How to Break Into the Retail Real Estate Investing Market with Special Guest Cherif Medawar

Join our host Attorney Kim Lisa Taylor as she interviews renowned real estate mogul Cherif Medawar. Cherif will share his secrets on finding the right retail spaces and the right tenants to fill them. With this knowledge, you can break away from the multi-family crowd and make your own fortune in retail real estate. Cherif has used these techniques to become the biggest landowner in San Juan, Puerto Rico.

Episode at a Glance:

• How to spot vacant standalone buildings and approach large tenants
• Brokers' indifference toward vacant buildings
• What is NNN?
• Cherif's negotiation method of a sale in 60 days with a 45-day due diligence period

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Transcript

Kim Lisa Taylor:

Welcome to Syndication Attorneys’ free monthly podcast where we talk about topics of interest to real estate investors and syndicators with the opportunity for live questions and answers at the end of the call. I am attorney Kim Lisa Taylor. Before we get started, please note that all of our podcasts will be recorded and may be used for future promotion, posted on our website or broadcast in a podcast available to the public. If you don't wish to have your voice recorded, don't raise your hand. You can ask questions in the QandA at the bottom bar along your Zoom there's a place for that or you can raise your hand if you want us to call on you.

Or you can schedule a one-on-one call with one of us by going to our website at syndicationattorneys.com and clicking the button to schedule a call. Information discussed during this free podcast is of a general educational nature and should be not construed as legal advice. And today we have someone I have known for a very, very long time. Oh my gosh, Cherif, when did we first meet? It was like…

Cherif Medawar:

Almost a decade ago. Yeah.

Kim Lisa Taylor:

Yeah. Easily. Easily. It was like we've known each other for 10 years. We sat next to each other at a private money seminar together and we've encountered each other at events all over, and I've heard Cherif's name, I'm sure he's heard my name. So we all travel in the same circles and we've all done pretty well for ourselves and we've been able to help some other people do well for themselves as well. That's pretty gratifying for I think, both of us, right?

Cherif Medawar:

Absolutely.

Kim Lisa Taylor:

Right. All right, so today what is our topic? Today our topic is “How to Break into the Retail Real Estate Investing Market” with our special guest Cherif Medawar. And what really intrigues me is that there's not anybody else teaching this that I'm aware of. Everybody I know is teaching multifamily. They're teaching self-storage. Some people are just teaching general commercial. I've been to the ISCS events — International Council Shopping Centers events — and they kind of teach it, but not really, right? So they just presume that everybody already knows how to do it. So I think that this is just a huge niche that people don't understand and they're afraid of, so they stay away from it, which means there's incredible opportunities out there for people once you learn the ropes, right? And so Cherif, I saw him speak, gosh, in Miami I think, or Fort Lauderdale?

Cherif Medawar:

Fort Lauderdale, yeah, we were together.

Kim Lisa Taylor:

Yeah. Several months ago. And I was just so impressed with the program that he's put together. I thought “We've got to have him on our program so you guys can learn about this too,” because as we all know, it's a tough world right there in the multifamily market right now, it’s tough. So this is a great time to start exploring and learning about all the other asset classes that you might be able to invest in, some of which may be better investments at this time. So we'll let Cherif tell us what he thinks about that. But before we do that, Cherif, just tell us a little bit about you and how you got started in real estate.

Cherif Medawar:

Okay, great. Well, I was always in the hotel business. I studied hotel and finance and I met a billionaire at a hotel, Century Plaza Hotel, when I was very young. I was 20 years old, actually. Barely, I think almost 21. And I was at the Century Plaza Hotel in Los Angeles and he noticed how hard I was working. So he stopped me in the lobby of the hotel and he said, "Cherif, I see you from six in the morning working so hard all the way till 11 at night. What is that all about?" And I said, "Well, they identified me as a potential general manager. I'm working hard and I want to move up." And he said, "Look, why don't you get into real estate? You need to come and work for me." And I said, "What do you do?" He said, "I have real estate around the world. I need somebody with your enthusiasm and energy to come and help me."

And instead of getting excited, I got scared. I said, "Oh sir, I don't even know residential real estate to go do international commercial real estate." And he held me by the shoulder. He said, "Cherif, you're at the right place at the right time. Just say yes." So I said yes. And I ended up working for him for eight years. He was an amazing gentleman, very honest, very smart. He wasn't a very hard worker, but he was a very smart worker and made hundreds of millions. So I would go and fly on his behalf to make a deal based on what he told me and I had to understand everything. That's how I got started.

Then I left him eight years later because I knew so much I wanted to just go do it on my own and started growing from there and into doing my own deals, mainly in California. Then I started teaching because so many people kept asking me, "What are you doing? What are you doing?" And then from there I set up my own real estate fund and you know how great it is the fund business and kept growing. And then I realized that what made me the most money has been the retail niche, if you will, that I got in and I'm glad we're on this call so I can share it with many people.

Kim Lisa Taylor:

That's great. And I think my takeaway from that, is find a mentor, right? And find somebody who's already done this, who can hold your hand through it and help guide you in your early deals. Eventually you'll learn enough, you'll be able to do it on your own, but in the beginning you need somebody to keep you on track, make sure you're doing the right things, not the wrong things. That's how I got started in my law practice. I found a mentor, I worked with him for eight years. That was Gene Trowbridge.

Cherif Medawar:

Yeah. Gene. Yeah.

Kim Lisa Taylor:

... a fantastic person and that's where Cherif and I met was through Gene.

Cherif Medawar:

That's true. Yeah.

Kim Lisa Taylor:

And that was what helped propel me forward and enabled me to go out and eventually start my own firm. You guys can follow that same path. Just find somebody that you can follow, somebody that can give you some guidance along the way and you're going to be far, far better off. All right. Well, so tell us what you mean by retail real estate. What is that?

Cherif Medawar:

So I'll give you an example of a strategy that I use. So retail real estate is, imagine a single-tenant building. This is a standalone building that accommodates one tenant. Those are usually big tenants like a Starbucks, a Jack in the Box, a Subway. And these tenants, when they come into a building they don't want to lease for a year or two years, they want a 10- to 15-year lease. Why? They invest in the space itself, changing the floors, changing the decoration, the entire look and feel of the real estate itself. They hire staff, they start building rapport with the community to sell whatever … sandwiches, ice cream. And it could be also retailers like jewelers or retailers as clothing, but those are dying down, if you will, compared to the QSR, the quick service restaurants, as evidenced by what happened during COVID where the best retailers in the business, actually the best functioning real estate was these big-box retailers that are called big food retailers if you will, like Subways, Burger King, McDonald's.

They kept humming along and the properties that I had that had these tenants kept performing. And when they signed the lease, not only do they sign for 10 to 15 years, but they sign it with a corporate guarantee, meaning the lease is guaranteed by the entire corporation. Usually they're publicly traded. So I get paid no matter what because if they don't pay me and I can collect from the main corporation, these are publicly traded companies and there is a way to deal with them with the right leases, the right wording in the leases. So that's what I was doing. I would actually very simply find a vacant building, a standalone, and I would just call on the brokers and tell them I'm interested in buying this building. Of course I could get it for a very good deal because it's sitting vacant. Most people don't know how to bring these big tenants in.

And I'll start smiling and dialing, calling these large tenants. And as soon as I get one interested to sign in for a long-term lease, the value of the building would almost double. I mean it goes to whatever the base rent is. They pay me on top of that, the triple net, which is they pay me the base rent plus net of tax on the building. They pay the insurance on the building and they maintain the building. So I didn't have to do anything. I would work hard once, put a tenant in, value jumps up, and then I move on, go find another building, do the same thing, often refinance, cash out money and repeat the process. It took my net worth to a very high level. I became the largest owner of historic properties in Old San Juan, Puerto Rico, literally 30 some buildings there humming along.

Kim Lisa Taylor:

Amazing.

Cherif Medawar:

Yeah. And I did it throughout the U.S. but in the U.S. I kept buying them. I put the tenant and then sell them, get the money and then buy more in Puerto Rico because Puerto Rico had a lot of tax incentives. So not only was I making a lot of money, but paying very little tax and I continued to hold these buildings still today. And then my education company, I have an education company. I started thinking, "I'm training people but they're not doing it." I said, "So what's missing there?" And I realized I had to give them a few things. So what we do today, I want your audience to imagine this, they drive around on a busy street, let's say two-way street, and there is a standalone building that's vacant. Usually there is a sign that says “Available” because the owner of the building will call a broker and say, "Look, if you can lease it for me, lease it. If you can sell it, sell it, but it's sitting empty, I need some money."

So you call on that building and you say, "Hi, how much do you want?" And they say, "Well, we want 900,000." And you say, "No, no, listen, it's sitting vacant. I'm interested at 700." Let's say you settle at 800,000 the price. The broker needs to see from you proof of funds. So what I did with students is I showed them I have my real estate fund and there is always cash sitting in it. So that capital sitting in it, I'm going to give you the proof of funds that we have cash and you're going to write the offer, your name or MIGSIF, which is my fund. So the broker will take that person seriously. Okay, so you have cash and you're going to buy this property and you want to put it under contract.

We always use this, the listing broker because it's a lot easier for the transaction to go along smoothly. So once they put the deal under contract, I already trained them on what to tell the broker, and now they have it on their contract with the proof of funds that I gave them. And then also I train them on how to identify tenants. And there is a list of 4,500 tenants that I compiled — the name of the tenant, the phone number, the person with whom they need to get in touch, who that tenant likes to be next to, what size space they like and what states they're growing in. So this 4,500-tenant list is national tenants with big deep pockets. And we focus mainly on QSRs, quick service restaurants. So that person who's got the deal under contract, I show them how to create a little package for the tenant, which is basically an email, some pictures, a plot plan, all that stuff I go through it in a training with people.

But it's not so difficult. I mean anybody can do this and a little video and then they start smiling and dialing and they have a script what to tell these tenants on... Because usually you get a voicemail. "Hi, my name is Cherif Medawar, I have a property at 123 El Camino Real. It's approximately 2000 square feet. Traffic is this, the neighboring tenants are that. If you're interested, call me. I'm going to send you an email with the subject line, Kansas City downtown," let's say. And what happens is after calling so many tenants, I mean you call, let's say, a bunch of tenants every day, within a few days, let's say 10 days or so, you'll at least get one tenant or two tenants to call you back or to email you and say, "We're interested. We need to discuss some details."

And that's when these students of mine that are in a joint venture with me, if you will, they forward that email to me and they say they're ready to talk. We set up a Zoom call, we go on the phone with these tenant representatives. So it's usually the tenant representative, somebody from their retail division for opening stores., my student who is doing a joint venture with me on this and myself, and we discuss what's called the letter of intent. So let's say it's Subway, they intend to lease the space, they want it for 10 years, 3% escalation, corporate guarantee. And then usually they negotiate what's called TI, tenant improvement. They say, "Listen, you gave us 75,000, we're willing to pay you 8,500 a month." And then I say, "You know what, what if we give you just 50,000, okay, well, we'll pay you 8,000." And we negotiate some nuances and the lease, I became a master of this because I've done it so many years that it became second nature.

I mean we have literally a checklist with them on the phone and the student learns how to do it because once they do it once with me, they know how to do it forever for themselves. And then we have an agreement on the phone, we get the letter of intent drafted, we send it to them, they sign, they send somebody, a representative, to verify the store. They already know everything online, the traffic, the neighboring, they can actually... They have software that can predict how much they're going to sell in this area. And the beauty is once they sign — let's say they sign for 100,000 a year base rent, like 8,300 a month — if you take that base rent, 100,000 and figure out these national tenants when they occupy building, the building sells at 6% cap. That means for simplification of calculations, take the 100,000 dollars, go times 16, the building is worth 1,666,000, say 1,700,000.

But if you put it under contract at 800,000 and you had 45 days for due diligence, you had no obligation to even buy it for 45 days and you started smiling and dialing and got one tenant interested, the building jumps in value to 1.7 million. That's $900,000 instant increase in value. So what happens is these students, sometimes they're new, they're trying to wholesale commercial because it's so much more profitable and so much less headaches. And what I do is on that upside from the 800,000, we have it under contract to the million seven new valuation, that's 900,000, I give them 10% literally in escrow when we close, when my real estate fund buys the property all cash, we give them $90,000 at the close through escrow. We cannot pay them outside escrow, we have to pay through escrow. And that's just the way it is done. Now if I was able to get them, that tenant to sign for 15 years lease, I give on that 900,000 on the upside, 25% of the upside, which is a lot of money, which is like almost, what? Is it...

So 25% of a million will be 250. So it's about $225,000 at the close of escrow. The beauty is we've done it for quite a few years. We have over 2,000 video success stories on YouTube. We have a lot of students that made money with many of the strategies, but by far this may be the wealthiest. We've had some incredible success stories from students and we're doing a deal right now with Church’s Chicken in Florida. The deal is under contract. The numbers, I'm telling you exactly 800,000, it's going to be worth 1,700,000. They're actually going to let us know this Friday if they're going to sign for a 15-year or a 10-year. But they're so excited about the location, they want it. They negotiated 100... It's going to be a 100,000 to 125,000 on the tenant improvement. So it's a beautiful way to structure deals. And we don't need a distressed seller, we just need a property listed by a broker. I mean, it's not like…

Kim Lisa Taylor:

Let me ask you some follow-up questions.

Cherif Medawar:

Do.

Kim Lisa Taylor:

How many calls should a student be making a week if they want to find these deals or find tenants to occupy these properties?

Cherif Medawar:

At least 50 calls.

Kim Lisa Taylor:

50 calls a week?

Cherif Medawar:

Yeah. So they'll have to dedicate about... It depends how organized they are, but they should dedicate 45 minutes a day.

Kim Lisa Taylor:

Wow, okay. And I would tell all of the listeners out there that are buying any asset class, if you adopt this policy, you're probably going to find some deals when you're not finding them now. I get a lot of people that call me and they're saying, "We're looking at this deal. We've been looking at it for the last two weeks." And they're just analyzing, analyzing, analyzing. And it's like, okay, that deal's fine, but you should have been doing another 50 or 60 of them since then and that one should be long gone and you are just waiting to hear if you get a response. So this is a numbers game. Real estate is always a numbers game. You've got to get out there and get your voice out there. You can't just expect things to come to you. You have to make it happen. So what about sellers? So you're just driving around looking for things in your neighborhood or are there other sources of potential properties?

Cherif Medawar:

Yes. You can literally go to any of these big commercial websites like loopnet.com, crexi.com, there are cityfee.com.

Kim Lisa Taylor:

Last one?

Cherif Medawar:

Huh?

Kim Lisa Taylor:

What was the last one?

Cherif Medawar:

Crexi, C-R-E-X-I .com.

Kim Lisa Taylor:

Oh, yeah. Right.

Cherif Medawar:

Yeah. So there are plenty out there. And once you even Google “retail for sale,” you have so many that come up. I mean you can then go to Marcus & Millichap, et cetera, et cetera. But I always recommend for people to check within a certain radius, three to five mile radius. And we do the training once every five to seven weeks. I do the training personally, I don't assign it to anybody. I'm not one of those gurus that are like, "Take my training. Here are some coaches that are going to help." No, no, no. They come…

Kim Lisa Taylor:

What about training? It's towards the end of the call, but I want to ask you some more questions here.

Cherif Medawar:

Sure, sure. Ask me.

Kim Lisa Taylor:

When you're talking to a tenant, do you already have the property under contract?

Cherif Medawar:

Yes.

Kim Lisa Taylor:

Or do you have an LOI out?

Cherif Medawar:

No, we have two types of letter of intents, LOIs. The letter of intent to purchase, which we send to the broker to put it under contract. Once it's under contract, we prepare the package, then call the tenants. Otherwise, the tenants could be talking to us on the phone and then we'll Google it, say, "Listen, the property is for sale, well what are you talking?" So at least they can see that it's pending. Yes.

Kim Lisa Taylor:

Right. Okay. All right. Now is there any kind of bank financing available on these types of properties? Because you said that your fund buys for all-cash, but is that the only way that you can finance them?

Cherif Medawar:

Yes. So in general, the banks don't want to finance a vacant building like this. They're going to say, "Listen, 800,000, you're on your own. I'm not going to give you." I mean if you have very good credit, they may give you 40%. Maybe they'll give you 300,000 on that property for a fire sale because there's no income. That service coverage ratio, the SCR, there's no income for them to calculate the ratio of the debt payment, how is it going to be covered. So if it's vacant, there is no way you can get a loan. But…

Kim Lisa Taylor:

What about after it's occupied?

Cherif Medawar:

Exactly, exactly. Well two steps. Once it's under contract and you have the tenant with the letter of intent, the bank will say, "Okay. Well, you know what? We can give you the loan." If and when they're in, some banks will say, "Okay, we'll give you the loan now, but pending the funding, once you let us the underwriting department verify with that tenant that they are committed to the space and that there is the lease pending, et cetera." So the easiest thing for me is I buy them all-cash. Then once the tenant signs the lease, because you have to sign the lease once the property is in your name the deed is in your LLC or is in your name.

Then I go to the bank and I say, "How would you like a corporate guarantee from a company that's trading at 800 million or their valuation is in the billions like a Subway or Ben and Jerry's, any of these." And then that's when the bank says, "Okay, I'll give you 70%." They finance them for 25 years, but remember they are now valued at... That property I bought at 800,000 is valued at a million whatever. And what they will do is if they finance it when it's under contract and they see the proof of funds, they see the letter of intent, they'll finance it at 70% of the purchase. But once it's actually purchased and the tenant is in, as soon as the tenant starts paying the rent, because sometimes we give them two, three free months, then the bank is willing to actually refinance and cash us out. So it becomes a no money down…

Kim Lisa Taylor:

Finance that fair market value if the tenant's already in place, whereas they're going to finance off the purchase price if you just have an LOI?

Cherif Medawar:

Yeah. Every now and then a bank gives you a little bit more than your original purchase price. Doesn't happen often. It happened when I did a Fat Tuesday's deal. They loved the deal so much I bought it 700,000, property’s worth 1,600,000 with the tenant in, and they gave us 900,000 out. I mean that was just a beautiful thing. The bank liked it so much, they liked the solid lease and the corporate guarantee and we cashed out more. I mean, you end up getting more income than the payment no matter what.

Kim Lisa Taylor:

Well, that's a pretty fantastic model. Now tell me, you said something about if you have a student that brings you a deal and then your fund acquires it, that you have an incentive program for them. Can you tell us that again?

Cherif Medawar:

Yes. So on the price, we put it under contract and once we line up a tenant that's going to sign for those 10 to 15 years and I'm negotiating with those tenants anyway, when there is a student involved, the value goes up. So that upside difference, I think 10% to 25%, even if I have to put a tenant improvement, 150,000 or a hundred thousand, that's not their problem. They have it under contract at X. Now the tenant is going to come in, they want to sign it's x plus, they get 10 to 25%, depends how many years the lease is signed for.

Kim Lisa Taylor:

Nice, nice, nice. Okay, very good. I think you just said this, but I just want to clarify. Who pays for the tenant improvements? Is that something that would come out of your fund or out of the student?

Cherif Medawar:

Yes, I do it. The fund. The student just has to have $5,000 cash to open escrow. That 5,000 is refundable. It's earnest money deposit refundable. The reason they can put 5,000 and not 20,000 or 25,000 is because we show the proof of funds. That's cash sitting in the account. If the broker has a question, they email me directly, "Are you the fund owner? Are you the fund manager? We have Joanna here is sending us this offer. Are you guys connected?" And it's like, yes, the offer is made in Joanna Smith or MIGSIF, and I'm the owner and here is the link to the SEC. We're filed with the... Then they're relaxed. The broker is happy, knows that we're serious.

They give us 45 days due diligence and another 15 days to close. And believe it or not, Kim, we don't even have to do the due diligence. I mean when the student puts it under contract, we don't do any due diligence. The single-tenant building, we just call up the tenants and when the tenant comes to visit, they usually send the retail division people that come in and say, "Well, we need a new floor. The extractor hood here needs to be changed. So you know what? We need 75,000 in tenant improvement. We'll sign the deal." They did the inspection. I don't have to do anything. So I can do it from a distance.

Kim Lisa Taylor:

Okay. So why do you think that retail is better than other asset classes? Is it just because of the mechanics of the way it works with once you get signed the tenant, the building increases in value? Is that the sweet spot or is there something else that makes you think it's so great?

Cherif Medawar:

So the reason I like retail, well I like 12 different kinds of commercial estate. I train people on 12 different kinds. I have a formula called the Fax System, et cetera. But I've always looked for stuff that can compress time so I can make the most money with the least effort. Not everybody would like to do that. But then as I started doing transactions, yes, like in apartment buildings, I'd say I don't want to buy it and then start hustling with the tenants and get them out and all. No, I'll buy Class A building and I'll separate the units into condos and then I'll sell them. I'll make a killing.

It was always the velocity of making more money and paying the least amount of taxes. And because I set up in Puerto Rico, which has the biggest tax incentives, I was able to accomplish all that and pay the least amount of taxes legally through tax incentives. I took residence in Puerto Rico, I do business in California, route the money legally through Puerto Rico, through the proper entities, et cetera. And that's a whole different conversation. But the thing is when I got to retail, I realized I don't have to look for a desperate seller.

I'm talking to brokers. Usually the owners have many buildings that own these buildings and one becomes vacant, they don't want to deal with it. It's been sitting vacant for three, four months and they're like, "Oh my God, I got a payment. I don't need this. If it's not going to rent, I need to sell it." So they're not so difficult to negotiate with. And number four, it's an instant increase in value. It's not something I had to wait 10 years until I had to remodel it. I mean like the deal right now we're doing with Church’s Chicken, we're literally going to give them the tenant improvement. We're going to put it in escrow as they do the work, they're going to draw against these invoices. I don't have to do anything. I don't have to go deal with contractors or anything. Not that I don't do that in other developments that I do.

I do developments in Florida. I do rehab in luxury homes in San Francisco, but this is one of the simplest, and let's create a problem. If I put a property or a student puts a property under their contract and starts smiling and dialing for 40 days, 44 days out of the 45 days on their contract and not one tenant calls us back, all he has to do is call the broker and say, "You know what? This deed is not for me. I'm sorry. I could not accomplish with it what I wanted. It's not fitting my criteria. I'm walking away." They get their 5,000 refunded. So where else can I do a deal where I'm sitting talking from my office on the phone and there is a huge upside and zero downside.

And then after you do the first deal, let's say a student assigns it. The first deal, they made some money. The second deal, they have the experience, they know exactly the steps to talk to the broker. They know exactly what to say to the tenants to attract them, what package to present and the lenders they can go to, to get the deal financed. So the second deal they do on their own. So it's good for the students. For me, I have to go now in that city because we’re limited by city and go like say in Seattle and find another Joanna that's interested because we’re limited by cities so we don't go crazy.

Kim Lisa Taylor:

So this is something that people could do on their own. They don't have to use your fund. They could go out and raise their own funds, right?

Cherif Medawar:

Yeah, many people actually take the training and actually what they end up doing is they go do it for themselves. And once they do one deal, they say, "I need to set up a real estate fund. I got to set up a fund because this thing can be scaled." And then when the game gets exciting... And eventually after they do a couple single-tenant buildings for themselves, they then want to go into the strip mall, shopping mall. I have a gentleman who started and in about nine months did 1.1 million. He's in Georgia. And then he set up a fund. He set up a fund and he sent me success stories. He said, "Cherif, now I have a fund." And he raised money the first week.

I mean some people set up funds that takes him like 30 days, 40 days to raise a penny. This guy, all he had to do is, "Look guys, I've done these couple deals, I want to do more. I want to do bigger stuff." And boom, the money was raised. He got 150,000 the first week, second week some people that he had done a deal with and they carried financing, he went to them and he said, "Hey, would you like to invest with me in this?" And now he's up and running, scaled the game.

Kim Lisa Taylor:

That's fantastic. And we can help set up those funds of course. That's one of the things we do. And then we've also actually just signed an agreement with a fund management company called Verivest where they'll give our referrals a discount off their onboarding fees. And we're pretty excited about that because I think a lot of our clients that have funds don't understand how to manage a fund. And it's a little bit more complicated than just managing a syndicate with a few investors in it, especially when it's going to be open for a long period of time, it's going to be acquiring and selling assets and things like that. There's a little more moving parts to it. So I think having a fund manager and administrator is going to be a big game changer …

Cherif Medawar:

Great idea, Kim. That's great to know.

Kim Lisa Taylor:

Yeah. So they're doing really well. Okay. Well, so people sometimes, I mean when they hear retail, they think retail shopping centers. And so that's not what we're talking about here, right?

Cherif Medawar:

Not at all. And if I may say why I don't... Some people get trained or come to the training and they say, "Cherif, how about if I do a strip mall or a shopping center? Wouldn't that be like what you're doing with one times 12 or times 50?" No, because if I'm going to buy a strip mall or a shopping center, now I really have to do due diligence. We really have to check the roof, check the air-conditioning units, check the flooring, check all that stuff. In a single-tenant building. I don't have to check much, I just have to put it under contract. The tenant that's interested is going to tell me what they want and it's up to them.

We signed the lease. When I signed with Puma— Puma Corporation their athletic wear— they didn't want anything. They just wanted, "This is the price we'll pay, just give us so many years. We'll give you the corporate guarantee. Can we get in?" "Yeah." "How quickly can we get in?" "You know what? We do this, this, this, you're in." So they didn't want anything, just have their own system and they took it from there. So totally different if it's a strip mall.

Kim Lisa Taylor:

Yeah, and especially when you're having ... You got to find an anchor and then you've got to fill all these little spots in between and you've got a lot of…

Cherif Medawar:

Yeah, and you have some tenants coming in and they tell you, "Yeah, I want an exclusive. I don't want anybody else to sell ice cream." And it's like, oh my gosh.

Kim Lisa Taylor:

Right. Well, and then there's no corporate guarantees. And if there are, they're just based on whatever their corporation has, which could easily go bankrupt. And so what does that mean …

Cherif Medawar:

Exactly.

Kim Lisa Taylor:

... to enforce on? So I can see the value in the single tenant. Now, do you also develop? Do you take vacant land and build your own single-tenant buildings ever?

Cherif Medawar:

So every now and then a tenant comes in and says, "Well, thank you for calling me regarding the 123 El Camino Real location. We're really more interested a little bit down the road, if you can actually get us something on that street going south” and we'll do a build to suit. So then we go find the land for them, we end up getting the land and then we'll make a deal with them. And the deal is like this. Do you guys want to build it and pay us a land lease or do you want us to build it for you but then you'll have to sign a 15- to 20-year lease? And it's negotiable thing and either/or we do it. But those deals are not that common.

And every now and then, Kim, we have somebody that says, "I like the location. I hate the building. It's too old, so why don't we demolish it and build a new one? We'll work it with you this way." Then they have their own formula. Like McDonald's, we did a deal in Dallas with them. They're not so easy to deal with, but they're so great to have their contract because then the multiplier is huge. I mean the property doubles and goes crazy in value. And they said, "Well, it was a big lot. Well, we don't want any neighboring tenants. We want the whole lot." They're not going to use the whole lot, but it's just we're McDonald's we're not going to share space with anybody. It's like okay.

Kim Lisa Taylor:

Their parking lot.

Cherif Medawar:

And then once they sign the lease they say, "Okay, these are the specs for you to build." I take to the bank and I take it and I tell the bank “I'm building for this national tenant.” And the bank says, "We'll give you a construction loan." And it's not so difficult. Yeah.

Kim Lisa Taylor:

Excellent. So can you explain for the audience, just because the triple net concept is a little bit different for a lot of our clients that have been in the multifamily world or some of these other commercial markets. So tell us what triple net means.

Cherif Medawar:

So triple net, meaning the tenant is going to take the space, the location, and they're going to pay the lease. And when there is a property tax and the property insurance or any ongoing maintenance, they handle it. They pay it. So I get the property tax, I send it to the tenant, they pay it. I get the property insurance, send it to the tenant, they pay it. So what ends up happening is the tenant is fully in charge of everything. And in the beginning people when I tell them that, they say, "Why? Why would the tenant do that? Why would they need to do that?" Well, when you talk to these tenants, they say, "I don't want to depend on you coming in to fix some leak or something. I don't want that. My operation is going to stop and I need to make sure the property taxes are paid so we don't have lien issues. I need to make sure the property insurance is paid so we're covered in case there is damages, et cetera, et cetera."

And this is not an uncommon thing in the retail world. The key thing is to understand that there is also quadruple net, which is called absolute net. So I have a building with Coach, the tenants that are, they sell ladies bags and clothing and stuff. And we negotiated that quadruple net, absolute net. So they take care of the taxes, insurance, maintenance and the structure because usually the structure is something the landlord would deal with. If there is a roof leak, they're going to fix it and bill it to the landlord or the landlord will come and fix it. Landlord meaning the owner of the building. Well, with some tenants I'm able to get quadruple net because they say, "We're just going to send you a direct deposit, we're going to pay you the increase every year. Just get out of our way. We're going to run it." I love these.

Kim Lisa Taylor:

So with the triple net, then they do the routine maintenance, they manage the parking lot and all that. But if there's structural repairs, that usually falls back on the building owner?

Cherif Medawar:

Yes. And usually what I'm going to do, at least like this, like I did a deal with Sunglass Hut. So they said, "Look, we're going to pay you 17,000 a month if you want absolute net, that means we'll never call you for 15 years. You don't have to. You just get our deposit. If you have a loan, pay the bank. If not, live off that money. But if you deal with the structure because it was a historic building, we're willing to pay you 20,000 a month because we don't want to deal with structure or any issues. You deal with if there is a leak or whatever." Because it was in the Caribbean, there is a lot of sun, a lot of heat, a lot of rain.

So I went and I got this roofer and I said, "How can I make sure I don't have a leak for 15 years?" He said, "I can put a sealer and I can give you a warranty for 40 years. It's a lifetime warranty, but I'm going to say 40 years." So for $10,000 I sealed the roof and I got the extra 3,000 a month on the lease for 15 years with escalations. So there are just so many ways. I mean I can talk about this forever, but the idea is you have a reliable tenant that's going to actually keep paying you as the debt keeps getting paid down.

Kim Lisa Taylor:

Right. And you're eventually going to own the building free and clear. Now, at what point do you think about, all right, this lease has only got five years left. I mean when do you think about selling or what's the exit strategy?

Cherif Medawar:

So in the great locations, I don't want to sell, I just hold on to them. That's why I specialize in Old San Juan, Puerto Rico, because that's where the cruise ships arrive. Historic buildings, there's a lot of tax incentives. So I kept these buildings. The ones in the U.S., as soon as I placed the tenant, the value is huge because there's 10 or 15 years of income, I sell them right away.

Kim Lisa Taylor:

Okay.

Cherif Medawar:

Because the highest value at the time. Now there are so many people that love the 6% return, sometimes even 5% return because at 16 times the rent, imagine somebody's making a hundred thousand a year, but they paid 1.7 million for the building. Well believe it or not, there are a lot of owners like this that pay that much because they own some other assets. They had the land producing no income, they had a Class C apartment building that was giving them a lot of headaches. So they sell to a 1031 exchange, they buy these triple net buildings and they say, "You put the tenant, God bless you, I'll pay you whatever, I want my 6%. I want to go to Puerto Rico or to Cancun and go sit and relax by the beach." Plenty of these.

Kim Lisa Taylor:

That was my actual next question. It was what kind of overall cash on cash returns do these properties generate?

Cherif Medawar:

Oh, cash on cash, it depends on where the interest rate is, but right now actually a lot of these deals are done all-cash. My brother did a deal with 7-Eleven in Los Angeles. And I mean he got the property at $2 million. I had to buy the one behind it because the 7-Eleven said, "We'll come, but we need more parking." So he had to buy the property behind it at a million dollars, which was a horrible little property. But then they flatten it and all this. The whole thing cost him like 3.4 million total and sold it at 5.8 million to a guy doing 1031 exchange and did all-cash. All-cash. So they're getting on 5.8 million, like maybe 5% return or something.

Kim Lisa Taylor:

Okay. So the returns from a cash flow perspective and for long-term rental income, not that great. Where the real return is in these buildings sounds like it's this velocity of turning these properties, getting the tenant, increasing the value and then selling it. So you're really flipping the property once you find it, get it tenanted, get it up and running, get the lease in place and then resell.

Cherif Medawar:

Yes. And I would suggest for people, maybe flip the first one, second one, third one, just hold them, hold them because beautiful cash-flow, you don't have to worry about much and it's easy to have somebody inherit them, you put them in a living trust, et cetera. I have a real estate fund. Funds, you can hold many different type of assets. You can sell some and pay off these and then they produce a good cash flow to pay the investors while other new assets come in. It's like it's an amazing asset to hold because it doesn't have too many moving parts.

Kim Lisa Taylor:

So yeah, I had a client one time that was building some single-tenant buildings and he had a group of doctors that just absolutely loved investing in these things. They would guarantee up to 125% of the loan amount. Every single investor signed on the guarantee they just held them forever for the cash flow. They just loved it.

Cherif Medawar:

Yes.

Kim Lisa Taylor:

All right, so all right. So the type of financing, so mostly you're doing self-financing with your own fund, but then if you do get a tenant in there and you get a bank loan, we're looking at just normal CMBS financing or what…

Cherif Medawar:

Yeah, actually any bank will finance these because they're very desirable for the bank. So there's good liquidity with them. You can get credit lines against them also, but usually they'll go up to 70% and they'll go 25 years. That's if you're just buying it with a tenant in. If you actually have placed the property under contract at the lower amount, but then place the tenant yourself and the value jumped way higher, they can actually almost give you a hundred percent. Depends on your credit and the history you have with the bank. So maybe the first deal you'll put a down payment, second deal as the value increases. And what we do is sometimes even with some banks, I do what's called an assignment of contract. So it's an assignment of lease in case of default.

So the tenant comes in and they're going to sign for 10 years. I get the loan with the bank, I tell the bank, "No, no, no, look I need the whole 800,000. You got a tenant here with a corporate guarantee, I'll give you a hundred thousand just as reserves in case something happens." But the payment, and I'll assign the actual lease to them. So there is a form and the bank files a UCC-1, which is a uniform commercial code. And what the bank does is then they get the lease payments, they send a letter to the tenant. I have that with Guess company. Guess, they do clothing. And I got a very good lease on it and I got a great loan because I told the bank, "Look, you can file a lien with the mortgage you're giving me." And an actual lien with the business lien, which is Uniform Commercial Code-1 (UCC-1) is the lien they put for business as you know. And then Guess sends the check to Cherif Medawar and/or the bank. You see?

It gets deposited literally with the bank and then it goes to my account. If I default, if I don't pay the bank, it'll just sit, gets deposited in the bank and does not come to me. So this way if they foreclose on somebody who defaulted, they don't have to lose time, they don't have to lose income. So it's a beautiful way to tell the bank, I'll reduce your risk to practically nothing, corporate guarantee, the building is here and..

Kim Lisa Taylor:

So you said something a couple of times during the call, and I just want to clarify if I've understood this correctly, that if you get a tenant in, you buy the building all-cash, you get the tenant in place, the building has doubled in value, you now may be able to get a loan that's for more than what you paid for the building plus your tenant improvement. So you basically get a hundred percent of your money back. And then if you keep this property with the bank loan in place, then your return is everything above the loan amount, loan payment, right?

Cherif Medawar:

Yes.

Kim Lisa Taylor:

All right. So just making sure that everybody understands you've got your money back so you're getting this infinite return at that point.

Cherif Medawar:

Yes. Not always.

Kim Lisa Taylor:

You do the next deal.

Cherif Medawar:

Yeah, not always, but quite often you do. You see, it depends on who the tenant is and all this because there are corporate guarantees that are AAA tenant, B tenant, et cetera. But the corporate guarantee has saved me from so much. And I'll give you an example of the corporate guarantee. If a tenant signs for 10 years and let's say a couple of years into it, they say, "We want to cancel the lease, we don't want to continue here, we want to go dark." That means we don't want to operate. They just have to continue making the payments. It's called going dark. And then they say, "You know what? We don't even want the space. We want to just cash out of the lease completely." They have to buy the lease. So let's say it's a hundred thousand a year and there are eight years left, that's 800,000, plus the escalations and stuff.

They're not going to give me 800,000, they're going to negotiate with me, "Cherif, how about 300,000, and we just get out?" And I say, "No, no, no. I borrowed against the property. I want at least 400,000." But I'm in control, I'm in full control. And then what happens is during these negotiations, which usually take 60 days to 90 days, guess what I'm doing? I'm smiling and dialing, "Hi, I got the Subway in, they already remodeled the place. We already gave them tenant improvement. You’re Quizno, you'd like to come in? Okay, I'm going to charge you a little bit more because you're going to be up and running in less time." So this happened so many times in 2009 I had a big tenant exiting. They paid me $1 million. It was a 20,000 a month lease, 1 million in 2009 when the economy was collapsing.

I went and I bought two buildings and you know who I put? It was Puma Corporation. You know who I put instead of them? Crocs. And Puma was paying 20 and Crocs came in at 22,000 because the place was ready to go. And Crocs was growing like crazy because they were telling me it cost them $3 to make these shoes that they sell at $40. I mean they make one. I was just checking yesterday on Crocs because we're talking about another location, they net $1.2 billion a year. Can you imagine how big these guys are?

Kim Lisa Taylor:

Wow.

Cherif Medawar:

So yeah, some companies are really good.

Kim Lisa Taylor:

Well I am sure, I'm definitely interested and I'm sure that there are other people on this call that are interested in knowing about how they can go to your training. Can you tell us about what you have coming up or how people can get involved with you?

Cherif Medawar:

Sure. Actually it's funny enough, I have a training coming up on the 26th, in five days in Old San Juan, Puerto Rico. They fly in, we do a full day. The training, you usually have 10 to 15 people from around the country. I already have nine coming in. The rest are going to be on Zoom because I put it on Zoom. So I do the full day training. It's an intensive full day. We start 8:30 and we finish at 5:00, 5:30. And I talk about it and they can reach us, they can go to cmrei.com. CM is for Cherif Medawar Real Estate Investing. So like Charlie, Mike, Robert, Edward, International or they can actually email Ashlee, ashlee@cmrei.com. But email her today because she will let you know about the program.

And I'll give you a phone number actually if you don't mind, give me a second. Anytime you can call her or Zach or whoever answers in the office. But she's the VP. 844-720-1031, like a 1031 exchange, 844-720-1031. And tell Ashlee, "I want to talk about the joint venture program with the retail with Cherif." I do the training and we have that happening every seven weeks or so and then we can... Oh, thank you for putting it. And Ashlee could be S-L-E-Y, but her correct spelling is A-S-H-L-E-E. But both will reach to her because I told her everybody's going to be going E-Y.

Kim Lisa Taylor:

How you spell it.

Cherif Medawar:

Yeah. E-E. So yeah. And the training is the 26th, the live training. It'll be great to come to Old San Juan. You call her up and I have a small hotel there that I own. You can stay there. The beauty in Old San Juan is when we finish the training, we go down in my office, you meet my in-house attorney. I have an attorney for all my contracts with the retail. You'll meet the accountant. But when we go down you can see a hundred-million-dollar portfolio that I have there, literally 12 buildings I own down that street, Fortaleza Street. And right when the cruise ships arrive, it has been of course 20 years. It's not like it happened in three years. It's easy to talk now, but it's like you have so much experience now Kim, being an attorney, life gets easier as you get better.

And what I like about what you do is you don't just give people a fund structure or a PPM for a syndication. You really have a lot of services that come with it, which is very unique in your firm and I admire that a lot. I've seen you grow through the years and keep growing and improving services and a lot of good positive feedback about everybody who works with you.

Kim Lisa Taylor:

Yeah, we do have some investor marketing materials. If you want to raise your own group of investors, you want to do your own fund, we have a lot of education. We've got both of my books. If anybody is interested in getting a copy of my book, text the word SYNDICATE to 844-796-3428 and text the word SYNDICATE to 844-796-3428. That actually spells 844 SYNDIC8. S-Y-N-D-I-C and the number eight.

Cherif Medawar:

Pretty clever.

Kim Lisa Taylor:

Yeah. And then you're going to answer a question and we'll send you one of our books, actual physical copy. But we do have a couple of questions, so I want to go to that. Let's see. So Chris asks, “What classifies as tenant improvements?”

Cherif Medawar:

Tenant improvements could be from changing the flooring to putting certain counters that they want, to changing the facade, to changing the grease trap for these tenants. They have certain requirements for the kitchen, to putting a new walk-in freezer or things like that.

Kim Lisa Taylor:

Okay. And Chris is asking, “Are you originally from Puerto Rico? How does that work for you?”

Cherif Medawar:

I'm half Egyptian, half French. I like Puerto Rico. Originally I liked it because of the tax incentives that could reduce my taxes from 40, 50% I was paying when I was flipping properties in the U.S. And in California you're paying the 40 some and then the 13% state tax all the way down to less than 16% or so. So that's a huge, on every million you save 350,000. That's just a lot of money that I'll save.

Kim Lisa Taylor:

So you have to have an actual Puerto Rican established that as your primary residence before you can take of these?

Cherif Medawar:

Yes.

Kim Lisa Taylor:

Okay.

Cherif Medawar:

So Puerto Rico is part of the United States. Anybody interested in that and they want to talk about it, they can call the office. I'll tell them there are tax incentives. And I even ended up having my attorney help some couple of my students set up in Puerto Rico because they make a lot of money. So Puerto Rico says you can come and live in Puerto Rico, become resident, you have to spend 183 days there. It's according to Internal Revenue Code 937. And it's part of the US so it's not like you need a passport when you go there.

It's like everybody speaks English, they speak Spanish as well, but they speak more English there than in Miami, I can tell you that. So it's a great way to be able to take residence there and follow the rules to have your business routed through there. And that's how you do it. But no, I'm not originally Puerto Rican. I've been in the United States for over 40 some years. This is my home here, but I'm originally half Egyptian, half French. My mom is French, father Egyptian Catholic, so we left very young. Yeah.

Kim Lisa Taylor:

Actually I was an environmental consultant before I became an attorney and I had a project in Puerto Rico and I learned something about Puerto Rico is that elevators don't work.

Cherif Medawar:

Yeah. Because of the water, the salt water. They don't fix them very fast.

Kim Lisa Taylor:

I stayed in a hotel and I was trying to get off on my floor and the people in the car with me were saying, "Oh no, this elevator doesn't go to the sixth floor."

Cherif Medawar:

Oh my God.

Kim Lisa Taylor:

You'd have to go up and then come back down before it was down at the floor. It was very funny. And then in another building, so I was actually inspecting a multifamily highrise, 20 miles outside of town in this small little rural area. You're driving along and all of a sudden there's this huge highrise. And so I was inspecting it and we had 20 people, including a HUD inspector, in the elevator and the elevator got stuck. So that was pretty weird.

Cherif Medawar:

I'm sorry to hear that. Well, since 2012 there has been so many wealthy people that relocated there to drop their taxes, like a lot of hedge fund managers and all this, and eventually they fall in love with the island. They invest in it and they do a lot more. So there has been huge improvements. I mean, you would not recognize it. If you haven't been there for the last five or seven years, you would not recognize the development.

Kim Lisa Taylor:

Yeah. Yeah. It was interesting. I'm sure it's very nice now. Okay, so let's, see somebody... Let's see. Hassan asks, “How do you decide on how much the down payment would be and what language do you put into the LOI so that the payment is refundable?” I guess you're putting that actually into your purchase agreement, that the due diligence period, as long as you cancel the contract during the due diligence, it's refundable. Correct?

Cherif Medawar:

Yes. The earnest money deposit. Once we show proof of funds, that is cash to buy the property, we negotiate 5,000. Well, I'm a real estate fund, so if they say, "No, we need 25,000," then I step in by email. I say, "Look at any one time I got 10 to 15 deals going in the United States, here is the fund. I cannot be putting 250,000 to 350,000 just sitting in escrow with no return. So that's not going to happen. If you don't want 5,000, I close in less than 60 days. Good luck selling that property." You see, our competition are franchisees, people that get a franchise agreement, these people need 90 days due diligence and another 30 to 60 days to close. So any broker that understands retail understands our huge competitive advantage coming in doing the way I do it. We have no competition. We have no competition.

And I'm not saying every deal happens. I mean, look, you may put a deal under contract, start smiling and dialing for 30 days, you get no response. You cancel the deal, move on to another one. You may not find many deals in your backyard. What do you do? You expand. But if you focus on an area and focus on that type, you'll understand the values. And when you see a deal, you will jump on it and one deal will change people's lives. That's income for life because once they've been there 10 years, what happens? The replacement cost of the building alone make the building increase in value if they leave and you can get another tenant because the area grows.

Kim Lisa Taylor:

Well, this is fantastic. I feel like this is the time that people should be arming themselves with knowledge. If you can't find the deals that you want in the asset class you've been trained on, then expand your training, start learning about other things. There may still be things that are working in this market and you just have to know how to do it.

 Cherif certainly has a great program. He's been doing this. He's doing it right. So a lot of trainers are out there. They're not actually doing the deals, they're just training people. Cherif is actually doing it. He's been doing it for a long time. I've watched him grow over the years and it's just been an amazing experience. So I highly recommend you guys take advantage of the training, check that out, and we'll look forward to seeing you all on a new, another podcast. And Cherif, you'll probably see me in your training at some point.

Cherif Medawar:

Thank you, Kim. All the best to you. Thank you.

Kim Lisa Taylor:

Okay. Thank you so much.

Cherif Medawar:

Bye-bye.

Kim Lisa Taylor:

Thank you so much. Bye everybody.