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Welcome to The Executive Real Estate Investing Show. This podcast is for you, the busy business owner or executive looking to create generational wealth. Here, we’re going to show you how to do that through real estate investing from multifamily to industrial and everything in between. You will become a real estate investing expert. And now, here’s your host, Michael Holman.

Michael Holman: Hello, everyone, and welcome to another episode of The Executive Real Estate Investing Show. I’m your host, Michael Holman, excited to have you with us today. And we have a super exciting guest.  The guest today is a little bit different than some of the other guests that we’ve had. Why, because he is obsessed with Industrial Real Estate, and it is awesome. I love hearing about it. Industrial Real Estate is one of those things that’s so broad, it encompasses so many different actual assets, but can be such a good investment. I would highly recommend that you listen to this, because you’re going to get a high-level overview of what it is, how to make money on Industrial Real Estate, who manages the properties, all of it. Chad’s excitement for Industrial Real Estate is just contagious so definitely stick around.

If you’ve been listening to the show for a little while, and you’re liking what you’re listening, make sure you go and hit that subscribe button and give us a rating and review. We’d love to hear from you. We’d love to get this show out to as many people as possible. Lastly, if you haven’t, I’m going to keep telling you this every single week www.ExecutiveREIshow.com, you got the show notes. Chad at the end, he has hundreds of videos out on Industrial Real Estate. Go to www.ExecutiveREIshow.com, click on this show, we will link to that YouTube channel that he has, boom, you just got access to hundreds of videos on Industrial Real Estate investing.

Go check it out www.ExecutiveREIshow.com. Ask us a question in the executive questions section. Just reach out, subscribe to the newsletter, it comes weekly goes right into your mailbox. www.ExecutiveREIshow.com. Before we get into this wonderful interview with Chad, we got to give today’s executive tip. Today’s executive tip is to be an expert in something. It doesn’t matter what it is, it doesn’t matter how niche it is. In fact, the smaller the better when you’re starting off.  When you’re starting off trying to become an expert, I recommend the tighter you can make that window of expertise, the better.  Because it’s hard to say, I’m going to be an expert in Real Estate investing. It’s so broad.

There’re so many different things, it takes you years to truly become an expert in all things, Real Estate investing. But if you say I’m going to become an expert on Industrial Real Estate investing in this city, suddenly, it is a little more manageable, so become an expert. Even if that’s in your job. A lot of times you hear people that get stuck in their job, in their career, and they’re not sure where to go, you want to know one of the things I always recommend, take a step back, what are you doing that you’re better than everybody else at or you have more knowledge than anybody else at.

Oftentimes, the people who are struggling look around and they say, well, I got my boss who knows more than me on pretty much everything and I got this person who knows more than me. I always tell him, you want to become valuable. Suddenly carve out that niche and become the go to person for that thing. Because everybody knows that you know more than anybody else on that topic. So become an expert in a niche market. And Chad’s going to get into that a little bit later. Without further ado, everybody here is Chad Griffiths.

Hello everyone and welcome to another episode of The Executive Real Estate Investing Show. I am joined today with Chad Griffiths. I’m really excited because Chad is an expert in one of the hottest topics in Real Estate right now. It is Industrial Real Estate. You cannot turn on any Real Estate news, any Real Estate investing without finding something about Industrial Real Estate. I am really excited. We’re going to take a very deep dive today into Industrial Real Estate. Chad, welcome to the show.

Chad Griffiths: Hey Michael, thanks so much for having me on. You’re right it is a super exciting topic. It’s gone from being one of these industries which was never talked about 15 years ago to now all of a sudden everybody’s talking about it their dinner table. You hear it on the news, everything’s talking about Industrial Real Estate. I’m excited to jump in and we can take it any direction you want to go.

Michael Holman: Chad, how about to start, why don’t you tell the listeners a little bit about yourself?

Chad Griffiths: Thanks for that, Michael. I got into the industry in 2005. I had a bit of background in the residential space but wanted to pursue a Commercial Real Estate. I joined an office for a brokerage in 2005. At the time, I thought I would be working in office towers or shopping malls kind of that more glamorous side of Commercial Real Estate. As it happened, the office that I joined was just heavily focused on Industrial Real Estate. So all the people were doing that, all the mentors, people I’d be looking up to, were all in Industrial Real Estate.

It’s just by pure accident that I got into an office that was focused on Industrial Real Estate and that became my career path. I dove into it, focused on building my brokerage business. Started in 2005, and at the same company ever since so 17 years now. In 2014, I started investing in properties as well with some partners and a bunch of debt, we’ve pretty much added a property every year. Including a few like notable ones. In January, we closed on a four and a half million-dollar property. Last year, we bought a $3 million property, the year before that we bought a four and a half million-dollar property. So we have bought some pretty good size assets as well. It’s just an exciting space to be in. I really think that I’ve been very fortunate to have found a career that I enjoy doing. And it’s just been such an interesting ride to be along.

Michael Holman: I have so many things about Industrial Real Estate that I want to pick apart with you. But one of the things that was interesting that I want to point out to a lot of our listeners that’s relevant to them is this meandering career path. It’s something that I see a lot. People oftentimes start down one path with all the intentions, I’m going to get to X, and next thing you know, they’re at Y and they love it, but it’s very rarely, this is where I’m going, this is where I’m heading, and that’s where I end up. It’s usually a little bit of winding and next thing you know, you’re over in a different direction. But people oftentimes it works out for them. I’d love to hear, did you have a mindset shift when you thought you’re going to go to office and shopping malls into industrial or was it just a natural reoccurring, path that happened over time?

Chad Griffiths: That’s a great point and you’re right. Nobody has a successful journey from point A to B being a straight line. Everybody’s got some zigs and zags in there and nobody has that straight line there. Mine is no different. I was going to college in business school, when I was younger, I was working at a restaurant part time, I got offered a management position, dropped out of college, my parents are still disappointed in me for that. I did go back later and finish but at the time, they were not impressed at all. I found out that I didn’t want to do that long term, I bartended for a while, that made my parents probably even more mad. Slowly got into that residential space, bought, and sold a few houses of some friends. Decided I wanted to become a residential agent. I did that for a year in 2004. That was my taste for being a service provider.

I really liked working with people, whether it was bartending or some of the other jobs that I had was really focused on customer service. I saw an angle to be of service to people and then get paid commensurate to the effort that you put into it. I was really drawn to that Real Estate space. I just didn’t want to do residential Real Estate. I was like, wow I could sell office towers, I could be like Donald Trump, I could be dealing in all this glamorous, true asset classes. Next thing you knew I was working in an office where I was walking through old warehouses and I was like, this was a little bit different than I had in mind. But to your point, I never obviously never dreamed about being an Industrial Real Estate broker investor when I was younger, I thought that was above my bed to do that when I was older. But when I found it and I just saw an opportunity where it was the ability to work with really cool companies that do awesome things.

We can talk about this as well as we go into it. There’re companies that just do everything imaginable. You have the full spectrum of different types of clients to work with. You get to know all these businesses as you’re working through the process of them buying or leasing space. I just really fell in love with it. I thought it was such a great industry. Again, 2005 it wasn’t popular, nobody in my family had any idea what I was doing. You tried to explain it, they couldn’t grasp it. Fast forward to today and everybody sees a big Amazon fulfillment center off the side of the road or these big warehouses, it’s become a lot more prominent. 2005 very little people knew about it.  I thought it was an area to work in that wasn’t known so there wasn’t gonna be as much competition. There was ability to take advantage of some of the things that were out there.  I just really went into it headfirst to the point where I I’ve spent 17 years doing it. I’ve got the majority of my net worth directly invest in Industrial Real Estate, and I just love talking about it. I can talk about Industrial Real Estate first thing in the morning and before I go to bed. I just love it, but it wasn’t by design, like I truly stumbled into it.

Michael Holman: That’s just how our lives work so much, and our career paths and everything like that. I started out as a CPA at a big four accounting firm, never thought I’d be in Real Estate development or talking on podcast. That was never the idea or the intention when I started, so I definitely understand. I want to shift gears because we’re talking about Industrial Real Estate. Industrial Real Estate, honestly, it has all the asset classes, it is one of the most vague. There’re so many things that encompasses Industrial Real Estate and I would love for you to just outline to the listeners, what is Industrial Real Estate, what does that include?

Chad Griffiths: Such a great question because you’re right. It is so broad compared to other asset classes that people are going to be much more familiar with, like office space, you’re in an office right now, everybody knows office. That space could work, whether you’re doing Real Estate, or accounting, or if it was a law firm that went in there. Those types of buildings typically worked for a wide array of uses. Industrial Real Estate is actually a very broad term, which should be delineated into certain categories, because there is overlap between the subcategories. But there’s also some start differences. I’ve finely tuned this idea in my mind over the last year, where I think that this makes the most sense to describe it at a very high level is that there’s three main subcategories. The first is warehousing. That’s the one that most people are familiar with now, it’s the big distribution centers.

Michael Holman: The Amazons.

Chad Griffiths: The Amazons and those are a lot more prevalent now. I’m sure there’s some just outside the airport where you are on major roads, I know that they’re all over Utah. The big distribution centers. If you could just picture a really big box, it can be anywhere from 100,000 square feet to 2 million square feet. The whole idea is things come into the property, they’re stored, there’s tons of racking, pretty much from floor to ceiling of racking. Things go into the building, they’re stored, sorted, and then they get sent out. A good example actually uses like a Costco or Home Depot.

If you go into any one of those stores, those are a big warehouse, there’s racking all the way up, there just happens to be consumer products. But that’s racking for warehousing people come in, most of those stores have no retail presence at all. You’re walking into a warehouse. There’s in a retail location, but you’re not seeing a big fancy showroom or anything. It’s just a warehouse. That’s the one that people are most common with. But the other major one is manufacturing properties. These are just the properties where things are made, assembled, manufactured.

A factory, if you will, where raw materials come in, or semi raw materials come in, they’re assembled, people put things together, they might machine it, they may do all types of different things to the raw materials. But the end result is a final product going out. This is the type of product that works outside of the mainstream purview where you’ve got to go into an industrial park to actually find these, but you’re not going to see a big factory on a main road. They’re typically tucked away in an industrial park. One story that I like telling is a guy who was asking me about Industrial Real Estate, and he teed it up by saying, the only thing I know about Industrial Real Estate is when I make a wrong turn off the highway and I have to figure out how I get back on the main road. I think that that is pretty common for people unless you’ve worked in one of these factories or you know someone that worked in there, you really have no reason to be driving into an industrial park.

Michael Holman: I can tell you, as a developer, cities, specifically put zoning in place to try and group those heavy industrial uses together, which is why you don’t see them. You oftentimes don’t have the McDonald’s that you’re going to right next to where they’re manufacturing ladders or something like that.

Chad Griffiths: For good reason. You can just imagine the noise and the traffic and potentially any smells, or just the byproduct of the industrial fabrication. It can be very disruptive, and people don’t want to be going to restaurants next, they don’t want to live next to it. You’re exactly right. I don’t know of a single market in in North America or the world really, where they haven’t segregated these by zones where there’ll be an industrial zone and a commercial zone and a residential zone. But these manufacturing properties are traditionally going to be in that like you said heavy manufacturing area. But that’s also big business. You can manage manufacture anything from like a ladder would be a good example where that might be in a small factory, all the way up to manufacturing airplanes.

The one I point to often is the Boeing factory not far from you and just in Everett, Washington, 4 million square foot building, where they bring in all the raw materials for the planes, they assemble it and make these massive airplanes and then it goes out to the end customer. That’s a 4 million square foot building for manufacturing. The flip side is there’s also 2000 square foot properties for that as well. There’s the full spectrum on both warehousing and manufacturing. The third category is it’s often called Flex Properties. I use it as a miscellaneous category where it captures everything that is industrial zoned, like you said, property zoned for industrial uses, but it might not be compatible for either warehousing or manufacturing.

There’s a wide array. You can have showroom space, you can even have direct office, one of the buildings that we own our office is also in there, it’s 100% office, even though it’s an industrial zone building. You can have churches, art galleries, you name it, there’s a whole wide variety of different types of uses that can go into these Flex Properties. There’s a lot of them as well. But predominantly main two categories, which encompass the majority of Industrial Real Estate is manufacturing and warehousing.

Michael Holman: It gives a rundown because oftentimes people don’t necessarily understand Industrial Real Estate, like they do say, multifamily. Apartments, multi families is usually one of the first things that people get into when they start getting into larger Real Estate. Once they get past the single-family homes and the townhomes, they go to apartments, because they understand it, they’ve lived in an apartment, they’ve seen an apartment. They understand how it works, you pay rent, and then you pay your expenses and your loan, and you get some money. But not a lot of people have worked in a manufacturing plant. They don’t understand how they work. Could you break down on these different subcategories in Industrial. Say you are an investor and you’re investing in manufacturing, you are investing in warehousing or flex. How does an investor make money and run them through that process, because a lot of people in the world aren’t familiar with how that even works. Is it lease, is it own? How do you make money as an investor in Industrial Real Estate?

Chad Griffiths: I love the point that you made about people just not having familiarity with it, because it’s so true. Unless you had a reason to, you wouldn’t be nearly as comfortable investing industrial as you would multifamily, particularly if you’ve already had a few single-family houses, it’s not a big leap to go to multifamily. But going to industrial can be daunting, and that can be a negative. I like to look at it as a positive. Because anytime there’s a barrier to entry like that, whether it’s a mental barrier to entry, where people aren’t comfortable pursuing something because they don’t understand it, I see opportunity. I opportunity that there’s less competition and multifamily is a good example. If there’s a good multifamily property that came up in your market, I suspect that there could be dozens, maybe even hundreds of potential buyers that could be interested in it.

Whereas industrial just by the nature of being less understood, there’s going to be fewer competition. It’s a tradeoff, on one hand it’s harder to understand. But on the other hand, there’s less competition. We typically see a bit of a higher yield on the industrial properties. If you look at it really simply just like going in cap rate and I don’t know how deep you want to go on the cap rate, but even just call it like a one-year anticipated yield. Maybe we just stay away from cap rates and just look at a one-year anticipated yield. What your income is, as a ratio of the value of the property. On multifamily most markets, you’re going to see like that one-year yield and that 3% to 4%. Whereas industrial, you might see it in the 6 to 7 to 8% range. You might see like a two to 300 basis point increase in yields on industrial on the short term. Over the long term, there’s a lot more variables to take into account. I think it tends to normalize, without getting too into depth with like an internal rate of return, but even just call it a yearly compounded average.

I think that the returns are going to be pretty similar in industrial and multifamily over the long haul. But there’s other reasons to consider industrial as well. Management is a huge one. I’ve found multifamily and a little bit of experience with a four Plex and smaller properties when I was younger, it’s a lot more management intensive, like you’ve got to be really hands on. If a tenant has an issue, you’ve got to deal with it. Whereas industrial I have properties that I’ve owned for seven or eight years now where I’ve been to them a handful of times each just the way that the leases are structured. Tenants typically take care of everything. It’s just a lot less management intensive. So for me if I could compare a multifamily property and an industrial property, and the returns are going to be somewhat similar over a 10-year holding period.

But the Industrial property requires me to be much less hands on. That, to me is appealing in itself. I think what I’d recommend for anyone considering industrial is that you first need to weigh the pros and the cons. We talked about some of those already on different returns and how much management is required. But I think the biggest thing that I always recommend is to people to find out why they’d want to invest in industrial. There has to be more of a reason than just chasing a return, I think that they need to be able to answer why exactly is Industrial Real Estate, something they want to chase? For me, that answer is pretty clear, I think you can make a really good return, it’s hands off, I know the market really well.

There’s less competition.  I have outside managers on most of the properties that I have so I don’t even actively manage them at all. For me, those outweigh the benefits of multifamily of knowing that asset class really well. But there’s also tradeoffs as well and that comes down to risk. I think that there’s potential for a lot more downside risk in industrial than multifamily. Without trying to go too much on that one question that you asked, not trying to talk too much on that one thing, I would think that the biggest thing I’d recommend is people need to find out why. If industrial is appealing, and you can answer why it’s appealing, then you need to start just doing a deep dive into the topic. Getting to understand it intimately, understanding what it is, what it isn’t, what the type of tenants are, that are going to lease that space and really understanding at a fundamental level, so that if a property does come vacant, you’re able to fill it relatively quickly, and ultimately mitigate that risk. I sound redundant by saying it, the biggest thing I’d recommend for someone considering this is to ask why.

Michael Holman: That was fantastic. Just to break some things down that you said throughout that process. If I were just an investor, and I went, and I found some industrial building, and I put a million dollars down, and it was a $4 million property went and got a loan,  the way that the cash actually comes into my pocket is, and correct me if I’m wrong, that building, I go out and try and find a tenant to occupy that space and they lease that building. Are those normally similar to like a triple net lease deal, double net lease, what kind of lease normally goes into something like that?

Chad Griffiths: You hit that right on the head, and that does unpack the lease a little bit more on why it can be a lucrative investment is that most commercial leases and I’m generalizing here, because the terminology might vary depending on where people are listening from. Instead of talking about the terminology, because you’re right, it can be triple net, double net, single net, fully net, absolute net, I’ve heard every terminology you can imagine. The intent is what’s important, and it will be worded carefully in the lease. I would say make sure you have your lawyer reviewing this as well to make sure that the intent is actually represented in the lease agreement. I always recommend people have a lawyer when reviewing a lease of this importance. But the intent of most commercial leases is that the tenant will pay two rents. The first rent they’re going to pay will be called either a base rent or a net rent and this is contractually agreed upon rate, that the tenant will pay for the whole term of the lease.

If they did a 10-year lease, and they’re paying $10, a square foot, most leases for commercial are quoted per square foot as opposed to $1 amount per month, or per year. If the tenant is paying $10 per square foot, that $10 could be fixed for the whole 10 years, or there might be escalations in there, it might go from $10 to $15 over the term of the lease, but that amount is pre agreed upon. Both parties know that the tenant is going to be paying X amount for the whole term of the lease. Then there’s a second part, which is called the operating costs or the additional rent. Again, terminology might vary. But the whole intent is that the tenant is responsible for paying their proportionate share of all the operating level expenses of the property.

I say proportionate share because there’s multiple tenants in some buildings. If it’s just one tenant in the building, then the tenants are responsible for paying property taxes, building insurance, commentary maintenance, management fees. Commentary maintenance will often include snow removal or landscaping, anything to do with maintaining the property the tenant is responsible for. That number essentially floats. If the amount, let’s just call it an arbitrary $5 a square foot is for year one. If property taxes increase in year two, then any increase would flow through to the tenant. They might end up paying $5.25 a square foot for their operating costs the next year, with the sole intent being that any increase in those property level expenses get passed through to the tenant.

The beautiful part about that, unlike most residential leases, which are quoted as a gross rate where the tenant pays one monthly amount, and that’s inclusive of property taxes, condo fees, if there are any condo fees, management insurance, that’s a grocery, and then that amount is, is fixed. There’s no adjusting for that. If the tenant does a three-year lease, there’s no adjusting for that if the property taxes go up the next year. Whereas in commercial, the landlord can be comfortable knowing that any increases get passed through to the tenant provided that the lease is written that way, I would want to caveat that because last thing I want is someone listening property that, for some reason was written unconventionally. Most leases, the majority of commercial leases are written that way, though, and it just provides the landlord comfort knowing that they’re not going to erode any of their profit. If property taxes were to go up 10% next year.

Michael Holman: I love the way that you broke that down with the two different leases. For anybody who’s ever invested in a retail property, these operational costs, very similar to cam fees, or common area maintenance fees. Exactly the same concept, exactly the same thing. It’s interesting, the way that you make money and Industrial Real Estate is just like the way that you make money in retail, the way that you make money in office,  you own a space, and you’re leasing it out to somebody who then pays you rent, so that you can pay all your bills and taxes and everything, and then make some money at the end of the day. When you look at this, and you step back from a high-level view, I want everyone to understand that this is not necessarily, it’s not like you’re stepping out into the dark with industrial, a lot of times.

Most people get a little nervous because it’s like, well, I’ve been in O’Reilly Auto Parts or a Family Dollar Tree store like 100 times, they just know what to expect. But this is the exact same way. One of the things that you pointed out that I want to point out for everybody really quickly here, Chad, is those operational costs, the common area maintenance fees, however we call it, however the lease states it. In a residential setting, the burden of all of those costs generally are placed on the landlord, the person who owns it and you can see that most governments are very protective and friendly, to residential leases to the tenant. The tenant is the one who’s going to get the benefit of the doubt across the board on a residential lease. On a commercial lease, a lot of times it’s the opposite. It’s the landlord who oftentimes gets a lot of the benefits in those leases. There’re very few foreclosure laws. You don’t have to go through the same kind of foreclosure process.

If you have a bad commercial tenant, and if you had a residential tenant, because the laws are going to be different surrounding kicking somebody out of their house, because they’re not paying like they should be, and kicking a company out of a building, because they’re not paying. I love that you move that distinction because there’s some subtle differences between the residential and the commercial side, that I think are really important that make all the difference. A lot of people might look at just the base rate and be like, I’m never going to make any money, why would I pay that. But if you don’t understand these other operational costs that are being taken care of, that you could be passing up on a really good potential investment, because you’re just not understanding they’re taking care of a lot of these things. Then on the residential side, you normally have to take care of.

Chad Griffiths: Great point and that was so well said about the distinction on just how tenants are treated by law. Most areas will have some sort of governing legislation, which dictates how that relationship between a residential landlord and residential tenant can actually be. You’ll typically have a state offered form where it’s very consistent across everything, everybody’s agreeing to the same two- or three-page document. It is skewed heavily in favor of a tenant for good reason. If a tenant misses a rental payment over the winter, a landlord would be cold blooded to have to go and kick them out. But it does happen and that’s why there’s laws preventing that from happening. I’ve heard investors say this before they said, I can’t go and kick a family out of a property if they don’t pay their rent. That’s why they just didn’t want to invest in multifamily or single-family homes.

I still think it’s a very viable opportunity. I think people have made a tremendous amount of money investing in residential, but I agree I would have a very hard time kicking out a family, going through the whole process assuming you have gone to the end of that process, I’d have a hard time kicking out that family. Where’s commercial, like you said, it’s governed by contract law. The leases can often be written heavily in favor of a landlord provided a tenant agrees to it, of course, but the rates of distress and how you can deal with a delinquency, or an issue is a lot more amenable to the landlord than it would be in a residential context. That that makes a huge difference.

Michael Holman: Definitely something to think about as you’re starting to determine how you want to put your Real Estate portfolio together, and what you want that to look like. Because oftentimes I hear a lot of people say, my goal is I want to own 50 homes, or I want to own 100 homes, and that’s fine. But there are some other options that I recommend you at least look at to put into that mix.

Chad Griffiths: If I could just jump in really quick, Michael, I will touch your train of thought on that. But a point just occurred to me on that, that I think is worth emphasizing. One property that we bought, two years ago, it was a roughly a $3 million property and there’s a single tenant in there. It’s a fortune 1000, oil and gas company, single tenant that’s in there, and we’ve got them on a long-term lease. Now, if I were to spend that $3 million on a multifamily property or single-family homes, I’d probably be looking at, like a 20-to-30-unit building would be my guess, I don’t know the multifamily space well enough. But I’m assuming that it’s going to be in that 20-to-30-unit range. You could just imagine over the course of a five or 10 year hold how many problems and issues you would have dealt with that many tenants versus me having one tenant that pays their rent by preauthorized debit, and it goes right into my account, and they deal with any issue that comes up. I think I’ve been to that property twice since we bought it versus how many times would you be at a at a multifamily building that had 20 to 30 tenants.

Michael Holman: That is a great point and I want to expound on that a little bit, because that’s another little bit of unknown with the industrial. With multifamily, you often you just know. Either you’re going to manage or you’re going to have an outside property manager manage that. For industrial, how does that work? I want to get into that, because like a lot of triple net lease deals, all over the US, they oftentimes don’t have outside managers, usually single person. They just purchase a property, and they’re just getting the rent checks. But they don’t need an outside manager necessarily on that the whole time. How does industrial work? Do you oftentimes see third party property management on industrial property, or no?

Chad Griffiths: Quite often you do and the reason why you do is just the economics of it. You can have a property manager, look after an industrial building, with a lot less time involved, then it would be for the equivalent of rent coming in on the multifamily property. Same thing just going back to how much work is involved in managing one industrial tenant versus 15 to 20, residential tenants. Somebody has to do that work. So if you’re paying an outside manager to do it, it’s going to cost a lot more to have them manage all these issues of 15 to 20 residential tenants, versus what they have to do with one commercial tenant. Where the rent automatically goes into our account anyways. They can still deal with some of the accounting, they can still deal with presenting financial statements and any operational issues, a property manager can do it in commercial just a lot more economically than they could same type of property in residential.

That’s why I think with residential, it’s so difficult to get a property manager because you have to get an economy of scale, where you just reach it to a certain level that you can afford to pay someone to do it. It’d be very difficult to pay a property manager with a 15-to-20-unit apartment building, before you start eroding too much of your profit. Commercial, conversely, they just have to spend a lot less time on it. The property manager can scale a lot more and they can manage considerably more property doing the same amount of work than they would in residential. So as a result, most properties do have property management in place or even if it’s not a dedicated third-party property manager, the owner will still charge a management fee, and they’ll bill it back to the tenant as part of the operating costs. There’s opportunity to charge back your time as the property manager/ owner, just as a function of the operating costs, provided, of course that your lease stipulates that you can but it is common.

Michael Holman: What we’re doing here is we’re clearing up a lot of the unknown for people through this. How you invest, how the money is made in industrial property, who manages the properties? I love where we’re going with this. Right now, what I’m going to ask Chad is I’m going to ask you to take out your crystal ball for a second. I would love to hear your take, where do you see the future of industrial going?

Chad Griffiths: Providing we don’t have any crazy events that are just unpredictable and if the last two years have taught us anything is that the world is full of crazy unpredictable. But providing that we stay the course as we’re going without any major disruptions, I think that there’s still a very long runway for industrial. I think that there’s a few trends driving both of those subcategories as well. Just from an economic standpoint, industrials has just always been a very stable asset class, it’s been regarded as just a boring, steady asset class that people have needed warehouse space, have needed manufacturing space, and it’s just been on a steady uptick. What’s driven the explosive growth in the last few years, and I can even say, few decades have been the increase in E commerce.

As there’s been a move from that, go to a store, buy things, and bring it home, to click a button on your computer and have it delivered to your house that’s required a considerable amount of warehouse space just to accommodate all this e-commerce. I don’t see that trend going away anytime soon. If anything, I think these past two years have taught us that there’s been more people adopting this technology than less. I see it with people older than myself, who were very reluctant to shop online before are now suddenly comfortable with it. I think that trend continues, I think we continue to see ecommerce start chipping away at that traditional brick and mortar retailer space, that’s just going to need more warehouse to accommodate it all. In certain hot markets, the vacancy rate is sub 2%. It’s still a really hot market. There’s a lot of runway of inventory that can still be added before it even gets to call it a healthy vacancy rate.

I think that will drive the warehousing side. Then on the manufacturing side, I think that there’s also going to be a shift to manufacturing at some level coming back to North America. That’s a function of supply chain issues. Something made overseas is now just taking longer to get from call Asia to North America, there’s bottlenecks in the supply chain process. I think there’s going to be more emphasis on having things made here to circumvent any of those supply chain issues. Couple that with just manufacturing in general, if we start seeing oil and gas stabilize in this, that’s why that’s a $100 for Brent, today. If we see oil prices stay in that area, I think it’s going to bring more manufacturing, in general just to service that big machine that’s oil and gas. I think we’ll see that even in markets that don’t have an oil and gas exposure, I think we’ll just see a noticeable uptick in manufacturing. Like I said earlier, I’ve got the majority of my net worth in industrial and I’m not selling anything, in fact, I still want to keep buying.

Michael Holman: I can tell you, I’m seeing the same thing where I’m sitting in Salt Lake City. One of the hottest things that have come up is the flex space that you’ve talked about. I have lots of friends that all lease flex space, they have a little office in the front where they can go and work and they have this big warehouse in the back and it’s not huge. It might be 3000, 4000 square feet total up to like 10,000 square feet total. But they can run their E-commerce business out of that.  They can do everything they need to do, they’re not packing their basement full of all their, pants or shirts or frisbees or whatever they’re selling online. They’re not packing it all in their basement, trying to figure out how to ship everything off. These flex spaces and I know where I’m at are huge, they’ve just gone crazy. You’ve also seen a huge uptick in like you said, the warehousing spaces. We have something like two or three new Amazon facilities here in the last couple of years. It’s crazy. I’m sure most markets are like that, where they have big warehousing that are coming in as well to service not only kind of your mom and pop shops where it’s just a couple people selling something online to these large corporations.

Chad Griffiths: It’s everywhere in between and you could look at the market holistically from that standpoint that if you are in the market to lease space, just do a search right now just go in and do an arbitrary search of trying to find 5000 square feet of industrial space in your market. You’ll see that it’s more challenging than most people expected, just because of that upward pressure on demand. Anything can derail my vision for how things are going to look of course, but I just think that of all the commercial asset classes excluding multifamily because I think multifamily is going to do quite well for the foreseeable future as well.

But compare it to office or retail, office scares me, I still don’t know how that landscape looks once some of these companies that had trailing lease obligations once they start giving back space or if they do, or if there’s a return to the office, still lingering questions that remain unanswered, but I can’t see much growth in the office area. Retail would be concerning for that same reason, I think retail will still do fine. I think people are still going to want to go to shopping centers and the experience everything goes with it. I just have a hard time envisioning a scenario where there’s growth in either office or retail. So as an investor, you’ve got to be chasing growth to some extent. Otherwise, you’re basically better off just buying a bond. I like industrial from the standpoint it seems like it’s got a long runway, I see big opportunity for growth, it just seems like a very good investment vehicle going forward to me.

Michael Holman: I’ve really enjoyed the industrial properties that I’ve been a part of. I’m excited and I’m glad that we had you on the show to clear up a whole lot of things. We could really try and start getting people comfortable with industrial so that they can potentially start looking to add that to their portfolio if it makes sense for them. Chad, as we end though, two questions we always ask every guest that comes onto the show. First question, what is the best business advice that you were ever given?

Chad Griffiths: That’s a great question. I think the best one would be just passionate about anything that you do. If you are passionate about whatever job you have, or whatever investment you have, or whatever thing you’re pursuing, if you’re passionate about it, you’ll find a way to connect those figurative dots that we referenced. If you are going from A to B, and you start off here, but you’re going quite a bit to the side, if you are passionate, you’ll find a way to correct ship and get it to point B. I learned that early in my career, even before getting into Real Estate actually. An uncle of mine that told me that early on. It’s an advice that I’ve been living by, it’s just passionate about whatever you do.

Michael Holman: I love it and completely agree. I think that is what becomes a driving motivating factor, like you said. To be able to push through. Anyone who’s successful has those difficult times. It doesn’t matter who you are if you are successful. You had a moment where there was difficulty, you had to overcome obstacles and if you don’t have that passion, that motivation, those obstacles are often fatal. That’s what ends the career, that’s what ends the job. That’s what ends the new company you just started. You have to be passionate. I love that. I think it’s amazing advice. Chad, next question, what Real Estate investing advice would you give other business owners or business executives?

Chad Griffiths: Great question and easy answer for me be an expert. No matter what you’re investing in Real Estate, be an expert commit to knowing everything you can, not just about the property from my macro standpoint and I could use industrial in this context, not just understanding industrial on what it is and what it isn’t and limitations and drawbacks, but also being an expert in the local market that you’re investing in. You’re aware of tenants moving into the space, you’re aware of deals that just happened, you have lease comparable you could draw on. I think if you combine passion, with just wanting to exceed no matter what, and you add in expertise, where you’re just a bonafide expert, and you know things that other people don’t. I just can’t see a better path to success than that.

Michael Holman: Chad, how can people get in touch with you?

Chad Griffiths: Well, I love talking about Industrial Real Estate as you can tell. I started a YouTube channel about a year and a half ago, talking just about Industrial Real Estate. My whole plan with that is to just provide as much value as I can and information. I don’t talk about my company that I worked for. I don’t even mention what city I live in. Because I really want it to just be a standalone piece of information where people can go as a resource. So, if you just search Industrial Real Estate, you’ll come across my channel because I’ve done over 100 videos now. Crazy to think about. That’d be the best place. YouTube channel would be awesome.

Michael Holman:  Do they just search for your name, and you’ll come up?

Chad Griffiths: I think the channel name is Chad Griffiths CRE. But if you just even search Industrial Real Estate, I’m pretty sure all pop up at some point.

Michael Holman: Chad, thank you for coming on the show. We are excited that you were able to come, talk about Industrial Real Estate. Thank you.

Chad Griffiths: Thank you, Michael. I really appreciate being on and loved chatting about this. I love your excitement and your passion for doing this as well. Thanks for having me as a guest.

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