How to find a retail deal, negotiate, buy, develop all while working on whatever the deal throws at you? Beth Azor, CEO of Azor Advisory Services, has been investing in retail for the last 36 years and shares her insights.

Tell us a little bit about you.
I live in South Florida and I own five shopping centers, I sold one a few months ago, they're worth $80 million. I have been doing retail for 36 years and that's all I know, that's all I do.

Let's talk about a deal of yours, how did you find it and what happened throughout the deal if you still own it?
I'm going to talk about B&B Plaza. B&B stands for my partner and I. In this deal, I only have one partner, but in all my other deals I have multiple partners. How this came about is I was at a City Commission meeting for a charity that I was on the board of and we were going to pitch for some grant money. And while I was sitting in the audience of the City Commission meeting, the City Commission outlawed strip clubs, immediately my brain went to a strip club on Main and Main, in the town where I live in. It was going to happen 24 months from then. The next morning, I look up the tax rules on the address of the strip club and I found out this 80-year-old couple in Jacksonville, which is four hours from here, owned it, they didn't own the strip club, they rented it to the strip club. I called them and said, I'm calling you about your building where Eden's nightclub is located, last night at the town of Davies commission meeting, they outlawed strip clubs, so 24 months from now, there will not be a strip club there, would you like to sell me your building? They said, no, we don't believe you, we get $10,000 per month in cash from the strip club. I said, I'll give you the cash for the strip club, I want to buy the building and the real estate. I sent them the minutes of the meeting, we started having a dialogue and they were not jumping up and down to sell me the building. 

I realized that I had to figure out how to get to these people. I started asking people who knew them and one of my current tenants in a shopping center that I own down the street, a barbecue restaurant, knew them, and he’s some kind of  nephew. I said great, I will pay you a finder's fee if you can figure out how to get me in with them so that they sell me their building. He tried a little bit and it didn't really go anywhere. And then I found out that they were selling another piece of property and they hired a friend of mine to be their broker. I called him and said, hey, I see you're selling another deal for this couple, I want to buy the one in Davie, I'll pay you a commission if you can get me in there. I made an offer, and they came back and wanted more, I asked how much more, but they didn't know, I'm didn't want to play that game, so it went to the wayside. And then I found out later that they didn't like that guy. 

I finally start to be persistent, I flew to Jacksonville and had tea in their living room and I said, one day you might want to sell the deal, I own two shopping centers nearby, I would really like to buy it. They were able to put a face to the name and know that it wasn't some big corporation, it was just me. We started having serious talks, but then they got sick, first the husband and then the wife. So, it didn't go anywhere. Now we're getting close to the two years where the strip clubs going to close, I was panicking because I knew the minute the strip club closed, all my competition was going to swoop in on these people because it was phenomenal real estate, and no one knew that the strip club was going to close because they don't read the paper, they don't go to the Commission meetings. Finally, my partner said, once they decide to sell, we know that they're going to and we know competition is going to come in, what do you think is the thing that's going to be the most important to them? And because I had talked to them many times, I said, timing. And he said, Okay, so this is what we're going to do, call them and ask them if we could do a survey and an environmental on the property while they still own it. Let them give us permission to do that work so that when they decide to sell, we will beat everyone else because everyone will have to be contingent on that and we won't, which was a brilliant idea. So, I said, I know you're not really to sell yet but if in case you ever do, I know you're going to want to close in 24 hours, can we go ahead and go on the property, we'll give you insurance, and do the environmental, the survey and the title? We did that and the site was clean and we were prepped. 

The two-year mark comes, the strip club closes, and exactly my prediction happens, four competitors of mine swoop in, they were very aggressive with these people because they didn't understand them, and didn't know them. Then, I got a call from a young man. He says, I'm Mr. And Mrs. Smith's son. They've been very ill, they've been in and out of the hospital. They said that I should take over this, we're definitely going to sell and I'm coming to town to meet five of you. I said okay, can I be the last person? And he said yes, my parents really liked you so you have the jump ball. He was 22 years old, he had just graduated from West Point, he knew nothing about real estate. He meets with my four competitors and I'm the fifth meeting, I chit-chat with him and I ask, what are you going to do now that you graduated from West Point? He says, I really like to get a job in Washington DC doing consulting work. I said, I know a guy in the military but I don't know ranks, what's the top one? He said, General? I said no, what's the next thing? He said, Admiral, I say, yes, my friend is an admiral, he's a consultant in Washington, DC, let me call him. I leave my friend a message. And while we were still in LA, my friend calls me back, I hand the phone to this young kid and they set up a meeting for two weeks when this kid was in Washington. The next day, the kid calls and says, my parents really want me to give it to you, I really liked you, if you pay 3.4 million, it's yours. I said done. He says, how fast can you close? I said 24 hours. So, we ended up closing and the reason why I could afford to pay more is because I had great relationships in the market. I had called a friend of mine who had a property across the street early on in the process and we would always share market information and she said you're not going to believe it, I just did a renewal for 5,000 square feet with a national company at $50 a square foot. My two shopping centers down the street: one was $30 and one was $40. The fact that she had $50 rent and it was behind our parcels, was very good market intel. I knew the number we were underwriting at and I knew I could pay the 3.4.

Three weeks later I'm at a shopping center conference and two of the competitors came up to me and said, you paid $300k too much, I said I hope not. The other person said how'd you get that? We were after it for three months? I said, two years and three months. That's how we got to own it and we still own it today. 

You'll love to hear the ugly because the ugly always happens and it's my most successful deal to date. It's definitely the best deal, it was two acres, and I wanted to do two ground leases. We had Trader Joe's looking, we had all of these big names looking, but compared to building a strip center of 11,000 square feet, I was underwriting it at $40 even though I knew the person across the street said $50, I was trying to be conservative.  I knew that we could get an NOI of 11,000 square feet times 40 is $440,000 but I had never developed a shopping center and my partner had never developed from ground up, but he kept saying, don't worry, we can do it, you can do it, I'll be there for you. I said, okay because the ground lease people were $150k each per acre so Trader Joe's will pay at $150k or maybe $175k so it didn't make sense. It made better sense to build the strip center. 

Off we went. I had never done it before so I hired a project manager, I went through three project managers. After we built it, everything was opened, Starbucks, Blaze Pizza, Select Comfort, Verizon, all these national names. I called Verizon in November and said your space is ready and they said no, we don't have to take until April 1. I called them back in January, your space is ready, still a no. Finally, on March 31, a guy from Verizon called and said he was in town and ready to take the space. I said, great, do I need to meet you there? He said no. The next day, at three o'clock, I get a call from him, he wants me to come down there, my heart fell to my stomach, this is not a good thing. He said, there's a big problem, there is no RTU's in the building (air conditioner units). I said, Did you look at the work letter on the lease? Did it say we had to provide RTU's? He said yes, I even called the corporate headquarters to make sure I was looking at the right lease, the right work letter, and I said, that doesn't make sense. I call my project manager, and he said that it was because the lease was vague. For five months the space has been ready, but not. I call my air conditioning guy, and I said, get RTU's in this guy's roof. He goes up and puts the air conditioning units on the roof, he doesn't pull a permit and he gets caught. I get a call from the city, with whom I have a phenomenal relationship saying you have an illegal vendor on your roof and he doesn't have insurance. You're aiding and abetting a felon. And said what? I know he has insurance. I had to pay $27,000 in late fees to Verizon and I had penalties from the city because I tried to do it without a permit for speed purposes. It was a very expensive lesson. I called my partner and I said I will pay the $28,000 in penalties. 

My NOI today is $660k, on average $66 a square foot, it's probably worth 12 to 14 million, we paid 3.4 million, the construction was probably another 4 million. 

We did make another mistake. The whole time we were building it, we were going to build it and flip it and my partner did the loan. Again, all of these are lessons learned. He did a securitized loan, a CMBS loan on it, you can't flip properties when you have a CMBS loan on a property, it's a six-month assumption process, you have to pay the fees and a huge prepayment penalty. We got everyone open, Verizon straightened out and we were going to flip this deal for $12 million. We started calling the sales broker and he said you can't sell this deal. It's a $2 million defeasance prepayment penalty. Even though we have a successful property, not knowing about the defeasance on the loan, and not knowing about the RTU's, there were lessons learned all the way around. But it's a great property, my most successful one and we still have it.

A couple of notes: 1. You were so persistent and hardworking which are the reasons you got this deal. 2. You asked what is important to the seller, which is always so important. What is important to them, not you, if you have 1,000 different positive points, they only care about one thing and that's all you should be talking about. What did you put on the strip club?
We did a strip center for 11,000 square feet. We did a Starbucks with a drive-thru, we did Blaze Pizza, which LeBron James was part of the franchise and I said, I'm only going to sign this lease if LeBron James is at the opening. He was a basketball player for the Miami Heat and because my boys were young, 15- 16 at the time, he moved to Cleveland before the property opened so he did not come to the opening but he's still part of the franchise that owns the Blaze Pizza. We did a Select Comfort Mattress store and the Verizon cellphone store so those were all corporate deals, all great credit. And we had a little space of 800 square feet and we did a local ice cream store and they're killing it. They're doing almost over $2 million in ice cream, it's nitrogen ice cream. His wife owned a boutique in a mall, but did not have any experience, he built a beautiful ice cream store and does unbelievable on social media, and he does great.

They all do super well and as soon as my loan is up, we'll have to figure out if we're going to keep it, or refi, it's Maine and Maine real estate. When we bought the strip club, there was an empty Kmart next door, and the Kmart became a Whole Foods. A lot of people say, you knew that was going to be Whole Foods, and I didn't, but sometimes you just get lucky. I have two other shopping centers down the street and now I just bought into another partnership, a deal between this one and my other one. Now, I own all or parts of four on this street, so it's a monopoly, like the game.

Why not just refi and keep the deal? Coming across on properties like these is very hard.
We will probably keep it. We were going to flip it because we had brand new leases, brand new construction, so is it ever going to be worth more than it is today? I think it is, certainly, the NOI has grown. Verizon came up for renewal about four months ago and they said like, we don't think we're going to stay here because our rent bumps, it was $3 or something and I said, Okay, no problem, would you like to leave early because I could replace you probably at a higher rent than I signed the lease for five years ago? About a month later, they called and said they'd stay.

That's why I love Florida so much because it's pro-business, a lot of people are moving there, it's pro-sanity. There is a reason why it's thriving.
I've sold one since and got a 5.5 cap, which I'm very happy about. It was a center that I bought that was not a grocery-anchored center and then it became a grocery-anchored center.

We really need to get more women investing which is the whole purpose of the conference. When I talk to women, I say, why don't you invest? Where do you invest it, in the stock market? Some or most of them are in a career in commercial real estate? Why aren't you investing in the thing that you are doing your career in? A lot of them are afraid. They think it's too risky, they think it's too complicated. What I'm trying to do is, if you see it, you can be it. And if I can put eight speakers like we're going to do on March 8, on multifamily, self-storage, retail, hotels, if I can put women on stage and say talk about your first deal, talk about your fears, if they can go into a breakout room and watch how someone underwrites a deal, we take the mystery out of it.

Last year, we probably had 30% of those women in that room invest in commercial real estate deals for the first time. One of the women who spoke was Natasha Falcone. She is in multifamily. She did an all-women investor deal about three months ago and eight of the women that are her partners came from that conference. 

What was the percentage of women that invest in commercial real estate?
Of all of the investors in commercial real estate, only 3%. The number of women working in commercial real estate has gotten up to a whopping 36%, when I first started, it was probably less than 5%. But now, we have to work on that number of investors again because they're investing. If a woman said, I don't invest at all, then you're not my customer of this mission but when she says, I do invest and I put it all on the stock market, then they should come to the conference. My Netflix, Tesla  and Apple stock, are all down 50, 60 or 80%. I want them to think about investing, and just take baby steps investing in real estate.

Beth Azor
Sign up For The Women's Real Estate Investing Summit here: