April 4, 2023

JF3134: Top Benefits of Being Asset Agnostic ft. Shree Kulkarni



Shree Kulkarni is the CEO of two integrated development companies that source off-market deals for commercial real estate development. His portfolio consists of single-tenant NNN properties, small industrial properties, mixed-use properties, raw land, and multifamily development sites. In this episode, Shree talks about why he is asset agnostic and the due diligence process he goes through to acquire properties.

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Shree Kulkarni | Real Estate Background

  • CEO of two integrated development companies that source off-market deals for commercial real estate development.
  • Portfolio:
    • Single-tenant NNN properties
    • Small industrial properties
    • Mixed-use
    • Raw land
    • Multifamily development sites
  • Based in Tampa, FL
  • Say hi to him at: 
  • Best Ever Book: The 7 1/2 Deaths of Evelyn Hardcastle by Stuart Turton
  • Greatest Lesson: Work in a growing city.


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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Shree Kulkarni. Shree is based in Tampa. He does have a lot of real estate in the Cincinnati, Ohio area though, close to home for me. He's the CEO of two integrated development companies that source off-market deals for commercial real estate development. Current real estate portfolio consists of several single tenant triple net properties, small industrial properties, mixed use, raw land, including multifamily development sites in the Tampa area. Shree, can you tell us a little bit more about your background and what you're currently focused on?

Shree Kulkarni: Yeah, so my background - I'm a chemical engineer by trade, went to Purdue University, went to Ohio State, got my law degree, passed the bar in Indiana. I was super-fortunate to start in real estate, or unfortunate, either way, in 2007. So I caught the very beginning of the Great Recession. I got an opportunity to do and made it through doing single tenant net lease investments, and then sort of expanded and branched out from there. Right now, as you said, we have an office in Tampa and an office in Cincinnati, and we're opportunistic developers and investors.

Slocomb Reed: Talk us through your business model, Shree. What I'm imagining now, having read in your bio, is that you guys are looking for off market deals either for raw land or buildable land that's not at its highest and best use. You and I were chatting about a couple of places in Cincinnati where you used to find old ratty single families that have been converted to multifamilies, that are now highly desirable spaces for commercial development. What I'm imagining is you're finding those areas, you're targeting properties where the seller may have some motivation to sell, or at least it's in the path of progress. You buy it, figure out what can be built there, you build it yourselves, and then hold it. Is that all correct? Where am I off-course?

Shree Kulkarni: No, I think you hit the nail on the head. So the model, we're very used to holding land. You have to start with that ingredient. You need to be comfortable being aggressive, and you need to be comfortable being ahead of the market. Because most developers, they want to develop in the right places, at the right time, they want to put their capital to work as quickly as possible, and make a return for themselves or their investors.

My business is a little bit different. As an example, down here in Tampa, we have five people total. So we have three interns, and then my brother who's in charge of our acquisitions, and then he's got an employee. All they do is send letters and make phone calls. That's it. 40 hours a week, they're sending hundreds of letters, sometimes certified mail, they're making hundreds of calls, trying to find the right seller in all kinds of different asset classes. So again, we're asset agnostic. Retail - great. I love retail like the back of my hand. But we look at multifamily sites, we look at single family homes for sale sites, homes for rent sites, we look at everything. Except for big box industrial development areas. That's the only thing we don't look at.

Slocomb Reed: And you're focused on opportunities to build yourself. Are you also retrofitting other like industrial and warehouse spaces for new tenants?

Shree Kulkarni: I would say more is going to be ground up. We would look at anything, but almost all of the things that we purchased Are land sites or home sites. Like I said, we have a great background in land, so I'm very comfortable putting cash to work today and knowing that it's going to take a year or two years. But as an example, at MLKN71 I went out there -- this was when I first moved to Cincinnati; everybody had talked about MLKN71, and nobody was doing anything over there, because it had come and gone. Nobody knew if that was going to actually happen. I went out there and started acquiring properties.

Slocomb Reed: Shree, can you explain why that's such an interesting -- well, it wasn't an intersection yet, which is part of what you're getting to... But what is MLKN71, for those listeners who are not as familiar as you and I are?

Shree Kulkarni: Sure. MLKN71 is the first urban interchange ever built on the I71 Corridor since I71 was first built. So about 40-50 years ago basically the state of Ohio came together with the city of Cincinnati, they put a bunch of money together and built a full movement interchange right there. It's the main access point artery now to University of Cincinnati, [unintelligible 00:05:17.08] One of the great precipitators of that was --

Slocomb Reed: Several hospitals, yeah.

Shree Kulkarni: Several hospitals, exactly. And that actually was one of the great reasons to do this deal from a municipality perspective, because the drive times as people called in for ambulances was 15 minutes, or 12 minutes; it was absurdly long, because you'd have to go down to the exit below, or the exit above, and then take the circuitous route. So everybody was "We have to have a way to get our patients or people that need hospital care and get them to a hospital", which is the reason everybody was able to rally around them, and come together.

Slocomb Reed: Generally speaking, Shree, outside of the development component, which I do want to ask about soon... This is a very familiar business model to me, and I know that the vast majority of our listeners are not engaged in as many facets of acquisitions, development, buy and hold as you are... But it should be a fairly common business model speaking generally for a lot of our listeners. I want to ask two questions about your acquisitions in tandem. The first is, how much due diligence are you doing on a location before you start reaching out to the owner? Like, how much research are you doing to figure out the possibilities, the future forecasting of what is going to be happening around a location before you decide to lead generate there? And second is, how many markets or locales are you focused on at any one time for your acquisitions, given the amount of diligence required and knowing what's coming next?

Shree Kulkarni: We take a very shotgun approach here. We know macro trends, we know areas that are going to grow in our opinion over time, and then we absolutely go after everyone. So there's very little diligence about where we're going to focus. We're out in the marketplace, and if this site doesn't work, we go to the next site; and if that area doesn't work, we go the next area. It's a numbers game for us, for sure.

Slocomb Reed: Shree, when you say shotgun approach - let me tell you what I was envisioning before you said that, and then you can tell me how off base I am with the way that it actually works. So what I was thinking is that it sounds like you're focused in Cincinnati and Tampa, specifically; I don't know how focused within those two markets you are, but when you catch wind of new development, new construction coming into an area, you want to be in front of it, looking for land so that you can develop. Or just looking for opportunities in areas where you know that there will be growth, whether or not there's a lot of new exciting development happening. So you're targeting particular parts of those metros that are ideally already zoned for the kind of development that you would want to do, but not necessarily. And then I would imagine you're not pinpointing parcels, as you just said, shotgun, but building out a radius from a certain area that you want to be developing in, and then targeting every property that you think makes sense in that specific radius. How fair is that?

Shree Kulkarni: Yeah, I think that's exactly right, Slocomb.

Slocomb Reed: I've done a lot of that type of lead generation myself; not for development, but for finding off market sellers, people with serious motivation, who have a discounted price that they're willing to sell at, because of whatever distress that they're experiencing. Can you talk us through what your due diligence process looks like when you know that you're in front of a seller who has a motivation to sell? What is it that you're doing before you sign a contract, and then once you sign the contract, what does that additional due diligence look like given that you're planning to develop?

Shree Kulkarni: For me, I would say it almost depends entirely on price. When I was acquiring parcels in the [unintelligible 00:09:12.09] project, sometimes title wasn't clear. And that's just a risk you take. You buy it, understanding that whatever the potential title issues are gonna get worked out. But it's almost a linear function of price. When things get very expensive, you want to make sure everything is sewed up. And when things are not expensive, you are willing to take more risk.

And we do all the same stuff everybody does. We do title insurance, we'll go out and for a single family home that we're going to demolish - who cares what the structures look like? But if you're going to try to rent it or reuse it until such time as development comes, we're going to do some sort of inspection, ideally for us we do HVAC, roof, structure... Those are probably the big ones.

We did a phase one on that entire site, so all 20 acres, we did a phase one; we did geotech analysis to make sure that if we're going to develop there, we need to make sure that the soil can absorb, or it makes sense to do what we want to do on that particular site. And then we move forward. But there are lots of occasions in particular, right? Like, on a macro scale, we do all of that; in particular, lots of occasions where we're like, "Let's buy it." Some offers we made we made in cash with no due diligence. We said, "Here's a check, sign this deed." You've got to do what you've gotta do to get the deal.

Slocomb Reed: When you're talking about the higher level of risks that you're taking, typically, that comes with higher potential returns. What kinds of returns are you looking for when you acquire properties like this?

Shree Kulkarni: Can I add something to that question, Slocomb, if you don't mind?

Slocomb Reed: Absolutely.

Shree Kulkarni: Yeah, I want to add two points. Number one, I wish somebody would have told me to start in real estate earlier in my life. That's just the nature of real estate. This all will go back to your question of what are the returns on the site level risk and return... But real estate, by its very nature - there are mortgages, it takes a lot of money; you have a mortgage, the earlier you get started in real estate, buying property, getting a loan, and then paying that loan off, the better you end up being in your life. It's just the way real estate is. It's an interesting fact.

The second thing that I think nobody talks about is doing real estate in areas that are growing population-wise. So this is not Cincinnati, this is just a statement about population growth. Cincinnati over six years grew 1%. Columbus, Ohio over six years grew 6%. A city like Tampa, Florida, over six years grew 3% per year. Think about that, 50,000 net new residents move to Tampa, Florida every year. The state of Florida is adding 1000 people a day. So when you talk about returns - or let's just talk about demand. The demand for goods, services, real estate, apartments, grocery stores, you name it, it's a totally different environment in Tampa, Florida than it is in Cincinnati, than even it is in Columbus, Ohio.

So here's a risk return... In Tampa, Florida - now, the market is changing, interest rates, the whole bit... There was a site that sold, a 300-unit apartment site, entitled; so it's land that had been entitled, that's got massive retention. It sold for $75,000 a door. So somebody paid 22 million plus or minus dollars for land, because of the growth. In the city of Cincinnati if you're able to get 10k, 15k a door for a phenomenal site, good for you.

So the returns in Tampa are way better than the returns in Cincinnati, which are less than the returns, in my opinion, in Columbus. That's been my experience. But I can give you some Cincinnati returns if you like, if you want to talk through any particular deal... But just as a broad answer your question about returns, I think it depends on the market, but they're very different in Tampa than they are in Cincy.

Slocomb Reed: That is really helpful. And that makes a lot of sense, especially when you talk about the population growth, and when you talk about a product that you're going to spend a couple of years at least bringing to market. You want to know that there's a trajectory for solid growth in the area where you're building, so that it will be in higher demand two years, three years from now than it is when you acquire or break ground.

Now, I'm thinking more deal by deal specific. A value-add apartment deal, or a value-add apartment investor is looking to have some cash flow up front, they want to know that they can start getting a return fairly quickly, that there is some appreciation that can be forced, but the NOI can be boosted over the next couple three years... But there are not a lot of variables in that investment strategy. What you're doing has a lot of variables. You're talking about not even being certain that there aren't liens or other encumbrances against the property when you close. So I get what you're saying about being in the right place and needing to pounce. Let me ask it this way, Shree - what are the biggest risks involved in investing with your business plan?

Shree Kulkarni: Great question. So I would argue just respectfully, I think that the value-add developer has far more risk than -- and I'm not just a land entitlement guy, but just look at the market today. When you start -- if you bought a piece of property three years ago, you're in trouble. You were borrowing at two and a half percent. Your variable interest rate loan is at seven and a half percent today. If you go [unintelligible 00:14:53.29] partner, they're charging you 15% on their money. So you have that, you have execution risk... So not only you have the finance risk, you have the execution risk, you have the supply chain risk, you have the macroeconomic risk... Owning a great piece of dirt at the right price in a great location, from one angle, especially given the market... When rates were 2%, and you had 10 years of that, I think you could easily argue the other side. And I'm not arguing the other side, I'm just saying that it's a different way of looking at --

Slocomb Reed: Yeah, absolutely.

Shree Kulkarni: ...the value-add guy, right? They're pitching their book, "Oh, man, we're a value-add investor. It's very safe, it's very this, it's very that." I think in the next 9 to 12 months there's going to be a lot of value add guys that are going to be hurting. 100%.

So I don't know if I answered your question... That was the first part -- oh, what's the upside or where the risk is investing like me. So I think there's entitlement risk. So it's possible you buy a site -- MLK is a great example. MLK is a phenomenal location. To me, it's the best location in the city of Cincinnati, off of a new interchange. There's 55,000 people that go to work on the West side; to all the hospitals, the University of Cincinnati... They just announced the Children's Hospital in CTI, although as tenants they weren't named. Everybody in the market thinks there are 600,000 square feet of lab space. Brand new lab space. You have UC putting their innovation building there, you have [unintelligible 00:16:20.10] putting 180,000 square feet of office space right next door to it on spec. You have NIOSH, the National Institute of Occupational Safety and Health, that are putting a 150,000 square foot office building; they're going to add [unintelligible 00:16:31.16] $100,000+ average income.

So that's an innovation area, it's the innovation corridor, it's gotta be Uptown Consortium, it's got massive institutional backing and investment... However, it's a complicated project. Capital stack is extraordinarily complicated. The entitlement piece is complicated. Getting approvals, all the incentive structure for that is complicated... So if you ask me what the risk of doing development work - that's what it is. At any moment in time, you can face lots of different hurdles.

I think the returns end up being -- maybe over time the returns are the same. On a dollar basis you could make more money, but it takes you longer to do a project than you would if you're a value-add guy. You buy a building today, you're making 6%, 7%, 8% pref, and then you boost your returns and flip it in two, three years, or whatever the case is.

Slocomb Reed: Assuming, like you said, that the economy and interest rates play along in your favor for the next two, three years.

Break: [00:17:31.16]

Slocomb Reed: You mentioned capital stack and entitlements. You didn't mention the construction of the buildings at all. But let's talk about the capital stack and the entitlements. Let's start with the capital stack. You said it gets much more complicated. Can you give us an example?

Shree Kulkarni: Yeah, some of the deals that we're working on, like for example, Columbus, Ohio, there's a TIF, which is tax increment finance. So effectively, just a little synopsis of that is the municipality uses the tax revenue generated by the improvements you're going to make on the land to finance other public improvements. So if you're building a hotel, there's utility work, there's roadwork, there's a park, whatever the case may be... They'll take the marginal tax receipts from the development hotel... In some cases, they issue bonds, investors buy the bonds, they take that cash, you're able to use that cash to do public improvements for your development.

So there's TIF work... You probably have read, there's something called the TMUD, transformational mixed-use development grant... It's a major state incentive out there that they're picking transformational mixed use developments... Well, you have to apply, which is a competitive process, and there's funding that's available through that... There's city grants, there's city loans... The Uptown consortium has access to new market tax credits. New market tax rates are roughly the same thing; you get awarded tax credits. You get to convert those tax credits into dollars by selling them to people that need tax credits, and then use that cash to fill in the gap of what you need. So that capital stack becomes super-complicated. I guess that's a few examples of how that happens.

Slocomb Reed: It becomes super complicated because of all of the opportunities that may be available to you to receive capital from local, regional, state federal government funding...

Shree Kulkarni: Yes, but I just want to point out that the reason those are available is because these projects in Cincinnati - they don't pencil. You can't build a 500-car parking garage that's now costing - I couldn't even tell you; 30k, 40k [unintelligible 00:20:38.10] It's crazy. And you want dense development; you want buildings to go vertical. You don't want a sea of three-storey apartment buildings. You want density and you want whatever that feel comes with having a nice development, a great city. Well, in order to get that, you need a parking garage, you need a ton of infrastructure work, and all that costs. And so you have to get those dollars, because there's no other way to do the deal. There just isn't.

Slocomb Reed: The other thing was entitlements. Can you talk to that?

Shree Kulkarni: So entitlements - the way I define entitlements are basically you're entitled to do something. So you can have a piece of dirt that's -- [unintelligible 00:21:16.17] that's got a zoning of ag, and if you want to put a retail center on there, you have to get it rezoned. Well, the process of getting something rezoned is a process, and there's skill and there's art, and then there's definitely an investment in getting it rezoned. So once you can do what you want to do, then your property is entitled. So when I say entitlement, there's entitlement risk; it's possible you have a piece of property that you can't get rezoned to what you want to do, because the neighbors don't like it, because there's a this-issue, there's a that-issue, or the city has future land use that is contrary to what you're looking to do.

Slocomb Reed: Shree, there are many more questions I could ask. It's time to transition the episode though. Are you ready for the Best Ever lightning round?

Shree Kulkarni: Sure.

Slocomb Reed: What is the best ever book you recently read?

Shree Kulkarni: There's a book called "Seven and a half lives of Evelyn Hardcastle", and it was phenomenal. It's one of the best books I've ever read, not even just recently. So I would highly recommend it.

Slocomb Reed: What is your best ever way to give back?

Shree Kulkarni: I've been on a bunch of boards. I was on the [unintelligible 00:22:21.19] board for a while, the zoo board... I think there's a lot of value, and those organizations definitely need people... But for me, it's just spending time with people that are coming up. We have interns here, we spend a couple hours every week just talking about real estate, and helping them understand the game, because it's complicated, and it's fun, and I think just spending time with people who want it - that's how I give back.

Slocomb Reed: Shree, in your commercial real estate development, what is the biggest mistake you've made and the best ever lesson that resulted from it?

Shree Kulkarni: That's easy. We had a real estate deal that bypassed [unintelligible 00:22:58.28] road. It was a retail center we built the wrong way. So if we have another podcast, you could definitely ask me all about that. It literally was built the wrong way, and we ended up selling that at auction for a pretty big loss. We lost a couple million bucks.

Slocomb Reed: I've gotta ask, what do you mean when you say you built it the wrong way?

Shree Kulkarni: Okay, this is a learning experience. It's an L-shaped retail center, and when you typically build an L-shaped retail center, or any retail center, you want it to have as much frontage as possible, and you want it to sort of hug the corner. That's going to get you the best visibility, whatever the case may be. But there's no other word, it was a stupid decision. So in our stupidity, we built the center where we maximized the number of outlets we had. So the retail center basically had the back against bypass four, and then it went this way... So basically, you would turn at 90 degrees clockwise. So a typical retail center would be at a hard corner, and it would be covering the corner, and this is 90 degrees the other way. So it's kind of hard to describe, but when you saw it, you'd be like, "Oh, yeah, that retail center is going the wrong way." It was a really, really stupid decision.

Slocomb Reed: Gotcha. Shree, what is your best ever advice?

Shree Kulkarni: My best advice is what I said earlier; two parts. And I tell this to every single person. Number one, start early. Real estate is a game won by people who start early, because of the nature of finance in real estate. So that's A. And then Part B, do real estate in an area that's growing. Almost all of us, we do it where we are. You're brought up in Toledo, you do real estate in Toledo. You're brought up in Cincinnati, or wherever... The truth is, if you spent the same amount of time, money, effort, energy in a market that's dynamic and growing, almost certainly you're going to make more money, and almost certainly you're going to have more risk avoidance, because you can do a bad deal in a growing market and still make money in a way that you can't in a city that isn't growing.

Slocomb Reed: Last question, where can people get in touch with you?

Shree Kulkarni: You can find us on Instagram, LinkedIn, and YouTube, and all the other social media channels out there.

Slocomb Reed: Those links are in our show notes. Shree, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend that you know we can add value to through our conversation today. Thank you, and have a best ever day.

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