March 8, 2023

JF3107: 3 Rules of Industrial Real Estate ft. Joel Friedland


Joel Friedland, is the Principal at Brit Properties, an industrial real estate investing firm based in Chicago. In this episode, Joel discusses his strategy for identifying and purchasing properties, syndication in industrial real estate, why Chicago is the best industrial area in the country, and something called the “punch in the face theory.”

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Joel Friedland | Real Estate Background

  • Principal at Brit Properties
  • Portfolio:
    • 15 industrial buildings with an aggregate value of ~$50 million
  • Based in Chicago, IL
  • Say hi to him at:
  • Best Ever Book: Don’t Sweat the Small Stuff, by Richard Carlson
  • Greatest Lesson: Debt is dangerous. After struggling through the '08 recession, I changed my strategy to focus on all-cash deals.


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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Joel Friedland. Joel is joining us from Chicago. He is an industrial real estate owner, syndicator, investor and broker. He's a principal at Brit Properties, a boutique owner-operator of industrial real estate focused on the Greater Chicago area. They acquire most of their properties debt free, and if they do take out loans, it's for no greater than a 30% LTV. I'll certainly have questions about that. Joel, can you tell us a little more about your background and what you're currently focused on?

Joel Friedland: Sure. Hi, Slocomb. So I am a 42-year veteran of the industrial real estate business. I started out as an industrial real estate broker when I was 22 years old. I graduated from the University of Michigan, and I was looking for a job, and I didn't know much about real estate. I never heard of industrial before. And a friend of mine told me that he knew an older guy who was looking for somebody to come to work for him to do property management in industrial real estate. So he gave me the name. The guy's name was Milton Podolski. I called this guy on the phone, I cold-called him and I said, "Hey, you know, my friend, Mark... I'm looking for a job in real estate." And he said, "Yeah, I'm looking for somebody. Do you want to come over today to the office?" And I literally jumped into my car, and I drove to his office in Rosemont, which is right next to O'Hare Airport, and I met with his son, Randy, and with Milt, the dad, and there was another son, Steven, and a daughter, Bonnie. So it was a family business, and they owned 84 industrial buildings that they had syndicated to their friends and investors.

What I found out was that in 1981 interest rates were 17%, and they had somewhere between 10 and 14 vacancies of industrial spaces, and they wanted me to be a property manager. After talking to Milt for about five minutes, he told his son, Randy, "This kid went door to door when he was 14 and convinced 70 people don't let him cut their lawns. He's a sales guy, Randy. He doesn't belong in management." And Randy said, "Damn it, Dad. I need him in management." And his father said, "Damn it, Randy, you're not gonna put him in the wrong place. But if you need him, you can have him for a week." So I did property management for a week. And after that, my job was to go find tenants for their 10 vacant spaces.

Slocomb Reed: Joel, I was gonna say, with 10 vacancies out of an 80-something unit portfolio, as a property manager, you're pretty much a salesman. You've got a lot of selling to do, and I don't mean that superficially; there's a lot to do to get those filled, and I would think that sales skills is exactly what they'd be looking for.

Joel Friedland: Yeah, I think what was most important was the fact that they already had a property management department. There was this guy Allen, who was the head property manager. I went to work for him for a week, and he was a really nice guy, but he couldn't sell his way out of a paper box. So I realized that what they needed was really in line with what was my talent level, which was talking to people who I didn't know. So I ended up going to industrial parks and going door to door, asking owners of companies if they would consider moving to our vacant building down the street. I was fearless, and stupid.

Slocomb Reed: That's a good combination in your 20s. So tell us a little bit about how that snowballed into what you're doing now.

Joel Friedland: So every day, even on Chicago cold days when it was zero degrees out, I went door to door [unintelligible 00:04:37.12] in the industrial parks. Milt had a son named Steve. And Steve and a guy named Richard ran the industrial leasing department... And they had never seen anything like me, because I was just like a machine, a cold calling machine. And the first year, I went out and I filled up all the vacancies except for one, by going door to door and finding people and literally dragging them to see the spaces.

I really had a great time. I made 37 leases in my first year; many of them just general, industrial real estate brokerage. I would cold call and I'd say to someone who owned a company, "Hey, would you like to move to our building down the street?" And they'd say, "How big is it?" "20,000 square feet." They'd say, "No, we need 8000 square feet." So then I would become a tenant rep for them and I'd find an 8000 foot space and I'd bring them to the space.

So I made 37 of those deals. And you think that I'd make a fortune making 37 deals. I actually made $40,000 in my first year, and I'd say I probably worked 12 to 14 hours a day, six days a week... Because on Saturday, when people weren't in their offices, I drove around in industrial parks studying which building was where, and which companies were in what location... So I became very adept at looking for and finding industrial buildings of all different sizes. It was really fun.

Slocomb Reed: 42 years later, I'm sure you have a very solid, in-depth understanding of the Chicagoland area when it comes to commercial real estate. That makes a lot of sense. And it makes sense that you're focused on investing in the Chicagoland area now, all things considered, that you have that level of expertise. Joe, I am primarily an apartments guy. I've been a host on this podcast for over 150 episodes, and I've spoken with a lot of investors, and a lot of people who have negative things to say about investing in the Chicago area or have fairly pointed opinions about it, in both directions, frankly. I don't want to ask why you chose Chicago, because I'm going to assume the answer is that you chose Chicago, because you live there and you were able to develop an in depth knowledge. Based on your experience, though, can you give us some advice for other people who are looking to invest in the Chicagoland area, what we would need to do to get a good foothold and a solid understanding and make sure that our deals would execute after acquisition?

Joel Friedland: Sure. Firstly, I don't know anything about any other area of real estate except for what my friends in those businesses tell me. I know a lot about industrial. There's an old saying, "Is it better to do one thing 10,000 times, or is it better to do something different 10,000 times?" And my view is, "Let's do the same thing 10,000 times and become an expert."

So there are two things about Chicago and our way of looking at investing. One is we are the top experts in industrial, with relationships everywhere - with tenants, with brokers... So one of the reasons that we love Chicago is because when you do something really -- like, remember the Bulls on their run? They were great at playing basketball; Michael Jordan was good at one thing - he was good at scoring and passing. He was not the guy who sat in the ticket office and sold tickets. He was just good at one thing. So I look at it the same way. I look at it as the experience that I bring is so deep for so many years, with so many relationships, that the fact that I was born here was the reason that we stayed here. We have a lot of family. My folks were here, my wife's folks were here, and we have friends here, and I started out working for the Podolskis here. But Chicago is the best industrial area in the country. And let me tell you why.

There's 1.3 billion square feet of industrial. There's 20,000 industrial companies. There's 8,000 industrial buildings. There's so much depth to our market that people can make millions or billions of dollars in industrial real estate just in Chicago. The reason that Chicago is so popular with industrial companies, manufacturers and distributors is because it's where rail meats in the middle of the country, and that's how products are distributed, through rail and through trucking. It's the middle of the trucking lane in the United States. And it's also something that people don't think about a lot - a place where we have great natural water with Lake Michigan. So all of these things combined, with the size of the market, the depth of the market, every company of any size has to be here. And the big question is "Where do they want to be in the market?" And we work in an area that we call infill, which is either in the city, close to the city, or very close to O'Hare Airport. There are only two kinds of industrial real estate. There's class B and C, which fit together, which are older, smaller buildings. And then there's Class A, which are these gigantic, Amazon-type warehouses, Wayfare... We focus only on the infill, smaller B and C. And what's great about it is no one's building any more of those, ever. It's a market that is today what it was 10 years ago, and what it will be 10 years from now. And when a building comes on the market for sale, for example, 30,000 square feet, we'll get 5, 6, 7 offers.

Slocomb Reed: Joe, why is it that that's not being built anymore? Just simply because of scale?

Joel Friedland: There's no land in the infill sections of town. It's already all built out. And the cost of building an industrial building would be $220 a square foot to build a 20,000 foot building. And what we're able to buy and sell these buildings for is in the $100 range. So our replacement cost is double what the cost is of the existing buildings. So no one's going to build a $220 per square foot building, knowing that the markets somewhere about half of that for the building next door, that's got the same utility. Because the B and C buildings don't need to have the same high ceilings; they call it high cube... The Class A buildings, which are precast concrete, you see them with all the truck docks, and the offices in the corners whenever you drive up and down the tollways of any major city - those are buildings that institutions generally own, and we don't compete with them. I'd say the big reason we don't compete with them is because they're willing to take a 5% cap rate. And that would be intolerable to us. We look for an 8% yield minimum on the deals that we own.

Slocomb Reed: Taking this back to the most fundamental of economics, Joel - your inventory, your supply is fixed. I have an idea of what you're going to say, but in order to understand the asset class and your specialization, I do have to ask, what does demand for these B and C industrial spaces look like right now in the infill?

Joel Friedland: Okay, so there are two types of buyers. One type of buyer is like us; we're the investor buyer. But the unique thing about our niche and the B and C industrial is what I would call the user strategy. When one of our tenants moves out of one of our buildings, we do better selling it to a user than we would have if we had sold the building occupied, on a cap rate. And let me explain why. For an industrial manufacturing company, a building is a tool for their business.

So for example, we have a company that is one of our tenants, they were on the TV show Shark Tank in year one; it's called Element Bars. The owner of the company is a fellow named Jonathan Miller; if you watch season one, you'll be very entertained by how he did on Shark Tank, talking to Kevin and to Robert and all those people. He actually got a deal, but it ended up not getting finalized, which happens a lot on Shark Tank. It looks like they make a deal, but then the devil's in the details with the paperwork.

So Jonathan owns this company, and he makes protein bars. And he started out in Chicago, and built the business from 50,000 a year to where he's at today, which is $12 million of revenue a year. A few years ago, he was in a building in the city that was too small for him. So he went and leased another building not too far away. So now he was in two facilities that were not together. And he came to the conclusion that he needed to consolidate and be in one building. So he looked around for a building to buy, and he looked, and he looked, and he couldn't find anything, and he got frustrated. And finally, he came to our building, and I met him, and he said, "Joel, I really don't want to lease your building. I want to buy it." And I said, "Jonathan, I don't want to sell it. We are long-term holders." And he said, "Well, if I have to be a tenant, I'll be a tenant. But I want you to know that my number one priority is to buy a building."

If I were in a situation where I had the same building that he leased, and I put it on the market for sale, I would probably have three or four showings in the first week, and probably all of them would make offers. I have something I call the punch in the face theory. When a user comes to see a building, and it's in the right location, and it's got the right specifications - the right truck docks, the right ceiling height... That user wants that building so badly that - I tell mentees when I train people in the business, I say "If someone wants a building badly enough, you could punch him in the face, and they'd say, "Thank you so much for that punch. Now, how much do I have to pay for the building?"

Break: [00:15:03.10]

Slocomb Reed: Joel, everything you're saying here makes sense, except that I am still working on figuring out your strategy. Help me draw some lines here; you're primarily buy and hold, I know that you syndicate, and that when you have a vacancy, is it your first option to look to sell to a buyer who's going to operate a business in that space? And if you don't get the buyer you want, then you look to lease it?

Joel Friedland: No, it's the exact opposite of that. So we're long-term holders, and our first choice is always to renew the lease with the tenant that's in the building.

Slocomb Reed: Of course.

Joel Friedland: 9 out of 10 of our tenants renew, because they're what we call sticky tenants. They are usually manufacturers or assembling companies, and they have a lot of employees; it would be extremely difficult for them to replace the employees, so they don't want to move away from where they're at. So the key is employment. But the second thing is they have machines that are bolted to the ground, and they sometimes have 15 or 20 different machines. And they don't want to move those. It's so expensive to hire a machinery mover to take those -- often, the machines get literally ruined by moving them. Sometimes they're these precision machines -- they need to stay where they're at. So our tenants are incredibly sticky. 9 out of 10 of our leases renew.
When a tenant doesn't stay, we put it on the market for sale or for lease. We don't put out an asking price per sale though, because if we find a neighbor, the building is worth 30% to 40% more to that neighbor than it would be to anybody else. Because it would be like Jonathan Miller when he needed that second facility when the Element Bars grew, and he didn't have enough space. He went out and he leased another building. The market is really tough. It's hard to find deals right now. So users who want to buy their own building are struggling like Jonathan did; they can't find them.

We don't push selling, we push leasing. But if the building sits vacant for a few months -- because vacancy is what kills us. If someone makes an offer that we can't refuse, we will sell. So our average hold period is seven years, but we have one building in particular that we've owned for 30 years. And we keep renewing the same tenant. The tenant is great, it's called Feed My Starving Children. It's a not-for-profit that raises $65 million a year, and church and school groups come in and pack food that's then delivered to starving children around the world, that are discovered by missionaries that they send out all over to Africa, and all over Asia... And every time their lease comes up, they renew, because what they have in the back is they have what they call packing stations, and to move that would be very expensive.

Plus, we have one other thing - we've got parking. The first three rules of industrial real estate are parking, parking, and parking. Because as companies grow, they move into a building and they anticipate they're going to need 30 parking spaces. As they grow, they add offices, and then they add more people working in the manufacturing area, and now they need 40 or 50 spaces, and if we don't have enough parking, they have to leave. So our main strategy is to buy buildings with tremendous parking, good loading docks, great locations, and then we try to keep them. I would keep them forever.

It's funny, one person said to me, "If I go into this deal, how do I get out?" And my answer is - we have a system where we introduce one investor to another; it's called rule 144 of the SEC... And a lot of people want to stay in, but if anyone ever wants to get out of our deals, because we own them very long periods of time, we can get them out.

So Feed My Starving Children - 30 years ago we bought that property, and today we have only 33% of the original investors, and the other 67% were taken out by other investors over time. That's a weird one. A lot of people don't do that.

Slocomb Reed: You know, it's unfortunate with a conversation like this that we have a shorter-form podcast, because there are only so many questions that I can ask in one episode. Hopefully, Joel, we can have you back here soon. But you just brought up something that I do want to ask about before we transition the show... You syndicate, which means that you're bringing on passive investors. The vast majority of the Best Ever listeners are familiar with syndications, and are involved in some degree likely in a value-add business plan, or in apartment investing in general. So what they or we are familiar with is a syndication model where there's a targeted hold period of approximately five years, after which there is either some form of major liquidity event - a sale or a cash-out refinance that offers them some equity multiple on what they invested around five years ago. And that is what gets internal rates of return for those investors into the teens. It was higher than that recently, but let's just stick with teens for now.

So you guys are buying -- you want to be buying eight caps. You pay cash, and your investors stay with you for a long time. What do those returns look like for investors, and what is it that keeps the ones who stay in the deal for a long time in the deal for a long time?

Joel Friedland: Yeah, that's a great question. So we struggle to buy great buildings. And one of the things that we try to do is increase the rent every year. We have a standard 3% annual escalation, and we sign five-year and seven-year and sometimes ten-year leases. Our investors don't want to get out of our deals, because what happens is our 8% over a period of 10 years goes up to 10% or 11%. In addition, the value of the buildings generally rises, because there's a limited supply of industrial buildings. And when we do sell, we almost always sell to users. And I always talk about the user premium. There's something called a control premium. So the users are people in the neighborhood that own companies that want to move there will pay somewhere in the neighborhood of 30% to 40% more for the building, for their own use. So when you add it all up, after a 10 or 15 year period, we're still getting 14% IRRs.

Slocomb Reed: Wow.

Joel Friedland: Yeah, and if we can't get a 14, if we can't project a 14, we don't do the deal. We don't have any investors who are interested in a 5% or 6% return. That's for institutions. We syndicate -- I have 200 investors; most of them are repeat investors in our individual deals over and over again. And in fact, right now we have one deal that we're just about fully subscribed on. It's an 8% return, we use bonus depreciation, so it's fully sheltered for the first two years; there's no tax based on cost segregation, which is really something that we've not done a lot of, but we're starting to do that now. And our minimum investment is only 25,000, because people sometimes when they don't know us want to get started in a small way where they're willing to take a risk in a new business that they haven't seen before, which is industrial. Most of our investors start with 50,000. A lot of them are 250,000 if they've known us for a long time. And most of our investors are in at least five of our deals. So we have 16 properties with a lot of repeat.

Slocomb Reed: Joel, this is a question for Slocomb as much as it is for the Best Ever listeners... Thinking bigger picture or wrapping my head around real estate syndication in general, when did you start syndicating deals, Joel?

Joel Friedland: So I was working for Milt Podolski and his family, and I went to Milt after 10 years and I said, "Milt, you're pretty rich." And he said, "I do okay." I said, "Yeah, you own 80-something buildings, and you have a home in Florida, and a home in Winnetka, and a home down in the city, the fanciest building on Michigan Avenue..." And I said, "I don't think you made your money being a broker." He said, "No kid. I made it by owning. I'm a syndicator." I said, "If I go find a deal, will you help me syndicate it?" And he said "I'll put up your first 30% of the money, but you've got to go find the other 70%."

Slocomb Reed: That was in the '90s?

Joel Friedland: That was 1989.

Slocomb Reed: So you started syndicating around '89 or '90.

Joel Friedland: That's right.

Slocomb Reed: How much did the JOBS Act of 2012 change the way that you were syndicating?

Joel Friedland: Well, a lot, because before the JOBS Act I couldn't go in a restaurant to somebody I didn't know at the next table and tell them about a deal of mine. And what I discovered with the help of a consultant - do you know Adam Gower? Have you heard of him?

Slocomb Reed: Yes.

Joel Friedland: He's outstanding. He became our consultant and taught us how to be syndicators with the JOBS Act.

Slocomb Reed: Interestingly enough, Adam Gower's episode on our podcast aired within the last week.

Joel Friedland: Oh, I love Adam.

Slocomb Reed: I just interviewed him, he seems great.

Joel Friedland: He is great. He taught us that it's okay to advertise and to tell people about our deals we don't know. Until three years ago, we never had an investor that we didn't know well. And by the way, and today I won't let an investor in unless I know his whole or her whole story. I ask them more questions than they ask me. I want to know everything about them. Of our 200 investors, I can tell you almost everything relevant about them and their family and their career. It's a relationship business, and the reason that we have so many good relationships is because we do hold long-term and we get to know people very well.

Slocomb Reed: That's awesome. Joel, are you ready for the Best Ever lightning round?

Joel Friedland: Sure.

Slocomb Reed: What is the best ever book you've recently read?

Joel Friedland: A book by Howard Schultz, who's the founder of Starbucks. It's called "Pour your heart into it." And what's great about it is he talks about the tough times that he went through. In 2008 I went through a very difficult period of time, when the market went bad during the big crisis. And reading it, I identified with a lot of the struggles he had; it was not all ups. There were a lot of ups and downs, and I've had a lot of ups and downs. It was a great read.

Slocomb Reed: I am downloading it in Audible right now. Joel, what is your best ever way to give back?

Joel Friedland: I'm a mentor, and I had my brokerage company -- I started a brokerage company after leaving the Podolski organization, while being a syndicator... So I was an industrial broker, and I hired and trained through my company with many other partners, 70 newer brokers; some young, some old, some women, some men... And I love mentoring and teaching the business.

We sold our company to Transwestern in 2014, and I started Britt Properties, which is our company that we have now, the syndicator of industrial. And I still love mentoring, and I'm mentoring about six or seven people, depending on the week. I talk to each of them every week.

Slocomb Reed: That's awesome. Joel, about a 33-year career as an investor doing your own deals, what is the biggest mistake you've made and the best ever lesson that resulted from it?

Joel Friedland: I made two mistakes. I bought properties in other states where I was not an expert. I bought properties in Ohio and New York and Florida... And I discovered that that was not the best thing for my investors or for me; knowing our market cold is what works for us. And not knowing those markets where other people do, that was a very big mistake.

And another one is we bought a piece of land that was zoned for retail in our market. And again, straying away from what we do best was a mistake. My investors and I put $3 million into it, and we lost $3 million.

Slocomb Reed: So the lesson is focused on doing the same thing 10,000 times.

Joel Friedland: I'm not sure I said it the right way when we were talking about it, but exactly, yes.

Slocomb Reed: I believe you did. Yes. That said though, Joel, what is your best ever advice?

Joel Friedland: I think it's pick something that you're passionate about, and keep doing it and never give up. Just keep with it. I look at a resume before I hire someone. If someone's a jumper, I don't want to go near them. The stability of staying in the same career for a long period of time I think is number one, because then you learn all the ins and outs of that career. And it takes a long time to learn, and there's a huge learning curve every time you start some new thing in an area where you're not an expert.

Slocomb Reed: Last question, where can people get in touch with you?

Joel Friedland: We've got a website with some videos that Adam Gower made for us, and some other ones... And we also have our offerings, and we also have an article called "Why you should not invest with us." And anybody who reads that I think will understand better how our syndications work.

Slocomb Reed: That's great. That link is in the show notes as well. Joel, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a best ever day.

Joel Friedland: Thank you Slocomb.

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