Transcript

Aaron:

Today on the podcast I’m joined by Chris Palermo, the co-chairman, founder, and managing principal for First National Realty Partners, one of the nation’s leading commercial real estate private equity firms. He brings a deep emphasis on the grocery-anchored retail sector, and has grown a fantastic business.

Chris, welcome to the show. I’m really happy you’re here. You’ve got a lot of great things to share. Hopefully, we could start off with two to three minutes on your background so our listeners can get to know you more.

Chris:

Sure. Thank you for having me here today and I really appreciate it. So again, I’m founder and managing principal of first National Realty Partners. We’re a vertically integrated private equity commercial real estate operator and fintech company. Our primary asset class is necessity based, grocery-anchored, shopping centers.

We have a national focus with a strong emphasis on secondary markets. We look to acquire the number one or number two center in the market. Our company was founded by myself and my partner, Tony Grosso, in 2015. We closed on our first transaction in March of 2016, which was a 9,000 square foot mixed use building up in North Jersey that we paid over $500,000 for. At the time we had myself, Tony, and one assistant. So we had one employee. Fast forward six years, and we are a fully vertically integrated CRE platform with 95 employees.

We currently have a portfolio of over 7 million square feet spread out between 54 properties, and a portfolio value of just over $1,000,000,000. What’s unique about our business is we source all of our capital exclusively from high net worth investors.

Aaron:

That’s a great overview. You’re clearly someone who has a very special culture at your organization, which I’ve read about, and want to get into. But maybe to start, why don’t you give a little bit more about your background before you launched the company. Maybe give us a brief sketch; how you found yourself launching the company, how you got into it.

Chris:

Sure. Sure. So before First National’s founding, I was in the financial services business. So basically I was raising money for other people’s deals, both equities and private deals. I mainly focused on private deals, and it started way back in the year 2000.

I was going to college, and decided to get a job at a brokerage firm. The name of the firm was Ladenburg Thalmann. And it was in Long Island, New York. So I told my parents that, hey, I want to go into this field. My mother, who was an English teacher, said, “Absolutely not, you have to go to college.”

So I decided to juggle both. That worked for about three semesters. I passed my series seven so I was completely licensed and able to work with the public. The first day that I was licensed, the market completely crashed. It was it was literally right at the, I guess you’d say, the beginning or actually at the end of the tech crash that happened in the year 2000. So it was pretty tough. But needless to say, I worked my tail off.

By that summertime, I was doing so well, that as far as income, I was doing better than both my mother and my father, and at that time I was 21 years old. So needless to say, the following year I didn’t go back to college. By the time I was 21 years old, I owned my own OSJ, which is like your own securities branch of a brokerage firm, and I started focusing on alternative deals.

I didn’t like the equity markets for the simple fact that there was no edge. There was no ability for you to go and take something and make it better for your own work, and I always really admired that. And you know, the customers that we were working for, whether it was private real estate organizations or other founders of other companies I really always loved, how they were able to build their business, how they were able to add value, and they were really laser focused on what they were doing.

Me in the financial services business, you’re really just, you know, you’re an order-taker, you’re a service provider. I made a lot of money, but it wasn’t…it wasn’t what I wanted to do. You know, I would say after 14, 15 years of having an incredible career, I made a lot of money, very rewarding, did really well. I said, to Tony, “you know what, we’ve read and been around this business for so long. We understand everything that goes into structuring these deals. Let’s go out. Let’s get out of our comfort zone and let’s start our own private equity shop. Let’s focus on real estate.”

We both had an incredible passion for real estate. My grandfather was in real estate, and I can remember the times from when I was seven years old being around the table. And, you know, he would explain to me his successes in real estate, talking about how to build a business, and it’s really just what we wanted to do. So we literally left our careers and we went and we started First National Realty Partners in 2015. We closed in our first transaction, which was a 500,000 dollar transaction.

Six years later, we’re over $1,000,000,000.

Aaron:

Chris, I know you’ve built a fantastic team. You’ve really invested deeply in your organization, not just the properties, but your team is world class and to find star people, and to build that special culture, describe how you’ve done it. That’s one of the absolute hardest things to achieve in business.

Chris:

You have to be able to hire people based on competency and based on how you view the world.

If we have our entire organization laser focused in the same direction, we’re going to be able to elevate each other’s game. So, you know, for us, First National Realty Partners, we have a six-step hiring process. We have the screening interview. Then we have our competency interview. Then we interview based on each and every single one of our core values, etc. Now, if the candidate passes the competency and in the screen and they miss one of our core values, we will not hire them.

We have right now 95 full-time employees. It was very hard to go out and run this hiring process. But the result is we can do the work of probably 200 people.

We have just an incredible amount of enthusiasm. Everybody treats everything that they do like they own it and everybody is an entrepreneur. There’s an incredible amount of enthusiasm. People understand that the success that they have is going to create success for the team.

We’ve all bought into what our overall mission is–as one of the founders of the company, there’s nothing better in the world and nothing more rewarding. Forget about money. Forget about fame. Forget about success. Being able to know that you can rely on incredible team members to go out and fulfill the vision is what it’s all about.

And the funny thing is, Aaron, we created such a culture that I would bet you a nickel, that some of the people working within our organization really wouldn’t believe that they were capable of the success and the strides and the growth that they have accomplished in our organization.

In other words, the system that we’re following is really getting the best out of everybody, and we’re just building on those successes. It’s like, you know, when they tell somebody who’s active, that being active will make you become even more active.

The success that we’re getting and the teamwork and the camaraderie is begetting more success, and we’re able to do incredible things. We beat our goal last year and acquisitions by almost 70%. And the reason why we’re able to do that, of course, is because of the team that we have.

Aaron:

Well said, I know your culture is sort of a lagging indicator of your brand or vice versa, but your brand is your culture and your culture and your brand. And the reality is that your team has performed, you’ve performed putting the team together.

And I know even in December you went on a massive tear to close out the year. Maybe you could talk about some of the fundamentals. Obviously, grocery-anchored, necessity based shopping centers, as we’ve talked about, have performed incredibly well. It’s a wonderful moment for the asset class that you’re in, but somehow you continue to find deals to execute and close on. Maybe you talk about the fundamentals generally in the market you’re seeing for these types of assets and the competition on them.

And you may have the best team, but you still have a super hot market for that asset. How are you competing in getting those deals done?

Chris:

It’s a great question. Believe it or not, our space is a very small business for the big players.

Everybody knows one another and the most important thing is a sure close. It’s not as much as price, it’s that they know that the operator that they’re going to award the deal to can close. And, you know, over the last five or six years, First National has performed incredibly well.

We did exactly what we said we were going to do. We were a lot more nimble and we’re less of a pain to work with in comparison to some of the big institutions. So when this market started to explode, let’s say, over the last year, we were positioned very very well to take advantage of that growth.

But if you ask me, what does it come down to? How do you become successful? It’s very very simple. You have to source and underwrite a significant amount of deal flow. That’s what it comes down to. The more deals you look at, the more opportunities you’re going to have, the more home runs you’re going to hit.

When we started the business, we learned very very quickly that although a lot of real estate companies are hyper local and hyper focused, for what we do and what we specialize in, which is relationships, national brand tenants, people that are in a bunch of places, that we would have to spread out our geographical focus, leverage off of the law of large numbers to be able to find those incredible assets. And that’s exactly what we did. And you know, again, going back to our employees and our people, we were able to make that transition.

But we were able to perform incredibly well by going national and not being hyper local. So again, it comes down to underwriting a significant amount of deal flow. You know, we’re a fintech company and a real estate operating company, all in one. So we’re using different tactics, I think, than a lot of other people are. And you know, it’s all about sourcing the deals.

Aaron:

You also talked about certainty of closings. I mean, I’m real estate lawyer so I’ve certainly seen a lot of deals blow up from hundreds of different reasons. One of the things I know you pride yourself in is your work. You know, if you get a deal under contract, you don’t retreat. You know, you get a reputation for certainty of closing. You say what you do and do what you say, and that’s really borne out really well for you and your reputation. So that certainty of execution, I agree with you, it’s more valuable, than the highest price. So that’s been amazing to see as well. It’s your culture, it’s your tenacity, it’s your special team. It’s your drive, and ambition.

Maybe we could talk a little about adversity. I mean, you’re very, very entrepreneurial. You’re doing so many deals. I know sometimes people want to hear about some of the setbacks, too. You know, you’ve grown fast, so it’s never a perfectly smooth ride. Maybe you can talk about some of the struggles you’ve had as you’ve built the business.

Chris:

Well, I think that, you know, the biggest setback that we had, the biggest adversity that we’ve seen, was naturally coronavirus. You know, I’ve been through the tech crash in 2000, the financial crisis in 2008, and coronavirus literally came out of nowhere. The entire country was shut down, and we were forced to respond to a situation that, you know, we weren’t expecting. Our team responded incredibly well. We transitioned from a CRE team to almost like a crisis team that would, you know, go and rebuild the state after a huge hurricane. We were reaching out to mom and pop tenants. We were arranging PPE loans.

We were doing whatever, everything that we could to make sure that we were being proactive and we were servicing our tenants. You know, during this, you know, tough time and also articulating what was going on to our investors.

The end result of that was is we had, you know, two months of tough time, but the goodwill that we garnered from our tenants was just incredible, and we’re talking the national brand tenants. It really set the stage for us to have massive growth over the last couple of years.

And then as far as other adversity, look, we’re a business disruptor. The way that we’re running our model is different than traditional private equity companies. The way that we do it as a sponsor or an operator, raising our own capital–we’re probably ten times larger and growing ten times faster than our nearest competitor–we’re constantly in no man’s land. We’re constantly trying to figure out what the roadmap is, how to be able to do our marketing, pull in investors.

There’re so many different facets that work into our business that we’re never 100% satisfied and we don’t feel 100% safe. I don’t know how much you’re focusing in on this space and how we run our niche, but the market for alternatives and the way that we do our business over the last, let’s say, three or four years has completely exploded. We are pretty much at the top of the mountain. Being at the top of the mountain is a temporary place and I always try to tell our people that like the best sporting coaches, it’s a great view from the top, but eventually you’re going to have to come down. There are always people that are nipping at your heels, so I always want to try to bring ourselves back down to center and figure out a way for us to go and climb that mountain, recreate ourselves.

And that’s really the key to success in this business. But with all that, there’s always adversity down all different avenues, whether it’s sourcing deal flow, marketing, whatever. You just have to adapt to it. You have to leverage off your team.

You have to have the trust in your team and you have to work through the issues. And for us, we use an operating system. It’s called EOS. That’s the acronym for Entrepreneurial Operating System. It was created by a guy named Gino Wickman. I don’t know if you ever heard of him before or read the book…

Aaron:

Yeah, it’s a fantastic book. And it’s also tied to another book called Traction.

Chris:

Yeah, Traction and Rocket Fuel. So we adopted that system.

We are always focused on the process, fulfilling the vision, focusing on what the biggest issues are that we have, how can we create opportunities? And we read Verne Harnish, his book, which is Rockefeller Habits, and we thought it was a little cumbersome.

But we’re always searching on what would be the best operating system for us to be the most efficient. We ended up going with EOS, and what can I say? It was an absolute game changer for us. You know, we focus on our business. We have our long term vision. Let’s say let’s call ten, 15 years. We have our well, let’s say that’s our ultra long term vision. Then we have our medium term vision, which is three years.

But most importantly, we really focus on 90 days at a time. We focus on how we can change our business in the short term. We focus on the biggest issues that are plaguing us. And the biggest opportunities. And by having that open forum with all of our employees, it really forces everybody to get on the same page and talk about and tackle the issues and figure them out as a team, not as a singular person. What’s the best path forward? And you know, as I said, the results of implementing that year over year, our growth as an organization, has been 50 to 100% plus each and every year.

Aaron:

I love it and I’ve read that book, Traction, a couple of times. It’s amazing. And the book you might like is The Twelve Week Work Year. It seems like you’re doing a lot of that stuff already. If you haven’t read it, I’ll send it to you. But it’s really amazing to hear from the inside out how you’re organizing the troops and executing.

Now you’re managing a lot and dealing with a lot of stress. You know, it’s obviously a lot of good stuff going on, but how do you find that balance? Are you doing anything on the personal side to manage your mental edge day to day?

Chris:

I love being out in nature. I love hanging out with my family. I have two beautiful daughters. I enjoy fishing. I’m blessed to live very close to the water and I have a boat. You know, I go out fishing in my free time and of course, there’s nothing better than sourcing off market deals in your free time as well.

Of course, we have stress day in and day out. But what’s funny is when you have an incredible team and you have an incredible trust in your team, stress isn’t really stress, it’s very manageable. I was a lot more stressed 15 years ago when I didn’t understand what exactly my vision was. Now we understand exactly where we’re going and what we’re going to do, so it’s not so stressful.

You de-risk your stress or you limit your stress by putting in the work upfront. So our trust in our team’s ability to underwrite the deals properly, line up all the financing, have all the meetings, really alleviates the stress. I know that when we’re getting a deal on the contract, barring an act of God, or an underground oil well that nobody ever knew about, we’re going to 100% close on the property because our strike force went out, our underwriting team accomplished all the due diligence, our loan originator looked at everything, and we measured ten times a cut once. So the stress that I have now is not even a comparison to the stress that I had years ago. The responsibilities that we have, and that the organization has, is significantly larger now, but again, the team makes everything easier.

Aaron:

It’s amazing. It’s a really great story, Chris. I mean, I could tell this stuff runs in your blood and you’re executing. And I love the way you’re adopting EOS, and your team is aligned.

You find great assets.

Chris:

I think how many deals are closed in December, just for the record. I think that we closed 170 million in transactions, and I want to say that might have been spread out between eight or nine deals in December.

Aaron:

in December?

Chris:

Yes.

Aaron:

Quite the month, then.

Chris:

I try not to focus on the numbers. I really don’t focus on the money. I try and focus on the process. I focus on the vision. I focus on the people. If you focus on those three and most importantly, “the why,” everything else will fall into place–the money, the success, you being successful as an organization–will be a byproduct of you having all of those set up correctly.

Aaron:

Chris, I could not agree with you more. So many people chase dollars chase this number, but it’s truly about becoming the person and/or the organization that attracts it to you and is capable and appropriate to be in that position you’ve created. So I don’t know if there’s anything else you’d like to add…if you were to sit down with somebody–I know you advise a lot of people in industry–say somebody gets on your calendar for coffee, wants to break into commercial real estate, specifically your niche in the industry. What are you telling them? How do they break in? How do they get going?

Chris:

Well, I would say this– this would be for anybody in any business, any entrepreneur that was looking to be successful–I would say this, you’re capable of doing things that you never could imagine.

Stay true to yourself. Do what you love. Always ask for help. Be good to people. Focus on the vision, the process, the people and the why. And make sure that your business is a win-win model for everybody.

If you do that, you can scale and work in any business.

Aaron:

Very, very true. Well, Chris, that’s a wrap. I really want to thank you again so much for being a great guest on the podcast. It was a lot of fun.

We learned a lot, and I look forward to speaking again real soon.

Chris:

Aaron, it was a pleasure. I’ve listened to all your previous podcasts. They’re incredible. Keep up the great work and I look forward to speaking with you in the near future. Thank you so much.