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Below, we're sharing our wonderful interview with Andrew DeNardo of First Realty National Partners (FNRP), a top option for investors seeking high returns in grocery-anchored commercial real estate.

All this, and more, in just 5 minutes to read.

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Redefine Your Investment Journey with FNRP

Investing with FNRP is easy

First National Realty Partners (FNRP) believes quality investing means patience. It means sourcing real estate deal after deal yet passing on about 95% of them. Patience lies at the core of FNRP’s dragnet acquisition model: source as many deals as possible but never get married to one.

Warren Buffett is famous for taking analogies from the sport of baseball to describe his investing strategy. As he puts it, the player up to bat is pressured to swing on imperfect pitches by the risk of striking out, whereas in investing,  there are no called strikes. An investor doesn’t need to swing if they don’t like the pitch, and there need be no limit to the number of investment pitches they see. Commercial real estate investing is no different, or at least that’s how FNRP sees it, and they’re one of the country's largest private acquirers of grocery-anchored retail. 

“Sometimes, the best deal is the deal you don't do,” says Andrew DeNardo, FNRP’s President and Head of Investor Relations (IR). “We’re even more selective now and do even more diligence about opportunities. We must bring our investors only the best deals.” 

Based in Red Bank, New Jersey, DeNardo leads FNRP’s IR Team, focusing on matching high-net-worth accredited investors with opportunities to invest in necessity-based commercial real estate. He joined FNRP soon after it was formed in 2016 and has been a crucial part of FNRP’s growth since. His leadership in strategic capital-raising endeavors and expanding the private equity arm of the business has been pivotal to FNRP's growth trajectory.

In this conversation, DeNardo provides a candid perspective on the industry's nuances, from the intricacies of deal sourcing to navigating challenges like the impact of the pandemic and inflation. This interview also covers how DeNardo and his team manage risk, how they think about their investment process, and much more. It has been edited lightly for brevity and clarity. 

Why did you get enthralled with the whole industry overall?

My dad’s side of the family has always been in construction, particularly the elevator business. We worked on projects in Manhattan and across New Jersey, so I had a blue-collar upbringing in the field that sparked my interest. This interest led to me stumbling into property management. I was also intrigued by the idea of buying a house, fixing it, and flipping it. 

What’s your goal, high-level, at FNRP?

First and foremost, we want to help our investors find quality investments and diversify their portfolios within real estate. Today, we're seeing that a lot of investors are turned off by other asset types, and even some other real estate property types, that have given them a wildly volatile ride over the last few years. For many of them, necessity-based real estate offers an appealing alternative, typically with in-place cash flow and potential for appreciation. We’ve built a sizable portfolio of primarily grocery-anchored retail assets. We want to expand there, but in the long term, we want to be diversified by asset class. Though we’re specialists in retail, we did two multifamily investments last year, and we’re continuing to lean into building out the multifamily and industrial parts of our portfolio while still being a prominent retail acquirer and manager in the space. 

What makes FNRP different?

We think three things really set us apart. 

First, our dragnet acquisition model.

Second, FNRP 360: our vertical integration. We do acquisitions, raising capital, property management, leasing, legal, and asset management in-house. We don’t rely on third parties for much of our work; we do it ourselves. 

Third, and I would say most importantly, we have a tenant-centric value-add investment strategy, where we leverage our relationships with our tenants to add value to our shopping centers, both before buying them and while managing them.

One example of how we apply this tenant-centric approach is we frequently install energy-efficient LED lighting in our parking lots, which helps tenants save costs. And with well-lit parking lots, our shopping centers stay safe at night. That creates a better sales experience, which is a win for the tenants, a win for us as the property owner, and a win for our partners who are invested alongside us in the property. 

How important is it to physically visit a site when doing investment due diligence?

We have a process called our Strikeforce: Due Diligence Done Better. Once we have a property under contract, we send out a member of each team because we're a vertically integrated organization. 

People from each of those teams meet on-site and perform tenant interviews to gain an understanding of their immediate and long-term needs and develop a feel for the market. We also tour the broader market to see the competition for our shopping centers. Where is there additional development? What else is happening in the local marketplace? 

These measures help us ensure that we’re averting as many risks as possible and evaluate any upside to the opportunity with our boots on the ground. 

Has there been a time the team went on-site and saw something that didn’t show up in the spreadsheets?

Yes. Our team finds something on every on-site strikeforce visit. 

How do you factor an area’s foot traffic or busyness into the evaluation process?

We leverage technology to analyze foot traffic and utilize a number of public & private data sources to help us identify the best properties. There has to be a certain level of density, a certain level of affluence, a certain level of growth and foot traffic. 

We love submarkets with trending growth and people moving there because that usually means better sales volume for our tenants, which means those stores have the potential to be more successful, those stores will continue to pay more rent, and our assets are in a position to continue to appreciate.

What’s a good way to visualize an ideal investment you pounce on?

One that has a high-quality grocery store and other essential businesses that are e-commerce resistant. You might think of that shopping center you can visit for all your needs. We want those centers that serve their communities and have been around for a long time. They have to be well-insulated with services that match the demographics of residents. 

What geographical or migration trends interest you?

We target areas with growth. If you look at average cap rates for properties in Texas, Florida, and Arizona, those cap rates are compressed, so you’ve got to find great opportunities in those markets to succeed. 

We have a good presence in the Midwest and other areas in the U.S. where cap rates aren’t so compressed. We’re sourcing a lot of deals in Phoenix. We’ve been patiently waiting for the right opportunity in the marketplace. 

What’s your time horizon for an investment in a grocery-anchored retail space?

In some cases, we’ve had holding periods of three to seven years or up to 10 years, depending on the deal's asset type or risk profile. On value-added deals, you want a shorter time horizon: You want to add value and then monetize that value. We’ll hold other assets longer, especially if they’re cash-flow drivers. 

Macro-wise, the last four years have been a time of change. We had a pandemic, inflation, and a new era of higher rates. What stands out to you in the big picture?

We look at the negative first and the risk, and then we’re conscious of the upside. In 2019 and early 2020, we grew our portfolio slowly but steadily. Then the pandemic hit. So our company transitioned to a remote environment, and then there was a major impact almost overnight on our asset class.

We seized good opportunities to buy, but lockdown caused lenders to pull back significantly from multi-tenant retail because of the obvious: non-essential businesses would close. Inside of our portfolio, we had some decisions to make. We didn’t wait for tenants to call and ask for a rent reduction. We were proactive: We called tenants and educated them with the knowledge we had about government-funded programs. We wanted to help them, creating a win-win for all parties. 

In today’s post-pandemic world of high interest rates and inflation, we’ve adapted by getting more creative in our sourcing of debt. We’ve built relationships with non-bank alternatives such as life insurance companies that offer competitive rates in exchange for risk-adjusted collateral. No business is entirely immune from the impacts of inflation, but because we concentrate on the core/core-plus end of the spectrum, we’re typically buying properties that have low capex needs, and therefore don’t have a lot of exposure to rising building material costs.

How do you think about inflation broadly and how it impacts your tenants?

Our investment strategy helps protect us against inflation because our lease structures allow us to charge our tenants through common area maintenance (CAM). When shopping centers have higher expenses, we often pass them on to our tenants. We have leases with tenants that often have escalating rents over time, which can insulate you against inflation. It’s not 100% perfect, but there are hedges against inflation that allow these assets to be cash-flow positive. 

We also try to be in markets with growth. Inflation might hurt you more in a market with less growth and competition. Ensuring we’re in the right geographic is incredibly important, no matter what asset type. 

Insurance costs are surging in parts of the country. How do you think about insurance costs?

From a geographical perspective, we must understand the insurance requirements for any acquisition. Insurance is there for a reason: It protects us from risks that are largely out of our control, such as storms, flood, or fire. We need to be properly covered to protect our investors. 

As a retail landlord, we often pass insurance costs back to our tenants through the lease structure. But we never want to surprise tenants or put them in a position where we’re significantly increasing their common area costs. If we get savings, we want to pass those on to the tenants, especially in an inflationary environment. We want to control our costs as much as humanly possible because it impacts the health ratios of those tenants and their ability to succeed at our location. 

What is the role of physical retail in an age of e-commerce?

There has been a narrative that retail is a dying asset class. Enclosed malls? Certainly, yes. But not grocery-anchored retail. During the pandemic, grocers saw tremendous growth. Everyone wanted to be in the grocery business because it was essential. 

We want shopping centers that are a big part of their community. We love to see shopping centers where the average tenant has been there for 15 or 30 years — that’s staying power. People in the community know them well. They aren’t going anywhere. 

What role does data or AI play in what you do?

AI will help us create a better investing experience and more tailored communications for our investors so they’re well-informed about the things that matter most to them. Data plays a huge role in sourcing acquisitions and identifying which markets we should tour. We also track where customers come from when they go to our shopping centers and where they go after they leave the grocery store. That helps us identify other uses in the marketplace and what we need to capitalize on in our shopping center.

What’s your advice for people in real estate looking to build their career, portfolio, or both?

It’s cliche, but first, you must keep an open mind—and, second, step outside your comfort zone. Third, don’t be afraid to try new things and fail. Fourth, learn things in places you may not expect. Have a high awareness of the things around you in your daily life and how you can relate them to making yourself a better person in all aspects of your life.

Have any books influenced you or your investment style?

Rich Dad Poor Dad is a great starting point for young people. The sentiment is that the hidden side of everything is awareness, right? People want to be told what to do. But great books aren’t written that way. Great books are written to build your awareness, to think outside the box, and to develop new ways of thinking. 

What’s the best way for investors to get involved in what you guys do?

Visit our website and speak with our investor relations team. Our team’s primary purpose is to develop a good understanding of your background and experience as an investor as well as your investing preferences, thesis, and goals. It’s that understanding that puts them in the best possible position to support you in meeting those goals. 

Dive deeper

For more, join FNRP’s community of savvy investors and unlock the potential of commercial real estate today. Focusing on strategic investing, FNRP empowers you to build a successful portfolio for the future.

^{Disclaimer: An investment in commercial real estate is speculative and subject to risk. Any representations concerning investing in commercial real estate, including, without limitation, any representations as to stability, diversification, security, resistance to inflation and any other representations as to the merits of investing in commercial real estate reflect our belief concerning the representations and may or may not come to be realized.}

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