Jason Smith: Managing Partner at TerraForm Companies

Jason Smith from Terraform Companies sits down with Chad Moore on this weeks episode! Jason is a Managing Partner at TerraForm Companies and talking all things STNL (Single-Tenant Net Lease). TerraForm specializes in developing single-tenant net lease properties. Chad and Jason discuss the level of attention and consideration they give to their deals, and how making deals a priority plays a big role in everyday life. 

Transcript

SPEAKER_01 0:00

It was it was a tough decision, man. It was really tough. And my wife and I had to have a lot of conversations about it because I knew it was a risk. Right? Joining Terraform that was, you know, I wasn't gonna have a paycheck every two weeks. It was, you know, eat what you kill.

SPEAKER_03 0:16

Welcome everybody to the podcast. Today we have a really cool episode. We have a living, breathing developer in the building on the podcast. He's a great friend of mine. I've known him for gosh, 20 years probably, 20 plus years. His name is Jason Smith. He's with Terraform Companies. And uh this is gonna be cool. I this is our first developer on the podcast, and it's a it's a section of real estate that everybody talks about. I feel like everybody wants to be a developer at some point in their life, maybe always. Bad decisions, bad, bad goals and ambitions. Yeah. We're here to dissuade everyone from ever being a developer, but I'm gonna turn it over to Jason to give us an intro on himself, and uh this is gonna be fun.

SPEAKER_01 1:00

Appreciate that. Thanks for having me, Chad. Thank you. Um so as far as me, my background, I've been with Terraform Companies for uh about 13 years now. I I joined in late 2013, early 2014. Um, before that, I mean it was kind of a long, winding road that ended up with me being at Terraform Companies. Um I started my career, I did an accounting degree down at BYU. Of course, you didn't know Kooks. Uh all my friends in the program were just that's actually a really prestigious program, right?

SPEAKER_03 1:29

The accounting program at BYU.

SPEAKER_01 1:30

Yeah, they're I I think they're at least when I was there, they were typically top three in the country for the accounting program. So great program, great degree. Uh, everybody in that program was kind of focused on going to work for the big accounting firms at the time. Uh that was never really an interest for me, per se. Um, I had a friend whose dad was uh an apartment developer, actually. And he said, Hey, let's go start a development company doing apartments. And uh I said, Great, fantastic. We knew nothing about it. We had no business starting any type of company or anything. But his dad was like, Hey, I'll I'll show you guys the ropes. And uh, so that was my plan. And then I graduated, and two months after he came to us and said, My business partners aren't too keen on the idea of me raising up competitors. So sorry, I can't help you. That's funny. So that was the end of that. But uh, and so then at that point, you know, I I actually ended up getting a job at NAI. Um NAI Utah back in the Utah.

SPEAKER_03 2:21

So what year was this then?

SPEAKER_01 2:23

Y'all, that would have been oh six-ish.

SPEAKER_03 2:26

Okay, wow. So, like right at well, I guess NAI Utah had been around for seven, eight years at that point. Yeah, yeah.

SPEAKER_01 2:32

Yeah, so that was my first introduction to to commercial real estate. I worked uh with an investment and industrial team, one of the most successful brokerage teams at the time in the region.

SPEAKER_03 2:42

So Falk and Kyle and Zach and Bryce. I was a great still our they're not a team per se anymore, but incredible guys.

SPEAKER_01 2:50

I mean, they're all absolute legends, yeah, for sure. Uh, and so it was, I mean, a great way for me to kind of cut my teeth and learn learn the business. Uh, but I was only with them for about a year and I had the opportunity to go and be a developer uh with my brother, actually, who you know you know Elliot.

SPEAKER_03 3:04

Elliot.

SPEAKER_01 3:05

He uh had started a company called Pangea. That's a great name.

SPEAKER_03 3:08

It's one of my favorite names. Awesome, right? Pangea. I'm not even gonna explain what that means. You should know what that means. Pangea.

SPEAKER_01 3:13

For sure. Uh, and he was focused on doing residential lots and development. And uh I joined him, and uh, by the time we got all of our lots developed and improved and platted, it was 07-08, and we got absolutely hammered, right? That was pretty brutal. Yeah. So at that point, I joined, uh, I went back to NAI on their corporate services team, and that's where you and I, I think, really started uh, you know, getting to know each other and developing a relationship.

SPEAKER_03 3:38

Corporate services, most people know what that is, but for those that don't, it's like you're a you're a broker, you're doing brokerage every single day. But there's a component of salary there with bonus versus like all commission.

SPEAKER_01 3:49

That's exactly right.

SPEAKER_03 3:50

But other than that, you're you're a broker.

SPEAKER_01 3:51

And your brokerage efforts are kind of more of like a master broker, right? You have a client that has needs in a large region territory, you know, and you're helping them kind of be a consolidated source to assist them with all of their needs. But it was a it was a salaried role with some bonus. That's exactly right. Did that for several years, had a great experience at at NAI, but realized that in that type of role, I wasn't going to uh achieve my personal financial interests and goals. So I decided to go.

SPEAKER_03 4:16

Is that a fancy way of saying you want to make more money?

SPEAKER_01 4:18

It's horrible, right? Yeah, no, that was it. But you know, interestingly enough, I I wasn't willing at that point in time, having been through two businesses that had failed for all intents and purposes. I was like, you know what? A little gunshot. I need uh I need a paycheck every two weeks, man. Like this, this is rough, right? I had had a mortgage, had a couple kids at that point in time. And so the question for me was how do I how do I make the kind of money that I want to make and kind of go to that next level of income while still getting a paycheck, right, every two weeks? And for me, the answer was getting an MBA degree. Um, and I was fortunate enough to get into a school that was, you know, pretty highly regarded and had a had a good name to it. Tell us what the school is. University of Chicago.

SPEAKER_03 4:59

University of Chicago.

SPEAKER_01 5:00

Booth School of Business, yeah. So did an MBA there. Uh, and and when I finished, I I got kind of my dream job that I'd hoped for coming out of of MBA school with the consulting firm. And so I was with Deloitte, we moved out to Washington, DC.

SPEAKER_03 5:13

They had a you're in institutional real estate, commercial real estate at this point.

SPEAKER_01 5:17

Yeah, they have a commercial real estate consulting practice that I was involved with. And it was, I mean, it was incredible, man. I mean, the the deals that you see, the the clients that you're working with, super smart, caliber of people. I mean, it's it's awesome. And as a consultant, you see a lot of different problems every day, right? And you're looking at solving those from a very institutional perspective. And I mean, it was from a from an intellectually stimulating perspective, it was it was lights out. It was awesome.

SPEAKER_03 5:41

Big numbers, big problems. Yeah, yeah. Super smart people. It was great. And you're in DC, center of the universe.

SPEAKER_01 5:47

Love DC. It was great. Uh, but after being there for several months, uh, they they put me on a project. They had told me initially there was no travel involved. We were focused in that DC office. But after a couple months, they they put me on a project in Pittsburgh. We were doing a big consulting project with one of the large healthcare providers out in Pittsburgh. So it was every Monday, I'm driving out to Pittsburgh and I wouldn't see my family until you know Friday night, Saturday morning.

SPEAKER_03 6:10

You're on that institutional grind.

SPEAKER_01 6:12

Yeah, totally. And it was, I mean, it was a grind. It's 70-hour work weeks. They don't hesitate to call you back from vacation, you know, which I mean, hey, I'm all about grit and and working hard. That was great. But it was for me, being away from my family was tough, man. Like that was that was hard. I just some guys are okay with that and cut out for that, but it it was it was tough on me. And so I started questioning a little bit, hey, is this right for me? You know, do I stick with this for uh a couple of years and then pivot? Initially, the goal was, hey, I'm gonna grind it out for seven years and make partner, and that's when I'd be able to achieve kind of my financial goals, my personal goals. But you know, I started questioning that, and and at that point in time I got a call uh from Jonathan Taylor, JT. JT, who was uh at that point in time uh happiest guy in real estate. Uh yes, absolutely. You should have him on the podcast sometime. If I could bake him on, I'd be like, Yeah, that would be he's good, man. He's good. So uh he called and said, Hey, you know, uh one of the the senior partners who happened to be my father at that point in time was uh retiring and stepping away, and they wanted to bring in another, you know, kind of younger guy and and have another partner to kind of grow the business and and move it forward.

SPEAKER_03 7:20

So you're sitting in Washington, D.C. You've essentially accomplished all of the dreams that you set out to. You went to BYU, you went to fancy MBA school, you've gone through this whole arc, and now you're in this institutional job with tons of ceiling, you see the runway in front of you, you know, you're there for 10 years, you're making huge money, you're in Washington, DC, but man, it's a grind, and you're not seeing your family, and that phone call comes. What's that like?

SPEAKER_01 7:53

Man, it was it was a tough decision, man. It was really tough. And my wife and I had to have a lot of conversations about it because I knew it was a risk, right? Joining Terraform, it was, you know, I wasn't gonna have a paycheck every two weeks. It was, you know, eat what you kill. And uh JT and and Elliot, the other partner there, made me a great, a great offer that that gave me some runway and made it possible, but it wasn't a guarantee. And I knew that what I had was pretty solid, right? And having been burned twice and kind of going that route and and trying to start a business, it was it was a hard decision, not to mention the fact that at that point in time, if I left, I had to repay half my signing bonus. And I still had a lease out in DC that I was on the hook for for several months. I'd have to pay for my own move back to Utah. Like it was it was tough. Uh, but in talking through it with my wife, you know, being able to see my kids every day was and my wife, like that that was important to me, right? To to be there with my family. And my wife's she's fantastic, man. I mean, she's always been so supportive and she's always believed in me, probably more than I believe in myself. And she had confidence in me, and that gave me the confidence to say, okay, yeah, let's let's give this a shot. This is kind of my last try here. This is my last shot to be able to go and and be, you know, part of a business, be a business owner and and kind of work for myself, so to speak. Which I mean, as you can tell from my background, that had always been in my mind. That had always been something I wanted was, you know, I want the effort that I put in to directly benefit me and and my financial goals and ambitions. And so this was kind of my my last shot to do it. So we decided to go for it.

SPEAKER_03 9:29

You there's a phrase that I don't love, but it's out there in the world right now. It's work-life balance, right? Yeah. I just I don't love the phrase. I have I had this post on X a while ago where I said, you know, have you ever did you ever hear your dad say work-life balance? No, he just got it done. And so, you know, obviously your dad was a great guy and he was a grinder, and we grew up with all these mentors that were grinders. And we are too, but do you think we focus more on our family? Do you think that's a Utah thing? Do you think I don't know? It's just a question.

SPEAKER_01 10:08

Yeah, no, I think that's a good question, and something that I've considered quite a bit. I think it depends on what your goals are, right? And if you have high aspirations to make really good money in this world, there is a point in time where you really have to live to work and you have to grind it out, right? But everybody has their limits within that framework. And for me, my limit was look, I don't mind 70-hour work weeks, but I need the reset of giving my wife a hug every day and being able to see my kids. That was something I needed. And so I don't mind putting in the hours, but I need, I need the presence of my family and that support that, you know, and so, but you know, work-life balance to me, it's I mean, there were a lot of years there, even after I joined Terraform where it was, I mean, it's it's hard work, man, building a business and getting it, getting it up and going and becoming successful. And now it's, I mean, we I still work really hard, but I am able to see my family a little bit more than I was.

SPEAKER_03 11:05

But the thing is, you're putting your kids to bed and then you're going back to work. I mean, how many times have you and I had a call at nine o'clock at night, 10 o'clock at night?

SPEAKER_01 11:13

For sure.

SPEAKER_03 11:13

It happens all the time.

SPEAKER_01 11:14

Yeah. But it's, you know, I'm I'm after I put my kids to bed, I'm catching up on email until, you know, 11 o'clock, and I'm I'm good with that, right? Because I kind of have to at that time anyway. So for sure. But yeah, work-life balance. I mean, it's an interesting thing. It's actually, you know, at Terraform, we have five core values that we try to live by, and that's that's one of them, right? But what that means is there's going to be an ebb and flow to to your business. And it's kind of the analogy of whatever plate is starting, you know, you're spinning a bunch of plates, and whichever one is starting to dip a little bit, you got to pay the most attention to that one and get it up and going and and spin it around. But you do need to take time to, you know, to have a little bit of a break and and have an experience of life that you enjoy, that you appreciate, pursue other hobbies and passions, and uh, you know, definitely, I believe, have deep, meaningful relationships in your life. And so you got to pay attention to that.

SPEAKER_03 12:05

I agree. So let's talk a little bit about Terraform and being a developer. Terraform is a, these are my words, you could tell me if I'm wrong, but Terraform is an STNL developer. Yeah. Single tenant net lease developer, which basically means, for those that don't know what that means, um, you're building for the most part, single tenant buildings, freestanding single tenant buildings. Think um a coffee shop or a Starbucks or a Dutch Brothers or a Chipotle or a 7-Eleven. These are single tenant buildings that are self-contained, and then um you either keep those or you sell those or whatever. That's right. Yep. But they're smaller buildings, whereas like a huge developer is gonna build a million square foot retail center or or office building that's hundreds of millions of dollars, you're building a single building that could be two million dollars to five million bucks.

SPEAKER_01 13:00

That's right. That's exactly right.

SPEAKER_03 13:01

Yeah. So the risk profile is maybe different there. Um and then the other thing I think it's kind of interesting is a lot of the bigger developers really don't spend a lot of time doing STL development because from their perspective, there's not enough money in it.

SPEAKER_01 13:17

Right.

SPEAKER_03 13:17

They have so many human beings.

SPEAKER_01 13:19

We live off of the scraps that they leave behind.

SPEAKER_03 13:21

It's not so much scraps, but it's like they have so many human beings, like the engine is so big and so hungry. Yeah. If they turned the engine onto a 7-Eleven deal, there would be no money in it for them.

SPEAKER_01 13:32

Well, it's interesting you bring that up. I mean, when I when I joined Terraform, you know, one of the first things that that I wanted to do, I I was I joined Terraform and my role is to help develop business, right? And as I sat down and looked at what Terraform was at that point in time in early 2014, we didn't really have like a defined strategy. There wasn't a core competency that we focused on. It was kind of a, as a development, as a development company, it was kind of a jack of all trades, master of none. And so the deals that Terraform was seeing were deals that had been passed on by all the big name developers in this market, right? Because I mean, if you've got a big deal, why on earth would you take it to Terraform and you can take it to, you know, Boyer or Woodbury or Gardner or all these other great shops, right? And so you know, we didn't really have this strategy or a competitive advantage in any sense, but we had had some experience doing some deals with a few single tenant and at least tenants. They had had a good run with uh Checker Auto Parts, which became O'Reilly's, and with Goodyear Auto as well. And, you know, as we looked at it, we said, you know what? We know how to do these deals. We know how long they should take, we know how much they should cost, we have good relationships to get them done quickly and on budget, and we're willing to really pay attention to them, right? As owners of the business, we're willing to say, this is our core strategy, this is what we want to focus on. And so we felt that there was going to be, you know, at that point in time, there weren't a lot of developers who were focused exclusively on NetLase development.

SPEAKER_03 14:56

And also, just an interesting side note, coming out of 2007, eight, nine, many of those startup single tenant NetLase developers were wiped off of the map.

SPEAKER_02 15:06

Yeah.

SPEAKER_03 15:06

And so coming out of that, like now we're in 2010, 11, 12, 13, there are no single tenant developers left.

SPEAKER_01 15:12

Yeah, there weren't there were many who were focused on it. And so we said, look, let's take this as our strategy. We'll play small ball, for lack of a better term, right? And I can sit across the table from a tenant and I can look them in the eye and say, Look, I care about your deal. I'm not doing anything that's bigger, sexier, that's gonna make me more money. Like, you're it for me. You are my top priority. And you will have owners of the company who will be running your deal from start to finish. We're not gonna pass it off onto the young guy, you know, who's who's brand new in the business. We're gonna focus on it and and we're gonna do a great job and treat you well, and you are our priority. And man, I mean, it really resonated with with a lot of these tenants, you know. And and in addition to that, we were able to go to brokers and say, hey, look, we want to work with you. You represent these great tenants who we'd like to develop for. How can we work together to have this make sense? And if you bring us some deals, what can we do to make that advantageous to you and to your tenant? And so uh it was it was a message that really resonated.

SPEAKER_03 16:06

You're saying something really weird right there. One, I just want to say the success that you guys have had since 2013 or 14, whatever you said, to today, is phenomenal. I I mean I would say you guys are the largest standalone STL developer in the state of Utah. I know you don't care about that kind of thing. I was out of I don't know about that. We don't really track your head already before I even finish this.

SPEAKER_01 16:28

We don't really track it, but it's it's been great. We it uh you know, we're very fortunate, very blessed uh to be where we're at for sure.

SPEAKER_03 16:34

And you were talking about brokers. That's a really weird thing for a developer to say, which is hey, we're reaching out to brokers, we're talking to brokers, we're asking brokers, hey, who do you represent? How can we help your clients? I don't know of a lot of developers that that do that. What's what role do brokers play in your in your development deals?

SPEAKER_01 16:56

Yeah, so I mean, for us, you know, there's there's tenant rep brokers who represent these tenants that that we work with, uh we want to work with, we want to develop for, right? And to a certain extent, sometimes those brokers have a say in, you know, introducing developers to tenants or bringing developers in to execute for their tenants when they need a build-to-suit. And and so we looked at it and we said, look, we want to work with these brokers and we want to treat them with respect and be very generous to them and make sure that they know, hey, we're gonna pay you fees all the way through on this thing. We're gonna respect you and give you every opportunity to make all the commissions in the world. And if you want to invest some equity in these deals, as long as that's okay with your tenant, then you're you're welcome to do that. And so we've we've tried to be uh you know open and and generous. I mean, we've we've tried. I don't know, you know, again, I don't know what other developers do or what they offer, but for us, I mean, there's several brokers that we have awesome working relationships with that we are partners on deals with. And, you know, it's it's been fantastic. And I have brokers in the industry, I mean, like you, that are close friends, you know, that I really enjoy working with and and interacting with. So it's it's been fantastic for us.

SPEAKER_03 18:04

I think a lot of, if not all, of smaller STNL developers have some program where they offer a broker something.

SPEAKER_01 18:12

Yeah, I don't think we're we're unique in that.

SPEAKER_03 18:14

But I actually do think you're unique in that, in my opinion, you guys have had a very consistent program. And it's you just said it like, hey, we'll offer you this, you can get commissions all the way through, like whatever your program is, you say it to the broker, and that's what it is. Whereas in my experience with other developers, it's a little bit of uh you know, nebulous. Yeah. And it's I have a lot of great relationships and I own real estate with other developers, and they're great. They're absolutely great. But none of them have like a program that they would present to a broker. It's more like you come in, you put it together, and hey, what are we gonna do? Okay, this is what we're doing.

SPEAKER_02 18:51

Yeah.

SPEAKER_03 18:52

So I think you guys have been very, very effective in that where you're I don't know if I'd say you're marketing to brokers, but you definitely have a great brokerage network.

SPEAKER_01 19:01

No, I appreciate that. That actually means a lot to me. I mean, from our standpoint, we've looked at it and we've said, look, you know, a broker who's able to direct business for a certain, you know, tenant for a built-to-suit, we want them to look at Terraform and say, I'm gonna make more money with Terraform than I would with any other developer. And I know they're actually going to pay me what they say they're going to pay me. That that's our goal, right? Um, and you know, it sometimes it's hard when when deals don't go the way you intend, right? And sometimes it's it's tough when everybody's making a little bit less money. But by and large, we've we've tried to stick to you know those those goals and treat brokers with with fairness and and with respect and view them as partners on our deals.

SPEAKER_03 19:40

Why do you think every broker wants to be a developer? You've actually you've actually been a broker, so you can you can opine on this better than anybody.

SPEAKER_00 19:48

That's a that's a really good question. Sometimes I think brokers have it better than uh developers, to be honest.

SPEAKER_03 19:52

I've actually heard so many developers say that. Yeah. Which is I think I find very ironic.

SPEAKER_01 19:57

I mean, part of it is the grass is always greener, right? Yeah. I mean, to a certain example.

SPEAKER_03 20:01

You've been on both sides of the grass.

SPEAKER_01 20:03

Yeah. So I I mean, I I think as a broker, you're looking at it saying, if I were a developer, I would be able to control my own destiny to a certain extent, right? Look how much money that developer's making. I can choose deals, I can select what deals I work on, I can make it happen, and I can I can keep deals and have residual income and not have to worry about just doing deal after deal after deal and being on that treadmill. And I think that's the appeal of being a developer.

SPEAKER_03 20:29

Building that passive income.

SPEAKER_01 20:31

Yeah, for sure, for sure. And and having that sense of controlling your own destiny, right? As a developer, I look at it and I say, okay, here's what I think is interesting about brokerage. You don't you don't have the dead deal costs that I have. When deals go bad, I mean, we we lose hundreds of thousands of dollars a year, right? On deals that just don't pan out. And I've already paid money for due diligence costs and engineering costs and design costs and legal fees, and that deals don't always work out, right?

SPEAKER_03 20:58

And so broker has gasoline cost and he went to Jack in the Box that day when he looked at the site.

SPEAKER_01 21:03

Right. So so there's that cost to it. And then I think the other challenge is when the market shifts for us, you know, if the market shifts and and deals are hard to get done. I I can't make rents work for my tenants. What do I pivot to? As a broker, you can look at it and the hope is if it's not a buyer's market, then it's a seller's market. If it's not a landlord's market, then it's a tenant's market, right? You can kind of put on a different hat when the market shifts and turns. I think the hard thing with development is if if the numbers aren't working and the market shifts and tenants aren't able to grow, what do you do? Right for for us as single tenant at least developers. So I think there's definitely pros and cons, right?

SPEAKER_03 21:41

It reminds me of a story. I in 2009, we were right in the trough of the of the Great Recession, right? And we had just started Mountain West, the the brokerage, and uh people developers were getting crushed. I mean, I think you mentioned that was around the time that one of your first venture. Flopped, right?

SPEAKER_02 22:01

Yeah.

SPEAKER_03 22:01

And it was brutal. And I remember I was young, younger, and I remember thinking, man, I'm kind of glad I'm a broker. Like, I really have no dog in this fight. You know? I I had a I had a couple of tenants that were actually doing deals, and it was a blessing, and I was making great money, but I looked around and it and it was devastating. And a guy, Kevin Mortensen, who's a who is a developer, great guy, his son Chris Mortensen, works at Newmark Mountain West, and he came in and he was he was a developer in his prime at the time and he looked at me and he said you should just take a vacation for like two years because we're not doing any deals. And I thought, I didn't even understand what he was saying. I was like, I don't know what he's saying. But like in retrospect, he was kind of right from a developer perspective. Yeah. Like, I don't think he did do a deal for two years during that time.

SPEAKER_01 22:55

I mean, if the numbers don't work, the numbers don't work. Yeah. And you don't want to do deals for practice, right? Or to lose money, right? Like no one's doing that. And so that doesn't work. That's the tough part about being a developer. But that being said, you know, the great thing is we have been able to hold some of our properties and our assets. And it is great to have that passive income stream, and that's available to you as a developer, and you can have certain tax strategies associated with keeping those assets that are very beneficial and great. So the reality is there's there's there's pros and cons to both sides, no question.

SPEAKER_03 23:25

Yeah, I I think I think just yeah, for all those reasons, brokers are always intrigued by the development side and and the institutional side too. You see a lot of brokers jump off and and take institutional jobs, um, probably not as high as the one you had, but you know, whether they're like tenant reps or working in-house at a landlord, etc.

SPEAKER_01 23:44

So but the reality is broker, developer, institutional.

SPEAKER_03 23:48

I mean we're all just dumb CRE guys.

SPEAKER_01 23:50

And you know, they're all great opportunities, man. Like you look at it like we're we're fortunate either way.

SPEAKER_03 23:55

Oh yeah, it's an incredible industry. Let's so I know you personally, and I don't know, I I that's easy where you go with this here. Yeah, I keep going back to this subject when I have had this chance to interview all these super high performing humans, and you're obviously one of them, and I know you personally, and I know how disciplined of a human you are. Probably more disciplined than me, and I have OCD, so you know I don't know about that, but I appreciate that. Well, talk a little bit about that. Like what does that look like to you? Where did that come from? What does that look like in your life today?

SPEAKER_01 24:35

Yeah, that's that's a great question where it came from. I mean, you know, I was raised by parents who were, you know, they really motivated us to work hard. I mean, when I was what, nine, ten years old, my dad had me start a shoe shining business in my basement where I'm calling neighbors to go pick up their shoes and and shine them, you know, Saturday mornings.

SPEAKER_03 24:54

You told me that 15 years ago, and I thought that was such a cool idea that I literally put in my calendar for six years later that I would help my son do the exact same thing.

SPEAKER_01 25:04

You told me that. That's so awesome, man. I love that.

SPEAKER_03 25:06

Such a great idea.

SPEAKER_01 25:07

I love that. So, you know, I think that that kind of idea of work ethic was just instilled from a young age, right? That's what my parents taught. And as I kind of did that throughout my life, it doesn't take long to see that, you know, hard work and grit and perseverance that they pay off, right? And so the more you kind of have that experiment of working hard and that breeds success, I mean, the more encouraging that is, right? So um, yeah, I don't know. I I think that's just something that thankfully has always been kind of part of my life, and I've seen a lot of great benefits from that. I think discipline and and perseverance are are key in any profession, right? Or in any endeavor, for that matter, in life.

SPEAKER_03 25:49

I just I find it interesting and I keep going back to it when I'm interviewing people because I mean, honestly, I haven't had anybody on that was like a slouch, and you're like, so what do you do? I go to 7-Eleven in the morning and I get a slice of pizza and then I wander into work. Like every single person has the same crazy, like disciplined, regimen. This is my schedule, this is what I do, I do the same thing, or whatever.

SPEAKER_01 26:10

Well, it's it's interesting. So I I'm reading this book right now that kind of supports this idea. It's the title of it is grit.

SPEAKER_03 26:16

I think it's by the way, it's 7-Eleven's awesome. I like going there all the time. Just because you go there doesn't mean you're a slouch.

SPEAKER_01 26:21

I appreciate it. They're a kind of ours, so I'm glad you're gonna have to do that. I appreciate that. But you know, the the whole premise of this book, grit, it's talking about the fact that it's not, you know, as they've done the research, it's not necessarily talent or genius that is most correlated with success in life. It's grit and perseverance and determination, right? And I think in my case, that's that's especially true. I I'm not any, you know, smarter, talented, or gifted than than anybody else out there, but I've been able to work hard and and persevere. And, you know, even when my career seemed like it was in shambles and I didn't know where I was going, I would just, I just focused on wherever I'm at. Man, I'm just gonna do the best I can in that role. I'm gonna I'm gonna try to excel and succeed and you know make my boss's life easier or do the best I can in that role. And as I've done that, contingent opportunities have kind of come up, right? And and so of what you're doing. Yeah, and so I I think if you can do that, if you can be gritty and work hard in any role you're in, man, then opportunities will present themselves to you, no question.

SPEAKER_03 27:19

You mentioned 7-Eleven as one of your clients. Well, rattle off a few of your of your clients to us.

SPEAKER_01 27:25

Yeah, so 7-Eleven, uh, Jiffy Lube is one that we've we've done business with for a long time. Uh, we're we're doing quite a few deals right now with Chipotle, uh, Dutch Bros, Kindercare, Mr. Car Wash.

SPEAKER_03 27:36

So some of the hottest names in in retail, yeah.

SPEAKER_01 27:40

Specifically. Yeah, we're we're very fortunate to be doing deals with all those clients. Great groups.

SPEAKER_03 27:43

How does that work? They they contact you whether through a broker or your own relationship, and they say, hey, we want to be out at this city. You find a piece of real estate through the broker, and then how do you put a deal together with a 7-Eleven or whoever?

SPEAKER_01 28:01

Yeah, so a lot of it depends on on the client and uh you know whether they have a broker engaged that they're going to and finding sites and then bringing a developer in after a site is found. Or we have some clients who come to us and say, hey, you know, we need new deals in Billings, Montana, go find a broker for us and we kind of rub it with that process, right? Start to finish. So it it kind of depends. Uh, but generally speaking, either way, whether the tenant's engaging a broker or whether we engage the broker on behalf of the tenant, uh, it's it's about finding that site. And once the site is found, they come to us and say, We'd we'd like you to do a build-a-suit here for us. And that's when we go to work and start working on a site plan to see if the layout works. We start doing our due diligence to see what the costs are going to be, what the city fees are, what the construction is going to cost, where utilities can we bring into the site, how much is it? And really it's putting together that budget and then sending that to the tenant, saying, Here's the numbers, and for this deal to work for us, essentially here's where we need the rent to be. Um, and then seeing if if the deal makes sense and if it pencils.

SPEAKER_03 29:02

And in today's world, it's it's pretty hard. I mean, you got a lot of things going against, we all have a lot of things going against us in commercial real estate. You got incredibly high land prices, you've got high construction costs, interest rates won't go down no matter what we do. Yeah, they just keep going up on us. Yeah.

SPEAKER_01 29:21

Cap rates have decompressed.

SPEAKER_03 29:23

Cap rates, yeah. You got cap rate expansion that's happening. Yeah. Although retail cap rates still remain relatively compressed. But it's like you have all these factors, and and the process you just explained, you get through all of those things and you're finally like, okay, we did it. We built the Chipotle, we're gonna sell it, and interest rates expand, which means cap rates probably expand too.

SPEAKER_00 29:45

Right.

SPEAKER_03 29:45

Meaning the cap rate goes from a six cap to a seven cap and it wipes out all of your or a lot of your equity. Yeah, for sure. I mean, the risks are enormous.

SPEAKER_01 29:54

That's that's the risk of being a developer right there. I mean, you outlined it perfectly. And we had deals where you know, we got into them and the process maybe took a little longer than we anticipated, and we perform at a certain cap rate, and with interest rates going up, by the time we got done, cap rates had decompressed quite a bit, and that's all your margin.

SPEAKER_03 30:13

Everybody shook hands and walked away. Those away, yeah, for real.

SPEAKER_01 30:16

I mean, you say that. I'm like, maybe I should take a vacation for two years. Don't do that. Uh no, but you know, it it's it's been tough. I mean, back several years ago when construction costs were just skyrocketing. I mean, you remember that back in like 17, 18, 19, they were just going crazy. And so we do these proformas, and you know, I mean, it's we're 18 months before we see money on a deal, right? From start to finish for sure. And by the time we were finishing these deals, I mean, we blew our construction budget by massive amounts, but our cap rates had decompressed by 50, 75 basis points.

SPEAKER_03 30:46

So it kind of caught up.

SPEAKER_01 30:47

And so that was that was saving us, right? We're like, oh, construction costs are high, whatever. We just sold that at a four cap and we pro forma at a five cap. So high five, right?

SPEAKER_03 30:54

It is it is easier to make money when when cap rates are at four. Yeah. Or three and a half. For sure. For sure.

SPEAKER_01 30:58

For the record. But the challenge now has been exactly what you said. I mean, construction costs aren't skyrocketing like they were. They've stabilized, but it's not like they're dropping as fast as they came up.

SPEAKER_02 31:07

No.

SPEAKER_01 31:08

And interest rates are higher, financing costs are higher, cap rates are higher. And so for us, the only lever we've had to pull is rent, right? It's going to our tenants and saying, for us to make money on this deal, I'm sorry, but we need higher rent. Yeah. And you can only have that conversation so many times until it just doesn't work.

SPEAKER_03 31:24

That's not that's not an infinite expansion conversation. Like you can't go from $25 a square foot in rent to $100. It's like most tenants are just gonna say, we can't do the sales there. It's a it's a function of sales, and we're just not seeing the sales growth.

SPEAKER_02 31:40

Yeah.

SPEAKER_03 31:40

The sales growth is definitely not keeping pace with construction inflation, land price inflation, cap rates, all that stuff.

SPEAKER_01 31:49

Yeah. And so what's interesting about that is you hear the tenants that we're working with right now, and those are tenants whose cap rates, while they're maybe not as low as they were several years ago, they're still relatively low, right? Those are good quality national credit tenants, and there's still an appetite for those type of investments. And those are the tenants that we're still able to make deals work for.

SPEAKER_03 32:09

Yeah, which is great. I mean, it's great for you. Those are really the hottest tenants in in commercial real estate, especially retail right now. So it's a pretty cool concept. What do you, what's your favorite thing to develop?

SPEAKER_02 32:21

Whew.

SPEAKER_01 32:23

I mean, God, what we develop is almost the same every time, right? I mean, a single tenant at least, right? I will tell you, uh, there are certain deals that are harder to develop, like a Mr. Car wash. That's that's a hard, that's a hard construction project to manage, right?

SPEAKER_03 32:36

Which from a numbers perspective?

SPEAKER_01 32:37

No, just from a detailed perspective. Yeah, right. I mean cities don't love car washes, these are cities don't love car washes and then just the intricacies of all the machinery and the water lines and the vacuum lines. And I mean, I don't manage construction for Terraform, and so to a certain extent, not my problem. Sorry, JT, right? But those are harder to develop than a Chipotle, right? It doesn't have the same level of detail in the building. Um, so those are from a construction standpoint, those are definitely more involved, and you've got to be more on your game. But I mean, you know, JT and Joe at our office who oversee construction management for Terraform, they do a they do a phenomenal job.

SPEAKER_03 33:12

So, one of my last questions for you. You've got all this incredible success and the company's going crazy and life is good. Finally got yourself in that work-life balance place where you want to be. Why not go bigger? You've already got an incredible footprint, you've got a great track record, you got great relationships. Why not go from doing STL to doing shopping centers?

SPEAKER_01 33:36

Make the big money. That's a good question.

SPEAKER_03 33:39

Um I'm not trying to get you to do that.

SPEAKER_01 33:41

Yeah, you guys got a deal for me, bro. Let's do this. Yeah, so we've had a lot of conversations about that, uh, about what growth looks like for Terraform. And, you know, we have really tried to position ourselves as providing very high level of service in the NetLeast development space, right? And part of that is, you know, the owners of the company, the partners who have a vested interest in every deal that happens, they're the ones who are also running the deals. And our fear, our concern is if we if we grow and we expand, do we lose a little bit of what makes Terraform special? Right. And, you know, to a certain extent, what what does that look like if we get too far outside of our lane and outside of our box and outside of of what we know? And so, you know, we're swinging at every pitch. Yeah. And so for us, you know, we have a certain deal capacity that we can manage with myself, my two partners, and and our awesome team that we have. And we've looked at it and said, okay, let's let's level up our deals and the quality of deals that we do and the clients that we work with. And that's how we've chosen to kind of grow, uh, if you will, and and enhance our company because we do want to still be consistent in our delivery and in what we and in what we provide.

SPEAKER_03 35:03

I love it. Jason Smith, Terraform, great guy, incredible developer, has a really cool niche, and bigger is not always better. You can find an awesome niche and you can maximize that niche and make an incredible living and still be a great dad and a great husband. I appreciate that, man. Accomplish all the cool stuff you want to do.

SPEAKER_01 35:26

It's worked well for us. I mean, it does, you know, it allows us to maintain that that work-life balance, and uh man, we're we're in a good spot. We're blessed, but it's always about uh continuing to improve and be better as well. Awesome.

SPEAKER_03 35:39

Thank you. Appreciate it.

SPEAKER_01 35:40

Yeah, thanks for having me on, brothers.

SPEAKER_03 35:44

We did it again!