How to add value to industrial investing, an asset class full of competition? What were some of the major lessons learned getting into the industrial asset class? Monick Halm, founder of Real Estate Investor Goddesses will be sharing her insights, she is a real estate investor in syndicator, and owns, together with other investors, over 1,300 rental doors across seven states.
Tell us a little bit about you.
I am a real estate investor, I’m now focusing a lot on industrial but we also have multi-family. We have a single family portfolio, a mobile home park and RV park. Though I did not start here at all, I actually started my career as a lawyer. Growing up, my parents were super encouraging, I’m a first generation American, my parents were from Haiti, and they always said, Monick, you can be anything you want, as long as you’re a doctor, lawyer, or engineer, because for them, that was success. And what I learned was to be successful is to have one of those jobs. I was miserable as a lawyer, but that’s a whole other topic.
The only thing that I learned about real estate investing was to buy your own home. I did that. And I live in Los Angeles, a super expensive market. And this was back in 2005. But even then, as starter home in a semi decent neighborhood, just a neighborhood where you wouldn’t have drive by shootings, not nice like Bel Air, or Beverly Hills, but those starter homes were upwards of $600-$700,000. So I I ended up getting a small multifamily and living in one unit, renting out the other ones as a way to be able to afford my home. And that’s how I got into real estate investing. I became a landlord kind of accidentally. And then when I met my husband, he had duplex, and we got a single family rental together and we started to flip them. I found out about syndication, bringing groups of investors together, which we started in 2016. And that really skyrocketed us. And that’s how I got here.
Why did you decide to start looking at industrial, coming from multi-family?
In 2016 we were mostly all about multifamily. I had bought a couple of properties in Albuquerque, New Mexico, we had 51 units, it was like a townhome community and then a 77 unit. We were selling those they were really hard deals, C class, there was a C minus minus minus, maybe even D plus, really tough buildings in a tough market. That was just a struggle the whole time we’d own those and it was kind of miraculous that a buyer came out of nowhere, a 1031 buyer that wanted to buy the buildings and he bought those properties in Albuquerque, New Mexico at a four cap, which is insane.
We were thrilled as sellers. We were very happy with that. But as a buyer, that really scared me. I said this is definitely a seller’s market, I do not like being a buyer in a seller’s market. I do not like going with the herds. And if people are going to pay this much for that asset, I don’t want to compete with that. So I started looking at where else could I look? And there were more and more people coming into multifamily, there still are. And I thought Where else can I look? And I fell into industrial, we had a partner who is an operator.
So a lot of what we do is we have investors and we partner with great operators and bring money, and we’re working around the GP, but we’re not doing a lot of the operations side. And we had a an operator who was getting a portfolio in Houston, Texas, of industrial and this particular portfolio had 109 different spots. We had six industrial parks in northwest Houston and I didn’t know much about industrial yet but I started looking into it when assessing this deal and I went Okay, I like this, it’s not the feeding frenzy that I’m seeing in some other asset classes. But there is a definite demand and it’s increasing, there’s a lot of need for this type of property, even as retail was hurting because of online retailers need industrial space, they need storage, they need proper distribution centers and data processing and we still have manufacturing in this country, there’s this need for this type of asset but there but not all of the were people going there to buy it. So I saw this great opportunity. And actually industrial over this past year with COVID was, along with self storage, the strongest performing asset class, and it is doing incredibly well. Now we do with a very niche type of of industrial called a sale leaseback which I can talk about in a minute, but it was really the scare, the nice part of being a seller in this market but realizing I didn’t want to be a buyer in that market which which got me curious about industrial.
Good job picking the next hot asset class, I wonder what’s even next for you.
We will see.
What are some value add strategies in industrial?
There’s a niche in industrial that we do called a sale leaseback, and sale leaseback is this, there’s a company that has a facility that they are using and they want to sell, mostly because they want to get the equity out of it. But they still want to use it. So they sell it and then they lease it right back. This is very, very niche, very few people do this. And because it’s so unusual and so few people do it, that really is the value add. We’ll buy it and then the seller becomes a tenant, usually with a 20 year lease, built in rent increases, NNN. They’re paying rent, property taxes, insurance, and all the maintenance. If there’s an issue with the toilet, they fix the toilet, if there’s an issue with the roof, they’ll fix the roof.
What we do is we will typically sell it in four to six years to an institutional buyer, a pension fund or insurance company. They love these deals with an industrial tenant already in place with several years of steady rent, payment history with 15 to 17 years left on the lease. They’ll buy those all day, everyday but they do not do the sale leaseback, so that is where the value is added. We also buy these slightly below market so we have built in equity. We rent it slightly below market as well to the seller/tenant which also gives us room, that’s how we’re adding value.
And the one risk is in that tenant. So we do a lot of due diligence on the company to make sure that they’re a super good bet, a good risk. They’re well capitalized, they’re very strong companies. The youngest company we’ve done one of these deals with is 17 years old. I think we’ve had one of those as old as 80 something years. They’re these good, steady, very strong companies that are not going to go anywhere.
Besides digging deep into these tenants, are there any other lessons that you can share that you learned in this asset class so far?
With our 109 spots in Houston, we have our various industrial park, those parks are flex warehouse space. Some of it is a little bit like retail. We have all different types of tenants. We have three churches, bakers, garages, all different types of tenants.Those tenants had mixed success during the pandemic, and the economic fallout of all of that. Churches couldn’t meet, so it was hard for our churches to pay rent, the retail type spaces weren’t able to do business and the other ones were fine. What’s nice about that is we had 109 tenants, we have a mix of different things. Some are good, some are not bad, some didn’t do as well. The lesson we learned, is having that variety of different tenants and really working with them and staying in communication with them, helping them to access some of the federal money that was available for businesses, that helped allay the risks. In our sale leasebacks, we actually had no problem with those companies. They were all essential businesses. A lot of them, like our food ones, were doing more business in it than ever. They were great.
And when you had a certain percentage of your tenants not paying, did you have to raise more funds? How did you deal with that?
We were fine. We had to get creative, stay in communication with them. We had to help our tenants be able to access cash so they could stay in business. We did have a couple that closed their doors and weren’t able to last, there were enough that survived. On that particular deal, we paused distributions but we definitely did not need to get extra cash.
Congratulations. I think the word of the year was diversify.
Oh, yes. Yes, we have a C class residential, it did not do well. B class was better, and our industrial was doing well.
Besides partnering up with this operator, did you have any other ways that you went about learning about this asset class?
It’s interesting, there’s not a ton out there to learn about industrial, it just was doing a lot of research, looking at the state of the market, looking at the CBRE reports, the Marcus and Millichap, all of the big brokers, looking at their reports about the industrial side, I did a lot of Google research to learn about industrial and that marketplace.
I know you’re a huge Tony Robbins fan and that he has helped you so much in your business, can you share some of the top things that you have learned with him that have helped you scale your business so much?
One of the main things which is not necessarily about business in particular, is the importance of your state, your state of mind, the emotional place in which you approach things because if you are in a low vibrational state, you are going to have low vibrational results, if you’re in a high vibrational state you’re going to have high vibrational results. Just thinking more resourcefully and creatively and the importance of state is everything. That has been the main lesson that I’ve gotten from him and I always try to get into state myself. I really focus on that with my community of real estate investor goddesses, so that’s really important.
Specific to business, one of the really important things is anticipating change, change is a constant and part of doing well is to recognize patterns and see what might be coming down the line, take some time to think about what are changes that could be coming. And that will affect what you’re doing. For me seeing it was the changes that were coming along in the multifamily market, anticipating and seeing it, and also the changes that were happening in industrial, that really served me. So that has been a really valuable lesson.
Another one that I got from Tony Robbings and Business Mastery in particular, is the importance of being an owner of your business and not an operator. When you own the business, then the business is running largely without you, when you are an operator, then you are working. So you have a job. When I first went to Business Mastery it was in 2019. In August, I realized, wow, I am very much an operator. And that’s what I’ve been doing for the past year and a half, almost two years, is working on being more of an operator and creating the systems and the processes and putting people in place so that the business can run larger without me, that has made a huge difference for the business and for my life.
Is there anything else that you think is important for our audience to know, be in industrial or taking care of your own career in real estate?
I think one of the most important things in real estate is relationships. Real estate is a relationship business of finding great people to work with and also being the best person to work with as possible. And really showing up full of integrity. Because it takes a long time to build a good reputation. And a bad reputation can be created in a second. I’ve found this to be the most important thing, be the great person that you would want to work with, look for great people to work with and be a great person to work with.