1366: SMK Capital Management: Hidden Profits in Commercial Property Investments with Real Estate Investor Mark Khuri

Robert Plank 0:01 Hey, Mark Khuri is here. That is last name, K, H, U, R, I, and he is from S M K, Capital Management. That's S M K, cap.com they provide eligible investors with attractive returns through commercial income producing real estate, and they've created partnerships and syndications, and they're able to help you achieve passive income and positive cash flow. So we're here to talk to Mr. Mark about what he's created, about providing investments with self storage facilities, mobile home parks, apartment communities, industrial properties and so much more. What he's all about, how he stands out, how it benefits you, and who knows where else we'll get to. So Mr. Mark, glad to see you. Glad to be speaking with you. Likewise, yeah, thanks for having me on Robert, happy to have you. And so what are you all about? Like I did my best here to kind of give people a taste. But you know, what has you excited? Wh at has you focused?

Mark Khuri 0:53 Sure? Yeah. I mean, great overview. Thank you for the introduction. You know, a big part of this for me, just the 30,000 feet looking down as just the quest for financial freedom for our clients, and something that I have been thinking about and continue to strive for for the last 20 years in the space and achieving that, getting to that milestone, is a big part of it. But, you know, a lot of stuff you learn in traditional school doesn't necessarily set you up for financial freedom down the road. And so that was a big part of my my learning over the last couple decades and getting us to where we are today,

Robert Plank 1:28 A 100% they'll teach you the quadratic formula. They'll teach you that the mitochondria is the powerhouse of the cell. But as far as even something as simple as balancing a budget, who knows? Right? Who knows if it's a conspiracy to keep us all poor, or if they're worried about teaching us incorrectly, and then it's their fault if we don't succeed financially. Well, who knows? Or maybe it just bores a lot of people. I know it used to bore me, right? You used to think like, oh, money. You know all just make more of it. It'll all work itself out. But then you look at people that that like when you're when you're young, maybe you take more risk, because then once you have something, it's so easy to lose your money or to just, you know, it goes out as fast as it goes in, you have the lifestyle creep, and we need to get a better handle on our money. Make our money work for us while we sleep, and all those other fun sort of Warren Buffett cliches. And so did you have an awakening like that? Like, were you always good at money. Or did you say, you know, if I want to plan for my future, I need to think things through differently.

Mark Khuri 2:26 Yeah, all good points. A quick story. I went to school for finance, and I took a international finance class, and they taught us, over a number of weeks, how to hedge 100 million yen. And so, you know, that's a skill that's very technical, but like, when are you and I ever going to do that? Unless we're doing it for a firm, and they're, of course, going to oversee it and teach us how they want to do it. And so that concept of teaching us things that you're maybe aren't necessarily going to be used was a big part of my kind of awakening. And another part was, you know, I used to work in corporate finance for a number of years. Robert, out of school, sitting in my cubicle, my cubic next to me, and he pulls up this spreadsheet. And we looked at a lot of spreadsheets, but this one was for a four Plex that he was interested in purchasing. And I looked at the numbers. I said, Gosh, you're going to buy this thing. Okay, how are you going to purchase it? Where's the money coming from? What kind of returns are you looking at? And you know, he had some astronomical projections of returns, which were very unrealistic, but looking at that while working on a budget for the w2 job, it just kind of made me realize, like, wow, there's a lot more to this than just working, working, working and trying to get the next level in a corporate job. And so that was in my early 20s, and really set me down the path of where we, you know, essentially ended up, which is creating a real estate investment firm, you know, about eight years after that point.

Robert Plank 3:57 Very cool. And I love that this concept of your mind is kind of thinking a certain way, and you it's something as simple as a moment, seeing a computer screen, seeing numbers, and your mind is expanding. It it can't go back to the way things were before you had this this new excitement and these new ideas. And so how did you make your money? What did you do? Real Estate wise, money wise. How did you get from zero to where you are now.

Mark Khuri 4:22 Yeah. I mean, look, it started after work. Yeah. I bought a property at the courthouse steps and moved into it and renovated it myself, going to Home Depot every day, and then the market was strong at the time. I took money out my partner with my brother, and we bought a four Plex and did the same thing over again and all that, for about five years, built a small portfolio while working full time that was creating some passive income. And, of course, learning and doing while working. And then at, you know, about 2009 10, Robert, my family and I had built a small. Portfolio of properties, and I was hooked. I was in love with real estate and the idea that we could scale and grow that concept and that strategy and do it in a way where we're also helping people who partner with us, and that's Sicily what we still do today. So that was, you know, 15 years ago, when I left the w2 and started the company.

Robert Plank 5:20 Well, very nice and and, so were there any difficulties like you? Whenever anyone mentions, you know, 2009 in real estate, I'm just like, Oh, no. What? What happened? Was there a downturn? So were there any real nail biters? Were there any bumps along the road?

Mark Khuri 5:34 Yeah. I mean, of course there were, right we but we were focused at the time on buying a lot of what we call distressed assets, properties that were largely vacant, some boarded up direct from the bank, all cash purchases, and so we bought them, knowing, hey, we got to put a lot of blood, sweat and tears and attention, and, of course, execute the business plan on what we wanted to do with the asset. But what made us, I guess, thrive in those early years during a market crisis, was the idea that we weren't forced to sell at the wrong time. And so we capitalized the deals that we didn't pay all cash. We bought them with long term fixed rate financing, which was helpful. And at the time, we were naive. We didn't really think about it, but just not being forced to have to sell at the wrong time. We were buying during 2008 nine and 10, and not selling. And so that was a big part of it for us, for continuing through that downturn.

Robert Plank 6:31 Well, very cool. So you did a lot of things right and like that. That sounds like that would suck, right? To be at that point where you, like you want to hang on to it, but you have no choice. And then it goes down and you lose it, and then someone else scoops it up, and then, and they ride the wave up, kind of like you want to do when you get those distressed assets. And so with, whenever you talk to a real estate person, they always kind of have their own, like, hard and fast rules, their principles, right? And it sounds like you're careful with the financing you look for these distressed assets. That way, you have a plan. There's room to grow. But like, what would you say, as far as well, other real estate investors, like, maybe they have a different strategy, or they have different rules, and you have yours. Like, what? What makes it unique about your strategy? Like, what are your rules and principles?

Mark Khuri 7:16 Yeah, yeah. So it's a great question. So we've evolved a lot over the last 15 years being in the business, and where we continue to focus for the last eight years is really on diversification. So we've evolved to be a boutique private equity investment firm, and really what that means for us, Robert, we are. We're constantly looking at investment opportunities in different real estate sectors that we like, know and trust. Some of those include departments, self storage, mobile home parks, industrial those are kind of our main core focuses at the moment, and what we've done over the years is we've built relationships with other firms that are specialists in that one trade. For example, just two weeks ago, we made an investment into an industrial portfolio of properties. This is with an operating partner that we've already got, you know, seven figures of active capital with under management together. And so our new partnership is, you know, kind of just repeating what we already know like and trust, but in a new batch of properties, and that's all they do. They have got a billion dollars in assets under management and acquisitions team, a back office team, a property management team, you name it. And we then we do that across multiple sectors. Robert, so we can achieve diversification. So take that same industrial kind of deal, and then we'll find mobile home park deal and an apartment deal and a self storage deal. And so that way you're diversifying and spreading your capital across different regions, different operating partners, different sectors, of course, and then also strategy, income, value add, growth. And that way, that's been a big part of our focus, something that we've been really heavily favoring diversification for a long time. It's you never know what's coming around the corner. There's a lot of surprises in the economy. In this business, even the best of the best don't know what's happening coming down the road. So it's good to be prepared. We feel to reduce risk by spreading capital around these different sectors that we like. And know well,

Robert Plank 9:25 I like it. So you're careful, you think things through, you figure out what works for you, you repeat, and you grow and build these different relationships. Because you can't do it all your own. You need help from all these other outside sources. And so it sounds like you've done a lot of different Well, I guess they're exciting deals, but they're also boring deals at the same time, right? They're like the state. When you talk about sell stores, your mobile home parks, it's, it's not like the you're building a hotel, right? It's not the Ritz Carlton. You're not building a casino, but it's like, who cares about that? You're looking your objective is to make. Money and preserve your money. And so you've done all these deals. Is there one that you think is noteworthy or worth talking about, just so we can get an idea of what you're all about?

Mark Khuri 10:10 Yeah. I mean, there's a bunch we've done a lot over the years. I don't know if we want one with a good story or one with a good ROI, because they don't always go together, but I'll give you Yeah, I'll share a story, just for people who are interested in this business. You know, we're, I find myself to always be a risk mitigator, right? That's the, the number one rule of, how do we mitigate against risk? And so what's, what's one risk that comes to mind a lot of people think of with real estate is, well, something could happen to the property, right? Weather system, it could have a fire. And so we had a property once that we owned actively, and I get a call from my property manager, and he's, Hey, Mark, we've, we've had a fire at the property. And I literally thought he was joking, Robert, I said, Oh, okay, okay. Real funny. What's really happening? And sure enough, he wasn't joking, the tenant's car had spontaneously combusted in the garage while they were having dinner as a family in the kitchen, and the whole place burned down, and they had to climb out the kitchen window. And thankfully, they were okay and not hurt, but just these freak accidents can happen, and so what do you do in that situation? Right? Sending me pictures of the house and the fire department there, and it was just pretty much gone. So you have to immediately go into, you know, crisis and repair mode and be able to think outside the box and solve a rather large problem, to say the least. But being very well insured, having loss of rental coverage was critical. And then also, you know, my father, who's retired now, but my previous business partner, he's been through some of these types of, you know, losses in the past in Florida through hurricanes. And he immediately said, Hey, let's, let's call in a claims adjuster and have him help us negotiate with the insurance company. And so we did. We signed over a power of attorney to him, and he ended up getting us almost twice as much reimbursement, you know, after many months of negotiation, but almost twice as much reimbursement for the damages that had occurred on the property. And so just being proactive, having experience, you know, that kind of story, if you're in this business long enough, there's going to be a fire at some point, there's going to be a storm, there's going to be something you don't see coming. And so having the right people on the side, on your side, that are equipped to handle that kind of situation is critical. And that was one that stuck out, because it was very real, that's for sure.

Robert Plank 12:41 Oh, yeah, and equipped in the sense of, you're prepared ahead of time, but also you know what to do when the unexpected does happen. And so as far as us kind of understanding, like, where you fit in the process here, like, Who are you people? Who are your people? I should say, like, what kind of people are you looking to attract? So that way you can team up and do some of this commercial real estate together.

Mark Khuri 13:06 Yeah. So as far as operating partners in our chosen asset classes, most of the teams we work with are institutional quality and size. Robert, think about 500 million plus in assets under management. Many of them have decades of experience in their specific niche, like the industrial group I mentioned, and they they look at a lot of deals and opportunities in their own acquisitions team. They run through their underwriting, and when they get something that they think is worthwhile, they'll oftentimes share it with us. Hey, Mark, we got a live one. Are you and your firm interested in possibly partnering with us on this? And we look at that, and we do that over and over all the time, Robert, until we find something that we think meets what we're looking for from a risk reward standpoint. But most of the teams that we're investing alongside with our just pedigree, some of the best of the best in the business, very long track record, and built out internal processes and teams. So if one person or two people somehow pass away or leave the company, it doesn't affect operations. And so that's a quick overview. I mean, we can obviously get into the weeds on some of our due diligence on folks at the operator level, but and our team internally at sMk again, managing funds, we've got accountants and bookkeepers Portfolio Manager and we also partner with a few other fund managers together as well. And so that allows us to manage our own investors capital internally, while also overseeing and working alongside our operating partners on specific deals.

Robert Plank 14:47 Well, very cool. And so I'm looking to get an idea of so someone's watching or listening to this podcast, and they go and they contact you, approach you. Who are you looking to get more of, like, more investors or. People like those operators or like, you know, who you're looking to attract?

Mark Khuri 15:04 Yeah, I mean, we obviously are looking to attract more investors. Robert, most of our investors, you know, kind of fit a certain bucket of looking for passive income. They are usually entrepreneurs, business owners, C suite execs, that are again, very focused on what they're doing and may not understand or know all the nuance in the commercial real estate business and the industry, and looking for a trusted partner to weed out, find really great opportunities and oversee them from the acquisition till the sale, and accredited investors, if you're not familiar with that term, that's typically who we work with. Those are high net worth folks that need a definition of income or net worth minimums of 200k income and about a million plus in net worth. Okay,

Robert Plank 15:56 well, super cool. And so as far as differentiating yourself, right? As far as like exemplifying this uniqueness, you've already told us some really cool stuff about what you do and your thought process. And as far as these accredited investors looking to get this passive income rocking and rolling right, they could put their money in all sorts of different things. And what would you say is kind of the the selling point, or the argument for commercial real estate, and what do maybe these passive investors need to watch out for?

Mark Khuri 16:29 Yeah, I mean, one of the big selling points is the low correlation to the overall economy and the stock market. And so when stock market's going up and down and up and down and the economy is seeming wobbly. Commercial Real Estate just moves really slow. Think about like a cruise ship trying to do a u turn, and so that's helpful in the sense where you can adjust and pivot strategy based on market conditions. But a lot of the investments we focus on are really lowly correlated or uncorrelated to the economy. Affordable housing, for example, the demand tends to go up during economic downturns. A lot of this investments we focus on, we were looking for steady Eddie kind of cash flow plus growth. Nothing too sexy that's going to go up and down with the economy. So that's a big one. And then there's also tax advantages. You get passive losses most of the time on these types of investments, which our investors love, helps offset income, helps reduce your tax burden, while while actually earning income, and that's predominantly through depreciation and accelerated depreciation. So those are a few of them for sure.

Robert Plank 17:43 Well, very cool. So you get that tax advantage, and then it always seems like the selling point with real estate is that there people always need a place to live, right? And that what, we can't create more land. And I guess, I guess you can develop more land, but that's hard and slow to do, right? There's all the you drive around, there's there's buildings, there's people needing places to live, but more importantly that affordable housing or those commercial businesses. And so you have something that's not at the whims of that turbulent stock market. That's what we want. And so, you know, we've covered all sorts of different areas, haven't we here? Mr. Mark, we talked about like money, finances, your strategy, your thought process, your journey, but I want to make sure that in these last few minutes, we cover all the bases. And so is there a possible missing, hidden, invisible question that I could be asking you in our conversation? I just don't know what to ask

Mark Khuri 18:36 you. I mean, you just asked, you know, what's something that people should look out for? And I don't think I answered it. So maybe we'll do that one, because it's a great question, and unfortunately, there's a lot of things to watch out for. I will say the one, number one with thing we think is the most important is the team. Who are the people behind operating the asset, and what's their pedigree and their experience and their track record. What's the likelihood of them being able to just consistently do what they've already been doing, and how long have they been doing? You know, all of that underwriting is really important. You got to watch out for the team. Second biggest risk in I would say, real estate is the debt and how properties are being financed. It's important to really understand the terms of the loan, they can get you in trouble, and they can also allow you to continue to hold during tough times. And so there's a lot of nuance there, and the debt markets can be confusing, so having somebody can guide you through that is really important as well.

Robert Plank 19:39 Okay, so we need a guide. There's so many ways to go wrong. We can't just wing it. That's really scary, that's really dangerous. So we need to be talking with Mr. Mark Khuri from sMk, cap.com to have one of these conversations. And how can someone do that? If someone says, Okay, I liked a lot of what Mr. Mark said on the podcast, but a podcast is just a taste a tea. Ease of what's possible, but to get to the real good stuff, we want to go to our website. We want to schedule an appointment. So what are some next steps here?

Mark Khuri 20:08 Yeah, I mean, you nailed it, right? We work one on one with any potential client and our investors, and so we have to have a conversation. Zoom phone, whatever works in person. I'm located in central Oregon, so if anybody's listening, is here, let me know. Happy to meet up. But that's a big part of it, is just trying to understand what their goals are. What are they trying to achieve? Are we a good fit for one another? Set expectations, as far as return, profile, income growth, reporting, et cetera, frequency, that kind of thing. So next step would be, I'll give out my email as well. You can email me at info, at sMk cap.com or you can just go to our website, as you mentioned, sMk cap.com people can sign up join us there and schedule a call as well.

Robert Plank 20:56 Very cool. It's worth having that conversation. Whether you're near Bend Oregon, or if you're we live in this global age now where you can just meet on Zoom, meet on the phone, have this conversation. So Mark said info at S, M, K, C, A, P.com, Mark wants you to connect with him and his teams to learn more about how they can help you achieve your investment goals. They will review your investment criteria and risk tolerance levels with the goal of achieving diversification and positive cash flow. That's what we want, right? That way, we can live the life of our dreams, have that fulfilled lifestyle, not make things so hard on ourselves and and don't have to work until the final day we die. We can enjoy the fruits of our labor and our hard work and then get some of this diversified, slow, steady, passive income going if we're an accredited investor, the time to go to sMk cap.com or info at sMk cap.com and have that chat with Mr. Mark Khuri, the CEO of sMk Capital Management. So that way you can diversify your capital across asset classes, regions and operating partners, highly vetted, highly diversified. And before I let you go, Mr. Mark, it's time for the scary part of the show where I try to put you on the spot, I ask for a quote or lesson that has served you in life or in business. So what do you have for a quote or lesson?

Mark Khuri 22:22 Yeah, I will. I'll say, you know, you mentioned Warren buffer. He's got so many great code quotes, but one of the things that I think is relevant today, as he's mentioned in the past, don't pass up something that's attractive today, because you think you'll find something better tomorrow. So that one sticks with me. It's kind of the concept of always be invested and in the market. And so I'll leave you with that one. Yeah,

Robert Plank 22:48 I like it. And what's the one that time in the market beats time in the market? So make, make your money work for you, time to act, especially by just having this conversation with Mr. Mark at sMk cap.com We'll see you there, and thanks Mark for an enlightening conversation and real and personable. I really appreciate what you brought to the table today. So thank

Mark Khuri 23:10 you, my pleasure, Robert, thanks for having me.