Ground-Up Development Secrets: How to Turn Land Into Cash-Flowing Assets

Shannon Robnett (00:00)
I think what we’re seeing now is really the biggest shift in wealth that we’re going to see in the next two decades. Because we’re really seeing that those that understood the game, they’re fine. Those that played the game recklessly, didn’t lock in long term debt have product that is

⁓ in markets that they don’t understand, haven’t fully underwritten their markets, they’re in trouble. And there’s a huge opportunity there. Unfortunately, it’s always at someone’s expense, but there’s a huge opportunity to shift into a product that is coming to market that is below replacement costs, that is ⁓ actually cash flowing today, as well as new developments that need to happen in areas like Boise, Idaho, that did not get overbuilt in the last boom that we had.

Michelle Kesil (02:15)
Hey everybody. Welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. And today I’m joined by someone I’m looking forward to chatting with. Robnett of Shannon Robnett Industries, creating a vertically integrated development, construction, capital raising, property and asset management provider all under one roof. So very excited to connect with you today, Shannon.

Shannon Robnett (02:42)
Thank you. Happy to be here, Michelle.

Michelle Kesil (02:44)
Great, so let’s dive in. First off, for those not yet familiar with you and your work, can you share what your main focus is these days?

Shannon Robnett (02:52)
You know, I started out in real estate family. My father’s a builder and a developer. My mother was a third generation real estate broker. And we build a lot of ground up.

development we buy and hold when when the opportunities are there and we’re constantly looking at things from a long-term lens we’re not looking to get in and out of deals in 18 or 36 months we’re looking at long-term hold and long-term acquisition for cash flow after development

Michelle Kesil (03:22)
Awesome, and which markets do you operate out of?

Shannon Robnett (03:25)
We’ve got product in Texas. We’re getting out of one in Washington. We’ve got product in Idaho and Florida currently.

Michelle Kesil (03:32)
And what do you feel have been some of the main keys that have allowed your business to grow and run successfully?

Shannon Robnett (03:39)
You know, I think one of the main keys to our growth and success is that, you know, I was working in the design build field for a long time and I would watch other people that would hire my company and we would build the building and we would get it up and running and we would, you know, they would fill it with tenants and I saw how all this went together. I saw it through, you know,

the late 90s, saw it through early 2000s, I saw it through 08. And all of that has been the lens that I’ve been learning through and the lens that I’ve looked at. So I’m not looking at something short term. This is not something that I’m doing as a side hustle. It’s not something that I’ve been in for the last three or four years. This is something I’ve ridden through multiple cycles. And, you know,

Most of the people that are here have done the same. So we’ve got a lot of depth in our bench.

Michelle Kesil (04:28)
Yeah, absolutely. And what type of real estate investments are you mostly working with?

Shannon Robnett (05:23)
You know, our main focus is multifamily and industrial. Michelle, there’s really three types of investors that I found. There’s those that are in the early stages of their career and they need multiplication. They need to take their first $50,000 in investable cash and they need to get to that $4 million, $5 million lump sum. Then there’s the professionals that are probably starting their 40s.

They’re making great money. They need tax advantages. They don’t know where to go. They’re absolutely getting butchered on their investments because they’re losing 30 % of it to the IRS. And they’re just looking for tax relief for growth for later. And then the last group that we work with is those that are approaching retirement age. And all they’re really focused on is cashflow. They want to know that they have assets that are going to continue to produce income through their retirement. so

know, industrial is one of those products that it’s not real sexy. There’s not a huge amount of flux in the pricing like we’ve seen in multifamily. However, it’s something that if you’re getting into it, you’re getting into it with tenants that have balance sheets, you’re getting into it with tenants that are building businesses that hate to move, that are very expensive to move. And so you’re getting into it with the right kind of people that like to stay there for seven to 10 years.

Michelle Kesil (06:36)
Yeah, absolutely. And then you manage the properties as well or what does the other process.

Shannon Robnett (06:41)
Yeah.

Yeah, one of the things that we found in our years of working both with outside property management and in-house property management, know, $50, if you’re looking at a 200 unit apartment complex, $50 a month doesn’t seem like a lot and doesn’t really seem worth chasing to a lot of property managers because they’re looking for that 95 plus percent occupancy they can brag about.

They want to set it and forget it. They want to spend as little amount of their resources, i.e. time, on those kinds of things. And so we found that property management done in-house aligns us with our investment thesis to the point that we are focused on every $15. Because $15 over 200 units at a cap rate of a 5 % or even a 6 % is a large sum of money that is in alignment with how we do that.

You might spend $30,000 $40,000 more a year to get another $100,000 in income and a property, but that is a huge dividend for the investors. And that’s why we’ve always really always come back to, we have to self-manage because that is the thing that really moves the needle.

Michelle Kesil (07:50)
Absolutely. And what would you say have been some of the biggest challenges or obstacles that you’ve had to overcome in your real estate journey?

Shannon Robnett (08:00)
You know, I think a lot of it is there’s an education process that goes into this. Most investors don’t have the level of understanding that I feel they should have when they’re making these size of investments, any more than I know how my computer works, I just go buy one, right? But there are people that their life has been spent building tech products and doing those kinds of things, and they understand that.

And so I think a lot of that is that people need to get educated. People need to find a resource that whether you’re doing a deal with us or not, education is the number one thing that we can offer because if you have that education, you understand how this is supposed to work and you can better prepare yourself to be in good investments and how to underwrite personally the bad ones and just kind of get past that so that you really truly have an understanding of what you’re getting into and what you’re focusing on.

so that you’re protecting your own investment dollars.

Michelle Kesil (08:56)
Yeah, definitely. What would you say you’re most focused on solving or scaling to next?

Shannon Robnett (09:03)
You know, I think the thing that we’re focused on is not losing focus. I know that sounds funny, but there’s so many shiny objects to chase. And what you need to do is you need to make sure that what you’re already doing is running as good as possible so that you’re making sure that the returns are there for your investors. You’re making sure that you’re hitting your milestones. You’re following your process. The market is…

tricky enough and it changes all the time. had COVID, we had the 2008 crash, we’ve had all these different things that have happened that throw a curve in there all of sudden and you’ve got to manage everything you can very, very well so that when those curve balls hit everyone, you’re not the last one to be reacting to it.

Michelle Kesil (09:48)
Yeah, definitely. And are there specific opportunities or goals that you have on projects that you’re excited to get into?

Shannon Robnett (10:32)
You know, I think with the market we have now, there are some challenges with a lot of things, but you know, we’re currently under construction on a couple of projects right now, even with interest rates being as high as they are, because we’re building in supply constrained markets. And if you can get ahead of demand, you’re going to have a window where others are waiting for everything to be perfect to get in the water, where if your deal is underwritten well,

your supply chain is tight, and you know your market incredibly well, you’re going to be in a position to be new to market with brand new product in areas that desperately need it when nobody else is. So you’re going to have a little bit of a honeymoon window, and that’s really what we’ve stayed focused on, is staying in the markets that we know, continuing to build product that makes sense, and continuing to bring stuff to market for our investors and for the market in general.

Michelle Kesil (11:23)
Yeah, definitely. And are you currently partnering with others as well on projects?

Shannon Robnett (11:30)
You know, we do a lot in the syndication space. So we partner with limited partners who have 50 to 10 million dollars looking to deploy capital in a passive way. As far as direct partnerships, I’ve always been a little bit too much of a control freak for that. I know what I know, I know how my machine works. And so we’ve kind of stayed simple there. Every time we’ve ventured out of that, it just hasn’t gone the way we’d like it to.

⁓ because I don’t have the control to take action when I need to. And so we really like that syndication model where we’re able to execute on a plan we know, execute on a plan that we’ve stress tested, and then be able to deliver for our investors.

Michelle Kesil (12:11)
Yeah, amazing. And so what advice would you give to someone that’s newer in this industry or looking to get started?

Shannon Robnett (12:19)
You know, a couple of things that I would say is, number one, get some education. And if people aren’t willing to, in this indication space or in the investment space, aren’t willing to pull back the kimono a little bit and show you what’s going on in their business, I would say that’s at least a yellow flag, probably a red flag. But I would say get educated, understand what you’re doing. You don’t have to understand how much a two-by-four costs to be involved in development.

But you do have to understand the underlying markets and the underwriting and things like that. So I would say get educated, find people that will help you do that, and then make your investments and make them as smart as possible and with as much knowledge as you can possibly have.

Michelle Kesil (12:58)
Yeah, definitely. And what are you seeing as trends in the market right now?

Shannon Robnett (13:04)
You know, I think that there are 21, 22, 23, there was a lot of people in the pool, a lot of people were partying, it was a great time, money was cheap. But I think what we’re seeing now is really the biggest shift in wealth that we’re going to see in the next two decades. Because we’re really seeing that those that understood the game, they’re fine. Those that played the game recklessly, didn’t lock in long term debt have product that is

⁓ in markets that they don’t understand, haven’t fully underwritten their markets, they’re in trouble. And there’s a huge opportunity there. Unfortunately, it’s always at someone’s expense, but there’s a huge opportunity to shift into a product that is coming to market that is below replacement costs, that is ⁓ actually cash flowing today, as well as new developments that need to happen in areas like Boise, Idaho, that did not get overbuilt in the last boom that we had.

Unlike some of the markets, Nashville, Tennessee, Phoenix, Arizona got a little bit overbuilt. It’s going to take a year or two to gobble up that product.

Michelle Kesil (14:03)
Yeah, absolutely. And are you, what aspect of your business are you looking to continue to grow and scale?

Shannon Robnett (14:51)
You know, I’ve done that when I was younger, I grew for growth sake. It was nice to say I had 50 employees and you know, all that kind of stuff. Now I really focus on making sure that we’re executing on the business plan. We’re really delivering what we said we’re going to deliver to the people that we made that promise to. So we are more than happy to grow when the opportunities fit. Our buy box is pretty particular.

But when we’re cranking away and we’re getting to the places we need to be on that kind of stuff, we’re able to get the right kind of deals that create the right kind of returns for the long term for our investors and our partners in that ⁓ capital space. And so that’s really what we’re staying focused on right now.

Michelle Kesil (15:33)
Yeah, amazing. And what do like the capital raising processes look like?

Shannon Robnett (15:39)
You know, typically we start with education. We start with a conversation. We find out what type of investor you are, where you are in the process. We make sure we help you fill the gaps, look for any holes in your tax strategies so that when you’re doing what you’re doing, you’re in the most efficient way possible. You know, Michelle, as you know, if you’ve got to write a check to the IRS and then make an investment, you’re already starting out at a 25 to 35 % disadvantage just because of the capital.

that went to the IRS. But if we can help you along that journey to get that part right before you make the investment, well then you’ve got 25 or 30 % more capital that you’re investing that is growing, that is getting returns, that is doing the kind of things that bonus depreciation and other tax incentives will allow you to do. And then once we’ve identified that, then we look at what is in our portfolio right now that would meet your goals. If that’s a fit, then we look to

move forward with getting you brought in, doing our KYC, all the different things that we have to do with the SEC, all those kinds of things, and making sure that all of that, all of those boxes get checked and then it’s deployment of capital. Then it’s returns and then it’s recycling.

Michelle Kesil (16:47)
And so you mentioned that you’re doing also like development and ground up construction. those specifically multifamily or what do those projects look like?

Shannon Robnett (16:59)
Currently right now we’re finishing an industrial project and we also have a 200 unit multifamily project that we’ll wrap up by the end of the year. so those are self-performed. We are the general contractor on those. I’m bringing my ⁓ 30 plus years of experience to that development team. so those are projects that we’re getting ready to finish up and then we’ll hold both of those long-term.

We’ve also got some other exciting projects that are coming into the pipeline that will be online here toward the end of the year.

Michelle Kesil (17:27)
Yeah, amazing. Is there anything that you’re most looking to continue to grow and develop when it comes to new projects?

Shannon Robnett (17:37)
You know, I really like the solid cash flows. I like the fact that, you know, when you’re building something from the ground up, you are the original value add. You know, a lot of people, they’re buying something that maybe it’s under market, maybe it needs a Renault, maybe it needs all these things, and you’re taking somebody else’s value add. They bought it 20 years ago, they’ve raised the rents, they’ve done their things. They’re now selling it, you’re buying it, you’re adding more to it. But we’re really…

we’re really doing that from the ground up. So we’ve got brand new product. We’ve added the value of assembling all the sticks and stones. We’ve added the tenants. We know that that product is tight. And as we deploy that, we now have a great product that for the next decade is going to produce phenomenal returns with the kind of newness that is kind of missing in a lot of apartment markets. A lot of stuff’s built in the 80s and the 90s and it’s dated. And a class A tenant,

doesn’t necessarily like that product and they’ve got the money to move into other areas.

Michelle Kesil (18:35)
Definitely. And what’s been the biggest way that you’ve created the systems in order to become vertically integrated? Like how has that process looked?

Shannon Robnett (18:45)
Well, mine was actually, I was building first and then I saw a couple development deals. I involved a partner on one, I involved two partners on the other. And as those deals grew, we found ourselves in 2019 with 180 unit apartment complex to build and I needed $19 million. I partnered with a family office and we did that. So my story’s a little bit backwards or maybe it’s the right way, who knows, but.

We started with the construction. That’s what I’ve known and done for 30 years, construction and development. And then we brought in the capital raising part of it. So the capital raising, we’ve only been doing for about six years. Before that, we were just in the construction space. So it’s been an evolution through the construction and development. And then finally, the capital raise, not going out raising capital and then finding out and trying to figure out what we’re going to do with that capital in the market that we have.

Michelle Kesil (19:37)
Yeah, absolutely. That’s an important way to approach it and create that system. Well, before we begin wrapping up here, if someone wants to reach out, connect and learn more about everything you’re up to, where can people find you and connect with you?

Shannon Robnett (19:53)
You know the easiest way to do that is to just go to my website. You can click on the learn button there. I’ve got a free ebook for you called dirt to doors or sorry dirt to dollars that kind of walks you through the process and why development might ground up development in particular might be a great option for your investment especially if you’re looking for appreciation and capital deployment on a long term scale. So go to my website shannonrobnett.com click on the learn button and download the dirt.

to dollars ebook that I’ve created.

Michelle Kesil (20:24)
Amazing. Thank you for offering that to the listeners. And yeah, thank you so much for your time and your story and coming on here.

Shannon Robnett (20:31)
Hey, thank you so much, Michelle, for having me.

Michelle Kesil (20:33)
Of course. And for the listeners tuning in, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Shannon who are building real businesses and we will see you on our next episode.