Raphael Collazo is a commercial real estate specialist at Grisanti Group, which helps business owners and investors buy, sell, and lease commercial real estate. In this episode, Raphael discusses his path from software engineer to commercial real estate broker. He also dispels retail real estate myths, shares trends in the industrial and storage spaces, and reveals why the mixed-use asset class is one of his favorites.
Raphael Collazo | Real Estate Background
- Commercial real estate specialist at Grisanti Group
- Portfolio:
- Four units
- Based in: Louisville, KY
- Say hi to him at:
- Best Ever Book: The 48 Laws of Power by Robert Greene
- Greatest Lesson: Consistency is the key to success.
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TRANSCRIPT
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, Raphael Collazo. Raphael is joining us from Louisville, Kentucky. He is a commercial real estate specialist for Grisanti Group, which helps business owners buy, sell and lease commercial real estate. Raphael is the podcast host with the Commercial Real Estate Academy, and has authored six books. Raphael, thank you for joining us and how are you today?
Raphael Collazo: Great. It's an honor to be here. I've listened to the Best Ever podcast for quite some time, and I've listened to you since you've been operating in a host capacity, so it's been amazing. I'm blessed to be here.
Ash Patel: Thank you, and it's our pleasure to have you. Raphael, 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?
Raphael Collazo: Yeah, I'll go back to the beginning, just to share some context. I actually was born in Northeast Italy. My dad was a physician for the military, so we traveled a ton when I was young. I lived in Italy for five years, moved to Germany for several years, and then ultimately to Belgium, and [unintelligible 00:02:50.26] I went to high school in Arizona, and then went to college at Arizona State University, where I studied Industrial Engineering and economics, and then I got into software development and consulting for a company that implemented software systems for government agencies, and I got the privilege of working in a variety capacities in Washington, DC. I lived in San Juan, Puerto Rico on a big tax software project for the island, and then ultimately, I've moved to Louisville, Kentucky back in late 2017 after Hurricane Maria hit.
I got interested in real estate, more so on the investing side, through reading Bigger Pockets, and listening to the podcast... And back in 2018-2019 I decided I wanted to consider my options outside of what I was doing in the tech space... So I bought a small multifamily property, a fourplex, house-hacked that, and then ultimately transitioned away from what I was doing before and got into the commercial brokerage space back in mid to late 2019, and I've been operating in that capacity ever since.
As you get started in commercial brokerage, you kind of do a little bit of everything... But as I've started to grow my practice, I've started specializing a lot more in the retail side, and investment properties like shopping centers, and I've done some industrial leasing as well... But I'd say what I've really done a lot of recently is retail. So that's kind of been my focal area.
Ash Patel: Raphael, when most people start educating themselves and listening to the podcasts and getting on Bigger Pockets, they dream of becoming an active syndicator and taking down their own deals. What drew you to becoming a broker?
Raphael Collazo: That's a great question. So I didn't know much about real estate to begin with. My family isn't necessarily the most entrepreneurial, although my mom did become a residential agent back in 2010, and slowly grew her practice. She wanted me to get my license back when I was in college, but you don't listen to your parents at that age, so I didn't really listen... And I thought I was going to do engineering for the rest of my life., but I realized that wasn't really what I wanted to do.
The reason why I decided to go on the brokerage route is because you get to learn by transacting. So I've done many, many deals up to this point, I've interacted with all key stakeholders within a transaction, and as I begin to grow my practice and generate more income, that gives me now an opportunity to start doing similar things to what you guys are describing, which is syndication, potentially getting a group of people together to invest, and even if it's not a broad syndication where you bring in a bunch of people, it could just be a couple of friends getting together, and you know how to identify these opportunities in the marketplace, then you just go after it.
Ash Patel: So you get paid to learn.
Raphael Collazo: Yeah, exactly. You don't get paid much in the first couple of years, let me tell you... But you do learn a lot, and now that I've started growing my practice - yeah, I'm starting to get paid pretty well, with all the different commissions that are coming in, and everything else... So I don't say it's an easy profession by any stretch of the imagination. Anytime you go to 100% sales commission role, particularly without having any experience, it can be rough, but it strengthens you as a professional. So I feel like I've definitely evolved ever since I started in the industry.
Ash Patel: Did you start out with residential brokering, or did you go straight to commercial?
Raphael Collazo: Straight commercial. And luckily, I've been blessed that my broker has been very supportive from the beginning. A lot of brokerages when you first start out you're 100% commission and you have no safety net. At least my first year I had a draw; what a draw is - it allows you to draw on future commissions. You obviously have to pay those commissions back with commission that you generate, but at least it gives you a baseline to be able to survive off of as you start getting going in your career. And when I started, it was right before COVID, and when COVID hit, everything shut down, so it definitely didn't help my business too much... But it at least enabled me to get my footing. And I can't understate how much the house hack helped as I was getting started, because it helped eliminate my biggest expense, which at the time was my rent. So I think that those two in combination was what enabled me to continue along with the brokerage profession.
Ash Patel: So you're all about laying the foundation first.
Raphael Collazo: Yeah, I think you need to be strategic about it. I think there's a lot of people out there that showcase "Oh, yeah, you can make a ton of money in something", but you've got to realize that it's all about building that foundation, and if you don't have a safety net, you've got to be very strategic about how you take on these risks. It's important to take risks in life; you don't really advance without taking risks. But I'm also of the mindset -- again, the engineering brain turning on, it's like, "What are your fallback plans if something doesn't work out?" And so mitigating the big items at least puts you in a position to succeed long-term. So I can't understate the blessings that I've had in my life as well.
Ash Patel: Do you question why more residential realtors don't go into commercial?
Raphael Collazo: Yeah, I talk to a lot of residential agents that talk about "Well, I'll eventually get to commercial." And I was like, well, it's a completely different environment... So really, it's not like one of those things -- at least in my opinion, I feel like you don't really learn to be an effective commercial transactor without being in an environment where all they do is that. So if you're doing one-off commercial transactions, you may learn here and there, but you're not really going to be operating at the level that you maybe aspire to.
So I'm of the mindset that if you want to get into commercial, I talk about just going all-in. It may be tough the first year or two, but if you pair up with a broker that has your vested interest in mind, and they can really mentor you and grow you, in my opinion, if that's what you want to do, you should do it. You shouldn't just work in the residential space. That's what we want to do for five years and then graduate to commercial. That's not really, in my opinion, how it should be.
Ash Patel: Yeah, I've had that conversation so many times... And the benefits of being a residential broker is obviously higher commissions. You deal with people like us, who are professionals; financing is not a problem, emotions are not a problem. We're not first time homebuyers. We're not going to change our mind because we've found a better house. There's just so many benefits. So for any residential brokers listening, please consider commercial.
Mentioned in your show notes I have that you help businesses buy, sell and lease commercial real estate. Do you cater towards the business owners?
Raphael Collazo: Yes, I work with a lot of different business owners. And in my past, as I said, I took on a bunch of business -- to get started, you kind of do what you can to get the flywheel spinning. So I've worked with businesses in a variety of different capacities. As far as what I've done a lot more recently, is I've worked with a lot of franchises, quick service restaurant franchises, even service-based franchises that are looking to expand footprints within our metro area and even surrounding areas. So over the last, let's say, year or so, that's been where I've done a lot of work. And I continue to build relationships with people in this space. So that's, I would say, where I've really gotten a lot of traction, on the business owner side. But then on the investment front, a lot of it has to do with just interacting with a lot of people who own operating businesses. So I have a lot of connections in town, where people own maybe like a liquor store, or convenience stores, or really any type of operating business, and now they want to buy a shopping center, or a strip center. Or maybe they want to put their business in one of the units, and then operate like a house-hack for commercial real estate, where they buy a 10,000 square foot center, and then they put their liquor store in 3000 square feet of it, that sort of thing.
Ash Patel: A question that's often asked is how do you get a national tenant? And there's no secret formula, is there?
Raphael Collazo: No, and even to this day, I think a lot of it is all just relationships. So I'm involved in the CCIM Institute, I just recently got my CCIM designation. I'm actually flying out to Las Vegas for the ICSC Conference here shortly... So building those national relationships is just getting your foot on the ground and pounding the pavement. And then ultimately, if you have opportunities that national tenants may be attracted to, making it easy for them to make a decision about whether or not it's a good fit is a phenomenal way of doing it.
I have an outlot here in Shepherdsville, which is a town just South of Louisville; it's a Walmart outlot, it's right in front of the Walmart. So that can be a very attractive parcel for a lot of different potential national tenants... So I've strategically created a flyer, and then individually reached out to the directors of real estate for these different firms to see if they're interested. Some don't respond, some do, they provide feedback... But if you make it really easy for them to say yay or nay, then they at least will respond to your email. But if you just blow it out to people, say, "Oh, yeah, this, this, that..." You don't want to waste people's time; they're busy individuals.
Ash Patel: Yeah, so important to realize it's all about relationships and your net worth. And that's the secret - pounding the pavement, continuing to build on those relationships. Why do you love retail so much?
Raphael Collazo: The cool thing about it is you get to meet with so many different types of businesses, and you learn about the nuances of each, you understand what the margins are for these types of businesses, you understand why certain tenants can pay more rent than others... It's just a very nuanced type of business. And obviously, retail is a multifaceted type of industry. It's not just the big box retailers like the Macy's or JC Penney's that are going the way of the dinosaur; you have a lot of other retailers that are coming in to fill the gaps. And even some of these major online retailers like the Warby Parker's and some of these other national brands that started out online also now understand the value of having physical retail as part of their portfolio.
So physical retail is never going to go away. It's going to eventually reach an equilibrium with industrial product, because of the online demand for products and such... But at the end of the day, there's always going to be demand for physical space. Now, the footprints are shrinking, and that's what you're seeing with these quick service restaurants that don't necessarily need a ton of space... But they're willing to pay top dollar for the prime locations.
Ash Patel: And retail vacancy nationwide is that the lowest it's been in over 20 years. So what can you say to dispel the retail apocalypse myth that's floating around out there?
Raphael Collazo: Again --
Ash Patel: And sorry, right now we're in May of 2023. So a lot of people fear retail investments, because again, they're worried about the recession, the Amazon effect, the retail apocalypse... So what's your answer to that?
Raphael Collazo: I think when you look at some of these larger malls and power centers, those are definitely probably going to struggle, depending on the type of tenants that you have on site. You obviously have necessity retail like the grocery stores, the Home Depot's, the Lowe's, those types of uses, and they've performed extremely well, even through this recessionary period. So if you have a grocery-anchored center, with a Walmart, or a Kroger, or some of these other larger retail grocery tenants, those are going to be really strong plays long-term.
Another thing that I think is extremely valuable are the small neighborhood retail centers. A lot of people don't want to have to drive 30-40 minutes to the major conglomerate area where there's a lot of retail. If there's a 10,000 or 15,000 square foot center that has a nail salon, that has a bakery, it has these other types of uses, where they have strong Mom and Pop presence, maybe some regional presence - those performed extremely well through COVID, and in my opinion are very, very good investments long-term, because it's more about what's the proximity to residential rooftops.
So again, you have to be strategic about it... Now, if you go out and buy a JC Penney-anchored center - who knows, you're probably going to have some issues long-term. But if you're strategic about the type of retail you invest in, it can be extremely valuable. And particularly when we're talking about some of these long-term leases, if you like the single-tenant net lease properties, those are also very, very popular as well.
Ash Patel: Yeah, it's so important to discern that... And the headlines - you'll see the bankruptcy of JC Penney, Bed, Bath and Beyond and all these other big box retailers, but they don't ever tell you that Ross Stores is opening 150 stores. There's other stores that are expanding. And like you mentioned, those Mom and Pop retail centers in suburban neighborhoods - everybody needs the dog groomer, the pizza place, the dentist; internet resistant, recession resistant, great businesses. What's your plan? Are you going to actively take down deals at some point?
Raphael Collazo: Yeah, that's what we're working on trying to do here. That's one of my goals for this year. Obviously, this is my third year in the business, going on in my fourth year, so obviously continuing to establish and grow my practice, and then also taking down small and mid-sized retail projects, and looping in some of my friends to take down some of these projects. That's one of the goals for this year, is to take down a building together... So stay tuned.
Ash Patel: Can we use this time to formulate and walk through that plan?
Raphael Collazo: Sure. Adaptive reuse is kind of what we're going for. The ground-up construction route is something that definitely is interesting, but when you can actually utilize a structure and have the plumbing and electric and everything already in place, it does somewhat simplify the process. And when you're talking about the ground construction process and you have land entitlements and everything else, it can get kind of cumbersome; especially for our first project, we want to take down a building. We're targeting certain areas of town that we think are path of progress, so trying to find buildings there that, even if they're not zoned properly, at least they have a pretty good chance of getting rezoned. And then from there, raising some of the funds together with some of my close friends that I went to university with; I have colleagues that I used to work with, raising some capital and then taking down the project itself. So we don't have it identified yet. So outside of those specific criteria, I can't really share too much.
Ash Patel: Raphael, when you say adaptive reuse, would you not take a value-add retail center and just improve it? Or are you looking to convert maybe industrial into retail, or vice versa?
Raphael Collazo: No, it would probably start with existing retail or office, and then converting it into some mixed-use project. One of my investment partners has a lot of experience in the Airbnb space, so most likely what we would target is an existing structure that has the capacity to have some form of Airbnb on top. So maybe a standalone single-storey building that we can maybe add some floors to, and then have the retail on the bottom, and then have some Airbnbs on top. The corridors that we're targeting in town are attractive for those travelers coming into Louisville, so that's what we're looking for.
Ash Patel: Why is mixed-use an awesome asset class?
Raphael Collazo: Because it limits the downside risk of vacancy that occurs. So in retail, and really a lot of commercial real estate - the great thing about commercial real estate is that once you get a tenant in there, and they're a good tenant, they tend to stick around for a long time. But another thing that can be an issue with commercial real estate is the timelines between vacancies. And the cost of refitting a space if a tenant ends up going dark. And so having the retail on the bottom, or whatever other use, but in this case let's say retail, gives you the stabilization of income to service the debt. And then on top, the Airbnb market has been very popular. Obviously, we're a city that - we have the Derby, we have other events throughout the year that attract a lot of tourists; bourbon country, we have bourbonism that's very popular as well... So we have a lot of people coming in for those particular uses, and having the experience that my investment partner has, and the space has got 10 Airbnbs itself... It is kind of like running a hotel. A mini hotel where you turn over the space, and everything else. So it is an operating business, but the revenue generated from that use is a lot higher than let's say a long-term rental apart. So it depends on what your cup of tea is, but in our case, we just have those pieces in place through the expertise that we've developed.
Ash Patel: It's such an overlooked asset class as well. And like you mentioned, either the apartments pay for all your expenses, or the retail pays for all your expenses. And the other side of it is basically your profit. Banks hate them, because they really fall through the cracks. They're not commercial, they're not residential... They're typically a portfolio product, which means the lender has to keep that property on their books. There's not a secondary market. Fannie and Freddie I don't think typically buy mixed-use debt.
Raphael Collazo: Exactly. From my understanding, that is the case. Yeah. So they would keep it on their books. And that's where small to mid-size regional banks come into play. So those are the ones you're typically going to have to leverage to get the deal done. But that's another thing - obviously, I'm in the brokerage space, so I know 10-15 lenders that I've worked with in a variety of different capacities, so being able to leverage those relationships is invaluable.
Ash Patel: Where are you looking for these properties? Not physically, but where are you looking online, or relationships?
Raphael Collazo: It's a combination. So obviously, we have a local platform called KCRA, which is our local multiple listing service; you have Crexi, some of the other national sites... But really, it's more about just letting my other agent colleagues know what we're looking for. I just call up a few people that I know operate in the retail space a lot, and say, "I've got some friends that we're looking for something. If you have anything, I'd love to work with you." I've already built pretty good relationships with these individuals, and who's to say they're not going to throw a bone my way? You never know.
Ash Patel: Yeah, do you scour the residential MLS for these types of properties?
Raphael Collazo: I don't as much. And maybe that's something that I should look to do more of. I've built up a pretty good digital footprint here in Louisville, so there's a lot of residential agents that know that I do commercial... So I think more so maybe that's something that I could start doing, is letting the ethos know with some of these videos and say "Hey, by the way..."
Ash Patel: Yeah, so again, mixed-use falls through the cracks... And from what I've found looking at the residential MLS for mixed-use buildings is the way to go, because they're always misclassified. Sometimes they're under commercial, sometimes they're under residential, under multifamily... There's never a category that says mixed-use, because it's so few and far between. So I would look continuously on the residential MLS, because we've actually purchased a number of mixed-use properties from residential realtors.
Raphael Collazo: Oh, wow. That's awesome.
Ash Patel: And often when residential realtors price them, they're mispriced, because they don't understand cap rate, NOI... They may not even understand how to price multifamily, let alone the commercial space. And if the commercial spaces are vacant, even better. Then the pricing's all over the board. So I would definitely utilize that. Craigslist, Facebook Marketplace, people looking for advertising apartments or commercial space for rent... If it's a smaller mixed-use, they're typically not going to engage a commercial broker. So I would look at those. Do you plan on raising capital for this first deal?
Raphael Collazo: Yeah, but it's close friends. I've got about five or six friends of mine that want to do a deal together. And so we're just
putting our resources together and try to get it executed. So the price point's not going to be significant. Probably all-in under 1.2, 1.3 million, or something like that.
Ash Patel: Yeah, there should be a lot of options in that price range. Is this going to be a JV deal? Or will it be a syndication model?
Raphael Collazo: No, to probably be JV. There's different structures; we really haven't explored the structures as of yet. There's four of the partners that I have that are not local. They're just friends of mine from college, and they obviously have their own separate careers that they're working on. And then my friend and I - we operate in similar spaces; we would be kind of the ones managing the project. So I think more so it's just sitting down and getting an understanding of what's equitable from our contributions, and really what it's going to take to get the deal done. Because really, once you get a proof of concept, then it becomes a lot easier to go through the process of raising capital in the future.
Ash Patel: So playing devil's advocate, you guys are doing all the work.
Raphael Collazo: Yeah.
Ash Patel: So you should be compensated for that. You could do that either with a management fee , or you can do a debt structure. Do you plan on putting capital in, or raising all of it yourself?
Raphael Collazo: I'd plan to put capital in. That's one thing that I really want to do, is make sure that any deals that I get into, I at least put something in, because that's kind of aligning our interests.
Ash Patel: Have you thought about a waterfall structure? So if this deal hits it out of the park, maybe you and your partner, since you're active in the business, and active in managing the property, you get an additional share of income at the end.
Raphael Collazo: Yeah, that would be something that I think would be very intriguing, for sure.
Ash Patel: Yeah. I love that approach with JVs, because this way the investors are adequately rewarded, but you and your partner are rewarded above and beyond, because you've found a great deal. You made it work, put your blood, sweat and tears in it, and you hit a home run. So there should be that reward and that incentive for you guys.
Raphael Collazo: I appreciate that. I think that that's probably something we will explore. We'll have to do a little bit more research on how exactly to properly structure that, but I'm sure you can provide context as well.
Ash Patel: Simple JV agreement; email me, I'll send you one that I use. But it's a very simple agreement. And this is all coming from mistakes that I've made over the years, which is what I'm sharing...
For the future, you're going to end up raising more and more capital. Do you do a newsletter? Or how do you market yourself? Do all your friends and family know exactly what it is that you do?
Raphael Collazo: Well, on the investment side, not so much. But yes, most people know at this point that I do commercial real estate. I've got a YouTube channel, I've got a podcast, I have a newsletter that I release every month, and I do a monthly virtual MeetUp called Commercial Real Estate 101, where we invite people to talk about a variety of different commercial real estate concepts, so we capture emails through that.
So I built a pretty good list of individuals, I think 3000 to 4000 people that have subscribed, and on the podcasting front - obviously, we do that every week.
Ash Patel: Alright, I should we take any advice from you then; you've got all that covered. The only other thing I'll share is consider setting up a 506(C) structure, so that you can solicit accredited investors. There's a lot of rules behind advertising deals on social media; it's considered a security. If you're not properly set up, then you potentially can get in trouble. So setting up that 506(C). And even better advice - our first indication, we paid the typical $15,000 fee, and then we went with one of those fund companies that set up an actual fund for you. The initial fund in the initial deal is $15,000, but then every subsequent deal is only $5,000. So you can either continue to pay $15,000 per syndication, or there's a number of competing fund companies that do all of that for you; kind of a pain to set up initially, but once it's set up, it's much easier to do future deals.
Raphael Collazo: That's awesome. Yeah, I'll have to get that information from you.
Ash Patel: I'd be happy to share man. Yeah. Awesome. I love what you're doing. Do you also broker industrial office, medical?
Raphael Collazo: Yeah, industrial. And with medical, that's more so on the retail side. So the retailization of medical is obviously becoming very prevalent across the country. I actually have a listing right now with a former doctor's office that occupies 8000 square feet in a strip center. So that's one thing that I'm actively working on. So I'm starting to learn a little bit about the terminology that's involved with - in this case, it's a pediatric practice; I haven't really delved into the surgical practices. I know there's nuances. Urgent care is gonna have different licensing and different requirements as well, so I haven't really delved into that. But on the industrial front - yeah, we've done a lot of industrial leasing, I've done some land deals that incorporate industrial as well... So I'd say most of the stuff that I do is probably retail, industrial, and then probably multifamily on the investment side.
Break: [00:24:31.29]
Ash Patel: For newer investors that want to get into industrial, would you recommend buying those 10,000-15,000 square foot metal buildings, flex spaces?
Raphael Collazo: Yeah, if you could find them. That's the hardest part. And there's a lot of different users, too; even in the 10,000 to 25,000 square foot standalone, there's a lot of tenants out there looking for that. So I wouldn't necessarily pigeonhole myself in saying, "Okay, I want to find a 20,000 square foot flex product that has four or five bays", or whatever. There's a lot of contractors and smaller operators that are looking from 1,500 to 4,000, or 5000 square feet, so if you play in that sandbox, you're gonna get a lot of interest. And then if you just want a standalone building between 10,000 and 25,000 square feet, you're gonna get some interest. Now, it may sit a little longer than maybe some of those multi-bay flex product, but it's going to move from a leasing standpoint, especially if it's in an area that has easy access to roadways; depending on the tenant it may need rail access, or... In our neck of the woods we've got the Ohio river running through our city, so we have some tenants that require barge access... So it just depends on the product.
Ash Patel: How important is ceiling height in those spaces?
Raphael Collazo: It's important depending on the user. Obviously, logistics real estate has become much more popular, and prevalent; those are a lot of the users. And the reason why they want ceiling height is because they want to utilize cubic feet as opposed to just the floor space. So the more pallets you can stack, the more product you can get on-site, therefore the cost to store that product is diminished significantly. So that's the reasoning for having higher ceiling heights.
So yes, ceiling heights as a default is going to be very beneficial. But in the case of a manufacturing tenant, maybe they don't necessarily need that high of a ceiling height. So again, it just depends on what you're looking for.
Ash Patel: And then is there a certain square footage where you have to have semi-accessible loading docks?
Raphael Collazo: Semi accessible... Well, again, it's all dependent on the user. Some tenants don't even need semi-access, some do. There's one guy that called in the office the other day that said, "We only need 2,500 square feet, but we need to dock doors." And I'm like, "Where are you going to find that 2,500 square foot space with two dock doors?" And they're willing to pay a lot of rent, but I'm just like, "Okay, well, you have to have like a custom product to be able to support that, so it's just gonna be really tough for you to find space for lease." Again, I wish I could be more helpful on that front...
Granted, when you have more space, you're going to need more semi-access, because typically the tenants that are going to be utilizing that space are going to need to be able to load and unload trucks on a regular basis.
Ash Patel: I know during COVID cold storage was very hot. Is that still the case?
Raphael Collazo: Yeah, so actually had a gentleman on the webinar that I run called George Smith; he's out of Miami, Florida, and all he does is cold storage. And he was telling me about the run-up of cold storage, and some of the numbers he was throwing around was just unbelievable. He's saying that he did a deal in Florida, it was like 80,000 square feet at $22.50 a square foot triple net, which for our market's like bonkers. I don't know how that would work.
But you're right, there's a lot of 3PL companies out there that store product for restaurants, and other grocers that require having refrigeration, and sometimes freezing on-site... And there's a delineation between refrigeration and freezing, which I was unaware of, and obviously, George enlightened us on the podcast regarding that... Because once you start getting a lot colder, then you run into issues about if the floor is not treated properly, you can get cracking of the concrete, and the machinery involved with refrigeration, whether it's ammonia systems... It gets really convoluted. And obviously, that's not my specialization, so I kind of defer to him on that front. But if you decide you want to invest in cold storage, do your research. It's not a cookie cutter model. There's a lot that goes into it.
Ash Patel: Interesting. So you can't just throw a refrigeration unit on top of a building.
Raphael Collazo: No, no, you can't. And there's differences between the refrigeration systems, too. It's not like a one size refrigeration system. There's ammonia systems, and then there's freon systems, and...
Ash Patel: And Raphael, circling back to medical - what's good about medical tenants?
Raphael Collazo: Their stability. So if you're able to get one in -- think about it, if they're building out of space and that requires them to put in all types of equipment and whatever else, they're less inclined to move. And it's probably gonna be very difficult for them to move. And once you build up your tenant base, or your base of clientele, they become familiar with you being in that location and everything else, so picking up and relocating to another location becomes a lot more cumbersome. So that's, I'd say, number one. And then number two, obviously, they're medical, and they're very attractive to banks. Banks love those types of uses. Doctors tend to have the resources to be able to pay rent for the most part, if they're managing their business accordingly... So there's a lot to like.
Ash Patel: And I think, unlike restaurants, they don't operate on thin margins, right? So rent is typically not a huge expense for these medical practices; just a line item.
Raphael Collazo: And granted, there's been a lot of medical consolidation across the industry, so there's a lot of big hospitals that are starting to buy up private practices... I'm interested to see how that evolves over time and how that affects private practice in these types of centers, or whatever else going forward. But you're right, the margins are much greater if it's run efficiently as a business.
Ash Patel: Yeah, so having those personal guarantees and long-term leases is very important, especially for a practice maybe like orthopedics, if they're standalone - those are primed for getting bought up by hospitals and larger medical systems.
Raphael Collazo: Yeah, 100%.
Ash Patel: How about restaurants? I know second gen restaurants are super-hot right now.
Raphael Collazo: Yeah, you're telling me... I have a lot of tenants looking for that space. Yeah, it's unbelievable. And obviously, the main reason is because restaurant buildups are so expensive, and they've only become more expensive. So if you have a space that's currently built out as a restaurant, and it's in a relatively decent location, as a landlord, I don't think you're going to have an issue finding a tenant. Now, screening that tenant to ensure that they can actually comply with the terms of the lease - that's a different story. But as far as demand for that product's concerned, obviously that's very attractive. So that going forward, in my opinion, is going to continue to be attractive. And you're starting to see a lot more of these centers - as online sales become more prevalent as a medium, you start seeing more of these retail centers having more restaurant tenants, bakery tenants, really uses that aren't going to necessarily be absorbed by the demand for online products.
So I know Beth Azor is a lady that we had on our podcast a while back, and she had talked about how a lot of her centers initially, when she bought them years ago, they were maybe 10% or 15% restaurants, now they're more in the 50% range. I don't know if that's just because of the geographic area she's in, or if it's more so just because those uses are just more prevalent.
Ash Patel: Yeah, and she is a legend, for any of the Best Ever listeners that are interested in retail leasing. She's also known as the Canvassing Queen. An absolute legend. You mentioned screening the tenants - how do you screen, let's say, restaurant tenants?
Raphael Collazo: Obviously, it depends on the area of town and everything else. But if it's well-located, center, usually we will require P&L's for existing locations. We typically won't take a risk on a new startup unless they're very well capitalized. So we may ask for personal financial statement, other sources of lease guarantees to confirm that even if, God forbid, the restaurant doesn't work out, that you're able to recoup whatever investments you have enough space. So that's primarily what we do - you ask for P&L's, you ask for balance sheets, you ask for all the pertinent financial information for the individual and their business. And then from there, it's just - do you like the concept? Do you think it's going to complement the existing tenant? Obviously, tenant mix is extremely important when it comes to retail... So if it's a nightclub, you may not want it there, even if it's very successful, just because it may affect your private practice next door. You have bottles in the parking lot, with pediatrics - it's probably not going to be a good sign.
Ash Patel: Yeah. In terms of vetting the tenants, is that something you do as a broker? Or is that really up to the landlord? Or both?
Raphael Collazo: Yeah, that's a great question. So obviously, if the landlord's unrepresented, it's their responsibility to make sure that's the case. And there's a lot of resources out there that can kind of teach you about how to manage that process. But I do a lot of landlord rep as well, and part of my job as an agent is to advise my client on what's best for them as far as tenants are concerned. You could have a tenant who's willing to pay you more rent and whatever else, but if it's not a good fit, maybe they don't have the right financials - again, it doesn't matter. So you really have to get granular in vetting these tenants, and making sure that they do comply, because you're taking a risk. When you lease space to any entity, you're taking a risk, so you want to make sure it's a calculated one.
Ash Patel: That's impressive. All the commercial brokers I've ever dealt with - they leave that up to us. They never help advise, or any of that stuff. So good for you for doing that.
Raphael Collazo: I love it. I think it's great. And again, we'll sit down and interpret it together. And I've learned just as I've gone along as well - I could provide maybe insights from previous transactions I've been a part of. So I view it as whatever I can do to help you make the best decision possible, that's all I care about.
Ash Patel: That's incredible. Raphael, what is your best real estate investing advice ever?
Raphael Collazo: Best real estate investing advice. Well, I think it's just advice in general... Anything you take on, it's a process. I read this book called The Compound Effect by Darren Hardy. And the concept is small, positive, consistent action over time adds up to massive results. So I've used that exact same logic to grow my real estate practice. I've written six books, I'm finishing my seventh, I'm growing up a podcast, I'm starting on the investment front... And this is all within a three to four-year timeframe. Now, if I had started yesterday, or when I first started, and looked at what I've done today, it would have been overwhelming. I would have thought that there was just no possible way that I could have ever accomplished that. But when you take small bites every day, it adds up quickly. So that's my biggest advice that I could share, is that - don't get demoralized or disheartened, just do something positive in one direction every day.
Ash Patel: Raphael, are you ready for the Best Ever Lightning Round?
Raphael Collazo: Yes.
Ash Patel: Alright, what's the Best Ever book you've recently read?
Raphael Collazo: The best ever book I've recently read - 48 Laws of Power.
Ash Patel: And what was your big takeaway from that?
Raphael Collazo: You have to be more strategic. You don't just assume that everyone needs to be trusted; you have to really be strategic about how you approach the process of interactions with people.
Ash Patel: Raphael, what's the Best Ever way you like to give back?
Raphael Collazo: I serve on several different boards. I'm the president of my local Junior Achievement Young Professionals chapter, I serve on associates' board for a large nonprofit in town... I used to be in a fraternity in college, so I've served in that capacity on the board there... So really any way I can get involved to help people, regardless of where they come from, I think that's the way I like to involve myself.
Ash Patel: And Raphael, if you would, tell us again about the podcast, the books that you've authored, and how the Best Ever listeners can get a hold of you.
Raphael Collazo: Yeah. First off, thank you so much, Ash, for the opportunity. It's really an honor to be here. But as far as the podcast, it's the Commercial Real Estate Academy. We started it back in early 2021. We interview people in the commercial real estate space; we've had over 112 people who've been on the podcast. You can find that on Apple Podcasts, Spotify, whatever else. I've written six books, four of them - it's called "The millennial playbook" series, where I talk about personal professional development topics for a young professional. And the next two books that I've just recently written, one's called "Before you sign that lease: The small business owner's guide to leasing commercial space." That gives you the comprehensive process of leasing commercial property. I wrote a book called "Before you buy that building: The small business owner's guide to buying commercial real estate", which again, same process, but from the business owner's perspective. And then the last book that I just am about to finish, it's called "Before you sell that building: The small business owner's guide to selling commercial real estate." So it's going to be the business owner's perspective of selling your property after you've been in business for many, many years. And it's going to become a series, so I'm gonna write a book called "Before you invest that in that building", and then ultimately, I'll get into the process of writing a book called "Before you develop that building", when I do more development projects.
Ash Patel: That is incredible. I've gotta thank you for sharing all of your time and knowledge with us today. There's an amazing theme here in that you lay the groundwork and the foundation first; you spend the time educate yourself, get the knowledge, and then you progress. So I love how you're going about progressing. Thank you again for your time today.
Raphael Collazo: No, thank you, Ash. It really was an honor.
Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five star review. Share this podcast with someone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.
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