Subscribe via:
Show Summary
In this conversation, Matt McLennan, a commercial real estate broker specializing in industrial properties, shares his journey into the field and discusses the evolving landscape of industrial real estate. He highlights the misconceptions surrounding industrial properties, the shift from ownership to leasing, and the impact of e-commerce on demand for industrial spaces. Matt emphasizes the scalability of industrial investments compared to residential properties and the flexibility that leasing offers businesses. He also touches on the transformation of outdated industrial spaces into new developments and the importance of understanding market trends for potential investors.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Matt McLennan, SIOR, CCIM (00:00)
Yeah, it’s a it’s a really good point you make there because an industrial is grossly misunderstood. Unless you’re exposed to it, there’s there usually wouldn’t be a reason for you to understand it. Right. A lot of people think industrial and they think like down and dirty manufacturing where, you know, the chemical plant is located in your town. And trust me, there is plenty of that. But what’s changed really in what I would argue to like 30 years, you know, call 30 years ago, 20 years ago, maybe even 10 years ago.a good majority of industrial real estate was exactly that. What changed? E-commerce. That’s the biggest thing that’s changed.
Dylan Silver (02:09)
Welcome back to the show. Today’s guest Matt McLennan is a commercial real estate broker and investor with a focus on industrial. Matt, welcome to the show.Matt McLennan, SIOR, CCIM (02:20)
Thanks for having me. Happy to be here.Dylan Silver (02:23)
It’s great to have you great to connect with you, Matt. And I always like to start off at the top of these shows by asking guests how they got started in real estate and in your case, how’d you get into the commercial space?Matt McLennan, SIOR, CCIM (02:33)
Yeah, for me it was an interesting path actually. I graduated college, I got a sales job ⁓ actually working for a wine company in the wine and spirits industry, which was great job, cool, cool thing to go do right out of college. I did that for several years and I had some friends, personal friends of mine that I was hanging out with outside of work who worked in commercial real estate. And I knew nothing about commercial real estate really at that point. And just through spending time with them, I got to learn a little bit more about it.And I was kind of at a point in my life where I was looking and considering a career change. And so I started to look into commercial real estate and very quickly decided I wanted to get into brokerage, which, the brokerage side of commercial real estate. ⁓ you’re familiar with residential, you know, being a residential realtor, being a commercial broker, same thing, just working on commercial properties. ⁓ So I just kind of took the leap of faith and started in brokerage. And that was eight years ago now. in.
never looked back and that’s what I do. I work specifically on industrial properties. That’s my specialty. So, you know, I have clients and I understand office buildings. I understand retail strip centers, multifamily, which a lot of people are really familiar with. But for me, I spend about 99 % of my time working on industrial buildings, which can be anything from a big e-commerce warehouse, like something Amazon would occupy to
a manufacturing plant there that maybe is making something to somewhere that’s a parking lot where semi trucks park between taking goods back and forth between buildings. So ⁓ it really covers a really pretty wide range of property and that’s what I do. I love it.
Dylan Silver (04:12)
We were talking before hopping on here about, you know, maybe some misnomers, but also what people tend to think about when they think of industrial, right? We were talking about, you know, maybe like an industrial plant, like a manufacturing plant, but we had mentioned, you know, a lot of these are now, you know, Amazon warehouses and, you know, storage facilities and so forth. And I think I’ve seen it. There’s more interest now, not just from some reallylarge investors, but also from folks who may be coming from other segments of the real estate space and seeing the possibility in industrial. For folks who are just getting started in this space, whether they’re looking at it from the investor angle, or maybe they’re a residential realtor and are looking and getting into the commercial side.
What would be your guidance for folks looking at industrial?
Matt McLennan, SIOR, CCIM (05:52)
Yeah, it’s a it’s a really good point you make there because an industrial is grossly misunderstood. Unless you’re exposed to it, there’s there usually wouldn’t be a reason for you to understand it. Right. A lot of people think industrial and they think like down and dirty manufacturing where, you know, the chemical plant is located in your town. And trust me, there is plenty of that. But what’s changed really in what I would argue to like 30 years, you know, call 30 years ago, 20 years ago, maybe even 10 years ago.a good majority of industrial real estate was exactly that. What changed? E-commerce. That’s the biggest thing that’s changed.
it’s a place where these goods are stored before shipping out to your doorstep, before they’re shipping out to the brick and mortar retail store, where everything is stored. So not necessarily being made, manufactured, but somewhere that it’s being stored. So what’s and why that’s important and why I mentioned that.
is it took industrial from something that nobody really thought was interesting or cool. It’s made industrial sexy. mean, that’s the simplest way to put it. so investors are looking at it going like, wow, these Amazon warehouses are very nice buildings. They’re well built. They’ll last a really long time. Amazon’s a great tenant who will pay their rent. ⁓ I want to invest in this. ⁓ And so that’s really kind of what’s
turn the tide on the interest in industrial real estate. You mentioned residential realtors or people familiar with residential investing expressing interest in industrial. I think whether it’s industrial or any commercial real estate class, you’re gonna get more scale investing in industrial real estate. example, if you buy one house or a fourplex, those can be really great investments, right? But ultimately you have one to four tenants using that example that I just gave.
and there’s a limit on the rent that they can pay, but you can buy industrial facilities that occupy, you know, 100,000 feet of building area or five acres of land or a whole business park that has 30 tenants in it. I mean, it’s all, it’s all scalable, right? ⁓ But the point being is it’s, it’s, that’s, that’s the biggest difference I see between the two is what level of scale do you want to achieve versus ⁓ again, maybe just owning a second home and collecting rental income that way.
Dylan Silver (08:01)
Yeah.Am I wrong in saying that traditionally, at least in the United States, when we think of industrial, we’re thinking of companies that or large entities that owned the land, owned the structures underneath that were not typically renting out these spaces. And that’s now changed with time. You’re seeing, you know, someone who owns the industrial space, but then rent it out to tenants. Has that always been?
The case was there this shift, however, many years ago to now more of a ⁓ renting mentality when it comes to an attendant mentality when it comes to these industrial spaces.
Matt McLennan, SIOR, CCIM (08:52)
You nailed it. It would say historically it would be the industrial business who is either making the thing or shipping the thing out of the building. They were usually the owner of the real estate. They own the land. They own the building. They occupied it. They facilitated their business out of that facility. What’s changed and what I would say, I mean, you could go pick your date on when it really changed. I think it started before the GFC in, know, 07, 08 that time.And then coming out of the GFC especially is when that really started to change a lot in that industrial became an investor class piece of real estate. And so investors saw the benefit of owning these facilities, these pieces of real estate, leasing it to those businesses and collecting rent from them instead of the businesses owning it themselves. And the businesses were interested in it because they were running their business. Their primary source of income as the business owner was the revenue coming out of the business.
Well, all of a sudden they were getting offers for their real estate that exceeded the value of the business. mean, exceeded the level of revenue they were achieving with the business. So they’re going, hold on,
I can sell my business, stop working, sell my real estate and cash out with more than I expected to get out of running my business. That sounds good. Yeah, I’ll sell you the real estate. And I’m using an example there where they didn’t continue to stay in the building and keep paying rent. But alternatively, I’ve seen it that way too, where they’ll go, hey, I’ll
sell you the building, keep my business in it, I’ll keep running my business, I’ll just pay you rent instead of paying my mortgage to the bank. And the cash that they receive, the infusion that they receive from selling the real estate maybe allowed them to invest in more business lines or grow their business. It just gave them freedom cash to go live their life and take a little pressure off themselves from the business. mean, it goes a lot of different ways. But yeah, no, but you’re spot on. It didn’t always be this way. It wasn’t always this way. And then it more flipped in recent memory.
Dylan Silver (11:23)
As you’re really opening my eyes to this, as you’re talking, I’m thinking about some areas of the country that I’ve been to where it looks like an old, you know, industrial plan of some kind that has now been rejuvenated, rehabbed into like a multi-use apartments, you know, first story retail, beautiful areas.And I’m thinking like, wonder how those deals went down because these were industrial parts of some kind that have now been transformed into another space. And you’re talking about selling the underlying real estate while then maybe renting out. could I could see that happening. And I’ve seen it feels like in real time in places like San Antonio. Are you aware of why folks would not
potentially want to be the owners themselves? Is it cost prohibitive for, you know, larger entities to build? Is that why they would prefer to rent out versus to build?
Matt McLennan, SIOR, CCIM (12:25)
There’s a lot of factors to it. ⁓ know, example that you used of like the industrial plant getting converted to like a multifamily, you know, new development. Those examples, a lot of the time, the real estate has become obsolete would be the best word to describe it. It’s like an old plant with processes that don’t get used anymore. There’s no one that wants to occupy that real estate. So its value is scraping it and building something new. ⁓ But then to your question there. ⁓I think a lot of it comes down to, especially if you’re running a business out of one of these industrial buildings, you have your return on the real estate. How much is it appreciating? How much, typically if you’re an owner of the building, you run your business and the business pays you as the owner rent, in theory, and it’s all a function of how you run your numbers. But point being, what I’ve run into a lot is these business owners, they run their business. They’re really good at running their business. They’re not real estate people.
and they might get an offer for $2 million for their piece of real estate. Let’s just use that number as an example. And they’re going, okay, I can continue to hold my real estate that I know is $2 million and I’m paying myself rent and it’s going great and whatever, right? Or if I had 2 million and I’m getting, I’m gonna make up a number, I’m getting an 8 % return on my $2 million investment in my real estate. Well, if I had $2 million right now and I could buy this new machine,
to buy this screen printer to print 100 more shirts per hour that I can then go sell on the internet. If I put $2 million into that, those 100 more shirts per hour, I’m gonna generate $4 million a year in additional revenue. They’re going, that’s a way better return on my dollar than continuing to own my real estate and just hoping it continues to appreciate and playing the real estate market. Sure, I’ll sell and I’ll reinvest in my business and I’ll make more money that way.
That’s a huge motivating factor for a lot of these owner occupants. It’s ability to generate more revenue via that medium than through their real estate.
Dylan Silver (14:29)
Yeah, and you you mentioned being able to focus on the business, right, and not and not being a real estate operator as you know, the central driver of the business. I’m thinking about, you know, businesses like Starbucks that are huge tenants, right, but that choose not to to be owners. But then I bought and I don’t know how true this is. I’ve heard McDonald’s owns a lot of the property that they’re at. I don’t know if that’s true or not. But it’s different models, right? If you’re the tenant,coming in versus if you own the underlying real estate,
you can you could bank on appreciation if you own the real estate. Of course, if you’re the tenant that that’s not happening at the same point in time. I actually just spoke with a commercial investor in Florida, I believe, who is mentioning to me that the tenants like Starbucks will not do as much ⁓ rehab to the property. They expect it to be not turnkey, but they expect it to be at a point where
they don’t have to get it to their standard, whereas another tenant might come in, you know, if it’s not a national brand and say, you know, we’ll take this commercial space as is. So there is, you know, some level of ⁓ power that you have being a national brand and being able to kind of set, hey, this is the standard that we have as a tenant.
Matt McLennan, SIOR, CCIM (16:28)
Yeah, no, you’re spot on. I mean, a lot of times it comes down to a rent versus own analysis cost associated with each. In some businesses, they can, and it boils down to usually what I of mentioned before is money spent buying the real estate and paying my mortgage. What kind of rate of return do I get on that versus can I just lease this space and invest it back that same dollars that I would have spent buying the building and invest it back in my business and get more revenue that way.Some tenants like Starbucks, the example you use, they like the flexibility that leasing gives them. If they owned every building that they occupy, when they decide they want to up and change a location because that location doesn’t work for them anymore, now they got to figure out what they got to do with the real estate too. ⁓ And so by leasing, it gives them flexibility. It’s the same thing when you rent a house. If you’re a homeowner versus renting a house, you go buy a house, you’re probably going to stay there.
for a considerable amount of time, right? Given what you invested, the closing costs and everything associated with the acquisition. If you rent a house, usually sign a one-year lease. And if you want to move across town tomorrow, you can. ⁓ So it’s just kind of, it’s personal preference in what you want to do. that’s, make very similar decisions in that regard as you would if you were just, you know, going to go buy your own home.
Dylan Silver (17:48)
Yeah, when we talk about being able to have that flexibility, especially when you’re talking about something like like e commerce, right, which is very competitive, right. So I mean, right now, it’s not just competition that you’re seeing domestically, but like internationally, people now have the option to to purchase goods from retailers that are not based out of the United States, maybe for a fraction of the cost, but maybe a longer lead time to when they’ll be gettingChristmas gifts per se, but at 50 % of the cost, it makes things interesting. And those retailers need ⁓ industrial warehouses in order to store their goods. So it’s hyper competitive and not just competing with larger retailers, but you’re also competing with folks who have customized drop shipping.
type of services as well. I’ve seen a lot of that.
Matt McLennan, SIOR, CCIM (18:47)
Yeah, well, and like for me, ⁓ part of the reason I got into industrial real estate brokerage is I wanted to invest in real estate. And I was looking at it on the forefront going like, gosh, this e-commerce thing, know, brick and mortar retail or direct to consumer e-commerce. These guys need these industrial buildings to store this stuff. And I only, you know, as a personal consumer myself, was like, only buying online is great. And this was back in 2016.And I was like, gosh, I love, I love buying online. It’s so easy. I don’t have to go to the store. It’s fantastic. ⁓ And I was thinking like, this is a trend. This is going to continue. And so I was like, why don’t I put myself at the forefront and be the guy brokering these deals. And then at the same time, taking my brokerage income and personally investing myself in buying these warehouses myself. And that’s exactly what I’ve been doing. ⁓ You know, we were doing a lot of but like I’m really just a real estate broker by day so that I can be an investor at night. That’s, that’s what I really like to do.
For the record, I love doing both. really do. ⁓ But my personal goal is to just keep investing in industrial real estate. And I pick industrial investing because it’s what I know. It’s what I’m good at. I touch and feel it every day. I feel like I really am good at it. ⁓ So that’s what I do.
Dylan Silver (20:03)
We are coming up on time here, Matt. ⁓ Where can folks go if they’re interested in reaching out to you or your team, or maybe they have a deal that they’d like some feedback on? Maybe they’re in the Washington area where you’re at and would like to reach out to you. How can folks contact?Matt McLennan, SIOR, CCIM (20:16)
Yeah, thanks. ⁓ I’m pretty easy to find. I would say LinkedIn is probably the platform that I use the most as it relates to social media. I’m very active on there. I share a lot of what I’m doing on a day to day basis, tips and tricks, the kind of deals that I’m working on. So definitely find me on LinkedIn just by searching my name. ⁓ My website is mclennanindustrial.com. So my last name industrial.com. And then my company that I work for on the brokerage side of thing is Kidder Matthews.⁓ Between those three mediums, you should be able to find me pretty easily. I would tell your listeners too, please, I love having these conversations like we’re having today. ⁓ So anyone who wants to reach out and learn more about industrial real estate, if they want to invest, if they want to see deals from me, ⁓ that’s what I do. So reach out anytime. Like I said, I’m easy to find.
Dylan Silver (20:51)
Matt, thank you so much.Thank you for coming on the show today.
