March 5, 2022

JF2741: The Ultimate Strategy to Retail Center Syndication ft. Vick Mehta


Are you in residential or multifamily and curious about how to transition into retail? Vick Mehta, Founder of Indvestia Capital, lays out the best practices for retail syndication, including sourcing tenants (national and local), structuring leases, selecting properties, and more must-know insights for creating strong cash flow.

Vick Mehta | Real Estate Background

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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 Vick Mehta. Vick is joining us from Downers Grove, Illinois. He is the founder of Indvestia Capital which is a syndication company that focuses on retail. Vick’s portfolio consists of $22 million of assets under management, he is a GP on five buildings and an LP on one building. Vick, thank you so much for joining us and how are you today?

Vick Mehta: I’m great, Ash. Thanks for having me.

Ash Patel: It’s our pleasure. Vick, 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?

Vick Mehta: Yeah, I’ll tell you. I started out as a retailer my entire career, and then when I had the opportunity to start acquiring some of the properties that my businesses were in, I took advantage of that. Along the way, I met some great people and started investing with other people in their deals, and really learned what I liked about the syndication business, what I didn’t like about it, and then decided in 2020 that I wanted to focus on syndication full-time. Since my background is being in retail, I thought the retail sector would be the ideal place for me to focus on that.

Ash Patel: Vick, you mentioned your businesses, what businesses were they?

Vick Mehta: Currently I’m in the Cricket Wireless business. I’ve always been in wireless my entire career, been involved in a couple of different franchises that I’ve been in, and also exited. But currently, I’m still operating 21 Cricket Wireless locations.

Ash Patel: Alright, so you’re making a lot of landlords a lot of money by signing those leases. You saw that they were making a lot of money, and you wanted a piece of that?

Vick Mehta: Absolutely. That’s exactly what happened.

Ash Patel: Now, let me play devil’s advocate. What about the people that say stick to what you know, stick to your core. Why not just use all your capital to continue expanding stores?

Vick Mehta: You know what, I understand where they’re coming from, and I have an analogy that I use – it’s that we’re not going to buy a cow just because we want a piece of steak, so we’re not necessarily going to buy a property just because we want to lease 1,200 square feet of it. But I’ll tell you this, my goal in life – and really COVID has redirected my focus – is I want to be in the passive game. I don’t necessarily want to be active, managing the businesses, managing the staff. Luckily, I have a good team in place, I have good people that are running that business, so I could focus on the real estate side of our business.

Ash Patel: Vick, what was it about COVID that changed your mindset?

Vick Mehta: I don’t want to say being forced to spend time at home, but really spending that time with my family. It’s just really realigning priorities, I would say.

Ash Patel: That’s incredible. Similar story, if I could share real quick… My wife is a physician, and her outlook on work was “Why am I going to retire? What am I going to do?” And COVID, for the first time ever, forced her to close her office for a while, be at home and have free time. High performers like you probably have never had free time, so you get a taste of that. And you’re like, “Wow, all right, I could deal with this.” Is that what happened?

Vick Mehta: That’s exactly what happened. The message that I’ve been sharing with my wife is that I don’t ever want to have to be somewhere. I want to go where I want to go, I want to do what I want to do, but I don’t want to be forced to do it anymore. Luckily, I’m in that position that I could do that, and have now taken some investors along for the ride with me. It’s been perfect, it’s been the perfect model for myself as well as some of my investors.

Ash Patel: Vick, let’s dive into that journey. So you are an established businessman, an established retailer; how do you go about buying retail centers?

Vick Mehta: Having that experience in retail as an operator really gives me some insights into what works and what doesn’t work. Everybody is so down on the retail sector right now, and I think what I’ve learned is that retail is not going away; there is essential retail out there. What I focus on is a pretty specific model which is the outlots to the power centers, the Walmart’s, the Home Depot outlots, where there is daily traffic that’s going to be there, and that has tenants that people are always going to need to go to; it’s not going to be replaced by the internet, it’s not going to necessarily always be shut down because of a pandemic or things like that. Using that experience as a retailer is what’s really helped me make that transition into the retail landlord space.

Ash Patel: What were some of the difficult learning curves that you encountered?

Vick Mehta: As far as acquiring? Some of the things are just kind of figuring out which tenants are I guess credit-worthy, if you will, and which ones have the runway to continue to operate, and then which ones are going to eventually be phased out.

Ash Patel: And do you focus solely on outlots, or do you also buy centers?

Vick Mehta: Right now, I’m focused solely on outlots; that’s been my bread and butter. I don’t want to mess with the formula that worked. If this is working for us; if it allows us to provide a good return to investors, that’s what I want to stick with.

Ash Patel: And for our Best Ever listeners, an outlot can be described as something closer to the road, in the parking lot, standalone… Are your centers standalone or are they multi-tenant?

Vick Mehta: They’re multi-tenant centers.

Ash Patel: Okay, so there’s a Walmart or a giant anchor behind you, and you’ve got a smaller strip in front?

Vick Mehta: Exactly. Part of the reason for that is the sizes make sense. Our tenants range from 1,200 to maybe 5,000 square feet. Whereas if you’re in the power center in the back, because of the size, the depth, those spaces are typically larger… If a vacancy happens, you’re a little bit more limited on who you can re-let that to.

Ash Patel: Vick, do you buy existing centers or do you build from the ground up?

Vick Mehta: Everything that I’ve done is existing. I’m currently in the process of developing my first building here in Downers Grove, but everything that I’ve done so far has been existing.

Ash Patel: Man, you’re really straying from operating Cricket stores.

Vick Mehta: You would think that, but again, just being in retail does give you that background of what works and what doesn’t. I look at things differently than a lot of landlords would look at, or a lot of investors might look at that are coming in and haven’t been in retail before.

Ash Patel: How do you look at things differently? What’s an example?

Vick Mehta: An example would be access, co-tenancy; is there synergy between the tenants. Competition. If we’re here and we’ve got this group of tenants, where are their competitors? A lot of investors might not think to dive into that. But I’m looking at it as what’s the longevity of this tenant? What’s the likelihood of their success in this center if we invest in it?

Ash Patel: Let’s dive into that. You also mentioned you look at the creditworthiness of the tenants. Do you just look for national or regional tenants?

Vick Mehta: No, absolutely not. A lot of people are really keen on finding the national tenants with A credit, but I feel like there is always going to be a place for that mom-and-pop tenant. What I like about that is when you’re dealing with somebody — I’ll use an example of a nail salon; that’s their business, that’s their bread and butter, that’s how they feed their family. So they’re going to do whatever it takes to make that business successful. Whereas maybe a national chain that’s looking at thousands of stores across the board might have a threshold and say, “Hey, this one’s just not meeting our minimum”, and then they pull out. So no, I don’t discriminate against the mom-and-pop tenants, if you will.

Ash Patel: How does a national tenant pull out if they have a lease?

Vick Mehta: Well, that’s a great question. A lot of these leases we’re buying sometimes do have exits, and there are performance clauses that if the location doesn’t hit a certain threshold in sales, they have the ability to pull out. When I do leases, I try not to do that, but sometimes you get so hung up on the excitement of having the national tenant that you’ll do whatever it takes to get them in there.

Ash Patel: Those triple net leases are not always what they’re cracked up to be.

Vick Mehta: Yeah. You’ve got to really dive into the details, especially if there are performance minimum standards and things like that, that they have to have. Those things – they’re just as good as any other lease at that point.

Ash Patel: You also mentioned synergies amongst tenants. Can you dive into that?

Vick Mehta: Absolutely. When we’re looking at centers, for example, what kind of audience does a certain group of tenants attract? When we look at centers, we call them the soccer mom centers. You’ll have the nail salon, the hair salon, and places that the moms are going to go to and frequent. So is there synergy amongst those tenants and is there an audience for those tenants that they’ll be able to target?

Ash Patel: I love that, and I love the fact that you recognize the importance of neighborhood businesses in a neighborhood center; the insurance guy, the pizza guy, that deli, the hair salon, the nail salon – they’re always going to be needed. Even during COVID, they were thriving. And those national tenants – not to name names, but several of them, even though they were making more money during COVID, told their landlords, “Hey, we expect rent concessions”, just because they can, they can throw their weight around.

Vick Mehta: Absolutely, you’re 100% right. We experienced that same thing.

Ash Patel: So what would your ideal tenant mix look like?

Vick Mehta: One of the things that I’ve very focused on now is medical users. When I say medical users, I’m talking about the dentists, the optometrists… We’re seeing a little bit of a shift from some of these medical practices not being in medical office buildings and moving more to a retail storefront. Their patients are more comfortable just being able to walk right in, sometimes they have things where they can go out to the vehicle and do things. So that’s a big focus of mine, is the medical users, so I try to get at least 30% medical users; I’d like to see 30% national credit, and then the remaining – I’d like to see the locals, or I’d like to have value add opportunities, where maybe there are one or two spaces that are vacant that we could fill and adds value to the center when we’re acquiring it.

Ash Patel: Do you always look for some upside in terms of vacancies when you acquire, or do you buy fully leased centers?

Vick Mehta: No, I don’t always look for it. One of the ways that we create upside is by looking at the leases and if they have natural rented creases, that will create natural upside in the property. I do acquire 100% full centers, but with those, I want to make sure that their cash flowing properly to provide a good return for investors, and then again, they’ll just naturally have some upside potential with lease bumps.

Ash Patel: Vick, we all know when you sell these centers, if they’re full of all national tenants, you get a more compressed cap rate. Why not do all national tenants instead of mom-and-pops?

Vick Mehta: Why not do that – again, the likelihood of all nationals going out could be higher. Also, at the same time, what you sell, yes, you have a more compressed cap rate. But you’re also paying more if you’re buying that center with those tenants in there already; so that will be why. Again, I’m looking for cash flow. I love having a mix of national and local tenants, but the cash flow is king in our business.

Ash Patel: And when you have a vacancy, how do you attract a national tenant?

Vick Mehta: I have access to a couple of databases. I’m actually a licensed broker here in Illinois, I’m on CoStar, I have a lot of relationships with tenant reps, so I’m really focusing on contacting them, getting ahead of it when you see a vacancy coming up, just making them aware of the situation, and constantly staying in front of them.

Ash Patel: What are the challenges of getting a national tenant in?

Vick Mehta: Sometimes it’ll be proximity to other locations that they already have. Obviously, they’re a lot larger, so they’re competing against themselves, they don’t want to cannibalize themselves. Sometimes it’s just space requirements; we might be just a little bit too small or a little bit too big for them. They have much stricter guidelines on what they’re looking for.

Ash Patel: What about in terms of TI money?

Vick Mehta: I’m willing to put up TI for the right deal. Yeah, that is one of the things that national tenants argue to require, is a healthy chunk in TI. But for me, that’s the cost of acquiring that tenant and we’re willing to put that in there.

Ash Patel: The beauty of mom-and-pops, if you notice – often, you can give them just a white box. They go in there and put their own time and money into improving the space.

Vick Mehta: Absolutely. And they also continue to maintain that space after they build out as they’re operating. They take very good care of it.

Break: [00:14:34][00:16:31]

Ash Patel: Do you have these conversations with the multifamily guys, where they’re always repairing and fixing their tenant’s damage… Whereas here, your tenants are improving, they’re remodeling bathrooms, redoing their lobby?

Vick Mehta: Absolutely. Even with the national tenants, you’re seeing them have strict guidelines for their brands and having to remodel every 5 or 10 years and refresh the spaces. Yeah, I do kind of laugh when I hear about people dealing with that on the multifamily side. Again, it’s a lot harder for somebody to pick up and just moved their business, versus pick up and just moved to another apartment. I think overall, that’s why I like retail and the commercial sector a lot better.

Ash Patel: Yeah, that’s a great point. Vick, what was it about being on the client-side, if you will, that helped you in this business?

Vick Mehta: As far as being on the LP side, or are you talking about…

Ash Patel: No, the retailer side, as a store owner-operator.

Vick Mehta: As a store owner – again, just getting the experience of what works. I’m not going to say that every single one of my businesses has been successful. I’ve seen the ones that have failed, and I’ve picked up on why they failed, what happened along the way, and what could I have done better when I was selecting the site or negotiating the lease. So being able to have that whole 360-degree view of the relationship has helped me quite a bit.

Ash Patel: And you are a rarity in that you’ve been on both sides, so let’s dive into some lease clauses. What’s beneficial to the tenant, versus the landlord, and vice versa? What are some clauses that you like to include now, but maybe you did not like as the retailer?

Vick Mehta: A big focus of mine now is to have annual rent increases; instead of seeing the rent bumps at a five-year mark, I like to see smaller bumps every year, for a couple of reasons. Obviously, that’s making them compound faster, but also because that’s adding value to the center every single year, versus having to wait five years to see you add in the value just from a rent increase. So from a landlord’s perspective, annual rent bumps are something that I’m very focused on getting now.

From a tenant’s perspective, I would say TI is really crucial. now. We’re seeing a lot more requests for larger amounts of TI. The interesting thing there is people are actually willing to pay more than my asking rent in exchange for TI, which, again, if I have confidence that the business is going to be successful, I’m willing to do that. If I’m concerned that, hey, this guy is going to open up this business, I’m going to pay for him to open up this business, and then two years from now, he’s not going to be there anymore – I’m a little bit reluctant to do that.

Ash Patel: To break that down for our Best Ever listeners, it’s — you’re willing to give the tenant $50,000 upfront for maybe a $3 increase per square foot in rent. But when you go to sell, that increase in NOI is a multiple of what you’ve given as TI.

Vick Mehta: Absolutely, it’s hundreds of thousands of dollars difference when you’re looking at it on the cap rate. Absolutely.

Ash Patel: Yeah. It’s well worth the money. Why are you attracted to medical tenants?

Vick Mehta: The pandemic is really what’s taught me the necessity for that. That’s the reason for it, those are the ones that are going to be pandemic-proof.

Ash Patel: What type of medical specifically?

Vick Mehta: I love dentists. I think dental practices have always had a place in retail. The investment that goes into putting a dental practice – again, it’s not easy to just pick up and move that. I also like optometry; I think optometry is one of those things that people are going to need to come in. It’s a very personal business; it’s kind of half medical half retail if you will, but it’s a very personal business and people are going to always need to come in for that. And we’re seeing a lot of urgent care now; that’s been the big thing. People just want to be able to get in and out, instead of having to go to the hospital or to make appointments at their doctor’s office. They’ve been a big new tenant of ours.

Ash Patel: When you were a retailer, did you have to disclose sales?

Vick Mehta: In some situations, we had landlords that did have that in their lease, yes.

Ash Patel: Do you put that in your lease, to see the tenant sales numbers?

Vick Mehta: On some of them I do; not on all of them. On some of them that I’m more intrigued by – yes, I do ask for that.

Ash Patel: Why?

Vick Mehta: Just to be able to keep an eye on what’s going on as far as how much of the rent is a percentage of their sales. It’s not just so that when it comes time to renegotiate that we have some leverage to what their sales are, but also just to be able to make sure that the rents are in line with what’s going on for volume. It’s also a marketing tool, when you’re able to be able to go out and say, “Hey, we’re seeing this X dollar of sales per square foot at our center.” It is something that attracts buyers when you’re looking to sell the center.

Ash Patel: What if their sales numbers year over year are declining? Would you reduce their rent?

Vick Mehta: Well, I’m not going to proactively reduce somebody’s rent, but certainly, it gives them an opportunity to make a case for a rent reduction. Again, it’s case by case; if the tenant is somebody that we see has long-term viability, has been loyal… Yeah, there are certainly conversations that we’ll have to look at that.

Ash Patel: Have you encountered that?

Vick Mehta: I have. We had a tenant that we actually allowed him to buy down the rent. I think he was able to take some of the money from PPP, give us a lump sum upfront, and almost get two to one for his dollar for rent reduction over the years that he had remaining on his lease. Yes.

Ash Patel: That’s a great creative solution. If somebody wanted to get involved in retail, let’s say they’re a multifamily or a residential investor, what advice would you give them?

Vick Mehta: If somebody is new to retail, I would tell them to look at the areas that they’re familiar with, centers that they drive by on a regular basis, so they have an idea of what’s going on… I would start there. I would look at getting into a neighborhood that you’re familiar with. Maybe one that your multifamily tenants are frequenting already would be a good place to start.

Ash Patel: And what are some hard lessons you’ve learned along the way in this sector?

Vick Mehta: I would say, access has been a hard lesson that I’ve learned along the way, as far as making sure that the center’s got the right accesses to be able to support customers coming into the center. I’ve acquired centers that didn’t have that, and they’ve struggled to fill.

Ash Patel: What does that mean? It’s just difficult to find the parking spot, find the store, find the entrance?

Vick Mehta: If you can’t get into the building in the first place, it’s going to make it very hard for you to be able to lease that space out.

Ash Patel: What’s another hard lesson you’ve learned?

Vick Mehta: I would say getting ahead of vacancies, don’t wait for the lease to expire. You’ve really got to spend time, I would say a year out from a lease expiring, to start having conversations about renewals, and getting ahead of that vacancy, and start marketing the space, so that you’re not sitting dark on a space.

Ash Patel: How did you go about wanting to syndicate deals?

Vick Mehta: Again, when the pandemic happened and I was looking at how I wanted to make changes in my life, I had some friends that wanted to invest in properties, too. As an LP, I had been involved in the syndication model, so I took what I had learned from that, what I liked, what I didn’t like with people that I had invested in, and thought I would come up with this new grand and new company and try to provide access to deals for people that didn’t have access to deals. That’s the reason why I went behind it. It’s really to not only bring myself to that next level, but also be able to bring other people along for the ride.

Ash Patel: What’s your typical investor profile?

Vick Mehta: Typical investor is a professional W2 employee, high-earning, that doesn’t necessarily have access to opportunities like this, has capital sitting in the bank, they’re already diversified in their 401K and IRAs, and just looking for new, exciting opportunities. That’s been a model that’s worked for me, people that are looking to diversify and get into different buckets.

Ash Patel: What were items that you didn’t like about your LP investment, and what did you do to incorporate a change into your model?

Vick Mehta: Number one was communication. I just felt like a lot of syndicators just don’t do a good job of communicating along the way. In the beginning, when the deal is about to close, they’re not doing a good job keeping you up to date once you write that check, and then also along the way, as things go on. I’ve tried to incorporate technology into communicating. I have a set model of communicating every quarter with what’s going on with not just the financials, but just overall what’s going on with the center, and really just making sure that I stay on top of that.

Ash Patel: What technology did you implement?

Vick Mehta: I actually subscribe to InvestNext. I thought it was a great portal for my investors to be able to log in and get access to numbers and see what’s going on with their investments. Also, it allows me to blast out communications to all of them with what’s going on in their investment.

Ash Patel: Vick, how do you attract more investors, and what’s the education that you have to provide in teaching them about retail investments? Because there’s a lot that, “Oh, there’s a retail apocalypse coming. Amazon’s going to usurp retail.”

Vick Mehta: I’m attracting investors really from word of mouth. It’s my current investors that are happy with what I’m doing and what’s going on with their investments that are really sharing it with their friends and family, and that’s how I’ve been able to attract new investors.

Education-wise, it’s not just necessarily education on the retail sector, but on the syndication model. What is it that you’re actually buying? What is it that you’re actually investing in? How are you going to see a return on that investment? I would say I spend 75% of my time educating people on what syndication actually is, and then the rest of it on I why I think the investment’s a good investment, and why I think it’s a good choice.

Ash Patel: What’s a typical structure for your investors?

Vick Mehta: Typically, we’re getting an 8% pref, we’re looking at five-year deals, and try to get IRR around 15% to 17%. I do a 70/30 split at the end of the waterfall, so that’s the deal structure…

Ash Patel: Do invest alongside your investors?

Vick Mehta: Absolutely. What are things that I’m fortunate that I’m able to do this, and abide by is that I will always be equal to or greater than the largest investor in the deal.

Ash Patel: I love that. What is your best real estate investing advice ever?

Vick Mehta: Stick with what you know, and what you see on a daily basis. It’s something that you’ve got to be able to get your arms around if you need to.

Ash Patel: Vick, are you ready for the Best Ever lightning round?

Vick Mehta: Absolutely.

Ash Patel: What’s the Best Ever book you’ve recently read?

Vick Mehta: I wouldn’t say it was recent, but when I first got into the syndication model, Hunter Thompson’s Raising Capital for Real Estate really helped me and helped educate me on some things with syndication.

Ash Patel: And Vick, what’s the Best Ever way you like to give back?

Vick Mehta: From a time perspective, I love talking to new investors and new real estate brokers, helping share some knowledge that I have. From a money perspective, my wife and I really like raising money for causes that are local, that doesn’t necessarily get the attention that the big causes get. We like doing fundraising for local causes.

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

Vick Mehta: I would say my website is probably the best place, There is an opportunity to schedule a call with me, and I’m happy to talk to anybody anytime about anything that we’ve talked about here. Also, an opportunity to register for our portal, so you keep up to date with our newest offerings.

Ash Patel: Awesome. Vick, thank you so much for sharing your story with us. From starting out as a successful retailer, to seeing the landlord side of things, and making the moves necessary to acquire retail real estate, and now syndicating. Thank you again for sharing that.

Vick Mehta: Thank you for having me, Ash. I appreciate it.

Ash Patel: Best Ever listeners. Thank you so much for joining us. If you’ve enjoyed this episode, please leave us a five-star review and share this podcast with anyone you think can benefit from it. Also, don’t forget to follow, subscribe, and have a Best Ever day.

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