Today’s guest is Shannon Robnett.
With over 25 years of experience, Shannon has been involved from start to finish on over $350MM in construction projects such as multi-family, professional office buildings to city halls, fire and police stations, schools, industrial projects and mini storage. Along with his knowledgeable team at Shannon Robnett Industries (SRI), Shannon is dedicated to sharing his expertise and delivering top-quality projects that bring numerous passive income streams to his syndicate partners.
Show summary:
Robnett shares his journey from watching his parents do real estate deals to becoming a successful builder and investor himself. He discusses his strategies for cost control, market selection, and team building, emphasizing the importance of aligning goals and understanding the rental market. Robnett also reflects on the impact of the 2008 market reset and the current supply constraint in the housing market.
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Intro ([00:00:00])
Shannon Robinette’s background and real estate journey ([00:01:11])
The Rents as the Starting Point ([00:11:24])
Surviving Interest Rate Hikes ([00:12:19])
Selecting Markets for Deals ([00:13:07])
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Connect with Shannon:
Linkedin: https://www.linkedin.com/in/shannonrobnett/
Instagram: https://www.instagram.com/shannonrayrobnett/
Facebook: https://www.facebook.com/shannon.robnett.1
Web: https://shannonrobnett.com/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Shannon Robnett ([00:00:00]) – But the reality is, if I am the builder, I am in total cost control and my my 100% goal is the builder is to satisfy the developers investors. And so we’re constantly in there negotiating pricing. We’re constantly working on things. We also put the stopgap and the failsafe in there that my construction company signs a guaranteed maximum contract that I personally back up so my investors never have to worry about cost overruns. And so we’re able to create the best of both worlds.
Intro ([00:00:30]) – Welcome to the how to scale commercial real Estate show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:43]) – Shannon Robinette has been involved from start to finish on over $350 million in construction projects. Shannon, welcome to the show.
Shannon Robnett ([00:00:51]) – Hey. Thanks, Sam. Glad to be here.
Sam Wilson ([00:00:53]) – Absolutely, Shannon. The pleasure is mine. There are three questions I ask every guest who comes on the show. And yes, you have been on the show before, and at some point during this episode, I will figure out which episode that was and we’ll make sure we highlight that out.
Sam Wilson ([00:01:04]) – But either way, for every guest that comes to the show in 90s or less, can you tell us where did you start? Where are you now and how did you get there?
Shannon Robnett ([00:01:11]) – Well, I started at the kitchen table with my parents watching them do real estate. From there, I grew into a merchant builder and was watching other people. I would build their buildings. They would collect the rents, the revenues. I saw how that was working. In 2001, I built my first investment property. It was an industrial project and two of my original tenants are still in the building. So it proves that the cash flow model works. 22 years later, same year, I watched my father and mother retire with cash flow and realized that real estate was the way to not only get your time freedom back, but to actually gain real wealth and time as well. And so from there, over the last three years, we began, we grew to the point where we needed to start syndicating capital and raising funds.
Shannon Robnett ([00:01:59]) – And over the last three years, we’ve raised about 62, $63 million.
Sam Wilson ([00:02:05]) – Wow. That’s that’s wild. Good times man. Merchant builder. I’ve never heard that term.
Shannon Robnett ([00:02:12]) – Well, that’s just where I go to work for other people. You’ve got a building that needs built. I show up, I build it, and that’s my only association with the project.
Sam Wilson ([00:02:22]) – Got it. What? When? When did you start developing or building your own? Real estate empire of cash flowing properties.
Shannon Robnett ([00:02:31]) – I started that in 2001. Obviously, we downsized that in 2008 and started rebuilding it back in 17.
Sam Wilson ([00:02:40]) – What happened in that period between oh eight and 17 for you?
Shannon Robnett ([00:02:44]) – Well, we just saw, you know, we saw a huge market reset. We saw where you couldn’t build a building for what you could buy one for. So we saw a huge price disparity. Housing went from, you know, I mean a house that was $1 million you’d see resold at 500. Oh, yeah. You know, as an example, my parents recently sold their house that they purchased for about 400 for 1.9 million, you know, sorry.
Shannon Robnett ([00:03:11]) – Correction, 1.6 million, right. 15 years later. But they bought it at absolutely the bottom. And so so with that we couldn’t really get there wasn’t a lot of build jobs happening. There wasn’t a lot of development happening. And which has led us to the problem we have today, which is a huge supply constraint where we have, you know, somewhere between 4 and 7 million housing units necessary in America today just to house the current population.
Sam Wilson ([00:03:36]) – Right, right. So it’s kind of gone full circle for you where it was. It has to build and there was lots to buy. And now there’s a lot that needs to be built and maybe nothing to buy.
Shannon Robnett ([00:03:48]) – Right, exactly. Well, you know, and the supply side is coming back online as, as people run into refinance problems, things like that, perfectly performing assets because we still have a supply disconnect. You know, we’ve still got supply issues out there. But at the same time we’re seeing we’re seeing lots of lot, a lot more product than we’ve seen in the last three years is coming back to market.
Sam Wilson ([00:04:11]) – Right? Right. And it’ll be interesting to see, of course, at what prices those trade based upon inflation or inflation, interest rates and capital availability. For those of you that don’t know, Shannon, you show up on my YouTube feeds all the time. Not even searching for you, dude, I’m not even sure what you’re doing, but I’m like, oh, there’s Rob, there’s there’s Shannon Robinette again. So I don’t know what your strategy is there, but I just had to point that out on the show.
Shannon Robnett ([00:04:34]) – Well, it’s it’s basically pester you till you talk to me, you know, and it seems to be working, right. People like, how do I get off this YouTube feed? And then we get to talk about investing, right?
Sam Wilson ([00:04:43]) – Right. Oh, that’s really cool. So if you’re if you’re out there raising capital, go follow Shannon Rob, don’t even follow him on YouTube. It just keeps showing up. So see what he does there. On his social media strategy.
Sam Wilson ([00:04:55]) – It’s pretty. It’s pretty wild. So what are you building today? What makes sense in today’s environment?
Shannon Robnett ([00:05:01]) – You know a lot of what we’ve done. So my past my my first project was industrial. And right now industrial is one of the shining stars in the investment world. And I’ll explain in a couple of seconds why. But it’s it’s really inflation resistant and it always has. But it’s never been sexy. Right. And the reality is cap rates on industrial have always traded a couple of points higher than multifamily in any market. The other thing that you have is you’ve got tenants with balance sheets, tenants that are running businesses. You’ve got tenants that signed personal guarantees, and you’ve got tenants to sign five year leases on top of that triple net, which is how industrial is leased because of the long term lease. Make all of the taxes, all of the insurance, all the maintenance, all the management, you know, everything to do with the building, a pass through the tenant. So your rent is truly your rent.
Shannon Robnett ([00:05:59]) – And as we see right now that property taxes are continuing to go up, even though the market has softened, as we see that, you know, insurance is doubling in some areas, tripling and others, this has put a huge crush on NOI in a lot of areas, except for industrial, because that is truly a pass through to the tenant. So it’s really been a resilient asset class. And especially in inflationary markets like this, they perform very well. We’ve got a 37,000 square foot industrial warehouse that we’re building for an international stone dealer in Florida right now, looking to build another 40,000ft² for an aerospace company in the Florida market. We’ve just acquired something in Houston, Texas that was a fully stabilized, triple net leased industrial product that needed needed some proper management and some rent escalations in the in the expiring rents. And so that’s really where we’ve been focusing right now. We’re finishing up two apartment complexes that will come to market here starting Q1 of 23. And both of those should be stabilized and and permanent financing on by by the end of next year.
Sam Wilson ([00:07:09]) – That is a lot of moving pieces. I like what you said there about the industrial, the attributes of industrial, such as that you get to pass through all of those expenses. Of course you know that. Is incumbent upon having good tenants that can afford those increases.
Shannon Robnett ([00:07:26]) – Yeah. You know, and the reality is, when you look at it, Sam, when you have somebody that’s that’s living in your apartment, they are the only way to produce the money. It is their exchange for time that gets them paid. But when you look at business owners, business owners have already figured out how to leverage, right? They have employees that leverage that. They have distribution cycles and centers that that that leverage that. And when you pass through a 15% or a 10% increase in their total rent, they just figure it out. And usually that just passes on down the line. And now what you’re buying on Amazon cost you 15% more and you don’t really notice it because you still need it. So there’s a huge difference in what a industrial flex space user will do versus what a what a tenant will do.
Shannon Robnett ([00:08:16]) – Because if you if you hand him a 10% rent increase, he’s got to go give 10% more time that he’s already giving 40 or 50 hours to provide what he’s got. And he’s also dealing with inflationary prices of chicken and fuel and everything else out there that’s gone up two and three times.
Sam Wilson ([00:08:33]) – That’s a really clear explanation that I probably would not have articulated as well. That’s awesome, I love that, and that makes a heck of a lot of sense. You got two complexes you’re finishing up. Are you building any more multifamily complexes or is that.
Shannon Robnett ([00:08:48]) – You know, we’ve got a couple on the books that right now, current interest rates versus rent rates have held us off. But I think that you’re going to see there’s not enough product out there. There’s a glut of it kind of hitting the market right now and stuff that was begin that was began in 22 and 23 or 20, 21 and 22. So you’re seeing some of that where you’re seeing some some price softening a little bit, but we’re really not seeing occupancy shift much.
Shannon Robnett ([00:09:17]) – And so we think we’re going to bring those projects back to the drawing board in probably the second or third quarter of 24.
Sam Wilson ([00:09:24]) – Got it, got it. Cool. Love this. Shannon I like the way you’re unique in that. You’re both some.
Shannon Robnett ([00:09:33]) – People do and some people don’t, you know.
Sam Wilson ([00:09:35]) – What do you mean like like how you.
Shannon Robnett ([00:09:37]) – Like the uniqueness. Yes.
Sam Wilson ([00:09:39]) – Right. Yeah. You’re unique. Like never I don’t know, could probably.
Shannon Robnett ([00:09:43]) – I even like the way you put it. I’m unique. Other people use different words.
Sam Wilson ([00:09:48]) – A pain in the anyway neck.
Shannon Robnett ([00:09:51]) – Yeah. Yeah. Exactly. Exactly.
Sam Wilson ([00:09:53]) – Right. So, man, I don’t even know where I was going with this. Oh. You’re unique, I was here, I was here making you feel good about yourself. You’re unique in the way that you guys syndicate your assets in that generally, the builder isn’t also the syndicator, right? Right, right. Tell me about that model, how it works and what are some of the maybe benefits and complications of it?
Shannon Robnett ([00:10:18]) – Well, let’s talk about it from the investor’s perspective, right? I mean, if if I’m going to build something for you, then I’m going to have my price and then you’re going to have yours.
Shannon Robnett ([00:10:28]) – And there is there’s going to be this battle between you and me for me to make as much money as possible and for you to get it’s done as cheap as possible. That’s where change orders come in. And they can really play havoc on your project, right? Yes. But the reality is, if I am the builder, I am in total cost control. And my my 100% goal is the builder is to satisfy the developers, investors. And so we’re constantly in there negotiating pricing. We’re constantly working on things. We also put the stopgap and the failsafe in there that my construction company signs a guaranteed maximum contract that I personally back up so my investors never have to worry about cost overruns. And so we’re able to create the best of both worlds. Not everybody loves that model, because if something happens to me, something also happens to the syndicator. And so, you know, there is there is some of that, but a nice insurance policy, make sure that the right people will be hired to take my place.
Shannon Robnett ([00:11:24]) – Not enough that it makes me a target, but enough that it makes me, you know, expendable with the replacement. So so there’s some of that that we’ve managed to do. But the other thing that we do, Sam, and when we start our process, we start a process with the rents. We want to know what the rents are in the area. And then we build our total model backwards so we’re not buying something going, hey, the NOI is $500,000 a year. What can we do to increase that? I look at it and go, I’m going to get an NOI of 500,000 a year. It’s going to allow me to build only this much. And so then we build the budget backwards. Know that when we’re done, we’ve got a cost model that will work so that we can execute on the business plan. Once we’ve done that, if rents have gone up like they have on these two complexes that we’re looking at, we’re able to survive the interest rate hikes, which we also modeled at 7.5% on our take out loans for conservative nature.
Shannon Robnett ([00:12:19]) – So we’re able to come through it with 2 or $300 better rents than what we’re projected ahead of the game and finance that where we wanted to.
Sam Wilson ([00:12:27]) – That’s awesome. I love that, and I think that’s that’s really it’s just a unique product that you’re bringing to the market where you can handle both, both sides of that. So you’re finishing up two complexes. I know one of those is at least there in the Boise market as the other one also there.
Shannon Robnett ([00:12:45]) – And the both of them, both of them are here in the Boise market. Yeah.
Sam Wilson ([00:12:47]) – Boise market okay. But you also mentioned that you guys have some assets you’re taking down in Houston, some you’re taking down in the Florida markets. You’re kind of all over the country now.
Shannon Robnett ([00:12:57]) – Well, you know, and what we look at to with that, Sam, is we look at the market first. Right? I mean, there’s a lot of people that you’ve met that they look like a fly in a cow pasture. They’re running here, they’re running.
Shannon Robnett ([00:13:07]) – They’re they’re going here, they’re going there, and they underwrite this thing. And man, what a magical product it is. It’s I mean, it’s got the cash flow. It’s got everything. And then they go look at the market and they realize that the market isn’t an appreciation market or it’s not a growth market. There’s there’s not a lot of upside potential there. And so then they realize, well, I can’t do this deal because it doesn’t fit my buy box. Right. And what we’ve really done is we’ve looked at it and there’s eight markets across the nation that. We will do deals in and only those eight. And so when we’re looking at things, if it doesn’t fit in that market, we’ve already eliminated a huge swath of what comes across my desk because we want to be in markets, we want to do a good deal in a great market, then a great deal in a good market. And the reality to that is just simply this, Sam, there’s only so much you can do to improve the value of the product that you’re working with.
Shannon Robnett ([00:13:58]) – There’s a lot of things that are external factors like taxes, like politics, like job growth, like people moving in and out of the area that you cannot control. But why would you want to do a great deal? I mean, we’re talking a 12 cap. We’re talking about owner financing. We’re talking about everything that makes every syndicator salivate right in Detroit. Right. So. But you chase this deal down and then you realize the market. So we start market first. Once we’ve identified those markets, it helps us to be coordinated in our efforts. So while it does look like we’re in four different markets across the nation moving into three more, they’re very select markets. And then we go in and acquire multiple assets in that area so that we have a concentration in the area.
Sam Wilson ([00:14:43]) – How do you build team and manage each of those? I’ll just stop the question there. Think how does that work.
Shannon Robnett ([00:14:52]) – Well, you know, my 30 years in construction experience has really helped me to identify when we’re going out of out of state for construction projects, I will go hire a local general contractor, but I will put him through the same process that puts him on my team.
Shannon Robnett ([00:15:08]) – Right. So we’ve got a general contractor in Florida that’s doing that deal, and I have set up a revenue share with him where every day that he saves me, I will give him 25% of the interest that I would have paid. And I will also give him 35% of the cost savings on the overall budget. So if this contractor is now on my side, he realizes that he can make an 8% profit by giving me a change order or a 30% profit by saving me money I wasn’t going to save if he didn’t help me. And so I wind up with the best of both worlds. He’s on my team and we go in and we start that model with conversations and get down to who is the good contractors in the area that have the great relationships, the great reputations, and then we firmly bring them on the team by making it a revenue share so they can actually make more money saving me money than giving me a change order.
Sam Wilson ([00:15:58]) – Right? Right. Which boy? That’s the that’s the name of the game, isn’t it? To absolutely change.
Sam Wilson ([00:16:04]) – Change. Order the heck out of out of a deal. So you’ve brought the local general contractors on your team. What’s that process like for you vetting another GC? I mean, you know.
Shannon Robnett ([00:16:17]) – It reminds me of, you know, two bulls meeting in a cow pasture, you know, but but at some point you realize that, look, we’re on the same team. And and when you stop and, you know, think about what my business model is, it makes the most financial sense for everyone involved. And the minute that they see that it is a win win and it’s designed to be a win win, all of a sudden they’re all on board because they know that regardless of what happens to this job, they’re going to make money. If they can make this job go very smooth and execute ahead of schedule and under budget, they’re going to be even more profitable. If this job goes long. They’ll make what they were supposed to, but it won’t be a win. It won’t be as big a win as if they put better resources on it.
Shannon Robnett ([00:17:02]) – So then we find them going back to their preferred plumber and going, hey, listen, we need you to work on your price a little bit because we really want to work with you on this job because we know you’re not going to screw us over. We know you got the manpower, and it really helps our schedule and gets our timing down to where it needs to be.
Sam Wilson ([00:17:17]) – Got it? No, that’s really cool. What about your internal team? So we’ve talked a little bit about the external teams, the local general contractors and people like that you’re working with around the country. But you need I mean, you guys are you’re involved in a lot of different things. Developing a multi family complex is very, very different than taking down an industrial asset in Florida.
Shannon Robnett ([00:17:36]) – Well it is and it isn’t. Right. I mean, Sam, you’re you’re involved in different asset classes than where you started out. If I remember correct, you guys were doing a lot of RV storage and parking lots and now you’re doing, you know, you’re doing laundry mats and some other cash flowing assets.
Shannon Robnett ([00:17:53]) – But, you know, 70% of the underwriting is still the same, right? 70% of the data collection is is very similar. And so when we’re looking at that, we’re able to take the team that we have. And this is the other thing that I have, and I would love to say this is all me. It’s all the Shannon show, but that would be a total lie. I have some of the most amazing team players that are in it to win, and what I figured out how to do is to get them to see what their goals are and magnify those into their job so that they’re actually achieving their personal goals while they’re doing everything around here. And so they’re able to see the wins all along the way, and then you really get the motivation up in the in the office, you get everybody firing on all cylinders. Everybody’s willing to jump in and help each other, and you create a team culture that’s pretty phenomenal. That can’t happen if you’re not meeting the goals of every person in here, and not all of them are money.
Shannon Robnett ([00:18:48]) – And so putting that together and and being aware and, and reciprocating to your staff is some of the best motivation that we’re going to have. And they’ll not only go the extra mile, they’ll run an extra marathon for you.
Sam Wilson ([00:19:01]) – That is really powerful, what you’ve just described there. But that takes that takes a little bit of or a lot a bit of empathy, of awareness, of really dialing into the people that are working for you. How do you how do you balance the need to get stuff done? And the time that it takes to invest in those employees and say, hey man, like Shannon, what are you like? What’s your goals? Like, where are you? Where are you? Where are you going with this? And then how do you catalog it and make sure that it kind of fits with what they’re doing?
Shannon Robnett ([00:19:35]) – Well, the first thing I do, and this is funny because it throws everybody off. If you’ve if you’ve made it through an interview and or a second interview and we want to work with you, the first or the last question I’m going to ask you is, what do you want for compensation? And compensation is all about money, right? Do you want do you want heavily? Or do you want a better insurance plan? Do you want more time off? Do you want, you know, flexibility? Do you want.
Shannon Robnett ([00:20:05]) – What is it that motivates you? And then the next thing we do is we set out to 12 months goals of where you want to be. In that plan. So if you know, I’ve got I’ve got people that are they’re all about time off. I got people that are all about flexibility. I got people that are all about money got I got people that are blended in the middle. But when they realize now that the only thing standing between them and their goals is this silly little project, it’s amazing how the attitude shifts and the mindset shifts and the and the creative juices start flowing so they figure out their own problems, because that’s the only thing standing in the way of them. And six weeks of vacation or them and the flexibility to work from wherever they want.
Sam Wilson ([00:20:50]) – Bright man. That’s brilliant I love that, I love that indeed. Very, very cool. Shannon, thank you for taking the time to come back on the show today. I didn’t I was so enamored with our conversation, I didn’t actually get to look up the episode.
Sam Wilson ([00:21:02]) – But for those of you who want to look it up, this would be, gosh, at least two, two and a half years ago. Maybe the last time you. Yeah.
Shannon Robnett ([00:21:07]) – It was a while ago. It was a while ago.
Sam Wilson ([00:21:10]) – Certainly appreciate you taking the time to come on today. If our listeners want to get in touch with you and learn more about you and your projects, what’s the best way to do that?
Shannon Robnett ([00:21:16]) – Just Shannon, Rob Netcom. We keep it simple. All of our information is on our website. You get to all our social channels or YouTube, even my calendar. If you’d like to book a call and chat more about what we do and how you can be involved, it’s just Shannon, Rob Netcom.
Sam Wilson ([00:21:29]) – Shannon, Rob Netcom. We’ll make sure we include that there in the show. Notes. Shannon, thank you again for your time today. I certainly appreciate it.
Shannon Robnett ([00:21:35]) – Thank you. Sam.
Sam Wilson ([00:21:36]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast.
Sam Wilson ([00:21:40]) – If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.
Sam Wilson ([00:21:46]) – 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 appreciate you listening. Thanks so much and hope to catch you on the next episode.
