The Episode Every Industrial Real Estate Investor Needs to Hear...

Aviva (00:00)
This week's listener of the week is Closet Diaries. Closet Diaries, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's listener of the week, week, week. This week on Commercial Real Estate Secrets, we have Joel Friedland. Joel.

We just found out we have a lot in common, which is really exciting. And I know our viewers here are really interested in Joel, what you do. So I know we're going to bring a lot of value here. Joel oversees a portfolio of industrial properties under the company, BRIT properties. Joel, thank you so much for being on the show.

Joel Friedland (00:47)
Hi, Aviva!

Aviva (00:48)
Joel, can you tell the listeners who you are, what you do, where you came from and hail from and how we got here today?

Joel Friedland (00:58)
Yes, I can. I am a 64 -year -old Chicago area industrial real estate owner, broker, and manager. I'm a syndicator. I grew up in the suburb of Highland Park, Illinois, which is 30 miles, 30 minutes north of Chicago.

And right out of college, I went to work for a family business that was not my family. And these people, it was a father in his sixties who was as old as I am now. When I was in my early twenties and he had his two sons and his daughter in the business and they had 84 industrial buildings. They were syndicators and they hired me to lease buildings and to do general brokerage. So I think you and I have a.

ton of things in common that we could probably compare notes on. It's really interesting how similar.

Aviva (01:59)
What were rents like when you were leasing out those warehouses when you started out?

Joel Friedland (02:05)
$4 a foot, $4 .50 gross, including taxes.

Aviva (02:10)
I think our tax is here in Denver, our 450 a foot now. But I shouldn't laugh. So how long did you work for this company and when did you jump off onto your own?

Joel Friedland (02:14)
Yeah, that's crazy.

So I worked for Milt and Steve Podolsky and a fellow named Richard Levy who mentored me as well and Randy Podolsky, Steve's brother and Bonnie Podolsky, Steve's sister. I was there for 10 years and they treated me like family. I love them. I'm still incredibly close with Steve Podolsky. I left after 10 years though, because as you know, in a family business,

It's hard to bring in someone who's not a family member as a full partner. And I felt that I needed to be more of an entrepreneur and have my own thing. And they actually offered me a partnership and I just didn't accept. They offered me 5%. And I'm not a 5 % kind of person. So I got together. No, no, no. So I got together with a guy named Luce Savage.

Aviva (03:12)
Not a 5 % kind of person either.

Joel Friedland (03:19)
who had a company that he had started called Savage Realty. And I had two other partners, Jordan and Danny. And the four of us set off on the adventure of starting a business to be syndicators and brokers and property managers and industrial. And it was the greatest time in my life in terms of business. It was so fun starting with almost nothing and building up this business. And over the years, I syndicated a hundred deals.

And we also, I'd say did maybe 5 ,000 leases and sales as brokers. And eventually we had 26 brokers in our group. And then we sold the company in 2014 to a company called TransWestern out of Houston, Texas. And they took us over and I kept doing my syndications after that. I went back to just being a very part -time broker, but mostly a syndicator.

Aviva (04:06)
sure.

So prior to, I like to say 2010, 2015, 2020, when warehouses came into the spotlight a little more and a little more and a little more, and now they're the bell of the ball. Warehousing was the butt end of the commercial real estate product lineup. Why?

did you choose industrial initially and then why did you continue to transact industrial real estate as opposed to any other product type?

Joel Friedland (04:52)
Well, so I met Milt Podolsky when I was 22 and I was referred to him by a friend of mine, my friend Mark, who I'd grown up with knew the Podolsky family and he said, Joel, you've got to talk to this guy. So I cold called Milt. It was August of the, of 1981 and I had graduated from Michigan and I called him up and I said, Hey, I'd like to come see you about working for you. My friend, Mark Samuel said that.

I should come to work for you." And Milt said, come on in. I said, when? He said, no. So I got in my car and I drove to Rosemont, Illinois, which is a half hour from Highland Park where I was living at home with my folks. And I interviewed with Milt and he said, what would you do to fill up my vacancies? It was 1981 and there were...

a lot of vacancies because it was a big time recession. Interest rates were 17%, which makes today's 7 % look like nothing. And I said to Milt, when I was a kid, I cut lawns and I used to go door to door to Canvas to get families, couples to hire me to cut their lawns. I know how to cold call. So if you want me to fill up your buildings, I'll go to industrial parks and I will cold call industrial companies and ask them to move out of their buildings and move into your buildings. And he said,

Joel, you are so hired. So that was it. I went to work for Milt and his sons and his daughter and Richard. It was just meant to be. I loved every day for nine of the 10 years. I loved every single day. Industrial, because you know there's so many different kinds of tenants. And in Chicago, there's a tremendous amount of manufacturing. So a lot of our buildings,

Aviva (06:38)
Hmm.

Joel Friedland (06:40)
that we manage a lot of our clients are distributors in their warehouses but many of them are are manufacturers of various kinds of products it's just so interesting to see what people do to make a living

Aviva (06:51)
So how has the industrial industry changed from then until now?

Joel Friedland (06:58)
Like you said, it's the bell of the ball and it's because offices are struggling with the work at home issue and retail struggling because the internet has taken over so much in terms of the way people shop for products. And I think the biggest change is really that industrial has become.

especially the new class A stuff that you and I talk about, you know, these big Amazon, BMF buildings, it become very easy to put up. And so unlike an office building or a multifamily, you can design a building in 30 days and put it up in less than a year. So you're a year out and then you got a ready to go shell and you can lease it to anybody. And the rents are...

Aviva (07:33)
Hmph.

Joel Friedland (07:51)
fantastic. They're eight, nine, 10, $11 a foot. And in the city, they're running $13, $14 a foot net, where it used to be three. So that's, it's just, everybody's piling in all the pension funds want to pile in all these insurance companies that want to invest money so that they can have income. And then all the people who are just regular folks who buy REITs or buy into syndications.

Aviva (08:02)
Yeah.

Joel Friedland (08:19)
It's like everybody wants it. All of a sudden.

Aviva (08:21)
my old man would be, well, he is obviously still with us, but he always says, it ain't rocket science. And that's why we love industrial, because it's like you said, constructing a multifamily complex versus constructing a warehouse is just a different level of everything altogether. So another point for industrial.

Joel Friedland (08:47)
Yeah, and it's also easy to lease too because often even a 300 ,000 square foot building, you could have one tenant. You know, if you have 300 units, you got 300 tenants in a multifamily, one tenant. But the downside is you're either fully occupied or you're fully vacant in that case. And if you're fully vacant, it could be extremely difficult to carry a vacant building.

Aviva (08:55)
Do you?

So you as a syndicator have a strategy that protects you if and when you do have the vacancy and I'm talking about in regards to debt. Can you share with us your debt strategy and your syndication strategy in general?

Joel Friedland (09:28)
Yes, we have 70 active investors. And in 2008, when the downturn was dramatically horrible, we had 50 buildings at that time, all with debt. And I went through some very major dark times because tenants left and we had a bunch of vacancies. And I learned that banks have no sense of humor, workout departments suck. And I decided that I didn't want to be in a position.

ever again, where I was beholden to a lender where we owed so much money that if anything went wrong, it would cause trouble. So I went to my group of investors and I said, Hey everybody, how do you like the idea of doing either very low debt, 30 % maximum LTV or zero debt? And a bunch of people said, that's ridiculous. Real estate's a leveraged business. Why would you do that? And other people said,

You know what? Yeah, yeah, I would do that. So I assembled this group of 70 of us who are really comfortable with little or no debt. And it's not for everybody. I know you're familiar with, tell me about your dad's background and how he did his.

Aviva (10:43)
Sure. My grandparents immigrated to America in 1950, fleeing Nazi Germany. Amazing immigrant story. True immigrant real estate story. The family started in a duplex, went to a triplex, motels, hotels. And in 1984, my grandfather bought the first warehouse that we own to this day. It's up here.

That was when my father started to get clued in about the industrial business. Thereafter, my father syndicated a portfolio of industrial properties between 1999 and 2015 with a number of partners. It was a very risk -adverse strategy, multi -tenant industrial, also with little to no debt because...

just like what you learned in 2008. You don't wanna call your partners for cash calls. And in order to keep your partners happy and calling you back, you wanna return more value than they give you. And he had the luck of timing with these industrial properties where what he was buying for 30 bucks a foot.

in the early 2000s is now 200 bucks a foot. There was that foresight where he recognized that these ugly, not flashy properties are very versatile. It's like you're saying, the tenant mix is literally infinite. So he went in head first and...

I just make my lucky stars every day. I love my family business of warehousing. So that's our story.

Joel Friedland (12:29)
Who manages these buildings for you guys?

Aviva (12:33)
We do. We have a property management arm.

Joel Friedland (12:35)
And you have property manager and accounting and that kind of thing. What's the biggest challenge?

Aviva (12:40)
Yes. What's the biggest challenge?

That's a great question. Our biggest challenge is...

Joel Friedland (12:47)
Mine's accounting.

Aviva (12:48)
Our primary property manager has been with us for 20 years and she is unbelievable when it comes to numbers and accounting. I would say our biggest issue is contractors. Like for example, right now we're finding it's almost impossible to get a garage door guy out.

We've got our GCs, our HVAC groups, we have our tried and true contractors, but once in a while there's somebody, a piece that we need to put into place and we just, like I said, nobody wants to do commercial industrial doors right now. And so that's probably our biggest pain point.

Joel Friedland (13:28)
Yeah, that's hard. It's hard to get people to show up and do the work. Is your dad active?

Aviva (13:33)
little bit, maybe 5%, but he's more active on a beach in St. Somewhere, but he still loves it. He still wants to know everything. And so I spare him the headaches and just tell him all the wins. So.

Joel Friedland (13:36)
Oh.

Have you done any syndicating yourself yet?

Aviva (13:53)
done any syndicating myself yet. It's definitely in the horizon. Let me tell you a challenge and I want to ask your opinion on this because you're the perfect person. You know when my father's playbook, when he reads to me the playbook, these are double -digit returns with no competition when they were buying and okay competition is not a big deal but

Double digit returns make sense when you go to investors. In 2024, when returns are 6%, 7%, how do you syndicate a deal and make it make sense for yourself as the syndicator and your partners?

Joel Friedland (14:37)
All right, you just asked the best question that anybody has ever asked me. It is the number one question. And there is no good answer. That's why it's such a good question. In today's world, well, first of all, when your dad was syndicating, nobody had ever heard of industrial. I used to go to parties and people would say, hey, this is a great wedding. What do you do for a living? And I'd say I'm in industrial real estate. And they'd say, what's that?

Right? Nobody even knew what it was. So back then, cause I did my first syndication, which was, uh, 1989 and we still own that building. So we're like you, we have, we have buildings that we've had for a long, long time. And back then I could buy a deal for $35 a foot and I could get a 10 % return all day.

And if it wasn't 10, we didn't do it. What's happened since then is the world has become smaller because of social media, primarily, and everybody and their father and their cousin and their uncle are now syndicators. And you know how many multifamily syndicators there are in this world? Thousands of them. There are thousands.

Aviva (15:53)
Too many.

Joel Friedland (15:55)
thousands of them. I'm guessing there's 3 ,000 multifamily syndicators who have more than 50 million dollars of properties. And the reason that the rates have gone down, the returns have gone down, is because it's become an efficient business. When your dad and I were doing it in the early days, it was inefficient. There was no internet. There was no...

Aviva (16:19)
Hmph.

Joel Friedland (16:21)
public listing system, we would just stumble into a deal and nobody knew what anything was worth except for us. And we said to people, if we can't get a 10 % return, we don't want to buy the building. And now with all these syndicators out there, the reason that there are 6 % returns that are getting done is because these multifamily people, there's so many of them and they're selling so hard.

You should be a passive investor. You should be a passive investor. Let me teach you about passive investing. And they're all selling these courses to investors. And they've convinced the investors that a 6 % yield is a good idea. And investors have bought in. They've said, well, if 3 ,000 people say that that's a good deal, it must be a good deal. But it's not. It's not a good deal.

6 % deal is not a good deal because if it's based on a cap rate and you're buying something that's a cap rate of six, realistically, you're only giving your investors 5 .2 or 5 .3 because there are expenses and reserves that people don't remember to include in their numbers. And so unfortunately, there's what I would call overoptimism.

Aviva (17:39)
Sure.

Joel Friedland (17:39)
and people believe that they're going to buy these deals in a six cap and make all this money. And they were borrowing up until recently at three and 4 % with floating debt even less. And that's what happened is that the whole market became so efficient and so well known. If you wanted to go find podcasts about multi -family real estate investing, there are 300 podcasts on that subject.

And they're all talking about why 6 % is the market. And yeah, we know we can only get five. And if the cap rates continue to go up as they have, because when interest rates go up, the cap rates have to go up. People who bought properties for a six cap are now under water because selling them for a seven cap.

is necessary in order for people to pay their debt. So it's really screwy. And so for me, the answer to the question is everything's upside down and it's very hard to buy properties because greed has come into play in industrial and people have seen that industrial has gone so far so fast. Do you know that industrial rents? I just did a deal near Toronto as a broker for Chicago tenant. And

They were paying a Toronto based family $5 a foot net and the lease was five years old and coming up this year and they got $9 net, which is if you think about it, an 80 % increase.

Aviva (19:13)
Wow.

Joel Friedland (19:15)
It's an 80 % increase. It makes no sense, right? Okay, I wouldn't buy a building if I had to count on a 6 % cash flow continuing and I didn't think there was any major upside. Well, that's why I'm having trouble buying, because I don't think there is any major upside. I might be way wrong. Maybe buildings that today are 150 are gonna be worth 250 in 10 years.

Aviva (19:41)
Sure.

Joel Friedland (19:41)
But it's very possible that if there's a downturn, $150 property today could be worth $120 tomorrow. And that may be one of the reasons that you're scared of doing a syndication, because I am.

Aviva (19:53)
Right, because unlike the multifamily syndicators of 2022 with their variable loans in at 2 .6%, I don't want to, it's actually not an option to not win on behalf of your partners. And that leads me to my next question.

Can you tell us about your due diligence process and how you make sure that you are ironclad for your partners on every deal?

Joel Friedland (20:25)
Yeah, I have a partner named Eric Schneider who does the due diligence process. I'm involved in it, but he runs the process. He is so conservative and he is so careful. So we would look at every single element of a building physically, but that's not all. You look at the roof, the HVAC, the doors, the floors, the walls, the parking lot, the...

sprinkler system, the fire exit safety plan, which the city can come in and make you redo the whole thing at their whim, all that. But also real estate taxes, what they are, what they're going to be after the purchase, that's huge. Another one that people don't think of too frequently is the zoning. The zoning has to be right.

Aviva (21:13)
Sure.

Joel Friedland (21:15)
And we've actually run into situations where the zoning is not right. Where you wouldn't have known it looking at an industrial building, you would think that it was zoned perfectly well for industrial, but actually one village rezoned everything retail because they had a vision about 10 years ago that they were going to build this shopping area. So if we were to buy the building in our tenant left, we couldn't fill it with an industrial tenant without getting the zoning changed. Who would have ever thought of that? And.

Aviva (21:33)
Mm -hmm.

somebody who lost their head on it before, but yes, yes.

Joel Friedland (21:45)
Right. Right. And here's another big one. Dock turning radius. We looked at a couple of buildings that we were going to buy in a package. There were three, three buildings. And one of the buildings, 40 ,000 feet, had loading docks on the side. And you had to drive past parking, like up the middle of a parking aisle, and then past the cars and then back in the dock.

But the aisle was only 60 feet wide. Not the aisle, but the parking lot. Because you need 20 feet for a space, you need 24 for an aisle, and you need 24 for a space. So you need 64 feet. It was only 60. And the docks were in the back of the building facing the side. So if you pull the truck up the middle of all the cars, the aisle, that 24 -foot aisle, the truck has to then make a little veer off.

to the left or to the right and then it has to back into the dock. 60 feet, even with no cars back there, isn't enough for them to be able to back the truck in. So if you buy a 40 ,000 foot building and you can't use the truck docks because the maneuvering room is inadequate, it's worthless, worthless.

Aviva (22:57)
Yeah.

Joel Friedland (22:58)
So knowing all those things, if you make the mistake, you pay the price.

Aviva (23:04)
Trust me, I look at some of these buildings and scratch my head for that exact reason. Access, right? The whole point is to get a truck in. If you can't get a truck in, you can't get product in. What's the point of having, like you said, 40 ,000 feet if it's sad. It's so sad when they ruin the warehouses like that.

Joel Friedland (23:26)
And ceiling height, right? Ceiling height's an issue. And the sprinkler, do you know that you could have a 20 -foot ceiling and only be able to stack up to 12 feet in certain municipalities?

Aviva (23:35)
Yes, I've gotten those letters.

Joel Friedland (23:37)
Yeah, you think, well, hey, I've got 20 feet. I can stack up to 19 feet. But because of the sprinkler system density, the village doesn't think it's safe to stack up to 19 feet. And they say you're limited to 12, unless you want to redo your sprinkler system, which costs, by the way, $8 a square foot to do today.

Aviva (23:54)
Sure. Let me ask you, here in Denver, it's bloodshed when it comes to taxes. In the past two, three years, we've seen our taxes double and triple, which obviously, even though it gets passed down to the tenant, it's horrific for everybody. What have you seen in your portfolio when it comes to property taxes?

Joel Friedland (24:17)
In Chicago, we've got multiple counties and the main County where Chicago is and where O 'Hare airport is located and where most of the closer in suburbs along the lake, that area cook County, the taxes are twice as high as, as they are in the collar counties. If you go a little bit West, North, you can go out there. There's a County called DuPage County and a County called Lake County. And then there's Wisconsin, which is still part of.

Southern Wisconsin is part of our market. We're like a tri -state area, Wisconsin, Indiana, and Illinois. And the taxes just below Illinois and Indiana and just above Illinois and Wisconsin are half as much as they are in Cook County also. I have a building under contract to buy right now. I love the location. I love the building. It's 16 ,000 square feet. It's got a truck dock and two drive -in doors.

Aviva (24:52)
Sure.

Joel Friedland (25:12)
good parking, good ceiling heights, good truck maneuvering. And I found out today, based on the price that I've agreed to pay, the taxes are going to be $11 .85 a foot. Ay, ay, ay, $11 .85 a foot.

Aviva (25:27)
Right, because people don't calculate the taxes based on the newly assessed number once they purchase the building.

Joel Friedland (25:40)
Even today, the people who own it have a lower assessed value because they bought it a number of years ago for much less. But the comps are there and the assessor is not an idiot. He's trying to get as much as he can from everybody. And so when he does the reassessments, he gets a number and he goes to the owner and he says, I know your taxes were six bucks, they're going to nine. And that's at the current time.

level where he paid half as much as we're going to pay. So if they're paying $9, I can't believe I'm going to be almost at $12. Double what it is now at $6.

Aviva (26:19)
Is that a deal killer for you or no?

Joel Friedland (26:22)
I think it is. That was today's decision. Are we going to allow ourselves to buy a building where the taxes are almost double the rent?

Aviva (26:31)
Oh my, oh my, double the rent. Yeah.

Joel Friedland (26:33)
Yeah. Yeah. So taxes are a big deal. We own a bunch of buildings in DuPage County and in a place called Kane County and in Lake County, which are the surrounding counties. And the taxes are two bucks. That's reasonable. So why would anybody buy a building where it's $11 a foot for taxes?

Aviva (26:44)
Sure.

Yeah, those were nice days.

because they don't know what they're getting themselves into or they're a user.

Joel Friedland (26:56)
Right. Right. And I made an offer to buy this building and I offered a price that I thought was really a reasonable price. I didn't think I was stealing it, but a reasonable price. And the seller grabbed it. And I was trying to figure out why are they so anxious to sell me the building? And then today when I talked to my tax, my real estate tax attorney, and I said, what are the taxes going to be? She told me they literally no joke could be.

somewhere in the neighborhood of $13 or so. They could be. Yeah. Right. Right. And by the way, in New York, we owned a building in New York and our taxes were super high there. But in certain markets, Chicago, New York, maybe Inland Empire, maybe Houston, I don't know, it doesn't really matter to some people what the taxes are. They need the building for their business. They need the building for their business.

Aviva (27:29)
It's retail. It's high retail prices.

Sure.

Joel Friedland (27:52)
and they'll just pay it. If you own a business, if you own a manufacturing company, we've got a company here that manufactures food. They make a protein bar. And their annual rent is $350 ,000. So it's about $30 ,000 a month. Their taxes are running somewhere around $8 ,000 a month.

Aviva (28:14)
Oof.

Joel Friedland (28:15)
My guess is that they make somewhere in the neighborhood of a million and a half dollars a year net profit. So their taxes, let's say, go from 100 ,000 to 200 ,000. So now instead of making a million and a half, they make a million four. What's the alternative? Close your business or move it so far away that you lose all your employees. So it's tough. Yeah.

Aviva (28:38)
Well, Joel, you know, we speak the same language and I could talk to you all day about this. But unfortunately, we don't have all day. So before I have you tell the viewers where they can learn more about you, follow you, find you, we always end every podcast with the same question. And that is, what is currently making you happy in commercial real estate?

Joel Friedland (29:05)
I just love the physicality of real estate. I'm like, I'm a geometry on paper guy. I love, when I meet with people at lunch or whatever, I like to always pull out a piece of paper and a pen and I draw the perfect layout of a building. I'd say, here's why it's perfect. And then I go looking for the perfect building. And so it's just, it's like a puzzle to me almost.

You know, some people love jigsaw puzzles or they like puzzle games. I like, I like Sudoku. It's like, it's like a puzzle game to me. And I love that aspect of it, how the pieces all fit and even like the geographic locations. I love Google earth and looking at where buildings are located and what the parks look like and why somebody built what they built there. So what I love about the commercial real estate business is the physicality of it.

Aviva (29:32)
Sure.

Yeah.

Joel Friedland (30:01)
I'm glad I'm not an architect or an engineer. I can look at it from a much higher view standpoint, you know, view, but I don't have to look at all the little details, but I certainly can be critical easily.

Aviva (30:11)
Sure.

I was at my parents' house and my mom said, you know that painting, it's off by a millimeter. And I said, love you, mom. I look at things in square feet, not millimeters. So, I can relate there. Joel, thank you so much for being on the show. If and when the viewers wanna learn more about you or get in touch with you, where can they find you online?

Joel Friedland (30:41)
We have a website, it's BritProperties .com, B -R -I -T with one T, Brit Properties. Named after our property manager, Brad. So we needed a name, we sold our company to TransWestern, we needed a name for the other company to get started. So I said, Brad really is terrific. Oh, B -R -I -T, that's a great name.

Aviva (31:03)
What? Brad, wow!

Well, BritProperties .com. Joel, thank you for being on the show and for everybody listening. We'll see you next week.