May 30, 2023

JF3190: 3 Common Misconceptions About Retail Real Estate ft. Zach Alms



Zach Alms is managing partner at 507 Capital, a real estate private equity company focusing on acquiring assets in the Midwest. In this episode, Zach discusses why he loves retail real estate, what ideal vacancy rates are in a retail shopping center, and how to stress test a retail deal.


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Zach Alms | Real Estate Background

  • Managing Partner at 507 Capital
  • Portfolio:
    • Retail strip centers
    • Small multifamily properties
  • Based in: Mankato, MN
  • Say hi to him at: 
  • Best Ever Book: Who Not How by Dan Sullivan
  • Greatest Lesson: Take the leap. Whatever the lesson is, be willing to take the leap and learn as you go!


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Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Zach Alms. Zach is joining us from Mankato, Minnesota. He is the managing partner at 507 Capital. They invest in value-add retail properties, as well as vertically-integrate the management of those properties. Zach's portfolio consists of retail strip centers and small multifamily properties, around $15 million of assets under management. Zach, thank you for joining us, and how are you today?

Zach Alms: Doing good. Thanks for having me.

Ash Patel: Awesome, Zach. It's our pleasure. Best Ever listeners, fair disclosure, Zach's a good friend of mine; I met him at the Best Ever Conference, and dying to know more about his background. So Zach, thank you again for joining us. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?

Zach Alms: Sure. So we'll go way back to the early 2000s. Back in the early 2000s my mom was a realtor, and when she was doing that I got the real estate itch. And since then, I've been trying to grow my portfolio, when I got out of high school, and stuff like that. I started with some small multifamily, grew to a fourplex, eightplex, 12plex, things like that. And then was self-managing it the whole time, and in about 2018-2019 I got pretty burned out on self-managing apartments, but I still loved real estate as an investment, so I tried to figure out what was the best way to go... And everything I read and heard was going to triple net retail, or triple net lease properties. So early 2020, just as COVID was shutting everything down, I bought my first retail strip center, and I haven't looked back since.

Ash Patel: Look, you know me, I love this... I scream from the mountaintops for people to get into office, retail, industrial, pivot... Do multifamily, but don't not look at these other assets. What was it about triple net investing that was appealing to you? I know the managing part was burning you out, so tell me more about that.

Zach Alms: It was kind of twofold. Part of it was managing. Triple net, and commercial real estate in general, when it comes to anything non-residential, the tenants are operating their businesses out of those locations, so they care about the space. And so I just wanted a tenant that cared about their space, and wasn't going to give me a call every day about a leaky toilet, or broken faucet, or something like that. So more hands-off on the management side. And then the triple net portion of it is also very awesome. The triple net lease, the tenants reimburse for property taxes, property insurance, and common area maintenance expenses, CAM. So really, when you have a base rent, you know what you're gonna get, because those triple net costs can fluctuate every year, but you can reconcile it and make sure that tenant is reimbursing for those expenses... So it's just more --

Ash Patel: Is it more predictable, you think?

Zach Alms: More predictable, yeah.

Ash Patel: Okay, so I'm going to push back on you a little bit... You got into retail just before COVID locked everything down, and you still love it.

Zach Alms: Yes.

Ash Patel: So look, the misnomers out there are there's a retail apocalypse. How would you get into retail after COVID? How was that a good idea? How do you answer those questions?

Zach Alms: Those are good questions. I got into my first center right as COVID was shutting everything down. And actually, the first few months of the ownership was really rough, because I had one of my tenants - a big corporate tenant, they occupied 50% of the building. Actually, first thing after I bought the building is they sent me a letter and said they're not paying rent for three months. So it was pretty scary there for the first few months. But all in all, retail is a great asset class; there's lower vacancy in retail right now than there's ever been, and if you're buying in the right markets and in the right locations in those markets, and it has good access and good stuff, you're going to be pretty well protected. The thing with retail is it's not just stores, and where you're gonna go buy clothes or food; there are service providers, there are hair salons, there are pizza joints, there's dentist, chiropractor... I could go on; just tons of service providers that you need every day. So these retail strip centers are perfect for that.

Ash Patel: Yeah, so internet-resistant and recession-resistant tenants. How did you find this first retail center, and what was the size of this? It sounds like you went pretty big. Why not start out something smaller?

Zach Alms: It wasn't a huge building. It was about 8,500 square feet. And I found it on Crexi. It had some vacancy in it when I bought it. I bought it as is NOI, and bought it at about a seven and a half cap at the time. I had some really good credit, great tenants, and just the learning process.

Ash Patel: What was it about this center in particular that appealed to you? Was it close to home?

Zach Alms: It was about a two-hour drive from home...

Ash Patel: Not close to home...

Zach Alms: Not close, okay.

Ash Patel: So I want other people consider following in your footsteps, so I'm trying to get into your mindset... What was it really that appealed to you about this one?

Zach Alms: It was a Starbucks-anchored, and Aspen Dental-anchored building, with a vacant -- so about a third of it was vacant. And so my game plan was to get in there and fill that vacancy, and then therefore increase the value of the property, increase the cash flow, increase everything. What I liked about it was it was a pretty good-sized market, it was the busiest road in town, it had 10k, 20k cars per day. And it just had good tenants.

Ash Patel: Zach, there's not a lot of education resources out there. How did you learn enough to take this one down?

Zach Alms: Probably I thought I knew enough, and I just did it. A lot of times I just jumped before I should sometimes. I'm pretty risk-averse. I'm willing to take the risk. And I knew that jumping in and just doing it, I would learn something, and I did. I've since exited that building; I learned that that market wasn't actually a great market to buy something with a vacancy in, because it was very oversaturated with vacancies, and I never was going to have a chance in filling the vacancy. Not to mention COVID shutting everything down and having a pretty tough time... But I learned by doing; that's the best way to learn.

Ash Patel: I love that. I'm just like you; people always ask "What's your exit plan?" and the answer is there is none. You just make it work. I don't have a plan B. I'm gonna figure this out, make it work. What was the purchase price of this deal?

Zach Alms: It was about 2.2 million.

Ash Patel: Did you raise capital for that?

Zach Alms: No, I did not. It was in a 1031 exchange.

Ash Patel: Okay. And one of your tenants, this corporate tenant that said, "We're not going to pay you for three months" - did you or could you have pushed back on that?

Zach Alms: I probably could have pushed back... But what they did is they said "We're not going to pay you for three months right now, but we're going to tack that on at the end of the lease", which technically they would have had a higher rent rate at the end of the term anyway... So yes, I was missing it those three months, but they weren't completely not paying it. They were going to tack it on at a higher rate down the road.

Ash Patel: Interesting. Okay, so they're not going to pay today's rent at the end of the lease. They're going to pay whatever their rate is times three months.

Zach Alms: Correct.

Ash Patel: Alright. Pretty cool. A good selling point for the next buyer. Did you ever fill the vacancy?

Zach Alms: No, I did not.

Ash Patel: Did you make money on the sale of this property?

Zach Alms: Yes, I did.

Ash Patel: How? What did you do to improve it?

Zach Alms: I didn't do anything to improve it. It's sad to say, but the value-add was that the corporate tenants that I had there, Starbucks and Aspen Dental - Starbucks particularly, that shot up like a rocket on people wanting to buy it. So I bought at a certain cap rate, and I sold it at a lower cap rate. Therefore, there was a good spread on the purchase versus the sale.

Ash Patel: How much money did you end up making on this, if you don't mind me asking?

Zach Alms: I made about 600 grand.

Ash Patel: Alright, congratulations. So now you're hooked on commercial.

Zach Alms: Yeah.

Ash Patel: However, the timing is not in your favor anymore. Cap rates are decompressing now. So what's the next move?

Zach Alms: Well, still buying retail strip centers, and there's still a lot of opportunity out there. I learned my lesson on that one and buying in a market where it was oversaturated, with a vacancy. And so now I'm still buying value-add retail strip centers, but I'm doing a little bit more homework, because I've learned some lessons, and I'm making sure that I'm gonna actually be able to fill vacancies, or increase the value of the property in some way. I can't just bank on the market bailing me out every time.

Ash Patel: Yeah, the universe loved you on that deal... But it may not so much on the next one. How many years left did Starbucks and Aspen dental have on their lease?

Zach Alms: They probably had a little under five years each left on their lease. And the reason I sold that one even - I wasn't even looking to sell it, but I found a different property that I liked, again, two hours away, in different direction, that I wanted to purchase... So I actually ended up doing a reverse-1031 Exchange. I bought this other property before I sold my current property that I owned.

Ash Patel: What does that process look like? Do you just let the 1031 intermediary know that you're buying this, and you plan to do a reverse-1031?

Zach Alms: Yeah, so there's a lot of moving parts; you have to have a lender that's willing to give you a bridge loan, normally, in the process... Because you still have to come up with cash to buy the first property before you sell your property that you're 1031-ing. So there's some moving parts, but it all worked out. I ended up buying property A, and then I sold the one I already owned, property B, two months later. So it wasn't a long hold period by any means, but it can get pretty complicated, and there's a lot of ways you can play with it. You can actually buy a property and then identify later after the fact what property you even want to sell, if you own multiple properties. It's a pretty cool thing to do if you don't want to be forced to buy something and 1031-exchange. I'll probably do it again, so that I don't ever be forced on the timelines of an exchange.

Ash Patel: That's great advice. What was the next property that you bought?

Zach Alms: It was a larger retail strip center, about twice the price, twice the size, again, with an aspen dental and some other local tenants. It was a fully stabilized center.

Ash Patel: Why would you buy something fully stabilized if you're a value-add guy?

Zach Alms: Well, the price was right, the location was right, the market was right, I got a good interest rate at the time... Everything just worked out, and I was doing it through a reverse 1031 Exchange. It all just worked out that it was just too good of a deal not to do.

Ash Patel: Is your loan locked in for a certain number of years?

Zach Alms: Yeah, it is a five-year locked loan, a five-year balloon, and then after the five years I have to refi it and getting a loan on it.

Ash Patel: Okay, good. So you're not susceptible to interest rates continuing to rise, and your payments going up. You're set for five years. What are the other tenants there? Aspen Dental, Starbucks...

Zach Alms: We have a QDOBA, which is just a burrito place like Chipotle. Jimmy John's, Little Caesars, there's a hair salon, there's a nail salon... I know I'm missing one or two tenants. [unintelligible 00:13:10.02]

Ash Patel: Are these all national tenants?

Zach Alms: They're all mostly national, recognized tenants, yes. They're not necessarily credit tenants, but they're all franchisees.

Ash Patel: And they all have built-in rent increases.

Zach Alms: Correct.

Ash Patel: What's the play on this? How long are you going to hold it?

Zach Alms: Sad to say, I don't have a great plan on it. I'm gonna hold it until I figure out the next thing to jump on to, or if I can sell it and keep doubling down; if I can double down into the next building, I'll do so. I don't really get too emotionally attached to any building, so I'm always willing to grow to the next if the opportunity is right. But right now, it's just a good cash flow play.

Ash Patel: Yeah, and you've got some top notch tenants there, where there's a lot of traffic going into them... So if there was ever vacancy, it's got to be easy to fill a center like that, right?

Zach Alms: Yeah, it's an out parcel to a Walmart. It's got good traffic. I don't have any concern.

Ash Patel: Plenty of parking?

Zach Alms: Yeah, a good amount of parking.

Ash Patel: In terms of finding deals, how are you finding them now?

Zach Alms: So a lot of the deals that I'm finding these days is through Crexi or broker relations. I don't use LoopNet or CoStar very often. I do use them [unintelligible 00:14:19.10] but mostly Crexi and broker relations. And actually probably even more towards the broker relationships. I call commercial real estate brokers weekly, probably talking to a different one every other day during the week... So just staying on their radar, letting them know what I'm looking for, and the markets that I'm looking for in. Deals do tend to come to me sooner, before they hit the market.

Ash Patel: Zach, on this deal you don't have a timeline, because I'm assuming you don't have investors, right? So you call the shots. Would you consider raising capital for future deals?

Zach Alms: Yeah, so that past deal was solely myself... But yes, I'm actually starting to raise capital on deals now and for the future. I've got a couple of deals in the Midwest here that I'm working on right now, actually, that we're raising capital on, and really awesome value-add plays; filling vacancies, increasing rents, some month-to-month leases that we're going to get on, long-term leases... And with some rent increases. Basically, all the value-add things we can do, we're going to do to these properties. So we're raising capital, because it's going to be a great return for the investors, and it's going to be a great project for me to do.

Ash Patel: I've got to ask you this question - do you still own your multifamily?

Zach Alms: Funny story - I was starting to buy some multifamily again over the last year, and I literally... Earlier this week, I sold them all again to a buddy.

Ash Patel: Okay, you're a unique individual in that you've got expertise in both retail and multifamily. Are you pivoting just completely away from multifamily? Or if you start seeing deals, would you consider getting back in?

Zach Alms: So the reason I just sold out the ones I was already starting to acquire again is because yeah, I want to focus more on retail and retail strip centers, but I can't turn a blind eye to a really good multifamily deal either. Because I do have expertise in it, and I do know when a good deal is a good deal. I might buy it, I might put it under contract, and I might own it for a very short amount of time, and then sell it for a small profit... But I will still take down multifamily deals as the opportunity presents itself.

Ash Patel: Look, I think that's an incredible skill to have. I wish more multifamily people would pivot, and at least pick up the skills where if they see a great deal in retail/industrial/office, they can take it down. Because market cycles are different for different asset classes. So you're a unicorn. There's not many people that can do both, or that would be willing to do both. Good for you. What markets are you looking in?

Zach Alms: Mostly in Southern Minnesota, and Wisconsin. So basically, Minnesota, Wisconsin, and Iowa are my focus markets.

Ash Patel: And Zach, your pain point back in '18-'19 was managing these multifamily properties. Retail is just a million times easier to manage. Why are you only looking in those markets, and not other places in the Midwest?

Zach Alms: I am looking in other markets, but I'm not looking very hard. I kind of want to get a really good foothold here before I expand nationwide. I've got a partner locally that is a property management company, so he manages all the properties. He's actually a partner, so we're vertically integrated through 507 Capital. And right now it's just ease, the simplicity of it all, to have it all somewhat local... Even though a couple of our deals under contract right now are six hours away. That's a drive; I could probably fly anywhere just as fast. So I'm not opposed to other markets or other parts of the country, but right now the Midwest, and especially the three states I mentioned - they're just what I like.

Ash Patel: So your partner manages the properties. So this aversion to property management - you took it to an extreme, and you don't even manage the property, your partner does that now correct for you. Good for you.

So your role is just primarily acquisitions?

Zach Alms: Yup. Acquisitions and underwriting, and operations. Kind of like asset management over the property management company to makes sure that the property management company, even though they're a partner, I still need to make sure that they're doing all the things that I want them to do, or that they need to get done. So operations, acquisitions...

Break: [00:18:30.22]

Ash Patel: Is there a sweet spot in the type of retail deals that you're looking for? The first one was 30% vacant, in terms of value-add, but then you've also bought fully-leased properties. What's the best way to go? Do you park money in fully leased properties, or do you do the value-add? And if so, how much vacancy is the right amount?

Zach Alms: Those are really good questions. I don't have a perfect answer for you. It's good to have some vacancies. I would say at least 10% vacancy. If you get up to 30%, 40%, 50% vacancy it's a little bit harder to find financing, or to make the deal cash-flow from day one. I'm not saying I haven't done it. I bought a building that had about 40% vacancy, but we had to make the seller master-lease a bunch of the vacant space, so they are still paying rent for that vacant space. But back to your question - I don't have a certain vacancy amount or anything like that, that it has to hit for it to be a good value-add play. You have to be able to increase the NOI in some way or form, substantially, let's say 20%, over the course of two to three, to five years. But I don't say that you have to have a certain amount of vacancy or anything like that. One of the deals I have under contract right now - it's actually fully occupied, but the rents are probably only at 50% to 60% market. So I'll just raise rents, and that'll be a substantial value-add play.

Ash Patel: Well, hold on... Can you raise rents, or are there renewals and multi-year leases?

Zach Alms: They're all on month-to-month, but there's no renewals in place.

Ash Patel: Alright. So that's incredible. And have they been there a long time?

Zach Alms: Yeah, all of them have been there since 2020 or longer.

Ash Patel: Alright, so that's a perfect scenario - below market rents, month to month. The drawback on something like that would be if they had five years remaining, and then multiple five year renewals at very low rates; there's no way to overcome that, unless the tenant voluntarily leaves, right?

Zach Alms: Right.

Ash Patel: And back to this master-lease deal... Tell me more about that. So you're buying a property that had about 50% vacancy?

Zach Alms: Yeah. So what we did is because it had such vacancy, it was really nice retail strip center, with medical office space as well, but it had a lot of vacancy, because the current owners - they wanted a very specific kind of tenant, so they weren't aggressively trying to fill the building. But anyway, they wanted to sell it, so I was like, "Yeah, but you need to master-lease all of this space." So basically, what we did is we had them lease all the vacant space at about 70% of the market rent for two years. And it's escrowed. So if I fill the space, they get their money back. If I don't fill the space, then they have to pay that rent quarterly. So what it did is it helped the property appraised for the value that they wanted to sell it that, and it helped me as the purchasers to have the cash flow during that lease-up phase.

Ash Patel: That is a wild scenario. I'm assuming you came up with this?

Zach Alms: Yes.

Ash Patel: This is brilliant. So a lender would not have touched this property with that much vacancy. Did you pay full price or did you pay over asking for this master lease?

Zach Alms: I paid full price. I told the owner that -- this was a broker relationship deal, so a broker brought it to me... So basically, I guess I told the broker, I said, "If they want to get this price, they have to do this master lease. Otherwise, there's no way it's going to appraise, to maybe not even half as much." So they wanted to sell bad enough that they did the master lease.

Ash Patel: So at closing, they ended up putting how much money in escrow? Two years worth of rent?

Zach Alms: It was probably about 200k.

Ash Patel: That's incredible. And you just dipped your hand in that till every time you needed it, until you filled the tenants. If I was a seller, I would have been like, "No. I need you to be incentivized." Was the rent diminishing over time? Why wouldn't you have just sat there and waited it out for two years?

Zach Alms: The incentive to me to fill the vacancy sooner than the end of the two years was, for one, I didn't want to take it to the very last minute and then try and fill the spaces. And then secondly, the rent that the master lease was - it was somewhere between 60% and 70% of market rents. So I could fill the space at market rent, and get substantially more; that was the incentive.

Ash Patel: That's an incredible scenario. Good for you. How important are national tenants, versus the mom and pop pizza place, or the hair salon?

Zach Alms: It's important to have -- I like to have at least one or two national credit tenants that are corporately backed by a pretty big company. It's important; it drives traffic to the building, and it also gives you the security of having a corporate or credit tenant that will pay the rent. A mom and pop could go up and close up shop any day. Whereas a corporate tenant - this is not going to happen as often.

Ash Patel: Knowing that we're in a rising rate environment, do you look for tenants that have leases long enough to get through maybe the next two to three years of potentially rising rates? Because the longest time that we've had between when rates started going up to when rates started coming back down was just over three years, I believe. Now, this could be longer... Do you anticipate continued headwinds? And for that reason, do you try to find tenants that have three, four or five years minimum left on their lease?

Zach Alms: Yeah, it's preferred to have the leases three, four or five years out, or more; one of the buildings we're buying has a tenant that has a 15-year lease, and they still have 12 years on their lease. So yes, it's good to have the security of the long-term leases. But at the same time, there's a value-add play to have shorter-term leases too, to increase rents. In case there's no renewal options or anything like that, you can increase rents. So it's good to have a mix; maybe 60% of the leases are long-term, the same amount of your loan, whatever your long term is. If it's a three year or a five year balloon, make sure your leases coincide with that. But it's also good to have some shorter-term leases, so you can do some substantial value-add plays on it.

Ash Patel: So that's a double-edged sword. The apartments - there's areas where rents were rising 12%, 18% year over year; with us being in the retail space, maybe the lease was signed five years ago, when inflation was non-existent, and they have a 3% annual rate increase. So that hurts us during high inflationary times. So it's a balancing act. You've got to try to predict the future a little bit, too. And then the renewals only help the tenant, is that right?

Zach Alms: Right. The renewals are only good for the tenant, so that they know what they're going to have to pay when their renewal is up. There's something you just mentioned though, about inflation - with a triple net lease, yes, inflation goes up and down and stuff like that... But as all costs to take care of the building rise, through a triple net lease you can keep continually billing those expenses back to the tenants. As property taxes go up, as property insurance goes up, as the lawn care, the landscaping, the exterior lighting, all those costs go up, those are all costs you can bill back to the tenants through triple net lease. And so you're always recovering that, whether inflation is going crazy or not, as long as they're on Triple Net leases.

Ash Patel: I love that you said that. Chalk up a win for us in retail versus the multifamily people, because the multifamily people all have gross leases, and there was a time where finding contractors was very difficult, and they get to charge whatever they want for services. We have a shortage of tradespeople. So that's a great point, where yes, multifamily rents were higher, but their expenses had to have gone up significantly; even their taxable value and the property taxes go up. So you get to pass those all on to your tenants. Do you only do triple net? Or will you take properties that are gross leases as well?

Zach Alms: Triple Net is preferred, but I will look at gross lease commercial properties as well. I prefer triple net leases; if there's a substantial value-add play on a gross lease retail strip center, I'm not going to turn away from it just because it's got gross leases. You've just got to account for those rising expenses, and you've got to account for all those costs through some way or form, whether it be annual increases on the base term of the lease, or something like that.

Ash Patel: You've got some serious PTSD from managing those multifamily properties, huh? You're sticking with them triple nets, you don't want to do the gross leases, you want to be a hands-off manager... I love it. How do you assess risk in some of these properties that you're looking at? How do you do a risk analysis? How do you stress-test the deal?

Zach Alms: That's a good question. I would say stress-test it or assess the risk through the tenants and the leases. If it's all month to month leases, that's a high-risk purchase. But if you have a building that has corporate-backed tenants and very long-term leases, a lot of the risk is mitigated. The least risky buildings out there also sell at the lowest caps; let's say a Starbucks - a standalone Starbucks is selling at a very low cap rate, whereas a standalone Mom and Pop coffee shop, same size building and same everything might sell at three basis points or more higher cap rate. So risk and cap rates coincide a lot of times.

Ash Patel: Well, speaking of that, would you always sell a property before that triple net renewal comes up? Or would you roll the dice and say, "I know they're gonna renew"?

Zach Alms: You're gonna get a better price if you can have a long-term lease in place when you sell. So if you can get the tenant to renew with the longer-term lease, and then sell, you're gonna get a better price.

Ash Patel: What if they don't renew? Now you're left with [unintelligible 00:30:42.25]

Zach Alms: [laughs] You've got other problems on your hands.

Ash Patel: Can you renew early?

Zach Alms: Oh, yeah.

Ash Patel: So you go to Aspen Dental, or Jimmy John's, and you have to incentivize them, and say, "Look, I need you to renew early. I'm gonna give you a break on this, this and that", and just make it a win/win.

Zach Alms: Yup. Or you can give them a tenant improvement allowance, TIA; you can give them -- so if they want to have their interior walls painted, or if they want new flooring, you say, "Hey, I'll put new flooring in there if you sign a new lease for me today."

Ash Patel: I love that. So you don't have to necessarily say, "I'll give you a discount on rent." It could be "Hey, I'll reward you this other way, so that your NOI still continues to go up", and then you get a multiple of that when you go to sell. So you don't want to sacrifice that. Instead, give them something out of pocket: paint, refresh, something like that. Great, great advice.

Speaking of advice, Zach, what's your advice to the multifamily world, that for whatever reason thinks retail is too difficult, too expensive, too risky?

Zach Alms: My advice would be to just try and learn about it, try and look into it. It's not that complicated compared to multifamily. You're dealing with businesses instead of residential tenants, so it's more business acumen... But it's not that much more complicated. It can be a lot easier on the management side; there might be a little bit more costs involved on the front end. It's possible that a commercial property costs more than a multifamily property, depending on the size of each... But just look into it. Try to learn as much as you can.

Ash Patel: You know what would have been hilarious? If I asked you "What's your advice to multifamily people?" and you said "They should stay in their lane", so that you have less competition. [laughs]

Zach Alms: Alright, I missed my opportunity.

Ash Patel: No, listen, we both have an abundance mindset. Plenty to go around. I think you've inspired a lot of people with this conversation. Zach, what is your best real estate investing advice ever?

Zach Alms: I'd say my best advice is just to jump in headfirst. I'm pretty risk-adverse, but the best way to learn to do something is just by doing it. Even if you're just trying to get into real estate, buy a house, house-hack it. If you're trying to get into commercial retail strip centers, buy something small, buy something manageable in price that has a couple of good tenants that you think you can handle; just do it, learn, and you won't regret it.

Ash Patel: Would you advise people to go directly to commercial, or do they need to start out with single family homes?

Zach Alms: It wouldn't hurt to have a little bit of knowledge in real estate investing in general, and have a little bit of knowledge in property management, and just a little bit of knowledge in every aspect doesn't hurt. But if you think you can do it, if you've read enough books, or watched enough YouTubes, or listened to enough podcasts, if you think you can jump straight into retail strip centers or commercial property, don't be afraid to.

Ash Patel: In terms of raising capital, what's your anticipated return to investors?

Zach Alms: Am I allowed to say that on this show?

Ash Patel: Yeah.

Zach Alms: Anywhere between 16 to 18 IRR, or better.

Ash Patel: What would a typical hold period be if you are buying retail? With investors, obviously.

Zach Alms: We are kind of projecting three to five-year hold terms. And the IRR will be higher if it's a three-year term versus a five-year term. But ideally, what we're really trying to do is we want to double investors' money over that term... Whether it be three years we want to double everyone's money, or over five years trying double everyone's money. It depends on what the market does, and how fast we can accomplish our value-adds. But my goal overall is to make investors money and ideally double their money over the hold period.

Ash Patel: Zach, what's the typical loan to value on retail deals that you do?

Zach Alms: Typically what I'm doing is anywhere between 80% LTV, 75% LTV, or 70% loan to value. So around that 75% loan to value.

Ash Patel: Zach, are you ready for the Best Ever Lightning Round?

Zach Alms: Let's do it.

Ash Patel: Alright, Zach, what's the Best Ever book you've recently read?

Zach Alms: I've recently read "Who, not how", which was a great book on how to find people to do things that they're great at, basically. I'm not managing my own properties, because I'm not great at it, or I just don't like it. So I've found out Who to do that for me. I just like that idea of finding the right people for the right tasks.

Ash Patel: You were already doing that; you could have written that book.

Zach Alms: Well, yeah...

Ash Patel: Alright, Zach, what's the best ever way you like to give back?

Zach Alms: I'm on the board of a local rec center. It's just a local nonprofit. I donate my time. I'm happy to teach people about real estate; the rec center that I'm part of, we're raising money for an indoor playground right now... Because we're in Minnesota, it gets really cold for six months, basically... So an indoor playground for kids to go play at a playground during the winter months. So I just like to give back to the community in any way I can.

Ash Patel: Are you gonna raise extra money to heat that indoor playground?

Zach Alms: I'd have to...

Ash Patel: [laughs] Alright, awesome, Zach. And how can the Best Ever listeners reach out to you?

Zach Alms: You can find me on LinkedIn, Zach Alms. Or you can find me on my website, which is

Ash Patel: Zach, I've gotta tell you, out of all the hundreds of people that I've interviewed, I think you are the only unicorn that will continue to invest in both retail and multifamily. It's usually one or the other... So what a pleasure interviewing you today. I think you've opened up a lot of people's minds on the benefits of managing and owning commercial real estate. So thank you for your time today.

Zach Alms: Thank you, Ash.

Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share this podcast with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day.

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