March 11, 2023

JF3110: From SFR Flips to Million Dollar Land Deals ft. Andrew Dunn


Andrew Dunn is a Principal at VAC Development, which specializes in value-add and distressed property investments specifically in the office, multifamily, storage, and industrial sectors. In this episode, he reviews several creative industrial deals he’s sealed in Vegas and Reno, how he responds to economic ups and downs, and how he balances value-add purchases vs. ground-up development deals.

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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, Andrew Dunn. Andrew is joining us from Las Vegas, Nevada. He's the principal at VAC Development. They don't chase an asset class, but rather pursue opportunities with high-driven yield and mitigated risk. Andrew's portfolio consists of office, industrial, land, retail, and single family rental flips. Andrew, thank you for joining us, and how are you today?

Andrew Dunn: Pretty good. How are you doing, Ash?

Ash Patel: Very well. 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?

Andrew Dunn: Yeah, I work in the commercial real estate industry. I've been here for about five years, always in Las Vegas... I started out with a family office, and then underneath that family office I started VAC Development, which stands for Value Add Cowboy Development, because I don't chase asset classes, I chase yield, primarily in the Southwest market. And it doesn't matter what the story is, it's really just what's the deal. And in principle we run a really small shop, very efficient, raise capital, make strategic joint ventures, and we always like looking at various opportunities in our marketplace. That's what I do.

Ash Patel: Were you working for a family office, and is that where a lot of your education came from?

Andrew Dunn: Yes, it did. I went to school for finance up in Washington, and a person kind of picked me up out of the book and says, "Hey, come work for me down in Las Vegas." And here we are.

Ash Patel: What was your role there?

Andrew Dunn: I'd say the grunt. I was an associate to high net worth individuals, each with assistants. They kind of wanted a young, hungry guy, with more of a college educated background... And I just kind of learned to them via school of hard knocks. And [unintelligible 00:02:27.20] came from underwriting, leasing, property management, deal oversight, business plans... It didn't matter. It was just "Andrew, take notes. Listen, see where you can find value, and step in where you can really thrive." And so I eventually I positioned myself on acquisitions and capital markets.

Ash Patel: Did you work with a team, or was it just you?

Andrew Dunn: It was just me. We outsourced a lot of the things that we were doing. We felt that outsourcing was a better fit for our group, because we didn't have to have the overhead, and it allowed us to be more nimble, and pivot a lot easier, depending on the market cycle. Again, they were never really asset class chasers. They started together in 1978, in [unintelligible 00:03:10.01] New Jersey, worked their way down to Miami, all the way over to Hawaii, doing some dirt trading over there on Kauai, on the big island, and then made their way to Vegas in 2008. We're probably one of the largest mid-market office buyers and distressed portfolio turnaround guys here in Las Vegas, and just continue to build off of that.

Ash Patel: It sounds like it was a tough, but a great education. Do you still work with them?

Andrew Dunn: Yes. Actually, one of the principles -- the family office that I have worked for is WG Group. I still do work for them. The G in WG Group is Benji Garfinkel. He's the senior principal of that firm, and he is my equity and balance sheet backer for my VAC Development company. I'm 27 years old, he's 67. He obviously has a lot more money than I do, and I'm not going to be able to get the loans that I need, or the credibility that I need to be able to lock up some of these more sophisticated deals without a profile like that.

Ash Patel: What was the first deal you did on your own?

Andrew Dunn: The first deal I did on my own is a land acquisition. It was 3.85 acres in the Southwest sub-market of Las Vegas. We're currently selling it right now. And we leased it up. It was a retail pad. I leased it to a gas station, a Starbucks, a Quick station, a quick service food restaurant, an auto shop, and then it just had an inline retail design in the back. And basically, we bought it for 4.2 million, spent probably 500k to 600k in entitlement and carry costs, and then our estimated strike price will be over seven. And we did a 50% leverage on that deal.

Ash Patel: With this family office, are you still working with them, or now you're just doing deals together?

Andrew Dunn: Still working with them. I still work underneath him and on some of his deals, because I can only have so much capital dedicated to what I'm personally working on. And I do like working with him. But instead of being an associate, I'm now more on the partnership level.

Ash Patel: So when you find a deal, do I have to run it by them? Can I take this down on my own? How does that work?

Andrew Dunn: It depends on the level of the deal. If I really do my deep-dive due diligence, I run my markets, I run my business plan, they have the confidence in me to push forward on the deal. Obviously, they're gonna review it at the end of the day, because they're the ones putting up a majority of the capital required to do that deal. But when I go and present an opportunity, I'd say I have 9 out of 10 times success rate. It's like a 90% success rate when I present a deal.

Ash Patel: Where I'm going with this is if you've found a deal, can you keep it to yourself, or does it have to go through them?

Andrew Dunn: I include them on everything. It's a respect thing. It's also a perspective that I have, where I want their advice, I want them on my team, it helps build my credibility if I'm gonna go raise money. Again, I'm 27, and if I do this for another five to 10 years, do I necessarily need them? Probably not. I just like having that perspective.

I think people can be successful on their own, but I love leveraging those different perspectives, because I don't know everything. And I want to defer to somebody who's been in the business for 40+ years, versus my five years of expertise, especially in a volatile market cycle.

Ash Patel: Yeah, I get that outlook. I've got a good friend of mine who I trained to look for commercial deals, and I had this conversation with him just yesterday. And I said, "Look, you're already bringing great deals in; you're now starting to bring investors in. The goal would be to get you self-sufficient, where you don't need me. You can do all these deals yourself." And he's like, "No." He's like, "In my mind, I'll get ahead faster if I continue to leverage you."

Andrew Dunn: Yep.

Ash Patel: So here I am, not wanting to take from him when he doesn't have to give up part of the equity at some point in the future, but he realizes the value in having years of experience, and network, and connections, and lending, and all that good stuff. So that's good. I applaud you for that. Let's get down to some deals. That was a great win on the land deal. Let's pick another asset class. Let's do industrial.

Andrew Dunn: Industrial. Yeah, we actually just went non-refundable... I got two industrial deals for you. One we closed on in June of last year in Phoenix; it was a single storey office building, 110,000 feet, 60% occupied to a back-office call center tenant, and then the other 40% was vacant.

So we repositioned the office space into an industrial warehouse, flex, and negotiations with a tenant right now. That building will be 100% occupied and we'll have to refi out of it or sell it for a nice profit. [unintelligible 00:07:52.01] going in was probably about 18 and a half million. Deal value after we're done with the lease and the reposition will probably be valued at 25. We got some short-term fixed rate bridge that on it from a local bank which is strong.

Ash Patel: Fixed-rate bridge debt, which is something you don't see often in multifamily...

Andrew Dunn: Yeah... Not at all. And then the deal that I'm currently working on is up in Reno. It's an 18.7 acre parcel in the Tahoe Reno industrial center, where the Tesla Gigafactory is. I've been chasing dirt up there and deals up there for about four years. We just went non-refundable on our earnest money deposit, closing about 45 days. We will be building a spec industrial 335,000 square foot warehouse. The park is also in an opportunity zone, so it will be a 10-year hold for us.

Ash Patel: Let's go back to the first property, with 40% vacancy. Did that break even on day one?

Andrew Dunn: Yeah, actually, the beauty of this deal is we never had to come out of pocket, because the current income from the tenant who's already paying that rent was covering it at 1.1 times debt service coverage ratio. So we're pretty positioned.

Ash Patel: And that's on the interest-only portion.

Andrew Dunn: Yup.

Ash Patel: Okay. So here's what I want the Best Ever listeners to really understand... Is that you bought this property that essentially paid for itself on day one, but now you've got 40% vacancy. And that's a tremendous upside.

Andrew Dunn: Yeah, tremendous upside. You're right. There's about 18 months of interest-only. We positioned it well. You can't take distributions during that period, until it hits a certain debt service coverage ratio, when we get that other tenant in the building. And then there's some reserves underneath the loan. But yeah, it was major upside, and it's a really good cash-flowing deal, really strong cash on cash.

Ash Patel: Andrew, on that debt, after the 18 months of interest-only, are you locked into a rate, or is it variable at that point?

Andrew Dunn: It is locked into the rate for five years from when I acquired it. So from when I acquired it in June, I had the same rate, it was 5.5% for five years.

Ash Patel: Yeah, and I think in terms of commercial lending, we're very lucky, because you don't get that with multifamily. Multifamily, if I understand this correctly, you have three years of bridge loans, interest-only loans, where they're variable rates. At the end of that three years, you're at the mercy of the market and what the rates are currently. And the deals that we do in non-residential commercial, we can lock in for 5 to 10 years, and still get one two or three years of interest only, and everything is locked. We don't care what the rates do.

Andrew Dunn: Nope.

Ash Patel: Which is just huge.

Andrew Dunn: No, it's huge. Just to go into today's market, I just got off the phone with a broker who tried to pitch me a deal again, and I was like, "Listen, if you're trying to put a stabilized commercial product in front of me, it's strictly a function of capital markets for me. 65% loan to value or loan to cost at 350 basis points above SOFR, and I need to achieve a 1.3 times debt service coverage ratio; that's my offer. That's what I need for my investors in our group. And if you can't hit it, then I'm not your buyer. Good luck."

Ash Patel: Are you putting 35% down on deals,

Andrew Dunn: We'll do 35% down, but we'll do a 90/10 equity raise.

Ash Patel: I get that. But from your lenders, they're not allowing an 80% loan?

Andrew Dunn: I sometimes would do that. But in this environment, with a lot of the volatility, and I don't necessarily know where cap rates are going... They are on the trend of potentially expanding, from every investor conference I've gone to, or how these lenders are underwriting... I'd rather be more conservative and have less leverage in this environment. I can go to 80, but just not really a fan of it right now.

Ash Patel: Okay. I struggle with that, because in terms of your investors, and then cash on cash returns, why put more money than you have to? What does that help?

Andrew Dunn: I think for me it's -- I don't like taking on a lot of recourse. I think the 65% leverage point keeps you out of that recourse bubble, besides the bad boy carve-outs.

Ash Patel: Oh, got it...

Andrew Dunn: ...because I don't have hundreds of millions of dollars to debt-load onto me. And I'd rather do a lot more deals in various markets, or the markets that I like, and just limit my balance sheet exposure so I just don't get constrained out in case there's a super-deal where I know I have to write down on recourse.

Andrew Dunn: Yep.

Ash Patel: It makes perfect sense, because you're doing non-recourse loans. If you had the opportunity to do a non-recourse loan at 80% loan --

Andrew Dunn: Levered...

Ash Patel: ...that'd be a no-brainer.

Andrew Dunn: Yeah. I don't see an issue with it; just a function of numbers. Where are you positioning yourself, where do you see the market going? If you can debt-load it -- debt is always cheaper than equity. Way cheaper than equity.

Ash Patel: Yup, got it. I didn't realize you're doing non-recourse, so it makes perfect sense. Awesome. 18 acres in your spec building, which means you're going to build this massive facility, hoping they will come.

Andrew Dunn: Yep.

Ash Patel: Now, there's a lot of developers that will tell you "Always have an end user before you develop." The economy's got some headwinds coming.... Where do you get off doing a crazy spec build? What if something goes wrong? You're 27 years old, by the way...

Andrew Dunn: Yeah. [laughs] So the underlying market fundamentals - I love Reno. Reno, to me, it's the only city in the Western United States that can deliver to 10 states by truck within 48 hours. No city in the western US can do that. So it's a great distribution hub, and take-off point. And companies are taking notice. Also, in my specific sub market, I have Tesla, they're going to be having a 10-million square foot facility. And Google is up there doing their self-driving car. Switch has their largest data center. There's an NV energy power plant... 15 minutes from the airport... I'm in an opportunity zone... It's a land-constrained market... And for me, there's the less than 1% vacancy factor.

When I started looking there, we bought our first acquisition of dirt for $2.35 a foot, for a 26-acre piece. And then in 2021 I flipped it for $5.75 a foot. Today I'm closing on that piece of land for around $9 and foot and I still think it's a good market, because when I first looked, rents were at 38 to 40 cents a foot, now rents are at 75 to 80 cents a foot. So it's a very sound market, with strong, stable growth ahead.

Break: [00:14:33.08]

Ash Patel: 80 cents a foot for rent.

Andrew Dunn: Yeah.

Ash Patel: Explain that. For industrial?

Andrew Dunn: Yeah.

Ash Patel: Okay. That seems really low.

Andrew Dunn: Yeah. And that's the point. When you look at the rent to dirt ratio, it's still a great bargain. So our perspective as a long-term holder, because this is an opportunity zone investment for us, we will be holding this project for 10 years to capture the opportunity zone tax benefits. We believe in this market long-term.

Ash Patel: Alright, I'm gonna play devil's advocate, and you might not like this...

Andrew Dunn: Of course.

Ash Patel: ...but listen, I'm 47 years old, you're 27; you have not seen hard times, you haven't seen cycles. How often do you hear that, and what is your response to that?

Andrew Dunn: I look at underlying economic trends. My investment perspective for industrial -- I wouldn't say it for office; for retail, I'd say you really have to have really good location for retail. And same thing with medical office, we work in that. And I think it's location, location, location. We have a really good underlying location within that park. I'm also a nationalist. Because of what happened with COVID, I believe there's a huge onshoring trend in industrial, and we were able to demise this building into a two or three tenant building, and I know those users are heavily underlooked in the market, because a lot of these industrial spec developers are building these 500 to a million and a half square foot buildings. But I know I'm betting on small business, and relative mom and pop ownership in that 100,000 to 150,000 square foot range.

So I understand it can get really bad, and you're seeing it with Office... We saw Brookfield just default on their two downtown LA office buildings; who would think Brookfield would default? Who would think Blackstone would default on a $274 million multifamily loan? I mean, these are big institutions that are - no offense, they are more sophisticated than you or I, just because of their access to data and capital. So I'm very well aware with it. I've also learned that if you have a long-term horizon perspective, you can weather some very strong economic storms. But again, when it comes to industrial, I'm a nationalist; I believe in the onshoring, and I believe in the need for logistics that we're having in the United States.

Ash Patel: Best Ever listeners, this is what good education and good mentorship produces. Great answer, I love it. Good, so you understand what's going on with the markets right now. In terms of building spec industrial, what's the ideal ceiling height today?

Andrew Dunn: 36 foot clear. If you go to 40 - okay, you might target some random 3PL logistics firm, but I think 36 you're going to attract a wide variety of users. 32 you could probably get away with, but 36 you are going to be really safe over the long term.

Ash Patel: And in terms of buying existing versus building new, how often do you do ground-up development versus buying existing properties to turn around?

Andrew Dunn: All I used to do was value-add and repositioning. That's really where we came from. But when there's no value-add in high growth markets, you have to develop, or else you're just not going to acquire anything, because there's too many 1031 buyers, especially in Nevada, which is my main market, that are just coming in and just compressing cap rates drastically. I can't compete with that as a value-add buyer, even though I'm a proven buyer, and have a reputation in our market of Nevada... So what do you do? How do you capitalize on that? Well, I believe in Las Vegas over the next 10, 15, 20 years; with everything that's happening here, I believe in Reno. You've gotta go start looking for development opportunities.

So I prefer value-add every single day. The only difference that I like about ground-up development is I know what's going on from the start, from my due diligence in the dirt, and controlling the construction, versus the value-add. I didn't build that building, and as you probably know, I'm not really ever going to have access to those blueprints. So I can open a wall and my whole budget can go [unintelligible 00:19:31.14] But I'd prefer value-add every day.

Ash Patel: At what point in the development stage do you start looking for tenants?

Andrew Dunn: Immediately. On that 3.85 acres in Southwest Vegas I had a gas station in Starbucks under a lease before I closed. So for retail - I like retail because it's just straight calling a list of tenants, and it's either I'm in the corridor, I'm not in the corridor, I don't want to be in the corridor, and it's very just calling a list, right? I'm just cold-calling like crazy, see who wants it. But as soon as I tie up a site, I'm looking for tenants.

We also do multifamily entitlement, and then just flip the land to developers. I'll do a market study while I'm in my due diligence. Because if what I'm trying to do isn't feasible to the market, I'm getting out of there I can think all I want, but if my market studies that I have to show to a lender for a loan doesn't support what I'm trying to do, then I'm wasting my time.

Ash Patel: Why not go out to secondary markets to do value-add?

Andrew Dunn: I have a real hard time -- I've done two market expansions; one into Reno and then one into Phoenix. I tried to do Utah, and it just did not pan out, because I didn't have connections there. I only want to go to a market where I have strong connections, or I have another general operator in a mastermind, or my network that I can leverage and joint venture with that I trust... Because I think a lot of people at our scale and sophistication that we deal with, you can get hurt very easily. And I think it's just very hard.

And also, I want to invest in places I want to be. I am a very outdoorsy kind of guy. I do triathlons, and ski, mountain bike, whatever... I like Reno. I like Southern California. I like Hawaii. I like Phoenix. I like Las Vegas. I like Utah, which is where I tried to expand there. It just ultimately didn't work out for me. But I can maybe go to Colorado or Idaho, but again, going to the Midwest or the deep South doesn't really have an interest to me. I don't want to fly and hop on planes. Because of how I was mentored and taught, I've got to be able to touch it. I've got to be able to spend some time there. When I go into a market expansion, I'll usually spend three to five days driving the entire market and meeting with every broker in that market, big or small shop, to understand it.

Ash Patel: So you couldn't find a deal in Park City, huh?

Andrew Dunn: Ah, dude, I was just in Park City over the weekend... I love that place, and I had a piece of land tied up outside of Park City, and the land was misrepresented to me. The due diligence revealed itself like it always does, as you know, and... It is what it is. I don't need to waste time when I can make money elsewhere.

Ash Patel: Andrew, what's your advice for younger people wanting to follow in your footsteps?

Andrew Dunn: Learn for free. Go find somebody that you want to be like, and just go work for them for free in your spare time, copycat them and mimic them, be their shadow; be underpaid. Because the education that you'll receive from those people, and the three, six or 12 months - you flat out can't learn in school; you have to learn by doing. So be a sponge, say yes to every opportunity in that specific field. Don't be going casting a 180 degree net and trying to do everything at once. Pick a person that you admire and respect, and find a way to get into that person's network, be of value to that person, and you will see more value from a door being open from that person, or just from understanding how they do deals and how they built their net worth and success over their career.

Ash Patel: What's the biggest mistake you've made in your career, whether it's on a deal, a hard lesson you learned about a friend, a partner? What's something that either you regret or was just a tough lesson?

Andrew Dunn: I think trying to do everything at once, all on your own. Don't do that. Spend the money. And if you don't have the money, don't do the deal. You need to spend your money on due diligence. Do not try to do everything on your own. Leverage people; have people check your work. Ask what they do. Because if you think you can do everything on your own, you're wrong. You could probably get away with it for a little bit, but to really hit the next ceiling, you need to leverage relationships and people. So don't think you know it all. You don't know anything. And keep learning. Always be learning.

Ash Patel: Was there one particular deal that you got burned on?

Andrew Dunn: I don't think there was a particular deal, because I had those people -- I think I got in a couple pinches. I think it was not necessarily deals in real estate, but it was trying to do things outside of real estate, and be a serial entrepreneur, whether it was crypto, stocks, cannabis, some other business... When I realized just to go all-in on real estate, and even then, I cast a wide net in real estate, and then to just really just solely focus on commercial real estate - that's when my leveling up hit. So I realized I lost a lot of money and time trying to do all these different businesses on my own, rather than just focusing what I know I can do very well. And that's commercial real estate.

Ash Patel: And on these big deals, do you still do single family rental flips?

Andrew Dunn: I started to get out of that in the past 6 to 12 months. I've been starting to just kind of exit that slowly, because my commercial real estate land business has taken off substantially, and I've been really starting to get a lot more opportunities, because a lot of buyers have been exiting the market... And I'm still an active buyer. But for me, the land is the key. Before, when I was trying to buy land here, it was a 30 or 60-day due diligence period with a 30-day to close. Well, you can't do entitlements, you can't really raise money very effectively without entitlements; it spooks investors. So now we're able to get six to nine-month escrow periods, because there's no other buyers out there, and we're qualified. So I don't know why I'd spend my time on anything else.

Ash Patel: Yeah, it's not worth your time.

Andrew Dunn: Yeah, I agree with you.

Ash Patel: Awesome. Andrew, are you ready for the Best Ever lightning round?

Andrew Dunn: Lightning round - let's do it.

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

Andrew Dunn: "How real estate developers think, design, profit and community" by Peter Brown?

Andrew Dunn: What was your big takeaway from that?

Ash Patel: Listen to people, but trust your gut, at the end of the day. If you want to be a developer, you have to go against the grain sometimes, and you have to trust your vision. But don't think you can go all-in just on your vision; do take feedback from the community and try to have the community work with you to have a successful development.

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

Andrew Dunn: Definitely with my time. I'm showing up for people, whether it's volunteering, random community nonprofits, help supporting fundraisers, whether it be at a golf tournament, or running a simple 5k or 10k. That's really like -- I like to show up and help people. I don't think dollars help, to a certain degree, but I think showing up and actually lending and helping hands is where I really shine.

Ash Patel: And Andrew, how can the Best Ever listeners get a hold of you?

Andrew Dunn: You can reach out to me on my Instagram, @AndrewMDunn_, or shoot me an email at Andrew [at] Those are probably the two best places. And I'm always open, easier for email for me, or Instagram DMS... And happy to jump on a call with anybody and provide some value and see how we can all make some money together.

Ash Patel: Awesome. Andrew, I've got to thank you for your time today. 27 years old, you're absolutely killing it. You were smart enough to work amongst the right group of people, learn as much as you could, and it shows; you've done some successful deals, you've got a great future ahead of you... Thank you for sharing your story with us today.

Andrew Dunn: Ash, thanks for having me on. I really appreciate it.

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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