The Great Escape to Medical Real Estate Wealth with Vikas Agarwal

Ever wonder what it's like to swap the security of a corporate gig for the thrill of entrepreneurship? Vikas Agarwal of ARKA Capital Holdings joins me, David McIlwaine, for an intimate discussion on his bold leap from the financial safety of high-paying jobs into the dynamic world of medical property investment. As we unravel Vikas's story, you'll uncover the realities behind the golden handcuffs phenomenon, learning how a high salary can both cradle and cage you—and how breaking free might be the most liberating move you can make. Prepare to be inspired by the transformative power of working on one's own terms, where personal fulfillment takes the driver's seat, steering clear of stress and into a life of purpose.

Dive headfirst into the future of the medical industry with us as we dissect the investment opportunities within medical properties, an area ripe with potential thanks to demographic trends like the aging baby boomer population. We lay bare the myths of telemedicine reducing the demand for physical spaces and share why localized medical services are more important than ever. And because no road to success is without its bumps, we tackle the risks inherent in any real estate venture, offering sage advice and the wisdom of perseverance that's steered my own journey. Whether you're an aspiring entrepreneur or a seasoned investor, this episode is your compass in navigating the uncertain yet rewarding landscape of medical property investments.

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Transcript

Speaker 1: 0:02

Hey everybody, David McElwain here with an episode of Break your Golden Handcuffs. I'm really excited to have with me a fellow Denverite today on the show, which is awesome. Vikas Garwal has joined us today and he's from ARCA Capital Holdings. He has 18 years of corporate finance experience with Fortune 500 companies, as well as with multiple private equity-owned middle market companies. He recently left corporate America and now runs ARCA Capital Holdings, which focuses primarily on medical properties. Welcome to the show, Glad you're here.

Speaker 2: 0:36

Thanks, David. Thanks for having me here. Glad to be here.

Speaker 1: 0:40

Thank you, and you know I ask everybody the same first question and I'm pretty sure I'm going to know the answer to this one have you ever had golden handcuffs?

Speaker 2: 0:51

Many times I would say so. As you pointed out, I recently left my corporate job and I was working as a VP of finance for a large PE fund company. I think corporate world likes to keep its talent very comfortable. They pay you well, but then they expect you to work 12 hours, 14 hours, so you're comfortable, you get some of your dreams fulfilled, but at the same time you feel like it's a handcuff. It's a golden, but it's a handcuff. It's a golden but it's a handcuff, so that's always there. You know like they just pay you enough so you stay there as long as they want you to be there. So that's there. But in my life journey it's not the only time. There are many, many instances where I would say yeah, that's a very familiar feeling, to be honest with you.

Speaker 1: 1:48

Yeah, and you kind of have this desire, or I should talk in the first person. I always had a desire to break free, and sometimes they were silver handcuffs, sometimes they were gold, sometimes they were zip ties, but they still kind of held me in place. Sometimes they were zip ties, but they still kind of held me in place. And I always love talking to people that have recently left corporate America because they seem to find this new awakening if that's the right word for it that there's a world outside of 60-hour, 500 emails a week world, oh, yeah, a week world.

Speaker 2: 2:22

Oh yeah, I remember a few years ago I was out for a week from Friday to Sunday so nine days and I made a promise to myself that I'm not going to check my work emails. So I came back after nine days and Sunday night I made a mistake of checking my emails. I had 296 emails and more than 50 of them were urgent.

Speaker 2: 2:54

Like you, know you can tag an Outlook urgent more than 50 urgent. I'm like I should have not checked my email Monday morning. You deal with it, but now it's too late. I checked them and now I want to reply to them and I went to bed like 2.30 or 3 o'clock in the morning. So yeah, that's. I think. In a way I like your concept that you like to talk to those who have quit their W2 job recently. You know it's like newly converted. We are newly converted people, we have recently attained the enlightenment, we have recently moved over to the other side and I think this experience is going to be very relatable for a lot of your listeners and it should resonate with any of our story. The challenges are same, but we all have our own path to solve it, but the challenges are 90% the same.

Speaker 1: 3:57

Yeah, they are, and I think it's fascinating. I don't think that entrepreneurship is for everybody, or even active real estate investing is for everybody, or leaving corporate america is always good for everybody. We all have our own strengths, our own interests. I will tell you that I actually probably work harder now than I did in corporate america. Uh, and it's definitely different. I got to take my stepdaughter out today for coffee at two o'clock in the afternoon and we had a wonderful conversation. Were I in corporate America, that would not be happening.

Speaker 2: 4:29

Oh yeah, oh yeah, as you said, I remember I was in finance, right? So finance people do one budget every year. Generally it's from August, september, october, sometimes it goes all the way to December and then two or three times forecast during the year and during the budget season we generally work 60, 70 hours, sometimes two, three weeks in a row, without a day off, even on the weekend. But I remember actually back in Minneapolis, so I used to live in Minneapolis for 10 years. One day I was on Saturday, it was like 10pm, I got done with my work and then I went online to look for properties to buy and my wife is like you've been working all day long, it's 10 pm and now you're looking for properties, what's up? And I said doing this doesn't feel like work actually. So last 10 hours I was working, I was working on a budget, but now I'm just looking for good properties to buy and this doesn't feel like work.

Speaker 1: 5:41

It becomes flow. Almost right, you get into flow.

Speaker 2: 5:48

And I'm hoping to find a good property so I can go to bed happy that I have to follow up with the seller tomorrow that you're selling. I want to buy. And that's when I realized, as you said, we work harder, we're probably putting in a lot more hours than we did in the corporate world, but the stress level is lower because we want to do this, not because the board meeting is in three weeks, so we have to get the budget done. I think that's such an important part.

Speaker 1: 6:15

Yeah, what you said I want to dig into this. We work harder because we want to do this and not because of somebody else's agenda. I remember Donald Rumsfeld, when he was running the first Persian Gulf war, secretary of defense, said that if you're working in your inbox, you're working on somebody else's priorities. Right, and as an entrepreneur, it sounds like what you're saying to me is I will work more because they're my priorities.

Speaker 2: 6:45

Exactly. I think this is a very good direction we are going into, because if I push it another step and I don't know if I'm going in the right direction, but if you have the freedom to choose what you want to do, then it's not a stress. This is your passion, right?

Speaker 2: 7:08

but if someone else decides it, then it's a stress. So if I take a liberty to call it free versus something else, if you are free, then you can work 14 hours, but you don't feel stressed, you're excited. Next day you want to work again 12 hours, 14 hours.

Speaker 1: 7:35

But if somebody else is choosing it for you, then eight hours feels really long sometimes. Yeah, you know that's fascinating because I view that as agency. When I have agency over what my work product is, where I'm going to go with it, and I can dictate what my decision-making thoughts are, what my timeframes are, I'm energized. There's a phrase that where attention goes, energy flows, and where energy flows, things grow. And what you're talking about is that the attention that you want to go towards your work allows your work to grow when you're happy.

Speaker 2: 8:09

Right, absolutely. Very well said.

Speaker 1: 8:12

I love that. So tell me, you've got a pretty interesting professional experience in Fortune 500 and medical companies. Give me a little bit about the medical industry that you were in and some of your background.

Speaker 2: 8:27

Absolutely so. Just going a little bit further behind, I came to US in 2003 as a student to do my MBA from University of Illinois at Urbana-Champaign. I majored in finance and strategy and after that I worked for Fortune 500 companies as a management trainee. I worked mostly in finance, but I had a few roles in sales and supply chain as well, and then I worked for a very large healthcare company based out of California for many years. So that's when I gained a lot of experience about the medical industry how the medical practices work, which medical properties are going to be successful and which practices are going to struggle. What are the differences? What makes a practice successful versus the other? What role the doctors play, the providers play, the office staff play. So all these knowledge came to me in those four or five years and I was responsible for almost a thousand practices in twenty nine states to make sure they stay profitable and, if they are not, what we need to do. So that's where I gained a lot of medical industry experience and also for what it means for the real estate. We owned. Many of those properties we owned. Many of them were leased. So that's my background in finance, but how it relates to real estate and medical properties. But even after I left that job, my interest continued. Then I worked for a very large company. It's a Fortune 50 company a manufacturing company, again in the medical industry. Manufacturing company, again in medical industry. So it just you know.

Speaker 2: 10:26

Steve Jobs said it's very hard to connect dots looking forward. You can only connect dots looking backwards. So now I'm here. I love medical properties, I invest in them, I'm always looking for them. But when I look back, I wasn't choosing my next employer with this thought process that I want to gain experience in medical industry. It just happened that one after another company that I joined they were medical industries. So that's how I gained my experience and I think this is such a fascinating industry, one of the largest industries in the US. The demand for this industry is going to grow. We all know baby boomer is aging and that is the largest population segment in the US. The millennials, generation Z, my generation, which is before millennial Generation X we all are smaller segments, but baby boomer is the largest segment. So this industry is going to grow, it's going to be there, and investing in medical properties, personally, I think is the right move to do for next at least 34 years.

Speaker 1: 11:46

Well tell me yeah, you know there's a lot of different thoughts on medical properties, right? Some people think it's not very sexy and it's boring. Some people think it's going to get outsourced and it's going to be gobbled up by consolidation. Tell me what data points and what things drive your statement that medical is where you need to be for the 30 or 40 years. I totally get the baby boomer silver tsunami. That is massive. My parents are in their 80s. Every conversation is around what the doctor's appointments are for the week. I love you, mom and dad, but I don't really want to hear every doctor's point. So what other data points have informed your decision making on this?

Speaker 2: 12:32

Right. So first thing that we can talk about is outsourcing right? This is very valid concern that a lot of parts of medical industry can get outsourced. When I look back, if you think about IT outsourcing, it actually started in late 70s and it really ended up in 80s, and then 90s was the decade when outsourcing was the buzzword, and still it continues to happen. But the same thing started coming up about medical industry and some of the patients going to low-cost countries for getting their medical health, all these things. But it never picked up and even if it happened, it happened in a very specific segment of medical industry. In a very specific segment of medical industry. For example, heart surgery. It's $250,000, $300,000 procedure and in some countries you can get it for $100,000, let's say so. There is a little bit of flow I think less than 5% to these things, but if I want to get every six months my teeth cleaned from a hygienist or from a dentist, I'm not going to go to Mexico or India to get my teeth cleaned. I need some.

Speaker 1: 13:58

Unless, you live in San Diego right.

Speaker 2: 14:01

That is true. Actually I was talking to somebody last night so they were into supply chain and manufacturing. So that did come in as an economic zone in Mexico and the US. So that's very true in manufacturing actually.

Speaker 1: 14:16

Right.

Speaker 2: 14:17

Sorry to interrupt, but you're saying they're not going to travel for oral hygiene cleaning. Right. So, like urgent care, your dentist, your pediatric, your podiatric, your daily medical needs, which are not a major surgery, cannot be outsourced because it just doesn't make sense. The sense of urgency is there, right? I want to see a doctor because I've been coughing from last two days. I need an agent here.

Speaker 2: 14:50

I need a regular check. So within industry, if you are talking about very expensive procedures, there is a some level of outsourcing, but the daily medical industry it's hard to outsource that because there is time factor is there. So that's one thing about the outsourcing. The second thing is the long term prospects beyond baby boomers. I think if you look at the population tree of US generally, it goes like this right, so baby woman is the biggest segment. Now then comes the Generation X, which is my generation, then Millennials. I think the need for better medical services is growing because the population is also how do I say it in a better word? There is a saying right, this is the longest living generation. The generation coming after us is going to have a shorter lifespan, actually, for whatever the reasons. Uh, we have reached 80, 82 years of lifespan. The generation coming after us is probably going to have a few years less, until and unless the medical science comes up with new invention, which very well could happen. So what you're?

Speaker 1: 16:18

saying is that the demographics are going to kind of cap out because medical science has not done the next leap to change life expectancy exponentially. Is that what I'm hearing?

Speaker 2: 16:30

That is absolutely true, and you see that with Japan too, japan has the longest.

Speaker 1: 16:35

And somewhat in China right.

Speaker 2: 16:36

Somewhat yep, but they have also capped out and it's not growing further. Some people say every 10 years we are adding one or two years of lifespan, but data doesn't suggest that. Data doesn't say that. Data is saying mostly 80, 82 years is the max a country can have. An average Individuals can live 90 easily, but the average of 100 million, 200, 300 million people is generally capping out at 80, 82.

Speaker 1: 17:09

Right, and having that 82 means you could have a 120-year-old and a 40-year-old and you're going to come in at 80.

Speaker 2: 17:17

Right, absolutely Okay.

Speaker 1: 17:21

So there's that Christmas tree issue, there's demographics, there's Christmas tree, there's a cap in lifespan. What else is informing this decision for you?

Speaker 2: 17:29

I think there's another factor telemedicine, right? Some people have talked about. If telemedicine is going to catch up and that's going to affect the real estate need in medical industry, I think this is a great new initiative, a great trend, actually telling medicine. We have to see how it pans out, but right now it's actually increasing the need for additional real estate in the industry, which is very counterintuitive, right? If I'm not going to see a doctor, I not going to see a doctor, I'm going to see a doctor on a phone.

Speaker 2: 18:09

Then why doctor needs more real estate? Why they need an extra room in their practice? And the reason is medical industry is the most guarded and high on secrecy, for the right reason, like when doctor is talking to me, nobody else needs to hear what they are talking to me because it's highly confidential. So they need additional room which is soundproof. It has to meet certain requirements which cannot be done from a general patient room. So they are actually a lot of if not all of them, but a lot of medical practices are adding additional rooms if they are offering telemedicine and if they are in compliance with the codes and the practices. So in short term to medium term it's going to actually add more real estate to medical industry. But what happens in long-term? We have to wait and watch and see what happens. One option is it may not affect, or other is probably it will put some downward pressure on that. But I think that's long-term, not short-term or medium-term.

Speaker 1: 19:23

And by long-term. What do you think of in the horizon for long term, Because I've heard so many different definitions. What's your definition, Vikras?

Speaker 2: 19:31

My long term definition is, at least in this industry, is 10 plus years, because in some industries, let's say social media, long term would be three years, three years. But in medical industry I would say at least 10 years. 10 plus years would be a long time.

Speaker 1: 19:47

So you know, a lot of our listeners here have been talking about alternative investing and different ways to invest outside of just the stock market. Right, and I think you're the second medical properties guest, so give me a real quick 101 on what is actually happening when you invest in a medical property with someone like yourself.

Speaker 2: 20:10

Absolutely so. My focus, the focus of Arca Capital Holdings, is investing medical properties, which are core properties, and core properties with long-term leases at least 10 years of lease with the tenant. So just let's take an example. Let's say I buy a property with a dentist in Denver. So one of the criteria for me is to make sure the lease is at least 10 years, 12 years, 15 years, with absolute triple M. And the reason for that is, as you said, there is stocks and bonds and stocks are a little bit more risky.

Speaker 2: 20:55

Bonds are safer, but with medical properties I'm trying to create another investment options for investors where they can get much higher return compared to bonds, but at the comparable risk. Why do I say that? Because, let's say, if you buy an investment-grade corporate bond, it's generally backed by a Fortune 500 company and you get certain return. But if I'm buying a medical property, which is corporate guarantee, with a company with billion dollar in revenue and it's a corporate guarantee, so the risk of that company defaulting is pretty low, but the returns are 15 to 17% IRR, which is almost twice of what you get from a corporate bond. So if somebody invests with us in ArCA Capital Holdings, they are basically getting much higher returns than a corporate bond with a comparable risk. So this is a new niche that I'm creating, a new option creating for those who like to invest in bonds because of the low risk. So they can continue to have low risk with medical properties but get much higher rate. So that's the whole goal.

Speaker 1: 22:15

So this is fascinating, right? Because I know when you and I had lunch, we talked about some of this, and your premise is that a bond is basically the most risk-adjusted safe mechanism there is. There's very little default risk in AAA-rated corporate bonds and what you're saying is there's correspondingly very little risk in these medical buildings, because you've got a triple net lease, which means that your revenue is contractually obligated. You have no expenses, you have nothing to do with operating the building, the tenant's responsible for all of that, and then you have a corporate guarantee that eliminates the risk. So what risk point do you as an investor have? If I'm reading a PPM, you got to lay out the risks. So what's in your PPM for risks?

Speaker 2: 23:08

Right, so especially in current times.

Speaker 1: 23:12

A hypothetical PPM. Sorry, a hypothetical PPM.

Speaker 2: 23:16

In the current times. Interest rate is one factor there, because right now the interest rates are higher. So let's say, if I buy a property I'm paying a higher interest rate, but my underwriting would expect in 18 months or 24 months the interest rates would come down and then we will refinance and the returns will go up. So that is a risk if in next 18 months or 24 months the interest rate will come down significantly enough for me to go ahead with the refinancing. Now, last week the inflation data came out. Inflation did not go down, it actually went up, and we all are curiously waiting to see if June, in June we are going to have a rate cut or not. But we'll see. And now Fed still says they're going to have three rate cuts this year, which is yet to be seen. So the interest rate is a risk factor. I would definitely point that out. The second risk I would say is even these leases are backed by corporate guarantor with large operations. But it's not zero.

Speaker 2: 24:34

Sometimes big companies also fail, even though in last 10-15 years I have not seen a large medical company failing. I've not seen a large private hospital failing or going bankrupt. I've not seen that, but not to say that it will not happen. If it did not happen in 15 years, it doesn't mean it won't happen in the future. I hope not, but it could happen. So that's another risk. So there are some market risks. I think some macroeconomics risks are there, some specific to the tenant, but it's not risk zero. It's not US Treasury, it's a real estate investment. So there is risk, but the question is how much risk? So there is risk, but the question is how much risk? The risk tolerance that's where the trade-off is Low risk, high return, rather than zero risk. It's low risk.

Speaker 1: 25:32

Right and my brain's going not to get political here, but I got to just be a devil's advocate for a second. People say US Treasuries are zero risk, but in 2024, we've had Congress in the fiscal 2023-24 year go through I think it's three or four budget shutdowns where we risk defaulting on debt which would make a US treasury default.

Speaker 2: 26:00

That's a great point.

Speaker 1: 26:03

Even the US treasury is has some risk in it. So I think what you're really laying out is the risk profile. Feels better in your chair than some other risk profiles.

Speaker 2: 26:14

Absolutely and great point Like there is literally nothing which is risky, not even US Treasury.

Speaker 1: 26:22

Yeah, I mean, you don't know what the government's going to do.

Speaker 2: 26:25

Like I like to say, in God we trust and in US Treasury we trust. But even that's shaking now.

Speaker 1: 26:33

Yes, it is. So we're going on close to half an hour, so I always like to ask my guests a couple of questions. Knowing what you know today, what's the best piece of advice you wish you had a decade ago?

Speaker 2: 26:46

Any young person spending 50, 60, 70 hours in their corporate job in W2,. It's great that you're working hard. I congratulate you. I've done that too, David. You have done that too. But start investing now. Don't wait until you have some number in your mind that I will do that when I'm 45, I'm 55 or 60.

Speaker 2: 27:12

No, when you're turning 35, start investing in other asset class, and I may be biased, but real estate is a really good option. Us real estate is always going to be there. So ten years ago, I wish I would have invested more in real estate ten years ago. So anybody, just start investing, put a little bit money aside, go buy some fractional ownership or invest with David or me or anybody. Job is great, but have a second option too.

Speaker 1: 27:52

Yeah, and I can't echo that enough, if I had invested the money in real estate in my 30s that I put in the stock market, today in my hometown we wouldn't be talking because I would be on the beach already, happy and, you know, having hit my FU number. So from the best piece, what's? A piece of advice that was really bad that you followed in your career. You wish you had ignored.

Speaker 2: 28:18

I come from a very traditional old school values family right. Traditional old school values family right. And my grandpa he worked for Indian Railways for 45 years and he started there and retired there. My dad worked for Indian Railways for 38 years. He started there and retired there. So general advice is work hard and you will be rewarded appropriately. I think in corporate world, in US, in American corporate world, it could be true, but don't make it a Bible of your life. It may happen, it may not happen. So give your best but make sure you have a good plan B and work-life balance. Like if you have family, if you have a wife, if you have kids, if you have a husband. Like make sure you find enough time. Working hard is a great advice, but come on.

Speaker 1: 29:22

There's more right.

Speaker 2: 29:23

There's more to it. There's more to life. There's more to life. And not always working hard means more rewards. It's not that simple.

Speaker 1: 29:32

Yeah, I love that. And it's not work hard or work smart, it's work hard and work smart and efficiently.

Speaker 2: 29:40

Yeah.

Speaker 1: 29:42

Yeah, absolutely, I love that. So two more questions. Number one is there a thought or a quote or some sort of axiom that moves you day in and day out, you'd love to share with our listeners?

Speaker 2: 29:57

Absolutely, actually very quickly. Like I came from India, I went to schools and my undergrad in India, I came to US in 2003. This is 24. So 21 years. I have come a long way. But what keeps me going is this quote we did not come this far to only come this far. We have to keep going. Right? You're, let's say, if you're in nepal and if you're trying to climb summit, then you get to base camp one, you get to base camp two, but at base camp two you're thinking I did not come this far to only come this far. I have to reach the summit. So great hard work. We lost 20, 30, but just keep going.

Speaker 1: 30:46

I love that. That is outstanding and, as an ex-backpacking guide, I have promised you that I have been at a false summit and said the same thing to myself and my teams that I was leading. Love that, so tell us what's the best way to contact you if you want to learn more.

Speaker 2: 31:04

Absolutely. Please check out my website ARCA Capital Holdings, and ARCA is A-R-K-A, so A-R-K-A Capital Holdings dot com, you will see all the information you can reach to me via email. My first name Vikas V-I-K-A-S at archacapitalholdingscom, and you can connect to me on LinkedIn. So if you go to the website, you will have all my contact information. But shoot me an email, vikas at archacapitalholdingscom.

Speaker 1: 31:44

Wonderful. Thank you so much for joining us. Vikas and you've been listening to another episode of break your golden handcuffs. If you liked what you heard here today, push that like button, push the follow button and be notified when we publish. We publish every monday and thursday. Thanks for listening and have a wonderful day thank you, david, take care.

Speaker 2: 32:03

Thank you.