JF2386: Starting A Remote Syndication Company From Scratch With John C Paniagua

John’s background is in engineering. In the 1990s, he took his engineering degree to get a job in the finance sector. Later, he joined the New York Stock Exchange. Transitioning into real estate was an easy choice after he flipped his primary residence that was purchased back in the 1990s.

His focus is now on multifamily syndications. He knew that it was a big jump in terms of capital required to run that business, so he started looking for a mentor and a team.

John C Paniagua  Real Estate Background:

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“When you build a team, you definitely want to not supplement each other but complement each other” – John C Paniagua

TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m here today with our guest, John C. Paniagua. He is from Rego Park, New York. He works full time at the New York Stock Exchange in regulatory technology software development. John’s portfolio consists of three syndications and he has three years of experience as a flipper. He has one year as a GP/LP in three multifamily syndications. John, before we get started, can you tell us a little bit more about your background and what you’re focused on now?

John C. Paniagua: Sure. Thank you, Ash, for inviting me to the show. My background is essentially I’m an engineer by education. I went to Stony Brook University, Columbia University, got my master’s in PhD in engineering. I started working at Northrop Grumman 30 years ago. In 1998 I became a consultant, I made the change to being a software engineer in finance. What I did was I worked for Sapien Corporation for six years before joined the New York Stock Exchange in 2004. I got a risk management certification. So essentially, the rocket science that I’m very familiar with, I’ve applied it to finance and now I’m applying it to real estate.

I got into real estate heavily around 2017 where I flipped the home I had. I bought a home back in 1993 in Bayville, and I flipped it. That’s how I got into multifamily syndications, and my focus has been in that area since, in commercial real estate, in multifamily syndications.

Ash Patel: How did you get into syndications? Going from flipping your own house to syndications is one extreme to the other, so tell me the story behind that.

John C. Paniagua: Yeah, sure. That was interesting. In 2017 when I flipped the house with my two partners I had — by the time we flipped it, the gains were quite substantial, I realized. I think we made 75% on that one deal. We looked at it saying, “Okay, can we do more?” and I quickly realized — I said scaling the trying to do flipping required enormous resources. From an operational perspective, it would have been considerable time spent trying to manage that type of operation. So then, in 2017, I happened to be in Las Vegas – this is the funny part, I was in Las Vegas and it was a life insurance conference. They had as a guest, Grant Cardone, and he talked about doing big things, just thinking big. That night in our hotel, I happen to look up Grant Cardone on the web and I saw a couple of articles. One was from Business Insider and the other was Forbes… And he talked about he owned, at that time, 4,000 units. But what was great about the article is he actually walks through step by step as to why in multifamily syndication your reward can be much more substantial, with less risk. He talks about how and that was the trigger that lit the light bulb in my head, saying multifamily is the way to go.

I spent 2017 looking, with a business associate of mine, we were looking at apartment building complexes in New York and New Jersey. Then I quickly realized, looking at the numbers, doing the underwriting, multifamily syndications there, those are for the big boys… Because it was very, very difficult looking at the cap rates that were existing at the time and looking at the cost per unit versus the monthly rents that you can charge… It didn’t add up. But I knew that was the way to go, and that’s why I focused out of state.

Ash Patel: And where did you go?

John C. Paniagua: Well, I quickly realized if I’m going to continue working full time that looking in New York was not the place to go. I had to look elsewhere. And I quickly realized I needed help. So I read several books… One of the books I read, Joe Fairless’s book at the time, he had the Best Advice, before his last book… I think it was 2018 or 2019 that I read it… A great book he wrote on multifamily syndications. He had written two prior ones, and I read those, and I read a Michael Blanc book. And I quickly realized that I needed a team, I needed a mentor, and that was the first step, was to find a mentor… And I did, and I joined Michael Blanc’s group. There’s where I met Phil Capron. Ever since then I felt it was one of the best decisions I ever made, Phil Capron, and last year I also became a mentor of Hunter Thompson.

So in combination, working with Phil, that’s how I ended up being a general partner, and I was introduced to other members of the team. So this syndication team ended up being just half a dozen people. Another one was Chris Roberts and Paul Wilcox, also from Michael Blanc’s group. So that’s how I started.

Ash Patel: So John, the deal that you were a GP on, you were one of many GPs on someone else’s deal. So your job was to get investors in on this deal.

John C. Paniagua: Well, there are several — the way we partitioned it, because we work cohesively as a team… You have to do asset management, investor relations, you have to keep an eye on the lender docs, you need to interact with the lenders on a monthly basis, you’re tracking too a pro forma… Another thing we had to do was operations, looking at working with the property manager… So one of the good things about this deal was that we had people on-site. You need to have, as part of the GP team, somebody with boots on the ground. So we had somebody on our team doing that. I did a lot of the underwriting, I helped out with the asset management… So I became very familiar with a lot of the issues. We have weekly calls. And this model I replicated not only on this deal, but on the other two deals. So we have two deals in Southeast Virginia, one in Chesapeake, another one in Hampton, and another deal in Savannah, Georgia.

Ash Patel: How many GPs were on that first deal and how big was that deal?

John C. Paniagua: It was $9 million and we had to do a $3 million equity raise. It was a $9.25 million, 104 units. I believe we had at least seven GPs on that deal. The other two deals – we have five or six on those.

Ash Patel: And how do you divvy up the tasks for each GP?

John C. Paniagua: Good question. Because when you build a team, you definitely want to be able to not supplement each other, but rather complement. Each individual has their strengths and weaknesses, and you try to make sure that when you overlap, you know all the responsibilities that everyone strength is in each section. So somebody’s main strength is in the underwriting, another individual on the team could be operations, managing the property manager, or managing the contractors, and another one could be dealing with the investors, sending out monthly newsletters, any  updates, any events on the property… And investor relations. So that’s how we divvy it  up. And then, of course, we had the head sponsor.

Ash Patel: Alright. So while things are going well, the Friday meetings are probably easy, everything’s smooth and everyone’s getting along, give me an example or a story where there was an issue to deal with or things weren’t going so well, things got heated, or there was a challenge in front of you.

John C. Paniagua: Yeah, good question. We had one deal… One of our properties, we had a fire. So we had a fire; how do we deal with fire? The firemen came, they had to put out the fire and destroyed two units… Where do we go from there? So we had a GP meeting, and we discussed what is the procedure? And it’s a good question, because one of the things that we’re doing is we were writing procedures and manuals. Because that’s one of the things we need to do. For each property that we have, I realized we need to have a procedure manual to do with such emergencies, or your normal day-to-day operations; we call it the blue sky scenarios. Then you have your black swan scenarios, which could be a fire, it could be natural events that can destroy part of the property. How do we deal with it?  For example, this one, we had a fire. So we had to make sure the tenants were out, we had to deal with the insurance company, and we had to deal with contractors.

So we never have heated arguments… It mostly is “Okay, how do we deal with this issue?” Phil is very, very good at this because he’s from the Navy and he was a special weapons crew combatant, and he knows a lot about operational risk. In the military, it’s actually ingrained in them to do that. My background, when I was an engineer at Northrop Grumman, and I worked with the Navy, I worked with the Air Force building airplanes. That was another thing I had also with me. I understood clearly what’s operational risk and how do you deal with it. And Phil was really good, so we overcame that incident and we’re moving forward.

That’s just one example. Another example could be, again, dealing with a contractor who possibly is not doing the work the way he’s supposed to, or the property manager not filling out reports. That’s something that we’re working with now. We’ve been on this deal now almost a year, and we’ve been able to work through some of the reporting issues to make sure they’re in line with what we expect, so that when we do our lender documents, we have the lender docs to report to the lender to make sure that numbers are in sync.

Ash Patel: Right. Your team was put to the fire on that one, literally. So John, how often did GPS communicate? How often do you guys meet and talk?

John C. Paniagua: Oh, at least once a week, at least. Sometimes, depending on if there are any issues, it could be twice a week. We send texts to each other, we definitely communicate with texting; we’ve got to get on a call, or email.

Ash Patel: All of you guys are systematic, have a lot of experience behind you… Are you looking to scale what you currently have to the next level?

John C. Paniagua: Great question. Me personally, after being a GP on three deals, I realized for me, because I’m here in New York and I still work full-time, I really can’t afford to do that yet, to be able to scale up in a GP. What I can do and what I’m focusing on is more on the LP side, is creating a fund… Because there is a lot of opportunities here in New York, there’s a lot of money in New York, and I’ve seen money leave New York, heading to the South Southeast, for example. There is money heading to Texas, there is money heading to Arizona… And it’s leaving New York for a reason, because there seems to be an anti-landlord atmosphere right now, and it’s not very conducive. You can’t get your investors returns on the multifamily side. And looking at a hundred units… They’re more like 20, 30, 40 units, and the returns are not there for you.

So I’ve been focusing now and I’m going to be creating a fund. I’m going to create it by next month. That’s where I’ve been focusing, because I want to be able to do that, build out a sponsor network, also an investor network, and then be able to get a deal flow and match that with the capital raise. So that’s what I’m working on right now.

Ash Patel: So will this fund have other syndicators taking your investor money into it?

John C. Paniagua: Exactly. That’s the intention. It’s funny, because I invested in one of Joe’s deals, a very good deal, and I see what Joe’s doing. So I’ve done three deals last year; I am by no means an expert. I’m still a student, and that’s my philosophy, my attitude. I want to be able to learn from as many different syndicators and learn from many different investors who have a lot more experience than I do, but I want to learn from them.

One thing I learned is to listen to them and that’s what I’ve been doing. I listen to Phil, I listen to my teammates, I listen to others, and I’ve been on other podcasts… I listen to people with a lot more experience, because they’ve walked the path and they know. So that is where my focus is right now, is exactly that.

Ash Patel: What’s the challenge of starting a fund? A lot of regulatory hurdles?

John C. Paniagua: It depends how. So from a regulatory hurdle perspective — it depends on the size of the fund. Right now what I’m looking at is a small fund, I’m looking at a five to ten million dollar raise, and then be able to scale from there. You know, once you get to a certain size, now you have to register with the SEC… That’s where the attorneys come in, and you work with the attorneys on that. But right now, I want to start out, get the platform basics set up, and then be able to bring in investors through the advertising, being able to bring sponsors in, and vet their deals, because it’s very important. One of the things I learned now that I’ve experienced on the GP side, is being able to see what’s a really good deal for my investors.

Ash Patel: What’s your target return to your investors on this fund?

John C. Paniagua: I’m looking at IRRs of 15% or higher, and looking at value add deals, possibly maybe some core value deals like class C, C plus, and class B. So that’s what I’m looking at right now, because I think that’s where you can still get deals out there… They are getting harder. They’re definitely getting harder to find. I’ve seen that. I’ve seen cap rate compression where I never saw before, because people are bidding up prices. So a metric I always use is unit cost and the monthly market rent.

One of the things I remember in reading in Joe Fairless’s book was study your market, understand what is it that can give you always opportunity in that market, which is driven by economic fundamentals…  The job market, is it  diversity… I remember I followed his step by step to create a spreadsheet, you create a list of the markets and then you rate them based on these criteria. So I’m not going to make a shout-out for the book, but you’ve got to get it. Joe Fairless’s book is an invaluable read.

Ash Patel: It’s the book on syndications, right?

John C. Paniagua: Correct. The big one, The Best Ever… And the other one was Hunter Thompson’s Raising Capital. Again, I’m a student, I’m still learning, and that’s it. I just try to absorb as much as I can and listen to what they say.

Ash Patel: John, what is your Best Ever real estate investing advice?

John C. Paniagua: I would say when you network and you establish relationships, listen, listen to them. Like I said, my mentors – I listen to them. Follow what they say because they’ve been through there. You don’t want to have to deviate off the road to learn that you’re going to end up back on the path they told you. Listen to them, learn as much as you can, and that’s it. You’ll see that when you apply it, it’s so true what they say. It’s remarkable. I find it uncanny with what I’ve been through so far.

Ash Patel: That’s great advice. John, are you ready for our lightning round?

John C. Paniagua: Sure.

Ash Patel: Awesome. First, a quick word from our partners.

Break: [00:17:35]  – [00:17:56]

Ash Patel: John, what’s the best book you’ve recently read?

John C. Paniagua: Raising Capital by Hunter Thompson. It’s that blue book, it’s a very good book. That was the one I’ve read recently.

Ash Patel: What’s the Best Ever way you like to give back?

John C. Paniagua: Oh my God… For the very reason that I was talking about… So besides, personally, I want financial freedom, I’m more about also giving people a good product. You take a class C that needs some work, do a value-add and you enhance the living space for somebody that’s living there. Being able to add value, make it a nice place for them… And it’s a win-win situation. To me, improving people’s lives that way; make them feel more comfortable… I’m giving back that way.

Ash Patel: That’s a great byproduct of real estate investing.

John C. Paniagua: Yes, they said that before I started and it is so true.

Ash Patel: Good. John, how can the Best Ever listeners reach out to you?

John C. Paniagua: Oh, simple. Right now my website is www.onewayholdingsllc.com. You can reach me by email at info@onewayholdingsllc.com, or use my personal email, I have no problem; it’s jpania@yahoo.com.

Ash Patel: John, thank you for being on the show. You’ve given us some great advice, and your story coming from the corporate world, using and learning all of these systems that you’ve learned over the years and applying them… You got the real estate bug just a few years ago, and you applied all of these systems. You educated yourself and you literally went from zero to syndication, which a lot of people, their goal is syndication, and it takes them years to get there. But you took the fast track and systemized everything, educated yourself along the way, and what a great story. Thank you so much.

John C. Paniagua: Yeah. The key was my teammates, and understanding not to be greedy. So being a part of GP — think of it as the Amazon distribution model. Being a part GP on many deals to me was very valuable, because I get to learn by an order of magnitude many more the issues with multifamily syndications…  And investing in other people. I enjoy investing in Joe’s and other syndicators’ deals, because you learn.

Ash Patel: That’s an angle that a lot of people probably don’t look at – get into the GP side and learn by putting your feet to the fire.

John C. Paniagua: Yes.

Ash Patel: Yeah. Awesome. John, have a great day. Thank you so much again.

John C. Paniagua: Thank you so much for inviting me to the show.

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