June 27, 2019
…when SoCal summer distractions are endless, but a writer’s ego overpowers all.
READ TIME = 7 min
Intro: 1 min
Charmed in Peru: 2 min
Time-Zone Agnostic: 1 min
Antenna Diligence: 2 min
Misc: 1 min
Hi BT readers,
Recent travels abroad nicely wove together this newsletter’s three themes, allowing me to break the summer writing seal with a bit of style.
Below I recount quick highlights of my surf trip to Lobitos Peru, where I was joined by one of my real estate mentors. A week of adjacent quarters and a shared cell phone offered me an intimate glimpse of his investment operation. I document the simple yet foundational takeaways, and then provide some thoughts on rooftop antenna leases, a diligence item first from a property we reviewed this past spring.
Before diving into real estate learnings, I serve up a quick vignette of our remote surf destination, which had everything we needed and nothing we didn’t.
PS – I’m hosting an exec dinner with TechCrunch’s Eric Peckham in LA on Tue July 9th. Will represent a smattering of LA industries, email me for deets if around.
PPS – I’ll be in London / Northern Spain / Southern France in 2H August. Holler if nearby.
A Charmed Existence in a Surfing Ghost Town.
I was recently in Lobitos, a remote surf destination in Peru’s north country.
Lobitos’ topography is headlined by seven world class point breaks in beautiful, barren terrain. A goofy footer’s delight, the left point breaks are shaped by extending rock outcroppings coupled with inside sand bars, which create picture-perfect waves that range from slopy shoulders to barreling runaway racetracks. Looking beyond the waves, the horizon is dotted with oil rigs, a reminder of the town’s comeuppance and subsequent struggle over the past century.
Adjacent to the beaches is the town of Lobitos, which boasts a population under 1,000 that’s connected to the regional Talara airport via an unpaved road (a reflection of how little support the Talara government provides the local inhabitants). Lobitos boasts only the basics: a handful of surf essentials shops, cooked-to-order eateries that are mostly home kitchen extensions, ultra-cheap lodging and yoga classes led by a visiting (and fetching) Brasileña. Collectively, a vibe of resource restraint that allows the Lobitos naturaleza and surf vibe to rightfully take center stage.
Inbound surfers are greeted warmly in and out of the water, and rapid connective tissue forms through lineups. There’s a two-way exchange of surf stoke, an increasingly rare find as surfing’s growing popularity can lead to vicious localism. Surfing has revitalized this oil boom-and-bust village and locals welcome the currency inflows, and visiting surf enthusiasts are grateful to locals who made a remote world class destination just the right amount of accessible.
I traded waves with many shop owners, like Ed from Ed Madrid’s surf shop, and ‘Sapa-cito’ from the 420 resto-bar (their thin crust pizza and pasta dishes are a delight). These aging locals boasted the most impressive wave theatrics; my friend and I would drool from the lineup observing their effortless paddle entries and stunning carves on the best set waves. Yet, us surf tourists were granted more than our fair share of waves. As a promising wave approached from the horizon, I’d lock eyes with a nearby local in the lineup, and a simple head nod my way told me everything I needed to know…turn and paddle hard, the next wave was mine. It was a natural ebb and flow of stoke sharing, and exuberant wave stories ensued at the local businesses after the multi-hour sessions.
The mutual appreciation for the surf stoke is Lobito’s most defining building block. The energy exchange has driven and guided the past decade of currency inflows, which has led to commercial resurgence intertwined with historical preservation
Like many surf destinations, Lobitos is self-made and drenched in local pride, yet differentiated by its meaningful ’embrazo’ with its geo-economy of surf symbiosis…a beautiful feat that should inspire other surfing communities. It is in Lobitos that inhabitants, whether permanent or ephemeral, experience a mutually reinforcing charmed existence. In the spirit of an improved global humanity, it doesn’t get much better 😉
A positivity call-out: my fellow traveler C-Rod’s highly affable water presence. With a 6’2 frame, booty-clad feet and a midwest-bred warm disposition, he put the Lobitos lineups at ease, and even earned a solicitation for his wetsuit by a local surf shop in search of ‘lager tourist sizes’.
A Good Real Estate Operation is Time Zone-Agnostic.
My Peru travel companion, C-Rod, is also one of my real estate mentors. His fine-tuned acquisition and portfolio management operation were well on display in between our surf sessions. Some highlights:
First, he leveraged his Omaha-based team to minimize his work time abroad yet continue momentum on property acquisitions. His real estate agent used pre-approved offer templates and diligence protocols, and short calls/texts were only used for final bid price approvals.
Second, he stayed true to his negotiation strategy. He used his time-tested ROI models and intimate market familiarity to make fair offers with ample ROI cushion, and held firm. When a seller asked for final and best, C-Rod upped his price by 0.5%…offering a token win for the seller (smart negotiation), though within the confines of his previously diligenced bid range. No last minute scramble was warranted, which means more time for stuff that matters (int’l travel, other property bids, etc).
While C-Rod didn’t win the above-referenced bid, the exercise still bore fruit. He documented his offer price in an excel schedule, and left a blank for the final selling price. Adjacent to this entry were 10 other ‘lost’ market bids compared to their final 2019 sale price…he’s deftly using the data to better navigate market bidding dynamics, and to assess how he can refine his ‘closing’ game (case in point, he just closed on another investment property this week). An example of how smart can be simple.
Lastly, I asked C-Rod how much equity capital he has for portfolio growth this year. He said ‘endless’…
It’s not just because he has a large line of credit against his multi-unit Midwest portfolio, nor because of plentiful cash savings…it’s because “financing always exist for good deals”. Savvy investors can activate numerous types of financing (conventional, hard money, friends & family, commercial, seller’s note, etc) to close a deal. A good reminder that good deals are more scarce than capital – true in the real estate game and in all other industries.
Antenna Tower Opportunities in an Overly Connected World.
This past spring my Omaha investor group was assessing a multifamily building and encountered a diligence process first – the rent roll included a rooftop antenna. In my investment banking days I advised on the sale of a prominent antenna atop one of the largest buildings in Chicago. Like rental real estate, antenna leases can provide great recurring revenues, yet exhibit their own unique asset characteristics. A brief summary of investor considerations follows.
Overall, if the antenna revenue is an immaterial part of the rent roll, I recommend minimal diligence to simply understand current contractual obligations, potential liability and upside potential. If the antenna leases are a material part of rent roll or initial diligence indicates a greater antenna revenue opportunity, then roll up those sleeves. Re opportunism, consider that the pending roll out of 5G services to support fast-growing mobile data consumption (forecast to grow 7-fold between 2017 and 2022 per this Cisco report), is driving carriers to rapidly grow network density. In fact, new site applications across a multitude of municipalities are supposedly reaching levels not seen in over 20 years.
Depending on your target property market, the surrounding topography / landscape (and how it might be changing with new construction / zoning) and the structural height components of your building, there may be significant upside revenue potential for the discerning buyer 😉
(NOTE: The below questions directly relate to small to mid size buildings with an existing antenna. The antenna market is vast, and includes large towers built on raw land or large commercial buildings, where there are numerous other considerations like zoning approvals and timing, lobbying efforts from NIMBY groups, and more.)
- Who owns the antenna?
- Is it a cellular provider who seeks to improve network density?
- Is it a tower company who leases its antenna space to various tenants? Or, is the antenna owned by the building owner, who then provides a master lease to a 3rdparty operator, who then subleases out avail space?
- NOTE: A celullar provider is the most likely owner, and these providers usually incur all CAPEX to build and place the antenna (tower, base station and misc support equipment) on the rooftop, as well as all ongoing maintenance costs.
- Is there other space on the target property that could service another antenna?
- Other rooftop locations, external wall mounts for Distributed Antenna Systems (DAS)?
- Are there interference concerns?
- How much leasable tenant space is on the antenna(s), and what technologies are supported (e.g. cellular, LCS, specialized mobile radio, DAS, fixed wireless)?
- What are the market rates / fee structures for said antenna space, and how are these trending? How best to gather market rate information (e.g. public pricing data, 3rd party diligence)?
- This data can help maximize direct leasing opportunities / negotiation leverage, though be wary to not over negotiate as urban areas have a high density of buildings. Therefore, site acquisition agents, who are focused on rapid onboarding, could have many backup options ready to go…i.e. Know your BATNA.
- Services like DAS can be an add-on (separately priced or included) for internal tenants who have spotty cell coverage in various buildings types (commercial, retail and/or residential).
- On top of the more standardized base rent, is there additional variable rent in subleasing scenarios (e.g. revenue share, collocation fees). Note that variable rent is more likely for a tower lease.
- Are there current antenna tenants?
- Who are they and what are the terms?
- Is it easy to exit the agreement(s) / what are the rate escalation clauses?
- How does the antenna impact structural building maintenance / accelerate wear and tear?
- Was a rooftop loading analysis performed by the carrier?
- Could the antenna void a roof guarantee?
- What are the antenna owner’s rooftop access requirements?
- Is there potential disruption to building tenants (e.g. installation of a loud generator, blocked views).
- What are the antenna’s maintenance needs, and which companies service antenna maintenance?
- Often a 3rd party maintenance contractor is hired by the rooftop lessee – if the contractor’s incentives are to perform the maintenance quickly and at minimum budget, then the contractor may not take the greatest care regarding its rooftop impact. Installation methods, weight bearing and other considerations must be prudently monitored.
- Can the building’s current property manager support the antenna’s maintenance and tenant needs? Do they have expertise here?
- Good friend Tom De Napoli and his co-sponsor Ethan Coleman founded an investment operation called Ninth Square. Their mandate is below and investor deck is here. If this interests you, holler: Tom@NinthSquareRE.com.
- “We invest in stabilized and value-add class B- & C- multifamily properties, which are typically buildings that are over 15 years old, with some deferred maintenance and few amenities, but located within growth areas. We focus on metro areas with high concentrations of college-educated millennials, a proven catalyst of regional economic growth. This approach has produced successful returns for partners in our previous investments in Denver, where we plan to continue syndicating similar deals, in addition to Minneapolis and other cities which meet our criteria.”
- I’m still on the ‘elective’ sobriety kick and TBD where this journey goes. A recent reading of the Sunday NY Times Styles cover + many forwarded emails confirms E.S. is having a moment…Instagram hashes, VC backing, et al. Yup, everything has its 15 minutes nowadays, which can be quite off putting IMO. I simply appreciate that there’s increasing societal acknowledgement and servicing of the healthy spectrum of consumption preferences.
Thanks for reading!
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