Alan Schnur is a contrarian when it comes to buying and selling commercial properties. Alan has built his business around buying shopping centers with national tenants that are recession proof. Alan also explains how triple-net leases work for retail businesses.

Alan Schnur Real Estate Background:

  • Alan has bought and syndicated more than 2,000 units and managed more than 7,000 units
  • Owns numerous medical, office, warehouse buildings, shopping centers, and custom builds multi-million dollar homes
  • Based in Houston, TX
  • Say hi to him at www.gr8partners.com

 

Best Ever Tweet:

“The triple-net lease business – I’m in ten different states right now. It runs on its own, I don’t have to fix anything, and as a syndicator, the income stream is so much more dependable.” – Alan Schnur

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TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we will be speaking with Alan Schnur. Alan, how are you doing today?

Alan Schnur: Hey, Theo. Thanks for having me. I’m looking forward to our conversation here.

Theo Hicks: Absolutely. Thanks for stopping by, and I’m also looking forward to our conversation. Alan’s background – with partners in syndication, Alan has bought more than 2,000 units, and he also sold a management company that manages more than 7,000 units. He currently owns numerous medical, office, warehouse buildings, shopping centers, and he also custom-builds multi-million dollar homes. He’s based in Houston, Texas, and you can say hi to him at gr8partners.com.

So Alan, before you get started, could you tell us a little bit more about your background and what you’re focused on now?

Alan Schnur: Sure, Theo. I appreciate that, thank you. What can I say – I like to trade; I have a Wall-Street background, been involved in the financial markets, commodity markets for the last 20-25 years of my life, and found myself picking up real estate single-family houses in the beginning of my career, like most of us. Then I transitioned into apartments and warehouses and shopping centers, which I’m really excited to talk about today.

I like to buy low and sell high. I like to keep around 20-30 different projects, always working in my portfolio. For example, over the last few weeks I’ve just sold three apartment complexes, really because I can’t buy any the way I like to buy them… So I like to stay active and keep busy. If I can’t buy, I’m selling, and if I can’t sell, I’m buying. I always like to keep my portfolio full… And the idea comes from really Wall Street – you have a specialist sometimes that stands in the middle of the pit and just takes orders. He has inventory, and he’s always buying, he’s always selling, and that’s how I felt about real estate as well. I use that idea in houses; I bought over 400 houses. I was always buying and selling, and recently I just sold a whole entire portfolio… I was doing the same idea with apartment complexes, where I bought over 22 apartment complexes; I have a few left.

Today I guess we’ll talk a little bit about my warehouses, my land leases, and the shopping centers, triple-net lease material… Which I think is an evolution to all this real estate as we get older. I think your listeners are gonna be really excited to hear about how do you get a national tenant, like  TJ Maxx or a Krispy Kreme Doughnuts, or a [unintelligible [00:04:04].04] or a Burger King or a McDonald’s, put them on a 5 to 10-year lease, and more or less just sit back and collect rents, and let them take care of the real estate.

Theo Hicks: Well, let’s start with that, because that does sound pretty exciting.

Alan Schnur: Yeah, for sure.

Theo Hicks: So you mentioned triple-net leases, which we can get into in a second… But I wanna focus on the national tenants, so getting a big-time company to rent your office space.

Alan Schnur: I’ll tell you what, I do office, but my passion is in retail shopping center strips.

Theo Hicks: So let’s focus on retail shopping center strips. How do you get a national tenant in there, once you own the property?

Alan Schnur: Well, I’ll tell you what – the retail shopping center business got such a bad rep over the last three years, maybe 3-5 years. And let’s face it, the malls of America aren’t the same anymore, and it’s spread across the retail sector. The contrarian that I am basically said “Okay, well let’s go after the 8, 9 and 10 cap deals, and sell the apartment complexes at 3, 4 and 5 cap.” So I am a contrarian; I’m not buying shopping malls, I’m buying hundred thousand square foot shopping centers, with national tenants that I feel like are recession-proof, they’ve already been through it, and they’re prepared; in good times they prosper, and in bad times they even do better. So my tenants – TJ Maxx, Ross, [unintelligible [00:05:20].16] the Burger Kings, the McDonald’s, the Starbucks… So I always kind of feel like I’m getting involved with these national names that are protected from any kind of downturn in the economy.

To answer your question, when it comes to filling up spaces – well, look, even in the apartment complex business, it seems like here in Houston once or twice a year the units would turn. But what we do in the retail business – we go out and we get some really good leasing brokers, and they take 3% to 6% of a 5 or 10-year lease, they work really hard, and they have connections into a lot of these companies… And we’re pretty full. As a matter of fact, our portfolio now is close to a million square feet, we’re in the 90%… So we’re full.

Theo Hicks: So you’re working with these leasing brokers that have the relationships with these national companies… So if I own a 100-square-foot shopping center, as you mentioned, I’m not sure exactly how big 100-square-foot is – would that be like a TJ Maxx, or would that be like a Dollar General?

Alan Schnur: For example, a typical footprint for a TJ Maxx store would be anywhere from 25,000 to 45,000 square feet. So they might take up, say, 20% of a decent-sized shopping center… And I’ve gotta tell you, you don’t see the kind of vacancies that maybe you saw 3-5 years ago. I have a TJ Maxx, one of the best-performing locations in the United States. They’ve been there for 20 years… It’s constantly a five-year lease, and they have options to renew when they want to, and exercise it for another five years.

So a lot of these stores stay put, and they don’t really move around, because it’s quite expensive to move around… But a lot of it is also irreplaceable real estate. It’s kind of like geographically located in the center of the heart of the town,  the car count is maybe 30k, 40k, up to 80k cars a day pass… Hard corners, where people are always making lefts and rights… What else do we look for…? A good, signalized stoplight, so people just can’t fly by. Dense populations… Household incomes – we like 30k, 40k, 50k, up to 100k, depending on the stores that we’re trying to attract… So a lot of factors play to the need of these anchors, such as the TJ Maxx’s and the Ross, and the Discount Tires. And quite frankly, we should go into talking about right now what it really means to be involved in triple-net leasing.

Theo Hicks: On this topic, really quickly, before we get into that…

Alan Schnur: Go ahead, go ahead.

Theo Hicks: Could you mention, how does someone find the best leasing broker in the market for their retail shopping center?

Alan Schnur: Good question. A few ways. First of all, I’m networking with everything. Going to the events. ICSC is kind of the main national organization for shopping centers. I would suggest all your listeners join that organization.

Secondly, what we do – we really rely on Costar, which is a software program. All that information is available in Costar. If we’re looking at an area, we can see the top five best leasing agents in the area, and we can reach out and we can talk to them. And we do.

And also, just kind of see what your competition is doing, and ask who your colleagues are working with… It’s a lot of your big names that you’re familiar with already – the Marcus & Millichaps, the Collier’s… You’ll find some independents out there. JLL… So no stranger to the same names that are in multifamily are in the retail shopping center business.

Theo Hicks: Perfect. Okay, triple-net leases.  As I mentioned beforehand, I’ve heard this term thousands of times, but I don’t necessarily know what it means… So can you just define what it means?

Alan Schnur: Sure. Let’s kind of connect it to the housing business, where I believe most of us are coming from. You might see the word “reimbursables.” So a triple-net is reimbursable. Let’s start off with insurance. In multifamily housing, me, the owner of the apartment complex, I’ve gotta buy my own insurance. Taxes – me, the owner of the multifamily, I have to pay the taxes. And then third, the expenses to run the place – we call them CAMs, common area maintenance. So in the apartment complex it’s windows break, or the grass needs to be cut, or the snow needs to be removed… We, the owner, we pay.

Now, in the triple-net business, in the retail business – which is mind-shattering – it’s reimbursable. So we might pay as the owner, but every month, the tenant is responsible for their portion of the expenses. And the expenses come from a budget that’s given to them annually.

So let’s just say the insurance, the taxes, and the common area maintenance – let’s just say it costs $10,000 for one particular tenant, annually. Well, over 12 months, we’ll call that $833 – he’s going to send that in along with their rent, every month. And what happens if the numbers are over – charged too much, or charged too less, it’s refunded to the tenant, or the tenant  has to make up the difference and send it to the landlord. How does that sound?

Theo Hicks: That sounds pretty amazing. That sounds awesome.

Alan Schnur: Right?

Theo Hicks: Those three are pretty big — taxes, for sure, is one of the biggest expenses that you’re gonna come across, and depending on the amount of maintenance… But yeah, if they pay for all that, I’d imagine your expense percentage is pretty low.

Alan Schnur: It really is, and that brings us to a really good point… When I was in the multifamily house business, I’d say — let’s see… In the C class business, 60 to 80 of every dollar that I came in, went out as an expense. So you could imagine how long the profit and loss statements are, and how much work you have to do, and sending out all those checks, and paying all those people, and having all those things fixed.

Well, in the retail shopping center business, in the triple-net leasing business, we don’t have that. So for just about every dollar that comes in, we keep around 90-95 cents of it. So in essence, it’s easier to run a shopping center or a retail business than it is to run a portfolio of apartment complexes.

Theo Hicks: 90 to 95 cents?

Alan Schnur: If something breaks, it stays in-house.

Theo Hicks: Wow.

Alan Schnur: So let’s take it a little further… Generally speaking, if someone’s air conditioning goes in an apartment complex, the owner has a problem. If an air conditioning goes on one of my shopping centers, it’s not my problem. If the front glass door cracks in an apartment complex, it’s my problem. In the shopping center business it’s not my problem at all.

So the majority of the expenses are the tenant’s problems. Kind of like a leased car. It’s their lease car, it’s theirs for five years, ten years, and then at the end of the time they can either renew, or not. And I should remind everybody that in these leases, too — because once in a while I’ll get the question “Well, if you’re in a five-year lease, what about inflation?” And I constantly tell people, usually in the leases annually there’s rent bumps between 1% and 3%, every year. So even on a five-year lease, five years later, you’ve just increased your NOI by 15%, if the 3% bumps were in there for 5 years straight.

Theo Hicks: So these rent bumps, these reimbursables – all these are written in the leases for the tenant.

Alan Schnur: All of those, which is so nice about this business too, because — I was really in the class C housing business, and I can’t say the leases really carried any weight, and quite frankly, renting out to thousands of people, I don’t think I’ve ever collected a single dollar owed to me when the lease was broken… But that’s not the case here, in the retail business. The money is all about the leases, and the leases are all about the money.

Sometimes they’ll even go dark, and if it’s a national name, they’re still paying their rents. Their doors might not be open… Right now I’m doing a deal with a 45,000 sqft. grocer; they’re delayed in getting their permits from the city, and it’s a shame, because I want them to be open before Thanksgiving, but they’re still paying me rent. So it’s their responsibility to open up their own doors.

Theo Hicks: Do you get a percentage of the sales in these leases?

Alan Schnur: In some of them you do. It just depends on all these — leases are like art. It really is art. I tell my son all the time he should study legal real estate law. [unintelligible [00:13:37].13] It so happened Tuesday morning we have a percentage lease with them, and we just got a check for an extra $20,000 for the last quarter, because their sales were good. So yeah, there’s plenty of different ways of making money in this business, and it really depends on what the lease says.

Theo Hicks: The triple-net leases – are these something that are across the board for all of the retail shopping centers?

Alan Schnur: That’s a great question, too. There’s gross leases, and then there’s triple-net leases. And then there’s leases with caps. Let’s address them all. We’ve talked about the triple-net leases; it makes sense – insurance, taxes, and common area maintenance is gonna be billed back to the tenant. The gross leases – I don’t actually care for them. Once in a while there’ll be a gross lease with maybe some kind of city user, where just like in the apartment complex, it’s almost like all bills paid; I’ve gotta pay their electricity, their taxes and their insurance. I’m not a fan of it, I don’t do that type of business. I kind of have a joke – if I wanted to be in the gross lease business, I’d be back in the apartment complex business.

So I really prefer where I am in life, the triple-net lease business model, because it’s so scalable. I have over 100 national tenants, tenants that you see trade on the stock exchange, from Starbucks, to Ross, to Discount Tire, BPL Plasma, major grocery stores.

And then lastly, when it comes to these leases, sometimes they’re capped. Sometimes they say “You know what – we like this spot, we’re gonna take it, we’re gonna pay all the triple-nets, but we want you to cap out at (say) $3,50, and then you can’t raise it more than 5% a year going forward. So what does that really mean? It means you need to figure out how to raise that 5% every year, so you can stay on top of the taxes, the insurance and the common area maintenance needs that the tenants are gonna use.

But usually, if you did all your homework, and you crossed all your t’s and dotted all your i’s, the caps are usually the market triple-net rates anyway, if that makes sense.

Theo Hicks: Yeah.

Alan Schnur: One more thing I just wanted to add about that – you know in the housing business where at the end of the day the syndicator or the property management company sends you a bill for, say, 3% of the gross collections? It makes sense – someone collects $100,000 for you, they run the property, so they get $3,000, right?

Theo Hicks: Yup.

Alan Schnur: Well, what when it happens in this business, the tenant pays. It’s reimbursable. It goes to the tenant. Isn’t that wonderful? The tenant pays for the property management.

Theo Hicks: Yeah, you’re taking that 90 to 95 cents on the dollar.

Alan Schnur: Exactly.

Theo Hicks: I can’t believe I’ve never delved into this before. It sounds amazing.

Alan Schnur: I’m trying to blow your mind, Theo.

Theo Hicks: Oh, my mind’s been blown.

Alan Schnur: Look, 400 houses… I bought a house a month for ten years straight, [unintelligible [00:16:31].17] I left corporate America, I sped things up, and then for 90 days, every quarter I bought an apartment complex for five years. Sped things up… And then I got involved — and then I started reading about triple-net leases… And the same idea works in warehouses. I have a major Fortune 500 company, I have around 100,000 sqft. of warehouses spread out across the United States.

Another thing that’s great about the triple net lease business is that — I don’t know about you, but when I was in the housing business, all the volume I just talked about, and the management, I can drive to every day; it was all in 5, 10, 30 miles from me, at most.

The triple-net lease business – I’m in 10 different states right now. It runs on its own, I don’t have to fix anything. I don’t have to take the calls. And as a syndicator, the income stream is so much more dependable. Because that’s what I am, a syndicator. And I’d like to talk about that for a second – I’m always looking for partners and investors, and sharing information, which maybe we’ll talk about at the end of this… But it’s more dependable than any asset class that I’ve ever been involved with before, making those quarterly distributions to our investors.

Theo Hicks: What is your best real estate investing advice ever?

Alan Schnur: I would say one needs to be coachable, really open-minded. It’s taken me 20 years to get to the warehouses, the storage, and the triple-net lease business. I was a better listener, I was more open-minded as I got older. I wish I had that foresight when I first started.

Theo Hicks: Perfect. Alright, Alan, are you ready for the Best Ever Lightning Round?

Alan Schnur: Sure. Shoot.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:18:12].05] to [00:19:10].28]

Theo Hicks: Alright Alan, typically we ask you what’s the best ever book you’ve recently read, but I’ve changed it up a little bit… What is the best ever book or best ever resource to learn about triple net leases?

Alan Schnur: Hm… Would I be biased if I told you I had my own book? I have two books.

Theo Hicks: Not at all. Let’s hear about them.

Alan Schnur: Okay. The first one is called “Creating your own real estate cash machine”, which is more geared towards owning hundreds of houses and thousands on apartment units. It’s on Amazon, on the second edition. And last year I put out a book called “The cashflow mindset. Millionaire, billionaire, zillionaire designs for financial freedom”, and it’s all about how to use different asset classes to retire quicker, enjoy life, and have lots of fun, and lots of my philosophies. I read that one too, it’s on Audible, if someone doesn’t wanna read it. So… The Cashflow Mindset, by Alan Schnur.

Theo Hicks: If your business were to collapse today, what would you do next?

Alan Schnur: I would go buy a vacant shopping center, for what it’s worth, a net operating income which wouldn’t be much, and then I would go fill it up with tenants, and it would most likely be trading at a 7, 8, 9 cap… And capture millions of dollars of equity. I’ve done it multiple times.

Theo Hicks: What deal did you lose the most money on, and how much did you lose?

Alan Schnur: I once got involved in a property management company with the wrong person, and the lesson learned was I should have done a background check, because I would have seen all the lawsuits. I would have seen it all. So I lost on that investment, a few hundred–

Theo Hicks: And then lastly — oh, sorry, a few hundred thousand dollars. Okay. And then lastly, what’s the best ever place to reach you?

Alan Schnur: I have a few ways of reaching me. First of all, alanschnur.com. I have lots of free education, probably a few hundred videos, from apartment complex how-to’s, houses how-to, and I believe some retail how-to as well. AlanSchnur.com. And you can also reach me at gr8partners.com if you’re interested in investing, getting involved, learning more about this. We send out quarterly reports, financials, P&L summaries, videos… And you’d be amazed how quickly you can become an expert while enjoying someone else’s syndications. So that’s gr8partners.com, where you can find a ton of information about what we’re doing, and all the different people that we work with.

And I’m an open book. If I have a few books, and on every book that I have, my phone number’s on the back page… Which is 713-503-5908. Call me, you might be surprised. If I don’t pick up, I’ll get back to you, and let’s see if we can do some deals together.

Theo Hicks: Alright, thank you for sharing your phone number, and – wow, one thing I really enjoy about doing these interviews is just hearing about different investment strategies. Usually, I have an idea about them, but this is one that I had really zero knowledge of. That’s the triple-net lease.

Alan Schnur: Awesome, awesome.

Theo Hicks: You went into really a crash course into the triple-net lease – what it is, how to find national tenants, and why you wanna find national tenants, how to find the best leasing brokers in the market to help you fill those spaces. Then we went into why triple-net leases are beneficial, and it’s that reimbursable aspect. The tenant basically pays for everything.

You gave a great comparison – when you did multifamily, about 60 to 80 cents on the dollar went out as an expense. Triple-net lease – 90 to 95 cents came in. And you briefly touched on the other leases and why you like the triple-net lease the best… And again, mostly just saying about how great these triple-net leases are.

Then your best ever advice was you need to be coachable and you need to be more open-minded, because if you come across an investment strategy like triple-net leases and you’re not open-minded, you might miss out on the opportunity to invest in a great strategy.

You also mentioned your books, Creating Your Own Real Estate Investing Cash Machine, and then The Cashflow Mindset.

Alan, I could definitely talk to you for probably hours, but I appreciate you taking this brief time to speak with me. Best Ever listeners, thank you for tuning in. Have a best ever day, and we’ll talk to you soon.

Alan Schnur: Thank you, everybody. Thank you, Theo. Have a good day.