The Real Estate Syndication Show

WS1937 Mastering Triple Net Investments | Ben Kogut

February 09, 2024 Whitney Sewell Episode 1937
WS1937 Mastering Triple Net Investments | Ben Kogut
The Real Estate Syndication Show
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The Real Estate Syndication Show
WS1937 Mastering Triple Net Investments | Ben Kogut
Feb 09, 2024 Episode 1937
Whitney Sewell

Join host Whitney Sewell and seasoned real estate expert Ben Kogut for an enlightening episode on the intricacies of triple net (NNN) investing. With over 16 years of experience, Ben dives deep into what makes NNN properties a stable and predictable cash flow source for investors. Discover innovative strategies for partnering with high-credit tenants, the art of lease negotiation, and the importance of building lasting relationships with tenants. 


 Ben shares several strategic approaches for optimizing investments within the NNN landscape. He highlights the advantage of forming partnerships with tenants of high creditworthiness and explores the dynamics of preferred equity deals. Through tangible examples, such as the negotiation of lease terms with entities like Caliber Collision and investments in sectors like car wash businesses, Ben showcases how these strategies can enhance value and reduce investment risks. His insights offer actionable strategies for investors looking to deepen their engagement with NNN investments.


Whether you're new to real estate syndication or looking to refine your investment approach, this episode offers valuable insights into creating and managing successful NNN investments.


Remember to like, subscribe, and share the Real Estate Syndication Show with friends who are keen on staying updated with the latest in real estate syndication.

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Show Notes Transcript

Join host Whitney Sewell and seasoned real estate expert Ben Kogut for an enlightening episode on the intricacies of triple net (NNN) investing. With over 16 years of experience, Ben dives deep into what makes NNN properties a stable and predictable cash flow source for investors. Discover innovative strategies for partnering with high-credit tenants, the art of lease negotiation, and the importance of building lasting relationships with tenants. 


 Ben shares several strategic approaches for optimizing investments within the NNN landscape. He highlights the advantage of forming partnerships with tenants of high creditworthiness and explores the dynamics of preferred equity deals. Through tangible examples, such as the negotiation of lease terms with entities like Caliber Collision and investments in sectors like car wash businesses, Ben showcases how these strategies can enhance value and reduce investment risks. His insights offer actionable strategies for investors looking to deepen their engagement with NNN investments.


Whether you're new to real estate syndication or looking to refine your investment approach, this episode offers valuable insights into creating and managing successful NNN investments.


Remember to like, subscribe, and share the Real Estate Syndication Show with friends who are keen on staying updated with the latest in real estate syndication.

VISIT OUR WEBSITE
https://lifebridgecapital.com/

Here are ways you can work with us here at Life Bridge Capital:
⚡️START INVESTING TODAY: If you think that real estate syndication may be right for you, contact us today to learn more about our current investment opportunities: https://lifebridgecapital.com/investwithlbc

⚡️Watch on YouTube: https://www.youtube.com/@TheRealEstateSyndicationShow

📝 JOIN THE DISCUSSION
https://www.facebook.com/groups/realestatesyndication

➡️ FOLLOW US
https://twitter.com/whitney_sewell
https://www.instagram.com/whitneysewell/
https://www.linkedin.com/in/whitney-sewell/

⭐ Be Our Guest!
We are continuously working hard to help our listeners with their journey to real estate syndication. If you think you can add value in any way to our listeners who are in commercial real estate, then we’d love to have you over.
Apply here: https://lifebridgecapital.com/join-our-podcast/

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Ben Kogut. He's the CEO of Rooster Equity and has 16 years of experience in commercial real estate as an investor, developer, syndicator, advisor, MBA in entrepreneurship. He's an author as well, which you'll hear him mention. He lives in Austin, Texas, and he's an expert in triple net. Real estate and he's gonna dive into that topic today amongst some strategies that you've probably not heard of before I bet But also I'm just introducing him to you again. He's been on the show a long time ago But wanted to bring him back just to say hey, he's going to be helping hosts a few of the shows So he'll be a co-host on a number of episodes coming up and wanted you to hear it first for me So you're not surprised at that time But you're going to learn a lot from him today about triple net and these strategies. Have a blessed day. Ben, welcome back to the show. Honored to dive in and have another conversation with you and catch up.

Ben Kogut: Whitney, this is fantastic. Thanks for having me back.

Whitney Sewell: Yeah, you know, looking forward to it. You know, I know you have become an expert in this triple net space that, you know, I am not an expert in, by the way. But, you know, I'm looking forward to learning myself. And I know many listeners are in that space, many investors that are listening as well. I love investing in that space. So I know that you have, uh, even some, some new strategies or different strategies that we're going to talk about today that I know are going to pique their interest. But, uh, before we do, why don't you give us an update, uh, you know, on, on your focus right now, uh, and maybe even highlight just triple net in general for some of the newer listeners as well.

Ben Kogut: Yeah, sure. So I've been in commercial real estate since 2004, been focused on triple net investing started as a broker. And then now as a syndicator, uh, the last, uh, four or five years, uh, raising money and just buying cash flowing triple net property. So what is a triple net property? Um, think of your, in your neighborhood, you might find a, um, a Walgreens or a McDonald's or a Bank of America. These are typically properties that have a triple net lease. What is a triple net lease? It's the net, net, net of the taxes, the insurance, and the maintenance all these are expenses that are passed through to the tenant. So real simply, it, you know, it we don't have to worry about what those expenses are, because they're the responsibility of the tenant. And so that gives us quite a bit of stability and predictability of what those cash flows are going to look like.

Whitney Sewell: So what's the, the bigger the risk, right in this type of asset class that maybe an investor should be concerned about?

Ben Kogut: So what is the risk? So the risk is dependent on the tenant and the lease terms. So the tenant, what we specialize in are high credit tenants. So think of the name brand types of tenants that you can rely on. They're going to pay the rent. There's riskier types of deals where maybe there's a non-credit tenant and maybe something happens and they're not able to actually pay the rent. that could be a problem. There's other problems with renewals. If the tenant isn't certain, if we're not certain that the tenant is going to renew, you could be stuck with a vacant building. just like apartment building, you might lose a tenant here and there. But with commercial real estate triple net, it takes a lot more money and time to be able to replace those types of tenants. So some people call these types of investments a bond with bricks. That's a pretty commonly known jargon with what we're doing. And yeah, we're looking for just like stable cashflow, predictable tenants who are very happy in their locations. And we're looking for sellers who are motivated to sell for reasons that are typically unrelated to the assets.

Whitney Sewell: Give us some maybe some examples of your like, prime tenants that you're that you're looking for, and why.

Ben Kogut: So let's see here. So I'll give you an example. We're looking at a caliber collision, as an example, multi billion dollar company, I don't even know how many hundreds if not thousands of locations they have around the country. It's a need for better or worse. There's always a need for caliber collision. And so I'll give you an example. So we're under contracted by caliber collision that has about two years left on their lease. And so because these leases are usually 5, 10, 15 years long, because there's only two years left on the lease, that adds some perceived risk to this deal. And so therefore, we're able to get it at a more attractive cap rate. And so with that, we have relationships with people that are within the caliber collision business. And so we leverage our relationships and we ask them, basically straight up like hey, are you guys going to be staying in this location are you happy. If not, is there something that would make you happy? And basically, before we actually close on this project, we actually get non-public information that gives us the certainty that they are happy at this location. They're gonna extend their lease when the option period comes up, which typically has a bump in rent, somewhere between 10 and 15% increase in rents. And they're not going anywhere. So we're able to buy, we're able to basically hedge our bets buy something at a discount, wait a couple of years for their rent to increase, and then continue to benefit from that increase in rent. Or we can cast it out on the market at a higher rent with a longer term lease. And there's still a huge market of investors who are looking for that. So that's just one little example.

Whitney Sewell: Yeah, no, that's great. That's helpful to think through. And I think that goes right into probably some of the strategies that we were going to discuss as well or you were going to highlight. But why don't you do that now? Just talk through some of the strategies that and let's dive in.

Ben Kogut: So that was one strategy. Another strategy within the triple net niche is either preferred equity or just simply being a partner with a tenant. And so what I'm working on as an example is a car wash chain, uh, based in Colorado. Uh, they're about a 50 plus million dollar, uh, you know, worth of a company. And so they are building and expanding their car wash chain and they are looking, let's just, we'll round some numbers here. Like if the building, uh, to build a car washes, let's say $5 million. three of that would be from debt. So borrowing money from a bank and 2 million of that would be equity. And so they're happy remaining an owner in the project, but they don't want to put up an entire $2 million of their money to do so. And so that's where we'll come in is we'll come in, we'll invest, let's say a million of it. So we'll become partners with the tenant in owning the real estate. And then, um, they'll pay us a nice return for being a partner in the deal. We'll cash flow it for about a year, so the investors will get monthly distributions right away. And then about a year in, we're going to look and reevaluate, how is this location doing? Can this tenant afford to pay more rent on this building? And oftentimes, the answer is yes. And so then we will actually tear up the lease write a new lease, a new 15-year lease on the building. And then with that, ideally it's a higher rent. The rent's not gonna go down, it's only gonna go up. And then we can cast it out on the market as a car wash with a 15-year lease at a reasonable rent. And then at that point is when all the investors will get, once the deal sells, everyone will get their money back. And, you know, hopefully we high five and get some upside on that deal as well.

Whitney Sewell: Speak to, you know, the, I mean, I assume the, you know, just thinking about, you know, you have a lease, and then you've checked with this tenant, like we already talked about, you have some insight there typically. And then, you know, obviously, you're going to rip that up, rip it up and, and raise the rent. You know, what's the likelihood of them saying, nice, all right, we're going to go somewhere else.

Ben Kogut: Well, they're partners in the deal with us. They personally sign on the debt and they have roughly a million dollars of equity in the project. So I would say very, very slim to no, no chance that they're going to walk away. You know, there's always risk, but this, you know, we're not afraid of risk. It's just a matter of what is the chances of this risk. And so you're not wrong to ask the question, but the answer is very, very, very slim chance.

Whitney Sewell: Speak to building the relationship with a tenant like that. You talked about the, the collision centers, caliber collisions, like, and maybe there's other groups, you know, or, you know, that you all done that with, how do you, how do you go about doing something like that?

Ben Kogut: you know, relationships are just good old-fashioned, you know, long-term, communicating, adding value, finding ways to solve their problems. You know, in the Car Wash case, they're looking for a creative solution for a partner to come and hold hands with them. And, you know, we've built since relationship going to dinners. I mean, just old-fashioned way, just, you know, getting to know each other on a personal level is really, The way that I do it, I don't really know.

Whitney Sewell: Yeah, no, I was thinking about like the caliber collision. Like it's pretty big organization, right? And, you know, I was trying to think, you know, how you'd get to talk to the decision maker of that location, you know how, how you kind of get that insight.

Ben Kogut: Um, you know, just going to a lot of ICSC conferences, um, you know, some, some people have bounced from company to company and it's just maintaining relationships is just a one-on-one going to dinners and making sure that we do what we say we're going to do at all times. And that's really just been the secret sauce here.

Whitney Sewell: are, you know, you know, speak to car washes, specifically, maybe to investors who aren't as familiar with with those, with that type of investment, specifically, you know, what are some do's and don'ts, maybe for the passive investor, things they should know to ask about that you wouldn't typically know, maybe they're used to investing in a large warehouse, right, or something like that. But I mean, the car wash, you know, is gonna operate maybe a little differently.

Ben Kogut: Yeah, great question. Car wash is unique in the sense that it's both a business and real estate all in one. And so what I like to look for most importantly is in the business. and look at what the unit economics of that business are. In other words, how many, you know, I like to say widgets, but in this case, how many car washes do they need to sell in order to break even? And turns out they're very profitable businesses in spite of the fact that it is also a very high cost to get these things running because most of the equipment actually has a redundant duplicate pieces so that it never really is able to go down. You don't want the vacuums or whatever, all that stuff to go down. So that does increase the cost of that. And then on the other hand, quite a nice bonus. Depreciation is also a nice perk to investing in these things because this equipment, being what it is, can be depreciated pretty rapidly. So I would say unit economics, I'd say the balance sheet and the quality of the business that is the underlying asset, the underlying tenant of this real estate. And so how much debt at a corporate level does that tenant have? Not to be confused with the debt on the real estate level. Those are two very different types of debt. Who's the operator? How many locations do they have? How fast are they growing? What is this location? How much competition does this location have? Things like that from a business standpoint, just to understand who's this business and will they continue to be successful at this location if we choose to decide to invest in that with them.

Whitney Sewell: Some good questions to think about asking the operator, right? When they're looking at properties like this, you know, and, and maybe, I don't know, just thinking through what else the investor needs to know, thinking about different asset classes or like triple net that they may not be as familiar with, right? Like car washes. Are there other asset classes, I mean, within triple net or other types of properties like that, that, that we may not hear of much that, that y'all are looking into?

Ben Kogut: Yes, I would say I would add cold storage is another example of an asset class that isn't really talked about as much. And what we're talking about is real simply just like a big industrial building that happens to be nearly frozen, frozen or nearly frozen on the inside. And so there are with the growing trend in CPGs, consumer process, package goods out on the market. These CPG companies are basically desperate to find places to be able to store their their cold products. And so they'll sign long term triple net leases. And the numbers are fantastic, really, really fantastic.

Whitney Sewell: So a client like that or a tenant would lease the entire building?

Ben Kogut: It doesn't have to be the entire, they can do a portion of it. We'll subdivide the space into multiple spaces. Also, sometimes the tenant wants a third party to help with the packaging or maybe there's a need, maybe it's more of like a seasonal need and it's Christmas time or some holiday or something and they need. With the cold storage business, Having access to employees who can also help with whatever the logistical needs are, and there's usually quite a bit of logistical needs for these types of things. And then on top of that, I'll add a lot of the best cold source facilities are located along rail, because sometimes we're talking about some pretty large distribution needs. And so having access to rail really helps the tenants be able to relocate or move their products around on a timely matter.

Whitney Sewell: What's the maybe the biggest risk you see as far as the next 12 months in triple net or anything specific as far as what you're forecasting?

Ben Kogut: Great question. I think that interest rates is really just the big, big question mark right now. We're seeing deals. Really good deals right now because it's harder for people to make sense of it because of the interest rates. We're approaching this in a lot of ways from an all equity standpoint, so we're not necessarily needing to borrow money. That helps us get some deals done. We are anticipating as a lot of people are that rates will come back down. That will provide us an opportunity to either buy with debt or to refinance and pull the equity out of a deal. But we're not necessarily banking on that literally and figuratively. And so I would say that's the uncertainty with interest rates. We're hopeful that they come back down. Other than that, I think that The popularity of triple net investing has really risen, especially when you compare it to what's going on with a lot of multifamily and a lot of defaults and office as well. It used to be that people thought that retail was dead because of Amazon. And it turns out that's not true. It's just that retail has pivoted. Retail is not so much like things that are competing with Amazon. It's more like services and restaurants and things that really can't be replaced by Amazon. A lot of medical as well. I mean, you can't go get your teeth cleaned on amazon.com, right? So there's definitely a lot of… A lot of things are changing, but retail, it's been… honestly, it's been just such a blessing to be able to continue to grow and help people invest in these types of projects.

Whitney Sewell: Ben, what is a way that you've recently improved your business that we could apply to ours?

Ben Kogut: Fun question that you can apply to yours. So I wrote a book And I'm not trying to pitch the book right now, but I wanted to basically share the lessons that I've been learning with a lot of people. And so I've been writing this writing the book process was was hard and then sharing with people and, you know, just sharing education. I mean, I would I would say, like, one way you could do it is just Share what you learn. I mean, you have your podcast, but for people that are listening, that you're learning lessons along the way as a syndication investor, if you can boil that information down and share it with others and not really necessarily expect anything back, but it always does come back, just being able to help share that wisdom that we've learned along the way. I do quite a bit of mentoring. I do quite a bit of podcasting. But yeah, the book was definitely a game changer for me.

Whitney Sewell: What's your best source for meeting new investors right now?

Ben Kogut: So a lot of introductions, a lot of referrals, just being able to take care of people along the way. LinkedIn, honestly, has been a big source. I had some friends encourage me to start sharing on LinkedIn, and that has really expanded the outreach that I've had. Coming on podcasts has really been a lot of fun ways to connect with people. Hey, I heard you on a podcast, da, da, da. And then finally, I am still very actively attending investor conferences. And so being able to there really is no substitute for meeting someone face to face and sitting down sharing a meal and connecting on that way. And so those are really my favorite ways to connect with investors.

Whitney Sewell: Are there a couple of conferences you'd recommend? I get to ask that all the time.

Ben Kogut: Yeah, my two biggest ones are, they're both invite only and require a real estate license. So I'll caveat that. One is called the Society of Exchange Counselors, and they meet quarterly in a different city around the country. And then there's another group called the National Council of Exchangers that meets in Vegas quarterly. And so it's, they're small, like 100 to 120 people each. And they're very, I'd say half the room or plus are people that are actual investors. They're there with money and they're very, they're not, Yeah, some people are like really like hiding about the fact about what they're trying to do and what they're looking for. This group has a, you know, with very high integrity, very private way of making sure that we can collaborate work on deals together. And that really has been the best way for me to, to connect. And I've raised a lot of money that way. So I would say this, those are the two groups I'm most involved in.

Whitney Sewell: What's your best advice for passive investors right now?

Ben Kogut: Um, I would say besides investing in triple net projects, I would say, look, look at a lot of deals. Um, I would say you'll start learning about what you like, what you don't like, what you're willing to take risk on. Um, I think that, you know, I I've told people look at 50 deals before you invest in your first deal. That might be a little excessive, maybe 20. Um, but you know, look at a lot of different, uh, asset classes, um, look at different terms and be willing to ask questions and be willing to be vulnerable and be willing to, um, you know, take your time. Don't be in a rush.

Whitney Sewell: What about, uh, some important metrics that you track?

Ben Kogut: Important metrics are definitely cash on cash returns. I think that's probably what's most important because we like to structure our deals to pay out dividends right away versus IRR, internal rate of return, which is a very common metric, but really is based on an assumption on what an exit price is. And I think that's where a lot of people have gotten into a lot of trouble. And so we're going to look at what the exit price is going to be, but we're not really going to be basing our investment on that. It's going to be more on what kind of cash flow can we generate right away in a stable and consistent way. So I would say that. And then Other metrics include just making sure that I'm communicating with my investors on a very regular basis. I think that's one of the best feedback I can give someone that's in the syndication business is that you have your systems in place to be able to communicate in good times and bad. And that's something that we track pretty closely as well.

Whitney Sewell: what's often enough or too often with your communication with your investors?

Ben Kogut: Quarterly is generally the mass communication. And then on a one-on-one basis, I'm probably speaking with, you know, 10 to 30 people a week, depending on the week. And so just constantly communicating, learning what their goals are, updating my CRM and, you know, helping out and as best I can along the way. What CRM are you using? We're using go high level.

Whitney Sewell: Would you recommend that?

Ben Kogut: I would, I would. Yeah, it's been great. My team can communicate through it properly. The only other one I've used extensively would be HubSpot, which is obviously one of the, you know, they're both like industry leading softwares. But other than that, I don't have a lot. I think there's just like so many different pros and cons, and none of them are perfect.

Whitney Sewell: They that's for sure. None of them are perfect. But the only one that works is when you use. Right. So I've heard of go high level, but I get asked that all the time as well. What CRM? What CRM? We're using HubSpot. And we've used it a long time. But yeah, got to get in there and use something to track those investor calls. I agree with you. That is a very important metric. But Ben, how do you like to give back?

Ben Kogut: Yeah, I'm involved in my community in a lot of different ways. I'm Jewish and really proud to be able to bring community together. And so that's a big way to do it. I'm on a national young leadership group. We travel around the world to visit some, like I was just in Latvia and Hungary back in March. And then in a couple of months, I'm going down to Buenos Aires to personally visit the areas and the programs where our local dollars are donated internationally. And so we get to make sure that our money is being put to good work. And so those are just some examples of ways that I love to give back, love to mentor, love to teach, and especially about the subject of real estate syndication.

Whitney Sewell: Awesome, Ben, great to have you back on the show. And I'm honored that you're gonna start co-hosting some shows as well. Looking forward to that and bringing your network, your expertise to the listeners also. So very grateful for that. And just your time today going through what is TripleNet at a high level, but then even diving into some strategies that you're implementing to find projects that make sense and sounds like some really cool strategies as well. that have the secret sauce of having the relationship with the tenant. That's pretty incredible to be able to do that and have that inside information. So grateful for you sharing that with us today. Tell the listeners how they can get in touch with you and find your book.

Ben Kogut: Yeah, I'm very grateful as well for the opportunity to get to guest host on your incredible show. People can get ahold of me through my website, which is roosterequity.com. Why Rooster? Well, my last name is Kogut, and not the easiest name to spell, and Kogut is Polish for rooster, hence Rooster Equity. And so they can go there, they can also download my book there. Again, at roosterequity.com slash book and find me on all the socials at Ben Kogut on LinkedIn, Instagram, whatever, all that kind of stuff.

Whitney Sewell: Awesome. That's a wrap, man. Thank you. Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.