Apr 25, 2022
With COVID-19 enhancing the
significance of logistics and a number of industrial possibilities,
there’s no surprise that industrial real estate has become one of
the hottest property investment types today.
We are joined today by
expert Chad Griffiths, an Industrial Real Estate Broker since 2005
and an investor since 2014 to share his knowledge gained from his
experience in the space. Tune in till the end to see whether you're
ready to jump into this asset class and if this is the ideal
investment kind for you!
[00:01 - 02:52] From A Broker to an Investor
- Chad talks about his background and how he came to work in the industrial real estate space
- Chad’s own Youtube channel and podcast show: A fruit of his love for industrial properties
- How he distinguishes between his broker and investor hats
[02:53 - 15:54] Industrial Real Estate Is Not for Everyone
- What you should know before contacting a broker
- Finding the best deals by building relationships
- Chad shares practical steps on how to build client relationship
- Do not invest in industrial real estate without sufficient knowledge
- Inflation's impact on renters and investors
[15:55 - 18:59] Closing Segment
- Recession and its effects on inflation and interest rates
- Connect with Chad on the links below
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Want to learn more about
industrial real estate investing? Connect with
Chad!
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The Industrial Real Estate Podcast
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
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Want
to read the full show notes of the episode? Check it out
below:
Chad Griffiths 0:00
One of the benefits of industrial I think, is that for the most part, you are getting corporations that have healthy balance sheets as opposed to the residential tenants which you can check all their stuff. But for the most part, the tenants aren't going to be nearly as wealthy as call it leasing a warehouse to Amazon, right? So you're gonna get a pretty good sense that there's retained earnings a company's about healthy cash flow. But due diligence, like you said that it's imperative like people need to be doing their homework to know exactly what they're getting into.
Intro 0:30
Welcome to the How to Scale
Commercial Real Estate show. Whether you are an active or passive
investor, we'll teach you how to scale your real estate investing
business into something big.
Sam Wilson
Chad Griffiths is an industrial real estate broker as well as
investor. Chad. Welcome to the show.
Chad Griffiths 0:46
Hey, thanks so much for having me on. Sam, really appreciate it.
Sam Wilson 0:48
The pleasure's mine. Three questions I ask every guest that comes on the show 90 seconds or less. Where did you start? Where are you now? How did you get there?
Chad Griffiths 0:54
Started in 2005, as a broker who
had no idea what industrial real estate was almost slipped into it,
a bunch of brokers at the office, were in heavily involved in
industrial. So just by sheer serendipity, I found myself in that
role. I've been doing it for 17 years since 2014, I started
investing in industrial properties myself, with a handful of
partners, we built up a decent sized portfolio. And then I just
love talking about industrial real estate. So I've got a YouTube
channel and a podcast as well, where I just talk everything about
industrial real estate.
Sam Wilson 1:25
So you went from 2005, you got initiated as a broker. And then it took you nine years to 2014 to start investing yourself to become an investor yourself in it. What was the pivotal moment or kind of the aha moment when you're like, hey, wait, why am I not putting my own capital in this opportunity?
Chad Griffiths 1:43
it's funny, you asked that, because I wanted to pretty much from day one, I had some residential properties before I got into commercial into industrial. So I knew right away that that's something I wanted to explore. But it just took time, too, as raising a family. So you got all the things you have to do with a family buying a house, buying cars, raising kids. So it just took time to get through that stage in my life and then get to the point where I had enough money to invest. So I haven't done the syndicate model, where you sponsor a deal. And you have investors come along, it was all my own capital that I deployed. So just took time, it's nine years, when you do the math like that, it does make it seem like it was a long time. But they did go quick, too,
Sam Wilson 2:20
Right? So you went in, you say as an investor, you weren't coming in as a partner, you were coming in by on your own deals.
Chad Griffiths 2:26
Yes, that is still to this day, everything that we bought has been basically set up an LLC for every single property that we bought,
Sam Wilson 2:33
Okay, and you said you aren't doing a syndication model. So you're not bringing in outside capital at all,
Chad Griffiths 2:38
We've got a few partners that are really close friends that have come in on a couple of them. But I've got one main partner him and I have bought everything together, we've been on every deal together. And some of them it's just him and I and and others we've got a few small partners as well.
Sam Wilson
You're still brokering as well, though.
Chad Griffiths
Still brokering, that's the majority of my day to day business. But it does feed into itself, because I'm looking at properties all the time, I'm studying the market all the time. So I'd like to think I just have my finger on that proverbial balls,
Sam Wilson 3:04
What is the deciding factor for you between what you wish to broker and what you want to buy yourself,
Chad Griffiths 3:11
I kind of make sure that I don't
skirt that wine where it's were could be a little bit unethical. So
I put everything in front of clients. First, I'll usually look at
something if no client wants to buy it, or if it's outside of the
main market that I work in. So I don't want to blur that line by
putting my own self interests ahead of clients. So the flow is
usually run it through clients first and nobody's interested, then
I'll take a look to see if I can make sense of it.
Sam Wilson 3:37
What are some things that you feel like others miss when you put a deal in front of them? And all of them pass? And then you come around, say no, I think this is a good deal. What are they missing?
Chad Griffiths 3:46
Probably, I wouldn't say it's necessarily something that they're missing, they just they've got a different risk profile. And a lot of times the investors that do it full time, they want to make money when they buy. So they might want to buy 80 cents on the dollar for what the market value is because that's their business, they actually make their money solely off real estate, I don't have that same profile, because I have been coming in from brokerage. So I don't need to get that immediate lift right off the bat. So I can pay retail prices, essentially, I can pay what the market is. Whereas a lot of my clients are trying to get things at a discount, and rightfully so that's how they're building immediate equity into the property.
So I've just take a long term horizon, I can I've got 20 of your money, at least in my mind, on how long I can have that deployed for. Whereas some investors might have a sunset clause, if they've got a partnership agreement, and they have to sell after a certain period of time. So then they need to make that really lucrative purchase at the beginning. I just have a different risk profile and a longer term objective.
Sam Wilson 4:40
Yes, that makes a lot of sense. On the risk profile side. It's also interesting that you are able to pay more or closer to market rate just because you don't need to get that squeeze right out of the gate.
Chad Griffiths 4:52
I like the term squeeze because you're right. That's probably what a lot of these guys are thinking. Right squeeze. That's a good analogy for it.
Sam Wilson 4:57
Right? Yes, absolutely. Talk to us about I'll give us some tactical things that people can do when they're reaching out to a broker for the first time, I'm sure you get a lot of people calling you. Hey, you know, Chad, I'm interested in industrial and a bet there's things right out of the gate that you can tell when it's a tire kicker, that's wasting your time. So how do we maximize our relationships? Especially on the front end with brokers?
Chad Griffiths 5:20
That is a great question. Because you're right, there are significantly more buyers on the sidelines with capital deploy right now than there are actual sellers. And that's in every asset class. That's not just industrial, it's multifamily, retail, you name it, there's a lot of capital on the sidelines. And there's a lot of people looking, there's seldom a day that goes by where I don't actually have an investor reach out to me and ask if I can send them properties. It's difficult, because I've got a dozen really good clients ahead of them that I know well. So I would say it's a patience game. And it's also a game where you've got to reach out to a few brokers. And what I would suggest is see to it to actually start building a bit of a relationship with a broker, instead of just saying, Hey, can you start sending me properties, this is what I'm looking to invest in, you'll just be really, you'll be triaged really low on their priority list. So instead, I would reach out, like, if you know, a lawyer in the area, ask a lawyer, if they've got a broker that they can make an introduction to any warm introduction you can get is going to increase the likelihood that that broker will take the time to get to know you a little bit better. And I would just see if you could take the broker out for lunch or take them out for the occasional coffee, just anything to start building a little bit of FaceTime, because you can appreciate if all you're doing is calling a broker, asking them to send you listings, and they don't, they don't have a face to the name, they can't even picture who you are, other than they just know your name and what you're looking for, you're just gonna be so far down on that list, when a property comes up, you probably won't even see it.
So I would start building a relationship, try and find a few guys, there's any warm introduction you can do to start initiating that conversation, have coffee, have lunch with these guys and get to know them. And I can guarantee you because I do this with my clients, the clients that I know, well are the ones that are top of mind because I have lunches with them, I have coffee with them. So I think take a long term approach on getting to know these brokers, instead of just assuming that they're gonna send you deals, because it's just very unlikely that you'll get deals if you just phone a calling guys out of the blue.
Sam Wilson 7:12
What about doing that remotely? You know, let's say you're buying halfway across the country, you know, what's an effective strategy for building relationships long distance?
Chad Griffiths 7:22
Yeah. And you're right, you and I are talking on zoom right now. And this has become very common, have a zoom call, there's nothing to stop someone from just reaching out. And what I found, I'm sure it's the same with you, Sam, is people are very receptive to jump on a quick 15-20 minute zoom call right now. Because it's super efficient, they can do it from their office, it's very easy to do the technology makes it super simple. Just ask the guy if you could reach out to him for 20 minutes to ask him some questions about the market and get to know him a little bit better. Because anything you can do to increase that FaceTime will just increase the chances that you'll get sent deals. And I'd also say don't be afraid to even fly into that city. If you're seriously considering investing in a city, you're going to be there anyways, right? Like you're going to spend some amount of time there, I think. So when you're in there, just say, Hey, I'm coming in from Chicago, or Dallas or wherever you're flying into, and just say I'd love to meet you buy you lunch, I've got introduced to you by a lawyer, somebody that you know, out there, they'll likely take that meeting with you and just make it about building a relationship instead of all about you just want to get deals. That's obviously the ultimate goal that you have with it. But it's got to be more of a win win relationship as opposed to just a give and take relationship. And I think you'll you'll just increase your chances won't guarantee you get deals, it'll just increase the chances that you get deals.
Sam Wilson 8:37
What are questions you ask potentially new clients, you know, when you meet them for the first time,
Chad Griffiths 8:42
I always want to know what their experiences industrial is a bit of a unique industry where it's not as easy to grasp as some of the other asset classes, like anyone that's bought and sold a couple of houses has a little bit of familiarity with multifamily. It's not going to be natural, but at least they understand the mechanics of it. Industrial real estate can be quite different. So I always just want to know what their background is in industrial, if they bought and sold properties. Did they have a business that perhaps occupied them once and they understand a little bit more? It's just a steep learning curve. So if people don't have any familiarity with it, that makes it tough right off the beginning. And then I just want to see how they're restructuring a deal. Is it them that's deploying the capital? Are they doing a syndicate? How many people are involved in this? Do they have their money raised yet and committed? Where are they at in the in their debt structure to actually buy a property if one comes available, so it's getting a comfort level that they're qualified, they understand what the asset class is and what it isn't and the limitations that go with it. And they're in a position where they can move on something at a very high level. That'd be like the basic questions I'd have.
Sam Wilson 9:44
Right, and those are things that people should be prepared to talk with their brokers about, which is why I'm asking you know what you'd like to know out of the gate when you first beat somebody. You know, if you're not prepared to answer those questions, then yet once again, you'll get put to the bottom and or off the list. I would imagine entire Really? So very quickly?
Tell us, you know, industrials is obviously very, very hot. It's in demand. One of the arguments I've heard and maybe even offered up myself against investing in the asset class is that you're signing a lot of times 10 year triple net leases on properties, and they're not necessarily inflation resistant. Can you argue that point or tell me why I'm wrong?
Chad Griffiths 10:25
I would agree with you actually, in fact, going back to my earlier point, I actually think industrial real estate should be a scary proposition for most investors, there's a lot of reasons to not invest in industrial real estate. I also think on the flip side, there are great reasons to invest. And that's why I put the majority of my net worth into it. But I also understand it at a pretty deep level. Whereas I see a lot of new investors that perhaps are getting tired of investing in multifamily. They're tired and invested in another asset class and they see industrial, because you're right, it is the buzzword of the generation that we're living in right now. But I think that there's that's an interesting reason on how you can quite often lock in your rental rate for 10 years, so hard to really envision having a great exit strategy. If your lease is fixed for the whole 10 years, really, all you're hoping on is cash flow, maybe you have some appreciation and rent for the next buyer, you're not going to hit these big homeruns. And for me, I like that actually, I'm not the guy that swings for the fences, every time I'm at bat, I just want to hit singles and doubles. And if I can have a 10 year hold where I've got very minimal time put into it from a management perspective, and it's steady cash flow, and I can hit these singles pay down some debt, hopefully get a little bit of appreciation, get some cash flow along the way, those are a win for me. But you're 100% right with that assessment is quite often, those rental rates are fixed for a long period of time, we are seeing interestingly enough, a lot more landlords move to pegging those rental rates to CPI increases. So it might be like a fixed cost $10 A square foot for their rent rate. But then there will also be an escalation clause in there that's pegged to CPI. And so the landlords that did that a year ago are laughing right now, because inflation was 7.9% in February. So those tenants are going to see a 7.9% jump in their rent, which is great for the landlords, but awful for the tenants, it depends, I think maybe that's the best way to speak to industry, real estate is it is a lot more complex, there's a lot more moving parts and how you structure a deal, whether you're structuring it, so the 10 years of consistent cash flow or whether you can get a CPI escalation clause in there, or whether you are doing shorter term leases and trying to increase rents as you go. There's a lot of moving parts to it. And I think that that complexities the one of the reasons that I think it should scare the average investor, I'm not the type of broker that will say everybody should be investing in industry, real estate, I'm the opposite. Usually I say if you don't know what industry, real estate is, stick to either what you know, or commit to having to spend a lot of time learning and really understanding what it is because you're competing against guys that know this market so well. And they'll crush you if you don't know what you're doing. They're smart money, you don't want to be the dumb money.
Sam Wilson 13:04
I love it. That was I guess the next question there is how receptive are tenants to those leases, pegged to CPI?
Chad Griffiths 13:12
Well, I mean, the feds have been trying to keep inflation at 2% as their target for decades, right? I don't think many tenants would have argued it up until these inflation numbers that came out in February. Now I think every tenant is going to say, Well, hold on, like if this is going to be 8%. What does next year look like? Do we see a double digit increase next year? And then at that point, they're going to start rethinking this, but historically, at 2% CPI? That's a pretty easy narrative for tenants to buy into. Right? Yes, you know, you need to have the rent and increase with inflation, we can understand that. But when you start having these 8% increases, all of a sudden, it's going to make tenants rethink that.
Sam Wilson 13:50
Yes, it's gonna make tenants rethink it. And then, you know, all the way to the point of at what point can they no longer afford it? I mean, that goes right in line with, you know, these astronomical rent rental increases we've seen in multifamily, where it's like, oh, my gosh, I mean, at some point, the tenant can no longer afford to pay the increases in rental prices. So you know, what that does to the asset over the long term, you know, I guess yet to be determined.
Chad Griffiths 14:15
It's an interesting time, my crystal ball is as murky as anyone's but I think you're spot on. It's not even just rent increases, but property taxes, because like you said, with most leases being triple net, all those increases, property taxes, insurance, commentary, maintenance, those all flow through to the tenant, and there's increases in all of those property taxes is a massive problem all over North America all over the world, really. Municipalities just spend with reckless abandon, they've got and there's very few municipalities that actually have fiscal restraint. So they're seeing huge increases in property taxes that all flows through the tenant insurance is a massive problem right now. I'm sure you're seeing this across the board. It's difficult even finding competitive insurance that gets passed through to the tenant commentary maintenance because all these contractors doing well. Landscaping and snow removal, they've all had their cost battle gets flowed through the tenant, like tenants are really getting hit on every side right now. So fortunately, they have that top line revenue growth to sustain it. But I think you're spot on, at what point does the revenue not increase at the same rate as all their expenses are? That's a scary thought really,
Sam Wilson 15:18
It really is. And I guess, then it becomes even more incumbent upon you as the landlord to double down on your due diligence on your tenant.
Chad Griffiths 15:25
And that is one of the benefits of industrial, I think, is that for the most part, you are getting corporations that have healthy balance sheets, as opposed to residential tenant, which you can check all their stuff, but for the most part, the tenants aren't going to be nearly as wealthy as call it leasing a warehouse to Amazon, right? So you're gonna get a pretty good sense that there's retained earnings, a company's about healthy cash flow. But due diligence, like you said that it's imperative like people need to be doing their homework to know exactly what they're getting into.
Sam Wilson 15:55
Yes, absolutely. Chad, what's something you are curious about right now?
Chad Griffiths 15:59
I'm curious to know how the Feds keep recession from coming, yet still putting upward pressure on interest rates to combat inflation. And I know that sounds like that is literally something that I think about when I'm going to bed is like, how does this end? Is this going to be a recession, the bond curves about to invert that might even invert this week, that's been historically a pretty accurate tell of recession coming. Is it a mild recession? Do interest rates bump up another 50 100 basis points this year? What does inflation do? I mean, like, I literally have no idea like, I've tried studying this a little bit like I've even gone back to the 70s. When there's a situation like this, and there's just so many other things at play, you can't really look at this as in a vacuum. There's we got a war in Europe, escalating tension there. There's just it's so crazy to me that we come off this once in a century pandemic, for two years that we run through this. And right after we get through it. And we're now running into this war, huge inflation, interest rates recession looming, but it's just it's crazy. It's so such a crazy time to be involved in business. And I think what it's really doing is it's just given everybody a bit of resilience. Because if you can make it through all of this, like you can make it through anything like this is crazy. So I'm excited by it. I find it really fascinating just to see how everything moves and how people make their decisions. But too short answer to the question. Yeah. How does this recession inflation and interest rates all commingle?
Sam Wilson 17:26
Yes, I don't know. I mean, my crystal ball is, like you said, as murky as yours is, I've often wondered, you know, repeating the 70s and having massive stagflation. You know, because they're trying to balance both of those. And it's like, well, you know, inflation is going through the roof, and also the economy sucks. So good luck, just like, Okay, it's gonna be a very interesting time. So that's fantastic. What's the book you're reading right now?
Chad Griffiths 17:48
I'm actually reading one on the Industrial Revolution, which is just because I'm such an industrial estate nerd. I just try to gobble up everything I can. And it just, it's a very fascinating story about even going back to like the 1760s when the UK was going through industrial revolution, and just how everything evolved around the factory and the factory system. I was just fascinated by it. So yes, it's I can't remember the title of it. But just that history book, essentially,
Sam Wilson 18:12
Man, that's awesome. Absolutely love it. Chad. If our listeners want to get in touch with you, what is the best way to do that?
Chad Griffiths 18:16
Emails? Great. It's Griffis CR e@gmail.com also have a YouTube channel if they want to go and check that out. Just search by name or search industry real estate. I'm sure you'll come across my channel.
Sam Wilson 18:26
Yep, absolutely won't be sure to put all those links there in the show notes. Chad, thanks so much for your time today. I do appreciate it.
Chad Griffiths 18:32
Likewise, Sam, thanks so much for having me on.
Sam Wilson 18:33
Hey, thanks for listening to the how to scale commercial real estate podcast if you can do me a favor and subscribe and leave us a review on Apple podcast, Spotify, Google podcasts, whatever platform it is you use to listen, if you can do that for us. That would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.