The Syndicator Secret: Who Really Profits From Real Estate Flips?

Todd Nepola (00:00)
No, it’s actually not what it does because that’s a limiting belief that we put on ourselves because there’s a lot of investors. You’re a very young guy. So if I said to you and let’s say you had a job as a dentist or an accountant, why do you want to make on your say $100,000 you put in, why do you need to get back $120,000, $130,000 right now and then pay tax on this event? Wouldn’t you prefer holding the property, refine, maybe I can get you back $60,000 of your 100 in a few years, then the other $40,000 sooner or later?

Dylan Silver (02:01)
Hey folks, welcome back to the show. Today’s guest, Todd Nepola is the founder and president of Current Capital Group, a South Florida based commercial real estate investment and property management company focused primarily on Class B and C retail centers. With nearly 30 years in the business, he’s a long-term buy and hold investor, author, and educator who teaches real estate through practical experience, persistence, and disciplined ownership. Todd, thanks for joining us today.

Todd Nepola (02:28)
Thank you so much for having me Dylan. It’s an absolute pleasure.

Dylan Silver (02:32)
Now you bought your first commercial property in 1998 if I’m not mistaken and still own it today. What did that first deal teach you that still applies today?

Todd Nepola (02:44)
Well, certainly taught me, for me, real estate is the greatest investment out there. It taught me that owning and operating real estate yourself is a lot easier than most people think it is. And today, almost 30 years later, I bought that in 1998, so we’re hitting close to the 30 year anniversary. Thank God I bought it every day.

Dylan Silver (03:02)
Now, when we talk about the commercial space, there’s so many segments for people to jump into. And I think there’s been a lot of syndicators specifically in multifamily. What’s your thought process on the current state of multifamily? And is it still something that people should be looking at syndicating and newer developers should be getting into?

Todd Nepola (03:25)
So for me, any kind of real estate you want to get involved with is a great real estate, but you got to pick and choose which one you like. If you don’t enjoy that asset class, I say stay away. Multi-family has generally been the favorite real estate class to get into because it’s very easy and because a lot of landlords believe the leases are generally speaking only one year. So you could buy it when the tenant moves out, know, upgrade the kitchen, the walls, the plumbing, the bathroom, so on and so forth. And you could bump the rent. Let’s say it’s only $200 a month. But if you do that in scale,

it becomes a big number. And then you could have a disposition and sell the property off and score. I don’t invest in real estate like that. That to me is speculation. I’m not a speculator. I buy them and I hold them and I keep them forever. So if the question really is, do I think it’s a great time to buy and be a syndicator, you know, try and flip the properties? Probably not. But if you told me you wanted to buy some multifamily now and your duration was forever or at least 10 or 15 years, I’d say get into any asset class.

Dylan Silver (04:22)
Now, this long-term buy and hold process, of course, makes sense to, think, everybody. But oftentimes, we see people trying to have shorter-term wins, which you mentioned. Do you think that we may start to see more longer-term buy and hold investors? Or is the tailwinds always going to be behind, you know, what can make me the most money quickly, for lack of a better word?

Todd Nepola (05:35)
You’re gonna see both because you’ve always seen both. You could go back 200 years ago and that’s how people traded real estate. Some kept it forever and some sold it. So everybody knows someone in their community who seems to own all the real estate. And you we certainly have it in Miami with guys that own shopping centers and they own it and they kept it. And if you ask him what made them so wealthy because a couple of the guys like we have a gentleman right by my house for non-cats, RK, I think he owns like 15 million square feet. And they asked him how he got there. He said, gotta live a long time and have patience.

However, there’s the flip side. You meet a lot of people and say, well, I brought in partners. The deal was to come in, make some money, and come out. I always say when you’re doing that, it’s kind of like house flipping. You are taking the risk. You are buying real estate. But you’re not so concerned about the real estate. You’re more concerned about the term. And that’s a totally different mindset than long-term buy and hold. Buying and holding real estate and having patience takes discipline. Believe me, you have a property and you buy it for $3 million and it’s worth four. A lot of people want to cash out and run away with that money and pay their bills.

but if you leave it, keeps maturing and does its trick and the real estate will compound over and over. So for me, the trick is to hold it forever, but I understand both sides of the coin. I think you’ll always see both sides.

Dylan Silver (06:47)
When people are holding it for longer durations of time, my thought process as an outsider looking in is it makes it maybe more challenging to find equity partners and folks who are going to put money into your deal because they’re going to say, we want out in three years or five years or seven years because we’re seeing these other deals that are offering us those opportunities. Does it make it considerably more challenging to raise capital if you have this type of strategy?

Todd Nepola (07:13)
No, it’s actually not what it does because that’s a limiting belief that we put on ourselves because there’s a lot of investors. You’re a very young guy. So if I said to you and let’s say you had a job as a dentist or an accountant, why do you want to make on your say $100,000 you put in, why do you need to get back $120,000, $130,000 right now and then pay tax on this event? Wouldn’t you prefer holding the property, refine, maybe I can get you back $60,000 of your 100 in a few years, then the other $40,000 sooner or later?

And wouldn’t you prefer keeping this and clipping a coupon for many, many years? So there’s two kinds of investors. One do want to flip and make money and be out soon. And there’s some that are thinking about the loan duration. So just like there’s someone who wants to buy every kind of stock out there, there’s different kinds of investors that want different things. And you’d be surprised how many people really don’t want to flip. The truth is, and the syndicators won’t like this, the ones who profit from the flip is the syndicator. That’s when they get their promote, that’s when they get their fees, that’s when they get their commissions.

the investor gets the shorter end of the stick even though they score they get a shorter end of the stick.

Dylan Silver (08:16)
Now you’re active in Class B and Class C retail centers. ⁓ When you’re looking at these deals, what are some of the ways where value add plays out? If we look at, let’s say, Class C for example, what are the types of value add opportunities you see in Class C retail centers?

Todd Nepola (08:34)
So class B and class C, and I could even take you into bad neighborhoods, D, which I stay away from. It’s a little bit too much heavy lifting for me at this stage. But when you’re getting into the centers that have been great centers, maybe from like 1980, but they’ve never had a facelift, they’ve never really been re-tenanted. So it started as best in class. And if you look at the bones in the building, you’d say, when that was built in 1984, it was spectacular. It’s like the brand new one today. But.

No different than anything else, it had its time, it came and went and the newer better stuff came and that’s where Bank of America and Chipotle went to the new guy. We like to go in and buy those centers and give them face lifts and try and retend them. We’re never gonna be able to compete with the brand new best in class, but I could certainly move a C to a B and a B to a B plus. So that is always the goal, it’s some heavy lifting. I’m also a big fan of buying properties that have leases in place that have a lot of term left on them that may be very low rates compared to today’s market.

because it’s kind of like a bond. A lot of people are so caught up with the cap rate that they won’t buy it because the rate today is no good. But they’re not looking at it that say, like for example, we bought one and we have a tenant, a major tenant, Ross, and they’re paying $4.65 a foot in a $20 market. So granted they have 20 more years of term, every day get closer to that 20 years, I know I have a massive profit coming. Now that’s throughout the whole center obviously is more tenants. But on the flip side, I also know that

If things get bad, they’re paying the rent because I’m never going to reduce their rent. So it’s as good as a bond. If they leave, that’s good news. mean, if they stay, it’s good news.

Dylan Silver (10:37)
Do you prefer to purchase these properties with tenants in place or with some vacancies?

Todd Nepola (10:45)
doesn’t really matter.

Dylan Silver (10:47)
Now you mentioned Ross as well. I’m actually thinking about this visualizing where I’ve seen Ross and I’m in Texas, so Ross is all over Texas. I do see them quite a bit in class B and what I would consider class C retail centers. Is that generally where those types of businesses are renting?

Todd Nepola (11:04)
Yeah, so these guys are very smart operators. They’re not trying to compete with Gucci and Hermes. They know who their market is. So they can’t pay $40 or $50 or $60 a foot rent. So, you know, I’ve never been to a UR in Austin, but I mean, you go into Dallas, like they can’t go into the super expensive neighborhoods and sell at that price. So they have to go into a bit more of a tertiary market. No different than Family Dollar, Dollar General. These guys know their audience will come to them.

Sometimes they do get into very nice centers because it’s a power center and the landlords want them because they’re a draw. But for the most part, they’re looking for the old grocery store that was the best grocery store for us, it’s Public’s Day, who moved out and now they got this 60,000 square foot place they could chop it in half and they could take 30,000 square foot in a 20 year old center. Which is smart for their business plan, which is why they do so well.

Dylan Silver (11:54)
Now, as we’re talking here, I’m thinking about the ebbs and flows of real estate markets and people have said, well, over the last couple of years, are we in a real estate recession or what’s happening? In the BNC segment, are these businesses that are maybe more resilient because they may be like Ross, more cost effective and even if people have a pinch in their pockets, they’re still gonna be shopping at Ross.

Todd Nepola (12:19)
You know you hope so. You can’t avoid recessions. I’ve been in this game now since I’ve been in business much longer, but I’ve been in this game since 1998. And I can tell you, you could never bet everything on the tenant because things change. Cycles change, markets change. So you got to bet it on the property and the future upside of the property. My biggest concern isn’t who my tenants are or what their lease rates are. It’s what’s going to happen to the area. Now, as I said, I don’t sell. So since my timeline is forever.

not trying to time the market saying, what’s going to happen? mean, like right now, you know, we’re at a war, interest rates are going up. They may go even higher. We don’t really know. So since I’m not selling, none of that is relevant. When it comes to the tenancy, I can’t predict, there’s no way anybody could predict what could change. Like no one predicts and everybody gets shut down. I can’t predict what the things will change. So I got to focus on what the structure is and what the building is and what the neighborhood is and if I believe in that. Because so long as that’s good, I’m always going be able to find a replacement tenant.

Dylan Silver (13:17)
I’ve got a granular question here for you. I’ve asked this to a number of commercial investors across several different asset classes. What’s your thoughts on ⁓ variable rate debt when purchasing these types of properties? Is it good, is it bad? Could it get people into trouble or is it a great leverage tool?

Todd Nepola (13:35)
So any deal I do, I always get it fixed for five, seven, or 10 years, and then it balloons or reprices one of the two. I’m not a big fan of too much movement and adjustable debt. That goes more into the multifamily guys like that because they’re trying to get in and out. I have a portfolio of properties, so I’m not basing my deals off of the debt price every single year. Now, let’s be fair, if debt goes down, I will refi if it makes economic sense, but I like more certainty. if right now rates are at 6%, I’ll lock in at six, and if they wind up at five,

It’s not worth it to refire for less than a point, but if they wind up at eight, I’m a winner. So I like to be more certain, but I’m not a seller. If I knew my goal was to get in and get out in 24 months, you could play that game, but like everything else in life, you gotta judge the risk and is the risk worth it because rates went very quickly in 2023 from 4 % to 6 % in one year. So you gotta be able to judge that and be capitalized because it doesn’t always go your way.

Dylan Silver (14:30)
I’ve spoken with a number of different commercial investors who have different strategies for handling rent increases. And what’s your feedback for folks who are looking at this and saying, my primary source of value at is going to be increasing the rents and the commercial tenants that I currently

Todd Nepola (14:50)
Well, they’re missing the other side of it, which is reducing expenses. So a tenant could pay a fixed amount. And to a tenant, I know a lot of people in real estate say, well, what could I get in base rent? The tenant doesn’t care about the base. They want to the full rent, the full package, which is the operating expenses and the base rent combined. So if I could bring my expenses down, if there’s a tenant that says I could pay you $3,000 a month, if I could bring my expenses down, they don’t mind to pay it in rent. They just know I’m only paying $3,000 a month.

So you gotta look into your expenses and you gotta be on top of it. You gotta keep renegotiating with vendors. You gotta make sure you operate the property well. As to just raising rents, that’s double edged sword. I don’t like to ever have my tenants be the highest in the market. I actually prefer if the market is $25 a foot, I would rather be a 20 to 22. I want all my tenants to think they’re taking advantage, I mean they have a great deal. Because I will let you know we have thousands of tenants and I am sure all of them look to see what the rates are on the surrounding properties. And they’ll move.

I’m in this office building where I am today and I rent. If you offer me a better deal down the street, I will move. So you want to make sure your tenants think that they’re winning so they pay the rent because the vacancy really hits the bottom line hard.

Dylan Silver (16:37)
For folks who are owners of retail centers, are there any consistent ⁓ areas that you see neglected that might be hurting ⁓ their ability to attract good tenants or their ability to have staying power in this space in general?

Todd Nepola (16:54)
One of the things that happens to lot of mom and pop owners, it’s not gonna happen to the big nationals because they’re on top of other companies like us that really own and operate our real estate. But it’s no different than I tell people when someone goes out and buys a house. They move into a neighborhood, let’s say all the houses were originally built in 1980 for argument’s sake. And every time someone new moves into one of the houses, they go out, they wanna change the pool, change the kitchen, put in new appliances, paint the house, do some landscaping, and then they do nothing and the house does this. And then the new guy moves in across the street, he does everything.

But little by little, you did it, it’s fine, you get a little bit lazy and not as excited about it. So a lot of commercial property owners have tenants in place, so you see the properties really get dated. And anyone could go there, my 21 year old daughter could walk up to these properties and point out 10 things in a minute that are cheap. Restriping parking lots, painting the building, changing some of the landscaping. Very minimal money, but because the property’s right there, I find that a lot of owners, not just the retail centers of all properties, kind of let it slide downhill.

And then it gets away from you because you start to lose the good tennis.

Dylan Silver (17:57)
We are coming up on time here, Todd. Any new projects that you’re working on and then as well anything you’d like to mention directly to our audience.

Todd Nepola (18:05)
Well first, thank you for having me on this. It’s always fun to do these podcasts. I’m always working on stuff. say our company, Current Capital, we’re not deal junkies. If I could get one deal done a year, it’s always a very good year. We’re not a fund, so we don’t sit on capital and be forced to deploy it. So we look for deals, we’re very patient. We keep the lines out there. We’re always talking to brokers and realtors and owners, whatever we can do to try and find properties, but it’s not an easy game. So people have to understand that.

trying to get a steal on a property. I’m trying to get a good deal, and that’s what they need to look for. And since you gave me the courtesy of being able to promote something, I like to say that I love to teach real estate, and as you know, I’m on Instagram and TikTok and all those sites teaching real estate, but I don’t have a course. My whole thing was, this is what I like to do, is I could give back because I really enjoy it. So you’re never gonna have to me charge a fee for a meeting or do mentoring. I don’t do any of that stuff. Everything I do is free. But I also wrote a book, which I wanna share with you, Keeping It Real on Commercial Real Estate.

And because once again, I wanted to prove to everybody that this is just my way of giving back. give all the proceeds of this book to charity, but this book is great for any investor because it tells them all different kinds of real estate they can invest in from passive to being hands-on to investing in the stock market as a read or as publicly traded, so on and so forth. So this book is a good start point. I talk about all the different asset classes. And again, like I said, you can follow me on social media and get some tips and make sure you tell your friends.

Dylan Silver (19:29)
God, thank you so much for your

time today. Thanks for joining us.