Tech entrepreneur Kranti Ponnam says commercial real estate is in his blood. Both his father and father-in-law were heavy real estate investors in India, and Kranti is passionate about commercial real estate investing — luckily, it comes naturally to him. In this episode, Kranti covers the natural correlations between tech entrepreneurship and commercial real estate investing, the benefits of in-house property management, and the business skills that have been most important to his real estate career.
Skill #1: Scaling and Raising Capital
“Commercial real estate definitely has aspects of running a company, growing, scaling,” Kranti says. “How do you add more investors? How do you basically raise more capital? How do you become more efficient in asset management?”
Skill #2: Data Analysis
Kranti says that in both the tech and CRE fields, customers’ wants and needs ultimately determine where your focus lies and what services you will provide. In commercial real estate, this translates into monitoring which markets are performing better than others. Essentially, he says, it all comes down to how well you can make decisions based on the data that is available to you.
Skill #3: Following the Money
When you notice a trend, shift, or pattern — for example, in commercial real estate, a population shift from one market to another — you adapt accordingly. Kranti notes that following the money is a basic concept that’s key to success in both fields.
Skill #4: Setting Strong KPIs…
Kranti says the most important skill he’s learned from business that has helped him in asset management is keeping his ear close to the ground. “When you run a business, you run a business by numbers,” he says. “You have to be able to work on the business and just have key performance metrics that you’re actually managing.” When these KPIs aren’t monitored on a frequent basis, it can quickly and drastically impact business, which he has seen firsthand.
Skill #5: …And Ensuring Those KPIs Are Met
Kranti’s team has had to fire two different property management companies within six months because of their nonperformance. “...As a business owner, if things get tough, you have to step in and you have to make them right,” he says. They made the decision to bring property management in-house, simply because they knew they cared more about the business than any third-party groups would.
Kranti Ponnam | Real Estate Background
- Director of capital at Four Oaks Capital, a multifamily investment firm. He owns and manages five different companies varying from IT services and staffing to background checks.
- Portfolio:
- GP of 829+ units
- LP of 1,500 units
- Based in: San Diego, CA
- Say hi to him at:
- serodacapital.com
- krantiponnam.com
- Instagram: @krantiponnam
- Twitter: @krantitweet
Best Ever Book: Traction by Gino Wickman
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I'm Slocomb Reed and today I'm joined by Kranti Ponnam. Kranti is joining us from San Diego, California. He's the director of capital at Four Oaks Capital, a multifamily investment firm. He also owns and manages a few companies outside of commercial real estate. He invests both as a general partner and a limited partner. Kranti, can you start us off with a little more about your background and what you're currently focused on?
Kranti Ponnam: Sure. Hey, Slocomb. So glad to be here today with you and your listeners.
Slocomb Reed: Good to have you.
Kranti Ponnam: Thank you for having me on the show. I'm Kranti Ponnam and I was born in India. About 20 years ago, I was fortunate enough to come here to do my master's degree. I traveled quite a bit on a consulting job after my masters, and finally zeroed in to live in beautiful, sunny California, San Diego specifically. If you've ever been to San Diego, you know why I never left. Today, I'm a tech entrepreneur, own and run five different tech companies, three actively, and two passively. This is kind of nice, because the three is plenty to be active in, with two kids [unintelligible 00:04:32.29] two different companies on their own.
My company pretty much covers a wide variety of services, which include background checks for new hires, IT staffing, IT solution services... I know all of that is really techie, and it is, but that's why I have such a passion for an alter ego, which is investing in commercial real estate. Again, I felt this was a part of me, it's been in my family's blood. My father was a heavy investor in real estate, my father-in-law was a heavy investor, too. So there was a lot of expectation on [unintelligible 00:05:08.12] that real estate would play a role. Fortunately, I love it, and understanding it comes pretty naturally to me, having seen my family do this over the years, both in development and buy and hold commercial real estate.
As far as my real estate background goes, I started off buying single-family homes, did really bad in my first deal, which was in Chicago back in 2008. Lost money, had terrible issues with tenants, then the HOA issues. It pretty much hit me hard, which led me to taking a break. I went back to buying commercial properties in 2012. It took quite a bit to recover from that, and then bought my first office building which we're currently in, which is where my office is that. Did really well in it, and then started slowly getting into apartment condos.
Slocomb Reed: Were you primarily investing back then in San Diego, in your backyard?
Kranti Ponnam: Pretty much. After I went out to invest in Chicago, I lost money, came back, I thought it's better to just stick to what we have local here. The San Diego market is still great as a Southern California market. Just your dollar doesn't go too far, though. That's the only complaint I have. But there are other problems with San Diego investing, which is rent.
Slocomb Reed: But it went much further in 2012, 2013 for sure, than it does now in 2022.
Kranti Ponnam: Yeah, it was a good time to buy it back then, I should say. Definitely a good time to buy in 2012-2013. But again, I think there are deals to be found in every market. If you do things right, there are deals everywhere, in every market. So I then went back to focusing on buying real estate, which is good, because office gave me confidence, and then started buying apartment condos, and went into retail quite a bit. Actually, I bought strip centers in Tucson, Arizona in 2015, 2016 timeframe, where it was, back then -- Tucson right now is one of the best markets in the US. It always--
Slocomb Reed: Kranti, is this you investing individually, or are you bringing on partners into these earlier deals?
Kranti Ponnam: No, this was just me investing individually. This was the money that I made from my primary business. I started wanting to build passive income, and this is just me investing personally for my own portfolios.
Slocomb Reed: Gotcha. Now a couple of things that you touched on early on, Kranti... You make it sound like there are some natural correlations between being a tech entrepreneur and a commercial real estate investor. What do you see as the corollaries between those two, of what I would think of as pretty separate industries?
Kranti Ponnam: Right. They're pretty separate industries, but I think when you look at them as businesses, they're very similar businesses. When I say very similar businesses, tech and real estate, even if you're a tech entrepreneur, you're looking at what people really want, in terms of where you really focus on in services. And same thing with commercial real estate, what do people really want? Which markets are performing well? It all comes down to how well you can use the information, which is data, and how well you can make decisions based on that.
Again, as commercial real estate, it's just not a mom-and-pop type of thing. Commercial real estate definitely has aspects of running a company, growing, scaling. How do you add more investors? How do you basically raise more capital? How do you become more efficient in asset management? All of those principles are parallel, if you will.
Slocomb Reed: Gotcha. So what I'm hearing you say - correct me where I'm wrong, Kranti - is that when it comes to building a business, whether it's in tech or in commercial real estate, one of the biggest similarities is that the purpose of the business is to meet people's needs. People's needs are shifting, not always being met by the opportunities available to them. The tech, the places to live, work, shop, store, things... So in any of the tech industries that you're involved in, you're looking for changing trends and the opportunity to take advantage of the shifting needs and wants of your target demographic.
That has translated into your commercial real estate investing, tracking the shifting needs and wants, and the demographic and population shifts in the country, figuring out which market you want to be in. You said you went from San Diego to Tucson. I imagine it's because you saw the population growth all over Arizona. Is that it?
Kranti Ponnam: That is correct. Even now, there are a lot of people moving into Arizona from California. All of the markets on the West Coast, including Boise and Tucson, which are two markets that I absolutely love, are seeing a big move from people in California or money from California going into those markets. So when you notice a trend, a shift a pattern, you follow the money, is what people say.
Slocomb Reed: Do you get into ground-up development?
Kranti Ponnam: No. I've not ever done ground-up development, but...
Slocomb Reed: That's really just a preface for another question. Outside of ground-up development, when I think of commercial real estate deals, you're in the business of acquiring an already operating asset, or an already operating business. And for the vast majority of us Best Ever listeners, at least, you're acquiring an already operating business with an aim to improve its performance and improve its returns. When I think of a tech entrepreneur, I think of someone starting something from the ground up. Have you spent most of your time building tech industry businesses, acquiring other people's businesses, and improving on them? Is that another one of the corollaries you're seeing?
Kranti Ponnam: I am. I've acquired businesses, kind of integrated them into my current business. I have that experience and obviously can correlate to that. I saw a lot of opportunity when I started doing multifamily investing. I didn't set out to be a syndicator; my main goal was to buy a portfolio, so I was looking for small value-add type of deals and just started trying to look into it. But got introduced to syndication and passive investing, and that's where I saw that, "Hey, rather than just thinking about buying smaller properties in the multifamily space, we could definitely buy bigger, larger." I know the frustration that comes with buying smaller assets. Property Management is an issue, everything else is an issue.
That's how I started my journey. My journey was to basically help build my portfolio, but once I figured what I saw as passive returns looked like, compared to what my partners or employees or fellow entrepreneurs were making it in the stock market, I was intrigued. I was like "I have to learn more." I got into seminars, podcasts, and books. Right now, my main mission is to help others who are my employees or friends and family really see the impact of getting involved as a passive investor in syndicated deals... Because the stock market and 401Ks only go so far. We have our 401K plans, and I see how they perform. I can't imagine people saving 4% or 5% for 34 years and then having enough to sustain another 30 years on that, thinking they'd make 100%. I just think I could do more to help; that's how I got into the syndication space.
Slocomb Reed: Yeah, absolutely. Within syndication, you're primarily a capital raiser?
Kranti Ponnam: Yeah. I started off as a capital raiser but definitely got more involved in the asset management side because of my business background and things like that. But yeah, started off as a capital raiser.
Slocomb Reed: That makes a lot of sense given that you are in the tech industry already, you're in San Diego, California. I can see where getting into capital raising makes a lot of sense. Asset management makes a lot of sense too, Kranti, given your experience building, taking over, and improving on businesses. The asset manager's responsibility is the execution of the business plan.
Specific to asset management, Kranti, before we shift the conversation to some other questions I have... Specific to asset management and the oversight of your manager, your contractors, etc. where do you believe that your experience in the tech industry, particularly as an entrepreneur building businesses, where do you feel that your experience there has most helped you? What skills did you bring to commercial real estate that have been the most advantageous for asset management?
Kranti Ponnam: I think the most important skill that I've learned running businesses that really works well with asset management is having your ear close to the ground. When you run a business, you run a business by numbers. When you want to build businesses, if you are always working in the business, you can never scale. You have to be able to work on the business, and just have key performance metrics that you're actually managing. To give an example, to run three different businesses, with over 2,000 employees in six different countries, there's no way I'm going to be involved with every interaction, every customer, every need of every employee.
I have to be able to manage my business using specific metrics, performance, and KPIs, which is very relevant. When you talk about asset management, you're handing it to a property manager. What are your Monday morning quarterback meetings that you're doing? What are you really looking at in those reports? Predominantly, our assets are value-add C class, which definitely needs a lot of hand-holding. Basically, if you have someone sleeping at the wheel and not looking at those key performance metrics every week, we're going to basically be in a situation where our collections go from 80% occupancy assets to 50%-60% in a matter of a quarter.
We've had to fire two different property management companies within six months because of their non-performance. Had we not done that and brought property management in-house, which was not a preference that we wanted to do, we would not be successful. We're right now pretty much at a point where we're able to stabilize these, get them back to a 90% occupancy, ready to sell almost half of our portfolio because of how well we're running these assets. It goes back to the question that you asked. What are the key similarities? I think that's where it comes from.
Slocomb Reed: You guys took property management in-house unintentionally, because you found the property managers you hired were not performing as well as you guys could yourselves?
Kranti Ponnam: Yes. I think when we first created the business plan, we didn't have that as part of the business plan. But keep in mind, we're in tertiary markets, value-add C class. Staffing is an issue, because of COVID, so you need people who really show up, and that do not shy away from knocking on doors, getting to the tenants, collections, all of these. Both of the companies that we used had some really good things that we learned from both of them. But there were certain things that did not meet the business plan. We were responsible for our investors, so we went back and came together as a group and said, "Look, I think we care more than they do." And I think as bad as that job, I think we're going to be better than them. I'm not saying it was a slam dunk, but I think we basically did a much better job bringing back the occupancy, bringing the asset back to where it needs to be when it fell off the rails. I think it's not something we want to keep doing in the long run, but with every business, as a business owner, if things get going tough, you have to step in and you have to make them right. That's the thing.
Break: [0:17:37] - [0:19:24]
Slocomb Reed: I am a self-manager of apartments in Cincinnati, Ohio and a lot of my stuff is C class, Kranti, so I'm familiar with a lot of the issues that you're discussing. You said primarily tertiary markets - could you name some of those real quick?
Kranti Ponnam: Sure, Clemson, South Carolina, Augusta, Georgia, we have Florence, South Carolina, all of these. Then we bought two assets in Atlanta, but again, that's a bigger market. But pretty much, these are the markets. We have few assets outside Greenville, South Carolina. Greenville is a bigger market, but these are a little outside of Greenville.
Slocomb Reed: Sure. Atlanta is not exactly homogenous either.
Kranti Ponnam: Yeah.
Slocomb Reed: Gotcha. So you've found C-class apartments and tertiary markets, but even in places like Greenville and Atlanta. Yeah, that's an experience that a lot of people are having, Kranti. It's good to hear that you were able to take property management in-house and have some success there. Question - out of those assets where you took over property management, which one is the smallest?
Kranti Ponnam: The smallest one is basically about 40 units. That's the smallest. The largest one is about 144.
Slocomb Reed: As your unit count scales, in-house management gets easier, so I want to talk about where it's hard. Where's your 40 unit?
Kranti Ponnam: Outside of Greenville, South Carolina.
Slocomb Reed: Outside of Greenville, South Carolina. You're in San Diego; are you the one overseeing property management there, from the other side of the country?
Kranti Ponnam: I'm not directly over all the properties. The 40-unit one that I just said - yes, I'm overseeing it.
Slocomb Reed: Okay, gotcha. So 40 units in Greenville, South Carolina, C class. I'm making some assumptions. Let me make them out loud and you tell me where I'm right where I'm wrong. We'll go from there.
Kranti Ponnam: Sure.
Slocomb Reed: 40 C-class apartments in Greenville, South Carolina is just not big enough for onsite management. Maybe one part-time person lives in one of the units. You can't keep one full-time maintenance person busy either, unless you have significant turnover and they're also doing the apartment turns, things like that, which makes staffing for you having property management in-house, and with you overseeing it, Kranti... It sounds like you've got a tough ask there because the property is too small for full-time on-site people. Am I reading into this correctly?
Kranti Ponnam: You are. The caveat there is we have another 88 units about 15 miles down. But these 40 units, when we bought it, was about 90% occupied. It fell to about 65% occupied when we took over. So we actually have a full-time property manager, a full-time maintenance tech, brought crews from outside to turn units. I think, to your point, yes, it does hurt... But when you take into account that you're able to staff it, you're able to have residents in it, I think the cost do work out, instead of paying a third-party property management company, you're doing it, your payroll costs are a little higher... Obviously, having a lot of experience with hiring people over the years, and that's probably been one of my strengths. I think the number one challenge in these markets - I don't know how Cincinnati is... The number one challenge is personnel. Where do you get the people that are qualified enough, that want to stay there, and actually go through. With what we're seeing in the market, with great resignation, pay hikes that we've seen across the board - how do you make these numbers work? I think bringing it in-house, having these people kind of manage that really brought the property back. The only silver lining is rents have gone up significantly in the last two years. I think that probably has helped a lot.
Slocomb Reed: I'm sure that greased the joints in that operation, for sure. Operationally speaking, Kranti, when you fall to 60% occupancy of a 40-unit, that puts you in a position where it makes sense to overstaff. Have an unsustainably large staff working on the property in the short term until you get your occupancy back up to 90% or 95%, or whatever your target is. After that, when the turn is done, are you just going to marry that 40-unit into the management of the 88? If it's in-house, is it going to be the same people managing both, 15 miles apart? Or when you have it performing optimally, the 40-unit - how are you planning to handle management?
Kranti Ponnam: We're still going to need a full-time maintenance tech there. We're probably going to share staff across, like you said. From that standpoint, maybe have someone do part-time on-site work and then have a full-time maintenance tech that works just this property. We might have office staff that kind of visits two or three times a week. But I think you're right, we exactly did what you just said. Overstaff, bring a lot more attention to the tenant base by saying, "We care, we're going to do this right." We basically bring a lot more dollars to the CapEx budget to basically get to where it needs to be. Now I think after it gets to about 90%-95%, which pretty much we're close to, I think it makes a lot of sense to cut down.
Slocomb Reed: Gotcha. Couple of quick questions before we move to the last segment of the show, Kranti. You mentioned the pressure you fell from your father and your father-in-law to get into commercial real estate. I don't have any family involved in real estate investing before me, but my daughter is only two; I'm already planning to be that father, and hopefully that father-in-law, who is pressuring my kids to get into real estate investing.
Kranti Ponnam: Absolutely.
Slocomb Reed: But you moved here from India when you were 20... Was your family involved in commercial real estate investing in India, or was it here?
Kranti Ponnam: It was in India.
Slocomb Reed: It was in India. So with a couple of minutes left before we have to dive into the last segment of the show, Kranti, I really just want to ask broad stroke questions and I wish we had time to dive into specifics. What kind of comparison points do you make between commercial real estate investing here in the United States, and where your family and your wife's family are from in India?
Kranti Ponnam: They're very similar... At least, I should say, the fundamentals remain the same. Pretty much real estate anywhere in the world is all about location, price, and debt terms... The only difference being the value of the property changes astronomically year over year internationally, compared to the US. So if you can do it right, I think there's a lot of opportunity in the rest of the world to invest. Their appreciation is very high, but again, you can't go to markets where you fully don't understand them, so that's the thing. But pretty much from a fundamental basic standpoint, that's all it is. A lot of Indian real estate that we've been involved in is basically horizontal development. We basically horizontally make it ready to build, sort of, where you're permitting it, getting the required building permits, and then you're ready, basically selling it off to other developers to come in and do. So there are a lot of opportunity, and I've seen, in Texas, that's going on...
Slocomb Reed: That's what your family is doing in India?
Kranti Ponnam: That's what my family does, yes.
Slocomb Reed: Kranti, I'm making assumptions again, so fix my thinking here. Your family is local to where they invest. They have the connections, the market knowledge, the understanding of how to navigate the various government authorities to get permits approved, utilities, and things like that. So they find the right opportunity to buy developable land, they lay the groundwork to create the development opportunity... And then are they selling the kind of prepackaged development opportunity to someone non-local to them, because they've laid the groundwork that you have to have boots on the ground to make work?
Kranti Ponnam: I think what you said is absolutely right. I think what they pretty much end up doing is they're selling either to local or nonlocal, either to developers, in some cases. If it's advantageous, they just sell by lots to individual investors who want to buy certain lots in the big sort of development. These are bigger pieces or parcels of land that they're taking, and doing all the horizontal stuff to get them ready for build.
Slocomb Reed: Kranti, that's a fascinating strategy that I'd love to get into... But it's time for our last segment of the show. Are you ready for the Best Ever lightning round?
Kranti Ponnam: Yeah, let's do this.
Slocomb Reed: Awesome. What is the Best Ever book you've recently read?
Kranti Ponnam: Traction. I think it's written by Gino Wickman. It's a great book.
Slocomb Reed: Yeah. I just re-read it.
Kranti Ponnam: I absolutely love it. If anyone's not read it, I 100% recommend it to read if you want to ever get into business and know how to run a business.
Slocomb Reed: What is your Best Ever way to give back?
Kranti Ponnam: Education, I think, is high on my agenda. We have a fund that we created in India where we train, we educate people from socially/economically disadvantaged communities, and we help them get into mainstream employment, pretty much in IT. We've done a lot of work in that space to help people get employed, and that helps generations to move forward.
Slocomb Reed: What is the biggest mistake you've made that's far in your commercial investing and the Best Ever lesson you learn from it?
Kranti Ponnam: The biggest mistake is thinking small. Most people think, "Hey, I'm going to buy a single condo unit." I think that's the mindset that has slowed my growth, if you will. I think I should have thought bigger, instead of buying single condos; thought about more apartment buildings, 20, 40, 80-unit buildings, which basically take the same amount of work, but probably give you a lot better return. Actually, they take less work to give you more return. So I'd say think bigger.
Slocomb Reed: Kranti, what is your Best Ever advice?
Kranti Ponnam: Best Ever advice is I think, to me, you have to put in the work. We could go to as many seminars and listen to as many podcasts... But if you are consistently putting in work, and I think the word consistent is more important. If you're making that one connection a day, if you're basically attending that one meetup, if you're underwriting that one deal, and it's consistently putting the work in... I've seen a lot of people that aspire to get into this space, but really don't consistently do work. So yes, basically consistently doing work.
Slocomb Reed: So think bigger and stay consistent.
Kranti Ponnam: Correct.
Slocomb Reed: Kranti, where can our Best Ever listeners get in touch with you?
Kranti Ponnam: You can get in touch with me at my website, krantiponnam.com, fouroakscapital.com, or serodacapital.com. Any of those places, LinkedIn, Instagram, Facebook, any of those social media sites.
Slocomb Reed: Great. Links to those places will be included in the show notes for this episode. Kranti, thank you. Best Ever listeners, thank you as well. If you've gained value from this episode, please subscribe to our podcast, leave us a five-star review, and please share this episode with a friend who you think we can add value to with this conversation with Kranti. Thank you and have a Best Ever day.
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