Innovative Solutions in Acquiring and Disposing Industrial Assets with Adam Abushagur
“The bigger the challenge, the bigger the reward fulfillment for me. And I've always had a thrill for problem-solving.”
Adam Abushagur specializes in the acquisition and disposition of single-tenant and multi-tenant industrial assets in the southwest market. His daily mission is to support clients but in engineering innovative advisory solutions designed to bridge their objective today's up today with their goals of the future whether involves industrial acquisition or disposition, complex sale-leaseback advisory services, or capital markets debt structuring.
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Innovative Solutions in Acquiring and Disposing Industrial Assets with Adam Abushagur
Brett:
Our next guest is from the great state of Texas and he specializes in the acquisition and disposition of single-tenant and multi-tenant industrial assets in the southwest market. His daily mission is to support clients but in engineering innovative advisory solutions designed to bridge their objective today's up today with their goals of the future whether it involves industrial acquisition or disposition, complex sale-leaseback advisory services, or capital markets debt structuring. This next guest finds great passion and puzzling, puzzling complex obstacles into creative solutions. Please welcome to the show with me, Adam Abushagur.
Adam:
There you go.
Brett:
Adam, for our listeners getting to know you for the first time, would you give them a little bit more about your story and your current focus?
Adam:
I grew up born and raised in West Texas, grew up in El Paso and graduated high school there, and then moved to New Mexico and went to school there. I was actually a civil engineering major for three years and decided to turn the lights off one day and turn back on and switch my major to business. So I hated sitting at a computer all day. Funny enough, that's pretty much what I do now. So I just get to interact a lot more with people, help people piece together, together with solutions, and whatnot. It's definitely fulfilling my eyes. And then I moved to Dallas after I graduated. And since then, coming into Dallas, I just joined a sales company, selling office supplies, business to business. And that was effectively like my learning curve. I learned how to interact with others. Learn that at the end of the day, you're always selling yourself. And from there a year and a half into that transition into commercial real estate started with Marcus Millichap. Since then I've been here. And five years. Fast forward five and a half years we're, here we are.
Brett:
That's amazing, Adam. And we'll dive into all of those things that have to do with commercial real estate brokerage here in a minute, and especially the industrial marketplace. But before we go there, I'm curious, I wanna get to know you a little bit better, maybe picture the high school or college days. And I believe we've all been given certain gifts, Adam, and these gifts have been given to us to be a blessing and a help to others. Some people call them superpowers. Some people call them strengths, I believe their God-given gifts. I'm curious, what are those maybe two strengths or gifts that you believe you were given? And how does it help how you help and bless people today?
Adam:
I will say that my biggest strength is piecing together challenges. So I use this example all the time. As a kid, I remember this vividly, I basically begged my dad to come home and buy me a set of Legos and I took the Legos, dumped the whole box, and threw away the instructions. And then from there, I just tried to piece it all together. And I've always had a thrill for problem-solving. So in the end, what I found with real estate is that the bigger the problem The bigger the challenge, the bigger the reward fulfillment for me, so I tend to be problem seeking.
Brett:
I love that. That's a great, great answer, and piecing together challenges, solving problems, and helping people along the way. And looking for the problems and then solving them. So is that a fair summary?
Adam:
Yep, nailed it.
Brett:
Awesome. So let's dive into the number one perhaps problem facing commercial real estate brokers as it pertains to industrial property sales or can even be owners to not necessarily just brokers, but maybe your clients. What's the biggest challenge facing a lot of industrial owners.
Adam:
I would say right now. I mean, really, last year was COVID. Right? So fast forward to this year, there was a lot of uncertainty in the air with what's coming politically. Tax Reform and whatnot. We had the whole Senate race going on in January, right. So there's a lot of uncertainty there. Now, with all of that, behind us, the question mark that I was thinking is how tax reform is gonna affect me here towards the end of the year? And I mean, I would say for owners, there are a couple of big items out there that are common one is the new administration. So love Biden hate bite and love Trump hate Trump politics aside, the reality is we're dealing with your tax reform. And what's coming is potentially hiking capital gains tax, and there are talks in the air about 1031 exchanges, being limited to a capital gain of half a million. So not that this is the first time 1031 has been thrown out there and threatened but that is part of what we're dealing with. There's a lot of uncertainty and fear. So we're helping owners decide to dissect and really downsize their risk while making sure they're piecing together call it good decisions here come towards the end of the year.
Brett:
We couldn't agree with you more here. Capital Gains Tax Solutions were on the channel on the front line in California. So we saw a lot of pain when it comes to maybe some capital gains tax and other taxes, to say the least. So let's dive right into that. So what do you think?
Perhaps Biden's proposing, by the way, is 20%? federal to be doubled to just about 40? About 39.6%. federal? And how do you think that might affect your sellers? And then on top of that, if they take away the 1031 exchange?
Adam:
What I always like to go back to is a couple of different things. One is, as far as real estate investing goes, always just be focused on the fundamentals. I think there's a lot of a lot up in the air that we can all argue about five backward and forwards on what's potentially coming. But the reality is none of us really know. So I would say the two big ones that come in are, capital gains tax. So right now what's being proposed is, as it stands right now, it's 20%. plus I call it the 3.8%, or 3%. Obamacare. So it comes out to be 23.8%. And then on that what Biden is proposing is if the gain is over $1 million, it would then be considered ordinary income. And that would be 39.6%. Plus the same Obamacare, so and plus its state income tax. So in a lot of states, I mean, that's, that's more than half of your gain, which would cause a lot of question marks around potentially selling. Now, as it relates to real estate, specifically, there are some factors that drive transactions, one is death, divorce, debt coming due, you name it. So there's a lot of factors out there that the realities won't go away. So there will still be transactions taking place. Definitely less if that's the case. But I would say there's a lot of factors behind the scenes that are immune to tax reform. They're happening regardless.
Brett:
I agree with you. They're focused on the fundamentals. I like that. Let's talk about the 1031 exchange, though in general, what's been the biggest frustration you found for your clients as it pertains to the 1031 exchange? And how do you help people navigate through that?
Adam:
The biggest challenge is always the timing. So I would say the fear in going through an exchange is always well, what's out there, and what can I exchange into? Because the reality is timing, there's a lot of uncertainty there, that is, I would probably say the number one reason why someone is stuck in the unknown. So what we've found helpful is helpful for clients is really outlining the timeframes for them. So the reality is, you have more than just 45 days to find a property and exchange it. We can extend that deadline, that timeframe sign-on deadline for a lot of our clients. To give you an example. We've got a client that we just sold a building for. We'd been looking for a replacement property the minute we procured the initial Li for them, so we procured the Li on their existing building, two to three weeks to negotiate a contract, plus another 60 days to close. Right, we're already talking about 75 days, roughly it plus another 45 days. So at that point, you're, you're, you're looking at 120 days, four months, that's a lot more than just the 45 days. So that process can be very well controlled if you're partnered with the right people.
Brett:
I agree with you on the timing part of it. It's actually why we started our company. You know, back in before the crash of Oh, eight, we had a lot of people doing 1031 exchanges, like Yo, is that Marcus and Millichap and multifamily here in Sacramento, and, you know, things were going well for a while. And then there is this, you know, things hit the fan and people, all of a sudden, like Warren Buffett, said, you see who's been skinny dip and right when the tide goes out. And some people had too much debt, not enough diversification, not enough liquidity. And they knew they were overpaying for these very low cap rates in the 040506. But they felt like they had no other option except for what we call the shotgun wedding 1031. I love 1031 when the deals make sense when the cap rates make sense when the intrinsic fundamentals of the properties make sense. But at a certain point, when you have such low inventory and values being driven up, there's a time to sell and there's a time to buy. So, Adam, I'm curious, do you think it's a seller's market buyers market? What's your take on timing as far as buying something or selling something high, and perhaps buying it, you know, higher 180 days later?
Adam:
Let's say it's very product-dependent. So give me an example last year, if COVID did anything, it amplified the need for industrial real estate. So I would say industrial just at least in our world here in Texas went untouched. If anything amplified it amplified the need for it. You look on the other hand on retail hotels, other product types and offices highly affected. So there are a lot of variables driving when it's good to buy or sell depending on the product type now speaks industrial specifically. I would definitely argue it depends on what position you're in. So it's definitely you can easily say it's a seller's market. But there's a lot of times I look back at some of the properties we helped clients sell and buy two years ago where I thought it was aggressive. And then you fast forward two years. And you look at today in two years, population growth, employment growth, corporate relocations, all those factors keep fueling the growth of the economy in Texas. And it's something I don't see stopping. So unless something drastic occurs to really put a halt on a lot of the population growth and shifting that we've been experiencing in Texas, nothing, not much is gonna stop that.
Brett:
No, I think it's great, that's a great point. Yeah, it depends on the product you're in. And hotels and retail definitely hit harder depending on where it was located and things are getting a little bit better. industrials are one of the strongest, right, so it's a multifamily mobile home park, those are my favorite as well actually own some small portions of some industrial properties with a group actually out of Texas. So I'd also like to think about the location in which you're going into right places like like Austin, or Dallas, or places like, you know, states like Florida, or Georgia or Tennessee that are business-friendly, right there pro-growth, a lot of businesses, I think it was Oracle, Tesla, and HP all announced. And this is I think about 180 days ago now that they're all moving all their headquarters to Austin, Texas, right? Yeah. And you're just seeing just this flood of wealth and a business of growth happening. So you've got to follow those trends. And that is why, you know, personally, why if they take away 1031 are limited to, you know, $500,000 it's more important than ever to have an alternative. So, by the way, you can learn about the deferred sales trust, that's our alternative at capitalgainstaxsolutions.com. We actually just say to fail 1031 exchange, Adam, we had a client who said the same thing he did had, he's been in business for 30 years. He's been planning, planning, pre-planning, and trying to find a deal trying to find a deal. And he was Look, he sold 120 units in Georgia, he sold for 7.6 million and had about four and a half million of debt. And he's looking at placing about 3.1 and buying something equal to greater value, but his challenge was he was running out of his 45 days B the values cap rates are like four and a half 5% a lot of the juice has been squeezed out. right a lot of the value-added was squeezed out and he's going I feel like I'm overpaying and this is pre-COVID. So then COVID hits and he's like I definitely don't want to be in it. But beyond that, it wasn't just the financial reasons for selling him. Because the other side is the personal reason you see he's a baby boomer, he's in his 60s and he's looking to spend more time with the grandkids. You know, he's looking to build a Montana-like Leadership Retreat place to help teach and train corporate leaders on how to give back. And so that was his legacy place. So some of this stuff is not just financial freedom, but it's time and energy freedom anyway. So we say just fail 1031 exchange. He's really happy he got debt-free. And now he's been able to diversify into multiple syndications hard money lending, ground-up development, all these different deals, all one has to do it himself. So I'm curious, Adam, the value of the legacy for your clients, the baby boomers that are getting older, that are looking to maybe kind of de-stress? What would an alternative to a 1031 exchange mean to them?
Adam:
A lot. I mean, it's, so I take it back. So it's funny. Somebody said he started Marcus Millichap, he probably went through the same training, a lot of the lingo makes sense. But we call them, the D’s, right, the divorce, dissolution of the partnership, debt coming due to all those factors. A lot of those factors are as a result of a client getting to a point where they're taking a step back from their hands-on management of the real estate, we've got a client out in Kansas, they're selling, we're selling a building for them, they've got a year left on the lease, they, they're in their 60’s 70’s, they don't want to deal with a renewal or a vacant building, they're selling their building. And ideally, they want to change to something much more hands-off. Right now we're scouring the market, trying to find them a deal to potentially buy. And what we found is nailing down specifically, the parameters of what they're going to be comfortable with are going to be a little bit more difficult. So they're going to have to get a little bit more aggressive or decide to pay the capital gains or follow the DST. So I would say those factors really are tied a lot to clients taking a backseat and backing off a little more hands-on hands-off.
Brett:
Yep, absolutely. By the way, for listening to listening, the DST can be really kind of two camps, there's a thing called a Delaware Statutory Trust, which is a form of a 1031 exchange, which is a passive way to take your interest in this property you're selling and 1031 into like a bigger deal, typically 10 years 710 year holds, typically not as great of a value add? Well, what we're referring to on the other DST, the less known is called a deferred sales trust, which is it's not driven by any of the 1031 rules, and it gives you a lot more flexibility. That being said, Are you ready for the lightning round?
Adam:
Right. All right.
Brett:
I don't know what you know. Now, if you go back to your 25 year old self, what's the one Golden Nugget you make sure to tell yourself to do?
Adam:
I would say listen more.
Brett:
Listen more. Okay, good. Good. All right. With that, well, let me ask you this question. In this generator, conditional close or 1031. timeline, if you had to pick one tool and one to only which one would it be?
Adam:
I would say, an interest generator.
Brett:
Why?
Adam:
I would say if you don't have a good reason to be interested in rater, you're not going to get a conditional closeout or attend.
Brett:
It all starts with that. Absolutely. And that's also an insider talk with Marcus & Millichap with one of the things we learn date, you know, day one, which is exactly right, something that's applicable. That's interesting, that's going to capture attention. And it's actually going to give people a reason to actually sit down because otherwise Why are you calling him so we're talking to the commercial estate brokers. Right now. Like if you're calling them make sure you're adding value, and it's something that can be actionable, and something that perhaps they are concerned with, and you have like a solution for right. Very cool. What's that? What do you most appreciate about Marcus & Millichap and the five years that you've been there?
Adam:
I would say what m&m is known for is taking a shot at younger guys with no experience and whatnot. And coming in the door, I would say, I didn't know what a cap rate was, or a dock door was, and fast forward five years. It's laughable. So I'm grateful for taking the shot on me when most others wouldn't.
Brett:
Absolutely love that. Yep. And likewise, I grew up in the real estate business, but I didn't know what the cap rate was or IRR or, you know, cash on cash return underwriting at a property, and then it gets some of the best training and mentors, which set me up for everything I've done now. So right Marcus and Millichap is a wonderful, wonderful firm and a great place to learn commercial real estate brokerage. Next question, what is the number one book you've recommended or given the most in the past year?
Adam:
I would say, Think and Grow Rich by Napoleon Hill, is probably my favorite book of all time is probably Pull up a very close tie with The Obstacle is the Way by Ryan Holiday.
Brett:
Next question, what's the one leadership quote or theme that you strive to live by?
Adam:
Um, I would say, don't preach to others what you're not willing to do yourself.
Brett:
You can't push a rope. You got to get in front and leader put. Love that the next question. What are you most curious about right now?
Adam:
I would say curious, ideally to see how tax reform shakes out.
Brett:
Yeah, me too, right.
Adam:
Easy one.
Brett:
Yeah. The last question, then we'll let you go, Adam. After all your user success, helping a lot of people buy and sell industrial properties. I think growing your team, I think you said over 15 total that you guys are stretching across multiple states for industrial property. And you've won all these awards, by the way, Marcus and Millichap as well. How do you stay centered in your values? And how do you stay encouraged to charge forward to reach for new heights?
Adam:
That's a great question. So it's funny, I was having dinner with one of my high school friends. Last night is now an attorney. And we were talking about just purpose. So a lot of times fast forward. I mean, growing up, you always have a purpose. So you go to elementary school, and then your goal is to get an A and then graduate to second grade and the third grade and then fourth grade and then go to middle school, and then high school and college, get a degree. And then if you're going to be a doctor or a lawyer, go to law school, and there are always the stepping stones that are handed to you. And fast forward, you get into a career, once you get to the point. At the end of the day, there's only so much recognition, so many different steps you can take and you're left with one thing, and it's your purpose, and most people don't have that. And that's probably one of the things I feel like I'm most blessed for is I'm always connecting things back to why I do what I do. And it's problem-solving. So I have a thrill, a passionate connection to piecing together the challenges that clients face. And I would say that is the number one thing we all at times lose sight of. And the minute you like to lose sight of that you lose passion, you lose fulfillment, you lose excitement about what you're doing. So the best advice I could give is if you're feeling that way, think, take a step back a little bit and then connect to why you're doing what you're doing. what your purpose is, what is it.
Brett:
Very well said lots of wisdom there. Let us know when you write your book. We'll check it out. Adam for those who want to get in touch with you would you remind them one last time how they can find you.
Adam:
So adam.abushagur@marcusmillichap.com
Brett:
And by the way, if you're wondering how that's spelled you should be because that's a really hard one ABUSHAGUR there also be in the show notes and that's adam.abushagur@marcusmillichap.com. And you can also find Adam on LinkedIn. He's active there as well. Adam, I want to thank you for being on the show sharing a part of your story given us some wisdom here get us some things to think about. I want to encourage you to keep piecing together challenges solving problems for others so they can create and preserve more wealth, in real estate and in life may be right we all need help as well with making sure we're focused on our purpose right. So thanks for being on the show and also want to thank our listeners for listening to another episode of the capital gains tax solutions podcast as always, we believe the highest net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options not having a clear plan is the enemy and using a proven tax deferral strategy, such as the deferred sales trust is the best way for you to create and preserve more wealth when you're selling highly appreciated cryptocurrency businesses commercial real estate saving a failed 1031 exchange you can go to capitalgainstaxsolutions.com to learn more about that’s capitalgainstaxsolutions.com Hey, we appreciate you listening to this episode and please also by life your business professional you go to expertcresecrets.com, to learn how to use the Deferred Sales Trust to add more value and grow your business. And please rate review subscribe. We appreciate you listening to this episode.
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