How to Scale Commercial Real Estate

Feb 13, 2022

We have been wired throughout our lives that nothing is perfect, but for Paul Moore, something is. A veteran in the real estate space, Paul has completed over 85 real estate investments and exits and has been serving as Managing Partner of Wellings Capital, a private real estate equity firm. 

He wrote the best-selling book, “The Perfect Investment,” to educate new and seasoned real estate investors on how multifamily investing can create wealth that lasts generations. In this book, he reveals the secrets that the super-wealthy don’t want us to know, including the ways–legal, of course–to generate large-scale profits while paying essentially no taxes.   

[00:01 - 01:50] Opening Segment

• Here’s a quick recap of when Paul Moore was a guest in our show for the first time
• Why you should listen to Paul on how to beat inflation

[01:51 - 10:22] The Perfect Investment

• The reason Paul believes that multifamily is the best investment
• The difference between intrinsic value and value-add
• How to add value to a property?
• • Listen to this step-by-step explanation from Paul

[10:23 - 20:48] “The Darling of Real Estate”

• Paul talks about why you should invest in self-storage properties
• He gives us a sneak peek about his other book, “Storing Up Profits”
• Watch out for this $250-million fund that Paul’s team will launch
• • This will offer options not available in normal syndications

[20:49 - 21:45] Closing Segment

• Your way to make the world a better place
• • Fighting to eradicate human trafficking
• Reach out to Paul 
• • See links below 
• Final words

Tweetable Quotes

“Value-add is when you're adding things to increase the net operating income and therefore increase the value of the property.” - Paul Moore

“Self-storage is the best commercial real estate inflation catcher that I know of because…you can raise rents just like a commercial airline or hotel, books, rooms, or seats. You can do it dynamically.” - Paul Moore

“What we do is we go out and find the very best operators with the best deals and we put them together in a diversified fund to give our investors sort of a mutual fund of highly vetted operators with intrinsic value-laced self-storage, mobile home park, apartment, RV parks, and even light industrial deals.” - Paul Moore

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Email Paul at paul@wellingscapital.com or follow him on LinkedIn and Facebook. Passive commercial real estate investing does not have to be challenging! Visit Wellings Capital to invest in real estate now. 

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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 this episode. Check below: 

Paul Moore  00:00

Self-storage is the best commercial real estate inflation catcher that I know of. Because think about it, I have a friend who buys and or builds Amazon warehouses. And then he leases them to Amazon for 20 years. Well, he knows what his income is going to be, or at least his revenues in 19 years, but self-storage, man, you can raise the rents every month you can catch inflation and man, self-storage has responded so well, during this inflationary period. Because people, I mean, you can raise rents just like commercial airline or hotel, you know, books, rooms or seats, you know, you can do it dynamically.

Intro  00:38

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  00:50

Hey, I'm welcoming back to the show today, Paul Moore. And for those of you that don't know, Paul came on the episode or came on the show on Episode 228 back on July 15, 2021. So if you have time, go back and reference that show. That was a fantastic show, where Paul really took the time to break down inflation and how savers are losers. But today, you know, and how you can profit from inflation. That's a fun episode there. Again, number 228. Go back and find that and listen to it. All the second time guest come on the show today. And really today, Paul, we're going to talk about how to find deals in any market and then maybe take a few minutes to kind of talk about your latest book coming out. So Paul, welcome to the show. 

Paul Moore  01:28

Hey, it's great to be here again, Sam.

Sam Wilson  01:30

The pleasure is mine. I mean, let's just jump right in. You know, normally, there's kind of the preview where we ask guests to kind of tell about themselves, et cetera. But you've already done that for us on the previous episode. So let's take this time today to really just get right down to the nuts and bolts of it. So Paul, tell me, why have you begun thinking about how to find deals in any market? And then really, if you can just break down the actual mechanics of that?

Paul Moore  01:51

Yeah, great question. So I have been sounding an alarm. I wrote a book called The Perfect Investment, humbly titled, book about multifamily. And I do believe that multifamily is the perfect investment. If I had to put a million dollars somewhere and leave it there for 100 years, I'd put it in multifamily because I'm not sure you know what's going to happen in the future of self-storage, or what's going to happen in the future of anything. It's sort of like Warren Buffett said, look, he said, I'd rather invest in Wrigley's than the tech boom in 1999. Because I know how people will be chewing gum in 10 years, I don't know where the tech boom will be. And of course, he was mocked and scorned. And then two years later, he was heralded as a hero once again because he didn't lose so much money like the other guys. But at any rate, we've been worried that multifamily is getting overheated. And we were the victims of this ourselves. For time's sake, I won't get into it. But I'll tell you, we overpaid for a deal. And it hurt. It hurt us it hurt our investors. And we ended up, we got out of that for more than we paid. But nevertheless, you know, it just seems to me that this is the time when the very, very best of the best investors are getting the best deals. And I was really concerned that we weren't one of those we had only been around, you know, I only been doing multifamily since 2011. And I was even like that was kind of quasi hotel multifamily. And so we were concerned that maybe that the best deals like if the market turns, we don't want to be like buying for top dollar, which means minimum profit potential at the top of the market. Now, the good news is inflation like we talked about last time might save a lot of marginal deals, but I don't want to count on inflation to save my deal. And so I started thinking, what, how can you find deals that make sense in any market. Michelangelo was considered the greatest sculptor of all time. And he made a comment something along the lines of, well, he said, when I see that piece of marble, I don't just see a block of stone, I see an angel, it's inside. And I need to set the angel free to do that I need to chisel away all the superfluous stuff. And that just reminds me of the whole idea of intrinsic value. Value-add is when you're adding things to you know, increase the net operating income and therefore increase the value of the property. And that absolutely works. intrinsic value is a slightly different take on that. And that's when an expert operator or acquisition team can go look at an asset and see intrinsic value, you know, 90% or so of mobile home park operators, which is another type of multifamily, are mom and pop operators. They don't have the desire the resources or the knowledge to increase income and maximize value. 50% of self-storage operators are mom and pop operators and many of them are operating really well. But why would these folks need to increase income, some of them are mediocre, to be honest. But they're okay with that, because it's been cash flowing for years or decades. And the market has more than doubled the value of their property. I watched a Green Street webinar yesterday, it said, mobile home parks in particular have more than doubled in a short time. In other words, the cap rate has gone down to less than half of what it was right? So the thing is, a lot of these properties have intrinsic value buried in them. And so that's why we started looking for these. And we're excited to work with operators who know how to find these deals that have intrinsic value baked in, we can talk about that more if you want. 

Sam Wilson  05:42

That's really, really intriguing. So when you say find deals in any market, you're thinking more in terms of the market keeps rising? Yeah, necessarily, in terms of everything falls into pieces, and then you're trying to find something that still works. Is that right?

Paul Moore  05:58

It's both. When I say any market, I'm not talking about geography here, though, that would be an application of this as well, right? But I'm talking about the fact that in a rising market, you need to find stuff when people are paying a 3.8 cap rate for stabilized deals. Well, those might be institutional investors who are willing to do that, but I'm not willing to do it. But am I willing to pay 3.8% cap rate or even less for a deal that's a mess, like the place in Grand Junction, Colorado, the self-storage facility that had 80% delinquency, which is easy to fix and self-storage by the way? Yeah. Am I willing to pay, you know, 3.8% cap rate in a mobile home park that has the opportunity to almost double the income in a year or two, just by fixing some things that are badly broken by a mom and pop operator? Yeah. Because that makes sense. And that's what I'm talking about when we're talking about finding intrinsic value.

Sam Wilson  06:58

Right. And that's less contingent upon the deal. And far more contingent upon the business plan and the operator implementing it.

Paul Moore  07:06

That's right. It's based on the current operator and how poorly they're running it, it might not even be poorly, it might just be that they don't see all the upside that they could create. It's also based on finding a great operator who is willing to buy that asset and make the upgrades. Here's a simple example, if I could do one. So imagine you buy a $2 million self-storage facility. Okay? That would be perhaps, you know, 25, 30,000 square foot self-storage facility, it's not important. Anyway, you pay 2 million for it. And let's say the rents are 20% below market. And so you bring those up. Well, that increases the value of the property, we know the value formula value equals income divided by cap rate. So that brings the value of the property up more than 20%. If you keep the cost fixed, if you can increase the revenue by 20, you might be able to increase the noi, the net operating income by 25 to 28%. Number one, that's one simple example that everybody knows, but here's something that some people wouldn't think of. Imagine adding U-Haul to a property. Okay. Now, U-Haul, let's say there's not much U-Haul in the area. And you can add U-Haul, you can get between one and $5,000 a month in income from which is basically commissioned from putting a U-Haul out front. Now you already have an employee there. And so you're not paying that much more, you have no CAPEX out of pocket. And let's say you can add $3,000 a month from adding U-Haul. 3,000 a month is $36,000 a year, $36,000 a year divided by a cap rate of let's say 6% point zero-six would be a $600,000 increase in value. Now, if you bought that for 2 million, and you increased it by 600,000, you just increased your value by 30%. And if you increased the rents by 28 or you got money from the rents, that's another 28%. So just in round numbers, let's just say you increase the value 50%. But if you got leverage, let's say you got a million dollars in debt, and a million dollars in equity, you only put a million dollars into that property. If you increase the value by 50%. You just doubled the value of your equity by two simple value adds but there's like 20 potential value adds in self-storage.

Sam Wilson  09:36

That's brilliant. Yeah, and that's one of the things that people are overlooking right now that I think you're bringing up some really valid points is that you have to have skilled operators that can identify poorly performing assets, generally in a fragmented industries such as mobile home parks, or even self-storage where it's still largely non-institutionally-owned, although we're seeing obviously in self-storage and mobile home parks, institutional expertise coming into the space but there's still opera tunity there. So that's really, really intriguing. What are you doing right now? I mean, obviously, you can leverage your, you know, decades of relationships. Maybe I'll ask this question differently. What do you suggest other people do to identify those skilled operators? Because there's a lot of people out here slinging deals. And there's a lot of people out you're slinging deals that I want nothing to do with. So tell me what you see. And how are you identifying that?

Paul Moore  10:23

Well, the last 1/3 of my book called storing up profits, which just came out on BiggerPockets in November, goes over seven different paths to make a fortune, if you will, in self-storage, but also multifamily mobile home parks, RV parks. And those seven paths, you know, would be including being a deal finder, being a capital raiser, finding a paid coach or mentor. But passive investing would be the one that I think I'm going to answer your question on passive, investing passively would be finding a fantastic operator, and then doing everything in your power to vet them carefully, and then invest heavily with them. So if that's your question, you know, if it's finding a great operator, I would recommend using Brian Burke's book, “The Hands-off Investor,” and The Hands-off Investor is a great guide to betting operators. And again, I would look for operators with lots of experience who know how to find these intrinsic value deals. 

Sam Wilson  11:27

Yeah. And that's really intriguing. One of the things obviously, you know, I think you spoke to this, maybe we'll just take a left turn here for a second. But in storing profits, you said, Hey, you can you know, go into these deals with a capital raiser. And I think, you know, for the average person, like spending the time that it takes to understand the dynamics of the different types of investments, the different operators, what their return profiles are, I find I can bring incredible value to other people by vetting all of these deals myself out of the gate going okay, no, no, no, no. I mean, there's probably 100 deals that come to me one of them I might be really interested in. Right. Yeah. So I think that's an interesting, just kind of side point that you make there in storing up profits is that I mean, you can bring incredible value to those people. If you're the investor that doesn't want to spend the time learning Brian Burke’s methods, find somebody like myself or lots of other people out there know the industry well or yourself. Obviously, you do this, you know, you're involved in this as well, where you pick out excellent operators, you can really short right process as well. So talk to us about the book, “Storing Up Profits.” I know you've touched on this briefly, but it is out or it is coming out. 

Paul Moore  12:29

Yeah, it's out. And I want to be clear, before we leave that last point that I'm not saying you can go out and get a commission for raising money for other operators. If that interests you, dive deep into the SEC regulations and do it right. You don't want to lose sleep for years wondering if you did something illegal. And it's easy to do, right, Sam?

Sam Wilson  12:47

Correct. Absolutely. Thank you for pointing that out. Yeah, a lot of pitfalls to that. And you need to make sure you've dotted your I's and cross your T's.

Paul Moore  12:54

Right. So, Storing Up Profits. When I got into self-storage a number of years ago, I was looking for a great book, I was actually trying to order every book on Amazon about self-storage. And I didn't find that many, and some of them were self published. So I actually concluded, hey, I'm going to go ahead and write my own. And so the first third of the book is the overall view of self-storage. And of course, I wrote it to be honest before COVID hit full stride. And since COVID, Green Street and others have said Wall Street Journal, New York Times that self-storage is sort of the darling of commercial real estate right now. There's a lot of reasons for that. But I'll tell you that there's 53,000 or so self-storage facilities in the US. That's the same as McDonald's, Subway and Starbucks combined. Three out of four are run by independent operators and two out of every three of those are mom and pops with one operation. Many of those view this as a, you know, just a big metal boxes that spit out cash. Great. I'm glad you think that and I'm glad it happened for you. But if we can be an operator that goes in and buys that facility, pays them you know, honestly, pretty high price top dollar, we can increase the income. And we can you know, sometimes even compress the cap rate by actually putting together a portfolio of deals. We talked about inflation six months ago on your show, and self-storage is the best commercial real estate inflation catcher that I know of. Because think about it. I have a friend who buys and or builds Amazon warehouses, and then he leases them to Amazon for 20 years. Well he knows what his incomes going to be, or at least his revenues in 19 years but self-storage man you can raise the rents every month you can catch inflation and man self-storage has responded so well during this inflationary period because people, I mean, you can raise rents just like a commercial airline or hotel, you know, books rooms or seats, you know, You can do it dynamically. That's one thing a mom and pop would rarely ever consider doing. I mean, I talked to a mom and pop last night who hasn't raised rents in six years and doesn't think anything of that. Well, there's a lot of potential in a deal like that. And there's a lot of other reasons there is. The second third of the book, the first third is about the overall industry and the value adds and the math and all that, the second third of the book is four different strategies to build a self-storage empire. And those would be buying an existing performing asset to buying a value-add asset, intrinsic value deal, like we've talked about, three retrofitting an Old Sears, Kmart, or office building and making it into self-storage. And we know a lot of people who have done that. And then fourth, the fourth strategy would be obviously building from the ground up and I go into those four strategies. Then the last third of the book is the seven paths to success in any commercial real estate asset, whether like I said, whether it's self-storage, or multifamily or whatever, I have seven paths in there in detail for how somebody in residential can make the jump over to commercial.

Sam Wilson  16:10

I love it. That's right in line with the thrust of the show, which is how to scale commercial real estate. Yeah, that's awesome. Thanks for putting that together. For our listeners, I want to kind of circle back there. And this is something we've talked I know we probably talked about on the last show a little bit, but I think it's an intriguing conversation, which is the ability to reprice assets in an inflationary environment. So you mentioned that in self-storage, I mean, you guys every 30 days, good reprice, you know, you say, Hey, I'm sorry, guys, you know, like this last year, the published inflation was, what 7% 6.7? Something like that. That's the published one. That's not the one that you know, pre-1980 or 81, when they tweak the numbers, so like, yeah, Shadow stats are somewhere like that. And something like, you know, 12 to 15%, because they took out all the things that actually mattered to us as consumers food, right. I mean, the stuff that we care about when it inflates…

Paul Moore  16:57

and they conveniently substitute whatever they want. If they say beef is too high. We assume people buy chicken, we just substitute chicken this month. Chicken, right. Really…

Sam Wilson  17:06

really? Yeah, maybe not. Yeah, so that's really intriguing. You know, I love that idea that you can reprice assets in a hurry. And that's one of the things I've struggled with on industrial like, gosh, you're locked in for five years, like, no, got it unless you've got a CPI or an inflation floater in there that reprice is every year, that's, you're taking on a lot of risk. But the other thing that we really benefit from, I think, is borrowing long term debt on fixed rates. I mean, you can do your inflation risk tremendously with that. And that's something in self-storage, of course that you can get. 

Paul Moore  17:38

Right, like we talked about before, it's a unique time in world history. I mean, we've got pretty high inflation, I won't say massive yet. I mean, you know, I'm looking at this $10 trillion, Zimbabwe bill and thinking, Okay, we're not in massive hyperinflation. Right. But we have high inflation. But unlike 1979 to ‘83, or ‘84, we don't have high interest rates to go with it. We have historically low interest rates, that combination, as far as I know, it's unprecedented.

Sam Wilson  18:08

Right, yeah. Which then could point to stagflation, you know, down the line. But yeah, right. We'll see how that shakes out. I know, this was not the point of the show. But it's an interesting topic, and certainly one that's on a lot of investors minds right now. So Paul, I've really enjoyed this. Thank you for taking the time to get to kind of break down, you know, your book, and then you know, how to find deals in any market vetting operators looking at, you know, the values of self-storage and the other things you're investing in. Real quick, what's something you are working on right now, in your business that you find exciting?

Paul Moore  18:36

Yeah, so we concluded and I hinted at this earlier that we weren't a great operator. And we did not have the team, the track record the technology. I mean, when we jumped in to commercial real estate 11 years ago, we were so far behind so many people that had already been doing it for years, and even people who were newer, for some reason, we're getting better deals in us. So we concluded that our best way to serve our investors was to actually put together, to become a due diligence partner for them. So what we do is we go out and find the very best operators with the best deals, and we put them together in a diversified fund, to give our investors you know, sort of a mutual fund of highly vetted operators with intrinsic value laced self-storage, mobile, home park, apartment, RV parks, and even light industrial deals. So that's what we do. And right now we're excited. We're getting ready to launch a $250 million fund sometime this spring that will be actually publicly registered, not publicly traded, and it will give investors lots of options that they couldn't get with our normal syndications.

Sam Wilson  19:50

Man, love it. Lots of good stuff going on there, Paul, let's jump into the final two questions. And you may have answered this one differently on the last one when it comes to investing in the world, what's one thing you're doing right now to make the world a better place.

Paul Moore  20:01

Yeah, I did talk about this last time really trying to continue to bang the gong about letting people know about human trafficking. You know, I mentioned before, if you took the record profits of Apple, General Motors, Nike and Starbucks added those together, double that number, I think I said tripled before but double that number, you'd have the record, you would have the average annual profits of human trafficking worldwide. Since we started this show, roughly 200 People have been captured or sold into slavery. And this is a massive problem. And so I'm working with people like Jay Papasan, from Keller Williams and others to put together information and funds to try to fight this problem and to rescue victims.

Sam Wilson  20:48

Wow, that's incredible. Thanks for doing that. Look forward to tracking with you on that front as well. Paul, if the listeners want to get in touch with you or learn more about you and your fund, what is the best way to do that?

Paul Moore  20:58

You know, they can go to Wellings, W-E-L-L-I-N-G-S, that's wellingscapital.com. And if you go slash resources, you can get some free special reports on self-storage, mobile home parks, access to my book on multifamily and some other free stuff.

Sam Wilson  21:15

Awesome. Paul, thank you for your time today. It was a pleasure again to have you on the show. 

Paul Moore  21:19

Yeah, you bet, Sam. Thank you, man.

Sam Wilson  21:20

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.