If you are open to keeping the interview, then here is a draft list of questions which I propose:
Michael J. Flight is a real estate entrepreneur who is an expert in Retail Real Estate investment. Mr. Flight has more than 32 years of experience working with more than $500 million of real estate for himself or on behalf of investors/clients. Michael and a partner formed Concordia Realty Corporation in 1990 to invest in Shopping Centers with a strategic focus on adding value through repositioning and redevelopment throughout the United States. Michael has also been involved with work-outs of distressed real estate for banks, insurance companies, REITs, international investment companies and hedge funds. Furthermore, he has consulted for some of the top investment and development companies in the world including AEGON, Soros Funds, TH Real Estate and Trammel Crow. In addition to Shopping Center and Net-Lease Single-Tenant Retail real estate, Michael has been a principal in entities that have owned multifamily apartment buildings, office buildings, condo conversions and single family home portfolios. He also serves on the real estate investment advisory boards of Chicago Hope Academy and Sunshine Gospel Ministries. Additionally, he is Treasurer of the Riverside Public Library and special advisor to Mission Our Lady of the Angels in Chicago.
2.What does Concordia Realty Do?
Concordia Realty specializes in shopping centers and retail properties. We have been in business since 1990. Our expertise is with redeveloping existing retail properties. Everything from 900,000 square foot malls down to repositioning a portfolio of bank buildings . We mainly concentrate on strip shopping centers having extensive experience with heavy value add projects, like de-malling (emptying out a mall and knocking it down to build a strip center) to demolishing ¼ to ⅓ of a shopping center to add one or a few new tenants. We also take stabilized projects that benefit from better management/merchandising and add value through reducing expenses and upgrading tenants. For example, we are underwriting a 164,000 community shopping center now. It has the grocer, drug store, dollar store and auto parts store. It also has lots of near term rollover risk with a few of the anchor tenants. We know which ones will more than likely stay and are confident we can do better if a the weak ones don’t exercise an option that we can replace them with a similar or better tenant.
I started out of college as a retail real estate broker in 1986. Then went to work for a larger syndicator. They owned about 250 shopping centers nationwide. In 1990 started Concordia Realty with a partner. We have managed, leased, developed and redeveloped many retail properties in up until 2018. We have been through 3 recessions and have completed workouts of distressed properties for banks, insurance companies and hedge funds. I have personally completed lease transactions with anchor tenants, specialty tenants, ground leases, build-to-suit and out-parcels. I have also been the managing member for fix & flipping a number of SFH and 2 condo conversions. I have also owned multifamily and office properties. Our main business and differentiating factor is Retail Real Estate.
4.Who do you Serve, markets, types of asset classes
As you and I discussed a little at Freedomfest we are most knowledgeable and experienced with shopping centers. We have done other assets but now if we are buying something like a multifamily property we will bring in the financing contacts, equity and experience and our partners bring the operations and acquisition know how. For example, for multifamily we have worked with Pete Kelly at Trailside Real Estate Investments on the east coast and Roger Austin at Mateo Chase on the West Coast.
We serve our investors and the way to do that is providing quality retail space for tenants and quality properties for customers . Most recently those Investors were institutional for example insurance companies, private equity & hedge funds, family offices.
5.Do you allow investors in your deals
Yes, we have recently started looking in to opening up our opportunities to Accredited Investors.
6.How long is the hold period
In the past it has depended on our equity partners. On value add redevelopment deals it has been 3-5 years. On cash flow deals it is 5-7-10 with the investor capital paid back through cash flow or a refinance event by year 5-7.
7.Do you do buy and hold or just flip
There are certain deals that are buy and hold but I do believe there is something to be said about a 10 year time horizon. Sometimes after you have added a lot of value you take the asset for granted and then your focus slips a bit. You should evaluate a sale every few years especially if there are opportunities to do better. That should be balanced with the tax implications of a sale versus a refinance and continue to hold. There are also some deals that just are not going to get better and might get worse. We just sold an office building in suburban Cook County. The real estate taxes were arbitrarily assessed and would double every 3 years. In addition the local municipality looked at property owners as a money pot to be shaken down every time they needed more revenue. I imagine the mob being easier to work with than some of these local governments.
8.Today’s Retail with Amazon
The U.S. Census Bureau in February, reported total 2017 e-commerce retail sales of $454 billion thus making online sales only 9% of retail spending. At the same time, Brick & Mortar stores sales saw a rise of 3.4% in 2017 showing an overall growth of Omni-channel retailing.
Retail real estate provides for investment stability with leases of 5, 10 and even 20 years. The income stream is consistent and known for longer periods of time. Since the rent is guaranteed by financially strong tenant you have a higher expectation of the rent being paid at the beginning of the month. Every month of the lease.
Retail Real Estate has produced higher average annual returns over the past 20 years than the average returns produced by apartment buildings, industrial properties and office buildings.
Retail Real Estate is the asset class that has secured some of the highest price per square foot purchase prices of any type of commercial real estate. Saks 5th Avenue New York flagship store is worth $3.7 billion.
Retail Real Estate has produced some of the highest rents in the world. In excess of $3,500 per square foot.
Despite a recent theme from the media about a brick and mortar retail apocalypse, Retail properties have a track record of delivering solid, stable investment returns. As a matter of fact, Retail Real Estate is the asset class that has secured some of the highest prices per square foot of any type of commercial real estate (one notable deal is $31,000 per square foot – $2880 per square meter in 2014 by Chanel in New York City). Additionally, Retail Real Estate has produced some of the highest rents in the world, including New York City’s 5th Avenue with annual rents that average of $3,000 per square foot, Hong Kong’s Causeway Bay with average annual rents around $2,725 per square foot, and London’s New Bond Street with average annual rents in 2017 around $1,720 per square foot.
9.Today’s Cap Rates and Interest Rates
We look for deals in the 7-10 cap range. We are more sensitive to the price per square foot. We look for deals $100 per square foot and below. Tertiary markets they might be as low as $40-$50 psf and a 9-11 cap rate. In metro areas if we can find a grocery anchored deal below $150 and has a path to increase value we like it. We prefer to stay below replacement cost or in some cases look at the land value for the deal. In certain situations where we are underwriting the deal as a redevelopment the cap rate might be exceptionally low. But in those cases we are buying by the pound and not for the current income.
An 8% preferred return and a 75/25 or 80/20 split on the promote. at the land value for the deal. In certain situations where we are underwriting the deal as a redevelopment the cap rate might be exceptionally low.
11. Do you allow accredited and non-accredited investors
We look for deals in the 7-10 cap range. We are more sensitive to the price per square foot. We look for deals $100 per square foot and below.
12. Frequency of Distributions
Monthly or Quarterly. It depends on the deal and the CapEx requirements. Additionally, it also depends on the type of financing.
13. Anything which I haven’t asked but should have asked?
Right now restaurants are the rage in retail, but they also have some of the highest failure rates. And they also require the landlord to put in higher TI dollars to secure the tenant. As an example, I was involved with the ground up development of eight convenience type of shopping center is about 35,000 or 40,000 square feet. 60% of the tenants were fast casual restaurant. My partner said, we should hold this deal and I said we have an offer at a 6.5 cap rate. We should sell this deal and run away like our hair is on fire because all these restaurants will be popping out within the next 3 to 5 years. And sure enough while we were in contract during the buyers due diligence period Baja Fresh went dark.
14. How Do People find out more information?
They can contact us through our website at http://www.concordiarealty.com/investor/
LEGAL AND TAX COUNSEL: Concordia Realty Corporation and Michael J. Flight and their affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction or undertaking. Concordia Realty Corporation and Michael J. Flight highly encourage individuals and investors to seek the counsel of a qualified attorney as well as seek the counsel of a tax professional or Certified Public Accountant (CPA) to determine if there are any potential tax liabilities or consequences as the result of anything contained herein. NO GUARANTEE: All users of this website should understand there are NO GUARANTEES of any success, outcome or profitability of any transaction or undertaking, expressed or implied by Concordia Realty Corporation and Michael J. Flight or any of its members, shareholders, officers or affiliates and will NOT be liable for any financial or other losses or damages incurred as a result of any undertaking. Go HERE to view complete DISCLOSURES.
About the Author: Michael J. Flight
Let your investment dreams take flight with the expert help of Michael Flight, principal investor at Concordia Realty.
Michael has worked for more than 28 years and handled more than $500 million worth of real estate transactions on behalf of his clients at Concordia Realty. Michael began his business in the realm of retail real estate, with Concordia Realty now handling third-party property and asset management services for a variety of commercial real estate investments.
He also specializes in revitalizing distressed investments for partners, adding value for clients … including banks, insurance companies, and hedge funds. Michael has consulted for some of the top investment and development companies in the world … and now his knowledge is available to YOU.
Are you searching for someone who can maximize the full potential of your property? Not only do Michael and his team at Concordia specialize in intensive hands-on property management, but they also bring the right relationships with attorneys, consultants, and contractors to the table.
With extensive experience in development, leasing, sales, property management, and innovative financing techniques, Michael and his trained team have the ability to make your property into the cash cow you know it can be.