December 25, 2021
Joe Fairless

JF2671: 6 Benefits of Tokenizing CRE Assets with Shannon Robnett


Have you ever thought about tokenizing your assets? For Shannon Robnett, it’s a no brainer; these smart contracts help provide transparency on the asset, minimize issues with liquidation, and overall are easier to manage. In this episode, Shannon shares the benefits of tokenizing your commercial real estate assets.

Shannon Robnett | Real Estate Background

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TRANSCRIPTION

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, Shannon Robnett. Shannon is joining us from Puerto Rico. He is a multifamily and commercial developer and has done over $350 million of development. Shannon has also personally transacted over $160 million as either a buyer or seller. Shannon, thank you so much for joining us. How are you today?

Shannon Robnett: Good, man, yourself? I appreciate you having me on the show.

Ash Patel: I’m doing great. It’s our pleasure to have you. Shannon, 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?

Shannon Robnett: Yeah, I grew up in a construction and development family. My dad was a builder, my mom was a realtor, I watched them do deals at the kitchen table. That was kind of how I grew up, on the job sites on Saturday and Sunday… And I thought I wanted to go to college and be something different, but the real estate game just kind of pulled me in and I’ve been happily doing that for the last 28 years. I had a lot of ups and downs, but I wouldn’t trade it for anything.

Ash Patel: That’s incredible. So did you not have a natural inkling to go into real estate? Or were you just so bombarded by it that you wanted to get away?

Shannon Robnett: I think that was kind of it. I was so sick of hearing about it and I was so sick of cleaning up job sites. We’re recording this right around Christmas time… I even remember going out one Christmas day, Ash, to go fix a problem on a job site with my dad. And I was looking for anything normal other than real estate. And I got out there, I’m going to college, and my little brother’s making $45,000 a year in 1993 with no college degree, no nothing, and I’m just sitting here going, “I can’t believe I’m actually doing this.” So I quickly reversed course and went back into real estate. It was very short, “I think I’m going to be different than everybody else.”

Ash Patel: What did you want to go to college for?

Shannon Robnett: Computer information systems. There was this guy, Bill Gates was doing some pretty crazy stuff, and then this other guy was doing stuff with a fruit company… And I just thought that would be the path to riches, because computers were everywhere.

Ash Patel: Let me share my story. ’93, I graduated from high school, and that’s when the tech bubble was booming. So I actually went into computer information systems, that was my major. I had like a 15-year IT career, and then I’ve found commercial real estate. So congrats on finding the fast track to get to where you are now. I took a long way–

Shannon Robnett: It just [unintelligible [03:00] knots on my head than you do, because I got into it early.

Ash Patel: Alright. So, a family business… Did you just walk into that business? Or did you start out on your own?

Shannon Robnett: That’s the funny thing about family… Everybody’s business is your business or your business is everybody’s business. But I got done with the whole “I’m going to go to college” phase of my life. I told my dad I want to build a house, and my dad said, “Okay, go get the backhoe.” I’m like, “What do I need the backhoe for? We could just hire a guy to dig the hole.” Literally, by the time I get done building that first house, I had dug the hole, I put in all the utilities, I poured all the concrete, I had hired two of the guys, we’d framed it, we sided it, we painted it inside and out, we built the cabinets… I literally built the house, and it took about 70 days to do that. But at the end of that time, I knew how to do all those different aspects of it, and I realized that I hated every single part of it. So I had to figure out a way that I could be involved in the real estate business without actually being involved with the building of the house. That’s where I kind of settled on the commercial field, and started dealing with that, and then worked through building police stations, fire stations, schools, hospitals, and going that route, but always on my own and always just trying to find the next opportunity to hone my skills, until I finally just realized, “Why am I working for everybody else? I need to be doing this for myself”, and started going down the path of investment building.

Ash Patel: Well, you learned how to build a house, but then you started building commercial buildings. Why not stick to what you know and just keep building houses?

Shannon Robnett: Have you ever met homeowners? [laughter] The reality is when you look at it, when you’re putting in a foundation on a house, it’s the same as putting in a foundation on a police station. It’s one aspect of the job, but it’s much, much larger. I was able to find that by doing 10 large commercial projects, we could do 25 million dollars a year, and in order to do 25 million dollars a year in volume at a 7% margin, I would have to build a lot of houses. So it allowed me to condense time into different projects, and I then took that into the multifamily space and the triple net industrial space and started to run away with that stuff.

Ash Patel: And how many years did you continue to focus on building commercial and industrial?

Shannon Robnett: I still do. We’ve got a couple of opportunity zone developments going right now with warehouse. A triple net warehouse is such a fabulous thing, because like apartments, it’s the incubator space. You get out of your mom and dad’s house, you go get an apartment, then you save up your money, you go buy a house… It’s kind of the same thing. You start a business in your garage, or you and your buddy are going to become window tinters or whatever, you go rent a small incubator space, and then you go build your own building. It’s the same kind of thing, but they’re parked a little bit longer.

We even saw in 2008, when the market was crashing, people were paying their rent before they were paying their house payment, because if they didn’t have a place to do their business, they couldn’t pay their basic bills. So that’s just always kind of been a bread-and-butter slice. And as cap rates continue to heat up on multifamily, it’s still a little bit more lucrative to do the industrial right now.

Ash Patel: And when you say industrial, is that more flex space? I love that space, because it’s so easy to rent.

Shannon Robnett: It is. We’ve got little requirements. You put a 10 by 10 office in the front, a bathroom in the back, a roll-up door, about 2000 square feet, with some basic heating and electrical requirements, and everybody fits in there, from the guy that makes gelato ice cream, to a guy that manufactures bullets, cabinets, tables, or whatever. We’ve got all different types in there.

Ash Patel: Yeah. And if somebody wants more office and less warehouse, just put a wall up; if they want the opposite, move a wall.

Shannon Robnett: Exactly.

Ash Patel: That’s incredible. Is that primarily what you’re building now?

Shannon Robnett: No. We currently have about 500 units of multifamily going, and only about 80,000 square feet of industrial space. So we do what pays…

Ash Patel: So you pivot on whatever asset class is being overbought.

Shannon Robnett: Correct. Currently, we just broke ground on a 190-unit apartment complex, we’ve got a 35,000 square foot supply house in Florida, and 375 single-family homes that we’re doing in a subdivision in Florida as well. We’re kind of asset agnostic, as long as it makes money.

Ash Patel: I love that. I try to get investors to look at that, as well. A lot of people, their best advice is to be hyper-focused on one niche. I’m the opposite, man; find what’s paying, find out where the deals are, where the money’s at, and continue to pivot.

Shannon Robnett: Everybody talks about multiple streams of income, and everybody looks at that and says “I need to be in four apartment complexes.” But the reality is if you’re in apartment complexes, and you’re in notes purchasing, and then you’re in industrial space, and then maybe you’re in a mobile home park, you’re in multiple asset classes, but then you can also diversify that even further if you want to. And I agree with you, I think diversification is good; I think you need to be good at what you do. And real estate is not rocket science, or brain surgery, or even as complicated as tech. So it’s something that you can become pretty good at with a little bit of home study.

Break: [00:08:12][00:09:51]

Ash Patel: Do you do any remodels, or is it all new construction?

Shannon Robnett: It’s funny you asked… Actually today, I’m closing on my first value-add, and it’s an office building. I’m buying an office building that’s a brand new 1980, that we’re going to completely rehab the inside of it; we’ve got the FAA as a tenant and some other space in there, but coming out of COVID, office is in an absolute toilet… So it’s a great buy, it’s a power play at this point; we’re buying it for a lot less than we could even think about building it, and remodeling it… And I think that we’ll learn; we’re going to do our first remodel in 2022.

Ash Patel: That’s great. So why not continue to pick up other assets cheaper than you can build them? So strip malls, retail, industrial…

Shannon Robnett: We are. We’re looking at thatm because it’s been easy — I think there’s been plenty of fruit for everybody in the value-add, [unintelligible [00:10:44].28] got there with the multifamily, everybody’s kind of looking at different stuff… Strip malls are now coming front and center because retail is dying, but they’re in phenomenal locations, so to pick those up and repurpose them… We’ve got one of those under contract. We’ve got some other stuff that we’re looking at. But I completely agree with you. And if you’re stuck in one mindset of “I only do value add multifamily in Southwest United States”, then you really got a small bowl to pick from. Whereas, if you’re willing to look at exactly what you talked about, you’ve got the opportunity to see how you can work all over the nation and continue to pick up where there is still value to be had.

Ash Patel: Agree. If you’re looking for multifamily that’s value add in Southwest Ohio, the penalty is you’re paying three and a half caps.

Shannon Robnett: For a 1972 model.

Ash Patel: Yeah. And you’re competing with 10 other people that have the same mindset as you.

Shannon Robnett: Exactly. And as you know – we’re about the same age – that late 1970s model is starting to show its wear.

Ash Patel: You’re not kidding. So what’s on the horizon for you? What’s next?

Shannon Robnett: One of the things that we’ve started doing lately, just because we were bored, is we’re actually beginning to tokenize real estate. We’re moving that intersection of blockchain into the real estate asset class. One of the things that everybody confuses is they say, “Oh, you’re in crypto.” We’re not. But the technology is so much similar to, let’s say, title chain, that it allows for so many opportunities and so much liquidity for syndicators and developers to bring that to the forefront where people can actually own fractionalized digital currency, that’s asset-backed with hard assets like real estate, and then make that tradable and transferable in a distributed ledger that really opens it up to everybody.

Ash Patel: Can we deep-dive on that?

Shannon Robnett: You bet, buddy. Let’s go.

Ash Patel: Alright. And what I love about this podcast is we have no preset questions criteria, except the Best Ever lightning round. So we can talk about anything we want. For our Best Ever listeners that maybe have heard the term tokenizing real estate, what does it actually mean?

Shannon Robnett: A lot of people confuse tokens and coins. A coin is a blockchain, and that blockchain is digital information that has the first piece encrypted with the information into the second piece, and the third piece. Let’s bring it back to real estate. Like the title, you can go find out how long this property has been in the family, where it was a full section, where it got divided down and became a subdivision… All of that is in a title chain. Blockchain technology creates the same ability to give that information for you, but it also puts that in a distributed ledger, so that you can see it, I can see it, somebody in Tallahassee can see it… Everybody has the ability to see what’s going on here. That creates some transparency. When you do that, you create a digitally transferable asset.

When people talk about tokenization, you’re really just taking what we would normally have as a share in a syndicated model and you’re making it a digital hashtag that contains all the information, the PPM, the offering memorandum, all the waterfall instructions – everything there is tied up in a smart contract. Then that information is put on the distributed ledger, and then how many shares are owned by each individual or each named entity. So it creates some anonymity at the same time that it creates transparency as to who owns what pieces of this. Then what it does the most is it allows for that transferability to start happening. Because one of the things that syndicators hate is trying to find a marketplace for you to try and sell your piece of their pie after two years, when their deal is a five-year deal. This allows that liquidity for that transfer to happen, because it’s a digital transfer, and we’re actually creating the marketplace for that, so that now you can have that liquidity to sell or do other things with your particular digital asset.

Ash Patel: Yeah. And it’s an immutable ledger, so you can’t go back and change things. You can add to it, but you’ll see all the additions on the ledger. The beauty of that is the liquidity. So for the syndicators out there, if you have somebody that says, six months in, “I’m getting a divorce. I’ve got to get out of this. I need to liquidate right now.” You don’t have a lot of options, unless you can find a buyer for that share. Whereas if you tokenize this and there’s a marketplace, it always has a value. So within six months, you might have already gotten 10 to 15% appreciation; you can cash out and get some gains, versus the syndicator saying, “Fine, we’ll cash you out, but it’s a 15% penalty.”

Shannon Robnett: Right. The reality is there’s a lot of products that are coming into the market. But basically, these are all tied up in a smart contract. And that smart contract – it’s really not smart, but it executes on its own. So if you’re doing this liquidity play and you have people that want to move around, as a syndicator, that becomes a headache, because then we’ve got to track the paperwork, and we’ve got to do all this stuff. But with the blockchain technology, it takes care of all of that thought process. It tracks all of those things. So then when you’re sending your distribution out, you’re sending it down the line, like a Plinko machine. It just goes to the lowest piece of the chain and says, “Here, this is your distribution for these chairs or these tokens”, and it creates that ledger. So then it’s really easy to track who did what, who gets the K1s, for how many shares, for how long, and what level they sold at. It allows for royalties to be paid to syndicators when people sell; it allows for a lot of really cool things that people haven’t really thought about. But most importantly, it allows syndicators to begin thinking in an infinite state, where I’ll never have to sell this because I can still get the reward that I would normally get by getting it to this next level without actually having to liquidate the asset.

Ash Patel: Yeah. And how do you equate that to an NFT? NFTs are not really tangible. But in this case, your token is tied to a tangible asset. But in some cases, it works in a similar fashion. You can buy and sell, trade royalties.

Shannon Robnett: I think you could go either way. I liken the NFT as to taking the Mona Lisa, and we all want to own a piece of the Mona Lisa. But then I look at digital securities like Apple or Microsoft. Microsoft doesn’t really have anything that it makes. It makes the surface, but it doesn’t really make anything. It’s all about intellectual property and programs. So everybody understands that you’re not going to buy an NFT, a piece of Microsoft; you’re going to buy a share of Microsoft, but you’re going to buy ownership in the one and only Mona Lisa. So I kind of separate them out that way. The reality is the NFT is one of a kind, and while my apartment complex is one of a kind, there’s a lot of us in there that own it, and we own those digital ownership shares.

Ash Patel: It makes you wonder, why don’t they do fractional shares of the Mona Lisa, fractional shares of NFTs?

Shannon Robnett: Because it doesn’t sound near as cool as non-fungible. [laughter]

Ash Patel: Yeah. [laughter]

Break: [00:17:59][00:20:56]

Ash Patel: I had Neal Bawa on a few weeks ago, and he stated that one of the driving tailwinds for real estate prices is tokenization. Because once overseas investors have easy access to American real estate through tokens, it’s just going to be on fire.

Shannon Robnett: I think that that’s true, and I think that the one thing that tokenization does is it takes out the liquidity question. When people are looking at that — I think that syndication is very popular, and it’s getting more popular all the time, especially as prices increase and yields decrease. But I think the fact that you’re able to create that liquidity so that I’m making a commitment to you for as long as I want to, not as long as you, the GP, want me to – I think that that’s going to change a lot of it as well, and give people more reason to look at parking money or parking capital in syndications, and then knowing that they can get out whenever they feel like.

Ash Patel: I’ve got to ask you… So you started in your family business – did any of your family come with you to the development side?

Shannon Robnett: Well, my brother builds custom homes in a resort area. My dad – he retired when he was 50, having plenty of incubator space that’s kept him and mom happily motorhome-ing and around the world… So my brother does something very similar. We’ve worked together for a period of time, but he’s an exceptional high-end home builder, and I really can’t stand homeowners.

Ash Patel: I love it. Shannon, what’s your best real estate investing advice ever?

Shannon Robnett: I think the fact that you’re doing it. I see so many people that spend so much time analyzing this and analyzing that. If you’re going to get involved with real estate, get involved with real estate and make sure that you’re in it for the long haul. So if you buy a house, hold onto it for 20 years, and you’ll see the value of it. Don’t look at real estate as something you invest in for the short-term. I think you’ll really see where it becomes a really solid asset that gives you incredible tax benefits.

Ash Patel: What was the hardest lesson you’ve learned throughout your incredible 20-year run? Whether it was about partners, finances, transactions, assets, anything; just a really tough lesson that toughened your skin.

Shannon Robnett: I think that the thing that I’ve had to learn multiple times is that you need to often be the answer to your own problem. You can get somebody that can either be a partner or part of your business that can do what you need to do in that business better than you. And that’s always great. But if Tim doesn’t show up today, who’s going to cover that role? You need to at least be able to function in that area. But I see a lot of people, they’re coming into the space and they go, “I only do this part of it. I don’t know anything about the rest of it.” And then all of a sudden, partnerships come apart, as partnerships do, and that person knows nothing about the rest of it. So I think you need to be a master of something in your business but you need to understand to be able to do all of your business to some fifth-grade capacity, in order to not get stuck hanging out in the wind.

Ash Patel: I think that’s what your dad was thinking when he made you do the siding, the windows, the paint.

Shannon Robnett: You know what? You don’t have to agree with him… [laughter] But I completely agree with you. That was exactly his thought process. If you know how to hang the cabinet when the cabinet guy doesn’t show up, you just take care of it.

Ash Patel: Yeah. Shannon, are you ready for the Best Ever lightning round?

Shannon Robnett: I am.

Ash Patel: Let’s do it. Shannon, what’s the Best Ever book you’ve recently read?

Shannon Robnett: I think the one that I’m reading right now is The Creature from Jekyll Island. It’s all about what has happened to our currency and what’s going on with the dollar. It plays out so incredibly strong into what’s happening with inflation right now. It’s really an eye-opener. Where we’re at with what’s happening with the dollar in the world currencies has been 150 years in the making.

Ash Patel: Assuming there’s this massive inflation on the horizon, how do you prepare for that?

Shannon Robnett: You borrow as much money as possible. The reality is if you can pay back today’s loan with tomorrow’s dollar… We’re all experiencing 16 to 20 percent rent increases due to no fault of our own. Why wouldn’t you take that profitability and borrow and acquire other assets that you’re going to pay back in future dollars that are inflated?

Ash Patel: Great advice. Shannon, what’s the Best Ever way you like to give back?

Shannon Robnett: I love my community and I love to be involved in it. As we’re coming out of COVID and you see a lot of businesses that have been struggling, and things have happened, I really make it an effort to buy local and to make sure that I’m contributing to my local charities. I get it, there’s a lot of national charities out there, there’s a lot of national chains that provide great food, and great shopping experiences… But giving to your community, and make sure that when you have the opportunity to be charitable, that you are, and that you do it in a way that benefits your direct community.

Ash Patel: Shannon, how can the Best Ever listeners reach out to you?

Shannon Robnett: The easiest way to do that is just at shannonrobnett.com.

Ash Patel: Awesome. Shannon, thank you so much for sharing your story with us. 28 years in this business, starting out as a residential home builder, quickly pivoting, and now 28 years later, continuing to pivot. Incredible story and thank you again.

Shannon Robnett: I appreciate the time, man. It’s great to share with your audience.

Ash Patel: Best Ever listeners, thank you so much for joining us. Have a Best Ever day.

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