How to Effectively Mitigate Business Risk

The word risk is very vague, and it’s certainly open to interpretation. You can’t be risk-averse in the real estate business, that’s for sure. But when you really understand fully what you’re doing and you have a path forward — when you immerse yourself in that path and gain some knowledge and experience — you can really mitigate risk down to a really finite, quantified number.

Welcome everybody back to The Hunt for Success, where each week we meet with entrepreneurs and business people who also like hunting and fishing. This week we have my good friend Mark Baker on. He’s the president and owner of ACRE Development Corporation, all the way up in Canada. I can’t wait to get up there and do a little fishing with him. Mark, welcome to the show.

Thanks, Sam. It’s great to be with you again.

Tell me a little about your history, because you told me about this when we met — you were in the gas station business and then you transferred more into the real estate side.

Yeah, I kind of grew up in business. Both of my parents were involved. My dad was in the tire business and introduced gasoline for the first time in, I believe, 1980 — just two little gas pumps and a couple of service bays, like most things across North America at that time. I really got involved in the mid-’90s, basically running the gas station, and gained a lot of experience. My wife and I took over the operation, completely abandoned that site, and rebuilt one from the ground up in 2007. We operated it for 10 years, and long story short, we ended up leasing that site to a large operator here in the region. That’s what transitioned me into the real estate side. I always enjoyed the development side — and once I understood the leasing side and saw the benefits, I got an appetite for it. We created ACRE Development Corp., and for the last three years we’ve been going pretty steady with new development projects.

A lot of guys focus on fix-and-flips and residential. You’re focused more on the land and commercial. Tell me why.

We’ll look at second-gen buildings too, if there’s existing buildings on good real estate and a chance to backfill or redevelop with minimal capital and a good tenant. But in our region there just aren’t a lot of those, so it created an opportunity for ground-up development. That’s how the business has evolved.

Do you have a criteria you look at? Did you develop that over time?

It comes from a little experience and a lot of fact-finding and educating yourself. I’m somewhat envious of you guys in the States, because what we do up here gets really rewarded down there from a tax perspective — the IRS code incentivizes developers and real estate professionals. Here, the federal government doesn’t quite see it that way; they tax us pretty heavily. But there’s a lot of opportunity for new ground-up development. We identify a property in a marketplace, and we have relationships with national and international brands. If we have an inkling they want to be in a certain market, we’ll go searching for property. If we find a fit and it’s for sale, we put it under contract and start negotiating the details — size of building, length of term, all of it.

When we met — on a cruise ship — we had a lot of good conversations about business and entrepreneurship. You’re from Canada, I’m from America, different tax structures. How did you develop that mindset of going out on your own?

I think there’s a misconception around the word risk — it’s vague and open to interpretation. You can’t be risk-averse in real estate, but when you really understand what you’re doing, have a path forward, and immerse yourself in it, you can mitigate risk down to a finite, quantified number. Residential — I don’t dip my toe in that water at all. A lot of guys have done very well there; I just don’t have the knowledge, so I’ve always focused on commercial.

Know your lane. Until you’ve got the one section you’re working in under control and producing, don’t go to the next thing. There’s a misnomer that you should have seven streams of income — but you shouldn’t really have seven until you have one working really well.

It’s the same in any business. The brands we work with — a coffee and donut brand, a burger and fry brand — they do one thing very, very well, and then they scale. We’re trying to do the same thing.

People think it’s just easy to go be an entrepreneur and everything works out. But when I see someone doing a normal job for the same pay the rest of their life, with no possibility of a jump — that seems more risky to me than a loss every once in a while.

I’d agree. To pull off a successful real estate development project, there are a couple of factors: capital, knowledge, and the ability to execute. The misconception is that you always need all this capital. It helps, no question — but if you have two of those three, if you have the knowledge and the ability to execute, the capital is out there. Investors like yourself will happily participate as long as the person doing the deal has the knowledge and ability to execute. Capital is not always required, and nobody has it starting out.

You’re in Prince Edward Island. Shifting into the hunting and fishing world — how popular is that in your area?

A lot. I can’t speak too much to the hunting side — small fowl, duck and Canada goose hunting is big here, wild partridge and pheasant — but not much big game. On the fishing side, I’ve done a lot on the river systems, ponds, and streams. And we’re fortunate to have some large species — the Atlantic bluefin tuna. The north shores of PEI are considered the tuna capital of the world. Charter fishing for those has become an industry of its own, and there’s a commercial fishery too. The lobster and shellfish fishery is big here.

My favorite oysters are always from your island.

PEI oysters are world-renowned, for sure.

Do you see any correlation between doing those outdoor activities and business — how people master both?

Absolutely. It’s funny, I was thinking about that just before we came on. Back to how I got into development — when I’m honest with myself, that was more enjoyable for me than operating. I love the business, don’t get me wrong, but complacency can set in in day-to-day operations. On the development side, that never seems to happen. Looking for the property, all the planning, securing a tenant — it’s the preparation. It’s almost like the hunt. There’s definitely a correlation, no question.

Some people enjoy the process and preparation more than the end result. I’m building a barn right now and I don’t enjoy any part of it — dealing with contractors, getting people there on time.

I concur. Make no mistake, I’m not much use with a tool belt on. It’s the planning and logistics I enjoy. It took me a long time to get where I am in terms of knowledge — a lot of mistakes along the way. It’s complex. You have to be part architect, have some knowledge of engineering, understand traffic patterns, understand what these companies look for so you’re not wasting your time or theirs. And then some of the legal side too — some of these leases are 100-page documents. The lawyers look at the legal jargon, as they should, but you have to be your own advocate and know what to insert regarding the economics.

When did you decide to get out of the gas-station business and do this?

Probably a couple of years before we leased the operation. Once I got the debt paid down, it was like every other industry — either look for site two, three, four, five and scale, or exit and pivot. The onesies and twosies make a decent living, but bigger is the way to go, and I wasn’t seeing opportunities to scale locally. The gentleman we leased to was really growing his business, so it made sense. Once the numbers made sense, it was an easy decision — and I knew I wanted to take off into real estate.

What benefits have you gotten from moving into real estate versus being an operator?

Time management, I’d say. Between us and a co-tenancy — a regional coffee and donut operation in our convenience store — we had 20 employees in a 2,200-square-foot building. A lot of moving parts, a high-volume site, things moving all the time. We enjoyed it, but I have three children, and the margins were shrinking while we had to grow volume. I didn’t see opportunities to add sites without going too far from this one, so it made sense to pivot. I wasn’t going to push my children into that business anyway.

Are your kids doing any of what you’re doing now?

Two are too young still. My oldest boy is doing his own thing — he’s in the commercial lobster fishery here, and he just finished a plumbing program. I know you’re into the HVAC side, which I think is great. With all the new construction, he chose the plumbing trade, and I think it was a smart one. There’s a bright future in the trades, no question.

I think we’ve got at least a couple decades before robots take over.

It’s funny you say that. I think about AI — I don’t use it too much, we’re nimble and small, but it’s had some positive influence, mostly getting data quickly. Like the deal we looked at in the Huntsville and Madison area — high growth, strong household incomes, job creation. AI can help you collect that data quickly from a long way away. But nothing beats getting in the vehicle, driving the site, being part of the traffic, seeing how it flows, the turn radius at different parts of the day. AI will never replace that.

I agree there’s certain things — intuition, the human element — it’ll never have. It’ll put some people who don’t evolve out of business and change how we do things, but your son’s in the right position. Being able to do something with your hands is important.

For sure. My middle boy and youngest — a daughter — take an interest in what we’re doing. My wife is helpful in the business. I think because I’m home a lot, or working from the vehicle, they don’t realize part of it is work. They might think it’s easy.

I just tell my kids I get paid to talk on the phone.

Exactly. Though it isn’t always — sometimes you’re on the phone at the ball game or on vacation. You never get any time off.

Your area is such an incredible fishery. Any plans for fishing trips in the future?

We usually don’t go out of province, honestly, because the species we want are here. We’re surrounded by water — the sea trout come in from the Atlantic and the Gulf of St. Lawrence, there’s steelhead, rainbow, all kinds of trout. The striped bass have come on strong in the last decade — most fishing here used to be done in the early morning, but the bass are caught at dusk, so now there’s a strong striper fishery. And the Atlantic salmon — strictly fly fishing, but you hook onto a decent grilse or salmon and you’re in for a fight.

That sounds like so much fun. I’ve got to find a way to get up there.

We’d love to host you anytime, Sam. What you’d enjoy most is the tuna.

Awesome. Mark, I really appreciate you being on the show — a lot of insight in what you do. We’re going to be talking several times; we’re going to do business together. Until next time on The Hunt for Success, we’ll see you next time.