Tri-Land Grocery-Anchored Redevelopment Video Transcript

Since 1978, Tri-Land Properties has been recognized for its unwavering integrity ability to foresee possible changes and create value in grocery-anchored retail shopping centers.

Headquarters just outside of Chicago, Tri-Land is a privately held full-service fully integrated real estate investment and development company that has successfully redeveloped over fifty shopping centers. Primarily located in the major infill locations in the Midwest, mid-Atlantic, and Southeast markets. In this video, we’ll provide you with examples Tri-Land’s deep value-add redevelopment strategy. It is important that you understand that we just don’t paint the pig, but we truly revitalize the shopping center and bring new life to them. The goal of our redevelopment strategy is to have a positive impact for the tenants, for the community, and for the patrons who shop at our centers.

It all begins with our exceptional grocery industry knowledge, When we enter a market, Tri-Land will spend nine to twelve months evaluating the market, inventory in the shopping centers both on and off-market opportunities, understanding the demographic and the demographic shifts, driving the markets, understanding the road networks, and understanding the food and food distribution within the market. We spend time to evaluate the market through a grocery operators lens. This takes diligence, expertise, and time.

Next, we apply our proprietary quarter-mile cell analysis. This model helps us evaluate trade areas and store performance. It helps us highlight the impact or the erosion from other stores within a network and helps project food sales from given locations. This gives Tri-Land a quantitative reasoning for wanting to be in a particular trade area and can help us identify the actual piece of real estate within that area. Population density is typically the key to success for our deep value-added strategy. The more people that visit our site repeatedly allows us to charge higher rents for smaller spaces, and grocery-anchored centers works exceptionally well for this strategy.

This is Fridley Market Shopping Center. Which was a 165,000 square foot shopping center anchored by Cub Foods. At the time of purchase, Cub Foods operated a hundred and four thousand square feet, Tri-Land successfully completed the redevelopment of the shopping center by reducing Cub Foods’s obligation from a 104,000 square feet to roughly 65,000 square feet. This reduction allowed Tri-Land to develop two new outlets and a limited-service hotel at the site. As you can see from the pictures here, the project was completed and achieved favorable returns for the investors.

As part of our redevelop strategy, we work closely with local governments and communities to help achieve positive impactful results.

This usually results in a financial economic incentive or a contribution to the development of the center. As an example, Tri-Land purchased the hub shopping center in March of 2022. Much like Fridley, the value-added development strategy included reducing the grocery store operator price chopper from a hundred and four thousand square feet to roughly seventy and square feet. We will reduce the shopping center by seventeen thousand square feet which will allow for the development of four additional outlets. We worked closely with the city of Independence on a collaborative basis and on June 20th of 2023, the city approved $12.0 Million dollar incentive package to assist in the redevelopment of the shopping center.

Not only does Tri-Land redevelop centers, but we’ve also completed many ground-up development much like Salem Gate. It was originally purchased as a potential grocery-anchored site, but due to market constraints, this 139,000 square foot center was de leased and demolished in two thousand nineteen. The original business plan was modified to build a two hundred and five thousand square foot shopping center which included Floor & Decor, Academy Sports, Northern Tool equipment, and houses a 48,000 square foot limited service home to suite’s hotel operator. Rockdale County contributed $9,700,000 dollars in financial incentives and public improvements.

Throughout Tri-Land’s history, we have navigated many different market cycles. From short-term interest rates going from 21% in the 1980s to almost zero in 2015. From nonexistent credit during the S&L crisis of 1990 to a very loose criteria preceding the financial global crisis of 2018 and even through the pandemic of 2020. These ever-changing conditions can make owning real estate difficult for some but for Tri-Land, it offers a unique opportunity for us to deploy our deep value-added redevelopment strategy and create institutional-grade real estate for other people to purchase from us. So we thank you for taking the time to learn more about Tri-Land Properties and we welcome you to join us as we continue to positively impact the communities that surround us.

*IMPORTANT DISCLOSURES:

THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY A SECURITY.  PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT ADVISOR USE ONLY – NOT FOR REDISTRIBUTION.  THIS VIDEO IS FOR THE PURPOSE OF ILLUSTRATING AN EXAMPLE OF “DEEP VALUE-ADD REDEVELOPMENT”AND IS NOT INTENDED FOR ANY OTHER REASON.

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In the case of commercial grocery-anchored real estate, Tri-Land believes that CCR is an important metric.  It allows investors to assess the amount of cash flow generated by the property and evaluate its profitability. It is a useful tool to compare different investment opportunities and determine the best use of capital.

The cash on cash formula is calculated by dividing the property’s annual pre-tax cash flow by the total amount of cash invested in the property. The cash flow includes rental income, minus operating expenses, debt service, and any other expenses. Cash invested may include the down payment, closing costs, and any capital expenditures made by the investor.

As an example, suppose an investor purchases a grocery-anchored property for $10 million, makes a down payment of $2 million, and incurs additional closing costs of $100,000. The investor also spends $500,000 on capital expenditures to improve the property. In the first year, the property generates an annual cash flow of $800,000.

Cash on Cash Return Formula

You calculate the cash on cash return formula as follows:

CCR = Annual Cash Flow / Total Cash Invested

= $800,000 / ($2,100,000 + $500,000)

= 29.4%

This means that the investor’s cash investment of $2.6 million generated an annual cash return of $800,000, which represents a 29.4% return on investment.

CCR is used in financial evaluations of commercial grocery-anchored real estate. It compares returns on investment opportunities and helps determine the best use of capital. Investors prefer properties with higher cash on cash return, as they offer more cash income relative to the invested amount. However, it’s important to consider other factors like location, tenant mix, and market conditions when making investment decisions.

Tri-Land Properties is a commercial real estate developer that focuses on the redevelopment of grocery anchored real estate projects. As part of our normal business practice, we been evaluating real estate CCR since 1978 for passive real estate investors.  Accredited investors can have access to institutional grade grocery anchored real estate investments.

For further details, please contact RJ Johnson at Tri-Land Properties.

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In the realm of commercial grocery-anchored real estate, NOI holds significance as it determines the property’s value and potential return on investment. A higher NOI generally corresponds to a greater property value and increased potential return for investors.

When evaluating the financial performance of a grocery-anchored property, investors may derive the property’s cap rate by dividing the NOI by the property’s market value. A higher cap rate implies a greater potential return on investment, whereas a lower cap rate indicates a diminished potential return.

Additionally, investors can employ the NOI to calculate other financial metrics, including cash-on-cash return, internal rate of return (IRR), and equity multiple. These metrics aid in further assessing the property’s financial performance and potential profitability.

What is operating income vs net operating income?

In commercial real estate, both net operating income (NOI) and operating income play crucial roles as financial metrics for evaluating the financial performance of a commercial real estate investment property. However, their calculations and implications differ.

Operating income in commercial real estate pertains to the income derived from the property’s operations prior to subtracting operating expenses. It is determined by deducting operating expenses (such as property taxes, insurance, maintenance costs, property management fees, and utilities) from the property’s gross income. Operating income helps investors comprehend the income generated solely from the property’s operations, excluding any non-operational income or expenses.

On the other hand, net operating income or NOI is a more comprehensive measure that reflects the property’s profitability after accounting for all operating expenses. It is computed by subtracting all operating expenses, including property taxes, insurance, maintenance costs, property management fees, utilities, and other relevant expenses, from the property’s gross income. NOI provides a clearer understanding of the property’s ability to generate income through its operations and is frequently employed in investment analysis and valuation.

NOI Formula

Let’s consider a commercial property that generates an annual gross income of $300,000. The property has operating expenses, including property taxes, insurance, maintenance , and utilities, totaling $100,000 per year.  The property has additional expenses totaling $25,000 for property management fees making the total operating expenses $125,000.

Operating income = Gross income – Operating expenses

Operating income = $300,000 – $100,000

Operating income = $200,000

Net operating income (NOI) = Gross income – Total operating expenses

NOI = $300,000 – $125,000

NOI = $175,000

Real estate investors often recognize the complexity of commercial real estate operating income and net operating income (NOI), which is why partnering with experienced real estate operators is crucial. Tri-Land Properties, a seasoned commercial real estate operator, specializes in grocery-anchored real estate developments and has been actively involved in this field since 1978. With over 40 years of experience, we have diligently assessed real estate risks and returns for investors.

By investing with Tri-Land Properties, accredited investors gain the opportunity to access institutional-grade grocery-anchored real estate investments. Our expertise and track record in the industry enable us to provide valuable insights and potential investment opportunities in this sector. To learn more about our offerings and discuss further, please reach out to RJ Johnson at Tri-Land Properties.

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There are four main investment strategies when evaluating commercial real estate which include Core, Core+, Value-Add and Opportunistic.  When discussing real estate investments I may occasionally reference these strategies as the “Core Four”.  These terms are used in to describe different real estate investment strategies based upon the risk and return profile of the investment.

Four Main Investment Strategies

• Core: Core investments are the least risky of the Core Four. These investments typically involve properties that are already built, fully leased, and generating steady income. The main objective of core investments is to provide stable and predictable income streams with minimal risk. Core properties are often located in prime locations with high demand and stable occupancy rates.
• Core+: Core Plus investments are slightly riskier than core investments. These properties may have minor management or physical issues that can be improved to increase cash flow and value. Core Plus investments can provide slightly higher returns than core investments due to their potential for value enhancement.
• Value-Add: Value-Add investments involve buying a property that is in need of renovation, repositioning, or restructuring to increase its value. These investments carry more risk than Core or Core Plus investments but offer higher returns. Value-Add investments may require additional capital to make improvements, and investors must have a clear plan to increase the property’s value to be successful.
• Opportunistic: Opportunistic investments are the riskiest of the Core Four strategies. These investments involve properties that require major repositioning or development to create value. The properties may be in poor condition or may require significant capital investments to generate income. However, successful Opportunistic investments offer the highest potential returns.

Core Investment Strategies

A  Core Investment in commercial real estate is a low-risk, low-return investment strategy.  The investor seeks to acquire a stable, income-generating property that requires minimal or no improvements. These properties may be fully leased to credit-worthy tenants and located in prime locations, providing consistent cash flow and long-term appreciation.

The Core Investments Pros:

1. Stable and Predictable Income: Core investments provide stable and predictable income through long-term leases to credit-worthy tenants.
2. Lower Risk: They are lower-risk investments due to the stable cash flow and low dependence on market conditions.
3. Low Capital Expenditures: Core investments require minimal or no capital expenditures, which reduce the initial investment and increase the investor’s overall returns.
4. Liquidity: Typically, core investments are more liquid than other commercial real estate investments, allowing investors to easily enter and exit the investment.

The Core Investments Cons:

1. Limited Upside Potential: Core Investments have limited potential for significant value enhancement compared to value-add or opportunistic investments.
2. Lower Returns: They may offer lower returns than other commercial real estate investments due to the low risk profile.
3. Market Risk: Core Investments are still subject to market risk, as the success of the investment is still dependent on market conditions.
4. Limited Diversification: They may not provide much diversification to an investor’s portfolio, as these investments are typically located in prime locations and focused on one property type.

Core investments can provide a stable and predictable income stream for private real estate investors seeking low-risk investments with consistent long-term appreciation. However, investors should carefully consider their investment goals and risk tolerance before investing.  Investors should be aware of the limited upside potential and lower returns compared to other commercial real estate investments.

Core+ Investment Strategies

Core Plus, commonly known as “Core+”, investment strategy is a moderate-risk, moderate-return investment strategy.  The investor seeks to acquire a property that requires some improvements, but with less risk than a value-add or opportunistic investment. The properties may be fully leased and generating stable cash flow, but could benefit from additional capital expenditures to enhance the property’s income-generating potential.

The Core Plus Pros:

1. Moderately High Returns: Core Plus investments offer the potential for higher returns than core investments due to the value-add component, but with less risk than value-add or opportunistic investments.
2. Reduced Risk: Core+ investments are less risky than value-add or opportunistic investments since they involve less capital expenditures and have less dependence on market conditions.
3. Stability: The property may be fully leased and generating stable cash flow, providing the investor with consistent and predictable income
4. Diversification: These investments can provide diversification to an investor’s portfolio by investing in different types of properties or in different geographical locations.

The Core+ Cons:

1. Limited Upside Potential: Core+ investments have less potential for significant value enhancement compared to value-add or opportunistic investments.
2. Longer Holding Period: They may require a longer holding period than core investments as additional capital expenditures and redevelopment may take time.
3. Capital Expenditures: Core Plus investments require additional capital expenditures, which can increase the initial investment and potentially reduce the investor’s overall returns.
4. Market Risk: These investments are still subject to market risk, as the success of the investment is still dependent on market conditions.

These Core+ investments can offer a balanced risk and return profile.  Some investors seeking moderately high returns with less risk than value-add or opportunistic will choose this investment strategy. However, investors should still conduct thorough due diligence and consider the investment’s potential downside risks before investing.

Value Add Investment Strategies

Value-Add investment is a strategy in commercial real estate where an investor purchases a property that has the potential to increase its value through renovation, repositioning, or other improvements. The goal is to improve the property’s income-generating capabilities and increase its overall value, resulting in higher returns for the investor.

The Value-Add Pros:

1. Potential for High Returns: Value-Add investments offer the potential for higher returns than core or core plus investments because the investor is able to increase the property’s value and cash flow.
2. Control: As the owner of the property, the investor has control over the property’s management, leasing, and capital expenditures, allowing for greater control over the investment’s performance
3. Diversification: Value add investments can provide diversification to an investor’s portfolio by investing in different types of properties or in different geographical locations.

The Value-Add Cons:

1. Higher Risk: Value-Add investments are riskier than core or core plus investments because they involve additional capital expenditures and renovation, repositioning, or restructuring to increase the property’s value.
2. Longer Holding Period: Value-Add investments often require a longer holding period before the investor can realize the increased value and higher returns.
3. Capital Expenditures: These investments require additional capital expenditures, which can increase the initial investment and potentially reduce the investor’s overall returns.
4. Market Risk: The success of a value add investment is heavily dependent on the overall market conditions, such as supply and demand, interest rates, and economic growth, which can impact the property’s value and cash flow.

Value-Add investments can be a lucrative investment strategy for private real estate investors.  Investors need to understand that these increased returns also carries more risk and requires careful evaluation and planning. Investors should consider their risk tolerance, investment goals, and experience before investing in a value-add investment strategy.

Opportunistic

An opportunistic Investment in commercial real estate is a high-risk, high-reward investment strategy.  The investor seeks to acquire a property that requires significant improvements or redevelopment to generate higher returns. The properties may have been underutilized, poorly managed, or in distressed financial conditions.

The opportunistic Pros:

1. High Potential Returns: The primary benefit of Opportunistic Investments is the potential for high returns. These investments can offer the highest returns in commercial real estate due to the significant value enhancement that can be achieved by making improvements to the property.
2. Control: As the owner of the property, the investor has control over the property’s management, leasing, and capital expenditures, allowing for greater control over the investment’s performance
3. Diversification: Opportunistic investments can provide diversification to an investor’s portfolio by investing in different types of properties or in different geographical locations.

The opportunistic Cons:

1. High Risk: Opportunistic Investments are the riskiest of all real estate investment strategies, as they involve significant capital expenditures, redevelopment, and repositioning of the property. The success of the investment depends heavily on market conditions, which are beyond the investor’s control.
2. Longer Holding Period: These properties often require a long holding period before the investor can realize returns. The property may take time to reposition, and it may take longer to find the right buyer or tenant to realize the investment’s full potential.
3. Capital Expenditures: Opportunistic investments require significant capital expenditures, which can increase the initial investment and potentially reduce the investor’s overall returns.
4. Limited Exit Strategies: These investments may have limited exit strategies. They may not be as liquid as other commercial real estate investments, and the investor may face challenges when trying to sell the property.

Opportunistic Investments offer high potential returns but also carry high risk. Investors should consider their risk tolerance, investment goals, and experience before embarking on an Opportunistic Investment strategy. Additionally, it is essential to conduct thorough due diligence and have a clear exit strategy before investing.

Tri-Land Properties is a commercial real estate developer that focuses on grocery-anchored real estate investment strategies. We have been producing risk-adjusted returns for passive investors since 1978. By investing with Tri-Land, an accredited investor can have access to institutional grade grocery anchored real estate investments. To learn more, please contact RJ Johnson at Tri-Land Properties.

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Here are the common components found in a typical capital stack, listed in order of priority:

• Senior Debt: Senior debt is the primary layer of financing in the capital stack. It typically takes the form of a traditional bank loan or a commercial mortgage. Senior debt holders have the first claim on the property’s cash flows and collateral in case of default or foreclosure. They have priority over all other capital providers in terms of repayment. Senior debt is considered a lower-risk investment, and lenders often require collateral and impose covenants to protect their interests. The interest rates on senior debt are typically lower compared to other types of financing.
• Mezzanine Debt: Mezzanine financing fills the gap between senior debt and equity in the capital stack. Mezzanine loans are often provided by private equity firms or specialized lenders. Mezzanine debt holders have a subordinate position to senior debt but rank above equity holders. In the event of default or foreclosure, mezzanine lenders can step in and take control of the property. Mezzanine loans usually carry higher interest rates than senior debt due to the increased risk. They are attractive to investors seeking higher yields, and they provide additional leverage beyond what senior debt offers.
• Preferred Equity: Preferred equity occupies a higher position in the capital stack compared to common equity. Preferred equity holders receive a fixed return or priority distribution before any distributions are made to common equity holders. Preferred equity may offer a higher rate of return compared to senior debt but carries more risk. In the event of liquidation, preferred equity holders have priority over common equity holders in receiving their initial investment back. Preferred equity is often utilized in situations where investors seek a higher yield than senior debt but are not looking for full ownership or control.
• Common Equity: Common equity represents the ownership stake in the property or project. Common equity holders participate in the property’s cash flows and profits but are the last to receive distributions after all other capital providers have been paid. Common equity investors bear the highest risk but also have the potential for the highest returns. They have voting rights and influence over major decisions regarding the property. Common equity can be held by individual investors, partnerships, real estate investment trusts (REITs), or private equity funds.

The specific composition and order of the capital stack can vary depending on the project, investors involved, and the risk-return objectives of the stakeholders. Each layer of the capital stack carries different rights, priorities, and levels of risk and return, reflecting the different interests of the various capital providers.

Tri-Land Properties is a commercial real estate developer that focuses on grocery anchored real estate developments. We have been producing risk-adjusted returns for passive investors since 1978. By investing with Tri-Land, an accredited investor can have access to institutional grade grocery anchored real estate investments run by a 40+ year successful real estate company. To learn more, please contact RJ Johnson at Tri-Land Properties.

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In general, real estate is an important asset class to hold in your portfolio due to its tax benefits and inverse relationship to the stock market, as we have consistently seen that real estate rental income often rises as the stock market declines.

There really is no right or wrong answer as to whether active or passive investing is better. It all depends on your goals, time commitment, and how willing you are to learn and put in the needed effort to make active investing work for you.

What is Active Real Estate Investing?

Active real estate investing is when you directly own and operate a real estate asset or real estate portfolio. This typically involves sourcing the property to buy, negotiating the terms of the purchase, and obtaining financing and equity commitments needed to close on the property. After that, the investor is responsible for finding tenants, negotiating lease terms, collecting rents, and finally handling any repairs and maintenance needed on the property.

Many people can successfully manage one or two residential properties on a part time basis, but when buying multiple assets and creating a large real estate portfolio, it will quickly turn into a full time business.

It may seem like running a real estate business would be easy, but when scaled, it can get very difficult and time consuming. In order to be successful, a property owner needs to develop solid professional relationships with the likes of contractors, vendors, lenders, real estate agents, and other professionals. That, coupled with dealing with tenants and maintenance issues quickly adds up to a time consuming job.

While active real estate investing does take a lot of time and effort, there are plenty of advantages. History has proven it is almost always a growing asset class. In addition to the appreciation and rental income, real estate comes with some tax advantages that are generally unavailable with other asset classes, especially when actively managed.

What is Passive Real Estate Investing?

          Passive real estate investing employs more of a “hands-off” management strategy. Think of it as an investor outsourcing their real estate management to a professional manager and pays the manager for their service and a portion of profits for their professional service.

There are several ways to invest in passive real estate including publicly traded and non-traded REIT, private real estate firms, crowdfunding, etc.

Another way to invest passively in real estate is through a private real estate syndication. In a real estate syndication, you invest in a real estate deal with many other investors typically through a Limited Liability Company or LLC.  This LLC helps protect the real estate investor from potential liability associated with operating the real estate.  With a syndication, even though the investment is passive for the limited partners, the investment project as a whole is actively managed. Because it is managed by a professional real estate development firm, the investment gains can be significantly higher than most other passive investments.

Tri-Land Properties is a commercial real estate developer that focuses on grocery anchored real estate. We believe that passive real estate investments are the better choice for most people because of the enormous knowledge and time it takes to become a true real estate professional. By investing with Tri-Land, an accredited investor can have access to institutional grade grocery anchored real estate investments run by a 40+ year successful real estate company. To learn more, please contact RJ Johnson at Tri-Land Properties.

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