Real Estate Opportunities from Cannabis to Car Washes (Podcast)
Charles Clinton, CEO at EquityMultiple, discusses online commercial real estate investing opening doors to four profitable emerging markets, including cannabis, data centers, self storage and car washes. Hosts: Carol Massar and Jason Kelly. Producer: Paul Brennan
Running time 06:12
Podcast Transcript:
Carol Massar: (There’s) so much going on in commercial real estate and our next guest says it provides a lot of opportunities for investors — including car washes among some other interesting locales. Charles Clinton is Co-founder and CEO of EquityMultiple, an online Commercial Real Estate investing platform. Talk to us a little bit about what you’re doing in the big picture in terms of what you’re seeing.
Charles Clinton: To contextualize things a little bit, I think we’ve been obviously in an incredible period of sustained growth and while that’s overall beneficial, it has a lot of different effects. Institutional capital has been flooding into the primary core property types: office, multifamily, retail for close to 10 years. That’s really depressed yields across the market. So, companies like ours try to be reactive to that and find yield in unusual places. Sometimes that’s as simple as looking at the middle market, which is really total deal size of under 30–40 million dollars, areas where there’s less institutional capital and more fragmentation, and sometimes involves looking at property types that are more up and coming where institutional capitalism isn’t traditionally played… like car washes.
Carol: It also lets smaller investors get involved.
Charles: Yeah. That’s a core benefit of our company. We try to fractionalize traditionally big, inaccessible investments and offer 10, 50, or 100 thousand dollar investments into properties that are 30 or 40 million dollars.
Jason: Well, the returns are there. Keep me honest here, but I believe you guys have an Internal Rate of Return (IRR) of 17% on the deals you’ve done so far.
Charles: Yeah, we’ve had a great performance over the last four and a half years we’ve been in business. Obviously that’s something we plan to sustain over the long term. To do that, we really do have to find yield wherever we can in a market that has become increasingly challenging to do so.
Jason Kelly: So, I know one of the things Carol and I are both interested in hearing about is cannabis because, as we joked to you before we went on air, we have a pretty constant stream of folks pitching us [ideas]. CEOs of cannabis companies of all shapes and sizes whether its medicinal, skin cream, all across [the consumer space]. What’s the real estate aspect of this?
Charles: I would say on the real estate side it’s less about the long term growth of the industry as a whole and more about this temporary period of regulatory arbitrage. As long as there is a federal prohibition on cannabis and state legality, you have this strange situation where banks have a hard time lending, institutional capital has a hard time investing because there are real requirements around them at the federal level. So that’s created, I think, a narrow window before you see broader federal adoption where rents for cannabis facilities are incredibly outsized compared to the market. Do I think cannabis real estate is going to be really attractive in ten years? No. But for the next two, three, five years, there’s really a window to earn an outsized return on something that maybe the underlying tenant base is really good because they’re making a ton of money.
Carol: Because the thinking is at some point they’re going to be all over the place, right? It’s not going to matter as much?
Charles: Absolutely. At some point this is going to be just another tenant paying the same rent as someone else having the same access to the banking system and capital. Maybe there will be a bit of syntax. We see that in other parts of the market, but it will not be as astronomical as it is now.
Jason: And in the meantime you’re figuring out a way to arb weed… I never thought I would say that.
Carol: How do you do it investment-wise? Because it’s still not legal.
Charles: So, it’s structured really carefully. I am a former attorney so I will stay out of the weeds of that.
Carol: It’s tricky.
Charles: It is. You know, it’s a lot about operating locally within the state, using credit unions instead of national banks; there’s a lot of complexity to it. It’s something that keeps the yield high, right? So in a way, it’s protective of the return.
Carol: There’s risk there — It’s a risk/reward.
Charles: Absolutely.
Jason: Data centers are interesting too. I feel like that’s something we’ve heard more and more about. Data centers and storage go together in a strange way. We’ve heard a lot about that from folks you used to work with as an attorney, Blackstone being one of them investing pretty heavily in that area — both the data and the storage. Just a we start to see logistics become a really attractive area, data centers specifically. What’s the specific area you’re looking at there and what’s the plan?
Charles: Yeah, I think that data centers are a bit of a unique beast. I’m actually surprised they haven’t institutionalized sooner and I think it’s because the supply and demand is really pretty different than traditional real estate, right? It’s not driven by people, it’s driven by a very narrow type of business user. The build out cost of these facilities are high and they have to be located in particular areas where there’s good access to power and cable. So, I think that the complexity and the relatively low number of tenants has definitely led to the lag on the institutional side.
Carol: Which is amazing if you think about the long term visibility. I mean, we know we’re all increasingly using more and more data and we have to store it somewhere. That’s not going to change.
Charles: To bring it back to what we talked about a few months ago on the opportunity zone side, we actually see data centers and some of these esoteric assets being a good use of this program. A lot of the time, an opportunity zone is not yet ready for development for multifamily or office, it’s just the rents aren’t there. So for something that needs a lot of space but doesn’t need to be near a highway, something like a data center can make a ton of sense.
Jason: Charles Clinton, CEO and Co-founder of EquityMultiple, here with us in New York. Always good to catch up and we have a feeling all of these areas are going to be right for investment moving forward.
