- 6 months ago
Join an active community of RE investors here: https://linktr.ee/gabepetersen
TIMESTAMPS:
0:00 - Introduction: Why Shopping Centers Are Today's Hidden Goldmine
1:05 - Andy's Journey from 159 Retail Stores to Shopping Center Empire
4:21 - Why Retail Is NOW the Most Desirable Commercial Real Estate Sector
7:40 - Breaking Down Shopping Center Categories: Strips vs Malls vs Power Centers
11:03 - The Mall Strategy: Buying at 15-17 Cap Rates in Secondary Markets
16:12 - Strip Centers vs Grocery Anchored: Which Offers Better Returns
19:25 - Quick Fire Round: Business Wisdom and Market Selection Strategy
23:17 - Lessons Learned: Why Market Selection Trumps Everything Else
25:18 - How to Connect with Andy and Learn Shopping Center Investing
WHY SHOPPING CENTERS CRUSH OTHER COMMERCIAL REAL ESTATE TODAY
Discover the shocking truth about shopping center investing with Andy Weiner from Rockstep Capital! 🏢 While multifamily investors struggle with negative leverage and industrial faces oversupply, shopping centers offer extraordinary cap rates and positive cash flow from day one. Learn why this overlooked asset class is generating 17% cap rates when other sectors barely break even.
THE RETAIL REVOLUTION NOBODY TALKS ABOUT
COVID and Amazon didn't destroy retail - they eliminated weak players and strengthened survivors! 💪 Companies that survived developed robust e-commerce strategies, distribution networks, and mobile apps, allowing them to not just compete with Amazon but steal market share. These financially strong retailers are expanding aggressively into a stagnant inventory of shopping centers, creating unprecedented opportunities for savvy investors.
POSITIVE LEVERAGE IN A NEGATIVE LEVERAGE WORLD
While multifamily investors face negative leverage with 5% cap rates and 6% interest rates, shopping center investors enjoy positive leverage with acquisition cap rates exceeding debt costs. This fundamental advantage eliminates the need to pray for appreciation, providing immediate cash flow and sustainable returns regardless of market conditions.
THREE SHOPPING CENTER CATEGORIES EXPLAINED
Understanding the shopping center hierarchy is crucial for investment success. Strip centers feature 10,000 square feet with five tenants including cleaners and restaurants. Neighborhood centers span 100,000 square feet and may include grocery anchors. Power centers contain 200,000 to 500,000 square feet with major tenants like TJ Maxx and Ross. Each category offers distinct risk-return profiles and investment strategies.
Join an active community of RE investors here: https://linktr.ee/gabepetersen
TIMESTAMPS:
0:00 - Introduction: Why Shopping Centers Are Today's Hidden Goldmine
1:05 - Andy's Journey from 159 Retail Stores to Shopping Center Empire
4:21 - Why Retail Is NOW the Most Desirable Commercial Real Estate Sector
7:40 - Breaking Down Shopping Center Categories: Strips vs Malls vs Power Centers
11:03 - The Mall Strategy: Buying at 15-17 Cap Rates in Secondary Markets
16:12 - Strip Centers vs Grocery Anchored: Which Offers Better Returns
19:25 - Quick Fire Round: Business Wisdom and Market Selection Strategy
23:17 - Lessons Learned: Why Market Selection Trumps Everything Else
25:18 - How to Connect with Andy and Learn Shopping Center Investing
WHY SHOPPING CENTERS CRUSH OTHER COMMERCIAL REAL ESTATE TODAY
Discover the shocking truth about shopping center investing with Andy Weiner from Rockstep Capital! 🏢 While multifamily investors struggle with negative leverage and industrial faces oversupply, shopping centers offer extraordinary cap rates and positive cash flow from day one. Learn why this overlooked asset class is generating 17% cap rates when other sectors barely break even.
THE RETAIL REVOLUTION NOBODY TALKS ABOUT
COVID and Amazon didn't destroy retail - they eliminated weak players and strengthened survivors! 💪 Companies that survived developed robust e-commerce strategies, distribution networks, and mobile apps, allowing them to not just compete with Amazon but steal market share. These financially strong retailers are expanding aggressively into a stagnant inventory of shopping centers, creating unprecedented opportunities for savvy investors.
POSITIVE LEVERAGE IN A NEGATIVE LEVERAGE WORLD
While multifamily investors face negative leverage with 5% cap rates and 6% interest rates, shopping center investors enjoy positive leverage with acquisition cap rates exceeding debt costs. This fundamental advantage eliminates the need to pray for appreciation, providing immediate cash flow and sustainable returns regardless of market conditions.
THREE SHOPPING CENTER CATEGORIES EXPLAINED
Understanding the shopping center hierarchy is crucial for investment success. Strip centers feature 10,000 square feet with five tenants including cleaners and restaurants. Neighborhood centers span 100,000 square feet and may include grocery anchors. Power centers contain 200,000 to 500,000 square feet with major tenants like TJ Maxx and Ross. Each category offers distinct risk-return profiles and investment strategies.
Join an active community of RE investors here: https://linktr.ee/gabepetersen
Category
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LearningTranscript
00:00all right we are back with another episode of the real estate investing club i hope you guys
00:11are having a great day great week great great month and as always it's friday on the podcast
00:17we're bringing that good friday energy to you it is exciting because we have a new asset well
00:23not new we have talked about it before on the podcast but it is so rare and i love talking
00:28about those new rare assets that not a lot of people buy because it's always fun to learn about
00:32them um we got andy wiener with us from rock step capital and here he is here to talk about
00:37shopping centers so if you guys out there are interested strip center retail shopping centers
00:43you've driven you drive by them all the time if that's something that kind of gets you excited
00:47this is the episode to be tuning into um yeah let's jump into it andy thanks for having on the show
00:53hey gabe thanks for the invite absolutely i told you before we got on here we always like to start
00:59with stories we like to hear how people got to where they are um shopping center is pretty unique
01:03so i'm sure you got an equally unique story why don't you take us to the beginning and tell us
01:08how you got here so we got here because my grandfather in 1926 started a chain of clothing
01:14stores called wiener stores our family name we had 159 stores so as a regional chain in texas and
01:21louisiana i ran the operations i ran the stores i ran real estate systems logistics i'm a retailer
01:27by background 28 years ago i started a company called rock step capital here in houston we do
01:34shopping center investing we've been doing it since then we built or acquired about 10 million square
01:40feet of shopping centers we currently have assets in 11 states grocery anchored non-grocery anchored
01:47open air centers and then enclosed malls our focus is what we call hometown markets that's secondary
01:55tertiary markets and every time we buy a mall we get local investors to be part of our equity
02:03to reduce risk they help with entitlements property taxes incentives all these type of issues about
02:10reducing risk we get local community bank lenders um we are hometown players we have a fund called
02:18hometown america we are vertically integrated we've got about 100 employees we uh our name rock step is a
02:26dance move even though it's not a word in the dictionary so rock step is comes from swing music
02:33big man frank sanatrella fitzgerald 50 60 genre you rock step when you uh switch directions on count
02:40seven eight one two three one two three rock step ball pivot change it's a metaphor for us we want to be
02:46nimble light listen to the music in the industry and then we use it as a verb hey guys we got an
02:51opportunity let's rock step we have a problem let's we need to rock step so we use it as a verb and then
02:57i wrote an owner's manual for our company 25 rules gabe that i require everybody at our company to live
03:04by and i call these rules rock steps you should have guessed that gabe but okay so here's the 25 we
03:11have the rock step of the week which is rock step number six be prepared the whole company talks about
03:16what does it mean to be prepared uh 10 o'clock on mondays and then we have a discussion and this is the
03:23language we use this is how we hire this is how we fire this is how we build a high performance team
03:29and it is the core critical part of everything that we do if you were going to interview with rock
03:36step gabe you have to come to the interview what are your favorite three rock steps and why what are
03:40your most challenging rock steps and why so that is the quick of it nice i like it i like how integrated
03:48your your name is to your guys's principles and uh and it sounds like i'm i'm assuming you do swing
03:55dancing that's probably i i do swing dancing it's uh east coast swing um i i love that genre of of swing
04:03the frank ellis sammy davis jr that whole genre i need to add two things i want to tell why retail is
04:09interesting today can i do that gabe yeah let's hear it yeah so so again most of the sexy parts of
04:15commercial real estate have been multifamily and industrial uh retail has been out of favor until
04:20about three years ago and two things have happened to make retail uh one of the uh desirable sectors
04:28maybe the most desirable sector in today's world two things one is covid and amazon basically destroyed
04:35the weak players and those that are left have developed their own e-commerce strategy their own
04:42distribution network their own app and they're able to not just protect market share against amazon
04:49but grow market share and these companies that have developed the strategy have good very strong
04:57balance sheets and they're telling wall street hey we want to grow by 50 stores or 200 stores a year
05:03but they're growing into an inventory of shopping centers that's not growing okay so you've got very strong
05:12dynamic you don't hear about people building shopping centers they're not they're building multi-family
05:17they're building built but no no shopping centers so you have all these companies that want to expand
05:22but they're expanding into an inventory that's stagnant so if you own second generation retail
05:28you've got the wins behind you second we have the advantage of having positive leverage positive leverage
05:36cap rated acquisition is higher than your interest rate and your debt in the multifamily space it's
05:43valued at a five cap but you're borrowing at six or six and a quarter that's negative leverage and with
05:48negative leverage you have to have a strategy of prayer and prayer is never a great strategy in real
05:55estate you've got to pray that your net operating income and your effective yield rises above your interest
06:02rates for your toast okay so you so retail today what's that it's never a good strategy to uh
06:10never a good strategy in real estate so uh retail is in favor so that's the quick of it um nice what
06:19other questions you got i yeah i was gonna say let me hop in here because i you know you are the
06:23master and i don't know a lot of read about retail so i'm i'm curious um right when you got on here you
06:29kind of broke it down into three different kind of subgroups of of retail so you mentioned grocery
06:36anchored then you mentioned non-grocery anchored and malls yeah i did not realize that that's how
06:41people in the industry view it and so when you're talking about retail you're talking about thing you
06:48know the strip centers with the safeway in the middle yeah that's that's one category and then it's
06:53it's a grocery grocery anchored yep and then the other category is just let me let me break it down
07:00you've got strip which is small 10 000 feet five tenants cleaners chipotle that's a strip a little
07:07pad you've got neighborhood centers which are 100 000 feet might have a grocery might not you've got
07:13power centers they uh they generally have tj max ross restaurants around it those are a couple hundred
07:20thousand to half a million square feet then you have enclosed malls where part of the part of the
07:26stores are facing an inner corridor inner corridor that's an enclosed mall so we're buying a grocery
07:32anchored center uh shopping center at a nine cap in louisiana a week from monday yeah and that's a
07:40great what's that that's pretty high uh i i would expect it to be lower than that but um and what's
07:45really good about this is that the center was destroyed in hurricane lord 2020 rebuilt for 32
07:51million new roof new hvac new interiors new facade and we're buying it for 19 million okay and our
07:58debt is at seven percent in a market that's going through a job boom so you have a brand new center
08:04that would probably with land and parking lot be 40 million we're buying it at half price
08:09in the enclosed mall space that is a mid-teens cap rate so we bought them all at 17 cap uh that is at
08:1950 uh 50 so and and we bought did that in kansas we pay an eight pref we return 20 of capital per year
08:27for the each of the first two years without a refi so the enclosed mall space is a mid-teens
08:36cap rate opportunity levered at 50 that that's really interesting to me because malls have i mean
08:44i feel like they had their heyday in 2005 or something like that like a long time ago and so
08:51whenever i hear about whenever i actually go to a mall i'm always curious about who invests in these
08:56and there's got to be a lot of risk right here right here okay so so you're competing with like
09:04the simmons and uh so look simon is you grade malls in a plus a a minus b plus b we don't play in that
09:14a world that's simon okay that is the public reach we play in the b b minus c world we call it
09:22300 to 500 a foot in sales that's how it's defined simon is dealing with a thousand dollars a foot
09:29and the the reality is is that you can buy 50 or 100 acre deals at land value but at 15 caps
09:37i mean wow and that that's the luxury the the secret of it and so the the mall strategy has
09:44the mall space has three strategies one you can buy a mall that works just fine with its current
09:49architecture it's fine you don't do anything the second strategy is you can arbitrage the periphery
09:56you can buy something at a 15 cap you can sell off a ground lease in front at a six cap you can sell
10:02off a redeveloped sears box that has tj maxx at an eight cap that's a second strategy the third one is
10:08you shrink retail and you add other things so we're demalling six malls one of them is demolish the
10:17whole mall except for dealers and pennies and put a target in and a grocery store and a bank and you
10:24know and live happily ever after another one is we're putting in a sports complex a hockey arena
10:2950 45 million dollar hockey arena owned by the city two sheets of ice and 40 000 square feet of flex
10:36space uh three other d malls are tj maxx ross five below facing out get rid of the interior so um
10:45there's all different strategies but if you're buying something at 15 cap
10:50and you are convinced that you can maintain noi
10:53nothing's wrong with that lever at 50 percent at seven percent seven half percent interest rate
11:01your cash on cash yields are over 20 percent just harvest cash interesting yeah i mean i didn't i did
11:08not realize they traded at such high cap rates that's crazy that's the there's crazy people out there
11:14who play in the multi-family world game who buy stuff at at at five or six or seven cap i don't
11:20understand those kind of people do you yeah i wouldn't i would never do that i'm just kidding
11:25you know we live we live in a different world we can't understand that world but that's okay
11:29yeah yeah so okay interesting so of the three grocery anchored non-grocery and then malls which are
11:37the which are the ones that you prefer which like if someone were getting into this obviously
11:42the more opportunistic returns in other words the high teens irrs and sometimes 20 irrs is the mall
11:50space yeah okay i mean we're looking at one property out west right now that is a 16 cap uh we're going
11:57to make an offer on a uh wednesday and um you know it's a solid noi and a great market and it does not
12:06have a lot of lift and doesn't have a lot of capex exposure you lever it at 50 we have a loan right
12:13now at seven and a quarter percent you're buying it at a 16 cap steady noi we're returning after the
12:21eight pref we're returning i don't know 10 to 15 percent of equity a year dang so when these these
12:29malls um some of them have like you know 20 30 tenants when you buy them how are they leased out
12:36is it triple net is it grossly gross okay so the answer is mall by mall is different generally on the
12:44on the interior your specialty tenants they're on rolling five-year leases okay some of them you have
12:52stress on the interior where the tenants want to leave and they want to go into an open air center
12:57so if a center says uh we're looking at a center and they say net operating income six million dollars
13:05we'll go about tenant by tenant say you know what this guy is paying two hundred thousand dollars in
13:10rent but their occupancy cost is 12 they really should be at seven percent we'll just mark it down
13:17in our underwriting okay and we know that at the end of the term they're going to retrade
13:22and we should be at about a seven percent occupancy cost so we underwrite it our 16 cap is the
13:29underwritten stressed rents and do you what is occupancy generally like when you when you buy
13:37these assets across the board it's generally 90 percent 90 percent really that's that's surprising
13:44that's more than i thought it would be yeah um interesting okay uh so for so we talked about
13:51malls grocery anchored makes sense um the non-grocery is something that i've actually looked
13:56at just the small you know five to ten tenants um you know that's a great sector gabe that's a great
14:03sector particularly if it's in the neighborhood where you're operating because that's just a good
14:09business it's a lot of work for you know you could buy a center for a million dollars or buy a center
14:15for 30 million dollars and they're the same amount of work okay but the nice thing about the small
14:22center is that generally you're able to drive rents higher right okay that that's a nice part but you've
14:29got to work it hard you got to work it right it's a great business yeah and those ones how has the
14:35the composition of the tenancy changed in the past you know 10 15 years amazon came along it's kind
14:43of different a lot of companies uh are are you seeing the the tenant composition changing the
14:48demand changing or i mean for this for the small 10 000 foot strips for yeah the non-grocery you know
14:5410 10 tenants for the 10 for the for the smaller strips it's generally restaurant service okay
15:02verizon i mean retail haircut nail salon chicotle those are very very desirable centers if they're
15:12designed right and they're in a good part of a market great business um you know cap rates for
15:19those are six seven eight cap good business and then if you can buy it or build it to let's say you
15:24build it to a 10 cap you sell it for seven or eight that's how you make money okay and the value
15:31add there is generally um are you i've heard it really depends on the leases like the lease is a
15:39good portion of the value add if they have you know if they're not triple net and you can make
15:44them triple net yes and if and if somebody's below market and you can get them to market or you trade
15:49them out for somebody of market that is yes that's how you play that game understandable those ones you can
15:56find so if someone were getting to they wanted to get into this space they wanted to get into the
16:01shopping center space i'm assuming they're not going to start at the malls you're not going to
16:06start at the mall level you're not going to be reaching out to malls you're going to be starting
16:09at the strip center because that's where you can get you know you can do off-market deals you can find
16:14the owners correct or they can come in as an lp and just learn it by watching now we have a learning
16:21center if you go to rockstep.com we have a learning center where we have over 100 articles on
16:27every aspect of shopping centers definitions co-tenancies ir every single aspect of shopping
16:34centers and it's written for people new to the sector and then we have videos as well where we
16:42basically in video form describe all aspects of shopping centers so if people want to learn about
16:48the sector they can do that we also have a youtube channel called the shopping center channel
16:54so we've got videos where we talk about all aspects of shopping centers and then on instagram
17:01i'm the shopping center guy so please subscribe to to instagram and they can just learn more about
17:07shopping centers i do think that in today's world if you're looking for yield it's the only sector
17:15today in commercial real estate that has yield that's it if you if cash flow current cash flow is
17:22important then you should at least look at the shopping center sector yeah i will say rv parks i
17:28buy rv parks i buy mobile home parks rv parks and self-storage rv parks compete they don't get into
17:34the 17 that's that's no no crazy no no no it's uh the mall space is a cool space it's not for the
17:42pain of heart the challenge in the mall space is the deals move very fast okay you have three to five
17:47weeks when you learn about a deal to when you have to prove that your equity is in place and so it's
17:54very few players so in a grocery anchor center deal there might be 50 or 100 people that bid on it
18:00in the enclosed mall space there's three or four that's how why you can get it better and debt is
18:07hard so our strategy is community bank debt local investors business leaders who are part of the equity
18:14which reduces risk and increases the opportunity for incentives entitlements help on property taxes
18:21they're effectively deputized leasing agents for alternative uses they're on the board of the
18:26community college the hospital district economic development district so we basically reduce our
18:33risk by getting local business leaders to be part of our deals makes sense um and when you guys are
18:39when you're looking at the location the metro that you're investing in do you only invest in
18:44major metros dfw seattle no no no no hometown markets we are in oh hometown right you know cherry
18:50hometowns is not dfw it's not atlanta chicago uh seattle it is markets under a million sometimes
19:00as small as 100 150 000 that have essential drivers they've got to have major university
19:05major government research or military facilities major hospital district fortune 1000 companies
19:13strong tourism they've got to have something that drives population growth makes sense
19:20all right well hey i just took a peek at the clock it looks like we've already hit the 20 minute mark
19:25so it is time to jump into the quick question round are you ready i'm ready that's rock and roll gay
19:30let's do it it starts with education it could be any form could be a book you've read a conference
19:34you've gone to a mentorship program you've been a part of i just need two recommendations one for general
19:39life wisdom and then one for real estate okay so uh a book i would recommend is the road less stupid
19:47it's about uh how do you avoid stupid things in business great book i love it who wrote it was
19:55the second question uh there was another part to that question uh is two recommendations one for
20:00general life wisdom one for uh real estate or business so that sounds like the uh i think it's
20:05the road less stupid by cunningham you gotta i get the road less stupid all right next question is for
20:13your younger self let's go back to the andy who was just getting into the business go back to him
20:18look him in the eye give him one piece of advice moving forward um stamina if you do development in
20:27real estate you better have a lot of cash because it's cash out for a long time before you get a
20:35deal done stamina and patience okay there you go i like it and uh i that has been echoed um across many
20:44many episodes that you need to have more cash than you think when you get into pretty much any deal it
20:49doesn't matter if you're developing it could be a rehab that you're doing things are always going to go
20:53wrong you're gonna need that cash and if you underwrite just add some cushion um because you
20:59know it's happened to me too many times that i i too many times that i'd like to admit where i got
21:05into the deal and i should have had more cash on hand than i did um so everybody when you're
21:11underwriting these deals put in more cash than you expect yes all right next question is about the u.s
21:17i've already mentioned um or you've already mentioned you like those tertiary markets secondary
21:21tertiary so whittle it down to one specific market what are you most excited about investing in today
21:27wow a market today um i mean i'll tell you markets were in like uh rapid city south dakota
21:39manhattan kansas we're buying a property in lake charles louisiana um i do like arkansas mississippi
21:48louisiana louisiana kansas the dakotas nebraska i love these idaho um i like these we're red state guys
22:01or we're red county in blue states or purple states we are in the conservative part of the world
22:09and we like the fact that they're generally more pro-business um generally less government
22:18uh entanglements and that allows us to kind of rock step and be more creative there you go
22:25uh actually you've mentioned those are three states that not a lot of people call out here you were
22:30mentioning arkansas mississippi louisiana um it's interesting that you chose those i have heard good
22:35things about arkansas but i'm having a lot we i love arkansas i mean arkansas is booming um it's got
22:42major companies obviously it's got walmart but uh ease of business is great alabama um you know i like
22:51the carolinas um states i try to avoid are illinois california you know where you've got we've got
23:01out migration yeah all right next question is about lessons learned not every deal that we get into
23:08goes the way we expect it in fact pretty much every time something goes wrong and that's when
23:13we're going to get to learn a lesson so what was a deal that went just a little bit sideways for you
23:18guys and then what was the lesson you pulled from it so we bought a deal in minnesota in a smaller
23:25market west of the twin cities and we paid too much for it and the market didn't have essential
23:32drivers it didn't have any of these five things okay and as a result there just wasn't demand when
23:41vacant space came up and so we have now focused on markets that have at least one preferably two or
23:48three essential drivers some markets are too small yeah and sounds like the lesson there is stick to
23:55your underwriting criteria uh never never go away from that um when you do things go wrong it's so
24:03hard especially if you haven't closed a deal recently you get into you start underwriting
24:07something and you're like man i just want to close this and you see a red flag you're like ah you start
24:12justifying it in your mind yeah but the lesson is don't ever try to justify something if there is a red
24:18flag just walk away and it will make your life easier all right next question is uh the highlight
24:27reel what is a deal that stands out in your mind as one of your favorites maybe everything went right
24:32or just a good story behind it well i i would say that either our manhattan kansas deal or our rapid
24:40city south dakota deal uh we just bought them at the right price we bought them at high cap rates
24:46um we had great investors we have tons of cash we're returning equity ahead of schedule
24:55the markets have essential drivers and you know our mission is to make our communities better
25:03uh to make hometowns better and um we're doing that in those markets love it all right that brings us to
25:12the very last question you've already mentioned this but we're gonna reiterate it
25:15um you know i'm sure people want to reach out get in contact with you where can they find you and
25:20then what can they expect when they reach out yeah so uh rockstep.com is the learning center
25:25rockstep hopefully you remember that word if you want to make an appointment with me you can go on
25:30send me an email and i'll send you my calendar we'll get on and do an intro call andy weiner that's
25:37my name andy weiner at rockstep.com and you can go and also make an appointment on our website
25:42but i do encourage all of your followers gay to at least learn a little bit more about the shopping
25:49center sector uh because in today's world it is the yield play yeah perfect i will put those links in
25:58the show notes so if you guys want to reach out to andy get involved in the shopping center space
26:02all you got to do is click a little more in the description it'll pull down that full description in
26:07there you can find his links great all right man that wraps it up thank you very much for
26:12on the show hey gabe it was a pleasure thank you so much absolutely for everybody who's with us today
26:17thank you guys for showing up you are the reason we do this so if you guys have any questions reach
26:21out to me gabe at the real estate investing club.com if you guys want to support the show just leave us a
26:26review other than that i hope you guys have a great week keep rocking real estate and i look forward
26:31to seeing you on the next episode
26:37you
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