Tenny Tolofari is the director of acquisition at XSITE Capital Investment, which has over $168 million multifamily units in assets under management. In this episode, Tenny discusses how to find a great commercial real estate broker, what his industry projections are for the coming year, and what XSITE’s business plan is for acquiring commercial properties.
Tenny Tolofari | Real Estate Background
- Director of Acquisition at XSITE Capital Investment
- Based in: Charlotte, NC
- $168MM AUM multifamily
- Say hi to him at:
- Best Ever Book: The Go Giver by Bob Burg and The Compound Effect by Darren Hardy
- Greatest Lesson: Don’t do things by yourself, leverage other people’s strengths.
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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm here with Tenny Tolofari. He is based in Charlotte, North Carolina. He's the director of acquisitions at XSITE Capital Management. He's also a cybersecurity professional supporting companies like Boeing and Deloitte. We've actually interviewed the other two co-founders of XSITE on the podcast recently, Julius Oni and Leslie Awasom. Their portfolio is just over 168 million in assets under management, all multifamily.
Tenny, can you tell us a little bit more about your background and what you're currently focused on?
Tenny Tolofari: Thank you so much, Slocomb, for having me, and of course, featuring the partners on this podcast. I guess it's my turn. My background is I went to school for IT, cybersecurity specifically. I graduated in 2012 from [unintelligible 00:02:06.25] Maryland, from grad school, and then from there, in 2016 I started my entrepreneurial journey in financial services, and in the process I met one of my partners, Leslie Awasom. And then we introduced XSITE Capital to our other partner, Julius Oni, and we decided to take XSITE Capital to the next level. So I'm one of the co-founders. Oni is another one of the co-founders, and then Leslie Awasom is as well.
I'm responsible for acquisitions. So basically, what I do is I look for the deal, I bring it to Leslie, he reviews it, and then we work together to raise the capital. He's responsible for Investor Relations, and he's the CEO of the company. So basically, that's my role.
Slocomb Reed: Nice. So you've been handling acquisitions from the beginning, haven't you?
Tenny Tolofari: Correct.
Slocomb Reed: And when did you all form your partnership? When did you start acquiring multifamily?
Tenny Tolofari: XSITE Capital was created in February 2019, and we did our first deal in 2020, as a co-GP on a deal in [unintelligible 00:03:06.00] with one of our mentors. I'm sure you guys are familiar with them... Vikram Raya and Ravi Gupta, with Viking Capital - we did our first deal with them as co-GP on a first deal in 2020. And then in 2021 we became a lead sponsor on our first acquisition, and then it's just been taking off from there.
Slocomb Reed: Nice. Tenny, what markets are you currently focused on?
Tenny Tolofari: We're focused in the Southeast, specifically South Carolina, North Carolina, Georgia. And then we look at Florida, then Texas, here and there. But the main market we're focused on is North Carolina, South Carolina and Georgia. When we have a deal in Sunbelt - scrap that. We have a deal in DC, and we have a deal in Baltimore. But if I have to choose a market that we're focused on right now, it's the Southeast - North Carolina, South Carolina and Georgia. And the reason behind that is because [00:03:57.15] the North and on the West are moving down to warmer climates in Florida, in North Carolina, or South Carolina. And of course, affordability is one of the key drivers as well. So yeah, that's where we're looking at deals right now.
Slocomb Reed: Yeah, Tenny, that makes a lot of sense. One of the things that we've been experiencing here in the first quarter of 2023. I'd like to summarize what I've been hearing, and then get your take on this. Being that you are focused on acquisitions, there has not been a lot of inventory, there just have not been a lot of deals that have come for sale, and I'm speaking nationally; please correct me where your experience has me wrong here... But there have not been a lot of deals brought out by brokers. And part of it is that seller expectations and buyer expectations still just aren't aligning. Sellers want what they could have gotten when interest rates were in the threes, and buyers are underwriting deals with interest rates in the sixes and the sevens. So a lot of sellers aren't bringing things to market, and a lot of buyers are not finding the few deals that actually are out there can pencil out. Is that what you're experiencing right now?
Tenny Tolofari: Absolutely. I have a couple of train of thoughts on the marketplace right now. One is "Let me just chill. I'm the owner of the property. Let me just chill. It's cashflowing, I don't need to sell." And then from the buyer side, it's "How do we continue to thrive as a company?" We've seen the slowdown compared to this time last year; there's still a lot of activities going on in the marketplace, but you don't want to stop, you know, as a company. You want to continue to review; even if it's [unintelligible 00:05:45.21] you want to review it and provide feedback. Because one of the philosophies we have at XSITE Capital, one of our core value is tenacity. When things are tough, you don't want to back down; you want to continue to thrive, you want to continue to act on whatever inventory that they have, [unintelligible 00:06:03.10] Because when things get better, everybody's going to jump in the market. But the only way you separate yourself is when things are bad you are active.
So what we've been doing is even though the deal flow is not as much as it was before, we are digging into deals from different brokers, and different sources, and just continue to go through our process, like a machine. The machine is continuing to review the deals.
Slocomb Reed: I have two follow-ups here. The first one, Tenny - tell us what it is you're doing to expand your reach, and get in front of more deal finders and more brokers.
Tenny Tolofari: Absolutely. And this is the one that I would like to teach the audience right now, on how to find the best broker in any market across the United States. People say this is the exact secret, but it's not a secret. The information is available publicly; you can actually just go to CoStar. Every year, CoStar recognizes the power brokers of each market, and they give them an award. So let's say I'm in Charlotte, North Carolina currently, and I want to see who the top broker for 2021 is, because they've not published 2022 yet. I will go to CoStar Power Broker award winners, and I will for the year, and then I'll review all the different commercial real estate brokers; they have retail, they have industrial, they have capital markets, they have all the different aspects of commercial real estate. What you want to look for is the ones that are specific to multifamily. And then you want to look for those names of those brokers. And then you reach out to them and say, "Hey, this is the kind of deal I'm looking for. I see you have one on the website that looks like what I'd like to pursue going forward. If you don't mind, can you share with me some more information about that deal?" And then gradually keep up with a broker. And you do that for all of the markets that you're in. With time, you have two things - you have connection with the brokers, and you know the brokers or the companies that are doing the most transaction in those deals, and then you keep building relationships with them. That's what XSITE Capital have done, and that's the way we got almost all of our deals that we have currently. So those are some of the things, some of the tips I can give. So we've built broker relationships through this method that I just shared.
Slocomb Reed: What size property do you all focus on?
Tenny Tolofari: 100+ units; we've bought class A, Class B and Class C deals.
Slocomb Reed: Most people will say that when you're looking at 100 and plus units, trying to go direct to seller yourself doesn't really make sense, because there are brokers who have very long-standing relationships, and anyone who's going to sell is going to do it through a broker anyways. Going to the CoStar broker awards list... What else are you guys doing to get in front of deals, get in front of brokers?
Tenny Tolofari: That's our main strategy, and it has worked. We have this philosophy, "Give to Caesar what belongs to Caesar." If you think about it, the broker, what their job is is to prospect the sellers, a lot of the sellers in the market they're in, and they have the track record of actually selling deals. Why do I want to go ahead and present myself to the seller directly when the seller doesn't even know who my company is? So I've gotta leverage the strengths and the resources of the brokers to reach out to the seller and get a deal from them. And then I'll be in relationship with the brokers to get the deal.
A couple of the deals we've done - they are all off market deals; they were never listed on the brokers website, and all of that was because we've built a relationship with the brokers directly. And with that relationship, we've actually been able to have a connection with the seller as well. And we've observed in our business dynamics that you want to always give to Caesar what belongs to Caesar, and a broker relationship is key for us. And it's been working for us, and we'll continue to go on that path.
Now, there are other ways that people find deals. They do mailers, and they do drive-bys, and do all of these other strategies, but we feel like that is not efficient, and the broker strategy is more efficient for us.
Slocomb Reed: Tenny, that makes a lot of sense. The deals that you are getting in front of right now - how do they compare to what you were seeing one and two years ago?
Tenny Tolofari: The deals that we're getting in front of right now - the interesting thing about the dynamics is two years ago you were underwriting deals and you'd have 10, 20, 30 people underwriting the same deal with you. You'd go into best and final, and you'd have 5, 6, 7 people [unintelligible 00:10:16.24] and fighting over deals. And sellers were very aggressive with the price, so you'd have to put in a huge amount of earnest money deposit, the terms were very, very pleasant to the seller, and the timeframe for you to [unintelligible 00:10:29.03] as well. Sometimes they didn't want you to put in an extension clause in there in the LOI, and all of that stuff. But right now, I think the market is a little soft, in the sense that not a lot of people are trying to buy deals right now, because of the interest rate hike. A lot of people are taking the backseat to try to see what's going on. So because of that, things are not as competitive as it was a year or two ago. And I think sellers are beginning to get to the point where you understand that things are slowing down, and they have to be reasonably priced. Let's say they bought it for 20 million; they're trying to get 40 million. A lot of people did that two years ago, where they bought it for 20 million, and boom, in another year or two they're trying to get 40 million for it. That's not possible right now. So the seller and buyer gap is beginning to close in a little bit.
Slocomb Reed: There are a lot of talking heads in commercial real estate saying that you could see a lot of volatility in the second half of 2023, Tenny, with a lot of owners coming up with a need to sell because of the way they structured their financing when they bought, 1, 2, 3 years ago. Are you projecting something similar, or are you just thinking that buyers who had sound business plans who don't have a moment of distress or a need for a liquidity event - are you just seeing them get more realistic about what they can get for their properties, or are you expecting it to come from distress that buyers and sellers finally meet on prices again?
Tenny Tolofari: The thing on that is this - a lot of times what we'll be hearing in the industry is that come second quarter, there's going to be a lot of distress deals, specifically people that bought deals using bridge debt. That's what everybody's saying. But one thing I've observed in my short time in being in commercial real estate, or being in real estate in general - the market always looks for ways to make sure the investors are okay. A lot of times the bank, if they give you a debt, they don't want to take it back; they are looking for a way for the deal to work.
So my philosophy is I'm not looking for deals to be distressed. I'm looking for people that have gone in, made money, and are willing to exit. That's what I'm looking for. Now, if a distressed deal comes up or shows up, and we underwrite it and it works, the buyer and the seller agrees - fine, we'll buy it. But I'm not looking forward to the market where everybody's losing their deals. I don't think that's ever going to happen, honestly speaking... Because the Fed, Fannie, Freddie and private lenders - I think everybody's trying to figure out a solution to the problem right now, as I speak to you, where there's a way for them to let the seller [unintelligible 00:13:07.03] for the investor to hold on to their deal, and then work up some kind of structure for them to be able to go through and implement their business plan, or get a new debt, I think they're going to come up with some kind of way to work around it, so that people are not going to lose a bunch of their deals, and stuff like that. At least that's my take on it.
Now, from the second quarter that might change. It might be that "Hey, you defaulted on your debt. I'm gonna take your deal." I don't know. And it's specifically people that don't have the rate cap on their bridge debt. Those are the people that actually could suffer. So far, [00:13:35.13] But if you have great capital, with great debt, you should be good.
Slocomb Reed: I know you're focused on acquisitions, Tenny, but is there anything that XSITE is planning to take to market soon?
Tenny Tolofari: No, we actually sold one of our deals December 17th of last year. Our very first deal that we got, we held it for 19 months, and we exited, which did pretty good. We got it for 12.5 and exited at 17.8.
Slocomb Reed: And you held it for ten months?
Tenny Tolofari: 19 months.
Slocomb Reed: 19 months. Wow.
Tenny Tolofari: Yes. So our very first deal as lead sponsor. Investors got close to [unintelligible 00:15:11.17] and then we did a 1031, a lot of the investors, almost over 90% of them, to a deal that we bought December 30th of last year, in Baltimore. But right now we don't have anything on acquisition mode, so we're still [unintelligible 00:15:24.25] as well.
Slocomb Reed: Last question here while we're talking about your focus on acquisitions, Tenny, before we transition... When your team is underwriting deals right now, what type of debt are you underwriting to acquire with?
Tenny Tolofari: Our approach is whenever we have a deal that's looking promising, that the numbers are looking close, we usually reach out to a debt broker. Right now what we're seeing and what they're calling for was, depending on the cash flow in the deal, is a fixed value loan at 5.25%. We've seen 5.25%, we've seen 5.75%... It's within that range that we've been seeing right now. And five years interest-only, for a 12 years term. So yeah, that's what we're seeing.
Slocomb Reed: And what's amortization on that?
Tenny Tolofari: 30 years.
Slocomb Reed: Amortized 30 years, looking to fix for five. Why is it that you're looking to fix for the first five years, as opposed to three or seven?
Tenny Tolofari: Interest-only period you mean?
Slocomb Reed: Yes, sorry. The interest only period.
Tenny Tolofari: The options we've gotten - we've seen between three to five, where we have some deals, they'll tell us that when [unintelligible 00:16:38.18] gonna get between 5.25, 3 years... Well, we've seen another one that is 5.75, and I [unintelligible 00:16:46.05] after five years. So we've seen both. And again, it always depends on the deal. Each deal that we're looking at, looking promising, we usually try to get a quote on it.
Slocomb Reed: And when you're looking to go interest-only for five years, on a 10-year term, with a 30-year amortization, what is your prepayment penalty looking like on those?
Tenny Tolofari: Prepayment penalty is really [00:17:08.13]
Slocomb Reed: Well, it depends... And that's why I'm asking, is we're not just looking at mortgage rates in terms of a vacuum; it depends on your business plan. If you're looking to buy in 2023, to hold until 2025 or longer, depending again on your business plan on the property that you're looking at and how long it's going to take you to execute on a business plan, and what kind of returns you're looking to deliver, you could be choosing to prioritize a shorter prepayment term, so that it is more lucrative to sell quickly. Or you could be trying to get the rate as low as possible, for as long as possible, because you know you're gonna hold the thing for 5, 7, 10+ years. So really, Tenny, if I can take a step back from my question and step back into it, what is the business plan you're looking to acquire with right now, and how is that impacting the five years interest-only, 10-year term, 30-year am, and then what do the prepayment penalties look like?
Tenny Tolofari: So our business plan is usually we buy a deal, and we try to hold between three to seven years. We've had deals that our business plan was to sell in two years. And we have one that the exit is five years, and we have one that the exit is seven years. And then we send that information to the debt broker, based on that information [unintelligible 00:18:25.06] can do interest-only for five years, and then exit, and you see somebody that can get the deal from you, and the deal works for them - yeah, sure. But if we get longer interest-only period, that will help us implement our business plan, because we're not going to be paying [unintelligible 00:18:40.26] initially, and we'll be able to give our investors good returns. And then when that time comes, the prepayment penalty, of course, if we haven't [unintelligible 00:18:48.11] paid the principal yet. So prepayment penalty is probably gonna be high up there. And then at that time, we'll see if we've implemented our business plan, and we'll have increased the value of the property, to see then if it's worth us paying that penalty to exit by switching to somebody else, or if we need to hold it a little longer. That's how we're looking at it.
Slocomb Reed: That makes a lot of sense. Tenny, are you ready for the Best Ever lightning round?
Tenny Tolofari: Yes, sir. Let's do it.
Slocomb Reed: Excellent. What is the best ever book you've recently read?
Tenny Tolofari: I'm reading a book right now called the Go Giver, by Bob Burg. I think that's how his last name is pronounced. And the philosophy of the book is about giving, without an expectation. Giving without you countin' that "I've given you one, and you have to give me back." just give it. And then the philosophy is give as much as you can give, and just believe that what you're doing is what you're supposed to do as a human being. So that is a good philosophy. We actually [unintelligible 00:19:50.03] the first Monday of April, so we're looking forward to learning a lot of these principles. He has five principles that he's going to be looking to share. That's from a mindset standpoint.
And then from a syndication perspective, the book that I've read, that really, really helped me is the "Best Ever Syndication Book" by Joe Fairless. That's a really good book. I have a copy all the time, to reference.
And then from a productivity standpoint, the book that I go through all the time is "The compound effect" by Darren Hardy. It talks about how little habits stack up to become great in the future. So those are some of the books I'd recommend.
Slocomb Reed: I haven't heard anyone mention "The compound effect" in quite a while. That's one of the core fundamental business and personal growth books that everyone should read. What's your best ever way to give back?
Tenny Tolofari: The way I give back currently is at XSITE Capital every year we set aside a certain amount of our revenue to support medical missions. Last year two of my partners, Leslie and Julius [unintelligible 00:20:49.24] they went to Nigeria to do surgical operations. And this year, we'll go to support that whole initiative as well. And also, we support as part of our core values [unintelligible 00:21:01.24] we support the military, people that are looking to transfer from the Army or from the Navy to become a civilian; we bring them into our company to learn about real estate. It's called the Skill Bridge Program. So we support that transition. So far we have our third candidate right now. The second one that came too we had, and he's working with XSITE Capital right now, and now we have our third candidate in XSITE Capital. So that's another way we give back, helping people from the Navy that are transitioning into being civilians, helping them bridge that gap when it comes to skills, especially the ones that are interested in real estate. That's one big way that we give back at XSITE Capital.
Slocomb Reed: Thus far in your commercial real estate investing career, what is the biggest mistake you've made, and the best ever lesson that resulted from it?
Tenny Tolofari: The biggest mistake I made is not telling a lot of people about what I do when I started. I thought that -- I had this limiting belief at the time that "Oh, I just want to learn about this and go do it myself", not knowing that there's strength in numbers; the people that have done, that are looking to do big things, they don't do it by themselves; they work with other people. So that's what we at XSITE Capital decided to do, is to tap into our community, educate them, bring the awareness of the multifamily asset class to them, and see how we can work together to take down big commercial real estate, specifically multifamily.
Slocomb Reed: Lastly, Tenny, what is your best ever advice?
Tenny Tolofari: The best advice - if I actually think about it, it's "Don't go in this by yourself." I don't think I'd be able to be here at XSITE Capital and doing what we're doing if I was doing this business by myself. I've found that my partners, Oni and Leslie Awasom as great partners that we've leveraged each other's strengths for us to be able to get to where we are. I could not have been able to do this by myself at all.
So my advice is if you're looking to do a business, any kind of business, you want to leverage the strength of other people. I don't really like the crunching of the numbers, I don't like the operations of the assets... But I like looking for the deals and bringing it to the team. I like looking for the team members and bringing them to the team. Oni, his core strength is legal; [unintelligible 00:23:18.11] has the vision for the company. Those are his strengths. And we leverage each other's strengths. Leslie, he's the one in charge of crunching the numbers, making sure the properties are operating right, making sure our employees are good, and all of that stuff. And together, we kind of lead the team strong.
So my advice is don't it by yourself. Always leverage other people's strengths. That's my advice.
Slocomb Reed: That's excellent advice. Last question - where can our listeners get in touch with you?
Tenny Tolofari: You can reach out to me at xsitecapital.com. And you can find us, reach out to us anytime. I'm willing to answer your questions, or whether I can add any value that I can possibly give to you.
Slocomb Reed: That link is in the show notes. Tenny, 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 you know we can add value to through our conversation today. Thank you, and have a best ever day.
Tenny Tolofari: Thank you so much, Slocomb. I really appreciate the conversation, and looking forward to the next one; probably when we add some other million.
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