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In this edition of the Catalyst Partner Series, we’re joined by Steve Stagg, Beach Bank’s Tampa Bay market president, and special guest Andrew Wright, the founder, CEO and managing partner of Franklin Street as well as the founder of Ally Capital Group, a Tampa-based real estate investment firm.
Wright says his work with Franklin Street, a commercial real estate brokerage and management company, gave him a wealth of experience and visibility in the industry that he parlayed into Ally Capital Group, which owns office, hotel, and mixed-use properties in the Tampa Bay region. His success has also given him a high tolerance for risk — he says three of his favorite property traits are “cheap, well located, and broken.”
A prime example is an old cigar factory in Ybor City, which Ally bought and converted into 30,000 square feet of office space.
“I wouldn’t say it’s been our strategy to buy older properties,” Wright says. It’s just kind of worked out that way. We try to differentiate ourselves through things that maybe are a little bit more difficult, that require more expertise, more resources, more infrastructure, and then try to go in with a winning business plan.”
The key, Wright says, is to make sure you’re well-capitalized and have excellent business partners and other strong relationships that will set you up for success. A keen understanding of what constitutes a “broken” property is also essential. Broken doesn’t have to mean a physical deficiency. It can be a business plan or strategy that didn’t pan out due to unforeseen circumstances, like construction delays or lease rates that don’t line up with projections.
You have to “maintain a disciplined approach,” Wright says. “Deals are broken or in trouble for a reason. Don’t repeat those mistakes.”
The Covid-19 pandemic has created winners and losers in the commercial real estate industry, which translates into opportunities for new investors. That means lenders like Beach Bank have to carefully evaluate potential deals, Stagg says.
“You’re looking for good economic characteristics [of a property], but what you’re really looking for is the sponsorship behind it,” he explains. “Not only those who have the skill to be able to meet projections, but you want to be dealing with folks that you know, of good character.”
Wright says that approach speaks to the advantages of doing business with a community bank. An institution like Beach Bank will take the time to get to know a potential property investor, he says, because “most real estate projects aren’t just performing in a straight line. There are going to be some bumps and bruises along the way.”
Likewise, Wright says transparency is the best policy when seeking funds to invest. “Explain, to the best you can, what your plans are, and how to go through with it,” he says. “A mentor of mine, when I was younger, told me, ‘You can always fool someone who doesn’t know what they’re talking about, but it’s impossible to fool an expert.’”
When you’re pursuing investment properties that are cheap, well located and broken, there are always going to be problems, Wright says. “Problems come up … I don’t mind problems. We thrive on problems. It’s surprises that you try to avoid. That really is the big pitfall. And, you know, I can’t promise my partners or anyone, for that matter, what the future holds, but I can be as transparent as I can about what those problems are and our plans to address them, and try to live by that — no surprises.”
Looking ahead to 2021, Wright says apartment buildings and industrial properties will be safe and stable investments. Restaurants and hotels will likely continue to struggle, however.
“Occupancies have stayed very strong in apartments,” he says. “And I would expect that to continue into 2021. That being said, because it’s so tight, and because there’s so much capital flying into that space while it’s safe and stable, it would not deliver as high of returns as some of the other product types.”
But investors shouldn’t give up on office space, Wright says, because there will inevitably be a market correction when the pandemic subsides.
“Anybody who’s building or growing a business, you’ve got to do it with people, and for anyone in the relationship business, it’s hard to build relationships over Zoom and text messages,” he says. “There is no replacement for being together, whether it’s a team trying to advance and grow in a competitive setting or whether it’s client development. I do believe that people will return to offices.”
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