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In this episode, we dive into the world of industrial real estate with Joel Friedland, a seasoned investor with over 40 years of experience. Joel shares his valuable insights on weathering economic storms, acquiring assets without debt, raising capital, and finding off-market deals.
With an impressive portfolio of nearly 100 acquisitions totaling approximately 3 million square feet, Joel’s expertise is unmatched. He has raised over $100 million in private capital and facilitated more than 1,600 industrial leases.
Joel sheds light on his remarkable journey of overcoming the challenging 2008 market crash in the real estate industry. Drawing from his experience, Joel discusses the strategies he employed to weather the storm. Through his compelling story, Joel inspires listeners with his resilience, adaptability, and determination to succeed in the face of adversity.
He also talks about the risks involved in industrial real estate as well as valuable perspectives he learned along the way. He understands the potential challenges in the industry, including economic fluctuations, tenant turnover, and property maintenance costs. Joel’s seasoned approach, combined with his ability to adapt and find off-market deals allows him to mitigate risks and maximize returns.
Join us as we explore Joel’s journey from his early beginnings to his current role as the Principal at Brit Properties and Brit Asset Management, where he manages a diverse portfolio of properties on behalf of investors!
In This Episode
- How he successfully navigated the challenges of the 2008 recession and developed strategies for buying assets without relying on debt
- The importance of cold-calling and off-market deals to find lucrative investment opportunities
- Understanding Industrial leases and the advantages and risks involved in the industry
- The importance of making informed decisions
Welcome to today’s show on Wealth Strategy Secrets. We’re joined by Joel Friedland, an accomplished real estate professional who provides clients with comprehensive solutions for acquiring, selling, leasing, and investing in properties. Joel manages a portfolio of assets on behalf of various investors, including individuals, trusts, and families.
Joel’s extensive experience includes being the co-founder of Epic Savage Realty Partners, where he completed hundreds of transactions and played a key role in leadership development over the course of 20 years. After selling Epic Savage to an international real estate firm, he founded BRIT Properties and BRIT Asset Management, overseeing leasing, sales, and asset management for numerous property investments.
Joel has been a member of the Society of Industrial Realtors since 1990 and has actively participated in the Association of Industrial Real Estate, serving on the board of directors and moderating panel discussions on various industrial real estate topics. He attended San Diego State University as a member of the ATO fraternity and graduated from the University of Michigan in Ann Arbor. Joel, welcome to the show!
Thanks, Dave. It’s great to see you! It’s wonderful to connect in person after following each other’s podcasts.
You have quite a background, and I know you’ve been in the market for many years, experiencing various cycles. This should be an interesting topic for us to explore today. To help our listeners learn more about you, could you share a bit about your background and how you got into the real estate space?
I’m glad we’re doing this. My background in real estate started when I was 22. Right out of the University of Michigan, I worked for a family, not my own, named Podolsky. They were one of the major owners of industrial real estate in the Chicago market, with a portfolio of 84 industrial buildings.
I was looking for a job in real estate, so I cold-called Mr. Podolsky and said I was interested in working for him. He invited me in for an interview that same day. During the interview, he mentioned that his 84-building portfolio encompassed 6 million square feet. He had been very successful for many years, but in 1981, the interest rates were at 17%.
Companies were terrified of going out of business, and the last thing they wanted was to move from one industrial building to another. The costs and disruptions associated with moving could jeopardize their operations during such a tough economic period.
Milt asked me during the interview what I would do to fill his 10 vacant buildings. I replied that I would cold-call companies in the industrial parks and go door-to-door in person, taking advantage of the summer weather in Chicago. I planned to find tenants in other buildings and convince them to consider his vacancies, hoping to put deals together.
He questioned my qualifications for this approach and asked how I knew it would be effective. I shared that when I was 14, I went door-to-door in my neighborhood in Highland Park, convincing 70 people to let me landscape their properties for the summer. I told him I was a skilled cold caller; my success rate was about 70% when I met with potential clients because I was offering my services at such a low cost. He seemed impressed and decided to give me a chance.
It was similar because, during tough times, the way to attract new tenants was to offer better rent. I reduced the rents to fill up those vacancies. By the end of my first year, I had filled all but one of the 10 buildings. I worked hard, cold-calling thousands of companies all over the Chicago area.
My mentors were Milt’s son and another colleague named Richard, who took me under their wing. To me, having great mentors—or multiple great mentors—is the secret to success. I was incredibly fortunate to learn from such brilliant and experienced individuals who were major players in our market.
That’s awesome. Many people don’t consider the importance of mentors, and it seems to vary across different industries. I believe many people in real estate could benefit from this. As my kids are starting their careers, I’ve been advocating for them to latch onto mentors as well. Building those relationships can significantly elevate your game and provide hands-on experience that you just can’t get from any kind of schooling.
Exactly.
Joel, you got into real estate at a very young age. It can be a lucrative industry for those who excel in their specific niches. Did you begin to formulate a wealth strategy for yourself once you recognized the potential for scaling your success? What did that look like for you?
When I was working for Milt Podolsky, I looked at him one day and said, “Milt, I’d like to learn to do what you do—being a syndicator.” At that time, I was an industrial real estate broker, acting as an agent for Milt and others in the leasing and sales of industrial properties, which include manufacturing and distribution buildings.
Industrial real estate is a very different niche than what most people are familiar with, but I learned a lot during my time with the Podalskys as my mentor. I told Milt, “I don’t think you made all your money just as an agent.” He laughed and said, “I did not.” I told him I wanted to follow in his footsteps.
Milt offered to help me learn how to build a portfolio like his, starting with my first property. He said, “I’ll be your first investor if you can put together a syndication.” I thought that was a fantastic opportunity, so I found a property and considered it my first of many.
It was a $560,000 deal in Gurnee, Illinois—a 14,000-square-foot industrial building with two loading docks, 18-foot clear ceilings, a small office in the front, and a drive-in door for vans. We bought it, leased it, and secured a tenant. I brought in a group of investors at $20,000 each, and they asked how much I was investing. They made it clear they wouldn’t proceed unless I put in my own money, so I invested $20,000 as well.
It worked out, and I continued to expand my network of investors, leveraging the relationships I built while working as an agent. I interacted with many companies and owners who had capital to invest, convincing them to come on board. Over the years, we acquired about 100 properties, primarily single-tenant industrial buildings with net leases. I know each of my 200 investors personally, and when we have a new deal, I go back to the same group. Not every investor participates in every deal, which is why it’s beneficial to have a large network—around 30 or 40 investors might be interested in any given opportunity.
We manage our portfolio ourselves and handle a lot of the leasing through a brokerage company we work closely with. It has been a great journey, but I did face a disaster in 2008. Everything was going well, and I felt like I was on top of the world—I had a fancy car, a big house, and was living the country club lifestyle. But then the Great Recession hit.
At that time, I had seven banks I was dealing with, and I had borrowed from 63 people, totaling $70 million in debt. That’s a huge number.
Wow, that is a significant amount!
It is. If 1981 was tough for Milt with 10 vacancies, 2008 was ten times worse. The banks weren’t lending, refinancing was impossible, and tenants were going out of business and requesting reduced rents. I had forbearance agreements with most of my banks, which allowed me to extend payment periods and lower payments to avoid foreclosure.
It was miserable. I always point to my couch in the back; that’s where I was lying when I felt depressed and thought I had lost the money of 200 investors. I was convinced they would be disappointed, and I was ashamed of myself. I kept asking, “How could I be in a position where I was doing so well, and then all of a sudden, bam, it stops? It felt like I was going to lose everything.” I literally couldn’t get off the couch. I have to admit that I thought about taking my life; I felt so ashamed and embarrassed.
It was hell. But with a lot of help from family, friends, therapists, and a little medication, I got off the couch and went to work. I managed to save the portfolio. Not everything worked out—some deals never came back—but many did, and I started to rebuild. My net worth plummeted from a million dollars to negative a million dollars, and I had to work just to get back to zero.
At one point, I had to borrow against my Northwestern Mutual Life Insurance Whole Life Policy. I was fortunate to have $200,000 in cash value, and I borrowed all of it to support myself until I climbed back from the depths of despair. After that experience, I changed the way I operate. Some people think it’s crazy that I now buy properties all cash, with no mortgage. I know that you, like many real estate professionals, prefer leverage, but for me and my mental health, I can’t tolerate losses or feelings of shame and embarrassment. I’m vulnerable enough to admit that I know who I am.
Now, when I put deals together, we buy them all in cash with no intention of ever putting a mortgage on them. Interestingly, the wealthiest people I know appreciate this approach. I had no idea it would work. About five years ago, I approached my accountant and said, “I want to do all-cash deals.” He told me I would never find investors. I said, “Then I’ll never get investors.”
Surprisingly, there’s a group of extremely wealthy individuals who want to preserve their wealth rather than chase high returns. They’ve already accumulated wealth and want to ensure they don’t lose it.
Wow, such a powerful story, Joel. I can’t imagine what was going on in your mind during that time. It’s fascinating how even those at the top of their game—whether in sports, entertainment, or business—can face massive events that change their trajectory. Thankfully, you had enough support to get through that and move on to the next level. What would you say was the most important lesson you learned from that experience?
I believe mental health is everything, and how we make decisions is more important than anything else. If people are honest, they’ll admit that many decisions are based on hunches and moods, which isn’t good. Decisions should be based on due diligence and mathematics.
When I built up my large portfolio of dozens of buildings, I had three partners whom I trusted, and they trusted me. Some of the buildings we purchased were ones I never even saw; I just relied on my partners’ judgment. They might have had the right instincts, but they could have also used more experience or a more conservative approach. Now, I get involved in even the smallest details of every deal because letting mood drive your property-buying decisions is a terrible strategy. It must be based on the math and thoughtful consideration of where you want to be in ten years, rather than rushing into deals for quick profits. We now focus on long-term hold properties, which require a lot of effort to find.
I still go door to door, and I have a son and a partner in the business. We continue to cold call to find deals. If we discover a great opportunity, why would we want to sell it in three years? All these people who create offerings with a three-year hold must not be very satisfied with their properties. Why would you sell a great property in three years if you could hold it for a long time, generate excellent cash flow, and benefit from appreciation? Where are you going to find something better than what you worked so hard to acquire?
That’s my philosophy: buy for the long term, have great staying power, and pay attention to the details. In terms of mental health, never make a decision when you’re elevated and in a good mood, and don’t make decisions when you’re struggling and in a tough place. There’s nothing better than knowing you’ve thought something through and sought great advice. I have a group of advisors and eight investors I run everything by before purchasing a property. I never did that before 2008.
I went to my three partners and said, “Hey, this looks great. Let’s buy this one.” Sometimes we got lucky, and some deals made us a lot of money. But after 2008, we learned where the holes were. So, the answer is to pay attention and focus on the details.
We also maintain a micro-focus. We only own industrial properties in the Chicago area. We don’t want to venture into another town where someone else has the advantage because they know the market better than we do. So, being focused on one thing and doing it well is a big part of our strategy. If I can’t excel at something after 43 years and having done it hundreds of times, then there’s a problem. Now it’s all about how we make the best decisions to protect our investors and ourselves.
Mental health is everything and how we make a decision is more important than anything.
That’s sage advice, Joel. We were just discussing that in our mastermind group the other day. The emotional factor can trip up the majority of investors, regardless of the asset class. You might be feeling bullish about a particular opportunity but haven’t done enough due diligence or fully understood it, which can lead to problems. Conversely, you could be at a low point where fear is driving your decisions. Right now, fear is prevalent in the market, and people are trying to push you into certain assets based on that fear.
This is why we advocate creating a proactive strategy for your wealth. If you have a clear vision of where you want to be in 10 or 25 years, you can align your decisions accordingly. We’ve seen more success with this approach, and we can look at key investors like Buffett, who have strong strategies in place.
Let’s unpack the industrial space a bit more. We’ve had many guests on the show discussing multifamily opportunities, self-storage, land, and various other types of investments, but many listeners may be new to the industrial sector. Can you start from the basics and explain the main elements of industrial properties?
Industrial properties are generally located right on highways or tollways, or they may be tucked away behind other buildings, like multifamily or retail spaces. Industrial involves manufacturing and distribution; these are buildings where consumers don’t need to show up because they primarily operate on a business-to-business model, except e-commerce, which is a significant part of the industrial sector.
For example, if you drive down the highway and see a large Amazon building with numerous truck docks and a big area for trucks to park, that’s industrial. We refer to these as “A Industrial” properties. These are large, modern buildings with high ceilings and sophisticated sprinkler systems in case of fire. They’re very attractive and typically constructed from tilt-up or precast concrete. While we own some of these, most are held by institutional owners like pension funds, insurance companies, Blackstone, BlackRock, and others. They’re enormous players in the market.
They’re expensive. A level below that is what’s called B and C industrial. These are older, smaller buildings with lower ceilings. They don’t cost as much and are not favored by institutions, but they are favorites of ours. In the Chicago area, there are 1.3 billion square feet of industrial space, and most of it falls into the B and C categories.
What I love about industrial properties is that every building has a different type of tenant, each engaged in a fascinating business. For example, we have a tenant who was featured on Shark Tank in its first season and makes protein bars. He generates $18 million a year from his business. The building he occupies is 50,000 square feet, and he employs 80 people.
He built his business from the ground up. When he appeared on Shark Tank, he was generating only $50,000 in volume from a small bakery. Now, he runs a large operation, and when you walk in, it’s impressive—everyone wears white suits and hairnets to prevent hair from falling into the protein bars. The facility is filled with machines and various rooms, which is typical of our tenants.
His net rent is $8 per square foot, totaling $400,000 a year. We buy buildings all cash, with no debt, and our investors expect an 8% return. For a building with that level of rent, we can afford to pay up to $5 million. That’s the building’s value since $400,000 is 8% of $5 million. Each year, the rent increases slightly, which we refer to as annual escalations. Our investors partner with us for both cash flow and appreciation.
These smaller buildings often consist of brick or metal, and we have so many fascinating tenants. One company makes exhibits for children’s museums, and we have distributors. For instance, those little white yogurt cups you’ve eaten from? One of our tenants produces those. We also have a company that manufactures safety products for the welding industry.
If you’re a welder and need protective gear to prevent sparks from catching fire, he makes the suits and screens. When someone is welding, looking directly at the flame can harm your retinas. He creates screens that allow visibility while protecting your eyes. We have amazing tenants who pay their rent and have solid credit. We rarely have to evict anyone because most tenants are divisions of larger companies or family-owned businesses that have been around for decades.
Our tenants tend to be “sticky”; manufacturers don’t like to move since they can’t afford to lose their employees or relocate their machinery without suffering downtime. The average tenant remains in our buildings for 15 years or longer, with rent typically increasing each year—except for 2008, which was an exception when rents didn’t rise.
So while we can’t always count on rents to go up, these are the types of buildings we prefer. What’s interesting is the people behind the companies. Almost every one of these businesses is family-owned or has a family member involved, as it’s part of their estate. I get to know the individual tenants and their families or partners, and interestingly, many of these individuals also become my investors. The Shark Tank tenant, for example, is an investor with $1 million in another deal.
We recently signed a lease with another company, and as they got to know and trust us, the CEO decided to invest in one of our deals. We’re creating a synergy between our tenants and investors, with many individuals fulfilling both roles. I truly love this business; every day is a new adventure filled with learning.
Now, let’s talk about tax advantages. Are you conducting cost segregation studies, and what does depreciation typically look like? Yes, in a cost segregation study, there’s virtually no tax on your income for the first two years, so that 8% return is tax-free.
In the third year, you start to lose that initial benefit, and it begins to normalize. We leverage every tax law available for our investors. Without a segregation study, about half of the cash flow is sheltered, resulting in losses.
Milt Podolski once told me that when I first asked him for investment help, he mentioned he was making about $4 million a year from cash flow and paying $0 in taxes. I asked him how he did that, and he said, “You’ll learn.” So, I’ve learned that this is part of the wealth strategy.
What about risks, Joel? Especially in 2023, we’re facing lots of different challenges. You don’t have any interest rate risk, but what are some key risks in this industry? There are two types of industrial properties: A, B, and C are the classifications, but there are two main categories. One is multi-tenant, which is more akin to multifamily housing, and the other is single-tenant. A multi-tenant building typically has three to five units; it’s not common to see 100 tenants in an industrial setting.
Many companies prefer to have their own building and don’t want to share walls with anyone due to noise and other factors. The risk associated with these freestanding buildings is a vacancy. If a property becomes vacant, it’s 100% unoccupied. Even without a mortgage, there are still taxes, insurance, maintenance, and utilities to pay. When a building is vacant, there’s no income coming in.
I often say there are three risks in industrial real estate: vacancy, vacancy, and vacancy. And it happens. There are times when we have vacant buildings, and we have to get through a period while we’re marketing them to find a new tenant.
You guys are vertically integrated, though, so I’m assuming you’re handling all the leasing and everything internally?
We do property management, which, by the way, is a challenging aspect. Property management is generally a tough business.
The cost of managing is very high. If you do it right, it takes daily attention and involves a lot of accounting, along with addressing various issues like roof repairs, HVAC problems, and parking lot maintenance. To run our management company, each manager makes close to $100,000. To get a good one, that’s the kind of salary you have to pay.
We’ve had subpar managers, but then our properties don’t get managed well, and that creates additional overhead. When you add up how much we pay people to manage properties, you realize they have to be sophisticated property managers. They need to understand all the physical systems, which makes it very expensive.
I remember one investor told me, “You charge 4% for management; you must be making a fortune.” I said, “You take over the management company, manage it, and cover the losses.” He responded, “No. You do it.”
Yes, we do self-manage, and it’s a lot of work. It’s my least favorite part of the business. My son joined the business about a year and a half ago, and I put him in management. After a week, he said, “I can’t do this. This is awful.” He eventually transitioned into brokerage, finding deals, and putting things together.
What do you think about where we are in the cycle for industrial specifically right now?
The market is as good as it’s ever been. Values are higher than they’ve ever been. We have a building that we paid $6 million for about 15 years ago, and today it’s worth triple. It really depends on the location of the buildings. We focus on infill properties, which are near the city and the airport, and those typically see the most significant increases in asset values.
However, I think it’s going to blow up and then lead to a downturn, which could mean there will be vacant buildings. It’s all about supply and demand, and I believe they’re building too many new structures without enough tenants to fill them all. So I’m anticipating a downturn, which is one of the reasons I’m comfortable operating with no debt. If there’s a downturn, we won’t lose our equity; we just need to get through it.
Right, you’ve got that flexibility, which many people are going to struggle with if they financed three years ago and weren’t anticipating this.
Yes, it’s the opposite of what’s happening with office buildings. Office buildings are being handed back to lenders, and refinancing is becoming a significant issue for the owners. I feel like they’re experiencing what I went through in 2008—a terrible time for them, as well as for many malls.
But industrial is thriving while retail is struggling. As online sales are booming, companies like Target, Amazon, and Wayfair need more warehouse space. Additionally, there’s a significant political issue with China, leading many companies that used to manufacture there to bring production back. This trend is known as reshoring or onshoring, and it’s filling up industrial space. So, the industry has been booming, and there’s been no slowdown at all. However, I think rising interest rates are starting to have an effect.
Interesting. Joel, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectories, what would it be?
Find a person who embodies what you want to achieve—your ideal self in five years—and convince them to teach you what they know. For example, Neil Podolsky taught me a lot. If you can work with someone who has the knowledge and judgment that helped them become wealthy, and if you can convince them that you’re worth their time, you can learn how to succeed like they have.
To me, that’s the answer. Everyone I know who has made $1,000,000 started that way. People didn’t just fiddle around trying to figure it out on their own. I call that being wide but not deep, and it leads to a lot of spuddling.
Find a person who is the avatar for what you want to be and where you want to see yourself in five years and convince them to teach you what they know.
Excellent. I think that’s such a great piece of advice. It applies to all aspects of life, right? Whatever you’re trying to improve—whether it’s your health, sports, or something else—you can benefit from having a mentor. If you’re trying to up-level your game, you have to make an effort to do that, and you need some type of mentor to help you get there. That’s why we view this whole thing holistically.
Back to your point about mental health earlier, those factors are key—how you think and how you can work through challenges. We’re always going to have challenges in life.
There are so many things happening this year. But when haven’t there been a lot of things going on—geopolitically, environmentally, and with all these different factors? What you can control in life is how you meet those challenges. Do you have the leadership and perseverance to get through it? Having a mentor is key to being able to grow in that area.
Your holistic approach is spot on, and the things you talk about are very important. I think mental health is a huge component, and that means you need to be physically healthy. You also need to have good relationships and set goals. What you discuss and the things I’ve heard you say about helping people are crucial. I don’t think there’s anything more important than what you’re talking about.
I appreciate that, Joel. This has been a great conversation, and you’ve enlightened us about your journey. It’s been super insightful, and I appreciate your transparency in sharing with the audience. There’s so much to learn from the lessons you’ve shared, as well as your expertise in the industrial space. It’s a fascinating asset class and worth exploring. If people would like to connect with you and learn more, what’s the best way for them to reach out?
Our website is BritProperties.com. On our website, we discuss our risk-averse philosophy and how people can invest starting with $25,000. Most people don’t, but some do. We also have a few case studies available. One particularly interesting article is titled “Why You Should Not Invest With Us.” It outlines all the reasons why people should be cautious and what questions they should ask.
Love it! Joel, thanks again for coming on the show. I appreciate your time.
Dave, thank you.