October 10, 2020

JF2230: Recovering After A Tornado With Scott Lewis #SituationSaturday

Scott Lewis is the Co-Founder and CEO of Spartan Investment Group, LLC and has completed $100 million in assets under management and raised over $30 million in private equity. He is also a returning guest from episode JF1565 and today he will be sharing how he has handled a tornado event that damaged his mobile park property in west Texas. 

Scott Lewis Real Estate Background: 

  • Co-founder and Chief Executive Officer of Spartan Investment Group, LLC (SIG)
  • Previously on episode JF1565
  • SIG has completed $100M in assets under management and raised over $30M in private equity.
  • Based in Denver, CO
  • Say hi to him at https://spartan-investors.com/ 

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Best Ever Tweet:

“Plans are useful in battle but also dispensable” – Scott Lewis


Theo Hicks: Hello, best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re talking with Scott Lewis.

Scott, how are you doing today?

Scott Lewis: I’m doing fantastic, Theo.

Theo Hicks: It’s good to hear. I’m looking forward to our conversation. Today is Saturday, which means it is Situation Saturdays; we talk about a sticky situation our guest has been in, what happened, how they got out of situation and lessons learned… Of course, with the purpose of helping you, the best ever listeners, avoid making the same mistakes, or if you happen to go face that situation, you have the tools to overcome it.

The situation we’re going to talk about today with Scott is Recovering After a Tornado has Hit your Property. But before we get into that, a little bit about Scott; he is the co-founder and CEO of Spartan Investment Group. Spartan has $100 million in assets under management and has raised over $30 million in private equity. He is based in Denver, Colorado and you can say hi to him at the website https://spartan-investors.com/.

Scott, before we get into that sticky situation, do you mind telling us a bit more about your background and what you’re focused on today?

Scott Lewis: Thanks, Theo. My background is in not only real estate, but I’m also an army guy. I have done some government service work and I started my career as a regional sales manager for a biotech firm. My past is kind of checkered with a little bit different experiences that I think when aggregated, maybe paved the way for some of the success that Spartan has had, just from the very experience in sales and then leading troops in combat and working for the federal government, which is very process-oriented. And then bringing all of those various skill sets, training and experience to Spartan Investment Group, that primarily focuses on self-storage. We’ll talk about an RV park today that was hit by the tornado, that we do own in the Permian Basin in West Texas. But that’s me in a nutshell.

Theo Hicks: Let’s get into the tornado. Maybe kind of walk us through what happened and then I’ll ask some follow-up questions.

Scott Lewis: It was actually this year, just a couple months ago. As I mentioned, that park is in the Permian Basin in West Texas. If you want to add some tornadoes, sprinkle on a little COVID-19 virus and then throw a dash of a massive oil route on top of it –  this made the last couple months at that RV park pretty fun. But what happened in regards to the tornado is that on March 13th, and I know that I have that date seared in my head, because it’s Friday the 13th… So for those of you that are superstitious, well, there you go. I got a text from a manager of an adjacent RV park actually, who was interviewing for the manager of our park role. She is actually the manager of our park. She’s like, “Hey, did you know that your RV park was just hit by a tornado?” And I was like, “Well, no. I appreciate you letting me know.”

So then we start calling our folks and yes, lo and behold, a tornado had come through and hit our RV park. Out there, there’s not a lot of infrastructure in an RV park. We have an office, we had some covers for the RVs out there, which are just metal legs with corrugated metal roofs, and then of course, the RVs. It was an F1 tornado, but it did a fair amount of damage. There were RVs flipped over and thrown, and I’ve got some pictures there that looks like a scene from The Walking Dead. But it did a fair amount of destruction. But 12 hours later, I was on the ground and starting the disaster recovery efforts out there.

Theo Hicks: I kind of want to look at this from a few different lenses. First, let’s talk about what you did between learning about what happened and then actually getting there. Maybe we can talk about what you did once you were there. And I also want to talk about how—I’m assuming this was something that you had raised capital for, so how you communicated that with your investors.

Let’s start with that first process. You learn about this, what are the first things you did once you finished reading that text, and after talking to everyone about what the issues were? And then go up to when you actually arrived in Texas.

Scott Lewis: So we’ll kind of talk with disaster recovery efforts and then communication efforts, although they were in parallel. At Spartan, we’ve got a pretty good team here and we have a pretty big team for what we’re doing. These efforts aren’t sequential; they were definitely in parallel.

The first thing that we did was try to get the best assessment we could from our team on the ground for life safety stuff. In any disaster recovery, the first thing that you need to do is focus on life safety. By life safety, it’s treating and triaging any major injuries. We were very lucky in that regard that we only had some minor scrapes and bumps, even though people were thrown in their RVs by the tornado. Luckily, nobody was killed out there. We were able to very quickly assess that there were no major life safety issues. We got the fire department out there to quickly disconnect the electrical, which is the other major life safety issue that you have in any disaster.

Once we verified no major injuries, and we secured the electrical systems out there such that there weren’t any additional life safety issues. Now, if you have a multifamily building or something like that, you could have some structural integrity issues or something along those lines that may present additional life safety issues. But for us in the RV park, really we just had the electrical. That was only the part that would pose future life safety issues.

Once we did that, then we circled the leadership team, both on the capital side of the house, to deal with our investors in regards to making sure that we communicated with them, and then also to deal with the property from the operations’ team side of the house.

Me, I had probably the most experience in disaster management, both from my government training and then also my army training. So I was on a plane the following morning at [6:00] AM to get boots on the ground there to start kind of running triage at the site. But in the meantime, the processes that were started were to start engaging our insurance company, engaging the on-site management to make sure that they had whatever initial resources that they needed, engaging all the local facilities and then immediately, right away, Ryan Gibson, our Chief Investment Officer, put out a message to our investors letting them know that, “Hey, this asset was hit by a tornado. However, here is our initial plan.” And that’s kind of how we started in the initial 12 hours, with me conducting movement down to the site, to then start orchestrating the initial phase of the disaster recovery on-site there with our management teams, and then all the local first-responders.

Theo Hicks: Once you got there, what did that process involve? Obviously, the life safety was already taken care of, the investors were notified. Were you manually, yourself, with first-responders moving debris, or were you kind of just like the person in charge of telling everyone what to do? What was that process like once you actually got there? What was going through your mind? What did you do?

Scott Lewis: I definitely wasn’t the guy moving anything, I was more of, I’ll call it, the commander, if you will, of the operation. I basically set up—in the military we call them TOC, a Tactical Operation Center, in our office down there at the facility, in which I coordinated both with our reach back team here in Denver to providing whatever assets and assistance they could from research or engaging various entities down there to support the initial recovery efforts. And then also on the ground, we were trying to help the folks out there who were in a bad way, because everybody down there is living in their RVs. This isn’t one of those RV parks where it’s a destination of RV park, all these guys are oil workers. A lot of them lost their homes that night, because that’s where they were living. So their belongings were scattered everywhere.

So one of the key things that I was coordinating down there was making sure that they had shelter and food. Through the managers on-site, and then through the various governmental organizations and non-governmental organizations like the Red Cross, trying to coordinate as much food and water to the site as we could, and then also coordinating with local hotel owners to try to provide our folks with some emergency housing. And I’ll say this, some of the hotel folks down there in Pecos, Texas were fantastic. They offered free rooms to our folks and then also discounted rooms for the long term.

That was my immediate 24-hour focus, was to make sure that our tenants down there that had lost everything had at least shelter, food and water for them and their families, while we could kind of sort through the mess.

Theo Hicks: How long were you there for, in Texas?

Scott Lewis: I was on site 96 hours, so four days I was on site.

Theo Hicks: Okay.

Scott Lewis: The recovery efforts – like I said, these folks were living out there, and some of the RVs weren’t damaged. It wasn’t total destruction out there. We got very lucky that at this particular park, there’s no water in this area, so we have set up what’s called a public water service. And there’s a 28,000-gallon water tank that’s out there that provides water to the park. The electrical infrastructure, we got really lucky – the tornado only hit one of our poles, but the main poles coming into the property were not damaged.

So within 24 hours, we were able to get probably about 30% to 40% of the RV park up and running to where there was power and water so that the folks that were living out there could move their undamaged RVs – because not everybody was damaged – they could move their undamaged RVs and hook up so that they had a place to live. That was my main focus, was trying to get power and water back onto as much of the park as I could to take care of the people that were living and working out there.

Theo Hicks: It sounds like 30% to 40% were able to, within 24 hours, get back to relative normalcy, and then other people had to go to the hotel. Is the park up and running 100% right now?

Scott Lewis: 100%.

Theo Hicks: How long did that take to do?

Scott Lewis: 30 days. For Spartan, we’re planners by nature, both myself with my military background, and then my co-founder Ryan is a commercial airline pilot. Both of us come from roles that if you don’t have a good solid plan when disaster hits, a bunch of people die.

For this one, one of my key roles – and I did it on the flight down there and then finished it up once I had more situational awareness on the ground – I wrote a disaster recovery plan based on some of the Spartan’s principles for disaster recovery. We have three phases that we really focus on. That’s the life safety phase, which is right up front, and that’s just making sure that we secure the site and that everybody’s safe. We have IOC, which is your initial operating capability for any of our sites. That’s getting basic amenities back online, like water, sewer, electric, whatever it is. And then we have FOC, Full Operating Capability. That’s our last phase. And that’s getting the amenities back online, like Internet, all the cleanup, all the debris removed and everything else like that.

So we were at IOC within 24 hours. We got electrical crews out there and emergency folks to come out and fix the electrical lines. We were able to internally fix most of our plumbing lines ourselves. We did have to get some plumbers out there to fix some damaged underwater lines. And then we were at FOC, Full Operating Capability within 30 days.

Theo Hicks: So FOC is full operating capabilities. What was IOC again?

Scott Lewis: Initial Operating Capability.

Theo Hicks: Initial operating capability, okay. Obviously, not everyone has someone with former military experience and a commercial airline pilot, as you said, in both of those roles. When disaster hits you realize that you don’t have a plan that’s life or death, so what would be your recommendation for the everyday investor, who probably will not be able to react the way that you were able to react so quickly, based off of your background? What would be your recommendation for things that they do now, so that if disaster were to strike, they are already prepared, at least more so than they would be if they didn’t do anything?

Scott Lewis: There’s two quotes here that I really love that I think tie into it, and one’s by Mike Tyson. And I actually said this on stage at Best Ever 1, that “Everybody’s got a plan until you get punched in the face.” But at the end of the day, that quote ties into one from Eisenhower, in which Eisenhower said, “In preparing for battle, I generally find that plans are useless, but planning is indispensable.”

Regardless of the plan that you have or the planning background, whenever you get on-site, when you have a disaster or any complex situation that’s going out there with variables that you can’t control, your plan’s never going to work. However, the actual thought process that goes into the plan at least prepares you to some level to deal with the uncertainty and complexity that a disaster situation will provide you.

Disaster management plans aren’t special to the military and they aren’t special to the airline industry. In fact, most governments have home disaster plans that you could go down and you could get. What you do in a home disaster plan isn’t that much different than what you do in a commercial asset plan. If you google disaster management plans, there’s a ton of stuff out there. It might not be perfect, and you might not be able to execute like Spartan does, but at least you have a plan and at least you’re prepped so that maybe you can do 20% to 30% of what we were able to do because of the training that we had.

Theo Hicks: Sure. From an investor standpoint, so after that initial email that was sent out within — you said within 24 hours that email sent out to investors?

Scott Lewis: Probably one hour.

Theo Hicks: One hour. Okay. What was the follow-up communication like? When did you follow up with them again? What did you say? And then obviously it ended after 30 days – I’m just curious to see, was it a daily update, a weekly update? Was that whenever you transition from IOC to FOC? Kind of walk us through that.

Scott Hicks: The answer to your question is yes. During the life safety, it was every single day. I would make a video while I was down there every day and walk our investors through what we were doing every single day. When we got to IOC, it was still every day. I did it probably every day for about a week.

When we moved from IOC into cleanup, which was just like getting debris out of there, we went to weekly. where I would make a video weekly. And that video also came with a written message to say, “Hey, here’s what we did in the last seven days. Here’s what we’re going to do in the next seven days.” I did that until we hit full operating capability. All told, I bet you I did, in the 30 days, between myself and Ryan, between written communication and videos, we probably did 12 communications inside of those 30 days, keeping our investors up to speed on what was going on. It’s funny, we got handwritten notes, we got emails, we got calls from all of our investors, saying it absolutely blew them away with the amount of communication that we were doing for them.

Theo Hicks: Is there anything else that you want to talk about as it relates to this particular situation, where disaster hits your property, or anything else that you want to mention about your company before we wrap up?

Scott Lewis: I think just for any sponsors out there that get their selves in a situation where you have an emergency situation on it – in the infantry, we have a saying, “Take a knee, face out and drink water.” That basically just says pause before you react. Don’t necessarily jump in and react, because the first report you get will always be wrong. Take a knee, take a breath, kind of think through what you want to do before you just start acting. Because if you don’t take that breath, and you don’t really think through, your initial actions most likely will be wrong.

Theo Hicks: Okay, Scott. I really appreciate you coming on and going into extreme detail on what you and your company did in order to quickly resolve the disaster of a tornado hitting your property. You went into a lot of detail, but you kind of broke it down into three main steps, which is that life safety phase, where you secure the site, so you got there really quickly, you make sure that everyone is safe, you assess any injuries, you makes sure that the fire department comes in to disconnect the electrical. This was a mobile home park, so you mentioned there wasn’t a lot of infrastructure, but if there is infrastructure like at a multifamily, then that might be something you need to address as well, like make sure the walls aren’t going to fall down on people’s homes.

Once you get past that phase, you move into the IOC phase, which is the initial operating capabilities. That’s focusing on getting the water, the sewer and the electric working again, right? Things that people need in order to actually to live there. For this particular situation, you said you were able to get through the IOC phase in 24 hours. And then once you get past the initial operating capabilities, you go into the next phase, which is the FOC phase, the full operating capabilities, and that is essentially getting everything back to 100% operations; so clearing debris, getting all the things that aren’t necessarily needed to live off of, although it’s pretty important. But you said the things like Internet’s in that you’re able to get back to FOC within 30 days.

We also talked about the investor communications. You mentioned that the first email went out within an hour of you being notified of the tornardo having hit. And then during your first week, you said you made a video every single day of you basically walking around the site, and giving investors updates on what you were doing. And then after that, during the cleanup phase, you went to weekly videos, where you said, “Here’s what we did the last seven days. And here’s what we’re doing in the next seven days.” You also did a written communication as well. During that 30 day period, you said you did about 12 communications between video and written communication. And you mentioned that investors were really happy about this.

And you gave us two quotes; “Everyone has a plan until they’re punched in the face,” and then “Plans are essentially useless in battle, but they’re also dispensable.” You’re never going to have the perfect plan for when a disaster hits, but the process of actually creating a plan will help you a little bit more than if you did absolutely nothing in life-threatening situations. That’s important. You also mentioned that you can find some home disaster plans by googling it, because the government makes a lot of those.

The last thing that you said was that you want to make sure that whenever disaster hits,—and really this could apply to a lot of different things as well, is to pause, to take a deep breath before you react, because the first reports that you’re getting are most likely always going to be wrong. So you need to make sure you think through what you’re going to do before you actually do anything, because if you are taking action on false information, then you’re probably just going to make the situation a lot worse.

That basically covers everything you went over. Again, you went into a lot more detail on certain aspects, so that kind of hits the main point. Again, Scott, I really appreciate you coming on the show.

Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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