Feb 27, 2022
Is commercial real estate worth my time?
Matt Drouin will explain why it is.
Matt is a high-performing real estate leader with 15 years of experience in real estate management, development, and brokerage. He specializes in asset turnaround and stabilization of distressed assets, as well as building and developing world-class management teams.
Coming from a family that struggled financially during his childhood, Matt vowed to find investment opportunities that would give his own family enough income to buy their needs and wants. He paid our podcast a visit to share his real estate experience and the steps to take for aspiring investors to replicate it.
[00:01 - 02:14] Opening Segment
- Matt Drouin tells us how he jumped into the real estate business
- What Matt realized about the potential of real estate as an investment
[02:15 - 07:38] Investing in Commercial Real Estate
- The reason Matt is investing in historic buildings
- Matt reveals how he educated himself about the real estate business
- What is the number one expense driver in multifamily according to Matt
- The behind-the-scenes of investing in commercial real estate
[07:39 - 12:28] Finding the Right Broker and Tenants
- How to find the right real estate broker for you
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- Matt shares some tips
- Protect your investments from inflation with these tips from Matt
- The asset classes and markets that Matt’s team is looking at right now
[12:29 - 14:04] Closing Segment
- Your way to make the world a better place
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- Advocating for financial literacy and empowerment
- Reach out to Matt
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- See links below
- Final words
Tweetable Quotes
“With commercial [real estate], you got to pick up the phone, you got to call, you got to build, you got to work your relationships. So, it's definitely, a full-contact sport, and…you got to be very, very involved.” - Matt Drouin
“.Don't jump at the first opportunity that comes to you…you just got to be patient on the leasing end thing there and not get too antsy.” - Matt Drouin
“We believe our young people, especially our underserved population, is our greatest investment, so we partner with some nonprofit and also for-profit organizations that offer [financial literacy and financial empowerment] coaching programs to those young people.” - Matt Drouin
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Email matt@oakgrovecompanies.com to connect with Matt or follow him on LinkedIn. Check out OakGrove Companies to help them in developing communities, one building at a time.
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Matt Drouin 00:00
Started building relationships with commercial brokers, there's guys out there and women that have had decades of experience in leasing. It's one, number one most important thing is leasing in commercial. So just getting a pulse on the market, you're going to need to build relationships with commercial brokers anyways, if you're going to get into that field, standard, commercial property and also even mid to large multifamily.
Intro 00:25
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 00:34
Matt is a partner at OakGrove Development, a real estate investment and development firm with a special focus on value add commercial and residential properties in Rochester, New York. Matt, welcome to the show.
Matt Drouin 00:45
Hey, thank you so much for having me on.
Sam Wilson 00:46
Hey, man pleasure’s mine. Same three questions I ask every guest to come on the show. In 90 seconds or less. Can you tell me where did you start? Where are you now? And how did you get there?
Matt Drouin 00:54
So where I started was for family owner occupant property, I was getting kicked out of my dad's house. So I had to find a place to live. And I was a real estate broker at the time. That's where I got my start. I started I got bit by the bug with that when I had, you know, closing that property. I had like 1,800 bucks in rent checks two weeks later. So that's why I got the bug. And I started scaling from there, buying more smaller multifamilies. And then I had my aha moment when I bought my first commercial property back about four years ago.
Sam Wilson 01:23
Interesting. Tell me about that aha moment. And what did you buy?
Matt Drouin 01:27
Well, my parents were like, struggling financially, my entire childhood. And the one thing that I see are the two things I see, like, Americans, like, that stress them out the most in terms of financial milestones is one, how are they going to pay for their kids' education? And two, how am I going to retire? Right? And so I bought a commercial property with a commercial office building really great location. And that one deal, basically paid for my girls' college education. So like, that's one deal. And I was like, “Damn, it's like, can I find one to fund my wife's retirement?” And so I did that. And I was like, “Man, this deal was easier to close than for family property that by” so that's really when I started, you know, getting interested in scaling to larger deals.
Sam Wilson 02:15
Gotcha. That's really intriguing. Yeah, one deal, and you go, hang on. That's it. That's all it was, was one and many more times. Yeah. It's a very empowering feeling. That's really intriguing. So what was the asset class that was in again?
Matt Drouin 02:29
That was office. Okay. Yeah, it was a B-class office historic building. Yeah, one of the things if you look at our portfolio, it's a lot of like pretty, old, historic-looking buildings. I have a passion for historic preservation. So that's kind of what we buy. Not the smartest thing to buy from a financial standpoint, I don't think but yeah, we do commercial, we have multifamily, residential. And then we also have some retail, we do a lot of artists studios, as well, we have a, really, really strong arts and cultural scene in our city. So yeah…
Sam Wilson 03:00
Got it, man, tha's really, really intriguing. How did you pick that niche? And then how did you educate yourself on it?
Matt Drouin 03:07
Well, when I started residential, I thought in order to scale that I needed to, you know, start learning to how to manage larger asset classes. So I got a job with, you know, pretty large property management company. And that's how I got the experience sort of secondhand, you know, not being the actual owner, but managing the property. So that's how I got exposed to that niche. And it was something I, always scared me, because I was like, I've heard, you know, a commercial space goes vacant, it's gonna be vacant for 5, 6, 7, 8, 9, 10 years. And I'm gonna, you know, have to declare bankruptcy and so on and so forth. But it definitely established a comfort level with that. And that, you know, knowing if you purchase a property in a great location, that you'll have no problem finding tenants, it may take you a little bit longer, maybe three months, maybe four months. But you know, you got very, very little turnover with commercial tenants because they're very sticky. So whereas you're buying a residential area, you got people that turn, you know, they basically, you know, buy a house, they move out, so your turnover tenants every two to three years, especially in the markets that we serve, so turnover is the number one expense driver that we witness in multifamily.
Sam Wilson 04:15
We're sure. Yeah, your vacancy is one of your biggest numbers you plugged in when you're doing underwriting, you're like, :Okay, how much vacancy we have?” That's really intriguing. How is that asset class on the, you know, B-class historic office buildings? How does that fair in the last couple of years?
Matt Drouin 04:29
It's actually fared quite better than anticipated. I mean, when COVID hit, we were like, “Oh, my God office is dead.” And it has changed significantly. However, the buildings that we own where we have office product is primarily its smaller office, think of like, you know, single office suites, executive suites that may be like 200 square feet. We have, you know, two offices with a little reception area for you know what, we have a lot of therapists that that are tenants of ours and stuff like that. So we had to work out some payment arrangements with like a couple of salons. We had tenants that our retail mix, you know, by the time that we negotiated those for rent forbearance agreements, you know, they got, you know, COVID relief and were able to, you know, get current. So thankfully we've been blessed in that matter.
Sam Wilson 05:12
Yeah, absolutely. That's really, really intriguing. What are some steps? If somebody wanted to follow in your footsteps and they said, “Hey, man, I want to go out and I want to do B-class office buildings, historic preservation stuff,” where would you tell them to start?
Matt Drouin 05:23
I tell them to started building relationships with commercial brokers. I mean, there's guys out there and women that have had decades of experience in leasing, it's one, number one most important thing is leasing in commercial. So just getting a pulse on the market, you're going to need to build relationships with commercial brokers anyways, if you're going to get into that field, standard, you know, commercial property, and also even mid to large multifamily. It's not stuff that's listed in the MLS or multiple listing services is listed. For the most part privately, you know, brokers will not put their stuff out on LoopNet. First, typically, they'll you know, go to their A, B and C list first, before it hits LoopNet. So those relationships are gonna be important. And our community at least, our brokerage community is like very, very abundance mindset-oriented with a lot of brokers I work with, so they're more than happy to consult with somebody one on one. So…
Sam Wilson 06:15
Right. Yeah, that's really, really intriguing. I love that. And so you said one of the things you said to look out for is the leasing side of it. How do you educate yourself on what makes a good tenant? Or do you just put that off onto the broker?
Matt Drouin 06:26
So I have my real estate license, I'm a real estate broker. So I do probably most of our companies leasing. I think it's definitely a few different parts of that. The reason why leasing is the most important is that the development company has to work for, we wouldn't have properties that were just vacant for months and months and months. And I was like, why is this vacant? And the reason why it was because there was nobody putting the effort behind leasing it. Right. You know, leasing as a full-contact sport, it requires you know, it's not like an apartment, a lot of times it's just a commodity, you put it up on Craigslist, apartments, calm Zillow, Trulia, and you got, you know, 10, 15 people that want to see the apartment that week, and you get a lease out of it. With commercial, you got to pick up the phone, you got to call, you know, you got to build, you know, you got to work your relationships. So it's definitely, definitely a full-contact sport. And that's really, you know, you got to be very, very involved. And that's a lot what we do in terms of our marketing efforts is that building relationships, not only with my own tenants, but with also prospective tenants in terms of I got an office building, I'm out there, basically, getting to know business owners, you know, finding what their space needs are finding what their long-term growth plans are because their lease is going to be up at some point in time, and their current space might not fit them well. So that's what we do.
Sam Wilson 07:39
Right? That's really interesting that you say that it is a full-contact sport. What are some things someone could do if they didn't want to take on the leasing role in-house?
Matt Drouin 07:50
Finding the right broker, that services, that type of product that you're looking to lease. So you don't want to hire a residential real estate agent or the real, residential real estate agent, used to buy your house to list an office or retail space for you, you may have a relationship with them, but they don't have the relationships out in that particular community in order to yield the best results for you. Also, on the commercial end of things, I mean, there's brokers I know with CB Richard Ellis that they specialize in industrial properties, there's a guy that specializes in just retail, so you want to be matched up with that one. And also you want them to be matched up with the right size as well. So if you got a broker that's you know, specializes in you know, leasing 20,000 square foot spaces, and work in a really big deals, that 200-square-foot office that's in your building is not going to be a very high priority. So you want to make sure that you're matching up with the right product with the right broker as well.
Sam Wilson 08:45
Gotcha. What are some things you guys are doing in leases right now. I know inflation is a big topic, what are some things you guys are doing to kind of protect yourself from the inflationary environment we're in?
Matt Drouin 08:53
So we have a couple of different tenant classes, we have our larger commercial tenants, right? Those ones are more used to expense escalators sharing an expense increases. And we have some properties where we have operating expense escalators in there so that if operating expenses go up, then the tenant has to share and that expense on a pro-rata basis how much square footage they occupy. Your mom and pops that are leasing a singular office you start putting in length, you know lease language on tax escalators and insurance escalators and this that the other thing you're gonna scare them the hell away. So that when you just want to make sure you're building in, you know, automatic rent increases throughout your lease term. Typically, those tenants are not going to be signing a 10-year deal with them. Now you may be signing like a two to three-year deal. So if inflation gets out of control, if your real estate taxes go way up. Now the lease renewal is coming up soon you can negotiate that rent increase to make yourself whole on the back end. And you know, you may be behind a little bit for a year or two but a year is not a long time I've learned so…
Sam Wilson 09:58
That's really really intriguing. What are other things you've done on the leasing side that have changed over the years where you say, Hey, I used to do it this way. And I learned a lesson the hard way. And now I do it this way?
Matt Drouin 10:09
Taking my time with prospects, you know, especially you've had a, I've had some restaurant spaces that had been vacant for God, six months to a year and our mix. And the phone's not ringing off the hook for those spaces, right. So you know, the moment you get somebody that wants to space, you want to make sure that all right, you're kind of getting married to this person, especially if you're doing some tenant improvements, or if you're signing a long-term lease with them. Don't jump at the first opportunity that comes to you. And I found that, you know, when I bet at my most desperate moment is to like, who is going to take this space, after I passed, you know, passed over three or four, I get my like, golden tenant prospect that comes in, so you just got to be patient, you just got to be patient on the leasing end thing there and not get too antsy.
Sam Wilson 10:53
Right, man? Yeah, I'm sure you have plenty of times where you've taken the wrong tenant and go, “Oh, slow down, slow down this is absolutely intriguing.” What are you guys looking to buy right now? And then if you don't mind sharing why.
Matt Drouin 11:08
So what we're looking to buy right now is properties that are in Rochester, New York. I mean, that's really where we have a really deep rich understanding of our markets. Like I say, we'd like to buy, you know, some properties that have historic value to it, that look really pretty like that, you know, we have so many properties that have such rich history, it's in our region. And then in terms of product, I mean, definitely, we're a little bit hesitant on retail right now, we don't know where that's heading on a smaller office. I mean, we're all in on smaller office, we are looking at industrial properties as well warehouse properties. We don't see that going away anytime soon. But we're also looking at, you know, we've looked at some multifamily deals, but you know, definitely looking to be more on the B to a class type properties there. You know, working class, lower income tenants got hit especially hard with COVID. And also the laws changed significantly in New York state comes to landlord versus tenant rights in terms of collecting rent. So certainly if, you know, if we're providing a product or service, we want our customers to, you know, to pay and be able to, you know, hold them accountable for not paying, sorry.
Sam Wilson 12:10
That's absolutely intriguing, Matt, thanks for taking the time today to break down kind of where you guys started, how you got there. And then it's really some nuances on the lease leasing side of things. That was a fun part of this conversation I didn't expect to get into I learned a lot myself. So thanks for breaking that down towards let's jump here. Excellent. Into the final two questions. First one is this when it comes to investing in the world, what is one thing you're doing right now to make the world a better place?
Matt Drouin 12:34
What we do is, we believe in financial empowerment. So what we do is, we fund scholarships for financial literacy and financial empowerment programs for our young people. I mean, we believe our young people, especially with our underserved population, our greatest investment, so we partner with some nonprofit and also for-profit organizations that offer those coaching programs to those young people.
Sam Wilson 12:57
That's cool. I love that. Matt, If listeners want to get in touch with you or learn more about you, what is the best way to do that?
Matt Drouin 13:02
Definitely, go to our website, if you are on the fence about getting into larger-scale commercial real estate, I have a how-to guide along with documenting my experiences through that and sort of a, you know, a step-by-step process in terms of how to get in that vein. So if you subscribe to our newsletter, I'll shoot that over to you. It's a little ebook. So if you go to www.OakGrovecompanies.com, that's O-A-K, G-R-O-V-E, companies dot com and I'd be happy to send that over to try to add some value and help you not be scared so…
Sam Wilson 13:34
That's fantastic. Matt, thank you for your time today. I do appreciate it.
Matt Drouin 13:38
Yeah. Thanks, Sam. I appreciate it.
Sam Wilson 13:40
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.