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Joshua Simon Real Estate Background:
– Founder and CEO of SimonCRE
– Seasoned real estate professional with over 12 years of experience in leasing, development, and finance
– In 6 years has developed over 1.6 million Square Feet; has over $90 million in construction planned in 2017
– Founded a hosted VoIP company, which specialized in business communications called One Stop Voice
– Based in Scottsdale, Arizona
– Say hi to him at http://simoncre.com/
Click here for a summary of Josh’s Best Ever advice: How to Screen and Hire the Best General Contractor
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.
With us today, Josh Simon. How are you doing, Josh?
Josh Simon: I’m doing great, how are you?
Joe Fairless: I’m doing well and I’m excited to talk to you. We’ve got a seasoned real estate professional with over 12 years of experience in leasing, development and finance. In six years he’s developed over 1.6 million square feet and has over 90 million dollars in construction planned in 2017. He’s the founder and CEO of Simon CRE and he is based in Scottsdale, Arizona.
With that being said, Josh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Josh Simon: Yeah, sure. I’ve been, like you said, developing for 12 years, focusing on retail. This year we’ll do about 40 [unintelligible [00:03:16].05] projects in about nine states, mostly for O’Reilly Auto Parts, Dollar General, PetSmart, Starbucks, several national users. I think what gives us a unique experience is that we do stuff all over the country.
Joe Fairless: Yeah, that is unique. How are you able to have exceptional teams across the country, while being based in Arizona?
Josh Simon: Well, that’s a good question. It’s probably one of the hardest things we deal with. What we find is that you have to locate the good people in every market. We have 12 years experience; we find these guys over and over again and we start using them.
Joe Fairless: How do you find them?
Josh Simon: Referrals. Everything we do is networking – finding people, getting good referrals.
Joe Fairless: So you get a referral… How do you qualify that team member? And just to bring it to life a little bit for some listeners who might not be as familiar with the process – who are the team members that you’re interviewing?
Josh Simon: Anywhere from architects to contractors; anyone that has to do with building a ground-up project. Attorneys, if you have an issue, civil engineers, surveyors…
Joe Fairless: Let’s just pick one of them… You can pick whichever one you want that you just mentioned; even though you got referred to them, I’m sure you still qualify them through your own process in some fashion. What is that qualification process look like or even sound like when you’re asking the questions?
Josh Simon: Well, it’s tough, because you don’t meet a lot of the people when you’re doing stuff all over the country; you don’t get to sit down face to face always, so a lot of it has to do with gut.
I’ll give you a good example – contractors. That’s probably the biggest struggle. Have you ever remodeled your house?
Joe Fairless: I haven’t, but I’ve heard contractors are the biggest challenge out of any project.
Josh Simon: I think the hardest thing [unintelligible [00:05:11].07] your listeners are gonna say, “Oh, I’ve remodeled a house; I got swindled a few bucks” or “I dealt with a bad sub that didn’t do the right job.” Contractors are probably the hardest thing that we deal with.
If I look at my list of problems I have to deal with today, like after this show, it’s probably around some kind of contractor issues. And when you do that many projects, it’s just a natural that you’re gonna run into issues… Not so much [unintelligible [00:05:35].04], but it could be sub-contractors that didn’t pay their supplier… So I think if I have any kind of advice in dealing with subs and contractors and vendors in general, call the referrals, do your homework, look at their financials and then look at the projects that they’ve done.
When you go do anything – let’s say you get three price in anything in life, just like when you have a handyman at your house or if you’re doing a remodel on a rental – don’t always go with the low guy, because you’re either missing something or he’s gonna change order you to death and you’ll end up paying way more.
So kind of the way we looked at it is we try not to always go with the low guy, we try to go with the guy that’s the best fit for the job. And kind of going back to what you said with the vendors – yeah, we look at everything for referrals, but we’re also looking at everything to see if they’re the right fit. If you need foot surgery, you don’t call a heart doctor… I think the same thing with architect and contractors – have they built that product type before? We’re not gonna use a single-storey retail contractor to go build a two-storey office building; it just doesn’t make sense.
Joe Fairless: I get that. I just want to back up a little bit… When you said “Call the referral, look at their financials and look at the projects they have done” – as far as looking at the financials, can you elaborate on that?
Josh Simon: We’re coming out of the great recession, so now contractors’ financials have improved. Back in 2010-2013, looking at a three-year financial statement, the tax return and profit & loss and the balance sheet – they didn’t always look too good. What we really wanna see is how much revenue are they doing? Are they making money? Do they have cash? Meaning, if you’re gonna do any size project – let’s say they’ve got a million dollar job, for example. If they have 50k in cash, well what happens if one of those subcontractors needs money to show up at the job the next day?
We’re processing a draw for the contractor, which is how you pay the contractors – you pay them through a draw process. And if that sub needs money and he’s only got $50,000 in the bank, is your job gonna proceed as fast as you want? Is he gonna stay on schedule? So I think it’s a relationship — just like a bank looks at a borrower’s financials, you wanna look to the contractor’s financials, because when you’re building anything, especially what we do, our construction cost is probably 80% of the total project budget, so that’s one of your biggest decisions you need to make. If it’s not done right, you can end up with legal issues, with a delayed project, with loss of rent from the project being delayed.
Joe Fairless: So that is a typical request to ask a contractor, in your case with these developments, to provide their financials?
Josh Simon: Yeah. Most of them will; some of them will ask to provide them directly to the bank, and then your lender is gonna review them, and your lender is gonna tell you if they approve them or not. I’d say 9 times out of 10 they happily provide you financials, because it is a big decision… Just like if you’re hiring an employee, sometimes you do a background check. You wanna make sure that this contractor is who they say they are. One other thing I’ll add, when you’re doing your due diligence it’s one simple step – going to the registrar of contractors website for every state that they’re licensed in… Do they have any outstanding complaints? Do they have task complaints? What does their history show online?
Joe Fairless: What is that…? You said it’s specific to every state, but what is the website you go to?
Josh Simon: The registrar of contractors for every state has one… As a contractor, in every state you have to be licensed. And every state (I have not run into one that doesn’t) has an online database where you can look up that contractor. For example, in Arizona they have a great website. You can pull up the contractor’s name, find their license, when does it expire, do they have all their stuff current (their [unintelligible [00:09:24].23], their insurance)? And then also, are there any complaints that have been filed against the contractor? You can actually pull up that information.
Joe Fairless: Great stuff… What a useful tip. Let’s take it back a little bit from a macro level. I’m on your website, I’m on projects, and I see you all have done projects in California, Alice, Texas (I have no clue where Alice, Texas is), Loretto and then Clifton, Arizona, another California, Kansas… How are you getting the business in these remote towns?
Josh Simon: Our business all derives from the retailers themselves or the tenants themselves. So all [unintelligible [00:10:12].13] are publicly traded. So all of our deals come from relationships. Like in anything in life, relationships are everything. So our ability to build those relationships with different tenants at different companies is what has gotten us here, and I think that’s one of the most important things. Obviously, you have to execute, but I think just getting yourself out there and making sure you’re networking and telling the story of who you are is very important.
Joe Fairless: If you can trace it back to a specific project or maybe a year or groups of projects, when was a tipping point for your company where you started getting a lot more business than you had previously, you hit a different level?
Josh Simon: That’s a great question. I think as millennials we tend to want everything today or in the next five minutes. When I started the company seven years ago it was not as fast as I thought. I started, I didn’t have two nickels to rub together; I just wanted to do my own thing, I figured I’d have nothing to lose. Our first three years in business we might have done 12 developments. It took a year to get my first two done – almost a year, exactly. Then after three years you start establishing a name in the market.
Twelve deals is not a lot, but all of a sudden people see that you’re real, lenders start seeing that, you pay back loans, tenants see that you can complete a project and you’re able to show them that you’re not an overnight deal and you’re gonna be gone.
I think one of the other things though is outside of real estate, when I started my own company I also bought a tech company; we did hosted VoIP, which is a business phone system. After three years side-by-side of both companies, I decided to sell the tech company to a publicly-traded company and get out of it. The reason why? Focus, focus, focus. I think looking back, the biggest thing – and I don’t think it was a mistake, because I learned so much – is to have focus. Know what you’re doing and just do that.
Once we were able to get rid of the tech company, sell that and [unintelligible [00:12:27].15] time suck that that created, we’ve now done 78 projects in three and a half more years… So that was the tipping point – spending my full energy, my full effort into just my real estate business, and then saying no to everything else that did not have that laser focus.
Joe Fairless: Is there a retail development project that you would say no to?
Josh Simon: Oh yeah, a lot of them. Stuff that isn’t directly in our purview… Buying a mall. I would say doing a power center, which is where you have like a Target, a Kohl’s and 20 other retailers – that would be kind of outside of our laser-like focus. But I also star that with you can’t just do your whole focus, because you’ll get blinded; you won’t’ see anything else coming.
We’ve started to experiment, but [unintelligible [00:13:28].11] we are doing our first medical project. We’re [unintelligible [00:13:31].03] for a small primary care facility that has multiple locations in Arizona. So we will try something new, but it will be very targeted, very specific, because just like grandma’s cookies, you always kind of tweak the recipe sometimes to add a little more flavor. So you just have to be careful, be focused, but you have to know that in ten years, especially the way technology and our economy is evolving, you have to be able to be ready to try some new things, because what you’re doing today is not what you can be doing in ten years.
Joe Fairless: The first three years you had 12 development projects, and then next four – 78. In the first three years, those 12 – was any one of those 12 the one company or the retailer that then helped you expand to the 78 in four years?
Josh Simon: Yeah, we had just started working with Dollar General. For those of you that don’t know Dollar General, it’s not a dollar store, like a Walgreen without a type of a pharmacy… We were able to get in with those guys as they were starting a big expansion.
Joe Fairless: How did you get that relationship?
Josh Simon: That one was through networking. A contractor that we worked with knew one of their construction managers and gave us an introduction. I made a few phone calls… Obviously, it took some persistence on my part; I got introduced to the local/regional real estate manager. We hit it off, and he gave me an opportunity, and I went out and [unintelligible [00:15:06].10] got it under contract to buy, got the deal approved by the tenants and built it in record time because I put every ounce of energy into that project knowing that there could be a huge relationship down the road.
Joe Fairless: How many Dollar Generals have you built since then?
Josh Simon: We’ve probably done over 30 I would guess, at this point. I don’t have an exact figure.
Joe Fairless: Are they in terms of volume the highest?
Josh Simon: Yeah, I would say they are one of our biggest customers for sure.
Joe Fairless: What type of differences do you have to account for when you build for a Dollar General versus maybe an EZPAWN? Because conceptually I envision them being pretty similar… But is there anything that you wanna point out that “Well, there’s something that’s different there”?
Josh Simon: From site selection side, development or [unintelligible [00:16:02].11]?
Joe Fairless: Let’s do all three, why not?
Josh Simon: From site selection, every retailer or every tenant has their own perfect site mix. For like a pawn store, it has to be the right zoning, there has to be the right demographics; zoning is a huge deal to be able to put a pawn store and be able to get the proper licensing.
On the Dollar General side, it’s important for them to be convenient to their customer base. I think 70% of Dollar Generals are in towns of less than 20,000 people. Do they have good access? Are they well visible from the road? Where is their competition? How is their competition doing? Is that another strong store? Can we outposition their competition by going a half mile to the East where more traffic is?
On the development side, things are way different. Most of the pawn [unintelligible [00:16:52].12] that we did were existing building redevelopments, which is very complicated because you start pulling off the drywall, you have a [unintelligible [00:17:02].04] back there. Is there a column you might not have accounted for in the plan? So there’s a lot of things… Versus a new construction, which often takes longer, because you have to get entitlements and site plan approvals, whereas if when you’re using an existing building and maybe remodeling it or expanding it, it’s a lot easier to get through the permitting process. So we’re a huge proponent of redevelopment because typically they don’t have to go through as much of the public purview, whereas new constructions – there’s notices sent out, there’s a lot more involvement of the public.
Then on the construction side – I think I talked a little bit about it… When you’re doing ground-up, your biggest challenge for ground-up — once you pour the slab for the building, you pretty much are gonna be smooth sailing for the rest of the building. The biggest challenge you run into for the ground-up is before the slab: off-site utilities, dirt conditions… You start digging…
We were building a project in downtown St. Louis and we came across three underground storage tanks. Those were not expected, right? And that runs up the costs. So those are things that you take as risks when you’re developing that you have to think about. But once we pour the slab, most of those things have been accounted for.
Then on the redevelopment side, like I spoke about – you start pulling drywall off, and you’re like “Oh, there’s a column there.” Or the trusses aren’t properly supporting the roof, but you couldn’t see it because there was this hard lid ceiling that you couldn’t tear down because the tenant is still operating in that building when you’re doing the redevelopment.
Joe Fairless: Will you elaborate on the underground storage tanks, why that’s a problem, what did you do to remedy it and how much does it cost, typically?
Josh Simon: Underground you have utilities, connecting to the sewer, connecting to water, connecting electric… I’ll give you a perfect example – we’re finishing a project right now where we are potholing. So you look for the sewer connection by potholing into the ground to kind of find — the contractor looks for the sewer line. Well, the city didn’t know exactly where the sewer line is located against the property. Well, the contractor can’t find it, so now we have to go get an easement from our neighbor, so now there’s cost and timing issues involved with that, which can probably cost us an extra $15,000-$20,000 because of that.
Another thing with power – power companies a lot of times won’t have the design done when you start construction of how you’re gonna hook up to their system, and then now all of sudden they’ll give you their fees down the road of what that costs will entail. And a lot of times they come back asking for extra work. Undergrounding power lines is a big new thing. If you look at a lot of new developments, there’s no more overhead power, it’s all underground. So those are costs that you can’t really account for.
Then dirt conditions – I think we’ve talked about finding tanks underground, but also just the quality of the soil under the building. So when you build a building on top of soil, I think — I don’t know if you’ve read the news, but San Francisco, they’ve got that Millenium Tower that’s sinking, and all the residents are sueing… Well, that’s because the soil condition underneath – they didn’t properly build the foundation. That’s an extreme example, but this stuff does happen.
We built a building in the Midwest last year, and we had to build about a 40-foot retaining wall to support a part of the parking lot. Well, there was a ton of rain and there was a bunch of settlement of the soil. We had backfilled this 40-foot retaining wall with a lot of soil, and then all of a sudden the parking lot – not just a small section of it – started to crack. The contractor had to go out, tear out a part of the parking lot, recompact the soil and repave. Luckily, because we were not liable for that, but that was still a time and we still had to put effort into fixing that.
Joe Fairless: And why weren’t you liable for that?
Josh Simon: [unintelligible [00:21:13].13] lots of technicalities. The geotechnical report didn’t properly account for the settlements, and then the contractor also didn’t get a compaction test. Every time you do any kind of compactions, you have a third-party group that comes out; usually the cities require it,or the governmental approving agency of the city/county. But a lot of times we always require it. So every time they put down more dirt and compact it, a third-party company comes out and tests that compaction to make sure it’s per spec.
Well, they missed a couple tests on their (what we call) lift. So every 10 feet, going up to 40 feet.
Joe Fairless: I don’t think you do based on the group of clients that you have, but I wanna ask you the question anyway… Do you retain any sort of equity ownership in any of these developments?
Josh Simon: On the real estate itself?
Joe Fairless: Yeah.
Josh Simon: Yes, we do; a lot of them we do. We buy the dirt, we build the building, and the tenant leases it back from us on a long-term lease.
Joe Fairless: Oh, okay. Cool. That’s great.
Josh Simon: Yeah. And then a lot of times what we do — they’re almost like commodities now… We sell a lot of them as a triple-net investment where people looking to have cash flow, especially in their retirement years, and a lot of these are under single tenants, like the Dollar Generals, for example… There’s really no maintenance for the landlord, so what we call that is “mailbox money.” A lot of these baby boomers, they own triplexes or duplexes in Southern California, they [unintelligible [00:22:50].22] light bulbs, so they’ll sell their duplex and do a 1031 exchange and go buy something that has way less maintenance.
Joe Fairless: What percentage do you sell and what percentage do you keep in your company’s portfolio?
Josh Simon: It really depends… This year we’re definitely a net seller, versus a net holder, just because of the market and just because of how fast we’ve grown. We’ve gotta kind of feed the machine, so we sell a lot of stuff. Right now it’s still a very good time to be a seller. 10-year Treasury is still very low, there’s still overall a good feeling about the economy, and the retailers we developer for are still very much in high demand.
Joe Fairless: That’s a fascinating business model. Josh, what’s your best real estate investing advice ever?
Josh Simon: Don’t be greedy, and no one ever went broke making a profit.
Joe Fairless: [laughs] How do you apply that in your current business.
Josh Simon: If you get an offer to buy something, or you get an offer to lease, or maybe there’s one sticking point in the deal that you’re like “I’m not gonna do that”, I always like to say “Don’t be greedy, with anything.” Is it really worth leaving the deal over? And then no one ever went broke making a profit – if you get an offer to sell something and there are $10,000 under your strike price, let’s say… Well, are you gonna make money? is it something you’d like to move forward with? Just sell it then, if that’s really what you want.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Josh Simon: Yes.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Josh, what’s the best ever book you’ve read?
Josh Simon: I would say I just read “Talent is Overrated”, but my other favorite is Team of Teams, by General McChrystal.
Joe Fairless: Best ever deal you’ve done?
Josh Simon: I bought a shopping center in Michigan – there was a Target, a theater, a Ruby Tuesday and shops – from a lender. We reworked all the leases and we were able to split off all the parcels for the best return I’ve ever done.
Joe Fairless: Best ever way you like to give back?
Josh Simon: I educate our future generations. We have a huge internship program. Right now we’ve got five students that are in college to teach them about real estate, and they work 20-30 hours every week.
Joe Fairless: What’s a mistake you’ve made on a deal that you can think of?
Josh Simon: I think it goes back to when we talked about using not the right contractor or vendor for a project. I’ve spent millions of dollars that I shouldn’t have.
Joe Fairless: And where can the Best Ever listeners get in touch with you, Josh?
Josh Simon: E-mail, or through our website you can contact us… Joshua@SimonCRE.com.
Joe Fairless: I encourage the Best Ever listeners to go check out your website, SimonCRE.com. It’s got all the project that your team’s worked on. It’s a fun website, too… It’s really well organized. It’s a nice and polished website. It just looks really good.
Josh, I knew this was gonna be an educational interview and a lot of fun. I loved talking about things that aren’t typically discussed on the show, and retail development certainly is one of them… How you talked about the differences between a pawn shop development and a Dollar General development, from site selection, from development and from the construction site, and how you compared and contrasted that… As well as the tipping point for your business, the first three years with 12 developments, the next four years with 78 developments, and getting that track record and also the relationship that you got through a contractor who worked with you and knew the construction manager and so on and so forth, and you ended up getting the relationship with Dollar General, one of your largest clients. Also, the mantra of “Don’t be greedy”, and “Nobody ever went broke making a profit.”
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Josh Simon: Thanks, Joe.
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