Justin speaks with Rob Boese about why you should consider investing in multi-tenant industrial business parks and about WHSE Partners’ new project in Madera, CA.
Key Takeaways:
- Growing up in the family real estate business gave Rob a grounding in landlord-tenant relations
- Working for a family office gave him perspective on legacy management and experience managing portfolios successfully
- It is now possible to serve multi-tenant industrial landlords with institutional-quality property management and reporting
- Metal small bay multi-tenant industrial in secondary and tertiary markets is an underserved market
- New construction in tertiary markets has unique infrastructure challenges to overcome
- WHSE partners projects are an opportunity to provide a new product to the market that has drive-around truck yards, dock-high loading potential, a secure and fenced yard, and secure parking.
- WHSE Partners has a new project coming in Madera, CA where they are actively raising capital
Here is a 2-minute clip from Industrial Insights Podcast with guest Rob Boese.
Listen to the full episode below and subscribe to the podcast on Apple.
Highlights
- Talking about California – 1:51
- Multi-tenant commercial real estate – 7:31
- How long they have been doing commercial real estate – 8:40
- Always take care of people – 11:10
- Growing up in real estate families – 12:45
- Knowing multi-tenant investing – 14:09
- What industrial tenants look for – 16:15
- The tenant demand is there – 18:29
- Ultimate asset classes – 22:25
- One of the benefits of industrial – 38:23
- The ideal investor profile – 47:45
Episode Resources
- Connect with Justin Smith
- https://smithcre.com/
- https://www.lee-associates.com/
- JBSmith@leeirvine.com
- https://www.linkedin.com/in/justinbsmith
- Connect with Rob Boese
- rob@whsepartners.com
- erin@whsepartners.com
- https://www.linkedin.com/in/robboese/
- https://whsepartners.com/
Justin Smith
Yeah, well, cool. Rob. Well, Grant says starting year two. So he’s had a great experience working on 25 to 30 different deals from small to maybe 30 or 40,000 feet. So it’s been a great experience. I figured let’s have Grant in the mix, too. So he could learn from all of this. And he’ll have some good questions for you as well.
Rob Boese
Great. I look forward to it.
Justin Smith
And then for you, where are we at in the grand scheme of warehouse partners? This is something you’re a couple of years into now. I mean, I’ve heard some of your story. But I figured it’s helpful to know where we’re at in terms of projects and partners and equity and debt and putting deals together.
Rob Boese
Sure. So for warehouse partners, you know, we’ve been working on multi-tenant, metal industrial, for the last 10 years, right that that’s been the last decade. Primarily, we’re known for the multi-tenant, small unit asset class. And I’m from New York. And we don’t have that asset class in New York; we just don’t have the room for it. And I grew up on Long Island, met my wife in New York City. And 2009, in the middle of the recession, she said, I’m moving back to California, and I said, okay, my friends aren’t really doing deals. Sounds good. Right? Oh, I’ll move to California, Hollywood. Here I come. That’s what I thought, you know, palm trees. And, you know, the whole nine yards, Beverly Hills. And she grew up in Fresno, and that’s the middle of the state. And for California, it’s someplace you’ve heard of; maybe you’ve flown over it, you may have been through it, but no one really knows that much about it. I certainly didn’t know that much going into it. And recession was particularly hard on the central parts of the state, right. And it’s mostly agricultural. And it’s based on, you know, a continual development. And if the market continues to go up, if things continue to do well, if they kind of go sideways, then really, everything does go sideways in this part of the world. And so it was a really hard hit, and I couldn’t find my feet. And no one really knew what to do with me. I went to a good college, you know, I had all this commercial real estate experience. And I was overqualified for a lot of things. And nobody really knew what to do with me. And I didn’t really know what to do with myself. Yeah. And through a series of lucky breaks and some unlucky, I got pushed through a couple of doors. I ended up working for an asset property management company. And they had this big portfolio of metal industrial that a family office had brought in one day. And they didn’t know what to do with it, and they didn’t have the experience. And so they dropped the banker’s boxes on my desk, all 36 of them, and said, Here you go. And I said, What is this, and they were gross industrial leases. We don’t really know that much about gross industrial. Why don’t you become the gross industrial practice leader? And well, you understand it. And so I said, okay, I don’t know anything about gross industrial or multi-tenant industrial, and I don’t really know that much about this family office. And so it’s going to be a learning experience. And so I’ll take it on. Sure. Yeah. And so it wasn’t really that much of choice, right. And so either you do it or not. And so I got really stuck into it. And you find out working with a family office, and all family offices are different, right, some institutional style family offices, multi-family offices. Then you have your mom-and-pop-style single-family office. And this is really what that was. They were a family, and they were organized in a way that was loose. You could qualify them as a family office; they developed, managed, and leased all of their own property. Primarily 90% of their portfolio was metal, industrial, older assets, 30 to 40 years old. A lot of people that you know are going to be watching or listening, they’ve seen it driving past the freeway, those beat-up metal buildings, you don’t really think about them, maybe you’ve dropped off, you know, something to get reupholstered, or maybe it’s a recycling center or something like that. You don’t really put too much thought into it. Certainly, I hadn’t going into it. And, you know, their leases, in those banker boxes was the front page, and the back page of the lease, and nothing in between,
Rob Boese
And for some of your older listeners, you may have remembered that you could go into a Longs Drugs or pharmacy that doesn’t exist anymore. Walmart before it was a really big thing, and pick up a lease off the shelf and use it in a transaction. And that’s basically what they had done. They bought a Longs Drugs lease and used a typewriter to fill in the information manually. And some of it was some side notes in pen and things like that. And, and so, of course, that gave me pause right away. Where’s the rest of the lease? And the answer came from the family office, Rob, all the leases are the same, you have the front and back page, we don’t want to give you the leases, because we don’t want to lose them. And they said it in a way that made so much sense to them. It was hard to push them to get the actual leases to figure out what it is I was looking at, long or short. Thirty-six industrial properties, about 260 some odd tenant spaces, were about 40% vacant when I got the portfolio because of the recession. Books kept in pencil, you know, you heard the story about the leases and a lot of personalized relationships and small tenant spaces. And so I thought to myself, once I understood what I was looking at was like, oh, my goodness, what is it that I’m expected to do with this asset? Right? And so your mind goes right away. Okay, so I have to do a turnaround project on this asset, this portfolio. I have to figure out the tenants. I have to get rid of the bad tenants. I have to relight the spaces in a way that makes sense, get them on some sort of professional leasing program, and get a rent-roll. Get a tenant base that can be understood and quantified in a way that makes sense that this could actually be an investment for them. And then we fast forward, a couple of years. And that’s exactly what we did. Along that way, in that first year, the family office said no, this is too much for us to conceptualize. The Yardi reports and the professional accounting that the property management has was too much for them. They kept their books in pencil on those green ledger sheets. And to go to a Yardi report that was 60 pages with generally accepted accounting practices was too much. And so they let that company go. They said, Rob, you’re not part of the family; you can’t work within the family office. I’m sorry, you’re going to have to start your own company. And that was right after my company had let me go; they let my section go because they lost that portfolio. They just decided not to renew. I was stuck with a choice, either I can go look for a traditional job or start my own company. My background was always in multi-tenant commercial real estate. My family had multi-tenant medical offices on Long Island when I grew up. And so it’s always my job to take care of those assets. I started out as a really young kid leasing multi-tenant spaces, lab space, medical offices, and as a young person, that’s a terrible job. I was working with doctors to try to renew spaces at work or medical practice managers. I was a kid, early teens, renegotiating leases, and doing TIs and things like that. And I did everything property management, and I made sure that the plows came. And in California, this is less of an issue, guys, and I’m not happy about every time it rains, or I hear there’s snow, and I don’t have to go outside and deal with it. It makes me happy. But I was the guy that had to go and talk about the renewals, make sure that the plows came, the salt was down, the stand was down, and the whole nine yards. And I hated it. And I almost resented my family for making me do it. Of course, in retrospect, it was such a valuable experience, an experience that I would not have gotten anywhere. Justin, you’re an SIOR also, and so when I go to an SIOR meeting, they asked me how long I’ve been doing commercial real estate. It’s almost my whole life, for as long as I can remember. I have nightmares about meeting the snowplow, where I am when it snows. And so those nightmares become experiences that you can build upon.
Rob Boese
So much you talk about is a track record, and my start started way earlier. And so that was such an advantage. So when people look at me, and they say, Rob, you’re not as old as we would expect, which is a compliment, or sometimes you’ll say oh, you’re exactly as old as you said. They don’t realize how much experience I have until they get into the story. My parents did development. They built these multi-tenant lab spaces, medical offices when I was a kid, in the early 90s when interest rates were crazy. And so we went through a lot of different economies and phases together, right, and that those wins and losses and those challenges in acquisition and dispositions all before I was, you know, done with college, right? Unfortunately for me, my parents passed away. And that keeps even more pressure and more responsibility on me. And I dropped out of college when I was 2021, move back to New York to Long Island to manage the assets and do a disposition program, right to pay the taxes, as they say, and that was in 2007, right before the recession. So we got lucky, right? Our timing was good. It was just around the time where things were kind of good. Maybe the outlook wasn’t as rosy it was as it was in the past years. But you know, we found good buyers, we had good assets, we had good tenants, we had done the program, right? That was the background, run a good leasing program, take care of your tenants, that was my upbringing. My mother used to say, you never make any money on an initial lease, you have TIs, you have tenant responsibility, you’re going to hold their hands, you’re going to lose so much time on this deal, but take care of them. And what you’ll find is if they stay and you renew, that’s really where your profit center is going to be. Right. And my mother was from Vietnam. So I’m kind of extrapolating what she would say, and she would say it in a much different and more basic way, but the intention was the same. She was an immigrant, but she understood tenants so well. And what I learned from her is adapting to changing situations but always taking care of people. You take care of them, and they will take care of you and being a good landlord, asset manager, property manager, broker, developer, whatever it is, if you treat people right, they will stay with you. That was a lesson that I learned super early. I saw it borne out is sometimes you have acrimonious relationships with tenants, for whatever reason, your tenants are unreasonable, are always angry, it doesn’t matter. But the tenants who are reasonable, you can help understand their business, you can help understand what their problems are in their lease, or what their frustrations are, why they want to stay, and what improvements help their business. Those are small investments you make of your time and sort of making those personal connections. And those are where you drive your profit center is, it’s profitable personally, and it’s profitable on your balance sheet also. She taught me that super early, and I’ve seen it played out, and the relationships where you have really connected with people is where you make your profit holistically and as an investment. So that’s always stuck with me, and that’s kind of our viewpoint on a warehouse partner. Do your due diligence, take care of people, take care of the details, and everyone will get on board and kind of look in the same direction as long as you’re optimistic about where it is that you want to go.
Justin Smith
What a great upbringing and experience to have.
Rob Boese
Yeah, it’s kind of unique. I know a lot of people, especially in SIOR, who grew up in real estate families. And, and so it’s great being able to share that experience. It’s kind of a long story to talk to new folks about, but it’s important to understand that we’ve seen the good, the bad, and the ugly. We’ve seen different phases. You know, I talked to a lot of people that are new in the industry. And it’s challenging for them, you know, the market had only gone up, and then COVID came, and they don’t know what to do. And just you remember the last recession. It made us so much better. Right? It was difficult. The deals were hard. Everything was difficult. No one was financing. It was just, it was impossible. But it made us so much better at what we do. And so we enjoyed the good times. But we always prepared for the difficult times, right? Always leave something for the unknown, the black swans or the flak flock of black swans that you have now. Yeah, something was always going to happen. And we had been preparing since 2017. For something, the market could not go up forever. I talked to a couple of investors, and they always laugh, like 2017 was too early. But it really took us from 2017 to 2018 to kind of decamp from sheer optimism right in the marketplace to a place where we could operate really efficiently. And get into a place where we can offer a program like warehouse partners to the people that we want to work with. And that’s really the story is, you know, we know, multi-tenant industrial, we know the asset class, we know property management, leasing, we worked for a family office, and they were great, right? They’re a super family, but they rented like a family office. Yeah. And you talk about family offices, and you know, there’s, you know, cousins or, you know, the grandson is on the balance sheet, right? He’s the asset manager, right, and he gets, you know, and so it makes managing the asset difficult from a financial basis. And you have to use these vendors, and you know, you can’t evict these tenants, even though they haven’t paid rent in six months, because we have a relationship with them. And so my partner involved and I thought to ourselves, okay, you know, they’re doing a great job of it in the context of their family office, it makes them happy, and the cash flow and they do well. And it’s not our place to say you’re doing it wrong. But what we thought to ourselves is, hey, nobody really likes this asset class, because it’s so for lack of a better term, it’s so unsexy, right? It’s that beat-up metal warehouse by the freeway. It’s not, you know, net lease, shopping center, Class A, something you would talk about in a cocktail party and brag to your friends about when I talk about multi-tenant industrial people kind of roll their eyes, you’re like, Oh, here we go, okay, I’m not really interested in this stuff. But for those of us who do industrial, it’s exciting, right. And it’s, you know, fully leased industrial is sort of, like sexy to us, right? Like, wow, tell us more like, tell us about, you know, the cash flows. And tell us about the equity multiple, and those are interesting things, but most people are not top of mind. That’s kind of the secret of the asset classes; it faces very little competition. No one’s really built any of it in the last 20 or 30 years. And so my partner and I said, Hey, you know, if we produce new assets, the current assets are currently slammed there, they have record pricing and leasing, there’s more leasing demand than there are assets. And when we see those market conditions is an opportunity. And so we said, let’s build it, let’s build it in, in quantity, and significant size, where the layout can be amenitized. And you know, gated and fence, a truck well, all the things that industrial tenants of that nature are looking for, roll-up door, shoebox office, just enough yard space. Which is really important to those small industrial tenants. And a really well thought out program specked out and delivered to a market. it’s specked out, we know that we can do a heavy amount of pre-leasing for those it doesn’t really face any competition, or there’s no competition. And we’ll deliver something that people already want. Or they’re in a space that doesn’t work for them. And they’re overpaying. And so those are the market conditions we really look for. And that’s kind of that’s it, that’s our current project. That’s what we’re going to deliver to market.
Justin Smith
Yeah, it seems like that is one of those few markets that are underserved that the demand seems like the opportunity to overbuild. It just doesn’t exist. So I feel like it’s all about finding the right piece and sourcing the right deal. I could see leasing be something that’s maybe not an afterthought, but less challenging compared to the actual entitlements and equity and financing and kind of all of the putting the deal together—part of that.
Rob Boese
It’s kind of backward that way; the tenant demand is there. So when talking about large distribution centers in like Class A markets, right or prime primary markets like LA or San Francisco or these major markets, or well-known existing markets, Costco or, let’s say a distribution for Amazon or Walmart distribution center. So those are easy to finance, and they’re easy for investors to conceptualize, but the returns are going to be lower. And so these are more tertiary markets. Right? These are markets that aren’t really Top of Mind either, right? And we’re talking about, you know, Central Valley or you know, parts you know, the Palmdale Lancaster, right Antelope Valley, that type of thing in California, we like that market. And so the tenant demand is there, right? And so the perception on the asset classes, okay. There’s so much leasing that needs to get done. You have so many tenants there; the burner property management must be so great, you know, that is the problem with the asset class. That is why no one thinks about this asset class.
Justin Smith
Common. Yeah,
Rob Boese
And that’s a common perception of it. And so, you know, all of the tenants are problematic. But if you really back up and think about, from a really basic commercial real estate perspective, you know, multi-tenant is commonly accepted in multi-family, you have a lot of tenants on really short leases. Or let’s talk about asset classes that are really popular right now, like Self Storage. You have a ton of tenants on a multitude of different leases, right. And they’re typically month a month are shorter. But those asset classes are really popular right now because people started to understand the demand, the underlying demand. And for a long time, especially in self-storage, there was not enough, there weren’t enough assets for the amount of demand, right, and the people that had Self Storage, they knew that secret and were cash flowing in incredible ways. That asset got overbuilt very quickly. As people start to understand, it’s not really that difficult to build. And, you know, this is a little bit more complicated, a little bit more sophisticated. In that way, a lot of the tenant spaces that we imagine for multi-tenant industrial for warehouse partners is going to be grown up Self Storage, right. It’s going to be its people are going to store their things there. Especially during COVID. This type of asset classes even more popular, the phones, the desks, all of the office staff, when they roll up the those, those locations, whether it’s a retail office, it doesn’t matter, it has to go somewhere, and it doesn’t really fit in self-storage. People will typically look for this type of asset and then roll it into that, and they like the short term, you know, 24-month lease, that’s typically enough time for them to kind of conceptualize what it is that they need to do going forward. They’re not locked into a ten-year lease; this isn’t really appropriate for a ten-year triple net lease or net lease scenario, it’s industrial growth, it’s very easy for tenants to understand, and it’s easy for them to get their head around. And there are not a lot of moving parts. And on the development side, that’s why we like it; there’s not a lot of moving parts is basically built out of a get it’s on a concrete slab with a parking lot, right. And so without oversimplifying it, we look for industrial land that zoned properly, that’s, you know, a rectangle in shape. And we typically like to build two buildings facing each other with a parking lot in the middle and yard space in the rear. And we find that that configuration is optimal 2000 square feet spaces is what tenants are looking for, you can you know, turn them into 4000 square feet really easily or greater if the demand is there. In our experience, typically, tenants might want to lease 234 additional spaces. And we have everything from national tenants right down to mom and pops. And when I talked about mom and pops, these are cash-flowing businesses that have been around for 10 to 20 years. And their requirement in this market might only be 2000 square feet, or the national might only need 2000 square feet to have, you know, whatever it is presence in Madeira, California, for example, we’re building our first project, they don’t need 10, 15, or 50,000 square feet. And so that’s part of the secret, there are really good tenants here, right? And they’re not these fly-by-night tenants. They’re not these tenants that are doing terrible things behind these roll-up doors. You have to have a property management, leasing program, and asset management program in place to make sure that whatever happens behind those roll-up doors is known and quantified. And, you know, the management aspect is well taken care of. But you know these other asset classes we’re talking about, alternate asset classes like mobile homes raised very popular with institutional investors right now Self-Storage. Obviously, we talked about multi-family; the property management aspect has to be nailed down and understood. And if you do that, and have a program for that, because we’ve been doing it so long. It’s not scary. It’s really quantifiable, and everything’s done on a regular schedule, and you have to be on top of that. You have to know your tenants. Justin, you know that you lease to good people, with good businesses, you understand your tenants. And you don’t run into problems where, you know, you have these fly-by-night tenants with roll-up doors, and you don’t know. And that’s really where people run into problems. And that’s where you hear the nightmare stories. Oh, I know somebody that had this asset class. And that’s really leasing at all costs and not understanding your tenants. You’re going to run into that problem with any asset. It’s just, it’s, well, it’s, it’s a bigger problem than it is for this asset class. But when people think about this asset class, you’re like, oh, I don’t know what these tenants are going to be doing. But like any asset, you know, you have to be on top of your tenants and understand what they should or should not be doing. Right and visit your property. Right, be on top of it, you know, give it the attention it deserves.
Justin Smith
Yeah, I find when it’s leasing for those spaces, you’ll get service-based businesses, so contractors, drywall, electricians, and batteries, pest control, right, a million types of small services that can go there that I would imagine, they’re half of any given project that stays for us that are very sticky in terms of tenants. And I have one tenant in one of my projects where when we were buying it, I looked back at the leases, and they’ve been there since 1996. And they renew one year at a time, like clockwork. And that’s just what their comfort level is. That’s how they choose to do business and what they like, and there are great people, yeah, but think of like explaining that to a bank or when you’re looking at it on a spreadsheet, right, that doesn’t have a story that doesn’t tell its story. And then the flip side is is a couple of other service-based businesses that actually will sign five years at a time where that’s a, on the one hand, you can’t raise rents with the market, but on another, you have a lease where you’ve got a good group for five years at a time. So it’s a variety of tenants that you have, but the fact that so many of them just have a background in servicing the community is great to have as a tenant base.
Rob Boese
It’s nice. It’s really good to see a good slice of America and sort of like a local municipality, you know, how did these 10s interact with their local community. And when I talk about these businesses being around 1020 years, and they’re really part of the fabric of the community in which they serve, oftentimes, and, you know, we’re talking about delivering, you know, assets to markets where there’s good leasing velocity, right. So taking a page out of multi-family, the short leases are advantageous because you’re going to renew, even if you have a tenant that maybe you’re not really enthused about, right, you get things to play out over time, and you’re like, okay, this was an okay tenant. But perhaps I don’t want to renew them, and you’re not sucking in a 15-year lease with that or a 20-year lease. In 23 months, they’re going to be looking for a new space. And so, and we look forward to that because it’s an opportunity to upgrade the tenant or increase rents because we know we’ve built in an area where there’s the tenant demand. And typically, in these assets, if they’re properly managing that leasing program is correct, there’s going to be a waitlist. And that’s been our experience, if you have the right configuration, you have the right spaces, and you have the right program in place, there should be a waitlist, and any tenant that’s not going to, you know, participate in the asset and the way that you want them to be right. And so if they’re not paying their rent on time, or they’re, they’re not conscientious of their neighbors, or for whatever reason, they’re promoting galaxy of reasons, they’re not a good tenant, you can look forward to upgrading that tenant soon. And so that’s really the story about the short leases. It’s hard to talk to a lender about 24-month leases or 12-month leases. And it’s been my experience, just in the exact same, some of the best tenants that I know are almost month to month or year to year, or they’re those handshake tenants. They always renew, they might have a program where it’s 3% every year, and they’re not comfortable signing a multi-year lease, but they’ve been there 20 years, and they’re going to be there another 20 years. Or their son is going to operate the business for another 20 years, and he’s doesn’t want to leave for whatever reason that space has been profitable for them. They like it, you know, for whatever that forever those reasons are. And it’s really the story of this asset class is once the tenants arrived and the relationship is good. It is very difficult for them to make a decision to leave, and the decision to leave is going to be what they need. They have different requirements. Their business has changed their desire to change In the estate. There’s usually some big trigger that forces them to do. Otherwise, these tenants, even though the leases are relatively short, it’s a really stable tenant base, as long as the program is correct. It’s a very stabilized asset. It’s hard for them to conceptualize how stable and cash flowing the asset really can be. When Aaron Volpe and I had that family office portfolio, we were blown away by the cash flows. And that was, that was the number one thing is, it is not being run from a commercial real estate optimization point of view, they’re not really optimizing their cash flows, right. And there’s, there’s a lot of things here that that could be changed if they wanted to, to, to, you know, really shift that balance sheet. But they were making so much money just doing it the way that they wanted. And we’re just.
Rob Boese
blown away, right? Even running it at 60%, that the cash flows were amazing. And this is a fully depreciated, you know, 30 to 40 years at your old asset, right, and, you know, dented building weeds growing out in points because that’s the way they operated, right, you know, we would make suggestions, and we made improvements and polished, and painted buildings and things like that, but they weren’t really enthused about doing asphalt projects, or they weren’t really enthused about, you know, replacing, you know, roll-up doors, when they needed to, and that was the type of asset that they, you know, that they wanted to manage. And that’s great, you know, we were still able to execute some efficiencies, and those, we saw real results for that, really let us know that, okay, so if you run this thing optimally, you know, you can really push rents, and you can really, you know, get the tenants that you really need in this type of asset. And keep, you know, if we deliver an asset in a marketplace, where there are older assets, you know, we typically feel as though half the tendency to come from the existing assets anyway, we have a general sense of, you know, okay 50% of our tenants are to come from, you know, spaces where they’re not entirely happy, or this asset is, you know, 34 years old, it doesn’t have you know, any cooling it doesn’t have any heat, it doesn’t have a truck, well, it doesn’t have gated it’s in a tricky neighborhood, right? For the type of operators, right, The streets are inappropriate for you to know, that the amount of traffic that it now generates. And so those are the types of things that we look for, you know, when we do our due diligence, and we’re scouting for locations, and we’re looking at different, you know, possible sites and, and, you know, that’s the top of mind is, okay, you know, there are, maybe there is competition, but that’s good, because we’re probably going to take all the tenants from these existing assets, and that’s part of our game plan is, okay. Either the tenants need to commute 20 3040 an hour to get to, you know, a small multi-tenant warehouse, or, you know, their existing spaces that just don’t work for them anymore. And you can do that by interviewing tenants, you know, these guys are outside their, their space, and they will talk to you all day about, you know, the good bad, and typically, they’ll tell you about the ugly part, right? They like talking about the ugly, and well how does it work for them? or the lack of yard space? Or, you know, you’ve talked to tenants, and you get all the stories? Right? And so it’s pretty amazing what you can find out really quickly about the assets in a market. And so you know, it’s interesting work, it’s it, we’re enthusiastic about the asset class. Obviously, we really like it because there’s just unlimited potential in it. We’re don’t feel as though we can deliver enough. We can’t develop enough multi-tenant metal buildings, you know, to satisfy the market. I just, I just don’t feel as though you know, enough people are paying attention to it. And a lot of people aren’t just aren’t passionate about it like we are right, and we get calls all over the country about, you know, from, you know, hedge funds to major brokerages, you know, investors, hey, I picked up the portfolio, Rob, it’s got this multi-tenant component, what do I own now? Right? What do I do with this? It’s in Florida, like I. What is the market for multi-tenant industrial? Do people actually like this asset class? Who manages it? If I sold it, where do the cap rates, right? And do I need to convert them to triple net, right, and, you know, all of those things that go through people’s minds when they pick up an asset like this, whether it’s intentional or not, and sometimes it’s, you know, an add on to a self-storage portfolio, right, or it’s an add on to, you know, the, you know, a multi-tenant or multi-family, and they might have a couple of assets in a portfolio, and it might be metal buildings and stuff like that. And so, people called us, and we figured, you know, okay, so we have all the information because we have, you know, a good stable attendance. So, let’s go out and do it ourselves. Let’s develop our own properties.
Justin Smith
In background with the family office and managing it and leasing it. I feel like that’s such a critical component for you to speak with investors and speak with banks and deal with it. Dancing, because you can really understand that where I feel like no one else can really have the confidence level to know that they can walk the path on that and that they can deliver. Tell me about design a little bit I saw for your Antelope Valley, one-pager from last month dock, figuring out docks and design in the two buildings and having a B drive around and the fencing. How did you arrive at that? Or? Like, what are your thoughts on design?
Rob Boese
Yeah, so the design of the industrial complex is going to be based on our many years of experience of what works and doesn’t work, right? And what are the tenants really looking for? And it’s really designed about, you know, the tenants, the tenant’s needs, right? And we really want to deliver an asset that the tenants really feel like there’s nothing missing, right. And so, yeah, even if there were other assets delivered, you know, this isn’t, this is kind of a complete project, right? It’s got security fencing, and like you said, it’s got drive around, it’s got yard space, it’s fully amenitized, it’s got everything a tenant in a small industrial tenant would need to operate their business, you know, loading, unloading, having enough space, right, having an office, and all of these things that we think about in terms of design that’s born out of, you know, Aaron Volk, my partner, and I’ve done 1000s of leases, 1000s of small industrial leases. And for a lot of brokers, that sounds so unattractive, raise you small and dodgy, oh, you made you know, a check for $1,000. And you spent like three weeks working on it, that sounds terrible. But all of those things are experiences that add up together. And, and when I talk to folks that, you know, commercial real estate conferences, or you know, you qualify through si are based around your transaction volume, right, it’s part of the, the breadth of experience, you bring industrial, or office to that organization. And a lot of people are fascinated that my experience is based on a lot of small leases, right? A lot of small transactions, but all of those transactions add up. And so interviewing 10s, you know, it feels like 10s of 1000s, but 1000s of tenants, and understanding what it is they want and don’t want in industrial property, right? Especially that metal building asset class, it’s really thinking about, okay, then these layouts, for whatever reason, and we start, you know, we postulate first, you know, for whatever reason, this asset class has the greatest amount of leasing interest, above all other designs, right, and let’s just run with that, right? And then we try to start to peel back the layers is, okay, the reason why is x, y, and z, right? The reason why is they like being around by kind tenants. The reason why is they don’t like blind alleys. The reason why is they like, you know, fenced yards in the rear, right? They don’t like fence yards in between buildings; they don’t like things that block the view and stuff like that. And these are security issues that add up, it’s got to be well lit, it has to have a security fence, and we think about, you know, interviewing tenants, and then telling you about all the ugly things on industrial property and sort of eliminating those or addressing those challenges. So going in on a leasing program, all of those challenges are those headwinds that they typically feel have all been addressed, right. And so this is a superior asset, just based on their hopes and dreams. And, you know, talking to like-kind tenants talking to people who have similar businesses, this is delivering what they were missing, and all those other asset classes that are maybe a little bit obsolete or have challenges and things like that. And that is the reason why it’s designed that way. And if we start with the original postulate, for whatever reason, two really long industrial metal buildings facing each other 55,000 100,000 square feet,
Rob Boese
facing each other well-lit with a parking lot in the middle is what tenants want. And ignoring, you know, all of the other assumptions we make because that is an optimal design. Just thinking about that is what tenants want. Let’s just run with that. Because that is what tenants want. And that is what they’re going to lease. Right. And so we kind of base our program around that. We get offered deals all the time on odd-shaped parcels, right, round parcels, flag-shaped parcels, and things like that. And we know that those are sub-optimal parcels if we can’t make it work and sort of that configuration. So picking a program or picking a design that works that we know that works and delivering tenant spaces that we know that tenants want. Yeah, a lot of our projects, whether it’s going to be the one we’re working on right now, in Madeira, California, which is going to be about 115,000 square feet, 2000 square foot unit, so it’s 76 units, or it’s going to be a future project in the Antelope Valley. They’re all going to look similar. They might be a little bit smaller. They might be a little bit bigger demeanor that municipalities are going to ask for certain things they always do in a development project. So there might be some differences there, but they’re all generally going to look the same. And I think, once we have a number of these developed, it’s going to feel a lot like Self Storage, you know that a lot of their assets look the same, they feel the same they had, and that track record of cash flow is all going to look generally the same. And those cash flows are going to look good because the operational cost for these types of assets is extremely low. Yeah, and, you know, we talked about industrial, one of the benefits of industrial is, it’s not an office, it’s not retail, where you have a lot of tenant improvements, right? And continual tenant improvements. Yeah. And so it’s a metal box on a concrete slab, and when the tenant leaves, paint, broom, clean, right. And so the basic cleaning, and maybe a little bit of carpet on a 10 by 10. Office, you know, the tenant improvements are almost zero, right? Because they’re all specked out already. And it’s a metal box. So you don’t really have those operate those objects, right, those CAPEX costs it, so you just move your tenant-right in, right? Move your business in, don’t alter the space that much; here’s a 24-month lease. And so I generally understand my expenses on the property in a relatively simple way in my head, just knowing. Okay, so I’ve moved three tenants in this month, I understand my cash flows, and I understand my expenses in a really, really simple way. Obviously, that’s going to get tucked into a spreadsheet. And we can produce, you know, quantifiable results. But it’s easy for me to understand these assets, just by standing on them and saying, okay, at least three spaces that this month, I have one vacant space left, I generally know, what my cash flow is going to look like, I generally know, what my expenses are going to look like. It’s a simple asset in that way. It’s simple to build, it’s simple to operate if you understand all the pieces, and it’s sort of getting people on board to understand all those things. That’s maybe the most challenging part raise it is simple, right? It is quantifiable, and it’s not that it’s not fancy. And it not being fancy isn’t a huge advantage, right? It not being understood or being talked about that much is also great because no one else is doing it.
Justin Smith
Yeah, and I appreciated that design. Because at first in Southern California, I never would have given it a second thought. And then owning property in Dallas and seeing docks on 2000 foot units. And then talking with people that had zero office were here, we’ll have you know, not only that 10 by 10 plus a handful of privates maybe, and maybe more sometimes. And so dealing with some of the Dallas marketplaces where you’ll have in some units no office whatsoever, some only a bathroom. And then when you think of the heat, right air conditioning 100% warehouse building that’s got a bathroom is the antithesis to what I would think of like a typical Southern California unit. Right? Yeah. Figure out what’s the Central Valley version of that. And what also is works with a pro forma, which also works with the contractors what’s also competitive. Yeah, I appreciated that it was a thoughtful design that does give you docs, but it’s not heavy on it. And being more sensitive to security with the fencing and lighting, I can totally see that be something wherein the tertiary markets is maybe more sought after or more appreciated. So it seems like that’s all pretty good design. Yeah,
Rob Boese
our units are specked out in the 10 by 10 office, it’s got a shop sink, it’s got a bathroom, typically have a swamp cooler, and it’ll have a heater, roll up doorman door, a rear double door, and a yard. And that’s typically the story and that that’s going to be a unit and industrial small industrial tenants typically don’t need more than that for the family office and for a lot of the assets in Central California, Southern California, Northern California, or even in the West. They don’t even have air conditioning, right. And you think about the heat in some of those regions. I know a really good professional SIOR is a great broker. He deals primarily in metal in the Phoenix market with no air conditioning, no heat, and it gets cold in the winter. It gets hot, as you know, in the summer for most of the year. The Fresno market Central Valley market is extremely hot, and so when we talk about the asset class not being attractive to a lot of people, especially to other brokers or maybe certain investors that that like maybe something a little bit Tonier you know, I was the guy that or ever involved was the person that had the Go to those units and sorted out the problems in 110-degree heat in a metal box. Right? You think about that. And you think about the fact that there’s still a waiting list, right. And there’s still somebody willing to pay more than the existing tenant for something that was built one year, 30 years ago that has no chance of, you know, having an operational cooling system, right. But just because of the design of those old buildings, the swamp cooler maybe would relieve some of that pressure. But because you can generally see through the building in parts, because it’s, it’s that old of an asset, yeah, it’s not going to work. And so ignoring all of those things, people still want to lease them. There still weren’t good options. And, you know, those assets continue to perform, whether or not they’re, they’re managed properly, or the tenants are good or bad or different, there’s still demand them, and you still see them being leased. Right. And you still see that you can talk to those tenants about all the complaints, you know, you talk to them in the parking lot about it, but they still wanted them. And so that really is part of you know, the thought, and the thoughtfulness that goes into the design is okay, let’s address some of these issues that the cost in the construction is there, but you’re going to recoup those over a period of time, very quickly in a good leasing program. Right. And especially in a pre-leasing program, where you know, you have these things that other people don’t it’s sort of an unusual asset class in that way is, you know, a lot of people don’t really know what happens on the inside or don’t really care, or I’ve never seen really the inside of it.
Justin Smith
You don’t think too much about it.
Rob Boese
yeah, it is a little bit bare bones. And when you go, inside that rope there, you kind of this is it, you know, it’s a metal industrial building, but you know, on the balance sheet, you know, it makes us happy, right, we see that we see the balance sheet on it, and we see the cash flows. And it really, it really sings on a balance sheet, when you when we have a project that’s fully leased, and it’s managed properly, it’s really something to behold and a lot of investors, you know, it’s new to them. And they don’t, really. It’s hard for them to conceptualize. And so a lot of what we do is, you know, we’re raising capital, right for a current project we’re doing in Madeira, and we’re raising $7 million. And we have our initial investor commitments. We have the project in escrow, and we have, you know, the engineers are doing surveying work on it right now. And it’s really talking them about, you know, they like industrial, Justin, you know, industrial is very popular right now.
Justin Smith
You have been there before it was popular. Yeah.
Rob Boese
A lot of things you do is, you know, they want to know, hey, why do I need to invest in industrial, I hear that it’s a great asset class, or, you know, somebody else has it, you know, I want to know a little bit more about it. And so, for us, it’s educating people about, you know, industrial, it’s about educating people about why multi-tenant industrial, why, why metal buildings, why, why is it? Why would I have a mental building sort of tilt-up? Which is a great question, right? Yeah. And sort of the magic answer is, you know, you can configure it any way you want. The Madeira project that we’re building has a gas line, a high-pressure gas line, and serves the municipality, but we can build the building around it. And you can build an Amazon distribution center on top of a high-pressure gas line like that. It’s just it’s not. It’s not doable. Yeah. And so we got a deal on the land, right? Because nobody could build their configuration the way, they wanted to. Oh, yeah, where that gas line is, we’re going to build the ponding basin, right? And so it’s, it’s off on its own, it’s, you know, it’s, it’s in the corner of the parcel, if for the most part, the municipality, we’re talking about municipal challenges, you know, they’d ask for a ponding basin, what are you going to do with all your stormwater? Okay, let’s put it by the gas line. And so we built the buildings around it, and we built the Pawnee basin. It’s basically what a lot of people would consider the throwaway part, but that is where all the engineering work and go, you know, sort of that drainage. And so we got a good deal on the land, we feel good about it. And so this asset, you can’t pay, you know, 200,000 an acre for it, it doesn’t work, right, we’re not charging, you know, $5 a foot, you know, triple net, it doesn’t work on a spreadsheet-like that. So it’s getting good, doing your due diligence, maybe finding something with a little bit of challenge, unraveling it, and sort of getting that deal right. And we’d like to get a deal, and this isn’t, you know, 3% multi-family in, in Los Angeles, you have to be able to deal source, you have to be able to understand challenges, maybe work on those challenges. If you can do that, if you can do the work of commercial real estate adage, if you’re willing to do the work, you can make a buck, right? And that’s really how we look at it is, you know, if we do the work or unravel the problems, we get it, we can get the deal. And then we can really push our investment and really get that return for our investors.
Justin Smith
And if people want to invest in this project, or in one of the next ones, that’s what’s an ideal investor profile for you.
Rob Boese
Yeah, super question. So all right, the ideal investor profile is, you know, maybe somebody who wants to invest in industrial. And, you know, they’re looking for that alternative asset class within industrial. And they’re looking for a really superior return, you know, we’re really conservative in our estimates in terms of what our return for this project is, it’s, it’s a short project, you know, we’re not, we’re not doing corner retail, so we’re delivering 115,000 square feet, it’s going to be done in 30 months or less, you know, we have a really good return on that invested cash. So for us, it’s really somebody who wants to understand the project in which we’re building, and really partner with us get excited as we are about that asset, you know, it’s not really about them, giving us you know, you know, capital to deploy it, and you know, just going away, we want them to be excited about it, too, because the project is going to be here soon, right? And there’s going to be a finite end to it, you know, we’re going to recapitalize it at the end, you know,
Rob Boese
we’re going to take a permanent out on it and take the investors out, and they’re going to get a superior return. And so, just because the investment is so short, and the build time is, so it’s not really complicated. Yeah, it’s a neat project, because it’s really tidy and efficient. And so we want somebody who wants a tidy and efficient project or a good investment on a smaller timeframe, that’s going to get a good return and sort of understanding that they’re delivering something that we’re delivering something together that the market really needs, right. And it’s sort of a little window into the sort of like the fabric of America like that industrial, small, industrial, small business, right, it’s a really good slice of America, and you kind of you meet all sorts of cool people along the way to the contractors and the municipalities, and, and the tenants, of course, and you see all these cool things. And it’s a really neat project when you see it fully operational, and you’re like, Oh, this is like, I don’t want to say small-town America, but it kind of is, you know, you see a small town in America like fully at work, right? And you’re like, oh, okay, I have like 70, some odd tenants here. And they’re all doing they’re all they’re a small business, or, you know, it’s a, it’s big, it’s a big company, but they have their reps here. Right. And that’s nice. That’s good for this municipality. And I think for municipalities, it’s hard for them to sort of conceptualizing it. Also, in the fact that somebody actually wants to build one of these, we’ve been somebody has been calling, you know, us every day and figuring out like, where they can leave spaces for this. And they’re always probing, and you’re like, is this going to be quasi-retail. Is there going to be like some other component and like, now, this straight industrial, they’re like, oh, oh, we got calls about this, right? And so it’s really delivering to their, to their base, right. And so once, if we can get the municipality to understand the project, just like the investor, like, once we get people to understand it and get excited about it. Yeah, they’re saying what the project is, and, and how soon we can deliver it. And so yeah, so for an investor, it’s somebody who’s looking for a good return, somebody who can get excited about an asset class, and a lot of people don’t know about it, for an investor, it’s not going to be something, you know, cocktail party talk, it’s not like that, you know, a shiny medical office building that they bought in like a super, you know, a popular market with a really low return. This is a high-return sort of like the tertiary market. But in there, that’s really the story. And if they can tell their story, their friends that they bought, you know, this, this industrial project, as a partner, and they really, it got built super fast, and it got pre-leased. And, you know, these are the type of tenants that is the coolest story, and it’s not for everybody, because it’s not, it doesn’t have like that same, you know, the pride of ownership is, you know, owning, you know, some fancy hotel or, you know, your some other, you know, the fancy asset class that, you know, that are super popular these days with low returns. It’s just something different. And once they understand, and they understand that that’s something different is a really good thing, and it’s a profitable thing. That’s an ideal partner.
Justin Smith
Yeah, well, you can take grant and ice money any day. We’re happy to get the word out. And if people want to reach out to you, how do people find you?
Rob Boese
Sure, they can give me a call. And that’s 310-433-0402. That’s my cell, give me a call. You can shoot me a text, or they can find us on our website, which is warehouse partners. So that’s WHSEpartners.com, all one word. And we’re happy to take you through the investment we’re happy to take you through our different offerings, and you know, sort of like the nuanced details on you know, why multi-tenant industrial, why metal buildings and you know, why the design and configuration and why no one else wants to do something else like this or why it’s not on people’s radar.
Justin Smith
That’s awesome. Rob. I felt like this is something I know a lot about, and I learned something new. I learned about a bunch of new things. So that’s helpful. I’m sure everybody else will too. And I really appreciate you taking the time to spend with us.
Rob Boese
Yeah, absolutely. It’s been a good time, and hopefully, we’ll get to talk more in the future. And if anyone wants to reach out, please do, and I look forward to talking to everybody about, you know, light industrial metal buildings.
Justin Smith
Oh, thank you, Rob. Have a good one.
Rob Boese
All right, guys. Thank you.
Justin Smith
Yeah, for that. Bye-bye.
