Mar 4, 2024
Today’s guest is Joel Friedland.
Joel has 40 years of experience as a broker, investor and syndicator in industrial real estate.
Show summary:
In this episode Joel Friedland shares his journey from starting as a broker to establishing his own firm. He stresses the importance of specialization and building lasting client relationships. Joel discusses the industrial market's growth due to e-commerce and manufacturing but warns of economic downturns. He advocates for all-cash deals, avoiding debt for investment stability, and highlights the competitive edge it provides. Joel compares leveraged investing to gambling, promoting a risk-averse strategy for long-term security.
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Intro (00:00:00)
Staying focused on industrial real estate (00:01:57)
Market swings and the state of the market today (00:06:18)
Types of industrial real estate and market demands (00:09:10)
Positioning in the industrial real estate market (00:11:06)
Reasons for selling industrial buildings (00:15:24)
The no-debt financing model (00:17:53)
Competitive offers and leveraging returns (00:21:29)
Risk Aversion and Leverage (00:23:45)
Gambling in Real Estate (00:24:47)
Balanced Portfolio and Risk Mitigation (00:26:57)
Conclusion and Contact Information (00:27:48)
Closing (00:28:25)
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Connect with Joel Friedland:
Instagram: @investingwithjoel
YouTube: @britproperties
Tik Tok: @investingwithjoel
LinkedIn: Brit Properties
Web: https://britproperties.com/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
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Want to read the full show notes of the episode? Check it out below:
Joel Friedland (00:00:00) - In every downturn when there's been, let's call it agitation of my mental health and my investors. Investment safety. Yeah, it's been because in every case I can prove in every case it's because we had a loan.
Intro (00:00:18) - Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson (00:00:31) - Joel Friedland has 40 years of experience as a broker, investor and syndicator in industrial real estate. Joel, welcome to the show.
Joel Friedland (00:00:39) - Thanks, Sam. It's great to see you.
Sam Wilson (00:00:41) - Absolutely great to see you, Joel. I asked three questions to every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?
Joel Friedland (00:00:52) - Sure., so I'm 64 today. I've been in the real estate business since day one. I've only had one career, and it's industrial real estate in Chicago. I started out as a broker, working for a family that was in the business for decades, and they had 80 buildings that they owned as syndicators, and they hired me as a leasing agent right out of college, and they trained me and taught me, and they were my mentors.
Joel Friedland (00:01:20) - And eventually I tried to join the family wasn't my family, and they wouldn't let me in. So I started a business with three other guys and we did the same thing. I've stayed close with that original family. I'm so close with them, actually, with one of the one of the sons that today I'm having a call with my advisory group before I buy buildings. I have an advisory group zoom meeting, and he's one of the leaders of the zoom call, and that's from 40 years ago. Same relationship. Still love him. We love each other and he's brilliant.
Sam Wilson (00:01:57) - And that's absolutely amazing. I mean, I don't know if I would put that in the blessed category, like there's there's very few people that can have a single career, not only a single career, but one in a very, very niche asset class without ever looking to the left or to the right. How did you stay on track and avoid temptation to look at other shiny objects?
Joel Friedland (00:02:24) - So I have studied successful people. I've studied people who are super wealthy.
Joel Friedland (00:02:32) - And primarily families that are super wealthy. And I'll tell you what they have done with their business. They've stuck with it. They don't go. They don't go to the right. They don't go to the left. They just stuck with it. I can give you the stories of about 200 family businesses that I've done business with as a broker and as a syndicator, where they invest with me and every one of them goes back decades. I have a company. We're buying a building right now from a family that started a business in 1935. In Chicago. It's called the. The company in the building is called talk. Often they make you know, have you ever been in a parking garage or a university or mass transit place where they've got those posts with the blue lights, with the phone you pick up or you push a button to get security? Yep. They make those talk. A phone makes that. So these two guys started the business back in the 1930s. And now the the family that owns the building that they've been running the business in.
Joel Friedland (00:03:44) - , they are are the grandchildren of the original founder. Why are they so rich? Because they did one thing. Because if you jump around, you don't learn. The ins and outs of the business. When you do something long enough, you learn it. And I'll give you an example, just like a. A metaphor or a or a. I don't know the difference between the, but,, an analogy. So,, my mother had,, kidney cancer diagnosed a few months ago. All right. So who does she go to? She goes to the kidney. Removal urologist. Who's the best in the world, right? You want the best one in the world? Would you go to someone who says, well, I used to do knees and I didn't like that so much, it didn't work out. So I started doing brain surgery.
Sam Wilson (00:04:45) - It didn't like.
Joel Friedland (00:04:46) - That. So I decided to go into being a urologist. And I've done a few kidneys. I've done it for a couple of years.
Joel Friedland (00:04:54) - You know, you could move the frick out of there so fast. Yes, but the person who has done dozens and dozens of kidney surgeries a month, right? Same thing, same thing, same thing. So that's what my mother did. We went, we're in Chicago. She went to the University of Chicago. And Doctor Shalhoub is the guy that she saw. You know what? He removed my dad's kidney 12 years ago. Wow. He's the guy we trust. So. I'm in the same business, industrial real estate in Chicago. The niches, small industrial buildings, class B. With it are occupied by manufacturers that are owned by families. That's my niche. That's it. And there's 16,000 industrial buildings in Chicago. And there's about 20,000 companies in Chicago and industrial one point 5,000,000,000ft². If I can't make a seven figure income by knowing that market really well, I'm a moron. But I'll tell you what. If I go do deals in Tennessee, or I go into the office leasing business, or I go into the retail business or the multifamily, someone who's been in it for 40 years like I have, is going to eat my lunch, right.
Joel Friedland (00:06:15) - So I stick with one thing.
Sam Wilson (00:06:18) - I love it, I love it. That's that is that is admirable. And I appreciate you, given the insight onto your motivation and kind of thought process behind why you have stuck with that one thing, that one thing has seen, I'm sure, in the last 40 years, many different. Comings and goings of both market swings, of industrial appetite, of tenant, types of lease rates, cap rates, the whole nine yards if you will. Can you break down some of that for us? And maybe at the end of that give us a state of the market today?
Joel Friedland (00:06:52) - Sure. 1981, when I started working for the Podolsky family,, there were interest rates out there like you wouldn't believe 17, 17 to 20% makes today's 7% mortgage look like a really good deal. We were in a terrible recession. It rode up after that because there's a recovery after recessions. And then in 1990, we hit another bump and there was a downturn. And through the 1990s it was great.
Joel Friedland (00:07:21) - And then there was another downturn in 2001 when nine over 11 happened. And we rode that up. And then there was another downturn, which is the worst 1 in 2008. And now things have been riding for 15 years, all to the good low interest rates, cap rates coming down. You can't blow it in a market where you can borrow at 4% and cap rates keep going down. But that's changed. And now people are struggling because interest rates are all of a sudden at 7% instead of at 4%. And if you had floating rate debt and a lot of debt, you're screwed. So the market's been great. Industrial has been great for four years. Rents have increased 80% throughout the entire market in North America, including Canada. And that means if your rent was $5 a square foot when you started out five years ago with the lease, today it's nine. So it's been booming because of the internet? Because the internet requires warehouses. And because of manufacturing. Because as manufacturing does well, it requires industrial buildings, which are warehouses that they fit with their machines and bring all their employees in to make stuff.
Joel Friedland (00:08:35) - So that's that's what the look is today. I think the market's coming down a little today. I think the the economy, the real estate economy is in a bit of trouble. And industrials still doing great. But it's not immune. Nothing's immune.
Sam Wilson (00:08:51) - No. Nothing's immune. Certainly I would I would propose that things change as in the especially, you know, the types of industrial maybe that tenants want. Have you seen any shift in the last couple of years on the types of industrial real estate that is, that people are, are leasing.
Joel Friedland (00:09:10) - They're leasing every kind of industrial real estate. So if if you drive down the highway in any town, big, big city, small town along the highway, you're going to see big industrial buildings occupied by companies like Amazon, right? Wayfair, like target for their online sales warehouse and for their warehouse for their stores. And if you think about it, every product in the world is made in an industrial building, except for crops that come from a farm.
Joel Friedland (00:09:41) - But they are brought to industrial to be packaged and sent out. So there's nothing. If you look around on your background and you've got,, the sign, you've got the wood, you've got the,, microphone. Everything in your office, in your house was made in an industrial building someplace. Yeah, and they have to keep making it. You know, you look in the background here, everything here. There's what's in my office here probably represents 10,000 industrial buildings where products were made that either are parts that went into my phone or parts that went into my lamp. Industrial is everywhere and is necessary. And it's a part of the supply chain. It is the supply chain. Right, right.
Sam Wilson (00:10:30) - No, that makes absolute sense. I love it, and it's one of those. It's one of those.. Who? I don't want to call it recession proof, but it's almost my question for you would be is on the,, you know, as demand changes or if the if the man doesn't change, I mean, tell me a guest on that front.
Sam Wilson (00:10:49) - I know you said that. Yes. Everything comes from a factory and or an industrial warehouse, but how do you position yourself to be in front of what that demand type is? And or, you know, what customers want? Is that is that a question? Even make sense?
Joel Friedland (00:11:06) - Yeah. I don't have to be in the front of it. I have to be in the middle of it. What's that mean? I have to be in the middle of it. I have to be. I have to own industrial buildings in great locations where companies want to be, and I have to keep my tenants. And, you know, you and I talked about this before we buy all of our buildings., all cash, no mortgage, debt free. And I think I've done a little study. There's probably 4000 syndicators in the United States with portfolios over $50 million. And I would say of the 4000, we may be the only one that does all cash deals. Yeah. So when I say I have to be in the middle of it, I have to own buildings.
Joel Friedland (00:11:49) - My investors put 25, 50 or $100,000 into our deals. They expect me to know what I'm doing and to protect their money, which is why we don't have mortgages. You can't lose to a bank if there's no mortgage. Right. My tenants expect me to give them a fair deal. And they expect me to keep their roof from leaking. These are net leases. But even in a net lease,, in industrial, landlords are almost always responsible for the roof and the structure of the building. So being in the middle of it means knowing my market inside out and only buying buildings that are desirable for any kind of tenant. No matter what they do, whether they're a distributor or a manufacturer. And making sure that they are in locations where there's a lot of,, population density public transportation in Chicago., we own ten industrial buildings in the city, and with one exception, they are all occupied by distributors and manufacturers. We have one that's a service company., in Florida, for example, there's a complex in in every major city in Florida where they have service companies,, and they have drive in doors so that companies that install shower doors or companies that do sprinkler systems or clean pools, they don't have loading docks and they don't have manufacturing.
Joel Friedland (00:13:18) - Florida is not a manufacturing area. Right, right. Pretty much the Rust Belt is. So the Rust Belt is is sort of the East Coast. The the Midwest. And then going out into Southern California, there's there's a lot of manufacturers there, but most of the other markets are distribution markets. So to be ahead of the market, you'd have to have a big warehouse in Nashville. There aren't a whole lot of manufacturers moving to Nashville, and it's a smaller market in Chicago. There are so many companies manufacturing products. I just need to own a building that they all like. That's the key. So it's gotta have high ceilings. It's gotta have good loading docks. It's all about the geometry and the physical makeup of the building. So I don't have to be in front of it because it's a very old line business. All these buildings go back to the 1960s. 70s 80s 90s the last 20 years,, we just buy existing buildings. We don't build anything. So the people who stay out in front of it are the developers who build these giant 500,000 square foot buildings, million square foot.
Joel Friedland (00:14:29) - We don't do that. Because we're syndicators, we have to do a smaller variety of business than buying a $200 million complex with one tenant.
Sam Wilson (00:14:39) - Right, right. And that's actually here in the Memphis market, which is, you know, a huge distribution market. That's what we're seeing. Sit vacant actually, right now are those massive buildings that there was a boom there for a while. But those massive buildings are the ones that I was talking to a broker here locally about. They said the smaller stuff like maybe, you know, what you're getting into is stuff that's still, you know, in high demand, but those huge buildings just are they're tougher to move right now. So that's, yeah, that's really interesting. Let me ask you this. Why? Why do people sell these buildings? You're in a market that sounds like it has just. You know, unmet demand. So why are people even selling this at all?
Joel Friedland (00:15:24) - Now they don't. Very often. That's the problem. There are very few buildings on the market.
Joel Friedland (00:15:29) - Are our,, vacancy factor across the Chicago areas? About 4%. Whoa. And people don't move if you're in a in the industrial business. So let's say you're in multifamily or let's say mobile home park or let's say,, self-storage. Yeah. How long does it take one of those tenants to leave? Few hours, right, a few hours. An industrial company that's manufacturing products, that has 40 machines that are screwed into the floor, with 40 employees that have been trained how to use those machines over a period of years. Moving that takes two years from the start. When you think you want to move to actually implementing the move as a two year process. Wow. You can compress it probably to a year and a half if you're really good as a as an owner of a company. But why would they want to move if it takes two years to do it? And it's a distraction from what they do running their business. Also, they can't lose their employees. They don't want to move.
Joel Friedland (00:16:40) - They don't want to retrain people. And also usually if it's an entrepreneurial company, the location of their building is right near where they live, so that they don't have to drive that far for their commute. So for so many reasons, they don't leave. And, you know, the cost of moving the machines. This is just one company. We have a company that makes fruit juice concentrates in a building in Chicago. They're in 40,000ft². If they moved, it would cost them $20 million.
Sam Wilson (00:17:13) - Right. So they're heavily incentivized to stay put.
Joel Friedland (00:17:16) - That's they're not leaving. Yeah. No, no, they're.
Sam Wilson (00:17:20) - Not going.
Joel Friedland (00:17:20) - Anywhere.
Sam Wilson (00:17:21) - I want to ask you a question about your. And thanks for giving me the insight on that. That's that's really cool to be in a market like that and to,, be able to play in that in that space is,, is pretty cool. That's, that's, that's that's a very niche niche market niche kind of type that you're in there in the industrial real estate space.
Sam Wilson (00:17:38) - I think that that's fascinating. But let's talk a little bit about your. Financing and or lack of financing model. When did you kind of hatch that idea and potentially tell us why?
Joel Friedland (00:17:53) - , I've bought a hundred buildings over the years with my investor groups. And in every downturn when there's been. Let's call it agitation of my mental health and my investors. Investment safety. Yeah, it's been because in every case I can prove in every case it's because we had a loan.
Sam Wilson (00:18:21) - Wow.
Joel Friedland (00:18:21) - Every time you get in trouble, it's like, how are we going to pay the debt? How are we going to pay the mortgage? Okay. Real estate is a mortgage business. It's a business where you have leverage. Everybody knows that. That's what real estate is. But after 40 years really after about 35 years. So a few years ago, after recovering from 2008, where we did have losses, we lost money on sales, selling buildings that we should have made money on if we had better staying power.
Joel Friedland (00:18:52) - . And I look at all of the deals of the, of the 100 deals we've done, we own 19 and we've sold the other 81. And of the 81 we've sold, nine, which is roughly 10% have lost money. Wow. And the common link on every loss is that when things got bad in a down market, paying the debt became very difficult. Banks have no sense of humor. And I've decided that rich people who invest in deals for the long term want safety first. They want to preserve their capital. And I have a group of them that hate losing money and like, steady cash flow. You know what your cash flow is if if you have no debt, it's 100% of your NOI. 100%. There's nothing going to the lender. There is no lender. So an example. We have a building that's,, we're into it for about $2.5 million in Chicago. The company that's in it as a manufacturing company, they make,, welding,, safety products, safety products for the welding industry.
Joel Friedland (00:20:03) - The rents 235,000 a year. We have some expenses, but they pay the taxes, insurance, maintenance and utilities. When you take out our expenses, it's $220,000 of NOI on 2.7 million, which is our our all in price. It's an 8% cash on cash return. And we keep paying it because the tenant keeps saying they've been in the building since, I think 1987. They're not leaving. In. The rent goes up every so often, sometimes every year in certain buildings. So the no debt concept for me. Is. My investors love it. They do have riskier other investments, like my typical investor might have 1020 syndication investments, private placements. Sure, we're the only one with no debt. I don't recommend that other people do this. I just do it because for me, it makes me feel safe. I sleep at night and my investors sleep at night, but it's not for everybody.
Sam Wilson (00:21:14) - No. Certainly not. I really like that model. I guess the one kind of stand out question in my head is how do you make competitive offers if you're doing it in all cash?
Joel Friedland (00:21:29) - You mean offers to sellers.
Sam Wilson (00:21:31) - .
Joel Friedland (00:21:32) - Oh well we're the most credible seller in town. We don't need a mortgage. We're all cash buyers. So if someone's trying to sell a building to us for $2 million, I say I've got the cash in the bank, I don't need to borrow money. So we'll do our due diligence. We'll spend 30 days doing due diligence. If everything checks out., we'll close two weeks later. I don't need to go to a bank. I don't need to do anything. Just close.
Sam Wilson (00:21:57) - Right. I guess maybe the further thought on that is that leverage can potentially increase returns. So what you will have is that people can afford to pay more for it because they're taking leverage on that makes the deal, quote unquote, sweeter. Does that make any sense?
Joel Friedland (00:22:14) - It does. And I consider that to be gambling. Sure. It's just it is, it is. It's gambling. And I'm not saying, listen, gambling when you're an entrepreneur and you're in business or you're a real estate investor, you're a gambler to some extent, right? You're even if you read the paper, it's Hines bought this building in Bedford Park, Illinois, and they made a bet on an industrial and Bedford Park.
Joel Friedland (00:22:42) - It's a bet. It's a bet, right? So every every time you do a deal with a lot of leverage. If you're stretching to make the deal, and you're trying to prove to your investors that you're going to get them a better return than anyone, and to do so, you need to take a lot of risk by borrowing a lot of money where rates have to stay low, tenants can't leave., the the,, property doesn't need a lot of work. It doesn't need a new heating system. It doesn't need the driveway redone. It doesn't need roofs redone. If you can find the perfect situation and the market's going up. Yeah, sure. You can overpay for everything. We don't have to pay for anything.
Sam Wilson (00:23:29) - Right?
Joel Friedland (00:23:30) - Right. If someone wants to pay more than us because they're bigger gamblers than we are, we just don't get the deal.
Sam Wilson (00:23:36) - Right?
Sam Wilson (00:23:37) - I love it, I love the discipline there, and I really I really, actually,, appreciate that because, I mean, you you you know what you want one.
Sam Wilson (00:23:45) - The price of what it takes to sleep at night. There is a price to that. And that is maybe that you have less or, you know, lower returns maybe, than what the next guy does that takes on leverage, but that is a price you're willing to pay. And I love that. I mean, and it sounds like your investors love that too, because again, like you own it in cash. Like, okay. So oh well like right.
Joel Friedland (00:24:08) - We're we're risk averse. That's the that's the term or risk averse. And today, for example, I'm seeing a lot of people getting in trouble because they had floating rate debt and.
Sam Wilson (00:24:20) - They oh gosh.
Joel Friedland (00:24:21) - If you're the kind of gambler in real estate that says, I'm going to make a bet, I'm going to bet that if I buy this $10 million complex and I put 7 million of debt on it, so I have 3 million of equity. And I'm buying it for a six cap. If everything goes perfect in three years, I might be able to sell it for a five cap.
Joel Friedland (00:24:47) - But what happens if the market's bad rates have gone up? You can't afford your mortgage to even get to the point of selling it. The roof needs to be redone, the parking lot needs to be patched, and now you're in a situation where you're, like, swallowing hard and like, you know that that feeling I have over the years been a casino gambler. You know, that dopamine hit you get when you're playing blackjack. Do you gamble at all?
Sam Wilson (00:25:13) - I don't want to say this on air. 20 years ago, in my early 20s, I did. I, I gave that up about 20 years ago. But yeah, in my earlier life when I was younger and had more money to blow and no, no family and kids. Yes, I did at one point.
Joel Friedland (00:25:29) - Okay, so I believe that a $10 million purchase with a $7 million mortgage is a form of gambling. Oh, it's not that. It's not that it's wrong. And if you can project the 20% IRR over a three year period.
Joel Friedland (00:25:44) - And and make it happen. That means. You bought it for 10 million. It has to be sold for for more than 10 million. Because you got to get your money back and you got to pay the mortgage off. So you've got to get more than 10 million or you lose. So you're betting that the property in the next three years or five years will be worth because you have selling costs. It's got to be worth 11 million just to break even.
Sam Wilson (00:26:11) - At least.
Joel Friedland (00:26:12) - So you're betting that what you're buying now for 10 million will be worth at least 12 million, or you're a loser in the casino.
Sam Wilson (00:26:21) - Right?
Joel Friedland (00:26:22) - And anything goes wrong. You're you're staying. Power to get to that fifth year is debatable. And that's why you're seeing so many foreclosures today and so many people selling buildings for a loss all over the place. We just don't want to do that.
Sam Wilson (00:26:45) - No. There's no. And that's it. That's it man, I love your approach. Love the way you guys are doing things.
Sam Wilson (00:26:50) - I love the the no debt syndication that that that's really, really cool. So thank you for saying it's not for everybody.
Joel Friedland (00:26:57) - I'm not recommending it for people who go into syndications like mine, I recommend to them that they go into some risky things with a lot of upside. Sure, because you've got to have a balanced portfolio. First of all, they should own some stocks, they should own some bonds, they should have some cash, and they should have some real estate or other alternative alternative investments. I'm just a little tiny piece of everybody's portfolio.
Sam Wilson (00:27:25) - Right? Just a.
Joel Friedland (00:27:26) - Tiny piece. And that's all I should be.
Sam Wilson (00:27:29) - Right?
Sam Wilson (00:27:30) - Right. Yeah, but it's an important piece. It's an important piece. And it's in and it's. And it's a risk., I'm not gonna call it risk free, but it's almost as risk free of an investment as you can get. So, yes, I.
Joel Friedland (00:27:42) - Call it I call it highly risk mitigated.
Sam Wilson (00:27:45) - Right.
Sam Wilson (00:27:46) - Highly risk mitigated. Yeah. Absolutely.
Sam Wilson (00:27:48) - Joel, thank you for taking the time to come on the show today. It was certainly insightful. I've learned a lot about your market. I've learned a lot about your work history and career experience. It,, it was certainly great to have you on. And again, I learned I learned a lot from you. I love the way you guys are doing all of your deals in all cash, no debt., that's very, very compelling. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?
Joel Friedland (00:28:12) - Brit properties. Brit with one t Brit properties.com Brit properties.com.
Sam Wilson (00:28:18) - We'll make sure we include that there in the show notes. Thank you so much again for coming on today. I certainly enjoyed it.
Joel Friedland (00:28:24) - Thank you Sam.
Sam Wilson (00:28:25) - Hey thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts.
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