Acquisitions Anonymous - #1 for business buying, selling and operating - How to value and underwrite commercial Real Estate? With special Guest Chris Powers - Acquisitions Anonymous Episode 133

Episode Date: October 19, 2022

Signup for our weekly newsletter:https://www.getrevue.co/profile/acquanon-----Bill D’Alessandro (@BillDA), Mills Snell (@thegeneralmills), together with Chris Powers (@fortworthchris), we discuss an Airport Commerce Park in Houston Texas. Chris starts off by sharing a little bit of his background and explaining what a Class B Industrial is. The major effect of location for this kind of business will also be discussed, as well as the essential dynamics for making more money. Moreover, we will look into why real estate people sell if it’s good. Does a successful real estate capital manager end up in buy and hold?Listen to the podcast and find out!-----Thanks to our sponsors!CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----Show Notes:(00:00) - Introduction(01:11) - Our Sponsor is Cloud Bookkeeping(02:39) - Guest Intro: Chris Powers joins us today! (04:00) - What are Class B Industrial Assets?(04:58) - Deal & financials: Airport Commerce Park in Houston TX(07:19) - What is a 7.2% cap. rate? How do you think about it when looking at a deal?(08:36) - How do you assess value initially when looking at a deal?(10:33) - How does location affect this particular asset class?(12:35) - What is a good diverse tenant base? How do you understand if it’s good or not?(17:50) - What is the due diligence process for leases?(20:08) - What is the Seller Type in a Property like this?(21:07) - What is so interesting about this asset class?(21:54) - Who are the competitors?(23:41) - Once you buy, how do you operate to find Alpha?(28:22) - What are the essential dynamics for more money?(39:04) - What is the most important part of renegotiating rents?(50:35) - Are there different types of land that are not real estate?(52:55) - What is the current state of RE developments in America?(55:36) - How many deals do you have to look at to find one valuable deal? How do you source them?(58:23) - Hold Period/Exit Plans: Why sell if it's so good?(01:00:15) - When to know if it’s ready to be sold?(01:01:22) - How does selling relate to refinancing?(01:02:37) - Does a successful RE capital manager end up in buy and hold?-----Additional episodes you might enjoy:#131 People are getting rich with Med Spas. Will we?-----Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey everyone, welcome to this week's episode of Acquisitions Anonymous. This episode is maybe one of my favorite we have ever recorded. I'm one of your hosts, Bill Dallessandro, and this week we are with Chris Powers of Fort Capital. Chris has become a personal friend to the guys myself and other guys in the podcast over the last couple of years. And I just think he is one of the most thoughtful people out there when it comes to investing for the long term. Chris runs a firm called Fort Capital. He manages or has done about $2 billion of real estate transactions over the past several years, and they raise about $200 million of rolling capital every single year to deploy into Class B industrial real estate, started in Texas, and expanded across the entire Sunbelt. So we have Chris on for a fun episode today where instead of talking about a business for sale, we talk about the business of real estate for sale, how to value an underreact. right real estate commercial real estate properties, class B industrial that's in Chris's Baileywick.

So I love Chris. I love this episode. Strap in for a full hour with Chris Powers. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite.

of bookkeeping services all in the cloud for you around QuickBooks and other technologies that you're using as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your plate and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting. Definitely helping you get your quickbooks online set up in the right way and a number of things around payroll as well. So definitely know them and recommend them. If you want to find out more about cloud bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie. I know many

of you have and see if he can help you, make running your business easier and more fun by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast, it would help us and help Charlie know that we're supporting him as well. So thanks a bunch and cloudbookkeeping.com as the sponsor for today's episode. All right. We are here today with one of my favorite people in real estate and maybe even the entire country, definitely in Texas. Chris Powers is here with us for Fort Capitol. Chris, great to have you on the show.

Man, I'm pumped to be on the show. The sentiment is mutual. I love you guys. Awesome. Thanks, man. Well, could you, just to kick this off, if by some chance, some of our listeners don't know who you are, can you give them 20 or 30 seconds on you in Fort Capitol? Yeah, Chris Powers. I'm living in Fort Worth, Texas, which is also where my business Fort Capital is. Today, we're a fully vertically integrated real estate private equity firm focused on acquiring Class B industrial assets primarily throughout Texas, but also the Sunbelt. We're now in Florida, Tennessee, and I'll be announcing a few more states probably over the next year. We have

48 employees now. And when I say fairly very, vertically integrated. We raise our own capital. We manage our own assets. We finance our own assets and kind of everything in between. And so today we have about a billion dollars of assets under management and we're growing, you know, pretty consistently year over year. That's awesome. It's been so cool to, you know, watch your success and, you know, follow son along of it on Twitter and personally. It's just so cool. I mean, a meteoric rise. So for, sure, man, of course. So what we're going to talk about today is real state, which is a little different than what we typically talk about here on Acquisition

Anonymous. Chris, one question for folks who might not be real estate familiar. What is Class B industrial? Because that's what we're going to talk about today. Yeah, class B industrial is a couple things. So industrial are the warehousing, the manufacturing buildings, the distribution buildings that build and store and move product throughout the country. And Class B in its most simplest form is really the vintage in which it was built. So, you know, buildings built in the 60s, 70s, 80s, and 90s, because of when they were built and where the world was then, they serve a certain function. But it's really the vintage and the date in which they were built. And as we get into more of how these deals work, you'll kind of get a flavor for what really is the difference between B and A.

Okay. Awesome. Well, then part of the best way to do is to get right into our first deal. So Chris has graciously shared two deals today. Our first one, is the acquisition of an airport commerce park in Houston, Texas. What's interesting is this is off market. It's 17 quality class B multi-tenant industrial buildings, totaling about 300,000 square feet, and it's 95% occupied. The asking price was $20 million or a 7.23% cap rate, and Chris will expand on what that means.

The reasons to acquire this property are an irreplace. listful last mile location, meaning it's right off the highway, less than two miles from the highway, or a point less than one or two miles from the highway, allows tenants to access major population centers throughout the Houston Metro. Over 64% of all properties in the sub-market were developed as single-family residences, making this location optimal for last-mile distribution and for service providers to those residences. It has a diversified tenant base and cash flow. It's home to 151 tenants across a 17 different. buildings in various industries, including automotive, construction, fitness, appliances, and

furniture. The suite sizes, so remember it's 300,000 square feet total. It's broken down into suites of between 1,000. There's 300,000 total. It's broken down to suites of 1,000 to 6,000 square feet in each suite. The offering memorandum says there's immediate upside through market rents and triple net leases. The majority of the current tenant base is paying below market rates on gross leases. We'll have to unpack gross versus net leases here in a minute. The weighted average lease expiration for the entire park is expected to be within 1.5 years, which provides an opportunity to convert in-place gross leases to new triple net leases and substantially increase the operating income of the property in the near term. And the short-term cash flow

risks are minimized with the current occupancy of 95%. It's well occupied, and the plan is to strategically increase convert those leases to triple net leases at higher rates while maintaining occupancy. The airport Commerce Park offers a blend of term, credit, and upside potential, and is secured by a great location in Houston's most dynamic submarkets. So the purchase price is $20 million, and it projects at a 7.2% cap rate. So Chris, just to start off, if you can help people understand, what does a 7.2% cap rate mean? We're used to talking an email. Bidda multiples on this show, real estate's a little bit different. How do we think about is $20 million expensive or cheap for this property? Yeah, the quickest way to describe it would be if you were to

invest $100, you could expect $7.23 a year of a return, which in an EBITDA multiple, I guess, would be like a 12 or 13 times EBITDA if you considered that $7 EBITDA. You know, real estate trades at a higher evaluation. So it is the percentage return. You know, if you were to assume, again, I always, when I think of an eight cap, I think of $100. Okay, I'm going to get $8 a year in return. It's the percentage return annually. Okay. Great. So in EBITDA or cash flow multiple terms, you would do one over 7.2, which is the cap rate. So if you're used to the EBITDA terms, this is about a 14 times EBITDA deal. And again, as Chris mentioned, real estate chains at higher multiples because they're not operating business.

this is. Yep. So, Chris, is this expensive? Is the seven cap expensive or cheap? You know, how do people think about it? How do you think about that? Yeah. So I think what you'll hear from a lot of people is like, what was your going in cap rate? Which means like what is the cap rate at the time that you buy it? I think of this in two different ways. I don't really care what my cap rate going in is because we're value add operators. So when we buy a deal, we are looking to add value. And So what I really care about is what is my stabilized cap rate? What is my unlevered yield on cost once I've performed the action plan that we're going to do? So you could buy a vacant building that's obviously producing $0.

You'd be buying that on a zero cap. And people might say, why would you ever buy anything in a zero cap? Oh, well, once it's leased, it's on a 10 cap. And so the answer to your question of is that cheap going in is for this deal, yes, believe it was, but what I'm really concerned about is where will we stabilize, kind of call it 18 to 24 months later, which we believe will be between really a 10 and almost a 12. This was a good deal. But yeah, I mean, I think it was cheap relative to existing product. On the flip side, if you go buy a Walgreens that has a 30 year or a 20 year lease in place and you're buying that on a four and a half cap,

that is there really is no value to add. It's not like you can go in the next year and change the lease up, assuming it's a fresh 20 year lease. And so you're really more buying a bond. And so the first question for anybody listening to ask is, is my going in cap rate kind of sticky? Like am I stuck with this because the leases are in place and there's not much to do? Or is there some future value that I could achieve relatively quickly? And that's really the number that we like to focus on at Ford is like, where will we land, you know, call it 18 to 24 months into executing our plan? Okay. So let's kind of walk through like reasons to as we evaluate this deal.

So this is an airport commerce park. Picture 17 individual kind of warehouse style buildings near the airport. Everybody always tells me the first rule in real estate is location, location, location, right? So this one, tell us about the location of this deal. It's near a highway and an airport. You know, how much does that matter for Class B industrial? How much does it weigh into the valuation where it is located or is it just about who's leasing it and the cash flow? Yeah.

So when you think about location and industrial, you're not necessarily thinking about like a retail location where you want to be on the corner of Maine and Main. You want to be on a different kind of main and Maine. And so when you think about the tenants that are in this building, these are people either storing product and getting that out to their customers. maybe they're service providers that are serving a, you know, a group of customers that are within a nearby distance. And so in order to get to those customers, you either need to have a highway system, you know, sometimes it needs to be a rail system, sometimes it can be an airport, but for the sake of this property is like, you've got to be able to get on the highway or get on some major arteries pretty quickly and be able to service your customer base. And one of the things that we like

about this asset classes, you know, most of these tenants, they're not serving customers 50 miles away or 20 miles away across town. They're usually servicing a base that's within, call it a mile to three to five miles of where they're leasing. And so the question becomes, okay, if they're here at this location, how quickly can they get to all their customers? And so we are right off the highway. I mean, you exit the highway and you're at our property. If you're pulling out of our property, you exit right back onto it. And so it's a great location because it's close to a highway and it is the quickest way to start serving customers in the quickest way, which ultimately means the cheapest and most efficient way. So what I thought was interesting in this offering memo is it mentions kind of two location related things.

One, it's close to the airport, which you kind of mentioned for freight, shipping, you know, that all makes sense. But it also mentions it's close to a whole bunch of single family homes. So as you said, it might be easier to service, you know, long care or HVAC or whatever in all those homes. My question for you is, which is really preferable? You know, I know, you know, some tenants can pay more. You know, some tenants are good tenants. Some tenants are bad tenants. You know, when you look at leasing up a park like this, if you look at kind of the rent role, the tenant population, what's a good tenant mix?

What's a bad tenant mix? It was a lucrative one. What's a not lucrative one? How you kind of underwrite that? Yeah, I think, um, being close to rooftop. So everybody hears about last mile. That's a buzzword now.

But we're now living in a world where, and Amazon's kind of the big company that people think about. But really what matters now is, is how quickly can you get product to the house? How quickly can you, if you're a service provider, get to the house? It's a speed to how quickly can we get to our customer. When we were all kids,

you used to order something online that said, it'll be there in eight weeks. And we all, you know, went about our lives. And eight weeks later, a package showed us. I mean, it really was, if you go back and look at commercials in the 90s, we were cool with things taking eight to 12 weeks. It was no thing. Infomercials would be like, order today. It'll be here by Christmas. Now it's like order today and hopefully it's there by lunch. Right. So when you, right. And now we're in a supply chain world where like if things are even delayed a day or two, we're like, what's going on in the world? But it wasn't 20 years ago that those things didn't quite matter as much. So now, not only do you want product to show up on time, but you want your services to show up immediately. You want to be able to order a service and have it show up pretty quickly thereafter. And on the service provider side or on the people providing product,

they're investing all of their time and resources into how do we get product to this customer the cheapest way possible. Or as a service provider, if you think of maybe a roofer or maybe a lawn care provider or something that, there's now technology going, what's the best route? How can I make my routes the quickest way possible? How can I store as much product inside my warehouse as possible and get it out as quickly as possible? And so there's all this money going into how do we deliver services and goods quickly? And ultimately, a lot of those providers are delivering them to rooftops. They're delivering them to local businesses.

And so if you look, if you took our property and you drew a three mile radius around it, you pretty much see all the customers being served there. So you said what's like a good diverse tenant base? In this property alone, let's see, we have automotive, we have construction, we have appliances, we have people that are building furniture. So this property, I like to say, is housing a lot of like the basic goods and services that run society. There's no crazy tech businesses or Amazon.

These are kind of the blue blood America that keeps your local community running. And so almost anything you could imagine. I think we have a service center in there where people are fixing cars all the way to, again, people building furniture, people that are contractors in the area. And so the last thing I would say to all that is we're buying all of these things in areas that are growing, so cities that are growing. Texas is growing rapidly right now. So are a lot of states.

And so if you really believe in the long-term growth of a city and you see all these services, it must be provided to sustain what we as Americans believe, you know, should be a normal day in America. You know, you can be really bullish on these tenants continuing to exist in these properties. So is it better to have you, you mentioned a couple times a diverse mix and because that's kind of more stable or would be better to be in, you know, concentrated in industry, say, that had great margins so you could extract higher rents? Yeah, I think it's, it's probably you'd say a diverse mix for this property. But then we have a deal. in Dallas, I think we're going to talk about, we have a lot of automotive tenants.

And you might say, well, some people look at it like, man, you're pretty concentrated on automotive. Well, what I would tell you there is automotive have environmental issues. If you look historically over the last 20, 30 years, cities aren't dying to to zone things that allow for more automotive services. And so you almost have these grandfathered in zoning classes that are huge. And so while the concentration of automotive is large in the property we might talk about or we're going to talk about later, my argument there is there's nowhere else for them to go because new properties aren't allowing for it. A lot of landlords that haven't had it aren't naturally inviting these automotive tenants to come to their properties. And so if you go

to these major cities and go, where are all the automotive companies, whether they're servicing, whether they're fixing, whether they're building product for automotive, they tend to be grouped up. And so in some situations, it could be great. In this type of property that we're talking about in Houston, we really like having a diverse mix. Chris, let me get this right. There's 151 leases that you guys had to review and repaper or assign. That's correct. What is what I would tell you there? In-house legal or external legal did that? So the good news is a lot of these leases, when you're dealing with tenants like this, these aren't like 100-page leases that you might sign with a huge corporate user. These are relatively simple leases. And we can chat about this if we get there. But

a lot of our back office is now in India. And so we have two people whose full-time job is basically lease abstracting. So your answer is right. There is a lot of work that goes through, going through 150 leases, inputting them into Yardie, seeing what's apples to apples and what's not. But we outsource that function to our India team. They do an incredible job, but it's also the upside to why we do what we do. There's a lot of people that would just say, like, that is a lot of brain damage. I don't want to do that. And we would say, great.

I hope you keep believing that because there's a lot of upside if you're willing to figure out the process in going through all that. All right. I have so many follow-up questions about that. Abstracting leases is kind of pulling out all the key terms and putting them like in a table, like apples to apples so you can digest them. Correct. Like we'll know what your base rent is. We'll know what your annual escalations are in rent.

We'll know, you know, how quickly you have to give us a notice of termination. We'll give you, you know, there's all the basic functions. And then there might be some special provisions, things that are unique to just that lease. And so when you go through 151 of them, like all of them will give you a rent price, obviously. All of them will tell you what the escalations are. But then abstracting is, okay, is there anything unique about this lease that might not be in the next lease? And so, you know, unsophisticated landlords, what you'll find out is they promise every tenant a different thing, whereas sophisticated landlords a lot of times are like, here's the deal. And so, you know, our job over time, and we'll talk about gross versus triple net and everything is trying to get everything is about as consistent as possible.

I mean, we have over a thousand tenants now. We don't want a thousand different leases. is that that is where things become really difficult. So that's one thing I was going to ask, Chris, what is the seller type in a property like this? I mean, $20 million property in Texas, those are, you know, a dime a dozen. But this is 16 acres in a major metro area. Was this like a mom and pop or was it a professional owner, financial owner prior to you guys? Yeah, this was a mom and pop.

So one of the unique things about the asset class we're in. So if you take like nice office buildings or multifamily projects, Let's just take multifamily. Everybody knows multifamily. 300 unit deal. Just by nature of how large it is, everything's a $50 million deal or more. I mean, and now in today's world, I mean, you're starting to see $100 million deals. So that allows for institutional capital, a lot more professional capital. But when you start getting into the $15 to $20 million, I'm not saying $20 million isn't a lot of money, but in real estate terms, it eliminates a whole swath of buyers that wouldn't normally, that aren't

going to participate because it actually is too small. And so what we like also about this asset class is, like you said, a lot of it is owned mom and pop, or it might be a service provider that built himself a building, but also built several buildings around him. It might be what you would consider a professional investor, but they're a small three or four man team. Maybe they own three or four deals. But our goal over time is to keep acquiring these $20 million deals, obviously operate them well and then, you know, get them in a place, which we usually do by packaging them up with other deals to where we could sell to a Blackstone or a much larger. We can offer them a much bigger bite at the apple by aggregating lots together or turning a $20 million deal into a $40 million

deal. That key, that, I think, hits on buyer type as well. So who are you competing with in this segment of the market at a, you know, $10, $15, $20, $30 million deal? Is it maybe still some mom and pop, but not that much institutional? Almost no mom and pop at that size. I think mom and pop kind of peters out between the $5 and $10 million range. I'd really say closer to the five if it's a true mom and pop. The $20 to $30 million are, you know, funds. Maybe you've raised like $100 million fund or a $50 million fund, family offices.

You know, again, on a $20 million deal, you're raising $7 to $8 million. bucks. So depending on where you sit in the stack, that's either a lot of money to raise or it's a drop in the bucket. And so if you're a $100 million fund, you're usually trying to deploy that amongst 10 to 12 assets. If you're a family office, maybe you're writing checks between $5 and $10 million. You know, the way we raise capital, we syndicate money from high net worth from family office. But it's a, there's a select group that's in that $15 to $100 million range. And then after $100 million, that's where Blackstone and KKR and Starwood and a lot of the big boys start entering the picture. So I just call it like middle market private equity, real estate private equity kind of sits in that realm. As you think about that, Bill, I'll let you ask a question after this. I'm sorry. As you think about that real estate GP life and where you guys sit, what are the sources of competitive advantage? You all have access to relatively the same sources of capital.

You all are bidding on relatively the same pool of potential assets. Maybe you have unique deal sourcing, which I know you guys do. But at the end of the day, how do you differentiate? How do you actually extract, you know, even nominally more yield than the next guy? So I think this is just like, I think we could talk no matter what industry we were talking about. And I would say it took me a long time to understand this. And I think y'all can, y'all being in the business buying world, I think, are going to relate to this a lot. When you read articles in business, you read the headline.

So and so raised 100 million. Deal got bought. Deal got sold. What you don't read is the 10 years of just brutal operating that happened in between. And I think our industry is fraught with them. because it's a relatively low operational viewed asset. You know, an operating business, you got people, it's messy, the whole thing. But people sometimes think like real estate, you always, of course you have to buy right.

But I never read a real estate article. It's like, this is how these guys are operating. These are how they're generating alpha. These are the things they're doing to generate more income than the next group. And so the answer to your question is I used to think of real estate like that. I was way more excited about the buy and the sell. And now I'm just super excited about what we do in the five to seven year hold between. So when you think of 151 tenants, I can already tell you, if you all went and bought the same deal and knew nothing,

you would be overwhelmed immediately with 151 tenants. You know, we have scale. So because we have scale, we have better pricing power on materials. We have better pricing power with negotiating brokerage commitments. rates. We have better scale on the type of debt that we're going to be able to get. We have better scale on the type of equity. So you said like there's all the equities out there for the same people. Yes and no. I've been in the business 17 years. I'm just going to get a better deal on my money than if you went tomorrow and tried to jump into this game, which is the case for

everybody. We've just seen the millions of things that can go wrong with buildings. And we constantly are seeing them. We put new signage up on buildings. We have a vendor that we've ordered from now a hundred times. We get signs a thousand dollars cheaper than our competitors. We have the scale of a team that we're not just one property manager. We have a lot. And so when a tenant calls, not only for the day we close, we go meet every tenant in person, we give them this beautiful welcome package. We walk them through for 90 days, getting them set up to make online payments. We're educating them on what we're going to do to the building. And if you're not doing that in-house and you're outsourcing that to a third party,

you're probably not getting the same level of service. And so there's just like all these little things. None of them are these, you know, moonshot ideas, but it's just every little thing that happens. And what we've realized is there's a lot of people that are actually willing to pay more rent. If they know they have a landlord that cares about the property that responds when they ask questions. People a lot of times aren't willing to pay a lot of rent because they feel like it's not a two-way street. They're asking to be paid more but getting less. And what we've realized is like people will pay more, but they want more. And so the question is how much on us to provide more is it,

is it a lot more cost? And the answer is no. It's just a lot more being a lot more thoughtful and having scale. We can just do things today at a billion AUM that we just couldn't do it, 20 million AUM. And that's because we have way better people hired that are way more sophisticated, and have been with us for a long time. So the long answer to your question is, and we can talk in more into how we do it, is we can often lap our competition and how we operate while we own it, assuming all things equal that we can all buy at the same price. I love that, Chris. That's where I actually want to zoom in, is you know, you buy this deal and then you got to operate, much like it's exactly like a business, right? You've got to operate it to increase cash flow ideally. And as you increase

cash flow, you know, multiples or cap rates being equal, you increase value of the property. Right. There's, there's really two ways to make money, right? The market cap rate changes, you know, goes down. So people are willing to pay a higher price except a lower return for the same cash flow. That would be the same as multiples going up in business acquisitions. Or you can grow the business, also known as grow the NOI or net operating income in real estate terms. So you mentioned, and it says in this offering memo here, that one of the big opportunities on this property is that the weighted average lease expiration for the park is expected to be in a year and a half. You also just mentioned that people are willing to pay more rent if they have

a friendly landlord, essentially, that helps them out and invests in the property, et cetera. Talk about some of the ways when you acquire a property. What are the dynamics that go into essentially making that property yield more money. Is it as simple as just raising rents? Yeah. And how's that work? Okay. So, oh, man, you guys get me going.

I'm just going. All right. Let's all think about a Class B property first. I tell people, these are the forgotten properties of the world that serve the biggest need in society. When you drive through a town and you remember the buildings in that town, you're remembering the cool mixed use development, maybe the skyscraper downtown, something. that you can visually, aesthetically pleasing, go, man, that was so cool, I drove by that.

The buildings that you drive by that I own, you forget immediately. You almost don't want to look at them. They're not that pretty. You also probably don't see them from the road. Correct. They're trying to hide these buildings. But because of that, and I think I tweeted this the other day, there is a lot of people on this planet that won't participate in my asset class purely because of the aesthetics.

There's a lot of divas in real estate. They like pretty things that are painted and shiny and have cool names and all of that good stuff. Well, because of that, these properties traditionally have also been managed. Not that these people aren't treated like humans, I think they are, but it's just the least how little can I manage this property and get away with, whereas the Class A tenant in an office building downtown is like upset if the marble in the lobbies is not buffed every month. morning and the Monet painting that you're supposed to see when you're going up the elevators is crooked by an inch. My tenants are like, hey, is the roof leaking? No. Okay, great. Like, if I call y'all, can you answer? Yes. Are the parking lot striped? Yes. You know, the H-FACs working, yes. And so,

on the most human level possible, like their expectations are relatively low in the grand scheme of things. yet what you would be surprised is there's still a lot of managers that can't even meet those expectations. So to answer your question, one of the things that we've determined, and the guy that leads our property management team was a custom home builder for 12 years. So we bring a level of service of like, look, the competition is not going above and beyond to serve these people. And what is above and beyond in our asset class is nowhere close to what above and beyond means in a Class A place or God forbid like a four seasons hotel. I mean, it's a act of God to please someone in a four seasons hotel. So we say, hey, we're here. We have a phone you can call. You can pay us online.

This is how you get maintenance done. We can promise you will be there in 48 hours. Here's the person managing your property. Here you get to meet them. So from that perspective alone, they know they have service. Then we go in and the roof is the most important thing. I mean, almost. Almost. the most important thing. These are boxes. These are these are rectangles. Roof needs to be good. No leaks. If there is, we go in a we try and go in immediately in the first 90 days and start doing work to prove to the tenants that we're doing what we say we're going to do. We start fixing HVACs that have been deferred maintenance. We start fixing roof leaks. We start painting the property. We start putting in lots. That is an immediate way to start building trust that a lot of these tenants, I'm telling you, and this is a national thing, have not had with their landlord. And so trust is critical. How can we build as much trust as possible?

And then just start making do on our promises. As maintenance requests come up, we serve them quickly. You got to think about these suites. This is a thousand square, in a thousand foot suite, it's like a hundred foot office and 900 feet of warehouse. And one, like one bay door at grade. This property doesn't have like dock high doors, right? No, this is all at grade.

So, okay, so I've just kind of mentioned a service level. And then from there, how do we achieve rents? So with 151 tenants, you're pretty much managing a multifamily-like commercial property. I mean, you're either renewing leases, signing new leases almost every day. These leases are one to three years. We don't want them to be long. And we can talk about Walt in a little bit. But you're turning leases quickly.

And a lot of landlords out there, especially if you're not a professional landlord, you're just trying to keep it leased. You know, you're not planning on selling it. Cap rates don't matter. Value doesn't matter because you're not selling it anyway. But when you go raise other people's money, it does matter. And so you hire a great leasing agent. You're constantly in the market, figuring out where rents are. You might be adjusting rents by the week. In this industrial market, we've been in, we've been moving rates. Every time we sign a new lease, we just move the next lease rate up. Whereas a sleepy landlord, like they might ask the same rate for three years. Chris, let's talk about modified gross versus triple net on this. And what is that migration and that transition like for people? And then a secondary question that I think ties into it,

are most of these spaces separately metered? Yes, they are. Gross is rent plus electricity. that like maybe you'll play like your rent plus electricity or utilities, that's on you. But everything else is on the landlord. Property taxes, insurance. What's everything else? Property taxes, insurance, common area maintenance.

You know, if your HVAC goes out, the landlord's got to replace it. And so there's a lot of, the expense risk is on the landlord. If property taxes go up dramatically one year, that's on the landlord. Triple net is moving the expense risk really onto the tenant. So they're going to pay their rent. They're going to pay their prorated amount of the property taxes. They're going to pay their prorated amount of the insurance and their prorated amount of

the cam. And then depending on there's absolute net versus not, they might even be paying their portion of the roof or when an HVAC goes down, that's on them. in a nutshell, a triple net lease is almost like the tenant owns the building. They're taking care of their space as if they owned it, and the landlord's just collecting a check. Now, it's upon us as the landlord to make sure that we're doing the billing. And as you can imagine with 151 tenants, that's a lot in and of itself. But it moves the expense risk from the landlord to the tenant.

Banks like that, future buyers like that. And candidly, you know, it's going to. good for the landlord. Now, if expense get way out of whack, landlords can't raise rents as much. Because at the end of the day, a tenant's only going to be able to put so much out, how much that's rent versus how much as expenses is like the game to be played. The landlord that can keep expenses low, can raise rents more. And that's, you know, again, you can get expenses lower per se as you have scale and better operating expertise. Yeah, what's the tradeoff there, Chris? Because like, is triple net always, always, always better?

or are there some cases where if you, the landlord, are a really good operator, if you pull some of that responsibility into your side of the Venn diagram, you can actually get some leverage and create more value and charge higher rents because you can operate, I mean, you can get an AC unit fixed cheaper than the tenant can get it fixed. So you ought to be able to capture some of that value in the form of a higher rent. Does that ever make sense or is it just, it's got to be triple met because we're going to resell these properties and that's what people want to see.

That's what our LPs want to see, et cetera. It's a great question, and it can probably be debated forever. I mean, pro logists, the largest industrial landlord in the country, I don't know exactly what they called it, but they chose to not do triple net. They were going to take some expense risk on their side of the table thinking, we're the largest landlord in the country. There's probably things we can do better. But now we've been experiencing massive inflation, and whoever's been bearing the expense risk right now is the loser.

I shouldn't say the loser. They're just, if I had underwritten a property pre-COVID on certain expense expectations with gross leases and then whatever happened happened, I'm not hitting my numbers as well. Now, again, you could say, well, the tenants losing or they're the ones covering it, but the truth is, I'm not going to be able to raise my rents as much as a landlord if expenses are too high because at the end of the day, they can only put out so much. what I would tell you to answer your question, maybe the most simple way possible is, generally speaking, lenders, partners, it's easier on a landlord to have a triple net lease than it is to have a gross modified lease.

Because then, and I would say as we get better at operating, we might rethink that. I think better operators can play the gross, we're going to control all the cost game. but you've got to be just an incredible company to start really dialing that in. And again, if you're going to ever sell the property to someone that's not as sophisticated as you are, like it was good while you owned it, but it might not be so good for the next guy. And so Triple Net also provides like a cleaner pathway to unload the asset or refinance it or sell it. So I don't know if I answered it right, but it's an age-old debate. Like you can make arguments for both.

Because if you're selling a triple-nepard. net leased up property, anyone can buy it, right? Even just mostly capital allocator type people, not operational landlords. Generally speaking, yes. If you guys had no experience in real estate, maybe you wouldn't buy this deal with 151 tenants. I think it would be a lot with, you know, both. But generally speaking, if I were to sell you this deal with triple net leases, you would have a better first 90 days of owning it than if I sold it to you with all gross leases given experience levels. Chris, you make it sound incredibly. incredibly easy to switch from modified gross to triple-knit. And you guys probably make it super easy.

The tension, though, is that you're going to go to tenants and you're going to ask for more money. And I know, like you and Nick, Huber are friends and your friends with plenty of storage unit people. And I hear them say the counter to that argument is, yeah, we can raise prices because they're paying under market rate rents. And if they go try and find something else, they're going to realize they've had a good deal for a few years. Is that is that kind of the way that this dynamic plays out? Yeah, so I think the most important part of this whole asset class, which we haven't touched on, I'll touch on it in this answer. But to your question, it's supply demand. I can't just say pay me more and they're going to pay me more. They can go out in the market and look for other space. So I think what's fundamentally happening right now, oh gosh, I can get so jazzed up on this.

America's not building things the way we used to build them. It takes a lot longer to do. You have zoning that's harder. You have neighborhoods. associations that are harder. The hardest thing that I could ever think to get done and built right now in a major city is a Class B shallow bay industrial park. Here's what you need in order to make it work. Cheap land that's flat, but not just cheap land, 20 to 30 to 40 acres of it in an amazing location. So you think of these big cities. It's like they don't have 40 acres anywhere. And I promise you if they do, nobody at the city is going, we should make that a low use class B industrial park. They're going, how do we make that a mixed use, vibrant, whatever?

So these properties not only are not getting built, but when you think in all the major cities, where is all the redevelopment happening? Where is all the conversions happening? If I take to you to uptown Dallas, it used to be an industrial park in the 80s. So what you're seeing are buildings being torn down, being converted into like entertainment use or creative office or creative retail. So you have this depleting supply. class, but where we talked about with tenant demand and the types of tenants, in all these cities that are growing and you're adding more multifamily, more single family housing, that means more service providers, more material providers. So what you have is this perfect storm of like a flat,

if not depleting supply class with a tenant demand that continues to grow. And oh, by the way, which we haven't talked about at all, the e-commerce companies, we've been talking about Blue Blood America, the e-commerce companies are now Amazon saying, hey, we're going to go into DFW or Houston, we're going to put these million square foot bombers all around the city. But their way to start infiltrating to the core core is they're going to start taking the 10,000 foot leases, the 20,000 foot leases. And so not only do you have the existing tenant demand that's always been there since forever, you now have this new emergence of tenants that are coming in. And so it's not as easy as raising rents. I'm not saying that because there has to be a supply demand. I think why I love

this asset class more than anything is the supply ain't, there is no new supply. So when we buy a new deal, if you were to build a new multifamily deal right now, you'd look at the competition and you'd be like, okay, this is what it is? But if I said, okay, what's the competition going to be in five years? You couldn't tell me. But I know where both of you all live within a mile or two of where you live, there's probably a multifamily deal going up. When I look at my build, I don't look around and go, what am I going to be competing with in five years? I go, here's my competition. If anything, one or two of these buildings will be gone in five years. So then I'm really betting, like, is tenant demand going to get wiped out? And not so much.

Mobile home parks share a similar type of structure. Nobody's dying for a new mobile home park in the center of the city. In fact, city council is trying to get rid of them. Yet the demand for mobile homes right now is at a higher level than it's ever been. So I didn't quite answer your question. I still got to get the rents, but you know, you guys get me excited. This, this begs another question. You compare this, right, in the deck that you send to investors, you compare it to replacement cost. And, you know, I'm biased here because I'm a roofer and I see some of this stuff. But when people build, you know, 200, 300, 400,000 square foot, you know, class A,

brand new industrial ground up. How in the heck do they make those numbers work? Because it is so expensive to build. Is it single tenant only? Is that the only way it works? Is you have a single tenant who comes in, takes out the whole thing, and you've mitigated that risk as the developer, and then you flip the property to somebody?

So are you asking me how do they make it work? Like, how does the construction cost work? Or how do the rents work to make the whole? whole deal work or both? Basically, the development, when you think about like, you, you have one sliver of this product type, Class B industrial. And in this case, it's shallow bay. It's, you know, at grade doors. This is not, you know, a cross-doc facility for, you know, some major supplier. But you're not opposed to those things. But I'm just thinking, you know, I mean, there's, there's a half a million square foot building going up in South Carolina. And it has been the biggest headline

statewide because it's just such a big deal. It's just. just such a big building to go up here. I know those happen in Texas all the time. But how is it that, like, I know these things aren't apples to apples, but when you think about industrial development, those two types from an outsider, they kind of look similar. But once you're inside, you realize they're so different. They're so functionally different in terms of the user base. But as a developer, right, as a real estate GP, there is a reason you are not building 300,000 square foot boxes and leasing them to one tenant. Yeah, so we go back to Walt. So the buyers of these large properties, one, are pretty much institutions. You're basically buying a bond because if you're going to go build 500,000 feet and lease it to one tenant, they're probably signing a 10 to 15 year lease. You basically built a bond. But like the other part of what you said, and this is the thing that I think if we were to do this in 10 years, I can't quantify, but is what excites me even more. and it exists in both Class A and Class B.

One of the headlines lately has been, oh, Amazon's shutting down facilities. That's not true, and we're not going to get into that on this podcast, but part of what the narrative is not telling you is Amazon can now get more done in a million square feet, what used to take two million square feet. They have robots. They have better racking systems. They have better, just everything. And when you think about Amazon putting billions of dollars in every year going,

how do we get more out of each warehouse? So these warehouses are so productive. So a million square feet leased a, you know, if we were to go start a company and lease a million square feet, what we're going to get done in a million square feet versus what Amazon's going to get done or Walmart or Target. It's not even Apple. It's not even comparable because of the rate and advancement of technology.

So what gets me excited is I can't think of another asset class, and I could be wrong, challenge me on this, where there's so much money going into investing in the supply chain technology. So totally, so when you lease an industrial building, industrial is just a function of your business. That's what it is. During work from home, like you can tell people from the office go home, but it's like you can tell people in the warehouse like, everybody grabs some stuff off the rack and take it to your garage and we'll operate from there. Like, you got to have the warehouse. So the warehouse is a function of your business.

Last year alone, there was $22 billion invested in VC funding and supply chain technology globally. That's not counting what Amazon probably invested to learn more, target, everything. So there is all this money going into, how do we get product racked cheaper, made cheaper, sent cheaper, less employees in the warehouse, more robots, blah, blah, blah, blah. Great. Guess where all that innovation ends up long term in the landlord's pocket? Because if your margins going up so much that you can afford now your margin was 10%, now it's 20, when your lease comes due, I'm going to capture that back. Now, people listening to this might say, God, that sounds so evil. Like, let them have their technology. That's how the world works. That's why margins are always getting thinner,

because competition arises. And so I don't see an office right now, like quadrillions of dollars going into, like, how do we make the office like so much more efficient so we can pack more bodies in there and get more out of it? Retail, like kind of, yes, multifamily, like an 800 square foot single family bedroom is an 800 square foot single family bedroom. So it's this only asset class because it's a function of your business that the more that's innovated on making supply chains cheaper, the more upside a landlord has long term.

Now, that's long term. So to answer your question on like how these work, the question we're all talking about is industrial landlords right now is how much margin is the tenant hiding from the landlord right now? Because I'll end my rant on this statement. Most of these companies, Amazon has a building in Toronto, L.A., Dallas, wherever, name them. In each market, their rate is different. Now, you would say, why is it different? Are they doing more product out of Toronto than L.A., and therefore, they're paying more rent in Toronto?

No, because Toronto's rates are X and LAs are X. They're just getting a better deal. Or if in Texas, rates are a lot higher in Austin than they are in DFW. But if you talk to the companies, their revenues in each city are about the same. So landlords are starting to go, wait, hang on a second. If they can pay $12 in Austin, but they're only paying $5 in Dallas. And that's purely just because industrial and Dallas costs five bucks. We need to get smarter. And so I think the next 10, 15 years will be landlords going, all right, there's a lot more margin going on than we've thought. And we're going to start capturing it.

So that's my rant. This reminds me of the point that Michael always makes. He's not with us today, but the point that he always makes about retail businesses or restaurants that we look at. ultimately, if you're doing well in this restaurant, when your lease renewal comes up, the landlord is going to capture all of your margin. Because if you move your restaurant, it's over, right? It's location-dependent business. So you've also heard it called wholesale transfer pricing, where kind of the margin flows

downhill. And a lot of these businesses, they don't have the market power to stop the margin inside of their business. Right? So it just flows downhill. and the landlord is very often at the bottom of that hill. Backing up the margin. My favorite quote is the residual value of all innovation in the world eventually makes its way to land.

Interesting. Do you think, Chris, that still holds true in kind of a, I don't want to get too crazy on the VR, Metaverse, all that stuff. But as more and more of life happens in the cloud is what I mean to say, right? The physical world is a smaller and smaller percentage. It used to be 100% of everything that happened. Right now it's some percentage that's less than 100% and probably trending downwards, not saying it's trending to zero, but probably has further to go towards zero.

Do you think that changes in the future? Are there different types of land that are not real estate? Yeah, I mean, if you take the metaverse, like whatever, if there's a lot of activity or dollars flowing through a certain metaverse piece of land, over time, that land's just going to keep charging more for it. So it just keeps finding where the margin is and charge. charging enough, you know, on that topic, and I'm not going to answer your question directly, but I always laugh about it is like, if we're going to have everybody in headsets, are we all

agreeing that like the whole world, we're just going to let grass grow to the hills and like, we're not cleaning windows anymore and fixing roofs and like ACs. Like, it's interesting that we're heading to the Metaverse. I just want to make sure we're all on board that like the physical world starts looking really shitty after 30 days of not keeping up with it. Like go drive by any house that hasn't mowed their lawn or like had someone live in it 30 days it goes from like miss wilson's perfect house to like the scariest house on the block pretty quickly that has nothing to do with your question but i thought it'd be funny to say that well what one allegory one allegory one allegory that comes to mind for me in my business you know we sell a lot on amazon and amazon

is the platform operator right and ultimately if they have the customers if the customers are come to Amazon.com to buy stuff, they can extract a crapload of rent. And the same way in real estate, you know, real estate ultimately has the customers. People live within X miles of that warehouse or they drive down the road in front of that retail location. Like, ultimately, the landlord has the customer, just like Amazon has the customer. And that's where, you know, in my industry, there's a lot of wailing and gnashy the teeth, you know, because Amazon keeps moving a few more chips on their side of the table every year with a price increase. And what are you going to do?

There's no other place you can sell your stuff besides Amazon. So I see a lot of parallels between, you know, the digital landlord, the platforms, Amazon, Facebook, you know, all these kind of digital toll collectors and the physical landlord themselves. Also just trying to move a little bit of that margin and release renewal back onto your side of the table. And because America's not building real estate at the rate that we were decades ago, it's becoming easier for, I mean, it's, look, it's everything supply and demand, but we're just not building like we used to. I mean, we're just not. It's harder to do. There's so many zoning restrictions. Neighbors are weighing in on everything. I mean, the internet's made every development that's ever conceived now controversial. The developer used to be the most celebrated person in town. They were the life giver of town. Everybody listening to this, wherever you are right now, think the developer that they built that because you wouldn't be there. it right now. Now the coins of flip, like every developer is the devil. And it's like how less of a devil can you be to get a project approved? And so if you just look at real estate on those factors,

like we're just not building it near the capacity we historically ever have. And as government gets more involved, it's, it's going to be tougher. And we're certainly not building class B industrial. Of everything that isn't getting built, it's not that. And that's not at the top of the list of things to keep building. We got housing and much other things. Speaking of building, so we're not going to get a second deal clearly because we're 50 minutes in, but I want to chair pick something from the second deal, which I thought was interesting and it hits on what you're talking about. The second deal, it says in the offer of the memo that this acquisition grants a 32% discount to replacement cost, which means that, you know, we're going to buy this 32% cheaper than it would cost to build it

new today. To me, that seems like it should be impossible, right? I mean, Why is that happening? You know, like you can't get them, if you can't get them built, like, it should be more expensive to buy an existing one because it's easy because I don't have to deal with city council and like deal with all that crap. This strikes me as just almost unearned alpha. Like, why is it so much? Why are these discounts, these spreads 30% if you can't build new ones? A lot of times it's because rents are so low that even at a, you know, trying to buy with some type of yield in place, rents have stayed low for so long that even if you're buying. And again, I know we talked about cap rates not necessarily mattering,

but you can still buy things where if leases are in place, you're still buying it a seven cap, but that still leaves building costs at 30% below replacement cost. You know, and that's the other, I mean, the other answer is like, if you were, if you guys were to get in the game to tomorrow, that deal that we're going over would not have been available to you. You probably would have bought something that was more like that. I think that's the,

that's where you start separating yourself from the pack is when you can find things that are that dislocated. We look for 100 deals to find that deal. That's actually a question, Chris, that I wanted to ask. We looked at one and a half deals because we're just alluding to this other one. I mean, is it truly one out of 100? I would be amazed. I feel like you'd have to look at so many more than that to land on one. You know, to do this one deal, you know, how many pass, you know, the various kind of level, of screening and filtering. You're not taking the first pass at every deal. Yeah, I think one of the things we've figured out, and I think a lot of Spark companies figure out over time is I know that in Texas, there's 22,000 buildings that meet my criteria.

Now the question is, of those 22,000, which ones should I focus on? Which ones have the highest likelihood of selling? So we say one in 100. It's not like we underwrote 100 deals and then one popped up. Like we can, 90 of those we can just look at on the surface and be like, it would never work. It doesn't mean it won't work someday, but it ain't going to work today.

And I think a lot of what we've built and we've spent a lot of money on technology. And I'm not going to sit here and tell you we have some AI brainchild that can do things. Other people don't. But what we really said was there's 22,000 buildings. And of those 22,000, and there's probably a thousand of them that will sell right now. We need to be focused on things we can buy today. What you find a lot of people doing is like they're just cold calling buildings,

but nine of the ten they called from the beginning, like never had a chance. So what we're saying is how do we spend all of our time on stuff that at least like there's factors that we can quantify that would say like, this might sell. Owners owned it longer than 10 years. Out-of-state owner. You know, on Google Earth, the roofs are terrible.

like probably deferred maintenance, just like things that might lead you to this idea, a loan term up in a year, largest tenant renewing within the year. A lot of times people will sell if a tenant's their largest tenants renewing in a year so that the next buyer that could be their upside is either resigning them or releasing it. So the answer to your question is like it might be a lot, but a lot of the works being generated and we have 300 data entry points. And at any point in time, a building that was not in favor might move to in favor. And then we say, so we're constantly generating this list of like, here are buildings that have met all these criteria points that we've identified are likely sellers.

And then from there, we're trying to spend as much time with likely sellers. Now, I say all that. There could be something that we say has zero percent chance of selling that ends up selling, but that's how the world works. But that's been our like really fastball. It's like we feel like we're spending our time in the right place. Chris, I have one question that I've wanted to ask you for a long time. If Class B industrial in the DFW Metroplex and now across the Sunbelt is so good, why would you sell you?

Why would you exit? Is it all cap stack related? Yeah, I mean, to be honest with you, it's all like, yeah, okay, so I'll give you two answers. One, we would sell because we don't raise money on like, oh, we're going to hold forever. Our docs allow us to hold forever, but a lot of times we're in the business of like manufacturing returns, getting where we need to go and building a track record. If you look at the largest real estate companies in the world, they're constantly adding to their track record.

And unfortunately, we live in a world where I can't hypothetically tell people, well, it was worth this at this point and we would have made this much had we not sold. So that's answer one. Like that's just part of our business model. And by the way, like when you start building a team, I now have 48 people. the team likes when the promotes it, the team likes getting paid. They don't like waiting 20 years for some future outcome.

That's a great thing about our business. It's not like a startup where you get options and hope to God in 12 years you get paid on them. We get to pay our people every time we sell. And that drives culture. That drives hiring. That drives lots of things. So I tell people all the time, there's so much more baked into a sale than just what shows up on the spreadsheet.

The second part is if I were to sell everything, it would be why any business owner does it. It is like it's a life choice or, you know, probably some factor that didn't necessarily have to do with my love for Class B industrial. But for the day-to-day reasoning, it's as much about our promise to investors as it is. Like, I think it's been the best thing we've ever done for our culture is create wins periodically

through ownership. That's awesome. That's really cool. How do you think about when the time is right? Is it just about a whole period? Or do you say, well, geez, our, effective cap rate on this is insane. And now the market's going to pay a crazy price. Maybe we want to hit the bid. I mean, how do you think like now's the time or you set a you set a whole period on the

way in? You say after five, you know, four, six years, we're in solid this thing, no matter what. Yeah, I'll break the answer. I'll break this one up. So, um, sometimes it's like, okay, we've, we've hit our pro forma and we don't truly believe there's anything in the near term that's going to get us any additional value. Now, I say, say that, and we bought a deal for 12 million. We sold it two years later for 26 million and thought we hit the cover off the ball. Two years after that, Blackstone bought it for 52 million, and the owner that bought it for 26 did nothing in between. So sometimes, you know, you wish you would hold longer, but at the time, we had far surpassed our performer. It was a way to get a notch on our belt. And the way,

as you start raising, you know, this year we'll raise $200 million of equity. There's a game that's played when you're raising equity, that equity people want to see a consistent track record that's building. And you just can't show them that without skins on the wall. The other great thing about real estate that we haven't discussed too much is sometimes we don't sell. Sometimes we say it's time to refinance. And there is maybe never no perfect time, but it's kind of when the stars have aligned of like, we've created enough value here that it makes sense to make some capital event happen, whether that's a sale or not. The last thing I would say is, because I've been in the business a while,

I don't need the cash like I used to for personal living. So that's changed the game a little bit. You used to sell sometimes just to pay for life. So when you take that factor out, it becomes more about is the deal appropriating? What did we tell investors? And, you know, is there really more value to create here? So the funny thing about it is you tell everybody, we're going to get you your money back in five years. And if you actually do it, the thing that they always do the day after you give them their money back is call you and say like, hey, we have a bunch of money.

Can we give it back to you again? People almost like to see that it hit their bank account. Trust it. Okay, then we want it back out the door. People are weird with money. Well, the thing that's funny is, and I see this in operating businesses too, what's very in vogue in operating businesses right now is this whole co-model, you know, the Berkshire Hathaway. model, the buy and hold forever, you know, recycle cash flow, all that stuff. And, you know, what you've just described is, I wouldn't say the opposite of that. It's not like quick flip,

but it's, you know, continually recycling your capital and realizing exit events. Is it the type of thing where can you ever get enough skins on the wall that you kind of transition to this buy, hold forever because the yields are very attractive and want to compound capital? Or does that typically happen on the personal balance sheet or somewhere else, you know, and it doesn't make sense for the fund structure. Like does it all, does every successful real estate capital manager eventually end up in buy and hold forever? Or does that have to happen in a family office concept? Yeah, that's a great question. I think every now and again, you buy an asset that you realize you should hold forever. And those are not all of them. So that happens too. I think it's where the,

where the owners, where are the founders at financially that gives them the luxury of doing that. Third is you could become a reed. And if you structure a reed like structure, then you really do have kind of permanent capital. The disadvantages of that are you have to be a reet. And there's a lot more things that come along with that, especially if you're a public reed. You know, I think Warren Buffett made permanent capital seem like, you know, we're going to eat pre and it's going to be a walk in the park. And it's the funnest thing ever. And it's a great model, but I think it also has its challenges. It tests your true, do you really believe in permanent when somebody's given you an offer for more than you ever thought was possible.

And so I think we read his books and we love what he says. And I think, you know, I think not everybody fully appreciates what Warren's built, because when you look behind it, there's just things he's able to do that we'll never be able to do. But we've adopted more of a Blackstone model, which is buy it, fix it, sell it, or refinance it, and just keep doing that over and over and over again. And if that changes, like, it'll change out of, because we've said this asset we just shouldn't sell and all of our investors agree with us, not because we made a blanket statement over the whole company that, like, we will now do this for everything we do. And I'm not saying we're right and somebody else is wrong. It's just how we've kind of thought

about it. And again, I go back to once you've built a large team, I just don't think people appreciate enough how much it helps drive culture and hiring when you're able to sprinkle in these victories throughout the years instead of like this one hope date way long. People are not patient as they used to be. I'm not. Fair enough. Chris, this has been awesome.

I think we could put up another two hours of audio on this thing. But I think we got to cut it off for over an hour. This was phenomenal. Thank you so much for joining us. So educational. All right, man. Have a great day. Hopefully we'll have you back soon. Okay, buddy. Bye. Thank you all.