TGCI 159: Industrial Real Estate. One asset class that has boomed during COVID-19!

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Episode 159: Industrial Real Estate. One asset class that has boomed during COVID-19!

Copy of EP #18 - 2 Guests

Summary

In today’s show, Pancham interviews Neil Walhgren – Chief Operating Officer at MAG Capital Partners, LLC.

Former C-130 Pilot in the Air Force and Navy, Neil has transitioned to investing to generate passive income and has discovered his niche in industrial real estate! With nearly two decades of leadership, operations, and capital markets, he had raised over $250m in equity for real estate investments!

What do you need to know about the industrial real estate market? Neil would share his wisdom and discuss what makes it different from real estate investing. From its distinct characteristics to its expected risks and how they assess industrial asset deals, he would tackle it all so get your pens ready for some golden nuggets! 

 

Listen and enjoy the show!

PanchamHeadshotTGCI
Pancham Gupta
Screen Shot 2021-09-28 at 3.32.27 PM
Neil Walhgren

Tune in to this show and enjoy!

Copy of Quote #00 - 1 Guest

Timestamped Shownotes:

  • 1:27 – Pancham introduces Neil to the show
  • 2:32 – His background and why he decided to invest in industrial assets
  • 5:26 – Overview of how industrial asset classes work and their classifications
  • 11:12 – The benefits of sale-leaseback to owner-occupants of the property
  • 14:37 – How to evaluate an industrial asset deal and its risks to look out for
  • 24:13 – Breakdown on how he added value to one of his deals
  • 28:51 – Taking the Leap Round
  • 28:51 – His first investment outside of Wall Street
  • 30:30 – Fears he overcame when he first started investing
  • 32:07 – Investments during COVID-19 that didn’t go as expected
  • 34:51 – Why investors should prioritize good referrals and sponsors
  • 36:15 – How you can connect with Neil

3 Key Points:

  1. Rather than adding value by renovation, industrial real estate assets focus on providing value through protection and giving owners a place to operate and manufacture freely.
  2. Credit risk of the tenants is one of the risks to look out for so it’s best to analyze the potential buyer’s profile and see if they’re capable of paying their obligations.
  3. Consider the location of the property if it’s convenient for the company to continue its operations.

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Read Full Transcript

 

Welcome to The Gold Collar Investor Podcast with your host, Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams. Here’s your host, Pancham Gupta. 



Hey everybody, it’s Robert Helms, host to The Real Estate Guys radio program, and congratulations for getting educated and listening to The Gold Collar Investor.

 

Pancham Gupta  Welcome to The Gold Collar Investor Podcast. This is your host, Pancham. Really appreciate you for tuning in today. Since the onset of COVID, there is one asset class on top of multifamily that has been doing great, and that asset classes industrial real estate, the demand for warehouses has been going up. A lot of companies have been in shipping business, they need a place to store the inventory and there is a lot that goes on. And I actually don’t know anything about industrial real estate at all. And I’m really curious about learning this asset class and what’s the difference between a warehouse and industrial real estate? Is it a same thing? Is it different? I don’t know any of that. So, I thought of inviting someone who really understands this industry. And today, I’m happy to have Neil Walhgren on the show to share his wisdom about this industrial real estate sector. Mr. Walhgren brings nearly two decades of leadership in operations and capital markets having raised over 250 million in equity for real estate investments. In early years, Mr. Walhgren logged over 2500 flight hours piloting the C 130 in the Air Force and Navy, following combat tours to Iraq and Afghanistan, he concluded his military career as a lieutenant commander. Neil, welcome to the show.

 

Neil Walhgren  Thank you so much for having me Pancham.

 

Pancham Gupta  It’s gonna be a super exciting show because, believe it or not, I have actually never discussed industrial asset class on the show and you’re the man for that. So, thank you for being on the show.

 

Neil Walhgren  I get to be your first I’m quite excited here.

 

Pancham Gupta  So, before we get started, are you ready to fire up my listener break out of Wall Street investments?

 

Neil Wahlgren  I’m ready. Let’s do this.

 

Pancham Gupta  Let’s do it. So, before we get started, Neil, tell us about your, you know, tell our listeners about your background, and more importantly, the person behind that background?

 

Neil Wahlgren  Yeah, absolutely. So, Neil Wahlgren, I am the COO at MAG Capital Partners, California native, currently live in San Francisco, California, the North Beach neighborhood. And for those who aren’t familiar. My background, I grew up in the suburbs, actually, outside of the Bay Area and a slightly non typical avenue to get to real estate, I actually flew jets for the Air Force for about 12 years. So, I was a C 130 pilot. And now that, that 9,10 years active duty in the Air Force, I got to see a lot of the world deployments to Iraq, Afghanistan. And then at some point, it was time to pivot to the next chapter, if you will. And so, I actually switched over to the Navy Reserve and flew part time for a little bit, but really decided that I wanted to get out of the kind of military government world. And you know, the, the natural progression for a lot of pilots is to go fly for United Air Delta. And I kind of looked at it, I really, I mean, I just didn’t excite me from a passion level. And my core, just the idea of kind of doing the same thing day in and day out for the next 30 years, didn’t really move the needle in terms of what I was looking for. And I really, I started kind of investing and educating myself. And you know, I read Rich Dad, Poor Dad, it’s about 12 years ago. And it really sparked a lot of really interesting ideas of this kind of pursuit of equity, this pursuit of ownership in different investments in different avenues of really assets that can create passive income and can create this lifestyle that I wanted to build without necessarily requiring my time for it. And that was, you know, kind of the transition out of the flying world. I did a couple years working with a really, you know, equity focused renewable energy startup down in SoCal. It’s a fun project. Eventually, the economics didn’t quite shake out and the company folded down, but that was really, you know, my first foray out of the military flying side and then ended up moving up to the Bay Area about seven years ago, and worked for a prior company and then MAG Capital Partners both in the space of really capital markets, raising equity, creating relationships with investors to ultimately facilitate investment into really long term direct investment, ownership component, a real estate investment. So largely industrial, you know, we’re buying industrial manufacturing assets in the Midwest, and kind of have a unique model we can talk about today. 

 

Pancham Gupta  Sure,. thanks for sharing your background there. So, we can talk about C130’s all day long. 

 

Neil Wahlgren  Usually better over beer. 

 

Pancham Gupta  So, let’s talk about industrial for a second that at a very basic level, if you ask me about industrial asset class, all that comes to my mind that vivid image is that there is a warehouse in the middle of nowhere. And there is some stuff inside that warehouse, okay. And that’s it, right? There might be company owned, or it might be rented by the company, which actually is putting their cargo or wherever the supplies inside that warehouse. So, you know, enlighten us about like, what is this asset class? And is my vague explanation even close to it?

 

Neil Wahlgren  Yeah, I mean, if I were to sum up, you know, really what industrial is, I mean, it’s, the real estate itself is not sexy, right. And it’s four walls and a roof, a big, massive square buildings, and sometimes in the middle of nowhere, like you spoke about but what’s interesting is really the relationship between that building and the operational component inside. So, you know, we’re buying manufacturing industrial. And really, that industrial real estate is facilitating that manufacturer to create true value to create effectively items out of raw materials. And whether that be final goods that end up on a shelf somewhere or more often intermediate goods, like parts or aerospace components, that ultimately gets sold to a, you know, final manufacturer, there’s a huge range of just production and value creation, and the relationship that building has with that is what makes the asset class so unique. And, you know, really, these are long term tenants, our average manufacturing tenant has been around 50, 60, 70 years, you know, they have very long term, deep credit history, and most of the time, they’re single tenant buildings. So, you have you know, really a concentrated risk around a single manufacturing tenant. And the approach toward looking at the risk on that typically tied with a tenant and the cash flow that’s corresponding with it is really unique to that asset class compared to say a multi tenanted retail or multifamily or office space.

 

Pancham Gupta  Got it. So, you mentioned that manufacturing industrial space. So, how many classification why’s that there are many different kinds of sub industrial asset classes like your manufacturing, you could have groceries related you could have all that. So, you specialize in manufacturing industrial Is that right?

 

Neil Walhgren  We do. And just for general edification, you have several broad categories of industrial you have warehouse which is typically you know, think of your Amazon warehouse largely used for storage, shipping and receiving you know, kind of an intermediate distribution point, you have manufacturing and most of the time manufacturing will include some warehouse within it, but manufacturing tends to be much more of a permanent type of tenant. Then you also have flex industrial, which is kind of a hybrid, typically long buildings with multiples segmented units within it. And that’s going to have typically smaller credit tenants more mom and pop you know, yard care supply and maybe a welding shop or a tire shop, etc. It tends to resemble retail in terms of the fundamentals a little bit more than classic industrial. And then the last one is going to be specialty and specialty that can have a massive range of uses and looks but you know, everything from say a pharmaceutical biochemical production plant that has specialized temperature control and pressure and cleanroom. All that would fall under a specialty industrial usage.

 

Pancham Gupta  Got it, like cold storage would be under a specialty, right? 

 

Neil Walhgren  Correct. Yeah. 

 

Pancham Gupta  Okay. Okay, so now, within each of these, like manufacturing, or flex or specialty, or warehouses, do you have different categories of warehouses, like classifications like in multifamily? We have a Class A building, Class B, Class C, do you have that too?

 

Neil Walhgren  We do, and it’s going to be maybe a little less defined than in the multifamily space but ultimately, it’s what drives a lot of value. And we really, our firm pursues what the equivalent would be a roughly a Class B asset. And that’s going to be something typically built between the 60s and 90s. That’s typically been renovated several times over but again, you have to picture this is not a multifamily unit, right? You’re not Yeah, you’re not, you know, requiring trim and beautification and you know, a game room and all this stuff. You really, I mean, the core of your building is four walls and a roof, you know, does it protect you from the elements? does it provide you the freedom to operate and manufacture what you want such that really the upkeep component is a lot less important in this asset class. And correspondingly, the upkeep is almost always exclusively handled and managed, both from a responsibility and a cost basis by the occupier. So, whether that be if it’s an owner occupant, you know, a manufacturing firm that owns the building, they obviously handle their own expenses. But when there’s a tenant, almost always, the leases are structured as full triple net leases, meaning the tenant pays all their own taxes, all their own insurance, all their own utilities, and most importantly, all their own building upkeep and maintenance. So, they’ll handle their own roof replacements, new paint, wall repairs, concrete repairs, etc, etc, just because it is so tied in with the operational component of what’s happening there.

 

Pancham Gupta  Got it. So let me ask you to add this question, which might be a different answer for this asset class. Is that so why particular manufacturing tenant who is occupying a building that you own, or MAG Partners own for 50,60 years? Why is that they don’t buy that space, or they don’t own like, become owner occupied spaces, is their reason behind it? Or it’s like, they don’t want to be in that business because they’re not in that business in the manufacturing business. So, what’s the reason behind that?

 

Neil Walhgren  Yeah, great questions. And to clarify, I think the term you’re referring to is sale leaseback and so sale leaseback for those listeners who may not know, is when you have an owner occupant who sells the real estate, and then turns around and simultaneously leases that back. So, the operational piece never changes, they effectively go from the owner of a building to the renter of that same building. And we become the both the buyer and the landlord at the same time. And so, the first question is, why would a company do this? Like wouldn’t you always want to own your own building instead of rent? And the answer’s no. And typically, what happens for us is that sale leaseback is either simultaneous or closely aligned with a recent acquisition of that manufacturing company. So, imagine they’ve been growing, they’ve been excelling at what they’re doing. And ultimately, you know, they’ve caught the eye typically of a private equity firm, and that PE firm says, hey, you know, I want to add this manufacturing company in my portfolio, so they will buy out that company. And when they do, they buy that company with a mix of acquisition debt, and typically some equity and ultimately they are laser focused on the operational component of that manufacturing firm. When that firm also owns assets that perform at a lower level such as real estate, that PE firm often will opt to sell off the real estate through a sale leaseback to effectively trimmed down the overall cost of that acquisition. And they’ll use that the proceeds from their real estate to pay off some of the acquisition debt and ultimately shrink the size of the total cost of that company they just bought.

 

Pancham Gupta  Got it. Yeah, that makes a lot of sense. Even in other triple net leases, like you see sometimes Starbucks or Walgreens and all these guys Chick Fil A near my place, like they do all of this. They’re in, you know, different business and they will create that space, and this sell out the lease backs basically, right? 

 

Neil Walhgren  Exactly and they believe they can generate a better internal ROI focused on the operations than they can on you know, basically real estate returns. So, their opportunity costs, ultimately they feel they can get a better return moving that asset, removing that capital out of the real estate, and reinvesting that more or less into that company they just bought.

 

Pancham Gupta  Right. And if you really think about it that when they do they say lease backs there. Yes, there is negotiation on the leases, but they are kind of pretty boilerplate on their side, what works for them, right? And they just look for by and then yeah, there is negotiation there, right? But at least they’ve done their homework. 

 

Neil Walhgren  Yeah. 

 

Pancham Gupta  Okay, great. So that explains this asset class. So, what are some of the things that you need to be careful about when you’re investing now. Let’s put on the hat of an investor like a person who is limited partner in these deals when they are in investing in these industrial projects, right? Okay, then I have a follow up question after that, which is when you as a syndicator, general partner who’s looking at a particular industrial acquisition, how do you determine a market? Whether it’s in enough demand or you look at the rating of the tenant versus where it is actually located? Like, what’s more important?

 

Neil Walhgren  Yeah, great questions. I’ll talk about the first one initially, you know, ultimately, I understood your question, right? From an LPs perspective. I mean, really, how do you evaluate an industrial deal and maybe where’s the risk, right? The returns are typically fairly straightforward and laid out but how do you evaluate and compare that risk, and I’d say, this asset class is different than we use and maybe a more common commercial asset class in multifamily. So multifamily, you’re typically coming in, you’re typically buying an underperforming asset, maybe the occupancy is low, maybe the rents are below market, it’s rundown, some combination. You buy that underperforming asset, you invest capital improvements, putting new countertops, new paint, with the hope, based on your research, that you can increase occupancy, you can increase rents, and overall increase that NOI that’s your, you’re adding value or attempting to add value, there’s a bit of an operational risk component, after you buy the work starts and there’s not a guarantee whether you’re going to achieve those goals that you’ve laid out. Industrials, a little different, that type of industrial that we do, where it’s fully occupied, we’re putting a brand new, really long term lease 20 year lease, that lease has rent increases, and we know from day one, this deal is cash flowing at a high level and the rents are gonna go up every year, it’s a 20 year term, we don’t have to worry about releasing, we’re gonna hold roughly five years so you know, we’re gonna sell this asset still, with 15 years left on the lease, there’s a large premium on that amount of lease term, so ultimately becomes a defensive play because we have from day one, we have a performing asset fully occupied rent bumps built in and we want to protect that and the way we protect that is by doing a deep dive into the credit so this it’s almost a blend of real estate and private equity and that the strength the financial credit worthiness of your tenant, is ultimately the risk component of whether this deal performs as you hope it does cash flows high through the course of the investment or whether you know, run into issues where the tenant struggles to pay rent or even worse fully defaults or you know, maybe it goes insolvent so 

 

Pancham Gupta  All right. So, this really comes down to only one thing because everything else is laid out right in front of you. It’s just the credit worthiness of that tenant and their capability of paying for the rest of the lease term and put even later right like beyond that, is that correct?

 

Neil Walhgren  That is correct, and we are yeah, and we will typically you know there’s different types of credit risk that you can pursue. On there’s you know your great A tenants you know, your publicly traded tenants that have public you know, your Moody’s your finches who are providing a very objective credit rating on these publicly traded companies those the credit risk is going to be very clearly laid out and as such typically drive a premium and that premium means they’re going to sell and trade for more money ultimately reducing the amount of cash flow you might get on that same investment. Instead, we play in the private markets so our company we almost exclusively sometimes I occasionally will do a publicly backed company but typically they’re privately held and we actually have three man team full time whose only role in our company is to really do sometimes a four to five month credit review of these companies that we’re considering doing sale leaseback with so they’ll look at historical audited financials, you know, the basics, financial summaries, balance sheets, debt loads, etc. to look at how are the proceeds from the sale, leaseback going to be used? are they paying off? Some owner is going to go buy a yacht? Or is it being reinvested into the company and paying down debt and sometimes a combination, but you know, we want to see at least a good chunk of that go back into the business. And then we want to look at really deeply how do we see the forecasted next couple years look for this company, and really how much buffer is there between what they’re making and what their rent obligation is so that we feel comfortable that they can comfortably pay their rent obligations and keep our investment on track.

 

Pancham Gupta  So, my follow up there would be that for public companies it’s very easy to do a lot of this stuff even have rating agencies like you said before private companies like do you physically go and request all these financials and are they open to do that?

 

Neil Walhgren  Yeah, and they have to be right because they know you know, for that sale leaseback to work really anchored on the credit making sense for the buyer. And so, they know this very early on will say, hey, you know, these are our standard list of requirements audited. And you know, there’s a number of typically interviews will do with the CFO with the executive team, any company is going to have some hiccups or some because some hair on the story, if you will, and you know, you just need to be able to understand it, you know, are these onetime events? Have they been rectified? How comfortable do we feel that any sort of hiccups in their financial performance historically, is indeed in the past and not going to race show itself in the future? So, you know, that component does take on a lot of work. But really, I mean, that’s where we find opportunity and that’s, from our opinion, we’re able to really put together deals that have potential for outsized returns, because of that limited exposure of these privately held companies, and not a lot of potential buyers can actually go through that whole process, do the evaluation, and even make a competitive bid. Knowing that information because of the work it takes.

 

Pancham Gupta  Yeah, it is, I can totally imagine the amount of work that goes into really analyzing a credit of a private company is, could be depending on how much data you have and how much history, how back you go to really validate all that. Okay, so great. And let me ask you the second question, like, you know, how do you determine which market you want to go into? And if there is enough demand for industrial right, because I believe, like, for example, in multifamily or even Self Storage, the location becomes the key, right? Like, you have to know there is enough demand for that, like in this one, like you said, there’s everything laid out upfront. So do you look into the markets to or it’s more about the credit of the companies and there you go where they are,

 

Neil Walhgren  There’s a much different asset class, so you know, self-storage, multifamily, you’re looking at how many cars per day or you know, how much visibility, do you get on the sign? How’s your marketing team? How’s the household income? How’s the schools? I mean, to be honest, those matter very little in industrial, these companies have been in place for 50 years, they’re fully occupied. I’m not trying to release it, you know, we do look at market fundamentals, what’s the industrial vacancy, and my buying this real estate, well below replacement cost, you know, those are important pieces, such that if I ever did end up with an empty building, do I feel comfortable that I could release it and potentially even add value through that process. But you know, in terms of like, your demographic data, your quality of residents, really, as long as they have access to substantial labor pool to keep their business operational. I mean, that’s the main piece of it. You know, you do have industrial and primary markets, your downtown LA or Phoenix, your Dallas, and those are great markets, right? And those will always stay least up. But they’re such primary markets that not only are you competing with small and mid-sized investment groups, but a lot of institutional investors will only invest in primary Grade A markets. So, we actually we find kind of that right opportunity and that right risk reward profile by finding kind of secondary markets right on the fringe. And that’s, I mean, obviously, that’s where the opportunity lies, right, where you can take, hey, you know, maybe right outside of Lincoln, Nebraska, right outside of Des Moines, and these are areas that still have a good solid labor pool, they still have good fundamental industrial market vacancy rates and price per square foot, but they’re not being competed on by larger institutional investors. And you’re able to find kind of a premium of relatively reasonably priced real estate competitive, you know, tenanted by strong private credit companies. And when you find that great pairing, you can really find effectively low risk paired with a above market yield and above market cash flow.

 

Pancham Gupta  Cool. Yeah, that. That’s awesome. All right. So, I want to ask you one last question before we move on to the second part of the show. So, my question for you is like, can you share with us numbers on one of your deals, it could be a past deal, which has gone full cycle on how much did you buy it for? How much capital did you raise and what were the return projections and what was the actual numbers?

 

Neil Walhgren  Yeah, absolutely. So, I can’t use the specific name on the tenant, but there was a deal we bought south of Dallas, for roughly four and a half million. It was a manufacturing firm, and these guys as really a standard sale leaseback someone that we had talked about, they had just been acquired by a private equity group. They had grown fairly consistently, and this PE group felt that this company could really amplify its growth and it was kind of a neat project because sure enough we buy it two or three years in the CEO, the company came to us and said, look, we have a problem, orders have been accelerating quickly, we run out of space, we need more space. And we are actually able to kind of convert this deal into a value add. And we have a GC component on staff and we’re able to add, I think, almost 30,000 square feet, we effectively built it, we financed it, the primary cost of the expansion was almost all came from the original lender, original real estate lender on the deal. So, I don’t think we had to put any additional equity into the project. So, our investors, they all haven’t really saw this giant value add with no dilution on the equity side. And ultimately, we sold it about a year ago for I think, right around 12 mil. So, it was a substantial value add for those involved in the project. The tenant was happy, the development was one of the lowest risk developments you could have because it was pre negotiated we had the term set up before we started the new rents, and the new rent rate was pre negotiated before we even broke ground. So, everything you know a lot of that operational risk was fully removed and we were able to add value to the tenant by giving them more room. The rent made sense based on their financial picture. And you know, ultimately our -inaudible- our investors did pretty well.

 

Pancham Gupta  So how much was the loan to value on the first purchase from the lender?

 

Neil Walhgren  Yeah, so the first one is about 75%. 

 

Pancham Gupta  Oh, wow. So, they do lend about 75% in industrial, okay. And what was the second loan amount,  do you remember?

 

Neil Walhgren  To be honest, I don’t remember that offhand, but typically, when we’re buying a stabilized asset, the LTV is going to be between 65 and 75%. Depending on the lender.

 

Pancham Gupta  Got it, got it. Cool.  That is great story there. So, anything you’d like to add before we move on to the second part of the show? 

 

Neil Walhgren  No, let’s hop on it. 

 

Pancham Gupta   All right, great. We’ll be back after this message… Do you ever feel overwhelmed by the thought that you have no time after work, and family time to learn about investing? Do you feel left behind that you are not putting your money to work for you? Do you want to create passive income, but you do not know where to start? If so, I have good news for you. I have created an investor club which I called The Gold Collar Investor Club for accredited investors, I will be putting together investing opportunities exclusively for this crop. These are the opportunities where I have done my part of the due diligence for you and will be investing my own money alongside you. If you are interested, please sign up on thegoldcollarinvestor.com/club. I repeat, thegoldcollarinvestor.com/club. I will reach out to schedule a 30 minute phone conversation to discuss your investing goals. Once you sign up, this can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some cash flow. And in case you are wondering, what is an accredited investor, accredited investor is someone who has earned more than 200,000 as filing single are more than 300,000 filing jointly for the last two years. Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401k’s, IRAs, cars, etc. Just not the equity in your personal home. If this is you, I would highly encourage you to sign up….So Neil, let’s move on to the second part of the show which I call taking the leap round. I ask these four questions to every guest on my show. My first question for you is when was the first time you invested outside of Wall Street?

 

Neil Walhgren  Yeah, so the first time I invested out of Wall Street was actually an investing with the prior real estate equity firm I joined but this is before I joined with them. So, it was ran by the husband of a family friend of ours and just the idea of basically investing in kind of a private company and at the time the model was actually before it was commercial. And so, they were doing effectively what’s referred to now as turnkey single family home investments. And so, they would basically buy kind of a rundown house in a good neighborhood in Dallas do some rehab, get property management get a lease and then sell it as a you know, fully cash flowing single family asset. And I remember I was it was such an interesting idea because you know, especially from the military, they have this just this very consistent education of you know, mutual funds and diversified stock portfolio and that you know, really that was the only thing you were ever really taught that they probably do work well over the long term. And it’s you know, it’s a good catch all for those with a varying degree of financial education. But this idea that there are opportunities that cashflow well and that produce really, when you do your research, outsized returns compared to the amount of risk in comparison to other type of market opportunities. And so that was the first one I did and still own it. Cash flows well, it’s pretty hands off. And that was an exciting, you know, first foray into that world.

 

Pancham Gupta  Got it.,Did you have any fears that you had to overcome?

 

Neil Walhgren  Tons, right? I remember this idea and I did end up flying out to be honest, but this guy, he was like, you don’t even need to, he’s like, you know, a lot of our investors will buy dozens of these without ever even putting eyes on it. And to me, that was like, the most insane thing I’d ever heard.

 

Pancham Gupta  I cannot do that.

 

Neil Walhgren  You know like, and especially my first one. So, you know, I got on a plane, I went over there, checked it out, I don’t know what I was looking for was like a fine house, it was in a normal neighborhood, match the pictures, it existed. But that was I think my biggest fear was just this idea of is this real, right? And it really it was it was a good kind of component piece of to understand what fears investors have. And it’s allowed me to be a better sponsor and GP, especially for new investors in the alternative space to really understand that they don’t really care about the deal so much they care about you, you know, they care about is this real? Are you going to, you know, run off with my money, like, what kind of substantiation do I have that this whole operation and this whole model that you have is not just smoke and mirrors, and I think finding ways, finding social validation, finding great referrals, finding a tight investor network where most people find out about you, through good experiences from friends, neighbors, colleagues, I found that really it has accelerated the kind of trust curve to get past those initial fears and you know, really evaluate a deal for what it is.

 

Pancham Gupta  Yeah, yeah. Thank you. Thank you for sharing that. So, my third question for you, do you have any investment that did not go as expected?

 

Neil Walhgren  Oh, always right. If everything went as expected, it would be a very important line for it.

 

Pancham Gupta  Exactly

 

Neil Walhgren  Yeah, you know, I use an example of when COVID hit. In general, we in the industrial space were very fortunate, especially compared to some of the trials and tribulations the retail space had, and the multifamily space had with some of the regulatory and just forced closures. But in general, almost every deal, at the start of COVID, we had about 22 projects, and 21 of them actually went off of that hitch. All the tenants were deemed essential. They kept operating the maximum closure, any of them had about three weeks. But you know, they all paid rent on time, and were able to either stay open or reopen very quickly. And that was fortunate and a lot of that was being in business friendly states in the Midwest, really, the restrictions were fairly light compared to some coastal markets, and it allowed them to really shine and continue doing what they were doing. The one kind of exception to that we owned a single tenant, full net leased health club. And that deal was in in Des Moines, and they came to us, and they said, look, we’re closed we don’t know how long we’re not going to be able to pay rent because we can’t take any money right now. And you know, and it made sense and so we worked with them, we had kind of an interesting conversation and they were they probably were beneficial in that they came to us immediately and they were proactive about it, you know this issue they had and they said look we’d like to do a 90 day forbearance on our rent and we can accumulate it and roll it into you know, remaining term we agreed we thought it was a fair solution and we actually negotiated something similar with our lender and so we basically all parties kind of hit pause on cash flow and then you know rolled any missed payments into future do and it worked out well for him and allowed them to kind of reopen and get back on their feet. And funny enough this health club tenant there are a decent sized chain now and since they’re allowed to reopen they bought a bunch of other health clubs that didn’t come out of COVID quite so well. So, you know went on a major acquisition spree and you know now I think they’re actually sitting way better off than they were two years ago.

 

Pancham Gupta  Yeah, it’s you know, it’s COVID has taught many people how to persevere right like it’s hard and you learn you go through the cycles, and you also find out who your friends are.

 

Neil Walhgren  Friends in good times, but you know, guys are in ladies who stick with you through the tough ones that are the real friends there.

 

Pancham Gupta  Yeah, it is. It is not, so this has been awesome. My last question for you is what is one piece of advice would you give to people who are thinking of investing in main street that is outside of Wall Street?

 

Neil Walhgren  I will say absolutely. get your feet wet and get started. And what I mean by the feet wet is taken amount of money that is meaningful, but not life changing, and get comfortable and talk to people, get referrals, don’t just start googling the internet, because that can be overwhelming. But actually, talk to, you know, find people that you know who are in that space, ask for referrals and recommendations, good sponsors they worked with. And you’ll find that deals are secondary to the quality of sponsor. So, find good groups that people can vouch for, they pay on time they do, what they say they’re going to do, they communicate when deals don’t go to plan. And that’s a great sponsor to get started with, take a small amount, get used to the process, get used the communication base the distributions. And once you get one or two distributions on your belt, suddenly, it all feels a lot more less scary and much more manageable. And that was an approach that I take. And I’ve recommended that to others and I think it’s a great way to get out of the more publicly traded markets and not get out of but diversify from strictly that into, you know, this really kind of exciting alternative investment space on my on Main Street.

 

Pancham Gupta  Great advice. Thank you for that Neil and it’s been awesome. How can people connect with you, find out about more MAG Partners, and I know you put together an amazing industrial investment deck, right? How can people get hold of that?

 

Neil Walhgren  Yeah, absolutely. And we’ve created a nice kind of partnership here, shoot an email over a special handle called mag. This is from MAG Capital Partners and m a g@thegoldcollarinvestor.com and we’ll get back to you with a full set of contact info, a nice kind of informational investment deck on the space and you know, some of the things to look for. And we can take it from there if you’re interested.

 

Pancham Gupta  Great. Thank you, Neil, for your time here.

 

Neil Walhgren  Absolutely. And thanks so much Pancham for having me.

 

Pancham Gupta  I really appreciate you for joining me today to learn a bit more about industrial asset class as an industry as an asset class. I hope you’ve got some value from it  If you have questions, you can email me at p@thegoldcollarinvestor.com, that’s p as in Paul @the goldcollarinvestor.com.  This is Pancham signing off.  Until next time, take care.



Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollar investor.com and follow us on Facebook @the goldcollarinvestor. The information on this podcast are opinions. As always, please consult your own financial team before investing.

Copy of EP #18 - 2 Guests

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