What is there to love about the TIC product? We are joy’d to welcome back tenancy in common expert Karlin Conklin of Investors Management Group to dive deeper into the pros and cons of TIC investments!
What You Will Learn:
- What is a value add asset?
- How has the pandemic has affected investment strategy?
- How multifamily investments stack up against big box store buildings investments?
David Moore: All right. David Moore with Equity Advantage, and I’ve got Karlin Conklin of IMG Investments here with me. It took me a while to get her in here, so we’re not going to waste any time. So tell, you know, we told the story how you got started.
Karlin Conklin: Mm-hmm.
David Moore: Your first real estate, 1031 exchange, for example.
Karlin Conklin: Right.
David Moore: But how did you get involved? So you started out and you personally have had income properties and work with that. So, obviously 1031 has been part of your life for years, but you really started working just in that investment world straight up. I mean, a lot of real estate people started off with selling houses and all, and you didn’t do that. You went straight into investment real estate. And how did you get from that first office doing those first deals to IMG? What led you there and what do you love about the product?
Karlin Conklin: So I was probably a late bloomer to real estate itself. And I also have an MBA and a background in operations. And so when I made the decision to go into real estate, it was a focused decision because I wanted to use everything that had come to that point in my life, from the marketing aspect to the spreadsheet-ing and understanding operations. And at the bottom line, you know, what gives you value in real estate is what is your NOI doing and how are you capping it out? And that’s the value. Doesn’t matter what somebody tells you, that’s the value. And so I made a decision to jump ship on what I was doing. And I started in commercial real estate in 2000 and never looked back. I had sold some real estate as a broker, and then I joined a firm that was wanting to just get started in syndications. A large local property management company. And so I cut my teeth there and doing the syndications.
Karlin Conklin: Putting the investor groups together a heading time, starting in 2001 through the crash and dealing with all that real estate. And what I found is that’s my home. That’s what I love doing. I love watching the values of real estate, but most importantly, I love working with the clients. It’s an entirely different thing. You’re not just schlepping real estate. What you’re doing is you’re helping clients build personal net worth. The vehicle happens to be real estate. And so one of the portfolios that I had placed equity into with my investors happened to be out of Seattle. The person working with a particularly high net worth investor that was in trouble, that person’s name as the consultant was Neil Schimmel, who is my partner now in Investors Management group. And Neil and I hit it off. We did a seven property portfolio. He was working with the seller, I was buying with my investor group, and we just grew from there.
David Moore: I didn’t know that story.
Karlin Conklin: Oh, yeah. And we… So from about 2021 until today, all of those investors that I had worked with, done their syndications with, helped them grow their net worth, most of them are my clients now with Investors Management Group. And that’s what I like about doing the syndications and working with the people because it’s as much about the investor and the people, if not more so than the actual physical asset itself. And what’s funny is within IMG we talk about the investors, investor relations, and we talk about the widgets. So we have an extraordinary asset management team, and they call themselves, you know, we’re in charge of widgets. So the widgets are the real estate.
Karlin Conklin: And the widgets are behind. But at the end of the day, our investors are key. The real estate is a piece but the investors are as important, if not more so. So that’s how I kind of got to where I’m at. We live what we do. So my husband and I, you know, in our world, we had our own real estate, a 24 unit here in Tigard. A five plex, a 14 plex and so on. So about four or five years ago, we started selling our own stuff. All of it is exchanged. A lot of the exchanges went through your firm Equity Advantage.
David Moore: Thank you.
Karlin Conklin: And all of that money is now growing with Investors Management Group. But my husband no longer is on roofs. He is no longer being called by tenants in the middle of the night. And so…
David Moore: Bill’s a happy boy.
Karlin Conklin: He’s a happy boy. And so we also, my partners and I sort of reflect who our clients are. And so we don’t… We look at everything through their prism, but it’s through our prism, because we’re all kind of the same. Right? We’re building our net worth. We’re building our wealth via real estate because that’s the widget.
David Moore: Definitely.
Karlin Conklin: Right?
David Moore: Definitely. Well, it’s, you’ve gone from a door to lots of doors.
Karlin Conklin: Right.
David Moore: You’ve gone from active management to mailbox money.
Karlin Conklin: Yeah. I mean…
David Moore: You’re still working. It’s not exactly for that but your clients, it’s mailbox money for.
Karlin Conklin: Absolutely, yes.
David Moore: And for Bill.
Karlin Conklin: For Bill, and he’s a happy boy. You’re right.
David Moore: Yes. So, I mean, that’s all good. So just real quickly, if we look at that tenancy in common structure. So, DSTs, I talk, you know, we’re in a world of acronyms, right? So DST is Delaware Statutory Trust. I look at them as sort of an exchangeable real estate investment trust. But unlike a REIT where you don’t get the benefits of ownership, you do with the DST, but they’re totally passive, totally hands off, stabilized assets, you’re going to get a check in the mail. And over time, you know, we’ve got lots of clients in that product.
Karlin Conklin: Absolutely.
David Moore: Over time, they’re going to have a pop at the end of the day. Your model is different, and you’re doing different things. So talk about, maybe what is an appealing asset for IMG and sort of what do you do with it? You pick something out that’s going to be operated obviously and taken care of, give people the income they want, but you’ve got other ideas with that asset.
Karlin Conklin: Correct. So with, we typically are buying what’s called a value add asset. We are looking for a property where we can get better than normal appreciation. And you do that by adding value. So what does that mean? So when we close, we may bring an additional million or 2 million to the table because we believe if we renovate the interiors, if we completely landscape, if we completely reskin the building, whatever we’re doing, we’re going to add value to that building itself. And so that’s how we look at the real estate. It’s mostly value add. It’s not what would be typical in your DST, perfectly stabilized building.
David Moore: Yes.
Karlin Conklin: It is not that, it is not that case at all. And we are looking to get oversized returns in that manner. And work in the real estate itself. Multifamily has been real interesting the last two years given the pandemic. And so we’ve, you know, managing through that particular period of time, that has made, that has really opened our eyes to other things, whether it is how we finance the… We do almost exclusively agency debt, Fannie and Freddie. And Fannie and Freddie because housing right now at this period of time is considered a human right. Now, people may agree with that or not, but that’s what it’s considered. It’s considered a necessity and a human right. And so the agencies worked with… We didn’t have any troubled buildings, but there were troubled buildings out there because tenants didn’t have to pay rent.
David Moore: Definitely.
Karlin Conklin: And so the agencies worked with multifamily because they wanted to ensure that even through the pandemic, that we didn’t have more homelessness than we already have. So a lot of investors, ourselves included, believe that there’s an element of safety in multifamily that you do not get in other product types, because I know that with a lot of the REITs or the DSTs or any of them, they’ll pick up a big box or a big center and say, you know what? Long-term leases, it’s good. We’re set to go. And then Kmart goes bk. Or one of them goes bk and all of a sudden something is empty. The beautiful part of multifamily is you might have 400 individual leases, you’re never going to go dark, and they’re short term. So if the market goes boom, or the market goes great, you can quickly change what leases are too.
David Moore: Yeah, whether it goes boom down or boom up.
Karlin Conklin: And you can… And so what you do is you have a really good asset management department. Managing the widgets. Yeah.
David Moore: Yeah. You know, it’s sort of interesting that… I mean, I was brought up in this space with doors. Right? I mean, for all the reasons you discussed.
Karlin Conklin: All doors. Right.
David Moore: And there’s right now people buying into stuff and I think it’s really important you’re working with people in today’s world that have been through bad times. Because if they’ve never been through a bad time, they probably think they’re not going to be one of those people. And I sort of joke that I was sort of invincible until the last crash, and I learned I wasn’t. Right?
Karlin Conklin: That’s right.
David Moore: And now your world’s a different place. You watch things entirely differently. You talked about retired people or it’s a retirement money coming in. It’s really interesting to me because we’ve had the exchange company for 32 years now. And so often, I will work with a client for 10, 15, 20 years in 1031’s, I’ll never see them. And then we do a retirement account for them, and they’re in my office. I said, well, why today? Why now? We’ve taken care of you for decades, and now you’re coming in. Well, this is my retirement. And I said, well, what’s the other money? I mean, I don’t get it. Right? So it’s sort of an interesting deal. But as we change things and the typical MO of an investor, you’re totally right.
David Moore: They start off with a home, maybe they get married, maybe they have a kid, it’s too small, they move out of it, that becomes a rental, they go to the next one and they snowball those. But they’re comfortable with those smaller things, those smaller doors. But in today’s world, their comfort level is being taken away for a variety of reasons. But when they can still get a diversified income in a more passive nature through something like you offer, that’s a very attractive thing. An alternative. And I will caution people today, it’s like, look, instead of worrying about, gee, they’re only going to pay me 5% or whatever it might be. I said, well, what do you think it should be right now? I said, if you’re chasing yield and they’re paying eight, nine, 10%, you probably should be cautious, okay?
Karlin Conklin: Have some risk. Yeah.
David Moore: Yeah. So, it’s more about preservation of wealth today than it is really this massive return. But where I’m going with this is that big box you mentioned, because the big box is always this wonderful thing. If you look at Walgreens, for example, coast to coast, was it 15, 20 years ago? They built new stores all over the country and then sold them to investors. And had these nice long leases. Well, are those leases keeping up with inflation? Is the thing going to be able to be financed? And what about the Bay Area where you had how many, 28 of them close? So a big box, single tenant building is a wonderful, wonderful thing while it works. And if it stops, especially at a time like now, it can be a very difficult thing. So, that diversified income, understanding what’s going on, working with people that have been through those rough times and are going to be here. They’re still standing on the right side of the grass moving forward. That’s all important.
Karlin Conklin: When you first met me, my hair wasn’t this color.
David Moore: No, it wasn’t. It wasn’t. Yes, you are right. You are right.
Karlin Conklin: Right. Oh, many, many, many years ago. We approached 2022.
David Moore: Any hair’s good hair, by the way.
Karlin Conklin: There you go.
Karlin Conklin: We approached 2022 looking at, okay, the pandemic is officially over. All of a sudden there’s a lot of money that’s wanting to throw at real estate. Everybody’s getting hints, the interest rates are going to go up. Nobody had any idea about inflation, all of that going on. And we sort of repositioned ourselves because we were looking at everything. So number one is safety, number two is predictability. Number three is discipline.
Karlin Conklin: And so we have a lot of people say, well over here, they’re saying that they’re going to give us a 15 IRR. I’m like, there’s no way. You’re not going to get that. But if you want that 15 IRR and you chase it, I gotta tell you something, you’ve got higher risk. And you’ve already told me that’s not your profile. So we are really disciplined with our end underwriting. Every sponsor should be. We are looking for predictable distribution, predictable returns. That’s what our clients are looking for. And I do think when someone’s younger, you take a lot of risk. And you should, right?
David Moore: Yes.
Karlin Conklin: But as you are getting a little older, and I would say our average client is probably 60. When you get older you start wanting less risk, wanting more predictability, and you’re not chasing, you’re just not going to chase anymore because it’s risky. Right.
David Moore: Yeah. You want to be comfortable, you want to go sleep at night.
Karlin Conklin: I want to be comfortable. Absolutely, yeah.
David Moore: Definitely. So, David Moore, Equity Advantage, 1031exchange.com with Karlin Conklin of IMG and we’ll be right back. Thank you.
IMG has delivered to its investors an average 2.0x equity multiple and 26.3% IRR over 25 full-cycle investments since 2010. For more information tune into our series or give Karlin’s team a call at the phone number below!
Karlin Conklin Principal, Co-President & COO of Investors Management Group (747) 262-5660 or email firstname.lastname@example.org
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.