How to Break Into the Retail Real Estate Investing Market with Special Guest Cherif Medawar

All right. Give me 1 minute for YouTube to start. Give a good smile because the first image they see is the one that's frozen in time, right? Okay. All right. Oh, let me— 1 minute for YouTube to start. Okay. Welcome to Syndication Attorneys' free monthly podcast where we talk about topics of interest to real estate investors and syndicators with the opportunity for live questions and answers at the end of the call. I am attorney Kim Lisa Taylor. Before we get started, please note that all of our podcasts will be recorded and may be used for future promotion, posted on our website, or broadcast in a podcast available to the public. If you don't wish to have your voice recorded, don't raise your hand. You can ask questions in the Q&A at the bottom bar along your Zoom. There's a place for that, or you can raise your hand if you want us to call on you. But— or you can schedule a one-on-one call with one of us by going to our website at syndicationattorneys.com and clicking the button to schedule a call. So information discussed during this free podcast is of a general educational nature and should be not construed as legal advice. And today we have someone I have known for a very, very long time. Oh my gosh, Sheree, when did we first meet? It was like—

Almost a decade ago.

Yeah, easily. Easily. It was like we've known each other for like 10 years. We sat next to each other at a private money seminar together. Um, and we've encountered each other at events all over, and we've heard— I've heard Sharif's name. I'm sure he's heard my name. So we all travel in the same circles, and, uh, we've all done pretty well for ourselves, and we've been able to help some other people do well for themselves as well. That's pretty gratifying for, I think, both of us, right?

Absolutely.

Right, right. All right. Um, so today, what is our topic? Uh, today our topic is how to break into the retail real estate investing market with our special guest, Sharif Medouar. And what really intrigues me is that there's not anybody else teaching this that I'm aware of. Everybody I know is teaching multifamily, they're teaching self-storage. Some people are just teaching general commercial. I've been to the ISCS events, International Council of Shopping Centers events, and they kind of teach it, but not really.

Right.

So they kind of just presume that Everybody already knows how to do it. Um, so I think that this is just a huge niche that people don't understand and they're afraid of, so they stay away from it, which means there's incredible opportunities out there for people once you learn, you know, the ropes, right? And so, uh, Sharif, I saw him speak, um, gosh, in Miami, I think, or Fort Lauderdale.

Yeah, we were together.

Yeah, several months ago. And I was just so impressed with the program that he's put together. I thought we've got to have him on our program so you guys can learn about this too, because, you know, as we all know, it's, it's a tough world right there in the multifamily market right now. It's tough. So this is a great time to start exploring and learning about all the other asset classes that you might be able to invest in, some of which may be better investments at this time. So we'll let Sharif tell us what he thinks about that. But Before we do that, Sharif, just tell us a little bit about you and how you got started in real estate. Okay, great.

Well, I was always in the hotel business. I studied hotel and finance, and I met a billionaire at a hotel, Century Plaza Hotel, when I was very young. I was 20 years old, actually, uh, barely, I think almost 21. And, uh, I was at the Century Plaza Hotel in Los Angeles, and, uh, he noticed how hard I was working, so he stopped me in the lobby of the hotel and he said, Sharif, I see you from six in the morning working so hard all the way till eleven at night. What is that all about? And I said, "Well, you know, they identified me as a potential general manager. I'm working hard, and I want to move up." And he said, "Look, why don't you get into real estate? You need to come and work for me." And I said, "What do you do?" He said, "I have real estate around the world. I need somebody with your enthusiasm and energy to come and help me." And instead of getting excited, I got scared. I said, "Oh, sir, I don't even know residential real estate to go do international commercial real estate." And he held me by the shoulder. He said, Sharif, you're at the right place at the right time. Just say yes. So I said, you know, and I ended up working for him for eight years. He was an amazing gentleman, very honest, very smart. He wasn't a very hard worker, but he was a very smart worker and made hundreds of millions. So I would go and fly on his behalf to make a deal based on what he told me, and I had to understand everything. That's how I got started. Then I left him 8 years later because I knew so much I wanted to just go do it on my own. And it started growing from there and into doing my own deals, mainly in California. And then I started teaching because so many people kept asking me, what are you doing? What are you doing? And then from there I set up my own real estate fund. And you know how great it is to fund business and kept growing. And then I realized that what made me the most money has been the retail niche, if you will, that I got in. And I'm glad we're on this call so I can share it with many people.

That's great. Yeah. And, you know, I think my takeaway from that is find a mentor, right? Find somebody who's already done this, who can kind of hold your hand through it and help guide you in your early deals. Eventually, you'll learn enough, you'll be able to do it on your own. But in the beginning, you need somebody to kind of keep you on track. Make sure you're doing the right things, not the wrong things. That's how I got started in my law practice. I found a mentor. I worked with him for 8 years. That was Gene Trowbridge. Very good person. Yeah. And that's where, where Sharif and I met was through Gene. And, you know, and that was what helped propel me forward and enabled me to go out and eventually start my own firm. You guys can follow that same path. Just find somebody that you can follow, somebody that can give you some, some guidance along the way. And you're going to be far, far better off. All right, well, so tell us what you mean by retail real estate. What is that?

So, so I'll give you an example of a strategy that I use. So retail real estate is— imagine a single-tenant building. This is a standalone building that accommodates one tenant. Those are usually big tenants like a Starbucks, a Jack in the Box, a Subway. And these tenants, when they come into a building, They don't want to lease for a year or 2 years. They want a 10 to 15 year lease. Why? They invest in the space itself, changing the floors, changing the decoration, the entire look and feel of the real estate itself. They hire staff. They start building rapport with the community to sell whatever sandwiches, ice cream. And it could be also retailers like jewelers or retailers as clothing. But those are kind of dying down, if you will, compared to the QSR, the quick service restaurants. As evidenced by what happened during COVID where the best retailers in the business, actually the best functioning, uh, real estate was these big box retailers that are called like big food retailers, if you will, like, um, Subways, Burger King, McDonald's. They kept humming along, and the properties that I had that had these tenants kept performing. And when they signed the lease, not only do they sign for 10 to 15 years, but they sign it with a corporate guarantee. Meaning the lease is guaranteed by the entire corporation. Usually they're publicly traded, so I get paid no matter what, because if they don't pay me, then— and I can collect from the main corporation. These are publicly traded companies, and, um, there is a way to deal with them with the right leases, the right wording in the leases. So that's what I was doing. I would actually very simply find a vacant building, uh, standalone And I'll just call on the brokers and tell them I'm interested in buying this building. Of course, I could get it for a very good deal because it's sitting vacant. Most people don't know how to bring these big tenants in. And I'll start smiling and dialing, calling these large tenants. And as soon as I get one interested to sign in for a long-term lease, the value of the building would almost double. I mean, it goes to whatever the base rent is. They pay me on top of that the triple net, which is They pay me the base rent plus net of tax on the building. They pay the insurance on the building and they maintain the building. So I didn't have to do anything. I would work hard once, put a tenant in, value jumps up, and then I move on, go find another building, do the same thing, often refinance, cash out money, and repeat the process. It took my net worth to a very high level. I became the largest owner of historic properties in Old San Juan, Puerto Rico, literally 30-some buildings there. Um, yeah, and I did it throughout the US. But in the US, I kept buying them, I put the tenant, and then sell them, get the money, and then buy more in Puerto Rico. Because Puerto Rico had a lot of tax incentives. So not only was I making a lot of money but paying very little tax. And I continued to hold these buildings till today. And, uh, and then my education company, you know, I have an education company. I, I started thinking I'm training people, but they're not doing it. I said, so what's, what's missing there? And I realized I had to give them a few things. So what we do today, like, I want your, your audience to imagine this. They drive around on a busy street, let's say a 2-way street, and there is a standalone building that's vacant. Usually there is a sign that says available because the owner of the building will call a broker and say, look, if you can lease it for me, lease it. If you can sell it, sell it. But it's sitting empty. I need some money. So, so you call on that building and you say, hi, how much do you want? And they say, well, we want $900,000. And you say, no, no, listen, it's sitting vacant, I'm interested at $700,000. Let's say you settle at $800,000, the price. You— they need— the broker needs to see from you proof of funds. So what I did with students is I showed them I have my real estate fund and there is always cash sitting in it. So that capital sitting in it, I'm going to give you the proof of funds that we have cash. And you're going to write the offer, your name and/or Mixif, which is my fund. And so the broker will take that person seriously. Okay, so you have cash and you're gonna buy this property and you want to put it under contract. We always use this, the listing broker, because it's just, uh, it's a lot easier for the transaction to go along smoothly. So once they put the deal under contract, I already trained them on what to tell the broker, and now they have it under contract with the proof of fund that I gave them. And then also I train them on how to identify tenants, and there is a list of 4,500 tenants that I compiled— the name of the tenant, the phone number, the person with whom they need to get in touch, who that tenant likes to be next to, what size space they like, and what states they're growing in. So this 4,500 tenant list are national tenants with big deep pockets, and we focus mainly on QSRs, quick service restaurants. So that person who's got the deal under contract, I showed them how to create a little package for the tenant, which is basically an email, some pictures, a plot plan, all that stuff. I go through it in a training with people, but it's not so difficult. I mean, anybody can do this. And a little video. And then they start smiling and dialing, and they have a script what to tell these tenants on, because usually you get a voicemail. Hi, my name is Sharif Medawar. I have a property at 123 El Camino Real. It's approximately 2,000 square feet. Traffic is this. The neighboring tenants are that. If you're interested, call me. I'm going to send you an email with the subject line Kansas City Downtown, let's say. And what happens is, after calling so many tenants— I mean, you call, let's say, a bunch of tenants every day— within a few days, let's say 10 days or so, you will at least get one tenant or 2 tenants to call you back or to email you and say, we're interested. We need to discuss some details. And that's when these, uh, students of mine that are in a joint venture with me, if you will, they forward that email to me and they say they're ready to talk. We set up a Zoom call, we go on the phone with these tenant representatives. So it's usually the tenant representative, somebody from their retail division for opening stores, my student who is doing a joint venture with me on this, and myself. And we discuss what's called the letter of intent. So let's say it's Subway. They intend to lease the space. They want it for 10 years, 3% escalation, corporate guarantee. And then usually they negotiate what's called TI, tenant improvement. They say, listen, you give us $75,000, we're willing to pay you $8,500 a month. And then I say, you know what, um, what if we give you just $50,000? Okay, well, we'll pay you $8,000. And we negotiate some nuances on the lease. I became a master of this because I've done it so many years. That it became second nature. I mean, we have literally like a checklist with them on the phone, and the student learns how to do it because once they do it once with me, they know how to do it forever for themselves. And, uh, then we have an agreement on the phone. We get the letter of intent drafted, we send it to them, they sign, they send somebody, a representative, to verify the store. They already know everything online— the traffic, the neighboring. They can actually— they have softwares that can predict how much they're going to sell in this area. And the beauty is, once they sign— let's say they sign for $100,000 a year base rent, like $8,300 a month— if you take that base rent, $100,000, and figure out these national tenants, when they occupy a building, the building sells at 6% cap. That means, for simplification of calculations, take the $100,000, go times 16, the building is worth $1,666,000. A million— say $1,700,000. But if you put it under contract at $800,000 and you had 45 days for due diligence, you had no obligation to even buy it for 45 days, and you started smiling and dialing and got one tenant interested, the building jumps in value to $1.7 million. That's $900,000 instant increase in value. So what happens is these students, sometimes they're new, they're trying to wholesale commercial because it's so much more profitable and so much less headaches. And what I do is on that upside from the $800,000 we have it under contract to the $1.7 million new valuation, that's $900,000. I give them 10%, literally in escrow when we close. When my real estate fund buys the property all cash, we give them $90,000 at the close through escrow. We cannot pay them outside escrow, we have to pay through escrow, and that's just the way it's done. Now if, if I was able to get them that tenant to sign for 15 years lease I give on that $900,000 on the upside 25% of the upside, which is a lot of money, which is like almost— what, uh, is it, uh, so 25%, um, of a million will be $250,000. So it's about $225,000 at the close of escrow. The beauty is we've done it for quite a few years. We have over 2,000 video success stories on YouTube. We have a lot of students that made money with many of the strategies, but by far this made me the wealthiest. We've had some incredible success stories from students, and we're doing a deal right now with Church Chicken in Florida. The deal is under contract. The numbers, I'm telling you exactly, $800,000. It's going to be worth $1.7 million. They're actually going to let us know this Friday if they're going to sign for a 15-year or a 10-year, but they're so excited about the location, they want it. They negotiated $100,000. Um, it's going to be $100,000 to $125,000 on the tenant improvement. So it's a beautiful way to structure deals, and, uh, we don't need a distressed seller. We just need a property listed by broker. I mean, it's not like—

Let me ask you some follow-up questions.

Sure.

Um, how many calls should a student be making a week if they want to find these deals? Or find tenants to occupy these properties?

At least 50 calls.

50 calls a week?

Yeah. So they'll have to dedicate about— it depends how organized they are, but they should dedicate 45 minutes a day. Wow.

Okay. And I would tell all of the listeners out there that are buying any asset class, if you adopt this policy, you're probably going to find some deals. When you're not finding them now. I get a lot of people that call me and they're saying, you know, we're looking at this deal, we've been looking at it for the last 2 weeks, and they're just analyzing, analyzing, analyzing. And it's like, okay, that deal's fine, but you should have been doing like another 50 or 60 of them since then, and that one should be long gone. And you would, you know, you're just waiting to hear if you get a response. So, you know, this is a numbers game. Real estate is always a numbers game. You've got to get out there and get your voice out there. You can't just expect things to come to you. You have to make it happen. So what about sellers? So you're just driving around looking for things in your neighborhood, or are there other sources of potential properties?

Yes, you can literally go to any of these big commercial websites like loopnet.com, craigslist.com. There are cityfeed.com.

What was the last one?

Craigslist. C-R-E-X-I.

.com.

Yeah, so there are plenty out there. And once you even Google, um, retail for sale, you have so many that come up. I mean, you can then go to Marcus Miller Chap, etc., etc. But I always recommend for people to check within a certain radius, 3 to 5 mile radius. And we've done— we do the training once every 5 to 7 weeks. I do the training personally. I don't assign it to anybody. I'm not one of those like gurus that are like, take my training, here are some coaches that are going to help. No, no, no, no.

It's— they come training towards the end of the call. But I want to ask you some more questions here.

Sure, sure. Ask me.

When you're talking to a tenant, do you already have the property under contract?

Yes.

Or do you have an LOI out?

No, we, we have 2 types of letter of intent, LOIs. The letter of intent to purchase, which we send to the broker to put it under contract. Once it's under contract, we prepare the package, then call the tenants. Otherwise, the tenants could be talking to us on the phone and then we'll Google it. Listen, the property is for sale. What are you talking? So at least they can see that it's pending. Yes.

Right. Okay. All right. Now, is there any kind of bank financing available on these types of properties? Or because you said that your fund buys for all cash, but, but is that the only way that you can finance them?

Yes. So in general, the banks don't want to finance a vacant building like this. They're gonna say, listen, $800,000, you're on your own. I'm not going to give you— I mean, if you have very good credit, they may give you, they may give you 40%, like maybe they'll give you $300,000 on that property for a fire sale because there's no income. There's no, you know, the debt coverage, debt service coverage ratio, DSCR. There's no income for them to calculate the ratio of the debt payment. How is it going to be covered? So So if it's vacant, there is no way you can get a loan.

But what about after it's occupied?

Exactly. So, well, 2 steps. Once it's under contract and you have the tenant with the letter of intent, the bank will say, okay, well, you know what, we can give you the loan if and when they're in. Uh, some banks will say, okay, we'll give you the loan now, you know, but pending the funding once you, you tell the You let us, like the underwriting department, verify with that tenant that they are committed to the space and that there is a lease pending, etc. So the easiest thing for me is I buy them all cash. Then once the tenant signs the lease— because you have to sign the lease once you— the property is in your name, the deed is in your LLC or is in your name, right?

Right.

Then I go to the bank and I say, how would you like a corporate guarantee from a company that's trading at $800 million or their valuation is in the billions, like a Subway or Ben& Jerry's, any of these. And then that's when the bank says, okay, I'll give you 70%. Um, they finance them for 25 years. But remember, they are now valued at— that property I bought at $800,000 is valued at a million whatever. And what they will do is if they finance it when it's under contract and they see the proof of fund and they see the letter of intent, they will finance it at 70% of the purchase. But once it's actually purchased and the tenant is in, as soon as the tenant starts paying the rent— because sometimes we give them 2, 3 free months, right? Then the tenant— the, the bank is willing to actually refinance and cash us out.

So it becomes a no money down, that fair market value, if the tenant's already in place, whereas they're going to finance, uh, off the purchase price if you just have an LOI.

Yeah, every now and then the bank gives you a little bit more than your original purchase price. Doesn't happen often. It happened when I did a Fat Tuesdays deal. They loved the, the deal so much. I bought it $700,000, property's worth $1.6 million with the tenant in, and they, they give us $900,000 out. I mean, that was just a beautiful thing. The bank liked it so much, they liked the solid lease and the corporate guarantee, and we cashed out more. I mean, you end up getting more income than the payment no matter what.

Well, that's, that's, that's a pretty fantastic model. Now tell me, you said something about if you have a student that brings you a deal and then your fund acquires it that you have a, a kind of an incentive program for them. And can you tell us that again?

Yes. So on the price, we put it under contract, and once we line up a tenant that's going to sign for those 10 to 15 years— and I'm negotiating those with those tenants anyway when there is a student involved— the value goes up. So that upside difference, okay, 10% to 25%, even if I have to put a tenant improvement, $150,000 or $100,000, that's not their problem. They have it under contract at X. Now the tenant is going to come in, they want to sign, it's X plus. Okay, they get 10 to 25%, depends how many years the lease is signed for.

Nice, nice, nice. Okay, um, very good. Uh, and who does— and so the— I think you just said this, but I just want to clarify, who pays for the tenant improvements? Is that something that would come out of your fund or out of the student?

Uh, the, the student just has to have $5,000 cash To open escrow, that five thousand is refundable. It's earnest money deposit refundable. The reason they can put five thousand and not twenty or twenty-five thousand is because we show the proof of fund that's cash sitting in the account. If the broker has a question, they email me directly. Are you the fund owner? Are you the fund manager? We have Joanna here is sending us this offer. Are you guys connected? And it's like yes, the offer is made in Joanna Smith and or Mixif. So, and I'm the owner, and here is the link to the SEC. We're filed with the SEC. Then they're relaxed. A broker is happy, knows that we're serious. They give us 45 days due diligence and another 15 days to close. And believe it or not, Kim, we don't even have to do the due diligence. I mean, when the student puts it under contract, we don't do any due diligence. A single tenant building. We just call up the tenants, and when the tenant comes to visit, they usually send the, the retail division people. that come in and say, well, we need a new floor, the ex— you know, the extractor hood here needs to be changed. So you know what, we need $75,000 in tenant improvement, we'll sign the deal. They did the inspection, I don't have to do anything, so I can do it from a distance.

Okay, um, so why do you think that retail is kind of better than other asset classes? What is it, just because of the mechanics of the way it works? Once you get signed the tenant, the building increases in value. Is that kind of the, the sweet spot, or is there something else that you think it's such— so great?

So the reason I like retail— well, I like 12 different kinds of commercial real estate. I train people on 12 different kinds. I have a formula called the FACT system, etc. But I've always looked for stuff that can compress time so I can make the most money with the least effort.

Okay.

Everybody would like to do that. But then as I started doing transactions, yes, like in apartment buildings, I'd say I don't want to buy it and then start hustling with the tenants and get them out and all. No, I'll buy Class A building and I'll separate the units into condos, and then I'll sell them and make a killing. So it was always the velocity of making more money and paying the least amount of taxes. And because I set up in Puerto Rico, which has the biggest tax incentives I was able to accomplish all that and pay the least amount of taxes legally through tax incentives. I took residence in Puerto Rico, I do business in California, route the money legally through Puerto Rico through the proper entities, etc. And that's a whole different conversation. But the thing is, when I got to retail, I realized I don't have to look for a desperate seller. I'm talking to brokers. Usually the owners have many buildings that own these buildings, and one became vacant. They don't want to deal with it. It's been sitting vacant for 3, 4 months, and they're like, oh my God, I got a payment, I don't I don't need this. If it's not going to rent, I need to sell it. So they're not so difficult to negotiate with. And number 4, it's an instant increase in value. It's not something I had to wait 10 years until I had to remodel it. I had to— I, I mean, like the deal right now we're doing with Church Chicken, we're literally going to give them the, the tenant improvement. We're going to put it in escrow as they do the work. They're gonna draw against these invoices. I don't have to do anything. I don't have to go deal with contractors or anything. Not that I don't do that in other developments that I do. I do developments in Florida, I do rehab and luxury homes in San Francisco, but this is one of the simplest. And, and, and let's create a problem. If I put a property, or, or a student puts a property under contract and starts smiling and dialing for 40 days, 44 days out of the 45 days under contract, and not one tenant calls us back All he has to do is call the broker and say, you know what, this deed is not for me. I'm sorry, I could not accomplish with it what I wanted. It's not fitting my criteria. I'm walking away. They get their $5,000 refunded. So where else can I do a deal where I'm sitting talking from my office on the phone and there is a huge upside and zero downside? And then after you do the first deal, let's say a student assigns it, the first deal They made some money. The second deal, they have the experience. They know exactly the steps to talk to the broker. They know exactly, you know, what to say to the tenants to attract them, what package to present, and, and the lenders they can go to, to, to get the deal financed. So the second deal they do on their own. So it's, it's good for the students. For me, I have to go now in that city because we're limited by city and go like, say, in Seattle and find another Joanna that's interested, or because we're limited by cities, so we don't go crazy.

Okay, so, um, this is something that people could do on their own. They don't have to use your fund. They could go out and raise their own funds, right?

Many— yeah, many people actually take the training, and they actually— what they end up doing is they go do it for themselves. And once they do one deal, they say, I need to set up a real estate fund. I gotta set up a fund because this thing can be scaled. And then when the game gets excited, and eventually after they do a couple single tenant buildings for themselves, they then want to go into the strip mall, shopping mall. I have a gentleman who started and in about 9 months did $1.1 million. He's in Georgia. And, uh, then he set up a fund. He set up a fund. And I just, uh, he sent me success story. He said, Sharif, now I have a fund. And he raised money the first week. I mean, you know, some people set up funds that takes them like 30 days, 40 days to, to raise a penny. This guy, all he had to do is, look guys, I've done these couple deals, I want to do more, I want to do bigger stuff, and boom, the money was raised. Like, he got $150,000 the first week. Second week, some people that he had done a deal with and they carried financing, he went to them and he said, hey, would you like to invest with me in this? And now he's up and running, scaled the game.

That's fantastic. And, you know, we can help set up those funds. Of course, that's one of the things we do. And then we've also actually just signed an agreement with a fund management company called Varivest where they'll give our referrals a discount off their onboarding fees. And we're pretty excited about that because I think a lot of our clients that have funds don't understand how to manage a fund. And it's a little bit more complicated than just managing a syndicate with a few investors in it. Especially when it's going to be open for a long period of time, it's going to be acquiring and selling assets and things like that. There's a little more moving parts to it. So I think having a fund manager and administrator is going to be a big game changer for a lot of people.

Great idea, Kim. That's great to know.

Yeah. So they're doing really well. So, okay, well, so people come sometimes, I mean, when they hear retail, they think retail shopping centers. And so that's not what we're talking about here, right?

Not at all. Yeah. And, and if I may say why I don't— like, some people get trained or come to the training and they say, Sharif, how about if I do a strip mall or a shopping center? Wouldn't that be like what you're doing with 1 times 12 or times 50? No, because if I'm gonna buy a strip mall or a shopping center, now I really have to do due diligence. We really have to check the, the roof, check the air conditioning units, check the flooring, check You know, all that stuff. In a single tenant building, I don't have to check much. I just have to put it under contract. The tenant that's interested is going to tell me what they want, and it's up to them. We signed the lease when I signed with Puma Corporation there, you know, athletic wear. They didn't want anything. They just wanted— this is the price we'll pay, just give us so many years, we'll give you the corporate guarantee. Can we get in?

Yeah.

How quickly can we get in? You know what, we do this, this, this, you're in. So, you know, they didn't want anything, just have their own system, and they took it from there. So totally different if it's a strip mall.

Yeah, yeah. And, and especially when you're having to find, you know, you got to find an anchor and then you've got to fill all these little spots in between, and you've got a lot of—

And you have some tenants coming in and they tell you, yeah, I want an exclusive, I don't want anybody else to sell ice cream. And I was like, oh my gosh, you know.

Right, right. Well, and then there's no corporate guarantees, and if there are, just based on, you know, whatever their corporation has, which could easily go bankrupt and, you know, sort of that to enforce on. So, you know, I can see the value in this, the single tenant. Now, do you also develop, like, do you take vacant land and build your own single tenant buildings ever? Or—

So every now and then a tenant comes in and says, well, thank you for calling me regarding the 123 El Camino Real location. We're really more interested a little bit down the road if you can actually get us something on that street going south. and we'll do a build-to-suit. So then we go find the land for them, we end up getting the land, and then we'll make a deal with them. And the deal is like this: do you guys want to build it and pay us a land lease, or do you want us to build it for you but then you will have to sign a 15 to 20 year lease? And it's a negotiable thing, and either or we do it, but those deals are not that common. And every now and then, Kim, we have somebody that says, I like the location, I hate the building, it's too old, so why don't we demolish it and build a new one? We'll work it with you this way. Then they have their own formula. Like McDonald's, we did a deal in Dallas with them. Uh, they're not so easy to deal with, but they are so great to have their contract because then the multiplier is huge. I mean, the property doubles and goes crazy in value. And, you know, they said, well, it was a big lot. Well, we don't want any neighboring tenants. We want the whole lot. They're not going to use the whole lot, but it's just, we're McDonald's. We're not going to share space with anybody. You know, it's like, okay, you know.

A parking lot.

And then once they sign the lease, you know, they say, okay, these are the specs for you to build. I take to the bank and I take it and I tell the bank I'm building for this national tenant. And the bank says, we'll give you a construction loan. So, and it's not so difficult. Yeah.

Excellent. Um, so, uh, can you explain for the audience, just because the triple net concept is a little bit different for a lot of our clients that have been, uh, in the multi-family world or, or some of these other commercial markets. So yeah, tell us what triple net means.

So triple net, meaning the tenant is going to take the space, the location, and they're going to pay the lease. And when there is a property tax and the property insurance Or any ongoing maintenance, they handle it. They pay it. So I get the property tax, I send it to the tenant, they pay it. I get the property insurance, send it to the tenant, they pay it. So what ends up happening is the tenant is fully in charge of everything. And you know, in the beginning, people, when I tell them that, they say, why? Why would the tenant do that? Why would they need to do that? Well, when you talk to these tenants, they say, I don't want to depend on you coming in to fix some leak or something. I don't want that. My operation is going to stop. And I need to make sure the property taxes are paid so we don't have lien issues. I need to make sure the property insurance is paid so we're covered in case there is damages, etc., etc. And, and this is not an uncommon thing in the retail world. Um, the key thing is to understand that there is also quadruple net, which is called absolute net. So I have, I have a building with Coach, the tenants that are— they sell ladies' bags and clothing and stuff. And we negotiated it quadruple net, absolute net. So they take care of the taxes, insurance, maintenance, and the structure, because usually the structure is something the landlord would deal with. If there is a roof leak, they're gonna fix it and bill it to the landlord, or the landlord will come and fix it. Landlord meaning the owner of the building. Well, with some tenants, I'm able to get quadruple net because they say, we're just going to send you a direct deposit, we're going to pay you the increase every year, just get out of our way, we're gonna run it. I love these.

So with the triple net, then they do like the kind of the routine maintenance, they manage the parking lot and all that. But if there's structural repairs, that, that usually falls back on the building owner?

Yes. And usually when I, when I'm gonna do a lease like this, like I did a deal with Sunglass Hut, so, um, they said, look, we're gonna pay you $17,000 a month if you want absolute net. That means we'll never call you for 15 years. You don't have to— you just get our deposit. If you have a loan, pay the bank. If not, live off that money. But if you deal with the structure, because it was a historic building, we're willing to pay you $20,000 a month because we don't want to deal with structure or any issues. You deal with if there is a leak or whatever, because it was in the Caribbean. There is a lot of sun, a lot of heat, a lot of rain. So I went and I, I got this, uh, roofer and I said, how can I make sure I don't have a leak for 15 years? He said, I can put a sealer and I can give you a warranty for 40 years. It's a lifetime warranty, but I'm gonna say 40 years. So for $10,000, I sealed the roof and I got an extra $3,000 a month on the lease for 15 years with escalations. So there is— there are just so many ways, you know. I mean, I can talk about this forever, but the idea is you have a reliable tenant that's gonna actually keep paying you as the debt keeps getting paid down.

Right, right. And you're, you're eventually going to own the building free and clear. Now, at what point do you think about, all right, this lease has only got 5 years left? I mean, when do you think about selling, or what, what, what's the exit strategy?

So in the great locations, I, I don't want to sell. I just hold on to them. Like, that's why I specialize in Old San Juan, Puerto Rico, because that's where the cruise ships arrive. Historic buildings, there's a lot of tax incentives. So I kept these buildings. The ones in the US, as soon as I place the tenant, the value is huge because there's 10 or 15 years of income. I sell them right away.

Oh, okay.

Because that's the highest value at the time. Now, there are so many people that love the 6% return, sometimes even 5% return, because they— at 16 times the rent, imagine somebody's making $100,000 a year, but they paid $1.7 million for the building. Well, believe it or not, these are— there are a lot of owners like this that pay that much because they own some other assets. They had the land producing no income. They had a Class C apartment building that was giving them a lot of headaches. So they sell, do a 1031 exchange, they buy these triple net buildings, and they say, you put the tenant, God bless you, I'll pay you whatever. I want my 6%. I want to go to Puerto Rico or to Cancun and go sit and relax by the beach. Plenty, plenty of these.

Yeah, that was my actual next question. It was what, uh, kind of overall cash-on-cash returns do these properties generate?

Oh, cash on cash, it depends on where the interest rate is. But right now, actually, a lot of these deals are done all cash. Uh, my brother did a deal with 7-Eleven in Los Angeles, and I mean, he got the property at $2 million. I had to buy the one behind it because the 7-Eleven said, we'll come but we need more parking. So he had to buy the property behind it at $1 million, which was a horrible little property, but then they flattened it and all this. The whole thing cost him like $3.4 million total and sold it at $5.8 million to a guy doing 1031 exchange and did all cash. It's all cash. So they're getting on $5.8 million like maybe 5% return or something.

Okay. So the returns from a cash flow perspective and for long-term rental income, not that great. Where the real return is in these buildings sounds like it's this velocity of turning, turning these properties, getting the— increasing the value and then selling. selling it. So you're really kind of flipping the property once you find it, get it tenanted, uh, get it up and running, get the lease in place, and then, and then resell. Yes.

And I would suggest for people, maybe flip the first one, second one, third one, just hold them, hold them, because beautiful cash flow. You don't have to worry about much, and it's easy to have somebody inherit them. You put them in a living trust, etc. Like, like, I have a real estate fund, you know, you know, funds you can hold many different type of assets, you can sell some and pay off these, and then they produce a good cash flow to pay the investors while other new assets come in. It's like, it's an amazing asset to hold because it doesn't have too many moving parts.

Okay, so yeah, I had a tenant, or I had a client one time that was building some single-tenant buildings, and he had a group of doctors that just absolutely loved investing in these things. They would guarantee up to 125% of the loan amount. Every single investor signed on the guarantee. They just held them forever for the cash flow. They just loved it.

Yeah.

All right, so, um, all right, so the, the type of financing— so mostly you're doing, uh, self-financing with your own fund, but then if you do get a tenant in there and you get, uh, a bank loan, we're looking at just normal CMBS financing, or what?

Yeah, actually any bank will finance these because they're very desirable for the bank, so there's good liquidity with them. You can get credit lines against them also, but usually they'll go up to 70% and they'll go 25 years. Once you— that's if you're just buying it with a tenant in. If you actually have, um, placed the property under contract at a lower amount but then placed the tenant yourself and the value jumped way higher, they can actually almost give you 100%. Depends on your credit and the history you have with the bank. So maybe the first deal you'll put a down payment Second deal as the value increases, and what we do is sometimes even some with some banks I do what's called an assignment of contract. So it's an assignment of lease in case of default. So the tenant comes in, and they're gonna sign for ten years. I get the loan with the bank. I tell the bank, "No, no, no. Look, I'm you know I I need the whole eight hundred thousand. You got a tenant here with a corporate guarantee. I'll give you a hundred thousand just as reserves." in case something happens, but the payment— I'm not assigning the actual lease to them. So there is a form, and the bank files a UCC-1, which is a Uniform Commercial Code. And what the bank does is then they, they, they get the lease payments. They send a letter to the tenant. I have that with Guess Company. Guess, they do clothing, and I got a very good lease on it, and I got a great loan because I told the bank, look, you can file a lien with the mortgage you're giving me and an actual lien with the business lien, which is Uniform Commercial Code 1, UCC-1, is the lien they put for business, as you know. Uh, and then the guest sends the check to Sharif Merawar and/or the bank, you see. Okay, so then it goes to— it gets deposited literally with the bank, and then it goes to my account. If I default, if I don't pay the bank, it will just sit, gets deposited in the bank, and does not come to me. So this way, if they foreclose on it, on somebody who defaulted They don't have to lose time. They don't have to lose income. So it's a beautiful way to tell the bank, I'll reduce your risk to practically nothing. Corporate guarantee, the building is here. And—

So you said something a couple of times during the call, and I just want to clarify if I've understood this correctly, that if you get a tenant in, you buy the building all cash, you get the tenant in place, the building has doubled in value, you now may be able to get a loan that's for more than what you paid for the building plus your tenant improvement. So you basically get 100% of your money back. And then if you keep this property with the bank loan in place, then, you know, your return is, is, you know, everything above the loan amount, home payment, right?

Yes.

All right. So, so just, you know, making sure that everybody understands you've got your money back. So you're kind of getting this infinite return at that point.

Yes.

The next deal.

Yeah, not always, but quite often you do. You see, it depends on who the tenant is and all this, because there are corporate guarantees that are AAA tenant, um, you know, B tenant, etc. But the corporate guarantee has saved me from so much. And, and I'll give you an example of the corporate guarantee. Um, if a tenant signs for 10 years and let's say a couple years into it they say we want to cancel the lease, we don't want to continue here, we want to go dark— that means we Don't want to operate. They just have to continue making the payments. It's called going dark. And then they say, you know what? We don't even want the space. We want to just cash out of the lease completely. They have to buy the lease. So let's say it's $100,000 a year and there are eight years left. That's $800,000 plus the escalations and stuff. They're not going to give me $800,000. They're going to negotiate with me, Sharif. How about $300,000? And we just get out. And I say, no, no, no. You know, I borrowed against the property. I want at least $400,000. But I'm in control. I'm in full control. And then what happens is during these negotiations, which usually take 60 days to 90 days, guess what I'm doing? I'm smiling and dialing. Hi, I got Subway in. They already remodeled the place. We already gave them tenant improvement. Your quiz? No, you'd like to come in? Okay, I'm going to charge you a little bit more because you're going to be up and running in less time. So this happened so many times. In 2009, I had a big tenant exiting. They paid me $1 million. It was a $20,000 a month lease. $1 million in 2009 when the economy was collapsing. I went and I bought 2 buildings. And you know who I put in instead of the— it was Puma Corporation. You know who I put instead of them? Crocs. And Puma was paying $20,000 and Crocs came in at $22,000 because the place was ready to go. And, and Crocs was growing like crazy because they were telling me it cost them $3 to make these shoes that they sell at $40. I mean, they make, they make one— I was just checking, uh, yesterday on Crocs because we were talking about another location. They net $1.2 billion a year. Can you imagine how big these guys are?

Wow.

So yeah, some, some companies are really good.

Well, I am sure— I'm definitely interested, and I'm sure that there are other people on this call that are interested in knowing about how they can go to your training. Can you tell us about what you have coming up or how people can get involved with you?

Sure. Actually, you know, it's funny enough, I have a training coming up on the 26th, in 5 days, in Old San Juan, Puerto Rico. They fly in, we do a full day. Um, it's the training— you usually have like 10 to 15 people from around the country. I already have 9 coming in. The rest are going to be on Zoom because I put it on Zoom. So I do the full day training. It's an intensive full day. We start 8:30 and we finish at 5:00, 5:30. And I talk about it, and they can reach us They can go to cmrei.com. CM is for Sharif Medawar Real Estate Investing. So like Charlie, Mike, Robert, Edward International. And, um, or they can actually email Ashley, ashlee@cmrei.com. But email her today because she will will let you know about the program, and I'll give you a phone number. Actually, if you don't mind, give me a second. Eight four four. Anytime you can call her or Zach or whoever answers in the office, but she's the VP. Eight four four seven two zero ten thirty one. Like a ten thirty one exchange, yeah? Eight four four seven two zero ten thirty one. And tell Ashley, I want to talk about the joint venture program with the retail with Sharif. I do the training, and we have that happening every seven weeks or so. And then we can oh thank you for putting it. And Ashley could be S L E Y, but her correct spelling is A S H L E E. But both will reach to her because I told her everybody's gonna be going E Y. Yeah, so yeah, and the training is the 26th, the live training. It would be great to come to Old San Juan. You call her up and I have a small hotel there that I own. You can stay there. The beauty in Old San Juan is when we finish the training, we go down, it's in my office. You meet my in-house attorney. I have an attorney for all my contracts with the retail. You'll meet the accountant. But when we go down, you can see a $100 million portfolio that I have there, literally 12 buildings I own down that street. for Thalesa Street. And right when the cruise ships arrive— it has been, of course, 20 years. It's not like it happened in 3 years, okay? It's easy to talk now, but it's like you have so much experience now, Kim, being an attorney.

It's—

it— life gets easier as you get better, you know?

Right.

And you know what I like about what you do is you don't just give people a fund structure or, or a PPM for a syndication. You really have a lot of services that come with it, which is very unique in your firm, and I admire that. A lot about— I've seen you grow through the years and, and, and keep growing and improving services, and a lot of good positive feedback about everybody.

Yeah, we do have some investor marketing materials if you want to raise your own group of investors, you want to, you want to do your own fund. We have a lot of education. We've got both of my books. Um, if anybody is interested in getting a copy of my book, text the word syndicate to 844- 796-3428 and text the word syndicate to 844-796-3428. That actually spells 844 Syndicate, S-Y-N-D-I-C and the number 8.

Pretty clever.

Yeah. And then you're gonna answer a question and we'll send you one of our books, actual physical copy. But we do have a couple of questions. So I want to go to that. Um, let's see. Uh, so Chris asks, uh, what classifies as tenant improvements?

So tenant improvements could be from changing the flooring to putting certain counters that they want, to changing the facade, to, um, changing the grease trap for these tenants. Uh, you know, they have certain requirements for the kitchen, to putting a new, um, walk-in freezer or things like that.

Okay, and Chris is asking, are you originally from Puerto Rico? And you know, how does that work for you?

I'm half Egyptian, half French. I like Puerto Rico. Originally, I liked it because of the tax incentives that could reduce my taxes from 40-50% I was paying when I was flipping properties in the U.S. And like in California, you're paying you know the 40 some and then the 13% state tax. All the way down to less than 16% or so. So that's a huge— on every million you save $350,000. That's just a lot of money that I'm seeing.

You have to have an actual Puerto Rican, like, uh, established that as your primary residence before you can take advantage of these?

Okay, so Puerto Rico is part of the United States. Uh, anybody interested in that and they want to talk about it, they can call the office. I'll tell them there are tax incentives And I even ended up having my attorney help some couple of my students set up in Puerto Rico because they make a lot of money. So Puerto Rico says you can come and live in Puerto Rico, become resident. You have to spend 183 days there. It's according to Internal Revenue Code 937, and it's part of the U.S., so it's not like you need a passport when you go there. It's— and everybody speaks English. They speak Spanish as well, but they, they speak more English there than in Miami, I can tell you that. And So, so it's, um, a great way to be able to take residence there and follow the rules to have your business routed through there. And that's how you do it. But no, I'm not originally Puerto Rican. I've been in the United States for over 40-some years. This is my home here, but I'm originally half Egyptian, half French. My mom was French, father Egyptian, Egyptian Catholic. So we left very young. Yeah.

Actually, I was an environmental consultant before I became an attorney, and I had a project in Puerto Rico, which— and I learned something about Puerto Rico is that elevators don't work.

Yeah, yeah, because of the water, the salt water. They don't fix them very well.

I stayed in a hotel and I was trying to get off on my floor, and the people in the car with me were saying, oh no, this elevator doesn't go to the 6th floor. Oh my God. You'd have to go up and then come back down before it would stop at the floor. It was very funny. And then in another building, so I was actually inspecting a multifamily high-rise like 20 miles outside of town in this like small little rural area. You're driving along and all of a sudden there's this huge high-rise. And so I was inspecting it and we had like 20 people, including a HUD inspector, in the elevator and the elevator got stuck. So that was pretty hard.

I'm sorry to hear that. Well, you know, since 2012, there has been so many wealthy people that relocated there to drop their taxes, like a lot of hedge fund managers and all this. And eventually they fall in love with the island, they invest in it, and they do a lot more. And, uh, so there has been huge improvements. I mean, you would not recognize— if you haven't been there for the last 5 or 7, you would not Yeah, it was interesting.

I'm sure it's very nice now. Okay, so let's see. Somebody— let's see. Hassan asks, how do you decide on how much the down payment would be and what language do you put into the LOI so that the payment is refundable? I guess you're putting that actually into your purchase agreement, that the due diligence period, you know, as long as you cancel the contract during the due diligence, it's refundable.

Correct? Yes, the earnest money deposit, uh, once we show proof of funds, that is cash to buy the property, we negotiate $5,000. Well, I'm a real estate fund, so if they say no, we need $25,000, then I step in by email. I say, look, at any one time I got 10 to 15 deals going in the United States. Here is the fund. I cannot be putting $250,000 to $350,000 just sitting in escrow with no return, so that's not going to happen. If you don't want $5,000, I close in, in less than 60 days. Good luck selling that property. You see, our competition are franchisees, people that get a franchise agreement. These people need 90 days due diligence and another 30 to 60 days to close. So any broker that understands retail understands our huge competitive advantage coming in doing the way I do it. That is, we have no competition. We have no competition. And I'm not saying every deal happens. I mean, Look, you may put a deal under contract, start smiling and dialing for 30 days, you get no response, you cancel the deal, move on to another one. You may not find many deals in your backyard. What do you do? You expand. But if you focus on an area and focus on that type, you'll understand the values. And when you see a deal, you will jump on it. And one deal will change people's lives. That's income for life. Because once they've been there 10 years, what, what happens? The replacement cost of the building alone made the building increase in value if they leave. And you can get another tenant because it's been— the area grows.

Well, this is fantastic. I, I, you know, I feel like this is the time that people should be arming themselves with knowledge. You know, if you can't find the deals that you want in the asset class you've been trained on, then expand your training, start learning about other things. There may still be things that are working in this market, uh, and, you know, you just have to know how to do it. Sharif certainly has a great program. He's been doing this. He's got, uh, you know, he's doing it right. So a lot of trainers are out there, they're not actually doing the deals, they're just training people. Sharif is actually doing it. He's been doing it for a long time. I've watched him grow over the years, and, uh, it's, it's just been an amazing experience. So, uh, highly recommend you guys take advantage of the training, uh, check that out, and, um, we'll look forward to seeing you all on a new another podcast. And Sharif, you'll probably see me in your training at some point.

Thank you, Kim. All the best to you. Thank you. Okay, thank you so much.

Bye, everybody.