“Groundbreaking Real-Estate Predictions”

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Show Transcript

Hello and welcome to the Foresight Strategies Group with your host Dr. Nilda Perez and co host Rachel Calderon and today with us we have a repeat interviewee Jeremy Sisson. Jeremy Sisson , MBA is the CEO and broker of records for Evan James and Associates which is an award winning full service commercial real estate brokerage, headquartered in central Florida. They specialize in investment sales, landlord and tenant representation, debt sourcing and Property Management. Jeremey has been in the mortgage and real estate industries for nearly 20 years and has been a party to thousands of transactions throughout his career. So welcome Jeremy we’re so happy to have you back because we have stated that you would be back because there were two other predictions in commercial real estate that you will get to share with us. But take let’s take some steps back before you do that for whoever did not listen to your first your first interview. Why don’t we recap the first two predictions that you had. 

So the first one was the Amazon destruction of brick and mortar retail landscape. And number two was the rising need for new low income housing inventory stock. So if you remember, let me kind of go through those and give you some bullet points. We talked about the five points on why Amazon is going to have a major impact on some sections of the brick and mortar retail industry. And one of which was the one quick check out. Another of those points was the killer product search. Remember we said that the Google was the online or they are the Google of online retail. Over 55 percent of online shoppers start their search with Amazon. We’ve talked about retail strip centers and the landscapes and how the tenant mix is going to change. We talked about, if you remember, the retail businesses who would be least affected by Amazon’s presence. We talk about restaurants, automotive chains, DIY stores like Lowe’s and Home Depot, retail pharmacy outlets like CBS and Walgreens and the one we talked in depth about the discount dollar stores like Dollar Tree the T.J. Max’s of the world, the Big Lots who would be less affected. And then reason why these types of retail would be less affected was there’s more likely to have an immediate need to them rather than delay it. When we can get them on. So that was kind of the recap of the online Amazon disruption in retail. The second point that we talked about was the rising need for new low income housing inventory stock in the United States. Last time we talked a little bit about the study of how many people will be either at or below the poverty line or in the lower middle income brackets by 2030 or 2050 due to income disparity which will be a tremendous amount of people. We talked about how most reach choose to build A class apartment complexes and tight primary poor markets in areas of higher income which leaves some strong gaps to build moderately priced apartment complexes and less effluent neighborhoods. And if you remember we talked about the Freddie Mac report that says that “for very low income families across the United States the amount of units that are actually available between 2010 and 2016 actually dropped 60 percent”. So all of these things come into play and the conclusion for that piece. That second prediction was there was going to be a super shortage of supply in this specific multifamily niche and someone actually needed to fill this gap over the next 20 to 40 years. So we agreed that the market is very resourceful and will more than likely find a way to make this happen profitably. So would you like to go through that true or false game on some of the misconceptions about commercial real estate first are you going to go through number three and number four?

I want to go into number three and number four because I love your foresight predictions. So let’s do number three. I want you to give me those predictions. Your third prediction.

So if it’s alright with you I’m going to set up the number three first before I reveal which niche and commercial real estate will be affected by renewable energy sources and why. So this is about renewable. So as we know the U.S. energy policy has been reliant on fossil fuels for as long as cars and trucks and boats have been around. So there were some recent energy bids for wind and solar in Colorado that were posted on green tech media. They made some headlines recently I don’t know if you saw them or not. There was an all sorts solicitation of bids by Xcel Energy who at the time had about 430 bids in on 238 individual projects. Now if you’re not familiar with Xcel Energy they’re a holding company based in Minnesota they serve around 3 million plus electric customers almost two million natural gas. Basically they serve customers from Minnesota all the way to Texas. So it doesn’t matter the specific energy or utility company that was discussed in the article. But what is significant and what caught everyone’s attention was the low price per kilowatt hour for both solar and wind power. The medium bid price for wind plus storage was twenty one dollars per megawatt per hour and solar plus storage was 36 and previously to those bids the lowest known solar plus storage price to date was about 45 per megawatt hour in Arizona. So if you break that down to the kilowatt hour or kilowatts per hour level you’ll see that wind and solar can be combined with energy storage for two point one cents to three points six cents respectively. So high development costs and pricing for alternative energy in the past was a huge barrier into this industry. However due to the advancements in technology economies of scale and general market expertise these prices seem to be falling much faster now. So what’s even more notable is that energy can be produced at this low price for kilowatt hour. Now imagine what it will be in 20 or 50 years. So this begs the question will these new forms of energy make fossil fuels obsolete as a new form of energy generation in the United States? And I would predict yes. Energy renewable sources like solar and wind will take hold permanently in the United States. However they won’t make them obsolete. So what you’re really probably asking is what the heck does wind and solar energy production have to do with commercial real estate. You know what ladies that is a fair question. It was a long setup.

Yeah well it means a lot to me as a homeowner so that makes it interesting to me. But yeah it’s totally I think relevant but you’re going to bring it together. I believe that. 

So anyway here’s how they all connect. Here’s how they do this. And that is a fair question. So on the surface the answer is not much really. They don’t have much to do with each other. However if these two energy sources do take hold in the next 50 years as our dominant means of energy production then there will be a high demand for brokers agents who are familiar with and understand the complexities of brokering land deals all over the United States. There is a connect. So the areas with the highest amount of open land, most wind, most sun exposure like Montana, Wyoming everywhere in the Southwest United States, the Southeast, Alaska, Hawaii, Texas especially Florida are going to get a boom in land deals that may need to be broker.

Oh ok. Yes that makes sense.

So in general as a country we’ll actually there’s going to be a need for a larger amounts of land across the country for these solar and wind farms thus needing CCIM trained accredited land consultants ALCs to broker and to transact these deals.  So now you can see how the onset of lower priced renewable energy sources and commercial real estate brokerage connect in a very nice way for our industry.

But now I want to kind of throw a curveball in there. I know that we’re also building a lot. I mean there is an influx of building and they’re tearing down lands . That is my question.  How is that going to affect then? Because yes I get what you’re saying how they can use the commercial real estate industry. But would all this building that they’re doing like here in Atlanta, in New York I mean a lot of places. They’re just knocking down every tree. Where is that land’s going to come from?

The other thing Rachel to piggyback on that is the population is also growing and as the population grows we need to house them. How would that play out?

I recently read a statistic that said that Florida only uses about 18 to 23 percent of land that we have in the state of Florida. Right now there is a tremendous amount of raw land that is available if you drive from Miami to Orlando or even just Orlando to Tampa through the Lakeland area. There is a lot of land. That’s close enough to where you could connect into the grid. So there is a lot of land. Same thing in Texas. It’s very windy out there. It’s just a matter of connecting to the grid is the most important thing. So if the if the cost are low enough then it makes sense for people to make money and there’s plenty of land.

  1. All right. Well I just thought I challenge you a little bit. That was great.

Yeah. I honestly I saw it in Texas. OK. That’s a possibility in Texas but Florida honestly surprised me. Yeah.

There’s a lot of land.  I actually grew up in Kansas and the town where I graduated high school all the farmers lease out their land to windmill farms up there and they make a tremendous amount of rental income from leasing their land to companies who want to put wind farms and the turbines. So it can be done anywhere and there’s plenty of places in Florida that are just like the state of Kansas.  If you ask me.

Well you would know that because your commercial real estate broker. So you would know that.

I would say if you don’t own land start doing some land deals and develop some relationships with people in that industry.

So let’s go to number four.

So the fourth foresight prediction is the whole commercial real estate industry itself is going to be evolving radically and will be remade based on technology and innovation. That’s the prediction. Are you both familiar with the term crowd founding at all?

Yes

So for those who aren’t who may be listening or watching it’s the practice of funding a project or venture by raising small amounts of money from a large number of people to provide the Internet. It’s one of the biggest investing trends today. People making big returns especially in the real estate money marketplace. So sites like Funries, Realty Mogul ,Alpha flow equity multiple realty shares , share estate’s pure street crowd street or just to name a few. And all of them by various fees ranging from none to 1 percent and various minimum vestments from five hundred dollars minimum up to 10000 per investment opportunity and also very on their level of customer service.  Their ease of use they’re amount deals on their site their due diligence process. So the reason why I say that is the one thing that everyone can agree on is sites like these and new advancements in technology in general are going to augment and potentially replace. How you do commercial real estate deals in the future. So a case in point. There are a number of websites where for a monthly fee a company will pull together an entire commercial real estate operating their brand for a new listing presentation which used to be the agent and the brokerage job or their marketing manager. And that took many days to pull that information together for a presentation. So now with the help of automation and big data there are plenty of other reasons sales comps, rent comps rent surveys, local demographic information, psychographic information, general market employment data at the click of a mouse. That wasn’t done before. Now take these sites into consideration and pair them with the sites like Legal zoom who can produce real estate contracts at a fraction of the cost that would have normally been charged to buy real estate attorney to drop a contract and then add in those who have developed negotiation strategies after years of psychological and scientific analysis and haven’t integrated them into a proprietary system which potentially guides buyers and sellers through the commercial real estate brokerage process without the help of a single human being or a lot fewer of them at least to get the job done. So these sites and companies who have developed them are trailblazers and typically come from outside of our industry they see the commercial real estate industry as an antiquated way of doing business and want to revolutionize the process from within while making some strong returns for themselves and their investor partners at the same time which I can’t blame them. So the other piece of this one of my favorite consulting firms and I’m sure a lot of people don’t have favorite consulting firms. You don’t hear that term very often. So my favorite consulting firm is Deloitte. I love reading their reports and they recently did an in-depth study.  Where they said that real estate brokerage could maximize value creation and growth by prioritizing four themes as they, which is commercial real estate brokerages, plan for their future industry. The first two were accelerate business and alternative capital options which we already discussed. So focus on fintech the value of real estate investment trusts. The third one was agnount productivity which was embraced robotic and cognitive automation which we discussed. And the fourth one was advance people reimagined talent and culture. So in summation they said that real estate brokerages have to rewire existing behaviors and remodel key aspects of their HR functions how they go about recruiting new associates into the organization. The actual employee experience itself once hired the organizational design of the company. The leadership development tracks that they have in place for their people and even the commission structures they have to change to stay competitive in the marketplace. So the last thing that they said was as the future of work evolves with the open talent economy and accelerate advancements in cognitive technologies machine learning in AI like we talked about on these sites. Virtual brokerage’s will likely have to be agile, innovative and collaborative to continue to stay ahead of their competitors in a race for positive financial impact. And their final recommendation and we totally agree with this was either keep pace with the changes in the environment around us or slowly become irrelevant and or obsolete and die off like the nearest Blockbuster store used to frequent hold near and dear.

Absolutely yes. There it is and this is what a lot of businesses don’t realize whether you are a real estate broker or an agent it doesn’t really matter what industry you’re in. You need to stay relevant. You need to and honestly today to stay relevant you have to be five steps ahead so that’s where future it comes in because you need to be ahead because being on pace with everybody else is no longer enough. So there there’s a big change and this change is fast and furious. You have to be you know 5-10 years out.  You really need to know these things. See that’s one of the things that I admire so much about you is that you take the time to read even across industries because like you said who knew like you look at energy as something separate from real estate. There’s no there’s no need to know that information but that information can have a direct impact on real estate, commercial real estate, and open land. So these are the things that we should know every industry should be very well informed not only of their industry but across industries because those things can impact your business and like you said become the next blockbuster. I mean Toys R Us who would think? And these are not small companies. These are huge companies that have had sustainable growth for quite some time and all of a sudden a small company like Amazon because they started as a very small company can just put them out like how does that happen. Well that’s because they’re not up to date.

And now with all these buildings, because a lot of these brick and mortars are being closed. How do you as a commercial real estate, where do you see yourself now with all these empty lots? Is that something that you can talk about? Like because again like I said we’re not talking about five buildings of Toys R Us we’re talking about thousands across the U.S.

It’s a relevant concern. And to answer the question as short as possible Yeah I mean we can help it. We’ve noticed as we do deals on a daily basis. We read reports and we talk with other brokerages and agents in the industry. We notice that the [inaudible] are slowly starting to shift. For example we’re representing a company that does those bounce houses it’s a franchise bounce house and they’re going in where you would normally see a grocery anchored retail store they pick a high residential area and they put a bounce house in. It’s basically a Chucky Cheese style if you will. We’re going to be able to either fill those retail spaces with something else or they’ll just demolish them and put something else self-storage is always needed. We have already talked about the need for multifamily. In Orlando hotels and motels are always a thing. There’s always a need and functional obsolescence is a thing where it’s not needed.

Airbnb’s that’s good investment to buy homes and honestly just Airbnb them. That’s becoming the huge new way of  the future. One of the people that we had here, I’m sorry one of our interviewees, was talking about that his specialty is hotels hospitality and he was talking about that change in how it’s impacting hotels. So commercial real estate is going to definitely have to make a shift really quickly so that they can just stay abreast so that they can like breathe and they can be able to stay alive because these changes are coming so fast and furious and they’re coming from nowhere and what to me is fascinating as a small business owner is the fact that it’s small business owners with great innovative ideas who are literally putting out these companies that have been there sustainable for years and they’re just coming in they’re just knocking them out with one stone. So these are things that are very important. I get very fascinated by it.

I agree and the thing that I would probably just add to that is Air BnB does have an impact on commercial real estate because if you think about it if you own a property and it’s an A class house and you can rent it out and it’s near Disney World for example if you can rent that out to a tourist who is in the area for a lot on a weekly or nightly basis or rented out to a local family who may need that property. They’re going to go because it’s all business. So what that does is that eliminates that takes off the market more inventory and more stock of multifamily units that aren’t available for the local population.

And it’s a great income also because you can sell. I mean honestly if you’re there for a week at eleven hundred a pop for 7-8 days. Imagine if you do that no nobody is going to have a four thousand dollars mortgage so you have money to be able to invest in more real estate if you can just buy a property and Air BnB it.

Yeah I sat down with the most prominent commercial real estate attorneys here in town last week and he was telling me that he has some Chinese clients who are buying houses near all the parks three to five hundred thousand dollars for a house and all cash just for the Air BnB for short term rentals.

And that’s really becoming the way of the future. So this is the thing it’s so fascinating to be able to understand.  It’s funny what I tell people all the time is as a futurist you just never really see the world the same way again. So you’re constantly seeing opportunities that people pass by. I mean to be there like a bright light but most people won’t even see it. They have no idea so. Because they’re not looking. So when you start doing futuring when you start looking at foresight you start looking at things differently you see things like energy and health that can impact your industry. So. Any other predictions that you have sort of conjured up in the last few weeks.

Well I always have more predictions so we could do a 5th 6th a 7 and 8 but we got to do for the next show. Can’t  give everybody everything right now.

Right. Absolutely. So then let’s play the game. Let’s do the true or false game. 

OK so true or false. This is a game about the common misconceptions about commercials real estate and what our team decided to do was put together some questions that we hear literally all of the time. So I’m sure people who were watching people who are listening will be very interested and wanna hear this. It’s about investment brokerage as well as some tenant and landlord stuff. So how we’re going to play it is you both get an answer. And once you both put in a true or false then I’ll tell you whether it’s true or false. And I’ll tell you the reason why. OK. I’m sure people would be interested to hear that. Whoever has the most correct.  After the five scenarios you get bragging rights we’ll give that. OK so true or false number one you have to be a high net worth individual or a company to buy commercial real estate investment properties. True or False?

False.

The answer is false congratulations. And the reason why is you don’t have to be in an accredited investor or high net worth individual to purchase commercial real-estate. As a matter of fact through the power of leverage you can get into a half a million dollar investment for only around a hundred thousand dollars cash which is around 80 percent of the value. So we’ve actually traded triple net retail dollar general deals in tertiary markets which is like a rural area for around that price point of half a million at an 8 to 11 percent cap rate. So these deals do exist so the answer is false and you both get a point congratulations Number two. True or false. The bigger the investment deal the more time it’ll take for my schedule to handle it.

False

All right. Yes. The answer is false congratulations you’re both two for two. Most people think that larger deals are more complicated and a new buyer will be forced to spend more of their time with the property doing repairs. So while a larger deal may be more of a sophisticated transaction that doesn’t necessarily mean that it’ll take more time. So if you put together a good brokerage and a property management team who can and will handle the day to days of that new investment you as the owner can stay largely hands off once the property has been purchased and stabilized. And if you’re buying a stabilized and turnkey property that it’s even more hands off. So that is the reason why.  All right true or false this is number three in commercial real estate knowing the local market and where property is located is as important as the financials of the deal.

True

Both say true. So the answer is true. So congratulations you’re both three for three. The reason why is knowing and understanding the local market of where your commercial real estate property is located is as or more important than the actual financials of the deal. And the reason why is if you are in an undesirable area or an area that is not in the path of progress or many of the other market reasons, an investment deal that looks great on paper now may not be so great in the coming years.  So it’s best to consult a brokerage or an agent before making a move on any deal as they’ll have a fair amount of market knowledge that they can share and may ultimately sway your decision. So I have a actually a true life case when you want to hear this. There’s a huge shopping center near one of the major attractions here in Orlando. I’m not going to tell you which attraction or which shopping center. Let’s assume at lease clients saw this shopping center with multiple national credit tenants already on site. Now at first blush you may clamor to get into the shopping center based on its location at the asked price per square foot. You may ask for new tenant improvements and you may sign a long term lease. What that new tenant may not know or didn’t think to research is the state has offered to purchase that shopping center for a nearby road construction project and they’ve implemented eminent domain on the owners. So this means all the current tenants including you if you bought in would need to be out in the next years so had that client been working with the brokerage. They have may have passed on that center altogether as an option. So that’s an actual case. And so people will say this is a great spot. No I wouldn’t go into it and I would never put a client in there for right now. Till that was done. All right. Number four you both are tied at three apiece. I don’t know we’re going to do if we have a tie. We’ll find out a minute if that.  In commercial real estate leases are more complex than purchase transaction. True or false?

True

False

  1. Rachel The answer is true. She got it right. So yeah the answer is true commercial leases typically have around 20 to 30 points of negotiation in them all of which can have a dramatic effect on the leasing. A purchase and sales agreement on the other hand typically 7 to 12 major points negotiated and so very straight up typically leases are more complex. There’s a lot more little things you’ve got to negotiate on the lease.

And I know that because we did research on my son’s projects for real estate property.

All right. The last one is. True or false. As an agent all the information I share with my counterpart agent can and won’t be used against us during the negotiations of a deal especially if they are super professional to work with.

Can you repeat that again?

So you got to put yourself in the shoes of a commercial real estate agent. Okay so true or false.  As an agent all information that I share with my counterpart agent when I’m doing a deal with another brokerage can’t and won’t be used against us. So if I’m sharing the information with my counterpart agent during the negotiations of the deal specially if they’re super professional to work with if they’re friendly they’re professional you feel like you want to share more information. Right. But when I tell them that information can they use that against us in negotiations or not?

True

False

The answer is false. So here’s why each agent has a fiduciary responsibility to their client and their client’s best interests. But if you’re representing the seller your job is to get the highest price. The lowest cap rate the short is due diligence term the highest hard money deposit. On the other hand if you’re representing the buyer you’re trying to get the longest due diligence period. The best financing quote the lowest price possible the least amount of documents the show up and the softness and the lowest deposit. No man. So you get to be very careful when speaking to the other party’s representatives as everything you share with them can and maybe taken into consideration and used against you during the negotiations or qualifying periods so you don’t want to do your client a disservice by giving up valuable information to the other party too soon or at all in some cases.

So even if the other person is super professional even assuming that they have high integrity. Their responsibility is to their client above all.

Honestly that’s a way to get information out of the other party. So if I’m talking to someone who I’m betting out their buyer through their broker or their agent. I want to know do they have cash, are they financing, how many deals they have. What’s their schedule look like. There’s a lot of questions. We have 12-15 questions that we ask whether it’s an agent or the principal who’s buying themselves because we want to get an idea of are you serious about doing a deal. Do you qualify to do a deal. Are you wasting your time and ours. So yeah. Anything you share will be against you.

Good to know. All right thanks. That was awesome thank you so much that was fun.

You’re welcome.

This is awesome. I’m very excited. I like it. I really enjoyed that. Next time we need to do it again and we want you back again. Okay.

I’ll have a number five and number six and I’ll have some more. True or false.

Thank you so much Jeremy. This is really awesome. I know the audience has really enjoyed this. The information is awesome and so if they want to know more about commercial real estate they should get in touch with you right.

Yeah they can go to our web site which is www.ejarealestate.com. They can email me directly on my email. Also if anybody’s interested in getting a free evaluation on the property is worth we do evaluations for free. They can send the information via the website. Its Southeast United States southeast.

Well we’ll be putting this on the website anyway. Yeah we will be putting this information up.

Okay. Thank you so much Jeremy I look forward to our next gathering our next interview. This is fun. Yeah this is good. I’m really excited that you came back. I really loved that we ended in this high not thank you so much Jeremy. So I look forward to seeing you. All right guys this is the end of this edition of Foresight strategies Group. We look forward to having you listen. Whether on podcast or video or however you want to hear as we have so many different ways for you to get a hold of us also don’t forget. Sign up for our magazine we have a free magazine that we’re giving away until we decide to put a price on it. We haven’t figured out the price yet but until you get it completely free. So go to the Web site and get that information. All right. Bye.

 

Our Guest

Jeremy Sisson, MBA is the CEO and Broker of Record for Evan James & Associates, which is an award-winning, full-service commercial real estate brokerage, headquartered in Central Florida.

They specialize in investment sales, landlord and tenant representation, debt sourcing and property management.

Jeremy has been in the mortgage and real estate industries for nearly twenty years and has been party to thousands of transactions in his career.

Guest Link:

www.ejarealestate.com

Interview with Jeremy Sisson- “Real-Estate Predictions That Are Groundbreaking”

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