Commercial Real Estate Secrets

Top 3 Tips to Mitigate Risk in Commercial Real Estate Investing

• Aviva Sonenreich • Season 8 • Episode 77

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Are you looking to invest in commercial real estate but worried about the risks involved?

Many investors face the challenge of navigating the complexities and uncertainties of the real estate market. Understanding how to mitigate these risks can make the difference between a successful investment and a costly mistake.

Join Aviva as she interviews Dr. Bharat Sangani, founder of Encore Enterprises, who shares his top three tips for mitigating risk in commercial real estate investing. Learn how to make informed decisions and safeguard your investments for long-term success.

BY THE TIME YOU FINISH LISTENING, YOU’LL LEARN:

  • The importance of choosing the right location for your real estate investments.
  • Strategies for building and empowering a strong management team.
  • How to ensure you have sufficient capital reserves to weather market fluctuations.


Chapters
00:00 Introduction and Background
03:03 Encore Enterprises: A Multi-Billion Dollar Asset Company
06:06 Balancing Cardiology Practice and Real Estate
09:55 Asset Types Pursued by Encore Enterprises
11:54 Mitigating Risk in Real Estate
22:44 Finding Happiness in Commercial Real Estate
25:20 Closing Remarks and Contact Information

Connect with Dr. Sangani:
Website: encore.bz
Personal Website: bharatsangani.com
LinkedIn: linkedin.com/company/drbharatsangani

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Connect with Aviva:

Aviva (00:00)
This week's listener of the week is Tony Invests. Tony, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's listener of the week, week, week. This week on Commercial Real Estate Secrets, we have Dr. Sangani. Dr. Sangani is the founder of Encore Enterprises.

Doctor, thank you for being on the show today.

Bharat Sangani (00:31)
My pleasure.

Aviva (00:34)
Doctor, so you've had a very, very interesting journey into commercial real estate. Tell us a bit about who you are, how you started, and what brought you into the business.

Bharat Sangani (00:49)
The story is very simple. There is a qualifier that I must give ahead of time because my daughter always says, dad, your story is so boring, you'll put people to sleep. So I'm just putting this qualifier out. It's a very straightforward, simple story. I was born in India and became a physician, cardiologist to be complete. I came to this country.

I had all my training in Columbus, Ohio, then started my practice. And with a lot of hard work and God's grace and great support from the community, it turned out to be one of the largest practices for cardiology in the entire country. We were in the 99th percentile in the whole country, sitting in a small town, Gulfport, Mississippi. And we...

we developed a practice with a total of 70 ,000 patients at the peak. And the population of the town was 100 ,000. So you can imagine everybody and their brother became our patient. And it was a great journey at that point. And at that point, I realized that only being a cardiologist

can only go so far when you work 24 hours a day. And I come from a business background family. So business was built in my blood. In fact, if you go on the website, you can actually see a video on me showing or saying business is in my blood. So we started doing the business, and that's how the commercial real estate developed. And ultimately, we were very fortunate.

to develop a multi -billion dollar asset company. And that's where we are today.

Aviva (02:43)
So tell us a bit about your, you very casually said a multi -billion dollar asset company. Tell us a bit about Encore Enterprises and don't be shy. We'd like to give people the credit where credit is due in their successes.

Bharat Sangani (03:03)
Well, thank you for saying that, but there is really not, again, I'm telling you just like my story, which is, I believe, or my daughter believes is boring, the real estate story is equally boring. We just had the first real estate deal I did was 1991. So unofficially, Encore Enterprise was born in 1991. Officially,

Then Encore Enterprise was born in 1997, 1998, where the actual officialization of the company was done. And I always like to do things in a perfection mode. So before even I had my first deal, I had a million and a half dollar payroll because I wanted to do it right. And then it started.

getting into this field and first we started as a hotel company and we started acquiring hotels, building hotels and that was a successful drive. Unfortunately in 2005 Katrina hit very badly, especially Mississippi where our headquarter was. It was a terrible situation. In fact, we had about a...

87 corporate employees in the company at that time and across the nation we had about 2000 employees at that time. Today we have roughly around 4000 employees just before we exited out of one of our ventures. So it was a pretty significant sized company at that time but the corporate 87 people who were in Gulfport, Mississippi during Katrina

35 of those lost somewhere between 5 % to 95 % of their belongings, their houses. And one of them was me. I lost almost 99 % of my house. When my wife and I went back after the Katrina to the house, two streets before, I could see my dad's picture in the gutter.

Aviva (05:03)
Wow.

Bharat Sangani (05:21)
as we started walking, my wife would say, that's our TV, that's our sofa, whatever, you know. So everything was all over the city. So it was a very huge setback. Unfortunately for us, the economy just took a big dive up and everything just turned around and we really had a great exit in 2007. We continued to build on it and today, as you just...

As we and I just discussed, we have a good size company. We are very fortunate. We moved to Dallas, our real estate portion. My medical practice is still in Gulfport. And then here we are talking to you.

Aviva (06:06)
So you have a top cardiology practice and you decide, you know, I can only imagine that being a cardiologist takes a lot of time. Obviously you have to go through medical school and that's arduous to get there. How do you find time while having a full -time profession to even begin to learn about commercial real estate before?

jumping in.

Bharat Sangani (06:37)
So I'm going to give you a secret, okay? Just give it out to your listeners. Don't give it out to anybody else, okay? It is really very simple. Find the right people and reward them properly and give them enough empowerment so they can perform what they are there to. And I cannot thank God enough for a great team that I have. So that's one.

And it's much easier said than done. I'm not trying to just make it simple that everybody should go find a team. I told you, I had a million and a half dollar payroll in 1988. You can imagine money was much more expensive at that time than today. Million and a half meant a lot more at that time than what it meant today. So, you have to really pay the highest number of dollars to the

greatest of the greatest people who you want to build your team with and it's not easy when you are not making money to bet every the entire farm on but few people is not that easy thing to do. On the other hand also is equally important to understand that listen I do not know about others but I can tell you I'm not a great person who can look at a person and say this person is going to be a success in my company.

I am not a good judge of people as to how they are going to perform. I can get a general sense. So you have to kiss a lot of frogs to get Cinderella, you know, or the prince. So whichever one you're looking for. So you have to hire people. But one thing I'm very good at is firing people. Once I figure out that this person is not going to work and it takes me two meetings, and I usually can figure out.

if this person is going to be a keeper or not. And then I expedite my mission to find a different life for that person because he's not going to be a good fit for our company. So this is how I multiplied my existence with finding the right people. Also, because I have a lot of meditation experience and other things from where I come from, my number of hours to sleep were limited.

to four to six hours. And I won't recommend that everybody does that. It's not wise and it's not good for everybody. But because I have the experience from meditation and being a physician, my body was used to sleeping less. I could really find more time. So my wife always says that if I can give out my age very easily. My wife says, you have lived one third

time longer on this earth than most of the people of your age because I've slept one third the time lesser than most people have slept. So even though I'm 67 years old today, she thinks I am probably 80 plus years old in terms of experiences. So that's how I think I juggle my life. Nothing but fun.

Aviva (09:46)
you

So let me ask you, what type of assets do you all pursue?

Bharat Sangani (10:02)
So if you stay on the real estate side, now Encore also is lot more than real estate, but if you just stay on the real estate side, we started as a hotel company. And today if you look at it, we also own, build, run, purchase, sell hotels. We are also equally diversified into shopping centers. So we will.

primarily be investing into grocery anchored shopping centers and across the nation. Any of our business we can go across the nation. I think last time when I looked at it we had businesses in about 27 states in United States. We do not do any business outside of United States. And the third place where we are mainly invested or we believe we have expertise in is multifamily. On the multifamily side we develop

we purchase and we run with our friend Greystar, all these assets. And these are the three major areas of real estate we are in. We exited out of office space right at the perfect timing when the office sector started going down. So we are very fortunate in timing our markets since 1988.

Aviva (11:23)
You know, I say properties are like people. You talked about hiring and firing at the appropriate time. And I just, I feel like every building has its own personality and characteristics. And when you talk about firing appropriately and fast, I like to think to properties and how that applies because I think the same

concept applies there, in my opinion.

Bharat Sangani (11:54)
Now that's a very good point you made and just to do tell to that is, so what is the corollary to hiring and firing for real estate, right? So it usually divided into three pieces, any real estate. Well, first you do,

Those three items if I have to describe, I would say number one is location, number two is location, and number three is location. So you must, must, must identify a perfect location. And we are not all God, we also make our own mistakes, but we exit out fairly quickly if we have made a mistake. Luckily, we have never have a.

a deal or a situation where our investors have ever lost money with us, zero. Never ever, in decades of investment with us, our investor has never lost any money, we have never made a capital call, we've been able to manage the properties without making a capital call after we have purchased the property. Doesn't mean that we have not gone through lower cycles, we have. But as an encore,

Aviva (12:51)
Ha ha

Wow.

Bharat Sangani (13:08)
We have funded the asset and never went to the investors for the money whenever the times were bad and when the times become better, we get our money back. So that's one piece from once understand what are the criteria that generally will get you a successful outcome. The other way to look at is again three things. One is generally 33 % of the money you make the profits is what

price you purchase. The other 33 % you make, how you manage, that's where the hiring and firing part comes. The rest of the 33 % comes is how you exit.

And these numbers are not hard and fast depending upon circumstances these numbers percentages would change. So, always remember when you go into real estate are you after you have selected the proper location are you buying at the right price. Number 2 do you have the right group of people who is going to run that project.

And number three, are you selling at the right time? So I hope I gave you a little bit of insight of our success, whatever little success we have accomplished so far.

Aviva (14:23)
My, in my family, you're either a doctor or you're in real estate. My brother -in -law is an orthopedic surgeon and you know, he's been in for, including his residency, he's probably hitting about 20 years. And so he's finally hit his stride. And I always joke with him if he's ready to start working in commercial real estate with me, because I always see it as much more simple.

than dealing with life and death and surgery and just anything medical. They're both unbelievable industries. My mom was a doctor growing up. My dad was in real estate and I just, I resonated so much with the real estate that I took that road, clearly.

Bharat Sangani (15:20)
What a great story.

Aviva (15:22)
We're very fortunate. So how do you mitigate? Well, I suppose you answered this, but I'm going to give you another shot to answer it. How do you mitigate your risk when you're buying these assets to make sure that you do right by your investors?

Bharat Sangani (15:40)
So, first and the foremost thing about success into this is you first should believe that you are nothing special. Most of the times people think they know it all, they are expert and they try to fight what the world is going towards. And anytime you try to do that, you fail. Most of the time. Some people are very successful either by sheer energy, by genetics, by power.

Aviva (15:54)
Yeah.

Bharat Sangani (16:09)
whatever you want to call it I am not that person as I told you before I am an average or slightly maybe minor slightly above average individual and then that's how when you when I think I think the same way and it keeps your feet grounded on the earth. So, do not try to create something unique that nobody else has thought of or done because if you thought of it somebody most likely has thought of it somehow.

So stay within the parameters. And if you stay within the parameters, you usually would win. The second reason, second way how can mitigate risk is always remember, real estate is a cycle. So it will have higher number and a lower number. And usually the cycles last somewhere between five to 10 years, each cycle. So,

Let's take an average of seven years, okay? Then if you miss a cycle, don't sweat. We all miss cycles. It's perfectly fine. The only thing you must know is you must have deep pockets. When the cycle is down, you should be able to stay in the business till the cycle goes up. It's not that every, as of yesterday, we were just looking and

not because I was coming on this call, but we have to report these numbers to our public company.

So we are invested right now in 100 different deals. And I don't think at any given time we have had less than dozens and dozens of the deals at the same time. Now it doesn't mean that I exit out of all the 100 deals in the perfect scenario. But what happens is when the down cycle starts, we have enough of a deep pockets to survive through the downside.

So to mitigate risk, you must have enough capital put away so you can support yourself during the downtime. In the last part, as I just mentioned, you should have a great team. You should always find the right location. And with enough capital, I think you can come out of this just fine and that's how you mitigate risk.

Aviva (18:27)
Smart. What advice would you give to a first -time investor looking to buy commercial real estate?

Bharat Sangani (18:36)
That's a very tough question. It should be divided into two pieces. Are you... It's just like going to casino.

If you are just going for entertainment purpose that is fine go play 5 bucks, 2 bucks, 10 bucks and just have fun and lose that money and you will be fine. So, similarly in real estate also if you just want to have entertainment no problem go buy anything you want with the lowest with the amount of money that you if you lose you will not cry over it ok. But if you really want to do real estate investment.

you better not take it as a part time job. The most important part is real estate truly is a mixture of art and science. And unless you understand that, do not try to venture into it without going with the right group of people to it. So, that's number one. Number two is don't try to make it as a part time hobby. You must

must have enough number of hours in the day to monitor your investments. And if you don't have time, this is not the business for you. And number three is capital. Do not try to go with a very, very tight wallet, which is empty the moment you put the last gallon in the car of gas. Then you are not really ready to do real estate investment. You must have a deeper pockets.

Be ready for the worst case scenario. And if the worst case scenario you can go through regardless of the situation, then you are ready for real estate investment. So these are the three things I would strongly recommend for people to think about, talk about before adapting real estate as a true profession. It's very unfortunate that anybody and their brother can do real estate without proper license and all those things. It's a very complex business.

And we make fun out of it by saying you don't need a license to do real estate just go invest and that's where you hear all these catastrophic stories which we are trying to avoid happening. And if somebody follows this two or three common sense items I am telling you, I am telling you this would be a greatest favor we would have done to your listeners by protecting them from doing things that they should not be doing.

Aviva (21:09)
Sure. Hey, it's, it's about the long game. It's it's not a what do what do what do I say? You know, it's not it's not rocket science. But it's like you said, if you're not willing to devote real time and energy and and

ethics and really wanting to do good by yourself and others into your practice, it's not for you. And, you know, we see the bad actors and we hear of the bad actors. Thankfully, there's more good actors. I'd like to think them bad actors, but it's a long -term perspective. And if you can stomach a long -term perspective, slow and steady over time,

You can do very, very well for yourself and your family and your employees and your tenants. And it's a beautiful thing.

Bharat Sangani (22:11)
Just remember one thing your listeners are very important one message I would like to leave with them for sure but is that if it sounds too good to be true trust me it is too good to be true.

Aviva (22:26)
yeah. I say it and see it all the time. Doctor, before I let you go, what makes you happy with what you do day to day in commercial real estate?

Bharat Sangani (22:44)
Let me tell you, a guy who is born and brought up in India and coming to this country with 10 dollars and 45 cents to be here where I am, I can't thank God, I can't thank people who have come in my life and supported me and believed in me. Enough. Every morning I wake up and there are times when I'm struggling but

because you are in so many businesses, you're doing so many things, I don't want to just tell everybody that my life is totally full of roses and never had thorns. I always say that my life is hours and days and weeks and probably sometimes months of sheer...

fun and sometimes boredom punctuated by sheer moments of terror. When COVID hits, when the economy, then the Ukraine war hits, the economy goes down, it is a difficult situation. But you learn to be happy. So what makes me happy, which was your primary question, is that

Aviva (23:30)
Yeah.

Bharat Sangani (23:46)
First, I have determined to be happy. Second, God has been very kind to bestow all these successes. It's not great, as I always said, I'm just a regular guy with some successes here or there, but that makes me happy. But the most important thing that makes me happy is, just think about it, how many people in this world are in a position where I am? Aviva, just think about,

People have given their lives in my hands as a cardiologist. I operate on them and they can literally die under my care. That means they trusted me. 70 ,000 people trusted their lives in my hand. How much great accomplishment just what people have bestowed on you, right? And now you take it further. Now all doctors have that. I'm not anything special like that, but

Now you take a doctor, I cannot tell you how many people who have taken their last dollar in their bank and have given it to my company, Encore Enterprise and Ignite Investment and say, here, I trust you. I'm giving you my last dollars. So I feel very privileged that people have given their life in my hand. People have given their last dollar that they have in my hand, the two biggest possession.

of people's life they have trusted me with this and that makes my life worth living.

Aviva (25:20)
Hey, there's no greater compliment than your financial livelihood, giving your financial livelihood or your true medical livelihood in your heart. So, doctor, are there any... For those of you listening, we will have doctors contact information in the show notes. So head on down to the show notes and you'll see how to get a hold, find, follow the doctor.

Before we part doc, is there anything that you wanted to leave the listeners with? Besides that awesome answer that you just had.

Bharat Sangani (26:01)
Well, thank you very much, everyone. I congratulate you. You're doing a great job for the society. And I wish.

You continue this for many, many decades to come. You are a lot younger than me. So there's not an issue at all in my mind. So that's the first thing. I want to make sure that please keep serving the community. You're doing a great job. As far as my message to people comes, it is very simple. Listen, if you have any interest in real estate investment, we are here for you. Ignite Investment is here for you. Encore Enterprise is here for you. Nobody has ever lost money so far.

invested in our company and we have never made capital call as of today. I cannot guarantee the future but the notes will have the way to contact me. The bigger mission I have besides real estate is to actually find a purpose of life and I don't want to take too much time on this because that's not our subject today but if you are interested to know more about my mission in life then I would really

invite all of you to go to my personal website. My business website is www .encorenterprises .com and igniteinvestments .com. But my personal website is www .bharatsangani .com. And that's where you will see my mission and what is the purpose of life, which is happiness, which you alluded to. I have a lot of things to say about happiness and how to get there. So listen, thanks again for inviting me and I hope.

I brought some value to your listeners.

Aviva (27:38)
Thank you, doctor. I have no doubt that our listeners definitely got value from this episode and for everybody listening, we'll see you next week. Thank you, doc.

Bharat Sangani (27:49)
Thank you.

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