“There’s no way to build the life you want, increase your wealth capability and still have it all in one place.”

-Neil Wahlgren

Neil brings nearly two decades of leadership and operations and capital markets. Prior to Mag Capital Partners, he led the Bay Area real estate investment firm raising capital for over $200 million, and projects. Before that, Neil logged over 2500 flight hours piloting the C 130 in the Air Force Navy, following combat tours to Iraq and Afghanistan. To conclude this military career as a Lieutenant Commander, Neil now resides with his wife and son in San Francisco, where they enjoy flying and sailing. And he also holds a BS from the Air Force Academy, an MBA from Texas a&m and an MS from Troy University.

In this episode, Trevor and Neil discuss:

  • What made Neil switch from Lieutenant Commander to Real Estate Investor.
  • The types of asset classes and what’s best to choose when you start investing.
  • How does triple net lease work?
  • The overview in Industrial Real Estate Investing.
  • How to raise a capital for industrial real estate.

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Full Transcription Of Today’s Episode

Trevor Oldham  00:47

Hey, everybody, welcome back to the real estate investing exposure podcast. And today on this show, we have Neil Walgren. Neil brings nearly two decades of leadership and operations and capital markets. Prior to Mag Capital Partners, he led the Bay Area real estate investment firm raising capital for over $200 million, and projects. Before that, Neil logged over 2500 flight hours piloting the C 130 in the Air Force Navy, following combat tours to Iraq and Afghanistan. To conclude this military career as a Lieutenant Commander, Neil now resides with his wife and son in San Francisco, where they enjoy flying and sailing. And he also holds a BS from the Air Force Academy, an MBA from Texas a&m and an MS from Troy University. Neil, super excited to have you on the show today. And Neil, for our audience that may not know of you, or your story or your background, I’d love for you just to hop into what led you into real estate investing.

 

Neil Wahlgren  01:46

Yeah, I you know, one thing I’ve always said is, I feel like not a lot of people go straight into real estate from an investment standpoint, you know, you always have some other career, some path and, and something made you stumble on to, hey, this is maybe something that can help me grow wealth and generational assets, and a way that, you know, most other career paths can allow, but, so I was kind of the same when I got started, I was kind of a shy teenager, decided, alright, like, I need to get out of my comfort zone, I grew up just outside of San Francisco, kind of in the some affluent suburbs out there. And really, everything was safe, it was simple, it was predictable, and I needed a change. So I decided All right, ended up going to the Air Force Academy in Colorado, and just got selected for flight school, went through a number of flight school bases and locations, and ultimately ended up commanding and piloting the C 130. Hercules had to do that for 1012 years, live all over the world and Japan, trips to the Middle East, all over the Pacific, Asia, Europe, I mean, you name it, I think I just hit my 100 and second country that I visited. So a lot of the world seen and a lot left to see still. But ultimately, you know, I had fun doing that for a number of years. And then ultimately, you know, in the military side, you kind of start winding down on as much flying and then you start taking more leadership roles, and you kind of have a decision, hey, do I want to stay in this organization? Or do I want to get out, and I decided, you know, the long term military track wasn’t for me, and most military pilots will go on to become commercial pilots. It’s a very common pathway, go fly for United Delta, American whatnot. But most of the people I knew who were doing it, I mean, everyone said, it’s an array job, you know, but nobody loved it. And, you know, the more I kind of looked into it, and the more I really was, was brainstorming, how do I build this life that I want to build, you know, and how do I basically set up this work life balance, and really, I determined that all comes down to passive income. And I had the, the fortunate, really circumstance that a friend had recommended Rich Dad Poor Dad, way back, you know, maybe 1012 years ago, read that, hey, this is a great way to put money in a way where your money makes money and you don’t have to lift a finger in that. I mean, you know, to an extent anyways, but obviously, there’s a very wide range of active versus passive on the real estate side, but this idea that you know, really your investment is doing work for you and not tied to your time. You know, from a pilot’s side if I went on that track, to make more money, I would have had to be away from home or I would have been really the only way to make more money is more hours. In the cockpit and more days away from home, there’s no way to build the life you want, increase your wealth capability and still have it all in one in one place. So that was kind of my, my initial drive, I think for the transition from, you know, prior military life into, you know, looking at this new field of real estate.

 

Trevor Oldham  05:20

And as you started looking into real estate, what type of asset classes were you looking at? Were you looking at single family, you don’t, you know, fix and flip multifamily. What sort of, you know, do you mind just giving our audience some context on where I guess sort of what asset class you bought first, and then are you still in that asset class? Or have you moved to other asset classes that are out there?

 

Neil Wahlgren  05:42

That’s a great question. So I’ve been doing this full time. That’s six, seven years now. And every I swear, every day, or every week, I kind of stumbled across a new business model, or new investment angle for how to invest in real estate. There’s so many ways, but I think most people will start really with this idea that I know a house, right? And if I want to make some money, maybe I can buy a house down the street. And then that might evolve to, well, maybe where I live isn’t the best place to invest. So maybe I could buy that investment house, maybe in a different state, right? And then okay, but how do I scale this, I’m taking calls, alright, maybe I can buy enough to get a property manager, and then maybe I could bring this one step higher. And eventually, and then I started looking at multifamily, which is kind of a normal progression. You know, most people have either lived in apartment or know someone who has, you know, it’s a familiar asset class, and this idea of, how do I build value in a way that I know or think I know, I think I understand is really an easy way to kind of get your feet wet. So, you know, ultimately, I was looking at that and had the opportunity to join up with a bay area firm where it was, it was founded by the husband of a family friends, and this gentleman had built a company that originally was doing turnkey single family out of state investments, basically, buying kind of a rundown house, doing rehab to it, putting property management in place, getting a renter in place, and then really selling it as a cash flowing investment. And that was that model. And then that model was really profitable for a few years. But ultimately, you know, like anything, you start, there was kind of a low barrier to entry, and a lot more people started getting in, and you know, the price of housing started going up at a much faster clip than rents were. So ultimately your cash flow started to get squeezed. And we saw, you know, a relatively higher amount of opportunity in the commercial space. So I worked with him. And we had a, really a network of investors. No, we had built, and we ultimately had a model where we would partner with other commercial real estate operators or developers, basically, guys, who were, you know, brokers, who had a good eye for opportunity could get a deal under contract could put real estate debt on that project, but usually lacked the ability to raise capital for it. So we would effectively be that capital arm, we would handle all that the investor relations and kind of be a JV partnership through the life of these deals. And these, these projects were truly passive in that, you know, we had, we were part of the management team, and then all the investors were in a actually legally separate class, you know, LPs limited partners, where they their money came in, and ultimately they had, you know, a defined set of priority rights to the cash flow and the profits generated on this project. And ultimately, zero management responsibilities or rights. So it’s, it’s a very different approach to you know, buying your own rental house down the street, but really, from a profits and cash flow level, you know, in my opinion, the potential going through commercial is actually equal, if not greater than what you can find in a lot of residential.

 

Trevor Oldham  09:24

And with commercial, you know, obviously, you know, tied to different asset classes within real estate and then when you when you get into commercial you can get retail, multifamily, and apartments hospitality, you know, there’s, there’s, it’s almost like you get one asset class, and then there’s even more asset classes when you hop into that into that one specific asset class. So within the commercial space, was there an area that you’re focused on whether it is multifamily retail hospitality, are you focused on one singular space within the commercial space?

 

Neil Wahlgren  09:52

So it was kind of neat on this last firm I was with, we had the ability, I think we had six or seven kinds of repeat operators that we would partner with on deals, each one had their own unique asset type, their own unique geography. For example, we had one group that only did you know, Class B 1990s, build multifamily in northeast Georgia, right, very specific, but they were, they would do, you know, one deal after another right in that niche, and we’d love it because we could leverage their expertise, and they could leverage our ability to raise capital. And ultimately, we would do, you know, repeat deal flow with them. And then we had another, another operator that did, you know, kind of value add office. And then we had another one, he did multi tenant retail in Dallas Fort Worth another one who did land entitlement and development for senior assisted living in California. So these these very different asset classes, and it was kind of neat, because we really had the challenge, you know, as I was raising capital for my investors, you know, I was required to not only educate but you know, ultimately show Hey, this is the value potential on this particular asset class, I had a very much understand the underwriting the pro forma on each model, and they were they were different for with each operator. And after a while, you know, you really start to see, you know, highs and lows, strengths and weaknesses with these different asset classes. And one of the operators we worked with was a group called mad capital, and mad capital, they raised funds. And ultimately, their investment strategy was buying single tenant net leases, meaning a full triple net lease, manufacturing, industrial, and mostly in the Midwest, you know, from Michigan, all the way down to Texas. And, you know, just the simplicity of a single tenant, long term net leased investment I really liked and I liked the team behind it. And over time, I realized the team is equal, if not more important than the investment structure. And ultimately, those two pieces really gravitated me to that particular operator, and I ended up joining them, the two principals there full time, just a little over two years ago.

 

Trevor Oldham  12:08

And for our audience that’s listening. And they are familiar with the term triple net lease, would you mind explaining how that works, and how you’re able to make some good income out of it?

 

Neil Wahlgren  12:19

Yeah, absolutely. So there’s really two ends of the spectrum for leases. The first is going to be a gross lease of gross lease means the, the landlord is going to pay for everything, right. And then, as you shift expenses of owning real estate to the tenant, there’s different categories, and those are referred to as nets. So the first net is property taxes. So a single net lease would mean that the landlord pays for everything, except the tenant pays their own property taxes, a double net lease, the tenant pays property taxes and their insurance. So they would cover their own insurance premiums coverage, to a pre specified amount, deductibles, etc. and that the third net is going to be utilities. So that means the tenant is going to either pay or reimburse fully, you know, whatever electric water etc, that they, they they use, and a lot of leases in place will have some combination of those. But a triple net lease typically means 100% of those expenses fall on the tenant and not the landlord. And on a single tenant property where instead of having, say, a multi tenant retail, on a single tenant, where you have one tenant and the entire building, we refer to it as an absolute triple net lease. And that usually also includes building maintenance. So for example, if the roof needs to be replaced, the tenant pays for it. If the pavement needs to get a report, if landscape needs to be attended to, if I mean hv AC needs to get replaced all that even the tenant is responsible for those expenses really is a fence line defense line.

 

Trevor Oldham  14:01

Let’s say for myself, right now, I’m currently renting an apartment. And let’s say that you’re, you know, let’s say the big apartment complex, I’m in about 300 units, when you’re building into these things that the tenant has to pay, do you build it into the lease? Are you you know, upfront about the tenant? Or how does that go about? Because I know, I’ve been to two different apartment complexes, one, they, you know, they paid for everything, this one, when a light bulb goes out, I have to pay for it, or they’re gonna try to be a pretty big thing to change a light bulb. So how do you structure them? All that good stuff.

 

Neil Wahlgren  14:32

In general, the norm is going to be different from asset class to asset class, so multifamily it’s going to be a huge range. You know, on multi-tenant retail, you’re going to largely see, you know, maybe two thirds of the leases or triple net. In fact, like California sees more triple net in the Midwest, he’s less and, you know, and your rents are gonna change accordingly. Right. So if the tenants take responsibility, those expenses, they’re going to pay a lower price. per square foot and rent. Whereas if, if the landlord is taking more, the landlord’s gonna require a higher, basically rent rate for that. So, you know, there is some price adjustment for, you know, who’s taking the responsibility, but ultimately to answer your question in industry, it’s very common for leases to be triple net. So that’s, that’s kind of expected. And that’s always, you know, really structured during lease negotiations upfront. And, and I will say, as well, the term of the lease, the length of that lease really makes a big difference, right? If I only have a three year term, I don’t want to pay for a new roof, right? I mean, that seems silly, that feels like I’m taking an undue amount of expense as a tenant, when the landlord, I might leave in two and a half years, and the landlord gets the brunt of that value. So on an industrial scale, we’re signing 1520 year leases on these buildings. So the tenants, they are investing in the property, but they are, you know, theoretically going to remain in place to see the returns on that investment for themselves.

 

Trevor Oldham  16:06

And I want to hop into the industrial, you know, asset class as well. It’s funny that you bring it up as we were, as I was actually interviewing another real estate investor that is in the industrial space, and he has primarily focused on warehouses. And I mentioned him because he was also in the military, as well as the military. He has that military background, but I’d love for you to hop into you know, what, what are your investments look like, in the industrial space, I know, for him, he was specifically only doing warehouses, so I’d love for you to hop into what you do in the industrial space.

 

Neil Wahlgren  16:36

Yeah, so I mean, I think it’s helpful, especially for new investors in the real estate arena, just to understand the types of industrial so you’re kind of core piece of industrial is going to be warehouse slash distribution, you know, effectively, four walls and a roof, a lot of space, high ceilings, often truck bay doors for shipping and receiving. But ultimately, your real estate is providing a shelter and a space for value add operations, whether they be storage, movement, distribution, or core manufacturing. And we we are seeking typically manufacturing heavy tenants where they are actually creating product, creating goods, that they are, you know, effectively typically store to some extent in that same property or nearby and then ultimately shipped to the customers, other other types of industrial, you’ll have flex industrial, and that’s, that’s going to be imagined, and he probably seen these industrial parks, long buildings, this size spaces are gonna be a lot smaller, usually, on average, 1500 to 3000 square feet, each one might have a single truck Bay door, inside, you could have, you know, a wheel shop a amount of metal, you know, metal welder, a, you know, a small storage area for a lawn care center, you know, and they’re gonna be a mix of kind of retail and industrial fields, some of them have a small little storefront walking office, but you know, they, they tend to augment some local operation with smaller credit tenants. And then the last type, you’re gonna have specialty industries, and those that can look a lot of different ways. But everything from you know, say, a petroleum refinery to, you know, say a pharmaceutical company, who’s taken gas, and there’s laboratories inside and I mean, really just still creation, but in a in a very specified environment, or a specified design of that building where that building is, you know, the design of that building is intrinsically tied to that operation. And those are going to be less interchangeable with other industries, but more expensive for that particular usage.

 

Trevor Oldham  18:50

That’s an excellent overview. And now I want to hop into let’s say that you find a property, and do you want to put it, you know, you get under contract, and now it comes time to say the property’s $5 million in when it comes to that, are you raising capital? Are you tapping into the network of friends and family dues, as you have capital in the bank to do it? And how do you sort of go about, you know, getting the downpayment, done on a deal that is a sizable chunk of money?

 

Neil Wahlgren  19:16

Yeah, no, great question. So there’s a lot of ways to, you know, to raise capital, you know, ultimately, you have to look at what your capital stack looks like? So how are you funding the total amount for this purchase? You know, most projects, regardless of the team, are going to be a mix of sponsors co invest basically money either put in or left in by the operator or sponsor as it’s known in some circles. The second piece is going to be debt. So most projects, especially with interest rates, make sense to get a certain percentage, typically around 65 to 75% of the total purchase price. Funded by a bank, right, you’ll get a real estate loan. That’s the debt piece. And then the last bit of your quote unquotes downpayment, whatever’s left over, after the sponsor co-invest is typically raised through equity. And that equity will be an offering to a single investor or a small group or large group of investors who come in, typically the same terms, but there can be different categories. And you’re ultimately saying, hey, here is my business plan, I’m seeking to raise money here is the, you know, cash flow expectations during the whole period. Because real estate is illiquid, meaning, once you buy the building’s kind of set, you can’t just, like, pull your portion of the money out. And really until that building sells, and then typically you have a pre negotiated profit split on the back end. So that that’s, that’s the, the general way that most real estate investments are structured, you know, for us, we typically have, I would say, a moderate sized group of investors that come in, it’s a mix of everything from, you know, working investors who are w two earners, you know, doctors, lawyers, dentists, tech directors, and the Bay Area, you know, just a mix of people that are looking to invest passively, because they have their own, you know, well paying primary job. And then also a mix of, of high net worth investors, you know, often who invest as their career and profession, and, you know, ultimately looking to take the money that they have, and continue to grow in a way that it’s effectively funding their, their life and, and goals there.

 

Trevor Oldham  21:42

That’s an excellent interview. And, Neil, I want to be respectful of your time today. And I want to hop into a couple of last questions that I ask every guest. And this is one that there’s no right or wrong answer. But I’m just curious to see your mindset. Where do you think the real estate market is going in 2021? And beyond?

 

Neil Wahlgren  22:00

Oh, wow. I know, you got a venture on, you know, that high level question, but I will maybe dig a little tighter into the industrial side, just because that’s something I have a higher level of expertise. And, you know, on the industrial space, we really saw a dramatic kind of increase in popularity and people, you know, shifting their investment portfolio into industrial over the last 18 months, a lot of that was just driving from, you know, an increased need a higher amount of e commerce during COVID, a huge amount of businesses, you know, started shipping and having to do things remotely, having a need for storage. And really, that puts a lot of demand pressure on existing industries, and what we’re seeing is existing industries, typically selling for 50 to $60, a square foot, new build industrials, almost $200. So there’s a big disparity on what you can buy existing inventory compared to, you know, over under on Should I build instead. So, you know, for that reason, we’re seeing, you know, just increasing reliance on the need for storage, shipping and remote warehousing, that I see the industrial market, probably continuing to grow at a fairly rapid clip, or at least the next 2,3,4 years.

 

Trevor Oldham  23:25

I think that’s some, that’s some excellent insight. I know you mentioned Rich Dad, Poor Dad earlier in our conversation, but I’d love for you to recommend if you have another real estate investing or business book, you’d recommend for our audience to check out.

 

Neil Wahlgren  23:39

There’s a lot of good ones. Let’s see recent stuff. I actually like reading biographies. And I like reading, you know, kind of books that inspire you to kind of connect the dots, you know, high and low. Recently, I read that I really tied with, you know, kind of individual productivity, and you know, how to optimize the amount of hours that you’re putting in really growing your own knowledge, growing your own, you know, business connections, etc. And it’s maybe a little different than what your question was, but it’s called why we sleep. And I found it fascinating. And I’ve really, you know, understanding the reasons and the quality and what really flows into you know, how you become rested, how you can understand your sleep and understand when you’re most productive, and actually be able to take those learnings and apply them to your kind of daily routine, I found immensely helpful, you know, being able to balance caffeine use with your body’s natural sleep wake cycle, and downtimes and uptimes. And being able to ultimately make you know, every minute an hour you spend doing what you’re passionate about, you know, hopefully more productive. That’s been my current push. So why do we sleep?

 

Trevor Oldham  25:01

That’s an excellent recommendation. And then the last question I have for you is where can our audience find you?

 

Neil Wahlgren  25:07

Yeah. So you know, Neil Walgren with mag Capital Partners, we have a website, www.magcpx.com. Or just shoot me a note. I love to get feedback on the show, answer any questions or if you’re interested in learning more about investing with us in the industrial space, my emails, neil@magcp.com.

 

Trevor Oldham  25:30

Awesome. I’ll be sure to include that in the show notes. And Neil, I just want to say thank you for your time today, and I know I have enjoyed the episode. Thanks for having me.