and they'll probably know the property you're looking at because they've probably looked at it before. If it's in a growing area that's high volume, they've probably already looked at it and they know a lot of these answers. But we're saying for idea's sake right now, they don't know these answers, or you're doing this on your own. But if you get that third party, they're going to charge you money. But it's good to have as a first step with development because they're a guide that are going to protect you on a lot of things. They might say there's no way we're going to get a cut in here, and then this property is useless. If I can't, because there's too much traffic, we'd have to get a stoplight approved for us to be able to put it here, right? And so, unless somebody's going to be able to get you a stoplight approved that's going to give somebody access to get there from both directions, then the property's no good. If you can't get to it, then it's no good. So if it's a gorgeous piece of property with frontage, yet you have to go and do a circle to get to it, no retailers are going to want to get there. Uh, not only that, because you're gonna have the back of the building facing the high traffic count road. So, right, we we have to, that's why I go back to the layout of the building, how we laying it out to the road. Because I could have a great piece of property with access, but the way it's laid out or the utilized pieces of the property might make me put the back of my building facing that high traffic count. So somebody's looking at the back of the building. If I got a restaurant, I'm looking at, you know, a dump sink, grease tanks, bunch of nasty stuff that nobody really wants to be looking at. So I don't want to, that's not gonna attract uh people to that area. So you want to have the nice frontage, maybe you can step it back in optimal image, or maybe you're having to go perpendicular. Um, but with the way the traffic count, the way the traffic is coming, they're gonna get the visibility of the front as opposed from the high traffic going this way when I need people to go in where they're seeing the back and they might miss it. All these things to consider.

SPEAKER_00 59:19

Yeah, I mean, it's from what you're saying, there's there's so much risk with it because of all these small little things that you have to think about or your team has to think about, because like you said, if you mess one of these things up, it could be catastrophic to the to the entire to the entire developer.

SPEAKER_02 59:37

So here, so here's an example when I said traffic count. Have you ever looked at a piece of property when you're looking at existing property that's a great location, great retail space? And for some reason, this thing cannot fill up. It might have one tenant and they got two vacant. It's let's say it's a 10,000 square foot building, they got one or two tenants, and then the rest is vacant. Uh, and the reason that it's vacant might be that the parking count doesn't substantiate me to be able to put something there. So I can't go get like a tropical smoothie cafe to go in there when there's really when those two tenants are there and they're operational, I might only have two free spaces. And maybe those two free spaces block my ability to even have a drive-thru lane there, even if it's set up for a drive-thru. But then once I have that, by the time they're turning around the corner, they're blocking all the parking spots and it's not accessible. So that's probably why that uh place went out of business and it's vacant and it hasn't been filled up. So that's like even on existing buildings, you see these things, you can really start to once you get that understanding, you dial in when you're looking at existing buildings and see where they messed up. And that's a way on why they might be struggling. And so when you're then looking at that, you might say, Oh, they've got extra land. I can add another building, but maybe you can't, maybe you just need parking. Though then you're adding a big expense to put in parking that you're never gonna get paid for. But that was what was needed.

SPEAKER_00 1:01:03

Yeah, that you're blowing my mind right now. Like it's it's absolutely insane the stuff that you guys have to go through in order to get a project to the finish line.

SPEAKER_02 1:01:14

Right. So this is just all the prep work, right? So this is where with development your margins have to be big. Yeah, so you have and the most critical portion of all of this is getting the land right. So you have to get the land priced right. You never overpay for land and development because as we start to go through these things, you're gonna encounter some issues, no matter what. Every development is gonna have issues you're going to encounter. So you have to have that land at the right price to be able to substantiate and make this work, which again, which is why you need to get some uh something, at least five acres, in my opinion, to do anything like this, depending on the density of what you can put. Uh uh and that on a commercial uh retail flex warehouse, maybe you get uh 35 to 40,000 square foot on that, right? So if you get if you're in somewhere that stormwater management is in place and you can tie into a stormwater management of that piece of property, then you can probably add 10 to 15 percent more density that you can get on the property. So that's a big value that you want to understand when you're looking at these things. Anyway, then we go down the rabbit hole of forecasting construction costs, and that's all gonna be on methods and what what we can afford to build. And you know, can I am I gonna strip this down and make it look like junk? And what type of tenants am I gonna get? Uh, and is this gonna pencil, or do I need to make something nice because of where I'm putting it? And I need it to match the surroundings and not look like an eyesore. So I have to understand the surroundings and do I what type of tenant do I want to attract? And then I can have a certain building that's got the frontage and and other buildings that are aren't in the front, those can be done at a more cost-effective build manner. So my front, frontage buildings are gonna be dressed up more on whatever sides are really visible. And so the method and means of that build type might be that those are facades with brick, stone, um, stucco, and a lot of storefront. And then my back buildings are gonna have less storefront, and the facade might just be a little bit of brick, uh, let's say a knee wall of brick, and then just metal building if I if I want that, right? Because that's not as imperative. So we've gone through a lot. Um now, I guess what I would say is I've got to bounce because I got another meeting. But what I would say is we can we if you if you want to go further, we can do another call and dive in deeper for your book stuff and uh and continue on from here and do another talk on it.

SPEAKER_00 1:04:03

Yeah, I'll I'll let me digest all this first and get get it to um get it a little bit more organized, and then from there I'll reach back out to you and we can kind of add on to it, or uh I'm sure I'll have a ton more questions for you.

SPEAKER_02 1:04:16

Yeah, absolutely. Yeah, and I'll send you this too, so you can kind of go through it and uh and then we can circle back. But yeah, thanks so much for joining and uh sitting and chatting with me today, man. It's been awesome, brother man.

SPEAKER_00 1:04:29

Likewise, appreciate your time so much.

SPEAKER_02 1:04:30

All right, Tom. Have a great day, sir. We'll see you.