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The Warehouse Lease Details Most Owners Never Think to Fix Before Selling · The Turn: Blue Collar to Billions

• 0:01
  SPEAKER_00: Welcome back to The Turn.
• 0:02
  SPEAKER_00: I'm Corey Mitchell of Iconic Founders.
• 0:05
  SPEAKER_00: The Turn is where blue-collar founders talk about the businesses they've built, the value they've created, and what comes next after they sell.
• 0:14
  SPEAKER_01: The Turn meets commercial real estate secrets.
• 0:17
  SPEAKER_01: Thank you for setting this up, and I'm excited to chat today.
• 0:24
  SPEAKER_00: Yes.
• 0:25
  SPEAKER_00: And I think that I think the cool thing about this episode is like every deal I work on has a real estate component.
• 0:32
  SPEAKER_00: Many deals you work on probably have some kind of a contractor in some kind of a warehouse.
• 0:37
  SPEAKER_00: At least every deal I do has a warehouse.
• 0:39
  SPEAKER_00: So I think there's a lot of crossover, and um, I think it'll be a fun conversation.
• 0:44
  SPEAKER_01: I do too.
• 0:45
  SPEAKER_01: But I think a fun part of how we got here today is the story, how we met.
• 0:51
  SPEAKER_01: And I certainly didn't wasn't really a part of that.
• 0:54
  SPEAKER_01: How did how did you get associated with my family?
• 0:58
  SPEAKER_00: And how how did we meet, Corey?
• 1:00
  SPEAKER_00: Um, great question.
• 1:01
  SPEAKER_00: So, first of all, I I grew up in the a glamorous world of asbestos.
• 1:08
  SPEAKER_00: Um, my dad had a little tiny asbestos abatement contractor in Sioux City, Iowa, and we opened an office in Denver.
• 1:17
  SPEAKER_00: I started working there as a teenager, grew up in a warehouse that looked a lot like your dad's.
• 1:24
  SPEAKER_00: Um we came to Colorado, opened an office here, and eventually I moved here and moved over to Commer City, where our our uh Denver location is.
• 1:36
  SPEAKER_00: And so over time, as the business kept growing and growing and growing, we ran out of space.
• 1:41
  SPEAKER_00: And so I met your dad, Izzy, who randomly is now my neighbor, uh, which was not part of the plan.
• 1:49
  SPEAKER_00: Um and we started renting a piece of land from him.
• 1:54
  SPEAKER_00: What year was that?
• 1:56
  SPEAKER_00: 2006, 20 years ago, I think.
• 2:00
  unknown: Whoa.
• 2:00
  SPEAKER_00: We bought a location 2006 in Commerce City.
• 2:03
  SPEAKER_00: I don't think I would have met your dad until like 2009 or 2010 when we ran out of space.
• 2:09
  SPEAKER_00: We thought when we bought those buildings originally, we'd never run out of space, and we were out of space quickly.
• 2:13
  SPEAKER_00: So then we we rented a piece of ground to store um yellow iron from your dad, and we've been uh friends ever since.
• 2:22
  SPEAKER_01: Crazy.
• 2:22
  SPEAKER_00: Yeah.
• 2:23
  SPEAKER_00: Yeah.
• 2:23
  SPEAKER_00: So let's talk about.
• 2:24
  SPEAKER_00: I want to talk about your dad.
• 2:26
  SPEAKER_00: Let's talk about Izzy a little bit.
• 2:27
  SPEAKER_00: You know, you're also, you know, from a family business.
• 2:30
  SPEAKER_00: Oh, yeah.
• 2:31
  SPEAKER_00: Tell us a little bit about what it was like growing up in the house of Izzy, and, you know, what are some of the lessons that came from growing up in that business?
• 2:43
  SPEAKER_00: And how did the business kind of evolve and change over the years?
• 2:46
  SPEAKER_01: Sure.
• 2:47
  SPEAKER_01: Uh, you know, growing up with dad, I grew up in warehouses, and that was confusing because in the 90s, in the early 2000s, warehouses were the ugly duckling of commercial real estate.
• 2:59
  SPEAKER_01: And they weren't highly sought after, they weren't cool.
• 3:03
  SPEAKER_01: You know, the the cool buildings were hospitality and office, and um, so it was confusing, but uh I knew it, I knew very, very early on it was the only thing that would be right for me.
• 3:17
  SPEAKER_01: Um, dad very intentionally did not help me.
• 3:22
  SPEAKER_01: He he barely hired me, let alone pay me.
• 3:26
  SPEAKER_01: And his whole thing was you have to figure it out yourself, which was at the time devastating, but like the best thing he could have done for me, thankfully.
• 3:35
  SPEAKER_01: And in the time that I I've been in the business now, like 10 years, you know, we've seen a huge change in the world in 10 years, right?
• 3:45
  SPEAKER_01: So uh aside from the fact that warehousing has now come to the forefront of commercial real estate because of e-commerce, and uh I could talk all day about why suddenly it's the most sought-after product type or among the most sought-after product type to uh anyone, you know, from a mom and pop business owner to these multi-billion dollar funds sitting in nice offices in New York City right now.
• 4:14
  SPEAKER_01: But um along with this wave of e-commerce that brought interest to warehousing in general and logistics, um was the internet.
• 4:24
  SPEAKER_01: When I started the family business, there was no website, but just bringing our company to present day was um a lot of work, but it's like I had to make a website.
• 4:40
  SPEAKER_01: Okay, you make a website.
• 4:41
  SPEAKER_01: Well, making a website is not the end-all be-all to a situation, it has to be a good website.
• 4:48
  SPEAKER_01: The website has to convert, you have to figure out how to bring people there.
• 4:51
  SPEAKER_01: Why are you bringing people there?
• 4:53
  SPEAKER_01: So uh a big lesson I learned was and it's like uh adaptability to the day and age.
• 5:02
  SPEAKER_01: Um, and to work really hard and not to expect anything from anybody else.
• 5:07
  SPEAKER_01: And if you just put your head down, you work on the same thing over and over and over again, you you obviously have to be passionate about what you do.
• 5:16
  SPEAKER_01: Uh, great things will happen.
• 5:18
  SPEAKER_00: You know, it's so funny that you you talk about warehouses as not sexy because I have always found warehouses to be very sexy.
• 5:25
  SPEAKER_00: So I have always loved dirty buildings.
• 5:28
  SPEAKER_00: Um, I love the locations that they're that they're at in cities.
• 5:33
  SPEAKER_00: Um, but I I love this concept that you talked about.
• 5:36
  SPEAKER_00: Your dad doesn't sell.
• 5:39
  SPEAKER_00: And and he's told me this before.
• 5:41
  SPEAKER_00: I remember talking to him over the years because I'm like, Izzy, why don't we partner in something or why don't we like what we can do?
• 5:47
  SPEAKER_00: X, Y, and Z.
• 5:48
  SPEAKER_00: Why don't I buy?
• 5:49
  SPEAKER_00: I don't want to rent this from you.
• 5:50
  SPEAKER_00: I want to buy it from yeah, I know.
• 5:52
  SPEAKER_00: We don't, I don't sell.
• 5:53
  SPEAKER_00: I don't, I don't sell.
• 5:55
  SPEAKER_00: So, how has that kind of mentality, you know, influenced the way you do business, or what has that done for you as like a foundation and how you think about business now?
• 6:07
  SPEAKER_00: I live in Colorado, super dry here, and for years I put an electrolyte in my water.
• 6:12
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• 6:14
  SPEAKER_00: I tell all the businesses I work with, keep your guys hydrated.
• 6:19
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• 6:22
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• 6:24
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• 6:25
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• 6:26
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• 6:29
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• 6:31
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• 6:34
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• 6:36
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• 6:37
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• 6:44
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• 6:46
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• 6:50
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• 6:52
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• 6:56
  SPEAKER_01: It's really interesting and it's brokerage, and I'm working with, like I said, anybody from an operator, an investor to a fund.
• 7:04
  SPEAKER_01: There's an element of debt, which is very normal in transacting real estate.
• 7:09
  SPEAKER_01: It's not normal when you're transacting real estate with Izzy.
• 7:12
  SPEAKER_01: You know, Izzy has his way.
• 7:15
  SPEAKER_01: He doesn't like debt, um, and he doesn't like to sell.
• 7:19
  SPEAKER_01: And I think honestly, and you might find this funny, I think a lot of it is control.
• 7:24
  SPEAKER_01: Sure.
• 7:24
  SPEAKER_01: Like he doesn't want to have to answer to anyone, literally.
• 7:28
  SPEAKER_01: And um, so well uh and in terms of buying and holding and never selling, you know, that was his dad's strategy.
• 7:37
  SPEAKER_01: And we still own those assets to this day.
• 7:39
  SPEAKER_00: From your grandfather?
• 7:40
  SPEAKER_00: Yes.
• 7:41
  SPEAKER_00: Amazing.
• 7:41
  SPEAKER_01: Yeah, it is.
• 7:42
  SPEAKER_01: It's it is it's ridiculous.
• 7:44
  SPEAKER_01: And like the reality is is that if you can clear real estate and have it be paid off and manage it properly and maintain it and keep at least, and you don't have a mortgage, it is an unbelievable revenue generating machine.
• 8:01
  SPEAKER_01: Unbelievable.
• 8:02
  SPEAKER_01: So it's the power of paid off real estate.
• 8:07
  SPEAKER_00: And it keeps up with inflation.
• 8:09
  SPEAKER_00: You know, not that many things do when you think about the environment we're in right now.
• 8:14
  SPEAKER_00: Yeah.
• 8:14
  SPEAKER_00: For the most part, you get to raise rents every year, usually.
• 8:18
  SPEAKER_00: Um, and at least for me, having you know these these warehouses around the country that used to be our offices that were, you know, we now lease to to our to to our former business, every year, you know, we get we get you know this three, four percent increase in our in our rents.
• 8:36
  SPEAKER_00: And in terms of an ability to keep up with inflation, what an amazing um cash generating thing and also wealth creation engine.
• 8:45
  SPEAKER_01: Sure.
• 8:45
  SPEAKER_01: And and his whole thing is like, I don't need a home run, which is kind of funny because we're talking about selling your businesses and that probably is your home run.
• 8:55
  SPEAKER_01: But uh Izzy's, he just says, I want my ones and twos.
• 8:59
  SPEAKER_01: And his favorite day of the month is the first.
• 9:02
  SPEAKER_01: And so I love that.
• 9:04
  SPEAKER_01: Izzy's good with just uh, you know, one every once a month, 12 times a year.
• 9:09
  SPEAKER_01: So um, you know, I I don't know my relationship with debt yet.
• 9:16
  SPEAKER_01: We've still we've continue to buy, but we still buy with cash.
• 9:20
  SPEAKER_03: Okay.
• 9:20
  SPEAKER_01: But I'm I'm very open and interested to see because I've seen the power of debt and the power of leverage.
• 9:27
  SPEAKER_01: And dad's in his 70s, I'm in my 30s, we're in just different arenas, and so I have a lot to learn.
• 9:34
  SPEAKER_01: I'm a student of the game.
• 9:36
  SPEAKER_00: So at this point, you are you conceptually then open to taking on leverage at some point in your real estate journey?
• 9:43
  SPEAKER_01: Yeah, be crazy not to.
• 9:45
  SPEAKER_01: If it all makes sense, you know.
• 9:48
  SPEAKER_01: Okay, so I have something that I've noticed in my business that's very common, where I walk into the warehouse, the owner had their business in the warehouse and has since sold the business or is ready to close up shop, and and they have realized that their retirement, the value is in the real estate.
• 10:10
  SPEAKER_01: Yep.
• 10:10
  SPEAKER_01: But what's interesting about your business is that it's the opposite.
• 10:14
  SPEAKER_01: Whereas like the there's actually value in the business.
• 10:17
  SPEAKER_03: Yep.
• 10:18
  SPEAKER_01: I want to learn about the relationship between selling your company and the real estate.
• 10:24
  SPEAKER_01: And I know every deal is different, so there can't be a blanket response, but this is a rabbit hole that I've been waiting to go down with you.
• 10:31
  SPEAKER_01: So I'm curious about does the real estate generally stay with the business owner, part with the business owner?
• 10:38
  SPEAKER_01: What does that look like?
• 10:40
  SPEAKER_00: First of all, every deal is different, but um in most cases, if the business is being bought, this is a very blanket statement.
• 10:54
  SPEAKER_00: So I want to be careful not to overgeneralize.
• 10:57
  SPEAKER_00: It depends on the buyer, first of all.
• 10:59
  SPEAKER_00: Like private equity is who's buying up most of the world right now, um, either private equity or family offices.
• 11:06
  SPEAKER_00: But family offices is another polite way to say private equity because it's basically either a lot one very wealthy family or multiple families bundling their resources, deploying the private equity playbook so that they can have similar private equity returns.
• 11:21
  SPEAKER_00: Sure.
• 11:22
  SPEAKER_00: In other words, they try to get three to four times you know their capital in three to four years.
• 11:26
  SPEAKER_00: Those kind of buyers don't want real estate in general.
• 11:30
  SPEAKER_00: So they typically they're gonna find a way to carve out the real estate, and it can either be sold or it can stay with the the owner.
• 11:39
  SPEAKER_00: Interesting things about the real estate in a transaction.
• 11:42
  SPEAKER_00: There's multiple things that happen at a at the point of a deal.
• 11:46
  SPEAKER_00: And often the real estate is one of the big sticking points of actually getting a deal closed for lots of reasons.
• 11:53
  SPEAKER_00: You know, um give you an example.
• 11:57
  SPEAKER_00: Here's a great one.
• 11:57
  SPEAKER_00: So painting business.
• 12:00
  SPEAKER_00: Commercial painting contractor I'm selling.
• 12:03
  SPEAKER_00: Think about paint, right?
• 12:04
  SPEAKER_00: They've been painting for 30 years, lots of nasty stuff in paint.
• 12:10
  SPEAKER_00: Lead, yeah, historically, etc.
• 12:12
  SPEAKER_00: So if you're buying that painting contractor and they've got this shop, they don't want the real estate, but the other thing they don't want is future liability tied to some action that that painter may have done.
• 12:27
  SPEAKER_00: And that painter may have had one warehouse or shop, may have had multiple, may have done things in other locations.
• 12:36
  SPEAKER_00: And so one of the biggest issues that has to be done in almost every deal is deep environmental study of the real estate, not because they want to buy the asset, but because they want to avoid the future liability of what that contractor may have done to the real estate.
• 12:52
  SPEAKER_00: In my case, as an example, this was crazy.
• 12:55
  SPEAKER_00: You know, we had all these, you know, I had excavators and all this kind of stuff.
• 12:58
  SPEAKER_00: So you can imagine there's changing of oil.
• 13:01
  SPEAKER_00: We painted um the you know excavators.
• 13:05
  SPEAKER_00: So there's potentially there's stuff in the soil, there's fuel tank, all these things.
• 13:11
  SPEAKER_00: And, you know, I'll never forget one of the weirdest diligence requests that I got is they wanted to know about this mobile fuel tank that we had, because it was a tank that held, you know, diesel that could be taken to all these different job sites.
• 13:23
  SPEAKER_00: Well, they wanted to find out every job site that that mobile unit had been on, so they could go sample the soil.
• 13:32
  SPEAKER_00: You know, this thing had probably been on 300 job sites.
• 13:34
  SPEAKER_00: They could go sample soil to figure out if there's if there's some tail on the liability.
• 13:39
  SPEAKER_00: I'm going, you guys just smoking dope.
• 13:40
  SPEAKER_00: Like we're not gonna figure out where this stupid thing was placed, let alone even know what jobs it was on.
• 13:45
  SPEAKER_00: So they settled for like all of our, you know, facilities, but we had to do environmental studies on every facility we owned or leased.
• 13:54
  SPEAKER_00: Sure.
• 13:55
  SPEAKER_00: And so for some of your listeners out there, thinking about those kind of things and that tail of liability and paperwork affiliated with it and keeping track of that kind of stuff, especially if it's a you know, a user of the facility that wants to sell their business in the future, um, it becomes more important selling their business than it does actually the piece of real estate.
• 14:18
  SPEAKER_00: So it's kind of funny the things that you'd like, I would never have thought in a million years that that would be a thing.
• 14:24
  SPEAKER_00: So I'm a buyer.
• 14:25
  SPEAKER_00: Yeah.
• 14:26
  SPEAKER_00: But it was a thing.
• 14:27
  SPEAKER_01: I mean, I could talk about this all day, environmental issues and remediation.
• 14:33
  SPEAKER_01: It seems like every single deal I do has an environmental issue.
• 14:37
  SPEAKER_01: Yeah.
• 14:37
  SPEAKER_01: It just seems like there's so much red tape around the environmental industry that um I'm not surprised that it plays a factor in your deals and my deals because it it's confusing to me because it feels like at the end of the day, they'll just develop any site.
• 14:56
  SPEAKER_01: There's certain sites that don't get developed, but I feel like you can overcome most environmental issues on a property.
• 15:03
  SPEAKER_00: Completely.
• 15:04
  SPEAKER_01: And and some I scratch my head if they were even valid in the first place.
• 15:09
  SPEAKER_00: But you can usually build a remediation plan that's relatively inexpensive.
• 15:13
  SPEAKER_00: You can work with the state health department to come up with a plan around it, um, and or you can insure around it.
• 15:21
  SPEAKER_00: And I, you know, I would encourage, you know, your real estate investors out there to think about that.
• 15:26
  SPEAKER_00: Like, you know, where everyone else might not want to buy the deal, um, it can be a real opportunity for the right buyer of those properties and you can solve it, especially if you find the right consultantslash contractor that has a relationship with the local authorities, because they're the ones that are the problem in general, because people don't know how to communicate with state or local health departments.
• 15:50
  SPEAKER_00: It's usually not a federal issue, it's usually a state issue.
• 15:53
  SPEAKER_00: And if you find someone that knows how to communicate with them properly and is proactive instead of hiding from them, they can usually find a way to work it out.
• 16:02
  SPEAKER_01: So, okay.
• 16:04
  SPEAKER_01: Not to take away from, like I said, an unbelievable topic, environmental issues on properties.
• 16:11
  SPEAKER_01: I wanna I want to know your thoughts for untapped potential in industries that you see coming in the next five, 10 years for a business owner.
• 16:23
  SPEAKER_00: Okay.
• 16:23
  SPEAKER_00: So like businesses that you would you should want to buy?
• 16:27
  SPEAKER_00: Is that what you mean?
• 16:28
  SPEAKER_01: Exactly.
• 16:28
  SPEAKER_00: Okay.
• 16:29
  SPEAKER_01: Like you come from the asbestos company or the the asbestos, like mitigation background.
• 16:35
  SPEAKER_01: That's not glamorous.
• 16:36
  SPEAKER_01: Nope.
• 16:37
  SPEAKER_01: But uh sometimes things don't have to be glamorous to uh be successful and fruitful.
• 16:44
  SPEAKER_01: What do you think are untapped industries today?
• 16:49
  SPEAKER_00: It's really hard to say because you know what's happened is that with AI, AI has changed everything just like warehouses, right?
• 17:00
  SPEAKER_00: Maybe it didn't used to be sexy.
• 17:02
  SPEAKER_00: Well, now asbestos maybe is more sexy than it used to be because it suddenly seems like it can't be interrupted by AI in the same way that accounting and legal and all these other things can be interrupted.
• 17:13
  SPEAKER_00: Engineering, architecture, all these things, and all the SaaS businesses where people are overinvested, they now have to redeploy assets to less sexy businesses that are uninterrupted by, for the most part, by AI.
• 17:27
  SPEAKER_00: And so what has that meant?
• 17:28
  SPEAKER_00: First of all, it means every investor, mostly again, private equity and large family offices, have gone way downstream to blue-collar services, and they're trying to uncover every thesis that hasn't been touched yet.
• 17:43
  SPEAKER_00: Because what we've seen over the last three, four years, this massive overinvest overbuying of businesses like HVAC companies, for example.
• 17:53
  SPEAKER_00: So there have been a couple of themes that everyone has been talking about in um blue-collar services, one being HVAC.
• 18:01
  SPEAKER_00: Um, it's been so overdone that the valuations are now completely crazy.
• 18:08
  SPEAKER_00: And so you can't you can't buy a deal for a reasonable price.
• 18:11
  SPEAKER_00: And so now what's happened is they've gone away from HVAC and electrical contractors and plumbing and commercial landscaping.
• 18:18
  SPEAKER_00: Um, those have been all some of the hottest areas, and they're trying to find what's the new thing.
• 18:23
  SPEAKER_00: I will I gotta get there before anybody else.
• 18:28
  SPEAKER_00: So it's really hard.
• 18:29
  SPEAKER_00: There, there's some things to keep in mind when you're thinking about investing in a business and you want to sell it to you know, if there's there's two different kinds of businesses like in blue collar.
• 18:41
  SPEAKER_00: There's ones you want to buy and hold, and there's ones that you want to buy and sell.
• 18:46
  SPEAKER_00: And they're very different.
• 18:49
  SPEAKER_00: Businesses that are not attractive currently for uh most investors have several things in common.
• 18:59
  SPEAKER_00: One, large project size.
• 19:02
  SPEAKER_00: They do not like buying large, lumpy projects because they don't know how they're gonna refill the pipeline.
• 19:10
  SPEAKER_00: They much prefer small, repeat, and recurring projects.
• 19:14
  SPEAKER_00: Buyers are really, for the most part, not interested in union companies.
• 19:19
  SPEAKER_00: And and there's a reason for that.
• 19:21
  SPEAKER_00: Yeah, the primary reason is unfunded pension liability.
• 19:26
  SPEAKER_00: Now that's changing a little bit because it eliminates like a quarter of the country.
• 19:31
  SPEAKER_00: And so if you want to be able to get into the entire U.S.
• 19:33
  SPEAKER_00: economy, you're gonna have to start um being open to unions.
• 19:37
  SPEAKER_00: Another thing that's unattractive is um project-based work that is bonded.
• 19:44
  SPEAKER_00: Okay.
• 19:45
  SPEAKER_00: Buyers view bonded work as it doesn't make any sense because bonding is effectively an insurance policy, but they view it as debt.
• 19:54
  SPEAKER_00: It's not, it's not debt.
• 19:55
  SPEAKER_00: I don't know why they think about it this way, but they they do.
• 19:59
  SPEAKER_00: Um, and then the other, I think the other key thing is heavy, capital-intensive businesses.
• 20:05
  SPEAKER_00: Buyers like low capex businesses.
• 20:09
  SPEAKER_00: So you put all that together, okay, those things are unattractive.
• 20:15
  SPEAKER_00: So what's attractive?
• 20:18
  SPEAKER_00: First of all, lots of repeat and recurring customers.
• 20:22
  SPEAKER_00: One thing that does matter for future exits is total addressable market.
• 20:28
  SPEAKER_00: So I love niche businesses, but and the niche are like usually they're they're they're higher margin.
• 20:36
  SPEAKER_00: Um, people don't really know about them, like an asbestos contractor, for example, is a high margin business.
• 20:41
  SPEAKER_00: It's very niche.
• 20:42
  SPEAKER_00: What it doesn't have is a total addressable market.
• 20:44
  SPEAKER_01: Sure.
• 20:45
  SPEAKER_00: It's relatively small.
• 20:46
  SPEAKER_00: So buyers are looking for things that have a big addressable market.
• 20:50
  SPEAKER_00: So, right now, as an example, the addressable market in things like data centers has suddenly changed many contract contractors like electrical contractors and HVAC contractors.
• 21:00
  SPEAKER_00: Suddenly there's a new market that didn't exist a few years ago.
• 21:04
  SPEAKER_00: It's totally changed the value of businesses like electrical contractors.
• 21:09
  SPEAKER_00: Wow.
• 21:09
  SPEAKER_00: So you have to find something that has enough TAM, total addressable market, has recurring customers, has high gross margins, um, and is somewhat, if feasible, recession resilient.
• 21:28
  SPEAKER_00: Those are hard things to do.
• 21:30
  SPEAKER_00: Um, so I don't feel like I have a magic bullet on this one.
• 21:35
  SPEAKER_00: Um, but if you can, as you're starting to think about all of those things that buyers find attractive, low cap acts I didn't mention.
• 21:43
  SPEAKER_00: So, but like asset light businesses with recurring revenue, high gross margin, with enough addressable market that you can sell it again.
• 21:51
  SPEAKER_00: The other thing that buyers want is they want to know that they can deploy more capital and buy more businesses to tuck into it.
• 21:58
  SPEAKER_03: Yeah.
• 21:58
  SPEAKER_00: Um, but you want to be thinking about businesses that have not yet been um tapped into uh that are overbought because the anything that's overbought you can't you're competing with private equity on you don't want to you don't want to be competing with private equity you're gonna lose and there's gonna be too many bidders and you're not gonna be able to end up making the deal pencil.
• 22:22
  SPEAKER_01: That's so interesting.
• 22:24
  SPEAKER_00: Yeah.
• 22:24
  SPEAKER_01: I I feel like it was also a way of saying like you shouldn't be pursuing a business like you shouldn't be pursuing this if the goal is just to exit and party it.
• 22:36
  SPEAKER_01: And if you're seeking something out for the exit, wouldn't that be inherently a flawed concept?
• 22:43
  SPEAKER_00: Well I don't I don't necessarily think it's flawed.
• 22:45
  SPEAKER_00: What I think is you want to build a great business right because a business that's sellable is a just a really good company.
• 22:52
  SPEAKER_00: I tell people all the time don't don't sell it because you're like exhausted or worn out.
• 22:58
  SPEAKER_00: You're still going to have the problems the next day after you sell because they're gonna want you to stick around.
• 23:02
  SPEAKER_00: So actually just make it a great business that works for you.
• 23:05
  SPEAKER_00: And then you have optionality you can buy it and keep it because you never know right and so if you already make the business attractive then you have optionality keep it you can turn it over to an amazing manager and you could just keep cash flowing it in the same way you have your your you know your your family's warehouses or you sell it and you move on and you know you pocket the cash and you decide what you're gonna do for the rest of your life.
• 23:30
  SPEAKER_00: But I like having options.
• 23:31
  SPEAKER_00: Yeah hey you earned that I I don't think there's anything wrong with buying a business to sell it as long as you truly create value while you own it.
• 23:42
  SPEAKER_00: And I think this is the big problem right now is you have all of these investors in amazing companies they build what they call a value creation plan.
• 23:56
  SPEAKER_00: Value creation plan for them means creating value for their pocketbooks.
• 24:00
  SPEAKER_00: It doesn't actually mean making the business better necessarily value creation in my book is actually making the business better.
• 24:08
  SPEAKER_00: And that means better for the employees better for the customers maybe better products better service all of those things not just better for the pocketbooks of the private equity owner.
• 24:21
  SPEAKER_00: It's interesting what are three traits of operators who are all stars that you see when you're talking to business owners across the country yeah that's a great question because the thing that makes businesses most attractive is usually who's running the company it's usually not some amazing product it's usually the leadership.
• 24:46
  SPEAKER_00: Well yeah there's there's there's several things one um I don't want to be super generic here but you know integrity is really important in leaders um in in what you find is the people that you know actually do what they're say they're gonna do follow through follow up um matters a lot because the people that work for them see that and the people that work for them are they they they tend to be much more loyal and stick with businesses.
• 25:19
  SPEAKER_00: Businesses that have massive turnover usually have a leadership problem.
• 25:23
  SPEAKER_00: And so you want them to be commercially oriented you want them to be growth oriented because if they're if they're not thinking about you know always you know finding a way to get more customers and make customers happy then the business is not growing.
• 25:41
  SPEAKER_00: So you need someone that's able to do that but also able to coach a sales team that can do that without them always in the room.
• 25:50
  SPEAKER_00: And so that comes in a combination of both commercially oriented but also an ability to mentor future leaders.
• 26:00
  SPEAKER_00: And I think that is where security in themselves is important because the worst leaders are insecure leaders.
• 26:11
  SPEAKER_00: Insecure leaders are not able to let others around them rise up and great leaders only rise up if their team rises up.
• 26:20
  SPEAKER_00: And that shows through in their ability to mentor a team and so that comes with a certain level of security in letting your team shine I believe in like incentivizing all of your talent to rise with you.
• 26:33
  SPEAKER_00: If you're making money they should make money um so I think like I think those would be three traits of great you know business leaders.
• 26:43
  SPEAKER_00: Sure.
• 26:45
  SPEAKER_00: And buyers always look for that they want to partner with a good leader that's going to stick around and help them grow for the next five to ten years not just buy something and then immediately replace the leadership.
• 26:58
  SPEAKER_00: That's very very expensive.
• 27:20
  SPEAKER_01: Okay.
• 27:21
  SPEAKER_01: I think uh it's it's like you said every building is different.
• 27:26
  SPEAKER_01: Yeah every landlord is different.
• 27:29
  SPEAKER_01: I mean uh the the easy way to answer that question is price right we we're seeing a really interesting thing in the market now where pricing has receded 25 27 30% okay so we have owner users who will still pay they they're not looking for that 30% uh drop to bite down on you know dad always told me when you're looking for property you want to find something with a broken wing that's not what the owner user is looking for they're looking for functionality you know uh high higher ceiling height bigger garage doors yard uh whereas the investor they're just looking at the numbers and there's a big delta right now between the number for an investor and the number for a user like a big delta and um I I wish I had a more eloquent way to say it's just today it just feels like price.
• 28:30
  SPEAKER_01: And I don't know if that's a 2026 thing or reality.
• 28:36
  SPEAKER_00: So um I think it it matters where the money's come from where the money's coming from and then the price because that probably matters the size of the deal too because the you're these mega owners aren't going to buy your little 5,000 square foot warehouse probably.
• 28:50
  SPEAKER_01: Sure.
• 28:50
  SPEAKER_00: Yeah.
• 28:51
  SPEAKER_01: Funds generally don't look at anything under three or five it depends how desirable the product type is but yeah I really like looking at properties right under where the funds are looking to buy because that is where I see opportunity okay for investors.
• 29:09
  SPEAKER_00: Investors yeah yeah there's so many um parallels um with what you just talked about couple things one you know one thing yeah you know you know the Izzyism with the broken wing buyers don't want businesses with broken wings yeah they don't they want the perfect building right they want the building that is going to keep running and go up and to the right that already works that they don't have to fix.
• 29:34
  SPEAKER_00: Right.
• 29:35
  SPEAKER_00: 99% of buyers in in the in the space of buying at least contracting businesses that all use warehouses, right?
• 29:43
  SPEAKER_00: Those they want really well run businesses that already work for what their thesis is in the same way that your end user just wants the right building for their need.
• 29:52
  SPEAKER_00: And they're probably willing to pay more for it because they don't need to flip it.
• 29:56
  SPEAKER_00: They can own it for 20 years and actually use it.
• 29:58
  SPEAKER_00: And it just doesn't have to make perfect economic sense from a cap standpoint or whatever.
• 30:04
  SPEAKER_00: The other thing that ties so similarly is that funds, PE funds and family offices the only way they make money is to deploy money.
• 30:14
  SPEAKER_00: That's it.
• 30:15
  SPEAKER_00: Which is why they can suddenly pay seven times EBITDA for a$1 million EBITDA business that made no sense to anyone five years ago or 10 years ago right now how am I going to deploy my capital?
• 30:28
  SPEAKER_00: Well I only get my fees my management fees and I only get my carry.
• 30:34
  SPEAKER_00: You know this is the thing that everyone's talking about in the tax code, right?
• 30:37
  SPEAKER_00: Carried interest that they only get their carry, which means they can only make money if they deploy it, even if they have to overpay.
• 30:45
  SPEAKER_01: Right.
• 30:45
  SPEAKER_01: And you can't compete with that.
• 30:47
  SPEAKER_00: You can't compete with that.
• 30:48
  SPEAKER_01: Yeah.
• 30:48
  SPEAKER_00: So so many amazing similarities in in those environments for buying businesses versus buying real estate.
• 30:55
  SPEAKER_00: So I think that's fascinating.
• 30:57
  SPEAKER_01: I also think it's interesting you know as I deal with property owners or uh portfolio owners who operate their business in the property I'm I'm always thinking about their exit.
• 31:08
  SPEAKER_01: So I'm always thinking about the relationship between the real estate the business and what's actually going on.
• 31:15
  SPEAKER_00: So one of the unknown facts about buyers that buy businesses that have a real estate component you know a lot of times what what you find owners doing is they they do one of two things.
• 31:29
  SPEAKER_00: They underpay themselves for the real estate or they overpay themselves for the real estate they might underpay themselves for the real estate because they want the building to work for their business and so the business can be more profitable.
• 31:43
  SPEAKER_00: They don't need to make a lot of money on the real estate or they want to cash flow the heck out of the real estate and pay themselves through the business.
• 31:53
  SPEAKER_00: What happens all the time on transactions however this is always a key negotiating point on a deal and this is why leases almost always get changed at transaction because if you're overpaying yourself on the real estate that is considered um an add back to IBITA because you're oh you're actually unnecessarily punishing the profitability of the company by putting in the pocket of the owner and so let's just say put simple numbers let's just say the the fair market value for a a building is a hundred K, but you're paying yourself 200K well now and you have a$1 million profit business from an EBITDA standpoint, that's actually a$1.1 million dollar EBITDA business.
• 32:40
  SPEAKER_03: Sure.
• 32:41
  SPEAKER_00: So they renegotiate the lease to get it to fair market value, first of all, so that they can normalize the EBITDA of the of the deal but the other thing that I find fascinating is that buyers actually want very long-term leases.
• 33:01
  SPEAKER_01: Right.
• 33:01
  SPEAKER_00: And the reason for that is the buyer wants to sell that business in less than five years often.
• 33:08
  SPEAKER_00: But let's just say they're renegotiating the purchase of their business in five years from now they do not want a renegotiation of the lease to screw them on purchase price from the next buyer.
• 33:19
  SPEAKER_00: So they want a locked in even though it might mean signing a long-term lease they want locked in escalators so that the future buyer knows exactly what it's going to cost them.
• 33:30
  SPEAKER_00: So those things can have huge impacts on transactions and usually if you're that business owner and you want to sell that business just so you know they're very often going to want to sign a longer term lease rate with you with escalators that are at fair market value.
• 33:47
  SPEAKER_00: What is something you wish you would have known when you got into the business now that you've exited it first of all I am not afraid of leverage anymore but I'm cautious with leverage.
• 34:02
  SPEAKER_00: We our business very intentionally grew slowly because there was a fear.
• 34:08
  SPEAKER_00: You know when you're a contractor you just never know what next year looks like and every year you start over at zero.
• 34:15
  SPEAKER_00: And so we always assume like what if no business comes in and we we have to make rent and we have to make payroll and we have to do all these things.
• 34:22
  SPEAKER_00: So we always operate with way too much cash on the balance sheet and we grew slowly.
• 34:29
  SPEAKER_00: So first of all I would have been slightly more open to leverage as opposed to effectively none for all of those many many years.
• 34:39
  SPEAKER_00: The other piece is I would have started buying businesses earlier.
• 34:44
  SPEAKER_00: I I just didn't know how any of it worked.
• 34:47
  SPEAKER_00: I didn't know that you could buy businesses at four or five times Ebita and sell them at 10 times EBITDA I didn't know that was a thing.
• 34:55
  SPEAKER_00: Now and now I know the secret sauce and so now I'm starting again so like I'm even though my business is selling businesses just like you probably you probably also want to buy some real estate because you get first look at some of the deals I get first look at deals now.
• 35:08
  SPEAKER_00: Ah so I'm buying some businesses right now and I'm gonna put a CEO in and I'm going to integrate them.
• 35:17
  SPEAKER_00: And so the other piece is integration yeah I thought like a small business owner and I was trying to become a big business owner sometimes you have to think a little bit bigger and so I would have made more investment in um technology and when I say technology I'm talking things like data transparency.
• 35:36
  SPEAKER_00: I would have built out better more thoughtful accounting systems that would have been able to give me a better picture on how the business business was doing in real time.
• 35:47
  SPEAKER_00: And the other thing I would have done very differently instead of cheaping out on like a bookkeeper I would have had a real CFO earlier that was more of a thought partner that could give us more strategic advice on growing a business.
• 36:03
  SPEAKER_00: I didn't know what a real CFO was until I saw it.
• 36:06
  SPEAKER_00: And now I know.
• 36:07
  SPEAKER_00: Now I've learned the playbook from the other side and now when I give advice to people and they're like oh my God like I would never have thought to do that.
• 36:17
  SPEAKER_00: So you know the other thing is I wouldn't have been in a hurry I I I wouldn't have sold my business at the time we sold it.
• 36:26
  SPEAKER_00: I would have let it run because we didn't need to sell it.
• 36:28
  SPEAKER_00: Right.
• 36:28
  SPEAKER_00: It's still printing cash today.
• 36:30
  SPEAKER_01: It's very interesting.
• 36:32
  SPEAKER_00: And I would have bought my real estate earlier that's the other thing I would I would be less focused on getting a deal and I would be more focused on getting the right thing and being willing to pay more for it.
• 36:42
  SPEAKER_01: Okay well makes sense to me.
• 36:45
  SPEAKER_00: Yeah so you know you talked about the the real estate market it's in a downturn but your space is still you know strong comparatively as you're thinking about the next three to five years what are the trends that you're seeing in the market do you do you have any do you have any predictions?
• 37:07
  SPEAKER_01: It's an interesting question.
• 37:09
  SPEAKER_01: It's an interesting time well I suppose maybe you could say the pandemic was the conduit to now a lot of obviously inflation fear greed mania construction costs insurance taxes everything is going up in every direction and it really has felt like in the last year or two the only thing that could give is the price of the real estate.
• 37:34
  SPEAKER_01: So we've seen prices retreat um but in the long run specifically in the warehousing set I mean it in real estate in general I'm not concerned it's uh it's a slow and steady way to have control and to have income as long as the right people are in place, just like a business.
• 37:56
  SPEAKER_01: I've seen more subleases go up.
• 38:00
  SPEAKER_01: I have seen more marketing for subleases in the last two weeks than I've seen in my entire career.
• 38:05
  SPEAKER_01: And what we're seeing there are a lot of businesses failing a lot of businesses throwing in the towel a lot of fear but on the other side of that we're seeing releasing uh specifically for smaller product is still strong.
• 38:22
  SPEAKER_01: So we're seeing backfill of these new creative businesses young operators excited you know they're not jaded by the rental rates they're not jaded by the triple nets and um the outlook is good but I do think there will be pain for those who are overleveraged or maybe overpaid.
• 38:40
  SPEAKER_00: Is it a renter's market or a buyer's market?
• 38:42
  SPEAKER_01: Renters.
• 38:43
  SPEAKER_00: Okay.
• 38:44
  SPEAKER_00: So um it feels like a renter's market to me.
• 38:47
  SPEAKER_00: I'm wondering what do you tell my founders that I'm working with how should they think about investing in you know that piece of real estate or in or or or in warehousing real estate in general.
• 39:00
  SPEAKER_01: It's a very slow process.
• 39:03
  SPEAKER_01: It's it's not always beautiful but with a long-term outlook a long term vision how could you not how could it not make sense specifically if you're operating your business in it.
• 39:17
  SPEAKER_01: And if your business fails well good thing it's an industrial property because then you can backfill it with another tenant who will then pay all of your expenses and your rent and maybe just maybe you can make money off of it.
• 39:31
  SPEAKER_01: You don't know what you don't know but you can't let fear crush that because if if you're the operator, you know bet on yourself if you're a legitimate operator.
• 39:43
  SPEAKER_00: Yeah I'm excited that we got a chance to sit down today because like I love all of the the similarities I mean in very different businesses but so many similarities similarities in our upbringing yeah similarities in how we had to put together a story about our family businesses and a website and then change the way we thought about doing business.
• 40:02
  SPEAKER_00: You've built this incredible podcast that's got tons of followers you've got people all over the country that want to do business with you now because of that.
• 40:10
  SPEAKER_00: And I can guarantee you your dad never in a gazillion years would have thought that that's how his business would have evolved under your leadership.
• 40:19
  SPEAKER_00: So I love to see what you've done.
• 40:21
  SPEAKER_00: I'm pumped.
• 40:21
  SPEAKER_00: Corey you're awesome Aviva you're awesome for all the listeners who own businesses Iconic Founders group Corey how can they find you follow you contact you listen to the turn etc Yeah so I think the easiest way is just to go to iconicfounders.com it's got my podcast on there it's got a way to contact me there of course I'm on LinkedIn and um we put out content all the time and um you know it's specifically geared towards blue collar business owners we that's we literally only work with people that need facilities like the ones that that that you have.
• 41:00
  SPEAKER_01: Aviva how can people find you head over to warehousehotline.com and follow me at aviva real estate on all social platforms.
• 41:10
  SPEAKER_01: I love it.
• 41:11
  SPEAKER_01: Thanks for listening today guys.
• 41:12
  SPEAKER_01: Let's win well let's win.
• 41:14
  SPEAKER_01: We'll see you next week.
• 41:15
  SPEAKER_00: Thanks for joining us on the turn if you could please like and subscribe we love getting this story in the hands of of new viewers and listeners.
• 41:24
  SPEAKER_00: So if you could forward it on to someone you think might enjoy it.
• 41:27
  SPEAKER_00: And until next time, let's win