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Global Investors Podcast
GI68: Syndicating Multifamily & Mixed-Use Properties with Anthony Scandariato
October 7, 2020
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Prior to forming Red Knight Properties, Anthony Scandariato, who graduated from Cornell University with a Bachelor’s degree in Applied Economics and Management, was a Co-Founder in Ridgeview Partners.

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Transcript:

Speaker 1:
Welcome to the global investor podcast. A show that focuses on helping foreign investors enter the lucrative U S real estate market host Charles Carrillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of us real estate investing. Now here’s your host, Charles Carrillo.

Speaker 2:
Welcome to another episode of the global investors podcast. I’m your host Charles Carrillo. Today we have Anthony scatter Rito. His firm red Knight properties based in New Jersey has acquired 12 properties. And between himself and his partner, they have a half billion dollars in commercial real estate acquisition experience. So thank you so much for being on the show, Anthony.

Speaker 1:
Sure, Charles, thanks for having me. I appreciate it.

Speaker 2:
So what was your background prior to starting your own real estate company and, and starting to invest in real estate?

Speaker 1:
Sure. so great question. So I actually worked for a more of an institutional real estate sponsor that we were talking before the show acquired class today, multitenant office buildings up and down the East coast primarily in gateway and secondary markets. So had great exposure there and that half a billion dollars in that position. And as a management experience mostly comes from that red Knight right now, my company has about 30 to $35 million under management and 260 units within the Tristate area, which means New Jersey, New York and Pennsylvania.

Speaker 2:
Okay, awesome. So why did you choose real estate as your investment vehicle when you were leaving your corporate job?

Speaker 1:
Yeah, so I already had it as an investment vehicle during my corporate job. So I saw the power of what it was providing for me on a monthly basis, relatively passively. And while I was working, I built a portfolio with the joint venture partner. Who’s my business partner that you mentioned now, basic partnership structure, very even split and roll with that did a couple of refinances and a sale or two, and was able to build up a little bit of a track record to start what I do now. Very similar to what you do, Charles is syndicating and buying larger deals and you know basically spreading the wealth between general partners and limited partners.

Speaker 2:
So what was your first real estate investments?

Speaker 1:
First real estate investment was actually a two family home that I’m sure a lot of you are aware of the term house hacking. So actually house active for a few months and unfortunately I had to move out, but actually kind of was a blessing as an unforeseen circumstance and kind of new tenant in there. And it was cash flowing me a decent amount of money at 20. What was I 23 years old when I bought that first house every month and still own the property.

Speaker 2:
Nice. Yeah. I did a similar with a three family in Connecticut, so right up where you are. And it was, that was the best way. Cause I was telling everybody, all my friends did, you know, to do the same thing I was doing, you know, and did it. And then they always had issues when they ran out of roommates in their houses. So I said, if you just done it the way I did it, where you could just, and then it was easiest thing when I moved out, I rented it within like a week and a half. And it now is a cashflow in a full investment property, not just something that I was trying to cut down on what I was paying on my pocket. So that’s awesome. That’s a great way of doing it, especially with you know, FHA and everything. And one great thing about the Northeast is there’s a plethora of small multifamily, which we don’t really have in Florida as much, but up there that just be you know, streets and streets of duplexes, triplexes and quads. So it’s awesome. So what is your current investment strategy and criteria with you and your partner in red Knight?

Speaker 1:
Sure. So current investment strategy, and we’re recording this in August, the end of August and we’re still going on with the COVID-19 crisis. So we’re cautiously optimistic and kind of seeing what happens. We’re very closely monitoring the performance of our portfolio. I would say from an overall strategy perspective, we buy value, add meaning the apartments need, you know, a decent amount of work in order to fix up, raise the rents, decrease expenses really increase that net operating income and drive value to the overall property through a liquidity event, whether it’s a refinance or a sale. So we’re still on the same investment thesis from the asset class standpoint, I would say even, you know, during this crisis, cause we’re seeing how well are the properties are, are holding up and even before starting the company, you know I knew there was some sort of recession that was going to take place.

Speaker 1:
I didn’t know it was going to be a health crisis on top of it. So here we are today. And we were acquiring deals at, you know, you’re talking cap rates eight, 10, 11% at the time. And we were able to buy, you know, the relatively smaller deals, 10 families at a time. But we were able to acquire those properties, build up a track record and then able to syndicate larger deals, which still had the same type of metrics we were still looking to buy for in place cashflow, not saying it has to be a 10 cap, but it’s got to have some sort of in place cash flow there’s a lot could potentially go wrong. And especially with unforeseen circumstances like COVID, so we’re always trying to buy it for sure. I’m going to place cash flow with upside and the rent rolls through primary attic renovations, at least done some structural remedy too. We try to stay away from truly extremely heavy. It’s more of light to my value add to properties. Right,

Speaker 2:
Right, right. What do you have a minimum investment amount unit? I mean, different groups have different metrics that they work by.

Speaker 1:
Yeah. for the symbolic it’s kind of as, you know, gray area too usually depends on the deal deals right now or anything from five to 20 minutes. So on some deals are minimums where 50 and on some, they were 0.5. So it really depends. And you know, your listeners are aware of the different secure cause I was 65 or 60. So we try to keep it small into a five Oh six B where we have preexisting relationships. So the minimums might be a little bit higher, but I see a minimum of two 50, I’ve seen minimum of 500 before. So you know, we’ve reached, we’re still growing and we want to be able to have non-accredited and accredited participate in our properties.

Speaker 2:
Yeah, no, that’s great. That’s how we do it. I think it’s 85% of how non-marketable securities are are done is by five Oh six B, which is a preexisting relationship without the advertising for anybody that at is, is unaware. The it’s great what you’re doing because we, we syndicate properties and obviously it’s it’s, it just depends on how solid the deal is. Obviously it’s normally, like you said, probably $3 million and above, we’ve never gone below that with a purchase price, probably 4 million and above, but it’s yeah. I mean, it’s great to how you guys are working with smaller properties. Cause a lot of operators won’t do that because I think there’s a lot of value in buying smaller multifamily and smaller mixed use where you can where you can you buy a closer together and you can then reduce the management fee by having a little scale of economy that you’ve done yourself. So if you can put 50 or 60 units together in a close area you know, a mile, a couple miles from each other and then you can, you know, have onsite management or have some sort of management there that’s full time for your properties. Won’t be completely onsite. Like you’re talking like a hundred unit plus property, but that’s a great, that’s a great way of doing it.

Speaker 1:
Sure, sure. And we generally to that point too, for the properties that we own, I mentioned to you, we started out with 10 units, 10 units, and then we kind of scaled up from there. Those 10 units are relatively proximity to each other, at least in the same County. And in the state that we own it. So that’s a really key point and you really want to outsource as much as you can. We self manage our properties, but we do have onsite supers and on, you know, third party handyman that we do rely on. So a roving handyman is kind of the best thing that’s assets you can have. Especially your properties are within 15, 20 minutes from each other. We’re able to, to have that sort of scale, but yeah, it’s, it’s kinda more of a portfolio outlook more of like a longer term outlook on, okay, where are you going to invest? And you know, you might be able to package that portfolio to a read at some point you know, or, you know, there’s, there’s more of a longer term strategy to aggregate units and units in units, even though they might not be under one roof, so to speak.

Speaker 2:
Right. Yeah, no, I wanna circle back to self-managing cause that’s something that’s very interesting that not many people do in the space that I interview. And what, so what is your role at red night with you?

Speaker 1:
Sure. I don’t know. I mean, it’s everything. But as well as my partner we really do everything. But we do have a property management arm. The only thing we don’t do ourselves, we don’t have anybody in house for his construction. So we do outsource to a third party. We have multiple contractors that we’ve worked with for years that we trust. So we’re able to add that Rolodex. But as far as property management goes, I would say, get your systems in place. We right now use Buildium, which is a great platform, relatively inexpensive and you know, for a newer operator or somewhat emerging operator, I think it’s pretty important to self manage, you know, cause you’re able to really understand what’s going on at the property pretty much on daily basis. And you know, if you’re the one leading the deal.

Speaker 1:
So for, I would say most of our syndicated investments, we’re like the only general partner. So sometimes there’s maybe 10 GPS on a big deal and it’s all spread out, which is fine. But we like to be control of the capital raising. We control of the debt that you control of the asset management and control of the property management. It’s almost a vertically integrated structure to some extent. So property management is definitely a day to day task. I would try to, I mean, if you’re looking to scale what we’re looking for right now, we actually mostly brought on somebody on board is make sure your accounting, if you’re a syndicator and you’re not an accountant do not do it yourself. I’m sure you know this Charles, they make sure you have a good, good person for that on your staff or at least, you know, contracted with your company.

Speaker 1:
And if you want to have like a property management assistant, we just kind of hired one on a virtual basis. There’s companies like outwork.com fiber.com where you can we’re based out of the Northeast. So the cost of labor is very high. You know, you can hire somebody from the Midwest where cost of labor is a lot lower. So it was cost of living. That’s why that makes sense. And you know, it’s all virtual and they can help you out. And it’s it’s once you gather accumulate more and more properties, you can actually spread that cost over the multiple properties. So, you know, if you look at it, it’s only, okay, it’s a hundred bucks to this property, a hundred bucks of that property. So it’s really you really want to gain scale and efficiency in this business more and more I’m learning

Speaker 2:
Yeah. With the virtual assistants. That’s a great point. The when you’re having an assistant for doing the, to the property management, that’s great because there’s a lot of tasks that they do themselves, whether it’s when I was self managing, it was putting it out to virtual assistants to post the ads for that. I mean, that’s a huge thing, just getting leads and then sending it to who’s ever going to go rent the property, right? So you have a whole bunch of leads that person that’s going to be showing the property already has a list of phone numbers, a list of names. And they just called on that list. They don’t have to go through their email. They don’t have to talk to anybody else like trying to generate them hair. Here’s, you know, 50 people that are interested in this apartment and, you know, go show it to them, call them all, set up all your open houses, whatever you have to do. And that can all be done. That’s something that doesn’t have to be done by like management level, right. Where they’re trying to do other things. And and that’s great. What, what, when you’re, when you’re looking for properties and assessing them, what are the things that you’re really, what are the things that you’re looking for? And then what are the things that you’re like red flag on?

Speaker 1:
Yeah. I mean, it’s very similar to how an appraisal appraiser is looking at a property. So he has the replacement costs approach. Can I build it for less than what I’m buying it for on a per unit basis land and building. And you know, obviously the income approach is, does it have a decent cashflow yield? And as my borrowing costs, if I, you know, go to the bank and take out a loan on the property and then obviously the sales comparison folks. So has there been properties similar to this that has sold in the past 10 years, five years. And how did the property perform during the last recession office recession in the last one? So those are like the four things that I look for so to speak, but you know, we always look for other metrics there’s so many that you can look at, right.

Speaker 1:
So, you know, obviously the market’s number one locations everything we would generally look at more, I would say suburban style you know garden style in front of buildings, which is becoming more popular now coming out of Cobra. And we kind of had a feeling that would happen. At least people moving out to more urban areas, but we have some properties, I wouldn’t say they’re urban areas, but they’re more infill. So you’ll have like a suburban area that has like a little downtown with maybe a mixed use building you know, right in the center of town. So sometimes we’ll buy those. But we’re generally not too, too urban. We might change that. We’ll seeing what happens with covered moving forward, but we’ve always kind of been in the suburban, you know, play. Yeah.

Speaker 2:
Yeah. I usually see what he, you know, usually when you’re getting more too, when the population increases in an area like a centralizer of area, your cap rates are very compressed and they get more compressed as you’re going in. So you’re paying much more for a property, lower returns, but what are some things when you’re looking at a property like that you were hesitant on that you have to rethink that, you know what I mean? Like if I’m looking at a property and I see we’re in Florida, right. So if I’m looking at Florida property and it’s frame built, that’s going to be something that I’m going to put as a red flag. We have rain like every hour here, so it’s going to be something where it’s like flat roofs, right. Is a huge thing in Florida. Like these things I’m gonna look at and not saying I won’t do a deal, but there’s going to be something that I’m going to do. What, what kind of things for you guys when you’re looking at it, obviously we formulate that plan by probably your past experience, but

Speaker 1:
Yeah. There are red flags anything structural, like you mentioned with the wood-frame noticed a lot of structural issues sometimes walked on a tour and then I walked out just because you don’t want to deal with the structural problems. Then flags are, you know, that, and we always want to see the collection report, how it, how they’ve been collecting you know, how many subsidized tenants are there in the building for the government. It might, it might have a different opinion on that now. And what I did in the past. But you know, that was always something I looked at that was a red flag. You know, but it there’s, there’s a lot of red flags, but they could be good from a management standpoint and something, you know, that you can clean up when you take over you know, easy things. But you know, major capital improvement dollars that you didn’t really foresee allocating when you’re doing your underwriting, then that could be problematic, obviously.

Speaker 2:
Yeah, yeah, no, it makes a, it makes perfect sense. Especially when you’re saying now with the rent roll, that’s super important where we are now in the smack dab of COVID, where you’re not able to, in most places evict your tenants or anything like this. So you really have to know when you’re taking over a property, who’s in that property. And what is there, whatever it says on paper is one thing, but when are they paying rent and you know, we’re checking, you can just look and see, and you can’t see that from a regular broker performance, but you can see that when you’re seeing late fees and you can see everything just goes to show the strength of that tenant without doing any type of like, you know, your typical and due diligence, your lease audit. So that’s, that’s all that’s. I totally agree with that.

Speaker 1:
Yep. Yeah, for sure.

Speaker 2:
So with, with your self managing, you guys use Buildium, you have a couple assistants that are virtual, one other, the other pieces to the self managing kind of puzzle that you guys you cover. I mean, obviously your heavy value, add your cap ex stuff is done by a third party, licensed contractors. Do you have anything else in house? Are you doing like you’re make ready, is getting the apartments ready for rental? Is that all done in house by your

Speaker 1:
So the way it works in the Tristate area is that the demand for apartments is so high that tenants pay a broker fee. And usually that’s a one month’s rent. So we partnered with a brokerage firm to manage the leasing of all of our properties, at least within this region. So we do, we have a partnership there. They’re not so to speak employees of mine actually don’t compensate them at all. Usually the tenants pay their, they find a tenant, they pay the fee and they kind of coordinate everything for the most part. You know, the applications still come to me in my office. And we have to screen them. We have to make sure they meet our criteria. But for the most part, the leasing is done on a third party basis, but at no cost to me and my investors.

Speaker 2:
Nice. Yeah, that’s great. The broker fee is something that outside the tri-state people don’t really know if it’s a, are they cutting them down in New York or something? I heard that they removed them. They used to be crazy like two or three months,

Speaker 1:
Right? Yeah. Yeah. They like remove, I can’t remember what exactly happened, but I think they got a judge ruled on postponing them. I think it was a postponement for like a month. And then I think, I believe it’s back. Okay. We had some work arounds nothing illegal to, to that situation. But you know, thankfully that, you know, I, I believe that they’re okay now. And thankfully we also don’t own many property in New York at all. We, when I say New York, we went to New York state. So I’m sure a lot of that applies to New York city, which we would, we would never touch. So we have like a small 12 year in New York state actually does really well. But thankfully we haven’t had to worry about if that came to other States, New Jersey, Pennsylvania, Delaware, et cetera. That could be an issue. But I haven’t seen that proposed anywhere to be honest in a while.

Speaker 2:
Yeah. I was explained that one time, the people in Florida and they’re like, wait, so at the pre I pay just to get you paid rent the apartment, this guy, third parties, because it’s just not a normal thing in other parts of the country. So how are you guys? Yeah. So how are you guys dealing with COVID right now in self-managing? Like, what have you, what have you put in, what have you enacted to deal with it in your practice?

Speaker 1:
Yeah, so, you know, in terms of, from a health perspective, we put, you know, ladders up in every single hallway. And you know, obviously sent out communications and letters. You know, don’t congregate with too many people right now, you know, just some general health, CDC guideline sort of information. We haven’t had many issues there, thankfully. On the health side on the rent collection side actually has been pretty favorable to us. Ever since this started, I think since April, our collections have been, I think it was like 96 and April may was a little bit low. It was like 90, 95 and a half. June was like an issue was higher and eight 97 July was around 98 and now we’re in August recording this towards the late near Middleton, middle end of August. Right now we’re looking pretty good too.

Speaker 1:
Thankfully as you’re aware, the unemployment extended benefits have dropped off. Now from what I understand, which to me is more of a political option, but it also political statement, but also means more people going back to work. So I noticed a lot of my tenants are going back to work. So the collections have been pretty good there, at least in the nineties now. They’ve just been paying a little bit later, so they let’s say they got a new job starting August 5th and their first paycheck’s not going to come for two weeks. So I, okay. Then that’s fine. Just pay me when you get your first paycheck, those are the conversations we’ve been having and they’ve been going pretty well. There are a couple of people I believe out of our entire portfolio. There’s only two to three that I can think of that are trying or taking advantage of the situation right now.

Speaker 1:
And to be honest, it’s, I don’t think it’s going to last for too, too long. So you know, relatively speaking as long as you’re communicating with your tenants and they’re communicating back you know, which could be a challenge too. It’s, like I said, it’s important to have a super cause if I don’t hear from somebody in like a day, we’re pretty aggressive, like we’ll knock on the door. So you know, just to see, Hey, are you alive? Like what’s going on? So we we’ve communicated, I haven’t, I’ve been able to reach every single tenant actually and discuss if there’s any issues, et cetera. But the majority of the issues have just been just delayed payments just a little bit, you know, a week or two later. So nothing too crazy right now. It’s not the, it’s not the worst thing in the world, but it’s not the best thing in the world.

Speaker 2:
Yeah, no, it’s, it’s good that you, if you’re the communications open with the tenants and usually you can avoid most problems, I feel because if they’re going to be honest with you or talk to you, the ones that just disappear off the off the face of the earth and you never hear from them. And that’s when you’re, that’s when you know there’s going to be an issue. But so when you’re seeing one of the thing about we self-managing with superintendents, how do you guys find your supers? Are they in because that’s something that’s different. It’s mostly, this is a, for smaller multifamily. So people with larger multi-families won’t have this, but with smaller multifamily, this is that my dad had us all through his properties in Connecticut, a superintendent. So how did you, how do you guys find them and how do you, what kind of deals do you cut with them? Is everyone different?

Speaker 1:
Yeah. Yeah. Everybody’s different. Our supervisor manages like 110 units for us, or so we got lucky. He actually was referred to us by an attendant in the building. You know, but it, it, it depends on how much work they’re doing. So for him obviously he gets a free apartment and then he gets a little, you know, he gets a salary on top of that. So, you know, and for other cases where, if you have like a tenure building here at tenure there, or whatever it is, which we try not to do anymore, what, we usually have somebody that gets a little bit of a discount on their rent, maybe 200, 300 bucks to help us out with certain situations. So as important thing to keep in mind that they’re really dealing with maintenance, at least in the Tristate area. Whereas we have a leasing team because some supers do the leasing and the maintenance, which leasing is a job in itself. So they cut down on that for a super, and it saves us money by obviously not paying as much is kind of a win, win situation.

Speaker 2:
Yeah. It’s great to have that cause it’s your eyes and ears on the property. And it’s great that you’re able to give him some of discount cause I’ve looked into even buying 12 units and 14 minutes before, and they’d had, you know, they, everybody has different requirements, what they’re giving the super and what the super is doing. And it’s all different sometimes, like you’re saying they just get a little bit off just for listening and knocking on the door. Sometimes they’re, they’re mowing the lawn, you know what I mean? So it can, it can really differ socially, which is great for those smaller multi-families when you’re not you’re the owner not living there. But so if you’re speaking to a new real estate investor, what advice would you give them from your past experience?

Speaker 1:
Yeah. I mean, it depends on what role they want to be in. They want to be an active role or a passive role. So if they want to partner with someone and try to work at first deal or try to do it on their own, or they do, they work a nine to five, they, they make a pretty good, you know, w two income or 10 99 income, whatever it is, and just want to find good operators to invest in which actually, I, I wanted to start out that way. When I started on the more of the passenger side, cause I feel like I would have learned a lot more from a seasoned operator. But I would just define what you want to do exactly because at the end of the day, I think your goal, my goal is to generate passive income that comes in every month. So right now we’re both young guys, we’re on the active side, we’re trying to make things happen, but at some point it’s going to be more of your, your, your goals are going to change and it’s going to be more of a income stream that you kind of want just coming in. So just depends on your, your goals.

Speaker 2:
So Anthony, you have a, you have a great podcast. Can you tell us about that?

Speaker 1:
Yeah, so Charles is better by the way this podcast, but discovering multifamily. This is my podcast, so it’s more of an educational platform. We focus on you know, pretty much everything apartments. I have some motivational speakers come on as well. So general business as well. You can find this on iTunes, just pretty much every platform. But yeah, it’s going, the vodcast is doing really well. And you know, it’s more of, for me, it’s more of an educational tool for myself actually, because I get to learn a lot and I get to share it with anybody who’s listening. So I think it’s a pretty cool media platform.

Speaker 2:
Yeah. That’s a great thing about podcasts is the amount of information I learned. And when I write questions and kind of figure out what I’m asking it’s something where it’s a lot of it’s for myself that I, you know, so I imagine it’s the same thing for you too. So it’s a great medium for doing that. Sure. So in addition to the podcast, how can listeners learn more about you and your business?

Speaker 1:
Sure. So we actually have a special is called how to

Speaker 3:
Leave your nine to five through financial independence. And you can find that as you can just go to our website, red Knight properties.com with a K red Knight, and it actually just pops right up, just, you know, put your email and it will be emailed to you. And you know, it’s a, it’s a nice special report that you know, we put together and you can find us basically on our website, we’re on every social media platform on there. And you can reach out to me on LinkedIn and send us, send us a note. Awesome. Well, thank you so much, Anthony, for being on the show today, looking forward to meet up with you in the future, after all this COVID and have a great rest of your day in Saint Charles. Thank you. Talk to you soon. Great. Hi guys. It’s Charles from the global investors podcast. I hope you enjoyed the show if you’re interested in getting involved with real estate, but you don’t know where to begin set up a free 30 minute strategy call with [email protected] Thank you.

Speaker 4:
Thank you for listening to the global investor podcast. If you liked the show, be sure to subscribe on iTunes or Google play to get new weekly episodes for more resources, and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week. For another episode,

Speaker 3:
Nothing in this episode should be considered specific personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure subscription documentation and are subject to all applicable laws. Please consult an appropriate tax, legal real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Harborside partners, inc. Exclusively.

Links and Contact Information Mentioned In The Episode:

  • Website: redknightproperties.com

About Anthony Scandariato

Prior to forming Red Knight Properties, Anthony Scandariato who graduated from Cornell University with a Bachelor’s degree in Applied Economics and Management, was a Co-Founder in Ridgeview Partners. He specialized in the retail space with a vertical model that provided flexibility to serve multiple customer segments with similar product lines through retail, wholesale, and production contracting channels. He Acquired and developed growth of 110+ retailers within first-year operations. He later moved on to Acquisitions & Asset Manager Vice President for Vision Properties, where he was directly involved and responsible for sourcing, negotiation, and managing the acquisition of $594MM of Class A office assets.

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