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Show Summary
In this conversation, Greg Barron shares his extensive experience in real estate and the importance of due diligence in investment decisions. He reflects on his personal journey, emphasizing the value of learning from failures and the necessity of having a systematic approach to financial analysis. Greg introduces his software, Performa Plus, designed to simplify financial modeling for real estate investors, making it accessible and efficient. He encourages listeners to connect with him and learn more about his work at The Barron Companies.
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Investor Fuel Show Transcript:
Greg (00:00)
We were asked to participate in a acquisition of 27 properties in seven states. We went in and forensically wanted to review these properties for the company that I was working with, National Company. I have an NDA with them. They’re still a partner today, so I can’t tell you who it is. But I will tell you it’s a public company with about 1,200We have about 1,900 properties across the country. So we went in and we reviewed these properties prior to the acquisition. And what we found were small incremental things that added up to a big number.
Michelle Kesil (02:08)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone that I’m looking forward to connecting with, Greg Barron, who has been making serious moves, running a real estate development, construction, civil engineering, and software business. Maybe there’s more things in there that you can chat about too.about a very multi-passionate business and yeah, excited to have you on the show today.
Greg (02:42)
Thank you, it’s good to be here. Thanks for having me.Michelle Kesil (02:44)
Of course, I think our listeners are really going to take something away from how you’re approaching the due diligence of everything that you’re working on. So, excited to get going.Greg (02:57)
You just want me to go right into what we’re doing now? Would that be acceptable, Kesil Yeah. Well, always like to, you know, these things kind of get bogged down in some details sometimes. So I like to walk away with some stories that relate to what we do to make it simpler. Basically, we’ve been doing this for almost 40 years now. We’ve got close to a billion dollars that we’ve completed in some form or fashion.Michelle Kesil (03:02)
Yeah, go for it.Greg (03:25)
and we do operate on several different levels. We have a civil engineering company, we have a real estate development company, we have a commercial construction company, and then we maintain them. And so there’s failure and successes in due diligence. And that’s one thing that I’m speaking on that this weekend, as a matter of fact, with Brandon Turner in Austin.And so one of the words that, or a couple of words that I say a lot of times to, especially the younger generation coming up, they always ask me, you know, what is it that you can give us as words of wisdom for us in the future after, you know, four decades? And I would say you have to be a provocative questioner all across the board. Ask good questions that lead to more good questions. And most people don’t spend the time to really think about those things. And
As it relates to due diligence, a provocative question in that, especially in due diligence, is when you go into an acquisition or de novo development, what I’ve seen most of is a lack of really good questioning of the individual properties. ⁓
I have about 12 years experience on a bank board where I was a senior director and I got to rubber stamp those things that were over a million. And I would see really a lack of due diligence because people were so excited to get into a deal. They would have what we call a deal bias, which means they would skew the results to fit the deal that they really wanted to present. So,
Some of the things that we have done, I’ll tell you about a success and I’ll tell you about a failure real quick.
We were asked to participate in a acquisition of 27 properties in seven states. We We went in and forensically ⁓ wanted to review these properties for the company that I was working with, National Company. I have an NDA with them. They’re still a partner today, so I can’t tell you who it is. But I will tell you it’s a public company with about 1,200
We have about 1,900 properties across the country. So we went in and we reviewed these properties prior to the acquisition. And what we found were small incremental things that added up to a big number.
And I’ll give you an example. Each of these units were about 30,000 square feet each. They were commercial. They had a single ply roof and a typical tilt wall or masonry structure.
But we went in and we looked at the roofs and the due diligence process. And this is in addition to underwriting, which I’ll get to in a minute, but we went and viewed all of the rooftop units, all of the areas surrounding the envelope. And here’s what we came up with. We found that people overlook those things that would get them across the line at day one on acquisition, but
But if you’re not careful, what you’ll find is these hidden things that will affect the performance of those properties later on down the road. And later means a year, it means two years, sometimes three. For example, this particular portfolio, we probably had, I don’t know, 360 rooftop units. Of those units, half of them were beyond their 15-year
life cycle life, which means that they were candidates for replacement in the next two years. Now, if you consider that maybe those units cost $5,000 a piece, maybe 10, you’re talking hundreds of thousands of dollars that you’re going to have to invest in that and you just fail to really see how old things were. And we saw the same thing in the roofs. Many of these roofs were over 20 to 25 years. Well, that’s about
the life cycle of a single ply roof. So at the end of the day, we went back to the seller and we renegotiated right around 10 % of the purchase price, which is about $30 to $35 million in reductions because we detailed this. It was a really good find. Now, fast forward four years later,
this same portfolio was sold to another public company. We had in our portfolio about 27 buildings that were original and they had a lot of deferred maintenance. This company that was purchasing them really failed to go in and review the same thing, although we were the seller.
And what ended up in the succeeding couple of years is they had to come out of pocket about the same amount of money because they didn’t do their due diligence, which really crushed their performance. So due diligence is something that I saw a real weakness of new investors. The seasoned institutional investors, they get it. The mid-level investors, they want to get the deal done.
It’s a deal by us and I’ve always said to those coming into it, spend a lot of time in due diligence and really hire those people that can educate you well in the process.
Michelle Kesil (10:36)
Yeah, amazing. That’s a lot of valuable information and services that you and your team are able to provide. I love how you’re focusing on all of those aspects of a business and yeah, allowing to be that place that can support people in all of those facets.Greg (10:56)
Yeah, I’ve often told people I’m only an expert in a lot of things because I have miserably failed in a lot of things in my past. And we couldn’t come to the table with that unless we, it was somehow along the way that we stumped our toe. But that’s just one of the most important things in the underwriting process. Just don’t get in a hurry. Have enough look time and the acquisition to be able to really go through the forensic of it.have a checklist. ⁓ We have a checklist that’s probably four five pages long every time we go into a new acquisition. And we can’t move forward unless those things are graded out. And we can still like the property, but we definitely will go back in and document a retrade and show our findings. And then it’s either a go or no go.
mean, we’re just not going to get so emotional about the property that we’re gonna make a bad deal.
Michelle Kesil (11:57)
Yeah, I think that’s something important to note too, not let those emotions sway the deal. What are some of the ways that you are able to manage that?Greg (12:08)
Well, I think, you know, we just go by the facts. I don’t get now in my younger self, I’ll be 66 next year. And my hunger self in my twenties, when I started this, there’s no question that I failed at this. I didn’t really have anybody telling me this process system to go through and holding me accountable. we just get into this psychological trap.especially when markets open up, of trying to shove our, really our hopefulness, our wishful thinking into that process. I think of what I’ve learned in my years now is I just, I don’t get that emotional about it. ⁓ We’re in it for the long game. Luckily, we don’t have to generate any fees off of real estate.
We’re not looking to feed a program with, you know, acquisition costs or that sort of thing. We have so many silos that we can be a lot more patient with it and subsequently we haven’t suffered through some of the issues that others have. But I would say, you know, especially to the younger generation that really wants to get into this ⁓ and for those that are in it now, glean some information off of due diligence.
Look for those that have what I call a top-down view. I’ve always had mentors that had a top-down. I wanted those people bruised and battered, ⁓ but they didn’t smell of smoke. They had struggled through it and they had survived. Those horror stories and sometimes those failure stories, we can really step on their shoulders and see, these are my failure stories that became success stories later.
Michelle Kesil (14:05)
Absolutely. I love that advice. I think a lot of what someone might deem as a failure is a beautiful lesson that you can take with you and yeah, continue to learn and grow from.Greg (14:17)
Yeah. Well, failure is not final unless you just stop or quit. I like to say failure is like oxygen. know, sometimes you have to have it because you don’t have a benchmark to move forward to set new and greater measurements for. I can segue really into the reason we got into financial software.Michelle Kesil (14:21)
Absolutely.Yeah.
Greg (14:40)
You know, we had our own system. Usually it was Excel based and we were pretty good at it. When I sat on the board of a public bank for all the years that I did, I was the one who got to see the CRE performance. Most of the investors that would come in would present their performance to us and we had to make the determination if the project was a viable candidate.And basically what I saw was just crap. It was not consistent. It wasn’t systematic. And as a public bank, we were charged, we just wanted to get paid the interest on our loan. And we didn’t want it to go sideways. So as I sat there on the outside having to be the final decision maker of these things, I realized that the
The as a whole, unless they were really high-grade family offices, institutional investors, they had weaknesses in their really doing a performa analysis to be able to do sensitivity analysis and other things. So I always asked our credit department, is there not something that we can do as a bank to make this systematic? You know, the institutional side of it has what they call Argus, which is a very expensive, very complicated
perform analysis software, but it’s just really hard to learn and even harder to maintain. So three and a half, four years ago, we decided to invest our own money and a lot of it was for our own projects and a lot of it was for the projects we participated in as a differentiator for us. Well, that and
10 programmers, three years later, and a lot of zeros, seven plus, we finally came out with our software that’s available to the market called Performa Plus. It’s kind of an Argus light, but it’s very easy to learn. And now we partner with major universities. Also, they’re using it in their real estate finance and their master’s level.
finance and real estate courses. We’re with the UT system. TCU is now using it as a teaching tool for those that are wanting to learn real estate finance and move into ⁓ some kind of ⁓ job in the future that uses it. And we’re also in line for three other major universities. So it’s a real deal. Performa Plus,
really the value of it is the same thing with due diligence. It still asks you questions and it steps you through the process the same way that you would step through if you were acquiring it. And having our, we’re not programmers, we’re in the creation of value of real estate. So we came at it a little bit differently than
a lot of software companies that didn’t have the breadth of knowledge of what really needed to be done. So our Performa Plus model is you start to enter your data and you can’t move forward unless you have entered what needs to be entered prior to moving to the next step. So it’s a step-by-step process and at the end of the day, when that’s only as good as the data you input,
But at the end of the day, it will produce all of the information that you need to do multiple sensitivity analysis for different kinds of scenarios. Say interest rate fluctuate or if you’re doing a value add, if your hard costs increase, once you enter those, you can continue to do sensitivity analysis.
and you don’t have the fear that your Excel formula has a circular error. It’s got several layers of code and in source code speak that’s a very protective code that where it just does not make a mistake. So once you’ve entered it, can maximize the time that you use to try to see if a deal is going to work. One of the reasons that it’s good right now is we’re going to come into a time frame where
Deal transactions are going to come faster and faster. Doing the due diligence and doing the perform analysis, you need to cut that time as much as possible. That means you’re going to have to be able to figure out this transaction quickly to be able to make it to the table and to close the deal. Our software, most people that understand Excel, they can learn in a day.
We can do start to finish on a complex 300 unit multifamily facility. You could have it totally analyzed in two days down to rent roll. We have a specific rent roll feature to it that allows you to enter the start and stop dates of your existing stabilization, those sort of things. But you can come to market with something in two days maximum on our system.
once you learn it. It’s just really easy to use. We found that we pitted it against, you know, Excel and Performa Plus and what would take a week in Excel to figure out a complicated Performa, we can get it out in a day to two days. So that’s what we really like about it. Plus the fact that at the end of the day, it has bank ready reports and investor reports. So you can just replace your logo with it.
print an investor analysis and present it to your investors in it. You have authority brand immediately by doing this. It’s not a printed Excel sheet. It is a presentation quality sheet that’s buried in the template. You also have, for those people that are in syndications basically raising money with outside investors,
The waterfall and promote feature in Excel is pretty complicated. A lot of people get hung up on that. Ours is super easy. If you want to go to a syndicated deal and raise money, I don’t have the screen share to show you now, but it’s probably the most simple ⁓ thing that I’ve ever seen that produces the greatest quality of reports.
You can go in there and change it. can change the promote for a different level of your waterfall. And in the stroke of a button, you can see if, you know, what output you’re going to have. So we’re pretty proud of it.
Michelle Kesil (22:28)
Amazing. Yeah, sounds like there’s so much value and intention that you’ve put into this software that’s really supporting people.Greg (22:36)
Yeah, whether you’re a our mid ranges is are the investors in the millions to 50 to 70 million. This is not an institutional grade portfolio analyzer. Ours is really for, you know, 80 % of the investors that are out there trying to look at deals. We don’t we don’t want to be an institutional software package. As a matter of fact, in the beta testing that we did, most people came back and said,Michelle Kesil (22:44)
Mm-hmm.Greg (23:04)
Please make this simpler. We don’t understand our competitor. We don’t understand it. It’s hard to do. Can you make it simpler, but yet effectively as good? And so, you know, it took us three years to get there, but we’ve been out since last February and now we think we’re going to be a real deal changer in the…in the evaluation side of commercial real estate.
Michelle Kesil (23:31)
Yeah, amazing, sounds like it. So before we wrap up here, if someone wants to reach out, connect, and learn more about everything that you’re offering, where can people find you and reach you?Greg (23:44)
Yeah, I mean the mothership is the Barron Companies. Anything having to do with civil engineering, with facility services, with construction, real estate development or software falls under the umbrella. They can go to www.thebarroncompanies.com. That’s two Rs in Barron. And from there, you can redirect to whatever area you want to go to.They could reach out to me personally at my email. It’s greg, g-r-e-g @ thebarroncompanies.com and I’ll certainly try to get back with as many as we can. I won’t list all the other websites that we have because it would take up another five minutes, but go to thebarroncompanies.com. That’ll redirect you to about anything that you need to see.
Michelle Kesil (24:36)
Perfect. Well, I appreciate your time, your story, and your perspective. Thank you for being here.Greg (24:43)
Thank you so much for having me, KesilMichelle Kesil (24:45)
Of course. And for those listeners tuning into the show, if you got value from this, make sure you’ve subscribed. We’ve got more conversations with operators like Greg who are building real businesses. We’ll see you all on our next episode.
