In this episode, we sit down with Shelley Peterson, a seasoned real estate investor and co-founder of Kahuna Investments, to discuss her journey in the world of commercial real estate investing. Shelley shares valuable insights into the challenges and opportunities she has encountered, emphasizing the importance of mentorship and taking action. We also delve into her unique approach to syndication and her commitment to giving back to the community.
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Transcript
Narrator:
Quick disclaimer, the views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to bestevershow.com.
Shelley Peterson:
I think a lot of times people just get so caught up with, I got to learn how to do it first before I just jump in, and they get that analysis paralysis and then they only end up doing the deal.
Narrator:
Welcome to the best ever show, the world's longest running daily commercial real estate podcast. Our hosts interview commercial real estate experts every day to get you the best advice ever with none of the puppy stuff.
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, Shelley Peterson. Shelley is joining us from Chandler, Arizona. She is the president of Kahuna Investments. They focus on purchasing stable income producing multifamily and student housing. Shelly's portfolio consists of 3,000 units valued at over $250 million. Shelly, thanks for joining us and how are you today?
Shelley Peterson:
I'm doing super fantastic, Ash. Thank you so much for having me on the best ever show. I love your voice, and I'm just so thrilled to be here. Thank you.
Ash Patel:
Well, thank you. It's our pleasure to have you. Shelly, if you would give the best ever listeners a little bit more about your background and what you're focused on now.
Shelley Peterson:
Sure, would love to. So I grew up in Tulsa, Oklahoma, so I'm from the heartland. I grew up in an Asian household where I was taught to have a good job and go to college. So I did what Mama Lucy told me to do. So I got a master's degree in science, became a registered dietitian, hated it, so I ended up in the pharmaceutical industry and anybody's listening that's been in that industry you have to be good at one thing.
You know what that is Ash? You got to be good at interviewing. You got to be good at interviewing because it's such a volatile industry. I got so good at interviewing for the next job I had a lot of pops in between in the pharmaceutical industry so I knew that wasn't a secure path for my family and I so at that time, Cory's a financial advisor. He got fired from Edward Jones. He said, man, I don't really wanna do real estate full time.
And I said, well, giddy up daddy, let's do it. I believe in you. So we started off the path of real estate investing. And in the beginning, Ash, I was the supporter, the cheerleader, the believer in my husband. I said, you can do this. I will hold down the family for it. I will be the breadwinner. And you just figure out this thing called real estate. And that's what we did.
Our first multifamily deal was in 2010 we bought an apartment complex that was called Lionsgate. It was in Greenville, South Carolina. It was 144 units and we bought it for 3.2 million, raised 1.4 million of other people's money, and we sold it six years later for 8.6. And at that time when we sold the property, that was back in 2016. Guess what happened to me in the pharmaceutical industry? Surprise, surprise.
Interview again. I did what I can. Well, what happened was is the whole sales and marketing department got let go. So no one had a job. But by that time, we had made millions of dollars because we were 75% owners in that deal. So we made a big profit. So I didn't have to work anymore. I was retired from the pharmaceutical industry in 2016.
And so then it was like, well, what am I going to do next? Because I don't understand real estate, nor do I have the desire to learn real estate. So I literally came into real estate kicking and screaming. Corey wanted me to do this game with him so bad that I'm like, no, that's your thing. I have no idea what an LOI, a PSA to an NOI, I had no idea what those terms meant. But slowly but surely, we launched our education program. I began to get smart in the world of syndication. I began to get smart at looking at deals, what constitutes a deals. I began to get smart in operations. And over time, I actually know what the heck's going on. And it's been so exciting, Ash. I love this game of real estate. I love investor relations. I love every aspect that syndication has to offer. And now it is my mission to teach others that the game of real estate can change their lives like it did mine and our families.
Ash Patel:
You've had a tremendous amount of success. What's one thing when you look back that would have helped you achieve this success faster or would have made you more successful?
Shelley Peterson:
That's a very good question. I would say just adding the people component first, just getting the right people in your organization. So I know that when you're growing and you're scaling up your business, it takes people. So we have went from five employees to 47 employees literally within a year. We strapped on, we were vertically integrated, we have Kahuna management now. So we have a very unique way in how we recruit and find talent. We have a very specific process in-house on how we look for those top people, whether it's on the Kahuna investment side or the Kahuna management side. And culture is very, very important here at Kahuna investment. And we attract that because we have such a unique culture within our organization.
I love that every individual in our organization has a part in growing our company. They feel that they have a say and their words matter. Well, how they operate and how they work with other team members, it matters. We are one big family and we always say that's the Kahuna way. This is how we do it. We're always making things mo better. We call it the DeKind Attitudes, Ash. It's one of our things like what are the DeKind Attitudes?
Every week in our weekly meeting, we're like, do we have any Dekind attitudes that we want to share with a team member? So I'll give you an example.
This morning, they said, Shelley, I want to give you choke praise. You gave little Halloween candy baskets for the team members' kids. And that means a lot for our staff here. So we take big pride in that.
Ash Patel:
What's an example of a hard lesson you've learned in this business?
Shelley Peterson:
An example of a hard lesson we've learned in this business. Oh my gosh. Well, Ash, I think there's several, when you're in the space of multifamily investing.
There's a ton of talk about high interest rates and taxes and gosh, insurances, there are some things that you just can't predict or pandemic. So, you know, we've had a lot of student housing in our portfolio. So that's one of the things we were not expecting going through a pandemic with COVID and expecting the colleges shutting down. So we've had a property that was a hundred percent occupied three years in a row and COVID hits and goes down to 45%.
So that's a tough conversation to have with investors to have internally, like, okay, what's our game plan? What are we gonna do? Luckily we came out of that. So obviously that was very tough managing through COVID. So is there anything that you can do to prevent that? I don't think you can. I think you just have to weather it out. And this is where you become one with your investors. And I would say in this world of syndications, it's so important that we have full transparency at every level, whether if you're too overly positive with the deal, we've learned that you just want to give people the good, bad and the ugly, it's just the news. You want to just be as transparent as you possibly can. I always believe in even with the accounting.
So when I'm walking through our processes here at Kahuna Investments about what an investor can expect within our deals, I walk them through, here's who we are, here's our track record, here's what we expect.
But more importantly, when you enter in a deal with us, here's the expectation in terms of the communications. And I always show the financial reporting, the full financial reporting. And I will tell you, it's very surprising to me on how many investors that have been in other syndications and they say, I have never seen a report like this. It's new to them. And as a syndicator myself, as an industry, we gotta get better.
I think you can agree with me on this. You guys run such a stellar operation within your organization. So yeah, I'd like to teach that, make sure that people understand that there are good operators out there and there's some bad ones too. So got to watch the pitfalls for the bad ones and be able to weed through who's good, who's doing it right.
Ash Patel:
Is there a geographic area that you focus on?
Shelley Peterson:
We typically like to invest in the Midwest or the Southeast. So we buy on cash flow. That is our model. So we buy on cash flow.
We look for opportunities such as deferred maintenance or bad management or bad tenants. So typically the properties that we purchase are somewhat stabilized, a minimum of 85%. But we do like areas that cashflow nicely. So we're finding that mostly in the Carolinas, in Georgia, we have some really good cash flowing properties out there. I would like to buy more in my backyard.
So anybody listening that has deals in Arizona, we would like to do more in Arizona, outside of the Phoenix area, such as Tucson. We've had deals in Yuma, Arizona. You're like, what the heck is out in Yuma? Yuma is an agricultural town. We exited out of a deal in Yuma that was 152 units. We bought that one a few years back and that one we hit our business plan within three years. We bought it for 8.9 million and we sold it for a nice price, Ash. You wanna try to guess what we sold it for? In Yuma, Arizona, over 19, 19.2.
How do you like them apples, Ash? How do you like them apples?
Ash Patel:
That's a great win. What was the split for your investors and yourself?
Shelley Peterson:
Oh, you're going to love this. So here at Kahuna Investments, we believe what's called the Kahuna six and six. We pay two ways. We pay a prep on the front end that gets paid out every quarter. And then we do a prep on the back end. So the split on that deal was 75% for Kahuna and their GPs and then the rest for the LP partners.
So a lot of people are like, wait, you can do it that way? So in the industry, it's typically most syndicators, it's 75% to the LP investors, and then the rest goes to the GP. We do it differently here. So it kind of blows people's minds. I get that people ask that question all the time, how did you do that? Well, you ask the right questions, go to your SEC attorney, say, how can I set up my PPM to look like this? Because let's face it, Ash, when you're in this game of investing in multifamily or investing period. Whoever's driving the bus, it's a lot of work. We're always the key principal. So we always believe there can only be one chief, Kahuna, running the deal. And that typically falls on Kahuna's shoulder. So we want to make sure, because at the end of the day, if things go downhill, who is there to blame? It's us. It's always on us for us to fix it. All right. You can't blame your management company. You can't blame Joe Bob. At the end of the day, it ends with you. The buck stops with you. So you might as well get paid for it.
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Ash Patel:
The deal that was 75% to the GP, what was the preff on that?
Shelley Peterson:
The preff on that was a 6% preff on the front end that got paid out quarterly.
That was just cash flow. So the LP partners always gets first dibs out of the cash flow bucket. And on the back end, we pay 12% or 14% depending on how much you put in the deal. So we divide that up into an A1 class and an A2 class. So that deal particularly paid anywhere from 10 and 12.
Ash Patel:
So you have was 10 and 12.
Shelley Peterson:
So no, that deal was 14 to 16% on that particular. So the IRR to investors was roughly 14 to 16%. Total. You got it.
Ash Patel:
Got it. With all of the current rates and the pressure, the economic headwinds, how many deals do you have that have floating rates?
Shelley Peterson:
That's a good question. I think we have one right now and we are in the process of refinancing that one out.
Ash Patel:
Did you expect rates to rise? Were you caught off guard like a lot of people were?
Shelley Peterson:
No, we were prepared. So we have rate caps on our projects.
This would be more of a Corey question. I try to stay within the investor relations piece of it. But as far as the loans that goes through our representative, so we source all of our loans out. But I do know for a fact that we have one floating rate that we are in the process of refinancing that one out. But I think what caught us off guard the most wasn't the rising interest rates. I think we saw that coming. It was more of the insurance that went up.
So for example, we have a property that we typically pay $100,000 in insurance a year. And it went up this year by $320,000. How does that happen? So those are the things that caught us off guard. Yeah, and it's happening. So when you get into looking at markets, I don't know enough about insurance. I would love to learn more about insurance and why that happens, but I will say that caught us off guard for sure. That's a big jump, Ash.
Ash Patel:
I agree. On the other properties that you have, that are not the floating rate, are those the properties that have rate caps?
Shelley Peterson:
Yes.
Ash Patel:
Okay. So there's rate caps in the properties. Okay, good. So when those rate caps expire, that's another challenge because no one anticipated the rate caps costing tremendously more than what they had in the past. Right. What does that do to the health of your deals?
Shelley Peterson:
I think you're going to see a lot of people with their pants caught down is what's going to happen. So when their weight caps expires, we're in a good place with all of our weight caps. So that's nothing that we're concerned about. But I do know that there's a lot of operators that either don't have a weight cap or they're expiring. They're trying to get out of it. So we're starting to see that. I mean, there's going to be blood in the streets. That's what we like to say is coming up. We're already seeing it right now. And as a matter of fact, I just told you earlier that we're up for bids for a property that's a live auction this afternoon. So as soon as I get off here, I'll know if we won the deal or not. That's kind of exciting. But it also makes me sad because the previous owners, they probably did their darnest to keep that property. They didn't foresee that or maybe they weren't prepared or for whatever reason.
I don't ever like to see fellow operators lose or be in that position because most likely there was other people's money in that deal. So that tells me that people lost their hard earned dollars. That's what makes me sad.
Ash Patel:
Shelley, what is your best real estate investing advice ever?
Shelley Peterson:
My best real estate investing advice is to jump in the water. Just do it. If you're on the fence and you're afraid of getting into your first deal, I would say just do it. Surround yourself with solid mentors. And I think a lot of times people just get so caught up with I gotta learn how to do it first before I just jump in and they get that analysis paralysis and then they only end up doing a deal. So I always encourage our students, I'm like, just jump in either Dill partner, JV, but get there faster. The faster you get in and do a deal, the quicker you can look under the hood and see how it really works because that's where the real learning begins, right?
So I would just say, if you're on the fence, just jump in and let's go. Especially for women that are listening on this podcast. 10 years ago, when I would go to the space, I would see so many dudes on the events. I'm like, where are the ladies? So it's been really neat to see more women getting into the space. I would love to see more women actively getting into real estate investing.
Ash Patel:
How do you find your deals today? And is that different from how you found them in the past?
Shelley Peterson:
I would say finding them today we have more students that bird-dog for us. So the last deal that we did was a $40 million purchase and that came from one of our students. We teach them how to develop broker relations, relationships, and because it's still kind of the old school method, it's who you know, brokers will tend to go to the buyers that they know that can perform and that can close and transact. So we still have broker relations. We're still underwriting deals.
But a lot of them come through just students and broker relations for us. And that hasn't really changed much over the years, except for we get more student deals as it was before.
Ash Patel:
All right, Shelley, let's transition to the best ever lightning round. What's the best ever book you recently read?
Shelley Peterson:
Ooh, the last book that we read was called the five dysfunctions of a team by Patrick Luciani. Have you heard of that guy?
Ash Patel:
I have not.
Shelley Peterson:
We were on a five hour road trip, so, us kahunas, we like to go jeeping a lot, so we were at the Trail Hero jeeping summit just a couple weeks ago in Utah. By the way, one of our jeeps broke down, so it's still in St. George, Utah. It's been there for two weeks now. But during the ride home with the other jeep, we took the kids, of course, like, let's listen to this book. It's called The Five Disp... I'm like, all right, so...
It's really cool because as our organization grows, it's very important to us to make sure that we have an effective team. So this book really sheds some light on the called the five dysfunctions of a team.
Ash Patel:
What's the best ever way you like to give back?
Shelley Peterson:
I like to give back in many ways, but I think the best way everybody says, oh, we'll just give money. But I think giving people time in your resources.
This weekend we're doing a Thanksgiving give back to the homeless but just being involved in your community. So we are big advocates in our own backyard so every year we raised money to give back to the Boys and Girls Club in Chandler, Arizona. So giving back in terms of your resources, your time, I think that's the reason why we're in this business is that we can do that. It started out with taking care of the family and now it's just grown exponentially into taking extending that out to our communities.
Ash Patel:
Got it. Shelley, how can the best of our listeners reach out to you?
Shelley Peterson:
The best way is to go to Shelley at kahunainvestments.com or if they would like a free book, copy your way to success where we share our stories. You want to get to know us a little bit more. This is a great book. You just text the word book to 480-500-118-7000.
Ash Patel:
Shelly, thank you for your time. Thank you for being on the show. It was a pleasure having this conversation with you.
Shelley Peterson:
Yes, it was nice meeting you too. Thank you, Ash. Appreciate it.
Ash Patel:
Best ever listeners. Thank you for joining us. If you enjoyed 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 ever day.
Narrator:
Hi best ever listeners Joe Fairless here again and one last thing before you go would you like to receive a short weekly email with proven tips from experienced investors free tools and resources and a roundup of the week's most relevant news and best ever content. Well if so join the community of nearly fifteen thousand commercial real estate passive and active investors who receive the best ever newsletter just go to best ever CRE dot com forward slash access and you'll get the very next one. I hope you enjoyed this episode, and as always, thank you for listening, and have a best ever day.