Podcast - Using Analytics To Optimize A Portfolio

Marcia Cuenca
October 6, 2021
Podcast - Using Analytics To Optimize A Portfolio
"I think that was one of the single best little nuggets of advice I ever could have gotten, getting in this industry. The need to simply understand how deals work."

-Tim Blair, President at CCIM Institute

In this episode, Tim joins us on the podcast to share the latest with CCIM, then puts on his sponsor hat to discuss the state of retail and his take on retail resilience. He also shares, how he utilizes quantitative analysis to optimize portfolio performance.

Timothy S. Blair, CCIM, serves as president of CCIM Institute. Blair is a partner with Shannon Waltchack in Birmingham, Ala. His long history of leadership with CCIM Institute includes serving in various capacities on a wide range of committees, including Finance, Marketing, Members Services, Strategic Planning, and Designation. Blair is also on the board of the CCIM Foundation.

About CCIM

CCIM Institute courses, taught by instructors who are themselves industry leaders, deliver commercial real estate investment methodologies and tools that speed the pathway between opportunity, a go/no-go decision, and success for an asset. Each class is designed to enhance the success of commercial real estate professionals regardless of specialty.

Links

Learn more about CCIM Institute, click here

Learn more about Shannon Waltchack, click here

CCIM Institute Education, click here

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If you’d like to learn how Mariner Wealth Advisors can help you build a roadmap for your real estate investments head to RealCrowd’s sister company, ReAllocate, to learn more — BuildMyRoadmap.com

Transcript

Adam Hooper (00:03) Hello and welcome, I'm real crowd CEO Adam Hooper, and this is the real estate investing for Your Future podcast. Here we explore the latest in commercial real estate trends, insights and investment strategies that passive investors can use to build real estate portfolios that last

Disclaimer (00:20) all opinions expressed by Adam Tyler and podcast guests are solely their own opinions and do not reflect the opinion of real crowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.

Adam Hooper (00:42) Our special guest today is Timothy Blair, president of the CCIM Institute and partner with Shannon Waltchack, a real estate sponsor focused on primarily Southeast retail properties. CCIM stands for Certified Commercial Investment Member and its courses, taught by instructors who are themselves industry leaders and practitioners, deliver commercial real estate investment methodologies and tools that speed the pathway between opportunity a go no go decision and success for an asset. In today's conversation, Tim shares the latest with CCIM and then puts his sponsor hat on to discuss the state of retail. We talked about what types of retail are doing well, which are struggling and how quantitative analysis can optimize any portfolio's performance. We hope you enjoyed today's conversation with Tim Blair. Well, Tim, thank you so much for joining us today. We're super excited to dig in both on your goals with CCIM and learn more about what you're up to on the operating side. We had an interesting conversation a couple of weeks ago, and we're grateful that you're taking the time to share it with our audience today. Thank you for coming on.

Tim Blair (01:45) Great to be here, thanks.

Adam Hooper (01:48) Why don't you take us a little way back and tell us a little bit about how you got into real estate and then we can talk a little bit more about what you're up to these days.

Tim Blair (01:56) Well, yeah, real estate for me is a second career coming out of business school, I ended up buying a company out of bankruptcy, turned it around, sold it, got a slight jingle in my pocket, and I swore I would never do that again. In looking for kind of my next field, if you would, my next kind of round, I was looking for something that combined analytical skills and financial skills with people skills. And so that's what led me to real estate. I've always kind of been interested in owning real estate. For me, a lot of the brokerage and then that kind of stuff is a conduit to the investment vehicle of real estate. I got into real estate and a good friend of mine who runs probably the largest landowner in our hometown, said, Blair, you really need to go learn how deals work first before you become an investor. With that urging, I went out and I just flog deals for another company here in town, flogged real estate. And for five years, I just got dirt under my fingernails doing their deals. And I think that was one of the single best little nuggets of advice I ever could have gotten getting in this industry, the need to simply understand how deals work.

Adam Hooper (03:19) Yeah, I agree. I think a lot of principals started in brokerage, right? I think a lot of folks are starting brokers. That's kind of the natural path or the desired path for a lot of folks is you're so close to so many deals and you can see the opportunities, but you don't have the resources to take advantage of them until later in your career. And then you can make that that switch over to the principal side. I know it's a lot of story of a lot of folks that we work with. I know earlier on in your career, and we'll talk a little bit about this today as well, you pursued your CCIM designation. I think you got it a few years before me. I got mine in 08. I think I think you said you got yours in 06, so you got me by a couple of years. But tell us a little bit about how CCIM helped you in the early days and your rise within that organization.

Tim Blair (04:07) CCIM, to me, says three things, one is it's just it is the pinnacle of commercial real estate education. It's the best education in our industry period and full stop. Secondly, it has community, and I am in a chapter, Alabama that is very active. It has provided me an intense sense of community, a very complete kind of ecosystem, if you will. And third, the reason I got into it initially is that when you see the initial CCIM after somebody's name, it says they take their chosen craft seriously. It says that they have taken the time to distance themselves from the pack. I got my designation in 06 and turned around and got involved with our local chapter a year or two later. Then because it was in my world, I was just dealing with these people all the time. I became president in 2012 of the Alabama chapter and that year we won the best chapter in the country for CCIM, something we were very proud of. Then by virtue of that, I got involved with some national committees and started to kind of work up that path, culminating in me being the 2021 CCIM, global president.

Adam Hooper (05:41) Tell us a little bit about what does that entail? What is your day to day with your President of CCIM hat on?

Tim Blair (05:48) Well, we need to do two primary things, one is we need to continue to drive our education to be the best in the industry. That means kind of never resting on your laurels. That means evolving the content. It means evolving the methodology of teaching. An example of that would be when Covid hit and everything kind of shut down. We had already been fully online and teaching a multitude of different ways online. So that literally was while it was a hard transition to go all the way virtual, it could be on demand, it could be instructor led, it could be some sort of hybrid. In between those two. We were already completely up to speed on that kind of content delivery. I think number one to just help and make sure that our education remains at the forefront of our industry. And then secondly, we have 52 chapters, and it is our job to continue to support those chapters in any way possible so that they can play the most positive role in our designees commercial and professional lives. That could be through either helping provide them with education. It could be helping provide them with community. It could be simply creating scenarios for deals and a higher transaction, because ultimately the primary purpose is to help people earn more money. And so those are kind of my thing is to help those two primary areas, education, and chapter benefits. And then another realistic kind of, you know, small thing is I'm that guy that flies in the night before, attends the cocktail party the next day at the market symposium, speak for ten minutes and then I kind of head out the door. This year I refer myself, I'm that guy.

Adam Hooper (07:47) You're that guy. Well, congratulations on being that guy. Then now switching hats a little bit. Tell us a little bit about with your operating role in the day to day on the real estate side, and then we'll dig kind of back into some of the nuts and bolts of the CCIM curriculum.

Tim Blair (08:02) Shannon Waltchack is a Birmingham based company. There are four partners here, me and three others. From the outside, we look like another kind of local real estate company. We have eight or nine, full-time third-party agents who live off the land. We have a property management arm. We manage about three and a half million square feet, we have guys in trucks, and then we have an investment arm also. It’s the investment arm that I think is what is our special sauce. What we really love doing, we as a company and then we, the four partners, what we really love doing is putting deals together and we'll find a property. You put together investment groups and put them together. Over the last decade, we have probably done 80 deal by deal transactions. Touch on this later on, about three years ago, four years ago, we started our first fund. We are currently in our second fund right now. To describe our company, I'd say we are a retail focus company by two of our portfolio is retail. And then what we believe our ethos is you earn your living through brokerage, but you build your wealth through ownership. And we encourage our employees. We encourage our brokers. We are huge proponents of owning real estate as a method of building wealth. You've got to be careful with it because it can bite back. But we are huge believers in that.

Adam Hooper (09:34) I agree, I think that's what we all love about the asset classes, it's one of the greatest, greatest wealth creation tools there is out there. I think we're on the same page there. I think a lot of the listeners would agree as well. I think, you know, with an eye towards our listeners, you know, most of whom are passive real estate investors, high net worth individuals that are looking to invest in real estate, some service providers, tangentially interest-free industry brokers, managers themselves. Why don’t you walk us through the kind of the core CCIM certification, you know, what does it mean when you get that designation? What is a process to get that? Who is it really for, I guess?

Tim Blair (10:16) The CCIM designation, which stands for Certified Commercial Investment Member, is a certification, a designation. That in order to achieve, only six percent of all commercial practitioners will actually get the CCIM designation. That's because it's hard. You got to put in a lot of time and effort. You got to want it. It is one hundred and sixty to one hundred and eighty hours of classroom material. There are portfolio requirements. You have to transaction requirements. You have to be able to prove that you've done certain volumes of deals. It’s not just an intellectual knowledge, it's also a practical knowledge. And then after that, and it usually takes our people three years, three or four years, plus or minus. Then after that, you get to take a six hour test. You take all the classes and pass the test at the end of those classes. You can produce a qualifying portfolio and then you can pass the final exam. You were then a CCIM and I will tell you, I penned a lady earlier this year, about two months ago. It was one of the most emotional experiences and it meant more to her. Oh, my goodness. She was crying. I was crying. It was it was just downright special. That’s the place we hold in our members hearts that you really do have to work at this. Now, as an investor, why do I care? Well when you see someone with a CCIM designation. What that means is that A, they do care enough to separate themselves from the pack. More importantly, that they know how to, in my words, rip a deal apart. Understand all the components that are in it, and then put the deal back together again. They are not taking any information for granted that they can dig into any component, any part of the analytical side of a transaction and the valuation of a property. They know how to rip it apart, look at each component, evaluate each component, change the assumptions, if need be, and then put this thing back together again. That is what you get with the CCIM. It is a very unemotional kind of just way to evaluate and analyze real estate, because at the end of the day real estate is a financial transaction and we just want to understand the components of that.

Adam Hooper (13:01) Yeah, I think I will get that six hour test sounds pretty brutal, but if you plan it correctly. You might be able to go to Hawaii, as I did to take it in Hawaii. That made it a lot more palatable. I'll be honest with you.

Tim Blair (13:17) That's the way you do it.

Adam Hooper (13:19) That was a good one. That was a smart decision. The core curriculum. I'm sure it's as you said, it's always evolving financial analysis, market analysis, user decision analysis. If you're leasing one property versus another buyer versus buy versus build kind of a thing and then a little more in depth kind of investment analysis, has that remained consistent or are there new courses to it? Or how is that curriculum changed over the years? Or what are some of the newer things that have maybe been added to that core curriculum?

Tim Blair (13:52) I'm going to answer that in two ways. One is the core curriculum has kind of has remained the same. It's because there are just some basic principles that matter. How the industry evolves. You still need to do investment analysis. You still need to be able to use your analysis. Is it buy versus rent, rent versus buy, lease versus own, the IRR components? How do I run those? The core components have essentially stayed the same. Those plus negotiations and an ethics class where we have been able to really flesh out some additional content has been through what we call the reward center. And over the last several years we have added eighty classes to the Ward Center. You don't have to be a CCIM to take them. They cover a broad array of commercial real estate topics, things that are kind of unique or pertinent to our day-to-day world, for example, one that I love, and it just sounds as dry as it can be. But it's fascinating if you do this stuff every day and that's IRR. IRR is one of those things that you can manipulate the heck out of it if you want to. There are some components of just the traditional IRR that can create or could shade the answer in a certain way. Then they have IRR and you have some other things, because in an IRA, it always assumes kind of a constant reinvestment rate and that real world speaking, that's just not the case. The Ward center, this particular class talks about those specific things, is a place for classes like that. That are unique to our industry and are applicable to every practitioner, whether you're a CCIM or not.

Adam Hooper (15:45) Yeah and that's really interesting, I would also say too. A lot of folks, if some of those classes, basic financial analysis. Right. You don't have to commit to the full course of being, CCIM, to take CCIM 101. For instance, if there's if there's some of those classes that look interesting and certainly through the Ward Center as well, there's a lot of really good content and education. That’s so much of what we do about this podcast. Right. Is helping people understand different ways to look at the analysis, put their critical thinking hat on when they're looking at real estate investments. And again, I think there's a lot of really, really good resources within CCIM that we will put links down in the show notes for anybody to take a look at what some of those classes are. I think, again, just phenomenal resources for people that are interested in learning more about the nuts and bolts of real estate, as you said, being able to understand the components of what makes a deal, a deal. Then thinking critically about those. Right. That was so important for me. Early foundational in my career was to have that education about this is how these things work. This is why we look at it this way. And you know, that's stuck with me for the last 16, 17 years now. I'm a huge fan of the CCIM again, would fully, wholeheartedly recommend listeners, take a look and see what courses interest you and sign up for a couple. It'll certainly be money and time well spent.

Tim Blair (17:10) You make a great point, and that is to my mind and I am clearly a biased person on this topic. There is no reason in the world that someone who is new to our industry should not take at least 101, because it is it is kind of like the Cliff Notes and the special sauce with CCIM is that our classes are taught by practitioners so that your instructors will have been doing a deal the week before. They're probably doing deals in the backroom when you're working on something. They're going to be doing deals next week and that's the people that are teaching you this content. There is simply, I cannot think of a reason why somebody would not at least take some of these classes. It's just to jump start, as I heard one person last month in Florida refer to it is them strapping rockets onto their career. I just thought that was a great kind of imagery.

Adam Hooper (18:07) Or maybe after the show we can chat about where we can sponsor a couple of courses. Have some educational content for all the listeners out there. We can figure something out there to get our audience some access. So switch a little bit to the operating side, again, as you mentioned. CCIM our practitioners, and so with your operating hat on, we wanted to dig in on the state of the retail investment world right now. You're certainly over the last 18 months with a pandemic. And even in the lead up to that, there was a very strong narrative that retail is dead. Amazon is just going to clean its clock. Malls are dying. You know, the whole bricks and mortar just isn't going to be a thing anymore. I think there's a very broad assumption that all retail is created equal in the eyes of, you know, bigger stories and driving eyeballs to the news stories. Why don't you tell us a little bit about what you guys are seeing on the ground in the retail space, maybe what areas you focus on? How has the last 18 months really played out for you guys, given your seat at the retail operating table?

Tim Blair (19:23) Well, for us, I would break the retail world. You touch on a great point. And therein lies the opportunity. I would break the retail world in basically three buckets. You have malls, which is what people generally tend to think of when they think retail and malls, they're undergoing their own over there. Ultimately, probably a third will survive and two thirds should be bulldozed and kind of just transitioned into something else. For example, there's one that I pass every night on my drive home, which has been torn down and is now an Amazon last mile fulfillment center. That kind of class over there is just going to be transitioned into something else. Just as 50 years ago, retail transition from urban environments to the suburbs, which are kind of represented by the indoor shopping malls. They are now transitioning into the next thing. The second bucket I would call the power centers, the big outdoor shopping centers full of the big boxes. With that, there was already a transition at play there. They sell hard and soft goods. Those are the people that are getting hit hardest by the Internet. It’s just a fact. They were kind of busy, struggling, trying to figure out, you can have a 30, 60000 foot box that wants to figure out how they can live within 30, 35000 feet. What the pandemic did to them is it simply accelerated an underlying trend, dramatically. Whatever impact the pandemic has had on power centers was already at play. It just got accelerated. Now, one fact to hang on to for those that are crying, that retail as we know it is now dead or is going to die is that clicks and mortar beat clicks and it beats mortars. That’s as evidenced by Amazon this past week, taking two Whole Foods stores and converting them to that system they have where you just pick up something and walk out with it. It's a cashless store. I haven't seen one yet. That is kind of to point as clicks and mortar is the ultimate thing that everybody shooting for. Is how do these two things work together and what's the perfect equilibrium of those. What the Internet has forced is for traditional brick retailers to really up their game and get better at this or else you're not going to survive. You go through the fast, but you go through the pandemic and you've got a bunch of these big power centers around there. And the fact of the matter is, you can probably make some money buying power centers. Right now, the brokerage world is going to make money helping all these leases kind of get redone. And it sounds easy, reducing, you know, some big box store from 60000 feet to 35000 feet. It's not, you just can't divide the space in half. That's expensive, they don't have to move to another space. And so there will be some real some real business to be had in this. But as an investor, it's going to be you could probably make a pretty good return with power centers. You're going to be able to buy them cheap right now because all of the chaos in that sector. But it's going to be a painful thing between here and there. The reward will be there financially. But the operators are going to have to be really good at what they do because it's going to be a long, hard slog. And the second thing behind that is that what is the real credit quality of the large retail tenants? I think there's some real credit players out there. I also think it's just something you need to be careful and be very intentional about when you assume that a credit tenant is, in fact a credit tenant. The third bucket, if you will, would be what we call service centers or neighborhood centers, and those are where we tend to play and it's just what we know.  that would be the unanchored neighborhood centers and they are primarily service providers. They think of the one near your house, this is what I tell folks. Think of, the Mexican restaurant, the local PT guy, the dry cleaner although, they’re less and less of those. The doc in a box would be in there. The UPS store would be in there. They are service providers to people. Heading into the pandemic, I would have said they're their primary value draw, if you will, or value prop was that they were Internet resistant, that people stores in these centers need people. You have to come in to do it. You have to come in to get your nails done. You have to come in to get your haircut. You have to come in for your physical therapy. The second thing that has come out of this is that these tenants were remarkably resilient during the pandemic. That is not something that was obvious at the front end because it was the restaurants. It was the things that people had to come in to do. Those stores were forced to shut down. What happened was that they learned how to do it on carry out. They learned how to do more with less, they adapted. The truth is that while if you look at some national graphs on accounts receivable, which is a good kind of tell on who's paying, it's not a good tell. It's the tell on who's paying the bills, who's paying their rent on time, et cetera, is that the national retailers, when the pandemic hit last March, just stopped paying people. I know that, I have some friends that owned power centers and they were getting all these nasty grants from national tenants, basically saying, I'm never going to pay you again until I understand what's going on. In their mind, they held the leverage that they were going to tell the landlord how it's going to be. What happened with the mom and pop, with the strip centers, the neighborhood centers, which are mostly full of small, locally owned mom and pops, is that they continued to pay. If you look over a 12 month period for a AR in the pandemic, the strip centers or the neighborhood centers had a far higher collection rate than the power centers with national tenants in it. I saw an Amazon guy speak about that was just one of the really interesting things to come out of the pandemic was the strength and the durability of the mom and pops.

Adam Hooper (26:24) When we were talking again a couple of weeks ago, I think your comment on how it really renewed your spirit and entrepreneurism here in the U.S., I thought that was just such a refreshing take on all the doom and gloom that we heard about how bad it was out there. Maybe you can share some of the stories about that. I thought that was such an awesome outlook on your front row seat, working with a lot of the tenants. How many tenants were you guys working with? How did you help them through that? What was the downstream effect of that? You working all the way down to lenders and from your position as the owner?

Tim Blair (27:01) Two little stories I'll share with you. We deal with about 400 tenants. When this thing hit, we were all deer in headlights for the first week or two. I liken it to the Tower of Terror at Disney World. You’re just hanging onto this thing and it's shaken up and down. The first week or two you are just literally hanging on trying to figure, OK, when is this thing going to stop moving? And I can start to get my head screwed on straight. What happened there was we deal with about 25 financial institutions. Towards the end of the second week of the pandemic. The Fed issued an edict, told the banks and the financial institutions that loans could go 90 or 120 days without paying and the banks didn't have to reclassify them. And that may not be I saying the exactly right. If there's a banker who's on this listening to this, but you kind of get the gist is that the Fed gave banks some leeway to cut borrowers some slack. Why is that so important? Well, it's so important because as a landlord, I can't turn around and start giving out benefits to my tenants who are struggling. If I know the bank's going to turn around and beat me up on the other side. I couldn’t get caught in the middle and for a couple of days there that was abject fear that we were going to get caught in the middle of this thing. The banks allowed the landlords some flexibility. That thing came down on a Friday afternoon. By Monday morning, we had a couple of emails already in our system from banks saying, OK, I've got these X number of loans with you. We're going to give you some grace period to figure things out with your tenants. What we did was we got grace on different levels between about 21 or 22 of our banks. We then pivoted and started cutting deals with our tenants and we broke it up into groups. So every single tenant, we were able to address individualized needs with every single tenant. And we ended up cutting deals with about 100 tenants. We would offer them deferral of sorts so we could kind of just help figure out exactly where they were. We required that they do some very basic things before we even talk to them, they had to provide us financials. They had to give us some sort of proof that they had applied for PPP, et cetera. What we were able to do is then turn around and do a bunch of deals with our tenants. Because the truth is, we were in this thing together. It was us versus the world. And that sounds a little silly, but it really was. We were all just trying to figure out how to live, to fight another day. And there were two things that drove home to me. The second one I'm going to share with you just gives me great hope and optimism for our future. One is, one of the deals that I was Kubi on. And I was kind of talking to the tenants. It is this little restaurant that has had just done fabulous. This is a mom and pop restaurant, they just were slaying it. They'd only been open about five or six months. It was their first restaurant. I had eaten there a couple of times. It's here in town. It was just talking to this woman. The fear it was everywhere in the conversation because this was her dream. This was their life savings that was tied up in their restaurant and they couldn't open. The margin for error was remarkably thin. We gave them some extra time, just don't panic. Anyway, inadvertently, the rent is paid with an ACH payment every month, that the rent's just get swept out of their account. It was supposed to been delayed a couple more days than it was or I communicated it wrong to her. When I am working with this woman, her rent got swept. And because of that, a check or two bounced for her and just the pain and the agony in her voice. And you could just understand how close to the margin this woman was operating. And they had been, again, quite successful. And you knew they were good at what they do. It just it drove home to me, the real price of this whole thing and the role that we play in working with our tenants and helping them survive, that somebody is just one rent payment away from, oblivion. It just really humbled me greatly. It pained me. And it also screwed my head on straight for who I was dealing with and how I needed to help and approach these folks to make it through this. That was a story that really kind of helped me understand the stakes that are at play. The other one, fast forward couple of months over the course of the pandemic. In my mind, the pandemic is like from March of 2020 to March of 2021. And I know technically we are still in it. My goodness. You know, I'm not sure when we will get out of it or what if we do what that looks like. For that twelve-month period, we lost eleven tenants and we added nine. The amazing things to me is that we were leasing restaurant spaces to people in the middle of the pandemic. Talk about optimism when you are doing a lease deal with a tenant who cannot have people come into their restaurant and eat. Their absolute faith, their absolute optimism and confidence that they could make it work. I mean, so to me, the fact that people were out there in our centers and all across the country opening up businesses. In the middle of the pandemic is just a testament to the American can do spirit, the entrepreneurial drive that I can do better, that I want to achieve more. I just got to say, if that does not give you hope and optimism, then I don't know what will.

Adam Hooper (33:43) Yeah, it's great. It’s just such a refreshing take. It's so easy to get swept up in the doom and gloom of everything we went through. To hear your experience of seeing that firsthand. I think, again, it's just it is inspiring to know that it is still alive here. There's people out there that have a pretty good bucket of hope for where we're going. So, again, thank you for sharing those stories. I enjoyed hearing them and hopefully our listeners enjoyed hearing them as well. Thinking about back to the deal side, I'm curious, what is the landscape for deal flow right now? We've talked a bit on the show about how the assumption maybe Q3, Q4 last year was that there was going to be a significant amount of distress and there's going to be a lot of really opportunistic buying, which I don't think we've really seen materialize. I'm curious, what is the deal landscape looking like out there? Have you guys or are you looking at things differently now? Have you changed any of your underwriting criteria? Is there anything that you're paying closer attention to now, given what we've learned over the last year and a half, year or so?

Tim Blair (34:57) Of course. Yeah, there is. I, too, is expecting a bunch of distressed real estate in the latter half of last year and it just never materialized. I think that's a testament to the PPP working. I think it's testament to what I just mentioned about earlier that people simply, Mom and Pops don't know, quit. I mean, it's either zero or one it they're either open or they've lost their life savings and they will literally fight to the death. The truth is that there is a ton of dry powder on the sidelines. There is money all over the place seeking deals and with low interest rates. I think deal flow right now is remarkably good. I think pricing is very high right now for certain product types. I think you've got into a backdrop with potential governmental action on elimination of the 1031’s cap gains, tax going up, you are seeing people enter the marketplace just for those reasons. You are seeing just normal deal flow. You're seeing deal flow because like I said earlier, the interest rates are so low, there's just an easy access to money. All to say that, I think that right now it's surprising the number of brokers I know who last year had their best year ever and are on track to do so again this year. The real estate sector right now is wide open. Now, I made that comment one time in New Orleans and they all looked at me like I had two heads because New Orleans had been absolutely slaughtered, because they're a hotel, they're a tourist destination. Orlando, Las Vegas, New Orleans is clearly not a place to say that. I learned my lesson on that one. But the truth is a surprising number of brokers have had really, really good years during this pandemic.

Adam Hooper (37:03) It sounds like deal flow is still robust. Where are you guys looking at differently or are you looking at things differently now, given what we've learned through the pandemic?

Tim Blair (37:13) Yeah, thanks. What we do is we underwrite more conservatively. I think that's kind of an obvious. We will now probably be very skeptical of having too many restaurants in any one center. You always had to be careful of that because restaurants will tend to chew up your parking. We will need to be careful about the number of restaurants that we have. That would probably for what we're looking at, that's probably our single biggest takeaway.

Adam Hooper (37:46) well, maybe that's a good dovetail into how you've been able to combine work with CCIM and with your operating hat on. You told us about a little bit of some quantitative analysis that you did within your own portfolio to help crystallize your strategy going forward. And maybe you can share with the listeners, because as we talked the other day, I think it's. A lot of outside view of how real estate works is there's a lot of kind of gut feel and relationships and kind of black box magic stuff that happens that results in this acquisition opportunity. I thought it was really interesting how you took a more analytical approach to your own portfolio to help guide maybe what some of those criteria are going forward without giving away all of your secret sauce. I would love if you can share, how you guys put that analytical hat on and some of the work that you did with CCIM in researching. What it was that you guys found.

Tim Blair (38:47) Well, we are real estate guys and we come at this from the ground up and we all cut our teeth in brokerage just doing deals. You then fast forward that, 10 years and we've done all these deal by deal transactions and you have call it 70 or 80 properties in your portfolio. Three years ago, four years ago, we wanted to grow geographically. And a real estate company can grow one of two ways. You can either become a bigger you, a new you in a different city or have product type will travel. The real estate, by definition, tends to be local. Us becoming a new us in another city struck us as very hard, unlikely way to grow. Having product type will travel as how many people do it. I retreated and I kind of just looked into our portfolio, which was just kind of a bunch of deals we'd done over the prior decade, sincerely looking for kind of what's the common denominator. And so what we do is we probably owned 30 to 35 neighborhood centers already were in our portfolio that was clearly our core competency. Then I looked at it looking over the returns of all that certain property type. Some of the centers just did over time, just always stayed full and always posted very good numbers. Some of the centers did OK. Then there were a couple of dogs that you wish you'd never heard of. With a very kind of open and sincere mind, my question is what’s the common denominator of the centers that did well and the ones that didn't? With my CCIM hat on. Some folks at CCIM helped me create this massive spreadsheet. And what I did was I took seven centers, I took three. You're going to have to prime out of our cold, dead hand. We love them so much. Three centers that are solid producers and then one dog that I wished I had never heard of. I put those seven centers across the top of the spreadsheet. Then we literally ran 70 lines of demographic data underneath it. We were looking for what is the commonality of the winners and the losers. When you go through that whole process, it was deceptively obvious what the answer was. But I liken it you have to walk around the block to kind of figure out where you started from. And for us, it's density and affluence that when we buy unanchored neighborhood centers in neighborhoods with certain levels of affluence and certain levels of density, good stuff just tends to happen. The way we define that. What happens is when you do that, you can then hang real numbers on it. You can have very specific numbers on it. For us, the way I would quantify it is within a one-mile ring, not three, not five, but a one mile ring, because we live and die in our little immediate neighborhood. You have an average of $70,000 household income, or greater, 30 percent Bachelor Degree or greater, which is kind of a corollary of the income. You have 8000 daytime density or greater. What happened is that when we kind of combine centers that are in neighborhoods that those numbers represent, they just tend to stay full. And the way I process that is that when the Mexican restaurant blows out, the Chinese restaurant blows in, when whatever the fad was, exercise fad was five years blows out, the new fad blows in. You benefit from medicine now wants to be closer to the rooftop so you can have the medical people kind of starting to come in and backfill. Well, maybe the cleaners used to be what you're banking on is simply there is a desire to be near affluence and density. You do still have some turn in these properties. But when you get an opening, somebody else is fairly quick to fill it because they want to be near that affluence and that density. That’s how we defined it. What we did was we then built a strategy around it. That was the kind of the core thesis of our Shannon Walzak Neighborhood Center Fund I. It’s the same core thesis of our Fund II and we are buying unanchored strip centers throughout the Southeast and the Midwest in certain neighborhoods that meet certain levels of affluence and density.

Adam Hooper (43:21) It makes sense, right? I mean, that's what tenants want, right? You have to almost look at it through getting back to that user decision analysis. Right? When a tenant is looking at their options of where they can locate for a new business, they're going to want to be in the most desirable proximity to both income and households. Just like you said it. It makes sense. And I think that's wonderful to be able to take something that from the outside can be so complex and look at a fairly easy heuristic to understand how much of that is combined with the art. You said you're a deal guy. I think most folks that started out and brokerage. Once a deal person, always a deal junky. How do you combine that analytical approach with still some underlying art of real estate analysis and neighborhood analysis?

Tim Blair (44:18) I refer to. I think it's like a telescope or if you're looking at a map, you can say, OK, we want to be here, here and here. If you're looking at, you get all these fliers and you look at it and you can kind of can quickly telescope in to say, OK, I like that neighborhood, that neighborhood suits me. Then you go back to your real estate 101 and the dirt under your fingernails. Do I like the tenant mix? How does it sit to the road? What condition is the property in? Is there deferred maintenance? I came off, I said curb cuts, but there's then you get back to just your basic real estate stuff that, in terms of, how do I like this center? But what you do is you kind of confine the neighborhood to the rings that you're looking at, the center in to only those ones that you know you want to be in. Makes sense?

Adam Hooper (45:12) Yeah, absolutely. And again, that's where just that experience. Right, cutting your teeth and getting back to the fundamentals is still where we end up.

Tim Blair (45:20) You can't I'm sorry. You can't replace boots on the ground. You have all this technology, you have Google Earth, and you can just do all this stuff from afar. It dramatically accelerates. You're picking the right neighborhoods and whatnot. But the end of the day, you have got to show up, walk the dirt, see how it feels and how it looks. And you got to touch it and just see how it sits to the road. And then talking to the tenants, you always got to talk to the tenants, and you'll know how a center is doing by talking to the tenants.

Adam Hooper (45:54) Wonderful. Now, kind of switching this to the lens of, again, the bulk of our listeners being investors, passive investors in real estate. How should they be thinking about retail as an investment asset? You know, in the asset class right now?

Tim Blair (46:11) All retail is not created equal. I would think of it as how to take advantage of the bad headlines. There’s a dislocation that has occurred and that I say retail and people's minds go to, ghost malls and the power center that has four vacancies. Where the 30,000 fox box used to be. Also this retail that has been slaughtered and decimated by the Internet. And that's what people's minds go to. I would say, how do you take advantage of that? The truth is that the service centers, the neighborhood centers that we are investing in have kind of gotten caught up in that merely by the description that they have retail in their title. The truth is, they're service providers. They are service providers of all those things that I've talked about before. They kind of get lost in this big world of retail. That would be my take. My advice is that when you see an entire kind of broad swath being whitewashed with one description. There's always going to be some room in there. There's going to be something that necessarily doesn't fit that. I would say our segment is exactly that.

Adam Hooper (47:34) As investors are looking at some opportunities out there. what are some questions that they should be asking either to the sponsor? If they're looking at buying one on their own, to the broker that represent helping them buy it or selling broker? What are some of the red flags that people should look out for as they're looking at retail assets now.

Tim Blair (48:00) I will answer in a deceptively kind of simple way. I would want to look at the track record. Do the sponsors, the people that I'm contemplating dealing with, do they pass the smell test? Are these folks that I want to deal with and how have they done it in the past? I would say, when I go out and I talk with people and they'll say, well I was getting, X percent return for this thing, because people tend to be, I just want the highest possible return I can never possibly get. And I get it. But the truth is, you need to understand you took a risk to get that and that the market that there is a risk and reward. For every deal, it offers you a high return. People need to understand they're getting that return because there is a commensurate amount of risk. And then for more solid, more stable deals, you use the money you do the capital preservation plays the core and the core plus. The truth is, people need to understand that there is no free lunch. You do not get to have a disproportionately high return without taking a risk. And so you need to understand and what you're looking at and evaluate what you're doing for yourself. If it seems too good to be true. My guess is it is.

Adam Hooper (49:36) Perfect. I think that's a pretty succinct way of summing up the landscape out there of investment opportunities. As we look to wrap up here, Tim, again, you've been so gracious with your time. Really appreciate the insights and stories you've shared with us. You know, we'd like to ask our guests at the end here, what are the things that are keeping you up at night? And second to that, what has you most optimistic right now about where we're at and looking forward?

Tim Blair (50:08) We take people that have entrusted our money with this very seriously. I mean, we are humbled and honored that people trust us. And that is the single most important thing to us is that we are good stewards of those funds. And the way that translates into reality or day to day for us is that what keeps me up at night is that we aren't keeping the centers full. For the single most important thing we need to do is keep our centers full. That is the single most important thing I would argue for us is we keep the centers full and we stay ahead of any potential turn that's going to come. We have an answer. We have a plan when they do come because it does just happen. You've just got to be a very, very capable operator to make this work. Then what has me optimistic is what I touched on earlier. I think the American can-do spirit for bettering your life through business ownership is just the coolest thing ever. I think is what makes us special. That is what, really gives me hope that we will figure a way through this. Throw me the hardest thing you got at me. We'll figure our way through it. I just saw Mom and Pops, husbands and wives opening up businesses, when everything said don't and they still did and they made it work. And that is just cool stuff.

Adam Hooper (51:53) I couldn't agree more. I think that's a that's a great, great outlook. Well, Tim, how can listeners learn more about what you're up to, both with CCIM and with your operating hat on at General Jack

Tim Blair (52:08) For CCIM just go to CCIM.com and check out all the classes that are offered under the education tab. There is the core product that we were talking about earlier, those classes, the CCIM 101, 102, 103, 104. I would encourage folks to think about taking 101 just because it's a great class and just dripping properties apart and putting it back together again. And then for Shannon Waltchack, check out shanwalt.com. Our company is Shannon Waltchack. We're out of Alabama, orange is our color. And on our Web page, we have a tab for our funds. If interested in learning a little bit more about that.

Adam Hooper (52:52) Perfect. we'll have links in the show notes for listeners. Again, couldn't recommend checking into the CCIM any more than we have already. I think it's a phenomenal resource for people that are interested in learning more about the fundamentals of how these investments come together. Thank you so much, Tim, for coming on, sharing all that you did with us today. We really appreciate your time.

Tim Blair (53:13) All right, take care. Thanks.

Adam Hooper (53:15) All right, listeners, that's all we've got for today. As always, please send us a note with any comments or feedback to podcast@realcrowd.com. With that, we'll catch you on the next one.

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