Talking Shop with Anthony Scandariato
Guest: Anthony Scandariato
Topics: Red Knight Properties, multifamily real estate
Transcript:
Chris Ressa 0:00
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.
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Ressa 1:10
Welcome to retail retold everyone. Today we have a special guest. He is a multifamily investor and owner. His name is Anthony scanned eriacta.
Anthony is the co founder of Red Knight properties. Red Knight properties is a privately held boutique multifamily and mixed use real estate investment and property management company with a track record of building and managing portfolios that deliver dependable cash flow and equity upside. Rene has about 800 units, and $100 million under management. Welcome to the show, Anthony.
Anthony Scandariato 1:48
Thanks for having me on, Chris, really appreciate it.
Ressa 1:50
Anthony, why don’t you tell us a little bit more about who you are and what you do?
Scandariato 1:56
Sure, happy to do that, I’ll kind of take you back to how I started in the business. I’ve been in the business since 2010 to 2016, so about eight years, and ended up working for another real estate sponsor who was buying multi tenant investment grade classic office up and down the East Coast. And, you know, we were in a bunch of different markets anywhere from New Jersey all the way down to Florida. And, you know, got to learn a lot there. I started out as an analyst, I learned underwriting, I raised capital, I learned how to structure debt, I learned property management, I learned construction management, I learned how to lease and learn,
you know how to somewhat structure and organize your business. So I had a great run there, I kind of led into the role of, you know, kind of like a VP of acquisitions during my tenure there helped double the size of their portfolio to about 600 million to a little bit over a billion, it was about four and a half million square feet to 7 million square feet. But then that thing was six and a half year time period I worked there. And you know, had a great run and saw a lot. And at the same time while I was working, I was buying properties on the side. Just whatever money I make from my job, I would throw 80% of it back into real estate and I bought a two family on my own, I bought basically six units on my own between three different transactions. And it was basically fixed and flipped one and then I bought him hold another and same thing with the other one. And I really loved the idea of passive income, although was wasn’t truly passive, I did do work, but now I really don’t do much at all. I still own some of them. And really like the idea of checks coming in pretty much every single month. And you know, I like I’d like the business and at least the asset class. So
ever since then, you know, I ran into
now my business partner Brian Leonard, actually ended up playing for the NFL for eight years, retired in his early 30s When he came out local to New Jersey, which is where I’m based, and I met him through a former coworker of mine who just introduced me to him and he knew former coworker knew I was buying some smaller multifamily and my partner Brian wanted to be active and manage his money and grow and start a business in the multifamily space. So we got together got to get to know each other for a few months and ended up buying a property together. It was a 10 unit mixed use deal. So apartments on the ground floor, I’m sorry, retail on the ground floor apartments above in northern New Jersey, which is where we both reside. And then we ended up buying about 70 units together. It was mixed use and multifamily.
You know, between I think it was like six or seven different assets from 2018 and 2019. During that time period, we were able to sell a couple and also refinance to cash out refi on a few and basically execute on our business plan. So we thought
Okay, great, we can, you know, we’re doing it for ourselves, why don’t we look to do a bigger deal and bring on additional investors. So that’s when we found in kind of late 2019, a 50 unit property in northern New Jersey, which was pretty local to us. And, you know, we ended up syndicating that, so we brought on, you know, mostly individuals, higher net worth, or high income individuals, it was about 20, or 25 of us that partner together to acquire this asset, and we were the managers, we were the operators. And, you know, since we bought that asset, basically, the day after we bought it, I left the my former company, to start and pursue Red Knight really on a full time basis. So since then, you know, we were up to about 800 units, hopefully soon to be 1000. We’re in five, four different states, hopefully soon to be five. And it’s been really interesting. The market and obviously, when I left, we got hit with the pandemic. So that was interesting timing with that too, but really made it through obviously benefited from, you know, the Fed funds rate being zero, basically, which we didn’t realize that was going to happen, but we did. And, yeah, we’ve gone full cycle and probably a dozen deals at the moment, they’ve all been high kind of high net worth individuals or high income individuals just investing let’s say it’s 50,000 or 100,000 at a time.
And, you know, benefiting from basically all the benefits, you get to invest in real estate without Matt, the management component. That’s where we come in. So we do have a property management company that we built up, because that’s how we started. So we, you know, have leasing agents and maintenance techs, and I have a senior property management that works for us, a property manager that works for us that oversees software, workflow, systems, collections, tenant move ins, move outs, and, you know, we have a bookkeeper on staff as well. So kind of built up the management team alongside our investment team. So that’s where we are, and, you know, looking to grow in other states and other markets within the US that, you know, I was exposed to, while I worked by former company, so if you’re comfortable with them, and not just going all over the place for the sake of it. And yeah, just really excited to see where the market goes, obviously, we’re in a little different bout to be in a little bit more bearish times, at least in the stock market. And kind of, you know, we’re preparing ourselves for that and having cash available to take advantage of opportunities. But
that’s, that’s where we’re at, Chris.
Ressa 7:34
Thank you for the overview. So you were in the office business?
Do you miss it?
Scandariato 7:42
Yes, and no, I was very analytical multifamily is analytical to it can be can be, especially if you’re modeling like a fit 500 unit deal. And you have a heavy capex plan.
You know, office, you have to analyze every single company to analyze the credit worthiness of the tenants. We weren’t buying single tenant triple net type of product, it was multi tenant, I have 30 companies in a building. So we have to analyze every single company,
you know, and I kind of miss that it’s kind of cool to see different companies in and out.
But you know, I don’t miss the asset class that kind of, you know, saw writing on the wall, just more people working from home, even before the pandemic hit,
you know, occupancies, never really going above a certain standpoint, in certain markets, we were in always paying T eyes and LCS, all the time, capital calls all the time. So I just to me, and I saw the returns that we were getting on the multi, and I was like, this is like that day for much less work. So
you know, they have different risk factors. And you could, you know, we were very good at office, and they still are. And they did well. And you could do the well with, you know, any asset class you put your mind to it. But the niche is important. So I kind of don’t miss it, compared to what we’re doing now. And I don’t know if you can say but Who were you with before?
Yeah, so the company called Vision properties based out in northern New Jersey.
Ressa 9:11
Okay.
Great team. So
you’re in an interesting space right now, right? Because when you get really it gets more institutional when you get over about 100 units. And so under 100 units and call it that five to 20 $25 million range. It’s still a pretty scrappy environment from a real estate investment environment.
There’s in all aspects, right from the types of investors to the debt that you’re procuring and a whole bunch of different avenues. I’m curious how you found do you plan to stay in that niche or do you plan to get scale up and get out
Scandariato 10:00
Over 100 unit type deals, 500 unit type deals and whatnot.
Yeah, we’ve done over 100 units in one transaction, you know, but they’re still in within that $20 million deal size range, I’m doing a hopefully 280 unit deal, that’s 20 million. So. So it’s kind of still within that size ranges, we’re still not not targeting institutional capital, I’ve done that I’ve worked with institutional capital, family office money from working vision.
And they’re different, they’re similar and different.
We take an institutional approach and apply it to, you know, our syndication model.
So, you know, it’s, we’re finding the opportunities come within the middle market, because, you know, you are dealing like you said, scrappy, you’re dealing with scrappy owners, you’re dealing with, you know, motivated sellers, you’re dealing with situations where, you know, let’s say the father and the mother dies, and they pass on to the kids and kids don’t want it and they put it on the market. So, and obviously, there’s a lot of upside and deals like that, and, you know, mismanaged opportunities, high expense ratios, and poor and poor, you know, poor utility systems. In an older assets, were buying mostly maybe 70s and 80s, product, class C workforce housing that we try to bring up to class c plus b minus in like B areas, within an hour of like a major metro. So we’re secondary ish markets. So, you know, it’s, it’s different. You know, we’re buying assets, they’re well below replacement costs, you know, buying decently decent cap rates going in or buying, you know, income producing going in, but tons of upside, so, kind of get the best of both worlds, in my opinion.
Ressa 11:51
So, yeah, you mentioned, you know, you really got going at the start of the pandemic. I guess, first question, how was read collections during the pandemic, given you own didn’t work force housing environments?
Scandariato 12:02
Yeah, we were pretty fortunate I could count on one hand, how many tenants didn’t pay the whole time, still kind of dealing with the crazy still dealing with the after effects in terms of actually collecting from them? But, you know, every time I look at the collection report, it’s the same, same, same person, same for 20, grand, same person. Now, it’s 25. Now it’s 30. Same, it’s there was like, literally just a few people. And, you know, you go to the property, you see new cars outside? Oh, where’d you get that new car? How did you get that? You know, how come you haven’t paid your rent? So unfortunately, a lot of people did suffer, people really needed help. And, you know, it’s we did, we did? Well, we made through it, we were, you know, able to refinance a couple of deals to give it the, you know, the low interest rate environment, we were in, pull out a little bit of money, that’s more cash in the accounts at all times. collections have been strong, pretty much for the past year, I would say 90%. Plus, they dipped down in the 80s. Definitely, during the pandemic and a couple of assets. But like I said, I can count on one hand, how many has, like really paid? So yeah.
Ressa 13:16
So as the 2020 moved on, then the market frenzy from a real estate perspective started to happen. And you were able to acquire deals in a time where it’s really challenging to buy cap rates were compressing and compressing. How was that?
Scandariato 13:37
Yeah, we just stuck to our guns. I mean, we, you know, coming from the institutional background and being in it and kind of seeing different rates cycles, even though haven’t really I haven’t really seen the bottom, like 2008 myself. Just kind of stuck to our principles. I wasn’t, you know, I didn’t care if rates are 3% I still I still wouldn’t buy a three or four cat three cat I still wouldn’t, I wouldn’t do I just couldn’t get my head around it. So I was still buying six plus, like no matter what, it was always a six cap like or at least close to it like, like, on T 12. Like in place. So because I just it’s a cyclical Mark, I just know that, you know, the rates are gonna go up at some point, it’s not gonna last forever. And cap rates should expand a little bit. I mean, at some point. So, yeah, we bought a lot. We didn’t stop buying and 2020 I knew there was a supply demand issue for the type of product we were buying. So we bought a decent amount in 2020, actually, and then we bought even more in 2021. So, yeah, definitely check competitive. All the deals we work on or off market are either lightly marketed, the relationship with the broker, or whatever it is that we’ve maybe bought from before or I’ve known them from working in my old job or what However, they were able to bring us some decent opportunities in 2021, even 2020. And we were able to take advantage of them. And yeah, we weren’t we, we didn’t get caught up in the bidding war frenzy, we just do it. We never did that. We did some of that, and my prior job, and I didn’t like that. I always like, okay, like, what’s the price, you need to take this off the market, or, Hey, I got this opportunity we’re about to bring to market to want to take a crack at it first conversation for the broker. So I’m used to that. And I like doing business that way, because it cuts through a lot of fluff, and you don’t waste time. So those are the types of opportunities we got and still continue to get moving forward.
Ressa 15:41
Makes sense? I, it becomes more challenging to find the bigger you get those, but those are, those are great opportunities. So now the markets changing, you mentioned, the stock market’s a little getting a little bearish and interest rates are moving, how has been the debt side for you now, given what’s going on?
Scandariato 16:06
Yeah, I’m just gonna price it in. You know, as you price it in, you analyze your risk, don’t do you know, 85% loan to cost, you know, bridge debt right now, at whatever 500 over so for 600 over Sofer, it’s just stupid to me, especially for deals that aren’t cash flowing, and that you have to reposition. And you know, you just don’t want to be in a situation where you go to refi, or take out the bridge debt, or you go to sell, and you end up doing a capital call, because the property is not worth what you think it was worth. So we’re just being aware of where we are at in the cycle. Right now we’re putting a lot of fixed rate debt on our assets, at least the ones that we already own. And yes, we do have some bridge debt. For we’re already like, 80% done with our business plan on those anyway. And the rates are stupid low on them. And our loan to loan, the costs are super low, we’re talking about like the 50s. So, you know, we’re just aware of the type of leverage, you know, we’re we’re putting on our assets and the type of terms and, you know, we just don’t want to get caught up in, you know, the rising rate environment on on the tail end when we go to a capital event. And
Ressa 17:27
and so, given that at the, you know, 50, LTC in the 50s, the value add component must be significant. What’s the the capex required to add the value? And then what type of rental increases? Are you seeing? Because of that? Um, I know it’s different every business plan. It’s so broad question, I get it.
Scandariato 17:56
Yeah, I never relied on bank growth. I’ve always just kind of looked at market comps, even compare them prior to where they were during the pandemic. So, you know, so I mean, to be honest with you, I mean, we’ve raised rents 100% on a couple of deals, but I would never underwrite that, I’m usually looking at like maybe 20 to 30% growth in noi over a three year period, let’s just say that will underwrite and put their backed up, like, like we’re buying three bet, you know, property 50 unit that has three bedrooms going for $550, in a market where that’s like, 1500, in the state of flow, and like Central Florida, and there’s like a great story behind it very mismanaged or whatever. So, I’m not buying like sexy product, I’m buying working class product. And that hasn’t been, you know, did in some families generations for a while. So I’m looking at just I’m looking at a loss to lease. I’m not really looking at Greg gross rent growth. You know, I think rent growth will slow down, we have benefited from record. But it’s definitely going to slow down and party is not going to stop and start you know, keep going and perpetuity 20% this year 20% Next year, because that’s so we’ve got that in some markets, especially in like, Phoenix, for example. That’s like, what I think that’s like number one, and then Miami, you know, we saw that so it’s, you know, we just like to see where we’re at in the first place where we can get it to and then we’ll you know, we’ll go from there on in terms of a capital event, and what we’re looking to deal with the essence so
Ressa 19:33
so two things one, you mentioned a term that the listeners might not know loss to lease would define that for everyone.
Scandariato 19:40
Yeah, just like market rent relative to where where’s the market rent for the same exact finishes in your unit like literally the same product, the same vintage without doing any upgrades. So that’s a significant amount already. And you’re gonna make upgrades. I mean, you should be fine and That’s how I always like to look at those things.
Ressa 20:02
And then are most of the properties just under leased and under Managed? Or do they need? Yes, capital upgrades
Scandariato 20:12
both you know, we’re says average we’ve been under budget on some deals. Never been over budget been on budget. You know, let’s say we’re putting in five to $8,000 a unit and we’re but we’re not doing all the units for them. Like, most of the time. If we held them, I’m sure we will eventually over time. But that’s usually the capital budget. We’re seeing. We’re not doing anything crazy. We’re exterior renovations, maybe new monument signage, we’ll put, you know, new outdoor furniture, you know, grilling station, a little bit of outdoor amenities, new landscaping, maybe paint the buildings. You know, baby new new walkways, who paved the walkways, if they’re concrete or you know, we’ll get rid of them. We’ll put pavers in and you know, we’ll do kit you know, kitchens, so countertops, maybe paint the cabinets if we can reuse them backsplashes, flooring, if it’s carpet, we’ll do laminate. You know, bathrooms, if we need to touch them. So they’re not like crazy, crazy renovations that are kind of standard, you know, standard value add,
Ressa 21:19
and how are you determining? Like, what bring me into the organization? Is it you? And Brian, is it a couple people deciding, like, how much we’re gonna put into these deals to add the value on the per unit level?
Scandariato 21:35
Yeah, I mean, it’s really the two of us that are going to make that decision at the end of the day. You know, and just based upon our experience in the markets and in the business and what we’ve seen cost wise on other deals. So we’re able to kind of project that out pretty detailed unit by unit, almost we see, when we go under contract, do due diligence, we see every single unit, like literally we just looked at one was 280 units, we got into 275 of them on one inspection. So we’ll go we have a we call it happy inspector. So we do take pictures, and then we upload it right into our system. And that goes into our property management software. So we’re pretty detailed, and we’d have a good idea for what we look into doing it each each year.
Ressa 22:20
So a lot of what we’ve talked about so far has been lollipops and rainbows. Give me the one like, really, you were sweating or horror story. Give me a little bit of something that’s gone awry.
Scandariato 22:37
Yeah. You know, I think challenges we have had, and we still continue to have it, but we mitigated some of that risk is like, just since we self manage, getting good staff, getting good maintenance technicians getting good leasing agents. I can’t tell you how many maintenance technicians we’ve hired and fired. I mean, you know, you don’t need 10 hands for that. So, you know, really screening doing background checks on those, even though sometimes they’re referred to by tenants. That’s like the worst. We made that mistake before. You know, it was really on the management side, you know, tenants, you know, types of 10 Haven’t had really crazy tenant horror stories. Although one of them drew me and Brian with like a noose, hanging his hangers from the new nothing happened. But yeah, needless to say, she got evicted. But nothing too crazy. I think when we were when we first started out, and we were really like, like, even a 50 year deal. We were hands on, like Brian and I were going up every day, for the first month or so until we found like a maintenance tech or whatever. And we were banging on the tenants doors, trying to negotiate buyouts like crazy, like crazy stuff. So now at least we got that experience, and then we can, you know, teach somebody else how to do it. So, yeah, had some crazy stories, for sure. But well,
Ressa 24:06
you know, you brought up a good point, you mentioned passive income not so passive, because at the end of the day you’re running a business now, from just like buying and selling real estate, now you’re running a business, which it has its own complications, right, you’re in, you’re just as much in the people business today as you are in the real estate business. In the, you know, in, as you mentioned, the labor markets challenging. How was that adjustment been for you?
Scandariato 24:37
Yeah, we were fortunate to find good, good help, good boots on the ground. You know, we, you know, we like to say we paid pretty well, and we’d like to retain our employees, you know, give them praise and bonuses when they do things right. So we’re able to retain a decent amount of staff and you just got to keep a good rapport with them. Because if you don’t you know, they’ll be looking for another job kind of keep up with the market. But yeah, it’s been a little bit. It’s been a little bit challenging. It depends on the location, too. Sometimes we posted a location, we’ll get 10 applicants, and then another location, we’ll get 100. So it really depends. You know, but we’ve been pretty fortunate, we’ve been pretty lucky, it’s good to have scale to in, you know, we have about once a 270 units in one area of Florida. So it’s, it’s good to have that scale, because then you could afford a good manage, you know, good manager, good tech or whatever, maybe two, and then you can you can pay your pay them that, just because you had the scale, you can spread it across the properties, even if it costs you a little bit more than you thought it’s worth. So those are just some of those things.
Ressa 25:50
Yeah. And from the back of house investment side, do you have analysts and the like yet? No,
Scandariato 26:00
no. So we don’t really, we don’t really bid on a lot of deals, we kind of it’s like, like I said, before I off market, like they’ll bring it to us, whatever. If we kind of know what we’re looking for. We could do a model like a rough model and 10 minutes on a deal because we have templates built out. And then we’ll really dig into the weeds if an offer gets like accepted or like we start negotiating or whatever. So no, no analyst right now, it’d be nice to have few interns that are in and out. That helped with some of that stuff. But now we have someone to help with due diligence when we’re under contract. We have like a contractor for that contract with somebody. Because that’s a lot of work, too. And, you know, I’ve tried to be involved as much as we can. A little bit too involved still would be nice, but depends on like we were talking earlier, it depends on how big you want your organization and data and where you want the business to go.
Ressa 26:58
On the deals that you are. You’re buying, you mentioned, you’re outsourcing the due diligence you guys are doing.
Scandariato 27:08
We have someone who we’ve we found on Upwork, who has a lot of real estate experience. And so we we do the due diligence, kind of with her, we just need help. Yeah, it’s a lot processing. So So I meant to say sorry, you know, clarify?
Ressa 27:23
Yeah, it’s a lot of stuff to process when you’re doing all that due diligence
Scandariato 27:28
pieces. Yeah.
Ressa 27:31
And you found her on Upwork. That’s amazing.
Scandariato 27:34
Yes, yes. Not cheap. But you know, it’s not a full time employee. So, you know, when we have a deal, it just comes out of the closing costs, and it’s not a crazy amount of money. So
Ressa 27:48
that’s and is that the model for most of the third parties? Like, like legal, the legal? I’m sure you don’t have I don’t have
Scandariato 28:03
a staff. I don’t have legal staff now. So yes, that’s the third party legal. Pretty much everything. Property Management in house, like the construction, like we have maintenance techs that will do renovations to not all of them, most of them do. So when they don’t we’ll hire you know, general contractors to help us with that stuff. But yeah, legal. Accounting, we have bookkeeper in house tax returns, I outsource
Ressa 28:31
and manage the investors in house.
Scandariato 28:34
Yep. No, yes. So Brian, I
Ressa 28:36
do that you’re the IR department?
Scandariato 28:39
Well, yes. I’m sure when we’re on the call, I had a couple of vessels call me but our vessels are pretty good. They don’t they don’t bother that much we send out and the each month, kind of like the high level deal updates. Okay, where are we at with rounds? Where we are with the business capex? Where are we at with our business, you know, percentage of rents to market where we at? So we communicate every single day, like literally on a monthly basis via email, so I don’t get 50 calls during the day. So yeah, so that’s us, we have investor relations software. So we have, you know, basically a portal, all right on our website. And, you know, they can sign a subscription box fund the deal. will send out the distributions on there, they can track their returns. And that’s me. Yeah, so we have that all built out. That’s great, man.
Ressa 29:27
So we’re five years give me bread night. What do you guys? Where are you guys?
Scandariato 29:33
Yeah, it’d be interesting to see. I do like catering to the individuals but as we were talking earlier, depends upon how big the deals can get. So I don’t know I’m not really like a unit count guy. Like it’s to me, it’s not impressive to own 1000 units, which is where we’re at right now in terms of, you know, I’ve heard I have there’s other companies that own 1000 units, but they’re like maybe like one of 10 GPS on the deal. We’re usually the only general partner on all of our deals. So it’s kind of like an arbitrary number. It’s hard to say I mean, I like to do like one good deal a quarter if I can, every single year. That’s kind of where I like to be. So in five years, maybe we’ll be up 5000 units, who knows? And, you know, I’ll be in my mid 30s at that point. So who knows, you know, what’s going to happen? But, you know, I like to lease whatever we bought last year, we try to, you know, double that if we can, or, you know, stick the course with the few good deals a year. And don’t get too crazy.
Ressa 30:38
Excellent man. Anything about Red Knight or the market that you haven’t talked about that you’d love the audience to know about?
Scandariato 30:46
No, I mean, if you’re looking to connect with me or whatever, we have a website. We have a podcast as well and hope to have Chris on there soon. It’s called discovering multifamily. So check us out on pretty much every platform, iTunes, Stitcher, whatever. And on our website, Red Knight properties.com. We have a special report you could download. It’s called it’s like how to leave your nine to five through investing in real estate, which is what I did. So a little special report I put together, you know, put in your name and your email. I’ll be happy to send it to you. And then once I send it to you, you’ll get all my contact info, but you could find me on Facebook, Instagram, Twitter, LinkedIn, just Anthony skin dheireadh or read my properties.
Ressa 31:29
Excellent, man. Well, Anthony, this has been fantastic. Thank you so much. We really appreciate the opportunity to speak man. Thanks, Chris. Thank you for listening to retail retold. If you want to share a story about a retail real estate deal that you were a part of on our show. Please reach out to us at retail retold at DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode