How to Maximize Cash Flow in Industrial Real Estate

Irwin (00:00)

You can never really time the bottom of the market. Once you see the bottom of the market, you missed it. And so it’s sort of like a curve. You got to come in at a certain point and try to get somewhere in the bottom half of the curve, because you can’t time the bottom 100%. And that’s why we really think now is the time

to deploy capital if you’ve been sitting on the sideline.

Michelle Kesil (01:51)

Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. And today I’m joined by someone that I’m looking forward to chatting with, Irwin Boris, who is a former CPA with the real estate underwriting background and now has 30 years of experience in real estate, finance, investment, and asset management. So excited to have you on the show today, Irwin.

Irwin (02:20)

Thank you for having me, myself. Glad to be here.

Michelle Kesil (02:22)

Of course. Yeah, I

think the listeners are really going to take something away on how you’re approaching finding good opportunities, collaborating with investors and yeah, growing your investment business. So excited to dive in.

Irwin (02:39)

Sure. Would you like me to start here?

Michelle Kesil (02:41)

Yeah.

So first off, for those who are not familiar with you and your world, can you share what your main focus is?

Irwin (02:51)

Sure. Over the last 30, 40 years, I’ve been in all the asset classes. We’ve been in retail. I’ve been in multifamily. I’ve done hotel work. That’s how I started as a hotel order when I practiced accounting.

done construction lending as a lender. you know, and so now we’re primarily focused on what we call shallow bay flex, which is smaller, lower ceiling height that’s used for industrial distribution space. You know, think of the plumber, the electrician, the painter, they have a small office piece in the front and then parts in the back to drive the van and load up the parts and go out and take care of the service calls to regulate traditional industrial, you whether it’s manufacturing ⁓

or

just like an Amazon type distribution center where it’s just trucks coming in, people sorting the widgets and repackaging and going out. And I really learned to like this asset class because…

you know, in changing environments where insurance costs tend to fluctuate, payroll costs tend to fluctuate, municipalities are always trying to get more revenue by raising your real estate taxes. You know, this asset class, the net income is pretty insulated by triple net leases or modified gross leases at the very least, where the tenants are responsible for 100 % of the increase in costs.

Michelle Kesil (04:16)

Yeah, absolutely. So how do you find opportunities and work with this specific asset class?

Irwin (04:26)

Sure.

you know, of course we speak to all the national brokers as well as some of the local brokers, but I find that it’s, you got to be careful of how much you want to pay. You know, everybody gets attracted to a property, whether it’s sexy, whether it’s ugly. ⁓

And I’m not looking for assets that I’m putting on the corporate brochure, like Blackstone or Starwood. I’m looking for properties that are always going to stay full. The tenants are always going to be there. I could always replace a tenant and they’re always going to generate cash flow. And so a lot of times we have a number that we’ll buy on. And if we can’t make our price, we follow the deal. And sometimes after a year, being on the market, sellers become a lot more flexible.

the bid and the ask between buyers and sellers is still wide. after deals fall out of contract once or twice, it’s like trying to buy a car in Dallas after a house storm. Once they’re dinged up a little bit, everybody’s a little more flexible on pricing. I’m never going to be the high-price buyer, but I’m going to be the buyer that closes.

Michelle Kesil (06:23)

Awesome. And what do you feel are some of the main keys that have allowed your business to be able to scale and continue to run smoothly?

Irwin (06:39)

I think it’s the simple fact that we generate positive cash flow. It’s not like, you know, evaluate apartment building where you’re upside down and you have to pray you can get all this capital deployed at the right price, you know, at the right trajectory, at the right speed in order to move your rents. Here, it’s a very boring investment. We look at what the current rents are. We look at what the leases say and we really look at why the tenants are there in any specific market. So if I said to you, Michelle,

Compound your body weight 3 % the year for the next seven or 10 years. You said, no, am I thinking about that number? And that’s how we know that, you know, we’re growing the money slowly, but at the end of the day, we have created a lot of value and a lot of wealth at the same time.

Michelle Kesil (07:29)

Yeah, absolutely. So you mentioned that previously you were more unlike multifamily and other type of investment strategies. What kind of made you pivot into where you’re at now?

Irwin (07:45)

Thank you. We’ve, you know, we’ve always had industrial and flex in and shallow bay flex in the portfolio, along with multifamily. And when we started seeing the operating costs of apartments really start to climb and that’s money that comes out of ownership’s pockets, you everything from the cost to renovate an apartment with, you know, hard surface countertops and plank flooring and, know, how sometimes

you need to do a lot of electrical work. Sometimes you blow through a lot of air conditioning units or hot water heaters. That and you know probably about four or five years ago when insurance costs went from $300 per apartment to $1,100 per apartment we said that’s it. You know because that wasn’t anything I could pass on to the tenants and that asset class really got hammered with increases of insurance.

by some of the carriers, especially if you were built before a certain age and you were within a certain distance to a large body of coastal body of water or in certain markets that are prone to hail storms or hurricanes, where we saw that the increase on industrial and shallow bay was very moderate as compared to what we were seeing in our multifamily portfolio. So as we sold the multifamily before COVID, during COVID, even the last

when we just closed a couple of months ago, we’ve just continued to double and triple down on shallow bay and multi-tenant industrial.

Michelle Kesil (09:21)

Awesome. And you mentioned that you partner with investors or other people on these projects. What does that look like?

Irwin (09:33)

Yes, we do.

You know, it started off where was all 100 % of our money, but over time, friends, family.

other families that we know have said, hey, we don’t have an exposure to this asset class. never, you know, how about inviting us into some of your deals? And now we invite it’s open to anybody. Sometimes you might have an institutional investor who takes a piece or the whole, or the entire piece of equity. Sometimes you have, you know, you know, 10 other investors. ⁓ And we have investors calling us all the time because they know that we.

distribute every quarter, they get a monthly financial statement, or sometimes a quarterly statement, depending on what’s agreed upon. And, you know, the only thing they ask me is how come the accountants take so long to generate a K1 for their real for their income tax returns. So they know it’s a boring investment. And right now we find that a lot more are looking for a certainty of current income than they are over betting on the uncertainty of an internal rate of return five years from now.

Michelle Kesil (11:11)

Yeah, absolutely. And when you partner with people, are they more like passively investing and you guys are doing like the upfront work?

Irwin (11:21)

No, they are passively investing. They ask a lot of questions. I like to do the investor relations myself because I think it’s important that if an investor has a question, they should be able to get an answer at that time from somebody who’s involved from, you know, sort of a cradle to grave position where they’re involved with the underwriting, the acquisition, the deal selection, the closing and the actual management of the asset. Then it is to deal with somebody who’s just there to take questions.

and then field answers. ⁓

So we’ve been very successful at that. the, you know, so we have investors, some have written checks for, you know, $500,000, $100,000. Most, most, most investors we have are probably $250,000 and up. We have a few that write million dollar plus checks, but they are all passive. And I am available nights and weekends because we do have a lot of doctors and surgeons and people in other time zones, other countries.

So you have to make yourself available. We treat our investors like family. So we’re very happy to entertain them. if they want to, if they’re in town, they want to come to the office. They want to go look at the property. We try to make sure that that it’s a hundred percent open book. And some of them have complained that when we send out the monthly financial statement, we’re jamming up their email with 10 megabytes of data. And they don’t understand what they need it for.

Michelle Kesil (12:50)

Yeah,

awesome. What are you most focused on solving or scaling to next in your business?

Irwin (13:02)

Well, I guess I’m always focused on the sustainability of every investment. We speak to the tenants several times a year to, you know, how’s your business? What do you see in the market? There’s a lot of new construction nearby. It’s just good to understand if they’re in an area that’s growing, is their business growing? Do we foresee them having an economic problem where I might have to replace them?

We like to get way ahead of that and that’s why with lease renewals we have you know provisions where you have to reduce six months in advance, nine months in advance or at least let us know a year in advance depending on how many square feet you occupy because this way we have a lot of runway to put the property on the market and normally when a broker walks a prospective tenant through your space you wake up and say ⁓ I didn’t renew my lease the lease said nine months in advance I better call the owner.

I know it’s sometimes a shock to the system, but we have to worry about protecting the equity. The first rule is don’t lose money. And that’s also the second rule. But as far as growing the platform, I guess there are probably more opportunities than I could close right now. And we like to give 100 % attention. So we try not to have…

multiple deals on our plate at the same time. I don’t want to have to try to close two things at the same time, which you sort of have to have one eye on each property through the process. We want to have both eyes and both hands in there. But there are probably a lot more opportunities and I could capitalize overall. And so probably one of the challenges is growing the investor base. And we’ve been very lucky with that, where every investor keeps bringing a friend or a colleague and then the next investor brings somebody else in.

Again, probably the challenge everyone has in this market is trying to raise equity.

Michelle Kesil (15:33)

Yeah, absolutely. What would you say is your criteria for knowing that an investment is going to bring in the cash flow that you’re looking for?

Irwin (15:45)

It’s basically the spread between your going and capitalization rates and your cost of finance. The wider that is, greater…

success you have at looking for cash flow. And we’re also looking for deals that on a fully capitalized acquisition can pay 7 to 8 % in the first year. So you’re looking at probably transactions that are a high 7 cap or 8 cap on in-place income to begin with. And then you’re also shopping the market for the best financing out there, which right now is either local banks or life insurance companies.

about the location of the assets. We’re cognizant on the condition of the asset and the tenancy and the lease structures because we want to make sure it’s financeable. Nobody likes to run put a deal on the contract and not be able to finance it favorably. ⁓ We try to avoid CNBS loans but they are a necessary evil depending where life insurance companies are during the year and how much allocation they have left.

And then also, if it’s a much higher cap rate deal, I’m less interest rate sensitive to really generate the cash flow to the investors.

Michelle Kesil (16:58)

Yeah, absolutely. Is there a specific networking or marketing strategy or way that you are meeting these investors that you partner with?

Irwin (17:13)

One of them is through being a guest on podcasts that people see, they call me. I’m highly searchable on Google. I have a calendar link in my LinkedIn profile. People want to book meetings, just chat about the asset class. Sometimes I just want to need some help with a deal there. They have already, don’t know whether to make a capital call or not. I also attend a lot of industry functions where I know investors will be there, whether it’s family office events, RIA wealth events.

accrediting investor events. And I find that the best way to meet people is not try to sell them anything. It’s just to talk and try to educate them and stay in contact. I think of it more like dating.

You have to see if you like the person, do you want to talk to them? Do you want to have dinner with them? You develop a relationship where the one thing I did notice with some people that try to raise equity and meet new investors, they call you up, we need the money in 15 days or 20 days or 30 days. I’m like, doesn’t work that way. And if an investor actually did write the check that fast, I worry about that investor. And I’d also worry about the project. Nobody likes a high pressure sales.

Michelle Kesil (18:27)

Yeah, absolutely. Do you have any advice for investors that are maybe earlier in their career and just starting out and some things that they could look out for?

Irwin (18:39)

I think you really have to understand the offering materials. You have to understand the asset class. And you really have to look at.

you know, who you’re investing with. Is it somebody that’s a more of a syndicator that has thin equity in the deal that, you know, keeps the lights on through generating fees? Is it somebody that can sit for a long period of time and not do a deal like, you know, as interest rates moved, I think there was probably a year and a half we did nothing except manage our existing assets. And also you have to understand what their investment criteria is. For us, we look

every

acquisition is going to own forever. We’ve had assets for 15, 20, 30 years because once it’s generating revenue, you really want to sell it. And we found that

over time, know, even though everybody traditionally underwrites for a five year hold, and that’s what the pro forma returns are based on when you reach that point in time, most of the investors say, well, why don’t we just refinance and take some cash off the table, continue to hold it because we don’t want the money back right now. We have to find someplace else to put it. We have tax issues.

And you know, we’ve had deals where we’ve converted the entire partnership to Tenants in Common so people can go and exchange. They can come with us. They can go on their own way, but we try to be tax efficient and keep that in mind for our investors.

Michelle Kesil (20:06)

Yeah, absolutely, that’s important. So what do you feel are some of the biggest opportunities in the market right now for investors to take advantage of?

Irwin (20:26)

I think because of all the growth and data center growth and all this AI, as these data centers get developed, lot of the smaller industrial and flex in the surrounding areas will see a lot of rent growth because you have vendors that need to continually maintain those energy grids, the air conditioning, the cooling systems inside these things that have to service them.

nobody is building the asset class, how we look at the deals.

I think they’re in high demand. And that’s probably why we always have plenty of opportunities to choose from. I think that we’re at an interesting point in the cycle where if you’re in this space, it’s a good time to take advantage of it.

You can never really time the bottom of the market. Once you see the bottom of the market, you missed it. And so it’s sort of like a curve. You got to come in at a certain point and try to get somewhere in the bottom half of the curve, because you can’t time the bottom 100%. And that’s why we really think now is the time

to deploy capital if you’ve been sitting on the sideline.

so we’re, we’re, got all our oars in the water, so to speak, you paddling the boat to try to find more opportunities.

Michelle Kesil (21:39)

Yeah, definitely. Thank you for sharing that perspective. So before we wrap up here, if somebody wants to reach out, connect, learn more, where is the best place people can find you and connect with you?

Irwin (21:44)

My pleasure.

I would say, you know, put my name into the search bar in Google. You’ll find me on, you know, the various businesses I’m affiliated with. LinkedIn, as I said, is my calendar invite. It has an email address, even as my cell phone number on my LinkedIn profile. You know, don’t be shy. Feel free. You want to send an email, you want to send a text message or an in-mail on LinkedIn. I do respond sometimes. It takes a day or two, but I try to respond to everybody personally. I don’t have one of those automated AI systems that just kicks back response.

I find that when I get those responses, I’m like, I don’t think you’ve read what I asked because it’s just too machine-like. And I try to answer the questions to the best of my ability and make myself available to actually meet with people in person as well.

Michelle Kesil (22:39)

Awesome. Well, I appreciate your time and your perspective. Thank you for being here.

Irwin (22:45)

No, my pleasure. I’m happy to come back again. It’s an interesting asset class. I think it’s been overlooked for many years, although more people are talking about it. And I think the fact that we’re at an interesting point of the economy where there’s a big push for on-shoring of manufacturing, that this product is more in demand than it has been in the past.

Michelle Kesil (23:06)

And yeah, definitely, thank you.

Irwin (23:09)

Sure, my pleasure.

Michelle Kesil (23:11)

And for the listeners that are tuning in, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators that are building real businesses, and we’ll see you on the next episode.