Drew Wahlgren received his BS in Finance from California State University at Hayward, and at the age of 21, began chasing his entrepreneurial journey. After 8 years as a risk analyst at Liberty Mutual Insurance, Drew Wahlgren made the decision to leave the corporate world and jump into commercial real estate.
Mr Wahlgren serves as the VP of Capital Markets at MAG Capital Partners, where he oversees both equity and lending relationships. He joined the company in 2019 following a successful 8-year tenure as a risk analyst and program manager at Liberty Mutual Insurance. He resides in the Dallas-Forth Metro area with his wife and three children, and enjoys spending quality time outdoors with his family.
Episode Highlights Here:
Drew
So having an absolute triple net lease is something we like because it allows us to protect ourselves or investors from those unexpected, not only expenses, but also changes in overhead, right?
Brett
What is the number one secret to creating steady cash flow with industrial real estate?
Drew
The number one secret Wow, we’re just gonna boil it down to one one item. It’s really I would call it the the absolute triple net lease. If I were to boil it down to one thing, and really insulating yourself against management’s and expenses that can be hard to predict. Even the best operators, you know, can get unlucky, frankly, right? Hey, we’ve done property conditions, assessments on a multifamily property and boom, you have an elevator that needs an $80,000 repair that wasn’t expected. It was you know, supposed to last another 15 years before any major repairs, and things like that, that can really take you by surprise. So having an absolute triple net lease is something we like because it allows us to protect ourselves or investors from those unexpected, not only expenses, but also changes in overhead, right? I think we’re seeing in the state that I’m in Texas, as well as Florida get hammered with insurance premium adjustments, I mean, they’re kind of three axing, I’ve heard premiums on every single door on multifamily properties. And that’s gonna eat away a cash flow. So some of those things are really hard to control, and they’re frankly, outside of your control, right, you can shop around or you can appeal property tax assessments as those go up, that’s going to be something that can eat away. So using an absolute triple net lease, as a landlord protects you from all that because those responsibilities of maintenance, utilities, insurance, taxes, and even the capital expenditure items like roof and structure, HVAC systems, you know, who’s who’s managing the landscaping around this property, right. And that all falls on the tenant in an absolute triple net lease. So as you see inflation really kicking in across, you know, it’s been across economies cooling that a little bit. But, you know, over the course of time, even if we land up to 3%, inflation, which is really the target for the Fed, even before they’re these expenses all go up over time, right? So at some point, your landscaper is gonna say, Hey, I gotta feed my family too. And, you know, I gotta raise my prices a little bit. And that’s gonna be across the board. And sometimes you get hit hard, like I said, on the property insurance premium rates. So all that is is unexpected. You know, things that can throw a wrench in your pro forma. Yep.
Brett
That makes perfect sense. So it sounds like it’s absolute triple net leases, because the tenant is responsible for absolutely everything right, the roof, the H vac systems, the landscaping, the insurance, right? That absolutely, you’re right, they’re increasing drastically with all the natural disasters, even in California with all the fires happening as well. And so because they are paying for that, guess what you as the investor, are we as the investor for investing into that property? It’s hedging. It’s like a hedge, right? It’s going to protect us, it’s almost like something like an insurance policy for us, because inflation is going up costs are going higher, and that’s gonna eat away against our noi. They’re gonna have to pick that up. Is that a fair summary? True?
Drew
100%? Absolutely. And so, if you can build in rent escalations along there, you can see that my expenses are staying nil, and you can really predict your noi increases over time, if you have rent escalations built into a long term link. Right? Let’s
Brett
dive into the number two secret: maybe it is rental increases, right? So Drew is the number two secret to creating steady cash flow with industrial real estate?
Drew
You know, I’ll kind of stick to our strategy here and what we like. I’d say that number two secret is having a single tenant, and it certainly changes the behavior, you know, versus a multi-tenanted industrial property. You know, what’s common out there, as you’ll see what they call flex, industrial multi tenanted flex, industrial where, you know, it almost looks a lot like a self storage property, right, you see a series of roll up doors, and you’ll have a series of tenants, right? smaller businesses, usually, you know, Joe plumber, you have a fabrication shop, you have an auto alignment shop, right, all these guys in there, and it’s a lot of different tents to manage, and a lot of different credit to manage. And typically they sign shorter term leases, right? These are smaller credit tenants. So we enjoy having a single tenant property where underwriting the credit risk of a tenant is really boiling down to a single company, right? We’re going to spend a lot of time there. And we’re going to understand this company inside and out. versus, you know, again, Joe Plummer, who may have you know, four years of operating history and not much really to say for himself, or even again, in multifamily, where I have a tenant who you know, are going to do a credit are going to get their credit score, but ultimately, there’s all kinds of other factors in their personal life, right? Hey, the mother gets sick across the country and they just have to jet out and can’t pay their rent and they’re gone. Right? So for us, we’d much rather have a larger stronger single tenant that we can underwrite and certainly a lot more recourse if they do default on the lease. But there’s more concentration in your tenant base there.
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About Drew Wahlgren
Drew Wahlgren received his BS in Finance from California State University at Hayward, and at the age of 21, began chasing his entrepreneurial journey. After 8 years as a risk analyst at Liberty Mutual Insurance, Drew Wahlgren made the decision to leave the corporate world and jump into commercial real estate.
Mr Wahlgren serves as the VP of Capital Markets at MAG Capital Partners, where he oversees both equity and lending relationships. He joined the company in 2019 following a successful 8-year tenure as a risk analyst and program manager at Liberty Mutual Insurance. He resides in the Dallas-Forth Metro area with his wife and three children, and enjoys spending quality time outdoors with his family.
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