The Complex World Of Commercial Tenants With Greg Schenk

Hey. Welcome to the Mario Dattilo show. I'm your host, Mario Dattilo. I've been investing in mobile home parks and other commercial real estate for years. On this show, we interview some really interesting and successful real estate investors and business owners. We go behind the scenes on how they do what they do. I know you're going to get a ton of value out of this, so stick around until the end. Hey, guys, super excited to be back. I've got a really interesting guest today, greg Shank with the Shank Company. Also, he's got an education company called Shank Training. I'm really excited to have him on because he's talking about a property type in an industry that is something that I don't get into a lot. This is going to be very unique. We're going to be able to talk about commercial real estate leasing and obviously from the tenant side and the landlord side, we're going to talk about education. We're talking about a lot of good stuff. Greg, I want to first of all, thank you for being on the show. I appreciate you taking time out of your day and looking forward to this awesome conversation. So thanks again for being on.

Thank you for having me, Mary. I'm here to help your audience learn, grow and prosper.

Love it. Now, one thing that's kind of cool is when Greg and I were talking pre show and even the research that I've done on Greg is he's definitely a giving guy. He's definitely interested in educating and helping people grow. You're probably going to see that threaded throughout the conversation of not only is he transactional involved in deals and doing a lot of deals around the country, but he's also focused on helping people and educating not only real estate brokers and agents, but also other industry folks as well. So pretty cool. I'm looking forward to getting into that because as education is something that's important to me too. Greg, let's talk about kind of how you got into real estate in general and then maybe you could just tell us specifically what your focus of business is on right now.

Sure. Well, people always ask me that, and it's a wonderful question. If you would have given me 1000 careers after college, real estate and specifically commercial real estate would not have been one of them. As a matter of fact, I had never even heard the term commercial real estate. When I got out of school, I just didn't want to be poor anymore. I was a marketing major. I didn't have a clue what I wanted to do with my life. Jobs were scarce here. I wanted to stay in Columbus where I am. There wasn't any good jobs. I actually got out of school quarter early to try to beat the job rush. I ended up getting a job that moved me to Southern California doing something totally different. While I was there, a friend of mine who was in commercial real estate said, I think you'd be good at this. I flew back to Ohio for a friend's wedding, and I had a gut feel Columbus was going to grow. So I trusted my gut. I moved back and got into commercial real estate with the largest company in the country without having any money, any contacts, didn't own a suit, didn't own a car. You're talking about starting from square one scratch. I set some very high goals. Unfortunately, within two years, I hit those goals. Seven years later, I did the biggest deal in the state and at that time decided to leave the biggest company in the country and go out of my own, specifically representing tenants, buyers and investors. At that time this is mid 90s, lots going on. At the same time, I saw there was a real gap in education. Specifically, all the continuing education for agents was residentially slanted. There's not a separate license. I designed two courses for continuing ed, and it went so good in the state of Ohio that I took it nationwide. I spread it out to talking to people like attorneys, accountants, bankers, financial planners, giving market overviews on every product type from each person's position, as well as things like financial literacy and investment property acquisition strategies, things of that nature.

Very cool. So we're transactional. You went into education as well.

I do both. I've been representing tenants and buyers for 36 years. I've been educating people for 25, and I've been investing for myself as well as in partnerships for 25 as well.

Very cool. So you're definitely covering all the bases. What I like too, is that you're not only just brokering transactions and leasing and doing all that, you're also invested in deals too. You really understand it from an investor standpoint as well, which, as a lot of the listeners on listening to the show right now, our commercial real estate investors, probably a high concentration of apartment, mobile, home parks, self storage investors, and so going in and talking about more of commercial tenants. When I say commercial tenants, I mean more retail, office, industrial, those type of tenants. We don't get to talk about that as much on the show. This is going to be super interesting. Just out of curiosity, what kind of real estate are you invested in? Like what property types?

Well, started out in the late ninety s. I own my own office building, and I owned another office building with the Doctor. The Doctor ended up buying me out, and I flipped those into model homes, which I thought was the most conservative investment I could get. These were brand new homes in golf course communities. The interest only crisis, as I'd call it, in the early 2000, and everybody was getting foreclosed on in those golf course communities. The developer builder who was supposed to be my liaison to help me lease or sell them when their lease was up ended up being my competitor. It turned into a nightmare to say the lease. It really taught me a very big lesson on there. Number one was I wasn't cut out or I have the patience to self manage even something that was brand new, that had really very little management to be done. When I'm speaking and teaching, that's the biggest mistake I hear from the people as well as the biggest mistake that I made, for sure. After that time, I really specified investing in partnerships. Now, your audience may not know what an accredited investor is. I don't know if you've gone over that in previous podcast, but I was fortunate to meet a gentleman that had sold the company, had a great deal of money, was too young to retire, and so I helped him find an apartment complex that was off market and he ended up putting investors together to purchase that. Since that time, 21 years later, he now has a billion dollars under asset.

Nice.

For the last 20 years, I've been investing with him in predominantly value add apartments. Student housing we've done in the past, hotels, mixed use. We have one senior living property, but the majority of it is value add apartments where we go in. Maybe it was mom and Pop managed mismanaged. People didn't upkeep it. We go in and fix it up, refi it, and they're all long term holds, typically five seven year holds. We've held one as long as 15 years.

Nice.

Outside of that group, I invest in a strip center, retail center that we built right when the market crashed in 2008. Went through about seven years of really lean time. Thought we're going to lose it. Bank called the note we had about everything that could go wrong went wrong. It was in an A plus location, super construction, and even through COVID, we managed to survive. We had an outlook that sat empty for eight years that we thought a bank or a medical center was going to go into. We ended up getting a Chick filet there and selling it at such a low cap rate, we held back some of the proceeds that basically got us through the shutdowns of COVID and some of the tenants closing and restructuring, things of that nature. I've been fortunate to see about every property type out there, whether it's been through my clients that I'm representing or in these partnerships that I've purchased. I've got an 18 year old son getting his license right now, and I bought him a rental property that is individually owned instead of in the partnerships just in April. Our market is one of the hottest markets in the country. Of everything really answers that. I would not say I'm an expert in senior living, but in all the other areas I'd say I'm pretty proficient on.

I love it. Let me point something out that I'm kind of getting from you. You said in the beginning you learned self managing property management maybe wasn't for you. Did I get that statement right? You weren't interested in actually self managing things. So did I get that right?

100%. I mean, there's a lot of people you can be extremely smart, but if you're not an expert in this, that's your profit or loss, and so far you could lose the property. I've had clients in the past specifically with office buildings where they mismanaged and lost the largest tenant in the building, and the building ended up getting foreclosed on because they didn't know the market. They thought they were saving a few bucks when in fact they were costing themselves their livelihood on that. After those occasions with clients of mine, you see somebody that invests millions of dollars and have that happen to whoa, that really is a slap in the face.

It's good education on somebody else's dime, right?

Yes, but for me it was hard. Now, the large group that I invest with, I will say this as well, we had two projects in 20 years that had a hard time with since that time, we make the property management company put equity in the project to make sure their values are aligned with ours. I can't tell you how well that's done for us. In fact, they now bring us deals that we can't find because the track record is so good. That was a real AHA moment for me. That's probably been eight or ten years in the making, and they're making them put a significant amount of we're raising, say, eight to 10 million. They're putting like 500,000 in the deal. We know they've got a good balance sheet. They are experts at what they do for that specific niche. I think that's something really key for your listeners is you want to surround yourself with some trusted advisors that really know what the heck they're doing. That's a real estate attorney, not a general attorney. That's an account that understands all the benefits of owning real estate and that's having that property manager that is in that niche. You could be the greatest apartment property manager. If it's a mixed use and you don't understand the retail or the office component you're sol.

That's a really good nugget for people because a lot of times. Especially if you're getting into a new property type. It's easy to say. Well. I'm going to bring my manager from mobile home parks or apartments over into this self storage facility or into this other retail building or office building because they say they can do it. You end up learning wait a minute. They were learning on your dime in that case, and they make some pretty expensive mistakes. I like how you clarify that you need to have people that are really experts in the niche that you're investing in, and someone who's investing in multiple property types will work with multiple management companies if they're going to go the third party management route. You're also very helping clarify to investors that just because you're an investor and an owner doesn't necessarily mean you're an operations person, doesn't mean you're actually going to manage the real estate. There's kind of different layers. There's ownership interest, then there's asset management, and then there's property management. In some cases, the ownership interest is also the asset manager and the property manager. In many cases, especially in commercial real estate, that property management gets carved off to an expert, and sometimes even the asset management gets carved off to another expert to handle that to where someone may just be capital. And that's perfectly fine. You've just got to know what you're good at and what you want to do. I think you've made some excellent points there. I think you've also learned some really great lessons. You said that there's been just a couple of deals out of a lot that have struggled, and I would say you probably learned the most from the hard deals, right? Because you've actually got to get creative. Even if you aren't doing the property management, greg is watching these people make very difficult decisions to save deals and make them successful. So very important. One thing I was going to ask you, when you're working with from a representation standpoint, what do you think you're doing the most of from a tenant or investor? What's your typical property type you're working on or what's the highest percentage?

My day to day historically has been representing office tenants on renewals or relocations to lease or purchase. When the market crashed ten years ago, whatever it was, the number of people that I had buying buildings shrunk dramatically. I used to probably have six companies a year that would buy buildings. I don't think I've had six in six years by buildings. What I've seen is companies, and this is true for investors they don't put a strategic plan together. What I try to do is I help a company or individual investor put together strategic plan and then implement that plan. We see too many people working in the business, but not taking a step back and working on it and obviously knowing your exit strategy going in. The better we plan for that, the better we can help people. We actually have two forms on our website one for tenants and one for investors. That kind of some food for thought. The who, the what, the why, the when and where asking all these different what if situations that they probably have never heard of before that they need to get with their attorney for any agreement and make sure, especially if it's with partners, that you have a buy sell. Again, the amount of seminars I've done around the country, I don't beat my chest and tell my wins. I talk about the horror stories that I've heard from other people and I've had enough of them myself. I had a full head of hair.

When I got in this business. And for those listening, he's very bald.

I mean, I invested in two venture capital deals and I'm sorry to say that neither one was successful. The lessons I learned off of those alone, one of them was a gas station that a large bank brought me and they were the primary lender and I was the secondary lender. The poor kid that ran this gas station, which I thought was a good location in a golf course community close to where I had invested in these model homes, was working 100 hours a week and couldn't make it work. I did not negotiate the lease on the gas station and he was just paying too much rent for I'll call, a pioneering market that's now AAA market on there. So that really opened my eyes. The defeats you have or that your clients have, you really got to learn from those. You got to put your ego on the shelf and say, okay, what can we do better? What can we learn from this? Nobody wants to lose money, whether it's a stock or a piece of real estate on there. Really, again, surrounded by your critical team. Today you really got to trust those people. You got to have the right contractor. He's going to tell you the lead times, some of these materials that have come in that can, again, make or break some deals if you're building new, which is absurdly expensive. Now, some of the lead times for items can be six, eight months, even a year. I just finished a large manufacturing client and they needed some overstandard sized doors, which number one, we're going to cost six figures a lot, and we're going to take up to six months to get. Time is money, if you don't have somebody that knows that stuff and nobody expects you or I, any investor, to know that kind of stuff and obviously with all the logistics headaches that's been around in this country that's going to continue for a while, I think. You really got to have somebody that understands the numbers and can do that.

This is going to be, I think, super helpful to the entrepreneurs that watch this that maybe aren't in the commercial real estate investing space but own businesses. Should a company own their space or should they be leasing? What are some things that a business should be considering when they're trying to decide, hey, do we want to have our own space that we actually have ownership interest in or leasing?

That's a great question. We actually do a separate course on that, believe it or not, but we'll give you the two minute nutshell version of it.

Cool.

The first thing company needs to do is see how fast they're growing. Are they growing or are they steady in their facility needs? We get a space planner involved to lay out a generic non building specific plan and we try to get everybody that's key in the organization to go through that to really visualize. Most people are visual. Okay, we think we need ten 0ft. Well how long is that ten 0ft going to be good for? It does no good for me to go help you buy a 10,000 ft building if three years later you need 15 and 20,000ft. That opens up questions like do you want to be a landlord or just have it for your own use? Do you buy a 20,000 foot building, rent out ten until you need it? Well, obviously there's risks and rewards associated with that. We try to find out, number one, what is a company's risk tolerance? Again, that could be an individual investor or a company. If you're married and your wife is a two and you're an eight, you might struggle on investments. I've seen that with medical doctors that I've represented. You had five guys ready to retire they didn't want to buy. You had five young guys that had student loans, they couldn't do it. The five guys in the middle were plush, they all wanted to buy. We got to know their risk tolerance, we need to know their credit, we need to know their growth strategy, which the floor plans really do for that. The product available for the size and type that they want in the market space they want to go. Usually I recommend against build the suits because they're just again, astronomically unless it's usually a medical or data center because there's so much even build out for office space now. I mean, I've heard as high as $100 a foot in some markets. Jeez yeah, it used to be 40 to 50. I did a fairly large deal for division of the Supreme Court about two and a half years ago and I think we got bids up to 75 then. Yeah, it's all over depending on the quality of finishes that you want. It's not a right and wrong answer for own versus lease. You've got different ways in accounting. If you put it in an LLC, you can rent it back to the company on there, but it's what's your risk, what's your time period of hold? Do you think you're going to be able to grow or not grow up? Your steady? More of that. Today, of course, do people even want to come in? What type of operation are you going to demand them to come in. What are the options you're putting in there? Amenities. I build a building for a company where we put both a gym and a cafeteria in the building that really gave a lot of employee loyalty. We put it right across the street from the park, and it was mostly female employees, so they could go walk at lunch, take their kids after work, that thing from there. So the same thing. It's a lot of those who, what, why, when, where's, what's important for them. I try to get the client to paint us a picture, see what their short and long term goals are. Now, for an owner user, you can do an SBA loan with 10% down and lock that in for a fairly long time. Even though rates are up you can still get in pretty thin. On a million dollars, that's 100 grand down versus typically 200 grand down, plus fees. There is some upfront fees with the SBA, but you can amortize those over the term of the loan as well. Okay.

Also one thing that you just mentioned there about the down payment, businesses need to decide how much liquidity they're willing to tie up in a building versus put back into their business. Right. If they are flush with cash and they can do that, cool. If they're not, or yeah, they may need to keep that money turning inside their business. Tying up 20% or 10% of a building could hinder them too, I would think. Yeah.

The other question I was asking about that is, what kind of return do you get by putting the money back in the business, by hiring more people, by buying more pieces of equipment or whatever it is, software that's going to help your business grow? And the better answers? We get to that. Now, obviously, real estate is a great long term wealth builder, and I thank God every day that I've been educated and learned about it because every dream I ever had as a child has come through. Again, I told you, I grew up with zero. I'm very fortunate to be able to do that. I owe all of that a good work ethic. Learning and buying real estate, that's awesome.

I actually have a friend that's several friends that do this, but one that came to mind while you were talking about that, he's got a certain business with a bunch of warehouse space. What he's been doing is he's been buying each building, he's been leasing back the building to his business. His long term retirement plan is really that he's going to sell the business, retain the real estate, continue to lease it back to his own company. He's created all this equity in the real estate. He's got a business he can sell, and then he's going to have the cash flow from those buildings after he sells the business. There's definitely some thought that needs to go into it. Depending on that business and a lot of the questions that you're talking about asking yourself, you can really use real estate as a great compliment or retirement or strategy within their business model.

If it fits, without a doubt, again, it gets back to risk tolerance. I like it. Not everybody does. I would say I grew up and I'm still a very conservative person, even though I'm in an extremely risky business. The question I ask is what's going to let you sleep at night? What's going to keep you up at night? If you take corporate million dollars and put it I don't care if it's self storage or apartments or industrial, which are three of the hottest right now, and it's going to be a long term hold and you may not see any money for the first year or two years while you're rehabbing it. Can you live without that? I asked people, are you looking for immediate income or long term income? Can you go a year or two without that? If there is a cash call and all of a sudden you got to come up with ten grand or 100 grand, can you do it? I've had that happen to me unexpectedly, unfortunately, that I could do it and actually bought somebody else's share out that couldn't do it one of the partner deals that I'm in on.

Yeah, it's a great point because when you own a business and you own the real estate is really a separate animal in itself. I mean, people don't think about it, but if you've got a business that needs 50,000 operate and you buy that building, who's going to actually do the facility maintenance and oversight on the building itself? The common area maintenance contracts, the Capex Reserve that needs to be managed and Capex needs to be done a certain number of years. There's a lot more involved than just owning a building in a business. It's a separate beast in itself. If someone's really tight on human capital in their business, they may not want to own that building because it might take away from their business. And so that's good stuff. One thing I was going to ask you is I know you do a lot with office. What's it looking like with the remote work? Are you seeing a big decrease in demand for office space? Are you seeing it stay pretty consistent or what does that look like?

It really varies by March kit and it really varies by downtown versus suburb. The last statistics I see and I should tell you that I study the market about three to 4 hours a day. Because I'm speaking around the country, I'm learning every product type, I'm listening to every podcast, magazine article, et cetera. So in the low 40% people back. It's very different by every different type. A lot of people are so used to walking around in shorts and a T shirt, they never want to put a suit on again. Myself included.

Amen right here.

Okay. I spent nine years walking into a high rise building and never wore anything but a suit. Okay. Now not so much. A lot of people, which I mentioned earlier, haven't put a strategic plan together yet. They're still trying to say, well, his monkey pox coming. Is this coming? Is logistics here? Is it coming? It was riots, fires, whatever. There's been so much upheaval the last two years. Is there a new norm? And I've heard that on many podcasts. Is there a new norm? I think you missed the camaraderie. I'm a single father. I worked from home for almost 15 years. I own my own office building. I miss it a lot. My intention was to build six or eight people and get in there and really help them learn and grow. My path, I put my son first. I've been working at it, but I would say I miss it. I missed the camaraderie, without a doubt. Can you get more done face to face? I believe you can. In my mind, in my gut, I think it's right to be back. Whether you're back three days a week or five days a week, I think you can argue by anyone. Demand for everything is going to go down . It's just how much? The ripple effect from now, your corner deli might go out of business. The shoeshine guy might bear, the parking lot operator might not get the same receipts. They're not going downtown to see the play, maybe, or the concert, whatever it may be. I think some downtown didn't hurt today. In the paper, you might have seen the only market that went down negative for housing costs was San Francisco.

Wow.

They portrayed a house that was on the market for nine. They lowered it to seven, as in 7 million, and they put it at auction at four and a half.

Yeah. That's got some different dynamics in that city that are causing that issue. Yeah.

Some of the bigger ones are going to have a lot more sublease space. So what does that mean? That means for a company looking to dip its toe in a market, you can probably get an 18 month, two year, three year sublease at. It's a great opportunity. Right. Every man one man's problems, another man's reward of what they can do. We've got people in 80, some cities around the country. I can tell you, okay, this market has got more opportunities than others. Again, every product type is totally different. Our industrial market doesn't even have 2% vacancy, but our office market is close to 20. And again, it varies between class A. Space and class B space. The big thing is some of the older buildings the landlords either can't afford or won't put the money back into them to bring them back to that level. I just told you build up could be 70, 80, even $100 a foot. You got 100,000 foot building and you want to rehab half of it. That's a big number. Not every landlord can do that. Some of those buildings will be repurposed into apartments, into condos in the mixed use. Okay, so look for that the next two years, I think you're going to see a lot of that and that's opportunities for your investors, without a doubt. Again, the ones willing to take the risk.

Can we talk about something here? A lot of us are familiar with multi family. We're familiar with mobile home park storage, more of a residential type tenant or a consumer tenant. I would say it's less widely known about the commercial tenants, the office, the retail, even the industrial. As a landlord of those types of property, what I've seen is that there's definitely high reward opportunities in it. There's also a much larger risk involved. So, yeah, you can do very well on a retail building or an office building, but you've kind of hinted at a few problems that can happen where lease comes up, tenant moves out. Now you've got vacancy, which is not like an apartment turning or, cap tenant improvements, which is something that you've also mentioned. Can you maybe just talk about for those who are maybe familiar with a consumer tenant, maybe the opportunities and the risks with having a commercial tenant?

Okay, so let's talk about office and retail because those are ones where you put the most money back into the property. Again, warehouse demand is through the roof. You could build literally an extra million square feet in every city of industrial and it's probably not going to be enough with what? Okay, you probably say the same thing with apartments, mixed use office retail is different. I told you, I'm a partner in a retail center. We had five tenants closed their doors, all right? Three of them I think we let back open and lower rent while the shutdown was happening. Okay. One of them was a mattress firm and a lot of mattress businesses condo online, so they were back in at half rent. We finally had to shut the doors or we shut the doors for them, one of the two. We took their space and cut it in half just to subdivide. The space was over $300,000.

Wow.

To put the demising wall in, put an extra set of doors in the front and the back and extra restroom facility on there. Now, fortunately, we've got at least but you either get a line of credit from the bank or you want to a cash call to your partners to, say, pony up 3000, $500,000. You got to know that going in and retail the different animal, where usually the landlord provides what's called a vanilla box, which is painted drywall, a drop ceiling, and a set of restrooms, and then everything inside that's specific to that particular tenant, it's on the tenants dime, unless they have super good credit. We'll do a super long lease, and then sometimes the landlord will amortize that above and beyond the rent. I should say there's four things that go into the factor on this that your investors should know. The credit of the tenant, the length of term of the lease, the amount of space, and the cost of that build out to finish the space. Okay, so each deal is analyzed by those four things. In retail, you have the vanilla box. As I mentioned, in office, you're usually given what's called a tenant improvement allowance. Depending on if it's a new building, what I'll call a Class A and a great location, it's usually a different allowance and a different rental rate than in Class B and Class C downtown versus suburb. Again, how much build is already in the building? Is it up to snuff? There's capital improvement items. That's a landlord item. That could be things like HVAC putting a new heating and cooling. It's companies that pack people in that is super important. If you've got an old HVAC system, the first thing people b**** about is not paying too much rent. I'm too hot or I'm too cold. Even in nice office buildings, you will see that happen. Okay, so the difference with the office space is you're given an allowance, and then if it's over that allowance, you do the space plan. You get a contract to give you an estimate of that. It's usually amortized again, or the tenant has to come out of pocket. I can tell you in 36 years of doing this, none of my clients are coming out of pocket either. Don't have the money. Most of my clients are privately held business. I'm not working with a Fortune 500 the majority of the time. So I'm dealing with XYZ software company. They don't want to spend 100 grand out of their pocket for tenant improvements on a building that they're not owning. Right, okay, so that's the big thing that people need to realize, is that there is additional capital. Now, what's the upside to that? You get the building lease, and all of a sudden, the ROI on the building is a lot more, and depending on the cap rate you're using at the time of the market, the value of the properties a lot more. And that's why people do it.

You see a lot more triple net and responsibilities pushed to the tenants and commercial than you see in the consumer type properties. So, for example, he's talking about improvements that need to be made, but then ongoing expenses that are often shared by the tenant versus paid for on a gross lease by the landlord. Maybe talk about that too. Kind of the different layers of triple.

Net and gross, well, that's something that most people don't understand, so I'm glad you brought up that question. Triple nets usually are taxes, utilities, insurance, maintenance, and janitorial. Those five. On retail, 99% of the time, it's a triple net lease. Okay? You're paying a base rate in a good location. Newer property could be $35 a foot. Your triple nets, maybe another ten or $15 a foot. You've got $50 all in on office space, same deal, different rent structure. Usually say in our market, it might be $20 triple net, and it might be $10 on the operating expenses. So $30 all in. Okay, in our market here in Columbus. The taxes, utilities, insurance, maintenance, and janitorial, what can you control on those? Well, if you're working three shifts a day, your utility costs are probably going to be a lot higher. Your janitorial costs are going to be a heck of a lot higher. Okay? The other items, like we mentioned before, the roof, the HVAC, other parking lot items, and that those are capital improvement items. Now, some owners and the property management try to make a profit center out of those and pass those along to the tenant. If they have an excellent tenant rep broker like myself, that is never going to happen. We're going to try to cap the controllable operating expenses, meaning they can't go up more than I usually try for a cap of 4% a year with a right to audit at any time. That way the tenant knows going in what the range should be like if we have a terrible year of snowfall, something you don't see down there in Naples, and we don't get that often here, your operating expenses are going to be higher. Other than that, you shouldn't see too many surprises. The alternative to the triplenet is on older buildings, you'll hear the term full service or gross lease or sometimes full service gross. This means instead of paying all those items individually that I just mentioned, you're paying one rental payment to the landlord. It still could be in that office example, $30 a foot instead of the 20 plus the ten for the operating expenses. Typically the reason for that is the spaces aren't separately metered for the HVAC the way they are in newer properties.

Super good. Now, so sitting in the seat of the investor landlord, you've just brought up a lot of great points, both from how do I push the expenses off to the tenant, and also how do you control the investors expenses. If you move those expenses to the tenant now, you have less fluctuation. It's more predictable. At the same time, the tenant is going to negotiate the other direction. They're going to try and either push the expenses back to the landlord or they're going to implement some triggers or mechanisms that control where those numbers go so that it's more predictable. Whether you're the tenant or the landlord, those are all different functions of those leases that are really important to know. Just curious, what's kind of, let's say retail let me rephrase this. How does the length of a commercial lease affect the value of the building and the cap rate on that cash flow that comes in?

Well, it's huge. It's one of the top four, as I said, and banks want to see that long term good credit lease to finance. If they're not as long as they're under five year terms, your debt coverage ratio is going to have to be higher. You're going to have to put more money down. If I see a strip center, retail center for sale, and they're all two to three years until the lease expires, we're going to discount it heavily. Okay. Or we're going to try to go in and negotiate renewals as part of the contingencies with the seller.

And that's a value add strategy, right? If you're buying the building as an investor, you can then put that in the contract that it's contingent, and then you actually go to the tenants pre negotiate terms. When we think about consumer tenants, a lot of times it's hard for us to comprehend that the landlord would allow us to go talk to their tenant and tell them that they're selling. In commercial real estate, it's much different. Number one, he's explained that lease terms are much longer, so ultimately they don't have any say in it. They're not pulling out in the next six months because they found out the building is selling. Also you're working business to business so he can go and negotiate terms with that tenant to try and restructure it and create value as soon as he closes or whenever that lease expires or whatever. That is a really strong value add strategy.

I mean, you're going to do everything you can. There are other areas like Led lighting, whether it's office or retail, led lighting is going to cut down the utility costs. We try to obviously get the landlord to pay for it, to have newer lights installed. I've got a company that does that. I know a lot of your apartment people will do separately, metering watering, water. The tenant pays for the water, whereas in an old lot of old leases, the landlord pays for it. And that's a huge cash.

True.

There'S a lot of areas like that, but again, it gets down to how long. I gave you an example earlier of the division of the Supreme Court that I represented. We actually had to do a 15 year lease for them to get a turnkey, meaning the landlord paying for the entire build up at ten years, they were going to have to come out of pocket $250,000. Because this was a pseudo state organization, that was not going to fly.

Yeah.

Most landlords, you're betting on what's the market going to do, you're putting bumps in the rate no matter what product type it is, and depending on the market conditions and how good the building is, will dictate the type of bumps that you can get. Like right now, inflation, until recently was very flat. If you put a consumer price index bump in it was nothing. Now it's what, 6%, 8%, could be 10%. If all of a sudden you're paying 100 grand and the next year you're paying 110, you're going to feel that. There's a lot of ways to do it. We have a 44 point lease checklist that we go over every single one of these items, and there's usually a half a dozen of them that are very landlord slanted. We'll try to negotiate what I call a win negotiation. We're not there to beat the landlord up for every last dime, because if they're not making money, the building can't be run properly. There's nothing worse than you walking in and seeing a crappy lobby, dirty restrooms, the parking lot is dingy, the lights are out, it's not safe, the trash cans in the back alley aren't empty, et cetera.

Yeah, that's really good. I feel like I'm kind of sitting down with the enemy right now, and the enemy is telling me all their strategies against me, and I'm kidding about that. What's interesting is that Greg is sitting on the other side of the table to landlords a lot. Obviously, he represents landlords as well, but being able to kind of hear the strategies that he's utilizing to make sure that the tenants are getting the best case scenario that they can get is pretty interesting to me. You mentioned bumps, and that's one thing that I've always had of a hard time on the commercial real estate side. Well, let me back up. The risk that I see in a lot of these buildings is that the leases don't keep up with inflation. You mentioned one way to make sure that the rent keeps up with inflation. There anything else as an investor, we should be thinking about that would make sure that we don't get wiped out by inflation on some of these lease? I've seen a few deals cross my desk where it's like, cool. It's a 20 year lease, great tenant, but it's 1% rent increases every three years or something horrible like that. You just go, that landlord is getting killed.

Because again, inflation was flat for 20 years, so nobody thought of it on that. Well, you obviously put bumps. An office based on a 20 year amount, $20 foot rent, you might be getting a $50 per square foot bump. The other way they do it is they'll do a five year lease with three five year options and those options that are significantly higher. That's going to get down to, again, the credit of the tenant. What does the tenant really want and how much money are you putting in? Again, if I'm negotiating for them, I may be putting in other tenant improvement allowances in years 510, 15, if we're doing that type of thing. For example, painting carpet, a lot of carpets are not going to last ten years or year seven. You're going to spend $50,000 repainting and recarpening the facility, new lights or whatever the case may be. My goal is I'll listen to what's important to the tenant. And it's different for everybody. For some, it's secured parking, cheap parking, free parking. For some, it's a sign on the building. They got the ego or they want the exposure and the traffic. So it's not the same. What the landlords can do is really hire a good listing agent. I don't do listings. Again, I strictly represent the tenant. Even though I'm a partner of partnerships. I have no day to day operations and stuff, and I don't do anything that would be a conflict of me, I don't know in office buildings anymore on there. You hire somebody that keeps their finger on the pulse of what's going on in the market so they can tell you, yes, you can raise the rate a dollar, or no, you can only raise a $0.25. Or in fact, your building is out of the way, you're going to have to reduce the rent. But can you refinance it? Can you do seller if you're buying it? Can you do seller financing and put caveats in there if the building is leased up? So there's a lot of negotiation strategies. I should mention that I'm a master certified negotiation expert. I've got over 100 hours of designation and courses that I've done in this, and I've probably helped 900 clients over the years in every wake and size. So you see things going through. With a lot of these great real estate attorneys that I've worked with, I get them to do the legal, I do the business negotiations. The biggest thing is listening to the client. In this case, for your listeners, whoever the client is, if it's the landlord, the tenant, if it's the investor, what's really important to them? What is their cash situation? It a short or long term hold on there? Are they doing it themselves or in a partnership? Who's making those crucial decisions but communicating and then having that documented very closely? Again, I can give you another horror story on another venture capital deal that I did where everything wasn't documented as well as it should have been. It ended up not being a good deal for me. And I'm not a litigious person. I wasn't going to sue somebody. Somebody was a very good friend of mine. In reality, it wasn't a good deal, and I should have never gone into it. I trusted them on there. But trust and verify. You've heard that with a lot of different places. That's very true today. Get somebody else you trust to give you a second opinion. Yes, trust your gut. The more deals I've done, obviously, the better. I can trust my gut. But when you're new, you don't know. So I'll have somebody else. And you've heard of opportunity zones. I don't know if any of your investors are getting into those. I happened to look at a hotel deal not far from you in Fort Lauderdale off of Las Olas, which I'm like, how can an opportunity zone right off of this beautiful area? Which I'm thinking, who's picking these opportunities?

Sounds like an opportunity.

Well, I thought so, too, until I had my friend that works at Market look at it, and he read the fine print better than I did. It's hard to read 90 pages of fine print. You got to be very patient. That's why attorneys get paid the big buck, because they're going to read that 90 pages of fine print. In this case, the developer was taking their land profit up front in the deal where they're buying it for a song because it was in the opportunity zone, but they valued it like $10 million. They were making like $6 million on day one, which really should have gone to all the investors, probably, that were put in there. Fortunately, my friend told me that, and I ended up not investing in the deal. So the devil's in the details. You really got to know. You got to be patient to do your due diligence. What I tell people, and I meant to say this earlier I tell people to get everything together. I don't care if it takes you six months to get your updated tax strategies. Meet with your banker, find out how much you can borrow, how much you're comfortable borrowing, but then once you have all that, be ready to strike when the right opportunity comes, because it's not going to be sitting there for three weeks or a month, I promise you there's probably 100 other people, if not more, looking for it, especially if it's $5 million and under. You got 10,000 people looking at that's good.

That's really good. In conclusion, someone who's, let's say I've got a building, vacant retail building, or there's some vacancy in it, I know you're working on the buyers on the tenant side as a landlord, should they be connecting with a leasing agent very early on in their due diligence process? And what does that look like?

Without a doubt. There's national conferences for retail called ICSC in Las Vegas, where every player is there. Usually the developer, the owner, the listing agent is going there, and they're hunting out deals based on the demographics and the types of people that they think they're going to get. But yeah, another huge mistake. People are bringing people in too late. You want their opinion. If you interview three people and you find out really quick, well, this guy has done 100 retail deals for this type of thing, yeah, that's probably your person. I always look and say, just look at Google me, YouTube me, look at my LinkedIn, and you're going to find out pretty quick that I've been doing this a long time because we're talking high risk, high reward here. It's usually multimillions of dollars of things, so it's not a small assignment to do and what are they going to do, and obviously have it in writing what they're going to do. Too many people just don't hear back, and there's a lot of lazy people that put a sign out and don't do a heck of a lot. A big reason I got into the tenant buyer side was because I wanted to help people get what they wanted, not sell them anything. Whatever side you're on, you got to do your due diligence.

Yeah, that's really good. There's somebody that I was talking to a couple of weeks ago, and they said, yeah, I've kind of avoided anything consumer tenant wise, and they've strictly went to the commercial space because they don't want anybody sleeping in their properties. And I never thought about that. Yeah, I don't want to own property that people sleep in that they stay in overnight. I want them there from eight to six, and after that, I want them gone. That makes his life a lot easier because he's not getting calls late at night, the building isn't taking as much wear and tear. Somebody's not living in it. It was just an interesting take that I'd never heard anybody say before in 15 years of investing, like, yeah, I don't want to own buildings that people sleep in.

Well, again, if you don't have a property manager if you have a property manager, you're not dealing with that right. If you're trying to do it all and wear four hats, yes. Again, I did it maybe for three or four years. It was awful. I knew right away I'm not handy, I'm not patient. I didn't want to deal with it. My time was more valuable. And that's the biggest thing. I tell people, you value your time, whether it's $20 or 200 an hour, you can hire a competent property manager for a lot less than what your time is worth as an investor.

True education. What are you doing in the education space as we wind down here? Are you doing live education? Is it mostly pre recorded? Like, tell me about that company of yours?

We've done both. Well, the Shank Seminars.com grew out of the commercial real estate. When I left the largest company in the country to go out on my own, I said, how can I differentiate myself? Okay? People thought I was committing suicide, and the exact opposite happened. My business over doubled within two years. Because, number one, I wasn't selling, I was educating. I'm giving this people understanding that even the best CEOs and CFOs, if you're not in the market every day, there's no way to keep your hands around it. Especially now, right? Okay. Especially now. I designed these courses on the market and on the process. I teach people how to be a master of the market and a master of the process, whether a rookie or 30 years in the business. I expanded it to things like we just talked about leasing versus buying investment property, acquisition, sales skills, people skills, entrepreneur skills on their financial literacy. Being a single dad, I went into my son's school. I wanted to make sure kids understood. You get a work ethic, you find your passions in life, you work like h***, and the world can be yours.

Love it.

Okay. You're looking at somebody who was a golf caddy from fifth grade on that worked two jobs all through high school and college. I told you, at 21, I didn't have a nickel to my name. By 28, I was making a six figure income, and by 40, I was financially secure. A lot of hard work taking risks, but that's my goal for the rest of my life, is to help people get a foundation for lifelong success. You can do what you want, when you want, with whom you want.

Super cool. Greg, it's been fun. I've really enjoyed this conversation. There's one thing I want to point out. I can tell that Greg is a details guy. Frankly, in the brokerage space and in real estate in general, a lot of times you've got people who are high energy, high people skills, but they don't focus on the details. They don't know the details. Their head isn't in it. And so I really respect that. You've got it very well. Systemized thought out, you've spent a lot of time on it, but you're really focused on the details in your leasing and everything that you're doing. And I respect that a lot. So pretty cool. Greg, how can people get a hold of you? Maybe, just to clarify, how can you add value to other people? Meaning, like, whether it's education or your other business, like, specifically, who should contact you and how can you help them?

Well, again, I mentioned earlier, we have experts in about 80 plus US. Markets and about 120 around the world. Shank Company.com. A lot of people butcher my last name. It's Schenk Company.com. So we're going to help. Any tenant will do a no cost review of their lease within 48 hours. We'll tell them if it's on the market, up, down, whatever. We do a lot of lease restructuring and renewals. Over 70% of our clients come to us saying they're going to move, but they're too busy working in the business and didn't plan far enough ahead. We ended up restructuring or renewing them at more favorable terms, and the other 30% were helping them lease or purchase a new building. The Shanksminars.com really can help anybody that wants to become educated about the commercial real estate market and how to prosper in it. Whether you're an agent and want to learn to master the market and master the process, whether you're an investor that want to be partnered with other people or have a contact in your local market, we do both seminars, webinars and one one coaching. I mean, I've had people fly to me, stay at my house overnight, see all my systems, hear my success in horror stories and really get to know them. I'm a totally relationship based commercial real estate adviser. That's first and foremost. I'm not a transaction oriented person. We're a consultant first and a resultant second. We take the time to develop that to help people learn, grow and prosper.

Very cool. I appreciate you being on the show again, Greg. Guys, do business with Greg and we'll catch you on the next episode.

Thanks again, Mario. Have a wonderful day.

Thanks for listening. I hope you got out of this as much as I did. I'd really appreciate if you could leave a five star review so we can reach more people. Jump over to Mariotillo.net and find out what else I got going on. Be sure to connect with me on all the socials, and I'll see you on next week's show.