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How to Scale Commercial Real Estate


Feb 10, 2022

Brian Noel is the Chief Executive Officer of Ascot Equity Partners, a real estate company that works with investors not satisfied with the low returns from savings accounts and bonds and investors who are risk-averse to the stock market.

Brian’s team helps these investors create generational wealth by investing passively in multifamily real estate syndications. He joins us in this episode to discuss the steps in setting up multiple cash-flowing assets for your retirement. 

[00:01 - 02:10] Opening Segment

  • I introduce Brian Noel
  • The transaction that ignited his passion for real estate

[02:11 - 12:35] Cashflow for Retirement

  • The “light bulb” moment that pushed Brian to shift to multifamily
  • The investment that can never go wrong according to Brian
  • What’s the difference between Class A and Class B investors?
    • Which should you be?
  • Why multifamily is initially a “nerve-wracking” investment

[12:36 - 16:46] How to Pick The Right Deal

  • How to leverage cash-out refinance in a multifamily deal
  • Brian explains why there are no capital gains in a cashout refinance
  • How to pick the right deal while staying true to your values

[16:47 - 19:33] Final Four Segment

  • A tool or resource you can’t live without
    • Phone
    • Excel spreadsheets
  • A real estate mistake you want other investors to avoid
    • Overanalyzing and not taking action
    • Take action and learn from it
  • Your way to make the world a better place
    • Giving back to an orphanage in Mexico
  • Reach out to Brian
    • See links below 
  • Final words

 

Tweetable Quotes

“When you invest in your own education, I feel like you can't go wrong.” - Brian Noel

“For me as [a limited partner], I look to double my money in three to five years. As a [general partner], I looked at a growth of 3-5x.” - Brian Noel

“What I found a lot of high-net-worth type, very wealthy people do is they buy triple net commercial buildings and every three to five years, do a cash-out [refinance], take that money, put it in their pocket.” - Brian Noel



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Email brian@ascotequitypartners.com or call 7202177656 to reach out to Brian follow him on LinkedIn. Check out Ascot Equity Partners to build generational wealth as a passive real estate investor!



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Email me → sam@brickeninvestmentgroup.com

 

Want to read the full show notes of this episode? Check it out below: 

 

Brian Noel  00:00

The one mistake I would say is overanalyzing things and not taking action. That's kind of funny. I'm actually a realtor as well and I show properties over the weekend. And I find a lot of people just get paralyzed because, you know, they're hearing interest rates are going up, they're getting outbid on deals. They feel they're paying too much for property. And so you know, they don't want to take action. And then a year later, they're kicking themselves because they thought when they were going to buy that house for 550, and it's now worth 650. They were overpaying for it back then.

 

Intro  00:30

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

 

 

Sam Wilson  00:42

Brian Noel is an LP, a KP, and a GP in 15 buildings and over 4,000 units have about $470 million in assets under management. Brian, welcome to the show.

 

Brian Noel  00:53

Thank you.

 

Sam Wilson  00:54

Hey, man, the pleasure’s mine, you know, three questions I ask every guest who comes on the show. In 90 seconds or less, can you tell us where you started where you are now and how you got there.

 

Brian Noel  01:04

It was in London, even when I was 19, I bought my first house with no money down and in two years, it doubled in value. And I quickly realized I made more money in equity from the home than I did in my full-time career. So that is what got me started and ignited my passion for real estate. And then like many people, probably 20, 25 years ago, I started buying single-family investments and pay those all down and was planning to retire off the income from a single-family homes. And then I discovered the benefits of multifamily investing. And so I liquidated all of those in 2018, 2019 and began rolling in that money into multifamily apartments and then discovered the benefits of syndicating and levering up, and so I pretty much do that full time now.

 

Sam Wilson  01:50

That, for people 20 years in the single-family space, you know, I've seen obviously, a lot of people in this business. Once they kind of pick their niche and get rich, they don't usually wait 20 years and then shift course, you know, they stick with it. I know you get, there's compelling reasons, you know, to scale and go into other things. But what were some of the things when you said, hey, you know, I've got this portfolio, I'm going to go do something bigger. Why did you want to transition?

 

Brian Noel  02:11

Well, that's catalysts that triggered it. One was I had eight rental properties. And I had a spreadsheet that I looked at every month and what was eaten me alive was the HOA fees. And I decided if I own the building, then I would be the HOA owner will have to keep spending three and a half 1,000 a month in these HOA companies. So that was one thing. And then the second thing was when I began looking at multifamily housing, I came across a commercial broker who shared with me that for every 100,000 that you can generate in either income or expense savings, or the combination thereof, at a five and a half percent cap rate resulted in a million dollars in value. And when he said that, I said, what, we, run that by me again, and that that was my lightbulb moment. I figured okay, I got to look into this more and get into this. I had no idea.

 

Sam Wilson  03:00

Wow, that's fantastic. And you guys have scaled really, really quickly. I mean, to have almost a half a billion dollars under management in just a few short years. I mean, tell us how you did it so fast?

 

Brian Noel  03:12

Well, you know, honestly, I went to, I got a mentor with one of the mentoring programs out there and spent a lot of money to sign up for that. And I tell people, you could probably learn over 2, 3, 4 years had to do this yourself. But if you want to go fast, you've really got to sign up with one of the big gurus. And I was able to learn it in three to four months and move much quicker. So that was part of it. And then surrounded myself with like-minded people that were more experienced than me. And they really, my first several deals were as a passive investor because I wanted to start generating passive income right away. So I was saying a little earlier that I went out and got a mentor, one of the mentoring gurus, one of the several big names out there and join his program, I invested a lot of money. And I always say some of the best money I ever spent. Because you know, when you invest in your own education, I feel like you can't go wrong. And I was able to accelerate my entry into multifamily investing and was able to learn in three or four months what would have probably taken me three or four years to learn. And more importantly, it enabled me to join a group of people that were like-minded people from all over the country, many of which were years ahead of me. And so by teaming up with those folks, I had folks that were able to mentor me and teach me and some of those folks are partners with me today, some of the guys in my group where we're constantly underwriting deals together. So it was a combination of that and investing passively. And like a lot of people, the first several deals I did was as a passive investor to get the cash flow going, and then also start getting my education and getting my hands dirty and then worked my way up to being a GP.

 

Sam Wilson  04:51

Gotcha. That's fantastic. How did you select? I mean, I'm with you on the mentor. You got to pick the mentor that fits you and aligns with your goals. But there's also a lot of mentor programs I feel out there that they're just a complete sham and waste of money and time. How did you vet it out and say this is the right one?

 

Brian Noel  05:09

Well, to be honest, I'd like to say, say I was smart enough that I bet it out and found the right one. But I didn't. This one was recommended to me by a friend who's a real estate attorney, who's somebody, I have a lot of respect for his opinion. And I got on a plane and went down to the seminar. And it became very apparent in the first three or four hours that this was somebody that I had to join, because I could, you know, he could save me 10s of 1,000s of dollars in mistakes that I'm sure I would have made, if I had done on my own. You're right. There's a lot of other mentors out there. I think they've all got their pros and cons, the particular gentleman that I joined, one of the things I liked is they have several meetings a year and you know, anywhere from 80 to two or 300 people that come down to those meetings, and they're all over the country. And they're all like-minded people, various steps in the journey of multifamily investing. And so that, for me, was very valuable to be able to become a part of that ecosystem.

 

Sam Wilson  06:05

Right, yeah, there's nothing it'll accelerate growth, like being around like-minded people, you know, move towards a common goal. As a limited partner, you said one of the other things you did to kind of grow your active investments was actually go in as a limited partner, are you still investing as a limited partner in deals? And I guess the follow-up question to that, if so, how are you finding opportunity today? I feel like the market is flush with, you know, a lot of deals that all look the same?

 

Brian Noel  06:33

Yeah, it definitely is. So the short answer is no, I'm trying not to invest any more of my capital as an LP or put it towards being a GP, the role is simple. For me as an LP, I look to double my money in three to five years. As a GP, I looked at growth three to 5x. Of course, there's a lot more work involved in being a GP, but I don't mind doing that, because I'm retired. And this is all I do. And for me, it's passion and fun. So I'm happy to do the work. You know, I will consider maybe, you know, when, as I some of my deals go full cycle, one just happened in December. And I just rolled that money back up and in as an LP to another deal that that particular gentleman had, and how do I decide on the deal? Well, you know, one piece of advice I have for older investors out there is think about what it is you're trying to accomplish, you know, if you're you're in your 20s, your 30s, your 40s, and you're looking to just grow your net worth, and you don't need that monthly income, then you're better off to go as a class B investor. But there are some folks out there that offer class A offerings where you get more cash on cash return each month, but you give up the back-end equity component. And for me, that's important, because I'm relying on that retired income, I don't have a W2 job. And so I what I've done is put a blended portfolio together where I get a lot of Class A income coming in. But then I'm in some deals as a class B investor as well, where my cash on cash return is a lot lower, but I am going to get a piece of the back-end equity when they sell that building.

 

Sam Wilson  08:01

Can you explain that for some of our listeners who maybe aren't familiar with the class A, B structure because it's kind of a, it's an iteration of the syndication model that I've seen really take off in the last two or three years? And I actually think it's a brilliant way to kind of split up the deals, at least or, you know, offer something for both types of investors. Can you define that for our audience, just so they understand?

 

Brian Noel  08:21

Yes, so this is something within the investment mold known as the capital stack, right. And you know, the very top if you have a preferred investor, which some deals that we do, we have an equity investor come in, they will insist on only coming in, if they're at the top of the preferred equity stack. So that means they get paid first before anybody else, then you have your class A investors, they get paid next, or they get paid at a much higher rate. So in some of the deals, I mean, one particular guy, he pays 10%, the other one pays 9%. But when they sell that building, you only get your initial capital back, you do not get any split of the equity gain that they got with that building. If you become a Class B investor, that means you're further down the equity stack. So you get paid last, you get paid a smaller percentage, usually six, 7%, cash on cash versus nine or 10%. But you do get a piece of that equity split when they sell the building. So in the long run, you'll make more money as a class B investor. But in the short term, if you're relying on that net monthly income to live off, then you're going to get more as a class A investor. And so that's why I said earlier, I like to balance my portfolio between having some class A investments where I get higher cash flow every single month, but I'm very cognizant of the fact I'm giving up the rights to any back-end equity split, and then some of my other investments. I'm going more for that, you know, longer-term play where I am going to get a piece of the split and grow, you know, my 100,000 to maybe 145,000. That helped that kind of makes sense?

 

Sam Wilson  09:57

All, 100% Absolutely did a great job explaining that, you've hit on something we haven't talked a lot about on this show, which is preferred equity, you know, above the class A investor in your opportunities because what we've seen happen obviously, is you have a large single-family office or something like that that comes in and they put 90% or 97 and a half percent of the capital even seen as high as that, like you said, they're going to be preferred equity, can you define that as well, and then is that one of the funding sources that you guys have relied on to get deals done?

 

Brian Noel  10:24

In some cases, we have, we have one deal that we did last year, where we had a preferred equity investor that wanting to put in 5.9 million. The lender actually came back, or would only allow them to put in 3.9 million because they didn't want that preferred equity investor to have more than 50% ownership of the building. And then, you know, we lose our voting rights, essentially. But they did, they came in and they put in 3.9 million. And of course, they want to be, they have a bunch of criteria that you have to meet. One of them, of course, is they want to be at the capital stack, they want to get paid out before all the other investors. But I'm seeing you're gaining popularity because we're things that you can do and we're certainly looking to do is in two years from now, when the building's appreciated significantly in value, we'll do a cash-out refi and take that money and buy that preferred equity investor out. And then at that point, a percentage equity ownership in the building goes up dramatically, right. So it can be a good thing to do, it's a little more difficult to model out. And that's why a lot of people when they first get into the multifamily business, they tend to steer away from it. Because it can, you know, it is another layer of complexity. And if people haven't done it before, it can be a little overwhelming and a little nerve-wracking. But you know, once you've done it, it is a way to raise money quickly, especially as the buildings are going up in price, you see more and more buildings going under contract for 25, 35, 40 million, and the capital raises are going up from 8 million to 12 million to 15 million, then I'm starting to see more people, you know, go down that preferred equity route or path.

 

Sam Wilson  11:59

Yeah, that makes a lot of sense. I'm sorry for you guys that they would let your investor bring the extra couple million bucks. I think it's interesting, you talked about how you're on a cash-out refi. Because typically, you know, your Class A and Class B investors, you know, are happy to get there, or at least your class B. I'm not sure about Class A but Class B would be happy to get their capital back and retain their position in the deal, right? That's a fantastic place to be. But you're telling me the preferred equity, you write it in the deal sites that preferred equity, when a cash-out refi event happens, they then lose their position in the deal, they get paid out, and they gotta move on to something else.

 

Brian Noel  12:36

So the preferred equity investor, yet, and they're okay with that, I mean, that's negotiated upfront that we have the right to give them their money back typically deals with three to five-year deals, but if we can return all their money plus the preferred, you know, rate of return that was committed to then they have no problem taking that money and moving on. Right, that's really good. They've essentially achieved their objectives.

 

Sam Wilson  13:01

Right? That's, that's like icing on icing on the cake. I mean, that's beautiful for your class A and B investors. Again, not sure about Class A because your class A if you do a cash-out refi? Do you also cash out your class A investors?

 

Brian Noel  13:13

No, not necessarily a minute depends how you put your operating agreement together and how you structure the deal, right. But you know, another thing to consider, and I'm going in more this direction now with my team as well because I have one partner who's in for deals that he got into in 2011. And every year they put it to a vote to see if they want to sell the building or hold on to it. Well, they've done since 2011, to cash-out refi. So their investors have got their money back twice over. And every year when they put it to a vote, everybody stays in the deal. You can get out if you want, but you're going to get your money back and you're going to give up your rights to any back-end equity. But no one's exercised the option to do that they all come back and say, “Nope, let's keep the building.” Why? Because cost basis was like 22 to 24,000 a door. And these deals are in Houston. If you were buying that today, you're probably going to be paying 95 to 105. All right. So why would you sell and in a cash-out refi, there's no capital gains on that. Right. So that's what I found a lot of, you know, high net worth type very wealthy people do is they buy triple net commercial buildings, and every three to five years, do a cash-out refi take that money, put it in their pocket, and there's no capital gains on that. At least there isn't today. So it's a great strategy.

 

Sam Wilson  14:27

It’s a brilliant strategy. Wow. I love that. Thanks for taking the time to break down some of those class structures and how you guys are arranging your capital stack. One of the things we talked about before we started the show was, you know, the bidding war that you guys are in, you know, not sure what markets you guys are working in. But I think it really matters if you're in multifamily or you're fighting for deals right now, what are you guys doing to stay true to your values? And then secondly, how are you still finding opportunity?

 

Brian Noel  14:55

Well, it's tough right? I mean, the deal flow is definitely there so not having any issues. Finding the deals the problem is finding deals to pencil in. We just lost the deal last week. We made it the best and final we offer 22 point 9 million. When we submitted our final offer, we increased it to 23.5, we increased the hard, earnest money from 100 to 300. Hard day one. And then I just found out yesterday we lost it, the winning offer was 24.3 million with half a million hard, I don't know how that works, maybe their underwriting to a different set of criteria. But for us, the rates of returns would come down to where we couldn't held true to our investors and for our investors, which striving to get 70 to 100% in three to five years. And that will put those weight below that. So you know, we're seeing that happen a lot. And so either people are changing their criteria, there's more institutions coming in, and they're happy with a lower rate of return may be five 6% instead of eight 9%. Or some people are increasing their whole time instead of three to five years, five to seven years. So those are all factors that, you know, we're looking at constantly, but it's getting harder and harder. For sure.

 

Sam Wilson  16:03

Yeah, that's absolutely intriguing. Yeah, and you can't I mean, again, you know, I've got a family member that right, you know, it's a bond trader, and, you know, when you have institutional capital seeking, you know, they're talking and, you know, basis points of return, it's like wait, when they're throwing 10s of millions of dollars at basis points, and, you know, 10s of million dollars and turn five 6%. I mean, if it makes all the sense in the world, while this capital, you know, flying into, you know, hard assets like this, they're just they're taking yield anywhere they can. That's really intriguing. Brian, I've certainly enjoyed this conversation today. Thanks for coming on the show and talking to us, you know, breaking down, you got your guys' business, how you guys are finding opportunity, and really just kind of some of the, you know, again, the capital stack and how that works. That's been great. Let's jump here to the final four questions. The first one is this. What is one tool or resource, think software, think something digital, that you find that you can't live without?

 

Brian Noel  16:55

What's, it have to be my cell phone because unfortunately, I've lost it a few times where I left it in an Uber and you know, when you lose your cell phone, you really realize how you know, desperate you are and how disconnected you all from everybody in everything. So I'd say my cell phone is the one thing I could never live without, you know, beyond that, I'd say email, Excel spreadsheets. Those are the things that I use every single day.

 

Sam Wilson  17:19

Got it, fascinating. If you could help our listeners avoid just one mistake in real estate, what would it be? And how would you avoid it?

 

Brian Noel  17:25

The one mistake I would say is overanalyzing things and not taking action. That's kind of funny. I'm actually a realtor as well. And I show properties over the weekend. And I find a lot of people just get paralyzed because you know, they're hearing interest rates are going up, they're getting outbid on deals, they feel they're paying too much for a property. And so you know, they don't want to take action. And then a year later, they're kicking themselves because they thought when they were going to buy that house for 550 and it's now worth 650. They were overpaying for it back then. So you know, I listen to people like Grant Cardone and the Brad Sumroks of the world. And they often say the one mistake they made looking back is they should have bought even more real estate. So I'd say that's the mistake is don't get paralyzed. Don't overanalyze, don't not take action, do something.

 

Sam Wilson  18:12

Do something.I love it when it comes to investing in the world, what's one thing you're doing right now to make the world a better place?

 

Brian Noel  18:16

Well, I like to try to give back so I go for it. And I have a, an orphanage in Mexico where we donated some money and some gifts to and we went down there and visited last year. And it's very, very humbling to see these kids that are four to 15, have no families and they're living in this orphanage with hand-me-down clothes and they really have nothing. And so it's very gratifying to be able to go there and make some donations and give them some toys and help make their life a little bit better and a little bit easier.

 

Sam Wilson  18:45

Man that's great, certainly need more of that in this world. Brian, if the listeners want to get in touch with you or learn more about you what is the best way to do that?

 

Brian Noel  18:52

They can either email me at Brian, B-R-I-I-A-N, at ascot equity partners dot com or look at my website, which is ascotequitypartners.com or drop me a text or call me 7202177656.

 

Sam Wilson  19:07

 Brian, thank you so much for your time. Do appreciate it.

 

Brian Noel  19:09

You're welcome. Thank you, Sam. It was a pleasure.

 

Sam Wilson  19:11

Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.