Episode 86: Introduction To Industrial Real Estate With Chad Griffiths

Chad has been an industrial real estate broker since 2005 and an active property investor since 2014. As a member of a global commercial real estate company and a partner with his local firm, Chad has completed over 500 deals with clients ranging from small companies to large institutional owners. Chad has been a guest on more than 20 podcast shows as well as being interviewed numerous times by national media. Chad holds both SIOR & CCIM designations, an MBA and is proud to have recently been named an Industrial Influencer by GlobeSt.com.
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We're joined today, folks, by Chad Griffiths. We've got an opportunity today to chat with Chad about something that we do quite a bit of, and not many of us out there do.

Chad is an industrial real estate broker and a partner at NAI commercial Real Estate. He's also the host of the Industrial Real Estate Podcast. He's got some great super informative episodes and on his website, which you'll find on the link below some killer calculators and spreadsheets that really help if you're analyzing or if you're taking a deep dive into a project here. I was shocked at how thorough the calculators were. Chad, thank you so much for taking the time and joining us today. Yeah, thanks so much for having me on, James. I'm really excited to talk about industrial real estate and thanks so much for the introduction as well. Yeah. Look, there's not many of us that play in this sector, so I was wondering if maybe you could just spend a few minutes chat and talk to the audience about who it is you are in more depth, how you landed, where you are now and your specialty. And then I thought it would be fun if we could dive into some of the specifics. Yeah, thanks for that. So I started in 2005, which is crazy to think that was already 17 years ago, but I've been at the same brokerage my entire career. Like a lot of people, actually, I knew very little about industrial real estate when I first got into it. I thought I'd be working in office towers or retail shopping centers the more that glamorous aspect of commercial real estate. And it just so happened that the office that I joined was heavily involved in industrial real estate. So almost by accident, I got into industrial real estate.

But I'm very glad that I did because over the last 17 years, I've not only had a good career representing buyers and sellers, but I started investing my own portfolio in 2014. And that gap was just saving up enough money that I could start deploying it myself and getting that experience, getting that knowledge. So I was comfortable doing it. And with a series of partners, different partners and different projects, we've been pretty much adding a property every year since. And it started by a small industrial condominium. It was about $400,000, and we just closed on a property in January for 4.1 million. And we've been trying to scale up to be buying more of those larger properties. But I got my start with a $400,000 industrial condo. So I love talking about industrial real estate. I always try to be as transparent as possible because I know it can be a daunting arena for people that don't have any familiarity with it. So I'd like to think of myself as just trying to offer as much information and value as I can. And there's virtually no question that I'd say is off limits. So first of all, Congrats on the success. I think that it would be important for us to define for the audience what is industrial real estate.

Great question, and I'm glad that you brought that up, because I think that there are some misconceptions about what industrial real estate is. And even going back to 2005, when I started, it's changed even considerably since then. It used to be a topic that virtually nobody knew anything about, unless you worked in a factory or you had somebody that was that you knew that worked in one. There's really no reason that people would have had a reason to know about industrial real estate. And there was one guy I talked to a while ago, which I think sums up this attitude quite well. He said the only thing that I know about an industrial real estate is that if I make a wrong turn off a highway and I end up in an industrial park and I'm just trying to find my way back onto the main road. That's all I know about industrial real estate, but it's come a long way over the last two decades or so where now it's a topic at the dinner table. People are talking about supply chain issues and bottlenecks and how product is getting delayed at the sea or there's Port delays or there's just warehouse delays. Everybody's driven by a new Amazon fulfillment center, which is anywhere from 1 million to 3 million square foot building right off the highway, right close to an airport. Everybody is a lot more familiar with these distribution centers now. And I think it's imperative to actually divide industrial real estate into a few subcategories because while there are similarities, there's also some stark differences. So the two main categories that I always divide industrial real estate into is a manufacturing that could also be like a factory or really just a building where things are made. And an example I point to all the time is the Boeing factory outside of Seattle in Washington. It's in a town called Everett. It's a 4 million square foot building, which is enormous just to think about, to really wrap your head around how big a 4 million square foot building.

And it's almost inconceivable. But the whole idea is that all the raw materials, all the unfinished goods get brought into the factory, then they're made they're assembled, they're produced out comes a Boeing 747 that goes out the door and gets sent to a customer. That's the manufacturing side. And it can be anywhere from a 4 million square foot building all the way to a 2000 sq. Ft. Industrial condo like I owned. That happened to be a kitchen equipment repair company that was in there. And all that they did was go around to different restaurants and repair stoves or fridges or coolers or anything that broke down. And if they couldn't repair it on site, they'd bring it back to their shop and they'd tinker away with all the different parts and things that they had there. So that's the manufacturing side that's not as common, at least in public perception right now, as the other subcategory, which would be warehousing and warehousing are these big Amazon fulfillment centers. Amazon is the biggest one by far, but they're far from being the only one. There's warehouse facilities everywhere, all over North America, all over the world. These warehouse facilities, you could almost picture a Costco or Home Depot, which actually is a warehouse in itself. It just happens to be in a retail location. But these are buildings with high ceilings. There's racking from the floor all the way to the ceiling, and it's stocked with all types of things in a Home Depot or Costco. It's consumer goods. People are going there to pick something up. But a warehouse could be raw material, it could be semi finished goods, it could be finished goods.

A warehouse is basically where something is stored for some period of time. It could be an hour, it could be several years. But a warehouse is definitively separate from what a manufacturing property is, because what happens in that building is different from a manufacturing property. There's also a third category, which it's called different things in different markets, but I refer to it as flex industrial and flex industrial would be all the industrial properties that are zoned industrial. So that is the municipality has designated that property will have a zoning classification for industrial, but it's not necessarily conducive for manufacturing or warehousing. And I'm sure it's the same with you, James. I'm sure that there's industrial properties in your market that aren't necessarily warehousing or manufacturing. And there's all types of uses. I've seen churches, art galleries, bottle depot, car dealerships showrooms, you name it. Even straight office space, a building that we operate our office out of is actually an industrial zone building. Our space in the building is entirely office, so it's zoned industrial. It's an industrial building, but we're a straight office use in there. So those would be the three categories by far the two biggest ones in the context of how big the market is, would be manufacturing and warehousing, though. So we had one of the first guests on the show, a broker who I work with here. Actually, it was called the King of Cops, Brian McGowan and we had talked through certain things we saw in the market, and we had predicted and encouraged on the show for our clients to make acquisitions. At that point, we thought that this segment was poised for massive growth, and we have seen that come to bear. We've seen that those numbers are now up 40% from just two years ago. Have you seen similar significant growth in your market? Well, I'm glad you brought that up, because it goes to that point where you still need to separate manufacturing from warehousing properties. And it becomes a lot more apparent when you actually start looking at which properties have done a lot better than the others and that warehousing side has greatly outperformed the entire market.

I don't think that there is a single asset class that actually kept pace with the warehousing side of industrial real estate. The manufacturing side, Conversely, has been sluggish. And I'm in a market that is heavy oil and gas exposure. And with that downward trend of oil over the last seven years, I might look different with the geopolitical risks happening in Europe right now. We're seeing oil actually over $90 a barrel right now. So that might be a reversal going forward. But these past six or seven years, that manufacturing side of industrial real estate has been very sluggish and actually had some downward pressure on certain areas. So I would say unless you're in a really hot market where it was insulated from the effects of oil and gas, you probably saw the manufacturing side of industrial real estate be flat or maybe small growth, whereas you've seen that warehousing side escalate 40%, as you mentioned, it's gone crazy, especially in some of those Port cities anywhere, Los Angeles, Long Beach, New York, New Jersey, any of those Port cities where there are constraints on where they could even build that inventory hasn't caught up to how much demand there is, and there's been rampant increases in there. So you guys had a lot of foresight to make that recommendation when you did. So for us, there's a number of factors that contributed to what we were seeing. And you had touched on earlier that there's a classification that you identify as FlexPACE. For us, manufacturing zoning or the M zone carries a very high zoning classification. So essentially anything nonresidential related, we can put well, we can't do schools, we can't do churches, but we can do things like retail. And a large section of the island has carried this M zone classification here in Staten Island.

And they happen to be near expressways, right at exit ramps. And that just lends itself to the exit streets being highly trafficked areas, places like Arthur Hill, Veterans Road West. And we saw retail centers booming, popping up all over the place. And because it was these bigger, they tend to be bigger tracks of land. We're seeing the bigger box tenants that have moved in the targets and whatnot so with that. There's been a lot of infill and quite a bit of retail development along those corridors. So let's get in the weeds a little bit here. Industrial and warehouse is a highly specialized field and it's a highly specialized subsection. How did you land in that segment? Was there real estate influences as you grew up, or were there other influences that had you inside real estate but outside of the industrial, how did you land here specifically? Yeah, purely accidental. When I was going to College, I was also working at a restaurant at the time, and I started investing with a few friends, buying and selling some houses. And we didn't really make a lot of money. We didn't lose money, but still gave me the itch to want to get into real estate and pursue that as a career.

So I actually started in residential real estate in 2004 as an agent, did it for a year, and just quickly realized it just wasn't where I wanted to spend my career. So that's when I switched over to the commercial brokerage in 2005 and stumbled right into industrial real estate and as you know, being involved in it as well into our earlier talking points, there is that not many people know much about it and it's gotten better. There is some more information out there now. If you look around, you might be able to find some courses or some books on it. 17 years ago, there was very little information on industrial real estate. You almost had to just go out and do it and try to pick things up by osmosis on people that you were talking to and learning through your mistakes and trying to find people to mentor you along the way. It hasn't gotten significantly better. It's still challenging for people that want to learn about industrial real estate. I'm sure you get this comment all the time as well. James, is people ask, well, is there a course I can take? How do I learn about this? It's still a challenging proposition, but fortunately it has gotten better than it was back then. So when you're listing these sites or you're targeting a site for acquisition, where do you start? Where are you sourcing tenants or are you sourcing tenants or are you buying stabilized stuff? What is your process look like? I would definitely be a stabilized asset type of investor, so I'm more conservative in nature. Just because I'm deploying my own capital as opposed to running syndicates and sponsoring deals, I've deployed my own capital into everything. So I would rather take a smaller return either on a cash on cash or internal rate of return basis. I'd rather take a smaller return but have the confidence in knowing that I'm not going to erode a good chunk of my capital if something goes wrong. So everything that I've bought had either fully stabilized income or it was small enough of a pocket where I felt that I could fill it relatively easy, and my numbers still made sense.

The existing rental still supported the debt. I'm definitely a conservative investor, and I've also taken the approach that everything that I own is within 20 minutes of my office. So I like the idea that I know that market really well. I can drive to every property every day if I wanted to and if a tenant were to leave. Just because I know the market and I know a number of people in this market, I feel relatively confident that I could mitigate any downside risk by a tenant perhaps doing a midnight move or just not renewing a lease. I feel a lot more confident that I can back fill that space quicker just by result of knowing this market as well as I do. It's interesting. We're seeing the opposite in other typologies multifamily, for example, we're finding people are investing all over the country, and then I'm always fascinated and I press people on what is your process? How are you identifying an emerging market? It's very difficult if you haven't done it to assemble any type of scale outside of your backyard. Right. So if you're acquiring multifamily and earlier in my career, I made this mistake. You find the market you like, you jump in, you find a great deal. And if it's not big enough to provide scale as far as your maintenance people and your management contracts, and there's always something going on. Right. In a multi family building, you end up doing a lot more damage than you're doing good, no matter how good the strike price was, because you have to get to that level of scale. So you staying in one specific market. You're one of the few I've had on recently that's doing that. And do you think that's because of the highly technical nature, or is that just a bugaboo where Chad wants to be able to touch and feel his own real estate? Yeah, great point. And I wouldn't say that my methodology is the right way. It's just the way that's worked for me. I think your point about scale is very appropriate, and I think that you could even distinguish multifamily from industrial, even being in the same market. So one property that we bought a couple of years ago is an example. It was about a $3 million property. It's a single tenant that's in there, and it's a large Fortune 500 company that's in there. I've been to that property twice since we've bought it because it's one tenant. We never have to worry about the check bouncing any concerns.

They just take care of themselves versus a multi family property. If we were to consider one at the same $3 million price point, you're probably looking at a 20 unit building, 25 unit building, and with that comes 20 to 25 tenants that you have to manage, and they're typically going to be on shorter term leases. They might be like six months to a year or month to month tenancies. Any issue that comes up, somebody has to deal with it. So whether you have a property manager that you're going to have to pay and that's going to eat into your profit as well, or it's you that has to do it, you're going to be going to that multifamily property a lot more than I would be going to a single tenant industrial building. And I think that can go beyond just being in a local city. I think that that's the same issue that you're going to have if you're investing anywhere. So the polar opposite is comparing that one building that we have with one tenant to a multifamily property in another city. Now you have to get a property manager. You're going to have to have some sort of infrastructure in place on how you're overseeing everything. I like the standpoint of industrial real estate as being a true passive investment. And I think the industrial real estate just exemplifies that better than any other asset class that I've come across from the standpoint that you can have a property manager and you can have your lease structure that the tenant actually pays for the property manager, and it just becomes a lot more hands off. I think that is one of the best benefits about industrial real estate, actually, is that if it's done correctly and maybe we get into this later as well. There are also ways where you can make huge, catastrophic mistakes in industrial real estate, but if it's done correctly, it's a very passive way of managing money for the long term. So when you're analyzing the deal or just in your experience, what does a typical industrial lease look like? Term rate. But what are the metrics that you're finding? Yeah, every lease that I've done has been a triple net lease, and terminology varies across markets. So maybe instead of trying to get hung up on just the nuances of the terminology, I'll just describe what it is. So that would be that the tenant will pay base rent or net rent that is contracted for the term of the lease. So let's say I'm charging them $15 a square foot. They're paying that $15 a square foot for however long the lease is, and it can run anywhere from five to 15 years. You might see shorter term leases in there as well.

There's also occasions where you might see 2030 year leases, but for the most part, most leases I've seen have been in the five to ten to 15 year range, and that rent would be contracted for the whole term of the lease. So the tenant knows what they're paying, landlord knows what they're getting. The other part would be the proportionate share of all the operating level expenses of the property. So that's property taxes, building insurance, common area maintenance, landscaping, snow removal, and as I mentioned earlier, property management fees, so the tenant pays all those costs and any increase in those costs get passed through to the tenant. So if property taxes goes up 10% next year, which seems to be a commonality across the world right now, it seems to be like every municipality is targeting a 10% increase next year if it goes up 10%, instead of me having to eat that as the owner being in a gross lease, which is what you'd see normally in a residential scenario, this triple net lease will be that the tenant will be responsible for any increases in those costs. So in an environment where we're seeing a lot of inflation, if snow removal or landscaping costs or insurance costs go up, those costs all get passed through the tenant, and they are contractually obligated to pay that because of the way that the lease is structured. So again, I think that that's another great reason to have industrial real estate over multifamily. Not saying that multifamily is a bad investment whatsoever, just for me. I like the comfort of knowing that any increase in those expenses isn't going to erode my profit level, but instead it's the responsibility of the tenant. Yeah. So folks, put as plainly and simply as it could be put, triple net essentially is affording you as the landlord the opportunity where your entire camp, common area maintenance, your real estate taxes and insurance is all being passed through to the tenant on top of the rent that they're paying. So that's the management fees. That's the running of the property. It said snow removal, landscaping, real estate taxes, insurance as they increase. It's a direct passthrough. It's a great inflationary hedge. That where we have been, and we will continue to advise and shift any gross leases out into those types of situations because there's controllables and uncontrollables. And depending on how savvy the tenant is, sometimes they'll want to make a carve out for controllables or non controllables.

Things like the cost of oil is one huge factor. The cost of fuel, whatever the fuel source is where you're located. But a properly structured lease can be a significant hedge for you as costs seem to be going completely bananas, I'm sure the same as where you are. So we saw this big push here, and for us, there's been a number of different factors. But manufacturing, as you traditionally think about it, in the country, it's not dead, but it certainly has seen its challenges. Right. A lot of things have been outsourced. So what are you seeing on the horizon? Are you anticipating as we start to explore more and more green energies, rebirth in these manufacturing and industrial zones, or what are you forecasting? Yeah, I think that there's a couple of key factors that are going to drive that market, first being oil prices. We're $90 a barrel right now. If Putin invades Ukraine today or sometime this week, we might see $100 oil and then meet it near future. So I think oil prices are going to cause an uptick in drilling activity. And when drilling activity goes up, whether it's in the shell play or whether it's in the traditional oil and gas plays, as soon as drilling goes up, then all the service companies that are servicing all this equipment, they start picking back up. That whole manufacturing side hinges quite heavily on the oil and gas industry. And the second factor that I think will drive this as well is that we're going to start seeing or I suspect that we'll start seeing more reassuring or onshoring towards North American made goods. And part of the problem is that the supply chain is broken right now with getting things from overseas. So for companies that need to have goods and they need to have product in place, they can't necessarily rely on a multiple week or multiple month cycle to get these goods from overseas. So I suspect that we are going to see more onshoring and more locally made products, and that's going to require more manufacturing space. So whether it's in Mexico and Mexico starts manufacturing a lot more things to still take advantage of some less expensive labor, and that comes upwards into North America, I think we'll see more demand for warehouse space, we'll see more demand for manufacturing space. I think that there's going to be several good years of industrial real estate still to be had, barring anything unforeseen, and I guess these past couple of years have taught us that virtually everything is unforeseen. We can't seem to predict what's going to happen tomorrow, let alone two years from now.

But I think if borrowing anything catastrophic, I think that the industrial real estate market is going to be steady for the foreseeable future. So the passive income moniker is tossed around all the time and it depends on the structure of the deal. If it's you had said earlier, there's a lot of syndications GPS versus LPs, who's doing what works in these deals. But in the industrial side, when you're looking at just a common transaction, I know every transaction is unique to itself. What are the cap rates? What can an investor expect as they look in this market? Are these things trading at two and three caps or eight and ten caps? Yes. Over the past few years we've seen a lot of downward pressure on cap rates, and that's predominantly just as other asset classes have looked a little bit more scary. And all of a sudden industrial real estate looks like the Darling at the ball because it's steady, it's conservative. There aren't the big swings that you see in retail or office. So there's been downward pressure as more players have entered the industrial space. I used to say that cap rates were always in an operating band between 6%. That's just for my entire career I've seen them 6%. When the market is really hot, they might increase to 8%. The capital market crisis in 2008 as an example, you saw them crest in that 8% range or perhaps even a little bit higher. But for the most part, they've always been in that operating band of 60%. Now all bets are off. There was an institutional grade portfolio in our market that had big distribution centers, Fortune 100 companies as tenants. It went to market, and there were, I believe there are 15 or 16 different institutional grade buyers that bid on it. And the rumor is it's supposed to close anytime.

So we'll have that compound pretty soon. The rumor is closed in a low forecast, even if it's mid forecast, which you got to wait till the dust settles before you can actually claim that even if it's mid forecast, we've never seen that type of cap rate on an industrial property. So that band is starting to increase. Where now you got to say that cap rates could be 4%, 8% would probably be more in a smaller rural setting, or maybe it's just a smaller town. But if you're in one of those big markets, New York, Chicago, Austin, some of these big cities right now, you're going to start seeing sub five cap rates. And what type of credit are you seeing in these deals? They're not all Fortune 100 companies. Right. I mean, what type of credit are you seeing just in typical larger deal, smaller deal. Who are we dealing with here? Yeah, those big institutional grade ones, then you're definitely getting a high quality tenant. And if you're not, the effect of it is that you're going to get a better cap rate. If you're getting a really good property with a really strong Covenant as the tenant, then it's going to drive down the cap rates. If you're looking for, call it a 3000 square foot building in a major market, perhaps not one that has sub 1% vacancy, but just call it an average market right now, 30,000 square foot tenant with a decent company in there. Maybe it's a local company or maybe it's a regional company. You might be getting that in the six to seven cap rate range. So there definitely is a correlation between top of the tenant type of the property and the cap rate that's going in there.

And that's why I think it's responsible investing to always be looking at cap rates as a range as opposed to just saying, well, I heard that this property sold for a four and a half cap rate. So that means I can apply that cap rate to every property that has a certain amount of I think that's reckless and irresponsible. So I would say whether you're a seller or a buyer of a property, just keep in mind that comparing apples to apples is pretty important. So there's risk factors, folks, right term of the lease, if there's any kick outs strength of the tenant, these rates are significantly more attractive. Even as you get in the four to six range, they're significantly more attractive than multifamily, for sure, and even many of the retail assets. Why do you think there is still such abundant opportunity or upside in this particular asset class? I think, again, it's important to distinguish warehousing for manufacturing the warehousing.

I think that there's less opportunity now just because it's had such a big increase that anyone considering buying a warehouse portfolio right now is buying at the top of the market. If you're paying in the low four cap rate for a good institutional grade property, it's hard for me to think that there's a whole lot of upside on that because those are probably ten or 15 year leases.

So you're basically buying a stream of income at those cap rates with very little room to add value to it. So I think that we're hosting unless you can find a specific deal where you can add some value to it, you're buying at the top of the market, which for me I don't necessarily want to be the guy that's buying at the top of the market. Where I see opportunity is on the manufacturing side. Just because a lot of these properties haven't priced in yet, that oil prices have risen, there's going to be more demand for manufacturing space, whether it's oil and gas related or just companies trying to onshore manufacturing. I see more opportunity from a value add standpoint in the manufacturing side, where I still think that there's value in warehousing is that you're getting really strong companies that are on long term leases where your income is going to be predictable, and if the lease is structured accordingly, you can pass through any increases in the expenses. I still think that that's actually a very sound investment decision. I just don't know if there's as much opportunity to increase the value, at least in the near to medium term. So we've advised folks against buying payments, what I call buying payments where they're only looking at because interest rates are as low as they have been. And there are some really aggressive bank products out there, especially if it's not stabilized money. If it's bridge money, it's easy to get lowered into the attractive upside of the Delta between your debt service and how a property is cash flowing for us, there's the other side of the coin. Having been through multiple cycles and multiple markets, we know what it looks like when the phone stops ringing and when things shift. So what metrics are you looking at in a deal chat to keep it balanced? Is it your cash on cash that you're looking at? What are the factors that are keeping you from making some of those decisions where people are saying, well, look, rates are at 3%. If I put 2020. 5% down, I'm still plus 810 thousand a month on this transaction. Sometimes that leads to not the most sound fundamentals in buying real estate and letting some of those traditional metrics go out the window. So what is it that you're looking at that's keeping you balanced when you're acquiring a new site? Yeah, great question. And I think that there is some unique elements on how I'll do it that will be different from other people, particularly from like a big institutional investor buying a portfolio. They're not going to be as concerned about some of the metrics that I am and vice versa. So when I'm looking at a property and I'm a small investor, I'm looking at properties that don't have these big Amazon type tenants in there. The first thing I always look at is the price per square foot. That's the first number that I'll look at before I even consider doing a pro forma or discounted cash flow analysis. I'll always look at the price per square foot because that speaks to the downside risk mentality that I mentioned earlier, where I'm more concerned with losing capital than I am necessarily about extracting out how a ten year pro forma might look and make a bunch of assumptions. And if everything goes according to plan, I might spit out a 15% IRR. I think that there's so many assumptions that go into that it's almost better to look at that on like a backward looking basis to say, okay, this is what my numbers were. Here's what the IRR was.

I don't necessarily want to make my decision based on trying to extract ten years worth of data and make all these assumptions and then say, okay, looks great, we're going to have an 18% IRR on this. My mentality is if I can buy the property at the right price on a price per square foot basis, and I know that even if the property were to go vacant, that I know that I can rent it out for X and still cover my expenses, still cover everything that I need to form a solvency standpoint. If I can buy the right property and know that I'm not going to lose my shirt on it, then I can start having fun by manipulating numbers and saying, if I put my discount rate here, and if I can renew this lease in five years at X, then all of a sudden I spit out this really sexy looking IR number. Then I can start doing that. But first things first. I always look at that price per square foot. What's my downside? If the tenant goes bankrupt or does not renew their lease, how much money am I going to have to spend to get another tenant in there and really just make sure that I hedge as much of that risk as possible. And then you can always do your cash on cash returns and factor in scenarios about what type of debt structure you can put on it and how they'll look in the grand scheme of things. But I'm always cost per square foot before I do anything. Love it price per square foot sound metric that seems to have gone by way of the Dodo bird on some of these performers. We were joking on the show the other day. We never seen a performer that didn't look good. Right. These things are designed to look good for a reason.

So you touched on something super important. Am I going to be able to fill that space if this tenant goes bankrupt or they don't renew or whatever the reason is, where are you looking for those tenants? Where are you finding tenants in such a highly specialized field? I love the topic on that, because that is what makes industrial real estate unique. And compare it to office as an example. Right. Like an office space is going to be compatible for a lawyer, an accountant, or real estate brokerage, or any conceivable amount of users. An office space might need some cosmetic work, but aside from that, it's going to be compatible for a lot of different uses. Industrial real estate is not the same. You could have one property that was specifically built for a manufacturing type of tenant and one that comes to mind, actually, is there's a building that we did the leasing on a while ago, and it was an 80,000 square foot building, but it was custom made for a fiberglass manufacturer.

So it had really awkward ceiling heights in different areas. It had sunken floors in some areas. It had cut outs in the concrete where it went to like a sub floor underneath, where all the process that they had involved. And I'd never be able to explain this as well as they would, but it was custom built for their purposes. And when that company left, the landlord ended up having to spend probably half of what the building was worth, just retrofitting it so that it was compatible for the next type of use that was going in there. So there's certain buildings that are going to be conducive for all types of different uses. And like a flex property like we talked about earlier is a good example. If you've got an industrial building in an urban core and there's traffic nearby, there's all types of uses that can go in there that will be a lot more accommodating than that fiberglass building was. But that all goes back to the cost per square foot. What am I buying this building at and what's it going to take for me to make this building attractive for other types of uses? Because there's not many fiberglass companies in the world looking for fiberglass space at that exact time that we had that one. So if the building isn't compatible for a wide array of uses, that should be factored into your decision when you're buying a property and what's it going to take for me to retrofit it so that it is compatible for other types of tenants and that might just be having a consistent ceiling height that might be having adequate power that's in there, having enough yard space or Loading area. There are things that you can do to make a building attractive for a general amount of tenants. But if you're buying a unique building, I think that is the single biggest risk an investor can take in any asset class in commercial real estate is buying a building that was designed specifically for one type of company. Yeah.

So without a doubt and part of the reason that we have had a difficult time reasoning, investing in markets, that no issue investing outside of our home market, so long as we've had ample boots on the ground and we know the market well. But these are things that on paper, look amazing. And unless you actually have boots on the ground or you had the opportunity to visit a site like that yourself, it would be really difficult to understand how this great building with this great tenant that's been there for 15 years. Right. We all hear the positive story on the way in. It's wedding day, so everyone looks great when we're going to purchase. But then you start to see the rubs and the challenges. And having not had the opportunity to walk an asset specifically in this asset class, folks, there is a lot of nuance to the way these buildings are built, how they're positioned a myriad of different factors that can really have a significant impact on its value if you do lose that specialized tenant. So again, in that specific instance where you've lost a tenant, let's say it's not even this crazy high bar of a fiberglass manufacturer or whatever it is, where are you looking for tenants? Is it the same old strategy like any other business, Google AdWords and the trade periodicals and publications? Is that the deal? Yeah. I'm sorry. I don't know if I answered that question, how you asked that on the last four route. I think it comes back to the same way that you try and find tenants for multi family property or the way that someone would just try to sell everything. I think it's turning over every rock you can, whether you want to be creative and use Facebook ads or Google ads or just network with people. I've always taken the approach that I've tried to build as many quality relationships as I could over my career and being focused hyper locally, where all my relationships, all my investments are in this specific market. I've just got to know a lot of different people over the years, and I think that just reinforces that concept that I have myself.

Anyways, about investing in this market. I know a lot of people. So if I had a vacancy come up, I could reach out to a number of people that I've dealt with in the past. You combine that with some of the newer school marketing, like social media marketing and even more just traditional marketing, then I think you've got a pretty good chance of success. But the point that you've made before as well is on consider investing in a manufacturing property in a place that you haven't visited or that you don't know that well. How do you go and fill that? I mean, that's a great question. You could try to hire a broker in the area and hopefully they have some success for you. But if it's a challenging property, they're going to be limited on what they can do with it as well. So I'd ask you, what do you do? What do you do in a scenario like that? Yeah. So in this asset class, it's the easiest to end up, in our opinion, with a white elephant to end up with something that is very difficult to backfill what we did on our side, our parent company is a real estate company that's the mothership. It all funnels through the real estate companies. So what we did is we broke out all of the asset classes by typology. Someone who's looking for manufacturing or industrial is very different than someone that's looking for retail, which is very different than someone who's looking for medical, which is very different than someone that's looking for office. So we broke out all of the listings and we went through great time and expense and pain, quite honestly figuring out how to sort the data that comes in from all of these different feeds and all of these different websites that house these listings. How did we sort the data so that we were able to build avatars essentially, and we put pixels on each individual typology. So when someone is coming to look for manufacturing and warehouse, we know they're looking for manufacturing and warehouse. Our ads are very specific, be it SEM or display or through SEO efforts or through social media ads. We know that they're looking specifically for that type or they're looking specifically for a retail location. So what we do is we track them on the way in. We send out our aggressive marketing.

We're sending the messaging out for the specific classes as they come through our website. We're tracking where they went and then we're following them when they leave and we're building lookalike models that say, hey, we don't say this. Of course, the system say 1000 people visited the manufacturing and warehouse tile on the website last month. We found that out of those thousand. And I'm going to make up the metrics for a moment. 100 of them listen to podcasts that are related to this industry and 50 of them read online magazines about this industry. And ten of them visited banking sites with M property programs, whatever it may be. And then we overlay it. And then the next time we send our messaging out, we're going to that to only those that had that shared interest. So every time we do this, we get a little bit smarter and we get a little bit better, and we're able to find very highly specialized tenants for the specific asset class. So for us, that's kind of in the secret sauce, and it's worked really well. It was very frustrating to have invested so much time and money on the last website. And if you are someone that was looking for a 200 square foot drop off dry cleaner, or you were looking to open an asphalt plant, or you were looking to buy a $50 million retail center, they all had to go to the same place and sort through all of these listings that were not relevant or check a million boxes to try and narrow your search down to get where you want it. So we filtered all of the noise out and on our site. Now, when you come and you land on a tile, you're getting what you specifically search for. So for us, that's been how we've tried to process out the noise and get more refined tenants for our clients as we move along. Well, it's a brewing strategy, because not only does that work for you guys operationally, but it's adding value. It's actually adding value to the customer that's trying to use that service. So that's a much better system than how it's conventionally been done, where you do get bogged down with a bunch of noise or the systems geared just to help the company that's providing it. I love it. I think that's a fantastic strategy you guys have. I appreciate it.

Look, attention spans are way down, right? 25 years ago, yes, it was three minutes, and now it's between three and 5 seconds. So we felt like when they made it to our site, we damn well better give them what they came there to find and do it quickly. So coronavirus, if we can transition for a minute, has impacted everything that we're doing and everywhere that we do it, what has the impact been on your side of the table in this industry? Specifically? What type of effects has the pandemic had? I think we could break it almost down into stages. So the first stage I remember well, it was March 15 of 2020. I was out with some friends. I was at a little Scotch bar. It was on a reservation. You could actually smoke in it as well. So I remember it. I was having a cigar, having a Scotch with a couple of my friends. An NBA game was on that night, and news flashed that the season was being canceled. And by that point, everybody knew that this was getting serious. So it wasn't that this comes out of the blue. Like we were all sitting around with our cigars and Scotch being like, this might be it, boys. And sure enough, NBA canceled the season the next morning, and NHL canceled the season. And then the world just seemed to shut down, like there was a period from mid March to mid may call it, where there was no activity going on whatsoever. Nobody wanted to make any decisions. Even people that had to make decisions weren't making decisions.

So there are three months there where I was very concerned. I started looking at all the properties that I had, and I started thinking, if all these tenants stopped paying their rent, what happens? I've financed a good portion of this, so I've got my name personally guaranteeing a good chunk of this debt. What's going to happen to my business if the whole world shuts down now and this lasts longer than any of us expect? I was very concerned. Those three months were probably the most scared I've ever been in my entire life. Just trying to think what was going forward, but I just kept the same mentality as you can't really change this right now. So instead of panicking and trying to sell your properties at the worst time, we just carried through with it. I didn't want to make any forced decisions. I didn't want to force any decisions on anyone else either. So it just stuck through it. And Incidentally, and unfortunately, the market picked up again pretty quickly. Like, as you start going into the summer, the government turned on their money printer and started printing at an incredible pace, giving free money to everybody. And that seemed to stimulate the economy. There's still areas where there should be concern. Like, I think the office market is still going to have some concerns going forward. Bricks and mortar retail. I have a hard time seeing where there's going to be growth in that sector. I think people are still going to go back. There's still going to be demand for that brick and mortar retailer, but I think growth is going to be halted. Industrial real estate has surged.

The last two years now have been incredible. And like we talked about earlier, the warehousing side has just gone crazy. It's driven by high demand by these companies that need more warehousing space. So demand increases, vacancy drops, rental rates go up. So the first stage was absolute panic. I have no idea what's going to happen. I should take out some money in the bank just in case I don't have anything to pay. At least have some money in a safe kind of panic all the way to now thinking, who would have predicted in a once in a century pandemic that you'd also have the best possible industrial real estate market we've ever experienced? So it goes back to that real estate roller coaster mentality. We really have no idea what's going to happen six months from now, but you just keep doing the things that have made you successful and try to adapt where necessary. But stick to your core values, stick to your core mission of a longterm goal, and just think that any aberrations along the way are hopefully just short term and you just move around it. Yeah. So what we found during the pandemic pretty quickly. Retailers and just in general, merchandise providers Took a hard look at their logistics and distribution. They took a hard look at some challenges in getting product to certain markets and we found even supermarkets now that are looking in market instead of having say a 50 or 60,000 square footprint for the retail portion, they're down to 15,000 square foot retail portion and the balance is being used as a logistics center. This was a way for them to localize and distribute in a hyper local way. So it's interesting as this evolved and you're right, there was a few months there where it was like, gosh, what's going to happen next?

But we took solace in that it was everyone in every industry unlike other instances where there were these market shifts, Dramatic market shifts, this was just the whole Dang world so we were kind of all in it together and it was like, hey, if it's going to go, It's going to go and if it's not, it's not. So thankfully, here we are on the other side of it. Chad, this was a great conversation. What's the best way for folks to find you? As you can tell, I just love talking about Industrial real estate. So right after the pandemic kicked in during that patch Where I just had some more time on my hands, I put in wheels in motion Just to start a YouTube channel. So my whole premise on my YouTube channel is I just talk about as much value as I can to try and give people value. I like to say that I don't even talk about what company I work for. I don't talk about even what city I live in. I want it to be just a resource Where people can go and learn more about industrial real estate. It's crazy to actually know that I've done over 100 videos now on industrial real estate So there's a lot of information on there if you just go to it's, Chad Griffiths CRE as the YouTube channel or if you just search Industrial real estate on YouTube, you're bound to come across one of my videos. Yeah, he's a great follow, guys. And as I said, Check out the website. He's got amazing calculators and spreadsheets that are super helpful.

Chad, thank you so much for the time. Thanks a lot, James i do appreciate it. Absolutely. As always, folks, please stay safe.