Mark McGuire started his commercial real estate career at the age of 17 assisting in apartment maintenance, working his way up through construction and sales. After he started buying his own units, Mark began participating as an LP in multifamily syndications.
Today, he is the CIO of Hearthfire Capital, where he focuses on investor relations and serves as the interim development and entitlements director. In this episode, Mark shares the key to being successful with entitlements, how he recruits new investors, and his Best Ever advice when it comes to underwriting.
1. The Key to Being Successful with Entitlements
Entitlements are the official approvals from the city, county, or local municipality that officially grant you the legal authority to build. “There’s not really a school for land development entitlements,” Mark says. “A lot of times the only people that do it are people who have family that has been in the business or have worked with construction and found themselves doing it by necessity.”
For him, the key to success with entitlements has been his passionate curiosity about who gets things done in each local area. “I think so many people want to figure out how, and it’s more so about who,” he says. Often, you can zero in on one person who —if they say yes to you — everyone else will go along with them.
Mark recommends ascertaining the right legal partner and civil engineer, then determining who will either approve or deny your request. Understand what they need to see in order to feel comfortable with giving you a “yes.”
2. How He Recruits New Investors
When it comes to the more fun part of Mark’s job — investor relations — his strategy is all about transparency. He likes to show people his track record, how he communicates with investors, and what can be expected of him. After setting expectations, he gets to work figuring out how he can exceed them.
“Set an expectation, but under-promise and over-deliver,” he says. “I’ve lived by that since [I was in] real estate sales.”
3. Mark’s Best Ever Advice
“If you think you're going to need $100K to do a deal, always underwrite for more,” Mark says. He often sees both syndicators and individual deal operators create deals and then go in without enough capital. He recommends always giving yourself a contingency cushion of at least 10%–15%.
Mark McGuire | Real Estate Background
- Chief Investment Officer at Hearthfire Capital, which invests in self-storage, multifamily, and single-family rentals.
- Portfolio:
- GP of 20 residential units
- LP in 12 syndications across multifamily, industrial, hospitality, and self-storage
- Based in: Lansdale, PA
- Say hi to him at:
- Greatest lesson: How to go from the person investing in syndications to finding the deals and raising the capital.
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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, Mark McGuire. Mark is joining us from Lansdale, Pennsylvania. He is the chief investment officer at Hearthfire Capital, which invests in self-storage syndication. Mark's portfolio consists of being a GP on 20 residential units, and an LP in 12 syndications across multifamily, industrial, hospitality and self-storage.
Mark, thank you for joining us, and how are you today?
Mark McGuire: Doing great, Ash. Thanks for having me.
Ash Patel: It's our pleasure, Mark. 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?
Mark McGuire: Yes. So my background - I actually started in real estate at a young age. When I was 17, I was working as the assistant to the maintenance guy at a class C apartment portfolio, and just learned the real estate business and the construction business kind of from the ground-up as being the laborers laborer. I worked my way up from that. I realized that didn't want to do that for the rest of my life, I didn't make enough money for what I was wanting to do with my life, and decided to go into sales, and real estate sales was the path that I chose, and I continued to build that.
And then as I started to really earn some solid income, it was all about how much could I save, and where can I get paid without having to work, going on January 1st, starting from scratch? So I made it into buying my own units, and then buying bigger units after I bought singles, I started moving to quadplexes and then I started participating as an LP in syndications, because I realized I didn't have enough bandwidth in my day to run my business from a sales perspective, and then also operate the way I wanted to on the multifamily side.
So I went to LPs, just started learning, getting access to commercial real estate knowledge, and looking at what I needed to be paying attention to to optimize performance in my own personal portfolio... And then took it over to the GP side, which is where I'm at today, in self-storage.
Ash Patel: Mark, you mentioned you wanted to make money without working. How do you feel about that today?
Mark McGuire: Well, I'm still definitely working. I don't want to get it twisted. But every year now I have a good amount of passive income. I'm not 100% financially free just yet, but I wanted to get to a point where the majority of my bills, if not all my bills, were covered, and I'm just about there.
Ash Patel: Mark, you said you became an LP in your own business. What does that mean?
Mark McGuire: So I became a limited partner in syndications prior to actually joining forces with Sergio and Corinn Altomare, with Hearthfire. I was participating as just the equity. So a limited partner - all you're doing is writing the check and you're contributing the equity to somebody else who's running the physical day-to-day on the project.
Ash Patel: Got it. And you are an LP in multifamily, industrial, hospitality and self-storage. Can we dive into those LP investments?
Mark McGuire: Yeah. So I started actually in multifamily syndication, because multifamily was kind of what my background was. So that was what I was most comfortable with. But I didn't have the balance sheet, and the net worth position, and I just didn't have the confidence to really take it on myself.
So I started with multifamily. And once you started to learn what people were looking for, how they were pulling the levers to create value, that was when I started to branch out into other opportunities. And a lot of it was finding people. I'm part of GoBundance, and I got connected with some really good operators in other asset classes, and that's really where I started to branch out beyond multifamily into hospitality, and industrial, and then ultimately self-storage.
Ash Patel: What was your hospitality investment?
Mark McGuire: So I'm invested with a group called Accountable Equity. Really great people. Great team. It’s Josh McCallen, and Scott Bindas, and Melanie McCallen; just awesome people. And they buy small, independently-owned wedding venues. Their business model operates around wedding venues, and I had just gotten married at the time, so I could attest to how inelastic the demand was and how expensive it was as well.
What they're focused on is finding wedding venues that have a ton of organic wedding leads, but have a dismal conversion rate. And basically, they can go and bring their culture and bring their sales process into an organization that's generating a ton of leads, and then just really rip the conversion and turn it into an incredibly profitable business.
Ash Patel: Interesting. And what was your industrial investment?
Mark McGuire: So I got partnered with a couple of guys in my area where I live, that they were acquiring last-mile industrial storage; we started doing that in 2019. I had another friend of mine who invested with them a couple years prior. And these guys, young guys - I think they have one of the largest industrial holdings in the last mile space in the tri-state area now. But they bought buildings that were in locations where they wouldn't be approved today, or these locations were too expensive to actually go and tear down what was existing and then build new.
So they were able to come in, they put a program together to repurpose these units, and they understood the market to go out to the right tenant base where they could take these buildings that were largely undervalued, with people who are a lot of times owner-users, and they'd go in and and restructure the lease, put everything over to triple net lease formats, and then they'd just restructure the contracts and create a ton of value.
Ash Patel: What was the hold period on those investments? And what was the return?
Mark McGuire: So from the hold period perspective, everyone's different. Those industrial projects I've been in have been 18 months to two years. The hospitality projects that I'm in - there's different ownership shares that you can purchase in that type of an investment, and the share that I chose to purchase was more of a perpetual equity. So I'm the last one to get paid out, but I'll retain my equity even when they refinance us out, relative to the total project. So I'm still in that project, that’s been now—the first one I did was in December of 2018.
Ash Patel: That's great. You got all your money back, and you're still in the deal.
Mark McGuire: Yeah. Well, to be transparent, I didn't get it back yet. It will be the plan; hospitality debt has been tough. I mean, the debt market for those types of assets has been hard to come by.
Ash Patel: Yeah. Mark, you went into real estate sales... How did you go from real estate sales to where you are today?
Mark McGuire: Man, real estate sales is a hustle game. It's long hours, it's a real big ramp-up period, and you're working... It's all day, every day, weekends, nights. For me, fear was my motivator; I was fearful of ever being controlled, and not having the ability to pay for the things that I wanted, and then having to settle for life circumstances because I couldn't afford what I truly wanted.
So for me, for better or for worse, I recognized that fear was one of my strongest motivating factors and forces, and - fear of not having control. So residential real estate, put control in my hands, and gave me the ability to earn as much as I wanted or as little as I wanted, and it gave me the keys to the car to drive it. So I was fortunate, I caught residential real estate in a great upmarket. I got in in 2012. I'd be lying to you if I said everything was due to just me being some crazy, brilliant person. I worked hard. I worked really hard, but I had good luck.
Ash Patel: And how did you get connected with Hearthfire Capital?
Mark McGuire: So actually, I got connected with Hearthfire through GoBundance, I actually run the Philly chapter locally. And Sergio happened to join the group a couple years ago, and he and I just had really good rapport, and got along great... And my family had had a multifamily portfolio that I managed the P&L for, and we we were looking to 1031 Exchange some of our lesser performing properties. And when you 1031 Exchange, you have certain timeframes that you fall within that you have to meet, otherwise you compromise the exchange period, and then you end up having to pay the tax on the gain.
So one of the options that we'd come across was a Delaware Statutory Trust, which is like a giant, industrialized syndication; the yields are low because they just get feed all the way down, unfortunately. But we came across a self-storage portfolio in Michigan and this was like 2017/2018. I remember looking at the dynamics thinking to myself, 'I don't know anything about self-storage, but this seems like it'd be cool", and then I happened to meet Sergio a year or so later, he showed me the world of self-storage in the beginning, and really showed me why he liked it, what was really particularly attractive with the low operating expense ratios, and all of the—not having tenants, but respect to landlord-tenant law was lien law.
So I had kind of had my eye on self-storage for a while, and then he had an opportunity that they had sourced and they were raising equity for, and I brought my equity... I originally joined as an LP, just writing equity, and I brought a couple other people that I invest together with a lot of times, and Serg was just like, “Hey, I need someone to help me raise some equity, and I think you have not only that, but you understand land development and construction. I need help there. Let's work together.” And the rest was just history.
Ash Patel: Mark, how long ago was that?
Mark McGuire: That was about two years ago now.
Ash Patel: Okay. What is your role with them today?
Mark McGuire: Today, I'm really responsible for getting the word out about Hearthfire and bringing new people in the door, and staying in touch with people who've invested with us and making sure we're staying in touch with them, their needs are met, and they're clear on the updates and what's going on with our projects. And then right now I am the interim development and entitlements director, where I'm working on getting the projects entitled at the local municipal level, so that our construction team can take over and get it out of the ground.
Ash Patel: And for the Best Ever listeners, can you explain entitlements?
Mark McGuire: Yeah, so entitlements are the official approvals from the city or the county or the local municipality that officially grant you the legal authority to build. And a lot of times people don't understand, there's no real school for land development entitlements. A lot of times, the only people that do it are people who have family that have been in the business, or have worked with construction and found themselves doing it by necessity. There's not really any place you can go—you can't go to college for land development and entitlements. And it's done differently in every state and every municipality and every county. So it's hard to really learn. You can go to law school to try to understand it, but even then, you don't really understand it until you actually do it.
Ash Patel: And what's the key to being successful with entitlements?
Mark McGuire: Man, that's a great question. Being passionately curious about who gets things done in that local area. I think so many people want to figure out how, and it's more so about who, because usually, there's somebody who everyone else is following in that area. And if that person says yes, everyone else will go along with it. So you have to kind of ascertain who's the right legal partner to have, who's the right civil engineer to have, and then who's the people on the other side of the bench that's going to either approve or deny your request, and understand what they need to see in order to feel comfortable with giving you a yes.
Ash Patel: Yeah, you’ve got to go full CSI and figure out who owns that town, who runs that town, who's second, third and fourth in charge...
Mark McGuire: And unfortunately, it's super politically-driven. They don't want to tell you that, it’s kind of like an insiders' game... But truthfully, land development is super politically-driven. And if you're not in with the right political powers who are in power in that particular time in that town, your projects are going to get shot down. Unless it's by right. And even if it is by right, they're still going to give you every ounce of guff that they can.
Break: [00:14:00.24] to [00:15:52.02]
Ash Patel: Mark, give me an example of a story where you got your behind handed to you on an entitlement process, and one where you were creative and got a lot of things done.
Mark McGuire: Well, I got my behind handed to me for five years with the first-ever land entitlement process that I ever did. Thankfully, it was for my family, so it wasn't like some investors' money that I lost or—the at-risk money, it ended up being about $35,000 to $40,000 in totality, but we were trying to get an Autozone approved. We had a site that had some—what they call steep slopes, and then it also had this drainage ditch that went in the middle of the site. It was kind of like an L-shaped site. And we found out that in the drainage ditch, it wasn't a regulated wetland, but if it's determined by the Corps of Engineers that it's a regulated wetland, the entire site would get ruined. And in a regulated wetland, you can pipe only 100 linear feet, and this site was 300 feet we would have had to pipe. So it would have completely blown up the entire site. We were going to take it through land development approvals ourselves, I was like 25-26 at the time. And I remember saying to my family, “I think I'm smart, but I don't think I competently know this for you to put too much more money behind this here.”
So we paid for the geotech, we paid for the survey, everything got done, and we were going out to bid for the site bids, and the engineer at the time that we had - a really good person, good human being, [unintelligible 00:17:09.26] they said, “Hey, yeah, you can put the stormwater management system under the ground.” One of the things you always want to understand is where the stormwater is going to go and how much it's going to cost. And when we got the site bids back, the stormwater management facility that can go underground, that would make the project possible is going to cost us a quarter million dollars. So that completely threw off the feasibility of the site right there; the stormwater just blew it up. Not to mention, the layout of the site was inefficient, and it just wasn't going to work.
So when we finally looked at the math and the rent we were going to get—we were going to triple net it to an Autozone for like a 20-year lease. When we looked at the math, and we looked at the cash we were going to have to put out to get all the development work done, it didn't make sense. And we did what's called a preliminary jurisdictional determination, which is basically when you bring out the local Corps of Engineers to weigh in on whether or not you're a wetland. And the Corps said, “Hey, you don't really want us to give you a ruling on this.” Because if they rule it as a wetland, now you're stuck with it as a wetland. No actual wetland above us, no wetland below us, but somehow we're in the middle in a site that drains south, and we're going to be the wetland.
So five years later, we ended up selling the site to a developer, and we only lost $35,000. We ended up getting 700,000 bucks for it. Luckily, the market cooperated, and I learned a ton of really, really good lessons that didn't actually end up costing me too much money.
Ash Patel: Yeah, it sounds like a hell of a learning experience. And Best Ever listeners, the reason stormwater retention is so important is because now municipalities want you to contain all of your stormwater runoff on your property. They don't want it just running downhill and collecting somewhere. So yeah, that's a big deal, man. And those wetland studies are crucial.
Mark McGuire: Well, we had a wetland study done. So that was the thing, we had a wetland study done, an opinion was given and the local borough wanted our product. It was the conservation district in the county that was going to call it. So you have to understand there's your local municipality, and then there's the County Conservation District, and they're the ones who are really responsible. And they coordinate with the DEP for what they call an NPDES permit, which is your disturbance that you're creating as far as your impervious surface and stormwater, and that's what it would have been called out.
Ash Patel: Interesting. And what's the deal that you got really creative on and won, in terms of the powers to be?
Mark McGuire: With respect to entitlements?
Ash Patel: Yes.
Mark McGuire: So we are in the process right now of going through approvals with a property in La Porte, Indiana. It’s just a small town, Northwestern Indiana. And the site that we acquired, it was kind of like a Frankenstein site; it had some nice self-storage units on it that were built as self-storage, and then it had some of these old warehouse in like block buildings that were just kind of ugly and inconsistent with the product fit. So when we acquired this portfolio, this was the one site that nobody wanted to buy; everyone wanted to exclude it and the sellers wanted to include this site with the portfolio.
So we were willing to take on the challenge. There was a piece of land-locked ground that was owned by the city, that we went to the city and said, “Hey, look, you guys don't have a use for this, and makes no sense. Let us take it over. And by the way, if you let us take it over, maybe you could consider relinquishing this alleyway in the stub of the street so we can square up the site and get a better product for your community.”
So we just got the executed purchase and sale agreement to sell us the vacant round, relinquish the alley, and relinquish the stub of the street so we can square the site, get better economies of scale on the site for development, and provide a better product that the town itself is 100% behind.
Ash Patel: And did you find somebody and make them think it was their idea?
Mark McGuire: [laughs] I would love to say that I was that smart. But it all comes back to people, and understanding how do you find that person locally who gets things done. And what we did, we happened to ask the person who was selling us the facility who happened to own a couple of facility, he was a broker as well; we said, “Hey, what attorney gets things done in this county here?” And they're like, “You’ve got to use this guy, he's the only guy.” And when we went to him, he's like, “Hey, if you really want to get anything done in this county, you’ve got to go to the economic development director, because if he's on board, the mayor follows suit and everyone else is in,” and that's what we did. We got him on board with the plan, and it's all a people game. It's all about the who.
Ash Patel: Yeah, it's so important. You have to have the city council, and all the right people in the admin section on board; city managers, mayor, the right city council... And you’ve got to figure out if your city council is divided, or if they're unified. And you'll find that out by going to one meeting, where if there's a lot of passive aggressiveness, you can see there's a demarcation line, there's this side and their side.
Man, you have to tread lightly and figure out how you're going to play that game, who you have to become really good friends with. Yeah, it's a huge process, man, but it's a necessary evil, and good points in finding the right attorney, the right engineer. Usually, I try to find an old-school architect, somebody who's been around for ages and knows everybody. Because the architects seem like the most respected people in the room often. So yeah, all great tips.
Mark McGuire: Yeah, the only thing I'd add to that is just ask the attorney if they know the people who are going to make the decisions, or where the biggest stumbling blocks are in order to get your project approved. Because if they can answer that without having to look that up, it is a good chance that that person is going to be someone that you want to work with to get your project over the end line.
Ash Patel: Great piece of advice. Mark, before you mentioned entitlements, I thought you had a really fun job doing investor relations. But now you brought that up. So let's go back to the fun part of your job.
Mark McGuire: Yeah.
Ash Patel: The investor relations - your job is to communicate with existing investors, but also try to lure new investors in, try to educate them, try to get them to invest with your deals. What have you found works well in recruiting new investors?
Mark McGuire: I think the best way to get new investors is just to be transparent. We believe in being fully transparent, open kimono, with everything that's going on, good and bad. So just to go back to that project that we we're in the process of getting approved where the city sold us the ground - that wasn't in the underwriting. And it wasn't till we got into it and came up with the idea that that's actually -- that problem, that one thing, that was the reason why no one wanted to buy the portfolio, actually is going to become the most profitable thing that could have been done to the entire portfolio. And it was just because people didn't have the vision and the creativity to look at things from a non-conventional lens, and come up with a win-win solution that might actually be best for everyone in the end.
So when you can go and convey to people some of your creative solutions to work through projects and challenges that other people couldn't see - because it wasn't straight down the middle - and just let people know, “Hey, look, here's our track record. Here's what we currently have. Here's how we communicate with people on this frequency basis. And here's what you can expect from us.” And we pride ourselves in setting expectations and exceeding expectations. And the best sponsors are the ones that do that.
Ash Patel: Say what you do and do what you say.
Mark McGuire: Yeah. And honestly, set an expectation, but underpromise and overdeliver. I've lived by that since real estate sales. If I set you up with an expectation that's pie in the sky, and no matter how good of a job I do, I couldn't possibly meet it, then it just leads you to a place of constant disappointment. And honestly, it paints me in a bad light, even though I'm doing a stellar job of executing it.
Ash Patel: Yeah. Mark, I’ve got to share a story. This was years and years ago, when I was relatively new in real estate. We were at a doctor's retirement party, and the doctor pulled me aside and said, “Ash, you're in real estate.” He's like, “From time to time, you probably need some capital to invest with you, right?” And I said, “Tell me more.” He's like, “Yeah, well, you know, I'd love to put some money in your deals and invest with you.” And I said, “What kind of returns are you looking for?” He's like, “You know, 6% to 7% would be great.” And I'm like, “Dr. Go,we don't touch deals, unless they're closer to 20% or above.” And he's like, “Oh, no, no, that's too good to be true.” And he never engaged in another conversation with me again. And I realized that was a big mistake that I made.
What's an example of something maybe early on, where you learned from a mistake with investors?
Mark McGuire: With investors, I think one of the biggest problems that you can run into is not giving yourself enough cushion, because you're trying to go and execute at a—I'm going to call it “breakneck speed.” So K-1s are a big one. People are like, “Yeah, the K-1s out the middle of February.” Don't kid yourself—
Ash Patel: It doesn’t happen.
Mark McGuire: —it doesn't happen. God, it takes everything to get it out by the freakin beginning of March. The other thing is investor distributions and turn it around quarterly updates and reports... Some people want to have them within one week of a quarter closed, and it's like, you're killing your accounting team to get everything processed, and get distilled all the way down, so it can get to the investor team, so that they can go and create the narrative and push it out.
So it's really giving yourself enough cushion on the expectation that you're setting, so that when investor does finally get the end result, you've given yourself enough flex that if life circumstances happen, you're not sitting there, getting nailed to a cross.
Ash Patel: Yeah, good advice. Mark, what is your best real estate investing advice ever?
Mark McGuire: If you think that you're going to need, call it $100,000 to do a deal, always underwrite for more. One of the biggest mistakes I’ve seen most people make, whether it's syndication, whether you're doing your own deals, bank on a contingency and making at least 10%. I'd tell you to go 15%, especially if it's your first deal. I think so many people go in trying to create a deal and they go in undercapitalized and then they get caught. And that's syndicators and individual deal operators alike. Just go in with more money than you think. Give yourself a contingency cushion.
Ash Patel: I've seen that and I've experienced that, so great advice. Mark. Are you ready for the Best Ever lightning round?
Mark McGuire: Let's go.
Ash Patel: Alright, Mark. What's the best ever book you recently read?
Mark McGuire: Psychology of Money, Morgan Housel.
Ash Patel: What was your big takeaway from that?
Mark McGuire: Expand your return horizon. Don't think that everything has to be in two- and three- and four- and five-year return increments. Play the long game.
Ash Patel: Good advice. Mark, what's the best ever way you'd like to give back?
Mark McGuire: I run a real estate meetup locally near me where we have younger people come in and we teach them how to buy real estate, how to underwrite real estate, how to source real estate, and then the various aspects around the closing and entitlements process.
Ash Patel: And Mark, how can the Best Ever listeners reach out to you?
Mark McGuire: The best way to reach me is investingwithmark.com. Mark is spelt with a K.
Ash Patel: Mark, I’ve got to thank you for your time today. At 17 years old, you started in maintenance for apartments, got into real estate sales and now you're doing a lot of fun work on investor relations, and a lot of hard work on entitlements. Thank you for sharing your story and all of your advice today.
Mark McGuire: Absolutely, Ash. Thanks for having me on.
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 the podcast with somebody you think can benefit from it. Also follow, subscribe, and have a best ever day.
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