The Canadian real estate industry is buzzing these days, but many people don’t realize that there’s more to real estate than houses and apartment blocks. Industrial real estate is also booming, and there’s an opportunity for some investors to buy in. Chad Griffiths has been an industrial real estate broker since 2005 and an investor since 2014. As a member of a global commercial real estate company and partner with his local firm, Chad’s completed over 500 deals with clients ranging from small companies to large institutional owners. Chad joins the show this week to explain how industrial real estate works and how a person can get started investing in industrial properties. 

 

Welcome to the Maple Money Show. The podcast that helps Canadians improve their personal finances to create lasting financial freedom. Willful’s user-friendly, online platform, means you can create a legal will and power of attorney documents online from the comfort of home in less than 20 minutes and for a fraction of the price of visiting a lawyer. You can get started for free at maplemoney.com/willful and use promo code Maple Money to save 15 percent. Now, let’s chat with Chad… 

 

Tom: Hi, Chad. Welcome to the Maple Money Show. 

 

Chad: Hey, thanks so much for having me on, Tom. It’s always a pleasure to talk to a fellow Canadian. And in our case, we’re practically neighbors. 

 

Tom: Well, we’re within the same province, at least. I wanted to have you on, because you’ve brought up an interesting topic that I’ve never really looked at or considered before. It’s investing in industrial real estate. That’s obviously a little different because we often talk about things like buying a duplex or apartment or something like that and renting that out—doing the landlord thing. That seems more common. And maybe even other commercial real estate where you can get into REITs that invest in malls and things like that. Industrial real estate is something I just never really thought about before. I think there’s a lot of people listening to the podcast that are interested in real estate so this may be a chance to do something a little different to that diversification. Just to start off, can you explain what exactly we’re talking about with industrial real estate? 

 

Chad: That’s a great entry point. An as we go through this, you’ll see that I’m fairly transparent on this. I’m a big fan of industrial real estate, but I also think there’s a lot of limitations and potential risk profiles with it. I think it’s a great investment for some people but I also caution others against it. I’m fully transparent as we go through this as well. And literally, any question you have, you can fire my way. For industrial real estate, to frame the conversation, there’s usually three subcategories that I refer to when speaking about industrial real estate. The first is warehousing. This is the one that’s become a lot more common in the public. In your neck of the woods, in Airdrie, you’re in one of the biggest industrial hubs in western Canada right now where all these distribution centers are going up with big name companies that we’re all familiar with, like Amazon, FedEx, and Purolator. These companies have taken on hundreds, if not millions of square feet worth of inventory. And the whole purpose with a warehouse is things come in. There could be a bunch of bulk product that will come in and either be stored, sorted, and then get sent out to the end user. It could be customers or it could be to another company altogether. But the whole intent with the warehouse is that things are stored there. A good example that I like using for a warehouse just to help people get their mind around it is like a Home Depot or a Costco. If you go into one of these buildings, these really are just large warehouses. They have high ceilings. There’s racking from floor to ceiling with goods in there. This really is just a warehouse. There’s very little design in there. The cashiers have a little spot at the front, but everything else is just merchandise stored and racking. And that’s very similar to what a warehouse would be for some of these traditional warehouses. It’s becoming a lot more technologically advanced, and perhaps we could get into that later with some automation or robotics, but a traditional warehouse is just where things are stored. It’s racks and racks of storage. Things come in, get stored, then they go out. A lot of people are familiar with that warehousing side. The second one is the manufacturing side. This is one that’s really got roots back to the to the Industrial Revolution—the start of the factory in the 1700s, where they had to get people together to make something. In a pre-industrial revolution, things might have been made at someone’s house or a makeshift factory where a couple of people might have been. These factories, even dating back to the 1700s, there could have been thousands of people working in these in these factories. The whole idea was that something was made. And funny enough, there hasn’t been much of a shift over the last 250 years or so. There’s a lot more technology, obviously, and the building materials have evolved considerably. But it’s the same intent—a manufacturing property is where a thing is made. So to even elaborate on that, it could be a manufacturing process. It could be an assembly process. Just about anything where raw materials come in, something happens to those raw materials and then they get sent out either to the end-user or to further down on the supply chain. In Alberta, here, we’re in a major manufacturing hub because there’s also all the oil and gas manufacturing and all the processes that have to go on to that. That’s a really big business, particularly in a market like ours. But it’s also just big business worldwide. There is a considerable amount of manufacturing space all over the world. Then the third category of industrial is often called flex. That’s meant to be a kind of a catchall for all the properties that would be zoned industrial. The municipality would have given it a zoning profile. They might have said this is a heavy industrial property or this is a light industrial property, but it’s not necessarily catering to either a manufacturer or a warehousing company. A company could go in there and make use out of it but more often than not, it’s for a use that isn’t one of those warehousing or manufactured ones. Common ones you’ll see bottle depots, art galleries. We’ve seen car dealerships. When you think of a car dealership, there’s a showroom where they have all their vehicles. But at the back of the building is where they do all the work on their vehicles. And those can be really industrial properties. I’ve seen strait office space and some of these—in your area as well. There’ll be business parks where properties are zoned industrial, but they could have a really light manufacturing, like a computer part assembly process. It could be a lab—that catchall group. That’s why it’s a category unto itself because there are all these different types of uses that can go into it. But what I think most people underestimate, is the size of the industrial market. There was a survey done. It’s a couple of years old now, so the numbers have increased even more, but the aggregate value of square footage of industrial space in North America was 20 billion square feet, and the aggregate value of that industrial real estate was over $1.5 trillion. It’s a staggering amount. It is a phenomenally large industry. But by design, it kind of works out of the spotlight with the exception of the warehouses we now see right on the highways—these big distribution centers. Historically, the industrial sector has worked, tucked away in an industrial park by design. The municipalities and planners obviously don’t want to have a big manufacturing facility right on the main road coming into town, because it would really scare people off for new people coming into the city. So they’ve intentionally tucked these buildings and businesses deep into industrial park. So unless you had a reason to drive into one of these industrial parks, you never would have even seen it. It’s gone from being this really niche, behind-the-scenes industry to now being really big business. I’m sure it’s the same with you, Tom, you’re probably hearing more and more people talk about the “supply chain” and then the disruptions that have come from that, and why we’re having a hard time getting certain consumer goods. One cargo ship gets turned around in the Suez Canal and it disrupts the entire supply chain—that makes news all over the world. The industrial market is really an integral part of that whole supply chain. More and more people are paying attention to it now. And it’s gone from this really unknown boutique-type of industry, even though it is very large. But for the minds of the average person, this boutique industry is now becoming a really big business. You talked about REITs. There’s some REITs in North America. The biggest one, Prologis, is actually the biggest property owner in the world. All they do is just own warehouses all over the world in key markets. It’s now getting a lot more attention, not just from big institutional buyers, but also just from average guys like myself. I bought my first property in 2014 following nine years in the business. I love it. For me, it’s become something not just as an investment vehicle, but a passion where (you can tell) I just love talking about this stuff. I really enjoy it. But I’m also very cognizant to tell people that there’s a lot of downside risk that comes with it as well. For me, it works really well and I’m glad that I’m in the industry but I also think that it should scare people. Because unlike other more conventional investments like residential, there’s an opportunity to really lose your shirt on this. It’s a great investment vehicle. That was probably a long-winded answer on that. I gave an answer on it from a high, 30,000 foot view. But as you can appreciate, there’s so many complexities and nuances once you start digging into it, that if you’re not prepared to dive into that further, then you are putting your capital at risk. I think that’s what everybody wants to avoid. 

 

Tom: Well, I did give you a big, wide question to have to cover there. And there’s a few things I want to hop into, from what you said. One quick thing was, when you mentioned the three different types and the zoning of industrial, does this also include investing in land? Or is it commonly that the building’s already there and they need someone to buy it and find a tenant? 

 

Chad: It would be very similar to other asset classes like residential, office or retail. There will be developers or speculators that go and buy land in advance of the property being developed. It’s a lot longer of a cycle to hold that. And quite often those land plays, you’re not only servicing any debt you have on it, but you’re paying servicing costs on it, whether it’s property taxes or anything else you have to do. It’s a lot more longer term money in my mind. But that actually brings up a great point. We’re getting ahead of ourselves, but I think one of the best plays right now would be investing in land that is close to an airport or close to a big intermodal yard. An intermodal yard is typically like a CN or CP in Canada or one of the major ones in the U.S. They’ll have intermodal yards where the trains will all come to a central point, then get offloaded onto trucks, then the trucks end up going to the buildings. In areas like Calgary and Edmonton, those areas have historically been pretty well built out already. But there are opportunities in markets that haven’t had this catch on yet. If I was a land speculator or thought there was a play in there, I’d be looking at major areas you’re already familiar with. Look at their intermodal yards and their airports and see if there’s opportunities to get in the path of industrial development because I think that’s going to be what drives a lot of this demand for industrial, going forward. 

 

Tom: That’s interesting because I was thinking (not knowing much about this) that when it’s your own house or even something like a shopping center, it sounds like that usual location, location, location. I kind of thought it didn’t apply as much here because  hidden in between Airdrie and Calgary are all these Amazons and Costco’s. I thought it was that you sort of just tuck them away but it makes sense that you do want to be close to airports and trains because if it’s like warehouse, there’s a lot of product moving in and out all the time. That makes sense in this Airdrie example. The Calgary airport is on the north side so it’s right there. It’s within 10 minutes, I bet. And, of course, by the airport there’s your FedEx and UPS. They’ve got their own huge warehouses to process everything and move it along as well. 

 

Chad: Yeah, the location, location, location certainly applies to industrial as well, for the reasons you said. It varies from industry to industry, but a lot of companies will have a certain amount of their expenses devoted to their real estate. But they also have a considerable amount of expenses devoted to transportation. And quite often the transportation costs are a magnitude of 5 to 10 higher than what the costs are for real estate. So from their standpoint, if they can strategically locate in a position where they’re either close to all the stuff coming in or they’re close to the end consumer, and they can mitigate some of that transportation expense item, they can save considerably more than saving 5 percent on a line-item that amounts for much less. That’s one of the main reasons that location is imperative. The other one that I’d add on there too is just labor. In my mind, this is one that is often left to the last minute to actually contemplate how important access to labor is. Whether it’s a factory or it’s a warehouse, they rely on lower paid labor to operate these buildings. It might be someone just picking things off of a warehouse shelf. It might be someone just doing repetitive labor. These are often people that aren’t paid well enough to have their own vehicles, so they rely heavily on the public transportation network. So for a company that could perhaps go and say, “We can get land 100 kilometers away from this area we want it to be, we can save on all these land costs.” Well, maybe you save on the land but the cost to build is going to be fairly similar. A piece of lumber here and a piece of lumber 100 miles away is going to be the same price. You might save a little bit on the land, but you have to factor in what the services are out there? Are there municipal services like gas, power and water? How far are people going to have to travel to be able to get to you? And then what are your transportation costs to go back and forth? All of a sudden, if you save $200,000 or $300,000 per acre on land, that gets eaten up immediately just by all the other costs that you have. So location is absolutely key. It’s a great, great point you brought up there. 

 

Tom: When it comes to these locations, what has demand been like? And not just right now, but just over time? Is this something that’s fluctuating a lot or does it stay similar? I’m just thinking more about office space. I know that’s not industrial, but I see where—even before COVID, there was a lot of vacant office space. If it’s something similar with industrial, you don’t want to get stuck with a vacancy, right? 

 

Chad: On the office point really quick, I think there’s a huge amount of downward pressure coming on office. I don’t think it’s been fully priced in yet because there’s just been a lot of subsidies and a lot of kicking the can down the road. But at some point these companies that had lease obligations are going to give back their space or downsize. I’m not an office expert, but just from a periphery and being somewhat involved in the industry, I’d be pretty worried to be an office owner right now. But on the industrial side, I think going back to that original point about just differentiating the three subcategories is important because there’s two different narratives happening at play. On one hand, the warehousing side. That market has been going absolutely crazy for the last few years in particular, but e-commerce has been a growing trend for 20 years now. There’s been an increasing amount of market share being taken away from those bricks and mortar retailers and being sent to that “click” online have it delivered to your door. With that comes a corresponding increase demand for warehousing space. In our markets—we’re in that heavy oil and gas province. It’d be somewhat similar to Texas, but Alberta in itself is actually pretty unique from the standpoint that we rely so heavily on that one industry. When that price of oil went from $140 a barrel in 2014 to $30 (seemingly overnight), that took the wind out of that whole manufacturing side. The manufacturing element in our province and in the other oil and gas markets all over the world, they saw a corresponding downward pressure because there’s just less demand. Companies were laying people off. They stopped drilling as much. That meant all the service providers didn’t have as much work. That really took the wind out of the sails for all these companies on the manufacturing side. And then you also add in, there’s been a just a longer term trend of manufacturing being offshored to places like Asia and some other countries overseas. There’s just been manufacturing that’s left North America. So I would say as a whole, there’s been pressure on that manufacturing side. But on the warehousing side, it’s booming. Just to give a couple of stats, Vancouver (right now) is less has less than one percent vacancy rate for their industrial. And that’s not getting any better because they have so many land constraints on where they can even build. Same with Los Angeles. Same with New York. These coastal markets where things are coming in off cargo ships, entering the port and then being sent out, there are historically low vacancy rates and there’s no end in sight on that. That side of industrial real estate, if you look at that storyline or that narrative, it’s crazy. I can’t even describe—that’s in interior landlocked locations as well that same just coastal cities. There’s a tremendous amount of demand and supplies trying to catch up to it. But going back to the supply chain issues, it’s hard getting building materials right now. There’s delays on everything. The developers and the real estate community is trying to add inventory to satiate this demand, but they can’t even keep up with it. So it’s fueling this problem of rapidly declining vacancy rates, a struggle to get supply onto the market, and that ultimately just leads to price increases. We all hear about these inflation numbers. US was eight and a half percent last month. Canada, which just came out two days ago, I think was six and a half percent. I don’t even think that that takes into account all this inflationary pressure that’s still coming down the pipe. I think that warehousing right now is priced really aggressively. At some point that will catch up. There’s just there’s so much being planned. It’s like a gold rush, right? If you’re a developer e looking to see where you can make money, you see all this demand. Everybody’s planning a project right now. Everybody’s getting into the development space. At some point that will get overbuilt. And that’s the opposite problem. But I see that warehousing side being pretty robust for the next few years. And manufacturing—I mean, oil’s back up to $100. And yeah, that’s one the back of a lot of geopolitical risk, but that’s still $100 barrel oil. That’s pretty good for our province and other oil and gas producing jurisdictions. I think they’ll be good for manufacturing. And then just the last point on there as well, because I think it’s worth mentioning, I think that there is a little bit of a mindset shift with some of these big companies about reshoring or on-shoring production back to North America. I think this would actually be really good for a few reasons. One, you don’t have to have the supply chain risk of getting things from a port in China (as they’re struggling right now with issues). Getting something made over there, sent across the ocean (which could take weeks) then getting it across North America, if it was made in North America, you’re alleviating a lot of those issues. I also think that there’s an environmental component which hasn’t been talked a whole lot about. But in my mind, if you were to try and make a big dent in the environmental issues, it’d be much more efficient environmentally to have something made near or close to where it’s actually going to be used or consumed versus making it in a factory in Asia where they don’t care at all. I should be careful how I say that—they care less than we would care in North America about the environment. Then shipping it across the ocean, shipping it across the country by rail, then into a semi-truck, stored in warehouses all along the way, I think that there is an opportunity financially and environmentally to onshore things and really take advantage of some of the benefits of doing so. But that’s just a speculative hunch on my end. There are a lot smarter, more sophisticated, powerful people deciding how that’s going to work in the long run versus me. 

 

Tom: That’s fair. One thing I found interesting is you mentioned how warehousing has a good future ahead of it because of e-commerce. Whenever I’ve heard about e-commerce, it’s the retail side. It’s small local stores shutting down because Amazon and things like that. I never really thought about how something like the warehouse side can benefit from this. Maybe not Amazon, because I assume they just buy and build their own warehouses. Maybe I’m wrong—

 

Chad: They actually do lease a considerable amount. As of right now, they lease the majority of their space. 

 

Tom: Oh, there you go. But I was thinking, even if it was something smaller, just the fact that everything’s got to be warehouse now instead of sitting in a retail location somewhere. I’ve even seen it in grocery where delivery used to mean bagging it at a grocery store and delivering it to your place. Now, there’s separate warehouses just to use robotics, pack it up and ship it out—like an entire separate business line. That’s quite a shift compared to just a few years ago where things are so much more retail-focused, like the brick and mortar retail as opposed to e-commerce. Do you kind of see that continuing to grow? Obviously, COVID helped speed this up too, just like the decline of office space, but people are getting more and more comfortable with e-commerce, so that could lead to more need for warehousing? 

 

Chad: Yeah. You hit the nail on the head. That’s exactly what’s driving all the demand for warehousing right now. It’s that exact phenomenon. This was growing pre-pandemic. Amazon has been growing for a long time now, but the pandemic certainly accelerated it. It also introduced e-commerce to the segment of the population that perhaps have avoided it on purpose. They just they didn’t want to get into e-commerce. They liked going to the store, understandably so. It can be kind of like a social event for people. But now these people were forced (in many cases) especially early on, to buy things online because the stores were physically closed. Once you introduced something like that and people realized how convenient it was, it’s to the point now where I think the majority of people, particularly in North America, have some degree of comfort with shopping online. That is what’s fueling it. Perhaps the best way to look at it is like a pie. The pie could be consumer spending in general. In that pie is online shopping and bricks and mortar shopping. That pie is only so big. It’s going to grow with inflation at some level. It might shrink and contract a little bit, figuratively speaking. But that pie is only so big and e-commerce is starting to take a bigger piece of that pie, seemingly at a rapid pace. But at some point it has to slow down because there’s still reasons to go to bricks and mortar stores. Whether the person just wants the experience or to try the clothing on or touch and feel the food that they’re looking at, there are always reasons to go to bricks, mortar so I don’t see that dying out by any means. I just think that model is going to have a hard time seeing any growth. I’ve seen retail brick and mortar growth. I struggle to see how that area grows right now for the same reason. They’re in that same pie. And there’s a there’s a big sector of that that they’re losing to e-commerce. But at some point it has to balance out. Is that 50/50? Will 50 percent of all money spent on retail goods be online and 50 percent in brick and mortar? I don’t know what that ratio will be, but it has to slow down at some point because there’s only one pie. 

 

Tom: Yeah. The idea of clothing online, that’s one I’m still having trouble with. It’s trying to find the right size in brands. They’re all different. I’d much rather go into a store still. Almost knowing I’ll have to have to return something is enough of a deterrent for me. 

 

Chad: I was the same way. How I got around that was just by buying the same brand. For my shoes, there are a particular type of shoes that I like. I know how they fit so I just—I haven’t bought a pair of shoes in store, I bet, in 10 years. I’ve always bought the same brand every single time. And a lot of them have good return policies. Even pants. Pants and shirts, I buy all the same brand. My wardrobe really looks very similar and it hasn’t changed in 10 years. But you’re right, if you don’t know what you’re looking for—and some people just love the experience of it, they don’t know what they want. They just want to go into a store and see if something catches their eye. And if you’re in the store, you could try it on, see how it fits. It’s virtually impossible to do that online without taking a gamble on it. So there always will be bricks and mortar retail. I wouldn’t be one of those people that think that that’s going away. I think there’s just too many reasons in support of it, but they still have a lot of room to lose because certain things, like toiletries that you use over and over again, if you can order that online and it gets shipped to your house, arrives at your front door, in my mind, driving to a store, finding parking and all of that, it’s just work to me versus ordering online. There’s still a lot of room where e-commerce will grow and take more market share away but I still think those retailers, provided they adapt and focus more on the customer experience, there’s still room for very successful companies in that space. 

 

Tom: I agree on both points. There is room for retail, but there’s still a lot of room for them to lose. Using Amazon as the example, I’ve been in the U.S. and have used Amazon where they can deliver it within hours. Normally, I’m happy enough if I can get it within a day, which is fine.  But in the U.S., where you’re getting groceries from them and other items within hours, that’s starting to get into a real heavy point where it’s going to be really hard for retail. So I do like this idea that it can be worth looking at things like warehouses. We’ve talked a lot about what this is and where the future is for it. If somebody wants to get started in this, where do they start? We mentioned REITs. I assume that’s the easiest way, maybe not the most efficient way. There’s going to be extra expense ratios in there. But what are the options if someone’s listening to this and decides they want to get started in this? 

 

Chad: I’d preface this by saying I am a very hands on investor so the majority of what I have is hard physical assets, but I still own some REITs myself. I own REITs for a couple of reasons. I think just having some “near instant” liquidity is important. If you ever need to sell one of those stocks off you can you do it within trading hours. I like having some money invested in there. They’re getting less and less attractive right now just because their prices have gone up so much. You’re really looking anywhere from a two and a half to a 5 percent yield, which isn’t great. Especially on that two and a half percent one. One stock that I’ve been considering selling, it’s two and a half percent right now so you’re banking on quite a bit of appreciation in the stock to make sense of it. I do like the physical asset side. My story—just going back a little bit further, I started as a broker in 2005 and worked in the industry for nine years, toiling away, before I made my first investment. That was partly because I started when I was young. I had to save up money. I was raising a family. There’s buying the house, buying cars, raising kids. I just physically didn’t have the money so it took me probably six or seven years before I was in a position to start considering it. And even then I looked quite extensively for probably two years before I pulled the trigger on something. I bought it with a partner. He and I still own that. We started with a really small condo bay. That’s the thing that’s probably surprising to people as well, industrial properties don’t have to be major Amazon facilities. We bought a 2,000 square foot warehouse condo bay and our price on it all in was about $400,000. It’s the price of a house. In some cases, it’s less than the price of a house. We’ve since bought larger properties. We just closed on one a couple of months ago that was $4.1 million. But it is a much bigger building. We have a few other partners on there as well. So there is the full spectrum. But you can be $400,000 all the way up to $400 million on a purchase in industrial. But for the average investor, just starting out, I think starting in REITs is actually a good way to dip your toe in. You start getting access to their market reports, seeing what their strategy is and what type of properties they’re looking at. Most of them put out fairly decent reports on the market itself. Once you have some more comfort on that, I still think having a partner is a very prudent way to approach industrial real estate, specifically someone that has done it before. So maybe it’s someone that already owns a couple industrial properties. They want to buy something new, but they don’t have all the capital to do it. Maybe you go along as a silent partner in it where you’re the capital contribution. And what you’re getting from them is learning how they acquire a property, how they manage the property, reposition it (perhaps) for a future sale. You’ll learn a lot from being hands-on with a partner. I think that this would be a very scary industry to go into without having a partner and without having a tremendous amount of knowledge on the industry. The residential side is pretty intuitive, right? If you’ve bought or sold a couple of houses, it’s not that big of a leap to then go and buy a 10-unit, small, walkup apartment complex. There’s things that you obviously have to learn. I don’t want to diminish it and make it seem like it’s a cakewalk. But it’s a lot more intuitive because instead of managing one unit, you’re now just looking after 10 units. Going from residential to industrial is a quantum leap. And not to suggest that industrial is this overly-complicated world, it’s just different. And if people don’t have any background in it, then it can be very overwhelming. And anytime you’re in an overwhelming situation, that’s dumb money, right? I don’t think anybody wants to be dumb money. So smart money in my mind is someone that’s very sophisticated. They have the capital. They’ve learned the industry. They’ve gone to study the local market, what vacancy rates are, what deals are happening, what lease rates are? Who’s in the market? And then they also just have a broad understanding of what industrial real estate is and what it isn’t. To give a quick story on this, if you were to buy an industrial property and let’s say it was specifically built for a company 10 years ago and they happened to be a manufacturing company that just renewed for another five years. You bought that property with five years left on that lease, that’s great. You could, in theory, have five years of rental income from a company that has been in there for a while. But if that company leaves at the end of five years and you don’t have a firm understanding of what that property is and how it would be positioned in the market when it becomes vacant, then you might be in a position where you have to spend a considerable amount of money to retrofit it to make it more appealing to the market as a whole. Or you might just end up taking a huge loss. And I can tell dozens of stories where that’s happened, where someone just went into it too early. That’s why I really take an effort to balance out the conversation. I think industrial real estate is awesome. There’s a number of great reasons why I’m glad that I’m in it, but I temper that by also saying that there’s a lot of “downside” risk. So in my mind, how I always try to remember this is, it’s a pendulum. When the pendulum swings up, there’s lots of great reasons for it. You have longer term tenants. There’s triple-net leases in there (which I’ll be happy to explain more on as well). But for the most part, your rental is protected. It doesn’t get eroded by property tax increases and stuff. You have triple-net leases. They’re a lot easier to manage and you can just build out a longer term profile by scaling it. That’s the positive. But if that pendulum swings the other way, then it swings the other way in proportion to how far it’s swung on the upside. I think that’s probably the best way I can describe industrial—you want to be on the upside but make one mistake and it swings the other way pretty fast. 

 

Tom: Yeah, you mentioned, the flex building. If you bought it when the numbers made sense where this company is making this much and they’re paying this much rent. They’re already in there. It all makes sense. But maybe they’re doing something very specific—some kind of almost “factory like” thing within that space and then they’re gone and the next person that wants it to be more of a warehouse situation, I could see that being a big problem. 

 

Chad: Spot on! Very well said. You’re spot on with that because it happens regularly. 

 

Tom: I like the idea that partnering with someone makes sense, especially because if you’re going into this not knowing anything, that’s a lot to have to catch up on. This feels like maybe it’s a bit of a networking thing to even know how these deals come out. I assume these aren’t just on like the normal real estate sites? How would you even find a deal, something that’s up for sale? Where would you even go to look? 

 

Chad: It definitely just takes more work. There’s no question that you don’t have the ability of a central listing repository where you can just go in and say, “This is what I want to get. Show me all the options.” It does take more work. But if somebody is already invested in real estate—in my mind that is the natural way forward. If someone is already invested in different asset classes—maybe they have a small multifamily portfolio and they’re just tired of dealing with multifamily tenants. Or they just want to chase a higher return because sometimes these cap rates on multifamily is getting pretty compressed. For whatever reason, they have experience already as real estate investors but just want to explore something else. That’s the majority of people I talk to that get into industrial at the beginning. Seek somebody out in your market, like your lawyer that’s handled your real estate transactions. Ask him if he knows of any industrial guys he could put you in touch with. Same with your accountant, same with your banker. All the people that were instrumental in assisting your team that were instrumental in helping you manage your existing portfolio, just ask for an introduction (if they know anyone that’s doing it). I would say, focus on somebody in your market. I’m not the right guy for that because I know industrial real estate, but I don’t know what’s happening in Philadelphia. So, I wouldn’t be of any use to somebody that’s in that market. But if you are buying properties in a market already, talk to your team. It will take work but see if you can get introduced to either existing investors, to some brokers because they can be great resources to help you find deals. But even finding the deal is only half of it because I really do think partnering with somebody at the beginning that already has experience will save a tremendous amount of headache. What I would say for anybody considering investing in industrial is, find somebody you can partner up with first. That, to me, is step number one. 

 

Tom: You mentioned knowing your market. You’re in the Edmonton area. Do you invest mainly in the Edmonton area or do you branch out at all? Where’s the comfortable limit with that? 

 

Chad: Everything I own is within 20 minutes in my office. I have all my eggs in that basket, which is a little scary at times. I do want to diversify into other markets at some point. Alberta makes sense to me, just being familiar with the province. But even beyond that, I really think there’s a lot of opportunity in the States right now. I would be looking anywhere in that Sunbelt region. Texas and Florida are quite appealing to me. I think there’s a few areas along the coast, some port cities that look really attractive and underdeveloped right now. But for me to really have comfort investing in an area like that, I’d be drinking my own Kool-Aid and I’d be trying to partner with somebody local there because, while I think I see opportunity, I just don’t know that market nearly as well as somebody that lives there and is already actively invested there. Even as I look to expand my portfolio down the road, I’ll be looking to partner with local people there too. 

 

Tom: You haven’t done it yet, but as far as you know, are there any complications to investing in the States compared to Canada? I assume that probably gets messier. 

 

Chad: It does get messier. I have talked to a lawyer that I know there and for the most part, there’s a lot of systems in place already that make it amenable to outside investors. There’s more paperwork, more red tape, more hurdles you have to jump through but it is feasible provided you’re willing to hire the right consultants to do it. 

 

Tom: Is there anything else we haven’t covered just around getting started in this? We covered getting a partner and how to start to find these locations, but is there anything else people need to know if they’re considering this? 

 

Chad: A couple of things actually come to mind. So whatever city you’re in, go onto Google Earth and just start looking for where the industrial areas are in your city. Industrial real estate parks, like we mentioned earlier, are clustered in areas by design. In most cities, there’ll be a few major industrial nodes. I would just note where those industrial nodes are, pick up Saturday (when these industrial parks are going to be slower) and just physically drive it. Not only will you come away with a deeper appreciation of how expansive the industrial real estate space is, you’ll just get some insight into how many different businesses there are. Every time I’ve toured somebody through an industrial park, they’re always amazed at businesses they had no idea even existed. They are also just amazed by how enormous some of these buildings are. You can appreciate that an average house is about 2,000 square feet. Maybe you see a massive house and it’s 10,000 square feet. But when you see a million square foot building, it really changes your perspective on how much can actually fit or be designed under one single roof. It’s incredible. That would be the first thing I would do. That would open your eyes to how big the industrial market is. And do some research. You can do all this by your computer. Start just looking at different reports that are out there. In every major city, there’s probably a half dozen, if not a dozen brokerages and appraisal shops that will print out quarterly reports and put it right on their website. You can get a ton of insight into what deals are happening, what vacancy rates are absorption, big projects coming up. A lot of them detail this quite extensively. You can read these reports quarterly and they’re free. Just by doing those two things, if you were to commit to that for six months to a year—I know that sounds long and a lot of people always seem to want to invest sooner, but with industrial real estate, I think that should really be considered a slow game. Rushing into it, in my mind, is one of the most reckless things someone can do unless they’re already experienced and are comfortable with it. I think until you have a solid understanding of your local market, rushing into things would be very, very dangerous. But if you’re just wanting to consider industrial and you already have some other investments, maybe you have some multifamily or just other investments in general, that’s not to stop you from just saying, “Over the next year, I just want to learn more about the industrial market and see if it excites me.” If it doesn’t excite you—if you don’t get excited by the idea of finding these things out,  just stay away from industrial. It’s just not worth it. You’re putting too much at risk for something like that. You really have to be passionate about the industry and getting to know it intimately. If you’re prepared to do that and spend a year really reading these and driving through the industrial parks and talking to members of your professional team to see if they know anyone and perhaps talking to other investors, I think people would come away from it saying, “I can make higher returns with less management and enjoy this much more than multifamily.” I believe that. If someone doesn’t have that drive and passion to want to learn more about it, they’re much better served staying in multifamily. But that’s what I’d start with—the three-pronged approach. Get to know the local market by driving through the industrial parks, read all the research you can, get to meet with as many investors and brokers as you can. Give that a solid year just to see if it’s something you could consider. At that point, I think you’re in a much better position to make an educated and informed decision. 

 

Tom: Well, thanks for taking us through this. I appreciate that you said this isn’t necessarily for everyone, but I always like having people on that can show people some other options beyond the usual investment. I think this is going to be great for some people, for sure. Can you let people know where they can find you online? 

 

Chad: I’ve got a YouTube channel where I talk about industrial real estate fairly broadly. I don’t get into any specific market. I mostly talk about North America as a whole. But I’ve talked about other markets as well. I think my channel name is Chad Griffiths, CRE. It had a number on it—then, uh, I don’t know. 

 

Tom: We’ll make sure we link to it, too. 

 

Chad: I’m not a YouTube expert. I just like making videos. I like talking about this stuff. I pride myself by saying I never mention what city I’m in. I never mention what company I’m in. I’m not trying to sell anything. I just really enjoy talking about this. I’ve got to meet some really awesome people over the last year and a half on it so it’s just a labor of love for me. 

 

Tom: Great. Thanks for being on the show. 

 

Chad: Thanks a lot, Tom. I really appreciate it. 

 

Tom: Thanks, Chad, for introducing us to industrial real estate. It is a sector that flies under the radar, but one that more investors should be aware of. You can find show notes for this episode at maplemoney.com/194. If you have a moment, head over to our YouTube channel and subscribe there as we’ll be releasing never-before-seen content, soon. Search for Maple Money or go to maplemoney.com/youtube and subscribe today. Thanks, as always, for listening. I look forward to seeing you back here next week when Alyssa Davies joins us to discuss emergency funds and her new book, Financial First Aid. See you next week.