The CRE Connection · Samy Soussan

Join us as we explore the fascinating world of commercial real estate with our special guest, Garrett Lepow, a key player in acquisitions and investor relations at KM Realty. In this episode, Garrett shares his early passion for real estate, sparked in middle school and solidified by a high school internship with a Houston syndicator. Discover how KM Realty focuses on the niche market of unanchored retail strip centers in Texas and Arizona and their strategic plan to consolidate these assets into a real estate investment trust (REIT). Garrett breaks down the concept of an upREIT, explaining its benefits over traditional investment options and the potential for significant value creation in this specialized market.

We also take a closer look at the 721 exchange and its benefits for estate planning, particularly for shopping center owners whose heirs may not wish to manage such properties. Garrett provides a comprehensive overview of the process, from converting property into shares to working with CPAs and attorneys to ensure compliance. This approach not only offers a step-up in basis for heirs but also transforms their inheritance into a truly passive investment, eliminating the complexities of property management.

Lastly, we discuss the current landscape of cap rates amid rising interest rates and the resulting credit crunch, emphasizing the stability and flexibility of investing in free and clear properties. Learn about the potential growth of KM Realty's unanchored retail niche and the strategic benefits of presenting a large, cash-flowing vehicle to public or institutional buyers. Garrett also shares valuable insights on building genuine relationships in the commercial real estate industry, drawing from Dale Carnegie's principles and his own personal experiences.


▶️ If you're interested in learning more about Uri, check out the following links:
▶ LinkedIn: https://www.linkedin.com/in/garrett-lepow-b37863b7/
▶ Website: https://kmrealty.net/
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Creators & Guests

Host
Samy Soussan
Connector in Chief and Founder of The CRE Connection Podcast | Madison Title, Business Development
Guest
Garrett Lepow

What is The CRE Connection · Samy Soussan?

Welcome to the Commercial Real Estate Connection Podcast: Building Relationships for Commercial Success', the place where we connect with the brightest minds in commercial real estate, uncovering their secrets, strategies, and captivating stories.

We are dedicated to helping beginners learn from experts in the commercial real estate industry. Join us as each episode, we sit down with successful investors, brokers, developers, and other key players in the commercial real estate world to discuss their experiences, strategies, and secrets to success. Our goal is to provide you with valuable insights and perspectives to help you navigate the complex world of commercial real estate and build strong relationships that lead to commercial success.

So, whether you're just starting out or looking to take your career to the next level, join us as we connect you to the industry and share expert insights for aspiring professionals.

00:00 - Samy (Host)
Welcome to the Commercial Real Estate Connection Podcast, the place where we connect with the brightest minds in commercial real estate, uncovering their secrets, strategies and captivating stories. I'm your host, sami Sousan, here to serve as your guide and connector-in-chief on this exciting journey. Together, we'll dive deep into the world of commercial real estate, exploring the ins and outs of this dynamic industry. Our goal is to discover the true power of meaningful connections along the way, so get ready to plug in, engage and elevate your commercial real estate journey.

00:30
All right, welcome everyone to another episode of the Commercial Real Estate Connection podcast. I'm here with a dear friend, garrett Lipo, who's part of the acquisitions team and investor relations for KM Realty. They are an independently owned full-service commercial real estate firm that specializes in development, acquisition, property management and leasing of exclusively unanchored retail centers across Texas and Arizona, and I'm really excited to have Garrett here. He's a good friend. I've had the opportunity to learn a lot from you over the past couple of years and I'm really excited to hear more about what you guys are focusing on in particular at KM Realty. We'll talk a little bit about the Upreet framework and what that looks like, but welcome to the podcast.

01:14 - Garett (Guest)
Thank you, sammy. It's a pleasure to be here. I always love our conversations and I feel I learn more from you as well. You're incredibly bright and well-connected and I always enjoy getting together.

01:19 - Samy (Host)
All right, garrett, firstly, everyone has a bit of a journey about how they get started in commercial real estate and I'm always intrigued to hear a little bit about what kind of led you into that commercial real estate journey. So can you share a little bit, maybe, about your personal entry into commercial real estate and how you got involved over?

01:35 - Garett (Guest)
here? Absolutely so, originally in middle school maybe a little early, but middle school is where I started getting interested in business, and residential real estate really resonated with me and I thought that's the career path I want to go through. Ultimately, my high school required a senior internship and I'm very fortunate in the people I was connected with. Andy Bernstein, a local Houston syndicator, a phenomenally bright individual, took a chance on me, gave me my internship, really opened up my eyes to commercial real estate and the flexibility and the cool dynamic nature that commercial real estate provides. It's a little bit more gray within it in how you structure deals or how you work with your tenants, whereas residential is a little more clear cut and just wasn't as dynamic as commercial real estate wasn't.

02:27
So commercial real estate was a natural progression after I got that experience and I came out of school and immediately started at KM Realty back in 2017. And I haven't looked back since. I enjoy the asset class a lot. I really enjoy being able to interact with different property owners, with investment sales guys, with our tenants. It's a really neat industry and you're not just stuck behind the desk. I love that.

02:51 - Samy (Host)
So you mentioned your unique asset class. Can you share a little bit about what is the unique asset class that KM Realty focuses on and what you guys do with those assets?

03:02 - Garett (Guest)
Absolutely so. A little background on KM Realty. Km Realty was founded in 2003 just as a one-off syndication firm. The firm specialized in developing and value-add opportunities within the unanchored retail strip center space, or more commonly known as shopping center, and the recession came along shortly after the company was founded, where the portfolio just started to get larger and larger as we syndicated more deals and it just took a little bit longer to get to Proforma. Randy Keith, our managing principal, took a read public back in the 90s. Uirt had soon merged out with Equity One, I think about 2000, 2001. And at that point had really good experience, a lot of really good connections.

03:45
And fast forward to 2017, where we had our 17 partnerships, our 19 properties, got the idea to consolidate our unacred retail strip centers into a real estate investment trust that we operate out of today. The goal with the properties and what we plan on doing with them is previously, more recently this year, we started to see a lot of new players enter the space. Previously there was no private or public REIT that was solely focused on the unanchored retail asset class and we felt institutional capital was flowing to the asset class. It's just too hard to deploy, say, $100 million or $1 billion at $5 million shopping centers. So our belief was we need to do the dirty and hard work consolidating and amassing these assets and eventually an institutional player or going public makes the most sense where we can recap the portfolio and we believe a premium will be paid just because it's never been done before, where there's consolidation of the pure play and the on-acre strip center space.

04:51 - Samy (Host)
That is a very unique space to be in. I mean, I'm heavily involved in retail and I love the fact that, when it comes to retail in particular, there's so much creativity involved. I think that the fact that a lot of times in retail we typically think of, like you said, a mall or a large shopping center that perhaps has an anchored, a grocery anchored shopping center, or maybe it's a target anchored shopping center, but you guys are focusing exclusively on unanchored shopping centers, which is a very unique niche, and I love to see that concept. I'm excited to see what that's going to do. Can you maybe start by explaining a little bit about the uniqueness of? I know we spoke about an upREIT right, and so I think a lot of people are familiar with what a REIT is in general right A real estate investment trust and I think everyone's familiar with how a REIT stands out from other real estate investment options. But can you maybe share about, first of all, what is an upREIT and how that works, and how does an upREIT stand out from other investment opportunities?

05:53 - Garett (Guest)
Yeah, absolutely. So, taking a step back, we acquire properties the traditional way, via cash, and our more successful acquisition approach has really been via the 721 uprete exchange. That uprete exchange. What's so unique about it? It's very similar to a 1031 in that it's a tax deferred transaction for the property owner. However, the nuance that would really stand out for most property owners instead of exchanging into a direct property where you may have leasing risk management, risk and cost to carry if you have some turnover on your tenants, at 721, you contribute your property into our real estate investment trust and you receive shares that have a dependable income stream behind them. We don't pay out all of our income. We have a bit of a spread there. Investors still own their pro rata share of the income that's retained within the company for future growth. But that's really how we're able to sustain a very smooth dip in policy for our shareholders, where we create a little bit of a spread there. A tenant goes out. It's not a huge deal for us. We're able to backfill just. The rest of the portfolio is able to support, say, one property if that property is in a transition period. And as portfolio continues to grow, it becomes easier and easier for us to really swing a big stick, we think, and we ultimately get to make the best investment decisions with our tenants where tenants not paying rent, you really don't have a tenant and we can make the executive decision, lock them out and let's move on and release the space because we're in a position to be able to negotiate. So the up-read from a diversification standpoint should be really strong.

07:41
So again, taking another step back with the 721 exchange. Why would someone want to look at that? There are a couple different criterias of seller or contributor that we typically look for. Your young syndicator may struggle with the concept where they're giving up liquidity and control and they're joining a larger entity at that point as they're in the asset aggregation phase. But for older syndicators out there, or mom-and-pop property owners who say have three to five of these centers, maybe even 10 of them, they may be looking at their estate planning and saying I need to figure out a way to unload these assets but I only pay my taxes because there's no need. They have these properties to generate income for them and that's all they really need. They don't always need the cash behind the asset. So with a 721 exchange for those types of individuals. They get to defer their taxes, earn income on those pre-tax dollars and then, from a diversification standpoint, instead of owning their one asset or exchanging into, say, a single tenant asset for simplicity of management, they get instant diversification. Currently we're 76 shopping centers and about 700 tenants, and so really strong geographical diversification. We're in Texas, all the major markets, we're in Arizona, we're in New Mexico and more recently we acquired our first center in Colorado, denver to be specific. So it's a really strong diversification concept for investors.

09:15
And then on the estate planning side, a lot of times mom and dad have a company that maybe your heirs don't necessarily want to take over, they don't have an interest in taking over or they don't have the expertise. Our program can be really powerful for those types of shopping center owners because they can easily contribute the property and then split up the shares amongst however many heirs. The heirs get a step up in basis upon inheritance, they're well diversified, the income stream continues and no one has to figure out how to actually operate a shopping center. So you really protect your heirs, in my opinion at least. You don't have to deal with other attorneys who maybe may be charging some aggressive fees with them as they're unwinding the estate. You don't have to deal with investment sales guys. You don't have to deal with anyone on these assets and figure out how to operate them.

10:07
So for us in the estate planning side, we think it's a huge benefit and that our happiest investors, it turns out, are usually our up-free 721 candidates, just because they realize how passive our investment approach actually is for 721 exchanges. Real estate's not as passive as most people think it is. You can have third-party management and leasing and you're still getting calls about property management-related issues. Are we authorized to make this repair? Oh hey, your tenant went out and we need a capital call to pay your mortgage this month. It's not nearly as passive as people think. With the 721, it actually becomes a truly passive approach, although I will be calling you once a year just for my proxy code. But that's about it.

10:51 - Samy (Host)
I love it. Garrett, first of all, that was a lot of information and I think that there's so much to unpack there, absolutely. I think what I would love to just walk through with you is kind of like what that looks like from a practical standpoint. Right, so say I own five shopping centers and I would like to sell my shopping centers, each one at about $3 million a piece, that's $15 million. And I assuming that I own them out free and clear, there was no debt on those deals. So I approach KM Realty and I say, all right, I want to sell you my shopping centers there, I'm going to sell them for $15 million. And you guys come and say, hey, sammy, well, we have this 721 exchange approach. Would you like to go that route? So walk me through the transaction. What does that look like? And then, how practically, does the seller actually make money from that transaction? Great question.

11:44 - Garett (Guest)
And absolutely let's go through the pitch and what we really experienced day to day at the office is, whether it's through a broker relationship, whether it's through cold calls for unlisted deals, whether it's just a deal we come across via email blasts or online, we identify something that is attractive to us and we then start learning more information about the property.

12:07
A very important thing you hit on was the debt markets today are very challenging, to say the least, and property owner expectations for selling the property, cap rate expectations are quite low still. We've found a way to still aggressively price acquisitions where we can sidestep those debt markets. So our first question instantly when someone is interested in hearing more about the 721 exchange opportunity is what's your debt? Hearing that there's no debt on the property, we can be the most aggressive we would be for that specific property, and it's all sub-market dependent, of course, but within that we have a more extended conversation where we'll go through the process and the process really begins with agree on a purchase price and then, if there's debt, we can pay it off, replace it. If there's no debt, no lenders need to be involved in this transaction, so it could be a very quick transaction for us. I want to pause you for a second.

13:03 - Samy (Host)
Yeah, you mentioned, if there is debt, then you will either take over the debt or pay off the debt. Is that something that you like to do, because you do not want to be in a situation where you're dealing with debt for those assets?

13:16 - Garett (Guest)
Or question and there's actually a nuance there that's interesting as well to to successfully accomplish 721, similar to a 1031, you have to replace debt. Fortunately the reed has sufficient debt to where we're able to allocate that amongst each investor so we can satisfy all the requirements there. That that's a very important thing. We're not trying to trigger anyone's taxes with this exchange. It's not a concept. We'll assume debt. That's not an issue for us. If there are attractive terms on the debt, we're happy to assume the debt.

13:47
It just doesn't always make sense. As we're learning, as we get bigger, the bigger companies are able to get significantly more efficient debt products than, say, mom and pop would or we could in our single asset partnership. So it doesn't always make sense. But in this increasing interest rate environment, loan assumptions are becoming quite attractive as people have significantly lower fixed rate debt right now. So it makes a lot of sense to look at acquiring or assuming that debt, but not always and we'll make a executive decision once we get to that point. And we're very fee adverse as well from a debt perspective. So if their prepayment penalties can be challenging for us and we want to avoid like CMBS debt for instance, it's been a challenge with that today.

14:37 - Samy (Host)
Certainly is, but let's go back for a second. So we were saying so, assuming the person has the property at a purchase price. What's the next step now with the client?

14:45 - Garett (Guest)
So we'll typically have conversations with their CPAs and their attorneys as well, and while we're having those conversations, the investor will usually reach out to our other 721 candidates who have transacted with us. We usually give a list of five to 10 people for them to reach out to and it's funny, usually when we hear back from those calls we're moving forward to contract and getting ready to transact. We like to say our 721 candidates are our happiest investors. Just once they experience the passive income that first dividend hits and there's no management risk they really become our happiest investors and enjoy the share price appreciation and the dividend growth as well.

15:29 - Samy (Host)
Okay, so that's the part where I would love to hear more about. So someone sells their, let's say, you agree on a purchase price of $15 million, right? So now is the seller walking away with $0 and all they're getting is stock in the company? Or do they walk away with a certain amount of cash on hand and then they have a certain amount of shares that are in the rest of the REIT? How does that kind of work?

15:53 - Garett (Guest)
Great questions and the answer is there are quarterly distributions that are paid and it's based on the AUM or the equity contribution that you're contributing into the fund. So those dividends are paid quarterly, just like a publicly traded REIT. We try and pay them 30 days after the conclusion of the quarter. We have quarterly reports as well. We have a board in place. There is an interesting nuance in the question. You asked If there's cash traded, usually at the time of the transaction. Yes and no, it will depend.

16:24
We are sometimes open to doing 50% cash, 50% equity if it's a free and clear property or to some extent cash. If there are some investors who are wanting liquidity with the transaction, that cash is taxable. Any cash that comes out at closing would be taxable. Your basis would be uncovered at that point and you would be paying your taxes at that point. So we really make a strong push and say if you don't need the liquidity, why would you consider paying taxes today? It doesn't make a lot of sense and so we really push for 100% equity in these free and clear properties. But we're understanding that it doesn't always work that way for the property owners. We're flexible and that's, I feel, one of our competitive advantages that we've been able to offer our investors.

17:13 - Samy (Host)
Okay, so this is intriguing Again. Like I said before, there was a lot to unpack. We kind of touched on this briefly, but you mentioned that we know currently the market is that interest rates are expected to stay high for a little while. I know they mentioned maybe there's going to be some cutbacks, but we haven't seen it yet. How do interest rates influence the way that you manage investments within an upbring?

17:36 - Garett (Guest)
Yeah. So taking your example of the $15 million portfolio, I think that's a great example to go by. Who's to say the properties are worth $15 million today? I think we're really in a large discovery period for cap rates, with where interest rates continue to just march higher and the lenders are starting to pull back and we're starting to see a bit of a credit crunch. It seems like where you can get leverage just maybe not the leverage you're thinking about and you're also getting negative leverage as well. And so the negative leverage we're not a believer in that. We avoid it as much as humanly possible, if we even have it at all. And so, again, that's why the free and clear property makes so much sense.

18:19
And for that property owner who said, hey, I have a $15 million portfolio that I want to contribute, their pricing expectations may be the peak of the market from, say, 2021 to early 2022. For free and clear property, we can still pay those cap rates. That's not an issue for us, because we get to sidestep those debt markets and as long as we get to do that, we are significantly more aggressive on our pricing expectations, because there's a bit of a spread there for future growth of the company and it just makes more sense to sidestep all of those debt markets and everyone's happier that way. We're happier, we have higher cash flow, the contributor is happy because they got the cap rate they were looking for. So I ultimately think it's going to be interesting to see how levered properties, especially over levered properties, start to trade but free and clear property. We're as aggressive as we possibly can be on those types of assets from a cap rate perspective.

19:19 - Samy (Host)
Okay, so you guys mentioned that KM focuses on unanchored retail. What kind of growth potential do you guys see for your stock in this niche market? It's a very niche type of market. I'm curious if you have any thoughts about that.

19:34 - Garett (Guest)
Yeah, that's a million dollar question, right, that would be hard to answer and I think, a good way to answer that. Historically we've averaged in excess of a 13 IRR, looking at our dividends paid out and our share price appreciation. We use third-party MAI appraiser each year to value the portfolio, so we don't even do our own valuation. We want to keep that conflict out, so we're targeting the low teens IRR. It's a REIT, it's not a tech stock. So driving those, say, 50% POTS in a year, those are challenging for this industry, at least for a large portfolio. You can find one-off deals where you can drive some really strong value that way and as we continue to get bigger, that's another avenue for us to be able to increase our share prices, buy value add opportunities and we do get a nice P, nice pop. So it's hard to say where the share price ultimately will go.

20:26
I think investors should anticipate a low-teens IRR where it's really conservative growth. We're a very low-levered company. Currently we're about 35% levered and we have a firm commitment from the board not to exceed, say, 50%. We like the low leverage, we like the low risk. It keeps us nimble, it keeps us very, very flexible, paid tons of dividends during COVID, we never had to call any of our lenders. We never missed payment. The low leverage aspect is very, very good for us.

20:58 - Samy (Host)
I love that, so can you discuss maybe how an upread in general might attract higher valuations, whether it's in private deals or going public? How does that work attractive?

21:08 - Garett (Guest)
enough to want a public yield where it's competitive to say bonds. Right now Bonds are paying phenomenal amounts of interest. Right now it's very hard to justify some of these cap rates, especially relative to the risk-free return. So ultimately we think, especially now, we've seen interest rates come down over the last 30 years and cap rates continue to compress with them and that trend seems to be reversing now where interest rates who knows how long they'll still stay elevated for higher for longer is definitely here to stay. We'll see, but ultimately we think cap rates are going to continue to inch upward, at least in the short term.

22:01
And in our opinion, the one-off property owner where they experienced some great cap rate compression over their ownership, those days may be gone for the foreseeable future. And we think delivering a large cash flowing vehicle to the public markets when the markets are right, of course, or alternatively to an institutional buyer like another REIT or teacher's fund or who knows, just someone looking for yield out there, they're going to be willing to pay a premium to capture this type of income annually and that's where we think a large premium can be achieved. There are also additional benefits, like we can straight line our rents when ultimately we do go public or if we do go public. So there are various methods where we can achieve a portfolio premium on one of our liquidity events.

22:50 - Samy (Host)
I'm really excited about that. I don't know what the timeline like of that is, and I imagine you probably also don't, but you probably can't really share that information, but it's definitely I'll share anything with you, Sam. Definitely something really, really exciting. So I think a lot of people are very familiar with the 1031 model. Can you explain how participating in the 721 upbree provides a more passive investment option compared to the traditional 1031 exchange model?

23:18 - Garett (Guest)
So Everold's always told real estates oh, it's passive, you're not going to have to do anything to own these properties, you're just going to be collecting your income at that point. And that's not the case. I hate to spoil the surprise for everyone, but there is always some element of management that you will be required to participate in, and so, sticking with the unanchored retail, you can find some net lease single tenant properties where you really have pretty minimal management, but you still receive a handful of calls a year, say you're doing a 1031 with your multi-tenant into a higher quality asset or a bigger asset or whatever the reason may be. You have turnover there. Be, you have turnover there. It's not fair to take your 100% occupied NOI and say this is what my income is going to be for the next five years and I'm not going to have any drop in it. That's not realistic.

24:12
Tenants come and go and that's just part of the business and that's okay with us. That's how we set our dividend policy. We anticipate tenants coming and going and so you build a bit of a spread there. It's significantly harder to build that spread when you're only working with one property. There's no diversification and you're also not geographically diversified either, which makes it challenging.

24:36
But so, looking at 1031 and then looking at 721, 721, you are giving up your liquidity and you are giving up your control, since we are private right now. So that could be a hard selling point for a lot of property owners. That being said, if it's not all they have and they're just looking for income, this is a great alternative where they really won't experience any ownership risk. It's all taken care of at the corporate level. The board is making executive decisions, and then we have our annual shareholder meetings, with our proxy vote confirming our board and any votes that need to be held that year. From a 1031 to a 721 perspective, 1031 is direct property ownership, 721 is you're well diversified, but it's significantly more passive. It's the true passive approach to commercial real estate ownership.

25:30 - Samy (Host)
Interesting. So they're both tax deferred opportunities. The difference is that the 1031, someone is going to be selling a property and using those proceeds to buy another property. Perhaps it's a triple net deal, but again they'll still have to manage that property, as much as it may be more, I guess, more passive than what they were currently doing, but it's definitely not a completely passive income opportunity. Whereas a 721 is, they're essentially just receiving a check every month and diversifying their asset.

26:01 - Garett (Guest)
Correct, just like buying a block. At that point you have no ownership risk. We're not calling you and capital calling you and saying, hey, we need TI dollars, hey, we need leasing commissions. All of that's off the table at this point and you just get a quarterly distribution and ideally, a growing dividend each year.

26:18 - Samy (Host)
Love that. So can you share a little bit about a recent project or deal that you're particularly I think you guys are proud of, and what made that successful?

26:27 - Garett (Guest)
Yeah. So I think there are two cool projects to discuss and fortunately they're our most recent ones, always fresh in mind. So the second one we did was a lot smaller of a transaction. It was one shopping center. It was a shopping center in Denver, colorado. What's cool about that is that was via a 721 exchange.

26:46
The developer contributed that property in, did his value add opportunity, did a ground up development, built a beautiful 12,000 square foot shopping center with spectacular credit tenants and upon full stabilization, we agreed to a cap rate. The developer contributed the property into the portfolio and from their perspective, they're saying I know I need income at this point. I can build shopping centers and it's great and redeploying the capital is fantastic, but I need income to live on, and so for us, he's more interested in contributing additional developments. We're now funding some of their developments as well. Instead of him going out and getting LPs and he is each property that we offer a mezzanine loan for him he is contributing those in and taking 100% equity for his equity contribution in those properties and he's just trying to build up a passive income stream right now as he continues to develop. It makes a lot of sense and we're excited to be working with him as well. Phenomenal developer.

27:47
The other project that we more recently did is probably more traditional, although the scale of it was amplified, to say the least, but more traditional in that it was a family that owned portfolio properties 17 of them and one of the family members was running the portfolio and it seemed they were getting to a point where it was time to start talking about estate planning and the next generation. No one wanted to pay their taxes logical and they had to start figuring out alternatives for their brick and what makes most. They said we could sell for cash, we could sell these properties. That's not a problem. But that creates a problem is we have to pay our taxes and we have to redeploy the capital and our after-tax yield is going to have to be significantly higher than what we were selling. That wasn't an option for them. There was another option for them is they could look to contribute their properties into, say, a public REIT, for instance. And why did they look at us and why were we a better alternative? Those public REITs are so large they're billions of dollars and contributing a large amount of equity.

28:58
Although phenomenal, you're not contributing enough to get a board seat or have a say on executive decisions of the company, whereas we're still relatively small 425,076,000 shopping centers where we were able to offer this family a board seat where they can continue to have a direct say in operations of the property Maybe not have direct control, but they're at least at the table, which accomplished a lot for them. The family gets to continue their income stream. All of the equity that's contributed remains tax deferred. And then on the estate planning side, when the estate planning time does come, the heirs will receive a step-up in basis on the stock and no one has to figure out how to run a portfolio of properties. 17 shopping centers that's quite the portfolio, and if you're not interested in running it for the family, I could see how the generation that's currently holding the asset is going. What do we do with this? No one's going to run it after us. So I think it was a bit of everything for them and ultimately we were able to check off enough of their boxes. Tax deferred, diversified, low leverage seat at the table. Estate planning benefits, similar portfolio composition. There were a lot of synergies there, and it was also a market that we're familiar with, although we're significantly more familiar with it than we were previously. Today it's a phenomenal market and we were very excited about the transaction.

30:33
It was in El Paso.

30:34
Texas is where the transaction occurred. What was also unique about that transaction? We're talking to a couple of groups right now where they have a similar situation, where everything's wrapped up in a corporation and what's unique about contributing everything you have into a corporation at some point, you can't unwind that corporation for 10 years without paying the double taxation. So for the El Paso portfolio, what made a lot of sense there was they couldn't distribute it out of the corporation anyways, and so it made a lot of sense that no, let's just continue, tax defer those.

31:25
That was news to me. I previously once you contributed in, you're stuck and the asset's gone at that point. That's not the case. You can make the decision to unwind those corporations, but you have to hold the assets for 10 years. After the 10-year period expires, you can distribute without the double taxation. Why the 721 transaction makes a lot of sense for groups like that is the way it's set up. Is it's an evergreen fund or the fund could be run in perpetuity, so investors would not need to sell if they did not need to and from a corporation standpoint is start your unwinding process. You have 10 years that won't be an issue for your stock and your property ownership that you'll be able to unwind it within 10 years.

32:09 - Samy (Host)
Really really interesting, garrett, so many moving parts, and this is one of the things I love about commercial real estate, I think, namely two things.

32:18
Number one is, when I got started in real estate, I always thought real estate was so binary.

32:23
Right, it was like there's two parties.

32:25
You just, you know, you buy a building, you sell a building. That's just what everyone thinks real estate is, and I think you know, hearing from you and learning about this, the uniqueness of a 721 exchange and there's so much depth to the commercial real estate world and there's so much depth to the commercial real estate world and there's a lot of unique aspects that it provides, whether it's from a tax standpoint, whether it's from a passive income standpoint, whether it's from a family or estate planning standpoint. There's so many elements that real estate has an impact on, and it's actually something that I really enjoy about real estate. I know, again, you're very involved in investor relations and a big focus of the podcast is talking about how relationships play a pivotal role in commercial real estate. Can you share a little bit about what is something that you do to really kind of enhance your relationships in the industry, whether it's with investors, investment salespeople? What are some tips or some stuff that you do personally to have build and develop strong and nurture strong relationships.

33:22 - Garett (Guest)
That's a great question and I I feel I have a good response for it. Unfortunately, the response always sounds cheesy, in my opinion, but there is a difference between saying something and then actually following through with it, in my opinion. And uh, a long time ago in college I read the book how to win friends and influence people by dill Carnegie. I really try and embody that book. It really opened my eyes to we're all after the same thing is. We all just want to be respected. And how do you figure out that, what level of respect someone's looking for and how do you comfortably convey that? And so it's really getting to know people, taking them out to lunch, asking good questions and following up with these people as well.

34:02
Follow-up is a huge issue in commercial real estate. You'll call some investment sales guys sometimes and you won't get a call back for a month. What property are we even talking about? Oh, that one, oh, yeah. So it really does come down to take a genuine interest in people you're working with. To be honest, it's a lot more fun when you do it that way, because you can have good conversations, you can laugh with people. Laughing is my favorite thing to do and I'm always trying to get our investors to laugh and they make me laugh and investment sales guys. It's just about building genuine and strong connections that are not necessarily based on transacting with people, but you just want to know them, just so you know people. It's a nice way to proceed in business. I love that.

34:44 - Samy (Host)
So follow up, be on top of your relationships and be genuine. It's funny you say that because a lot of times the industry standard in commercial real estate is like, oh well, the person actually called back, and a lot of times we'll call and you leave messages or you'll email, and it may take many times, weeks, and I appreciate that, because I feel like communication is so super important and perhaps even over communicating, and making sure that you know you're in touch with people is something that will help you know, continually to nurture your relationships. Okay, garrett, now just a few questions to get to know Garrett, and I love this because I find this really shows a little bit about each one of our guests and their uniqueness. So what's one thing that you do every day to start off your morning right Every day?

35:28 - Garett (Guest)
to start off the morning, the old coffee thing. But the coffee can be unique. Some people, like wine, think wine can express a bunch of different flavors. At our office we like to say we're pretty into coffee and we'll get different origin beans always single origin, at least the ones that I'm buying and we'll talk about the different process, how the coffee was made, whether it's washed. Personally I like natural process a lot, especially Ethiopians because they're very fruity.

36:03
But anything coffee-related can be really really fun for me in the morning. So I feel the the making of the coffee. And it's not done via drip machine, either it's. It's sometimes it's a kalita, the japanese coffee maker, or it's a chemex as well. We use a hand grinder for everything. We weigh out our beans and it almost feels therapeutic as you're making it in the morning.

36:17
But I love making my coffee in the morning and, funny as well, you're not actually supposed to morning. But I love making my coffee in the morning and, funny as well, you're not actually supposed to drink it until an hour and a half after you wake up. You want to get all the sleepy hormones out of your body before you drink it and then you won't have a crash later on in the day. So not necessarily the first thing I do, but very shortly after about an hour and a half after I wake up, that's the first thing I do. First thing I do is really just read the news, and mostly just headlines, but just to get my day started. And then throughout the day I'll go and follow up on those headlines and read the actual article, but just read the news, see what was going on, what I missed overnight, and then get my day started with a nice cup of coffee.

36:56 - Samy (Host)
Well, I think that answered our next question, because the next one was what's a hobby or interest that you have outside of work that most people don't know about?

37:04 - Garett (Guest)
Love snowboarding. Snowboarding's really, really fun for me. It's a way for me to really disconnect. Love fishing as well. Haven't done that as recently, but the snow sports for me. I love being in the snow and swimming is a big thing for me too. I love swimming. I can be in a pool for hours at a time, really Just swimming laps. I don't care what I'm doing in a pool, as long as I'm swimming, I'm pretty happy. I love that. That's awesome.

37:29 - Samy (Host)
All right. What about a book or a podcast that you've been enjoying lately?

37:32 - Garett (Guest)
Book or a podcast. Let me pull out my list because there are a couple right now. I was just telling some friends, although a little geeky, a book I'm very excited to start is the Secret Life of Groceries, which really seems to be about the supply chain management, about getting all of those products on the shelves or it's a miracle that whatever you want, it is available in whatever variety, size and whatever origin you're thinking about. So I'm really excited about that book. But the one I'm listening to right now is Am I being Too Subtle? By Sam Zell, and then a previous one that I really liked as well was Never Split the Difference. Awesome, awesome book on negotiating. I have it in my car.

38:16 - Samy (Host)
It's my go-to book. It is phenomenal. It is a phenomenal book. I love that you shared that. It's really funny-to book. It is phenomenal. It is a phenomenal book. I love that you shared that. It's really funny, all right, and lastly, garrett, what is one piece of advice that you would give? I know you're not old, but what would you give your younger self in high school? What's one piece of advice that you would give to your younger self Go out and have conversations with these people.

38:43 - Garett (Guest)
I think the best jobs in commercial real estate are really found via connections, whether that's parent friends connecting you, whether that's you knowing someone and they connecting you with, whether it's a syndicator, investment, sales, brokerage title, whatever it is. These conversations are so, so important and you get to know people. I remember hearing from a leasing broker that commercial real estate within each city it's like running on a track. You're not always running next to people on the track, but you go around that track enough and you'll see each other multiple times on it, and so it's a very small community, it seems like, and having those intimate relationships really do you well in this industry.

39:20 - Samy (Host)
I love that. Okay, garrett, if someone wants to reach out to you and learn more about, perhaps, what an uproot is, or maybe they want to sell some assets to the uproot, absolutely, where can they reach you? Where can they find you?

39:32 - Garett (Guest)
Yeah, so going to kmrealtynet and looking at our properties is a great way to learn additional information about us. More importantly, please reach out. My information is on the website. Phone number 713-275-2608, or my email is garrett at kmrealtynet, very easy to reach. Try callbacks as quickly as possible, because that's so important and let's have conversations, and it's really cool being able to put together a portfolio that hasn't previously been done. More recently, it's now becoming a more crowded space, but we're as excited as ever. These other groups that are entering the space are confirming what we already knew about the asset class, and we're excited for what future KM Realty is going to be in for providing good value for our investors.

40:22 - Samy (Host)
I love that. Garrett, thank you so much for joining the podcast and we're going to share all those pieces of your contact info below and the website. People can check you guys out Really really appreciate having you on the show today and wish you guys tremendous success in what you guys do. Thanks so much for what you do for the commercial real estate community.

40:39 - Garett (Guest)
Yeah, thank you, sammy. Thank you for having me, and I look forward to seeing this podcast grow as well. All right.

40:45 - Samy (Host)
Thanks, scott. Thank you for joining us again for another episode of the Commercial Real Estate Connection Podcast, and we look forward to catching you in the next episode.