How to grow your retail portfolio through syndications? We will review the career of Aaron Zucker, founder and principal of Zucker Investment Group, they purchased 22 deals in the last 40 months through syndications. What does he look for when purchasing a retail property? What are some of the lessons learned so far?

Tell us a little bit about you?
I started Zucker Investment Group at the beginning of 2019. I spent my entire career leasing retail shopping centers for shopping center owners throughout the country, I worked for some large companies like DLC management and Phillips Edison, and most recently, before going out on my own, with a family office in South Florida heading up their leasing platform. I then made the decision and the pivot to start Zig. Since then, we've bought value add unanchored retail properties in 13 states across the country and couldn't be having any more fun doing it along the way.

How many did you get done over the last 18 months? 
We've done 22 total in about 40 months. I don't know how many of the over the last 18, but I would say we picked up some steam, it's half or a little bit more than half.

How did you scale so fast? Let's go over your journey in the retail space and break it down to about every two months since you decided to start your company. 
In the beginning I moved into my parents basement with a six month old. That was interesting to say the least, with no portfolio and not much of a plan. There was a plan, it was just notes on an iPad. We bought our first property as a covered land play in Irving, Texas, we still own that property today. It's on the border, on a great location, and we are planning to monetize that property in some way shape or form over time. Until then we're enjoying the cash flow. I'm about to break out in hives thinking about that experience, I had $50,000 of my saved money non-refundable without all the equity figured out. I was raising $1.8 million, which I definitely didn't have, from anybody and everybody who told me they would be interested in buying real estate. It was a good litmus test to see who was actually going to be a real LP in that company and who was just talking, or maybe wasn't interested in that type of deal. It worked itself out, we got the equity resolved and bought that deal.

Then some time went by and people were still feeling out whether or not Zig was real. I'm sure that's still certainly the case, we're still trying to build a reasonable reputation. But we were able to source a couple more opportunities pretty much exclusively through the brokerage community, off market. That's a testament to the quality of relationships that I had and still have and I'm always building upon which we couldn't be any more bullish on leveraging the brokerage community, and getting them excited about the fact that we not only allow but encourage them to invest in deals with us, and they appreciate the fact that we move extremely quickly. We're young and nimble and are certainly aggressively growing. The mantra about our organization is that we're super aggressive, and we are, but when we look in the microcosm of a specific acquisition, it's usually pretty conservative.

A couple months goes by and nothing happens, I'm trying to find a deal. I'm a one man band at this point, I continue doing my thing, posting on social media saying we're looking for deals, hitting the phones hard, following up with the brokerage community, calling sellers, whatever it takes to procure something. Then one day, we acquired a sexy site, which was a Lululemon, single tenant. It was a Lululemon condo, and a joint venture with a group called Konover South based out of South Florida.

Several months thereafter, we were able to unlock an off market Chipotle deal, at an extremely aggressive cap rate in a great market in Orlando, we executed on a blend and extend with the tenant and then flipped out of it. We sold that property in March of 2020 right before the pandemic was hitting, and there were a few other acquisitions that were a little bit more boring. Between the time that we bought and sold that Chipotle, and the disposition of that, was what put Zig 1.0 on the map and gave us some some decent credibility that our group was looking for, and then more most importantly, executing on value add retail deals with great tenants, Chipotle, Lululemon in very good markets like Cincinnati and Orlando.

On the Lululemon deal, was there any actual value add, or they had a long term lease when you purchased? 
I truly believe that one was a value add deal exclusively tied to what our basis was going into it. That's the beauty of doing an off market transaction, that site in particular was a condo and a lot of investors are steering away from that product type. We just underwrote the fundamentals of real estate, the quality of the tenant and the cash flow. We've a great partner on that deal, and we bought some other ones along the way, we bought a vacant Kentucky Fried Chicken and converted it to an American Family Care location of which I'm actually the franchisee. I have a partner in that business who's amazing, my best friend and roommate from college, Aaron Fields, who I own 50% of the business with. He's running the operations while I'm focused on our scale and growth. There's been good little pops here and there. Mike Phillips, from Phillips Edison coined the term "PIG", we bought some PIG's, which stands for "passive income generators", and building up a portfolio, we're trying to get rich slow.

The Chipotle deal, was the value add just buying at a high cap rate and selling at a lower cap rate?
I wish we bought it at a high cap rate, but we paid a 4.2 cap for it. The rents were far below market, and the store unit was performing very well. The tenant was going to be out of options in the not too distant future. We collaborated with them through our relationship, and structured a deal that made sense for everybody, which brought value to the asset. We ended up exiting at an even more compressed cap rate at a higher NOI, which is how that deal was able to be pulled off. We did the Lululemon, the Chipotle, we did a preferred development deal for our AMC business, and just kept on growing.

Fast forward to about two years into the business, we had acquired 12 properties at that point, it was just me as far as people that were in house full time, I still like to emphasize "we" because we have amazing LP investors, we have amazing brokerage relationships, tenants and vendors. From an internal person with a Zig email address, it really was just me on the first 12 acquisitions or so, and then I got to a point where there was a major bottleneck. We got a couple of deals under contract, we'd have to go travel to see them and figure out the debt and the equity, talk to the tenants, order the due diligence review, and things got a little crazy. If you're doing 2 to 4 acquisitions at once, from start to finish as the sponsor completely alone, I realized that in order to keep the engine revving and get the company to where I really wanted to see it go, it was going to require bringing in people that were exclusively focused on lead generating for Zig.

We hired a guy straight out of school by the name of Dan Sanfilippo, and shortly thereafter, we brought in Jake Dugan, who I actually worked with at Pebb Enterprises who had cut his teeth in both investment sales, brokerage and leasing, he is working with me on the leasing side and then branching out to a similar role that I had paired with another organization. He brings his leasing expertise to the table. And all of a sudden, there were three of us in deal-making, and the deal-making was picking up enough to a point to where I was getting sucked away doing more operational things like operating agreements, in addition to what I'd still do like building models, setting up entities, overseeing our legal efforts, our DD, it was getting a little bit out of hand. After leading with revenue by bringing in more deal folks like Jake and Dan, we brought in an amazing operations person who's my right hand, Katherine Ibanez. The team consists of four currently, as we've continued to buy more deals, we're getting in a little bit to the development game, we're doing some vacant, all cash spec deals where we believe leasing can happen, we're still buying our income producing properties with vacancy upside or below market rents, and looking to throw fuel on that fire. We have somebody else who's going to be starting with us in June. And we're looking to hire one or two more people between now and the end of the year.

I would love to hear what you look for with regards to adding value in retail, especially the kind of retail that you're doing.
We are a bunch of leasing agents that turned into property owners. We look at every deal that we do with the lens of how would a retailer look at this site? How's the access? How's the visibility? Do we feel like we can improve these rents? Are these rents at or above market, which would make us cool off on the deal a little bit. From a construction and development standpoint, we can do it, we often partner up with strategic partners to do those types of deals. But as far as existing bricks, we roll up your sleeves, figure out a way to either increase the NOI or improve the credit profile, or in an ideal world, both. That's a result of our brokerage relationships and our secret sauce.

Do you want to share a deal that it's a little bit scary? What were the mistakes made? How would you do it differently next time. Let's go over something that people can learn from, without having to do go through it themselves. 
The first deal I did, I took a major risk, which I'm not sure I would take today. You don't know what you don't know. I had a good feeling about it at the time, but it was nothing more than a feeling. I had $50,000 non-refundable on a deal that I didn't have the money for. We had most of the money raised, but I was still $600,000 short when that 30th day came up. We weren't buying from some Joe Schmo, that's the other thing. I don't call buying from a group like Tabani, who's extremely polished and really good at what they do, a mistake because it's possible and I understand their business plan and vetted out why we shouldn't buy it, etc. And it still passed the sniff test, but wasn't our profile buyer. I had $50,000 go hard, I undercharged on the promote, I don't even think I took any fees on the deal. That was done by a guy who was basically living in his parents basement. That structure doesn't work if we're ever going to build anything that has real sophistication.

We make aggressive bets, provided that those bets are extremely calculated, and not all of them are going to pay off. If you find a developer or investor who tells you that they've never had a bad deal, then they're either a liar, or they haven't done enough deals. We haven't had any major debacle yet, we had 100% collection during the pandemic, we have never missed a mortgage payment, or defaulted with a vendor, or anything like that. I would say the mistakes that we've made have all been truly learning lessons, there hasn't been anything catastrophic. We're really trying to avoid that as long as we can. I'd like to try to screw up later, as much as possible, or at least screw up so dramatically, to where it's not going to put us out of business, because I'm really enjoying this.

Is there anything else that you think that is important for our audience to know that we haven’t covered yet?
I'm known to say, and I don't know who said it originally, but I'll take the credit for it, because that's how this business works. I didn't really say this, but whoever did is hilarious and a genius, "Commercial real estate is the best thing that ever happened to the B and C student", the game that we're playing is big kid monopoly, it can be complicated, but it's not rocket science. As a result, there's a lot of people doing it. And there's a lot of people that are doing it well, and there's a lot of people that are going to fall flat on their face. In order to have a chance, and being legitimately successful in this business, you have to really know why you're doing it. That's something that really resonates for me, and at the core of our company, really digging deep, understanding, and finding out why, and also really understanding what you can do really well and what you're not so great at. And I'm really good at recognizing my weaknesses, despite how long that list is. I just stick to the to tune of that, and I'm hoping that it continues to work. I don't claim to be a real estate savant or anything, but it's key to try not to have to learn the same lesson twice. And that will really resonate with you the first time that you have to experience it, learn it, or learn from other people who have experienced it.

Aaron Zucker