Zero Cash Flow Deals (RTS #19)

Guest: Karly Iacono
Topics: Zero cash flow deals, investment sales

Transcript:

Chris Ressa 0:01
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.

Welcome to retail retold everyone. Today we have Carly Iacono first vice president of investments at Marcus and Millichap. Carly resides in northern New Jersey and is a specialist in the investment sales market. Welcome to the show, Carly.

Karly Iacono 0:38
Thanks so much, Chris. Really great to connect glad we have this time to run through some interesting things we’re seeing in the market. Carly,

Ressa 0:48
why don’t you tell us everybody who you are and what you’re up to?

Iacono 0:52
Absolutely. So I lead a net lease sales team, we sell properties in all 50 states across the country, we deal with a lot of new investors who are coming into real estate from the stock market, or just starting out in the investment world, all the way up to developers and REITs will often list properties for more professional clients and then educate new buyers entering the market who are looking for passive income. We deal with all the main net we food group, Home Depot, drugstores, fast food, etc. And we really specialize in matching the type of investment to the individual investor specific means that we spent a lot of time educating our clients, advising them, and then really making sure that we’re building relationships for the long term by being very specific to what the client’s goals are.

Ressa 1:49
Very, very interesting. So you mentioned that, you know, people moving from the stock market, are you seeing a lot of people move from the stock market into triple net lease properties?

Iacono 2:05
We are and I don’t think it’s so much that they’re selling their positions and in panic mode, although there’s some of that it’s more when people have equity on the side, they’re looking for stability and diversification more than they ever have been. So we’re getting calls from people in all different industries, doctors, engineers, people who typically are not in real estate, who are saying it’s a crazy world right now. Exceptionally unpredictable for every number of reasons that we all know, how do I set up my investment future for my kids? How do we think about estate planning? How do we create a passive income stream for me and my family, when really nothing seems to be stable right now. So of course, there’s still risks in real estate. But that least by nature of the credit tenants, long term leases can offer a lot of attractive points, let’s say to an investor who is new to this space and looking to put their money somewhere other than the stock market. So we are getting those calls. And I really think it’s a flight to quality that’s going overall in the economy where people are just becoming more and more risk adverse, and they’re looking for something that more long term with less management that they feel would be a stable play.

Ressa 3:25
Do you work more with buyers or more with sellers typically,

Iacono 3:28
really both honestly, but we’re finding the buyer demand to be increased right now. And that’s clients coming out of other property types. And moving into that lease because of that flight to quality. So historically, most of the business on the team has been through developers building new product through REITs, kind of trimming their portfolio, but there’s not as much development at the moment in our space, because there’s not as many tenants expanding. So we don’t have as much new product to sell. So some of that is being absorbed by and some of the activity on the team is being absorbed by bringing on more new buyers and educating them who are coming from other spaces. So the business has shifted a bit just based on the fact that there’s less development going on in general. Understood,

Ressa 4:24
I think hopefully that will be a positive for the market that there’s less supply on the market. We will see you mentioned the diversity in the flight to quality. You know, given everything going on with retail, it might seem counterintuitive that the demand for retail properties is increasing. How do you respond to that to someone and I’m sure buyers raise their eyebrows sometimes on buying a brick and mortar retail property who don’t know enough about the industry.

Iacono 4:57
So demand is not increasing across the bow Word, it’s a tremendous bifurcation between essential credit tenants. And the other side of the spectrum, which would be your shorter lease terms, your very small franchisees, etc. Those are extremely hard to move right now. And most people are weary because of everything that’s going on. So what is the increased demand and actually, in some cases, compressed cap rates are your convenient credit tenants like 711, your drugstores, Walgreens and CVS specifically, while was doing great, of course, Home Depot, there’s no inventory. But Lowe’s and Home Depot, Target any of your grocers, all those tenants that you would know are doing really well, given the COVID circumstances. So anything that has performed well during COVID, and has a business model that seems to be kind of well positioned for the next few years, those are trading like wildfire. Fast food is another one. And that’s a bit of an exception, because we don’t have a lot of credit. But you do have a business model or a concept that has performed for the most part, phenomenally well during COVID. Some Popeyes locations are up 40% year over year just by using the drive thru. I mean outstanding.

Ressa 6:26
Our buyers asking the question, especially the the buyers that you’re educating, did the tenant pay rent through the pandemic? Of course, first question. First question. And if the answer is no, how do they respond?

Iacono 6:44
It depends on why they didn’t pay rent, you know, if it was a, let’s say, a local restaurant, which we really don’t do a lot, but in some of the smaller shopping centers, you’ll have tenants that, you know, smaller operators, and they haven’t paid rent, and maybe they’re still not paying rent, well, then that buyer is going to be very difficult to get comfortable with that type of deal. If they’re a less professional client, meaning they’re not as familiar with real estate investing in general. If it was, let’s say it was an LA Fitness, then for two months, they didn’t pay rent, because gyms were close to that state, but then they reopen their backup capacity and their tenants paying full rent, well, then you can point to that and say, Okay, that was 100% due to COVID. They’re back on track. And of course, it’s not the case here in New Jersey, but in other parts of the country it is. So we’re okay with that this is explainable. So I think it really depends on do we think that that shutdown and that deferment of rent is temporary? Or is it going to be ongoing? And how do you judge that in a risk perspective?

Ressa 7:46
So if it was, notwithstanding the the names you mentioned, there are some essential tenants that chose to not pay rent, and maybe they paid if they got defaulted and cured? Or maybe they made a deal with the landlord? That our national credit worthy tenants, does that? Does that spook a buyer that knowing that someone of that credit worthiness if something happened, might not pay in my you know, because that buyer, you know, if they don’t have the relationships, which they you know, they typically don’t want to have and or a platform to deal with that. That could be a pretty challenging environment to get through? No,

Iacono 8:32
absolutely. No, that’s a great point. And I you know, the one that really scared people the most in from my perspective was Starbucks when they did their blanket letter to landlords across the country saying, Oh, we’re not going to pay rent. And they were one of our highest credit rated national tenants that were very often single tenant. So that gave everyone a bit of pause. And then they rolled out but they were closing a good number of locations and changing their prototype etc. So sort of a reinvention to quicker pickup model. But I think it’s it’s asset by asset specific. So the Starbucks that were the most concern in that specific example are the ones that didn’t have drive throughs. And I think that is kind of obvious, right? If you have a food or beverage establishment, unless it’s a sit down, you know, nicer restaurant, you need a drive thru. That’s kind of the way the world is going with convenience and pickups. So if it’s not that kind, you don’t know, you don’t know how viable it’s going to be for the long term. And that becomes the concern

Ressa 9:38
is speaking to Starbucks, a lot of those are double net deals or any of the triple net lease buyers that come like from the stock market. Do they ever get into double net deals?

Iacono 9:51
Again, it depends on their profile and how handy they are not that they’re doing the work but I find that people who have this sort of understanding of buildings? I’ve had a few clients will say, yeah, it’s a roof. If I need to replace the roof, I’ll hire someone to replace the roof. It’s, you know, let’s get an estimate. Let’s figure it out. And I have other people that go, Oh, my goodness, I wouldn’t even know where to start. Absolutely not. But usually, it’s a radius question. So if we find a deal, that checks all the other boxes, and it’s within a two hour radius of the client, they will often look at double that, because then they feel that they could manage any sort of improvements or responsibilities that needed to be done. But if it’s out of state, or across the country, which so many of our buyers buy, you know, anywhere, because of all of the other factors on the deal than they really want absolute triple net or ground laces. Understood makes sense?

Ressa 10:49
Well, something interesting, you are one of the few that are working on zero cash flow deals. So can you can you walk us through what is a zero cash flow deal? And what’s going on in the zero cash flow? Deal? Market?

Iacono 11:08
Absolutely. So it’s definitely a niche part of the net lease market. But right now, with leverage being lower in banks being more conservative, finding a deal with high leverage is becoming more and more important. So let me back up and tell you what is zero cash flow deal is the deal where the income from the tenant perfectly matches the debt service. So there is no cash flow net to the investor. So most people start out by saying, Why in the world would I ever knowingly buy something that I am going to get no income from, for often 20 years plus, right by design. And there’s a lot of reasons that these makes sense. One is for exchange buyers who want to pull out equity from a transaction tax free. So or tax deferred, there’s something called a pay down re advance where you can temporarily pay down the debt, re advance it at closing and get money out through the 1031 exchange process without having to go for a new refi loan. So at very high leverage levels. The other reason they’re important is if you are coming out of a property that was highly leveraged, it’s very difficult to get more than 60 or 65% loan to value in today’s debt market. So if you’re selling at 70, or 75%, it’s hard to replace that debt. So finding a zero cashflow deal with assumable debt in place can be a great way to complete your 1031 Exchange, satisfy your debt and pull out additional equity, if that is your focus on it.

Ressa 12:46
And just to make sure I characterize this correctly. Last year, a few years ago, there was probably a lot less leverage used in the triple net lease market, because because of the cap rates, the deals could have been in negative leverage scenarios. So actually, it’s going to a zero cash flow is actually a positive because of rates have moved so much in favor of the buyer or the borrower, that zero cash flow deal could be beneficial because it buying that same deal three years ago could have put them in at the same leverage rate could have put them in negative leverage. Is that correct?

Iacono 13:28
Yeah, it’s an interesting way to look at it. It definitely is impacted by the spread between interest rates and cap rates. But these deals are typically structured before they trade. So we have one that just closed today, actually about 15 years ago. Thank you. Thank you. Very exciting, get it done. It’s a Walgreens in Orlando, Florida. And this deal is priced as a percentage equity over the debt. So it’s not priced on a cap rate basis, which is very different than all other net lease. It’s actually how much equity you need. Now, it’s not equity in the deal. It’s equity over the debt balance. So current market pricing on a leasehold is 15 and a half percent, which is where we closed ours, at least today. So what that means is you’re assuming the debt balance, and then adding 15% 15 and a half percent equity, in addition to that, to buy the deal to secure the deal. So it’s extremely like high leverage when you look at it on an overall deal basis. It’s somewhere around 13% equity in a deal. So there’s no way you could get that kind of financing today. 13% down.

Ressa 14:40
Yeah, that’s that’s really interesting. And most of those deals are those zero cash flow deals. Most of those are assuming existing debt or all our savings, existing debt.

Iacono 14:52
All of them are and it has it really only works if you have a credit tenant under a very long term lease So drugstores, Walgreens and CVS I think have been the most prominent in this space, just because they are new builds right 20 to 25 year leases, plus options, so very long term. Plus they have good credit. I close to home depot zero last year, again, very good credit, long term lease. And we also closed a single tenant office building with an investment grade operator guarantor in the site that was also zero cash flow. So it can be a few different types of tenants. But the ones that you’ll see most commonly traded are CVS and Walgreens because they just their leases lend themselves so nicely to this long term debt structure.

Ressa 15:41
Is it a self liquidating loan, and at the end, the loan is fully amortized, and there’s no more debt after the end of the loan?

Iacono 15:49
Typically, yes, so the office building that I just mentioned how to balloon payment, there are a few different structures floating around. But the most common is a fully self amortizing loan. And that’s what you’ll see on the drugstores. So when 20 years, let’s call it when your debt is paid off, you then have a cash flowing asset, assuming that the tenants days. And in the meantime, you have tremendous write offs, which you can then I don’t want to give tax advice, but the concept is you could shelter gains from other properties. So you have interest expense, deductions and depreciation, which can be very significant, especially with the leasehold interest. You can also do a cost segregation analysis to boost your depreciation further. So a lot of the reasons people buy these are tax driven, as well, because there’s some really unique benefits to

Ressa 16:42
Sure. And when you are doing these zero cashflow T alls, are these typically in with the same lender pool, is there? Is this a wide lender pool of people? Or? Or is this, like three groups who are really playing ball in this right now?

Iacono 17:06
It’s a few big names, to be honest, you’re not going to go to your local bank down the street and say, hey, I want to set up this structure. It a lot of them are through Wells Fargo that we’ve been trading recently. Metro does some big ones as well. There’s a handful. Can any of the national banks that it up? Yes, but it just seems to be that those are the most common.

Ressa 17:28
And the seller in that process, the seller has to get the lender on board, and then they qualify the buyer.

Iacono 17:36
Yes, but it’s not as difficult as you might think. Because really the value in the deal is through the lease with Walgreens or CVS in this example, and that’s why the credit of the tenant and the lease term is so important. So they’re not looking very much. I mean, obviously there’s an application process, but they’re not looking at the individual borrower, because they’re not the one satisfied the debt obligation. So usually, it’s completely non recourse 100% non recourse as well. Has this been

Ressa 18:07
growing in 2020? It has

Iacono 18:11
Yeah, it’s, you know, it kind of ebbs and flows, depending on availability of debt and what people need in the market. I think right now we’re seeing increased demand, because drugstores in general are in more demand as an essential retailer can have that stable play for a lot of investors, plus, the difficulty accessing high leverage debt. So those coming together, are are definitely kind of boosting demand. All that said, it is still a very niche, small part of the net leased market. I don’t have statistics on exactly how many deals percentage wise are zero cash flow versus traditional, but I would bet it’s, you know, less than 1%.

Ressa 18:51
I don’t even know if that’s something you could track, right? Because are the banks even going to track? There’s no like, I don’t know if that’s a tracking? I don’t know, it’s a stat you could track right? You’d have to have visibility to a lot of things that I don’t know that or even the banks break it down to. So I don’t know. That is really interesting. I haven’t had anyone talk about those on this show before. So that is definitely unique. What else are you seeing in the marketplace today? What else is going on that listeners might not know about Carly?

Iacono 19:31
You know, a lot of it is just how do we fix this problem? We’re having a lot of those conversations, which is not groundbreaking everybody is but we’ll have our landlords with excess space with shopping centers saying what what do we do? What creative ideas do you have? We’ve been having a lot of conversations about ghost kitchens then potential marijuana dispensaries and we just all these ideas that a few months ago would have never been a conversation And now people are really getting creative with their assets. And I know you’re an expert at this DLC too. But it’s figuring out how to position an asset, either for sale or very often just to get through this cycle, like how do we support our tenants? How do we figure out what the next wave of tenants are going to look at? And how do we make sure that we, as the landlord are at the forefront when this new kind of wave of tenants or new types of retail or whatever it is called at that point, when it’s a mix of industrial and retail and medical? Who knows? How do we make sure that we’re connecting with those tenants when they do come out? So it’s definitely been an interesting time. Net Lease is very straightforward. Again, this essential retailers are killing it. They’re trading like wildflower flyer, wildfire, there we go. Third time, but the the multi tenant retail in any of the vacant spaces, obviously, it’s been very much a Creative Conversation, I would say we’re on the phone all day, every day, I’m sure you are to just try to navigate through this then get a bit more creative. I think ideas

Ressa 21:08
are here and they’re more coming. It’ll be interested to see who’s interesting to see who can and who does execute on the ideas, because I think a lot of people can throw ideas in a board but executing on them is not as easy as meets the eye. Especially in in, in real estate, you’re solving for a demand that you can’t solve to for a couple of years, right? If you’re building a multifamily property, you better hope that you bet on the market, because by the time that you get, you know, the idealization, then you get to you do market studies, you get to plans, then you get to the city, then you actually build it, you know, yours could have gone by and maybe the market moved on you and the demand is no longer there. And so that’s an extreme example, but executing on the ideas is critical, especially in in real estate. It’s not easy. And so it’ll be interesting to see what happens. And we’ll see which ones of those uses that you mentioned, make it into at scale and shopping center. So so how are you seeing investors handle the election? Is it any different than any other election from how investors are thinking about buying net leased properties?

Iacono 22:28
Yes, good question. I think it’s just another layer of instability that honestly nobody wants to deal with right now. I had calls with clients saying, You know what, it’s only a few months away, I’m doing nothing until after the election, because I have absolutely no idea what is going to happen, no matter who wins. I feel like there’s they’re both wildcards for different reasons, for the economy, for social unrest for all these different issues that we’re dealing with right now. So some people are just basically waiting, I don’t really know that that’s the best policy because something’s going to happen, right? So you want to be on the right side of that. And then we have other clients that are saying, You know what, my taco bell is going to be in demand, whether Democrats or Republicans get in office, so I don’t really care because everyone’s going to want the burrito. If the, if we’re in a recession, that’s worse, we’re still gonna talk about if we’re if the economy picks up and everything’s great, people are still getting a Taco Bell. Same with seven elevens. Same of those drugstores same with Home Depot. So I think there’s, again, this spread where it’s essential us that we think is not going to be influenced by a depression or more unrest. It has no impact. The clients that are developing and like have, like you said, a two year time horizon, from when they start to get approvals to bring a project out, they’re really watching, because too much is gonna change for them. And getting that project to completion.

Ressa 23:59
Understood makes sense. You know, as you were saying that one of the things I was, I was thinking, you know, as it relates to the taco example that you gave, whenever I read about 1031, or triple net lease market, it’s always lollipops and rainbows. I never read about, you know, a something that happened that was negative in this scenario. Can you tell us some of the pitfalls that happened in some of these scenarios where you, you might have seen any what some pitfalls are on triple net lease deals, because I think that in commercial real estate, we skim over these and if you look at triple net lease investing, it’s 90% of what you read online is lollipops and rainbows and listen, it’s a great vehicle and I’m not downplaying it. I just think some candid information because there are some things that happen that aren’t that could be negative in In a triple net lease transaction, you know, after the transaction is complete, can you talk about a couple of the pitfalls?

Iacono 25:06
I don’t know what you’re talking about, Chris. All the time, everybody when? Just kidding? Absolutely. So there are pitfalls in the 1031 exchange process, which is not exactly what you’re asking. But there are exchanges that do not go through not of course, if you’re working with my team, we’re very on top of things. But we have had clients come to us in the last day of their ID period, honestly never spoken to this person, and called and said, we have 24 hours left to find a property like, full on panic mode, what do we do, that’s not where you want to be? Right? So that is that you’re gonna make rash decisions, you don’t have time to examine the properties and it’s very, very stressful. So time is the biggest challenge from the exchange mechanics. Now on the Net Lease investment side, you got to really understand your tenant, and you’ve got to understand their business model and where they’re going for the future. So some private equity companies now, I love private equity, they can make things happen, you know, it’s good to have money pouring in. But I have seen some sale leaseback that maybe I was less excited about not going to give specific tenant names, but some private equity companies will boost the rent, they’ll create very attractive lease structures that they no private clients want long terms, annual increases, everything looks great. But if you really look at the business model, behind that tenant, or how the rent to sales ratio looks, meaning how much of their profits is being eaten up by the rent, it’s completely out of whack sometimes. So that’s where I think investors get into trouble when a deal from the skim on the front looks really attractive. Okay, it’s a long term lease, I’ve got a lot of units, I’ve got annual increases. Cool. But you don’t think about does this actually make sense? Does this need to exist? Is this brand evolving is this tenant well positioned? And it’s hard to know for sure. You know, but we’ve had friendlies, for example, I had a client come to me who had a vacant friendlies, you don’t want to be in a position with a vacant that leased property, because it you really are going to get hit on the valuation when you go to sell unless you return it first. So that was not something you should have held, didn’t know beforehand, we did sell it as a vacant leased property, but not nearly as profitable, as had he been able to return it or he sold before the tenant vacated. So I think just being short sighted on who your tenant is, and not really understanding them is one of the biggest issues. And if you get to the end of that lease, and they do vacate, and you’ve not been proactive about talking to your broker, or talking to leasing brokers figuring out what’s next, and you just kind of wait for the term to run out completely, you can get into trouble. So although it’s passive, it still requires an understanding of what you own, it is still real property, you’ve got to understand your market, how your rents compare to market, you’ve got to understand your tenant, their lease terms, how they’re doing check in with them. It requires being involved, although you’re not actually day to day handling maintenance issues on the building, for example.

Ressa 28:20
That was helpful, I think, to the listeners, I think one of the other things. Have you ever had a client say to you, and this is specific to 1030 ones? Have you ever had a client say to you because they were in a pickle and just said, I should have paid the taxes 10 two deals ago.

Iacono 28:38
I’ve had people say that, that or they’re thinking about paying the tax because they get nervous, they don’t understand the deal or the process or they just you know, family members don’t agree, we see that a lot. Where one wants to pay the taxes and one thinks it’s crazy. It’s very rarely does it when you model it out, does it actually make sense to pay the taxes and I don’t mean that self serving to promote 1031 exchanges any further but honestly, if you’re looking at the hit from capital gains tax, which can be 30% depending on what state you live in, it takes you very often 710 years just to make up the principle that you’ve lost. So if you pay the taxes you sit on the sidelines you wait for a good deal quote unquote that you feel is is better than what you could find area change it better be a really really good deal because you’re gonna have a long time to make up what you lost in taxes. So it

Ressa 29:35
That’s one example but I have seen where the pop property that was they sold they had a huge when the property that they went into the next one depreciated in value significantly. And now they’re going to sell that property at a loss and have to pay the taxes on from the old deal now they’re in a real pickle. Have you seen that?

Iacono 29:59
I Haven’t honestly the only client that I have had come back to me with concerns was the vacant deal that I just told you about where their tenant vacated. In every other scenario, we’ve been able to extend the lease, sell the property time it Now, mind you, we’ve been in a condensing cap rate and rising market for what, seven years now, eight years now. Long time really long time. So the next market cycle, maybe things will be a little bit different. I think we have a lot of pain across the board coming up in the next few years. But historically, we’ve been able to transition clients in and out of assets to where they didn’t get to that point that they were like, Oh, my goodness, you know, what did I do? We really thankfully

Ressa 30:46
haven’t had that. And so you mentioned a lot of pain. What pain are we going to feel? Carly? None, Chris? Well, you mentioned that you said pain, you said pain, you said pains coming?

Iacono 30:58
I think I mean, we all know, right? It’s going to be the the restaurants that don’t reopen, it’s going to be the less well positioned retail multi tenant centers that can’t get their mom and pop or their local tenants back open or profitable, it’s going to be vacancy, we’re going to have a lot of vacancy and rents might be affected because of that. So if you’re a shopping center owner, and you now have 30% vacancy, but at the same time the surrounding properties do as well. And there’s one tenant looking at that market. Well, who’s going to drop rents first? Who’s going to upgrade their facade? Who’s going to put money in to get that tenant? And then is it worth it? How much money are you outlaying to get the new tenant, I mean, it just becomes a math problem where we’re gonna have a lot of vacancy, not enough tenants expanding and I think we’re gonna see some pressure on rents in certain markets because of that, that’s less about the net lease space. Because again, we really haven’t seen, especially in the tenants that I’ve mentioned, a lot of pain. But, but there will be with some of the smaller operators, or other sectors, gyms, you know, hospitality, like other things that are really struggling to reopen on any scale.

Ressa 32:15
Well, we will see, I don’t know that I, I’m on an island, I’m not an island, but I’m gonna, I’m in a different camp have a view. And obviously, I’m biased because I’m a landlord. But unless construction costs come down significantly, I don’t know how rents can come down. Otherwise, there’ll be no tenants. Because, you know, a developer can’t do you know, do the 711 deal you spoke about at the land prices they are unless construction costs come down if rents are coming down, so and then I think one of the things that’s interesting is you have a bifurcation of, of real estate product type. So we may have too many enclosed malls. I think we probably do. I don’t know that we have enough freestanding drive thru locations. I don’t know that we have enough. Just general open air product type quite candidly. There are 1.8 million online US retail stores. So online stores, there are 464,000 brick and mortar stores.

So you know, the lad the Census Bureau reported in in in August that 16% of retail sales were done online for the month prior and so 84% of the retail sales are coming from 464,000 stores, and 16% are coming from 1.8 million stores. Those online, I don’t think that math plays out. There are a significant amount of online only retailers who are not making money because it is it is very tough to make a profit. And it’s the startup costs for a brick and mortar location are are tough, but it is a lot once you get past them the profit is easier to get to. And so with some of the loss of some of the national tenant bankruptcies

I think we’re gonna have we’re gonna come full circle, and we’re going to have some new concepts coming. Because all the signs my opinion, point to a shift where we have market share left on the table with some of the national tenant bankruptcies can all move to online because it’s not profitable. We have a place where I think the real estate that tenants want to go to is in lack of supply. So those three things, I don’t know how rents could come down to So that’s my take. We’ll see in the next, you know, couple of years what happens. But that’s that’s probably, you know, eating a little bit, a little bit too much out of my own book, but a little bit I need to be so

Iacono 35:18
I love it. I think it’s great. Do you think there’ll be any delay between the vacancies and the new concepts coming in? Or do you think it’s going to be smooth? They’re already in the works, and they’re going to gobble up those spaces at the same rents and slide right in? So

Ressa 35:34
sure, but I’m also questioning the vacancy. So and how do you? How do you categories vacancy? Because if it’s number of doors, then yeah, we might have a lot of vacancy, if it’s square footage. I don’t know if truly the the majority of vacancy is going to be the small mom and pop tenants, they take a lot of doors. A lot, you know, not a lot of GLA. So I don’t know, how you how you want to characterize vacancy. And I think, you know, I don’t think the numbers thus far, and we still have a long way to go, we got to get through back to school Christmas 2021, though, you know, there’s a lot of accounts payable that retailers and restaurants have that will come due and how do you have whatever it is, whatever your vendor payables are, how do you have potentially less sales, you know, pay 15 months of payables, whatever was pushed out till 2021. So everyone will have that problem. And there’s no doubt in vacancy, but I’m not, at least yet. And obviously, government stimulus helped. I haven’t seen 30% vacancy. We’ll see. We’ll see. I haven’t been around the country. But we do own around the country. I haven’t seen that we’re seeing, you know, some challenging times, but not to that extent. If if, if we’ve truly get to 30 40% vacancy, then my answer is probably going to be delayed more than a couple years. I just don’t, it doesn’t feel like we’re getting to that.

Iacono 37:29
That’s great. So with that, I hope you’re right. Sounds good.

Ressa 37:33
I mean, you live in North Jersey, have you seen 30% of the retail go out of business? I haven’t?

Iacono 37:39
No, no, I don’t think it’s that high at all. But I also think we’re at the beginning of this May, there’s been a lot of stimulus, there’s been a lot of prop up and it’s only been, what, five months. So I think there’s going to be more if you drive in route for Paramus, there’s a good bit not 30% by any stretch, but seems to be an increasing amount, which is one of the retail mechas of the country for those of you who aren’t in New Jersey listening, just two highways. That is every retailer you could ever imagine all in one spot. So I think it’s it’s changing. It’s we’re not at no crazy crisis levels. But I think that we’re again, it’s not November, December, January yet,

Ressa 38:20
totally agree with that, we will see what happens. There’s no doubt that I expect vacancy to increase. I just don’t know that it’ll increase to headline news, when, you know, they really pounded the industry that it’s gonna be so crazy. I, you know, I think the industry has fought the American, you know, entrepreneurs fought like heck, to, you know, keep innovating, and stay afloat. And, you know, corporate America has gone into crazy cash preservation did what they needed to do, and they’re starting to come out of it. So we’ll see. We’ll say, with that. I want to pivot to the last part of our show. So I didn’t prep you for this. And if you haven’t listened, I’m going to throw you for a loop. I got three questions for you. Are you ready? We call this retail wisdom. All right. Okay. Question one. What is your best piece of commercial real estate advice? That’s the layup I’m just letting you know now. Okay,

Iacono 39:33
like they get harder. Is this for investors, brokers, who whomever who? Whoever ever? I think it don’t do what you did last year at this time and expect it to work. Creativity and getting out of your comfort zone is absolutely a must. So if you have been, I mean, you could I could go on on that but from any angle.

Ressa 39:56
I love that. That’s great. And I I think it’s a good time you’re a, you’re an example of that you have starting in January, you started this video series on YouTube that’s taken off and you’ve gotten business out of it.

Iacono 40:16
I have exactly. So we started theory, Fast Five, which was meant to be a way to expand our client base and get pressing topics and things we wanted to cover out to new people. And we started in January, of course, not knowing that COVID was coming. And this was going to be the way we all communicated. So it was groundbreaking back then, of course, now it’s one of many. But it really has been a phenomenal way for us to educate new buyers, give updates on what we’re seeing in real time in the market and connect with a very broad base of investors and developers around the country. And you’re right, we have actually closed deals. From the video series alone, people have called who we would have never ever found any other way from random parts of the country and said, I need XYZ or what do you know about this? Can we talk? So it’s been tremendously helpful?

Ressa 41:09
Awesome. Second question. What extinct retailer, do you wish would come back from the dead?

Iacono 41:20
person for my personal reasons or from an investment standpoint? So you always have a follow up question.

Ressa 41:25
Whatever you want it to be.

Iacono 41:28
Ah, I, I would love to see Toys R Us come back, but completely reimagined. I think that is a retailer that was so boring, and so obtuse in their store presentation, but had such a strong brand and a following that, were they to come back. And I know a lot of people in the company quite well, actually. And we change a few things myself, if they asked, but were they to come back with a much more creative slant? More, I just there’s so much you could do with a toy store. And I don’t think anyone is doing it right right now and it’s no fun to order toys. I have two kids on my own. It’s no, it’s no fun to order things on Amazon or target. It’s just not the same. So I think this is a void. Maybe someone will come in and fill it but I’d love to see a concept like that but redone.

Ressa 42:24
You need to check out camp in New York City. Okay. I have not heard of it. Google them after. Yeah. I’ve talked a lot about Toys R Us and my takes on this on this show. So I’m going to pass on that. But last question. So you have some kids. I have two kids. I have a daughter and a son. My daughter is three my son will be two in two weeks. And this is a Sesame Street household. So we have a lot of Sesame Street dolls in this household. I don’t know if you know Sesame Street, but worse. Right now. I am looking at the Abby Cadabby doll on Walmart’s website. It’s a stuffed animal. What does the Abby Cadabby doll retail for Carly?

Iacono 43:17
Oh, you know, we’re a few years out of Sesame Street. My girls are 11 and eight. But way more than it should I’m going to go with 3495

Ressa 43:30
Actually, it’s probably probably where you think it’s $18 right now what? Yeah,

Iacono 43:36
value? That’s our hot commodity.

Ressa 43:39
Awesome. Well, Carly, thank you for coming on. This was fantastic. I love the the zero cash flow deals. No one’s come on the show and talked about it. I think it’s a unique thing happening right now and you are front and center on it. So thanks. And if people need to reach out to you, how do they get in touch with you?

Iacono 43:58
Our team website Iacono retail group.com or the CR e Fast Five YouTube channel is where all of our video content is posted. Of course LinkedIn across all the social media platforms, you can find us there as well.

Ressa 44:15
Awesome. Thank you so much.

Iacono 44:18
Thank you Chris. It was really fun, really appreciate your time and all your insight as well.

Ressa 44:24
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