JF2614: Lessons Learned from 2,000+ Units and 1M Sq. Ft in Development with Neil Bertrand

Neil Bertrand has had experience in all classes of real estate, with assets in 9 states and 33 different markets. Today, Neil is discussing the challenges of developing large-scale, mixed use properties, why he believes the success of any deal relies on the underwriting, and how to get private equity groups to bite on a deal.

 

Neil Bertrand Real Estate Background:

  • Full-time real estate investor, acquisitions specialist, and asset manager
  • Portfolio consists of 431 existing units, 2,184 units in development along with over 1M sq ft of retail/office under development, and new development projects breaking ground Q1 of 2022
  • REIT Group is modeled after institutional investment firms, working with private equity groups, family offices, and high net worth individuals
  • Based in Dallas, TX
  • Say hi to him at: www.reitgroupventures.com
  • Best Ever Book: Trammell Crow, Master Builder

 

 

 

 

 

 

 

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Deal Maker Mentoring

TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Neil Bertrand. Neil is joining us from Dallas, Texas. He is a full-time real estate investor, acquisition specialist and asset manager. Neil’s portfolio consists of over 400 existing units and over 1 million square feet of retail and office under development.

Neil, thank you for joining us, and how are you today?

Neil Bertrand: I’m doing well. Thanks for having me on.

Ash Patel: It’s our pleasure. Neil, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Neil Bertrand: Sure. I started in 199, so I’ll do my best to give the condensed version. I did begin my multifamily career about 1996/1997, started actually on site as an assistant manager. Within 18 Months I went from a system manager to property manager to regional manager. Since then I’ve worked with four NMHC top 50 firms. I’ve had assets in nine different states and 33 different markets. I make the joke that I’ve had assets so nice, we had pet therapists on staff, and assets in such rough neighborhoods that you had to make sure you had your Kevlar jacket on and not your suit jacket. But student housing, conventional market rate, tax credits, senior housing—I’ve been around a long time and have been very blessed to work with a lot of different types of assets and different types of owners.

2017, I decided to stop making everyone else a lot of money and start making myself money. So I stepped out, partnered with a great group of guys out of Houston, closed a deal in San Antonio, and then about a year after that, received a call from a former CFO to work on a new development deal with him in Santa Fe.

And at beginning of this year, I partnered up with a great gentleman by the name of Robbie Cotta that I’ve known over a year; we spent a lot of time getting to know each other and we kind of both share a lot of the same ideology and are perfect complements for each other skill sets. As of today, we have 2187 units under development, with the million square foot of commercial and office space that you alluded to earlier; a vertically integrated REIT Group, and looking to make the future big.

Ash Patel: Where’s that development, or is it in multiple locations?

Neil Bertrand: So there’s three developments and they are all north of Austin. One in Lago Vista, which is a 168 unit build to rent duplex community with conventional apartment amenities. Then we’ve got Cedar Park, which is 378 units with 60,000 square foot of retail on the first floor, seven-story wrap, and then we’ve got the Leander springs project which is 78 acres, three apartment communities, it’s a large square footage, a million square foot of commercial retail, and a four-acre crystal lagoon.

Ash Patel: What was your retail exposure prior to these developments?

Neil Bertrand: It was actually minimal. I did do some commercial, more office buildings than retail, but we had a great team in REIT Group that has done commercial and retail, and also access to a lot of great friends I’ve made over the years who can help us.

Ash Patel: And are a lot of these retail spaces pre-leased, or will you lease them as you build?

Neil Bertrand: We’ll lease them as we build. With these projects being live-work-play development, obviously, we’re focused on dry cleaners, boutique stores, restaurants and things of that nature.

Break: [04:15] to [05:48]

Ash Patel: What are some of the challenges in developing mixed-use properties on this scale?

Neil Bertrand: Sitting on your hands and waiting for lumber prices to go back down is one… There’s always challenges. I’ve done new development in the past; I was very fortunate to do three separate projects in two different states at the same time. A lot of it is really permitting, working with the city… Sometimes you’re in this time and space where leadership changes occur at the City Council or with the mayor, and then now you’ve got a different vision, so you’re kind of back to the drawing board… But all in all, we’ve been very blessed and very fortunate that our designs were approved and that we’re able to move forward and start breaking ground in the first quarter of ’22.

Ash Patel: What kind of concessions has the city asked you for?

Neil Bertrand: Leander really wants to capitalize on the tech movement and all the in-migrations, so they’re not really leaning into it in order to attract the tech companies and their workers to Leander. Leander is the fastest-growing city in America, population has grown 705% since the year 2000. Median incomes there are well above $100,000. And it’s also the new development, but there’s only one project like this in Leander. So the city really hasn’t asked much of us in terms of concessions. In fact, they’re actually assisting us with some tax abatements to help us get this thing built.

Ash Patel: That’s great. What’s the typical financing structure for a development like this?

Neil Bertrand: Obviously, you’re going in with construction loans first; if you can find the right mortgage broker, you may be fortunate enough to get 65% loan-to-cost. My background being all institutional, I’ve made connection at several different private equity groups and family offices, and we’ve started our discussions with them and have several interested parties to take it out of construction and finalize it. So we’re moving forward right now.

In terms of favorable construction interest rates, they’re down from where they were two years ago, hovering kind of in the 6-6.5 range, kind of more than that five, kind of pushing six. But the thing is, they know that you’re only going to have that loan for 18 months, so they want to make their money and have you roll out of it.

Ash Patel: Neil, are these partners debt partners, or equity partners as well?

Neil Bertrand: Well, we’ve done something very interesting. We established the fund, and the fund actually purchased the land for all three developments. And we were able to get all three developments, the land purchased off-market, which has really been great, because now we’ve got adjacent land very near to the sites, that are being listed by brokers for $2 million more than what we paid. So it’s kind of like, “Alright, we walked in, we got immediate equity.”

So our core group of investors are IT professionals, tech entrepreneurs, people that work long hours, they don’t really have a lot of time to go in and study this type of stuff. So we help them out on that front. So right now we’ve got the land through the fund, the equity for the actual build will be pretty much coming from private equity and family offices… We’re open to entertaining on select deals, co-GP opportunities.

Ash Patel: And what’s the anticipated return for investors?

Neil Bertrand: So the deal level of all three is 20-plus percent when you break it down to GP by LP levels. It’s hovering right about 18%. So very strong returns. Our goal is always to try and double our investors money within five years or less.

Ash Patel: And Neil, if you look back on your over 24 years of real estate experience, what’s a deal that you lost money on and learned a hard lesson?

Neil Bertrand: You know, thankfully, I haven’t lost money on deals, but having worked receiverships, I’ve seen a lot of mistakes made; having done consulting work, I’ve seen a lot of mistakes made. And knock on wood, I haven’t lost anyone’s money, or any of my money yet. Hopefully, I can continue that trend. But I think some of the lessons I’ve learned is the success of every deal depends on the underwriting. If you’re going in with a subpar underwriting model, if you’re going in with your expectations too high, or you haven’t [unintelligible [00:09:48].13] enough advice from, not just brokers and property management companies, but other owners in the area, you’ll set yourself up for failure. So your success begins at underwriting. After the underwriting, you’ve got to have a great asset management team and a great property management team, that are heavy boots on the ground. So that’s critical.

Ash Patel: And other than going out on your own prior to 2017, what’s the one thing you wish you did differently?

Neil Bertrand: Going out on my own a lot earlier. I say that, but I don’t think I would have had a lot of the opportunities afforded to me now if I didn’t have my background, right? If I didn’t have the private equity connections. If I hadn’t been a vice president of property management, Vice President of asset management, Vice President of acquisitions. If I didn’t have that trifecta of experience, if I hadn’t worked with everyone from Hudson Advisors, to Ted Abiola, the pharmacist… I don’t think I would really change anything. Would I have loved to have started sooner? Sure. But looking back, everyone I interacted with, everyone I met – starting sooner, I would have missed the opportunity to have connected with a great mentor who started in the industry in the year I was born. So he’s seen four different real estate cycles; he saw the crash in the ’80s, he saw what happened in the ’90s, the financial crisis of the 2000s… I wouldn’t have that connection to him. And that connection to him is also what made me my connections to the private equity groups and family offices. So I really wouldn’t change a thing.

Ash Patel: Neil, it seems like your network is one of your biggest assets. What advice would you give to some of the Best Ever listeners, both in terms of growing their network and communicating with your network?

Neil Bertrand: First off, I think, it’s decide where you want to be. Me having an institutional background, I’m much more comfortable raising money from private equity groups and family offices than I am from individuals, right? So decide where you want to go and who that target investor base is, and spend time with those people. I never get offended when someone says, “Hey, I don’t think this deal is right for me,” or “I just don’t think we click.” That’s great. At least you’re honest. So don’t be discouraged if someone tells you that; it’s better to know that upfront.

Consistent communication… Don’t over-communicate with people in terms of building the relationship. I set reminders and reach out to people, probably different groups of people, at least once a month. “Hey, I haven’t talked to you in a while, let’s grab some coffee. Let’s get lunch. Let me know if anything on your side has changed in terms of deal size or what markets you’re focused on.” Just kind of maintaining that communication, and just meeting as many different people as you can through your network, right? Which is how some of the opportunities I’ve had have come about.

Ash Patel: And Neil, you make it sound easy, but private equity and family offices, in my experience, are some of the most stringent when it comes to due diligence. How do you pitch them? How do you get their attention? How do you get them to bite on a deal?

Neil Bertrand: Well, you’ve got to remember I grew up in that environment. So I know how to speak their language. I know what they’re looking for. The underwriting model I use is one that I’ve sent to AllianceBernstein and Saphira. Garrison, QADRI, Cardinal. So I’m comfortable in that space. Is it easy? No.

One of the biggest pains is when you meet a new private equity group – they will get you on the phone, they’ll let you pitch a deal they have zero interest in. They don’t want the deal. They are feeling you out to make sure that you know what you’re doing, that you have taken a look at every conceivable thing on the deal. I’m just comfortable in that space. But yeah, make no mistakes, it’s not easy. You’ve got to go in and you have to be really prepared and you have to know everything, good and bad, about the deal, the area, the socio-economics of the immediate market… You have to know everything.

Ash Patel: Do you conservatively underwrite the deal specifically to present to your private equity and family offices?

Neil Bertrand: No, I underwrite deals to present to not only the family offices, but the retail investors, and I do stress test them. The one thing I learned from my mentor was, it doesn’t matter what IRR you underwrite to, or cash-on-cash. What matters is is if the economy goes to hell in a handbasket, COVID pandemic case in point, can you pay the mortgage and not lose the asset? So I do tend to kind of stress-test deals. Worst case scenario, I’ll run two or three different scenarios. If financing is this, this is what deal looks like; if we go this way and use less leverage, it impacts the returns, but on exit, I could do this… So I take a look at a few different variables.

Ash Patel: What advice would you give to somebody who’s gotten a few multifamily deals under their belt and they want to move on to something bigger? Would you recommend they look at development?

Neil Bertrand: For us, development was matter of opportunity, right? I’ll give you an example. Here in the Dallas Fort Worth area we made it to best and final on a very nice Class A deal, construction started in 2019. It had come out of CO sometime mid-2020. The lease-up was done. It was a unicorn among Class A deals, because the developer didn’t care about expenses. They build-flip, build-flip, build-flip, so they didn’t care that the management company had a contract to clean Breezeways for $34,000 a year; didn’t bother. So it was a unicorn, right? There’s a lot of meat on the bone, I could have immediately cut about $194,000 on expenses, just from a lot of the frivolous, unnecessary money being wasted. But I traded it 220k a door. And the winner of that deal put a million dollars hard day one. We are building our vertical deal in Lago Vista, the duplex community for significantly less than that, for better returns. Even the other projects which are wrapped, we’re building for a little less than that, with better returns. But it was the right markets, at the right time, we got the land off-market, that really helped, and we were working with some great developers, construction companies, project managers, who were able to help us watch those costs.

Development’s not easy. The cities can be tough to deal with; it’s very hard to find investors who are okay waiting for two years for a distribution check to come in. So it’s a tough field to be in.

Break: [15:57] to [18:37]

Ash Patel: Do you take on retail investors as well?

Neil Bertrand: We do. In fact, I mentioned earlier that the core of our database are primarily IT professionals, tech entrepreneurs. My partner and our CEO, Ravi Katta, we really focus kind of on the Indian community, because again, high-income earners, working a lot of hours, they don’t have the time to really dig in, and so they rely on us to help them with these types of things. And it’s a great feeling knowing that you’re kind of helping somebody reduce their taxes, and start to build a legacy and leave something behind for the family.

Ash Patel: And Neil, how do you attract retail investors?

Neil Bertrand: It’s really, I think, personality-based. You have got to like and trust the people you work with. Some people may look at me and go, “The guy’s got all the knowledge in the world, but there’s just something that rubbed me wrong about him.” And they would go with someone who’s been around maybe five years, over me, because they just like their personality better. And I’m okay with that. That’s fine. I think it really is — it’s relationship-based.

I hear a lot of people say, “Hey, just give me your money and go away.” I was mentioning earlier about, it’s easier for me to go out and pitch to private equity than it is to retail investors, because I get this mental block. I take it very seriously when I’m talking to retail investors, because here’s someone who’s making $250,000 to $300,000 a year, which is really good money… And they’ve managed to save up and accumulate, and they’re going to trust me with $100,000 or $200,000 of that, because our minimum amount on the fund on the big projects is $100,000.

My mind automatically goes, “Okay, so what if I screw this up?” I don’t lose these people’s money. These are people that—I’ll give you an example. I spent a few days in Miami at Patrick Bet-David’s Conference, of all conferences, with our top five guys, and they’re not just our investors, they’re friends, right? We are hanging out in our hotel room, and just tell the life stories, and talking to younger investors and hanging out on the beach… It’s not as white shirt and tie as it is when you’re working with a private equity group. They know exactly what they’re getting themselves into, they’re experienced. Most retail guys have a working knowledge, but they don’t know how to underwrite to the extent that we do. So they really don’t know what they’re getting into. They’re really, really trusting you, and that’s something I take seriously.

Ash Patel: It sounds like it’d be a fun deal to invest with you. Neil, what is your best real estate investing advice ever?

Neil Bertrand: Wow. Man, you know what – I remember being a snot-nosed little 21-year-old kid working on a real estate degree, and one of my instructors was a retired broker who owned a property management company… And she and her husband, their way of giving back was to teach at a local community college for people who want to get their real estate license or get a degree in real estate. And I asked her once, you know, “Here I am, this is where I am in my career, what advice would you give to me to grow and to learn?” And it was just the most brutal, brutal piece of advice, and she goes, “How long have you been doing this?” Said, “I’ve been there like two or three years.” She goes, “Okay, when you’re around people who’ve been doing this for 25-30 years more than you – shut up. There’s nothing you can say they don’t know. Soak it in. And when you find yourself around, people who’ve been doing it as long as you, who are talking like they know what they’re doing, close your ears, because they’re just going to poison you with misinformation.”

The trick there is — there are a lot of people who’ve got great friends like Aaron Katz. He’s a syndicator, and he’s been around about 10 years, but he is totally committed to learning; learning, learning, learning. He doesn’t do podcasts, he hasn’t written a book, he doesn’t have a show, he doesn’t have a guru program… It’s just constant learning. So there are some people who haven’t been around 20-25 years, but they put the time into getting the knowledge and getting the education.

Find a real mentor. Not that there’s anything wrong with the mentor programs and Guru programs, but find a Robert Faith, who’s the CEO of Greystar, or a Steve Francis. Guys that have built 50,000 unit, vertically-integrated companies; take them to lunch, pick their brain, see how they did it. And they’ll have some amazing stories to tell you. Find people who have done it a lot longer than you, who have seen the ups and downs, who weathered storms and have got the battle scars, and learn from them.

Ash Patel: Neil, that’s great advice. I would imagine a lot of younger people try to get your attention and try to get you to mentor them. How does somebody make a positive impression on you to the point where you want to help them?

Neil Bertrand: I’d love to help everybody, and we’re trying to do that with our REIT Group. We’re working on something called Investor Insight Academy. It’s not a mentor program or a guru program, it’s an information and an education program, and we want to put it out there for free, just to help people learn.

I remember the story of a guy, a very successful real estate investor. And he was outside, and the garbage man pulled up. And one of the garbage guys jumped off the back of the truck and says, “Hey, teach me how to do what you do, so I can take care of my family like this.” And the words “so I can take care of my family like this” is what made that guy take this waste management employee hanging off the back of a garbage truck, essentially, and helped him to build his own portfolio. His “why” was —his heart and his “why” were in the right place. He knew the guy had money, because of this big house, but his first thought was “teach me how to do this so I can take care of my family.”

So I think somebody with the right “why”, somebody with the right fire—I’m 51 now… You get to be my age and you start seeing some of yourself in people that are a lot younger, and you see the good traits, and you see the “Oh my God, was I really that much of an arrogant, snot-nosal punk?” You see those type of things… But I think really too it’s also, you’ve got to build that relationship with people. My mentor and I, we hit it off well. He had pretty much the same sense of humor I did, and it just clicked. It has to click, you can’t force it.

Ash Patel: Yeah, great advice. And I love the why. Because it seems like a lot of people just want that mailbox money, but that’s all. They don’t have the why, they don’t have the motivation or the willingness to put the hours in.

Neil Bertrand: Yeah.

Ash Patel: Neil, are you ready for the Best Ever lightning round?

Neil Bertrand: Let’s do it.

Ash Patel: Let’s do it. Neil, what’s the best ever book you’ve recently read?

Neil Bertrand: Trammell Crow, which is the story of a Dallas multifamily developer, Trammell Crow. It’s amazing. The guy created [unintelligible [00:24:59].13] millionaires. It’s amazing. He gave so many young guys right out of college the opportunity to become sweat equity partners in these huge deals. You look at how many companies came out of Trammell Crow that are around today. His story is just really inspiring. And not only because of how high he rose, but the fall, and the development when things crashed in 1984 to about the 1990s, right? The development crash and just coming out of that, and how his personality and his focus that built Trammell Crow didn’t work when he was trying to rebuild it after the fall, and he had to turn to one of his sons. It’s a really great story.

Ash Patel: That sounds fascinating. I wrote that down, that’s going on my list. Awesome. Neil, what’s the best ever way you like to give back?

Neil Bertrand: My wife and I have adopted two children, so it’s something that’s really near and dear to our hearts. We adopted them through Child Protective Services. There’s a group called Together We Rise, which is a great foundation that supplies these kids that are being taken out of their home with—both children that were placed with us came to us literally with some clothes in a trash bag, half a can of baby formula. They had nothing. So Together We rise exists to work with CPS and work with these agencies that work with CPS, so that way children get backpacks, they get clothes, they get the things that they need while they’re in this kind of really—well, it’s not kind of, it is a traumatic transition in life. So we’re heavily involved with that. And the other way is just sharing my knowledge any way I can, with anyone who asks.

Ash Patel: That’s incredible. Neil, how can the Best Ever listeners reach out to you?

Neil Bertrand: You can reach me at neil@reitgroupx.com.

Ash Patel: Awesome. Neil, thank you for sharing your story with us; over 20 years of real estate experience, development, over a million square feet under development as well… What an incredible story. Thanks for sharing a lot of your experience with us.

Neil Bertrand: You’re welcome, and again, thanks for having me on.

Ash Patel: It’s our pleasure. Best Ever listeners, thank you for joining us and have a best ever day.

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