099: Master Industrial Real Estate Diversification with Ben Fraser

00:00 - 02:53 | Christopher Nelson: You know that there's more to private equity real estate than just multifamily, than just apartment buildings. You drive around everywhere and you see all of these buildings that have businesses, and you want to understand how you learn more about those different asset classes. Today, I'm going to teach you how. We're going to be digging into the industrial asset classes, warehouses, and we're going to be learning everything about them. Welcome to Managing Tech Millions. I'm your host, Christopher Nelson. And as you know, I have taken my tech equity and I have turned it into an income bearing private equity portfolio. One of the things that keeps me in check that I keep having income coming in as part of my portfolio is the fact that I'm diversified. I'm diversified across multiple different asset classes against geographies, and also, uh, I'm diversified over operators as well, different people who own those investments. Today, I want to show you how you generally start becoming aware and what are the kinds of questions that you want to ask when you're learning about a new asset class. We're going to dig in today with industry and I would encourage you to follow along this podcast series. It won't be right in a row, but in the next quarter or two, I'm going to be learning more about the industrial asset class, interviewing people because I want to make an investment. That's right. As an investor, I have diversified in commercial real estate across multifamily, single family homes. I'm also in mobile home parks and also in self storage, but I have not invested in industry. I've done some research and I'm really starting to go deeper and want to understand more about this asset class. It's relatively simple. You have these big buildings, not as complex as multifamily, but I want to learn the ups and downs. So come along with me on this journey. Today, we're going to be talking with my good friend, Ben Fraser of Aspen Funds. Aspen Funds has executed a number of industrial projects, and they're continuing to go deeper because they see the market opportunity. Ben and his dad, Bob, who is also the CEO of Aspen Funds, Ben is the chief investment officer, are very detail-oriented, data-oriented guys who do a ton of market research. So this is why I think this is going to be incredibly valuable for you to listen in and understand. So come on in and join Ben and I in this conversation. All right. I am so excited to be back today again. I know we've done a previous episode. Don't ask me for the number because I don't remember. But with Ben Fraser here, Chief Investment Officer of Aspen Funds, and excited to have him back to talk about a different asset class today, which is industrial. Welcome back, Ben.

02:53 - 02:55 | Ben Fraser: Hey, thanks for having me, Chris. I'm looking forward to it.

02:56 - 03:31 | Christopher Nelson: Yeah. So right now I know that you and the Aspen funds team are laser focused on industrial. I want to lay out for everybody today who may not understand this, this asset class sort of what it is. My goal is that, you know, you and I can help educate them and walk off the phone so that they can, or sorry, they can walk off listening from their phone to be able to get a better understanding of what this asset class is. So, you know, from your perspective, what makes this asset class different? And explain a little bit about what it is.

03:31 - 06:06 | Ben Fraser: Sure. Yeah. So what's so exciting about it is really where the asset class has been and where it's going. A lot of our approach at Aspen Funds is maybe a little bit different than some investors in that we do what we call macro-driven investment themes. And what we're doing is looking at the big picture economically, what are the trends that are occurring that are likely to continue? And how can we position ourselves as investors to benefit from those trends, right? We all intuitively understand a rising tide lifts all boats in different asset classes, performs differently in different economic cycles and different points of even an asset specific life cycle, right? So it's really important as much as you can't time the market, so to speak, you can time the economic cycle to a certain degree because these are long-term trends. These aren't just, you know, 60, 90 day trends. These are 10, 20 year trends. And so what's really driving industrial growth is really de-globalization and bringing back manufacturing, bringing back distribution, reconfiguring supply chains back to the U.S. and kind of nearshore trading partners that's really rewriting the entire landscape. And so industrial has actually been, I would say that and multifamily have been the two asset class darlings, so to speak, of the institutional world for really the past two decades. Um… And what's driven a lot of the excitement about that asset class to date is the e-commerce growth, right? Amazon, FedEx, all these kinds of e-commerce giants that have driven a lot of growth in online shopping and fast delivery and that last mile. And that's gonna continue, but the growth of e-commerce is slowing down. The penetration rates have been decreasing. It's not going to go away. It's going to keep increasing. But what's really driving the next boom is different from the last boom. And that's really the reshoring trends, the bringing manufacturing back, bringing inventory back and supply chain reconfiguration post COVID. So we can dive into all of that. But that's really where we're at right now. And it's a pretty exciting time in my perspective, because it feels like we're still very early innings of this kind of new reshaping of the landscape.

06:07 - 07:29 | Christopher Nelson: Well, and that's one of the reasons I get excited to get you on the phone because I always am drinking in all this information as well. But I know that you and your father at Aspen Funds really look very, very hard at data. And I think data is something that's really important to technology employees because it drives the way that we grow our businesses. And it's also something that can positively affect you as an investor. Taking a step back, I want to make sure that everybody is clear. So when we're talking about industrial, we are talking about different types of warehouses, generally steel structures, that fall into some of the things that Ben alluded to. There's manufacturing facilities, right? So it's going to house heavy machinery and be able to execute some of, you know, building or assembling different products. There's warehousing and distribution centers. And then there's also flex spaces that do a little bit of both, maybe even a little bit of R&D. Is there anything that I'm missing out on? I guess there's also sometimes cold storage that could be groceries or things that need temperature control that are part of sort of that last mile, meaning they want to set something up in a specific metro area where they're hosting. And it's more of a warehousing and distribution strategy, but it's also done with temperature control.

07:29 - 10:14 | Ben Fraser: You're exactly right. You nailed all the kinds of big key categories, right? So you've got your kind of warehousing distribution facilities. These are a lot of times what you think of as an Amazon facility, right? It's, you know, they're bringing in packages or shipping out packages and it's kind of a centralized location, kind of the hub and spoke model to get products to consumers faster in a more efficient way. That's a big part of the industrial landscape going to continue to grow. There's a lot of trends even within that sub subclass. And then the other one that's actually growing at a much faster rate and is honestly surprising for a lot of people to think about is the manufacturing piece of this. Right. Because. You know, 20, 30 years ago, we were a manufacturing powerhouse, but with the globalization trends, the just in time, you know, outsourcing to, you know, other countries to reduce costs on manufacturing. That was kind of yesterday's, you know, in the US, but what's happened is, um, you know, COVID kind of rewired a lot of thinking on this, because what happened is, as we all know, supply chains got very congested, getting certain parts of the manufacturing components got very, very difficult. And then there was this realization of an over reliance on other countries that maybe have different political atmospheres that we can't control. And now, it's impacting our ability to produce goods, consume goods, et cetera. And so a lot of companies are realizing they, what I would say, underpriced the risk of globalization. And so a kind of de-globalization trend is happening where we're bringing a lot of those things, especially, I would say, core component manufacturing of things that are very important to the final product of whatever the product is, bringing those back to the US. And the interesting thing too, While this is being rewritten the underlying cost structures have substantially increased in China, especially wages have increased. I believe it's 15x. Whoa 1500% Just in the past decade or so And so wages are actually not as competitive as used to be once you it was a certain level Yeah, account for logistics, transportation, now potentially tariffs. All these things are really impacting the overall cost structures and it's making domestic manufacturing much more appealing from a cost standpoint, aside from just the political and delivery risks that these manufacturers are choosing to adjust to.

10:15 - 10:43 | Christopher Nelson: Interesting. What are you also seeing? I mean, I do hear, you know, anecdotally, especially here in Central Texas, that flex space is becoming pretty popular, especially as you have that supporting, you know, small businesses and especially different types of, you know, sort of, I don't know if it's manufacturing or sort of finishing products right before they go out. Is that something that's on the radar as well? Or is it really your focus is looking at core manufacturing?

10:43 - 12:34 | Ben Fraser: Yeah, I mean, Flex is absolutely a very, very hot area right now. And Flex, it's kind of a broader category, but it generally means usually smaller spaces, sub 50,000 square feet. And it's going to have a component of office, going to have a component maybe of warehousing, maybe like you're saying, finishing products, et cetera. But it's really kind of a catch-all for, I would say, a very acute need for smaller spaces that have not there haven't been a lot of supply has been developed. And so what's happening is, you know, one of the great use cases I always think of in this space is contractor garages or contractor space, right? They're contractors that are, you know, doing whatever, fixing, you know, HVAC, plumbing, etc. They want to have 30 to 50,000 square feet of space to store equipment, to keep the trucks, etc, etc. And they don't need this massive space and there's not really anywhere that they can go to do all that stuff in a cost effective way. So that's very, very popular. You can get much, much higher lease rates on flex space than you can from a single tenant, you know, single load facilities. But the problem is, and this is what's so interesting is we've really looked into it and it does make sense in some circumstances. The cost to build flex space is so much higher because you lose the economies of scale, which is really, really important in industrial. And a lot of times these are all spec, right? So you're basically building with the hope that you can lease these 20 to 50 kinds of big garages, so to speak. And you're taking a lot of leasing risk. Your construction costs are sometimes three to four X of a larger manufacturing.

12:35 - 13:13 | Christopher Nelson: Sure. Just to give people color, it's because of the fact there's going to be more complexity in the finishing. When you are creating a large warehouse, there may be a small corner office, but you're really trying to get the shell, the space, there may be some specific tenant improvements, but they're going to really then fit it out versus when you're creating these flex spaces, you don't know, it could be hosting a, in a CrossFit gym. And so they want a nice, nicer little office area or a shower space. So all of that is gonna be an additional cost in the construction versus, hey, we have a concrete slab and we're covering it and going to knock yourself out, right?

13:14 - 13:14 | null: Right.

13:15 - 14:10 | Ben Fraser: Yeah. In those cases, you generally have some kind of tenant improvement or final finishes for any tenant, but on a larger facility for manufacturing or warehousing, those usually come into play after the tenants sign the lease, identify what they need, and build it to what they need. Whereas in the Flex, you have a little bit less flexibility. You already kind of know, build it and they will come, so to speak. So, you know, there is more risk there. But at the same time, I do think, you know, if the demand continues, which it feels like that will, that will kind of balance out the increasing costs and actually make it make sense to build more. Because I do think there is a big, big demand side of it. But right now, a lot of the projects we've looked at, they just, they're not as attractive. And I want them to be because I see the demand side of it, but just the structure of costs just doesn't support it yet.

14:11 - 15:11 | Christopher Nelson: And so when you think about it, we sort of listed out the different types of manufacturing facilities, warehousing distribution, flex. And then the other thing you usually do with commercial assets is you're going to grade them. And I know it's very similar to multifamily. You have class A, class B, class C. When it comes to manufacturing as well, class A is going to be something that was built in the last two to five years. It has newer HVAC, newer amenities. And then the class C on the other end of the spectrum, usually 20 years old, may need some repairs or value add. I'm curious about the marketplace today, And then there's also obviously those are our existing structures. There's also ground up development. Where are you seeing the opportunity around industrial today? Is it really some type of a value add play where you're getting a class C and trying to upgrade it, buying class A just built, or is it ground up development?

15:12 - 19:07 | Ben Fraser: Yeah. Yeah. Great, great points and great thoughts. The, I say two main strategies are exactly what you just said is buying an older vintage property class B or C with an existing tenant in place. And that tenant has a lease that's coming due say in the next three years. What's happened in the industrial asset class in most markets, similar to multifamily, if the lease was signed pre-2019, pre-2018, the market appreciation has substantially increased. So a lot of times market rates can be 20, 30, potentially even 40% higher than the lease rate that that tenant signed. Because what's really interesting with industrial, which is a pro and a con in some ways, When you sign a lease, these are usually longer-term leases. I'd say the standard lease term is usually seven years, plus or minus. You have a base lease rate, and you usually have some type of rent escalation built in annually. That's somewhere between 2% and 4% per year. You're basically building an inflation adjuster on that base rent, but if the market's gone up 20%, 30%, You know, you're not going to capture that. So there is absolutely a strategy for going and buying an existing in place property with a good in place tenant with very under market rents. And then you go take the risk of either, you know, that sign that tenant up at a higher rate or releasing the property, doing the tenant improvements, etc. There's definitely some pros to that strategy. You already have cash flow in place. You've got an existing tenant that a lot of times they will just absorb the market increase. The challenge with that is debt proceeds are very, very low usually because you don't have enough cashflow to support what kind of the new market rates would be. So you have to come with a lot of equity usually, which isn't always bad, but that can dilute returns. And then you are taking some risk on, you know, the market absorption of releasing at market rates. The interesting thing about industrial maybe as compared to multifamily is, where you could kind of, you drive down in different parts of town and you see different vintages of multifamily and okay, yeah, that all looks like it's from the seventies. It looks like it's from the eighties. That's, you know, nineties, but people are, they're still, you know, Places with a bedroom and a bathroom, and people still lease them. And what people need for living situations haven't functionally changed all that much in the past 60 years. With industrial, it's a little bit more, I would say there's higher risk of obsolescence, meaning Older properties can have challenges in releasing because the tenant needs have shifted in different markets potentially pretty dramatically over the years. So if you're going like a super old property, 70s, 80s, a lot of times the kind of clear height, which is the max ceiling height, is somewhere in the 20 foot range. Right now when we're building our new class A facilities, the standard is 32 feet. You don't want to go anything lower than that because the new bigger tenants, that's what they want. So you also run the risk of you having a product that, if you go too old, is not really going to meet the market demands. So you kind of maybe get excited about numbers of all the markets, you know, 30% higher than this lease rate. But that's the market for this type of product when you have this type of product. So that's kind of existing. And the other is development. And that's really where we focus on developing new class A properties. The reason we like that is overall, across the market nationally, Vacancy is less than 4%. So it's very, very tight.

19:09 - 19:25 | Christopher Nelson: That's amazing. That's basically like saying industrial across the United States has a 96% occupancy rate. Who wouldn't love to see that at their multifamily building? You're like, wait, we're 96% occupied? That's crazy. Exactly.

19:25 - 19:43 | Ben Fraser: It's pretty remarkable. And it actually has gone up. Vacancy has gone up a whole percent from 3% vacancy a couple of years ago when that was kind of at the market peak. But we've had some more supply. But it's also been absorbed quite a bit faster than you know, some of the suppliers are seeing a multifamily.

19:43 - 19:44 | Christopher Nelson: Right.

19:44 - 21:42 | Ben Fraser: So we like building into that because we know there's a tighter market, especially in the markets we're in where there's, you know, very, very similar vacancy or even tighter than that. And then the other really interesting thing is, you know, we look at a development spread, right? This is, you know, we get a little more technical if we want on the underwriting side, but you want to look at what's what's the total yield I can achieve without any debt, just unlevered yields called your yield on cost, you know, total income of the property divided by the total budget to complete the project. Yeah. And then what's that yield relative to what I can sell that at as a cap rate? And then what's the delta between those two? The interesting thing is your yield on cost spread between your cap rate, it's called your development spread, is substantially wider. It's a much bigger margin than going and buying existing facilities. You know, and so we like the kind of risk adjusted premium that you're getting by going and building new. You have more tenant demand. You can build the new product. It's going to go for the lowest cap rates. And right now we're building here in the Midwest at above an eight percent yield on cost. So that means we can generate an unlevered yield of eight percent. what is all said and done. And we can sell these for usually high fives, low sixes cap rate. So we have, for simple math, say 200 basis points of development spread, meaning that's the amount of additional value we can create from our build costs to what the market will pay for it. And that's a really, really healthy margin in any economic cycle. But it's, especially for industrial where I would say barriers to entry are much lower, not much lower, they can be lower than in multifamily, right? So you would expect the spread to be tighter, but it's not right now.

21:43 - 22:42 | Christopher Nelson: And we like those, those kinds of… And so essentially, yeah, that's the metric that's really driving the opportunity. I did want to take a moment and walk people through, you know, the difference between industrial and other asset classes is also this concept of the triple net lease, right? It's helping educate people that, you know, because there are obviously there's, you know, you can be in an opportunistic investment where it's about, hey, you're investing to build, there's no cashflow, and then you're going to get equity expansion at the end. But there's also investments where you're able to participate when people are buying or rehabbing buildings for specific tenants and you're getting some of that run rate. And that's going to be enacted or that run rate becomes possible because of the negotiation around a triple net lease. So can you walk us through just real quick, sort of what that is and how those work?

22:43 - 23:31 | Ben Fraser: Totally. Yeah, so the great thing with industrial is there's a lot of ways to play it, right? We talked about two strategies. The other, which we didn't talk about, is buying a core, core plus asset with a national credit tenant that has a signed triple net lease, right? Yeah. A lot of people like those. I like those. Your return expectations are going to be quite a bit lower because you're taking a lot less risk. But at the end of the day, what you want to get to an industrial is a triple net lease, right? So that's usually abbreviated, you know, in for triple net. What that means is the tenant, not the owner, not the landlord. The tenant is responsible for property taxes. Property insurance and maintenance, most of the maintenance for the property.

23:32 - 23:33 | Christopher Nelson: In addition to the rent.

23:33 - 23:36 | Ben Fraser: In addition to the rent. Yeah.

23:36 - 23:36 | null: 100%.

23:36 - 24:54 | Ben Fraser: So it's very different from a multifamily where all three of those things are the landlord's responsibility. Right. Right. You're taking all the risks of the landlord. So I think that's part of the reason why this is so attractive to the institutional investors is The only real risks you're taking if you're buying a true triple net lease with a long lease term is what kind of escalations you have, what kind of rent growth can you have, what kind of cap rate can you buy that for, and then what's ultimately the credit worthiness of that tenant. So mostly underwriting then really goes to What's the likelihood that this tenant keeps paying me during the entire lease term? And maybe even the likelihood of them re-upping the lease term once that comes due. So, you know, there's a very similar multifamily. You can go buy a core, core plus asset in a great, you know, market, your primary market. you're gonna pay the highest price for that, but you're taking the lowest risk. You can go and do the value as strategy, which like we talked about, buy an older vintage, playing the market rent game, or you can go development. So in multifamily, you can go develop new properties and all of them have their merits, all of them have their drawbacks. And it's really understanding as an investor, what types of risk am I willing to take and what types of rate of return for that risk am I wanting to achieve?

24:55 - 25:26 | Christopher Nelson: Right. And so if we're thinking through this, right, as the chief investment officer, if somebody comes to you and they said, Hey, Ben, I'm looking for something that is going to allow me to get, you know, somewhere between, let's say five to 7% cash on cash return. I would love to see a couple of points of appreciation. I want to get into a seven year hold, and I want this to be, you know, something that is a little lower risk, where in that list that you just sat out, where would you sort of slot them?

25:28 - 27:13 | Ben Fraser: Yeah, I think you're going kind of lower on the risk spectrum. So you want to get an existing building, newer vintage class A with a large national credit tenant. And what credit tenant means, that's the term that when I started learning about this, it came up a lot. What does that mean? That actually means these are generally publicly traded companies that have a credit rating from the different rating agencies and have an investment grade credit quality, right? many times multi-billion dollar companies. That's what you're effectively leasing to. And so it can be very attractive if you're going and buying a single tenant lease in a primary market. Yeah, you're probably going to be getting high single digits, low double digits, total return with probably that five to 7% cash on cash. And for a lot of people, that's a great yield in a diversified asset class for the type of risk you're taking. Value-add strategy, you're probably in that kind of mid-teens arena. You get some cash on cash along the way, probably not a whole lot early on as you're taking most of that cash flow to pay debt service until you can release it. You kind of end up probably mid-teens at the end of the day on a levered IRR basis. And then development, you know, we're always targeting above a 20% IRR levered. And they're usually shorter term holds because our goal is to, you know, develop, build, stabilize and sell. So again, higher risk because you have no cash flow. But usually from our perspective, you can generate the most kind of value by going and doing that.

27:13 - 28:08 | Christopher Nelson: Right. And this is what I just like to call out for people when you have clarity on what is the next play in your portfolio, right? If you're moving to, hey, I want to get to financial independence and I want to replace my paycheck, then you are looking for something on the core plus that steady return, right? Because I think It's much better to have that steady 6% or 7% with a little bit of equity expansion at the end than it is chasing a 10% or 11% where you may have higher risk. Versus if you already have that established cash flow in your portfolio and you're looking for, hey, I have something in my growth portfolio that I want to actually really expand equity. This is where you lean in and you listen to these market opportunities and you understand what are these tailwinds in the market and where there's opportunities to get some nice equity expansion because that can then prepare your portfolio for the next round of investment.

28:09 - 28:11 | Ben Fraser: Totally. Yeah. You laid that out very well.

28:12 - 29:13 | Christopher Nelson: Thanks, man. So, um, I think, yeah, I mean, we're, we're sort of blowing through some of these, these, these questions and stuff that I have. What do you think are, you know, what are the, if somebody is walking in and they're looking at industrial investments, talk about what, what are some of the red, red flags? Like, what are some of the things that you see that you're like, you know, and you started, I mean, a couple of the things that you started teasing out earlier that I know, uh, you know, In private equity, there's a lot of people that are transitioned from corporate to think, oh, hey, the model sounds simple. Like, hey, buying a warehouse sounds really simple, but you just highlighted very quickly a couple of key educational points that I hadn't thought through, which is, okay, you're buying a 20-year-old building. It may have different height requirements. So to your point, hey, it's a simple building, but if all of a sudden you have to raise it 10 feet to bring in the next tenant, that's a lot of money. So what are some things that people need to be aware of as they're going out and vetting these types of investments?

29:14 - 29:26 | Ben Fraser: Yeah. Yeah, absolutely. So I think the probably biggest difference between this is, say, multifamily, right? Because I'm assuming most people understand multifamily. That's what most investors invested in.

29:26 - 29:28 | Christopher Nelson: It's the meat and potatoes, right?

29:28 - 30:38 | Ben Fraser: It's the meat and potato. And it's hard to argue against. Everybody needs a place to live, right? People need that, and that's not going anywhere. The biggest risk, in my opinion, in industrial is demand, right? These are businesses. And business appetite, business growth, business needs can change. As we've seen, like I mentioned, over the past 20, 30 years, the need for the type of facilities has changed. So one, they're business tenants. And so that, to me, increases your reliance on the business cycle. Whereas residential, you probably have less of that. Obviously, there's going to be some because it's tied to employment. But when businesses are growing, it's booming when they're not, you know, these properties can stay vacant for a while, right? And you gotta be able to have the stomach to hold and, you know, hold, hold while, while you're waiting for at least to get signed. Um, and so you have some additional risk from just reliance in the business cycle.

30:39 - 31:13 | Christopher Nelson: Well, and I, I want to just touch on that for a second too, is, is, you know, it's the same, you know, risk profile that people identify, right. Between single family homes and multifamily homes in the sense of, you just have one tenant. So if you have one tenant, if you're buying and this is where you may want to consider, what does it look like to be in an industrial fund versus a single asset? Because to Ben's point, if you're in a single asset and then all of a sudden you're out that tenant, well then there's nobody paying rent, nobody's paying the triple net lease, that's on you. So that's something to consider in an investment as well.

31:14 - 34:20 | Ben Fraser: Yeah, absolutely. You know, I think red flags in the industry, you know, you can get into operator specific types of red flags, but just from an asset class standpoint, I think, yeah, one is requirements. How have the needs changed? I think just assuming, you know, if you go build a box, you're going to get a tenant. It has to be a lot more specific. You have to understand what the real driver of demand is for that market because it's different right here in the Midwest. It's a heavy, predominantly distribution market, but it's actually shifting right now to more of a manufacturing because as I said earlier, a lot of these companies are looking to bring the manufacturing of parts of the supply chain back to the US. What does that require? It requires labor. And so they want to go to a place that's got cheaper labor and more blue collar labor generally. That's mostly Midwest markets, right? So that's what's really driving a lot of the growth here. So you've got to understand there's different needs for a manufacturing tenant than there is for a distribution or warehousing tenant, right? So you have to understand your specifics in your market In, you know, understanding, also just the activity of the leasing and what's the supply coming of new supply because the interesting thing I mentioned it earlier, barriers to entry are a little bit lower because If you're in a kind of pre-zoned industrial area, to go get entitlements, it's much different than housing multifamily, right? The entitlement process can be very extensive there. Generally, in a business-friendly state or county, it's not terribly difficult and then we can go and build our facilities. We're doing concrete tilt up so you have concrete you have steel. There's pros and cons both of those Concrete is generally preferred from a longevity, you know quality standpoint. Yeah different times can be more expensive than steel right now it's not that much more so we prefer concrete but um really understanding what's the new supply coming up because we can build these in about nine to 12 months. Right? So if there is a market gap, if there is a market, uh, tightening, right, where there's more demand and supply, that can change very quickly. And so that's where you have to be a little quicker to react to some of the market supply and demand, whereas multifamily, right, it could take 24 to 36 months to, you know, go full cycle on a development project. And then you have, you know, the leasing, you know, period up after that. So it's a little bit of a longer cycle, right? I like that because it allows us to be more reactive, more agile, and we can not take it. Huge amount of construction risk from a time standpoint where you know, you have to bear interest and carry cost You have to do all these other things. It's a much shorter time period which is nice, but you also have to really be in tune to Market market forces and make sure you understand where the supply and demand Places are gonna fall

34:21 - 34:38 | Christopher Nelson: So let's talk about that for a little bit. What are some of the, like, when you're talking about some of these macroeconomic trends, especially here in the United States, and you're talking about the Midwest, what are some of the markets right now that you think are very exciting? Obviously, you're there in Kansas, or you're in Missouri or Kansas City?

34:39 - 34:41 | Ben Fraser: I live in Missouri, work in Kansas, so I'm both.

34:41 - 34:47 | Christopher Nelson: OK, there you go. That's why I got confused for a second. I was like, wait a second. It's a city that spans two states.

34:47 - 36:31 | Ben Fraser: It's that weird city in two states. Yeah, so it's very different for every market. I would say the mecca industrial markets have really been the gateway markets for the past several decades. That would be West Coast, East Coast, as we're importing a lot of goods. Those are the gateway markets that then get, you know, broken down and distributed to different warehouses across the country. What's kind of shifting, this already kind of happened, you know, pre-Trump, pre-COVID, was shifting our trading relationships to more North to South, right? Canada to Mexico. And that's what's called nearshoring. You probably heard that term, we have reshoring, which is back domestically to the US, and then nearshoring, which means there's also a lot of manufacturing activity happening in Mexico as well as Canada. And those relationships, trading relationships, are expected to really be the future, especially as the imports are going to slow down from China and other larger markets outside of the kind of Americas here. So that's what's kind of shifting the broader landscape. And then, like I said, Midwest, where we focus, it's kind of hybrid, a lot of distribution, because you can get to really anywhere in the country within a day's drive or so. But also now being really attractive from a manufacturing standpoint because of the strong blue collar labor force. But again, it's different for primary markets versus secondary markets. Sure. And really understanding, again, what's driving the types of demand is a very, very important thing to evaluate.

36:32 - 36:59 | Christopher Nelson: Right. So those are definitely critical questions to ask. I know we're getting short on time here because I know you got to go. Thank you so much. I mean, ultimately, you know, thank you so much for taking the time, giving us this overview of the industrial asset class. Where do you really think, you know, I mean, I'd just say, you know, sort of final thoughts of thinking about this asset class and where it, you know, fits into people's portfolios.

37:00 - 38:50 | Ben Fraser: I think it's important to have diversification, right? I think what a lot of people realize from the correction of this last cycle where multifamily was, Yep. You know, the main thing people invested in, there's nothing wrong with that. I think multifamily is a great asset class, but the challenge is when you go all in on one asset class, even if you're invested in different markets and different vintages, you know, class A, B, and C and different strategies. You're still reliant on that asset class and the performance of that asset class. And as I mentioned earlier, those things can change, right? Yes. In multifamily, depending on who you ask and what data set you're looking at, values have reset 25% to 30% in different markets. Industrial, of any of the commercial real estate asset classes, has not been impacted from a valuation standpoint, or the least impacted of any other asset class. So it's still trading at strong cap rates. There's still a lot of demand for it. And like I mentioned earlier, the vacancy is still very low overall. So I think it's good to have diversification, not only to different geographies, but also different asset classes and being able to benefit as those different market forces play out in different asset classes. Some of the opportunities that we're seeing here broader than just the bigger, bigger trends are smaller properties taking advantage of the dislocations and really what we think is the beginning of a long, long trend of this reshoring initiatives. And the Midwest is attractive. I mean, I'm a little biased because I'm here in the Midwest. But for this asset class, it's definitely where a lot of people want to be right now.

38:50 - 39:05 | Christopher Nelson: Well, Kent, thank you so much for the time. I'm sure that we'll be in touch and we'll be talking more as I am. You know, this is part of my personal journey where I am getting educated on industrial because I am seeking that diversification in my portfolio. So thank you for your contribution. Appreciate you.

39:06 - 39:07 | Ben Fraser: Thanks, Chris. It was really fun.

39:07 - 40:28 | Christopher Nelson: Wow. So I know that that went really fast and that was a lot to digest, but you're walking away with a good overview and understanding of what the industrial asset class is, how it functions underneath, and some of the different opportunities that are in front of us right now. Now, from this conversation, I'm not going to go jump in and invest. I'm not. But I know I have different pieces of information that are telling me, okay, manufacturing, I want to go learn more about logistics distributions, I want to know more about that. Right now, I'm at a point where I'm trying to understand which of these different models do I want to pursue? Because ultimately, my goal is to find income. I want to understand where I can invest in an asset and get some boring, dependable income coming in and paying me checks. So if this is something that interests you, stick around. Go to managingtechmillions.com. That is our Substack home base where you can go and follow our podcast. You can subscribe to the newsletter. If you have any questions, hit reply on that newsletter and let me know. And also, if you want to see us live on YouTube, you just need to go to youtube.com, type in Managing Tech Millions, and you'll see us. Thank you so much. Enjoy seeing you. We'll talk next week.