In this episode, we delve into the world of commercial real estate investing with Bob Thomas, a seasoned investor with over a decade of experience. Join us as Bob shares valuable insights into his journey across various asset classes, the importance of partnerships, and strategies for navigating the ever-changing real estate market.
Key Takeaways:
- The Power of Partnerships:
- Bob emphasizes the significance of forming strategic partnerships in real estate investing. Collaborative partnerships allow investors to leverage each other's strengths, pool resources, and pursue larger deals with greater efficiency.
- Aligning incentives and complementary skill sets within partnerships is essential for success. While Bob excels in capital raising and acquisitions, he acknowledges his weakness in construction project management. Partnering with experts in diverse areas can lead to creative and synergistic outcomes.
- Thinking Big and Setting Ambitious Goals:
- Bob draws inspiration from Stephen Schwarzman's book, "What It Takes," highlighting the importance of thinking big in real estate. He believes that if you're going to invest your time and effort, it's best to aim for substantial goals that challenge you.
- Setting big, hairy, audacious goals (BHAGs) can push investors in the right direction. Bob's goal is to grow his portfolio to a trillion dollars in assets under management, emphasizing that a big vision drives progress and innovation.
- Educating for Financial Literacy:
- Bob's commitment to financial education extends beyond real estate investing. He actively engages in financial literacy talks, teaching both investors and school children about creating generational wealth, passive income, and sound financial practices.
- Recognizing the importance of breaking free from a traditional W-2 mindset, Bob believes that introducing children to alternative paths early in life can help them make informed financial decisions and plan for a prosperous future.
Bob Thomas | Real Estate Background
- Chief Investment Officer & Co-Founder of Peak Asset Management
- Portfolio:
- ~200 units of multifamily
- ~100k sq ft. of commercial retail/office
- Based in: Portland, OR
- Say hi to him at:
- Best Ever Book: What It Takes by Stephen Schwarzman
- Greatest Lesson: Selecting the right partners is the most critical piece to one's success or failure.
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Transcript
Ash Patel (00:01.314)
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, Bob Thomas. Bob is joining us from Portland, Oregon. He is the chief investment officer and co-founder of Peak Asset Management. They are an integrated value add commercial real estate operator that is asset class agnostic. Their plan is to stabilize in less than two years than cash out refire 1031.
Bob's portfolio consists of 200 units of multifamily and roughly 100,000 square feet of commercial retail and office. Bob, thank you for joining us and how are you today?
Bob Thomas (00:43.138)
Yeah, thanks for having me. I am doing pretty well. It's just turning into winter out here and I'm excited to get the ski season started.
Ash Patel (00:49.694)
Let's go. Hey, we're excited to have you. Would you give the best ever listeners a little bit more about your background and what you're focused on now?
Bob Thomas (00:59.71)
Yeah, so my background is very heavy into finance. I was a CPA out of school, studied accounting, a couple of degrees in accounting, public accounting, audit, and then transitioned into commercial real estate. So cut my teeth in real estate in the institutional office space, selling large office towers in San Francisco to two and four large institutions, REITs, hedge funds, sovereign wealth funds, that sort of stuff.
Got one on my own in about 2017, and I've been wearing a lot of hats in the real estate market. So I do hard money lending. I'm a real estate broker, but basically I only buy on my own account. And then I run an investment firm, Peak Asset Management. We buy value add commercial real estate, about 60% multifamily, 40% retail office, based in primarily Portland, but looking to expand nationally over the next couple of years.
Ash Patel (01:54.058)
When did you start peak asset management?
Bob Thomas (01:57.934)
In 20, end of 18, when I really, I bought my first, I don't know, 13 or so apartment units at the end of 2018. And that's kind of when the company was founded.
Ash Patel (02:10.666)
Were you set up, did you set yourself up to become an apartment investor? And did the commercial stuff happen later?
Bob Thomas (02:20.394)
No, like I said, I started, like I cut my, I learned commercial real estate in institutional office. So we were full stack capital markets, you know, full like we were doing everything in the capital stack from senior debt to, you know, layering on mezzanine financing, finding JV equity, you know, finding the operators like the whole shebang. So really learning at that level with that asset class how to do it. And then when I started the company on my own, I was just like looking for deals. Like you said in the intro, I'm asset class agnostic. You know what I mean? I've done industrial from a brokerage standpoint. We did industrial, some hotel, a bunch of office, and then I've been operating multifamily. So, you know, once you understand the economic fundamentals of the various asset classes, you can underwrite anything. If you have a thesis and you see a good deal, a good basis or yield or whatever, you pull the trigger as needed. No, it didn't start in just multifamily, didn't want to just focus on multifamily, but the capital has been cheap for the past five, 10 years and the market's been pretty strong. We have played in multifamily as well as some other commercial classes.
Ash Patel (03:30.462)
Yeah, Bob, I love this that you're acid agnostic. You're just looking for great deals. What is your metric that qualifies as a great deal?
Bob Thomas (03:42.338)
So I think everyone is getting spanked right now regarding the capital markets, right? I mean, you've had 350 basis point rise in base rates, you know, like the 10 year treasury and everything over the past 18 months. And it's what October 25th right now, in the past month, you've seen 100 basis point, you know, swing in that. So a lot of my...investing thesis and our kind of standard operating procedure has had to shift a little bit because we were kind of like implemented the commercial burr method. So on commercial deals we were looking to buy value add deal a bunch of hair on it at a really good basis and then value add it to the point of in 18 months or so refinancing out all of our capital holding the asset long term and then redeploying given where interest rates are, that service coverage ratios, everything else, that full refinance of the capital is much more difficult to underrate to right now. And so until the bid ask spread that you're seeing in the market kind of comes in and comes in the line, I think the ask is gonna come down more than the bid going up. Our transaction volume has gone down. I haven't bought anything this year. I'm in contract, I'm hard on a deal that we're gonna buy at the end of November. It's like a 50 unit apartment complex. But first deal, I bought this here, and it's not for a lack of trying. We just haven't been able to find a common ground with numbers with sellers. So I think that's what we're seeing is, we underwrite to a full. Well, so I mean, like, sorry, we were buying to a full cash out refi.
Ash Patel (05:17.078)
What is your buy box? Let's solve that problem. Sorry, let's solve that problem. What's your buy box?
Bob Thomas (05:30.158)
So basically like a value add to full cash out refi at 18 months. That was really the buy box. Cause we're longterm holders of real estate. But we wanna keep our velocity of equity in our markets relatively high. So we wanna deploy capital into a deal, do the value add, pull it out via debt, redeploy and continue that cycle. So that's the buy box. Any asset, we've done it with retail, we've done it with office, a bunch of multifamily. It's just, it's more challenging in this market because you need to get it at the right price and the debt needs to allow you to refinance. And that's been challenging.
Ash Patel (06:05.802)
Would you consider a purchase if there's no refinance on the horizon?
Ash Patel (06:14.038)
Here's where I'm going.
Bob Thomas (06:14.463)
Yeah, so go ahead.
Ash Patel (06:17.198)
So if you have a great property that's cash flowing well, plus there's value add, and you know that for the foreseeable future, there's not going to be a good opportunity to sell or refi. You're gonna end up holding it for five years. Is that a problem?
Bob Thomas (06:36.142)
No, I think it's, so we syndicate a lot of capital. We syndicate JV, I've never owned a piece of property 100% myself ever. Even my primary residence was co-owned. So it's all about our investors' expectations and kind of aligning them. And like I said, we are long-term holders of real estate. It's just we've been working the model where within two years or so, you get back a majority of your capital via some liquidity event, a sale, and then you do a 1031, a large cash out refi, and that's just harder to achieve. So we've been talking to some of our investors and saying, hey, this is more challenging to underwrite the large liquidity event for, and some are okay with it. But it's just, like I said, right now, sellers don't wanna sell at the price where those deals make sense investors still are kind of unsure. It's a challenging market. So yes, to answer your question, I would buy something, I am looking at buying something right now. I'm in contract on it and gonna close to the end of next month. That could be a five, seven year hold before a liquidity event. It's a lot of my own capital going into that. And then some of our investors are just a little more longer term focused.
Ash Patel (07:50.722)
What rate of return do your investors typically seek?
Bob Thomas (07:59.298)
So I've always found this interesting, like the return question, and you can probably pick up from, you know, kind of my background and everything. I'm very quantitatively focused on real estate. Like I kind of think of real estate via a spreadsheet. And so where most syndicators talk about IRR, they've got a five-year target and blah, I don't like the IRR concept. Like all run IRR is because investors want to see them. But with our...with our investment strategy, we're focused on post liquidity event, cash on cash return. And so, you know, putting your money, you're not gonna see much return for two years because we're doing the value add, we're using that money to improve the property. After two years, we're gonna pull out the capital and give it back to you, but hold onto the property. What is the amount of cash that's left in the deal for you relative to the return you're getting? And we like to see that in the upper teens on an ongoing basis and then do that again. So that's kind of like mid to upper teens, post liquidity of that cash on cash.
Ash Patel (09:04.142)
All right, so let's dive into what are you closing on next?
Bob Thomas (09:10.658)
Yeah, so it's a 50 unit multifamily building, pretty heavy value add in Northeast Portland. Just released a couple hundred grand of earnest money two days ago on it, closing at the end of November.
It's, we think we got a good basis on it. We were in contract for 120 grand a door, six million bucks, ended up retraining it down to four and a half million because of some stuff we found in diligence. So we like 90 grand a door as a basis on it. I mean, you haven't really seen a trade like that since early teens in Portland, maybe like 2010.
Ash Patel (09:49.006)
All right, so all of the multifamily people that are saying there's no good deals out there, you just found a great deal. Now that's what I'm thinking when you say there's no good commercial deals out there. They're out there, but I'm trying to figure out more of your buy box. Is it a certain dollar amount? Do you have a minimum or maximum or both?
Bob Thomas (10:13.063)
So I think the deals are out there. It's just what you're seeing right now is the people who don't need to sell aren't selling, right? Because they're gonna get their hat handed to them in the market. And so you're only seeing sales come up as needed, usually due to debt maturing or some sort of capital issue that needs to be refinanced that can't be refinanced and therefore needs to go and put on the auction block. So they're out there. I think they're definitely more coming.
But I don't think it's just, you've seen the whole market kind of take a dive in terms of transaction volume over the past year. And it's just because of that. Sellers who aren't maturing on debt, they're not selling. I'm not. Why would you sell in a down market when if you have a five-year horizon on your debt, you don't need to sell? You should probably wait it out. So I think as more of the 2019, 2020, 2021 acquisitions, that people put debt on as those mature, like they're gonna be forced to sell. And so I think you're gonna see a lot more quasi distress sales coming out of that. Our buy box right now, it's been kind of like from a size perspective, like smaller commercial. So sub-institutional, we basically have been pushing our purchase price up, trying to buy from non-institutional sellers and be below the institutional buyers. So we're not competing with them and they have different capital that's cheaper.
And so, you know, they're able to buy things for compressed cap rates relative to us. So kind of that two to $10 million purchase price is really what we found. Like over that, you start competing with a different buyer who can pay more for the asset. And there really aren't, you know, all like the people doing the residential real estate stuff, they just don't know how to buy, you know, two to $10 million commercial property. So there's just, it's kind of a limited buyer pool that has been beneficial for what we do.
Ash Patel (12:06.338)
Do you have a geographic area that you focus on?
Bob Thomas (12:11.79)
It's been Portland, primarily, it's been on the West Coast. So we had a mobile home park in California, we got a car wash in Washington State, but primarily we're based in Portland. Though we are looking at a few other national markets and starting to explore potential acquisitions. There's been about seven national markets, Charlotte, Denver, Salt Lake, some Texas markets, places like that.
Ash Patel (12:38.734)
How about the Midwest?
Bob Thomas (12:46.222)
I'm so I'm from Chicago and I really like the more compressed cap rate like if you if you know people in kind of real estate, they talk about the coasts being kind of lower cap rate, you know, higher value, lower cash flow, the middle of the country being higher cash flow. With our strategy of really value adding those properties, you get the most bang for your buck on the capital you put into it. When you're when you're kind of your cap rates are compressed. So we I'm liking sticking to the coasts primarily or at least markets that you know, aren't 10 cap markets, eight cap markets, you know, on multifamily or looking, you know, we like the five cap kind of, kind of multifamily markets. So San Francisco, Portland, to a certain extent, you kind of understand the difference.
Ash Patel (13:38.078)
I do, but with rates, you know, the sevens and eights, why do you want to buy properties that have compressed cap rates?
Bob Thomas (13:49.446)
So I want to be in a compressed cap rate market, right? Because we aren't buying compressed cap rates. Yeah, so we're buying value add deals. And so we're kind of force appreciating into compressed cap rates. So every dollar that we get on that value add is gonna be worth significantly more in a compressed cap rate market relative to a cashflow market.
Ash Patel (13:52.234)
where they're compressing. Got it. OK.
Ash Patel (14:08.942)
Totally understand, got it. Because adding value to a five cap is a significantly higher yield than adding value to a 10 cap market.
Bob Thomas (14:20.022)
Yeah, so you get 20x on your dollar on your on every dollar of NY versus 10x in the other market.
Ash Patel (14:24.994)
Correct. Good. Okay. And then your take on office, you've cut your teeth with large office buildings. What is your outlook on office going forward?
Bob Thomas (14:36.402)
I don't, so I have a lot of friends in office, right? I mean, that was where that's kind of what I, what I knew off the bat, a lot of friends doing brokerage, a lot of friends doing, you know, kind of operator stuff. No one, no one is doing well in office. If they tell you that like they're, they're wrong. I think what you're, it's interesting to bifurcate, you know, everyone's getting, the whole market's kind of getting pushed sideways because of where interest rates are in the macro, you know, environment. But then office had that structural change in tenant demand which has taken it to a whole new level. So you're really starting to see distressed sales coming on the market there. There's been a few in San Francisco. There was a significant one in Portland recently, traded for like 13 million bucks where the last trade in 2014 80 or 70. Something similar had just happened in Chicago. So you're starting to see that unwind nationally. Again, as debt matures, most of them are non-recourse loans and these operators just know their equity is wiped. The lenders are even getting, you know, haircuts on 30, 50% haircuts on their loans. And so everyone understands that if you're not in an office property that was built in the last 20 years, Right, you're, you know, that's 1960s to 1990s kind of quality property, 1980s. It's just, it needs, there's not enough demand for it anymore. And so will a repurposing happen? Like likely. Um, I think that at some point those become good deals. Uh, the question in my mind is right now it's hard to underwrite what you're going to do with it.
And so you could see a building at $70 a square foot, you know, a downtown high rise for 70 bucks a foot. And you're like, oh man, that's, if that's a great deal, it's gonna be worth way more than that at some point, some way. But the business plan to get there is a big question mark. And so if you're not using, you know, cash to buy it, and you have to service debt on the thing, and you don't have a business plan, like it's too risky to take care of. So I think there's gonna be a lot more pain in the market before people start to...
convert the assets and the supply side of the equation comes in and the demand side becomes a little bit more clear of like, how far is this work from home, the change in the office demand scenario going to go? So I think it's got a lot more pain than the rest of the market. And it's going to be just a longer term question mark. Am I interested in buying some office and really good basis? Like, yeah, for sure.
But I use debt on my acquisitions and that just scares the shit out of me. Because, you know, like if you don't have revenue coming in, you've got debt to service, that's just the recipe to give the keys back to the bank.
Ash Patel (17:24.03)
Yeah, I agree with you. I think, you know, so right now we have, we work on the verge of bankruptcy. We're in October of 2023. They occupy 44 million square feet of office, you know, throughout the world, most of it being in the US. And they went from a $50 billion company to $100 million company insolvent on the verge of bankruptcy. So that might trigger a tremendous amount of pain in the office market.
But after the dust settles, do you not believe that this is a once in a lifetime opportunity to pick up Class A office for 20, 30 cents on the dollar?
Bob Thomas (18:05.518)
I do. I think what you're seeing, and I alluded to it in my last comment is this flight to quality. And so, you know, Class A built since 2005, it's getting hammered. But all the people who are bleeding out of the 1960s to 1990s, you know, kind of B class office, they're all going to that A class property because, you know, lease rates are coming down, and it's an easier time. So the Class A stuff, like you might be able to 50, 60% discount or sorry, 40 or 50% discount right now. And I think that is going to be a really good deal long-term, but where you're seeing that real distress sale, the 25 cents on a dollar kind of sale, is this product that really is functionally obsolescent. And I don't see the use case for that coming back without like a significant amount of capital being invested to repurpose it whether it's a downtown data center or some vertical warehouse or residential conversion is obviously hot, but it's really challenging to execute. I think those quality properties are gonna need to have something else done with them. And then because of that, the class A stuff, I don't think you're gonna be getting, I think you're gonna be getting like a 30 to 40% discount on it, which I agree is probably a good deal at some point. But...it's not going to be like the, you know, 20 cents on the dollar kind of kind of deal.
Ash Patel (19:29.654)
Bob, what about suburban office? Let's get away from the downtowns, those downtown walkable suburbs. Office space there, especially in the Midwest and Southeast, has been on fire for us. And that's roughly a two, three million dollar range.
Bob Thomas (19:45.958)
It's been on fire in Portland too.
Ash Patel (19:49.022)
Why not invest in those?
Bob Thomas (19:50.286)
It's been on fire in Portland too. You know, history isn't everything, right? And so you can't, you know, look at historical returns and be 100% confident that it's gonna come back around. But I think historically, if you look at suburban office, it's like kind of on the tail of the whip in office where when things are good, it rises, when things are bad, it falls. Now there's been this change in the market. And so I...for sure there's been, like Portland is a great example, there's a couple of large office properties owned by Shorenstein outside of Portland, definitely suburban, and they're achieving their highest lease rates ever, they're relatively full, and people want to move closer to home, they're kind of downsizing their offices, but want them closer and not in these main urban cores. So yes, does it feel like a good play right now? Like yeah, it looks good. Do I think that over time you're gonna be wishing you probably invested your money somewhere else. Just looking at the history of suburban office, I do think that it's probably not the best deployment of capital. If you're looking at like a, I just don't, I don't think you deploy into office right now. I think you wait three to five years to see where things shake out unless you're a total cash buyer with just a ton of conviction.
Ash Patel (21:11.202)
Three to five years, that's a hell of a outlook.
your overall take on the economy.
Bob Thomas (21:16.96)
At least three man. I mean like it's got it's got a ways to go
Ash Patel (21:21.534)
Yeah, no, I agree. Did you anticipate this rising rate environment that we're in?
Bob Thomas (21:31.836)
I mean, I don't want to pat myself on the back too hard, but yes, we've been over the past couple of years. So we've always tried to buy really good deals and I am the biggest critic of a deal when I'm gonna buy it. I sensitize the hell out of it. I look at what happens if rates go to the moon, everything else. I never, I'm always underwrite to refinance. I'm never putting, I'm always putting 100-bip spread on my kind of like current cap rate relative to where I'm selling at. I want things to, in a bad scenario, still work. And if that works, I'll buy the deal and then it's gravy if things go okay. So yes, we kind of saw it coming. We saw it coming in the end of 20, mid 2021 and we started refinancing a lot of stuff. We basically have our whole portfolio now with seven year maturity on it in terms of the debt fixed rate. So like we're feeling pretty good with where we're at. We sold a bunch of properties and kind of 1031 into some other, you know, kind of more value add deals. So we set ourselves up where we're not feeling the pinch right now. And if it only lasts three years, we'll probably be all right. Some of the people who were buying four cap deals in 2021, you know, hoping for market rent growth. That's they're in a tough spot right now. Like, you know, the multifamily syndicators who were going super long in mid 21 are they're in a world to hurt.
Ash Patel (23:00.862)
And we see that a lot. You know, there's a lot of headlines out there. There's a tremendous amount of pain in multifamily. How are you positioned to capitalize on that? Because I'm sure your wheels are turning.
Bob Thomas (23:15.946)
Yeah, so I think the biggest, I think the biggest thing for us was making sure that our, our financing was stable, fixed rate debt, that has maturities passed when we think this whole turbulence is going to end. And so we got our last couple of properties refinanced middle of this year, not at the rates we loved. But, you know, we got them done, we don't have anything kind of coming doing. So I think where the deals are gonna come from are those people who are having the debt issues and are forced to be sellers. And so because we don't have that, and we've got a fairly strong capital base who kind of believe in us, believe in our track record. We've had successful deals and returned to them, I'd say 70% of our capital base are repeat investors. And so because of that, I'm constantly talking to our investor base and saying, hey, like...Where are you at? How are you feeling about the market? You know, what are you reading? And just kind of keeping in tune with everyone. People are ready to go. I mean, there's capital on the sidelines for a deal. And because we'd set the portfolio up from a debt side where we've got some runway, I think we're better able to take advantage than people who, instead of hunting for deals, are trying to figure out how to not go bankrupt.
Ash Patel (24:34.114)
Going forward, what's your outlook on retail and are you buying or actively looking to pick up retail?
Bob Thomas (24:42.742)
I am, yeah, so I mean, I say 40% of our portfolio is retail office, primarily that's retail. We have some strip centers, a bunch of mixed use, you know, ground floor commercial, upstairs, apartments, got some single tenant net stuff. It's all been value add acquisitions that we've stabilized out. But I'm a, you know, I think retail really took its licks when the e-commerce trend started and then again during COVID. And it's really shown itself to be fairly resilient. We've had pretty good success with our retail portfolio from a leasing perspective, vacancy collections, everything like that. Now we're not dealing on an institutional level. I mean, we don't have any multi-hundred thousand foot strip centers that are grocery anchored and stuff. I mean, our stuff is all sub 15,000 square foot, you know, kind of like, like spaces for tenants. So that kind of regional tenant, local to regional tenant. It's been easy to find those kind of deals. I think I'm still long on retail and I'm looking for more deals where I see potential issues is if what the Fed is trying to engineer in terms of a recession, if that doesn't just hit asset prices like it's doing now, but it actually trickles through to the real economy and you start seeing kind of small business bankruptcies, that's going to crush our tenant base. And I could see that being a material risk for what we do in retail.
Ash Patel (26:16.134)
Yeah, that's a great outlook. Uh, you know, CBRE released their latest metric. Retail vacancies, the lowest that it's ever been since they started tracking that in 2005. So retail is very healthy, but yes, the Fed is obviously trying to kill jobs, right? And they that's got to trickle down to small business owners. Your advice for the majority of our listeners are probably multifamily, your advice on them on being asset agnostic and looking at different asset classes.
Bob Thomas (26:53.366)
I'd say just start. So like, there's...If you need to understand, with whatever investment you're doing, I mean, it could be a small business or real estate or stuff, you need to look at the fundamental economic drivers of that business. And so for multifamily, I mean, you're probably looking at population growth and median income trends and kind of affordability of buying a house versus that sort of stuff. If you're looking at office, you're gonna wanna be looking at job growth, tenant, kind of business, new business activity, tenants kind of coming into the space from other markets. You know, I mean, San Francisco right now is bleeding tenants to Texas, things like that, you'd want to really understand what's driving what so you can kind of invest in the right areas. If you go and start browsing the market for what's on the market, pull up some offering memoranda from, you know, good reputable shops, you said CBRE, you know, a CBRE and East Hill, a JLL, and they literally analyze the deal for you. And so if you read enough of those, you get an understanding of how to look at a deal.
So if you don't know how to do it, like they're out there, just pick up a couple OMS and then start trying to underwrite them yourself. You know, you should, you can invest in something you have no idea what you're doing and like it could be a crap shoot.
But if you really start to get your own thesis from really understanding the macro stuff on that specific asset class, and then just networking with brokers and trying to find those deals, you should have a level up where you can go and do it, as long as you can figure out the capital behind it. You know, like if you're...a one to four unit investor and you're not bankable, you're gonna have to find a capital partner, which is great, I mean, go out and raise capital, but you're gonna have to find a capital partner to go get a bank loan or like figure out some sort of creative financing approach to go buy these deals. Just because the financing is a little different than on the small multifamily or a resi side. And I'm happy to talk through that more.
Ash Patel (28:56.718)
Bob, you've been raising capital for...
No, no, that's good. You've been raising capital for a number of years. How did you start raising capital and what are you doing differently today to attract investors?
Bob Thomas (29:16.966)
So like when you start, you just can't be bashful. Um, you know, I mean, like the friends and family, the looking under the couches, you know, talking to everyone, asking for referrals, you know, I mean, like the way I've always done it.
So I started in this institutional commercial real estate world, right? And the brokers are making a bunch of money. You're meeting the guys who are, you know, kind of investing in these large deals who are also making money. So all the people who are working in the industries I was in, I have friends who did investment banking, things like that. They all, they all are making a lot of money and they're seeing these large scale investments happen, but they aren't really able to invest in it themselves. They're either too busy working or, you know, their, their companies don't let them co-invest at least at the level and so I was able to basically tap my network of friends and family to a certain extent or that sort of thing to start because they all had this money that they wanted to invest. They knew that we were kind of actively doing it or looking at deals, but they didn't have the time or the ability to actually execute it themselves. So that's kind of how we started. And then after a few of those came full circle and they were successful, then it's been more of a referral game. So we've never really gone and done a bunch of like external marketing or investors and that needs to change because at some point our investors are gonna go into their pockets and pull out rabbit ears if we hit some of our acquisitions targets. But to date it's just been start out asking everyone who you know and kind of staying in contact with them and then after a couple of those have worked really repeat investors and a lot of referrals coming in. And how it's changed, like I said, we need to go external.
Ash Patel (30:57.386)
What will you do to be more proactive?
Yeah, and what will you do to go external and be more proactive?
Bob Thomas (31:03.99)
What do I need to do?
Bob Thomas (31:07.714)
Yeah, so we're building out our investor relations arm of our company currently. And so just getting in front of new investors going to family office kind of events, you know, if you think about like how.
So our goal, our company's goal is to hit a bill, we're at about 50 million bucks in portfolio value right now, which sounds cool to people who aren't really in the space, to people who are really doing real estate on a large scale, it's like a drop in the bucket.
So our goal is to kind of hit a billion dollars and become institutionally investable in about three years. And then from there, you kind of grow on that path. So when you think about how the capital works, it starts out, you know, you have to raise high net worth investors capital from syndications and things like that. You can kind of move into this middle tier quasi institutional bucket of capital with like family office investors. And then you end up getting into the pension funds and sovereign wealth funds of the world. Once you, you know, kind of have that track record and hit about a billion bucks in portfolio value. So we're just cresting into the family office realm now, which makes it easier because you have, you know, deeper pockets that can fund. But I think that's what we're seeing is really starting to target those small institutional investors who are able to give bigger commitments.
Ash Patel (32:24.866)
Bob, what's the hardest lesson you've learned in real estate?
Bob Thomas (32:35.63)
that so I've never realized a loss on an on a real estate deal but I've been in a real estate deal for six years now that I should have exited a long time ago but we kept trying to fix a broken deal instead of just selling it at a you know, effectively a break even we kept trying to re engineer it in order for it to succeed. Like we started out looking at the deal as a large, a large development play. And then certain things changed, we can no longer do the development. And so we tried to change the business plan instead of exiting the deal, basically getting our money back and moving on. And now with the way the markets changed, that has turned into almost looking at a loss and just how significant of a loss when we actually exit, are we going to do we put in more capital to do this like smaller development that might be less of a loss than just selling now. Whereas, velocity of equity is such, it's like the biggest part of the deal. Being able to put your money into something and take it out and redeploy. Like that for me is, I mean, that's how you build a portfolio. You're able to keep getting these value add size returns and stacking them. And so having a ton of capital tied up in a deal for six years and trying to re-engineer it succeed instead of just taking your licks and going and redeploying, that's kind of the biggest lesson I've learned is sometimes if the deal is telling you work, like stop trying to force it. And there are other deals and you just need to go and kind of execute a new one.
Ash Patel (34:09.998)
Do you have investors on that deal?
Ash Patel (34:15.854)
and have you communicated? I'm sorry.
Bob Thomas (34:16.554)
and we're in a few other deals together.
Bob Thomas (34:22.054)
And we're in a few other deals together too. They're like one of the investors in that deal is one of my, you know, kind of the investors in most of the deals that I've done. So yeah, I mean, and yeah, I mean, we've been married on the thing for the longest time and we just keep trying to figure out new approaches. And you know, when the capital markets were friendly and interest rates were at 3%, you know, it's kind of easy to math things out to make them work.
Um, but now you're staring at, you know, 8% bank debt and that's just making, you know, you have to put in even more money on top of the money. So yes, I like working hand in hand with the investors, making sure that we're, you know, kind of taking collaborative approaches. Um, and everyone's aligned, but at the end of the day, you know, looking back, like I should have dug in my heels harder and said, no, let's just sell, get our cash back and go and find another deal or go our separate ways, right? But like, it would have been a much smarter approach. So that's really like, I think that's the biggest thing I've learned is sometimes it's better to, you know, if a deal is telling you it's not a good deal and you can, you know, cut your losses on it, reusing that capital to make more money is sometimes a better approach.
Ash Patel (35:38.71)
Bob, what is your best real estate investing advice ever?
Bob Thomas (35:51.05)
two things, start, don't wait, just start. People spend too much time thinking about investing rather than getting a thesis and executing. And...
We talked about the velocity of equity and compounding returns and everything else. Like I started when I was late twenties. I had started when I was early twenties, man. I mean, my, my net worth would be significantly different. Um, and, and so, you know, I think starting now is, is huge and not, not overthinking it. And then two is partners. I don't think enough people partner on deals. Um, and not every partnership works. You have to do partnerships and do a few of them to learn how to structure things and how to align incentives. But like being too, I don't want to say greedy, but you know, trying to keep the whole pie to yourself instead of cutting pieces of the pie out so you can actually get a deal done. Like I've never understood why you wouldn't want to do half of a big deal, then like none of it.
I've never understood that. It builds your resume, you still get, I mean, in our case, we have an internal management company so we get management fees on the whole thing. We get promoted returns. Like there are ways to structure partnerships that make a lot of sense and you do way more deals that way and you're kind of spreading your risk. You have extra partners who can help. As long as you're picking your partners right and you're structuring the partnerships right, partnerships are great. And I think too many people don't,
They're stepping over deals because they don't think they can fund them. They don't have the capital and it's, it's a huge benefit. Like I said, I've never owned a piece of real estate a hundred percent myself in my life.
Ash Patel (37:35.562)
You mentioned your primary residence is co-owned. Who's the co-owner?
Bob Thomas (37:41.738)
My partner, Kelly. Yeah, so we've been together 12 years, have a kid. We're not married, but yeah, so like I am. Yeah, exactly.
Ash Patel (37:48.034)
Got it. Okay. So it's a domestic co-owner. Got it. Got it. Got it.
I didn't know if you had some crazy like house hacking sharing way of buying your primary residence. Your partnership advice is incredibly valuable. And for anybody that's weary of forming partners, because they've gotten burned in the past, you're supposed to. You're supposed to get burned and learn what a good partnership is. So
Bob Thomas (38:03.192)
I'm sure there's some good stuff there.
Ash Patel (38:22.358)
You're right. I don't think enough people put enough value into that. You've heard the phrase, if you want to go far, go together. My one partner, when we brought on the third partner, she said to me, Ash, are we splitting everything we do three ways now? I said, yes. And she was taken back like, wow, that's a significant cut into our equity or revenue or profits. But in fact, it's helped us achieve a much faster velocity of money, the trajectory that we're on has increased significantly. So you're right, that's great advice that's not often given. So thank you for that.
Ash Patel (39:03.587)
Bobby, you ready for the best ever lightning round?
Bob Thomas (39:04.342)
Yeah, I think having like, you need to, yes, when you're thinking about a partnership. Oh no, yeah, so when you're thinking about a part, when you're thinking about a partnership, like it's just having the under like it's about aligning incentives and making sure that you're getting complimentary skill sets from your partners. So like I'm really good at capital raising and acquisitions and things like that. I have a weakness around kind of construction project management and stuff like that. And so getting that kind of component in as a partner as a co GP, I'll gladly give half the deal because I can focus on what I'm good at and let someone else focus on what they're good at and we can do, it's like, it's a, you know, a creative basically, it's one plus one equals three. And that makes way more sense to me banging my head against the wall trying to do construction management when I can't, you know, look at a new acquisition deal because I'm like focusing on that. That makes no sense. So yeah, I think it's all about aligning incentives, making sure people are getting kind of paid for performance and that if things go wrong, you both aren't pulling in different directions and making sure that like, you know, what you're doing is complimentary.
Ash Patel (40:12.398)
Bob are you ready for the best ever lightning round?
Bob Thomas (40:16.826)
Let's do it.
Ash Patel (40:18.018)
Alright, what's the best ever book you recently read?
Bob Thomas (40:25.518)
What it Takes by Steven Schwartzman, I think is my favorite book. It's the co-founder of Blackstone, which is the biggest owner of, rep and owner of real estate in the world, and kind of his story on building the company. I think one of the paraphrasing, one of the biggest takeaways is that like, it's hard to start a business, small or big. And like, if you're gonna go and start something and put all your effort into it, which is the only way you're gonna succeed is if you just are passionate about it. You might as well do something that's large enough.
And so that's why, you know, I mean, our goal as a company is to grow to be similar to the size of Blackstone, right? And so when I say our portfolio is 50 million bucks, it's small. Like that's because in my mind, it's tiny. Like we need to hit a trillion dollars assets under management, right? And so like we're nowhere near where we want to be. And I think that if you have that mindset of like thinking big, you know, kind of shooting for a very large goal having a big hairy audacious goal of be hag, right? I think that kind of pushes you on the right path. And then that book really kind of, you know, kind of emphasizes that.
Ash Patel (41:29.462)
What's the best ever way you like to give back?
Bob Thomas (41:36.308)
I'm big into like financial education. And so I go and do talks on financial literacy and talks on kind of real estate investing and creating generational wealth and passive income and doing that not just for the investor community but we're also, we've done some partnerships with junior achievement, going into local schools and kind of teaching financial literacy to kids. And so we're working on building out more of a kind of like a proprietary framework on doing that. But right now we're kind of partnering with, you know, other 501 C3s to go and kind of give back to, you know, kind of teach children. I mean, it kills me how people are in this W2 mindset, and you're just trained that way, you know, from the time you're a kid of get a job, go to school, blah, blah. I mean, you should do that. I did that. Right. But you need to know that what you're doing is setting you up for your long term goal and that there's a lot of different avenues to kind of achieve that.
And so, you know, we're trying to get kids young and really kind of get them to understand different ways they can go with their life and how they can benefit them in the long term.
Ash Patel (42:47.182)
Bob, how can the best ever listeners reach out to you?
Bob Thomas (42:53.059)
Yeah, so.
Our website peak asset MGT comm has all of our contact info My email is be Thomas at peak asset MGT comm. I mean, feel free to shoot me an email You're happy to talk through deals You know if there's investors who want to chat like that's great But you know, I just I'm a deal junkie like self self-proclaimed and so and when we do hard money lending You know, we've made our business more efficient by starting a VA company to like help really kind of you know
There's a lot of ways that we like to kind of chat with people about how to help their business, how they can help us. And so, yeah, if they want to reach out, I'm more than happy to chat.
Ash Patel (43:34.242)
Bob, thank you for a great conversation. You've given us some great nuggets of advice. I'd love that you're asset agnostic. Would love to keep hearing about what you're taking down in the future, so thank you for your time.
Bob Thomas (43:48.938)
Yeah, really appreciate being on. This was fun.
Ash Patel (43:51.786)
Best ever listeners, thank you for joining us. If you enjoy this podcast, please leave us a five star review. Share this episode with someone you think can benefit from it. Also follow, subscribe and have a best every day.
