Talon Real Estate’s Greg Pfleider brings an unusual strategy to the Twin Cities real estate game.
Greg Pfleider could sell the inside coating of a metal can.
Seriously, he’s done that — for a major paint manufacturer. In the early days of his career, of course.
After stints as a financier with several Wall Street investment banks, the Wayzata native founded Talon Real Estate Corp. a little over a year ago. The publicly traded Golden Valley real estate investment firm has just four employees now, but has big plans to grow.
Since May, Talon made two commercial real estate acquisitions in the Twin Cities totaling $58 million, including the Minneapolis Mart in Minnetonka for $18 million, and 180 East Fifth, a historic office tower in St. Paul, for $40 million.
Talon is on the hunt for more quality properties in the nation’s midsection to build up its real estate portfolio, and there are tax advantages to those building owners who want to sell. The garrulous Pfleider recently discussed Talon’s unique business model with the Star Tribune.
Q: First, how DO you pronounce your name?
A: Phonetically, it’s FLY-DER. [Laughs]. When I make dinner reservations I just use Greg Johnson or something like that.
Q: How did Talon Real Estate get into business?
A: We did a reverse merger with a publicly traded company called Guide Holdings on June 7, 2013. Guide Holdings used to print how-to books, but with the proliferation of Google you can imagine what happened to that. We did it because going public now through Wall Street is very expensive, it can cost some firms anywhere from $6 million to $20 million. That’s a large expense. So we went public for $375,000, and we named it Talon Real Estate Holdings.
Q: Are you a bird lover or bird watcher?
A: [Laughs] No. The name just sort of came up.
Q: What’s the strategy behind your recent deals?
A: They were off-market deals that fit into our investment criteria. We look at real estate investments in two different buckets: Stabilized and value added. Stabilized involves buildings that are 90 percent to 100 percent leased, with very predictable cash flow, like the Minneapolis Mart. Value added is a building like the one in St. Paul that is about 60 percent occupied and cash flowing. We can put together a lease-up strategy with some tenant improvement dollars. Plus the building is obviously a historic landmark, it’s gorgeous.
Q: What is your business model?
A: Both acquisitions were accomplished utilizing a 721 exchange tax deferral method or an “UPREIT.” This strategy is advantageous for real estate owners who want to mitigate their immediate tax obligations, stay invested in real estate, diversify their holdings and defer their tax liability by taking Talon operating partnership units. Then, after 12 or 18 months, investors can convert these partnership units for Talon common stock and their capital gains tax obligations are deferred until the common stock is sold in the public market.
Q: And your strategy for the real estate you buy?
A: We wanted to keep it simple. One of the things that causes early-stage companies to suffer is they become too complex. We just do office, industrial and retail. We concentrate our efforts on the central part of the United States, where there’s less volatility. People in Des Moines pay rent.
Q: And people in St. Paul, too.
A: St. Paul is, to me, the next growth story. The new LRT train goes right by our building, Union Depot is kitty corner, and then there’s the Lowertown ballpark. The city of St. Paul is putting some dollars into downtown. Look what Target Field has done to the Warehouse District. I think you’ll see the same thing with the new [Vikings] stadium on the east side of Minneapolis and the same thing in St. Paul.
Q: Do you have other deals in the works?
A: Our pipeline is continuing to grow. Real estate owners that have called us said, “I own some real estate, and I have a tax problem and I need to sit down with someone to talk about it.”
Q: Are there a lot of people out there with this problem?
A: More people than you’d think.
Q: Office, industrial and retail?
A: We like office. A lot of people don’t, because it’s not senior living or apartments. Well, if you’re buying stocks and you’re trying to create a return for the investor, you kind of want to buy something overlooked by others. Because you can find inherent value there. We continue to believe industrial is going to be strong. There’s a multitude of research on that from Wall Street. Retail is going to change a little. Everyone wanted to be in malls for a long time, then places like Arbor Lakes in Maple Grove. You’re seeing that dynamic changing.
Q: Anything else?
A: We’re a growth story, soon to become an income story.
Janet Moore • 612-673-7752