All-Cash Real Estate Investment Strategy

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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 ————————————————————– 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 ————————————————————– 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 SUBSCRIBE and LEAVE A RATING Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts https podcasts apple com us podcast how-to-scale-commercial-real-estate id1539979234 Spotify https open spotify com show 4m0NWYzSvznEIjRBFtCgEL si e10d8e039b99475f ————————————————————– 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 000ft 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 000ft 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 Sam Wilson 00 28 35 – Whatever platform it is you use to listen Sam Wilson 00 28 37 – If you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories So appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode