JF2429 Taking Opportunities to the Next Level with Ward Schraeder

JF2429: Taking Opportunities To Next Level with Ward Schraeder

Ward is a dedicated and exemplary property owner who takes opportunities to the next level. He spent nine years working as a salesperson selling chemicals when he decided to put fate into his hands by building a business by acquiring real estate in bankruptcy. Ward started to take off from there up to the point where his commercial real-estate products reached almost half a million square feet! Through his patience, wisdom, and placing importance in relationship building, Ward sheds light on how he best utilized these opportunities.

Ward Schraeder Real Estate Background:

  • Develops commercial properties; primarily medical facilities
  • 35 years of real estate experience 
  • Portfolio consists of 50,000 sq ft of medical office space, 50,000 sq ft of rental properties, 2,000 acres of land holdings, and flipped 18 commercial properties
  • Based in Kansas City, KS
  • Say hi to him at: www.wardschraeder.com
  • Best Ever Book: “The Millionaire Next Door” by Thomas J. Stanley

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“My life has been mostly taking advantage of opportunities.” –Ward Schraeder


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, Ward Schraeder. Ward is joining us from Kansas City, Kansas. He has a portfolio that consists of 50,000 square feet of medical office space, and then another 50,000 square feet of rental properties, and then 2000 acres of land. Ward has also flipped 18 commercial properties. Ward before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Ward Schraeder: Alright. My background was science in college, chemistry and physics was my degree, primarily chemistry. I spent about nine years working as a salesperson for Union Carbide, selling chemicals and whatever. I then decided I wanted to be in business for myself. I actually acquired real estate that was in bankruptcy, and some of them were operating businesses that I took over as well. I got into real estate with a group of physicians that were having a problem with a medical office building they owned. We became great friends, and from that, I have done quite a little bit more than you described. I’ve built seven specialty hospitals and acute care hospitals. So my commercial real estate products are probably closer to half a million square feet, that I still own and operate.

The land – that came from my family, I’m a fourth-generation owner. 600 acres of it came from my family; I’ve added on to that every chance I’ve gotten. I always joke I grew up in a place that was about 20 miles from any town in western Kansas, and I had to drive about 20 miles to have a date while I was growing up, because everybody within 10 miles of me was my cousin. So as my cousins have decided to sell their land, I’ve been buying it and adding to our holdings. It’s a real pleasure. My daughter Tamara, who’s on the HGTV show with me, Bargain Mansions, her and her family just got back from there. They spent a week out there just playing; we have a lot of toys and lakes, and the kids love it.

Ash Patel: There are so many different places that we can start. Let’s go back to the medical office space and how you got into that, and then how that evolved into the acute care facilities and hospitals. Can you take us through that journey?

Ward Schraeder: Well, I wish I could tell you that this was a really well planned out process. My life has been mostly taking advantage of opportunities. The opportunity on the real estate was with the medical office building with some physicians that owned it – they were moving into a hospital space that was more convenient for them, and they couldn’t find a buyer. Fortunately, growing up on a farm and ranch, I was very aware of structures. We built everything we’ve ever needed there. When I looked at the building, I realized that it was a bunch of small office spaces or examination rooms that weren’t very conducive to office spaces.

I was able to see that you could expand that concept and move it into bigger office spaces and turn it into commercial real estate… And I just took a chance. I think it’s the biggest thing I see with young people wanting to get into business for themselves, having more than enough talent to do so, that they won’t take a chance on themselves. I did that, and because it was so successful the docs and I became good friends… And absolutely over cocktails at the country club on a Friday night, one of the doctors said “We’d really love to build a surgery center of our own.” I am like, “Well, what’s a surgery center? That’s nothing I’ve heard of.” They told me and I said, “Well, I’ve tried everything else at that point. Why wouldn’t I try this? It sounds interesting.”

Within a couple of weeks, I’d found a consultant that had an understanding of the business, put together a meeting, got the docs to bring all their doctor buddies, and we had a meeting of about 35 surgeons. Most of them walked in saying “Well, we’re never going to do this, but we’re curious what you’re selling.” By the time they walked out they had all invested, and two weeks later we were starting on a surgical hospital. It’s still in existence in Salina, Kansas. We do about 10,000 procedures a year; full facility, but small, 20 beds. We don’t really treat sick people, we treat injured or elective kinds of surgeries.

So I did that, got familiar with the industry, expanded, and decided to continue doing that. Over the last 25 years, as I said… Actually, it’s nine hospitals now. We’ve got two that are just opening up currently; probably 20 to 25 ASCs or ambulatory surgery centers, at least a dozen imaging centers… Not that I own all this, but we’ve built easily a million square feet of office space for physicians. It was one opportunity that you built off of the last one, you saw that it worked, you made some friends, you made some relationships, you got some introductions, you asked for some introductions… So that’s it in a nutshell. It’s a much longer story over 25 years, but that’s kind of it.

Ash Patel: What does a deal look like on a surgery center? You’re familiar with apartment syndications, are there similarities between the two deal structures?

Ward Schraeder: Yes, there are similarities. The structure of the hospital is that we would never build one without knowing what our business was. We went to the physicians in the community first, found those physicians, found out what their caseload history was, what their background was. After you’ve done a few of these, it’s very much mathematical; just like a performance for buying a piece of real estate. Well, this was a very mathematical formula. If I knew how many hip replacements you were going to bring, how many knee skips, tonsillectomies, and all that, I can predict on average how long an operating room is going to take a turn for each of those. That’s kind of the engine of the machine.

When you know that and you know how much time, you also then know how much recovery and how much pre-op, so you back in to how big the facility needs to be based upon the number of surgeons. You always give yourself an out, in that you build it so that it can be expanded. All of them have been expanded from what they started out as. So again, I’m a very mathematical guy, very practical. When I look at buying a piece of real estate, it’s very easy for me to identify in my mind what the right price is. The same thing with the business, it’s very easy if I have a good idea of what the revenue is going to be and how to build it to make some money.

Break: [00:07:34][00:09:35]

Ash Patel: Ward, you have a captive audience with all these physicians. Are there other investments that you bring them into? Non-medical investments?

Ward Schraeder: Yes, it’s interesting that you bring that up. We have developed our own… I hesitate to call it this, but it’s a venture capital or private equity firm that we’ve created. We have almost 400 high net worth individuals that are in that. We are into a wide variety of things; we have printed paperback books, but we no longer do that. We were in food distribution, we are in assisted living, we have almost 200 beds of assisted living, three different facilities, and two memory care units. We’re also into… You probably aren’t familiar with Freddie’s fast-food franchise. It’s a hamburger organization out of Wichita, Kansas that has spread out over the last 10 years to have about 400 plus franchisees… Or franchises, I guess I should say, not franchisees. We’re the largest single franchisee of them. We have about 70 units across the United States, all the way from Georgia to Texas.

Ash Patel: Do you own the real estate that those sit on?

Ward Schraeder: Some. Yes. It just depends. Some places people want to sell the real estate, some people want to lease it, or some people want to build the building and everything for us. We have a good enough track record and we have a fair number of those. We actually like to build them, because after we get them up and cash flowing, there are REITs out there that will buy them from us. We actually make money by selling them, as well as running the restaurants. So that’s an interesting prospect.

We also have a business, it was called Rocket Crafters, but it’s now called Vaya Space. This is a pretty far stretch for a guy that’s been in real estate most of his life, but we’ll be launching rockets, the first payload on April 24th, out of White Sands Missile Range in New Mexico. So I’m on the board of that.

Ash Patel: That’s got to be a whole other podcast. Ward, you flipped 18 commercial properties. Did you flip those with the intention of flipping them, or did that just happen?

Ward Schraeder: Most people when they go into the business, they’re saying, “What’s your exit strategy?” My entrance strategy is probably more than my exit. If I achieve what I’ve set out to do, which is to make the kind of return I expect out at that business, I don’t care whether I sell it or not. I am perfectly happy to run it, operate it, and collect what I like to refer to as mailbox money. I don’t have to do too much after it’s up and stabilized.

For example, in one of our hospitals I end up probably being a 10% to 15% owner of the operating company, not just the real estate. But there are so many people in this world who know more about running a hospital than I do, that I’m the inappropriate one to try to be the general manager or the CEO. So we’ll hire professionals that have been educated in that business. I sit on the board, I go to the meetings, I do make capital decisions and cash flow decisions… But that’s what I mean by mailbox money – I don’t really have to go to work every day to perform a function.

Ash Patel: Ward, picture this scenario – if your business collapsed your net worth went to zero or negative. What would you do?

Ward Schraeder: Well, that’s interesting… I saw that question in one of your interviews I watched before the show. I think I’d start just like I did. I’d go back and find a small commercial real estate property… Even though I did a lot of real estate for myself, homes that I built, lived in, sold, and did it again and again, commercial is by far more attractive to me. Especially if you have a good enough property that it requires good tenants, you almost never have to worry about collecting your money; you don’t have to worry about them trashing your property, leaving in the middle of the night, or something onerous happening, like drugs or something like that going on in it. It’s much easier to build a performer where I can manage the cash flow, manage the maintenance, and manage the cleanliness of the property. So I’d go right back into doing real estate.

When I got ahead, just as I did, Tamara always jokes that my children were forced into labor when they were young. But when we were young, I didn’t have enough money to really do anything else. On weekends, when we had something that needed to be done that the children could do, they worked with me. Worked with me, not for me.

Ash Patel:  Yeah. Ward, you interact with a lot of doctors… My wife is a doctor as well. What unique traits do you use to communicate with them, and how are they different when you’re pitching the investments?

Ward Schraeder: Pitching is one subject that isn’t too difficult. We’ve had a really remarkable track record. It’s pretty easy to get their attention when I need assistance with an investment. Assistance meaning capital. Physicians all work a lot of hours in general, they don’t really have time to study the economics of very many projects, so they have to have a trusted investor for them. All of them have their 401s or their IRAs or whatever they do, but this is a whole different realm of diversity for them. So they can be in a rocket company, they can be in a food distribution company, they can be in a printing company, or another real estate, or they can even be in one of our other hospitals.

The hospitals over the years have gotten bigger and more expensive, so doctors that trail with us have come from their hospital where they were successful and helped invest to get the new one off the ground. So talking to them, that side of it is relatively easy. I’m sorry, I’ve forgotten the first part of your question.

Ash Patel: Let me rephrase it just a little bit… Somebody who is wanting to solicit doctors for investment capital, what advice would you give them?

Ward Schraeder: Number one, don’t waste their time. It won’t take very long to lose their attention span. Not that they don’t have a long enough attention span, but maybe not as long as it needs to be for starting a business. My relationships with them started with some very basic kind of businesses. Real estate – very easy to understand and very limited risk. I’ve always looked at real estate and said, “Maybe I’ll lose my downpayment. But will it take my whole company and business down?” No, I don’t believe so. Even in the worst economy, I think I’ll still get out of it, maybe with no cash, but at least I won’t have to sell 10 other properties to make it work. So start off with something quite basic. Prove yourself with something not outrageous or gigantic, maybe is a better word. Once you’ve done that, then you’ve got their ear. If you’re successful, doctors are like everybody else in the world, they like to talk; they like to tell their friends how they’ve been successful with this guy out of Kansas, and you ought to meet him. That’s what I would suggest.

Ash Patel: That’s great advice. So be respectful of their time, get to the point quickly, prove yourself, and hope for a lot of word of mouth on your successful deals that you do with them.

Ward Schraeder: What better way of promoting yourself than by word of mouth? We have very little advertising in our business. We probably employ, in all of our facilities, 5,000 to 6,000 people. In all of them that were participating in. I shouldn’t say that we own 100% of them. But you don’t get that by advertising, I don’t think. I think the best way anyway to get it is the way we did it. Maybe you’d call it organic growth.

Ash Patel: Ward, the question that we typically ask is what’s your Best Ever real estate investing advice. With you, I’m going to change it up. What is your Best Ever investing advice? It doesn’t have to be real estate. As a matter of fact, let’s do both. Let’s do your real estate advice and non-real estate investing advice.

Ward Schraeder: The real Estate advice is the same old one – location, location, location. My ranch is a terrible investment, because it’s in the middle of nowhere; there’s no opportunity for growth. It’s a huge county in Kansas that has 3,000 people. In Salina, Kansas where I built the first hospital and I lived at the time, I started buying land that was one mile outside of town, paved roads on both sides, and water on both sides. I held that land for 10 years and sold it for a very high multiple of what I paid for it. So it proves the equation of location, location, location. I actually think the best advice for buying real estate is buying something that you can see as an opportunity, but is maybe dilapidated or in a state of disrepair. Maybe a good example of that would be one of the businesses we assisted in starting was a bank in Salina. We did a scratch start of a small bank, 250 million in assets when we sold it.

A gentleman came in with, let me say 50 properties; I don’t remember the exact number, but it was close. He had lived off the deferred maintenance of those properties for quite some time, several years, until the point that he was having trouble renting them. He just came in one day and threw all the keys on the desks and said “I’m 65,” or whatever it was, “I’m retiring and I’m sick and I don’t want these anymore.” It took the bank about 18 months to recover those. They needed roofs, they needed kitchens, they needed paint, they needed floors cleaned, and carpets removed… You know the story.

I came in after the 18 months that the bank had owned them and we reinvested every penny we got out of them and we were actually cash flowing, but nobody wanted to buy them. They were at a discount of 25% to county appraisal. I want to buy these; that’s actually what I started to say, it was my initial conversation. We ended up getting the 10 or 15 investors, I don’t remember the exact number, that had invested in the bank and we all got together and bought them.

What a perfect opportunity. The places were actually cash flowing. Every penny we made for the next 5, 6, 7 years needed to be put back into it… But we did it, and now we have almost 60 units. We only bought 33 or 34 of them but we now have 60 units, we still own them, we’re almost debt-free, and they’re all in tip-top shape. But nobody wanted them, because they were so beat up. But you could see it was an opportunity.

Ash Patel: Ward, are you ready for the lightning round?

Ward Schraeder: Sure.

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

Break: [00:20:07][00:20:43]

Ash Patel: Ward, what’s the Best Ever book you recently read?

Ward Schraeder: There was one I read that I actually paid my children to read. It was called The Millionaire Next Door.

That is a great book. Ward, what’s the Best Ever way you like to give back?

Ward Schraeder: I am acting as a mentor for several young people to learn how to be in business for themselves. I get nothing economic from it. It’s just a pleasure being around young people that are motivated that want to do something with their life. I love it. It gives me encouragement for our society.

Ash Patel: That is great. Ward, how can the Best Ever listeners reach out to you?

Ward Schraeder: They can reach me on Instagram at @WardSchraeder, or Facebook, the same thing, Ward Schraeder. Just send me a note. If it’s something that requires more than a public conversation, I’d be happy to engage in a private conversation.

Ash Patel: That’s fantastic, Ward. Thank you for being on the show today. You could have written a book with all your different experiences that you have. I think the big takeaway here is you just look for opportunities and then you execute flawlessly in getting those deals done. You’ve built a great business and a great network. Congratulations on all your success and have a Best Ever day.

Ward Schraeder: Well, thank you. Thank you for having me on your show. I love doing this. It’s fun to talk to people that have had different experiences. I didn’t get to ask you enough questions about your business, but maybe there’ll be another opportunity.

Ash Patel: Awesome, Ward, thank you again.

Ward Schraeder: Take care.

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