In this episode of The Passive Income Attorney Podcast, Seth discusses with former attorney and founder of Excelsior Capital, Brian C. Adams, about the best practices for strategic real estate investing, particularly in the commercial office space. If you feel reservations about the office asset class, check out this show to see how Brian eases those concerns through his explanation of the “hybrid model,” the “hub and spoke model” and suburban migration. Enjoy!
“Most of our sorrow comes from the difference between where we think our reality should be and what our reality actually is. If you can narrow that down, you’ll have more happiness and less sorrow in your life.”
HIGHLIGHTS:
1:47 – Brian talks about his story.
4:11 – Seth asks about his “a-ha” moment.
4:26 – Brian explains how he switched from law to real estate investing to avoid the golden handcuffs.
10:47 – Seth asks about Brian’s company and what do they do.
10:54 – Brian explains how he started with LP’s co investment opportunities.
13:14 – Brian explains co-investment syndication model.
15:28 – Seth asks about office assets.
15:44 – Brian explains how his company obtains 10-12% cash yields on office assets.
18:25 – Seth asks Brian about his point of view on office assets pre-pandemic, currently and in the future.
21:42 – Seth asks how working from home has affected office assets?
21:56 – Brian explains about the hybrid model, the future of working from home and the hub and spoke model.
24:50 – Brian explains why work from home failed for some companies.
25:56 – Brian explains the way his company evaluates markets.
28:23 – Seth asks about the impact of occupancy on office buildings.
30:00 – Brian explains why IRR is not as important as cash on cash returns for office asset investors.
30:59 – Brian explains why keeping investments for 10 years of more creates better results.
31:06 – Seth asks Brian to compare and contrast multifamily versus office assets.
34:05 – It’s time for the Freedom 4.
34:07 – What’s the best thing you do to keep your mind and body healthy?
35:13 – In an alternative universe where you weren’t involved in real estate, what would you be doing?
36:01 – Where were you at five years ago? And where do you see yourself five years from now?
37:44 – How has passive income made your life better?
FIND | BRIAN ADAMS:
Website: https://www.excelsiorgp.com/
FULL TRANSCRIPTION:
Seth:
What is up law nation hope you’re having a great week. Hope you’re getting outside enjoying the new year and really just living your best life. When you have a moment go to escapethebillable.com and grab our free passive investing guide. It’s absolutely free and has some incredible insider content that I know you will love. Okay, a lot of times on this show, I preach the idea of getting out of the matrix, the rat race or at least building your way to be able to do so if you choose to, because I’m fairly certain that that day will come. Now what if I told you that you could escape the office by actually owning the office. Our fantastic guest today is none other than Brian C. Adams. He’s the president and founder of Excelsior Capital, where he spearheads the investor relations and the capital markets arms of the firm. He has over 10 years of experience in real estate, private equity, and has advanced knowledge and best practices for strategic real estate investing, particularly in the commercial office space. I’m ready if you are, let’s go.
Seth:
Brian Adams. Welcome to the show, brother. Happy to have you on.
Brian:
Hey, Seth, thanks for having me.
Seth:
Yeah, of course. So let’s just dive right in, man. What’s your story?
Brian:
Yeah, so the New Yorker who married a Nashville girl we met in college. And we did the Northeast thing for a little bit. I actually, I know a lot of your listeners are attorneys. I was a paralegal out of school at a big white shoe law firm, which at the time was LeBoeuf, Lamb, Green and MacRae. It then became Dewey LeBoeuf. And then it became the largest bankruptcy in law firm history, which we can get to get into if you want to. But interesting, interesting place to be it was before the Dewey merger. I was in their DC office and their first group for the most part, big regulatory practice. And then went to law school after that, and eventually ended up in Nashville where my wife is from. I practice law for about four years, I graduated law school in 2009, which probably the worst possible time to graduate from law school in our generation is very challenging. I had done both my summers at the district attorney’s office here in Nashville, Davidson County, eventually worked my way through into a full time job as an assistant district attorney general, here in town, and most of my short career was with the vehicular trial team. So I was trying anything from an open container, which is a C misdemeanor, to vehicular homicide for a number of years, and I think we’re gonna get into it, but eventually left that profession and started a commercial real estate business with my business partner who actually is also recovering attorney. Oh, cool. He is likewise. Yeah, so my business partner, he’s likewise a New Yorker. He married a Nashville girl, he went to NYU law. And the majority of his career, he worked at Kirkland and Ellis in New York, in the city, in their fun formation, realized group working with large institutional clients, for the most part, oh, we started our business 10 years ago. And, you know, to make a long story short, we now run about two and a half million square feet total across 12, markets, portfolio values, probably around $450 million. Gross. And today, our businesses, we are fundless sponsors, so we syndicate equity on a deal by deal basis to a network of individuals, family offices, independent raise boutique, wealth management firms, etc.
Seth:
Gotcha. Awesome, man. So tell us a little bit more about that transition out of law. You know, did you have kind of an aha moment that you’re like, I don’t want to do this anymore. Or maybe I should, you know, look at alternative investments or something like that. Did you have kind of a singular moment where that happened?
Brian:
Yeah, I think it’s kind of like Hemingway said, you know, going bankrupt. It happened slowly, then all at once. It was a culmination of a number of things. And then it all just kind of catalyzed into one movement. But what happened was, I was obviously the dean’s office, and I wanted to move into a corporate law gig. I needed to make some more money. I had a son, and a young wife and I started doing informational interviews. So I would do Coffee or lunch or drinks with partners that, you know, the five to 10, large to mid sized law firms in town thinking I could get a litigation gig because I knew how to try cases, which nobody cared about. But in any event, I would talk to these typically 50 to 65 year old guys for the most part, and you know about their experience, their story, their practice, group, the firm, etc., trying to angle into a position. And most of them were pretty miserable. And most of them had this golden handcuff problem where they were making just enough money to live the lifestyle that was expected of them as a partner in one of these firms in town. But they were never making enough money to go somewhere else, right and, or to be on the buy side, per se, or to have more flexibility or freedom. And, you know, my father’s an attorney, my grandfather was an attorney, I understand kind of that lifestyle, but I never understood the business really, until I started talking to a lot of these people and reflecting because the law school, they don’t teach you how law firms work, right. And I realized that the value that they were creating for the enterprise was directly correlated to the amount of time that they weren’t spending with their family, right? Yeah, merely a function of how much time are you willing to give. And that’s going to equal how much you get paid. For the most part, obviously, there’s, there’s exceptions, if you, you know, have a big book of business, or a huge client, that kind of thing, or a Rainmaker, those are pretty rare. But I just realized I didn’t want to be part of that ecosystem. And I didn’t want to have the value creation, be based on just how much time I was willing to grind away in a salt mine. And so I took a class taught by adjunct professor at Owen, which is the business school of Vanderbilt here in Nashville. And he said, Listen, they were all kind of young people like myself at the time, mid 20s. He looked out in the class, and he said, how many people are here to try to figure out how to get rich? And everyone raised their hand. And he said, Okay, well, let’s do a thought experiment here. Let’s go with the Forbes 100. And let’s take out everyone who inherited money and everybody who married into money. And if you take all that out, you scrub it, you basically have three buckets, people who made money, starting a company and then selling it, people who were part of a corporate gig and eventually got stock options, which allowed them to gain huge amounts of wealth. Or they were in real estate, commodities, timber, oil and gas, some kind of real asset type of product. And I thought that was like the smartest thing I’ve ever heard in my life. And, and I realized that I didn’t have this essentially a great idea to start a company that would, you know, in a garage would end up being, you know, Microsoft. And I didn’t really want to grind it on the corporate ladder, because I’d seen what corporate law firms look like. And I understood what the hours were, and that whole process. And so I thought, well, I know a lot of people in real estate that aren’t terribly smart, they don’t work terribly hard, they do really well, fairly low barrier to entry business. So I’m gonna do real estate. So it was kind of those two things coupled together, and eventually made me think, Okay, I’m gonna take what was a side hustle into a full time job?
Seth:
Yeah, man. That’s awesome. Dude, I had a very similar experience at a big law firm. You know, you just saw these partners that kind of, you know, quote, and quote, made it, but they’re in the office as long as you are or even longer as an associate. And you’re like, what do you what are you doing all this for man, like, You’re, you’re 65/70 years old. You shouldn’t be in the office at all. I mean, you should be enjoying what you’ve done over your career. And instead, they’re just locked in. Because I think there’s a couple things. I mean, obviously, the golden handcuffs because your lifestyle just kind of meets, you know what you make, but on top of that, they’re just they’ve done it for so long. And they’re really good at what they do. And at this point in our lives, they don’t even know anything different. You know what I mean? It’s like, they’re just really kind of married to their job at that point.
Brian:
Yeah. And what I talked to a lot of young people about, especially young attorneys, or aspiring attorneys is, you know, listen after having lived through eight, the firm, it doesn’t benefit the firm, except to encourage you to get more outside business and build your book up for you to network. And for you to build other skill sets. Part of what they’re trying to do is make sure that you don’t have enough time or energy to do those things. Because those are levers that you can use in the marketplace. So it’s really, really highly important to maintain your professional development and your networking outside of the firm. Because you realize pretty quickly to your point, you’re grinding out to 2500, maybe 3000 hours a year, and you have a family. You just don’t have any more time or energy to do anything else. You can ever really extract yourself from that world. My dad is 71 he’s still grinding in New York is I’m afraid that you He doesn’t have any hobbies, right? So why would he retire? Because what the hell? Is he going to do? Anything else other than, you know, putting in the work? So I’ve never wanted that for myself.
Seth:
Yeah, yeah. And you also mentioned seeing others do it, you’re like, you know, these people that are, you know, buying these massive apartment buildings or commercial complexes or office buildings, whatever it might be. They’re not Donald Trump. They’re just regular guys. And we see that from the legal profession. And I saw that, and you mentioned that you saw that and we’re like, oh, I can do this.
Brian:
Yeah, I mean, you got to imagine I always think about this too. And when we work on a deal, and we see the settlement statement, and they see the numbers being thrown around. I mean, there’s got to be moments where you think, man, I’m in the wrong business here. But right.
Seth:
Yeah, exactly, man. Well, let’s just dive into that then. So tell us a little bit about your company and what you guys do?
Brian:
Yeah, so I’ll preface it by saying, you know, for those who don’t see me, you know, I’m a middle aged white guy who married into an affluent family. So I had all kinds of privilege going into this situation. But I was afforded the opportunity through my wife’s family who has a single family office here in Nashville, the chance to get exposure to live the GPS and sponsors we were working with, I knew a little bit about that business. And then obviously, from the side understood, transactional commercial real estate work. And startup raising blind pool commingled funds, which, you know, was kind of what I knew through the relationships we had as an LP and some of these other deals, we ended up raising three of those funds. They were small, but where we really took off was when we started offering our LPs co investment opportunities directly into the deals. And then that’s where we were able to scale really aggressively, and people were bringing in their friends and family into those opportunities. So we pivoted to a direct co investment syndication model, probably six years ago, and we focus on commercial. So it’s mostly office, which I know you probably don’t have a lot of office guys that come on the show. And that’s probably 90% of our portfolio, we have done some medical arts, we have done some other various things. But to kind of take it to that high level, what I realized was we were trying to solve a problem in the marketplace and what the problem we saw was, people wanted capital preservation, passive income, and all those wonderful benefits that come from, you know, direct real estate ownership from a tax perspective. And in order to solve for that eight to 10% cash or cash yield, which we think is still where you need to be from a liquidity risk and perspective, commercial office is one of the few asset classes that afforded us those type of returns, without taking too much leverage or taking too much risk. I mean, a lot of people were in the multifamily game, even back 10 years ago, very competitive. Retail was already in a secular decline. And so it seemed like it was an underserved marketplace and an inefficient marketplace where we could, you know, if we were disciplined, carve out a nice niche for ourselves.
Seth:
Yeah. Can you dive in a little bit deeper into that direct co investment syndication model you mentioned?
Brian:
Yeah. So I’ll throw out a bunch of legal jargon. But instead of a blind pool commingled fund where you basically I come to you with an idea, and I say, Hey, you know, I think I can do X, Y, and Z. And these are where the returns I think are going to be, you commit $100. In that fund. I draw down the commitment over three years in, you know, capital calls. And then you end up with a hopefully diversified portfolio of assets, but you don’t have any idea what they’re actually going to be on the front end. As opposed to that model. We only raise deal by deal. So I go out and I source an opportunity. I find an office building in Kansas City that I think is attractive, that solves for all the things that I tried to solve for. We find the deal, we run the deal, we get it under LOI so it’s locked up, we have control over it. And then we start raising through our network of individuals and families into just that one property. And so structurally, we put it into a single purpose vehicle entity LLC. The only thing in that LLC is that one building, there’s no cross collateralization on debt or equity with other assets. The operating agreement is just for that one asset. And the schedule one or the equity sheet is only for people who are investing in that one specific property.
Seth:
Gotcha. So they can make, from my perspective, you’re looking at a more educated investment because you can actually analyze the exact deal the exact property and make a decision and whether or not you want to invest in it rather than just betting 100% on the sponsor and multiple decisions that they’re gonna have to make down the line.
Brian:
Yeah, what I discovered is I think a fund is a great vehicle for ultra ultra high net worth individuals or big families or institutional investors because they can allocate on a yearly basis towards fund managers. That are going to solve for a certain return profile or diversification bucket. But for individuals and even fairly large size family offices, you know, they can pick and choose the risk, they want to take on that one particular deal that matches up with the liquidity and timing that they have. So for our investor base, it just was a much more logical fit. And it’s really proven to be a good model for us. And like I said, logical investor base.
Seth:
Yep. Yep. So you mentioned that, you know, you’re focused on an asset class that we don’t talk about a lot on this show, but would like to, and that’s office assets from a basic level, you know, tell us about that asset class, and why you guys love it.
Bryan:
Yeah, so the reason we like it is, we think it’s misunderstood asset class. You know, oftentimes, people get into this business from the sponsor perspective, that typical fact pattern you see is they did some single family flips or residential rehabs, then they got into a quad Plex, then they work their way up into multifamily apartment buildings. And that’s kind of where they, that’s the trajectory they took. And apartments are great. I mean, my family still invest in multifamily deals. But given how competitive that spaces, your yields are going to be fairly depressed. And there have been some big wins, obviously, over the last 10 plus years in that world. But for us, we were very focused on the passive income side, and the current cash flow like day one cash flow, my investors want monthly distributions starting 30 days after we close, and apartments just didn’t work. cap rates aren’t how competitive that spaces, yields are difficult to come across, right? I mean, I think four or 5% is probably where you’re going to be for a decent product type office, we were able to achieve eight to 10 12% cash on cash yields. Because oftentimes, for an office building, to get you know, a good quality product, you need to be in that 10 to $15 million price point. And so it’s that sweet spot above what a weekend warrior is syndication of brokers can take down themselves, but below where a private equity group can be. And so we had the ability because of our network to write some bigger checks and other sponsors or groups could. And we found that that inefficient space allows us a pricing premium, to go out and be able to solve for that double digit cash on cash yield. And the biggest thing that I think people get scared about with Office or they had bad experiences is the tenant improvement dollars and leasing Commission’s just kill your cash flow, right. And so you have to underwrite the asset appropriately, to make sure that you’re not taking current cash flow out of the return stream for your investors to put in for TIand LC. And if you buy it at the right price, if you underwrite it correctly, it can be a terrific asset class, but it is going to be a bit lumpy, you know, office, for the most part leases are 357, maybe 10 years, whereas apartment buildings, you know, you’re releasing every six or 12 months. So it’s a different animal. And obviously, we can get into what I think is going to happen with COVID and work from home. But that is really how we backed into being in the commercial real estate kind of office industrial flex space.
Seth:
that’s awesome to hear how you kind of found that that little niche kind of above one level, but below another level, and you guys can prosper within that those metrics. So yeah, let’s jump into that. So you know, what were you seeing, you know, if will office is in flux a little bit, or at least in people’s minds it is. So what were you seeing in a pre pandemic? What are you seeing now? And what do you see in the future? kind of take us through those three steps?
Brian:
Yeah, absolutely. So I’ll back up and say that we have an investment thesis based around the concept. This is pretty COVID, that this maturing millennial generation, which is now entering into the prime of their family formation phase, the narrative on Wall Street was that millennials, which is the largest working generation cohort in American history, roughly 75 million people total. I barely qualify them on the very outer edge of it, but I do the narrative on Wall Street was that these people were going to live in Brooklyn, in San Francisco, five story walkups, skinny jeans, eat avocado toast, never get married and have children, and they were going to be urban for their entire lives and never owned a home. Because of the Great Recession, that family formation just got pushed back three to five years, then what was traditionally, you know, in prior generations, pre COVID we were starting to see that play out right. affluent individuals on the employee side, were starting to relocate and make decisions about where they wanted to live, work and play based on quality of life, cost of living, access to single family homes and access education for the children. And so we saw this playing out with our friends in New York, right? The Wall Street Guy 1.5 kids living in the Upper West Side, getting murdered. on taxes and thinking about expanding his family, they’re boomeranging back to, you know, the suburban lifestyle that they had growing up. What was more interesting pre COVID that we saw playing out with employers, were starting to realize that to access, that’s that human capital and that employee base, they were going to have to have a physical footprint and plant a flag somewhere. So you started to see Alliance Bernstein move to Nashville, everything happening in Austin, Texas, on the tech side was playing out. And so we thought, these emerging secondary markets in suburban areas, we thought employers were going to follow where the employees were going to go. And that was all playing out pretty nicely. We’re in 12, markets total places like Columbus, Ohio, Richmond, Virginia, Kansas City, Tampa Bay, Raleigh, Nashville to some extent, in a COVID world, we’ve just seen that accelerate right now. And now you’re seeing headlines every day of financial services for leaves New York to move to Florida driven by taxes and weather and all these things. And unfortunately, for the West Coast, and the East Coast, and Chicago, to some extent, what you’re going to see I think, is a bit of a death spiral, where these markets are going to have to increase taxes on their affluent base, decrease services, which are going to make more affluent people leave and bring their businesses with them. And so it’s going to be a very difficult time, I think, for some of these markets. But secondary markets in business and tax friendly jurisdictions, I think are going to directly benefits. So all this obviously is in a bit of a flux, but we think long term, and we can get into the details, we think we’re very well positioned to take advantage of that demographic shift that we see playing out.
Seth:
Gotcha. Yeah. So you know, how do you see the work from home thing, you know, affect the office asset class in general? I mean, I know you mentioned about moving out of the downtown areas to the more suburbia but, you know, with the work from home stuff, you know, how does that affect it as well?
Brian:
Sure. So pre COVID, roughly 4% of the workforce worked remotely, which is important to make a distinction between remote work and work from home. Obviously, in a post COVID world, that’s going to be more than 4%. That being said, the productivity that we saw spike in the spring, in the summer, that a lot of employers were talking about was really a result of novelty and fear of losing your job. And starting in labor day into the fall, started hearing more and more stories about isolation, burnout, lack of creativity, lack of collaboration, lack of productivity, isolation, especially among younger employees difficulty onboarding new employees, or new concepts or strategies internally. And so I think what you’re going to see happen is a hybrid model, where people are going to be in the office two or three days a week, depending on their job. And, you know, a hub and spoke model where not everyone is going to work in the mothership in New York City or San Francisco. But there’ll be secondary offices spread around different geographies, to allow people to have that office experience, but still allow them to live in the suburbs. And another thing that we’re seeing play out is from 2008. Until COVID, there was a trend towards density, right, that we were perfect. People wanted to hotel, hot desk, get rid of traditional office layouts. And so we work locations, the square footage per employee, or per user was down to 75 square feet, whereas a traditional office layout is like 350 square feet. So when you take the hybrid kind of hub and spoke model, and you have this pendulum swinging away from density, and people are going to want to be more spread out, regardless of where we are in the vaccine, I think you’ll see it be a bit of a wash, frankly, because less people will be in the office, but they’re going to want more space, more creative collaborative space was going to take up more room, more traditional office layouts. And so depending on the market, I think it’s going to be about even frankly, that being said, new leasing, lease renewals, I think will continue to be muted for the next 12 to 24 months as this all washes out.
Seth:
Gotcha. Yeah, I love hearing that man. I have a I have a family office client in my legal practice. And they’ve been investing in office assets for close to 50 years. And you know that they aren’t even batting an eye at this. They’re like, this is just gonna pass and they’ve been doing it for so long. And they’ve seen so many different things pass through that you know, that they’re not, you know, they’re not disturbed by this pattern. And I love the way that you explain that with the hybrid, and hub and spoke model. I’ve heard that a lot as well, where just employers are going to just be more flexible, you can work you know, coming to the office two days a week instead of five days a week and you can kind of pick and choose when you do that.
Brian:
I just really don’t think you’re going to see a secular decline like retail. I think office is going to be an important part of our professional careers. I think it’s just going to be different in two years. point with your family office client, people who have tried to work from home experiment about every 10 or 15 years, you know, IBM did it, GE did it. Some tech entrepreneurs have tried to do it. And it’s always failed for the most part on a mass scale. And there’s a reason for that. I think we’re social animals, we want to be around people. And we want that distinction between home life and work life. So we’re very confident and bullish long term, that this recency bias that we see play on the market is going to shift. And I think with the vaccine rolling out, the debt markets are coming back to life. I just got an email this morning from a CMBS group saying, Hey, bring some office deals, you know, the debt investments are bullish again. So it’s gonna be a bit choppy, but I think this time next year, it’ll be a totally different story.
Seth:
Gotcha. Gotcha. Let’s talk about you know, some of the markets, the specific markets that you’re looking at and, or that you just think of favorable right now.
Brian:
Yeah. So when we say secondary market, we think million plus MSA population, but outside of the traditional top 10 gateway markets. And so we’re in places like I mentioned, Raleigh, Tampa, Richmond, we’re very bullish in Kansas City, we’re looking at a deal in Fort Worth, in the DFW Metroplex right now. But the way that we view markets is million plus MSA, that’s experienced year over year population growth, wage growth and job growth. Because those are all demographics are destiny commercial, real estate. And when you have those type of demographics and metrics, I think for the most part, all commercial real estate across the spectrum will benefit from those people moving there, we like to see underlying economic drivers that are in the EDS and, and med space. So education, healthcare, government services, knowledge based economy, stem based economy, things that are counter cyclical, resilient during a downturn, we put all that together, once a quarter, we rerun those numbers, and we have a matrix of probably 10 markets that we like to go to. Once we find an MSA that we like, we then dive down to the sub market data. So a lot of your listeners that are in some of these landlocked Midwest or southeast markets know that we don’t have any geophysical barriers. So the difference between doing a deal in a downtown part of Nashville versus 45 minutes away is like worlds apart, right places that my wife has never been to, even though they’re considered part of the Nashville MSA. So we honed in on two sub markets that we find attractive because they’re mature, stable, they did well during the Great, great recession. And then we look at the metrics of Okay, what can we buy on a cap rate basis, and what can we buy on a per square foot basis relative to replacement cost, i.e. what it would cost to build a new building of similar quality, and even more importantly, what we can buy on a per square foot basis, versus replacement rents. So if my class A rents are 25/$20, a square foot in the best building of the sub market, but to justify a new construction, I need to be $35, or $40, a square foot and rent, feel very well protected as a landlord there that nobody’s gonna come in, throw up a 200,000 square foot spec building and steal my tenants. So once we do all that, then we start hunting for 10/$12 million acquisitions to build out a physical footprint of, you know, roughly 250 million or 250,000 square feet over time.
Seth:
Gotcha. And are those buildings that you’re looking at? You know, what’s the what’s the occupancy on those? Are they or are they not gonna be fully occupied, but pretty close? Or are you looking as kind of like a value add, if it’s, you know, lower occupancy? And you’re like, Okay, I can, you know, manage this building and get new tenants in here quickly.
Brian:
Yeah, early in my career, we did more value add. And what we realized was, you can be a really good operator, and you can be good asset manager. And if the sub markets, right, you can take a 75% occupied building to 90%, if that’s what market is, and you can get those good credit tenants and you can extend those lease terms. The problem is those 10 improvement dollars and leasing commissions will eat you alive, and deferred maintenance and capex, you know, elevators h back and roof will murder you. And so we’ve stopped, we’ve been much more conscious of vintage risk of those deferred maintenance capex issues. So typically, what we’re doing is we’re buying something that’s 80 to 85 to 90%, occupied day one, and then we’re just accruing enough cash flow and hoping that part of our investment thesis is these sub markets are so tight, that the majority of our kind of credit anchor tenants won’t have anywhere else to go, we might lose out on some upside on charging them a square foot versus what market could be. But having that stable occupancy to allow us to keep sending out monthly distributions is the key for us. So typically 85 to 90% occupied day one.
Seth:
Cool, cool, what kind of returns you see and now? Are they a little bit lower now that you’re kind of out of that major value, add office space?
Brian:
Yeah, so we haven’t sold much, most of my investors, you know, they would, they would rather keep having the coupon, then get the IRR, because they can’t take that IRR to their beach house or to their mortgage or their child’s tuition. Yeah. And all of my investors are taxable investors, right. So if I, if I am going to give them the money back, you know, they’re going to get hit with taxes, even if it is long term capital gains. And so we haven’t sold the bulk of the portfolio to date this has been performing. But we have been able to make distributions for the most part, even during COVID. So we’re averaging I think, probably somewhere like 10 or 11%, cash on cash across, you know, that two and a half million square feet ballpark.
Seth:
That’s awesome. That’s awesome. So do you look at you know, these assets, when you acquire them as long term holds, they’re not, you know, comparing and contrasting to multifamily. Your typical deal, you know, you’re looking at a five year hold is what people are doing nowadays. So you’re looking at these a little bit longer term than that.
Brian:
Yeah, correct, these are seven to 10 years, and we tell people to just expect 10 years to be conservative.
Seth:
Gotcha. So let’s dive in a little bit more with comparing and contrasting with multifamily. Because I think that’s what a lot of people in general, and a lot of our listeners are familiar with it, like you had mentioned earlier, you just kind of go up that ladder, you start with like a single family, a duplex than eight Plex, and then you kind of work your way up. And that’s why the multifamily space is so saturated. So maybe just kind of go into comparing contrasting multifamily versus office.
Brian:
Yeah, so on the multifamily side, you know, I think you can get better quality deals on a smaller price point. And it’s a lower barrier to entry type business. And because you’re turning over these leases six or 12 months, you can really, you know, improve pretty dramatically. Whereas office, once you start going below $10 million, the quality really trails off pretty, pretty dramatically. And you start looking at some older vintage properties, and maybe not the best sub market. So there is a price point differential that is just kind of part of the business. And then my weighted average lease term, which is kind of based on how much square footage a certain tenant has and the term on their lease, when you kind of put it all together, these are typically five plus year weighted average lease terms. So as opposed to looking at a multifamily investment, on a monthly basis to see where you’re able to push rents and where expenditures and costs are. Office is a much more static asset class. So you really shouldn’t review things more than once a year. In my opinion, if you’re an investor, because we don’t have a scoreboard that’s really keeping track on a on a monthly basis even. So it is much more of a longer-term play, which means the IRR is going to be lower, but your yield should be higher. That’s typically how I kind of explain the differential there.
Seth:
Cool, cool. Before we jump into the Freedom 4 what is one last golden nugget for our listeners.
Brian:
One last golden nugget about commercial real estate or about anything?
Seth:
If you want to take it to life perspective feel free.
Brian:
Yeah, I mean, I’ve got one that I’ve been talking about. And this really has nothing to do with commercial real estate. But then I talked with my friends about and increasingly other professionals. And I think it applies to how you view investments as well. Most of our sorrow, like the pain in our lives, comes from the differential between where we think our reality should be and what our reality actually is. And so to the extent that on a daily basis, you can make that spread tighter, and become more and more acclimated to what your reality is, as opposed to this aspirational thought of what you deserve to have or we deserve to be your this life that you should be living. If you can narrow that down. You’ll have more happiness and less sorrow in your life.
Seth:
I love that I love that man.
Seth:
Let’s jump into the freedom for so what’s the best thing you do to keep your mind and body healthy?
Brian:
Biggest thing for me and I you know I thought about this prior because I’ve listened to the other episodes and I think the biggest thing for me especially lately with COVID and not having to travel is sleep. Yep, I mean I used to get I used to be a total grinder like get up at four o’clock go to the gym, have meetings, do the whole thing. Put the 12/15 hour day in and now I am really much more conscious about the amount of sleep I get and I feel so much more energized and frankly more productive with my time and I totally cash out on the weekends anymore. The best bit of been a big thing for me over the last nine months is realizing that I just am I feel better and I do better work if I get enough sleep.
Seth:
I agree with that. 100% Man, I try to get up early between like 430 and five. But if I for some reason I don’t get it get to bed early enough to get seven hours I will sleep in and make sure that I get that seven hours. I’ll set my clock to get seven hours.
Brian:
Yeah, that makes a huge difference.
Seth:
Yeah, it really does. In an alternate universe where you weren’t involved in your current business, what would you be doing?
Brian:
Man? So this is a great question. And I think, you know, if, if I if I didn’t have the gig that I have today, I don’t know how many of your listeners are skiers or snowboarders. But there are some towns that have mountain ambassadors, which are usually people who are retired, but they love skiing, and they get a free lift pass for the season, if they just wear a special jacket, which allows idiots like me to come up to them and ask them stupid questions like, what run should I take? Where’s the bathroom? Where can I get a beer? Where can I you know, get some food? I would be a mountain Ambassador at a like a very chill ski town somewhere. And you know, just live a life outside for the winter.
Seth:
That’s, that’s awesome. Man didn’t expect that answer. That’s very unique. Yeah, I’m worried about five years ago, and where do you see yourself five years from now?
Brian:
Yeah, and we didn’t get into this. And maybe if you if you give me the opportunity to come back on, we can talk about my hero’s journey of the adventure, the failure and the redemption. But five years ago, I was in the thick of acquiring a lot of properties. So we were totally deal guys. We had, we had found a good niche that we talked about in terms of price point. The investors were you know, building because they were getting a lot of cash flow, and they were happy they’re bringing their friends and family in. And so we were very, very much in the thick of building up this, you know, whether the time was probably a $200 million portfolio, it’s now two x that which ended up having its own issues and challenges associated with growing that big lead that fast without having the proper infrastructure in place. Five years ago, we were blown and go and buying a lot of property.
Seth:
Yeah. What about five years from now?
Brian:
You know, five years from now, I personally think that this democratization of access to alternatives is going to be a theme that we see over the next 10 or 20 years. And I think if I were to speculate five years, I continued to work with taxable investors, individuals and families independent IRAs, but maybe offer up some different product types beyond just commercial real estate, where we find interesting opportunities or niche alternatives that otherwise they wouldn’t have access to. I think that’s the direction that the entire business is going. So I’m hopefully going to be kind of focused on that, in the future as we think strategically about how to grow the company.
Seth:
Very cool. Very cool. Well, I know you’re on the active side on a lot of stuff, but how has passive income made your or your clients is life better?
Brian:
Yeah, so I was able to retire my law license, which, you know, pissed off my dad. But I was just the CLE was killing me every year, so I just had to stop doing it. So that was a big life changer for me was, you know, being able to start my own company, and now to afford my lifestyle, obviously, investing in the deals that I’ve put together. And then a lot of the investors that I’ve talked to, they’re very similar to probably a lot of your listeners, right, they’re trying to figure out a way where they can transition out of the daily grind, but still maintain their quality of life. And you’re just not gonna be able to do it when you start thinking about your spend rate, your cost of living, inflation, and what the markets can give you both the public markets and fixed income, you know, access to alternatives is the way that you can solve for that problem. And so just being a part of that for some folks and allowing them to spend time with their kids, maybe an entrepreneur themselves, but provide them with that steady, passive cash flow. I think that’s, you know, one of the best parts about my job.
Seth:
That’s great, man. It’s been an awesome show, brother, where can our listeners find out more about you?
Brian:
Yeah, I appreciate you having me on. I’m very active on LinkedIn. That’s how we connected. So if you look up Brian C, Adams, Excelsior Capital, connect with me, shoot me a note. I’m happy to chat. And then you can go to the website excelsiorgp.com. You can sign up for our newsletter or if you are interested in hearing about the investment opportunities. That’s probably the best way to start that process.
Seth:
Great, man. All right, brother. Have a great day.
Brian:
Thanks for having me, man.
Seth:
Awesome. That was a learning experience for me just as much as I think it was for you. I was personally a skeptic of the office asset class and still have a little bit of reservation. But Brian really put a lot of those concerns to bed. No matter how acceptable the work from home model becomes or technology advances. I do believe that there is always going to be a strong position for the office asset class. Before investing, you just need to be mindful of the things that Brian mentioned, such as the hub and spoke, model, office market location, and really where people are migrating to, whether that’s different cities, or sub markets, or suburbia. To learn more I’d love to have you guys join our Esquire Investor Club going to passiveincomeattorney.com and clicking join the club. Also check out all the other content and freebies on the site. Until next time folks! Enjoy the journey.
