FlexSpace: The Best-Kept Secret in Commercial Real Estate w/ Hamza Ali

234: In this episode of the REtipster Podcast, I sit down with Hamza Ali, a FlexSpace developer who has built a $370M+ portfolio in one of the most underrated corners of commercial real estate.

(Show Notes: REtipster.com/234)

Originally from Dubai, Hamza moved to the U.S. less than a decade ago and carved out a niche in Flex industrial real estate, an asset class that most investors don’t yet understand. In fact, Hamza played a key role in popularizing the term “FlexSpace” itself.

We dive deep into how he chooses sites, avoids bad deals, maximizes ROI, and why he's moving from selling FlexSpace to holding it for cash flow. If you've ever considered commercial real estate but didn't want to deal with huge apartment complexes or massive warehouses, FlexSpace might be exactly what you're looking for.

You’ll also hear Hamza’s insights on design mistakes, leasing strategies, fire code rules, tenant types, and how to test demand in your market with Facebook ads before you build.

If you're serious about building long-term wealth with a high-performing, low-maintenance asset class, this episode is a must-listen.

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Transcript

0:37

Hey, everybody, how's it going? This is Seth Williams. You're listening to the REtipster podcast. This is episode 234, and today I'm talking with Hamza Ali, a commercial real estate investor who has built a portfolio of over $370 million in flex industrial space. Originally from Dubai, Hamza came to the US less than a decade ago with a vision for what was possible in real estate. He started out in a multifamily, but quickly pivoted to flex space, and he hasn't looked back. In this conversation, we're going to unpack what FlexSpace even is and why it's such an attractive investment right now and how you can run the numbers to make deals pencil out. Hamza is also going to share his tenant insights, design trends, and some common mistakes investors make when they overlook this niche and also some common mistakes that people make when they get into it. So if you've ever wondered how to get into commercial real estate without jumping into the huge apartment complexes or giant distribution centers, you're going to get a ton of value from this discussion. So Hamza, welcome. How's it going? Good. How are you? I'm very good. Long time no see. Yeah, I know. Yeah, me and Hamza met for about 10 seconds at the Supercars event back in 2024. And that's really all we've talked. So I'm excited to get to know you a little bit better. Absolutely. I'm glad to be here, man. Yeah. The way we start most of these things is just getting your backstory. So how did you first get into real estate investing? How did you get to where you are now where you've decided to focus on this very specific commercial niche? Well, it's interesting. I've been in real estate since I was 17 in Dubai. I used to be a broker. I worked for a large developer. I mean, a lot of people know my story. I think what really helped me is that I understood real estate investors from a very young age. And I was exposed to large dollar transactions at a very young age. It wasn't my transactions. It was other people's transactions. And I was just facilitating as a broker. And so it all end of the day comes down to risk and how much risk you can tolerate. And I think learning from other people at such a young age and seeing them take these huge risks, you know, on things that at the time I didn't understand really allowed me to better understand yeah okay this is worth the risk or this is not worth the risk on. Social media people look at me and they look at me at this like high flying sort of just talking about flex space and just pushing and hyping the asset class but in reality you know I studied this very well prior to coming to America I actually enjoyed the world of flex back home in our industrial areas and at that time It was sort of what you would do because, you know, there wasn't much to do outside of cars and stuff like that. Of course, Dubai is a completely different city now. But when I was growing up in the 80s and the 90s, you know, this is sort of where we spent most of our time at the shops, you know, doing things. So pretty well addressed, loving of flex even before I came to America. Dubai is a really interesting city. I'm curious, what was it that you saw in the U.S. that you didn't see there? Why make the move? And like, how do the two markets compare? Yeah, so I invest in both countries. I'm invested in Dubai. I developed Flex there in an area called the Emirates Industrial City. I also obviously invest here. But when I came here initially, it was right after the recession. So 2008 was really rough. Dubai went through a significantly rough recession because, you know, a lot of people left. There's not too much of a local population. And so the reality was people who didn't see value just left the country. And I'm sure there are stories that you guys have heard. I'm not going to repeat them over and over again. about what happened to Dubai and how big of a ghost city it became around that time. Of course, all of that is history now. The city's thriving and it's a great place to be. I enjoy investing in both cities. When you say both cities, Dubai is the first city. What's the other one? Houston, Texas. Houston. Okay. Like, is there more opportunity in the US or Houston specifically? Or what are the good and bad of working here versus working there? I think the market is significantly larger. Access to capital is also relatively easier here. And the debt, right? So let's talk about that a little bit. Although I grew up and Dubai. I was born and raised there. I'm not an Emirati citizen. So as a result, access to debt becomes very difficult in Dubai, even for people like me. Now, obviously, there are ways around it. I could partner with people locally who I can. It's not a big deal. But I always thought if I want to grow, there has to be some easier ways to access debt. And the US, believe it or not, is probably one of the easiest places you can get debt. And this is, I think, not a lot of people understand. And a lot of people maybe take for granted because they don't come from abroad. But this is probably the biggest factor that was a game changer, maybe even a decision maker for me, just the ability to get debt. Now, I'm not saying it's easy. I'm not saying you go out there, you land and next day you're going to get debt. But it is relatively easier if you work through the system to access debt and capital as well. That's actually a great perspective. I don't think a lot of people who live here do understand that necessarily. I mean, they just kind of know this world and that's it. But that's an important thing to distinguish for sure. So FlexSpace, for those who don't even know what we're talking about when we say that, what is FlexSpace? FlexSpace is basically a combination of office and warehouses, but it's very interesting. I'll give you a backstory. I actually invented the term. You did? Really? It's very interesting. Okay, so four years ago, literally four years ago, nobody knew exactly what the definition of flex space specifically was. Those two words together, flex and space, nobody really knew what that was. So I remember sitting in a meeting room four years ago, and I decided, you know what, I want to make this asset class the number one asset class in America. And there was a lot of talk around small bay warehouses, office warehouses, flex bays, flex space. And if you Google flex space, maybe even till today, you would get a lot of those WeWork type shared office situations, but it wasn't really clear. Every time you Google it, you'd get that in a mix of like some type of industrial warehouse type setup, or even maybe a shared warehouse type setup where they're sharing shelf space and whatnot. The reason I actually chose those two words was because the cost per click was relatively cheap. Hamza Invest's commercial real estate was very expensive. It was like a dollar and something. Commercial real estate was extremely expensive on Google at that time. It was like over $2, the CPC. And then I found this niche and it was FlexSpace and it was pennies compared to everything else. So nobody was fighting for it on the internet. The term was literally unused, unclear. And the uphill battle for me was to bring more awareness towards the word, the actual word FlexSpace, because I was ready to start a network. And so we called it the FlexSpace Network. And believe it or not, the first year, people would sign up to get on calls with my team. And the first question was, so what is FlexSpace? And that was literally one year of us just, drilling down on FlexSpace, what is FlexSpace, posting videos, images, explaining the asset class in detail to get as much awareness as we could. It took us about two years to really have people come in and be like, oh yeah, FlexSpace, we know what that is. Yeah. Okay. Let's talk. You know? And that's interesting because I've actually had this struggle when I talk to people and try to explain what this is. I don't even know what I'm supposed to say, like what term to use because, you know, other things I've heard is like light industrial space or mixed use industrial office space or business parks. I mean, there's tons of different versions of what you could call this. Is FlexSpace, do you think that's like the universal term now? Or is there another one where it's like you say this and the commercial broker knows exactly what you're talking about or anybody knows you're talking about? Ever since we've made it our mission to build more awareness around it, even LoopNet now has FlexSpace. And it's actually pretty cool because it is actual FlexSpace, right? It's no longer like a lost in translation asset class. However, I will say this, we are coming up with a new term. To make it even more confusing for us? Yes. So the next three years, another uphill battle, coming up with a new term, and it's going to be pretty interesting. And we'll see, you know, maybe it catches, maybe it doesn't. Who knows? Maybe it'll be one of those things where we're stuck with FlexSpace. Are you going to tell us what the term is or we have to wait and see? No, no, not yet. September 24th is when we make the announcement. Okay, interesting. I guess just to make sure that we're on the same page and that our audience understands. So when I hear flex space, what I'm thinking in my mind is like one of these long, maybe 40 by 50 foot units where there's a 12 to 14 foot roll up door where somebody can pull in a big truck or a couple of cars. And then there's maybe an office with a bathroom in it, maybe a mezzanine in the back so people can go up to the top, have a separate space up there. Maybe there's a shower in there. I don't know. But is that what you're talking about when you say flex space or is there a different picture you would paint? Basically five to 10,000 square foot metal buildings that have four to six bays, individual bays. And each bay has exactly like what you said, a roll-up door and an office. In some cases, we do have showers in there. And in some cases, yeah, tenants like mezzanine floors to be able to either store stuff or even office upstairs and do their business downstairs. That's one of my questions. I don't know how you typically build these things, but. Per unit? Is it one of those roll-up doors in the front and the back so you can pull a vehicle all the way through and then like a separate door that you just open up to walk in? Or does it make sense to have like three of those bay doors per unit? What's the most optimal way to set these things up? Like you said, I came from a multifamily background. I like the fact that there's multiple tenants in a property, right? It allows for occupancy to be sort of regulated. And also my vacancies, if I have any, they're not too dramatic. They're not too big. It's not like I'm going from 100% occupancy to 50% occupancy if one of my tenants decides to leave, right? For whatever reason. With that being said, we design all the bays to be individualized. So meaning one bay, one door, per tenant, per business. And that's generally around just below 2,000 square feet. So it could be like, let's say, 1,500 to 2,000 square feet, depending on the length and the width of the building, right? The idea here was that if a tenant wanted more space, we could just remove the demising wall in between two spaces or three spaces. And then that way they get three bays, they get three offices, they get three bathrooms. Or some tenants, what they do is they come before you put the walls up and they're like, hey, listen, we just want one office, one bathroom, but we need the rest of the space open and we need the three bays. So it actually works out better for us because it's cheaper to build because we're not building the demising walls. And the demising walls, just to clarify, are the walls that go in between each tenant. So each business, right? They're fire rated. They're two hour plus walls. They're relatively expensive to build. It depends on how high you're going, obviously. Out of the entire cost of your interior build out, those walls are probably a big factor that people need to take into consideration. I mean, do you think it makes sense to find tenants and get them lined up before you even build it to make sure you're not overspending on those walls? So the way we do it is we will finish out about 30% of our projects. So let's say we're building a project now. The projects have gotten significantly larger since I first started, but let's say just for the sake of conversation, it's a four building project and each building is 10,000 square feet. So 40,000 square feet, we will actually go ahead and build out an entire building finished. So with all the demising walls, with all the offices, because our goal is to be able to get tenants in there as fast as possible. And if you customize, it takes time. There's going to be permitting, there's going to be added delays that we don't need. So we get them in. And the cool thing is that first building acts as a showcase building for us. So like the second building. Now, here you go. We can take more time. We can sort of customize according to what the tenant wants because we already have cash flow coming in from our first building. Gotcha. And I guess another thing to understand the way that you run this business is you build these things from the ground up and then you sell them, right? That's your model. My model has been sell, sell, sell as fast as I can. Sometimes it takes me a year, sometimes two, sometimes three, depending on the project. I'm actually going through the process of now building something that I'm going to hold. And the cash flows are significant. You know, when you hold these, I think they cash flow very well and, Because there's so little maintenance and management, it just makes sense now for me to sort of hold these things a little longer. Yeah. Whenever I look at this kind of thing, that's what I have in my mind. It's like, I'm doing this for the cash flow. But how do you make that decision? Like, what would make you say, no, I'm building it to sell versus the cash flow? Like, do certain numbers have to be in the right place? Or is it just like what you want right now in your life? I want cash flow more than I want a giant paycheck. I think it's a lifestyle choice, especially in flex. I don't think anybody would want cash flow just because, you know, when you sell and especially when you're building these ground up, the appreciation is so large in the grand scheme of things. I don't think I would have gotten here by cash flowing my very first deal. Right. I have to sell in order to recapture all the principal plus the profits and then move them into the next deal. I could refi out, but that would also slow us down significantly. Right. If you have a pipeline for the next five years, it just makes sense to sell and build and sell and build and then keep moving on. Now, the reason I'm starting to like cash flows, as you know, the past couple of years have not been easy on real estate. Believe it or not, as much as I like to hype all real estate and more specifically flex space, we are seeing a little bit of a slowdown in certain parts of the country, even when it comes to flex. So you have to be careful. In these times, however, all the businesses, all the tenants that have held steady are still there. So we haven't gone through the all businesses are shutting down type situation because most of them are essential. They're all on-field businesses and they're essential businesses. They're necessary businesses to keep America going. And so as a result, what I'm noticing is that while everybody else is sort of complaining a little bit about real estate, and when I say that. Apart from the land guys, I think everybody else is starting to complain because everybody was expecting rates to come down by now or insurance premiums to come down by now or taxes not to go up as much. That hasn't happened, unfortunately, just yet. I think this while we speak is probably the first quarter where insurance premiums are now starting to come down and everybody's like. Seeing that light at the end of the tunnel. And who knows how long it'll be till that happens, right? I think in these types of extended periods of slow, I think cashflow is great. I don't see anything wrong with that. If you're getting cashflow, you can always sell your development whenever you decide. It's not like just because I'm cashflowing it today, I'm not going to sell it tomorrow. I think cashflow is good to have. Yeah. Yeah. On the whole cashflow piece or building these to hold them, what does management look like on these? Is it set up as a triple net lease or how much work is there? Say if you've got like a four tenant building, there's a separate business in each one of these spaces. What's involved with that? Leases are pretty simple. I would say it depends on where you are in the country. When I first started in FlexSpace 10 years ago, it was a gross lease. There was no triple net. The tenants actually ran away. If you told them, hey, it's a triple net lease. And you tried to explain the terms of a triple net to the FlexSpace tenant, they would literally run away, right? they're like, oh, we don't want to deal with this. It's complicated. Just give us the final amount. What is it going to be? And we're going to sign. Unfortunately, insurance premiums go up, taxes go up, everything goes up. So now as a result, most of our leases are either modified gross or triple net. It depends where we are in the country. We are still not in a place where everybody and anybody can charge triple net. You have to be in a market where you can. And obviously, if you're in a primary market, that's great. Secondary market, you can probably get away with like a modified gross lease. If you're in a tertiary market, just give them the bottom line, what it's going to be every month, and then price increases as time progresses. What is a modified gross lease? Modified gross lease will be a gross lease. Maybe it has one of the ends or two of the ends of the triple net, and you can change a couple of things in that lease. But outside of that, your dollar amount stays relatively the same. So maybe, for example, you have like a gross lease plus added bills or whatever that is, you know, your water bill, and that changes every month. Or, you know, if you have gas on the property and it's just one meter, you know, you distribute that amongst your tenants. And so basically, you're modifying certain parts of it. Okay. So is it like a single net or double net lease? Yeah, probably. I would say very close to a double net lease. I would say a double net lease is as close as you'll get. Yeah. Sure. Okay. If anybody's not familiar with those terms, it's pretty important to know if you're ever getting in the commercial space. Right. I'll include a couple of resources in the show notes for this, retipster.com forward slash 234. You can check that out. I am wondering off the whole management piece of it. So I've got a friend who used to own a four-unit one of these, but it was a pretty old building. It was built long before this was a popular thing. And he said that the tenants would often get in fights with each other, usually over parking or garbage and that kind of thing. Does that ever happen with your properties? Or is there a way to build them so that these tenant conflicts don't happen? Yeah. So I would say when you build new, the tenant profile is a little different than when you build old or when you buy old. It just depends, which is why I'm very specific on building new. And a lot of people tell me, why don't you just take something old? And, you know, because the older product, you'll probably get a 10 cap or the cap rate will be at 10%, right? With the older product, depending on how you buy. With the newer product, depending on how you build, the cap rate might be lower, but the tenant quality or the types of businesses rather are going to be a little more elevated, which is what we want. Those tenants don't really generally end up fighting. They will communicate through a property manager. And we'll try to resolve that with a property manager. Now, that being said, as you know, since I did come from a multifamily background, we are geared to cater to all sorts of issues that tenants may have with each other. And if I were to compare how many times I had tenants having altercations in multifamily versus flex, it's probably a 95% drop between multifamily and flex. And also, just to give you an idea. With multifamily, once you pass around 400 to 500 doors, the tenant may look good on paper, and that's great. But once you get them in, you really can't control personalities and neighbors and upstairs, downstairs neighbors. And that's something that we actually don't see in flex. The maximum issue, like you said, is probably somebody's parking in somebody else's spot, and that car needs to be moved. And it's pretty easy to get that done in comparison to other asset classes and their issues. On that whole note of like building them right, I learned this when I built my first self-storage facility. Some of the lessons were learned during the building process. Like, oh, this is an issue that you should watch out for. Design it this way, not that way. And some of the things I didn't learn until like a couple years after it was built. You need the full 12-month season to go by to understand different weather patterns and how it affects the way you built it and all this stuff. Anyway, my point is there's tons of stuff that you learn from building something with all the properties that you have built. Do any things come to mind that are some of the biggest lessons like, oh, it's really important to build it like this and not that? Things that the average general contractor or owner might not know or understand. Like if you could give me a warning sign, if you know that I'm about to build one of these, you're like, Seth, be really careful about this. Don't do that. What would you tell me? I would say don't build parallel to the road. Always build perpendicular. If you're going to do one driveway. One entrance to your property as opposed to two, make sure that it loops around and then comes back out and you are not disrupting the flow of traffic because sometimes you get bigger vehicles and then maneuverability between tenants and bigger vehicles becomes an issue. But number one thing I suggest, and I always tell people, is build perpendicular to the street. And what that means is if you are driving on a street and you turn to look at one of these flex spaces, you should be able to see the last bay, even the last bay of your development. So the last building that's furthest away from the street, you should be able to see it. A lot of people think that frontage is important, like retail, and they'll build parallel to the road, right? And then behind that, they'll start building these flex spaces parallel. That is a huge disadvantage, and it actually disrupts the flow, and it's not as smooth as it could be. So the doors would actually be not facing the road. Yeah. So you don't want to build it like a shopping center, you know, where all of the visibility is being blocked by the building. You want to actually make sure that you can see all the bays as you drive by. Interesting. Being able to see the business name on the front of the unit, like that doesn't really matter. That's not why people get these steps in. No, I think with Flex, this is very interesting. With Flex, nobody's really looking for frontage because their businesses don't rely on only street traffic. You may get a gym here and there. You know, you may get some type of retail businesses that need a little bit of frontage, but that doesn't mean that they need to be like on the street. You know what I mean? Most flex tenants are okay, just working. Either the business comes to them. Or they go to the business. So this is another thing about Flex that maybe other asset classes don't have. A lot of our businesses, I would say about 50% of our businesses actually go somewhere to do business. They're not doing businesses in the specific unit. Interesting. On that note, so I know one of the benefits of FlexSpace is that there's like so many different types of tenants in businesses that can occupy this. It's not like a tunnel car wash where it's like, that's the only type of business that can operate here is a tunnel car wash. If you're any other type of business, sorry, see you later. So what would you say is like the most common types of tenants to build this for? Like if you could paint the picture of who those people are, like we're the most common occupants. I would say largest tenant is usually after school curriculum, physical activity for kids, largest, like they come in, they want 10, 15, 20,000 square feet, you know, whatever it is, whether it's tumble, some type of like baseball, basketball. And now, of course, we have paddle, we have pickleball, we have all of this, but specifically geared towards the youth, where parents are coming in, they're watching their kids as they engage in these activities. Now, they want larger spaces. So if someone's thinking about building flexes, someone's trying to develop flex, make sure you build something that could cater potentially to those type of businesses. Smallest tenants, I would say, are probably the e-commerce guys. Yes, there's plenty of them that come in, but they don't actually take up too much space. They're probably your 1,500 to 2,000 square footers storage facilities. They have a couple of things moving in and out every day, but they're the smallest in footprint, I would say. As far as businesses, obviously, automotive is pretty big. One of our larger tenants is actually a Tesla battery repair facility. And what they do is they, instead of taking your car to Tesla and paying, I don't know, tens of thousands of dollars, I think, to replace one of those, they can actually pick out the individual cell. you pay like one-tenth the price, right? And all they do is they repair Teslas. That's a pretty big one. And then of course, you have all the other automotive services, like your wrap facilities, your detail guys. Detail is pretty big in automotive right now. All the different coatings and colors and things that you can do to your car. And that's pretty big. And I would say 30% of our tenant profile is actually in the automotive space. So on that, we're talking about automotive. That's a very different thing than like after-school daycare facility. I don't know if that's the kind of thing, but would you suggest building these to be like high-end, like do full insulation, like big, thick baseboards, like make it nice so anybody can use it? Or is there an argument to be made for, I'm going to make this thing as cheap as I can, just bare bones, doesn't need to be fancy. Like, how do you approach that? I think the time for cheap is gone. There was a time, and I won't lie, probably the most amount of money was made during that time. But I think that ship has sailed. We are now in a much different market. Tenants are much more sophisticated. The businesses themselves are much more sophisticated. And as a result, in order to have a successful development, you will have to build it a little nicer. I'm not going to say you need to go all out, but insulation is a must, obviously. It's no longer an option. It's a must. Certain amounts of glass is also a must. In the past, we would avoid glass as much as we could. And when I say glass, I mean, you know, when you're entering the office, imagine looking at like a retail type setup, you know, with glass, as opposed to maybe these itty bitty windows that we used to put in the past to just mimic the effect. Right now, tenants are actually looking for better quality product, but also at the same time, they're willing to pay. So in the past, supply and demand, right? Tenants weren't willing to pay, so you build it as cheap as possible. And then as now the tenants are getting more sophisticated, they want a better product, but they're also willing to pay for the product. Yeah, yeah. I'm wondering like, what part of town should these things be in? Or like, what should the surroundings be? If I'm thinking of like automotive, seems like the ideal surrounding for that would look one way. But if I'm thinking pickleball or daycare facility, I mean, that's a totally different thing. So like, if I'm trying to select a site for where I should build this, like, does it need to be near a highway? Does it need to be a lot of traffic? Can it be like behind a bunch of buildings? You can't even see it. Tell me about how do you select the site? It's actually quite simple. We drive 45 minutes out from downtowns in big cities. And that's sort of ideally where we would want to be. Now, in most cases, that land is also now all bought up. So we will drive an additional 20 minutes, let's say an hour out from your downtown. If you are in a big city like Houston, Texas, if you're in a smaller city, let's say 20 minutes outside of your downtown is probably where you're going to start seeing all these other communities, neighborhoods. And that's where you really want to build because you sort of become the community center for everything that people need, right? So there needs to be suburban developments close by or some type of traffic that comes from homes. Now, if you're talking about drive-thru traffic, that's not really required with Flex. We're not like retail. It's not something that really adds value to our project. However. You also don't want to be behind the building anymore, unless you're in the Northeast or in parts of California where, you know, things are just so expensive. You need to justify a mixed use type development where you're going to build retail up front or offices up front. And then you're going to do these warehouses in the back. Outside of that, there is no circumstance where you want to not be visible from the street. Okay. So is proximity to a highway important? Yeah, definitely. You definitely want to be on what we call the high growth corridor areas, wherever they are in your state or city or town or whatever it is. How far away from a highway do you think is too far? We have properties that are probably five miles away, but our city is big, right? So five miles away means you're in the heart of some type of residential development that's coming and there's a lot of homes being built in the area or we're just built in the area. And that's sort of where we want to be. I think with the smaller FlexSpace tenants, you're not really catering to logistics. You're not really catering to anything transport related. The highway access is just so that whatever residents are coming to your FlexSpace development have easier access. I would say for us, it is very rare for us to cater outside the community that we build in. So for example, I'm building a new development in Southwest Houston. I expect that development to be entirely catering to that southwest area. I don't think there's going to be people from the north of Houston driving 40 minutes to come to one of my tenants. With. The function of the highway is not ease of access. It's just ease of access for the residents who are then ultimately going to be your customers. Yeah, yeah, totally. One of the issues I'm having in my market, I'm in Grand Rapids, Michigan. Maybe I'm just not looking in the right places, but it feels like there's not much flex space in existence and the stuff that I can find, if I use that as my comps, the amount that that space is renting for is not enough to justify the cost of building a new one. But I don't know if it's a situation where there is demand for it and people would pay it. It just doesn't exist yet. So there's no comps to go by. How do you get confident that like, if I build this thing, the people will come and they will pay for it. What's your process for that? I'm very comfortable with high risk. So for me, that's not even a question. Like if I can see it, if I can envision it and it's going to happen, I'll just do it. And then, you know, deal with the consequences at a later time. But I will tell you this firsthand, Michigan is what we call a trade market. So Michigan is actually not a tenant-friendly market. And what I mean by that is most people who are building these are actually selling them because the delta on the sale is significant. However, if you start putting tenants in them, you're not actually recapturing the rents that you would have hoped. Now, I'm not saying all of Michigan is like that. Obviously, I'm not aware of every part of Michigan, but a lot of places in Michigan that we have explored tend to trade better than they tend to rent. And so if you're running comps, I would obviously look at the comps for the trade, like what are things selling for? And let's say they're selling for, I don't know, over $200 a square foot, a little older product, because just like you said, there's nothing new. Maybe like really rundown product is like at 140 to 170 a square foot. So $140 to $170 a square foot. And this is just me guesstimating. Okay. So that means you have something to now reverse engineer and figure out, okay, if I build this for like, let's say 150, I have a 30, 40, $50 margin. Now, rule of thumb for us to even get involved in a project is we need a $70 margin. So if that $70 margin does not exist, we will not touch the entire market. What you mean by that is the cost to build versus the cost you would sell it for? Correct. Okay. Gotcha. That's probably number one on our list. We need $70 in margin. So let's say I'm today building in Houston, Texas for 150, I need to be able to sell for $225 a square foot in order for it to pencil out, right? Now, just to be clear, when you're building for 150, two thirds of that is debt. So you need $50 out of pocket, which is your principal, which is your equity to get started. So $50 of equity brings you $75 off margin towards the end of the product. Okay. No, that's helpful. I hadn't even heard those numbers. That's good to know. So going back to what we were previously talking about with site selection and, you know, proximity to the highway and that kind of thing, is it a dumb idea to build this really far off from a city, like in the middle of nowhere, as long as it's near a highway exit? Like, does that not make sense? Like, it actually kind of does need to be close to houses in the city in some fashion. Yeah. So you'd be catering to a completely different target audience. The demographic would be like, you know, completely different. It would be maybe more industrial, more logistics, that type of thing. And more service. So that means people are leasing, you know, wherever you're building, but then they're driving out to their customers. It could be an HVAC company, it could be plumbing, it could be electricians, you know, those type of things. I would say not a bad idea. Obviously needs to be studied a little further. And there are ways that you can test markets today. It's very easy and very cheap to actually test markets and see what type of results you're getting. How do you do that? Is that a feasibility study or something? Yeah. So a very easy feasibility study. And I actually talk about this a lot in the FlexSpace network because the reality is people come to me all the time and they're like, hey, what's the best market? I'm like, I don't know. You know, I know my markets. I don't know all the best markets. but there's a very easy way for people to test that you can just run facebook ads on some flex space type development in your neighborhood whatever you know zip code you're targeting get the feedback get the lead forms call them see if there's genuine interest and then make a decision on yes i want to build here or no i don't want to build here you can test multiple markets at the same time and see what your cost per click is you know you can get into the data if you really enjoy that to see which market is best you know we have people who are very analytical like they need the information. Unfortunately, the information doesn't exist online. The asset class is just too new. And all the information you're going to get off of CoStar or LoopNet or Crexie or whatever it is, is going to be dated or is going to be diluted because of the larger industrial. For them, it's industrial as a whole. And so as a result, you don't get the information that you want specifically for your use. So I would say just run Facebook ads. It's become so easy now with AI and stuff like that. If you don't have the skill, hire a virtual assistant from Upwork. They're so easy to work with and they're so professional. Very easy to run ads and just test your market. Make sure you're good before you make a decision. I think that's a great idea. Do you have like a template for when you run these ads, the ad should say this. When they click on it, the form should ask these questions. You should price it like this. Do you have any clear examples to follow? I'm not gatekeeping or anything, but this is information that we provide all our members in the FlexSpace network. You know, we have a step-by-step playbook for this scenario and probably hundreds of other scenarios. So that everybody can do the amount of testing that they need before they enter a market. Sure. And this is flexspace.network? Correct. Yeah. Gotcha. If I want to build one of these things, but I don't know any builders that have built this exact kind of thing, what kind of general contractor should I be hiring? Can I just find any home builder? Is that enough expertise to build this? Or do I need to get a commercial contractor? The reality is the building is not difficult, very easy, just like self-storage. You know, I think you could hire a home builder to build self-storage. I don't think you could hire them to design a self-storage because as you said, you know, there are things that you learn and they take time and the flows and all that. So when it comes to your architect, engineer, any other consultant you hire, make sure they're specific to either self-storage or flex just so that they get the flows, you know, the J-turns, the fire truck areas, maybe even ramps if you have them for the development, maybe even your lift stations, where to place them. But when it comes to building, I've seen people actually do this single-handedly, meaning not even hire general contractors and just do it themselves. I have this guy out of Seguin in Texas, which is not too far from where I live. He actually had a landscaping company and he had excess people because of his commercial landscaping business. He actually built the whole thing himself and he sourced the building. He knows how to do the concrete work. It was probably one of the best landscaped flex spaces I have ever seen in my life. It was amazing. When you think of all the different flex space projects that you have built, do you have anything in mind that you look back on it and you think, man, that was like the perfect development, like something that if I could have everybody model and mimic what I did here because I did such a great job, this would be the one. Does that exist? I think all of them are good stories for me to tell one day. I regret selling each and every one of them because the person that sold after me just made so much more money. The reality is, is that you want to build for your market. So don't overcomplicate. If you are in a traditional market, like let's say, for example, parts of San Antonio, find out what the color scheme is that your tenants like. It could be more earthy tones. So like your light yellows, your brick is more traditional in the brown palette, your accessories, which is your drainage and all that will probably be dark brown, very San Antonio vibe. That's what tenants like. I'm not reinventing the wheel here, right? If I'm building in Austin, Texas, which is completely different than San Antonio, maybe I'll go with the darker grays. Maybe I'll add a little bit of color, greens, blues. The market is different. The target audience is different. The vibe is, so to speak, different. So you have to kind of cater. To what's already working. We have never gone into a market and tried to reinvent and say, hey, we're going to come in with this flashy color scheme when the market does not require it. You know, it's already there. Just rebuild it. Sure. When I think through this kind of thing, it helps me to have a really detailed framework of like, what needs to be true? If I were to buy a piece of land to build one of these properties, I've heard you say in other interviews, at least an acre in size, the building should be about 10,000 square feet or larger, like not smaller than that. If I was like on Crexie or LoopNet or any place trying to find commercial land to build on, like what should my filters and parameters be to find the right property? The reality is it all depends on your IRRs. Ideally, everybody who is getting into Flex wants to do a phased out development because the asset class allows us to do that. What does that mean? It allows you to buy 10 acres, yet build on one and get your certificates of occupancy, lease that one out and move to the next while the first building is occupied, right? Not many asset classes allow that. I think self-storage to a certain degree does allow that as well. But with Flex, this is the unique element and most people want to get in to do that. You can go one of two ways. You go small, which is you go one acre, build a 10,000 square foot building, but then you're done. Your IRRs are going to be in the normal, let's just say, range of what IRRs look like, right? Your internal rate of return. When you buy a larger property, let's just say if your IRR on your one acre is, I don't know, 15% a year, for example, because you were able to build it, you got the right debt, now it's whatever it's worth, you made 15, 20, 30% of your IRRs. When you go up to like, let's say, three acres instead, and now you have the ability to build four buildings on the same tract, and you don't have to go hunting for tracks because a lot of us go through fatigue. It's like you found the first one, you did great. Now you have to look for the second one. Now you have to look for the third one. You're on this hamster wheel, so to speak. So now what I recommend is after noticing what people are most interested in, go look for something that is like three acres at least that you can build four buildings on, And because the requirement for capital is not that high to start with your first building, your first building should be able to fund your second, your third, and your fourth building. And that way, the capital used is much smaller. Of course, the development is more expensive, but the equity portion is not that significant. Hence, here, this is where you see those triple-digit IRRs is what I call it, right? Because you take, for example, $100,000 and you turn it into $900,000, right? or $800,000 because you are phasing out your development and building these buildings one at a time. As I think about this, I keep thinking like there's so many different ways to design these things. Maybe there's not, but I don't really know the right way to do it. It's almost like I need to see a template of a great building that you build and try to mimic that as much as I can. Do you have like one or two or three architects that you go to that's like, okay, these people get it? Or how would you find a good architect or civil engineer who's been through this process and they just really understand how to design these things right? These are all struggles that I had. They're all very real to me, which is why we built the FlexSpace network so that we have access to all of these really cool people who do all of this cool work. Look, I think the best way today, architects are great. Find somebody who is specific in Flex, who's done something like that. They're very easy to find that. With the internet these days and just word of mouth and whatever it is, you should be able to find someone, I think, with relative ease. As far as designs are concerned, it is still the very simple 16, 21, 16 is what I tell everyone. So the way I like to build all of my flexes or my flex space buildings is I don't do any of the fancy single slope stuff. I don't do the higher elevations. I've found a formula that really works for me and it's worked for me everywhere I go in the country. So I just keep building it. And what is that? It is 16, 21, 16. So each building starts off at 16, goes up 21 feet, and then goes back down to 16 feet. So the facade, the front of the building and the back of the building are 16 feet. And the highest portion, which is the center of the building, goes up to 21 feet. The reason I designed it this way is most of my buildings are actually not geared for mezzanine. So they're not geared for a second floor because obviously with second floor, you have more sturdy foundation, there's added cost, and there's other things that my tenants don't really require. My tenants want space, they want the ground floor, they want an office, they want a bathroom. And so I build according to that. If you are using the 16-21-16 formula, you. It's almost like a set standard now, and it works nationwide. It is older, so it is a little more traditional because a lot of newer flex spaces are now using the single slope, right, where they're starting at like 21 feet and they're going down to 18, or they're starting even at 30 feet and they go down to like 21, right? With that, of course, comes added cost. And then maintaining might be the same, actually. I don't think maintaining buildings is a big deal, but it's just a different design than what I'm used to building. When I'm looking for a piece of land for this purpose, is there like a certain price that's appropriate for this? Like pay up to this amount per acre. I realize it probably depends on the market and how much rent it can make and all this stuff, but is there a quick way to figure out that? I mean, I think it would be similar to what you guys are looking at as far as land, like in self-storage, what is the benchmark for land? Yeah, I don't even know. All I know is what I paid for mine. But the tricky thing about this, as I'm sure you know, is just because the land is cheap doesn't mean it's good. Like there could be a ton of costs in the site work to get it ready. Like I had to pay 400 grand just to excavate the thing and get it leveled out. I would say if you're in a good market, good place to be 200,000 an acre is not crazy, but you'd want to be less than that, obviously, right? You'd want to be significantly less than that. And I know the land guys find land for like pennies on the dollar sometimes. And that's great. I mean, if you can find something that's workable for flex, you're in the money, you know? Anything below 100,000 an acre is just cool, especially if it's workable. What I love about establishing these parameters is once you kind of know what properties to not get, it makes it a lot easier if you're using a data service like the land portal, for example, to draw a polygon, maybe within a mile around all the major highways, and then filter based on the size, maybe one acre and above or three acres and above. Lots of stuff you can do to get really clear about what exactly you do want, if this is what you're trying to do. And then you can be a lot more targeted with whatever marketing you send out. Instead of sending mail to everyone with land, it's like, no, only these people in this market who have exactly what I need. I would say, yeah, that's definitely the way to go. In terms of the size of these buildings, I know we talked about like maybe a building could be 10,000 square feet or larger. Is there like a size that's too big? Like, don't build it higher than this. It's just... Too much trouble or anything come to mind? I would say anything below fire code. So if your county says, hey, you need to build below 6,000 square feet to get away without building sprinklers, and that's what you do. If it's below 5,000, then below 5,000, you build 4,800. Below 12,000, then you build at 11,990 square feet. So that's why with Flex, believe it or not, if you guys go to LoopNet or Crexi or wherever it is that you look for your product and you look at all the flex spaces, you will notice that specifically in flex, each one of these buildings is like either 4,800 square feet or 5,800 square feet or 9,800 square feet or 11,900 something square feet. It's intentional because that's what we have to do to get away with fire because fire is huge. When I first started in this business, it was about four and a half bucks a foot. Now you're probably looking closer to like 10 to $15 a square foot in addition to your construction cost. Just to meet the fire code stuff? Yeah, just to put the sprinkler system in there. It's very expensive. Man, bummer. Yeah. It's too bad. Yeah. Another question I had was regarding the doors of these units. So assuming there's at least one, maybe multiple doors that you can drive a truck through or something like that. What do you think is like the minimum height of that door? Because if you make it tall enough, you can pull a bigger truck through there. And all of a sudden, a lot more tenants can now have access to the building. Is there like a recommended door height or width? Recommended door height and width used to be when I first started 12 by 12. That's what I would recommend to everyone. Now it's 14 by 12, maybe 14 by 14 if you have enough room. But I know a lot of us are greedy and we want more glass up front. So I think 14 by 12 really is what allows the big box trucks to come in. And that's all you need. You don't need like enough to have the semis and the 18 wheelers come. In fact, if anything, you want to avoid 18 wheeler tenants on your development. And then that's a whole separate conversation. Yeah. In the exterior, I know you said earlier, metal buildings, is it really that simple or should you ever like putting brick on there or anything like that? Yeah. Put brick. I would say three to four feet of brick. That's what I do. I've seen a lot of creative designs now in the world of Flex, just because we have so many members and they all want to build something unique. So I've probably been exposed to some of the coolest FlexSpace designs. Some of them I don't agree with. Some of them I think are great. But like I said, for me, that $70 delta is extremely important. And whatever I need to do to make that happen, and if that means that I need to lose a little bit of design work in order to get there, then that's what I'm going to do. Outside of that, I think people are starting to build really cool flex spaces and also justified because there's a lot of cool tenants moving into flex spaces. So it totally makes sense. But the way I do it is just bare metal, a little bit of glass. Some brick is always nice and just leave it at that. You've mentioned your flex space network a few times. So what is that exactly? What we learned as I sort of started posting about this on social media a couple of years goes, a lot of people were interested or bored, I don't know, and wanted to get into FlexSpace. So we decided, you know what, we're going to create a FlexSpace network today. Obviously, we're the largest network in America. We also host the largest FlexSpace conference in the country. And as a result of that, we basically have hundreds of members who are now building FlexSpace across the nation in sync with all new ideas, all new strategies. And the cool thing is, I started this when that influencer curriculum thing became famous, you know, a couple of years ago, right after COVID. And so I jumped on that bandwagon. But very quickly, what I realized is there's so much demand that I don't really need to be the face of this network anymore. So we've been running the network faceless for about a year and a half now with great success. It's just a cool place for people to come and discuss ideas and, you know, be part of a community that's actually building FlexSpace across the country. So you know how you have questions like what door, what color, what size, how many square feet. These are things that we probably talk about on a daily basis in our community. Is this like a course or a forum or like what exactly is in it? So we have daily classes. We have engineers, architects, civil engineers. We have an underwriter. We have a cost estimator. We have a 3D rendering person. So these are all coaches. We have a general contractor who then also talks to members. I think the largest element, And the education is great. Obviously, it's there to a certain degree. But I think the most value is had from our daily calls. So we have eight calls a week. Some days we have a single call. Some days we have two calls because, you know, it's very technical when you're building things. You really need to get on the phone or you need to get on a call and ask a question specifically about your project and the access and the drawing and the easements. You know, it's not a one size fits all. It's very, very individualized. Right. And the only way really to do that is to get on a call with a professional. And so the community basically gets together every day. Well, most of us to discuss our projects on calls. So I currently, although I'm the founder of the FlexSpace Network, I'm also a very engaged member because I'm also going through my own development, you know, and I need to know what things are going to cost today and how I can better optimize the flow. And so I have become a student of my own product, which is really cool. I get to attend as many calls as I want and get all my questions answered. No, that's awesome. Yeah, I think if somebody was seriously looking to do this, it would be a huge value. I mean, just talk about like a very concentrated area where everybody's there to talk about this specific thing. I know you can spend a lot of time talking to your typical general contractor or civil engineer who might know a lot about that stuff in generalities, but they don't know about this specific property type. So going to one place where everybody's interested in that same thing, it's kind of a big deal. Yeah, for sure. So as you wrap this up, this has been great, by the way. I appreciate everything you've shared so far. Great being here. When you look at all the people in your community, everybody coming to contact with who gets into this and they start building. What are like one or two or three of the most common mistakes people make? Maybe they design it wrong or they build it wrong or they pick the wrong area. Or if you were to advise me before I start building one, say, Seth, you got to watch out for these three things. Like, what would that be? I think you need to have some money. A lot of people come to us and they're like, OK, I have no money. I want to get into this. And to me, it is very alien. And I know there's a huge market for that, but it's very alien because I never hold sailed. I never got into a deal with seller finance. I never understood the dinette. Because ultimately, you are going to need to secure debt. And in order to secure debt, you need equity. And the banks are going to look at you, especially now. I would say number one thing for anybody trying to get into flex is just realize that you are going to need some capital. It's going to have to be either a couple of hundred grand or a couple of million dollars, depending on how big the development is going to be. So no free game in the world of flex, at least not right now. Maybe in the future, there may be some opportunity, but right now, I don't think there is. And a lot of people come with other asset class ideas to where they're like, okay, well, we got into this with no money, so we should be able to... No, it doesn't work that way. So that's number one. Number two, I would say is if you are going to build, build what is needed and not what you want. Just like everything else. I've heard this being spoken on the self-storage guys, the residential guys say it, the office guys say it, just build what's needed. It doesn't need to look like an Apple store. It's not going to get you the rent that you think you want ultimately, and you're not going to be able to do a recapture unless you're building in like downtown of some city. Outside of that, just build what's needed and be happy with it and move on to the next deal. And I think that's probably something that I would say is really key. And it's probably something that I struggle with the most with all of our members as well, because everybody wants something that looks like a spaceship, you know, and it just doesn't work. You need to build what's needed and then just move on to the next deal. That's a very common thing in like every business, like even the land business happens all the time where people will pick a market because they would want it there or they buy properties they want, but it's like, it's what the consumer wants, right? Yeah, exactly. And that's sort of what we look at. And then obviously the third thing is if you're going to take advice from someone, just take Take it from someone who's actually done it, like who's actually built something or is going through the process and can actually advise you on where you need to be. And that could be anyone. Like, I mean, everybody's building these things. I'm sure if you look hard enough, you'll find somebody around the corner that's building one of these somewhere. So if you're going to take advice, just take it from them and make sure they're local to wherever you're building. Because, you know, my advice from Houston, Texas, or parts of Texas, or parts of, you know, Florida, or wherever it is that I'm building, is irrelevant to somebody building in California, building in the Northeast. It's a whole different ballgame. It's a whole different set of rules. I don't play there, so I don't understand it. So you would need to take advice from someone who's actually in that space, in that geographic region. Yeah, yeah, that's amazing. So we've talked about a lot of severe Hamza. Again, appreciate all the wisdom you shared. People want to see the show notes. I'm going to have links to the FlexSpace network, or you could just go to flexspace.network is the website. Also, Hamza's YouTube channel has got awesome videos there talking about this business. Hamza, is there any other place people should go if they want to connect with you or just learn more about this in general? I have an event coming up September 24th and 25th. It is our annual conference, FlexSpace Connect 2025. It's a sold out event every year. So I don't know when this episode is going to be out, but if it's out before then and you guys are listening for sure, for sure, make it out. We have 18 speakers and panelists, and there's going to be a wealth of knowledge. And the best part is I'm not going to be on stage. So you get to hear from other people. Yeah, no, that's awesome. This will be out there before then. Is it just flexspaceconnect.com? Is that the website? Flexspaceconnect.com. Yes. Cool. Well, Hamza, thanks again. It's awesome talking with you. Again, people can check out the show notes, retipster.com forward slash 234. I have links to all the stuff we just talked about. Thanks everybody for listening and we will talk to you next time.