WS1981 Unique Asset Classes | Highlights Peter Reese & Grant Reaves

Land Flipping or Multi-Tenant Flex Industrial? This Highlight Episode of The Real Estate Syndication Show reveals the winning strategies! We get exclusive advice from successful professionals Peter Reese and Grant Reaves, who delve into two exciting real estate niches: land flipping and multi-tenant flex industrial investing.


Land Flipping with Pete Reese: Pete shares his data-driven strategy for flipping vacant land parcels. He uses direct mail marketing (50,000 letters monthly) and leverages tools like DataTree and Pat Live to streamline the process. Pete emphasizes the importance of a quick turnaround and highlights a recent deal where he bought a property for $60,000 and sold it for $175,000 in just weeks.


Multi-Tenant Flex Industrial with Grant Reaves: Grant discusses his transition from self-storage to flex industrial real estate due to the latter's low supply, high demand, and resistance to remote work trends. He emphasizes buying below replacement cost and highlights the benefits of cash flow from day one. Grant advises investors to focus on supply/demand metrics and debt structures like fixed-rate loans for stability.

Takeaways:

• Land flipping can be lucrative with a data-driven approach and a streamlined system for handling leads.
• Multi-tenant flex industrial real estate offers attractive opportunities due to low supply, high demand, and resilience in a work-from-home environment.
• Real estate investors can achieve success in diverse niches by understanding market trends and implementing strategic approaches.

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Transcript

Jim : This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we've packed a number of shows together to give you some highlights. I know you're going to enjoy the show. Thank you for being with us today. Pete, welcome to the show. Looking forward to learning about your business model that seems to have been so successful in this land flipping business. Man, welcome to the show, Pete. Well, thanks for having me, Whitney. I really appreciate it. Well, Pete, tell us a little bit about how did you get into real estate? How did you get into this specific niche of land flipping? It seems like I've heard more about that over the last year or two, maybe, but not really before that. But what is that and how did you get into that type of business?

Peter Reese: Yeah, well, the crazy thing is I've only been doing land flipping for about two years at this point. We actually resold our first property in this model in March of 2021. That first year, partial year, we did about 1.2 million in revenue and about 50% gross profit. 2022, we did about 3.5 million in revenue and little, just slightly under 50% gross profit. So, and next year we're hoping to do 10 million. So I'm not just hoping, I think we can do 10 million, but I've been in real estate since I guess the year 2000, when we bought our first home and then just kind of started leveling up. We did some improvements to that place. And then we started getting into flipping homes. So we did that for quite some time. I got my broker's license here in California in 2006 and market crashed. And then I became an REO. My focus was being an REO listing broker for a number of years. And that was very busy time, you know, to be listing and selling bank owned properties. That was pretty much the only stuff that was selling. So I got into that for a while and then transitioned into kind of just finding deals for other large investment companies. So I did that for a number of years and that was my sole focus. And I kind of shifted away from investing in properties myself and just kind of finding deals for for these larger companies. After that kind of transitioned into another business, online education business with my wife that was pretty successful. And we did that for a number of years, but I got the itch to get back into real estate investing. Didn't really know which model to go with. I didn't really want to get back into home flipping. I knew how to do that. And I was comfortable with that. I just didn't want to deal with the contractors and everything else that goes with that business. This is a fun business in a way, but it's also a little bit of a stressful business. So Kind of read it, doing a bunch of reading online and stumbled into some stuff where people were talking about land flipping. And I had never heard of the model before really. And people talking about, Hey, I bought this property for 10,000. I sold for 30,000. And that kind of intrigued me, you know, here, this type of returns on kind of a smaller investment and just went kind of all in and learned everything I could about it. Adapted what I learned a little bit and put my little, my unique spin on it and just kind of, kind of went for it. Wow. That was where, that's how I ended up here.

Jim : But yeah, it sounds like you've done pretty well at it though. Uh, you know, I mean, you, you definitely dove right in. Give us a little more about just what that is. And for the listeners who have never heard of a land, you know, term land flipping before, what is that? Maybe give us a deal example as well.

Peter Reese: Sure. Yeah. So, uh, the, the model basically is this, and there are other ways to do things and then the way I do it. So I just want to preface it by saying that this is the way I do things. So I basically generated all my leads, all my deals with direct mail. I send out a lot of direct mail. Like at this point, I'm sending out 50,000 letters a month. So a good, good quantity, but essentially you build a list and you're using, I use a company called DataTree. It's a first American company, but it allows me to build the list. And I pretty much search a certain area. Say for instance, I'll take a County and then in that County, I'll look at all vacant land that's 10 acres and above. And then I filter out the obvious non-sellers. These would be people like, this would be companies like railroads or a city owned property or municipality, something like that, where I know that they're not going to be interested in the offer that I send them. And then I come up with the average price ranges for that county. So for instance, a acre of land in that area may go for, you know, at a 10 acre parcel, it may be 10,000 an acre. So I'll back off a percentage from there. And then we'll come up with an average offer price, you know, like generally, I would do if it's pretty hot area, I may do 40% to retail value. So and then we'll just do a mail merge. And that generates an offer value on each one of these letters that we're sending out. So we actually page one is kind of a letter describing who we are, what we can do for them. And page two is an actual one-page offer that we send out. We send out thousands and thousands of these letters each month. Phone obviously starts ringing. We get letters back. You know, sometimes people just sign the offers and send it back. Sometimes they email them back. Sometimes they call and they complain that the offer was too low, but essentially it gets the activity coming in. And we've got a process now to kind of deal with all the, all that activity. We evaluate the offers. We evaluate things when they come in and look at the properties, you know, really deeply at that point. And then we come to an agreement with these property owners. You know, we are offered to them as we buy cash and we close quickly. So that's make it as simple as possible. Very little disclosures, very little, you know, headache for them. Just make it a quick and simple process. But we go through a due diligence process. We go through a title or escrow company, whatever that state requires. And we'll make sure that what we're buying is what we thought we were buying and no red flags or something like that. We'll loop in a local broker or agent in that area and help them, have them guide us a little bit. Like ask them, you know, what, what they think they can resell it for and any potential things to, to look out for in that property. And then we'll, as soon as we close, we close with cash generally. As soon as we close then we will use them to list the property. Sometimes we'll do some minor value add type stuff to the property. These could be clearing some brush, it could be getting a perk test done, could be getting a survey done, could be doing a minor subdivision where we'll just hire a surveyor to kind of split up a property and then we'll sell off the lots individually. So we'll do some minor value add stuff sometimes and then we'll listed on the market slightly below retail value and sell it quickly. So on average, we're holding these properties only for about 60 days. That's kind of the general business model. I think you had a follow-up question, but I can't remember what that was.

Jim : No, no, that was great. I just really, you know, how you got into this business and then a little about land flipping itself, what that is, just so the listeners, in case they're not familiar, you know, that was great. And there's a few things that I want to dive into because I feel like there's a number of aspects of that process that that that we can use in almost any real estate business, you know, for sure. And so let's see, I was making some notes and you sending out that 50,000 letters, I was thinking about processing that on the on the back end, I would imagine all of a sudden, you know, even if that produced 1000 leads, and I don't know if it does or not, maybe you can provide is there a percentage there that you're hoping for out of that 50,000? And then, you know, how do you manage just processing that many?

Peter Reese: Yeah, so we have a number of systems in place to kind of process the leads that come in. And I don't really track response rate because there are a lot of variables. So for instance, if I put a higher offer price, higher price per acre offer price or percentage on those offers, I would get a much better response rate. But it wouldn't necessarily want those people responding anyhow. So I track more of in the metric I look at is cost per deal. And this averages out over time. So it cost me about $3,000 in direct mail costs in order to get a deal. And my average profit on a deal is about $22,000. So the numbers, you know, definitely work for me. As far as the systems to process the leads that come in, we have a call service, a service that we pay for that basically answers the phone 24 hours a day. And then they'll ask some basic qualifying questions and then send us an email, you know, with kind of the details on that gets entered into, I've got another team member that enters it into our CRM, which kind of starts some some automated stuff like texting and saying, Hey, we're going to be giving you a call from this number. We've got an acquisition manager then that reaches out, ask some more qualifying questions to try to get some additional information about the property. And then obviously people will sometimes mail back a response. Sometimes they'll just mail back the signed offer, which is cool. And then, you know, sometimes they'll email or text back and, you know, want to negotiate or something along those lines. But so yeah, we've got a CRM and a whole process in place to kind of deal with all that stuff. The other thing is like when they call during regular business hours, we attempt to have the call center live transfer to my acquisition manager that can hopefully, you know, get on the call with them right away, if possible.

Jim : That's awesome. And I know listeners are thinking, well, you know, call center, it sounds like you're outsourcing that. Is that right?

Peter Reese: Yes. Yeah.

Jim : Is there a company you could tell us about for the call center?

Peter Reese: Yeah. The company I use is called Pat Live, P-A-T-L-I-V-E. They do a really good job. And I like the fact that they're, they're able to answer the phone at any hour. And it's just not feasible for me to have like someone on their team that can always answer and, you know, and they could be on another call or something and not able to answer. So I like it. So all of these calls get answered and then they charge by usage, you know, just depends how many minutes you're kind of using each month and they send you detailed logs.

Jim : I would hope you're not putting your cell phone number on all those letters.

Peter Reese: Oh my God. You know, I think some land investors do that, but maybe they find out real quickly. That's not a good idea. And that's another part of this business. You know, sometimes you get people calling that are like super, super upset that you, you know, that you mailed them this low offer. So, you know, so I use that call service to kind of filter out those people that are not interested in selling and, you know, just calling to complain or something.

Jim : Yeah. Yeah. And then the CRM that you use, I know people wonder about that.

Peter Reese: Yeah, so it's a custom solution that we built on top of the high level platform. And high level is kind of a all in one system that allows a it's very customizable, but at its base at the base system, it's it's basically just just there, but you have to build on all of these things on top of it in order to do what you want it to do. So I don't just use that for the CRM. It's basically a whole business process system for us. So it manages all the different team members and all the different processes that we have within our business. But, and it's all tied into technology. And so it's really cool solution for that.

Jim : Yeah, no, it's helpful. I just know I get questions around CRMs all the time.

Peter Reese: Yes.

Jim : People wanting me to ask, you know, the guests if they mentioned that. So you mentioned, you know, you're like you're figuring out the potential price per acre, you know, for this land in the county. Well, I guess let's back up from there and talk about markets a little bit. You know, you're in California. What parts of the country are you buying in?

Peter Reese: Yeah, most of the stuff we're buying right now is East coast. So I know you're in Virginia. We buy a lot of properties in Virginia, you know, pretty much anywhere from New York down to Florida. And, you know, I'm not opposed to any other place in the country I'll buy land anywhere, but it just seems like sometimes you get established in one area and that works really well. And then you try to get as much, much repeat stuff going in that area. You know, you build kind of, you know, with us, a big part of our business is getting a local land specialist broker or agent to help us out, not only on the valuations, but also on the resale side of things. So once we find a good, you know, person partner to work with, we really try to establish as much business as we can in that area. So just kind of been, uh, you know, we send out test mail to a lot of different areas and sometimes the mail works really well in a particular area. Sometimes it doesn't. And maybe I don't know all the reasoning for that. Maybe I pressed the offers wrong or who knows. But so we're always trying to kind of expand into new markets and it just it's gradually increasing over time.

Jim : Yeah, no, that's interesting. And what are some ways that you're going to pick that market? You know, what are some things you're going to think through? You know, are you just going to keep covering the map as you work your way down the East Coast?

Peter Reese: Yeah, well, one thing, the big thing we look for is activity. You know, we need to make sure that there's kind of an active land market. So, and, and to determine that really, a lot of times we're just kind of looking on Zillow or realtor.com, kind of just filtering for land. And, you know, for instance, we do a lot, most of our properties now are 10 acres plus, sometimes some of the areas are five acres plus, but we'll just kind of put that filter in. And over the last, you know, say for instance, well, we'll get a particular county and over the past 12 months, you know, how many properties sold within that acreage range? Was it 50 properties that sold? And then we'll look at the active listings. And if there's 200 active listings in that category, then we know that there's a real glut of inventory and not a lot of sales. That's like, theoretically, that's four years worth of inventory. But on the other side, if we see that there's 10 active listings and there was 50 sales over that, you know, the past 12 months, then we know that that's a pretty hot market. And if we get a property, that's a nice property and we price it right, it's going to sell. So that's kind of the main thing that we look for, really just kind of the market activity in a particular area.

Jim : Yeah, that's helpful. You know, speak to determining the value, you know, of per acre, you know, for that property, because that could change quite a bit, say per even within the county, right? Depending on the location where it's at.

Peter Reese: Exactly. It's an inexact science, I would say, in order to do that kind of on that big level that we do when we're building out these these mailers and everything. So we're just kind of going for averages. But even in one particular area within a particular county, it could vary by the property itself. You know, like, is the property all woodland? Is it a farm? Is it all wetlands? Is it landlocked? You know, like there's all these different variables that you don't even, you know, it's not even just the location. It's a, it's a lot of other things. And you don't really know those things until you really look into a property when the lead comes back. I know other investors that spend a lot of time looking at each and every property and valuing it before they send out the mail, but it's just not my thing. I'd rather spend a little bit more money to get each deal and not go through all that minutiae on the front end, really. I think it's more about just taking the action and I'm happy with that return, you know, spending $3,000 per deal and get $22,000 in return. So that those numbers make sense. You know, even if I was able to get that down to $500 per deal, you know, it'd still be $22,000 per deal on the other side. And it just doesn't make a lot of sense for me to get that refined on the front end. So I'd rather just send out the mail. And then, you know, we're wrong sometimes, you know, our offer amounts sometimes are too high, sometimes they're too low. Sometimes they're just right. But then we have that conversation when they contact us. And if we were too high, we tell them why we were too high and we tell them what it would take to put the deal together. And either they go for it or they don't. And if we were too low, they're going to tell us about it and they're going to tell us what they need in order to make the deal make sense. And either it does or it doesn't for us.

Jim : But yeah, no, that's interesting. It's a lot of that's just getting the conversation started, isn't it?

Peter Reese: Yeah. Yeah. You got to start somewhere. Yeah. And I think the offer thing is it's an interesting way to get the phone ringing. There's other strategies too. You know, some, some investors go with what they call more of a neutral letter, which means, Hey, I want to buy your property. Give us a call. We paid cash and quick close and all this kind of stuff, but they're not giving, putting any sort of valuation on it. It gets more leads coming in that way, but then you get a lot of the, a lot of people calling back that are looking for retail. And so you have to kind of sift through more potential deals, I guess, in order to get to the good ones.

Jim : Yeah, you know, speak to the worst and maybe the best deal, you know, that you've done through this process.

Peter Reese: Yeah, I've done some really good deals. One of my favorites is one we just did. This is January when we're filming this. A couple of weeks ago, this is one of the first properties that we closed in January here. And this year, we bought it in December, I think towards the middle of December, even. We didn't hold it that long. So we bought it for $60,000, 30-acre property. And then we put it on the market. We thought $149,000 was a good price that we'd get some activity. So we put it on the market for $149,000. And instantly we got people, you know, offers coming in and we ended up getting it under contract for 175. And then it was kind of like a two week transaction, I think, and then it closed and then we ended up making. 97,000 and didn't even have to do anything to the property.

Jim : That wasn't in Virginia, was it?

Peter Reese: No, no, just south of you. That's awesome. So, yeah, so deals like that come up sometimes. Kind of the worst deals, I haven't lost, knock on wood, I haven't lost money on any of the deals that we've done yet. But I've gotten very close. There's one deal where I think I made a hundred bucks on it, you know, after everything was done. And I kind of drew the line in the sand, like we had an interested buyer and they were negotiating and negotiating. And I'm like, Hey, this is my bottom line. And I figured it out. Like, okay, this would just net me a hundred dollars. Cause I don't want to lose money on any of these deals, but. It was a property I had for a long time. I had just, I don't even remember what I had gotten wrong on, but I kind of just probably overestimated what the value of the resale value of it would be. So ended up holding it forever, kind of reducing it, reducing and reducing it every time. And then essentially I just took an offer to just get rid of it. So that's the type of, that's the loser type deal so far for me. So I'm happy with that as long as I'm not losing money. If the loser deals are not like costing me money, I'm fine with that. they cost time for sure, though.

Jim : No doubt about it. Speak to your like a scalability, like in a model like this sounds like maybe it's on the front end as far as you know, sending out, you know, 50,000, maybe we can do 100,000, right, letters per month or 200,000, or maybe we're doing that many more markets at a time or we increase our call service quantity, or, you know, whatever, you know, how we're processing these leads, or but then on the on the flip side of that, you know, is there a scalable part of this where you could do, you know, a lot bigger deals, you know, and do this same thing? How do you look at that?

Peter Reese: Yeah, that's a good question, because those are all kind of the levers that you can pull in order to scale things. And that's kind of the things I'm working on for this year is doing the bigger deals. You know, the bigger deals I do that will help us scale them in numbers that we want to get to, but also sending out more mail. That's kind of an easy lever that you can pull there, like more letters, more potential deals. It's just a matter of. sending the mail, identifying those markets that are good markets that you can, you know, have some real potential. Also kind of building the team as we go, you know, like getting partners in different areas that we can really rely on, you know, the, the local real estate agents and land brokers and things. Those are, those are really kind of essential to us scaling. So the more good people that we can get established in other areas, it gives us confidence. You know, when we're, when we're looking at a property that in an area that's kind of new to us. If they can give us some confidence and say, Hey, I really think this is a good property. I know this area. I really feel like you can resell it for this. It allows us to kind of, you know, pull the trigger and move forward on some of those deals. Like if we didn't have those people on the ground, we would have to be way more conservative sometimes. And then, you know, kind of building out the team, you know, like getting another acquisition manager is probably the next step for us. to kind of deal with those inbound things. The call center is kind of infinitely scalable the way it's set up now. So they'll just keep answering however many calls that we send them. But so those are, those are the big areas for scaling.

SPEAKER_00: Grant, welcome to the show. So you started with self storage and you did that for a, for a couple of years. Can you talk about your experiences there? And then also why the transition to now, um, multi-tenant flex industrial? Yeah.

Grant Reaves: So we live in a high growth area. So housing is very popular. Self-storage is very popular. That's kind of the two biggest asset classes. We ended up in self-storage primarily just from that office building we had put under contract. Once the tenant did not want to extend and did not want to review, we did have it under contract at this point, but we always just kind of kept an eye on it and were trying to figure out something to do there. And so I had the idea for self-storage, started talking to people in the industry. We have some friends that own some self-storage and really dug in at that point. So that was our first year. We then went on and did a couple other acquisitions and then also just CEOed about a month ago a ground up development. We love the fundamentals of storage, still do. I think that long-term that asset class is going to do really well. But immediately that market had gotten really hot, especially in the markets we play in. And so it just got to the point to where we couldn't really scale in that asset class very effectively just because of Frankly, the, a lot of oversupply that needs to get kind of gobbled up over the next few years. Again, I think it'll work out in the long run. It just for us, we need to be able to scale and grow our assets. And so we started looking at other opportunities. We always love flex industrial. Uh, the fundamentals just really always made sense to us. We can kind of talk about that in a minute. And so we started looking at those deals, let's say early 2022 and the bought our first flex deal. Um, Q3, Q4 of 22. So we, we spent a lot of time really digging in, really understanding what we were buying, how we were doing it. And we've gone on to buy, I guess we have in six now flex industrial assets. We have three more under contract right now.

SPEAKER_00: Okay. Great. And so what, what, can you talk about why you decided flex industrial and then also what, what is it? I know we've industrial has been a very hot asset class, but multi-tenant flex industrial is a component of that, a subset of that. So can you, you talk about what that is and what you're seeing right now?

Grant Reaves: Certainly. Um, so obviously there's a lot of different ways to explain flex industrial and different people have different explanations for it. Um, people also call it class B industrial. They'll call it shallow Bay. Contractor garages get mixed in there a little bit as well. But our definition or what we'd like to buy is a building that's 30,000-150,000 square feet or a portfolio of a few buildings over parcel that's made up of office warehouse complexes. Easiest way to explain it is we own a deal in Little Rock, Arkansas. It's 48,000 square feet, so it's offices on the front, roll-up to dock house on the back, and it's made up of 3,000 square foot office warehouse complexes all the way through. through that, your tenant mix is mainly going to be general contractors, like Terminex, pest control kind of people. What else? We have a lot of crazy kind of different tenants, but kind of the normal ones are a lot of times service-based, HVAC contractors, plumbers, those kind of tenants for the most part. So, we have some national tenants and then also a large mixture of regional and local tenants as well.

SPEAKER_00: Okay. And how do you find or how do you, how do you screen the tenants to make sure that they're able to pay rent, that they're good tenants and how long are the leases and what type are they, they net triple net leases? Typically, can you talk about both the, um, the, how you find tenants and screen them and then also what kind of the arrangements are?

Grant Reaves: Yeah. So typical lease terms are, we like to be triple net. If we can, we do buy certain buildings that are say already modified gross. We own one in Ridgeville, Mississippi, but it's, 28 tenants and they were already modified gross. We'll end the deal for five years. It didn't really make sense to go in and make it to where half of them will be triple net by the time we sell another half are still modified gross. So we just kept those modified gross.

SPEAKER_00: But can you talk about what modified gross is and the difference between that and triple net?

Grant Reaves: Yeah, certainly. So, triple net is that the tenant is paying for taxes, insurance, and common area maintenance, CAM, as a pass-through in addition to the rent. So, for that building, the operating expenses are about $3 a square foot. So, if you signed a lease at $10 triple net, their actual rent that they would pay would be $13 a square foot total. Modified gross is a mixture of how gross, I'll give that example, gross is where the landlord pays for everything. So the tenant just pays the rent, landlord pays for utilities, CAM, taxes, insurance, the whole gamut. But then a modified gross is somewhere in the middle of that. So typical modified gross that we see is that tenant is paying their own utilities, but then landlord is paying CAM, taxes, and insurance.

SPEAKER_00: Okay. All right. That makes sense. Then can we dip back into how you screen the tenants and make sure that they're qualified and kind of some of the terms of the deal?

Grant Reaves: Certainly. Typical lease term is usually three to five years, depending on if there's any build-out that's needed or anything like that. But usually, these are pretty turnkey spaces that we're leasing. To be able to screen them, usually, we're buying the buildings anywhere from 70 to 100 percent occupied. We're inheriting a lot of tenants already that have been paying for a long time. We always want to look at rent histories, make sure that there isn't a problem tenant that's late. every single month or something like that, and go ahead and move to try to get them out. But moving forward after that, we find tenants using local brokers. So, Flex Industrial is a very localized market. You don't really have a lot of large nationals. For instance, Self Storage, you have a couple of brokers up in South Florida, Atlanta, New York, wherever, and they'll sell a lot of all the properties throughout the Southeast. Flex Industrial Market is a lot of local leasing brokers. um, local sales brokers as well that we deal with. So that's how we source the tenants. Once a tenant comes to us, we get background checks on them, credit reports. And if it's a larger corporation, we'll get, um, financials in the company as well. If it's like a nationally traded company and look at bond ratings and that kind of thing.

SPEAKER_00: And the, uh, three to five year leases, do those include automatic increases or they do? Okay. And how do you, what is that typically?

Grant Reaves: So, different markets have different things. Mostly, we see about 3%. We do own some stuff in the Atlanta metro, though, and that market is just very, very hot. So, you can even push up to 4%, even 5% we've seen. But kind of our typical is 3% annual bumps. And we like that kind of shorter lease term because you're able to mark your rents to market a decent amount so that, as we all know, the past three years, inflation has been running pretty hot. So, being able to redo your rents a lot is very helpful.

SPEAKER_00: And how, how should investors look at this asset class right now? Because it has been very popular. It's one of the hottest asset classes over the last few years, especially with, you know, on-shoring and all the things that have been happening in the economy. So is it, is it still, is it still hot? Is it still going? Does it still have room to grow? Can you kind of talk about how you see it now and maybe how you see the near future of industrial?

Grant Reaves: Certainly. First off, the markets that we play in are primarily secondary cities in the southeast, so populations of around a million. That's going to be Memphis, Tennessee, Birmingham, Alabama, Jackson, Mississippi, Little Rock, Arkansas, places like that. We don't really want to play in the big tier one markets and compete against REITs and those kind of people, but for the most part, there's three main reasons why we think Flux Industrial does really well. It's very low supplied with a lot of demand. Nobody's built any of the product really. And most markets play in the past 20 years and increasing more and more demand as those markets, some markets grow, but there's no more supply. Um, we're also buying them below replacement cost, which is huge. We're buying on average about $93 a square foot. Uh, we have looked at building this product and it costs anywhere from 140 to 150 a square foot to build. So we're buying it way less than the cost to build it. Um, and then 3rd is protected from the work from home piece. I mean, obviously, anyone hears office warehouse, they key in on the office piece. But if you need 70% of your workspace to be warehouse, you can't go work from home. That's a manufacturer. That's a logistics company. That's somebody that needs a place for people to be able to go work. They're not going to go work over zoom and do a logistics company. That just wouldn't work. Um. And then also kind of back on the supply demand piece of things, the fact that we're able to buy below replacement costs. is mainly because the rents don't support new construction. So it really protects the supply coming in on top of us because most of the markets we play in, we see rents from call it eight to 11, maybe $12 a square foot to be able to make a deal work. If you're building it for 140 to $150 a square foot, your rents would have to be 15, 16 bucks. So no one is coming in and building on top of us if they ever did, because there is so much supply. And we do think that somebody eventually will just say the supply will be there. The people are just going to pay more on rent. That'll actually help us out because we'll be sitting next door at $10 rents. We can push to $13, $14 and still be undercutting the new competition down the street. So it's a really great place to sit, mainly on the supply demand kind of metrics overall.

SPEAKER_00: Okay. And then what's the exit? If someone's investing with you and you're buying a new property, what's the projected exit? How long? Who are you selling to? Are you selling to the REITs? Is anyone rolling all these small properties up into bigger packages? How do you envision that going?

Grant Reaves: Yeah, so we mainly do 5-year deals. We have a fund open right now for Flex Industrial, and that's a 5-year closed-ended fund. And most of our syndications are also 5-year deals. We do look at certain markets to roll those up. So, Jackson, Mississippi, I've mentioned a couple of times. We own a few buildings there already. We have 158,000 square foot portfolio under contract there right now to close next month. And so, we will roll up specific markets and sell those off, but we won't sell, say, the whole fund to one REIT, just because these are a little bit more fragmented properties. But usually, your exit's going to be to a more stabilized PE shop, kind of like ours. We're a value-add shop, so we won't hire IRRs, take a little bit more risk on that to be able to get those returns. There's a lot of buyers out there that want really stabilized flex-industrial properties that we can sell to. Mainly, we're buying stuff in the seven and a half, eight and a half cap rate kind of range. And we expect that to stay the same. It could compress a little bit, but we don't really underwrite that. We always be very conservative on our exit caps for that reason.

SPEAKER_00: Okay. And, and so at Left Field Investors, you know, we're, we're a community of limited partners. And so the, the main thing we look at is we want to vet the operator and then we want to analyze the deal. So how would a, an LP vet an operator like you, where you've, you, you, you're kind of new to industrial, you're in self storage a while, so you're an established company, but you're in a newer asset class. So how do we vet you to make sure that, you know, you're capable of doing all that you say you are?

Grant Reaves: Yeah, we actually own a lot more industrial than self storage. So we own 10 deals currently, about 500,000 square feet, 300,000 of that is industrial. We have another 374,000 under contract. So I mean, we're well over two thirds industrial now. But how we are set up in house, we have a full time asset manager, we have an in house accounting, we have two accounts in house, and then we have a We also have our analyst myself and Jeremy and my business partners. It's kind of how that the management team works and then we use local management. So we use a usually a national commercial real estate firm. So, or call yours or a firm like that to do the on the boots are on the ground management. We find that to be much. Easier as well as they are located in that Memphis, Tennessee market. They know the good contractors. They know the good landscaping companies that doesn't make sense for us to be in Alabama and go out on a limb to know how to go learn landscaping companies in Memphis. And so we use local management as well as local brokers to do our leasing. That's been really great as far as on the acquisition side, because we get to see a lot of deals before they actually get to market because people know that we'll use them for management and then for leasing. As well as just from operational piece, we're able to go into a single market, have 5 different buildings with 1 management company. We get to know them really well and then have mainly Matt, our asset manager works hand in hand with leasing agents of the property managers as well as Haley, our head accountant who oversees the property managers numbers as well.

SPEAKER_00: Okay. And then as far as analyzing the, the deal, um, what specifically should investors look at when, when they're, I know what you, you have a fund, but you also have some individual deals. So how does an investor look at this and decide, okay, this is the deal that I want to get in, or this is the fund that I want to get in. What should they be looking at and evaluating aside from aside from the, uh, the operator? Sorry about that.

Grant Reaves: Yeah, no worries. So besides the operators, I would mainly look at, at If they're looking at a few different flex industrial funds and trying to compare them to each other, is that kind of what you're?

SPEAKER_00: Yeah. Or, or if they're, if they have, you know, limited amount of cash and they're deciding whether they want to go with this multifamily deal or this self storage deal or your industrial deal, you can't really compare them, but how would they look at it to underwrite the deal and make sure, okay, I'm comfortable with this investing in this industrial, this flex industrial deal.

Grant Reaves: Yeah, I think it mainly comes down to supply and demand metrics. I mean, that's been the biggest problem with multi or self-storage, which have kind of been the big asset classes in the past couple of years for LPs, is mainly looking at markets, looking at what the sponsor's buying. Is there room to run in that asset class as far as the supply demand? Is it being overbuilt in the markets they're buying into? I mean, you could still find good deals even in overbuilt markets, but overall is the asset class becoming overbuilt. Flex Industrial is not. As well as looking to see what the cash flow looks like day one. These are value-add deals, but for the most part, these cover well over one to one on the day one. So we're able to go in with the cash flowing asset, greatly increase it, but it's not like we're starting from zero or behind the eight ball kind of thing.

SPEAKER_00: Okay. And what is the debt like on these deals? You know, we've all, we all know that interest rates have gone up and everything's become more complicated. How, how are you finding debt? What kind of terms are you getting and, and is it fixed debt? Is it adjustable? Can you just kind of talk about, about that part of the deal?

Grant Reaves: Yeah. Um, fortunately we've always done flex or I'm sorry, we've always done fixed rate debt. So we haven't had any problems there. Uh, we proceed continuing to do that. It's just a lot safer and not worth the risk. Especially with how the yield curve is, you're not really even getting any benefit to float stuff these days. But most of our debt comes from either life insurance companies, CNBS, or bank loans. Primarily bank loans for the heavier value-add kind of stuff, and those are also smaller assets in, say, the $3 to $10 million range. Bank is going to be your best bet. We will go ahead and go in and have a construction component to be able to do the tenant improvements, do the leasing commissions, do the renovations that we want to do to the exteriors and the front end, and wrap that into the loan. But on bank loans, we're seeing 70% loan-to-cost, 25-year AMs, five-year terms, and then rates right now anywhere from 7.5 to 8.5. CNBS, we don't have any in origination right now, so I won't really speak to that. But on LifeCo, life insurance companies like Flex Industrial a lot. We have that portfolio in Jackson under contract, and we have a life insurance company doing the debt on it. rate is 5.95, which we were really happy to get, 25-year AM, five-year term, three years of interest only. It's about a 65% LTC loan, so a little bit lower leverage, but we're happy to get it. Lending is really open. Banks seem to get the asset class. A lot of times we find that they know it because they bank, especially local bankers will bank say HVAC contractor or GCs and those kind of tenants that we usually use. And so if they talk to their HVAC contractor, their HVAC contractor is usually complaining about not being able to find space. So it's pretty easy sell on our side to be like, well, you can see the proof right there that there's good demand for this asset.

SPEAKER_00: And you, you talked about value add. So you, you do some rehab and you fix up these, these properties, but you also said that there's, you know, roughly 70%, um, maybe occupancy when you buy it. So are you, and, and three to five year rent or lease terms. So how do you push the value in the rents? If you have long-term tenants already in there, but you're spending money to make it better for new tenants and the old tenants, how does that, how does that all work together?

Grant Reaves: Yeah, so usually while they are 3 to 5 year leases, the weighted average lease term will be about 1 to 2 years. So you'll have some tenants that will buy a deal sometimes and just know that even when we sell this asset, it's going to be a below market rent because they have a 10 year lease or something crazy like that at really low rents. But Usually on the renovation piece, what we were doing on that, I can kind of speak to, we redo the exteriors, we paint the buildings, we redo the landscaping, replace roofs, redo the parking lots if needed, kind of freshen up the asset. And then on the interiors, a lot of what we do is root out office space. So for instance, a couple of deals we've bought are 70s, even 80% occupied. And the main reason is, is because they've taken these office warehouse suites, how they're constructed in the 80s or 90s, and then over the past 40 years, built them out to be maybe 80% office, 20% warehouse, which is not what people are looking for anymore. So we can go in there, rip out the office, turn it back into a 50-50 office warehouse flex kind of piece or suite and drive up occupancy by doing that. Um, but then by that point, like you're saying, you're signing 3 or 5 year leases, which have the new rate. So it's going to be blended by the time you sell it, which does leave a little bit more meat on the bone for the buyer and helps you be able to sell that story to.

Jim : Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.