I grew up in a #cre family. My grandfather, GW Anderson was an oil & gas landman working the intermountain states throughout his entire career. He died at age 100 and was still purchasing minerals speculatively up until his final days. He was defined as a DEAL JUNKIE. This apple doesn't fall far from the tree…
He started in the oil business in 1948. Within a few years he was running a booming business in SLC and had over 50 attorneys in house working title and minerals throughout the Rocky Mountains. Our family still owns various minerals that he acquired in the 1950’s that are still producing royalty revenues all these years later.
In the 1960’s he started working with Texaco on an open book reverse build to suit development for new gas stations. He built a handful of these properties throughout the Utah market. The deals were struck at 7.5% rates of return on all actual hard costs and had a 20-year lease with 4 – 5 year options. This was our family’s first entry into the #cre market. Texaco insisted on adding a purchase option for each station. As the years passed, Texaco sold the store operations to franchisees that eventually purchased the real estate.
The oldest asset our family owns is an existing Arby’s restaurant that was built in SLC, UT at 420 East 400 South. This store was developed originally with a franchisee signing a 20-year lease. My mom remembers as a child driving to Southern California on a “family trip” so everyone could try an Arby’s meal and confirm it was in fact the healthiest of the fast food options at the time. Grandpa always was a health nut and spent lots of time and energy worried about what he and everyone around him ate. Corporate Arby’s stepped in and purchased the store shortly after the restaurant was constructed as the franchisee had some financial troubles. It was corporate unit #174 (at this writing there are more than 3,300 restaurants). The Arby’s operated in SLC from the Summer of 1977 until December 2022. We allowed the lease to lapse so we could prepare the site for a new multi-family project that we are currently designing.
I started my career in 2002 as a leasing broker working under a couple of SLC power brokers and learned a ton. I absorbed more info in those 3 years than I thought possible and completed over 200 transactions. After my time there I continued on as a leasing broker under my own banner and then cofounded a local brokerage office here in SLC. I switched to investment sales during the great financial crisis in 2008/9. I loved sales and found it to be rewarding. I always knew I wanted to be a real estate owner and so I thought this would be a great place to start.
In the Summer of 2010, one of the other brokers at our office lists an Arby’s restaurant for sale in Sandy, UT. The building was tired and the lease was nearing expiration with only 4 years of lease term remaining and no further option periods. I thought the rent looked very attractive.
Base Rent: $42,000.00 / year absolute net
Avg % Rent (3 years prior: $12,982.60
Total Rent: $54,982.60 / year
Total Price: $695,554.00
Cap Rate: 7.9% cap
I submit an offer for one of my clients. Good deals were still available on the market during this post financial crisis time, and this was certainly no exception. My client opens escrow, completes the survey, title review, lease review, estoppel, phase 1 environmental. One week out from closing, he calls me and tells me he is out. Cash flow needs are intense on his other operating company, and he is worried about covering payroll through the end of the year.
At this point in time, I have stepped in as the asset manager for some of my family’s portfolio, but I am spending 90% of my daytime hours brokering net lease retail properties. I go grab lunch with my grandpa that day and he says let’s buy it. “Are you serious,” I ask him. He tells me if I like it then so does he, let’s do it. I am elated. My commission is $17,500. I add every dollar I have saved up to that point in time and write a check for $24,000. I am sweating bullets at the time. That gets me 7.5% of the deal. A cousin writes a check for another 7.5% and then Grandpa puts up the 85% and we close on this beauty all cash in November 2010. My cousin and I suggest the name, BHNC Sandy, LLC meaning Big Hat No Cattle, a phrase grandpa often said. He loves it. My client is able to preserve all of their sunk costs as we step in and pay for their reports and have them assigned to our new entity.
I start calling Arby’s about a lease renewal. I can’t get them to focus at all which was weird. At the time this unit is operating at 30-40% above the Utah average store volume and 35-45% above the National average. It takes 2 years, but they finally start a substantive dialogue with me about a renewal. In 2014 we have the deal fully worked out and ready for execution.
- 10-year term with 1–10-year option period
- Rent bumps of 10% adjusted every 5 years
- Start rent of $93,500.00 / year absolute net
It is a solid deal, an increase of 70% from our prior rent. I head over to Grandpa’s for lunch again. I have the renewal in hand, ready to sign. He sits down and tells me he isn’t going to sign it. I am confused. He says come back when I have formed an LLC for myself and my siblings to buy his 85% interest out in the deal. He proposes we buy him out at his basis, and he loans us the money to do it at 6%. I am floored and tell him he doesn’t need to do this. He tells me his having a blast these last couple of years working on this property and others [we have since pursued a handful of new properties with him as partner/investor]. “I don’t need to make any more money, but you do!”
My siblings and I form an LLC and buy his interest. We execute the amendment with Arby’s and then put a long-term loan in place for $950,000 with Symetra Life Insurance Company. We use the $950,000 to go into 4 new deals we are looking at. Arby’s does a full gut and remodel on the store. More importantly this deal sets me on a path to start acquiring buildings and changes my professional life course. I have now closed on over 100 properties.
Grandpa passed away in 2014 at the age of 100. I recently circled back to this deal and bought my siblings out, so I am the 100% owner. This building means so much to me. It is what gave me my start into ownership of #CRE. It helped me learn how to structure deals and how through leasing HUGE value could be created in a short time frame. Every time I drive by this property I think of my grandpa. He made all the difference for me on this deal.
Enjoy this last photo of Grandpa at his 100th birthday party and my two oldest kids helping him blow out the candles.
To learn about investing with Forza Capital, register for our online investor portal here.
Comments