LUR 70 | Industrial Properties


Although there are a huge variety of properties that you can invest in, putting your energy into just a single type will most likely enrich your real estate funds to the fullest. Neil Wahlgren found success in single-tenant industrial properties. Sitting down with Lisa Hylton, the Chief Operating Officer of MAG Capital Partners shares his strategies when investing in this kind of property, delving into its many pros and cons. He explains why he finds this way more rewarding than multifamily homes, the right exit planning for such an asset, and finding the best balance between its appreciation and depreciation. Neil also discusses how to assess operators properly, the lessons he learned in passive investing, and how he led his team during the most challenging real estate moments.

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The Different Flavors Of Passive Investing – Achieving Alpha In Industrial With Neil Wahlgren

I’m super excited to have on the show, Neil Wahlgren. Neil is the Chief Operating Officer of MAG Capital Partners with decades of leadership in operations and capital markets. Prior to MAG Capital Partners, Neil led a Bay Area real estate investment firm, raising capital for over $200 million in projects. Before that, Neil piloted the C-130 in the Air Force and Navy, logging over 2,500 flight hours with combat tours to both Iraq and Afghanistan and including his military career as a Lieutenant Commander. Neil resides in San Francisco with his fiancé and son and enjoys flying and sailing. He holds a BS from the Air Force Academy, an MBA from Texas A&M and a Master’s from Troy University. Welcome to the show, Neil. I’m happy to have you.

Thanks so much for having me, Lisa.

I appreciate it. I met Neil through Real Estate Investor Goddesses and Monick Halm, all about industrial some multifamily as well. I’m excited to have him on because we’re going to get into industrial and an asset class that is fairly hot. It’s one of those asset classes that have been doing well despite COVID. I’m excited to get into that. The show is broken into three parts as usual. In the first part, we’re going to get some background and get to know Neil. We’ll then get into the meat of the episode, industrial and then close down with reflections and my level-up questions. To get started, Neil, you live in the beautiful city of San Francisco. Where are you from originally?

LUR 70 | Industrial Properties

Industrial Properties: With industrial properties, you can start with a hundred percent occupancy and have a much stronger tenant credit.


I grew up in the suburbs. They call it the East Bay out here in San Ramon. It’s about an hour outside of San Francisco.

I love San Francisco. I live in Los Angeles. I did spend some time in San Francisco. I took a sabbatical in San Francisco years ago. It’s an awesome city. I love it. What do you love to do for fun?

I love the city out here because there’s a ton of events going on. I stay plugged into different social groups. I’m a member of the Scandinavian Club out here. I’m in flying clubs. Recreationally, I go flying once a month or so. The food is fantastic. I live in North Beach. I can never get enough pasta and pizza. Those things make me happy.

With low risk comes low returns. Click To Tweet

Can you talk a little bit about how you discovered real estate investing in general and then industrial assets specifically?

I was flying for many years on the C-130 Hercules. Don’t get me wrong, it was fun. It’s a tactical cargo plane. You do a lot of dirt field landings, night vision stuff, air drops out the back. That chapter came and I started to mature a little bit. I got to the point where I realized that if I stayed in the military, it was going to be less flying and more corporate stuff that was heavily structured. Over time, I found that I liked the ability to have some autonomy in what you’re trying to do. I found that I needed to get out of the corporate governance structure to pursue something different.

I worked for a startup for a couple of years. It was a renewable energy startup in Camarillo. I enjoyed the culture and the lifestyle. You’re encouraged to take chances and try to build. We have this biocarbon product. I was working with different channels, bringing it to market through different retail channels, farmers were testing it and all these different entrepreneurial aspects to it. I did that for about four years. Unfortunately, the company ran out of money. It was that spark for this idea of taking on maybe a little more business risk if it’s an understandable amount and being able to grow it. That was what drove me into the real estate world, a lot of those same familiarities. Through my research, I was able to, fortunately, be introduced to a gentleman who ran an investment firm in San Francisco. I got to work with him for a couple of years before my current role.

Can you talk about how you got introduced to industrial assets?

In my last firm, we had a business model where we were the equity/marketing arm of commercial real estate investments. Our value add to a real estate project, we had a relationship with several investors. We would partner with operators or developers in different real estate fields. We would find people that were good at one-niche products, whether it was doing Class B multifamily in Northeast Atlanta. We had another operator who strictly did multi-tenant retail in the Dallas Fort Worth area. We had about 6 or 7 different operators, sponsors that we raised capital for. Ultimately, we’re the capital arm for the project through completion. One of those partners that we raise money for was MAG Capital and they were our industrial partner. It was neat.

Early in my career, I got to look under the hood with the underwriting and understand the risk of all these different types of syndications or commercial real estate investment vehicles. I resonated with the aspects of single-tenant industrial in a way that I couldn’t quite see the same value to risk ratio on the other projects that we were partnering on. That was what drove me plus the team. The two guys who founded MAG Capital, Dax Mitchell and Andrew Gi, fantastic guys, similar mentality. We meshed well and that was the opportunity to join them full-time.

I want to dive a little bit more into industrial. You mentioned single-tenant industrial. Can you talk about the different aspects of industrial? I’m guessing there’s a multi-tenant.

LUR 70 | Industrial Properties

Industrial Properties: Through crowdfunding portals, you’re pushing out to people you don’t have relationships with, and it’s just a different strategy.


There is. There are three main classes of industrial. The first is the one that my company is directly related to and that’s more manufacturing industrial, warehouse/manufacturing. It tends to be less specialized real estate. Largely, you are buying real estate that, from the outside, it’s frankly boring, four walls, a roof. It’s producing space that allows for a high-value activity to happen inside. Manufacturing and producing a product that requires that real estate for production, storage, distribution, truck bays, all the things that are required to make the product, store it and ship it out to its customers.

The other two types of industries are going to be flex industrial and that’s going to look similar to multi-tenant retail. Imagine long buildings, a set of high bay truck doors, each space might have between 1,000 and 3,000 square feet. They’re not huge. They’ll have what they call microcredit tenants. Usually, it’s run by an individual. If they’re producing something, they need some additional space. It could be operators like lawn care companies. They might make something. Most of the units will have a small office component with a single office and a bathroom. It’s the same thing on a smaller level. Those investments are going to require property management and a lot more of the multi-tenant aspects versus the manufacturing space.

What’s the third one?

The third is specialty. Specialty is going to be a built-to-suit type of building where the building is much customized for its tenant. Examples of that might be biopharma type of industry where they’re producing chemicals or they’re producing biopharmaceuticals, medicines, gas producers, anything in the refining side. All those are specialized for one particular type of tenant and those tend to be a much higher price per square foot both on build-out and on rent. They occupy their specific subset of industrial.

Focusing on the one that you specialize in, why did you guys choose single-tenant industrial over the other two?

The cost of capital is lower if you can raise money organically. Click To Tweet

We like the single-tenant space. Before I jump into why we like it, it’s interesting to compare it to the risk diversification of multifamily. A lot of folks, when first introduced to single-tenant industrial, have a little bit of hesitation because they’re coming from an asset class like an apartment building, multi-tenant retail where you want that diversification across tenants. You expect a certain amount of vacancy and the idea, “We only have one tenant. If they disappear, we have an empty building producing zero revenue.”

On the flip side, that single-tenant A, is going to be in place. You start with 100% occupancy and B, those single tenants tend to be much stronger tenant credit. Our average tenant profile is going to be a manufacturing company. They’ve been in operation often 50, 60. We closed a deal. The tenant had been around 80 years up in Michigan. A long history of profitable financial operations of these companies. They tend to be Midwest-based. They’re producing core business-to-business types of products. They’re not producing end consumer goods. They’re producing intermediary products such as aerospace parts, automotive parts.

We closed a deal in the past that made high-density foam end packs surrounding appliances or expensive electronics. You got things that are required for things to progress toward that final solution that they can sell to a consumer. Those are the type of tenants. We’re able to do a deep dive into the financial creditworthiness of that tenant and do a thorough analysis and then we say, “We plan to own this real estate for five years.” We’re looking at the financial picture of this tenant and we feel good that they are going to stay effectively and financially viable for the five years that we plan to hold this real estate. That’s where the risk comes in and that’s how we approach that.

That brings up two questions for me here. The first one here is about financial creditworthiness. As a passive investor who’s reading and they’re like, “I never thought about investing in industrial. This is fascinating.” They have the same thoughts as what you said about the single-tenant. Because they’re in the financial services industry, the moment they hear that they’re like, “I wonder about the financial creditworthiness.” When they are investing with you, what work are you doing to get comfortable over the financial creditworthiness of this business?

There are two types of tenants when evaluating credit. You have effectively what’s referred to as credit tenant or sub-investment grade tenant. A credit tenant is going to be over $100 million a year in revenue. Oftentimes, it’s going to be publicly-traded. They’re going to be large and more often name brand companies, Walgreens, Home Depot some large national brand chain with dozens or hundreds of locations. When a tenant gets that high, it’s great because now you have a sure bet that whoever’s in your space is going to honor their lease obligation. They’re going to be great tenants. They’re going to pay on time.

You even can evaluate the creditworthiness of the tenant because they’ll have an outside credit score. That score is going to be a Moody’s or an S&P. You’ve probably seen it with bond ratings and certain stocks where it will be like BB- or AA+, whatever that might be. You know at the objective precision how risky that tenant is that’s occupying the building. However, with low-risk comes low returns. If I have Walgreens or Home Depot, almost with 100% certainty, they will never default. Correspondingly, I’m going to pay a lot more for that real estate.

The cap rates will be much lower.

On a cash-on-cash level, you might see 3%, 4% or 5% a year. Like most investments, you can take on the equivalent of a B-class opportunity and that’s where we focus. We find what we call sub-investment grade tenants. I know the name sounds a little negative. What it means is the scope of the company is too small for institutional investments to consider. They’re usually not publicly-traded. They’re usually privately-held. Revenues, on average, are still high. Most of these companies do $60 million, $70 million, $80 million a year in revenue. They’re always profitable, the ones that we buy. We look for a minimum of the last three years to be profitable. Hopefully, have double-digit EBITDA margins. We look for low debt ratios. We do a full internal financial analysis of each company.

With these investments, we produce a normal investment summary. It’s similar to what you might see for a multifamily investment opportunity. We also create what’s called a credit memo. That will be about an eight-page, nine-page document that deep dives into the financials, the numbers behind the guarantee on that lease to say, “Here’s where they’re at. Here’s why we feel comfortable.” We do it in a plain language narrative form, “Here’s why we feel comfortable. Over the next five years, this company will be positioned well to handle uncertainties, to handle highs and lows. We think they’re going to continue to grow.”

LUR 70 | Industrial Properties

Industrial Properties: Some people focus on marketing and growing this company through advertising, keeping their head straight on their niche, and building value for their customers.


MAG Capital, have they experienced any investments that haven’t done well or haven’t performed as they should? Maybe the business anticipated to continue on their legacy of performance but then they have changed, either not performed as they should. How have they dealt with that?

As a passive investor, that should be one of the first questions you’re asking with any group. Anyone can make projections. How has reality aligned with those projections? If it’s deviated, how come? We’ve been fortunate. The company was started in 2015 by Dax and Andrew. Since that point, we’ve purchased about 35 individual properties in the industrial sale-leaseback space. We still own about 22 of them. We’ve gone full cycle where we’ve bought, held and sold thirteen properties. Of all of them, we’ve been fortunate. We’ve never lost a tenant. We’ve never had a default on a lease. We’ve never had missed rent. Correspondingly, it’s predictable. The cash comes in from the rents there. We’ve never missed a distribution out to investors. It’s a consistent asset class. A lot of that comes through the isolation of expense risk in the absolute triple net lease that we set up.

Can we talk about that a little bit more? Can you dive into the triple net lease and then the concentration of expense risk?

Those two are tied closely. From a comparison to a multifamily investment, in a multifamily deal, those are going to be value-add projects. You’re coming in, you are identifying maybe a so-so asset and you’re saying, “I can invest money, do rehab, drive up rents and drive up occupancy.” That’s the core fundamentals of most multifamily investments. On an industrial deal, what we do is we’re setting up what’s called an absolute triple net lease with the tenant. With that lease, the value comes in the structure of that lease. Your basic triple net is going to be taxes, insurance and utilities. In a net lease or a triple net lease, those are the same thing but different words for it. Those three expense categories all flow to the tenants’ responsibility.

When you're building an investment package trying to make this thing sexy, it can be challenging. Click To Tweet

As an investment group, you have effectively isolated the unknown expense risk that can come from your tax base doubles. It’s plausible. If that happens, no big deal as an investor here. It all goes on the tenant. Let’s say your insurance premium double, not a big deal. It goes on the tenant. Utilities, they can leave the lights on all night or not. There is no necessary landlord intervention in any way on these projects. We take it one step further. When they’re a single-tenant, they’re referred to as absolute triple net. That’s going to extend the responsibility to the tenant to include roofing. The roof needs replacement goes on the tenant. The pavement needs to be repoured. That goes on the tenant. The landscape, fenceline to fenceline, it’s the responsibility of expenses all removed from the investment side to the tenant renter side.

That’s interesting. That brings me to my next question, which is how do you invest in these industrial assets? You mentioned the sale-leaseback. Can you go into a little bit more about the sale-leaseback and that strategy of investing?

There are two ways to buy industrial. The first is going to be stabilized, which is similar to most real estate assets. They are in place. Any leases of tenants stay attached to the building and will transfer over in an assignment to the new buyer. That is a stabilized asset buy. In the industrial world, you might have a single building with a single tenant in there. They have a lease in place and you’re buying the building and the lease. What we do is the second way and that’s called sale-leaseback. We are buying real estate from what are called owner-occupants and that’s when that manufacturing company owns their real estate. They are selling us their real estate. Simultaneously, they are signing a brand new, absolute triple net lease typically twenty years in length. It’s a long-term lease. They are converting their position from a landlord and owner position to a tenant or a lessee position there.

Why would a business want to do that?

The motivation comes when a manufacturing company was acquired by a larger private equity group. What will happen is this private equity group will come. The manufacturing company that is started by its founder, that founder is looking for its retirement exit. He or she sells the company to a private equity group that sees this company with potential and says, “We think we know how to invest some capital and grow this company at a faster rate or merge it with portfolios,” whatever it might be. They come in and they buy that company. They are interested in growing the operational standpoint of that new manufacturing company with a high degree of precision.

They don’t like to own real estate because real estate is effectively holding capital. They could be reinvested into the operation side. Because of that, what they’ll do is sell off the real estate, take it on a renter position and now they’re getting a big infusion of cash from that sale. They can go and can pay down some of the acquisition debt that they use to buy that company. They can invest in capital improvements, new manufacturing lines, whatever they think is needed to kickstart the exponential growth that they desire in that new acquisition company. Ultimately, it’s a win-win for them and for us.

That’s exciting. In your opinion, why do you think this asset class has performed the way it has performed in the marketplace?

Largely, a big advantage of industrial is twofold. One, there’s a finite amount of inventory globally. The demand has continued to increase especially with a class-B warehouse and that’s going to be four walls and a roof type of real estate that is adaptable for several different uses. You’ve seen a huge increase in eCommerce and the need for distribution centers like Amazon. All these major retailers are using more shipping and more online eCommerce. These require space and these require industrial assets. To build new buildings, it’s roughly $150 to $200 a square foot. Most of what we’re buying is $50 to $75 a square foot. It’s significantly below replacement costs, which keeps this heavy amount of demand on that asset class. That’s helped it performed well over years.

That brings me to the next avenue or maybe even the elephant in the room, crowdfunding sites. As passive investors, they’re thinking, “I could go onto this crowdfunding site and look for industrial assets there and invest. I could look for operators like MAG Capital and invest with them.” What are the pros and cons as someone who is in the operator’s shoes of choosing to go with someone like yourselves versus going on to these crowdfunding sites and investing through that?

My viewpoint as a capital raiser, frankly, my cost of capital is lower if I can raise money organically. Everything we do is 506(b). We open up to both accredited and non-accredited investors. Because of that structure, we are limited to extend our offerings to people within our investment network. To take on a crowdfunding site, you have to do a 506(c) where now you’re requiring accreditation status, which means you’re, frankly, alienating a big chunk of your investor relations that you already have. Now you become more of a marketing machine where you’re using crowdfunding portals. You’re pushing out to people you don’t have relationships with. Frankly, it’s a different strategy.

LUR 70 | Industrial Properties

Industrial Properties: Industrial differs from other asset classes, with location and demographics becoming far less important.


We have made the decision, deliberately, within our group to keep it 506(b), keep it in-house and invest heavily in investors who have invested with us and try to create an environment that they want to do multiple investments. That’s been the approach we’ve taken. To be frank, most of our raise is close in a matter of hours. There’s not a need to go outside to a crowdfunding site for additional capital because we’re able to satisfy what we need for our projects in-house.

This concludes the experience portion of my section. The next section here is reflections. Can you talk about challenges your team has faced in industrial investing and how you guys have overcome them?

We are competing in a unique space. In industrial, there are a lot fewer players, especially in what we call the middle market than you might see in multifamily. It’s helpful to understand the why behind there. In multifamily, you’re getting largely agency debt and that’s going to be Fannie and Freddie. With that debt, you can have newish operators take on apartment complexes. They’re able to finance their operations without having personal recourse.

A lot of it is experienced-based but they don’t need $30 million in net worth to qualify for a $30 million loan. Industrial is different. In the industrial debt environment, almost all competitive debt requires a sponsor and personal guarantees on that debt. Because of that reason, you have a much smaller pool of effective people that have the net worth to even be eligible to pursue the debt to make these attractive investments. That’s one aspect that narrows the pool. Because of that, we are competing with REITs. We are competing with groups like STORE Capital, STREAM Capital Partners. STORE is a publicly-traded single-tenant industrial REIT. STREAM is privately held that does the same in a fund structure. We’re also competing against large 1031 buyers.

You have to be resilient. You have to have capital in the form of a well-oiled investment machine that can fund projects quickly. We lose deals if we strictly compete on price. Instead, we have to find other ways we’re uniquely compatible and that can be quick closing and being able to raise sometimes all cash or whatever that might look from a capital side or a quick-moving side to make your bid for that particular offering more attractive.

I didn’t realize on the industrial side that these loans are all recourse in nature.

There are some alternatives but they’re non-competitive. If you want to stay competitive with multifamily investments of some of the other asset classes, recourse is the type of debt. It’s good from an investment side because you, as an investor, are looking for your sponsor or operator that has a lot of skin in the game. This is a massive amount. The operators have personal net worth guarantees on the debt going in. You know they’re going to do everything within their wheelhouse to make that investment successful.

Can you talk a little bit about what you love and not love about industrial investing?

I love doing property tours. My background is flying. I’m a bit of an operations nerd. I love seeing things move and build. How do all the systems in an aircraft work? I get to go to these industrial spaces and I get to see these massive machines making cool stuff. We bought an aerospace company in Texas. These guys made some parts on a plane I used to fly. They made these wing spars and they’re these giant rings and they’re this massive machine. They’re the skeleton frame within an aircraft wing. To see these things get forged, they’re stress-testing them, I was like a kid in a candy store watching all of this.

To be an effective capital raiser, you must know what's under the hood like the back of your hand. Click To Tweet

What do you not love?

The buildings can be boring. I’ve got friends in multifamily that do these developments. Don’t get me wrong, it sucks. We’re going to go and put new signage and make this thing. We’re going to redo the pool. It’s a relatable investment field. In a way, it can be more fun to talk about. Nearly everyone had a time where they’ve either lived in an apartment or known someone who has. It’s a tangible and relatable investment field. Let’s be honest, it’s fun. It’s easier to tell a story like that. Whereas, industrial, frankly, there’s a lot of people that have never stepped foot in an industrial building because they haven’t needed to. From the outside, it’s four walls and a roof. When you’re building an investment package and trying to make this thing sexy, it can be challenging. That would probably be my least favorite part. It allows me to pivot to the tenant, what the tenant does and why we feel good about that. That part, you can flip that story around.

Lessons you’ve learned from your real estate experience that you could give to passive investors who are reading and who are interested in investing in industrial.

From a capital-raising perspective, I have learned over the years of doing this and doing specifically raising capital for commercial real estate, I have found it’s far more successful and rewarding to focus on a smaller group of investors, working repeat and deeper investment relationships. It’s a two-way street. From an investment standpoint, asking referrals for an investment group that other people have dealt with and are happy with.

Some people have a lot of their focus on marketing and growing this company through advertising and outside promotion versus other groups build more organically by focusing, keeping their head straight on their niches and building value for the customers. That latter bit will serve you well as an investor to say, “Who is delivering results, keeping their focus tight and staying within their niche and not chasing shiny objects?” There are a lot of them versus a company that touts themselves to do everything fantastically. To me, that is maybe a little bit of a turnoff than I’ve seen over the years in terms of different ways to position your investment machine.

That brings up two things for me. The first is assessing operators. Advice you would give to passive investors when assessing operators specifically in the industrial space.

The first is going to be how well do they assess the credit? How well do they look at the risk? That’s hard especially coming in. If you don’t have a private equity background as an investor, you’re limited and you’re taking a bit of a leap of trust to say, “I’m assuming this credit memo that they’re delivering is coming from a basis of knowledge and expertise.” The chances are, you as a passive investor are not going to know enough internally to be able to stress-test their evaluations. From my perspective, as an LP investor, as a passive investor looking at an operator, the track record is ultra-important and the second skin of the game.

If a sponsor has a huge amount of their capital effectively aligned in the same way that your investment is, suddenly, you can trust that expertise quite a bit more because it’s aligned in a way that you know when they are motivated very much so to protect their capital, which protects your capital alongside it. That structural alignment is probably one of the best things you can do as a passive investor in terms of your due diligence. The second is a track record. Find out how their past investments have gone. Have they lost investor capital? That’s probably the biggest question you can ask. Even if they had, it’s not the end of the world. You should have a good understanding of what happened, why and what they’ve done to change and mitigate that risk in the future.

Connected to that is I know that you guys buy assets in a couple of different sub-markets like Arizona, Michigan, New York and San Francisco. Can you talk about how passive investors can get comfortable with deals in different sub-markets?

Frankly, industrial differs from most other asset classes. The importance of location and demographics is far less important. What I mean by that is a multifamily investment is your location. You need to have great demographics, high household incomes, good job growth to make sure you’re able to pull the ideal renters in that multifamily to allow your business plan to be successful. If you missed the mark on that demographic analysis, your whole thing can go south in a hurry.

To be frank, it’s okay to be outside of town. You can be in a grassy field in the middle of nowhere without any major highways nearby as long as you have a solid high credit tenant. Most operators will be willing to go more tertiary in exchange for stronger tenant credit. That allows them to have the same amount of aggregate risk tolerance. Ultimately, they are taking on some additional location risk in exchange for reducing tenant credit risk. That’s going to be a trade-off that you’ll see. Because of that, you might see industrial in maybe some locations you would never invest in a multifamily apartment.

The industrial value is still very much there because it’s offset by a strong corporate-level guarantee on that lease. For example, we closed on a deal. It’s about an hour north of Detroit. I’m not going to lie, it was in a tertiary location. The town is right on the shore of Lake Huron. To be frank, it’s in the middle of nowhere. The tenant company had been around 80 years and the company did about $80 million a year in revenue but the lease guarantee was their parent company. Their parent company was a conglomerate. It had eight different countries worth of operations. The parent company did almost $500 million a year in revenue. We had a strong corporate-level guarantee on the payment of that lease. We knew with an extremely high degree of certainty that those rent payments will come in full and on time. That allowed us to take on some of the location risks of a tertiary asset there.

Back when you were talking about sub-investment versus some of the different types of industrial, I feel like the Home Depot/Amazon folks are probably looking for industrial buildings that are closer to highways, airports like DHL and that stuff. It also comes into the class of industrial that you’re probably playing in as well.

From a return basis, it’s helpful to have some guidelines. We talked about cash-on-cash per year. You’re probably going to get about 3% to 5% on a credit tenant. In the class that we play in, most of these will cashflow a minimum of 8% from day one. Those will go 8%. They step up because there are built-in rent increases in the lease, which is fantastic. You’re not taking a risk to go, “I can raise rents.” Contractually, from day one, you have 2% rent bumps per year. That’s going to escalate cashflow effectively and that helps your stream of cashflow keep up with the inflation in a way that you’re not losing to the inflationary dilution of the US dollar.

LUR 70 | Industrial Properties

Industrial Properties: It’s okay to be outside of town as long as you have a solid high credit tenant.


Can we talk about exiting these properties? What does that look like because it’s a single-tenant? Who is the next buyer?

A single-tenant stabilized property that has a lease in place, the attractiveness is much tied into two things. One is going to be the credit. How strong is your tenant? The second is going to be the term on the lease. The longer the term, the more years I can hold and confidently take this stream of cashflows. The closer I get to that releasing point or the end of that lease term, I have the uncertainty of, “Is my tenant going to renew? Are they going to execute one of their ten-year extensions?” That uncertainty creates risk. As an investor, if you’re going to go through that, you should demand a higher level of return compared to a stabilized property earlier in the lease cycle.

For us, we like being on the front end of those new long-term leases. We’re doing sale-leaseback, there’s some value creation there. Because we are the first holder of that twenty-year lease, we’ll it hold for about five years. We still have fifteen years left on that net lease. That’s an attractive asset to several different buyers. Sometimes we’re selling to REITs, 1031 buyers, even institutional level investment groups who are looking for consistent yields and consistent cashflow with a securitized tenant with a lot of years left on that lease. Those are going to be potential buyers. It’s viewed as a less risky purchase for them than one that says it only has a handful of years left before the lease expires.

This is so much good information. Is there anything that I didn’t ask about industrial investing, passive investing or syndications that you think would be beneficial to share?

The last piece that I like to talk about is depreciation. It’s an exciting subject.

It’s exciting when it saves you money.

That’s true. In a lot of passive investments, we’ll have some level of depreciation. The industrial class, in particular, has a longer period of amortization meaning instead of a 27.5 year linear depreciation that you get on multifamily, it’s 39 years according to the IRS for industrial. We’re holding way less than 39 years. We’re able to do an accelerated depreciation study and what’s called a cost segregation study and front-load roughly about fifteen years’ worth of depreciation into the first year. This system has been legally allowable for about ten years. We’re able to produce massive depreciation, especially on year one, to the tune of a taxable loss of about 70% of your investment, which is a good thing. It’s a tax loss, not a real loss. For example, if you put in $100,000 in the first year, you might expect a negative $70,000 K-1 that can be used to offset a huge amount of other passive income that you have.

That’s awesome. That’s a big one.

We’ve been fortunate on the depreciation side there, too. That system might not be around forever but it’s in place and we utilize it in its full capacity.

This was an amazing episode. I enjoyed it. I learned a lot here. I hope that my readers also enjoyed this as well. To recap quickly, we had the three main classes of industrial assets. We have the single-tenant industrial, flex industrial and specialty. You guys focus on single-tenant industrial. We got into some of the pros and cons of them as well as assessing operators and what are some of the key things to do to assess operators. We talked about the sub-market and how that differs from multifamily versus industrial, as well as how industrial differs from multifamily at a high level in general. Exiting the asset and what that looks like, what the buyers are and then closing out here with depreciation. There are so many good nuggets. I love industrial as an asset. I have invested with you guys as well. I’m happy with my investment. It’s been a good experience. That brings me to the level-up questions that I ask all of my guests, which is what are you grateful for in your life?

You introduced my bio with my fiancé and my son. I got married.


Thank you. She’s an amazing girl from Munich. I’ve been blessed daily, especially with COVID and tight quarters. She’s an attorney. We’re all working from home. I couldn’t think of anyone I’d rather quarantine with. I’m feeling blessed on that side.

What has attributed to your success and continuous growth?

Never getting complacent. It’s a mix of that military background and seeking experience and growth in many different ways and maybe my ADD. I don’t know what it is but I have trouble sitting still, which is good for this industry because there’s a lot you can do. Continually pursuing your knowledge. I read, honestly, about an hour of industry-related type of news every morning and I try to stay very much plugged into the environment that you’re working and playing in. I’m working on professional qualifications. I’m almost done with my CCIM, which is a fundamental underwriting designation. I enjoy it. You continually level up and adding skills. Fun and quick aside, my son loves Pokémon. I tell him how we grow professionally and I use a Pokémon analogy and I’m like, “You got to take Pikachu to the next evolved form and add all these new skills.” He’s like, “I got it.”

I love it. Can we talk a little bit about your CCIM designation and underwriting? You did introduce yourself as a capital raiser. You also underwrite and I like that. Can you talk about why are you doing that?

To be an effective capital raiser, you need to be able to know what’s under the hood like the back of your hand. Understand every nuance of how this deal is structured. It’s fantastic. I’m certainly not the senior evaluation expert in our company. Andrew Gi is our fundamental value guy. He’s a commercial real estate appraiser as well along with the CCIM. I love that we deep-dive through every cell on the underwriting A, to make sure it’s accurate, B, we stress-test our assumptions and C, we look at it and go, “Is this a fair spread between the general partner and the limited partners here? Are we compensating the amount of risk we’re taking on fairly in terms of the profit splits and cashflow splits?” That element is hugely necessary to make sure that your interests with your investors are reflected in the structure of the underwriting of that deal.

The alignment is important. My final question here is, what do you now know that you wish you knew at the beginning of your journey?

This one is what every real estate guy and girl says, “I wish I started this ten years prior or twenty years prior,” whatever it might be. I was off playing behind the cockpit of a fast plane. Frankly, I wish I had dipped my toes in when I was twenty even if it was a passive investment. I remember I got a gift of about $25,000 when I was finishing college. To think that if I had put that in real estate back then, it certainly would have sparked the interest way sooner in my career and probably would have instigated a lot more investment in that side early on. Instead, I blew it on a car. Get your foot in the door. I had no particular amount. Get a taste where you have some of your capital invested. I promise you that once you start doing that, eventually, you’ll crack the dam and you’ll open the floodgates for your interest and passion into it.

This is such an amazing episode. Thank you so much for coming on. I appreciate it. This is going to be a part of my series of all the different flavors of passively investing in real estate. I’m super excited to have you on. If my readers want to learn more about you, what is the best place they can go to learn more?

We have some resources on our website about the sale-leaseback and industrial sign and that’s Shoot me a note if you have any other follow-up questions. I’d love to get comments on the show, things you liked, questions you might have. If you’re interested in joining our investment group, shoot me a note at

Thank you so much, Neil, for coming on the show. I appreciate it.

Thanks for having me, Lisa. This is fun.

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About Neil Wahlgren

LUR 70 | Industrial PropertiesNeil Wahlgren – Chief Operating Officer, MAG Capital Partners

Mr. Wahlgren brings nearly two decades of leadership in operations and capital markets. Prior to MAG Capital Partners, Mr. Wahlgren led a Bay Area real estate investment firm, raising capital for over $200M in projects.

Before that, Mr. Wahlgren piloted the C-130 in both the Air Force and Navy, logging over 2500 flight hours with combat tours to both Iraq and Afghanistan and concluding his military career as a Lieutenant Commander.

Mr. Wahlgren resides in San Francisco with his fiancé and son and enjoys flying & sailing. Mr. Wahlgren holds a BS from the Air Force Academy, an MBA from Texas A&M, and an MS from Troy University.

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