Today, we’re deep-diving into speaking with investors, coming from the perspective of Investor Relation Manager, Ted Greene. Ted gives us his tips for communicating with new investors as well as continuing the conversation with his current investors. He even clues us in on his overall process from the first contact with a new investor to when they actually decide to invest.
Ted Greene Real Estate Background:
- Investor Relations Manager at Spartan Investment Group
- 20+ years of real estate experience
- Portfolio consists of 14 properties, 10 of which have gone full circle
- Based in Golden, CO
- Say hi to him at: https://spartan-investors.com/
- Best Ever Book: Self Storage Domination
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TRANSCRIPTION
Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I’m Theo Hicks and today we’ll be speaking with Ted Greene.
Ted, how are you doing today?
Ted Greene: I’m good. Thanks for having me.
Theo Hicks: No problem. Thanks for joining us. Looking forward to our conversation. A little bit about Ted. He is the Investor Relations Manager at Spartan Investment Group and has over 20 years of real estate experience. Their portfolio consists of 14 properties and they’ve taken 10 properties full cycle. Their headquarters are based in Golden, Colorado, and the website is spartan-investors.com/.
So Ted, do you mind telling us some more about your background and what you’re focused on today?
Ted Greene: Sure. Boy, going way back into the early 1990s, I started at Merrill Lynch as an Investment Advisor right after college. And I turned that into almost 25 years of asset management at Merrill Lynch UBS Financial Services and was the Chief Compliance Officer for a number of years. A friend of mine and I, we launched a retirement account facilitation company, which we subsequently sold to a large group out of New York, and after that project wrapped up, I reconnected with Ryan, who’s one of the owners at Spartan Investment Group, and joined Spartan last summer as an Investor Relations Manager.
Teo Hicks: Great. And so, as a manager in Investor Relations, what does your day-to-day, week-to-week look like? What kinds of things are you focused on?
Ted Greene: I get to play in my sandbox. I enjoy people; I’ve got a little scarred tissue. People have different backgrounds and different paths to where they’re at now. Last week on (I think it was) Wednesday, I got to talk to 10 different potential investors for Spartan, and that’s abnormally heavy. But on a day-to-day basis, I get to interface with existing investors and new investors to Spartan, which are a little secret, but I can’t believe these guys pay me to do what I do. It’s really fun. It’s a way to keep a pulse on what’s happening in the marketplace, and I truly enjoy it.
Theo Hicks: Nice. So you speak with the current investors and then prospective investors. What types of things are you guys talking about? Maybe just like an example, what’s a common conversation that you have? So you schedule to talk to Theo Hicks at noon on Wednesday – how does the conversation kickoff? What are the things that you guys talk about? Is it mostly Q&A? Or is it more getting to know each other? And the reason why I’m asking is just kind of extract some best practices that people can use when they’re speaking with investors, coming from someone who has been doing this for so long.
Ted Greene: Yes, so — a broad overview of our corporation, our infrastructure, the asset types that we focus on, which predominantly is self-storage, Class B, Class C properties. But when we really start to dive into the plumbing of what makes this work, I’m trying to get the conversation teed up so that we’re looking at the net operating income increase that comes from an expansion of a storage facility, and I want to compare and contrast that slowly with the investor as compared to their bond portfolio. Many investors have a wad of doe in their corporate 401K. And what we’re seeing is the age-old rule of thumb – your age, a percent sign behind it, that’s what you should have in the bond market. Okay, but the bond market is at zero, so what do you do? Do you really harvest some gains from your stock mutual funds in your 401(k)? Truthfully, not a lot of investors actually do that. Tthey tell themselves, “I’m going to watch it really close.” But like we saw with COVID, nobody got out of the stock market before COVID.
So anyway, let me get back to answering your question. Investors are looking for a bond surrogate. And when we dissect how the increase in net operating income divided by the going cap rate of the marketplace, we’ll call it somewhere between five and six, if you can add 100 units at a storage facility, you’re really looking at probably a $1.2 million increase to the value of the property. So if you can add 300 or 400 units, because you’ve got some big, grungy-looking parking lot in a neighborhood that’s growing, you’re really onto something.
So in the bond market, when interest rates go up, bond values mathematically go down; there’s a huge difference between coupon and yield. And investors, if that doesn’t resonate, take some time tonight to digest that. So as interest rates may rise at some point in our lifetime – and maybe it’s coming sooner than later – there’s a decline in value. And just a teaser here, by the way, everybody, as some of us are aware, the Department of Labor just this past summer, in 2020, has made the announcement that private investments are now eligible to be held inside the target maturity mutual funds, so that the 2030 mutual fund or the 2050 retirement date mutual fund in your 401(k) is going to start to include private investments, multifamily, industrial, retail, you name it.
So anyway, back to the question, Theo. We’re driving at why valuation over the next 3-4 years, simply has to grind higher, even in the face of a rising interest rate environment. And that’s such an interesting conversation to have with investors, because it’s not uncommon to have a $1.5 million or $2 million in a 401(k), and we’re kind of nervous about the stock market… And now wait a minute, let’s look at the self-directed IRA opportunity for some of your retirement dollars and let’s look at how we push values higher due to our deep value-add bias. So I ran long in the [00:06:44].28] but I like it; it’s fun, it’s really important to investors. And once you get your arm around the mechanics of driving net operating income higher and why that pushes the market value higher, we can handle a 10-year bond that’s yielding 3%. We can handle that. So that’s what I do.
Theo Hicks: That totally makes sense. So basically, you give an overview of the company, what you guys do and then explain to them the value proposition of the company, which is that increase in NOI that comes from adding a storage unit. So after you had this conversation, this typical conversation, do you find typical objections that you get from people that you speak to? Or by the time they speak to you, they’re already on board investing, they just need some more understanding education on what it actually looks like?
Ted Greene: Yes, I think that investors, this notion of putting assets with a syndicator, probably 50% or 75% of the time, it’s the investor’s first time they’re talking with a syndicator; and that just kind of has to germinate and grow on the mind of the investor. Now people don’t just rush out and spend. Our minimum is $50,000 for either debt or equity. People don’t spend 50,000 with just a month or two, so you have to kind of grow it. But when you start to peel away the layers of investing in real estate, a lot of people have considered, “Well, maybe I’ll buy a condo that’s 800 square feet or 1,500 square feet.” And when we analyze, “Well, okay, where’s the value-add? Well, I’m assuming it’s just going to appreciate in value, Ted.” Well, now, wait a minute, we’ve got QE infinity, at some point that ends, and what happens if interest rates start to rise? And what happens if the market value starts to correct? And do you really have enough cash reserve should that asset sit empty? And Theo, I am in no way frowning on any portion of a real estate portfolio that is carefully selected, because you really should maintain exposure to the core four. But you also need to have a game plan; hope is not a strategy.
So when we start to drill down on, “Okay, mathematically, how can we both get comfortable with the argument for why gain exposure to the asset class.” Don’t put a gob in. Maybe 2% to 10% of your liquid net worth should be in a private investment. And measure the maturity dates; don’t have everything coming due in four or five years. Don’t have five projects coming due in five years. Be measured in when you place that capital, and have a laddered approach to your guess as to when they mature. But anyway, our approach is intriguing, it’s mathematical, and we’re just driving net operating income higher, which pushes market values higher in the face of a rising interest rate environment. It’s just fun.
Theo Hicks: You kind of highlighted my next question by saying that when you talk to them, these ideas kind of germinate in their mind for a little bit, and think about it, because this is the first time they’ve talked to a syndicator. Typically, how long until someone invests? And then from that first point of contact to them deciding to invest, what’s your process? Do you just talk to them one time and then let them loose to think about it, and then they come back, great, and if not, then that’s fine? Or is there a very specific follow-up process you have where you email them once a month or you call them once a month or something?
Ted Greene: After my initial call, I really encourage people to just go do a deep dive on our YouTube channel, where we dissect pretty much every topic that relates to self-storage, bonus depreciation, how to read a K-1, what’s our underwriting process, what does it look like. The list goes on and on, of the 10 or 15 minute YouTube videos that we have. And I just tell people, line up your favorite two or three topics and push play when you’re in the car. And instead of listening to NPR, listen to one of us goofballs at Spartan Investment Group, and just come along with us and get to know us. Our investment process – it’s a soft commit, so the investor completes a subscription agreement; it’s not binding, they don’t need to send the funds. And because our deals do get subscribed fairly quickly, it’s a good way to get your place in line, and then you can back out and you don’t have to follow through and fund the investment.
So back to the question, it’s an ongoing dialogue. The last thing Spartan wants to do is have somebody feel pressured; we would like them to comfortably grow their understanding of our marketplace, certainly know the risks, don’t get out over the end of your skis by way of your personal liquidity. We’re looking for investors that are with us 10 years from now, 15 years from now, that are on the Holiday Card list, we’ve done a couple of transactions with, but they also have syndicators in other asset classes that they’ve gotten to know, like and trust. And so that’s the game. And don’t hurry something like that, I guess that’s my point.
Theo Hicks: Sure. That makes sense. So you talk to them, you tell them about the YouTube videos, but then are they coming back to you, and you put the ball in their court? Or is there some sort of follow-up that you’ll do after a certain amount of time just to touch base and see if they’re ready to invest, or they want to learn more, or talk again? Or is it just all kind of in their court and then if they come to invest, great, and if not, then you’re giving them time?
Ted Greene: It’s really in their court. The appetite currently, I think because for a short period of time multifamily has taken a little breather – maybe that’s the way to put it – and not in all markets, but in some markets maybe investors have a couple of allocations, so they’re looking for a different type of allocation… We don’t have as much deal flow as we have interest for deals, and that’s because our CEO, Scott, was an army captain in Iraq and he doesn’t like getting in bad situations, I can promise you that. The co-owner of Spartan is a former commercial airline pilot, Ryan, Mr. Checklist, we call him, and he doesn’t want to get in a bad spot either. So there’s an appetite for more deal flow.
So investors hear from us by email when we have a transaction we’re bringing, but it’s really on the investor to circle back to us, to monitor our electronic communications and outreach when we have a deal that’s available.
Theo Hicks: Got it. Are those the only emails you guys send out, just when you have a deal, or are you sending out newsletters to your investors as well?
Ted Greene: Existing investors, we communicate monthly. And we do video calls quarterly with a broad overview of the portfolio on a quarterly basis, but then monthly electronic communication as to updates. So we try to stay in front of the committed investors that are partnered with us on a monthly basis.
Theo Hicks: And then the prospective investors, they only get contacted with a deal?
Ted Greene: Correct.
Theo Hicks: Okay, Ted, what is your best real estate investing advice ever?
Ted Greene: I think investors really need to have an attitude that the investment dollars that they have should be protected. I recently had a couple of people in the office here —our headquarters are at Golden, Colorado, and then Ryan and Jackie and I are in Seattle, and a couple of people were in the office… And as a side conversation, one of the gentlemen mentioned that he was looking at a duplex to buy; he just needed the down payment, I think it was a $650,000 purchase price. He just needed the down payment, and he was going to have to find it from a different investor. And what occurs to me is there’s not a lot of room for things to go wrong. And behavioral economics is a thing in Academia because it’s a thing in the real world. And we’ve had the wind to our back the last decade, quantitative easing, low-interest rates, and I think some investors may be persuaded or encouraged to look at the marketplace and just think “Things just go up. They always go up and you don’t need to plan for things to go wrong.” And as sure as I’m sitting here, that’s not real world; the business place, it’s a fistfight at times, and other people want your assets, but they don’t want to pay you what you want to be paid, and it’s dangerous. What if you have an A/C unit go out for your storage unit or your multifamily apartment building, and then you get a property tax increase? You could blow through $250,000 by Friday of this week, if both of those things happen.
So I think a lot of people just think, “Look how much money I can make”, as opposed to the first question really should be “How bad could this be for me?” And things can change. Nobody saw COVID coming. We might be at a 10-year bond yielding 3% by June of this year, who knows? So proceed with caution; be jealous about your assets, protect your assets, make sure you’ve got plenty of liquidity yourself, and if you’re going to put your money in somebody else’s hands, you want to know that they know what they’re doing.
Theo Hicks: That’s great advice. Ted, are you ready for the Best Ever Lightning Round?
Ted Greene: Yes, let’s do it.
Theo Hicks: Okay. First, a quick word from our sponsor.
Theo Hicks: Okay, Ted, what is the best ever book you’ve recently read?
Ted Greene: There’s a book out that was written specifically for storage, which is— that’s our sandbox. The book is called Self Storage Domination. Jim Ross and Matt Van Horn wrote that. That’s a good one. It gives you clarity as to how an asset should go up in price if you build a bunch of storage units in some dirt or gravel parking lot, and just increase the footprint by 50%. It’s not rocket science, but there’s a lot of meat in that book.
Theo Hicks: If your business were to collapse today, what would you do next?
Ted Greene: I think I would do the same darn thing with Ryan and Scott. But I would suggest to them, “Let’s start with the receivers.” And receivers are court-appointed trustees of a corporation’s assets that has gone insolvent, and usually it’s some kind of bankruptcy filing… And a small bank – this is not a Bank Of America or Wells Fargo request, but the small banks that are facing a charge-off on their balance sheet, they just want that liability paid. So if somebody shows up and says,” Hey, we’ve got 8 million bucks. Why don’t you let us take that asset off your hand for the 8 million that was owed to you? You don’t have to take a write-down, you will get traction.” So I would be willing to be the tip of the spear on that approach, because that’s got legs, and I think we’ve got a number of people in the current operating market that are a little bit extended, and unfortunately, that does come back to roost eventually.
Theo Hicks: [unintelligible [00:21:54].11] this question for the best ever deal, so you can take it one of two ways – you can talk about the best ever deal that you’ve been involved in, or maybe a time that you spoke to an investor and it ended up being the most amount of money that anyone’s invested with Spartan because of this conversation you had with them.
Ted Greene: We like tertiary markets or markets that are out of the downtown; we’re not going to ever buy a property in downtown Seattle. We do have a property in Black Diamond, which is a smaller town, 30 minutes away from Seattle. And this is three years ago, before I was a part of Spartan; three and a half years ago actually. Ryan got a hold of some property just outside of Black Diamond, and that was just a couple of million dollars; $2.5 million to $3 million for purchase and entitlements. That property July or August of this year will have the certificate of occupancy, and that is somewhere between $25 million and a $30 million asset. So of course, we’ll wait till we’ve got [unintelligible [00:22:56].24] to do anything with it, but it’s nice to go from a place you’ve got a bunch of big old cows – we all love a good cow – it’s nice to see that move through that whole lifecycle, and now we’ve got a big class A property sitting there that… It’s cool. It’s just cool.
Theo Hicks: What is the best ever way you like to give back?
Ted Greene: With Scott’s background in the army, we’ve got a number of non-profits that we support; the Special Forces Foundation, Rescue Freedom, the University of Michigan’s Neurology Department, the Second Wind Foundation come to mind… I think there’s a couple more out there, but they’ve slipped my mind.
Theo Hicks: And then lastly, what is the best ever place to reach you?
Ted Greene: The best place to find me is on LinkedIn. So Ted Greene on LinkedIn was—pardon, I’ve got an “E” at the end of my name… And that’s probably the best way to track me down.
Theo Hicks: Perfect, Ted. Well, thank you so much for joining us today and providing us with your best ever advice. We really went into a lot of detail on what the process looks like, from speaking with someone for the first time, maybe it was their first time ever speaking with a syndication group, to them eventually investing in their first deal, and then have everything in between. So I really appreciate you going into a lot of detail on specifically what you guys do to bring an investor, first time talking, to investing in the deal.
And then your best ever advice, which was all about making sure you’re protecting your money, whether you’re investing it yourself or investing it with someone else, and making sure that you don’t have that attitude of, “Well, things are just going to just always go up and up and up, and I can do whatever, and it’s going to be perfectly fine.” Don’t think that way. Make sure that your assets are protected.
So Ted, again, I really appreciate you coming on and speaking with us today. 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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