SCF 29 | Triple Net Lease

 

Get ready to learn more about the next big thing in real estate. In this episode, Michael Flight joins Dale Corpus to school us on triple net lease investing and blockchain real estate. Michael is the CEO of Liberty Real Estate Fund LLC, the World’s First Net Lease Security Token Fund, and the founder of the Blockchain Real Estate Summit. He also hosts the Nothing But Net podcast, where he guides listeners with all the information they need to start investing in Triple Net (NNN) properties. Dale and Michael sit down to chat about why you should invest in triple net leases and how to do it. Plus, Michael shares his thoughts on emerging trends in the space and explains the tech behind real estate tokenization.

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Trends In Triple Net Lease And The Future Of Blockchain Real Estate With Michael Flight

We have another guest that’s an expert in a triple-net lease space, which I’ve been covering in more episodes, but my guest this time is different in the sense that he’s also an expert in a new topic that I haven’t discussed yet on my show. We’re going to be talking about real estate on the blockchain. We’ll dive a little bit more about real estate tokenization. I’m not talking about Bitcoin or Cryptocurrency here. It’s more so the technology behind it as it’s found its way into real estate and investing.

This is a new topic for the majority of you. My guest, who happens to be the one and only Michael Flight, is going to break it down for us. Here’s a little bit more about my guest. Michael Flight is a founding principal of Concordia Realty Corporation in 1990 and CEO of Liberty Real Estate Fund, the world’s first net lease security token fund giving you stable and tradable private real estate. Michael is a real estate entrepreneur and blockchain real estate evangelist. He is an expert in the retail real estate triple-net shopping centers and triple-net lease investments, redevelopment, real estate tokenization and real estate on the blockchain.

He started his commercial real estate career in 1985 and has an extensive record of partnering with some of the world’s most known banks, insurance companies, hedge funds and institutional investors in many successful projects. Michael has been featured on CNBC Arabiya, CEO Magazine and quoted in Yahoo Finance, Crowdfund Insider, Crain’s Chicago Business and E-Crypto News. He’s the co-host of the Nothing but Net, a triple-net podcast, an educational podcast about triple-net lease properties and the Chicago Blockchain Real Estate Collective Educational Meetups. He’s also the Cofounder of the Blockchain Real Estate Summit. Without further ado, let’s begin. Welcome to the show, Michael. How are you?

Dale, thanks for inviting me on. It’s great to be here.

Quite an impressive resume, by the way. For my audience that doesn’t know you yet, geographically, where in the world are you? Where are you based?

I’m in cold Chicago now. As I was telling you, we’re like 19 degrees and we’ve had probably about 12 inches of snow. They got a lot more on the East Coast this time.

In your bio, you started in commercial real estate quite some time ago, in 1985. Is that correct?

I started helping do rehabs on apartments with a local investor in the Chicago area. We were rehabbing apartment buildings and then I graduated from college and went on to become a retail real estate broker that specialized in retail, leasing and selling shopping centers.

Location is worth more than the credit of the client. Click To Tweet

I’m curious, so you started so early and whatnot. How did you get into real estate investing? Correct me if I’m wrong. You said you started real estate investing while you were in college.

I wasn’t doing the investing. I was working for a local real estate investor. I got into real estate investing because while I was a junior in college, my brother and I attended one of these Nothing Down seminars. They were popular back in the 1980s. Now, all this stuff is done on the internet, but back in the day, these guys would roll on the town, go to the local Holiday Inn and rent the banquet room. I don’t know how we got there or how we found out about it.

Was it an infomercial?

It could have been. There was a guy in 1980s, Carleton Sheets, that was always on a yacht and there was like hot chicks on the yacht and stuff. He was a popular one, but there were a few of them. We soon realized, when we went to try to buy a house, nothing down and the real estate broker said, “No, the bank’s not going to loan you any money because you guys don’t have a job.” I went a different direction and I got a job working for this local guy. We were doing apartment rehabs, then I went out and he said, “I can’t pay you. I can’t bring you on to what you should do. You should become a real estate broker.”

I had my real estate broker’s license and I got that in my senior year in college and started out as a commercial real estate broker. Eventually, I ended up working for a large syndicator out of Philadelphia. I cannot remember anymore, but they owned around 270 to 280 shopping centers nationwide, then the savings and loan crisis hit. All these large companies and large investors got caught in a squeeze where there was no money and there was no bank lending. We started our own company in 1990 and haven’t looked back.

Can I ask you how many economic crashes have you seen?

It’s number four now.

Going back to your background, it’s great that you had the experience of being a real estate broker and whatnot. Were you a real estate broker before you started investing or did you start investing at all before you were a broker?

No, I became a real estate broker because I took the licensing course for Illinois to be an LMI Real Estate Broker because I thought I could learn how to do real estate investment. I learned that they don’t care what you know. It was a frustrating class because I would ask questions like, “Why does this happen?” The guy that was teaching it was like, “No, we’re only covering the stuff in the book, but you only have to answer these questions. This is just to pass the test.” Basically, there’s a bunch of people, and it still is the case because I have to take courses every three years to renew my license, that all they care about is that you memorize the answers to the questions. It seems to me they don’t care that you know anything about the actual real estate transaction or anything like that.

I’m a realtor as well. I always tell people like, “Just because you pass your real estate exam doesn’t mean you’re going to like a real estate expert.” It’s equivalent to driving. “Just because you pass your driving exam means that you can drive. It does not mean you’re a good driver.”

There are a lot of great real estate brokers out there that go out and do homework and understand. One of those great ones that you and I both knew was Bob Helms. He wrote a book that was good for real estate brokers as to how to invest. Talking to you brings up a lot of memories for some good times with the Helms family.

It seems like you got into commercial right away. You found yourself in a triple-net lease space and I want to talk about that now. What do you find so compelling about triple-net lease properties as an investment asset class?

SCF 29 | Triple Net Lease

Triple Net Lease: Real estate is extremely location-specific. Particular tenants can do better in a particular location.

 

The biggest thing is my experience has been working with shopping centers and working with retail leasing and also working with single-tenant triple-net properties. I’ve also done the gamut from condo conversions to house flipping. You name it, we’ve done it, except for industrial and self-storage. The best thing about single tenant triple-net stuff is that there’s not a whole lot of work. It’s a set it and forget it type of thing. I like to say, “There are no tenants, no toilets, no termites and the tenants pay the taxes. What’s not to like about it? That’s why we named our podcast Nothing but Net because you get nothing but net income. A lot of people describe shopping centers as triple-net properties too.

They’re not quite a triple-net because you, as the landlord, end up having to maintain the walls, the structure and the roofs. You, as the landlord, also need to provide the services like sweeping of the parking lot, the landscaping and in the Northern climates like where I live, snowplowing. You need to do all that stuff arranged for the contractors and then bill it back to the tenants. It’s complicated bookkeeping that way.

The great thing about net lease properties is that to me, nowadays, blow away owning an apartment building or a shopping center. I’ve owned office buildings too, which were are a large pain in the butt to manage. If you get a quality tenant in a quality location, again, it’s that a lot of them don’t even want to send you a check anymore. They send you an ACH payment directly to your bank. It’s that way with McDonald’s, Walgreens, and those things typically hit the bank account anywhere from five days to the day of the first day of the month. There’s no calling up people, chasing them. There’s no sending people out to knock on doors to get the money.

I had a guest that was also in triple-net space. His focus was on industrial. It’s nice hearing somebody else talk about triple-net leases, but this is different. We’re talking about retail. What do you like about the retail side of things as opposed to other triple-net types of classes like industrial, for example?

I would say that I’m stuck in retail because that’s what I know best, but what I do like is that you also have to know a little bit about the tenant’s business in retail. You get to learn a lot about how tenants operate. In industrial, you have to have the right ceiling height, the right number of docs and it is a little bit location-specific. With retail real estate, it’s extremely location-specific and particular tenants can do better in a particular location.

For example, if you’re working with a Starbucks, Dunkin Donuts, or Dutch Brothers, they typically want to be on the morning commute side. It’s little different things like that. With restaurants, you need to know a little bit about the restaurant business and whether they get most of their business for breakfast or doing a late-night thing, an all-night drive-through. I enjoy that part of it.

There are some glamour parts to retail real estate, too, because there are a lot of places where people like to go. A lot of the stuff we do is necessity business as our bread and butter, but we also had some malls and things like that back in the day. Those are more about creating places for people to go, places for people to meet to gather. Merchandising a shopping center like a department store would merchandise to create a synthesis and attract a lot of people that if they come for one thing, then they’ll shop for other things.

Speaking of retail and the times that we’re in, how hard has retail have been hit by COVID? How has it affected that space?

Some of our shopping centers, in particular, a few that were in non-great states that had locked down and shut down the tenants and things, in one of them, we had 55% of the tenants closed for business. That precipitates because it wasn’t our first rodeo. It’s like, “These guys are closed down. They’re not going to be able to pay their rent. We better get on the phone with the lenders and tell the lenders that we might have to do separate side deals with the tenants because they can’t pay their rent.” We might have to forgive some rent. We might have to make them pay the rent back over 1 or 2 years later when they reopen up.

Have triple net leases in very good locations. Even if the tenant doesn’t renew their lease, the underlying property value is going to go up. Click To Tweet

You need to get lender permission for that. You can’t go out and say to the tenant, “By the way, you don’t need to pay your rent for two months.” We did that first then we started working with the tenants. The little guys, we worked to help them get their rent forgiven because they’re like hanging on for dear life. Some of the larger well-capitalized guys, we worked out situations where they paid us back over a number of months.

Triple-net investing is something that I haven’t participated in yet, but I love the fact that it is like mailbox plenty. Sometimes I can’t believe how little you have to do.

I do want to address that the single-tenant properties did magnificent because of the type of tenants that we focus on. We made a decision back in 2017, 2018 and 2019 to say, “What type of tenants aren’t going to be disintermediated by the internet?” Those types of tenants also have proven to be pandemic resistant, so the triple-nets worked perfectly. The cap rates from mid-2020 to the end of 2020 dropped dramatically because people said, “I need a flight to quality. I’m not sure about these residential moratoriums. I’m not sure if people are going to continue to stay in self-storage or give those up.”

We like to describe triple-net leases as bonds wrapped in real estate because you get equality, big corporation, paying a long-term thing. It’s there and it clicks off. The difference is that the shopping center suffered and the single-tenant triple-nets, except for some full-service restaurants. Some other tenants weathered the storm pretty well.

When you’re talking about the single-tenant types of scenarios and whatnot, are we talking about fast food drive-throughs or about something else?

It could be a fast-food drive-through. We do have those. Our fund is we’re investing in auto service. Anything from Jiffy Lube to transmission guys to repair guys but they’re the large national change. For example, like Jiffy Lube, you could either get a well-capitalized franchisee on your lease. If it’s a corporate store, it’s Shell oil company. I love the credit of the Shell oil company. We look at grocery stores. We also do drug stores, dollar stores, necessity businesses. The other thing we like are cellular phone stores.

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Triple Net Lease: The biggest risk mitigation is that the tenants pay for all.

 

Out of curiosity, why cellular phone?

It’s because you still have to go in and get your phone and all the rest. You can buy your phone on Amazon, but most people end up buying it from the cell phone store or the mobile phone store. There’s a lot more interaction there. The other thing that I like about them is they’re usually well located in the middle of a retail nexus, out on an out parcel of a regional mall or something like that. The great thing is you get either AT&T credit, Verizon credit or T-Mobile credit, which are all nice strong corporations, but if you have to take the space back because if the tenant closes, they’re normally nice, beautiful boxes that you can release to some other type of tenant.

What’s the typical type of profile for an investor seeking a triple-net property? What do they focus on? What do they look for? Are they looking for location, financial straight to the tenant, term of the lease? Can you elaborate on that?

It depends. If it’s an institutional investor like a reach or pension funds or some of the institutional guys, they primarily underwrite completely with credit. Whereas when we underwrite, we start with the location of the space and then, of course, underwrite the credit of the tenant. The main driver for us is the location because we’re very skilled and experienced at repurposing triple-net leases if the tenant blows out. We want a solid location because we believe that the location is a lot of times worth more than the credit of the tenant. That’s been proven out, especially if the tenant doesn’t renew.

A large driver of triple-net investments is people who have owned apartment buildings or things that were more intensive, like mobile home parks. They then want to trade into something because they’re at a particular point in their career, similar to what I am. I don’t want to deal with a large, heavy rehab type of situation anymore. I’d rather invest in and get quality cashflow and know that it’s there. The other thing is, if you take a look at the difference between the returns from, let’s say, a value at an apartment building, I see some syndicators coming out with and saying, “We’re going to get these types of returns,” and what you can get with a pure triple-net lease.

A lot of times, the risk on construction, on the execution of the business plan and everything else doesn’t make up for what you can get now immediately by buying a triple-net lease and the money cranks off monthly. A large driver, probably 50% of the market in triple-net restaurants and retail, is people that are selling previous real estate deals and trading into another deal but doing a 1031 exchange.

I want to talk about mitigating risk. How do you mitigate risk in these retail types of triple-net lease investments?

The biggest risk mitigation is that the tenants pay for all. Going in cap rates and going in returns are a little bit lower, but you mitigate your risk because the tenants are paying for all the expenses. The biggest driver now and the thing that is going to hit a lot of apartment projects and a lot of other projects that are not triple-net is real estate taxes. A lot of these municipalities need money, especially in the North. There are all these municipalities that have all these pension obligations. If you take a look at California, it’s a pension bomb out there. That’s all going to be paid for by real estate taxes. That’s the thing that you have to worry about. If you don’t have control over your expenses, your expenses are going to start eating into your return.

You still have to make sure that the expenses are reasonable with triple-net properties because the tenants are paying them. If they pay too much in expenses, they’re not going to pay you that rent. The great thing is the triple-net mitigates the risks so that the tenant pays for the tax increases. The tenant pays for any type of maintenance increases or labor increases or things like that. They, as a retailer, can push that onto their customers because they can change their prices much more sensitively than a real estate owner can. They can, like one day to the next day, say, “Milk is now $4 a gallon instead of $3.50 a gallon.”

Blockchain is something that can instantaneously transfer value. It enables instantaneous, worldwide communication directly, peer to peer. Click To Tweet

This is something I want to know the answer to. Is the biggest risk in triple-net investing the tenant going out of business or is it something else?

There are two large risks. Number one is the risk that the tenant goes into bankruptcy. If they go into bankruptcy, they automatically have to pay your rent, but if they liquidate or once they go through their bankruptcy, they can close non-profitable stores. Your store could be closed. The other major risk is that you get a long-term lease and the lease is for 10, 15, 20 years and there’s no rental upside. The risk is that you’re going to lose money to inflation. Those are probably the two largest risks in a triple-net deal.

Speaking of inflation, what are some of the diversification strategies that investors can use to how you get to inflation and yet create passive income?

One of the things they can do is real estate protects well in times of inflation. Hard assets protect pretty well in times with inflation. I’m going to make a general statement. If you’re investing in a Dollar General and it’s in the middle of West Virginia or Nebraska or something like that and it’s got a fifteen-year flat lease, you’re probably not going to keep up with inflation. What you also want to be aware of in triple-net leases is to have it in very good locations, too.

If you’ve got a Walgreens or even a Dollar General in a better area of Florida or Texas or Tennessee that shows real growth and strong growth, even if the tenant doesn’t renew their lease, you know that the underlying property value is going to go up because you’ve got it in a great location. It’s on a corner, got accessibility and visibility.

What about leverage? I’m curious. What financing on retail these triple-net leases can somebody get? What leverage? How much down does somebody have to put?

The great thing about a triple-net lease depends on the credit of the tenant, but if you get a quality credit tenant, for example, I use the Shell oil company with Jiffy Lube. You can get much higher leverage and it’s non-guaranteed, so you don’t have to personally guarantee it. Most of the time, we don’t deal with banks, but I walk into the bank and the bank says, “I want you to personally guarantee this.” I say, “The Shell oil company is guaranteeing it.” What difference does it make whether I personally guarantee it? Shell oil company has a lot more money than I do. They underwrite it based on that tenant’s credit and underwrite it on the location and the length of the lease.

The other great thing sometimes is if you get what’s called a credit tenant lease, which is a CTL, you can get almost up to 100% financing on something because it’s basically like a bond. If it is a triple-A tenant or if it’s a great tenant, there are all kinds of financing out there for it. We typically don’t like to go over 65% loan to value to be conservative, but there are a lot of people, depending on where they’re at or if they’re doing a 1031. If they only had a 50% loan to value on the 1031, you have to make sure that you match your debt to the equity that you had in the old deal.

The way you’re talking, it sounds like pretty much all of these loans are non-recourse types of loans.

Sometimes. For the most part, if it’s a local tenant or a franchisee or depending on what type of tenant it is, you might have to personally guarantee it. It also might depend on your experience level because the bank always underwrites you as the borrower and says how experienced you are. When we get involved with something and the bank says, “What have you done,” we tell them that then they’ve got a comfort level that we know what we’re doing.

SCF 29 | Triple Net Lease

Triple Net Lease: There are two large risks in triple net investing: 1) The risk that the tenant goes into bankruptcy, and 2) you get a long-term release, and there’s no rental upside, so you lose money to inflation.

 

Can I ask you about a typical deal that you would go for? What does it look in the triple-net lease stuff?

We want to get geographic diversification, financial diversification, tenant credit diversification and industry diversification. We will look at single-tenant triple-net deals in the necessity of retail, automotive, or medical, what we like to call med tail space. We look at deals between $1 million and $5 million because we’re trying to put together a portfolio that we can have a number of different tenants paying in.

If one of those tenants happens to go into bankruptcy or happens to close or something like that, it’s not dependent on completely one tenant. If there’s a hurricane in Houston or somewhere in Tampa or in Charleston, that particular store might be wiped out, but you’ve got other stores in different markets throughout the South and the Western United States.

Speaking of geographic locations, are there certain states that you tend to focus on versus that you shy away from?

Somebody saw what our acquisition criteria were and we had a bunch of states in red that said, “Not interested.” States like California, Illinois, New York, Connecticut, Massachusetts, those are states that we are not interested in because of the real estate taxes, the regulations and the political instability. You don’t know if those states are goinwillown the businesses that are This impacts industrial buildings too, so it’s dependent on that.

What we do like is what we call the smile states. Everything from Washington state down through Nevada, across the bottom. We like Tennessee too, up through Virginia. Virginia is one of those states that we like. It’s hard to get properties in Virginia, but we like it. It’s unfortunate to say because I don’t like the growth of government, but there are some of the highest income zip codes in Virginia because all those people work for the government.

What was your most challenging deal or investment is so far in the triple-net? Can you elaborate on that?

In the mid-2000s, we bought a portfolio of bank buildings from a real estate investment trust that only invested in banks. The real estate investment trust was having financial problems. They were selling off packages of triple-net banks, so we bought a portfolio through the South. It had 1 or 2 out West like New Mexico and things like that. We probably bought like 25 or so bank buildings. Some of them were vacant and some of them were occupied. We went and repurposed them. In Gastonia in North Carolina, we ended up selling it to the redevelopment authority because they wanted to redevelop their downtown area.

Others, we did a redevelopment ourselves and put in a CVS or we worked with a developer to sell it off. Some of the ones that were occupied, we resold to investors. It wasn’t easy, but it took a while to get it going. It was Bank of America and they were interested in buying their branch. We ended up selling it back to Bank of America. We at least knew they could close.

What trends do you see taking place now in triple-net and also in retail real estate as a whole? How do you think they will affect the asset class?

The big thing is we saw the trend early on with Walgreens, CVS and Rite Aid that they were all coming out of inline spaces in a shopping center and inside of malls and going outside and wanting a drive-through. There are a lot of tenants that wanted drive-thrus and wanting to put drive-thrus in because there’s buy online, pickup at the store. The drive-thru part of that is that you can call ahead, you can order what you want or you can order off their website and pick it up directly at their drive-thru.

History doesn’t repeat itself, but it rhymes. Click To Tweet

Drive-thru are going to be a big thing. That accelerated during COVID because a lot of stores or restaurants that you wouldn’t expect would be closed, like Shake Shack, Chipotle and Those Guys. Those Guys were close, too, because they didn’t have a drive-thru and were penalized arbitrarily. Now Chipotle has all their new stores. They want a drive-thru. Shake Shack, all their new stores, they want a drive-thru. A lot of dollar stores want a driv-thru, so that’s happening. That’s one of the big things.

I can’t remember the exact dates on this but somewhere starting in 2016 to 2018, we saw that tenants were coming out of malls and coming out of strip centers and wanting more visibility, more control over what their brand is and control over their destiny. They were switching to single-tenant triple-net leases, that type of thing. One of the most prominent things is Apple said they’re not doing new mall stores. They’re pulling their stores out of malls and going to freestanding. Especially during COVID, they were closed.

I want to flip the switch and switch topics now because you’re the blockchain real estate expert. I still have yet to learn more about this, but my first question to you is, what is blockchain real estate?

The key thing that I like to explain is blockchain is something that instantaneously can transfer value. If we back up, you don’t know how your email works. You don’t know how the internet works, but you do know that you get instantaneous communication worldwide. You can send an email anywhere in the world and it shows up in a matter of seconds across the globe or you and I can talk from San Francisco to Chicago through the internet. What blockchain is going to do is it’s the rails of the new financial system. All money, all assets and all value are eventually going to be on a blockchain. As the internet enables communication, blockchain enables instantaneous worldwide communication directly peer to peer.

If you don’t want to, you don’t have to go through to a bank. You don’t have to go through PayPal. I can send you USD or Bitcoin directly and within minutes, you’ll know that you have that. If you put real estate on the blockchain, the great thing about blockchain is that value can be transferred instantaneously. If I have a house and you have the money and we decide that we want to trade it, if it’s on the blockchain, as long as you put up the money and we have a smart contract, the transaction goes through. It’s going to make real estate a lot more liquid. What I specialize in are what’s called security tokens. Once you syndicate a property, you’re locked into it for 5, 7 or 10 years.

SCF 29 | Triple Net Lease

Triple Net Lease: Blockchain is going to make real estate more liquid.

 

It depends on how long the sponsor takes to do whatever they want to do or if the sponsor wants to liquidate it at all. I can tell you a story from my own mom. My father died in 1986. He invested in a syndication in 1985. My mom was stuck in a thing that didn’t pay any money. Basically, they took all her money and she ended up having to do all kinds of extra tax returns every year because it was a K-1. Finally, during COVID, because it was a hotel, they gave it back to the lender. My mom, who’s in her mid-80s, had this worthless piece of asset. She ended up having to pay taxes because you get phantom income with the foreclosure.

To make a long story short, with a security token offering, it’s the exact same thing. It’s legal per the SEC. It’s doing it with all the regulations, but you have the ability you could potentially trade it after a one-year lockup period. The cool thing is, for example, our fund is a 506(c). After a one-year period, if you invested in our fund and wanted to trade one of your shares or all of your shares, they could trade to accredited or non-accredited investors. It’s bringing more people into high-quality real estate.

Are all of your funds now set up this way, tokenized?

This is the first one we’ve done and it’s taken a lot longer than I ever expected because we needed to make sure that we’re legally compliant. The technology always promises to do certain things and when you get there, it’s like, “It doesn’t do that.” It’s like, “It can do that, but ours doesn’t do that.” It’s been a learning experience. We’ve had to work with our technology partners. They were set up to do more like stock issuances and things like that. Real estate is a different animal. Real estate is taxed differently for non-US investors. We had to spend a lot of money to get that straightened out too.

With the tokenization that we’re talking about, are brokers able to sell this stuff as well?

It’s going to be the same thing.

Is it like a mutual fund or something like that?

Yes. The other thing is with the security tokens, you can go peer to peer directly. You can list them with a securities broker, like a broker-dealer or registered rep, to sell for you. There are also these things called ATSs, which are automatic trading systems that are similar to exchanges like a stock exchange. There are full-blown security token exchanges where the tokens can trade on those. For example, there’s a coin called the Aspen coin. It’s St. Regis, Aspen, Colorado. That’s trading right now on tZERO.

Will the security token offerings ever replace private real estate syndications? What are your thoughts on that?

I believe that they will. Institutional and syndicators or syndication investors private real estate investors are all going to take a look at it and say, “Why would I want to lock my money up with you when I don’t know when I can get out of it?” If I’ve got the exact same thing and close to the exact same deal and it’s got all these extra benefits, why wouldn’t I want this? The other thing that these types of security token offerings can do is get your money paid as an ACH payment directly into your bank account in dollars or get your money paid to you in a USD stable coin. You could also get your money paid to you in Ethereum.

You could potentially dollar cost average out of the dollar. We set up an agreement with a company called BlockFi. You could take your USD stable coin and deposit it at BlockFi, so you’re not only getting your returns from the real estate and all the benefits and the tax advantages of the real estate, but you can deposit it at BlockFi and get an extra 6% to 8% on your money per month. If you had the ACH payment directly into your bank account, you’re going to end up paying Chase bank $30 to $50 per month for the bank account and you’re not going to get any interest on your money. You get extra flexibility as an investor.

The more people you help, the more money you're going to be able to make. Click To Tweet

How will blockchain technology make real estate more traceable and accessible?

I think what it’s going to do is, at some point, it’s going to open up real estate investing in other countries where you can buy a piece of a property or you can buy a tokenized property anywhere in the world. It might go this way or might not go this way. I envision somebody in the Philippines deciding that they want to invest in a London office building or somebody over in Ukraine wanting to invest in a shopping center or multifamily property in the United States.

We have had a lot of interest from Turkish investors, Venezuelan investors and South American investors, places where they don’t have money that’s stable. We can talk all day long about how much of the dollar is going down, but at least it has a little bit of stability. In those places like Turkey in 2021, I think they lost 40% to 50% of the value of the Lira. They’re interested in something like this to put their money into a stable real estate coin. They get out of something unstable and they can get into something stable that their money is going to at least give them cashflow and at least appreciate versus losing all the value of their money. We’ve also had interest from South Africa.

I have a question for you because you’ve been in this game for quite some time. What have you personally learned from real estate investing during the last four economic downturns?

Saying that history doesn’t repeat itself but it rhymes is very true. They’re never the same. There’s always a different twist to it, but a lot of the stuff is still the same. If you happen to have cash during a downturn, it’s a time to make a ton of money. The other thing is if you’re over-leveraged, you’re going to have a lot less room to maneuver during an economic downturn. Thankfully, we’ve made it through and we’ve always paid our investors and we’ve paid off every bank. We’ve been very conservative. We’ve missed out on some of the high highs, but we also didn’t have to give back a bunch of stuff.

For example, when we started in 1990, we were doing workouts for banks and insurance companies. That’s when they foreclose on a property and take it back. We managed it, packaged it, then sold it off for them. We’ve done the same thing through other downturns. COVID, there wasn’t much of that because the Fed backstopped everything. There are probably going to be some more properties coming back now, but during COVID, there wasn’t as much need for doing the workouts and foreclosures.

Thank you for sharing all of that. I have some final questions for you. What are you excited about in your business now?

I’m excited about the opportunity with blockchain to change the financial system. I’m excited about the opportunity for blockchain to create human flourishing. All kinds of people throughout the world went from abject poverty in 1992 to now the middle class. They’re going to look for a place to preserve their wealth. Take a look at the game that they play on Wall Street and I was invested in it in the ups and downs and the insider and everything. It’s like, “Why not go with something stable, cashflowing and also tax-advantaged but also something that is going to be an asset?” The other thing we see with security tokens is that you might not have to sell them to get your money. You could potentially take your security token, pledge it as an asset and borrow against it.

SCF 29 | Triple Net Lease

Triple Net Lease: The other thing with security tokens is you might not have to sell them to get your money. You could potentially take your security token, pledge it as an asset, and borrow against it.

 

Are there many players that are setting up their funds or they’re offering as if they’re using blockchain?

There are a lot more of them out there now. When we started out in 2019, 2020, there weren’t many, but now there’s a lot of interest. We did the blockchain real estate summit in September of 2021 to explain to sponsors and investors how this technology works, how to do it legally, and to say it’s not that intimidating because it’s the same thing as normal syndication. It has the ability to trade and it has these extra benefits. You need to know a little bit more about the legal part about how they can trade and what you know is the legal qualifications for that. You need to know a little bit about the issuance platforms’ technology people and things like that.

You need to know a little bit about what a blockchain is and what it does. That’s why we decided to do more education to be comfortable with it. More people see its benefits because, whether you like it or not, cryptocurrency and the financial system and even the Fed wants to do their own Fed coin, which is going to be on a blockchain.

This is coming. It’s going to be a major part of your life. I can’t tell you whether it’s going to be in 5 years or 10 years, but, at some point, most financial products and even non-financial products are going to be on a blockchain. For example, if a musician sells a ticket to a concert, they can sell that ticket as an NFT. They can get any money on the resale of that or the NFT could become a collectible ticket like tickets when I was younger in going to Led Zeppelin and Jethro Tull and The Who. Those tickets stubs were collectibles.

Another question. What has real estate investing done for you in your life?

It kept me busy and out of trouble. It’s made my mother happy.

In your own words, what does success mean to you?.

I like to look at success as more significance. Am I contributing to society? Am I making the world a better place? Am I adding value? In all of our deals, am I adding value? Are people making money? Are they happy with what they’re doing? If we’re doing lease deals, are we making a deal that the tenant is happy with and will pay and be there for a long time? Is it going to be a long-term relationship? You look at that because you end up eating your own cooking if you’ve owned properties for a long time.

We’ve got one that we’ve had for several years. We’ve had some tenants in there for much longer than that, but you have to look at it from a long-term perspective. Are you improving your community? Are you improving the world? Are you doing something that’s going to make the world a better place? Along with that, I believe that the more people you help, the more money you’re going to be able to make.

Do you have any open funds that you’re raising money for?

The Liberty Fund, which is the triple-net real estate security token fund. We are in the middle of raising money for that, too, to buy additional properties.

Any other last comments or anything that you want to say to the audience before we wrap up?

I appreciate you having me on. I appreciate the opportunity. I feel education is important. When I was out of college and everything, I had to get most of my information from Forbes Magazines or books and things like that. There’s so much education out there now. You can learn about anything. We do have a blockchain real estate investing report. If somebody goes to our website and clicks on the special report, they can get information on what blockchain real estate investing is and a little bit more about that.

Talk about that and also talk about how somebody could get ahold of you.

They can get ahold of me at Hello@LibertyFund.io. They can go to our website and get the special blockchain real estate report. All you have to do is click the Report button and you’ll get that. We also have the Blockchain Real Estate Summit, which is BlockchainRealEstateSummit.com. We’re going to do it again in Austin, Texas, on September 23rd and 24th. We had conversations about potentially doing one in Brazil and a few other ones in different parts of the world. We have the Nothing but Net Podcast if you’re interested in learning more about net lease properties. You could go to TripleNet.re. All the podcasts are on our website, LibertyFund.io.

Thank you, Michael, for joining me on this episode. Thanks for your time. I found the conversation very enlightening, valuable and educational. Especially blockchain, it’s something completely foreign to me.

Thank you.

To my audience, feel free to reach out to Michael directly. Should you have any more questions for him or questions about blockchain or his fund. Also, thank you for checking out this episode of the School of Cash Flow. Remember to leave me a podcast review and iTunes as it helps me attract more great guests like Michael. Until next time, live life abundantly.

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About Michael Flight

SCF 29 | Triple Net LeaseMichael is a real estate entrepreneur and Security Token evangelist who is an expert in retail real estate (Shopping Centers and Single-Tenant Net-Leased) investment, redevelopment and real estate on the blockchain. He has an extensive record of partnering with some of the world’s most well-known banks, insurance companies, hedge funds and institutional investors in many successful projects. Michael has been active in commercial real estate over the past 34 years.