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How to Scale Commercial Real Estate


Feb 21, 2022

Are old, historic buildings worth our time?

For Phoebe and Mark Davenport, they are. Renovating historic buildings or even the ones that have been abandoned has been their passion ever since they had this epiphany about not wanting to trade time for money. They decided to educate themselves about real estate and never looked back. 

Now, they’re serving communities by transforming badly managed properties into viable investments, generating good affordable rates with good tenants. Their story is one of epic growth, going from owning a duplex to 145 doors in 5 years!

 

[00:01 - 04:06] Opening Segment

  • Mark and Phoebe Davenport didn’t want to trade time for money anymore
    • Here’s how this decision led them to real estate
  • Why they’re passionate about renovating historic buildings

[04:07 - 11:51] Managing Boutique Hotels

  • What investors should know about historic tax credits
    • Mark and Phoebe explain
  • The difference between federal and state tax credits
  • How to manage boutique hotels according to Mark

[11:52 - 17:33] Growing Into Other Asset Classes

  • Mark and Phoebe gives us a sneak peek of their current projects
  • The things they wished they knew when they were just starting
  • They reveal their secret on how they work well and avoid conflicts

[17:34 - 20:44] Final Four Segment

  • A tool or resource you can’t live without
    • Asana
    • QuickBooks 
  • A real estate mistake you can help our listeners avoid
    • Not doing what you’ve learned
    • It’s important to apply what you’ve learned to move forward
  • Your way to make the world a better place
    • Renovating properties to make them better
  • Reach out to Mark and Phoebe
    • See links below 
  • Final words

 

Tweetable Quotes

“Learn how to manage your own fears and learn how to manage and work through any doubts you have about yourself and keep on trying.” - Mark Davenport

“If you keep on moving and keep on shaking and iterating and finding creative solutions to your obstacles, you will succeed. Your success might look different, but you'll get that..” - Mark Davenport

“I think you just got to kind of go for it (grow into bigger asset classes) and just keep pushing and pushing until a door opens. It's not going to be handed to you on a platter.” - Phoebe Davenport

“The number one thing that I think of when I think of mistakes is people not trying for things…you learn by doing.” - Phoebe Davenport

 

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Email mark@levareproperties.com and phoebe@levareproperties.com to connect with Mark and Phoebe. Learn more about their portfolio by visiting Levare Properties.

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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

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Email me → sam@brickeninvestmentgroup.com

 

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

 

Mark Davenport  00:00

It's not that you have to be super confident in yourself but learn how to manage your own fears and learn how to manage and work through any doubts you have about yourself. And keep on trying, as Phoebe said, it’s not that you're guaranteed success, but if you keep on moving and keep on shaking and iterating and finding creative solutions to your obstacles, you will succeed, your success might look different, but you'll get there.

 

Intro  00:22

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  00:34

Phoebe and Mark are real estate developers with a passion for renovating historic buildings and improving property management. Their story is one of epic growth going from owning a duplex to over 145 doors in just five years. Mark and Phoebe, welcome to the show.

 

Mark and Phoebe Davenport  00:50

Thanks for having us.

 

Sam Wilson  00:51

Hey, the pleasure is mine. Same free question as every guest who comes on the show. Can one of you tell us in 90 seconds or less where you guys started, where you are now, and how you got there?

 

Phoebe Davenport  01:00

Oh, good. Oh, yeah, give it a shot. Well, I started as an occupational therapist, Mark’s a musician by training. And so we were working our nine to five, so to speak, of course, a musician is never nine to five, but I was working nine to five and we were ready to start a family actually, looking at the mortgage payment and the bills and decided that we didn't want to trade our time for money anymore. So we started buying real estate, wow, duplex and lived in half and rented out the other and just got a taste of what it was like to have someone else pay our some of our bills. So we kind of liked it decided we would continue on down that path. 

 

Sam Wilson  01:40

Oh, man. That's fantastic. You guys are in some really fun things right now, love to take some time to jump into but renovating historic buildings and improving property management, I mean, that's a really niche skill set, especially the historic or as we call it, the Hysterical Society dealing with them. Yeah, that's a unique skill set. How did you get into that?

 

Mark Davenport  02:01

Well, I think mostly by accident, like most of the good things we do, it just kind of happens. Well, initially, we were buying historic properties because they were cheap and good value like it doesn't like if you're buying a duplex. If it's historic, it's just going to be a lot, probably a lot, if it needs work, it's going to be a lot cheaper because no one wants to be bought enough knob and tube wiring, knows to be dealing with plaster and lay it so that is a lot cheaper. And when we started our business when we sold our single family and we wanted to have passive income. The first property we bought was yeah, it was a foreclosed duplex. And it was $100,000 and you know after renovating it, we live downstairs, upstairs pays the mortgage. And at that purchase price. Yeah, upstairs does pay the mortgage because it's a tiny mortgage.

 

Sam Wilson  02:47

Right. That's interesting. How did you guys I guess get further into historic renovations because that's again, it's a pretty cool niche.

 

Phoebe Davenport  02:54

Well, we bought a property actually, a guy kind of chased us down and said, Hey, will you buy my building? I think you guys could renovate this and do a good job at it. We said all right. Yeah, sure. So we went ahead with that. And the vision with that building was to transform it into a boutique hotel. And the first floor of the building had been a bunch of different businesses over the years, but maybe vacant for about 10 years. But the interesting part was the upper floors, it's four storey building. So second, third, and fourth floors had been vacant since the 60s. And so kind of like a time capsule up there. Just really cool old historic trim and doors with transoms, and all that cool stuff. And we thought, yeah, we can make a boutique hotel out of this and preserve a lot of the historic frame, what they call fabric, I guess is what the historic fabric is what the historic people like to talk about. And so we got into that thinking we could benefit from using the tax credits. And the more we dug, the more we've learned. Still a learning curve, of course, but the philosophy of the historic tax credits kind of aligned with our vision for the project. And I think that's why we decided to go that route. 

 

Sam Wilson  04:07

How did you figure out about historic tax credits? And then if you don't mind explaining what those are?

 

Mark Davenport  04:12

How do we figure them out? Oh, goodness, I don't even know.

 

Phoebe Davenport  04:16

Well, I guess there's talk around the town ultimately. The guy that sold us the building had gotten the building listed on the Historic Register for Historic Places. And so he kind of turned us on to that. And he also recommended a consultant that could help us with tax credits. So the concept behind it is basically as long as you follow their criteria, which are very stringent in your renovation, then you get tax credits, whether it's federal or state tax credits. The state tax credits, you can pretty easily sell off and get cash back into your pocket after the project's done. The federal tax credits are a little trickier in that regard. You would need to have joint ownership in order for someone else to be able to use the tax credits. So unless you have a partner in the deal, or if you want to take sometimes like a lender will somehow get their name on the deed in some passive way in order to benefit from the tax credits, and you, of course, they compensate you to use those credits.

 

Sam Wilson  05:18

What's the breakdown between state and federal tax credits, and then when you get those credits, you get them at the end of the deal? 

 

Mark Davenport  05:26

Right. I think state is 25% of qualified expenses, which will be a lot of the expenses of the property renovation, it won't cover things like furniture, or certain things, but elevator, you just a lot of the general construction costs you're going to have will be qualified expenses. So state is 25%. And federal is 20. State you can sell as Phoebe said, there are companies that will send you can syndicate the credits, larger companies will typically buy them I think maybe 90 cents on the dollar. So once you you know, you have your agreement struck, that's just goes into your bank account, I guess not having done it. But that's my hope, at least. And then what other? When do you get it you have to once the property is placed in service, they have to go through the process. So my understanding is about maybe six months after you launch the building, or the whatever it is, then, you know, it's done that all the legal stuff is finalized. And then yeah…

 

Sam Wilson  06:17

And you mentioned a consultant that helped you get those credits initially, will this consultant kind of be on board and help you get all the way through the disposition of those tax credits?

 

Phoebe Davenport  06:27

Yeah, with her in the beginning, and she helped us submit your application, which again, very technical, very detailed, and without a consultant, I would be really hesitant to try because I think you'd probably make a lot of mistakes, and maybe not get the credits in the end. So it'd be I think that's pretty risky to try that for your first deal. The state tax credit application is a lot more simple. So you could probably try that if you wanted to try it on your own. But our consultant is awesome and she knows all sorts of stuff about the history of the building in the area, and things like that, and really dug down into what was there originally. One of the biggest things that they care about is the windows and you have to have like the same dimensions to within a quarter inch on like, where the two sashes meet and around the I mean, it's very, very picky.

 

Sam Wilson  07:18

Wow, that's intense. So let's talk a little bit about, you know, what are your total expenses do you think we'll be on that project? And then how much how many dollars in tax credits do you hope to then generate, you know, upon when you get them all back in?

 

Mark Davenport  07:33

I think the property is about probably about $2 million all in and then the tax credits, maybe 400,000, something like that. Kind of my estimates,

 

Phoebe Davenport  07:44

If you take out things that are unqualified expenses and the cost of just legal assistance and consultants and things like that.

 

Sam Wilson  07:52

Right. So the total project is 2 million bucks. You're, but what about your renovation expenses? What do you expect that will be? Or is that $2 million from renovates?

 

Mark Davenport  08:00

That's what I said. Yeah…

 

Sam Wilson  08:02

I gotcha. Okay, so you're hoping like you said early on, you told me this number. And I'm just making sure I'm understanding I'm a slow learner, but that about 25% of your total renovation expenses will get reimbursed by tax credits.

 

Mark Davenport  08:13

Yeah, it's more as, 25 to state 20 for federal but so 45% of the qualified. So if the 2 million that we might spend to develop the hotel, maybe only one and a half of that is qualified. So then it would be the 20 and the 25% of that one and a half. Yeah. So that's kind of how we look at it.

 

Sam Wilson  08:34

Right. Understood. Okay, cool. That's fantastic. Thanks for taking the time to get into the nuance of that because it's not something we get a lot of chance to talk about, especially with boutique hotels. Let's talk a little bit about the management side of that. I mean, that's a brand new operating business. So you guys are going to do this as like a short-term rental hotel, or is it going to be an actual hotel? What's the plan?

 

Phoebe Davenport  08:54

I think it'll be a little bit of a blend of both. I mean, we're kind of setting up as a more traditional hotel but I'm sure we'll market to the short-term rental marketplace as well. So it'll be a little bit of both. We're not planning to do all the traditional hotel amenities like we're not going to offer breakfast and things like that. But we have put on the first floor of the building a couple of commercial spaces. And so we're hoping that one's going to be like a breakfast and lunch kind of area, maybe cafe and one will be an evening hangout spot, maybe wine bar, Whiskey Bar, or something along those lines.

 

Sam Wilson  09:27

Gotcha. That's interesting. What have you done to educate yourselves on the ownership and management of a hotel?

 

Mark Davenport  09:34

Oh, goodness, you sound out the bank.

 

Sam Wilson  09:37

We've done, we're gonna hit stop here. I'm gonna leave because I've never been that hurt, man.

 

Mark Davenport  09:43

That wasn't offensive. We work with a wonderful bank. So that was actually aimed as a compliment. Oh, man, it's a good question. We've owned and operated a couple of short-term rental like Airbnb apartments before, and we were just astonished at how much demand we had. So in terms of opera, we mostly think of it like this hotel is going to be more like an Airbnb. I mean, it will be out there on the hotel sites on Wikipedia and not Wikipedia, but Expedia and all these other places, it'll be out there. But we think of it more as not so much what people think of as a hotel corporate, you know, not like that at all. It's more just a larger amount of Airbnb that would be kind of grouped together. Right. So I'm not to say that we really are experts at all about this. It's mostly I think, in the town where it's in, it's in Central Kansas town called Hutchinson, which is where all properties are. There's there's a big need for you know, hotel, it's downtown, there really aren't nice hotels downtown. So it's kind of like, it's not that we're experts in developing hotels, it's that we felt we found a great building and a great town where it's a fit. So we'll just tool up and figure it out as we go. 

 

Phoebe Davenport  10:55

Sure. Yeah. And we're planning I mean, so got 23 rooms, so it's kind of definitely on the small side for a hotel. But on the large side for Airbnb, yeah, you're gonna have a manager to do the actual work of running the hotel for us as well. 

 

Sam Wilson  11:09

Gotcha. That's really intriguing. No, I love that. I'm sorry. I started like the bank. But it's one of those things that as you see people launching into new ventures, there are things that give them, that give them the confidence to say, hey, I can succeed at that, right? It's not like you didn't just wake up one day not getting them a build or renovate a hotel. Like there were some things that led up to the confidence I can have success in this. So I guess that was the question I was really trying to ask. 

 

Mark Davenport  11:32

That's always our story is well, we under single-family, and then we sold it and bought a duplex. We'd never done a duplex before. You know, so it's striking…

 

Phoebe Davenport  11:40

…distance. Yeah. So I think the same thing is we tend to be higher on the risk side, we're willing to take a risk and just try it out. Because what do you have to lose? True.

 

Sam Wilson  11:52

Yeah, absolutely. That's fantastic. What else are you guys working on right now on the development side or is this the one that's kind of the front and center project?

 

Mark Davenport  12:01

Uh, no, in that town, where we're doing the boutique hotel, Hutchinson, Kansas, we own a couple of other larger properties, one’s a 12-storey tower, and then a six-storey tower as well, those ones we purchased first, about a year, year and a half ago. So we've done a lot of work, renovating apartments and commercial spaces in those buildings. And that continues to this day. I mean, if they're kind of different. They're different beasts from the boutique hotel, but the boutique hotel is more like the new thing for us where we're learning a lot. But the apartments and the commercial spaces, that's a little bit, we're a little bit more familiar with that although a 12-storey tower we were not familiar with at all until we had to become familiar with it.

 

Sam Wilson  12:41

That's absolutely intriguing. What are some things you wish you knew that you know, now before you bought that 12-storey tower?

 

Phoebe Davenport  12:47

Elevators. Oh, my gosh. So we moved to Kansas City from the East Coast. And our largest property on the east coast was a six-unit apartment building, woodframe house, essentially. And so when we bought concrete block 12-storey tower with elevators, it was the elevators in my mind, were one of the steepest learning curves, and we're still learning on that front. The companies provide terrible service, it seems, and they charge you your left arm for that, and a lot of negotiating and trying to wrangle them to get decent service for a reasonable price.

 

Sam Wilson  13:27

Yeah, that's interesting. Yeah, that's one of the things I would have thought out or thought of out of the gate. You know, what elevator repairs and maintenance? I mean, because those are things no one wants to get stuck in. Absolutely intriguing. If you know, if our listeners want to scale up their portfolio, you know, they say, “Hey, you know, we're in the duplex, we want to do like what Mark and Phoebe have done and just go out there and grow into bigger asset classes.” What are some things you would tell them?

 

Mark Davenport  13:50

Wow, I think it's a great idea. I mean, I don't think everyone wants to do that. But if you want to do that, I mean, I think, oh, goodness, I don't even know how do we do it?

 

Phoebe Davenport  13:59

You got to go for it. I mean, you just have to try. So when we went to buy Plaza Towers, which is our first big building, Mark knocked on the door of every bank in town, you know, open up the phonebook and call down all of them, and only one would even entertain the idea, really. So I think you just got to kind of go for it and just keep pushing and pushing until a door opens. It's not going to be handed to you on a platter. But if you try for it, it's not rocket science, either. You know?

 

Mark Davenport  14:27

Yeah. Yeah, that's what we discovered is and we're still discovering that to this day, because every time we've done, well, yeah, every time pretty much where we go for a new property. It's a new size of property for us, like the 12-storey tower that we owned before that was a six-unit. This is 75. So it's like, well, the issue you have is if you go to a bank, they're gonna say well show us your track record with 75-unit buildings you'll be like, don't have one. I did really well with this other one is not that you have to be super confident in yourself, but learn how to manage your own fears and learn how to manage and work through any doubts you have about yourself and keep on trying as Phoebe said, it's not that you're guaranteed success. But if you keep on moving and keep on shaking and iterating and finding creative solutions to your obstacles, you will succeed, your success might look different. But you'll get that.

 

Sam Wilson  15:16

How did you ultimately convince the bank to give you guys a loan on that property?

 

Mark Davenport  15:20

It’s a great question. We should put you on the phone with the bank. I think probably what it was, you want speak to that? 

 

Phoebe Davenport  15:26

Yeah. That was, that's Mark's side of the business. I do more the development once we own the properties.

 

Mark Davenport  15:31

Yeah, I think I sat with her. And I must have just talked to her about our vision for how we do our company and our vision for developing properties in the downtown of Hutchinson, Kansas, which is where the properties are and my guess is they this, this bank is kind of a local bank, they also have that vision. They also financed the previous owner of the building, so they had a relationship with the previous owner. So they knew the building, they had some idea of the track record. And I think it just kind of worked out. I mean, we had what we needed for the downpayment, their loan product worked. So, that's a great question. I wondered that myself, sometimes, you know, I think I might even have asked our banker at one point, you know, why did you?

 

Sam Wilson  16:13

It's a great problem to have when the bank says yes, so there's absolutely no complaints. Talk to me a little bit about working together. What's been a way because you mentioned that Phoebe, you said, hey, you know, that's Mark's kind of side of the business. So what's a way that you two have found to work together without causing friction?

 

Phoebe Davenport  16:28

Well, I guess it's just we tried to play to our strengths. So in the beginning, you really just get down and dirty and all hands on deck, we were in that, when we first bought our first duplex, we were both doing the actual renovation work. And then as we've grown a little bit, Mark's got a nice accent. So he's good at schmoozing, interfacing with, we work with partner, with investors as well. So he talks to investors and gets funding together and things like that. He likes to think about the big picture. And I really am good at logistics and getting down to the details. So I do the project management side and help develop the properties once we own them. So that's kind of how it works for us.

 

Mark Davenport  17:09

Friction does not, incredible amounts of friction that destroy our business. But yeah, generally it works really well.

 

Sam Wilson  17:16

Right now. That's fantastic. I love that. Yeah, figuring out what your strengths are, and then just playing to those. That's a common area of like I said, friction for a lot of people especially getting started. It's like, wait, hey, we're all doing the same thing and quit doing what I'm doing. I'm trying to do it. You're doing just quit doing it just, yeah. That's it. I love how you guys have figured that out. That's fantastic. Let's jump here into the final four questions. The first one is this. What is one tool, resource you find you can't live without? Think digital, think software, something along those lines.

 

Mark Davenport  17:43

Oh, wow. Asana. We use project management, like task project management software called Asana. We use that kind of set our priorities, set to do things into lists and things like that. So we use Asana for that. Jada,

 

Phoebe Davenport  17:56

QuickBooks is the first thing that came to mind for me because I do the numbers side of our business.

 

Sam Wilson  18:01

That's absolutely imperative. Good for you. That's a skill set I do not have. So thank you for doing that in your own business. Question number two is when it comes to investing in real estate, what's one mistake you can help our listeners avoid? And how would you avoid it? 

 

Mark Davenport  18:14

Oh, goodness.

 

Phoebe Davenport  18:15

The number one thing that I think of when I think of mistakes is people not trying for things. A lot of times I hear people talk or they listen to a lot of podcasts. And they're always like learning and thinking about it. But then they don't actually go ahead and do it. I'm like you learn by doing and of course, you make mistakes, we have this concept I like to call learning money where you know, you make mistakes, something cost you more than it should have or you hire a contractor, you get stiffed or whatever happens, and you think, all right, that was learning money I would have paid if I was going to get a college degree in property development. I would have paid for a class and I'm just going to count that as a class and learn from it and move on but I think really you got to go for it. So…

 

Sam Wilson  19:01

I love that, learning money Yeah, you're gonna pay for your education one way or another. So…

 

Phoebe Davenport  19:04

Yeah, might as well make money while you're paying too

 

Sam Wilson  19:08

Right, absolutely love that. When it comes to investing in the world, what’s one thing you're doing right now to make the world a better place?

 

Mark Davenport  19:14

We have lots of apartments in two apartment buildings where they've just completely beat to hell. Really bad tenants, nasty carpets, bugs, roaches, feces.

 

Sam Wilson  19:27

All the stuff we don't want.

 

Mark Davenport  19:28

Yeah, well, we want it because we want to buy those properties, but we don't want it to stay that way. So we work with a great construction company and a great property management company and they have their guys working through it and one by one you know turning these apartments around presenting them back to the market. Good affordable rates, good tenants, those are we think that's a pretty profound impact on the world.

 

Sam Wilson  19:51

Yeah, absolutely. I love that very, very cool. Mark and Phoebe, if our listeners want to get in touch with you or learn more about you and your company, what is the best way to do that?

 

Phoebe Davenport  20:00

We have a website. It's called levareproperties.com, L-E-V-A-R-E, properties dot com. We, you can also find us on Facebook and Instagram.

 

Sam Wilson  20:10

Fantastic. We will make sure we put those links there in the show notes. Mark and Phoebe, thank you for your time today. It was a pleasure to get to know you. 

 

Phoebe Davenport  20:18

Thank you. 

 

Sam Wilson  20:19

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